Owners of Strata Plan 1915 v Estate of Edwin John Strang
[2010] FMCA 967
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| OWNERS OF STRATA PLAN 1915 v ESTATE OF EDWIN JOHN STRANG | [2010] FMCA 967 |
| BANKRUPTCY – Administration of a deceased estate – considerations relevant to the discretion to refrain from making an order for administration – availability of an alternative procedure under State law – no application for probate – delay of five years – solvency of the estate considered – public interest in the orderly administration of the estate. |
| Bankruptcy Act 1966, ss.44, 52, 244 Strata Schemes Management Act 1996 (NSW), ss.78, 79, 80 Unit Titles Act 1970 (ACT), s.48 |
| McClymont v Owners Strata Plan No 12139 [2009] FMCA 1079 Meinhardt (Hong Kong) Ltd v William Lindsay Meinhardt (Deceased) & Ors (No.2) [2006] FCA 1323 Owners of Strata Plan 50164 v O’Connor [2010] FMCA 833 Proprietors Units Plan No 52 v Gold (1993) 168 ALR 6 Re Estate of Hancock (deceased): Hancock Prospecting Pty Ltd v Estate of Hancock [1999] FCA 295 Rivwest Finance Ltd v Baun & Ors [2005] FMCA 595 |
| Applicant: | OWNERS OF STRATA PLAN 1915 |
| Respondent: | ESTATE OF EDWIN JOHN STRANG |
| File Number: | SYG 1452 of 2010 |
| Judgment of: | Driver FM |
| Hearing date: | 9 December 2010 |
| Delivered at: | Sydney |
| Delivered on: | 9 December 2010 |
REPRESENTATION
| Solicitors for the Applicant: | Mr F Shafiq JS Mueller & Co |
| Mr G Strang appeared on behalf of the Respondent |
ORDERS
Pursuant to s.244 of the Bankruptcy Act 1966 (Cth), the estate of Edwin John Strang be placed in administration.
The petitioning creditor’s costs, including any reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
The Court notes that a Consent to Act as Trustee has been signed by Scott Darren Pascoe.
These orders are to be entered forthwith.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1452 of 2010
| OWNERS OF STRATA PLAN 1915 |
Applicant
And
| ESTATE OF EDWIN JOHN STRANG |
Respondent
REASONS FOR JUDGMENT
I have before me a creditor’s petition filed on 30 June 2010 seeking an order for administration of a deceased person’s estate. The petition is supported by the affidavit of Kathryn Bagust made on 24 June 2010 verifying paragraphs 1, 2 and 3 of it, the affidavit of Richard Allen made on 30 June 2010 verifying paragraph 4 of it, the affidavit of service of the petition of Geoffrey David Threlfo made on 30 June 2010, the affidavit of Faiyaaz Shafiq made on 25 November 2010 deposing as to matters that the Court would require satisfaction of in relation to the petition, the affidavit of Jeffrey Steven Mueller made on 28 June 2010 deposing as to other matters of which the Court would require proof and final affidavits of search and debt of Jeffrey Steven Mueller made on 8 December 2010 and Michelle Soper made on the same day.
The background facts leading up to the presentation of the creditor’s petition are set out in the affidavit of Faiyaaz Shafiq sworn and filed on 25 November 2010.
The creditor’s petition (“the petition”)
The creditor’s petition in these proceedings seeks orders against the Estate of Edwin John Strang for monies owed by the respondent to the applicant in the sum of $6,451.63 being outstanding levy contributions, interest and expenses. The levies were struck in accordance with s.78 of the Strata Schemes Management Act1996 (NSW) (“SSMA”), interest claimed pursuant to s.79 of the SSMA and expenses claimed pursuant to s.80(1) of the SSMA.
Paragraph 1 of the petition
Paragraph 1 of the petition claims an amount of $6,451.63 being owed to the applicant for contributions struck from 1 October 2008 to 1 June 2010 inclusive payable by the deceased estate as the owner of Lot 22 in the applicant’s strata scheme known as Strata Plan No 1915.
On 5 August 2010 orders were made by Registrar Segal granting leave to the applicant to serve the petition with other supporting documents on either of the two executors of the deceased estate. The petition was then adjourned to 30 September 2010. On that day Mr Graeme Edwin Strang, (“Mr Strang”) one of the executors, appeared on behalf of the estate.
As the matter was a contested one, Registrar Tesoriero, after hearing orally from the parties, adjourned the matter to be heard by me on 5 October 2010.
On 5 October 2010 I encouraged Mr Strang to file and serve a Notice of Grounds of Opposition. He chose to address me orally and was not prepared to put anything in writing. I accorded Mr Strang the opportunity to articulate his reasons for opposing the petition orally, which he did.
Grounds of opposition submitted orally
At the hearing on 5 October 2010, Mr Strang orally confined his grounds of opposition to the following issues namely that:
a)the amount claimed by the creditor is not a debt; and
b)the applicant has a lien against the property of the estate and is therefore protected in relation to the recovery of any outstanding levies, interest and expenses.
Upon hearing Mr Shafiq for the applicant and Mr Strang I adjourned the matter for a directions hearing to be given in due course and on notice to a date to be fixed by the Court.
On 16 November 2010 the matter was re-listed before me. There was no appearance for the respondent on that day.
