Kent (a bankrupt); Ex parte, Bunting
[2022] FedCFamC2G 630
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Kent (a bankrupt); Ex parte, Bunting [2022] FedCFamC2G 630
File number(s): MLG 3656 of 2019 Judgment of: JUDGE A KELLY Date of judgment: 9 August 2022 Catchwords: BANKRUPTCY – De novo review of delegated exercise of power by registrar of court – application for extension of time to seek review – where application over two years out of time – application refused – consideration of de novo on assumption refusal of extension may be attended by error – whether condition for presentation of petition not complied with – whether court should have gone behind judgment – whether security exceeds the value of debt – where no evidence from debtor of solvency – whether discretionary considerations militate in favour or against dismissal of petition – application dismissed. Legislation: Acts Interpretation Act 1901 (Cth), s 15AA
Bankruptcy Act 1966 (Cth), ss 30, 43, 44, 49, 50, 52, 54, 60, 78, 115, 116, 118, 122, 123, 306
Federal Circuit and Family Court of Australia Act 2021 (Cth), ss 7, 8, 217, 254, 256
Federal Circuit Court of Australia Act 1999 (Cth), ss 103, 104
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth), rr 1.01, 2.02, 7.05
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth), rr 1.01, 1.03, 3.05, 20.02, 20.03, 21.02
Federal Circuit and Family Court of Australia (Division 2) (Family Law) Rules 2021 (Cth), r 1.01
Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), rr 1.03, 2.02, Sch 1 Item 5Federal Circuit Court Rules 2001 (Cth), rr 20.01. 20.02
Cases cited: AHZ21 v Minister for Immigration, Citizenship and Multicultural Affairs [2022] FCA 884
Allied Mills Pty Ltd v Mai [2010] FMCA 631 (2010) FLR 480
Allison v Murphy [2021] FCAFC 232
Bechara v Bates (2021) 286 FCR 166
Biondo v Baycorp Collections PDL (Australia) Pty Ltd [2018] FCCA 1853
Boensch v Somerville Legal (2021) 286 FCR 293
BQQ15 v Minister for Home Affairs [2019] FCAFC 218
Cain v Whyte (1933) 48 CLR 639
Commonwealth Bank of Australia v Doggett [2019] FCAFC 19
Compton v Ramsay Health Care Australia Pty Ltd (2016) 246 FCR 508
Culleton v Balwyn Nominees Pty Ltd (2017) 343 ALR 363
Deputy Commissioner of Taxation v Cumins (2008) 6 ABC(NS) 12
EPH17 v Minister for Immigration and Border Protection at (2019) 166 ALD 47
Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344
Investec Australia Finance Pty Limited v Naude [2016] FCA 731
James v Australia and New Zealand Banking Group Ltd [2022] FCAFC 18
Kimber v The Owners Strata Plan No 48216 (No 2) [2018] FCA 406
Kleinwort Benson Australia Pty Ltd v Crowl (1988) 165 CLR 71
Kostokanellis v Allen (1974) VR 596
Labura v Nezirevic (2013) 42 VR 43
Li v Wu [2020] FCA 776
Neve v Kent [2020] VCC 22
Petrie v Redmond [1943] St R Qld 71
Pineview Property Holdings Pty Ltd v Dimitriou (No 2) [2019] FCA 1416
Porter as former trustee of the estates of Ghasemi and Kakhaz v Ghasemi (2021) 286 FCR 556
Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355
Ramsay Health Care Australia Pty Limited v Compton (2016) 247 FCR 387
Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132
Re Patsellis, Ignatio; Ex parte Australian and New Zealand Banking Group Ltd [1995] FCA 1146
Re Purden v Registrar in Bankruptcy [1982] FCA 132 (1982) 64 FLR 306
Re Sarina; Ex parteSarina v Council of the Shire of Wollondilly (1980) 43 FLR 163
Robson as former trustee of the estate ofSamsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 (2021) 286 FCR 494
Roger Bunting as trustee of The Bunting Superannuation Fund v Paul William Kent [2019] VCC 873
Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372
Sayer-Jones v Juju Bean Investments Pty Ltd [2020] FCA 177
Shanahan (Trustee), in the matter of Kent (a bankrupt) [2022] FedCFamC2G 631
Stratton v Bowles (No 2) (2015) 12 ABC(NS) 404
Toyota Finance Australia Ltd v Berro [2022] FCA 497
Toyota Finance Australia Limited v Singh, in the matter of Singh [2020] FCA 949
Wilson Transformer Company Pty Ltd v Anti-Dumping Review Panel [2022] FCAFC 4
Wolff v Donovan (1991) 29 FCR 480Wren v Mahony (1972) 126 CLR 212
Paul Nichols and Michael Murray, Annotated Bankruptcy Act 1966 (LexisNexis, 8th ed, 2020
Division: Division 2 General Federal Law Number of paragraphs: 198 Date of hearing: 26 July 2022 Place: Melbourne Counsel for the Applicant: Mr C. Fenwick Counsel for the Respondent: Ms A. Umbers Counsel for the Trustee: Mr. D. Harrison Counsel for the Mortgagee: Mr G. Parncutt Interested Party (by leave) Mr. A. Ingram ORDERS
MLG 3656 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF THE BANKRUPT ESTATE OF PAUL WILLIAM KENT
BETWEEN: ROGER BUNTING
Applicant
AND: PAUL WILLIAM KENT
Respondent
ORDER MADE BY:
JUDGE A KELLY
DATE OF ORDER:
9 AUGUST 2022
THE COURT ORDERS THAT:
1.The application for an extension of time within which to apply for review of the exercise of power by a registrar of the court on 6 February 2020 be refused.
2.The application filed on 5 July 2022 be dismissed.
3.The order for the sequestration of the estate of Paul William Kent made on 6 February 2020 be affirmed.
4.The petitioner’s costs of this proceeding (including reserved costs), be taxed and paid out of the bankrupt estate of the respondent in accordance with par 109(1)(a) of the Bankruptcy Act 1966 (Cth).
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
KELLY A, J
Introduction
These reasons for judgment explain why orders are made dismissing an application for an extension of time in which to seek the review of the delegated exercise of power by a registrar. On 6 February 2020, a registrar made an order for the sequestration order of the estate of Paul William Kent pursuant to s 52 of the Bankruptcy Act 1966 (Cth) (Act). Consequently, Mr Kent’s application pursuant to s 256(1) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) for a review of that exercise of power is also dismissed. Conformably with practice, an order is made affirming the registrar’s order of 6 February 2020.
These reasons should be read with Shanahan (Trustee), in the matter of Kent (a bankrupt) [2022] FedCFamC2G 631 also published this day. By way of overview, following the issue of a referral certificate for pro bono assistance, this application was brought in response to an application by the trustee of the bankrupt’s estate including for orders for possession in relation to several properties, title to which vested in that trustee. Counsel who furnished advice and significant assistance to the bankrupt also appeared on his behalf. The Court records its appreciation to counsel and the Victorian Bar pro bono committee for their assistance.
For the reasons which follow, I am not satisfied the Court should exercise its discretion to grant an extension of time. Had I been so satisfied and granted leave out of time to apply for a review of the registrar’s decision, I would have dismissed the application. I would have so dismissed the application in the combined circumstances that: I was satisfied of the matters of which the Court is required to be satisfied under s 52(1) of the Act; I was not satisfied by the debtor of his solvency or that there was some other reason the petition ought be dismissed, and; I was not satisfied the Court should exercise its residual discretion to do so.
Background
The matters set out below are drawn from the evidence and submissions filed by the parties. For the most part, the chronology of events is not in issue. As will appear, there is a degree of overlap in certain events that have occurred in this, and other, courts involving these parties.
Mr Kent, now aged 67 years, appears to be a person of some qualification and experience.
From his affidavit made on 1 July 2022, Mr Kent deposed to holding a Master of Science (Physiology), a Bachelor of Agricultural Science and a Bachelor of Business (Local Government) obtained from the University of Melbourne and Royal Melbourne Institute of Technology. From 1977, Mr Kent worked in medical research, variously at the University of Melbourne in its Department of Medicine and then its Department of Surgery (each at St Vincent’s Hospital), before taking employment at the Commonwealth Serum Laboratory.
From the early 1980s, Mr Kent pursued further study in economic philosophy at the Melbourne School of Philosophy. In the mid-1980s he commenced studying a Bachelor of Business (Local Government). From the mid-1980s until about 2010 he undertook placements with a variety of local councils including the City of Melbourne, Mount Alexander Shire Council, Bass Coast Shire Council and Victoria Regional Council. Subsequently he undertook finance related roles at La Trobe University and Loan Finance and Energy Australia.
While attending the Melbourne School of Philosophy, Mr Kent met both Mr Roger Bunting and Mr Adrian Neve, who are two creditors of his bankrupt estate. Each of those creditors brought proceedings in the County Court of Victoria for the recovery of monies that they claimed were owed to them by the bankrupt. Each of them obtained judgment against Mr Kent. An application to set aside a default judgment was dismissed. Notwithstanding some attempt to institute one appeal, none of those judgments has been the subject of any appeal.
On 14 March 2019, a bankruptcy notice was issued by Mr Bunting to Mr Kent for the default debt amount. On 18 March 2019, service of the bankruptcy notice was effected upon Mr Kent. On the same day, Mr Kent filed a summons in proceeding CI-18-03570 seeking to set aside the default judgment obtained by Mr Bunting and for leave to file a defence and counterclaim.
On 3 April 2019, Mr Kent filed a counterclaim against Mr Neve in proceeding CI-18-02246.
On 6 June 2019, a registrar in the (then) Federal Circuit Court of Australia in proceeding MLG 1052 of 2019 extended the time for compliance with Mr Bunting’s bankruptcy notice.
Ultimately, on 6 February 2020, a sequestration order was made against Mr Kent’s estate.
It is common ground the bankrupt has not completed a statement of affairs. His desultory responses to the trustee indicate neglect or refusal to do so. This has impeded the trustee of his estate in the discharge of his duties. Despite other evidence from Mr Kent to the contrary, investigations undertaken by the trustee have revealed Mr Kent in fact owns several properties. Mr Kent’s evidence suggests that he has applied his business acumen to identifying and acquiring what might be described as distressed assets.
Procedural history
This application was filed on 5 July 2022 after a pro bono certificate for legal assistance had issued in proceeding MLG 799 of 2022 that was commenced on 13 April 2022 by the trustee who sought orders for vacant possession and the sale of certain properties. The earlier procedural history in that application provides some context to the present application: see, Shanahan (Trustee), in the matter of Kent (a bankrupt) [2022] FedCFamC2G 631, [6]-[20].
By application dated 1 July 2022 but filed on 5 July 2022, Mr Kent applied for an extension of time in which to commence an application for review of the orders made on 6 February 2020 together with an order setting aside the sequestration order and for dismissal of the amended creditor’s petition. Ancillary relief was sought. The sequestration order was attached.
On the same date, Mr Kent gave notice to creditors that he was applying for review of the registrar’s decision made on 6 February 2020 to make a sequestration order against his estate.
