Owners Corporation Strata Plan 79827 v Watson

[2017] FCCA 2962

FEDERAL CIRCUIT COURT OF AUSTRALIA

OWNERS CORPORATION STRATA PLAN 79827 v WATSON & ANOR [2017] FCCA 2962

Catchwords:
BANKRUPTCY – Application for review of sequestration order made by Registrar – application made out of time – whether court should determine whether application should be heard even though application made out of time – whether applicants have disclosed a reasonably arguable case that Registrar ought to have exercised power differently from the manner in which Registrar exercised power – applicants not permitted to make application for review out of time.

BANKRUPTCY – Application to annul bankruptcy – whether sequestration order ought to have been made – whether creditor proved preconditions for the making of a sequestration order – whether there is sufficient cause sequestration order ought not to have been made – ground for annulment not shown.

BANKRUPTCY – Asserted claim of breach of duty against trustee in bankruptcy – whether sufficient material to raise arguable case – whether claim could in any event be made in the absence of trustee as a party.

Legislation:

Bankruptcy Act 1966, ss. 33, 52(1), 153B

Federal Circuit Court of Australia Act 1999 (Cth), ss. 102(2), 102(2)(i), 104(2)
Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), r.2.02, 2.02(1)(a), 2.02(3), 4.06

Cases cited:

Ahern v The Deputy Commissioner of Taxation (QLD) (1987) 76 ALR 137
Conlan v Mladenis [2007] FCA 1129

Deputy Commissioner of Taxation v Mei Mei Yan (aka Quinnie Wong) [1998]

FCA 783

House v The King [1936] HCA 40; (1936) 55 CLR 499
Pattison v Hadjimouratis [2006] FCAFC 153
Rotstein & Associates v Slaveski [2010] FCA 493

Applicant: OWNERS CORPORATION STRATA PLAN 79827

First Respondent: WEZLEY BRIAN WATSON

Second Respondent: GLORIA LORRAINE WATSON

File Number: SYG 439 of 2016

Judgment of: Judge Manousaridis

Hearing date: 16 May 2017

Date of Last Submission: 16 May 2017

Delivered at: Sydney

Delivered on: 30 November 2017

REPRESENTATION

Counsel for the Applicants, the Respondents on the application for review: Mr M Maconachie

Solicitors for the Applicants, the Respondents on the application for review: Higgins & Dix

The Respondents, the Applicants on the application for review, in person.

ORDERS

1. The amended application filed by the respondent debtors on 22 March 2017 is dismissed.

2. The petitioning creditor’s costs of the application be paid out of the estates of the respondent debtors and have the same priority as the costs of the petition.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 439 of 2016

OWNERS CORPORATION STRATA PLAN 79827

Applicant

And

WEZLEY BRIAN WATSON

First Respondent

GLORIA LORRAINE WATSON

Second Respondent

REASONS FOR JUDGMENT

Introduction

1. On 5 April 2016 a Registrar of this Court made a sequestration order against the estates of the respondents, Mr and Mrs Watson, on the hearing of a creditor’s petition filed by the applicant creditor (SP79827). The Registrar made the order after she refused to adjourn the hearing of the creditor’s petition on the basis of which the sequestration order was made.

2. The acts of bankruptcy on the basis of which the Registrar made the sequestration order was the failure by Mr and Mrs Watson to comply with the requirements of a bankruptcy notice issued on 15 January 2016. The bankruptcy notice demanded payment of $32,275.14, being the amount for which judgment was entered against Mr and Mrs Watson in the Local Court of New South Wales on 24 December 2015. Most of the $32,275.14 represented the sum of unpaid amounts SP79827 levied on Mr and Mrs Watson. SP79827 is the owners corporation for the strata scheme (Strata Scheme) that was established on the registration by Mr and Mrs Watson of a strata plan for the Strata Scheme in relation to a property situated at Laurieton (Property). Mr and Mrs Watson were the registered proprietors of one of the lots of the Strata Scheme.

