Houten v Lennon

Case [2025] FCA 252

FEDERAL COURT OF AUSTRALIA

Houten v Lennon [2025] FCA 252  

File number: VID 268 of 2024
Judgment of: ROFE J
Date of judgment: 25 March 2025
Catchwords:

PRACTICE AND PROCEDURE – Registrars – review of
Registrar’s power to make sequestration order – review is a

hearing de novo – meaning of “hearing de novo”

PRACTICE AND PROCEDURE – whether leave to re-open should be granted – orders not yet entered –petitioning creditors were under a mistaken apprehension of the law – petitioning creditors sought to adduce fresh evidence – respondents conducted part of their case on mistaken belief about the claim – whether interests of justice require the matter to be re-opened

BANKRUPTCY – sequestration orders – necessity for fresh compliance with s 52(1) of the Bankruptcy Act 1966 (Cth)

Legislation:

Bankruptcy Act 1966 (Cth)

Federal Court of Australia Act 1976 (Cth)

Federal Court Rules 2011 (Cth)
Cases cited:

Bechara v Bates (2021) 388 ALR 414

Bullen v Mangano [2024] FCA 1199

Harris v Caladine (1991) 172 CLR 84

Hughes v Hill [1937] SASR 285

Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22

Roderick Group Pty Ltd (in liq), in the matter of Vlahos v Vlahos [2024] FedCFamC2G 1439

Smith v New South Wales Bar Association (1992) 176 CLR 256

The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd (No 2) [2004] FCA 1310

Totev v Sfar (2008) 167 FCR 193

Urban Transport Authority of NSW v NWEISER (1992) 28 NSWLR 471

Zdrilic v Hickie (2016) 246 FCR 532
Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 79
Date of last submissions: 14 March 2025
Date of hearing: 27 February 2025 and 17 March 2025
Counsel for the Applicants: A Purton (17 March 2025 only)
Solicitor for the Applicants: McDonald Legal
Counsel for the Respondent: The respondent appeared in person
Solicitor for the Respondent: A B Legal

ORDERS

VID 268 of 2024
BETWEEN:

ADAM HOUTEN

First Applicant

VERONICA FINARELLI

Second Applicant
AND:

PATRICK LENNON

Respondent

ORDER MADE BY:

ROFE J

DATE OF ORDER:

25 MARCH 2025

THE COURT ORDERS THAT:

1.The interim application for review filed by the respondent on 14 January 2025 is allowed.

2.The sequestration order made on 10 December 2024 is set aside.

3.The creditor’s petition dated 18 June 2024 is dismissed.

4.Subject to any further order of the Court, the question of costs, including the costs and expenses of the trustee in bankruptcy, Mr Stephen Dixon, will be determined on the papers as follows:

(a)The petitioning creditors are to provide a copy of these reasons to Mr Stephen Dixon of Hamilton Murphy Advisory, Level 21, 114 William Street, Melbourne, VIC 3000 within 5 days of the date of this order.

(b)The petitioning creditors, the respondent and Mr Dixon may each file and serve written submissions as to all consequential orders, including as to the costs and disbursements incurred by Mr Dixon in his administration of the…

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Houten v Lennon [2025] FCA 252
Case
[2025] FCA 252
Decision Date

CaseChat Overview and Summary

In Houten v Lennon, Mr Patrick Lennon sought to set aside a sequestration order made by a Registrar concerning his estate, with Mr Adam Houten and Ms Veronica Finarelli as the petitioning creditors. The review of the Registrar's sequestration order was conducted under s 35A(5)–(6) of the Federal Court of Australia Act 1976 (Cth), which allows for a de novo rehearing of the case. During the first hearing on 27 February 2025, the Petitioning Creditors sought to reopen the review on the grounds of a mistaken apprehension of the law and to introduce fresh evidence, specifically a proof of debt not available at the first hearing. This application was heard on 17 March 2025. The court found that the Petitioning Creditors were under a mistaken belief that the review was not a de novo hearing and misunderstood the extent of evidence required to satisfy the court. The court also noted that the respondents conducted part of their case based on a mistaken belief about the claim.