Very shortly before the hearing on 18 July 2022, a minute of proposed orders was submitted by counsel on behalf of the bankrupt which contemplated a somewhat elongated timetable to accommodate the conduct of a hearing upon Mr Kent’s application for leave to apply for a review of the registrar’s decision made on 6 February 2020. Thereafter, it seemed, further hearings would take place to address the proposed application for review and then the hearing of the application sought by the trustee in this proceeding. Some support for the course commended by counsel for the debtor was found in Wolff v Donovan (1991) 29 FCR 480, 482 (Davies J), 485 (Lee and Hill JJ). As the reasoning in that appeal confirms, the Court may not necessarily accede to the parties’ desire to fragment a proceeding. I indicated that in the context of a de novo review, the Court was constrained to act with a far greater degree of expedition than was reflected by the minute of proposed orders. It is settled that there is a public interest in the expeditious determination of bankruptcy proceedings which, necessarily, includes any application for review of it registrar’s decision: see, e.g. Bechara v Bates (2021) FCAFC 34, [174]-[176], 286 FCR 166; James v Australia and New Zealand Banking Group Ltd [2022] FCAFC 18, [68] (Murphy J diss’); r 20.02(1), 20.03(2) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021. It was made plain to the parties the Court would hear all issues at the adjourned hearing.
On 18 July 2022, orders were made, in effect, to accommodate pro bono counsel’s ability to participate in the proceeding in a meaningful way and adjourning the hearing to 26 July 2022. During the hearing on 18 July 2022, the Court raised for the parties a question whether it would suffice in the interests of efficiency if an order was made that Mr Kent’s affidavits stood as his grounds of opposition to the amended creditor’s petition. At this point, Ms Umbers of counsel expressed reluctance to the adoption of that course and candidly disclosed that it appeared a further point of substance (not emerging from Mr Kent’s affidavit) was whether an insuperable obstacle to the presentation of the amended petition arose from the circumstance that, contrary to the statements in that petition, Mr Bunting held security for his debt. Counsel drew attention to conditions expressed in s 44 of the Act. The disclosure of this issue necessitated directions affording each party an opportunity to address it. After hearing from counsel for the various parties and Mr Ingram, each proceeding was set down for hearing on 26 July 2022. Directions were given as to the filing of any further evidence and submissions.
For the purposes of this de novo review, the following affidavits were read without objection:
(a) affidavits of Mr Kent made on 4, 20 and 22 July 2022;
(b) affidavit of the trustee, Mr Shanahan, made on 22 July 2022;
(c)affidavits of the petitioner’s solicitor, Ms Struska, dated 22 and 26 July 2022.
No deponent was required for cross examination.
Mr Shanahan deposed to the restraint that he considered was required of a trustee particularly in the circumstance that he first became aware of Mr Kent’s application on 6 July 2022. He deposed that until reading Mr Kent’s affidavit affirmed on 20 July 2022, he had been unaware of additional creditors whom Mr Kent claimed were owed $388,000. The trustee had notified known creditors of the estate (but he has been unable to notify these new creditors).
Each of the parties made written and oral submissions which I have re-considered.
As Mr Kent asks the Court to exercise its discretion to look behind a default judgment obtained by the petitioner, it is necessary to examine the detail of the parties’ earlier proceedings. The first such proceeding was brought by Mr Neve. It is convenient to examine that proceeding before turning to the proceeding brought by Mr Bunting.
The Neve proceeding – CI-18-02246
Mr Neve claimed that he loaned certain monies to Mr Kent in performance of an agreement made in 2010 including that Mr Kent would provide mortgage security for its repayment. Following the commencement of proceedings to obtain an order for possession of a property provided as security, that property was sold by Mr Neve as mortgagee in possession. Completion of the sale was impeded by a caveat lodged by Mr Kent. The caveat was removed pursuant to order made on 12 April 2018. Despite an injunction granted on that date to restrain the lodgement of any further caveats, on 17 April 2018 a further caveat was lodged on behalf of Mr Kent necessitating further orders so as to expand the terms of the injunction.
Mr Neve claimed that he advanced loans to Mr Kent pursuant to a loan agreement signed on 1 March 2010, the repayment of which monies was secured by several mortgages. Mr Neve claimed that Mr Kent had not fully repaid the amount of the monies he had advanced.
On 7 June 2018, upon an application made by Mr Neve on 23 May 2018, Cosgrave J made a freezing order on the assets of Mr Kent to a value of $490,000. The freezing order was amended on 15 June 2018, 26 June 2018 and 23 July 2018. In the eventual obedience to a requirement of the freezing order made on 23 May 2018 that Mr Kent file and serve an affidavit making disclosure of any interest he held in any real property, on 17 August 2018, he made an affidavit in which he deposed, under the heading “Interest in Land or Buildings” as follows “As at the time of the 7 June 2018 or since I have had not (sic) interest in any land or building other than the proposed counter-claim for the stealing of my home. . .” He further deposed “As at the time of the 7 June 2018 there were properties (as listed in 7(a)(iii) of the Freezing Order) that I had sold with unpaid mortgages for which the mortgages may still be not paid out and thus Transfers of Land may still not be lodged although the Transfers of Land, possession and ownership had been exchanged.” In the course of this proceeding also, orders were made for Mr Kent to be referred for assistance to the Victorian Bar pro bono scheme. Responding to that request, Mr Kent was provided legal assistance by Mr M Gronow, QC.
On 3 April 2019, Mr Kent filed a counterclaim against Mr Neve, seeking to prevent Mr Neve’s enforcement of two mortgages. I infer the pendency of this counterclaim was one factor taken into account by the registrar in the determination in December 2019 that he had not been satisfied a debt was owed by Mr Kent to Mr Neve when a bankruptcy notice was served.
Following a two day trial in November 2019, on 5 February 2020, Ryan J published reasons for judgment in proceedings CI-18-02246: see, Neve v Kent [2020] VCC 22. Her Honour was satisfied Mr Neve had established his claim for the debt and dismissed Mr Kent’s counterclaim. On 13 February 2020, final orders were made in the Neve proceeding. Her Honour gave judgment against Mr Kent for $418,460.37 with costs and dismissed Mr Kent’s counterclaim. A copy of the reasons for judgment in Neve v Kent [2020] VCC 22 was supplied.
It is useful to summarise her Honour Judge Ryan’s reasons: Mr Kent’s defence was that he denied liability on the basis the monies had not been advanced to him personally; Mr Kent admitted executing the mortgages but maintained they were not enforceable until after his death; Ryan J was satisfied Mr Kent was personally indebted to Mr Neve; Mr Neve, who was not financially astute and had mistakenly placed his trust in Mr Kent to handle his business affairs, was found to be an entirely truthful and credible witness; contrastingly, Mr Kent was an unimpressive and inherently unreliable witness who was not considered to be a witness of truth and would say whatever he thought might advance his case; the monies advanced by Mr Neve were sourced from his redundancy payments and divorce settlement; the funds had been advanced by Mr Neve by way of bank cheques drawn payable to Mr Kent; in about September 2012, the parties had executed two mortgages, each prepared by Mr Kent that were security for a total sum of $391,000; Mr Kent’s counterclaim was based on a verbal agreement whereby the mortgages would not be registered by Mr Neve unless, as Mr Kent said, the advances had not been repaid as at the date of his death; the supposed basis for this verbal agreement was that, at this time, Mr Kent was travelling more frequently and so, it was said, he “was at greater risk of being killed”; the mortgages had been registered; notices to pay had been served and were not remedied; Mr Kent’s defence to the mortgages was fanciful; no good reason was shown to dispute the debt.
Evidence from both Mr Neve and the trustee confirms the total debt outstanding to Mr Neve is presently in excess of $710,500. Mr Kent does not dispute this debt.
The Bunting proceeding – CI-18-03570
On 7 March 2019, Mr Bunting obtained a default judgment against Mr Kent for the debt he sued upon. The judgment was given in default of the filing of a defence. The total debt amounted to $708,299.35. The judgment, a copy of which was annexed to the amended petition, provided that Mr Kent pay Mr Bunting a total sum of $708,299.35. By this judgment Mr Bunting also recovered possession of two parcels of land; namely, the land situate at and known as 113 Southern Road, Heidelberg Heights, being the whole of the land described in Certificate of Title Volume 10095 Folio 232 (Southern Road property) and the land situate at and known as 2-4 Pau Street, Coburg North, being the whole of the land described in Certificate of Title Volume 11527 Folio 068 (Pau Street property).
As noted, on the date of service of the bankruptcy notice (18 March 2019), Mr Kent filed a summons to set aside the default judgment obtained by Mr Bunting.
After Mr Kent’s application to set aside the default judgment was heard on 15 and 22 May 2019, her Honour Judge Lewitan reserved judgment. Mr Kent appeared at this hearing.
On 25 June 2019, orders were made dismissing the application to set aside the default judgment. Lewitan J gave reasons for judgment: Roger Bunting as trustee of The Bunting Superannuation Fund v Paul William Kent [2019] VCC 873. So far as material to the present application, those reasons include the following: (a) Mr Bunting’s claim was for repayment of money with interest and costs pursuant to an agreement he had entered with Mr Kent in August 2013; (b) on 7 February 2019, a registrar had struck out Mr Kent’s original defence and made orders for the filing of a defence and any counterclaim by a stipulated date, in default of which, Mr Bunting would be at liberty to enter default judgment; (c) mortgage security for the loan was given by Mr Kent over certain properties; (d) Mr Kent had filed no less than six affidavits in support of his application to set aside the default judgment; (e) upon settled principles, an applicant seeking to set aside a default judgment was required to file an affidavit demonstrating a prima facie defence to the merits of the claim; (f) insofar as Mr Kent had exhibited certain statements from a company, George Finance Pty Ltd (he being the secretary and former director of that company), these were, objectively, internal records and did not negate Mr Bunting’s claim to have made a loan to Mr Kent: reasons at [20], and [29]; (g) on 12 and 14 September 2014 respectively, Mr Kent had executed mortgages over certain property being security for an aggregate sum of $160,000; (h) each mortgage incorporated provisions from the Memorandum of Common Provisions retained by the Registrar of Titles (AA689), par 1(1)(a) of which contained a covenant by Mr Kent to repay the money secured by such mortgages (i.e. $160,000); (i) her Honour rejected Mr Kent’s evidence that Mr Bunting had come under the influence of a sect convincing him to abandon his investments; (j) nothing further was shown as to justify the exercise of discretion to set aside the default judgment. The application to set aside the default judgment was dismissed by her Honour in the exercise of discretion.
Notably, in one affidavit filed by Mr Kent in support of his application to set aside the default judgment he deposed that he had received legal assistance from Mr Gronow QC in relation to that proceeding. He also deposed to having consulted a solicitor at Eales and McKenzie. Contrary to one of Mr Kent’s submissions, I note that in the course of that application, and in obedience to an order that he do so, Mr Bunting filed an affidavit to which he exhibited the mortgages he relied upon as constituting security for the loans the subject of the proceeding. Those mortgages were of particular relevance in that proceeding by reason that they contained covenants by Mr Kent of his personal obligation for the loans made by Mr Bunting. The giving of those covenants effectively undermined Mr Kent’s denial of personal liability.
