Murphy v Allison
[2021] FedCFamC2G 184
•24 September 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)Murphy v Allison [2021] FedCFamC2G 184
File number(s): BRG 85 of 2021 Judgment of: JUDGE JARRETT Date of judgment: 24 September 2021 Catchwords: BANKRUPTCY – Creditors petition – review of registrar’s decision – payment after sequestration order – whether that still due and owing. Legislation: Bankruptcy Act 1966 (Cth) s 52
Bankruptcy Regulations 1996 (Cth)
Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020 (Cth)
Cases cited: Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach [2021] FCAFC 143 Division: Division 2 General Federal Law Number of paragraphs: 24 Date of last submission/s: 27 August 2021 Date of hearing: 27 August 2021 Place: Brisbane Counsel for the Applicant: Mr Morris QC Solicitor for the Respondent: CCA Legal Pty Ltd ORDERS
BRG 85 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: JOHN PAUL MURPHY
Applicant
AND: PAUL FRANCIS ALLISON
Respondent
ORDER MADE BY:
JUDGE JARRETT
DATE OF ORDER:
24 SEPTEMBER 2021
THE COURT ORDERS THAT:
1.The order made on 2 June, 2021 is confirmed.
2.The application filed on 4 June, 2021 is dismissed.
3.The applicant for review should pay the respondent’s costs of and incidental to the review. Those costs to be taxed and paid in accordance with the Federal Circuit Court of Australia Bankruptcy Rules 2016.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review 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
JUDGE JARRETT:
This is the hearing of an application to review an order made by a registrar. The registrar’s order was a sequestration order against the estate of the applicant on the review. The creditor’s petition which led to the making of the sequestration order was filed on 4 March, 2021. The petition was originally heard on 2 June, 2021 and, as I say, determined by a sequestration order being made against the estate of the applicant for review. Because the sequestration order was made by a registrar it is subject to review and the debtor has now applied for that review.
The hearing before me is a hearing de novo of the creditor’s petition. New material can be received on the hearing of the application, there can be new arguments made and I can conduct the proceedings as if they were proceedings that have been set down for determination at first instance: see the remarks of Colvin J at [63] of the decision in the Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach [2021] FCAFC 143.
The debtor seeks to rely on some further evidence. The evidence goes to some factual matters that occurred after the making of the sequestration order and before the rehearing before me. The reception of that material was objected to by the applicant, the creditor. But I have determined to receive it. That is because I can conduct these proceedings as if they were proceedings before me for the first time. If this was the first hearing date then given the time at which the respondent debtor filed the material having regard to when the hearing occurred before me there was plenty of time for the creditor to respond if the creditor wished to do so. So I will receive that material.
The creditor’s petition is based upon a judgment given by the Magistrates Court of Queensland at Brisbane in favour of the creditor against the debtor. The judgment was said to be for $28,758.60 plus $12,709.42 for interest up to and including the date of the judgment and $7464 for costs. The total under the judgement was $49,032.02.
The bankruptcy notice upon which the petition relies followed the judgment. Service of the bankruptcy notice upon the debtor is not in issue on the material before me and I find that service of the bankruptcy notice was effected on 22 January, 2021. There does not seem to be any dispute that there was no compliance with the bankruptcy notice by the debtor. And having regard to that I find that the debtor committed an act of bankruptcy on 12 February, 2021 because he did not comply with the terms of the bankruptcy notice.
In paragraph 1 of the petition the creditor alleges that the debtor owes him a sum of $56,757.92. Paragraph 1 includes a table which sets out the judgment debt, interest that has accrued on the judgment to the date of the petition and then includes amounts for the application fee for the bankruptcy notice, the filing fee for the creditor’s petition and costs of the creditor’s petition. The total at the conclusion of the table is $57,234.92 which is different to the amount claimed at the commencement of paragraph 1 of the petition and which bears no resemblance to the judgment debt or the judgment debt plus interest accrued up to the date of service of the bankruptcy notice.
The petition clearly overstates the amount owed by the debtor to the petition creditor but the inclusion of the issuing fee, the filing fee, and the costs of the petition are an irregularity only, in my view, that does not invalidate the petition. And, certainly, the debtor does not argue that the creditor’s petition is not valid by reason of those inclusions.
Despite some initial difficulty in serving, the petition upon the debtor service was effected. And on 27 April, 2021 the debtor filed a notice of appearance in the proceedings commenced by the petition. I am satisfied in those circumstances that the petition has been served on the debtor.
The debtor has never filed a notice setting out his grounds of opposition to the petition. In argument before me he now says that the amount owed to the creditor is less than the statutory minimum prescribed by the Bankruptcy Regulations 1996 (Cth). That statutory minimum was prescribed as $10,000 by the Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020 (Cth) which commenced operation – and that statutory minimum, I should say, commenced operation on 1 January 2021.
To understand the debtor’s arguments about this matter some facts are necessary. When the petition came before the registrar for hearing on 2 June, 2021 the debtor’s solicitor asserted in submission that he held money in his trust account for the purpose of making a payment to the creditor in payment of the debt. The amount to be paid was not the entire debt but an amount which would reduce the amount owing by the debtor to the creditor to a sum less than $5000. It would leave something like $4999.11 owing to the creditor.
Senior counsel appearing for the petitioning creditor informed the registrar that the creditor would not accept anything less than full payment of the debt subject to the proceedings. So much is sworn to by the creditor in his most recent affidavit.