3. In refusing to adjourn the hearing of the creditor’s petition the Registrar declined to exercise the power that is conferred on Registrars by the combined operation of s.102(2)(i) of the Federal Circuit Court of Australia Act 1999 (Cth) (FCC Act) and r.2.02 of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (Bankruptcy Rules); and in making the sequestration order the Registrar exercised a power that is conferred on Registrars also by the combined operation of s.102(2)(i) of the FCC Act and r.2.02 of the Bankruptcy Rules. Under s.102(2)(i) of the FCC Act a Registrar of the Court may exercise a power of the Court “prescribed by the Rules of Court”. Paragraph (a) of r.2.02(1) of the Bankruptcy Rules prescribes for the purposes of s.102(2)(i) of the FCC Act the powers of the Court under the provisions of the Bankruptcy Act 1966 (Cth) (Act) referred to in Part 1 of Schedule 1 to the Bankruptcy Rules. One of the provisions referred to in that Part is s.33 of the Act that empowers the Court, among other things, to adjourn any proceeding before it. Another provision of the Act referred to in Part 1 of Schedule 1 to the Bankruptcy Rules is s.52(1) of the Act which, subject to the matters set out in that section, empowers the Court to make a sequestration order against the estate of a debtor.

4. By an amended application filed on 22 March 2017 Mr and Mrs Watson seek a review of the Registrar’s decision not to grant them the adjournment of the creditor’s petition and, by implication, the Registrar’s order that their estates be sequestrated. In broad terms, Mr and Mrs Watson contend the Registrar ought to have granted them the adjournment they asked for because they had informed the Registrar they had accepted an offer from National Australia Bank Ltd (NAB) and they required time to obtain legal advice. Mr and Mrs Watson also contend they have a counter claim.

5. Mr and Mrs Watson also claim additional relief.  I will deal with those claims separately from that part of Mr and Mrs Watson’s application that seeks review of the Registrar’s exercise of power.

Background

1. Commencing in around 2005 Mr and Mrs Watson by themselves or through a company or companies borrowed money from NAB to purchase and develop properties, including the Property. Mr and Mrs Watson completed the development of the Property at least up to the stage of establishing the Strata Scheme.

2. By 2010 Mr and Mrs Watson were in financial difficulties. They blamed NAB, at least in substantial part. They claimed NAB failed to meet its obligations to Mr and Mrs Watson as customers experiencing financial difficulty, or was slow in doing so, and that NAB was involved in maladministration in lending to them. These claims were referred to the Financial Ombudsman Service Australia (FOS) which, on 10 February 2014, issued a determination. The FOS concluded Mr and Mrs Watson did not establish that NAB engaged in maladministration in lending. It did conclude, however, that NAB did not meet its obligations to Mr and Mrs Watson, and the FOS directed that if Mr and Mrs Watson were to accept the FOS’s determination NAB should recalculate the debt owing by Mr and Mrs Watson to remove that part of their indebtedness that included default interest.[1]

   [1] Financial Ombudsman Service Determination, 10 February 2014, being annexure “C” to the affidavit of A P Maher 10.05.2017

3. Mr and Mrs Watson’s financial difficulties came to be manifested by their inability to pay, or pay by the required times, amounts SP79827 levied from time to time in relation to the lot in the Strata Scheme of which Mr and Mrs Watson were registered proprietors. According to a letter sent by email from its solicitors to Mr Watson dated 4 April 2016, SP79827 had recovered judgment against Mr and Mrs Wilson on five occasions in relation to outstanding amounts SP79827 had levied on them, [2] the last occasion being the judgment on the basis of which the bankruptcy notice on which SP79827 relies in the case before me was issued.

   [2] A P Maher 10.05.2017, [9], annexure “E”

4. On 29 February 2016 SP79827 filed a creditor’s petition with this Court. The creditor’s petition was set down for hearing at 2.15 pm on 5 April 2016. On 30 March 2016 Mr Watson sent an email to the representative of SP79827 asking whether if “we get the strata paid this week in full would the strata look at discontinuing the bankruptcy proceeding”. Mr Watson said his aim “is to complete my negotiations with the bank and the financial ombudsman to sell the property hopefully this will happen in the very near future”.[3] After being informed by SP79827’s representative that Mr Maher, a solicitor, had been engaged to recover the outstanding levies, Mr Watson, on the same day, sent to Mr Maher the emails he had sent to and received from SP79827’s representative and asked Mr Maher when “we could have an answer to our offer of payment”.[4]

   [3] A P Maher 10.05.2017, [8], annexure “D”

   [4] A P Maher 10.05.2017, [8], annexure “D”

5. Mr Maher responded by letter dated 4 April 2016 which he sent by email.[5] Mr Maher referred to proceedings SP79827 had previously taken against Mr and Mrs Watson, noting that for “at least the past 4 years, my client has been compelled to obtain judgments, and to enforce those judgments, against you and Gloria Watson for the costs and expenses to which you are liable”. Mr Maher then said:

   Given this history, and that you have continued to default on your strata levies and accompanying liabilities that have accrued since the most recent judgment against you (with the latest liability being greater than $13,000), I am instructed to proceed with the creditor’s petition listed for hearing on 5 April 2016.

