JML Rose Pty Ltd v Jorgensen (No 3)

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FEDERAL COURT OF AUSTRALIA

JML Rose Pty Ltd v Jorgensen (No 3) [2025] FCA 976  

File number: QUD 529 of 2024
Judgment of: WHEATLEY J
Date of judgment: 19 August 2025
Catchwords:

BANKRUPTCY AND INSOLVENCY – Annulment – Whether Court satisfied that sequestration order ought not to have been made – Where default judgment that founded the bankruptcy notice and the sequestration order set aside – Where debt to petitioning creditor was greater than the statutory minimum provided by the Bankruptcy Act 1966 (Cth) – Where supporting creditor was available to be substituted as the petitioning creditor – Whether discretion ought to be exercised to grant annulment – Where debtor failed to provide evidence of his financial position and solvency – Application dismissed.

PRACTICE AND PROCEDURE – Litigant in person – Use of Generative Artificial Intelligence (AI) – Hallucinated case references, legislation and Court rules – Irrelevant case and statute references – Where Generative AI used to prepare written and oral submissions – Submissions generated misconceived or irrelevant.

Legislation:

Corporations Act 2001 (Cth) s 553C

Bankruptcy Act 1966 (Cth) ss 5, 49, 52, 54, 149, 153B, 154

Family Law Act 1975 (Cth)

Income Tax Assessment Act 1936 (Cth)

Federal Court (Bankruptcy) Rules 2016 (Cth) r 7.04

Federal Court Rules 2011 (Cth)

Bankruptcy Regulations 2021 (Cth) s 10A

Legal Profession Act 2007 (Qld) ss 308, 310, 316
Cases cited:

Ayinde v The London Borough of Haringey [2025] EWHC 1383

Bayne v Baillieu (1907) 5 CLR 64; [1907] HCA 39

Boles v Official Trustee (2001) 183 ALR 239; [2007] FCA 639

De Robillard v Carver (2007) 159 FCR 38; [2007] FCAFC 73

Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106; [1971] HCA 12

Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18

Geismayr v The Owners, Strata Plan KAS 1970 [2025] BCCRT 217

Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (2017) 52 WAR 90

Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (2018) 53 WAR 325

Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315

JML Rose Pty Ltd ACN 620 307 217 v Jorgensen and Jorgensen atf The Leigh Jorgensen Family Trust [2025], Magistrate Hay, 30 May 2025

JML Rose Pty Ltd v Jorgensen (No 2) [2025] FCA 282

JML Rose Pty Ltd v Jorgensen [2024] FCA 1421

Kaur v Royal Melbourne Institute of Technology [2024] VSCA 264

Ko v Li [2025] ONSC 2766

Lamb v Sherman (2023) 298 FCR 79; [2023] FCAFC 85

Lambshed v Lambshed (1963) 109 CLR 440; [1963] HCA 60

Luck v Secretary, Services Australia [2025] FCAFC 26

May v Costaras [2025] NSWCA 178

Nikolic v Nationwide News Pty Ltd (T/as The Australian) [2025] VSCA 112

Nilant v Macchia (2000) 104 FCR 238; [2000] FCA 1528

Official Receiver v Schultz (1990) 170 CLR 306; [1990] HCA 45

Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 217; [2003] FCAFC 26

Re Deiru (1970) 16 FLR…

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Details
Case
[2025] FCA 976
Decision Date

CaseChat Overview and Summary

The case of JML Rose Pty Ltd v Jorgensen (No 3) involved an application for annulment of a sequestration order made against Leigh Alan Jorgensen. The petitioner, JML Rose Pty Ltd, had filed a creditor's petition leading to the sequestration of Jorgensen's estate. The dispute centred around the validity of the sequestration order following the setting aside of a default judgment that had underpinned the bankruptcy notice and the sequestration order. The key legal issues were whether the sequestration order should not have been made, and if the Court should exercise its discretion to annul the bankruptcy. The Court held that Jorgensen had not demonstrated that there was no debt owing to JML, as there was evidence of a supporting creditor willing to be substituted. Additionally, Jorgensen failed to provide sufficient evidence of his solvency or full financial disclosure. The Court concluded that the sequestration order was validly made, and the discretion to annul was not exercised in Jorgensen's favour. Consequently, the application for annulment was dismissed, and costs were awarded to the petitioner and the trustee from Jorgensen's estate.

