BANKRUPTCY AND INSOLVENCY – appeal from a sequestration order – where appeal by way of rehearing – where primary judge was not satisfied that debtor had discharged her onus to prove that she was able to pay her debts within the meaning of s 52(2)(a) of the Bankruptcy Act 1966 (Cth) – where primary judge erred in concluding that the debtor abandoned reliance on the availability of a line of credit in support of her contention that she was relevantly solvent – where error established – where Full Court at no disadvantage in assessing the evidence in relation to the line of credit – whether on assessment of the totality of the evidence, including that which the primary judge erred in not considering, the debtor had discharged her onus under s 52(2)(a) of the Act – where onus not discharged – whether primary judge’s orders should be disturbed – Held: appeal dismissed
Legislation:
Bankruptcy Act 1966 (Cth) ss 37, 40(1), 43, 52(1), 52(2)
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Mangano v Bullen [2025] FCAFC 42
Case
[2025] FCAFC 42
Decision Date
CaseChat Overview and Summary
The appeal in Mangano v Bullen, [2024] FCAFC 86, involved the bankruptcy of Ms Mangano, who appealed against a sequestration order issued in favour of Ms Bullen, her creditor. The dispute arose from a long-standing legal battle initiated by Ms Mangano, who claimed that her father and Ms Bullen had obtained property through fraud. The primary issues for the court were whether Ms Mangano had discharged her onus to prove her solvency, and if the primary judge's decision should be upheld.
The central legal issue before the court was whether Ms Mangano had successfully discharged her onus of proving her solvency, as required by s 52(2)(a) of the Bankruptcy Act 1966 (Cth). The court needed to determine if Ms Mangano could prove she had the ability to pay her debts, considering the totality of the evidence, including whether the primary judge had erred in not considering the availability of a line of credit.
The Full Court found that while the primary judge had erred in concluding that Ms Mangano had abandoned her reliance on the availability of a line of credit, this error did not affect the overall outcome. The court concluded that, on assessment of the entire evidence, Ms Mangano had not discharged her onus to prove her solvency. Therefore, the court upheld the primary judge's decision to issue a sequestration order. The Full Court was satisfied that the primary judge's orders should not be disturbed.
The appeal was dismissed, and the appellant was ordered to pay the respondent's costs as agreed or assessed. This decision underscores the importance of proving solvency in bankruptcy cases and affirms the court's discretion to sequestrate an estate where the debtor fails to meet this onus.
Orders
Orders of the court
1. The appeal be dismissed.
2. The appellant pay the respondent’s costs as agreed or assessed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Although my reasons for doing so diverge from those of Shariff and Needham JJ as to the ambit of the appeal ground, the assessment of the evidence and what is required of this Court on the hearing of the appeal, I agree that the appeal must be dismissed with costs. My reasons are as follows.BACKGROUND This appeal is the continuation of a long running dispute between the parties following the death of Rosario (John) Mangano. Mr Mangano was Ms Mangano’s father and Ms Bullen’s partner. The broader procedural history spans about eight years. The basal dispute was a claim brought by Ms Mangano asserting that her father and Ms Bullen obtained their interests in a property in Glebe by fraud. Ms Mangano sought orders to set aside the transfer of the property. Ms Mangano also sought to set aside a further transfer which converted the interests of the deceased and the respondent from tenants in common to joint tenants. In her capacity as the executor of her father’s estate, Ms Mangano ultimately sought orders for the estate to regain a one-half interest in the Glebe property. Ms Mangano’s claim was dismissed at first instance: Mangano v Bullen [2019] NSWSC 1704 (Slattery J) and on appeal: Mangano v Bullen [2020] NSWCA 283 (Bathurst CJ, Meagher and Payne JJA). On 15 May 2024, Ms Bullen filed a creditor’s petition in respect of the judgment debts. Ms Bullen sought to recover costs orders made in her favour by engaging in costs assessments in relation to the separate proceedings, each of which was resolved in favour of Ms Bullen. Subsequent review applications brought by Ms Mangano were unsuccessful. Ms Mangano appealed the review applications to the District Court of New South Wales. On 11 July 2024, the appeal was dismissed and a lump sum costs order in the sum of $7,000 was made in favour of Ms Bullen: Mangano v Bullen [2024] NSWDC 294 (Newlinds SC DCJ). On 22 February 2024, three judgments were entered in favour of Ms Bullen in the Local Court of New South Wales for the cumulative sum of $160,993.32 (PJ[1]), which supported the bankruptcy notice BN263728 issued by the Official Receiver on 8 March 2024. The existence of this debt was not in dispute before the primary judge: PJ[1]. On 19 April 2024, the bankruptcy notice was personally served on Ms Mangano: PJ[3]. Ms Mangano failed to comply with the bankruptcy notice by the designated date and accordingly committed an act of bankruptcy which is relied on for the purpose of the creditor’s petition which is the subject of this appeal: PJ[3].THE PRIMARY JUDGMENT IN THE STATUTORY CONTEXT Notwithstanding that the appeal did not involve any issue of principle, an exposition of the statutory framework and applicable principles is required to properly understand the manner in which the primary judge approached the statutory task and ultimately exercised the Court’s discretion to sequestrate Ms Mangano’s estate. In setting out the statutory context and applicable principles, I will cross-refer as necessary to the relevant parts of the primary judgment. I will also identify which issues were contested before the primary judge and the underlying thesis which informed Ms Mangano’s opposition to the petition, both before the primary judge and on this appeal.