The mortgages over the Pau Street properties as proffered and given by Mr Kent as security for repayment of the advances made by Mr Bunting were expressed to be limited to $160,000.
Despite apparent difficulties, there has been no appeal from the order of Lewitan J. More particularly, there has not been exhibited to any affidavit any document (whether by way of notice of appeal or opinion on prospects) to demonstrate any reasonable prospect of an appeal.
Sequestration of estate
Each of Mr Neve and Mr Bunting applied to the Official Receiver for the issue of a bankruptcy notice to be addressed to Mr Kent. In particular, on 14 March 2019, the Official Receiver issued bankruptcy notice BN 238140 doing so at Mr Bunting’s behest which identified a debt of $708,299.25 being grounded upon a default judgment obtained on 7 March 2019 in the County Court of Victoria (and not claiming any interest) or costs.
On 18 March 2019, Mr Bunting’s bankruptcy notice was served on Mr Kent who immediately took action to set aside that notice. Mr Kent was unsuccessful in his application to do so. However for the purposes of this application, Mr Kent relied upon a proposed challenge to the default judgment obtained against him.
On 6 June 2019, a registrar extended the time for compliance with the bankruptcy notice and on 4 July 2019, the application to set aside the notice was dismissed. Written reasons given by the registrar recorded there was no evidence any appeal had reasonable prospects.
As Mr Kent did not comply with that notice, he committed an act of bankruptcy on 4 July 2019.
On 23 October 2019, Mr Neve presented a petition for the sequestration of Mr Kent’s estate. The petition recorded that Mr Kent’s application to set aside that judgment had been dismissed. Affidavits as to service of the bankruptcy notice and of search and debt were each filed. In the course of the proceeding a series of further affidavits of search and debt were filed.
The petition was served personally upon Mr Kent on 31 October 2019.
On 28 November 2019, a registrar ordered that the hearing of the petition be adjourned to 12 December 2019 and that Mr Kent file and serve a notice of opposition and any affidavit in support by 5 December 2019. He filed a series of affidavits.
On 5 December 2019, Mr Kent filed a notice of appearance, a notice stating his grounds of opposition to the petition and an affidavit made by him on that date. The notice of grounds that was completed in hand-writing by Mr Kent stated that there was no proper basis for orders made in the earlier proceedings and that an appeal was being made against the default judgment. On 6 December 2019, Mr Kent filed a further notice stating his grounds of opposition, however, this notice was simply a duplicate of the earlier notice.
Mr Kent’s affidavit made on 5 December 2019 deposed to the basis upon which he denied any liability to Mr Neve and that the default judgment obtained by Mr Bunting was the subject of an appeal, including by way of interim relief, “a stay of proceedings.” Exhibited to this affidavit was a copy of the writ issued in the County Court by Mr Neve, a chronology of events entitled “Neve v Kent Chronology” and a limited extract of the submissions filed by Mr Neve.
On 11 December 2019, Mr Kent filed an interim application in which he sought “deferment of the hearing due on 12 December 2019 for 4 days, i.e. until after the 16 December 2019.”
By an affidavit made by Mr Kent on that date he identified, albeit briefly, the grounds upon which an adjournment was sought. Those grounds included his commitment to addressing issues both in the County Court and VCAT together with the difficulties presented by the issue of a freezing order and a pending appointment for legal advice.
On 11 December 2019, Mr Bunting filed a notice of appearance as a supporting creditor.
On 12 December 2019, a registrar made orders adjourning the further hearing of the petition to 6 February 2020 and that Mr Bunting, who was substituted as applicant (and for the amendment to the title of the proceeding accordingly), should file and serve an amended petition and verifying affidavit. Further orders were made for Mr Kent to file a notice of opposition and any affidavit in support. As revealed by the registrar’s later reasons for the decision to make a sequestration order, Mr Bunting was substituted as applicant in circumstances where the registrar concluded Mr Neve was unable to proceed as petitioner by reason that the registrar was not satisfied there was a liquidated sum owing to him as at the date of bankruptcy.
On 19 December 2019, Mr Bunting filed an amended petition, relying on the default judgment debt. Attached to the amended petition were copies of the bankruptcy notice, the default judgment and the orders made on 6 June and 4 July 2019 respectively extending the time for compliance with the bankruptcy notice and dismissing the application to set aside that notice. It is convenient to address the text of the petition below.
On 16 January 2020, Mr Kent filed an appearance and notice of opposition together with a supporting affidavit in which he claimed Mr Bunting and his solicitor were fraudulent in the presentation of their case upon the hearing before Lewitan J to set aside the default judgment. Further, he deposed that an appeal was being prepared, to rehear the application to set aside the default judgment and upon that basis, requested a stay of the bankruptcy proceeding.
Mr Kent’s affidavit made on 16 January 2020, otherwise reiterated, without elaboration, his contention that each of Mr Bunting, his solicitor and counsel had deliberately and fraudulently presented lies to her Honour Judge Lewitan at his hearing to set aside the default judgment.
On 5 February 2020, further affidavits of search and debt were filed.
On 6 February 2020, a registrar of this Court made an order in proceeding MLG 3656 of 2019 for the sequestration of the bankrupt’s estate. In giving reasons for that order, the registrar was satisfied of the matters required under s 52(1) of the Act and not persuaded by Mr Kent’s claims and evidence of solvency (a copy of those reasons was annexed to the certificate issued in this proceeding seeking the provision of pro bono assistance for the bankrupt).
Reasons for the making of the order were given by the registrar which record much of the history set out above. Further, as material to the present application I note the following matters: (a) Mr Kent was self-represented at the hearing of the amended petition; (b) there was no evidence of any appeal having been commenced in relation to the order made by her Honour Judge Lewitan; (c) the registrar was not satisfied of any grounds for going behind the default judgment; (d) the freezing order made against Mr Kent’s assets did not prevent him from paying his debts or from dealing with those assets in the bona fide discharge of his obligations, including upon notifying his creditors of his intention to do so; (e) the registrar was satisfied by proof of the matters required by s 52(1); (f) the registrar was not satisfied of Mr Kent’s solvency, including where the only evidence of solvency was an affidavit made by him on 16 August 2018. The registrar was satisfied a sequestration order should be made.
Notations to the sequestration order are of some relevance to the present applications as informing Mr Kent of two matters. First was that an application for review of the exercise of power by the registrar could be made by him within the time fixed by the rules of court. Secondly, it stated that the time for seeking review was 21 days after the exercise of power.
Administration of the bankrupt’s estate
Upon the making of the sequestration order, Kristen Jennifer Beadle of Hall Chadwick was appointed as trustee of the bankrupt’s estate. She resigned from Hall Chadwick on 17 February 2021 and was replaced as trustee by John Gervase Shanahan.
A person against whom a sequestration order has been made is required to make out a statement of his or her affairs within 14 days of being so notified: Act, par 54(1)(a).
Mr Shanahan deposed in his affidavit made on 6 April 2022, that from February 2020 to March 2021 requests were made, both via email and mail, that Mr Kent complete a statement of affairs. Mr Shanahan deposed that Mr Kent had not done so and that, as a consequence, he had reported the bankrupt’s failure to lodge that form to the Australian Financial Security Authority. As a result, the trustee’s time and resources were dedicated to Mr Kent’s examinable affairs.
Before me, Mr Kent agreed that he had not filed a statement of affairs since February 2020.
Time limit for de novo review
The sequestration order made on 6 February 2020 was an order made by a registrar. It is not necessary for the purposes of this application to explore the reasons why it is essential to the constitutional validity of the delegated exercise of judicial power to a registrar that a right of review to this Court is given in relation to the exercise of such power. In 2020, the power to make a sequestration order was a power which could be exercised by a registrar: see, Item 5, Sch 1 of the Federal Circuit Court (Bankruptcy) Rules 2016. For that reason, the exercise of the power is subject to review by this Court.
When the sequestration order was made on 6 February 2020, the operative legislation and applicable rules were the Federal Circuit Court of Australia Act 1999 (Cth) (1999 Act), the Federal Circuit Court Rules 2001 (Cth) (2001 Rules) and the Federal Circuit Court (Bankruptcy) Rules 2016 (2016 Bankruptcy Rules). Each of the 1999 Act and each of those rules are now repealed, in each case, with effect from 1 September 2021: Federal Circuit and Family Court of Australia (Consequential Amendments and Transitional Provisions) Act 2021.
As applicable to this Court, the 1999 Act has been replaced by the Federal Circuit and Family Court of Australia Act 2021 (Cth) (2021 Act): 2021 Act, s 8(2).
Where a delegate has exercised powers of this Court, a party to a proceeding may within the time prescribed by ‘the Rules of Court’ or within any further time allowed in accordance with those rules, apply to the Court for review of that exercise of power: 2021 Act, s 256(1). In the 2021 Act, the term, Rules of Court, is defined by s 7, and as concerns this Court means Rules of Court made under Ch 4 of that Act. In Pt 6 of Ch 4 of the 2021 Act, Practice and procedure, Div 10 addresses the subject, Rules of Court, and, by s 217 authorizes the making of Rules of Court. However, the term Rules of Court is not otherwise defined by the 2021 Act.
Three new sets of rules have been promulgated: Federal Circuit and Family Court of Australia (Division 2) (Family Law) Rules 2021; Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (2021 GFL Rules) and; Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (2021 Bankruptcy Rules). None of the new rules adopts or defnies the expression Rules of Court. Instead, in each case, r 1.01, Name, describes “These Rules” as being the particular rules so promulgated. In each case, r. 1.03 provides that “These Rules are made under Chapter 4 of the [2021 Act].”
The right of review conferred by s 256 of the 2021 Act (and indeed, the previously operative provision; namely, s 104 of the 1999 Act) is not confined merely to the review of decisions made in the bankruptcy jurisdiction confers a right of review respecting the delegated exercise of power by a registrar in all of the jurisdictions exercised by this Court. As noted, the right of review conferred by s 256 is confined by the requirement that such an application is made within the time prescribed by the Rules of Court. However, the 2021 GFL Rules and the 2021 Bankruptcy Rules prescribe different time limits for the making or filing, respectively of an application for review under s 256. Similarly, different time limits were prescribed for the making or filing, respectively of an application for review under s 104 of the 1999 Act.
By the combined operation of s 104(2) of the 1999 Act and r 20.01(a) of the 2001 Rules, a party to a proceeding in which a registrar had exercised powers of the Court was conferred a right to make an application to the Court for a review of that delegated exercise of power within 7 days, save that the time prescribed by that rule could be extended by the Court: 2001 Rules, r 20.02(a). Contrastingly, r 2.02(3) of the 2016 Bankruptcy Rules prescribed that, in general, an application under s 104(2) of the 1999 Act for the review of the exercise of power by a registrar must be made by the filing of an application in prescribed form within 21 days after the date on which the power had been exercised.
