Harrison v Del Santo
[2007] FMCA 470
•5 April 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| HARRISON v DEL SANTO | [2007] FMCA 470 |
| BANKRUPTCY – Application for dividend distribution – failure of respondent to file statement of affairs – application allowed. |
| Bankruptcy Act 1966, ss.54, 146 |
| Official Trustee in Bankruptcy v Thor [2006] FMCA 1637 Official Trustee in Bankruptcy v Raeffaele, in the matter of Tindaro Raeffaele [2003] FCA 328 Re Sturt; Ex Parte Official Trustee in Bankruptcy [2001] FCA 1649 Scott (Trustee), in the matter of Heinrich (Bankrupt) [2005] FCA 1826 |
| Applicant: | BRETT RICHARD GEOFFREY HARRISON AS TRUSTEE FOR THE BANKRUPT ESTATE OF MARGARET DEL SANTO |
| Respondent: | MARGARET DEL SANTO |
| File Number: | SYG 644 of 2007 |
| Judgment of: | Nicholls FM |
| Hearing date: | 28 March 2007 |
| Date of Last Submission: | 28 March 2007 |
| Delivered at: | Sydney |
| Delivered on: | 5 April 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr. D. Radman |
| Solicitors for the Applicant: | Grace Lawyers Pty Ltd |
| Counsel for the Respondent: | Nil |
| Solicitors for the Respondent: | Nil |
ORDERS
The costs, charges and expenses of the administration of the bankruptcy of the respondent and a distribution of dividends among creditors who prove their debts in the estate shall proceed in accordance with Part VI, Division 5 of the Bankruptcy Act 1966 as if the respondent had filed a Statement of Affairs and those creditors had been stated to be creditors in it.
The respondent not be entitled to any surplus funds remaining after payment of the costs, charges and expenses of the administration of the bankruptcy and after payment of the dividends to creditors until the respondent has lodged a duly completed Statement of Affairs in the required form with the applicant and the applicant has dealt with the claims of any further creditors disclosed in the Statement of Affairs.
The applicant’s costs of this application be paid from the bankrupt estate of the respondent.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 644 of 2007
| BRETT RICHARD GEOFFREY HARRISON AS TRUSTEE FOR THE BANKRUPT ESTATE OF MARGARET DEL SANTO |
Applicant
And
| MARGARET DEL SANTO |
Respondent
REASONS FOR JUDGMENT
This is an application seeking an order pursuant to s.146 of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”) that a distribution of dividends be made to those creditors of the bankrupt estate of the respondent who prove their debts in accordance with Part VI, Division 5 of the Bankruptcy Act, notwithstanding that the respondent has failed to file a Statement of Affairs as required by this Act
This matter was referred to me as duty Federal Magistrate by a Registrar of this Court.
The applicant, Mr. B.R.G Harrison is the trustee of the bankrupt estate of Ms. M. Del Santo, who is the respondent in these proceedings.
Evidence
The applicant relies on the following:
a)
The affidavit of Brett Richard Geoffrey Harrison sworn on
21 February 2007with annexures (“the first affidavit”).
b)The affidavit of Allan Robert Wood sworn on 5 March 2007 with annexures.
c)
The affidavit of Brett Richard Geoffrey Harrison sworn on
21 March 2007with annexures (“the second affidavit”).
Hearing before the Court
The affidavit of Mr. Wood provides that on 28 February 2007, the respondent was served with a copy of the application to the Court (dated 23 February 2007) and with the affidavit of Mr. Harrison of
21 February 2007. In light of this evidence, and in particular paragraph 3, I am satisfied that the applicant was served personally with these documents.
The application to the Court advised the time and date for hearing of this matter as “27 March 2007 at 10:15am”. The Court file reveals that when the matter was called before a Registrar of this Court at that time, there was no appearance by the respondent. Nor was there any appearance by the respondent when the matter was called outside this Court at 2:15pm today. Given that the applicant had notice of the hearing, and that there is nothing else before the Court to show otherwise, I am satisfied, in all the circumstances, that the matter should proceed in the absence of the respondent. Mr. Radman appeared for the applicant.
Relevant legislation
Provisions of the Bankruptcy Act relevant to this matter:
a) Section 54:
“Bankrupt’s statement of affairs
(1) Where a sequestration order is made, the person against whose estate it is made shall, within 13 days from the day on which he or she is notified of the bankruptcy:
(a) make out and file with the Official Receiver for the District in which the sequestration order was made a statement of his or her affairs; and
(b) furnish a copy of the statement to the trustee
…”
b) Section 146:
“Distribution of dividends where a bankrupt fails to file statement of affairs
Where a bankrupt has failed to file a statement of his or her affairs as required by this Act, the Court may, on the application of the trustee, upon such terms as it thinks fit, order that distribution of dividends amongst the creditors who have proved their debts shall proceed in accordance with this Division as if the bankrupt had filed a statement of his or her affairs and those creditors had been the stated creditors in it.”