The court refused to reopen the review hearing, finding that the interests of justice did not favour reopening the case. The court held that the Petitioning Creditors' attempt to introduce fresh evidence after the hearing concluded and the decision was reserved was highly unsatisfactory. The court emphasised that the review was indeed a de novo hearing, requiring a fresh look at the facts and law, and that error by the Registrar did not need to be demonstrated for success in the review. The Petitioning Creditors' mistaken apprehension of the law and their attempt to introduce new evidence post-hearing did not justify reopening the case.

Orders

Orders of the court

1. The interim application for review filed by the respondent on 14 January 2025 is allowed.

2. The sequestration order made on 10 December 2024 is set aside.

3. The creditor’s petition dated 18 June 2024 is dismissed.

4. Subject to any further order of the Court, the question of costs, including the costs and expenses of the trustee in bankruptcy, Mr Stephen Dixon, will be determined on the papers as follows:

(a) The petitioning creditors are to provide a copy of these reasons to Mr Stephen Dixon of Hamilton Murphy Advisory, Level 21, 114 William Street, Melbourne, VIC 3000 within 5 days of the date of this order.

(b) The petitioning creditors, the respondent and Mr Dixon may each file and serve written submissions as to all consequential orders, including as to the costs and disbursements incurred by Mr Dixon in his administration of the bankrupt estate of the respondent, of no more than 5 pages. The submissions must be provided within 28 days of the publication of these reasons and with a right of reply also limited to 5 pages to be filed and served within a further period of 14 days.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

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Evidence

Evidence Before The Court

For the reasons discussed below in relation to the review application, I do not consider that the interests of justice are better served by allowing the application to re-open the review hearing. That application is refused.3. Evidence At the first hearing the creditors relied upon the following affidavits, which were read before Registrar Ellis:(a)affidavit of Daniel John McDonald made 9 December 2024;(b)affidavit of Adam Houten made on 10 December 2024; (c)four different affidavits of Danielle Nicole McAleese made on 10 December 2024. Mr Lennon relies upon two affidavits he made in this proceeding, the first dated 13 January 2025 and the second dated 24 February 2025. In advance of the second hearing, the Trustee of the Bankrupt Estate of Mr Lennon, Mr Stephen Dixon, filed one affidavit he made on 13 March 2025. During the second hearing, the Trustee tendered a Report to Creditors outlining Mr Lennon’s assets. Annexure PL-9 to Mr Lennon’s second affidavit is an email from the Petitioning Creditors’ lawyers to Mr Lennon’s lawyers dated 19 February rejecting Mr Lennon’s offer to pay the sum of $57,325.68 in satisfaction of the debt (19 February Email): Our clients do not accept the offer. As you are aware, a sequestration order cannot be discharged unless the full outstanding debts and costs are paid. In accordance with section 153A of the Bankruptcy Act 1966 (Cth), for the bankruptcy to be annulled:1. All debts must be paid in full, including:•The amount owed to our clients as petitioning creditors.•Any debts owed to other creditors that have become payable due to the sequestration.•The trustee’s fees and costs. 2. The trustee must be satisfied that all debts and expenses have been fully paid.3. Only then can the trustee apply to the Federal Court or Federal Circuit and Family Court (FCFCOA) for an annulment of the sequestration order.Additionally, we note that Mr. Lennon is seeking to have the sequestration order set aside on the basis that he had no knowledge of the hearing. However, our client has correspondence confirming that Mr. Lennon was aware of the hearing and the substituted petitioning creditor. This evidence contradicts any assertion that Mr. Lennon was unaware of the proceedings.Given that the trustee has also informed our clients that other creditors are seeking payment, our clients cannot agree to the dismissal of the sequestration order until full payment is made in accordance with the above requirements. At the second hearing, the Petitioning Creditors sought leave to rely upon a further affidavit of Adam Houten affirmed on 14 March 2025. That affidavit annexed:(a)the proof of debt from Ms Lantouris discussed above; and(b)a proof of debt owed to the Deputy Commissioner of Taxation dated 4 March 2025, said to relate to a Trust in respect of which Mr Lennon was a trustee. Prior to the first hearing, Mr Lennon had deposed as to the $57,325.68 in trust to satisfy the debt the basis of the sequestration order. Mr Lennon had also stated on oath:I am solvent. I am able to pay my debts as and when they fall due. I am not aware of any other debts that are due and payable (despite the assertion by the [Petitioning Creditors] to the contrary (see Annexure PL-9)I have not been advised by Hamilton Murphy (the trustee) despite significant correspondence with them since their appointment of the existence of any other debts.