So too, under the 2021 Act and 2021 GFL Rules, while the right of review of the delegated exercise of power by a registrar must also be made within 7 days, this time may also be extended: see 2021 Act, s 256(1), 2021 GFL Rules, rr 21.02(1), 21.02(2)(a). By contrast, r 2.02(3) of the 2021 Bankruptcy Rules prescribes a 21 day period. Each rule is framed in terms of the making of an application. While r 21.02 of the 2021 GFL Rules confers power to extend time, r 2.02 of the 2021 Bankruptcy Rules does not confer power to extend that 21 day period for the making of such an application. Insofar as r 2.02(3) of the 2021 Bankruptcy Rules may be construed as conferring power to extend time to apply for review, the power that is conferred by that rule is a power of the court “to make a direction to the contrary.”
It is clear, however, that unless the Court otherwise orders, the 2021 Bankruptcy Rules apply to a proceeding to which the Bankruptcy Act applies: 2021 Bankruptcy Rules, r 1.04(1). And as concerns any lacuna in those rules, by r 1.04(2) the other Rules of the Court apply, to the extent that they are relevant and not inconsistent with the 2021 Bankruptcy Rules.
Insofar as the 2021 GFL Rules were relied upon as the source of power to extend time to apply for the review of the exercise of power by a registrar who has made a sequestration order, I note 3.05(1) of those rules is expressed to confer power to extend or shorten a time fixed by those rules, not the 2021 Bankruptcy Rules. To similar effect, the general powers of courts in bankruptcy conferred by s 30 of the Act are framed in terms of allowing the court to make orders as it considers necessary for the purposes of carrying out or giving effect to “this Act.” The power of review is given by the 2021 Act.
The parties proceeded on the basis that a 21 day time limit applied, whether under the 2016 Bankruptcy Rules or the 2021 Bankruptcy Rules to the filing or making of an application for a review of the registrar’s exercise of power to make the sequestration order on 6 February 2020.
Extension of time?
Mr Kent makes application for an extension of time for a review of the 6 February 2020 order.
The applicable principles were not in contest. Each of the parties accepted Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344, 348-9 as a seminal authority.
Those principles were adopted in Parker v R [2002] FCAFC 133 and endorsed by Yates, Wheelahan and O’Bryan JJ in BQQ15 v Minister for Home Affairs [2019] FCAFC 218 at [33]:
(a)Applications for an extension of time are not to be granted unless it is proper to do so; the legislated time limits are not to be ignored.
(b) There must be some acceptable explanation for the delay.
(c)Any prejudice to the respondent in defending the proceedings that is caused by the delay is a material factor militating against the grant of an extension.
(d)The mere absence of prejudice to the respondent is not enough to justify the grant of an extension.
(e)The merits of the substantial application are to be taken into account in considering whether an extension is to be granted. Leave will not be granted where there are no reasonable prospects of success on the appeal: Kalanje v Minister for Immigration and Multicultural Affairs [2006] FCA 1618 at [5]. The applicant will have no real prospects of success where the case is devoid of merit or clearly fails; is hopeless; or is unarguable. In making an assessment the Court is not required to go into too great a detail, but is to “assess the merits in a fairly rough and ready way”: Jackamarra v Krakouer (1998) 195 CLR 516 at [7] – [9].
(f)The discretion to extend time is given for the purpose of enabling the Court to do justice between the parties. Special circumstances often arise in immigration cases. Where the delay is short and no injustice will be occasioned to the respondent, justice will usually be done if the extension of time is granted. . .
See also CKT20 v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2022] FCAFC 124 at [13] (Katzmann, Charlesworth and Burley JJ).
The conferral of power to extend time for the taking of a step in, or in instituting, a proceeding, is important to ensure that justice can be done in a particular case. The particular jurisdiction and the unique facts and circumstances of the particular case will inform how that power is to be exercised judicially. In evaluating the merits of an application for an extension of time, one commences, rather than overlooks, the applicable legislative time limit.
The length of a delay in the circumstances may warrant particular scrutiny. So too, it is settled that the absence of prejudice to the respondent is not enough to justify an extension. Indeed, that must be especially so where an extension of time is sought in the bankruptcy jurisdiction where the proceedings are not strictly inter partes. The interests of other creditors are also at stake. The circumstances in which the Court is called upon to evaluate the merits of a party’s substantive application must be seen in their proper context. An application for an extension of time in which to apply for the review of the exercise of power by a registrar occurs in the legislative context that expedition is required in the hearing of such applications. It is to be steadily borne in mind that the purpose for which the discretion to extend time is conferred is to enable the Court to do justice between the parties, and, here, a body of creditors.
Consideration
In Boensch v Somerville Legal (2021) 286 FCR 293, [85]-[88], the Full Court considered the scope of obligations owed towards self-represented litigants in bankruptcy proceedings. The conduct of this proceeding was conducted with those principles in mind. In this case, the proceeding was one in which Mr Kent had been self-represented. Upon settled principles, the Court was entitled to be mindful of the history and background of the proceeding, the nature of the application, the steps taken to allow that the debtor had an understanding of the application he had initiated and his evident intelligence. Rather than accede to the trustee’s request for the determination of his application on an urgent basis, a series of steps were taken to allow Mr Kent an opportunity to present his case including by the direction that a registrar of the Court issue a certificate to the Victorian Bar pro bono committee. Not for the first time, Mr Kent has had proper assistance in relation to his applications.
I agree that it is not necessary for Mr Kent to demonstrate special circumstances before an extension of time may be granted. To say as much draws attention to the existence and purpose of the tight time limits set in place as constraining the exercise of any right of review. Such time limits have been in place as constraining the right of review for some decades.
But in the consideration of this application, it is of fundamental importance to keep in mind the nature of this jurisdiction. As the Full Court stated in Culleton v Balwyn Nominees Pty Ltd (2017) 343 ALR 363, [40], bankruptcy is not just a variety of inter partes litigation and does not deal only with the private rights and obligations of the debtor and creditor. Just as it is not a form of judgment execution, so too, because it is directed to the estate of a person who is insolvent, it has a public interest, including for the body of potential creditors affected by the making of a sequestration order. While those principles were stated in Culleton with reference to an adjournment, they are instructive in an application for an extension of time where the time for any application for review (and indeed, any appeal) has long since passed. More broadly, they arise in the context where Mr Neve had loaned monies to Mr Kent in 2010 and Mr Bunting had done so in 2013. This context is of importance to the justice of the case. Application of the laws of bankruptcy is not a matter of abstract academic interest.
Detailed affidavits have now been prepared on Mr Kent’s behalf and I have re-examined them. As he was not cross-examined, it may be taken that those affidavits put his case at its highest.
Delay
The right to apply for the review of the exercise of power by a registrar is not absolute. Rules of Court have long since fixed a limited period in which a party may apply for a de novo review. The order for the sequestration of Mr Kent’s estate was made on 6 February 2020 whereas his application for an extension of time was filed on 1 July 2022. Here, the delay is significant.
Delay is of particular relevance where an extension of time is sought to review the exercise of power by a delegate, especially in the context of the making of a sequestration order. As noted, there is particular public interest in the expeditious determination of bankruptcy proceedings and in my view that interest is magnified where the proceeding is one of de novo review: Allison v Murphy [2021] FCAFC 232, [3]; Bechara v Bates (2021) 388 ALR 414, [176]; James v Australia and New Zealand Banking Group Ltd [2022] FCAFC 18, [68] Murphy J diss’).
Where a sequestration order has been made, the immediate impact on other creditors is to prevent them from seeking to recover their debts. Their entitlement to do so is converted to an entitlement to share in the dividends available from the divisible property of the bankrupt estate. And as counsel for the petitioner submitted, account should not be lost of the inherent likelihood of an escalation in the costs and expenses that are incurred in the administration of an estate during such a period of delay. The submission was fully borne out by the trustee’s evidence in this case which confirms the very significant costs that have been incurred to date.
Other than as a subsidiary factor which may inform the exercise of discretion whether to grant or refuse an application for an extension of time, it is not particularly relevant whether or not the delay is a reflection of any lack of desire on the part of a debtor to agitate the truth or reality of the debt grounding a sequestration order.
Counsel for Mr Kent properly accepted there was considerable delay in this case.
Explanation for delay
Preconditions to a favourable exercise of the discretion to extend time include that an acceptable explanation for the delay has been shown and that it is fair and equitable to the parties (and other creditors) to extend time in the particular circumstances of the case.
Mr Kent grounds his explanation for the delay upon a series of factors: his lack of funds arising from the freezing order placed over his assets in June 2018; his inability to obtain legal representation (both to appeal the decision of Lewitan J made in June 2019 and to oppose the amended creditor’s petition); his difficulties in filing an appeal; his caring responsibilities.
I attach some weight to the circumstance that Mr Kent was not entirely sitting on his hands and in this regard that he encountered some challenges in his attempts to file an appeal from the orders of Judge Lewitan made in June 2019. I also accept Mr Kent has constantly maintained his denial of a personal liability either to Mr Neve or Mr Bunting. But to accept as much says nothing to the relative merit of that constant denial or of any suggested appeal.
I agree in the reasoning of the registrar that the freezing order was not an insuperable obstacle preventing Mr Kent from dealing with his assets. Rather, as the registrar observed, correctly, the freezing order was framed in terms which permitted him to deal with those assets provided he did so in consultation with his creditors. A copy of the freezing order was exhibited to an affidavit and confirmed that it would cease to have effect if Mr Kent paid into court the stipulated sum of $490,000. Evidently he has not done so. To some extent those circumstances inform the further complaint made respecting a supposed inability to obtain legal advice.
I also note the freezing order permitted Mr Kent to spend up to $15,000 in legal costs. There is no evidence from Mr Kent as to why $15,000 was an inadequate sum for the purpose of obtaining legal advice or representation. Indeed, there is no evidence he has incurred that sum.
I attach comparatively little weight to the contention that Mr Kent was impeded by the lack of legal representation. It has long been a fact of modern day life that many litigants are self-represented. As Kenny J observed in EPH17 v Minister for Immigration and Border Protection at (2019) 166 ALD 47, [18], [23], a party to civil litigation, such as the applicant in this case, has no absolute right to legal representation. Even the late withdrawal of representation before a hearing does not mean a court will always grant an adjournment in the proper exercise of its discretion. Parties are entitled to a reasonable opportunity to present a case. In the present case, the evidence demonstrates Mr Kent has had ample ability to, and has prepared and filed a series of applications and a very large number of affidavits in various proceedings.