Evidence
Evidence Before The Court
A review of the whole of the transcript makes it plain that the proceeding was conducted on the basis that the central issue was proof of solvency and the adequacy of Ms Mangano’s evidence to discharge her onus on that issue. Ms Bullen contended that: (1) Ms Mangano’s evidence was inadequate; (2) her capacity to test Ms Mangano’s evidence was hampered by the non-production of relevant documents; and (3) the primary judge should take into account the non-production of documents when assessing the sufficiency of the evidence. Ms Mangano’s position was that the documents which were not produced were not relevant — a proposition which the primary judge rejected. A review of the whole transcript makes plain that the parties proceeded from the outset on the basis that the matters in issue were sufficiently delineated and the case would be won or lost in submissions. Ms Mangano’s evidence as to solvency The principal source of Ms Mangano’s evidence as to her financial position was her affidavit, which was supplemented by her oral evidence. Relevantly for present purposes, Ms Mangano asserted in her affidavit that she had no liabilities other than the three Local Court orders the subject of the creditor’s petition (totalling $160,993.32) and $7,000 in respect of a lump sum costs order made against her and in favour of the applicant by the District Court of New South Wales on 11 July 2024: PJ[15(6)] and [16]. She did not disclose in her affidavit that she had credit card debts, which by 14 October 2024 were in the order of $5,000. That emerged in her oral evidence after she produced the National Australia Bank (NAB) account summary that became part of Exhibit R1. The bank statements and banking records that Ms Mangano annexed to her affidavit were missing pages and only covered limited periods. Ms Mangano’s evidence did not establish that the limited banking records that she had produced covered all of her bank accounts, and if not, whether other bank accounts existed and whether they were in credit or debit balance. Further, it was not possible to discern Ms Mangano’s regular living expenses from a review of the documents that she placed in evidence. The notice to produce issued to Ms Mangano was directed, amongst other things, to eliciting evidence concerning her liabilities; ascertaining if she had extant tax liabilities; and ascertaining whether she held bank accounts other than those in respect of which she had produced limited incomplete statements. Evidence going to her liabilities was clearly relevant to whether Ms Mangano could pay her debts within the meaning of s 52(2)(a) of the Act, and in any event, Ms Mangano had put that in issue by asserting that she had no liabilities other than those associated with the court orders identified above and unquantified recurrent outgoings of generic description. Ms Mangano’s response to the notice to produce The hearing commenced with the petitioning creditor’s solicitor calling on a notice to produce directed to Ms Mangano. The notice to produce became Exhibit A2 on the application. By the time of the hearing, the notice to produce had already been returned before a Registrar on two occasions. The notice to produce was again called on at the commencement of the hearing. At the time the call was made, Ms Bullen’s solicitor indicated that he understood that Ms Mangano intended to apply to have the notice to produce set aside. The primary judge said that he would first deal with the application to set aside the notice to produce. Before addressing the application to set aside, Ms Mangano’s then counsel produced some additional material in answer to the call which became Exhibit R1. It is necessary to divert temporarily to explain an anomaly in relation to this exhibit.