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

Mr Patrick Lennon seeks to set aside a sequestration order made by a Registrar in respect of Mr Lennon’s estate on 10 December 2024. The applicants, Mr Adam Houten and Ms Veronica Finarelli, are the Petitioning Creditors. Mr Lennon seeks a review of the Registrar’s sequestration order. A review is provided for under s 35A(5)–(6) of the Federal Court of Australia Act 1976 (Cth). Such a review is conducted de novo: Harris v Caladine (1991) 172 CLR 84 at 95 (per Mason CJ and Deane J); Totev v Sfar (2008) 167 FCR 193 at [52] (per Bennett J) and [91] (per Cowdroy J); Bechara v Bates (2021) 388 ALR 414 at [17]–[21] (per Allsop CJ, Markovic and Colvin JJ); Zdrilic v Hickie (2016) 246 FCR 532 at [16]–[29] (per Katzmann, Farrell and Markovic JJ). This means that the judge takes a “fresh look” at the issues by way of a complete rehearing of the facts and the law. Error does not need to be demonstrated on the part of the Registrar for success in the review. The review application was heard on 27 February 2025 (first hearing). The parties were informed that I would hand down my reasons at 4.15 pm on 28 February 2025. At midday on 28 February 2025, my Chambers received an email from the Petitioning Creditors’ solicitors attaching a proof of debt signed by Maria Lantouris and dated 28 February 2025 (28 February Email). The proof of debt gave details of the debt as being in relation to orders of the Supreme and County Courts and the Court of Appeal in three proceedings, the latest dated 16 June 2022. The 28 February Email stated that the creditors sought leave to “produce and rely on further evidence” in the review application. Rather than engaging in further correspondence, I set the matter down to return on 17 March 2025. My Chambers sent an email to the parties in response which stated:Her Honour considers the way in which the Proof of Debt has been presented to chambers to be highly unsatisfactory. The document is not supported by any affidavit and has been received after the hearing has concluded and the decision was reserved. The parties are put on notice that any further attempts are not appropriate. On 17 March 2025, I heard the creditors’ application to re-open the review application (second hearing). 2. Re-opening case Counsel for the Petitioning Creditors, Mr Purton, appeared only at the second hearing. Mr Purton sought to re-open the review hearing on two bases. The first, a mistaken apprehension of the law, and the second, to adduce fresh evidence, being the proof of debt attached to the 28 February Email, which was not in evidence and was said not to be available to the Petitioning Creditors at the time of the first hearing. As the submission developed, the mistaken apprehension of the law transpired to be a misapprehension in relation to two different aspects of law. The first being the creditors’ misapprehension that the review hearing was not a hearing de novo, but rather an application to annul the bankruptcy pursuant to ss 43(1) and 153A of the Bankruptcy Act 1966 (Cth), requiring exceptional circumstances to be demonstrated. The second being a misapprehension at large as to the extent of evidence required to be put on by a party seeking to satisfy the Court for the purposes of s 52(2)(a) that they were able to pay their debts.