As observed in the course of argument, in the particular circumstances of this case, I do not ignore that Mr Kent has presented as an articulate, intelligent and astute man of business. Objectively, he is at the polar extreme of some self-represented litigants who are uneducated and appear in this Court having no familiarity with, or ability to speak or write in, English. I was less than persuaded of the force of a contention that he has limited technological skills. If this evidence was directed at difficulties in filing an appeal electronically via RedCrest, it was stated in the most bare of forms and unsupported by any contemporaneous records. This generalised complaint left out of account the availability of court staff having responsibility to assist self-represented litigants, including those before the Court of Appeal. It also sat in contrast to his repeated reference in the course of argument to the self-generated documents said to embody records of George Finance Pty Ltd’s financial dealings.
In those circumstances, nor do I attach particular significance to the impact of the Covid-19 pandemic or the impact which this may have had upon his ability to obtain legal advice. Again, there is a deal of evidence from Mr Kent indicating that he has taken his matter and placed it before several lawyers who have declined to accept instructions to act. And I do not ignore that Mr Kent had access to, and assistance from, no less than Mr Gronow QC and Eales & Mackenzie, solicitors, for the purposes of preparing his amended defence and counterclaim at the time he advanced his application to set aside the default judgment before Lewitan J. Those observations are of some particular importance. This is because a central task to be undertaken on the application to set aside the default judgment was whether Mr Kent was able to demonstrate a prima facie defence on the merits in answer to Mr Bunting’s claim. It is also of relevance to considerations informing the supposed merit of any appeal. In this case, Mr Kent had assumed personal liability for repayment of the monies that were advanced by Mr Bunting. Contextually, the suggestion he was exonerated from personal liability on the supposed basis Mr Bunting had been influenced by a sect to abandon his investments is notable.
While I accept that some weight should attach to Mr Kent’s caring responsibilities for his mother and the suggested impact this may have had upon his ability to address the several pieces of litigation in which he has been involved, I also accept the petitioner’s submission that there is a paucity of evidence upon this issue.
Prejudice
Although counsel for the petitioner did not aver particular prejudice by the grant of leave, as the authorities confirm, proceedings in bankruptcy are not strictly inter partes and require consideration of the body of unsecured creditors who may be affected.
Merits of application
In AHZ21 v Minister for Immigration, Citizenship and Multicultural Affairs [2022] FCA 884 at [23], Farrell J identified the principles in Hunter Valley and stated at [24] that compelling merit of a substantive application was generally required in cases of lengthy unexplained delay:
Generally, unexplained lengthy delay will require compelling merit of the substantive application to be demonstrated. It is necessary to have regard to the history of the matter, the conduct of both parties, the nature of the litigation and the consequences for the parties of a grant or refusal of the extension: (citations omitted).
Counsel for Mr Kent advanced three bases upon which it was sought to demonstrate there were sufficient prospects of success in challenging the amended petition: (1) there was no debt owing to Mr Bunting; (2) the amended creditor’s petition was invalid in that it failed to disclose the security held by Mr Bunting at the time of presenting the amended petition, and; (3) if a debt was owed, the value of security held by Mr Bunting over the assets of Mr Kent exceeded the debt claimed as specified in the amended creditor’s petition. For the purposes of the application for an extension of time, Mr Kent adduced no evidence or submission as to his solvency, however, he sought to do so in oral submissions on the de novo review.
(1) Merits – going behind judgment
The Court has power to go behind a judgment for the purposes of deciding whether a sequestration order should be made: Wren v Mahony (1972) 126 CLR 212, 221-226; Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132, [68]. Two substantive considerations are involved in the exercise of power to ‘go behind’ a judgment. First is that the Bankruptcy Court is to be satisfied whether in truth and reality there is a debt upon which the petitioning creditor may obtain a sequestration order. Secondly is recognition that the exercise of power to make the order is one which directly interferes with the interests of other creditors: Ramsay Health Care (2017) 261 CLR 132, [55]-[56], [71], [92], [98], [109].
In Ramsay Health Care, Kiefel CJ, Keane and Nettle JJ, with whom Edelman J agreed, recognised that a judgment may usually be taken as a reliable indication of the true state of a party’s indebtedness, particularly where that judgment reflected the testing of the relative merits of a claim, defence and any counterclaim following the conduct of a proceeding “under the rigours of adversarial litigation”: [68], [96]. Their Honours acknowledged the need to look with suspicion upon judgments obtained by default or consent or where evidence had not been adduced in good faith such that the interests of other bona fide creditors may be prejudiced by the making of a sequestration order: [55], [69]-[71]. Although dissenting in the result, upon a detailed examination of the authorities, Gageler J at [92] adhered to the foundational consideration “that, under whatever circumstances a judgment may have been obtained” the interests of other bona fide creditors should not fall victim of a failed legal process and accordingly, a Bankruptcy Court retained jurisdiction “to go behind a judgment entered into after a trial on the merits were a prima facie case of miscarriage of justice can be shown.”
The point of principle upon which Gageler J dissented was that the discretion conferred by s 52 to dismiss a petition should not extend to cases where, after a fully contested trial, a debtor sought, retrospectively, to go behind the judgment on the basis of poor forensic choices which may have been made in the course of that trial. In such cases, bona fide creditors were as much bound by the result of the litigation as were the parties to it: [92]. The plurality also recognised the force of those considerations but concluded the interests of other bona fide creditors should not have been prejudiced by the making of a sequestration order where the evidence left open whether a debt was truly owing: [71]. Edelman J observed that, absent some evidence of fraud, collusion, or miscarriage of justice, once a judgment had been established following a contested trial, a Bankruptcy Court would “rarely have substantial reasons to investigate whether the debt which merged in the judgment was truly owed”: [111]; see also Sayer-Jones v Juju Bean Investments Pty Ltd [2020] FCA 177, [11] (Bromwich, J).
For the purpose of satisfying itself as to the existence of the debt upon which a bankruptcy notice is based, “the principles must be applied flexibly in view of the myriad circumstances that might arise” and further “the circumstances in which the Court will go behind a judgment are not closed or constrained to any fixed categories”: Compton v Ramsay Health Care Australia Pty Ltd (2016) 246 FCR 508, [60]; Pineview Property Holdings Pty Ltd v Dimitriou (No 2) [2019] FCA 1416, [50]. Those broad statements rest upon settled principles including that for the purposes of ‘going behind’ a judgment a distinction is to be drawn between a judgment which was obtained by default, by consent, or in consequence of a compromise and judgment given following a fully contested hearing in adversarial litigation. Even in the latter circumstance, the fact that the judgment was obtained following a contested hearing does not necessarily foreclose the Court from going behind a judgment.
Nonetheless, as was emphasised in Wren v Mahony (1972) 126 CLR 212, 222-223, “the Bankruptcy Court will not as a matter of course inquire into the validity of a judgment debt.” To the contrary, the debtor bears the onus of establishing, to the requisite standard, that special circumstances or substantial reasons exist such that the Court ought to exercise its discretion to conclude that there is not in truth and reality a debt established by the judgment upon which the bankruptcy notice was founded. Expressed in the terms of par 52(2)(b), the Court may dismiss a petition where satisfied by the debtor that for other sufficient reason a sequestration order ought not be made. Illustrations of the circumstances in which the Court might be so persuaded are where a debt had been established by judgment but the debtor has taken active steps to apply to set aside or appeal from the judgment. The taking of steps merely engages the discretion to dismiss the petition: Stratton v Bowles (No 2) (2015) 12 ABC(NS) 404, [51]. The Court is ultimately concerned to evaluate whether “in truth and reality” a debt exists. It is for this reason a Bankruptcy Court may look with suspicion on a default or consent judgment in the circumstances of any case. The power to dismiss a petition is discretionary.
I have accepted without reservation Mr Kent’s submission that the adverse credit findings made against him in earlier proceedings should be disregarded. I have done so. As observed in the course of the hearing, no party sought to cross-examine any deponent upon any affidavit.
The judgment obtained by Mr Bunting was obtained in default of Mr Kent filing a defence. But as the procedural history described above confirms, the judgment was not obtained in the context of a single administrative act. Rather, the judgment was obtained, and not disturbed on application by Mr Kent to do so, in circumstances where: he knew his original defence had been struck out; he had been granted leave to file a further defence and any counterclaim; he had filed no less than six affidavits in support of his application to set aside the default judgment; he had appeared and made submissions in support of his application for orders setting aside the default judgment. It is not the fact that Mr Kent did not have access to legal advice (both from an eminent member of a Queen’s Counsel and an established firm of solicitors). I agree in the submission that Mr Kent had adduced no evidence as to whether he has spent any part of the $15,000 allocated under the freezing order for legal expenses in relation to the application to set aside the default judgment or afterwards. Nor had he adduced any evidence as to whether that sum would be sufficient for those purposes.
From the transcript of the hearing before her Honour on 22 May 2019, it is beyond question that Mr Kent fully ventilated his intended defence that he was not personally liable for the debt. Equally clear, however, is that Lewitan J was also taken to the terms of the mortgage proffered and executed by Mr Kent in favour of Mr Bunting. If poor forensic choices were made in relation to the conduct of that application, they were so made at a time when legal advice had been proffered. As the reasons given by her Honour Judge Lewitan confirmed, there is no doubt the principal ground relied upon by Mr Kent in his application to set aside the judgment was that he was not personally liable to Mr Bunting: see reasons of her Honour at [14]. As her Honour observed, Mr Kent’s submissions as to this were quite undermined by the express terms of each of the mortgages executed (and proferred) by him. They recorded that loans had been made to him and for which he was granting mortgage security: reasons at [17]. Nothing is shown why this default judgment is one that should be looked upon with suspicion.
Mr Bunting’s claim has not been tested in adversarial litigation, however, Mr Kent properly recognised the difficulty faced in his denial of the claim presented by the acknowledgement of personal liability to his creditor is embodied in the mortgages he executed. Nor do I accept that insufficient weight was attached to the statements provided by George Finance and upon which Mr Kent sought to rely. Her Honour properly recognised at [20] and [29] that those records were prepared at a time when Mr Kent was the secretary and director of that company and that they post-dated the subject loans. Lewitan J was properly entitled to pay regard to the absence of contemporaneous banking records as supporting Mr Kent’s claim that the monies had been lent to George Finance. Even accepting the George Finance statements bore the character of business records for the purposes of the Evidence Act 1995 (Cth), to apply that label distracted attention from the fact that they were internal records prepared by Mr Kent. While I have expressly disregarded the adverse credit findings made against Mr Kent by Ryan J in the County Court proceeding brought by Mr Neve, I do not regard it as impermissible to take account of her Honour’s findings in relation to Mr Kent’s self-generated records and why they did not serve to assist in his endeavours to be exonerated from personal liability.
Insofar as Mr Kent also complained that he had not been invited by Lewitan J to cross examine Mr Bunting, the complaint is to be seen in the context of his further complaint that Mr Bunting had not made an affidavit upon which he might have been cross-examined at his application to set aside the default judgment. It was a matter upon which he might have relied on appeal. In any event, contrary to his complaints, Mr Bunting did file an affidavit exhibiting copies of the mortgages. Lewitan J was evidently and fairly concerned to examine the supposed merit of Mr Kent’s denial of personal liability and whether he had a prima facie defence on the merits. Despite his explanations on this point, Mr Kent has not appealed that judgment.