The debtor sought an adjournment of the hearing of the petition on the basis that payment was soon to be made or could be made but that adjournment was refused and the sequestration order was made.
In his affidavit filed on 24 August, 2021 the debtor swears that he is “the appointed trustee and remain in that position of the Russell Red Fanny Family Trust, the equitable proprietor of the land at 4847 Huon Highway, Geeveston”. He swears that some of that land was sold for $800,000 on 6 April, 2021 and that he intended to use part of the sale proceeds to discharge his debt to the creditor. He does not explain how he would be permitted to do so given that he was only the trustee of the family trust that owned the land beneficially. But nonetheless, it seems the sale fell through and the funds were not available to him.
The debtor explains that he then approached his local bank for finance to enable him to pay sufficient funds to his solicitor to repay the creditor. And although the loan was verbally approved by his local branch the head office branch did not approve the loan. In the same affidavit he swears that, “Subsequently I borrowed $47,384 from my immediate family which was paid to my solicitor on 2 June 2021”. The applicant made a further small payment to his solicitor on 17 August, 2021.
The applicant’s solicitor, John Edward Franklin, swears an affidavit filed on 24 August, 2021. In that affidavit he swears that on 19 June, 2021 he caused to be paid to the creditor from his trust account the sum of $25,000. He caused further payment of $22,384 to be made on 21 June, 2021 to the creditor. He swears that the monies were held by him in his trust account on 2 June, 2021. That is, the day that the matter was before 2 June, 2021 and that was the day the matter was before the registrar.
It is uncontroversial that the payments made by the debtor’s solicitor to the petitioning creditor were made by way of electronic bank transfer to the petitioning creditor’s bank account. That seemed to be the case in argument before me.
By reason of the payments made by the debtor’s solicitor through the electronic funds transfer to the petitioning creditor’s bank account after the making of the sequestration order the debtor now argues that the amount owed to the petitioning creditor is less than the statutory minimum. That argument could be accepted if it was the case that the debtor had, in fact, paid the creditor. But, in my view, the debtor has not paid the creditor.
Upon the making of the sequestration order it is trite that the debtor’s property vests in his trustee in bankruptcy. As of the date of the making of the sequestration order, the funds that were held in the solicitor’s trust account were held on behalf of the debtor. They could not have been held on behalf of the creditor because the creditor was not the client of the solicitor. And according to the evidence of the debtor the funds that he gave to his solicitor were his funds. They were funds that he had borrowed from his relatives. It is not suggested in the evidence that the relatives paid the funds directly to the creditor or directly to the solicitor such that it might be said that the funds were never the property of the debtor.
On the debtor’s own evidence and, indeed, on the evidence generally the funds were always advanced to him by his family members, his funds to deal with. And so those funds must have vested in his trustee in bankruptcy. To the extent that it was suggested that the debtor was not the beneficial owner of the loan funds – they having been provided to him by his relatives for the purposes of paying his creditor – apart from the debtor’s evidence about that which is, by reason of its form not very probative in any event, there is no other evidence from any of the relatives who advanced the money that would support that contention.
So for the reasons I have given I find that the money that was in the solicitor’s trust account on 2 June, 2021 was money to which the debtor was entitled. Upon the making of the sequestration order, the funds vested in his trustee in bankruptcy and upon that happening the debtor lost the capacity to deal with them or to direct where they might be paid.
To the extent that the solicitors held them on trust for the debtor they also held them on trust through the debtor for the debtor’s trustee in bankruptcy. Payment of them to the petitioning creditor in those circumstances could not pass to the petitioning creditor any better title to the money than the payee had. And so the petitioning creditor – leaving aside a whole range of other reasons – received those monies as trustee for the debtor’s trustee in bankruptcy. The petitioning creditor is liable, in my view, to pay those funds to the trustee in bankruptcy.
It does not matter that the applicant for review has filed this review. That does not affect that position because as Colvin J observed in Robson at [65]:
Particular consequences arise from the character of the review which was described by Lander J in Pattison, correctly with respect, as a 'procedure sui generis': at [156]. As was observed in Bechara v Bates an order made by a registrar in the exercise of delegated judicial power takes effect without reservation when pronounced. It does so as an exercise of judicial power and (save for the prospect of review) operates with the same effect as if it had been made by a judge making the decision of the Court. Its past validity is not undone if a judge, on review, decides on the review that the order should not be made on the application. Rather, a review in which the judge reaches a different decision to the delegate results in the operation of the earlier, valid and operative, exercise of delegated judicial power coming to an end. At least from the point in time of the decision on review, the delegation which authorised the exercise of judicial power comes to an end. The act of the delegate is replaced by an exercise of judicial power by the judge. For that reason, 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.
I am satisfied and I find that the petitioning creditor is still owed the debt claimed by him in the creditor’s petition based upon the judgment set out in the bankruptcy notice. I am satisfied of the other formal matters of which I am required to be satisfied of by s. 52 of the Bankruptcy Act 1966 (Cth): there has been service of the petition, the debtor has appeared to the petition, and, in my view, there is no other reason why a sequestration order ought not be made.
In those circumstances all that remains to be done is to confirm the order made by the registrar on 2 June, 2021.
I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Jarrett delivered on 24 September, 2021. Associate:
Dated: 22 October 2021
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