IANNOTTI v Official Trustee in Bankruptcy - [2006] FMCA 675

FEDERAL MAGISTRATES COURT OF AUSTRALIA

IANNOTTI v OFFICIAL TRUSTEE IN BANKRUPTCY

[2006] FMCA 675

BANKRUPTCY – Application pursuant to s.153B of the Bankruptcy Act – whether sequestration order should have been made – applicant subject to earlier sequestration order – application refused in exercise of discretion.

Bankruptcy Act 1966 (Cth), s.153B

Heinrich v Commonwealth Bank of Australia (2003) FCA 539

Applicant:

ANTHONY IANNOTTI

Respondent:

OFFICIAL TRUSTEE IN BANKRUPTCY

File number:

ADG 44 of 2006

Judgment of:

Lindsay FM

Hearing date:

20 April 2006

Date of last submission:

20 April 2006

Delivered at:

Adelaide

Delivered on:

20 April 2006

REPRESENTATION

Counsel for the Applicant:

Mr D. Hepenstall

Solicitors for the Applicant:

Von Doussas

Counsel for the Respondent:

Mr P. Britten-Jones

Solicitors for the Respondent:

Cowell Clarke

ORDERS

The application filed on 13 February 2006 for annulment of bankruptcy is dismissed.
The costs of the trustee of this application, if unable to be agreed within 28 days, are to be taxed and paid in accordance with the Bankruptcy Act.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
ADELAIDE