I have examined the reasons of her Honour and see nothing in those reasons as might support a conclusion that there are in this case special circumstances or substantial reasons as might persuade this Court to conclude that there is not in truth and reality a debt established by the judgment upon which the bankruptcy notice was founded: cf Petrie v Redmond [1943] St R Qld 71, 75-76; Wren v Mahony (1972) 126 CLR 212, 224-225, Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132, [65], [69], [110]. It is not to the point that Mr Bunting has not filed evidence or been tested upon his evidence. Mr Kent’s first defence was struck out. He was afforded an opportunity to file a further defence but did not do so. Upon his application to set aside the default judgment he bore the onus of proof. Lewitan J clearly recognised as much citing the Full Court in Kostokanellis v Allen [1974] VR 596, 603. Insofar as Mr Kent sought to do so, he was afforded a full opportunity to file evidence and filed no fewer than six affidavits. It was squarely in issue on his application whether he was personally liable. Her Honour recognised that an applicant seeking to set aside a default judgment was ordinarily required to file an affidavit of merits which disclosed a prima facie defence: reasons at [4], citing Labura v Nezirevic (2013) 42 VR 43, 44-45. Having examined each of his six affidavits, her Honour was not satisfied Mr Kent had shown a prima facie defence on the merits.
Taking full account of those matters, a distinction is to be drawn between those cases in which a default judgment has been obtained and the defendant has been ignorant of or taken no effective step to meet and address the claim, from those in which active steps have been taken.
I attach very little weight to the submission that Mr Kent is now able to offer up evidence that, he contends, was not available to be adduced at the hearing before Lewitan J. The bank statement that was said to evidence Mr Bunting’s advance of $100,000 into the bank account of George Finance on 12 August 2013 predated by many years the hearing before her Honour. Of itself, Mr Kent’s deposit into that account said little as to the question of personal liability.
In Ramsay Health Care at [20], the plurality endorsed the statement of Barwick CJ in Wren v Mahony (1972) 126 CLR 212, 224-225, that in approaching the question of whether to go behind a judgment the Court is to exercise a discretion which, in substance, is whether to accept the judgment as satisfactory proof of the petitioner’s debt.
For all of the reasons above, Mr Kent has not discharged the onus of establishing that substantial reasons exist why the Court ought to exercise its discretion to conclude that there was not in truth or reality a debt established by the judgment which Lewitan J refused to set aside. I am not persuaded the Court should go behind the judgment obtained by Mr Bunting.
(2) Merits – disclosure of security by ‘petitioning’ creditor
Mr Kent challenged the ability of Mr Bunting to ‘present’ the amended petition, doing so on the stated basis that there had been a failure to comply with the condition in s 44(3) of the Act. It was submitted that a failure to disclose the fact of the security held by Mr Bunting at the time of presentation of the amended petition rendered it invalid.
As material to this application, s 44 of the Act reads:
44 Conditions on which creditor may petition
(1) A creditor’s petition shall not be presented against a debtor unless:
(a)there is ongoing by the debtor to the petitioning creditor a debt that amounts to the statutory minimum or 2 or more debts that amount in the aggregate to the statutory minimum, or, where 2 or more creditors join in the petition, there is ongoing by the debtor to the several petitioning creditors debts that amount in the aggregate to the statutory minimum;
(b)-(c) . . .
(2)Subject to subsection (3), a secured creditor shall, for the purposes of paragraph (1)(a), be deemed to be a creditor only to the extent, if any, by which the amount owing to him or her exceeds the value of his or her security.
(3)A secured creditor may present, or join in presenting, a creditor’s petition as if he or she were an unsecured creditor if he or she includes in the petition a statement that he or she is willing to surrender his or her security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.
(4)Where a petitioning creditor is a secured creditor, he or she shall set out in the petition particulars of his or her security.
(5)Where a secured creditor has presented, or join in presenting, a creditor’s petition as if he or she were an unsecured creditor, he or she shall, upon request in writing by the trustee within three months after the making of a sequestration order, surrender his or her security to the trustee for the benefit of the creditors generally.
(6)A secured creditor to whom subsection (5) applies who fails to surrender his or her security when requested to do so by the trustee in accordance with that subsection is guilty of contempt of court. (Emphasis added)
For the purposes of par 44(1)(a), the term ‘statutory minimum’ means $10,000: Bankruptcy Regulations 2021, reg 10A.
Paragraphs 1-2 of the amended petition (omitting deletions) read:
1.The respondent debtor owes the applicant creditor the amount of $620,550.88 for a debt pursuant to the Default Judgment dated 7 March 2019 in the County Court proceeding CI-18-03570, after the deduction of an amount recovered from realisation of a security held over the property of the respondent debtor.
2.The applicant creditor does not hold security over the property of the respondent debtor. (Emphasis added)
Counsel for Mr Kent pointed to the affidavit verifying the amended creditor’s petition made by Mr Bunting’s solicitor on 19 December 2019 deposing that “The statements in paragraphs 1, 2 and 3 of the creditor’s petition are within my own knowledge true.”
While Mr Bunting secured a default judgment against Mr Kent for $708,299 it will be recalled that he also held security by way of mortgage over certain properties.
Mr Kent challenged the veracity of the verifying affidavit and contended that at the time of filing the amended creditor’s petition on 19 December 2019, Mr Bunting in fact held security over both the Pau Street and Southernhay Street properties. Counsel pointed to the mortgages, some entries of which were recorded on the title searches to those properties as exhibited as JS-5 and JS-13 to the trustee’s affidavit made on 6 April 2022.
In my opinion, Mr Kent’s submission as to invalidity does not withstand scrutiny.
First, care is needed in the identification of the security held by Mr Bunting. From my examination of the searches exhibited to Mr Shanahan’s affidavits, the land described as:
(a)2-4 Pau Street, Coburg North, is comprised in Certificates of Title, Vol 11527 Folios 067 and 068. Mr Bunting was only registered as a proprietor of the interest of second mortgagee in the land in C/T Vol 11527 Folio 068 (being registered on 6 September 2018). I recognise the submission that Mr Bunting held security by way of an equitable unregistered mortgage over the land in C/T Vol 11527 Folio 067;
(b)Unit 1, 68 Southernhay Street, Reservoir, is comprised in Certificate of Title, Vol 08993, Folio 519. The only encumbrance by way of mortgage as recorded on that title is a mortgage in favour of Perpetual Ltd. I note the trustee was registered as sole proprietor of the fee simple estate with effect from 2 August 2021 and that a caveat was noted on title on 8 March 2017 with the caveator being Mr Bunting who grounded his claim on a mortgage dated 23 June 2014. I also note that, as at the date of the de novo hearing of the petition, this property had been sold and that Mr Bunting was paid a sum of $210,000 from the net proceeds of sale of this property (see below).
Secondly, to have framed the submission in terms of non-disclosure was entirely distracting. Section 44 is concerned with the identification of conditions which constrain the presentation of a petition by a creditor, including a secured creditor. Section 44 is disinterested in disclosure. It contains conditions for presentation of a petition. An applicable condition has been satisfied or it has not. The consequences of non-compliance require separate consideration.
Thirdly, and in any event, the broad assertion of non-disclosure was unwarranted. As concerns allegations of non-disclosure, it is necessary to recognise that Ms Struska, the solicitor acting for Mr Neve and Mr Bunting, made several affidavits which provided disclosure and did so on a constant basis. She did so at the time of presentation of Mr Neve’s petition in 2019 and upon the substitution of Mr Bunting as petitioning creditor (with the consequential amendment of the petition) in late 2019 – early 2020, and again at the de novo hearing of the amended petition.
There is no shying away from the fact that for the purposes of par 52(1)(a) of the Act, Ms Struska made a verifying affidavit. However, her verifying affidavit directed attention to the amended petition itself. From the terms of pars 1-2 of that amended petition (above), there was clear reference to the fact of a security. While it did not comply strictly with the requirements of s 52(4) of the Act by providing particulars of the securities held, it should be recognised that par 1 of the amended petition expressly referred to the fact of such security. It must also be accepted that the amended petition did not comply with s 54(3) in that it did not include a statement that Mr Bunting was willing to surrender his security for the benefit of creditors generally. Since her explanation would have been of some relevance to any further amendment of the petition I note the solicitor candidly explained it as being an error.
The context in which the error occurred includes at least the following matters: (1) Ms Struska filed several affidavits in which material facts were disclosed on a constant and updating basis; (2) by 2019, Mr Kent’s sworn evidence was that he had sold any real property he had owned; (3) insofar as any mortgage might have been of any worth, complications involving at least the Pau Street properties were that Mr Bunting held a registered mortgage on title to only one of those properties and a building located on it encroached over the adjoining title such that in the view of an agent, any sale was not likely to be without difficulty; (4) Mr Bunting had lost the execution page of one such mortgage. While none of those factors could be relied upon as somehow satisfying or circumventing the conditions in s 44 of the Act, they are of relevance in the event leave to further amend the petition arose for consideration.
Further, Mr Bunting’s solicitor made two affidavits on 9 December 2019 (that is, before any sequestration order was made). In each affidavit, she positively disclosed at [9] the following: the dismissal by Judge Lewitan of Mr Kent’s application to set aside the default judgment; the sale of a property at Southern Road, (exhibiting at p. 92-98 [LS-7] a copy of the contract of sale). The particulars of sale disclosed the sale price to be $425,000. By her affidavit, Mr Bunting’s solicitor further disclosed at [10]-[11] that when the sale of this property was completed, Mr Bunting recovered a sum of $88,512.01. As concerned complaints of non-disclosure, the solicitor also exhibited at pp. 99-100 [LS-8] a copy of the settlement statement. She deposed at [11] that “Following the deductions of the amount recovered from the sale of the Security Property, the Respondent remains indebted to the Supporting Creditor in the amount of $619,787.34 as at the time of affirming this affidavit.”
In an affidavit made by Ms Struska on 22 July 2022 for the purposes of this de novo hearing, she provided a narrative intended, no doubt, to explain the circumstances in which she had sworn an affidavit verifying the amended petition. I have examined that explanation and accept it was made in circumstances where, at the time of filing the amended petition, Mr Bunting had misplaced the signature page of one mortgage, and for this reason her client was uncertain he had any enforceable security over the subject property. While conceding a failure to comply with the requirements of s 44(3) of the Act by failing to include a statement in the amended petition recording Mr Bunting’s willingness to surrender his security as required by that provision, she deposed to her failure to do so as being through inadvertence. Ms Struska was not cross-examined and I accept her evidence and explanation. Relatedly, Ms Struska deposed to her dealings with the trustee during 2020 – 2021 in which period the topic of the surrender by Mr Bunting of his security was the subject of ongoing discussion. Far from not disclosing the fact of his securities or responding to any request by the trustee under s 44(5), it is quite clear Mr Bunting and his solicitor engaged actively with the trustee upon these topics.
