Jabir v PFD Food Services (SA) Pty Ltd

[2001] FMCA 13

FEDERAL MAGISTRATES COURT OF AUSTRALIA

Salma Jabir v PFD Food Services (SA) Pty Ltd   [2001] FMCA 13

In the matter of Salma Jabir

BANKRUPTCY – application for annulment – considerations relevant to exercise of court’s discretion

Bankruptcy Act 1966 (Cth), s.153B
Federal Court Rules, O.77, r.8
Federal Magistrates Act 1999 (Cth), s.104(2)

CASES CITED
Re Gollan; ex parte Gollan (1992) 40 FCR 38
Re McCollum; ex parte Bankrupt (1987) 71 ALR 626
Re Raymond; ex parte Raymond (1992) 36 FCR 424
Re Scott (1975) 6 ALR 558

ApplicantSalma Jabir

Respondent:  PFD Food Services (SA) Pty Ltd

File No:AZ2 of 2001

Delivered on:  8 March 2001

Delivered at:  Adelaide

Hearing Date:  8 March 2001

Judgment of:  Driver FM

REPRESENTATION:

Solicitors for the Applicant:  Ms E Connolly

Connolly & Associates

Solicitors for the Respondent and the trustee:      Mr I Matrivos

Solcitors for interested creditor:  Mr G Watts

ORDERS:

1.    The application is dismissed.

2. The costs of the trustee are to be taxed and paid in accordance with the Bankruptcy Act 1966.

IN THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

ADELAIDE REGISTRY

No AZ2 of 2001

Salma Jabir

Applicant

And

PFD Food Services (SA) Pty Ltd

Respondent

REASONS FOR DECISION

1. This is an application by Salma Jabir for annulment of her bankruptcy pursuant to s.153B of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). The applicant alleged that a sequestration order made on 11 December 2000 by a Registrar of the Court should not have been made. In her affidavit made on 6 March 2001 in support of the application Mrs Jabir states that the application was also to review the decision of the Registrar.

1. Section 104(2) of the Federal Magistrates Act 1999 (Cth) (the Federal Magistrates Act) makes provision for an application to review a decision of a Registrar to be made in accordance with rules of court. At present the Federal Court Rules (Federal Court Rules) apply. Order 77, rule 8 of the Federal Court Rules requires that an application to review a Registrar's decision be made within 21 days of the decision. To date no application under s.104(2) of the Federal Magistrates Act has been filed. In the circumstances the matter has proceeded solely as an application under s.153B of the Bankruptcy Act. Nothing much turns on that as in this case I would have had regard to the considerations relevant to a s.153B application on hearing a s.104(2) application.

1. The Federal Court Rules require that the application be served on the trustee and all creditors.  It appears that that formal step may not have been strictly complied with but it also appears that all creditors with an interest in the estate have become aware, by one route or another, of today's proceedings.  The only creditor who has appeared in relation to the application is Selden Pty Ltd and Mr Watts, representing that company, has no instructions either to oppose or support the application.

1. The trustee has filed her report in accordance with the Bankruptcy Act. As is normal she has not taken an active role in the matter except that she seeks her costs of the administration in the event that the bankruptcy is annulled.

1. The applicant's case is essentially that she has been misled by others to a point where she was made bankrupt without truly understanding her legal position.  She deposes that the debt founding the bankruptcy notice was in truth owed by a Dr S.A.M Ali.  The applicant deposes that Dr Ali made business decisions in a small business operated by the applicant, which gave rise to the debt.

1. The report of the trustee discloses that on or about 12 January 2001 Dr Ali paid the debt owing to the petitioning creditor, PFD Food Services Pty Ltd, together with costs, and the petition against him was dismissed on 15 January 2001.  Accordingly, there are no outstanding petitioning creditor’s costs in Mrs Jabir's estate.  However, other creditors have filed proofs of debt to date.  They are:

(a)  Concrete Systems Pty Ltd and Habitat Today Pty Ltd for $9477.15; and

(b)  Selden Pty Ltd for $45,091.15. 

The former debt is supported by a judgment against Mrs Jabir, according to the trustee's report.

1. Section 153B of the Bankruptcy Act provides that 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. The decision whether or not to make an order is a matter within the Court's discretion. A person who seeks an annulment of bankruptcy carries a heavy burden and must make full and true disclosure to the Court.

1. What the Court has to consider is, first, should the sequestration order have been made and, secondly, should the Court in its discretion annul the bankruptcy.  There is authority that a bankruptcy can be annulled where the judgment on which the debt alleged in the petition was based was set aside after the sequestration and the Court was satisfied that there had never been a debt owing to the alleged creditor: Re Raymond; ex parte Raymond (1992) 36 FCR 424.

1. In Re Gollan; ex parte Gollan (1992) 40 FCR 38 authorities on the words "ought not to have been made" were discussed. A sequestration order made by a Registrar acting in accordance with a power delegated under the repealed s.31A was set aside and the petition was dismissed. The reasoning was on the ground that if evidence as to the debt or solvency had been before the Registrar a sequestration order would never have been made.

10. On the other hand, in a case where a sequestration order had been made but the judgment upon which the petition was founded was later set aside, Lucas J held that the Court must consider the facts at the time of the order and not later happenings when adjudicating whether the order ought not to have been made: Re Scott (1975) 6 ALR 558.

11. In Re McCollum; ex parte Bankrupt (1987) 71 ALR 626 a sequestration order had been made being based upon the failure of the applicant to comply with the requirements of the bankruptcy notice. Consideration shown in the writ was money owing for goods sold and delivered whereas the judgment debtor was a guarantor of the debt owed by a company. It was held that no purchase money was due and no consideration was shown in the writ for the judgment debt. Therefore the Court could go behind the judgment and in exercise of its discretion annul the sequestration order.