Approach of the Court
The applicant submitted that this Court should follow, as a matter of comity, the approach taken by FM Lucev in Official Trustee in Bankruptcy v Thor [2006] FMCA 1637 (“Thor”) as to the “series of matters” which this Court should relevantly consider in order to determine whether the order pursuant to s.146 should be made, namely at [7] of Thor:
“(a) The Respondent’s bankruptcy;
(b) the Official Trustee’s attempts to obtain a Statement of Affairs from the Respondent;
(c) the Respondent’s failure to respond and to file a Statement of Affairs;
(d) failed attempts to identify creditors of the bankrupt estate other than the petitioning creditor;
(e) details of the only known assets of the bankrupt estate;
(f) that the administration of the bankruptcy is complete sae for the distribution of a dividend to the Australian Tax Office, being the only known creditor who has proved a debt; and
(g) that the delay is causing prejudice to creditors”
I can see no reason to decline the applicant’s request and generally follow this approach.
The applicant also relies on Re Sturt; Ex parte Official Trustee in Bankruptcy [2001] FCA 1649 (“Re Sturt”), per Sackville J., in relation to the level of satisfaction required pursuant to s.146, Re Sturt at [19]:
“… on any application under s 146 of the Bankruptcy Act, the Court must be satisfied that it is appropriate to make an order. The Court may need to be satisfied, for example, that creditors have been notified of the application and have had an opportunity to be heard (although ordinarily the application would be made in the interests of the creditors). As in this case, the Court might require evidence that the trustee has taken appropriate steps to ascertain whether there are creditors, other than those who have come to its attention by filing a proof of debt or otherwise.”
The respondent’s bankruptcy
The evidence before the Court, with references in particular to paragraph 1 and annexure “A” to the first affidavit of Mr. Harrison, is that on 8 September 2006, a sequestration order was made against the estate of Ms. Del Santo (the date of the act of bankruptcy is 6 July 2006).
The trustee of the bankrupt estate
At paragraph 3 of his first affidavit, Mr. Harrison states that he is a registered trustee (pursuant to s.156A of the Bankruptcy Act) and consented to act as trustee of the respondent’s estate. At annexure “C” to his first affidavit is a copy of the relevant certificate of appointment, dated 18 September 2006.
Failure to file a statement of affairs
The evidence before the Court, that is, the first affidavit of Mr. Harrison, reveals that, based on his own knowledge and from information contained on relevant files, the respondent has not filed a statement of her affairs (see further below).
The trustee’s attempts to obtain a Statement of Affairs from the respondent
Paragraphs 6 to 17 of the first affidavit of Mr. Harrison set out the circumstances of the trustee’s (applicant’s) attempts to obtain a Statement of Affairs from the respondent, the various communications with her and with her former solicitor. I note in particular the applicant’s letter of 18 September 2006 to the respondent enclosing relevant information for her and copies of “blank Statement of Affairs documents” (annexure “D”).
The evidence before the Court is that there was no response to this letter. The applicant then took steps in October 2006 to effect personal service of relevant documents on the respondent (see paragraphs 8 to 10 and the affidavit of Mr. Wood). Service of these relevant documents was effected on the applicant personally (see the affidavit of Mr. Wood at paragraph 3 in particular, and also see annexure “F” of the first affidavit of Mr. Harrison).
The applicant also gives evidence of his attempts to alert the respondent as to the need to submit a Statement of Affairs and to obtain such a statement, through the intervention of the respondent’s former solicitor (see paragraphs 11 to 12, and annexures “G” and “H” to the first affidavit of Mr. Harrison).
I note also paragraphs 15 to 17 and annexures “K”, “L” and “M” of the first affidavit of Mr. Harrison setting out further relevant communication with the respondent.
The respondent’s failure to respond and to file a Statement of Affairs
Further to the above, I also note from paragraph 38 of the first affidavit of Mr. Harrison and paragraph 4 of his second affidavit that at the relevant dates of swearing each of the affidavits, he had not yet received a completed Statement of Affairs from the respondent.
The petitioning creditor
The evidence before the Court is that the respondent is the registered owner of a property at Woonona, NSW (part of a Strata Scheme), and is indebted to the petitioning creditor (the manager of the Strata Scheme) in relation to levies due and payable on this property. The amount of the debt proven is a total amount of $6662.45 (see paragraph 24 of the first affidavit of Mr. Harrison).
Attempts to identify creditors of the bankrupt estate other than the petitioning creditor
Paragraphs 19 to 26 and annexures “O”, “P”, “Q”, “R” and “S” of the first affidavit of Mr. Harrison set out attempts to identify the creditors of the bankrupt estate. I note in particular the advertisement in the “Daily Telegraph”, and specific communication with potential creditors, and further the communications with the relevant manager of the petitioning creditor. I further note from the second affidavit of
Mr. Harrison the steps taken to notify all known, and potential creditors, of the hearing before this Court.
The only known assets of the bankrupt estate
Paragraphs 27 to 30 of the first affidavit of Mr. Harrison set out enquiries made to ascertain the extent of the assets of the bankrupt estate. These are bank accounts holding an amount of $326,047.27 and $1,511.80, and an encumbered property at Woonona, NSW. Apart from these assets, he was not aware of any other assets owned by the respondent.