Orders

Orders of the court

1. The First Respondent’s application for annulment filed 16 July 2025 be dismissed.

2. The costs of the Applicant, to the application to annul be paid from the estate of the First Respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

3. The costs of the Second Respondent (the Trustee), to the application to annul be paid from the estate of the First Respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

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

Background

Background to the litigation

For the reasons given below, the Annulment Application must be dismissed. This is because (in summary):(1)First, Mr Jorgensen has not established that there is no debt owing by him to JML upon which the bankruptcy proceedings could have relied on, even though the judgment has been set aside. Further and separately, there was and is evidence of a supporting creditor who was willing to be substituted on the creditor’s petition on the date of the sequestration order. There remains a debt owing to that supporting creditor. Accordingly, I am not satisfied that the Court was not bound to make the sequestration order on 16 October 2024 or on 20 March 2025. That is, I am not satisfied that the sequestration order ought not to have been made, and hence Mr Jorgensen has not satisfied the first element of s 153B(1) of the Act.(2)Second, and in any event, including even if I was satisfied that the sequestration ought not to have been made, I would not, in an exercise of discretion, annul the bankruptcy. Mr Jorgensen has not provided sufficient evidence of his solvency, either at the time of the sequestration, or now. In contrast, there is evidence of outstanding amounts that are due and owing. Mr Jorgensen also has not provided full and frank disclosure of his financial affairs, completed his statement of affairs and he has not made any proposal for the payment of the fees and disbursements of the Trustee. The lack of evidence of Mr Jorgensen’s financial position and solvency is a sufficient reason not to exercise the discretion in favour of annulling the bankruptcy. When the discretion is also considered in the totality of the evidence (or lack of it), it is clear it does not weigh in favour of granting the annulment sought.BACKGROUND On 9 September 2024, JML presented a creditor’s petition against Mr Jorgensen. The creditor’s petition was first before the Court on 9 October 2024. However, Mr Jorgensen was granted an adjournment of a week to provide further material. On 16 October 2024, the matter was heard by Registrar Schmidt (Registrar). Mr Jorgensen did not appear on 16 October 2024. On that date, the following orders were made:THE COURT ORDERS THAT:1.The estate of LEIGH ALAN JORGENSEN be sequestrated under the Bankruptcy Act 1966.2.The applicant creditor’s costs, including reserved costs, if any, be fixed in the sum of $4,585 be paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.3.The costs of the supporting creditor, BODY CORPORATE FOR CAIRNS CENTRAL PLAZA APARTMENTS COMMUNITY TITLES SCHEME 40022, be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).The Court notes that the date of the act of bankruptcy is 30 AUGUST 2024.The Court also notes that a consent to act as trustee signed by Leon LEE has been filed under section 156A of the Bankruptcy Act 1966. As is clear from the orders of the Registrar, the creditor’s petition was also supported by the Body Corporate for Cairns Central Plaza Apartments Community Titles Scheme 40022, as a Supporting Creditor.

Evidence

Evidence Before The Court

There was argument before the Court on 9 October 2024 in relation to the basis and length of any proposed adjournment. The registrar on that occasion observed as follows:… I’m not going to make any directions, unless I’m pressed by the parties, for directions for the filing of material. But let me be plain, Mr Jorgensen, a short adjournment is only being granted because at this stage the court doesn’t have, and when I say the court, I mean this court, doesn’t have any material or evidence from you showing that an application to set aside a default judgment has in fact been filed before the Magistrates Court. If you’re able to obtain a copy of the sealed application, that should be put before the court on the next occasion, together with any evidence upon which you intend to rely in respect of that application. [emphasis added] Mr Jorgensen did file an affidavit on 15 October 2024 in the bankruptcy proceedings which had annexed to it, a Notice stating grounds of opposition to application. Those grounds clearly disputed the existence of the debt referred to in the bankruptcy notice. Although the Notice itself does not appear to have been filed, it was annexed to an Affidavit of Mr Jorgensen which was filed. Although these events indicate that Mr Jorgensen was in the process of seeking to set aside the Default Judgment prior to the sequestration order, that does not mean that the “true facts” then at the sequestration date were that the Court was bound not to make the sequestration order. The Default Judgment being set aside, is a fact which has occurred after 16 October 2024 and after 20 March 2025. As was the case in Re Scott the “true facts” were that the Default Judgment, and the debt underlying it remained. Separately and importantly an underlying debt to JML in an amount of at least the statutory minimum would have still been owing at the date of the sequestration order (again, either at 16 October 2024 or 20 March 2025). This is irrespective of whether Mr Jorgensen is successful in his argument that the costs should calculated on a scale basis as opposed to the rates in the cost agreement (which I am expressly not deciding). Even further, and in any event, at the time of the sequestration there was a supporting creditor who was disposed to immediately seek to be substituted as the petitioning creditor: 2025 Judgment at [34]-[42] and [46]. This would provide another reason why the Court cannot be satisfied that on 16 October 2024 or 20 March 2025, it ought not to have made the sequestration order. Against the arguments that it would have been possible to substitute the supporting creditor, Mr Jorgensen relied on Re Deiru (1970) 16 FLR 420. There is no discussion or consideration in this case of the position of substituting a creditor, on the creditor’s petition. This case concerned an application for rescission of the bankruptcy, however, Gibbs J permitted amendment to the application so that the bankrupt applied for annulment, instead, which was granted.