ADG 44 of 2006

ANTHONY IANNOTTI

Applicant

And

OFFICIAL TRUSTEE IN BANKRUPTCY

Respondent

REASONS FOR JUDGMENT

Before me this afternoon is an application filed by the bankrupt on 13 February 2006. The application seeks the annulment of the bankruptcy of the applicant. The application is brought pursuant to s.153B of the Bankruptcy Act 1966 (Cth), which provides:
If the court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the court may make an order annulling the bankruptcy.
Subsection (2) provides:
In the case of a debtor's petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented.
This is a creditor's petition, of course, and the petitioning creditor is Silver Star Fashions Pty Ltd. The judgment debt which grounded the act of bankruptcy and the petition is for a relatively small amount, an amount of some $222,500, which amount remains unpaid as at the date of this hearing. It is not disputed that the debt was obtained by way of default judgment in Local Court proceedings in New South Wales.
The petitioning creditor has had notice, albeit informal notice, of today's proceedings, and an affidavit has been filed by the director of the petitioning creditor simply confirming the fact that no payment has been made.
It is also common ground that no application to set aside the default judgment has been made and neither is it proposed to be made. The applicant says that there were irregularities associated with the default judgment. In particular, he says that the debt relates to goods supplied to a partnership of which he was not a member at the relevant time, the relevant time being the time of the supply of the goods identified in the proceedings in the New South Wales Local Court.
As to why he was not a member of the partnership at the relevant time, this is a matter about which the debtor is somewhat coy in his affidavit filed in support of this application. He simply says he ceased to be involved with the business, which carried on under the title of The House of the Bride, with effect from 12 April 2002. In fact, he was bankrupt at that time - and remains bankrupt - at the date of the hearing of this application.
What he says in that affidavit of 6 February 2006 - and it is set out in greater detail in the affidavit of 12 April 2006 - is that he took steps to have his name removed from the register of the proprietors of the business name with the relevant New South Wales state authority; that he wrote to that organisation and they failed to follow his instructions.
In fact, he says in the later affidavit that in November 2005, when he checked with the State Business and Corporate Affairs Office, he discovered that erroneously his daughter, who was one of the three proprietors of the business, had been removed as a proprietor but that himself and his wife Josie had remained as proprietors. That, from the point of view of anyone dealing with the partnership, of course, would have been unfortunate because it meant that the only persons left as the proprietors of the business were persons whom I am told today and who - again, I understand this is common ground - are both bankrupt persons.
So he says that there is an irregularity associated with the obtaining of the default judgment and it relates to the fact that he was not, and could not have been, a proprietor of the business at the time the goods were supplied.
There is a superficial attraction to that suggestion. When I say "superficial", it is a matter that, if unanswered or if there are no countervailing facts and circumstances to be taken into account, one would have thought would be a compelling matter, a matter that would prevail in any application to set aside the judgment. But there may be countervailing matters. There may be questions relating to the conduct of the applicant in respect of the business of The House of the Bride.
It may be there is conduct that the petitioning creditor would have relied upon in terms of the ostensible or apparent authority of the applicant to conduct the business of the partnership. There may be a whole range of answers. They are matters, though, that have not been tested to date because, despite the fact that the judgment was obtained some years ago now, no attempt has been made at any time to set the judgment aside.
The applicant says that he only became aware of the judgment debt very late in 2005, when it was brought to his attention by his wife. Why it is that she would not bring the service of process upon her to his attention for several years is a matter that is not explained.
To return to the text of the legislation, it provides in s.153B that the bankruptcy can be annulled if the petition ought not to have been presented or ought not to have been accepted by the Official Receiver. So there is no doubt as to the court's power to annul the bankruptcy if it is satisfied that the circumstances attended upon the obtaining of the judgment are irregular.
There is no doubting either the Court's power to, in that sense, go behind the judgment. If authority is needed for that proposition, it is to be found in Heinrich v Commonwealth Bank of Australia (2003) FCA 539, a decision of Mansfield J, in particular at paragraph 7.
My concern in relation to the application in the instant case, though, is that there are too many matters left uncertain as to the circumstances in which the judgment debt was obtained. If the version of events promoted by the applicant were the only relevant circumstances to be taken into account, it may well lead to the setting aside of the order. As I have indicated before, the matter is untested.
However, even if I am wrong about that and even if the circumstances identified by the applicant in his affidavit material are such that there is the basis for the finding that the sequestration order ought not to have been made, there is no doubting but that the court has a discretion even if it has reached that stage. That, I think, is really the gravamen of this dispute.
It transpires that the applicant is undischarged from an earlier bankruptcy. It also transpires that, in respect of that earlier bankruptcy, he has not filed a Statement of Affairs. There is some dispute of facts relating to his attempt to file such a statement of affairs but, whatever the shortcomings of that and whether the trustee was right or wrong to reject his initial document, the fact remains that it is not disputed before me that he has not filed a Statement of Affairs in respect of that first bankruptcy. Neither is it disputed that he has not filed a Statement of Affairs in respect of the current bankruptcy.
What we know about his indebtedness and what we know about those matters that go to his solvency at the time of the sequestration order and now are matters that principally come - not exclusively but principally - from information provided by the trustee and his representatives.
When to those circumstances of not having filed a Statement of Affairs in either bankruptcy is added the further circumstance that it is unexplained before me as to why there is any utility in me annulling this bankruptcy when the applicant would continue to enjoy the status of an undischarged bankrupt in respect of an earlier sequestration order, these matters, in aggregate, persuade me that it is inappropriate to exercise my discretion in favour of the granting of the annulment.
Even if I were wrong about the circumstances of the obtaining of the judgment not being sufficient to ground a finding that the sequestration ought not to have been made, I am satisfied - and satisfied to a fairly high level of satisfaction - that, in the exercise of the discretion, the application should be refused.
Applications of this nature, it seems to me, ought only to be seriously entertained by the court where the court can be satisfied that the applicant has dealt with his trustee - or, in this case, dealt with each of his trustees - in a straightforward manner. Moreover, the court ought to be satisfied that the full circumstances of the applicant's finances and the full circumstances which provide the explanation as to why there is utility in the setting aside of the bankruptcy at this time ought to be disclosed.
That is the very minimum, it seems to me, the Court ought to be given before it entertains in any serious way an application to set aside a sequestration order that has been obtained on a creditor's petition in the circumstances that have been outlined.
Because of those aggregate circumstances to which I have referred, in the exercise of my discretion I consider the appropriate order to be an order which has the effect of refusing the application.
There is an application for costs. The application for costs itself is not the subject of any disputation, but there is a submission made that I ought to make an order that the costs not be paid by the applicant person but be paid out of the bankrupt estate.
The application was one that was unsuccessful principally because I was not satisfied that, even if the sequestration order ought not to have been made, in the exercise of the discretion the bankruptcy ought to be annulled, and those matters went to the failure of the applicant to provide Statements of Affairs in each of his bankruptcies or to provide any meaningful explanation as to the utility associated with his application. So it was a case that failed essentially because, consistent with my findings, I found that the applicant had not dealt with the court straightforwardly in that sense in respect of the application.

I cannot identify, in the circumstances in which the application was made, circumstances relating to the failure of the application which would warrant the making of an order that the costs be borne by the estate and, ultimately, that means borne indirectly by the creditors or the trustee. It is appropriate, in my view, to make an orthodox order for costs.

I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Lindsay FM

Associate: Ms K Clarke

Date: 8 May 2006