That the administration of the bankruptcy is complete save for the distribution of a dividend to the petitioning creditor, being the only known creditor who has proved a debt
Mr. Radman submitted that the administration of the bankruptcy is complete (subject of course to what may otherwise be revealed in the respondent’s Statement of Affairs if any were to be forthcoming) save for the distribution of a dividend to the petitioning creditor, being the only known creditor who has proved a debt. In support he relied on paragraph 37 of the first affidavit of Mr. Harrison.
That the delay is causing prejudice to the creditor
Mr. Radman submitted that the delay in this matter is causing prejudice to the creditor being shown. A statement to that effect is at paragraph 26 of the first affidavit of Mr. Harrison. In essence, the respondent has not made any payment of levies due on her property (part of a Strata Scheme (“the Scheme”)) since 2002. This has placed a burden on other lot owners in the relevant Scheme who have had to make extra levy payments to compensate. The delay in payment now causes prejudice to the Scheme (and to other individual lot owners within the Scheme).
Further, Mr. Radman submitted that the “low” amount of the proven debt, $6,662.45, is not a factor which goes against such prejudice. He referred to the present matter’s “striking similarity” to that of Official Trustee in Bankruptcy v Raeffaele, in the matter of Tindaro Raeffaele [2003] FCA 328 (“Tindaro”) where Allsop J. made a similar order (to that being sought in this case) for a petitioning creditor who was owed a “little” under $3,000.00 in circumstances where the respondent owned a significant body of assets, including nearly $200,000.00 in a bank account, and two properties. The applicant therefore submits that the size of the amount of the distribution is not necessarily a consideration to argue against prejudice to the creditor being established. In further support of this, Mr. Radman relied on Re Sturt.
Capacity of the respondent
I note paragraphs 31 to 33 of the first affidavit of Mr. Harrison and in particular, the possibility of the applicant not being able to manage her affairs. I also note his obtaining legal advice (annexure “U”) in relation to this issue.
In my view, there is insufficient evidence before the Court to be able to draw any clear inference of any mental infirmity or incapacity on the part of the respondent. A statement by the respondent’s former solicitor to the trustee of some “probable” incapacity due to “possible” mental illness remains, (with respect to the solicitor), an untested statement by a non-medical lay person. I am satisfied that the applicant trustee properly sought legal advice on this issue, and followed the current course of action based on this advice, given the lack of evidence to do otherwise.
Construction of Section 146
In any event, I note that in Re Sturt, Sackville J. at [4] inferred that the bankrupt in that case did not comply with the provisions of s.54 and had been unable to do so by reason of mental infirmity. Nonetheless in considering the operation of s.146 and the “very little (relevant) authority” (at [9] to [13]), expressed the view at [14]:
“In my view, s 146 should be construed to apply to a case where the bankrupt has not filed a statement of affairs, albeit through circumstances beyond his or her control. As I have explained, s 146 is intended to facilitate the distribution of dividends among the creditors of the bankrupt in circumstances where the trustee has not had the benefit of a statement of affairs prepared by the bankrupt. It would not be consistent with the statutory object to confine s 146 to a case where the bankrupt's omission to file a statement of affairs is the result of a wilful refusal to do so or neglect of his or her statutory obligations.” (See further at [15]).
Findings
On the evidence before me I am satisfied that:
1)The bankrupt (the respondent) has failed to file a Statement of her Affairs.
2)The applicant has taken all appropriate steps to identify any further possible, or potential, creditors (in addition to the petitioning creditor) of the bankrupt estate.
3)The applicant has advised the proven creditor, and further possible or potential creditors, of the hearing before the Court.
4)The bankruptcy administration is all but complete except for the distribution of the dividend to the only creditor who has proved a debt.
5)The failure by the bankrupt to file a Statement of Affairs has prejudiced the creditor and continues to do so, as further costs are incurred and as it has delayed the administration of the estate.
6)The amount of the debt is not such as to cause the Court not to exercise the discretion to allow distribution of the estate, notwithstanding the applicant’s failure to file a Statement of Affairs.
7)Any further attempt now to compel the respondent to file a Statement of Affairs before distribution would only serve to incur further costs and further delay. This would result in the prejudice to the creditor continuing for no useful, or appropriate, reason. I cannot see any necessity, in all the circumstances, of making the first order sought by the applicant conditional on the applicant making further attempts to notify the respondent of the need for a Statement of Affairs. Nor can I see any reason to stay the effect of the orders made today.
8)The Court does have the jurisdiction pursuant to s.146 of the Bankruptcy Act to make the orders sought by the applicant. In all the circumstances set out above it is appropriate that the Court proceed in the exercise of its discretion pursuant to s.146.
9)Having dealt with the issue of the ongoing prejudice to the only creditor who has proven a debt, and even in circumstances where I am satisfied that appropriate steps have been taken to notify potential or possible creditors, it is appropriate that I make the second order sought by the applicant, as it is in my view consistent with the intent of s.54 that a Statement of Affairs, ultimately, be made and filed.
10)It is appropriate that an order for costs be made and that it be made in favour of the applicant. I cannot see anything in the circumstances before me to argue against such an order being made.
I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Nicholls FM
Associate:
Date: 5 April 2007
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