   Notwithstanding that any issues between you, the Financial Ombudsman Service and your bank do not concern my client, my client takes no comfort in your statement “My aim is to complete my negotiations with the bank and the financial ombudsman to sell the property hopefully this will happen in the very near future.” You made similar representations in relation to negotiations and the Financial Ombudsman Service in 2013/14 during the previous Federal Circuit Court proceedings with no positive result.

   [5] A P Maher 10.05.2017, [8], annexure “E”

6. At 5:38 pm on 4 April 2016 Mr Watson sent an email to “NSW Listings” which is one of a number of email addresses of this Court. In that email Mr Watson said that he and Mrs Watson would like to apply “for a phone hearing tomorrow”.[6] Mr Watson said:

   The reason for the phone hearing is we would like time to get legal advice, we have been in financial hardship due to this property for some years and late today the NAB have offered to let us surrender the property to them with no legal perusal [sic]. We currently have good jobs and without the burden of the property can meet all of our financial commitments.

   [6] Amended affidavit of  “Wezley Brian Watson and Anor”, [1] and annexure 1

7. In his email Mr Watson reproduced what he described as “a copy of the email we have agreed to”. That is a reference to an email from a senior case manager of the NAB which was as follows:

   Dear Mr Watson,

   We have a copy of the Council Strata Approval (attached), however we are unaware as to whether the relevant conditions have been complied with. However, it is our view that you have had ample time to refinance the commercial units and/or sell with Strata Approval. Therefore, the Bank’s position remains unchanged and we have decided that 30 June 2016 is the extent of our forbearance.

   Alternatively, NAB presents to you one other option,

   You agree to surrender possession to the Bank by 31 May 2016 and the bank will sell the property. To this end, if you agree to provide possession to the NAB, the Bank agrees to cap its debt to $1.2m and in the event there is a surplus of funds (over $1.2m) post sale, these funds will be paid to you. In the event of any shortfall (less than $1.2m) the Bank will accept the sale price in full and final settlement and not pursue you for any remaining shortfall. In this circumstance you must agree to include the attached Strata approval documents being sold with the property (ie it would attach to the sale contract).

   The above would need to be formalised via a Deed within 14 days with mutual releases and must include Mrs Watson.

   If this offer is not acceptable, the Bank reserves its rights to recover any shortfall from the joint borrowers.

   NAB expressly reserves all of its rights.

8. At 6.45 am on 5 April 2016 Mr Watson sent an email to Mr Maher in which he stated as follows:[7]

   We have had financial trouble due to this property for many years now and in no way have we mislead the Strata, Case 413264 with the financial ombudsman only finished yesterday with the completion we have agreed to surrender the property over to the NAB to sell. Once the deed is signed we will no longer have anything to do with the property and the bank will take over all of the strata commitments. . . .

   With our bank now taking possession of the property we would hope that the case today doesn’t need to go ahead. If you need anything else from us please let us know.

   [7] Amended affidavit of  “Wezley Brian Watson and Anor”, [4] and annexure 4

9. The following occurred at the hearing before the Registrar: [8]

   a)Mr Watson, who appeared by telephone, said he opposed the making of a sequestration order on the ground that “the bank”, by which Mr Watson must have meant NAB, is “taking the property over and they’re going to sell the property and we haven’t got the burden of the property any more as . . . we’ve got to sign a deed within 14 days”.[9] Mr Watson also said that he and Mrs Watson “agreed to everything with the bank and we’re both of an income of around 150 k which is more than enough to pay, you know, any debts that we have”.[10] Mr Watson gave further details of the agreement with NAB.[11]

   b)In response to the Registrar’s question “what about this debt?”, Mr Watson said he did not know “whether the bank are going to pay the debt or then we have to pay it”, but “[e]ither way I can have it paid”.[12]

   c)Mr Watson also said “I have offered to pay the 32,000 to the Strata last week . . . but they didn’t accept it”.[13] In answer to questions from the Registrar Mr Watson said he has the capacity to pay “this debt now” and he confirmed that he offered to pay the debt and the offer had been rejected.[14]