Decision

Reasons for decision

On 30 May 2025 the Default Judgment dated 29 June 2022 (which was relied for the issue of the bankruptcy notice) was set aside: JML Rose Pty Ltd ACN 620 307 217 v Jorgensen and Jorgensen atf The Leigh Jorgensen Family Trust [2025], Magistrate Hay, 30 May 2025, (QMC Judgment). Costs of that application are reserved and are yet to be determined. Magistrate Hay accepted that JML’s claim was a liquidated one and that the Default Judgment was regularly entered: QMC Judgment at [42]. The explanation provided by Mr Jorgensen for the delay and failure to appear was accepted (QMC Judgment at [44]-[47]). It was also accepted that there was a prima facie defence on the merits. This was on the bases that:(1)the legal fees sought in the Magistrates Court by JML were in relation to fees billed to Mr Jorgensen on a solicitor and own client basis in the sum of $84,419.73. Mr Jorgensen had paid a total of $30,950, leaving a total of $53,469.73 unpaid together with interest thereon. The total legal fees were calculated on the basis of the costs agreement instead of calculated on the appropriate Court scale: QMC Judgment at [51]-[52]; (2)Mr Jorgensen contended that he did not receive the relevant disclosure notices, with the costs agreement contrary to s 308 and s 310 of the Legal Profession Act 2007 (Qld) (LPA). The Magistrate observed that on the evidence which was currently before that Court, there was no documentary evidence to support the position that the appropriate disclosures notices were provided. This was found to support a prima facie defence under s 316 of the LPA: QMC Judgment at [54]-[57]. After the QMC Judgment was handed down on 30 May 2025, on 16 July 2025, Mr Jorgensen filed this Annulment Application. The Annulment Application was listed for a case management hearing on 1 August and set for hearing on 14 August 2025. This expedited hearing and truncated timetable was due to Mr Jorgensen’s insistence that this matter be dealt with promptly. LEGAL PRINCIPLES – ANNULMENT BY THE COURT Section 153B(1) of the Act provides as follows:153B Annulment by Court(1)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 effect of an annulment is set out in s 154 of the Act. The power of the Court to annul a bankruptcy involves two elements (Rigg v Baker (2006) 155 FCR 531; [2006] FCAFC 179 at [59], French J, with whom Spender J agreed at [2]) which can be described as:(1)the Court’s satisfaction that the sequestration order ought not to have been made; and(2)the Court’s exercise of a discretion to make an order annulling the bankruptcy. It is clear from the relevant settled principles outlined below, that these two elements are cumulative and the second, being the discretion, only arises if the first element is satisfied.

Ratio Decidendi

Legal Principle Established

In this regard also see Yang at [29(d)], to a similar effect.CONSIDERATION(1) Ought the sequestration order not to have been made? There was no dispute between the parties that the Default Judgment had been set aside on 30 May 2025. The dispute concerned the effect of the Default Judgment being set aside. Mr Jorgensen contends that now, as the Default Judgment has been set aside and as this was the sole basis for the bankruptcy notice and sequestration order, it is clear that the sequestration order was made in error and is “void ab initio”. It was also submitted by Mr Jorgensen that the setting aside of the Default Judgment extinguished the petitioning creditor’s debt. Further, Mr Jorgensen contended that upon the setting aside of the Default Judgment, the act of bankruptcy underpinning the creditor’s petition “ceased to exist ab initio”. Mr Jorgensen cited Re Macks; Ex parte Saint (2000) 204 CLR 158; [2000] HCA 62 for this proposition. Re Macks was not a case concerning a creditor’s petition, an act of bankruptcy or the setting aside of a default judgment, such that it considered the proper characterisation of such matters. Re Macks was considering legislation passed by certain States following Re Wakim; Ex parte McNally (1999) 198 CLR 511; [1999] HCA 27, regarding cross-vesting. Mr Jorgensen also referred to and relied on Re Macks at [50]-[51] and submitted that “the High Court [in re Macks]…confirmed that the discretion under section 153B of the Bankruptcy Act is not at large and must be exercised to annul where the factual basis for a sequestration order has disappeared.” I do not accept this submission. There is no reference to s 153B of the Act in Re Macks at [50]-[51] or at all. In the circumstances of this case, it is not correct to describe the making of the sequestration order as being one made as a result of an error. At the time the sequestration order was made on 16 October 2024 and effectively confirmed in the de novo hearing in the 2025 Judgment, the Default Judgment was still valid and effective. On this basis, I do not accept Mr Jorgensen’s submissions to the contrary. The subsequent setting aside of the Default Judgment on 30 May 2025 does not operate to automatically dissolve, set aside or annul the bankruptcy in and of itself. Furthermore, the setting aside of the Default Judgment does not operate such that the sequestration order is “void ab initio” or that the act of bankruptcy is “void ab initio”. It is necessary for Mr Jorgensen (as he has done) to make an application under s 153B of the Act. The effect of any annulment, if that were ordered, is set out in s 154 of the Act. The two elements required to be considered on an application under s 153B of the Act are set out above. Of importance is that any annulment is discretionary. As the above settled principles clearly articulate, even if the Court was bound not to make the sequestration order, as an exercise of discretion the bankruptcy may not be annulled. The Act by s 153B requires an application for annulment to be made and requires the Court to be satisfied as an exercise of discretion to annul the bankruptcy. The Act does not provide that upon the setting aside of a judgment debt which founded a bankruptcy notice and the subsequent sequestration order, the bankruptcy is automatically annulled or expunged.