Fourthly, I do not accept the contention that non-compliance with any of the conditions in s 44 would render an amended petition invalid. The applicable principles were examined, and resolved, in Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355, [35]-[36] (Brennan CJ), [70]-[71], [91]-[93] (McHugh, Gummow, Kirby and Hayne JJ).
As Project Blue Sky confirms, an act done in breach of a statutory condition does not necessarily render the act invalid and of no effect, and “Whether it is depends upon whether there can be discerned a legislative purpose to invalidate any act that fails to comply with the condition”: Project Blue Sky, [91]; see also Wilson Transformer Company Pty Ltd v Anti-Dumping Review Panel [2022] FCAFC 4, [75].
Insofar as reliance was placed upon a decision of Jarrett FM in Allied Mills Pty Ltd v Mai (2010) FLR 480, in which a conclusion of invalidity was expressed, somewhat curiously, his Honour also considered that a failure to provide particulars of a security was an irregularity, and so capable of being cured by amendment. Whatever the reasoning, Allied Mills was not followed in Biondo v Baycorp Collections PDL (Australia) Pty Ltd [2018] FCCA 1853, [116]-[118] where Riley J also recognised that a petition might be amended. I prefer the reasoning of her Honour, Riley J, in Biondo and regard it as consistent with Project Blue Sky.
I do not consider that the failure to include a statement required by s 44(3) of the Act that the security held by Mr Bunting would be surrendered for the benefit of creditors rendered invalid the filing of the amended petition. No such purpose is to be discerned from s 44 or the Act.
In my view, if the failure in this case to disclose sufficiently particulars of the security in this case entailed a breach of the condition imposed by s 44(4) to do so, it did not result in invalidity. Upon the principles stated in Project Blue Sky, it was not a purpose of that condition that the act of presenting a petition by a secured creditor without setting out sufficiently the particulars of the security should render its presentation invalid.
Other provisions in s 44 confirm the absence of a legislative purpose that a failure to comply with the conditions in s 44, in or of themselves, must result in invalidity.
The purpose of par 44(1)(a) is to place a monetary cap upon the debt or debts which may ground the presentation of a petition – the intent of this requirement is that creditors owed less than $10,000 cannot rely upon that debt to present a petition. Subsection 44(2) is framed as a deeming provision, the evident purposes of which authorise that a secured creditor may present a petition but constrain the scope of the authority by deeming a secured creditor to be a creditor for the purposes of par 44(1)(a) only to the extent by which the amount of the debt owing exceeds the value of the security. So too, subs 44(3) further constrains the entitlement of a secured creditor to present or join in the presentation of a petition “as if he or she were an unsecured creditor” by the imposition of a condition that he or she “includes in the petition a statement that he or she is willing to surrender his or her security for the benefit of creditors generally in the event of a sequestration order being made.” In the context of the practice and procedure relating to a creditor’s petition, it is well recognised one creditor may be substituted for another and that a petition may be amended. In my view, the absence of a statement of the kind required by subs 44(3) is an omission capable of being rectified by amendment. Indeed, the error may well be of a kind capable of being resolved by the application of s 306 (a point I do not decide). I hold a similar view in relation to non-compliance with the requirement in subs 44(4) as expressed in relation to non-compliance with subs 44(3). I do not construe subs 44(4) as revealing a legislative intention that failure to comply with the condition of setting out in the petition particulars of the security will render invalid the act of presenting the petition. I also consider a failure to comply with it would be capable of being addressed by amendment. Separately, subs 44(5)-(6) insert requirements that operate after the presentation of a petition by a secured creditor. These provisions point against invalidity inasmuch as subs 44(5) imposes an imperative requirement on a secured creditor to surrender a security upon written request by a trustee to do so while subs 44(6) creates penal consequences (i.e. contempt) for a failure to comply with a request. Contextually, subs 44(6) recognises that the enforcement process of contempt is available upon failure to comply with a request to surrender a security which is a matter for the Court. Had the Parliament intended to render invalid any petition presented by a secured creditor where conditions created by s 44 had not been complied with, it would have been an easy matter for such a consequence to have been expressly set out.
Applying the condition in s 44(2), the inquiry is properly directed to the value of the security and the quantum of the debt at the time of presentation of the petition (and not, as seemed to be suggested by one or other of the parties, at the time of filing the amended petition or the hearing of the petition before the registrar or the de novo hearing by this Court). At this point, I am not concerned to decide the extent to which this consideration would be relevant to the exercise of discretion upon the hearing or a de novo hearing of a creditor’s petition.
Thirdly, upon the findings of Lewitan J, the security held over certain of the Properties was for a sum of $160,000: reasons, [21]-[22]. No evidence was adduced by Mr Kent as to the terms of the security over Pau Street. Upon that basis, the factual basis for challenging an entitlement to present a petition for want of compliance with s 44(2), if it exists, is not made out.
Upon the view I have formed, as a substituted creditor, it would be necessary for Mr Bunting to demonstrate by proof, satisfaction of the conditions in s 44 at the time of presentation of the petition by Mr Neve. Again, no challenge was raised on this basis. In any event, I note the trustee’s evidence accepts Mr Neve as an unsecured creditor for a sum in excess of $700,000. It is convenient to recall that the reason the registrar appeared to conclude that Mr Neve could not proceed with the presentation of his petition in December 2019 was because, at that time, the proceeding against Mr Kent (which included his counterclaim) had not been finally determined. When Mr Neve presented the petition, he was only relying upon interlocutory orders for costs. By February 2020, Ryan J had given Mr Neve final judgment for the amount of his debt interest and costs. Collectively, those observations may be of some further relevance in the resolution of this application.
Resolution
Upon my examination of the whole of the materials before me, it would not be in the interests of the administration of justice to exercise the discretion conferred on this Court to grant an extension of time within which to apply for review of the registrar’s exercise of power to make a sequestration order against the estate of Mr Kent as occurred on 6 February 2020. Having regard to all of those matters, the application for an extension of time should be refused.
Application for review
I have considered also the application for review, doing so on the stated basis that it may later be contended I had erred in the exercise of discretion in declining an extension.
On the conduct of a hearing de novo, the petitioner bears the onus of prosecuting the petition. The only onus that may be borne by the debtor is that which arises under s 52(2) where a decision is made to prove solvency or other sufficient cause to dismiss the petition: Allison v Murphy [2021] FCAFC 232, [10]-[11] citing Bechara v Bates (2021) 286 FCR 166.
Compliance with the requirements of r 7.05 of the 2021 Bankruptcy Rules was not in issue.
The present application was conducted on that basis.
Petition
There was no issue as to service of the bankruptcy notice or amended petition. Nor was the Court’s jurisdiction to make a sequestration order in issue: Act, s 43. I am satisfied Mr Kent committed an act of bankruptcy within six months before the presentation by Mr Neve of the petition: Act, par 44(1)(c). The conditions in s 44 did not bar the presentation of a petition by Mr Neve. Those conditions do not prevent Mr Bunting being substituted as petitioner or in filing an amending petition as was ordered on 12 December 2019. Had I been wrong in those conclusions, upon his undertaking, I would have granted Mr Bunting leave of the Act, now for then, to include a statement in the amended petition pursuant to s 44(3) recording his willingness to surrender his security for the benefit of creditors generally in the event a sequestration order was to be made against Mr Kent upon this de novo review.
Likewise, I am satisfied by Mr Bunting’s proof of the matters required by s 52(1) of the Act.
As the authorities below confirm, where satisfied of the matters required by s 52(1) of the Act, the petitioner has a prima facie entitlement to, and for that reason the Court generally will make, a sequestration order against the estate of the debtor. It retains discretion not to do so.
By s 52(2) of the Act, a Bankruptcy Court may dismiss a petition in circumstances where it has not been satisfied with proof of the matters required by s 52(1); alternatively, where it has been satisfied by the debtor that he or she is able to pay his or her debts or that for some other sufficient cause a sequestration order ought not to be made.
Solvency
By s 52(2), the Court is conferred a discretion to dismiss a petition where satisfied that a debtor is able to pay his or her debts or that, for other sufficient cause, a sequestration order ought not to be made. It cannot be ignored that solvency occupies a central role in the exercise of jurisdiction under the Act. In light of the quasi-criminal nature of the proceeding, it recognises the public interest directed to sequestration orders not being made against the estate of persons who are solvent. One aspect of the public interest arises from the critical importance of recognising the interests of creditors (other than the petitioner), of being paid in full, should not be prejudiced by the making of a sequestration order that should not be made. A corollary of that public interest is the due administration of an insolvent estate for the general body of existing and potential creditors. Contextually, delay is inimical to such proper administration.
As importantly, an order for the sequestration of a person’s estate effects a critical change in the debtor’s status with the significant personal consequences that this entails: Wren v Mahony (1972) 126 CLR 212, 223-225; Kleinwort Benson Australia Pty Ltd v Crowl (1988) 165 CLR 71, 82; Re Sarina; Ex parteSarina v Council of the Shire of Wollondilly (1980) 43 FLR 163, 165-166; Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372, 376-377; Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137, 148; Culleton v Balwyn Nominees Pty Ltd (2017) 343 ALR 632, [40]-[46], [55]; Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132, [55]; Bechara v Bates (2021) 286 FCR 166; Boensch v Somerville Legal (2021) FCR 293, [85]-[88].
Before the hearing of this proceeding, a number of opportunities had been extended to Mr Kent including with respect to the filing of his application, evidence and submissions. Mr Kent did not adduce evidence or make written submissions as to his solvency, however, in the course of her address, Ms Umbers submitted there was evidence from which solvency could be inferred.
Although Mr Kent did not file any affidavit as to solvency for the purpose of this hearing, an affidavit that had been made by him on 17 August 2018 was exhibited at pp. 67-69 [LS-6] to an affidavit made by Mr Bunting’s solicitor on 5 February 2020. By this affidavit, Mr Kent had deposed he had certain interests as an assignee of mortgages over a number of properties but complained that documents relating to those interests were now in the possession of a named firm of solicitors who, he claimed, “had illegally raided the property of 86 Southern Road Heidelberg Heights.” Insofar as any interest in real property was concerned, Mr Kent deposed “as at the time of the 7 June 2018 or since I have had no interest in any land or buildings other than the proposed counter-claim for the stealing of my home at 86 Southern Road Heidelberg Heights by Luiza Struska of LS Law & Conveyancing.” Mr Kent referred in somewhat vague terms to other properties that he had sold with unpaid mortgages and which “may still not be paid out.” Mr Kent also identified five bank accounts holding an aggregate sum of $7,000. I infer that this affidavit had been sworn in obedience to the requirements of the freezing order made by Cosgrave J in mid-2018. As noted, a copy of the freezing order was in evidence. It required Mr Kent to make an affidavit within seven days after service, disclosing his assets and liabilities. The freezing order was expressed to apply, in particular to certain assets including seven specified properties and the shares into identified companies (or the proceeds of sale thereof). I note that on 26 June 2018, Cosgrave J made orders directing Mr Kent to file and serve any affidavits upon which he may seek to rely in relation to an application for contempt made by Mr Neve. Ultimately, an order was made on 23 July 2018 extending the time for compliance by Mr Kent for the filing of an affidavit in obedience to the freezing order by 7 August 2018. Those events correlate closely with the date of his affidavit.