   d)The Registrar then invited submissions from counsel for SP79827. Counsel referred to Mr and Mrs Watson having previously resisted a sequestration order in 2013 in relation to strata levies that had been imposed on them but which they ultimately paid, to Mr and Mrs Watson having a further debt of $32,000, being the judgment debt on the basis of which the bankruptcy notice was issued, and that counsel was instructed that Mr and Mrs Watson had incurred a further debt “in the order of about $13,000”.[15] Counsel further submitted that “[t]hese ongoing debts have been continuing for years”, and that there was no evidence before the Court as to what Mr Watson submitted to the Registrar. Counsel submitted there was nothing that would cause the Court to exercise its discretion if otherwise satisfied that all of the criteria for the making of a sequestration order were satisfied.[16]

   e)The Registrar then put to Mr Watson the substance of what counsel for SP79827 had submitted.[17] Mr Watson said he had sold the property before Christmas to a tenant, a doctor in the Strata Scheme, that NAB had stopped the sale, and this matter had been referred to the FOS.[18]

   [8] Amended affidavit of  “Wezley Brian Watson and Anor”, [5] and annexure 5

   [9] T3.40

   [10] T3.45

   [11] T4.10

   [12] T4.20

   [13] T4.40-45

   [14] T5.35

   [15] T6.10

   [16] T6.20

   [17] T6.35

   [18] T6.40

10. The Registrar resolved the applicant’s request for an adjournment of the creditor’s petition as follows:[19]

    Well, it appears to me that you are insolvent, based on the material that has been lodged in the court, and in the absence of there being any evidence to the contrary, I am satisfied that you are insolvent. I’m also concerned that you may be seeking to liquidate assets which ultimately might cause some creditors to have a preference over others, and this is an insolvency court, so it’s really about ensuring that the creditors get paid in an equitable fashion and people don’t continue to incur debts when they are insolvent. So on that basis I decline your application for an adjournment and I make a sequestration order against both your estate and the estate of Gloria Lorraine Watson . . . .

    [19] T7.10

Application for review

1. As I have already foreshadowed, I propose first to consider the application to the extent it claims a review of the exercise of the Registrar’s powers on 5 April 2016.

Approach and issues arising in relation to application for review

1. Under s.104(2) of the FCC Act a party to proceedings in which a Registrar has exercised any of the powers of the Court under s.102(2) of the FCC Act may, within the time prescribed by the Rules of Court, or within any further time allowed in accordance with the Rules of Court, apply to the Court for review of the exercise of that power. Under r.2.02(3) of the Bankruptcy Rules an application under s.104 of the FCC Act must be made within 21 days after the day on which the power was exercised “[s]ubject to any direction by the Court or a Judge to the contrary”. Mr and Mrs Watson did not apply for a review within the 21 day period prescribed by r.2.02(3) of the Bankruptcy Rules.

2. The first question that arises on the application for review, therefore, is whether I should direct that it is not necessary for Mr and Mrs Watson to have applied for a review within the 21 day period provided for by r.2.02(3) of the Bankruptcy Rules. That may require me to consider up to three issues:

   a)The first is whether Mr and Mrs Watson have a sufficiently arguable case, on the material that is before me, that the Registrar ought to have granted the adjournment, or that the Registrar ought not to have made the sequestration order. I must consider that question afresh, not from the point of view of whether the Registrar made some error, because a review under s.104(2) of the FCC Act is a “hearing de novo”.[20]

   b)The second issue is whether Mr and Mrs Watson have provided an adequate explanation for their delay in filing an application for review of the Registrar’s decision.

   c)The third issue is, if I were to direct that it is not necessary for Mr and Mrs Watson to have applied for a review of the Registrar’s exercise or failure to exercise her powers within the 21 day period provided for by r.2.02(3) of the Bankruptcy Rules, whether SP79827, the trustee in bankruptcy who was appointed following the making of the sequestration order, or any other person would suffer any prejudice and, if so, whether the prejudice could be avoided by my imposing terms when directing it is appropriate for Mr and Mrs Watson to have applied for review after the 21 day period.

   [20] Conlan v Mladenis [2007] FCA 1129 at [5] where Sundberg J said: “An applicant for review under s 104(2) is under no obligation to demonstrate error on the part of the Registrar, and does not need to establish that the Registrar’s exercise of discretion miscarried in the sense described in House v The King [1936] HCA 40; (1936) 55 CLR 499 at 505: Pattison v Hadjimouratis [2006] FCAFC 153 at [153]-[154]. The [Court] must exercise any discretion on the material before him or her unaffected by how the Registrar may have exercised the discretion.”