Decision
Reasons for decision
This contention was the subject of both written submissions and oral address. The evidence led in relation to the availability of the line of credit was one of the central planks of Ms Mangano’s evidence on solvency and the overarching basis of Ms Mangano’s appeal is that the primary judge erred in not finding that she was solvent.CONCLUSION IN SUMMARY FORM For the reasons which follow, I am satisfied that, subject to the line of credit issue, the appellant has not established error in relation to the primary judge’s conclusion that she did not discharge her onus to establish that she was able to pay her debts under s 52(2)(a) of the Act. However, I have concluded that the primary judge erred in concluding that the line of credit issue had been abandoned. That being the case, it falls to this Court, being as well placed as the primary judge in this instance, to decide whether Ms Mangano has discharged her onus arising under s 52(2)(a) of the Act on the basis that the line of credit is in play given that it is, in my view, squarely within the broad parameters of Ground 1. This Court is thus required to make its own findings on the whole of the evidence that was before the primary judge. Having undertaken that task, I am not satisfied that Ms Mangano discharged her onus to prove that she was able to pay her debts as at the date of the hearing before the primary judge. In short, applying the civil standard, the whole of the evidence led by Ms Mangano assessed in the context of the totality of the evidence did not rise to the level where I felt an actual persuasion that Ms Mangano was able to pay her debts as at the date of the hearing. The whole of the evidence does not satisfy me of the affirmative on this issue. In the end, Ms Mangano has not proved that she is able to pay her debts. Accordingly, the discretion as to whether to make a sequestration order under s 52(1) arises in circumstances where Ms Mangano has not proved her solvency so as to enliven the discretion in s 52(2). In these circumstances, I am further satisfied that it is appropriate to exercise the discretion conferred by s 52(1) of the Act to order that Ms Mangano’s estate be sequestrated. That is the position at which the primary judge arrived, notwithstanding the error in not considering the evidence in relation to the line of credit. In these circumstances, I see no reason to disturb the primary judge’s orders. Although my reasons for doing so diverge from those of Shariff and Needham JJ as to the ambit of the appeal ground, the assessment of the evidence and what is required of this Court on the hearing of the appeal, I agree that the appeal must be dismissed with costs. My reasons are as follows.BACKGROUND This appeal is the continuation of a long running dispute between the parties following the death of Rosario (John) Mangano. Mr Mangano was Ms Mangano’s father and Ms Bullen’s partner. The broader procedural history spans about eight years. The basal dispute was a claim brought by Ms Mangano asserting that her father and Ms Bullen obtained their interests in a property in Glebe by fraud. Ms Mangano sought orders to set aside the transfer of the property. Ms Mangano also sought to set aside a further transfer which converted the interests of the deceased and the respondent from tenants in common to joint tenants. In her capacity as the executor of her father’s estate, Ms Mangano ultimately sought orders for the estate to regain a one-half interest in the Glebe property. Ms Mangano’s claim was dismissed at first instance: Mangano v Bullen [2019] NSWSC 1704 (Slattery J) and on appeal: Mangano v Bullen [2020] NSWCA 283 (Bathurst CJ, Meagher and Payne JJA).
Ratio Decidendi
Legal Principle Established
Ms Mangano’s submissions on the appeal similarly pursued this line of argument — that she was able, but unwilling, to pay her debts. The necessary predicate before the issue of whether the discretion to make a sequestration order should be exercised in favour of making such an order in these circumstances, is that the debtor has established an ability to pay her debts to the satisfaction of the Court. CONSIDERATION The starting point is that notwithstanding that s 37(2)(a) of the Act relevantly provides that the Court does not have power to rescind or discharge or to suspend the operation of a sequestration order, the appellate powers of this Court pursuant to s 28 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) enable the Court to set aside a judgment in which a sequestration order is made: see Robson v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143; 286 FCR 494 at [27] (Allsop CJ, Markovic and Derrington JJ agreeing); De Robillard v Carver [2007] FCAFC 73; 159 FCR 38 at [149]‑[151] (Buchanan J, Moore and Conti JJ agreeing). I bear in mind that this is an appeal by way of rehearing. In this regard, it is convenient to extract an oft-cited passage from Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25 at [45] (Jagot, Yates and Bromwich JJ):Appeals to this Court are by way of a rehearing (Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 at [20]). An appeal by way of rehearing requires this Court to decide the case for itself as to both facts and law and give effect to its own judgment (Warren v Coombes (1979) 142 CLR 531 at 552). However, this does not remove the need to find error on appeal before intervening (Branir at 435 [21]). In practice, the application of these principles may involve accepting the findings of the trial judge, especially factual findings, including as to the reliability and credit of witnesses and the weight that should be given to competing evidence, unless shown to be wrong (Cabal v United Mexican States [2001] FCA 427; (2001) 108 FCR 311 at [223]-[224], quoted with approval in Branir at [23]). However it should be observed that as there was no oral evidence in this case and all the representations were before this Court in documentary form, this Court is under no disadvantage compared to the primary judge in relation to consideration of the facts and evidence. The requirement for error to be established nevertheless remains. In this appeal, if error is established, then given the nature of the evidence, this Court is in as good a position as the primary judge to assess the evidence, and accordingly should proceed to make such findings and evaluative conclusions and formulate its own reasoning, in order to address the error of the primary judge: Robinson Helicopter Company Inc v McDermott [2016] HCA 22; 331 ALR 550 at [43] (French CJ, Bell, Keane, Nettle and Gordon JJ). After some equivocation, the parties ultimately adopted the position that Ground 1 fell to be determined according to the correctness standard of appellate review, and by contrast did not require Ms Mangano to establish House v R error, at least as to the overarching error. In the circumstances of this appeal, as will become apparent, I do not think the outcome differs depending on which standard of appellate review is applicable. As this issue was not fully developed in argument, and in the circumstances of this appeal is not determinative, it is not necessary to decide.