Given the opportunities that have been extended to him, I am not satisfied by the indirect route sought to be employed on behalf of Mr Kent that his solvency has been established.
Some other evidence also shed light upon the question of solvency. In particular, the trustee’s evidence addressed Mr Kent’s foreshadowed application that upon the sequestration order being set aside, an order should be made that all property vested in the trustee should re-vest in him. Mr Shanahan deposed that matters placed before him in relation to this issue were:
(1)the trustee presently had cash at bank of ~$52,000;
(2)if orders for vacant possession and sale were made in relation to the four remaining properties, the potential equity of the estate could be ~$1.694M;
(3)liabilities of the estate comprising unsecured creditors, statutory charges, realization and insurance costs together with the trustee’s fees and disbursements (exclusive of legal costs) were ~$1.095M;
(4)taking account of the recently disclosed further creditors of the estate, the estimate provided by Mr Shanahan suggests an estimated surplus of $823,500.
Mr Shanahan exhibited at p.108 of JS-1 to his affidavit made on 22 July 2022 a summary of his estimate of assets and liabilities. In this estimate, the trustee had included Mr Bunting as a secured creditor for $500,241.76 and as holding mortgage security over the Pau Street property. Such security was noted as ranking second behind the first mortgagee, Mr Kyritsis. Mr Neve was included in that statement as an unsecured creditor for $710,511.02. The total of unsecured creditors was $1.431M and secured creditors are listed at $1.497M.
As was submitted, this was some evidence of the solvency of the estate. Doing the best I can with the evidence, it is difficult to ignore the several complications which may attend any process of realising property that is divisible amongst the creditors not the least of which was Mr Kent’s denial in 2018 that he owned any real property. In this context, it is also useful to pay regard to the evidence that was adduced in relation to the several properties identified in the investigation of Mr Kent’s examinable affairs some of which points to the particular difficulties in effecting a sale at the best realisable price while other evidence points to the dilapidated state of the properties including the several complications arising from the occupancy of the Pau Street properties by a collective of, it seems, artists, who have somehow “hotwired” an electricity supply to their various caravans or vans: cf Shanahan (Trustee), in the matter of Kent (a bankrupt) [2022] FedCFamC2G 631, [21]-[53].
The troubled history of this administration gives cause to doubt whether the onus of establishing solvency for the purposes of par 52(2)(a) has been discharged by Mr Kent. Without ignoring that Mr Shanahan has identified the prospect of a surplus, he did not do so in unqualified terms and other parts of his evidence points to the qualifications that attend it.
The test of solvency is a mixed asset and cash flow test that is often expressed in terms of whether a debtor is able to pay his or her debts as and when they fall due from the assets and resources which are reasonably available to him or her within an appropriate period of time: Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163 (Deane J), (appeal dis’d) Sarina v Wollondilly Shire Council (1980) 48 FLR 372 (Bowen CJ, Sweeney and Lockhart JJ).
Having reflected upon the issue at some length, I was not persuaded by Mr Kent’s submissions as to solvency. Framed in terms of the applicable test, I was not persuaded that, within an appropriate period of time, Mr Kent would be able to pay his debts as and when they fall due from his assets and any other (unidentified) available resources.
Other sufficient cause
In Stratton v Bowles (No 2) (2015) 12 ABC(NS) 404, [27], Beach J affirmed that “A petitioning creditor has a “prima facie right” to a sequestration order once proof of the matters required by s 52(1) has been satisfied (citations omitted).” Paragraph 52(2)(b) of the Act then confers discretion on the Court to dismiss a petition where it is satisfied by the debtor that “for other sufficient cause” a sequestration order ought not to be made.
The apparently wide terms of par 52(2)(b) must be understood in their proper context. One begins from a premiss that upon proof of the matters in s 52(1) of the Act “the Court will generally proceed to make an order for sequestration.” Totev v Sfar [2006] FCA 470, [37] (Allsop CJ); see also see, e.g., Commonwealth Bank of Australia v Doggett [2019] FCAFC 19, [33]; Toyota Finance Australia Limited v Singh, in the matter of Singh [2020] FCA 949, [16]. In Toyota Finance at [27], Gleeson J, was unpersuaded by the debtor of other sufficient cause being shown against the making of a sequestration order where no application had been made to set aside a default judgment.
It is inappropriate to catalogue or circumscribe the infinitely variable circumstances which may constitute “other sufficient cause”: Stratton v Bowles (No 2) (2015) 12 ABC(NS) 404, [27]. If a sufficient other cause is shown, this merely engages the discretion to dismiss the petition.
The power to make a sequestration order is expressed in permissive, not mandatory, terms. In and of itself, the circumstance that a debtor may demonstrate the existence of some other sufficient cause within the meaning of par 52(2)(b) “does not entitle him or her to have a sequestration order refused”: Stratton, [2015] FCA 43, [27]-[30]. The reasoning in Stratton was endorsed in Li v Wu [2020] FCA 776, [96(g)] (Griffiths J) and Toyota Finance Australia Ltd v Berro [2022] FCA 497, [34]-[37] (Burley J).
Mr Kent bore the onus of proof. Nothing in the considered submissions made on his behalf persuade me to the view that he has discharged the onus of showing that for some other sufficient cause the Court should exercise its discretion to dismiss the amended petition.
As to this issue, a number of matters may be noted. First, it is uncontested that Mr Kent has not filed a statement of affairs in nearly two and a half years. Secondly, the tenor of his communications with the trustee indicate that he is generally unwilling to cooperate in a manner that is likely to address the orderly administration of his estate including by the distribution of a dividend to his creditors. Thirdly, the trustee’s uncontradicted evidence is that from his dealings with the Australian Taxation Office, Mr Kent has no less than 12 outstanding income tax returns for the financial years ended 2004 to 2020. Fourthly, I am satisfied that in a case of the present kind the Court should be mindful that these proceedings are not inter partes but operate for the broader protection of the body of Mr Kent’s unsecured creditors. The making of a sequestration order will not operate to the prejudice of other creditors in this case. Fifthly, it is consistent with the broader protection of that body of unsecured creditors to give due recognition to the trustee’s stated belief that Mr Kent’s bankruptcy would be annulled once his debts have been paid in full and the surplus returned to him. Taking due account of those matters together with the issues presented under s 52(1) and (2) in this case, it seems to me consistent with the proper application of the laws of bankruptcy that the trustee be permitted to do that which Mr Kent has persistently failed, refused or neglected to do over so many years.
Having regard to the regrettable and extensive history of litigation which has occurred since at least 2019 and upon a re-examination of the evidence relied upon in this application, applying the principles in Stratton, I would not have exercised the residual discretion reposed in the Court to dismiss the petition under par 52(2)(b) in this case for other sufficient cause.
Resolution
I would have been satisfied by proof of the matters required by s 52(1) and so, subject to any further considerations would have affirmed the making of a sequestration order against the estate of Mr Kent. I was not satisfied by proof to the requisite standard of Mr Kent’s solvency. Nor was I satisfied that for other sufficient cause a sequestration order should not be made. Nor would I have exercised a residual discretion not to do so.
Had I determined that the conditions in s 44 of the Act were conditions that were engaged upon the filing of the amended petition by Mr Bunting, I would not have dismissed the petition. First, had I considered it an appropriate course to adopt, I would have accepted the undertaking proffered by counsel on his behalf to further amend the petition to include a statement of willingness to surrender his security for the benefit of the creditors generally in the event a sequestration order was made against Mr Kent’s estate. Secondly, having regard to some of the evidence respecting the value of his security and the amount of his debt, I may have had some reservations whether it was open to Mr Bunting as at 6 February 2020, to press for a sequestration order at that time. However, in light of the dismissal by Ryan J in February 2020 of Mr Kent’s counterclaim against Mr Neve and her entry in his favour of a judgment for an excess of $700,000, I would have adjourned the petition in order to permit Mr Neve to consider whether he wished to be re-substituted as petitioner pursuant to s 49. Notably, the power conferred by s 49 is framed in terms permitting the Court to act of its own initiative.
Status of registrar’s order
In deference to the parties’ submissions, I note attention was also drawn to the status of the order made on 6 February 2020. In particular, it was correctly submitted on behalf of the trustee that when a delegated power was exercised by a registrar, it was to be “taken, for all purposes, to have been exercised by” the Court or a judge, as the case required: 1999 Act, s 103(2). A like provision is now enacted by s 254(4) of the 2021 Act.
Where, on review, a judge concludes that the order made by the registrar should not have been made, the past validity of the registrar’s order is not “undone” but “takes effect without reservation when pronounced.” Consequently, where a judge reaches a different decision to that of the delegate, “the earlier, valid and operative, [order] comes to an end, and is replaced by the order when made by the judge.” By extension, and for the same reasons, “even where, on review, the Court determines that the same order should be made as was made by the delegate it is usual for the Court on review to affirm the orders made by the delegate”: Robson as former trustee of the estate ofSamsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 (2021) 286 FCR 494, [65]-[67], [257] (Colvin J), the four other members of the Court agreed with his Honour on this issue: [22]-[24] (Allsop CJ), [38] (Markovic J), [40] (Derrington J, [298] (Anastassiou J). Those principles have been accepted in a succession of Full Court decisions: Allison v Murphy [2021] FCAFC 232, [34] (Besanko, Colvin and Downes JJ); Porter as former trustee of the estates of Ghasemi and Kakhaz v Ghasemi (2021) 286 FCR 556, [15(1)] (Allsop CJ, Markovic, Derrington, Colvin and Anastassiou JJ); Bechara v Bates [2021] FCAFC 34, [3], [149], [155] (Allsop CJ, Markovic and Colvin JJ).
Accordingly, had an extension of time been granted and, contrary to my conclusion, if I had instead decided that the sequestration order ought to have been set aside, by force of s 254(4) of the 2021 Act and upon the principles stated or endorsed by the Full Court, I would have been bound to hold that the order made on 6 February 2020 had taken effect without reservation when it was pronounced and was not undone for any purposes. Rather, had the application for de novo review been upheld, the operative effect of the order made on 6 February 2020 would have come to an end only upon the making of an order by this Court allowing the application. But I would not have dismissed the petition.
Conclusion
My primary conclusion was that it is not in the interests of the administration of justice to exercise the discretion reposed in the Court to extend time in which Mr Kent might apply for a de novo review of the registrar’s order made on 6 February 2020. My further conclusions were expressed on the basis that, contrary to my view, an extension of time should have been granted. Conformably with the reasoning in those authorities, it is also appropriate to make an order affirming the decision of the registrar made on 6 February 2020 and I shall so order.
Mr Kent’s application for and extension of time should be dismissed.
I certify that the preceding one hundred and ninety-eight (198) numbered paragraphs are a true copy of the Reasons for Judgment of Judge A Kelly. Associate:
Dated: 9 August 2022
1
35
0