3. If, after examining these matters, I am satisfied I should direct it is not necessary for Mr and Mrs Watson to have applied for a review of the Registrar’s exercise or failure to exercise her powers within the 21 day period provided for by r.2.02(3) of the Bankruptcy Rules, I must consider whether the creditor’s petition should have been adjourned.

Parties’ submissions in relation to application for review

1. In their written submissions Mr and Mrs Watson make a number of claims and submissions, two of which relate to the review of the Registrar’s orders. First, they submit the Registrar denied Mr and Mrs Watson natural justice or procedural fairness because they “made the court and Registrar Baldwin aware of a counter claim by way of deed from the National Australia Bank”.[21] Second, Mr and Mrs Watson seek an extension of time “to seek leave to appeal”. [22]

   [21] Outline of Submission of the Respondent, [2]

   [22] Outline of Submission of the Respondent, [3]

2. In his amended affidavit Mr Watson states that the transcript of the hearing before the Registrar shows that Mr Watson made the Registrar aware, among other things, that Mr Watson “emailed a copy of the deed to the court making Registrar Baldwin aware of the offer from the national Bank”; that the offer only came “from the bank the evening before court”; that Mr Watson accepted the offer; that there was a  “need for 2 weeks to have the deed signed”; that SP79827 had declined payment and had “constructive knowledge of the deed”; and that NAB stopped a sale and a lease of the property causing hardship”.[23]

   [23] Amended affidavit of  “Wezley Brian Watson and Anor”, [5]

3. In their written submissions Mr and Mrs Watson submit Mr Watson informed the Registrar, among other things, that NAB was taking over the Property by way of deed; SP79827 “declined the offer of payment the week before”; Mr and Mrs Watson could pay the debt; Mr and Mrs Watson needed two weeks to enter into the deed; and without the burden of the Property Mr and Mrs Watson had income of $150,000 which was more than enough to pay their debts. Mr and Mrs Watson further submit:[24]

   It was also explained to Mr Maher (strata solicitor) in the email before court that after signing the deed we would have nothing to do with the property . . . and he would be paid in full. We also requested the bankruptcy hearing does not go ahead.

   If Mr Maher and the strata had agreed to allow the deed to be signed the strata would have been paid in full and the Watson’s would have had nothing else to do with the property. The Strata themselves are the reason the debt has not been cleared to this date.

   [24] Outline of Submission of the Respondent, page 4/24

4. In their written submissions, Mr and Mrs Watson also stated that “[o]nly getting the offer the night before did not leave time for an affidavit to be accepted by the court”.[25] It is unclear to me what affidavit Mr and Mrs Watson had in mind.

   [25] Outline of Submission of the Respondent, page 4/24

5. From these statements I take Mr and Mrs Watson to submit that the   Registrar ought to have adjourned the creditor’s petition for two reasons. One was to allow Mr and Mrs Watson time to enter into a deed to formalise the offer NAB had made to Mr and Mrs Watson and, perhaps, to submit an affidavit to the Court. The second is because of what Mr and Mrs Watson claim is a counterclaim they have.

6. The second claim Mr and Mrs Watson make in their submissions that relate to their application for review of the Registrar’s exercise of power is their seeking an extension of time “to seek leave to appeal”. Mr and Mrs Watson refer to a 21-day period. It appears, however, that they have in mind, not the 21 day period prescribed by r.2.02(3) of the Bankruptcy Rules, but a 21 day period for making an appeal. That, in turn, implies Mr and Mrs Watson understand that their application is an appeal against the Registrar’s orders and, possibly, an appeal against the determination of the FOS on 14 February 2014. I will treat this part of Mr and Mrs Watson’s submissions as an application for an order that the Court permit them to apply for a review of the Registrar’s exercise of power even though they applied outside the 21-day period provided for by r.2.02(3) of the Bankruptcy Rules.

7. In response to the submissions of Mr and Mrs Watson, counsel for SP79827 submits there was no evidence on the basis of which the Registrar could have decided to adjourn the hearing of the creditor’s petition. Counsel further submitted that Mr and Mrs Watson’s complaints about NAB had no bearing on whether the hearing of the creditor’s petition should have been adjourned.

Is it sufficiently arguable that an adjournment should have been granted?

1. The first question I must consider is whether, on the material that is before me, it is sufficiently arguable that on 5 April 2016 the creditor’s petition ought to have been adjourned. As I have already noted, when considering an application for review of the exercise by the Registrar of powers conferred on him or her, the Court must consider the exercise of the power de novo.