12. I conclude that this Court can go behind the judgment found in the creditor's petition on the application for annulment.  The exercise of the Court's discretion however will not ordinarily be made in such an application where the applicant cannot establish that there is no debt upon which the bankruptcy proceedings could have been founded.  In the present case there is some evidence before the Court that the debt supporting the creditor's petition was in fact owed by Dr Ali.  The circumstances leading to the debt are somewhat unclear and the creditor's petition was also filed against Dr Ali based upon a judgment against both him and Mrs Jabir.  Dr Ali paid the debt and the costs due.  He therefore took responsibility for the debt.  However the judgment supporting the creditor's petition was against both Mrs Jabir and Dr Ali.  The evidence before this Court is that both were involved in the running of the business, although Dr Ali appears to have taken the dominant role.  It appears from the evidence that Dr Ali and Mrs Jabir were engaged in a business partnership of some sort.

13. Ms Connolly has drawn to my attention that the applicant was unrepresented both in the proceedings in the South Australian Magistrates Court and in the proceedings in this Court on the hearing of the creditor's petition.  The fact that the judgment supporting the creditor's petition is a default judgment is a relevant consideration as to whether the bankruptcy court should go behind the judgment supporting the creditor's petition.

14. Ms Connolly has also drawn my attention to the fact that on the hearing of the creditor's petition Mr Ali was able to secure an adjournment on the basis that he disputed any liability to pay the debt whereas Mrs Jabir, being less able to understand the proceedings and what she should do, was not able to obtain an adjournment.  In Ms Connolly's submission both debtors should have received an adjournment and if that had occurred the result would have been that, the debt having been paid by Dr Ali, the creditor's petition would probably not have been taken any further.  I say "probably" because an act of bankruptcy having been committed, the creditor may have pursued the creditor's petition regardless and another creditor may have sought to be substituted. 

15. There is therefore some material before me to support going behind the judgment supporting the creditor's petition and there also is some material before me justifying the submission that the sequestration order should not have been made.  On balance, I think if the full circumstances had been made clear to the Registrar an adjournment would have been granted to both debtors and the sequestration order probably would not have been made and it is open, therefore, to me to conclude that the sequestration order should not have been made.  However that is not the end of the matter.  The exercise of the Court's discretion is an important factor in considering an application for annulment.  A court may conclude that the sequestration order ought not to have been made but in the exercise of its discretion refuse the application.

16. There are many factors which may influence the Court's discretion but there are a number of factors which ordinarily have an effect.  These include:

(a)  whether the bankrupt was represented on the return of the creditor's petition and whether the relevant factors could have been raised at the hearing of the creditor's petition;

(b)  the commercial morality of the bankrupt prior to the sequestration order being made;

(c)  the bankrupt's conduct during the course of the bankruptcy prior to the annulment application, which is a significant factor influencing the Court's discretion;

(d)  whether the bankrupt was at the time of the annulment application insolvent; and

(e)  whether the applicant has made any proposal for payment of fees and charges incurred by the trustee in the course of the administration.

17. In every case in considering whether or not the Court should exercise its discretion it must take into consideration the whole of the circumstances, including any lapse of time which has taken place before the application for annulment.  The Court must also consider the interests of unpaid creditors, including any creditors who may have wished to be substituted as a petitioning creditor.

18. In the present case I find that the applicant was not represented on the return date of the creditor's petition and, while she could have raised the factors raised in the annulment application at the hearing of the creditor's petition, she was not fully conversant in the English language and did not fully understand the significance of the action being taken against her.  Secondly, there is no evidence before the Court clearly impeaching the commercial morality of the applicant prior to the sequestration order being made, although it does appear from the trustee's report that the business was run in a haphazard and irregular fashion.

19. The applicant's conduct during the course of the bankruptcy has been of little assistance to the trustee.  She prepared a statement of affairs but because there were no business records available the statement of affairs is of little or no value.  It appears that some business records that formerly existed have been destroyed by Mrs Jabir.  It is quite probable that the applicant is currently insolvent.  The statement of affairs discloses no assets and there are outstanding debts.  The only income of Mrs Jabir is a pension.  I conclude that it is more likely than not that the applicant is currently insolvent.  I also note that Ms Connolly currently has no instructions to put a proposal for the payment of fees and charges incurred by the trustee in the course of the administration. 

20. Taking all of these factors into account and also taking into account the interests of the outstanding creditors I conclude that the Court should not exercise its discretion in favour of the applicant.  It follows that the application should be dismissed, and I will so order. 

21. In the ordinary course a costs order would be made against the applicant on the basis that costs follow the event.  In the present case several factors weigh against that conclusion.  The first is that a costs order may not achieve much in that if the applicant is indeed insolvent the costs order may simply be added to the weight of unmet liabilities.  It is also relevant that the applicant has been brought to this present state of affairs largely because of her own ignorance of the events that were happening around her.  Although she had notice of these events she did not understand the significance of them and made ineffectual attempts to extricate herself from them.  On the other hand, the trustee has been put to expense in responding to the application.  The applicant has taken other unsuccessful proceedings against the trustee in the South Australian Supreme Court in an attempt to prevent the trustee from carrying out her duties.  Those proceedings were ill-founded and the present proceedings have failed.  Accordingly, while it might not be productive, I have concluded that an order for costs should be made in favour of the trustee.  So the orders I make are:

1.    The application is dismissed.

2. The costs of the trustee are to be taxed and paid in accordance with the Bankruptcy Act 1966.

I certify that the preceding twenty-one (21) paragraphs are a true copy of the Reasons for Judgment of Driver FM.

Associate:

Dated 14 March 2001