Oberlechner v Commonwealth Securities Ltd

[2003] FMCA 511

FEDERAL MAGISTRATES COURT OF AUSTRALIA

OBERLECHNER v COMMONWEALTH SECURITIES LTD [2003] FMCA 511

BANKRUPTCY – Annulment – whether bankrupt was served personally with the creditor’s petition – whether the bankrupt is solvent – whether the bankrupt has cooperated with his trustee or made a proposal to pay the trustee’s expenses.

Bankruptcy Act 1966 (Cth), s.153B

Re Kosovich; ex parte Norvill

Applicant: FRED OBERLECHNER

Respondent: COMMONWEALTH SECURITIES LTD

File No: SZ1825 of 2003

Delivered on: 11 November 2003

Delivered at: Sydney

Hearing date: 11 November 2003

Judgment of: Driver FM

REPRESENTATION

Solicitors for the Applicant: Mr H Weller

Solicitors for the Respondent: Mr J Teasdale
O’Brien Teasdale Lawyers

Solicitor for the Trustee: Mr J Brown
Matthews Folbigg Pty Ltd

ORDERS

1. The application is dismissed with costs.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SZ1825 of 2003

FRED OBERLECHNER

Applicant

And

COMMONWEALTH SECURITIES LTD

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

1. I have before me an application for the annulment of bankruptcy under section 153B of the Bankruptcy Act 1966 (Cth) (“the Bankrputcy Act”). A sequestration order was made on 21 August 2003. The applicant relies on his own affidavits filed on 5 September 2003 and 31 October 2003, an affidavit by his wife, Grace Oberlechner, also filed on 31 October 2003 and an affidavit by his solicitor, Herbert Weller, also filed on 31 October 2003.

2. The application is opposed by the petitioning creditor and by the trustee in bankruptcy.  They rely upon two affidavits by a process server, Gregory Hughes, both filed in court on 11 November 2003, although made on 15 August 2003 and 11 November 2003; also two affidavits by Schon Gregory Condon, one filed on 21 October 2003 and the other filed on 11 November 2003.  I have also received an affidavit by Jonathan Teasdale, solicitor for the petitioning creditor, which is also relied upon.

3. The main issue of fact in the matter is whether the applicant was served with the creditor’s petition.  The evidence of the process server, Gregory Hughes, is that the applicant was served on 12 August 2003 at 11.15am.  The process server's evidence is both detailed and specific and includes a diary note.  Mr Oberlechner's affidavit evidence on this question was very general indeed but he expanded upon it significantly in oral evidence which I permitted him to give in court today.  He was able to verify parts of his oral evidence by documentary evidence, including his passport and an airline ticket.  There is a direct conflict of evidence between Mr Oberlechner and Mr Hughes.

4. Parts of Mr Oberlechner's evidence were also corroborated by his wife who also gave oral evidence to augment her affidavit.  Based upon that evidence, I accept that Mr Oberlechner travelled overseas between 12 August 2003 and 29 August 2003.  He had intended to leave Australia on 11 August 2003 but did not leave until the following day because there was a problem with his Italian passport which had expired and had to be renewed.  That occurred on 11 August 2003.  Apparently Mr Oberlechner actually missed his flight on that day due to the need to re-organise  his passport and he had to obtain a fresh ticket, which was issued on 12 August 2003.

5. Mr Oberlechner’s evidence, corroborated by the airline ticket, is that he flew out of Sydney at approximately 8.30pm on 12 August 2003.  Mr Hughes’ evidence is that he personally served Mr Oberlechner with a copy of the creditor’s petition and related documents at 11.15am on that day at Mr Oberlechner's home in Wilberforce.  Mr Oberlechner gave evidence, corroborated by his wife, that he left the family home at Wilberforce to travel into Sydney on 11 August in order to organise his travel.  I accept that evidence. 

6. Mrs Oberlechner's evidence was that she is generally at home during the day, apart from taking her children to school, occasional shopping, and occasionally visiting her mother which tends to take place on a Monday or a Friday.  The alleged date of service was a Tuesday.

7. Mrs Oberlechner gave evidence that there was no attendance by a process server on 12 August 2003 while she was at home as far as she was aware.  I accept that evidence.  However, it does not rule out the possibility that Mr Oberlechner was present in the home at 11.15 am on 12 August when the process server says he attended the home.  Mr Oberlechner gave oral evidence that he stayed overnight in a unit which he owns in Goulburn Street in Sydney and that he did not return to his home in Wilberforce before flying out of Australia.  That is certainly possible.  It is equally possible that he did in fact return home to Wilberforce before flying out of Australia. 

8. Mr Hughes appears to be a process server of many years experience who has prepared two detailed affidavits relating to personal service.  He was not required to attend court for cross-examination.  His evidence is that he had a conversation with Mr Oberlechner at the time of service in which Mr Oberlechner asked, “What are my choices?  Can I still pay it?”   Mr Weller, in his affidavit, gave evidence that on Mr Oberlechner's instructions he had a conversation with the solicitor for the petitioning creditor on the same day asking about payment of a debt.  I do not make any suggestion that Mr Weller was at the time aware of service of a creditor's petition.  However, Mr Weller was representing Mr Oberlechner at the time in relation to the debt and the evidence of both Mr Hughes and Mr Weller establishes that Mr Oberlechner was concerned about the debt.  The conversation deposed to by Mr Hughes has the ring of truth about it.