2. The Court has power to adjourn any proceedings under the Act before it on such terms as it thinks fit.[26] The nature of the power to grant an adjournment of the hearing of a creditor’s petition was discussed by Bromberg J in Rotstein & Associates v Slaveski:[27]

   It is evident that s 33(1)(a) gives the Court a wide discretion in relation to the grant of an adjournment. As Sweeney J (with whom Franki J agreed) stated in Field v Commercial Banking Co of Sydney Ltd [1978] FCA 46; (1978) 37 FLR 341 at 349, it would be unwise to attempt to draw up an exhaustive catalogue of the circumstances to which the Court should pay regard in considering an application for an adjournment of a creditor’s petition. However, the Court’s discretion should be exercised with a mind to the policy objectives of the Bankruptcy Act. Relevantly to the issues before me, those objectives include the public interest in stopping individuals who are unable to meet their debts from continued insolvent trading and assisting creditors who are unable to recover debts owed to them: See Rozenbes v Kronhill [1956] HCA 65; (1956) 95 CLR 407 at 414.

   [26] Subsection 33(1)(a) of the Bankruptcy Act 1966 (Cth)

   [27] [2010] FCA 493 at [17]

3. Other factors that have been held to be relevant to the exercise of the power to adjourn the hearing of a creditor’s petition include whether the debtor’s assets would be in jeopardy if an adjournment is granted,[28] and whether the debtor has filed an appeal based on genuine and arguable grounds against the judgment on which the application for a sequestration order is based.[29]

   [28] Deputy Commissioner of Taxation v Mei Mei Yan (aka Quinnie Wong) [1998] FCA 783 (Emmett J): “I consider that if there were evidence before me to indicate that there is a reasonable prospect that assets of a debtor which might otherwise be available to the Official Trustee were in jeopardy as a consequence of adjournment of the petition, that would be a relevant consideration in deciding whether or not to adjourn the petition.”

   [29] Ahern v The Deputy Commissioner of Taxation (QLD) (1987) 76 ALR 137 (Davies, Lockhart and Neaves JJ) at 148

4. On the material that is before me Mr and Mrs Watson do not have a sufficiently arguable case that the creditor’s petition ought to have been adjourned to give Mr and Mrs Watson an opportunity to enter into a deed with NAB. Although there is credible evidence NAB was willing to accept Mr and Mrs Watson’s interest in the Property in full and final satisfaction of their indebtedness to NAB, there is no evidence that that would have enabled Mr and Mrs Watson to pay the debt owing to SP79827, at least not by the end of the two week period for which Mr and Mrs Watson sought the adjournment, or within a not unreasonably longer period of time.

5. It is true Mr Watson stated to the Registrar that, now that he and Mrs Watson would be relieved of responsibility for the Property, he and Mrs Watson had the means to pay the debt owing to SP79827; but that statement was unsupported by any evidence by reference to which it could have been assessed. Mr Watson did not adduce before the Registrar, or before me, evidence of his and Mrs Watson’s income, or of their assets and liabilities. Without evidence on these matters, the hearing of the creditor’s petition could not reasonably have induced the Registrar, or a judge of this Court if he or she were presiding, to have adjourned the hearing of the creditor’s petition for the fourteen day period Mr Watson requested.

6. Not only did Mr and Mrs Watson adduce no evidence of their financial circumstances; the evidence suggests Mr and Mrs Watson may have been unable to pay the debt owing to SP79827, at least within the fourteen day adjournment Mr Watson requested or within any not unreasonably longer period. It appears Mr or Mrs Watson, or both of them, had or may have had creditors in addition to NAB and SP79827. These included or may have included SP79827, the Australian Taxation Office, Interline Holdings, Hurd Haulage Pty Ltd, and Lion Finance.[30] The last two-mentioned creditors lodged caveats over Mr and Mrs Watson’s interest in lot 9 of the Strata Scheme.[31] Although the evidence about these creditors is contained in documents that came into existence after 5 April 2016, the evidence, at the very least, gives rise to the question whether such creditors existed as at 5 April 2016. Mr and Mrs Watson have not, however, adduced evidence to show when debts owed to these creditors were incurred by them.

   [30] Amended affidavit of  “Wezley Brian Watson and Anor”, [13], Annexure 13

   [31] A P Maher 10.05.2017, [14], annexure “K”

7. I am also not satisfied Mr and Mrs Watson have sufficiently arguable grounds for contending that the hearing of the creditor’s petition ought to have been adjourned because of a counter claim they assert they have. Mr and Mrs Watson assert the counter claim is against NAB, not SP79827. A set off or counterclaim is relevant to the exercise of the power conferred by s.52(1) of the Act only if it is asserted against the petitioning creditor.

8. Given I have concluded Mr and Mrs Watson do not have a sufficiently arguable case for claiming the creditor’s petition ought to have been adjourned for the fourteen days Mr Watson sought, or for any longer period, it is not necessary for me to consider whether Mr and Mrs Watson have given an explanation for their delay in applying for a review of the Registrar’s exercise of power on 5 April 2016 and if so whether the explanation is adequate. It is also unnecessary for me to consider whether any person would be prejudiced if I were to set aside the sequestration order, given that Mr and Mrs Watson applied for a review outside the 21-day period prescribed by r.2.03(3) of the Bankruptcy Rules. That question would only have arisen if I were satisfied Mr and Mrs Watson had a sufficiently arguable case that the hearing of the creditor’s petition ought to have been adjourned.

9. Mr and Mrs Watson’s application for review, therefore, fails. It fails because Mr and Mrs Watson did not file their application for review of the Registrar’s exercise of the power within the 21-day period prescribed by r.2.03(2) of the Bankruptcy Rules; and I am not satisfied it is appropriate that Mr and Mrs Watson be permitted to apply for review outside that 21-day period.

Setting aside sequestration order

1. Mr and Mrs Watson claim the sequestration order should be set aside under s.153B of the Act because the order should not have been made. They submit the sequestration order was made “after the following events”:[32]

   The Watson’s [sic] had suffered financial trouble for some years due to fraudulent loans approved by the National Australia Bank and the bank refusing to allow sales and leases under contract. Leading up to the sequestration order (late 2015) the Watson’s [sic] had a case with the Financial Ombudsman Service for National Bank not approving a sale and a lease on the [Property] and breach of privacy. After constant attempts from the Watson’s [sic] for justice the National Bank finally sent an offer of deed the night before court.

   [32] Outline of Submission of the Respondent, page 4/24

2. Mr and Mrs Watson then refer to having communicated this offer to SP79827 and its solicitor; Mr and Mrs Watson’s having accepted the offer; Mr and Mrs Watson seeking clarification from NAB whether the offer included NAB’s paying the debt owing to SP79827; Mr and Mrs Watson commencing proceedings in the Federal Court against NAB, which was dismissed; and Mr and Mrs Watson commencing proceedings in this Court.[33]

   [33] Outline of Submission of the Respondent, pages 4 and 5/24

3. This part of Mr and Mrs Watson’s application relies on the same matters on which they rely for claiming the Registrar ought to have adjourned the hearing of the creditor’s petition. The question is whether, given these matters, the sequestration order should be set aside. The answer to that question depends on whether SP79827 proved the matters prescribed by s.52(1) of the Act and, second, assuming SP79827 proved those matters, whether the matters on which Mr and Mrs Watson rely constitute “a sufficient cause a sequestration order ought not” to have been made.

4. I am satisfied that SP79827 proved the matters it was required to prove under s.52(1) of the Act and the Bankruptcy Rules before the Court could make a sequestration order against the estates of Mr and Mrs Watson. In particular I am satisfied that there was before the Registrar evidence that established the following:

   a)The bankruptcy notice was personally served on each of Mr and Mrs Watson on 18 January 2016.[34]

   b)Mr and Mrs Watson failed to comply with the requirements of the bankruptcy notice with the consequence that they each committed an act of bankruptcy on 9 February 2016.

   c)Neither Mr nor Mrs Watson assert or have any set off or counterclaim against SP79827.

   d)The creditor’s petition that was filed on 29 February 2016 was served on each of Mr and Mrs Watson on 14 March 2016 together with affidavits of service of the bankruptcy notice and affidavits filed with the creditor’s petition verifying paragraphs 1, 2, 3, and 4 of the creditor’s petition and stating that a search conducted on 29 February 2016 of the computer records of this Court and of the Federal Court of Australia disclosed that Mr or Mrs Watson have made no application in relation to the bankruptcy notice.[35]

   e)On 4 April 2016 an affidavit of debt and an affidavit of search were filed, as required by r.4.06 of the Bankruptcy Rules.[36]

   [34] Affidavits of R Collins 22.01.2016 (being annexures “F” and “G” to affidavit of service of creditor’s petition R Collins 17.03.2016)

   [35] Affidavit of N E Small 24.02.2016 verifying paragraphs 1, 2, and 3 of creditor’s petition; affidavit of A P Maher 29.02.2016 verifying paragraph 4 of creditor’s petition; and affidavit of R Collins 17.03.2016

   [36] Affidavits of N E Small 04.04.2016 and A P Maher 04.04.2016

5. I am also satisfied that the matters on which Mr and Mrs Watson rely do not constitute “a sufficient cause a sequestration order ought not” to have been made. First, for reasons I have already given, those matters could not reasonably have induced the Court to adjourn the hearing of the creditor’s petition for the two weeks Mr Watson requested, or for any longer period. Second, the cross claim Mr and Mrs Watson assert is against NAB, not SP79827.