9. I cannot with certainty resolve the conflict of evidence between Mr Oberlechner and Mr Hughes.  Mr Oberlechner suffers from a depressive illness for which he is in receipt of workers compensation and in respect of which there is unresolved litigation between him and his former employer.  It is possible that Mr Oberlechner's evidence is affected by that condition.  An additional factor is that I prefer the evidence of Mr Teasdale to that of Mrs Oberlechner, on the question of whether the creditor’s petition and related documents were attached to a letter written to Mr Oberlechner by Mr Teasdale on 21 August 2003.  Mr and Mrs Oberlechner cannot otherwise explain how they came to have a copy of those documents on 25 August 2003.  Mr Oberlechner bears the onus of satisfying me that the sequestration order should not have been made because he was not served with the creditor's petition. On balance he has failed in discharging that onus of proof.

10. For that reason alone, the present application should fail. However, even if I were wrong in the factual conclusion as to whether or not Mr Oberlechner was personally served with a creditor's petition and taking into account the fact that the sequestration order was made in his absence, I would nevertheless have to consider whether I should exercise my discretion under s.153B of the Bankruptcy Act to annul the bankruptcy.

11. It is relevant in the exercise of that discretion to consider the solvency of the bankrupt, his behaviour during the course of the bankruptcy and the question of the trustee's fees and expenses.  The uncontroverted evidence of the trustee is that Mr Oberlechner has not been co‑operative with the trustee.  He has not filed a statement of affairs and he appears to have taken affront to efforts by the trustee to obtain his co-operation.

12. In the circumstances, the trustee has had extreme difficulty in establishing the extent of Mr Oberlechner's assets and liabilities, although the trustee has become concerned over time that Mr Oberlechner appears to have significant assets.  This raises a question of his solvency.  Mr Oberlechner's evidence is that he has assets worth around $1.8 million.  He appears to own six real estate properties.  There appear to be four secured creditors to whom significant amounts are owed, but Mr Oberlechner is in dispute with at least two of them.  I am told that there are outstanding legal proceedings.

13. Mr Oberlechner has prepared a list of his debts which, on its face, establishes liabilities of just under $1.2 million.  If one accepts that he has assets of $1.8 million he would have an excess of assets over liabilities. These debts include unsecured creditors who Mr Oberlechner estimates are owed up to approximately $200,000.  He says that he has made arrangements to meet the claims of unsecured creditors but he was rather vague when asked to detail those arrangements.  As best as I could judge, those arrangements involve offers to pay over time and offers to pay out of future expected receipts of money, some of which appear to depend on the successful outcome of legal proceedings.

14. It may well be that the future of some, if not all, of those legal proceedings would depend upon whether Mr Oberlechner remains in bankruptcy.  At the moment the future conduct of the litigation would appear to be up to the trustee.

15. There is at least some evidence before me that Mr Oberlechner is solvent.  However, the discharge of his liabilities would be likely to depend upon the realisation of at least some of the assets in my view.  Much would depend upon the attitude of the secured creditors.  The test of solvency is not simply an excess in assets over liabilities.  The test of solvency is an ability to pay one's debts as they fall due, or at least within a reasonable time including by resort to borrowed money.  On the material before me, I am not satisfied that Mr Oberlechner is solvent.  I also find that he has not co-operated with his trustee during the course of the administration of the bankruptcy.  Further, it was not until prompting from me that Mr Oberlechner instructed his solicitor to make an offer to pay the trustee's expenses.  The detail that an offer would have to be worked out.

16. Bearing all of these matters in mind, and having regard to the public interest underlying the Bankruptcy Act for the orderly administration of a debtor's estate in order to meet legitimate claims upon that estate, I would be reluctant to exercise my discretion to annul the bankruptcy, even if I had found that Mr Oberlechner had not been served with the creditors' petition and hence that the sequestration order should not have been made.

17. I was referred by Mr Weller to the decision of the Federal Court in Re Kosovich; ex parte Norvill, referred to in the Law Book Company's Australian Bankruptcy Law and Practice, at page 30,290/3, a decision of His Honour French J on 11 November 1992.  In that case, the short report in the service states that His Honour annulled the bankruptcy in circumstances where he could not be satisfied, due to the conflict of evidence between the bankrupt and the process server, of service of not only a creditor's petition but also a bankruptcy notice.

18. In this case service of the bankruptcy notice is admitted, whilst service of the creditors' petition is denied. Non service of a creditors' petition is, of course, a serious matter and there may be many circumstances in which proof of non service would of itself justify the exercise of discretion to annul a bankruptcy. Procedural fairness would ordinarily require a rehearing in the absence of knowledge by the bankrupt of the earlier hearing of the petition. However, I am concerned that in this matter the bankrupt has been in a state of denial, possibly affected by his illness, about his affairs and in particular the claims of the petitioning creditor. In my view, it would not serve the public interests underlying the Bankruptcy Act to permit the bankrupt to assume the carriage of his affairs. The public interest would be better served by the orderly administration of his affairs by the trustee so that legitimate claims can be met. Even if the creditor’s petition were required to be reheard, on the present state of the evidence, another sequestration order would be quite likely.

19. If Mr Oberlechner elects to co-operate with the trustee and if he is in fact solvent, he could be released from bankruptcy quite quickly.  It is up to him to decide whether he will co-operate.

20. I will dismiss the application with costs.

I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate: 

Date:  14 November 2003