Claim against trustee in bankruptcy

1. In their written submissions Mr and Mrs Watson apply for leave to “challenge the Trustee’s conduct and remuneration due to the loss of the Deed of sale offered from the National Australia Bank (Shaw Gidley) have breached their statutory duty in the nature of a fiduciary duty”.[37] Mr and Mrs Watson rely on communications that are attached to Mr Watson’s amended affidavit.[38] These may be summarised as follows:

   a)By email sent on 7 April 2016 NAB informed Mr Watson it was in the process of preparing a deed and would forward it to Mr Watson for signing once completed.[39]

   b)By email sent on 22 April 2016 to NAB Mr Watson asked “[d]o you know where everything is up to with regards to the deed”.[40] On the same day, NAB responded stating it had been made aware that Mr Watson had been declared bankrupt and that NAB would “not proceed with the Agreement unless approved by your Trustee”.[41]

   c)By email sent to the trustee on 11 May 2016, Mr Watson asked whether the trustee was “still looking at the deed with the NAB and are we still on position to make an offer to the creditors”.[42] The trustee replied on the same day as follows:[43]

   There is no point looking at the Deed with the NAB until such time as I am advised of all your creditors. Any proposal must also include them, it cannot simply include the NAB. The list of your creditors seems to be growing at the moment, through parties contacting our office. I need a full list of creditors and then a proposal from you on how you propose to deal with them, along with full details of your assets before this matter can progress any further.

   d)By letter dated 25 May 2016 Mr and Mrs Watson requested NAB “one last time, to put an offer forward to annul our bankruptcy”.[44] NAB responded by letter dated 8 June 2016 in which it in effect renewed the offer it had previously made to Mr Watson, but noting that if the offer was acceptable to Mr and Mrs Watson and the trustee, the trustee could contact NAB.[45]

   [37] Outline of Submission of the Respondent, [5]

   [38] Amended affidavit of “Wezley Brian Watson and Anor”, [9]-[14] and annexures referred to in those paragraphs.

   [39] Amended affidavit of  “Wezley Brian Watson and Anor”, annexure 9

   [40] Amended affidavit of  “Wezley Brian Watson and Anor”, annexure 9

   [41] Amended affidavit of  “Wezley Brian Watson and Anor”, annexure 9

   [42] Amended affidavit of  “Wezley Brian Watson and Anor”, annexure 9

   [43] Amended affidavit of  “Wezley Brian Watson and Anor”, annexure 9

   [44] Amended affidavit of  “Wezley Brian Watson and Anor”, annexure 9

   [45] Amended affidavit of  “Wezley Brian Watson and Anor”, annexure 9

2. It is unclear whether and, if so, by when the trustee was made aware of NAB’s letter dated 8 June 2016.

3. On the material that is before me, it is not possible to say whether there has even been an arguable breach of duty by the trustee in bankruptcy. Even if the material disclosed an arguable breach of duty, it would not be open to me to consider such claim because the trustee is not a party to this application. Mr and Mrs Watson’s application, therefore, fails to the extent it seeks relief against the trustee in bankruptcy.

Claim against NAB

1. In their written submissions Mr and Mrs Watson seek an injunction on various grounds to restrain “the power of sale” of the Property presumably held by NAB as mortgagee of the Property.[46] This claim is not arguable. First, Mr and Mrs Watson no longer hold an interest in the Property. Their interest vested in their trustee in bankruptcy when the sequestration order was made. Secondly, NAB is not a party to the application.

   [46] Outline of Submission of the Respondent, [6]

Conclusion and disposition

1. Mr and Mrs Watson have failed to establish any of the grounds on which they rely in their amended application. I propose to order, therefore, that the application be dismissed. I also propose to order that SP79827’s costs be paid out of the estates of Mr and Mrs Watson, and that such costs have the same priority as the costs of the petition.

I certify that the preceding forty-five (45) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis

Date: 30 November 2017