I made the following orders in readiness for the hearing on 9 December 2010 namely:
1.The respondent debtor is to file and serve on the petitioning creditor any Notice of Grounds of Opposition to the petition by 19 November 2010.
2.The petitioning creditor is to file and serve on the respondent debtor any further affidavit evidence upon which it wishes to rely, with the exception of final affidavits of search and debt, by 25 November 2010.
3.The respondent debtor is to file and serve on the petitioning creditor any affidavit evidence in support of the Notice of Grounds of Opposition to the petition by 2 December 2010.
4.Both parties are to file and serve written submissions by 3 December 2010.
5.The matter be listed for hearing at 10.15am on 9 December 2010.
6.Parties have liberty to apply on three days notice.
7.Costs of today are reserved.
In accordance with the above orders of the Court the applicant filed a detailed affidavit on 25 November 2010 setting out the efforts made by the applicant to recover its outstanding debt under New South Wales state law. A sealed copy of that affidavit was also served on Mr Strang at the address he provided to the Court on 5 October 2010.
Mr Strang did not comply with the orders of the Court made on 16 November 2010.
Order 4 required the parties to serve written submissions by 3 December 2010 which I extended to 6 December 2010 after an application was made for an extension of time by Mr Shafiq. Only the applicant filed written submissions.
Order 5 listed the matter for hearing at 10.15am on 9 December 2010. At that time today, the executor, Mr Strang, was seated in the public gallery of the Court and upon being invited by me to do so, came to the bar table and, with some reluctance, participated in the hearing of the matter. He presented evidence in the form of exhibits R1 to R4 which were, as I understand it, intended to persuade me, first, that the petition had not been properly presented, secondly, that the Court should not be satisfied of the matters of which it required proof, and thirdly, that the Court should not, in any event, make the orders sought.
Section 244 of the Bankruptcy Act
The power to obtain an order of administration is contained in s.244 of the Bankruptcy Act1966 (Cth) (“the Bankruptcy Act”) which provides:
1. Subject to this action, where
(a)A debt of not less than $5,000.00 was owing by a deceased person at the time of his or her death to a creditor, or debts amounting in the aggregate to not less than that amount or so owing to any two or more creditors;
(b)A debt incurred by the legal personal representative of a deceased person of not less than $5,000.00 is owing to a creditor, or debts so incurred amounting in the aggregate to not less than that amount are owing to any two or more creditors; or
(c)A debt of not less than $5,000.00, or debts amount the aggregate to not less than that amount which a deceased person would have been liable to pay that creditor or any two or more creditors if he or she had not died become or becomes owing after his or her death;
the creditor or creditors to whom the debt or debts is or are owing may present a petition to the court for an order for the administration of the estate of the deceased person (in this action referred to as the deceased debtor) under this Part.
2.Subject to subsection (3), a secured creditor shall, for the purposes of subsection (1), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him or her exceeds the value of his or her security.
3.A secured creditor may present, or join in presenting, a petition under this section 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 an order for the administration of the estate under this Part being made.
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.A petition under this section shall be verified by the affidavit of a person who has knowledge of the facts.
6.A petition under this section shall not be presented unless:
(a) the debt, or each of the debts, in respect of which it is presented:
(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and
(ii) is payable immediately or at a certain future time; and
(b) at the time of his or her death, the deceased debtor:
(i) was personally present or ordinarily resident in Australia;
(ii) had a dwelling house or place of business in Australia;
(iii) was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners, or of an agent or manager.
7.Where a secured creditor has presented, or joined in presenting, a petition under this section as if he or she were an unsecured creditor, he or she shall, upon request in writing by the trustee within 3 months after the making of an order for the administration of the estate under this Part, surrender his or her security to the trustee for the benefit of the creditors generally.
8.A secured creditor to whom subsection (7) 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.
9.Subject to subsection (10), a sealed copy of the petition shall be served upon the legal personal representative of the deceased debtor or, if there is no legal personal representative, upon such person as the Court directs.
10.The Court may, if it is satisfied that there is no legal personal representative of the deceased debtor and that there are special circumstances that justify its so doing, by order dispense with service of the petition, either unconditionally or subject to conditions.
11.At the hearing of the petition, the Court shall require proof of:
(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition, unless service of the petition has been dispensed with; and
(c) the fact that the debt or debts to which the petition relates is or are still owing;
and if it is satisfied with the proof of those matters, may make an order that the estate be administered under this Part.
12.If the Court is not satisfied with the proof of any of those matters or is of the opinion that for other sufficient cause the order sought ought not be made, it may dismiss the petition.
13.Where proceedings have been commenced in a court for the administration of a deceased person's estate under a law of a State or Territory, a petition for an order under this section in relation to the estate shall not be presented by a creditor except by leave of the Court and on such terms and conditions (if any) as the Court thinks fit.
14.If the Court makes an order that the estate be administered under this Part, the creditor who obtained the order must give a copy of the order to the Official Receiver.
One of the issues that has been raised orally by Mr Strang relates to the issue of whether the sum claimed on the petition is a debt. It is therefore important to determine whether the sum claimed in the petition is a debt for the purposes of s.244 of the Bankruptcy Act.
In order to determine this issue the Court needs to ascertain the origin of the debt. Section 78 of the SSMA regulates the authority of the owner’s corporation to strike levies and/or contributions to be paid by the lot owner to the administrative or sinking fund. Such contributions are struck in accordance with the lot owner’s unit entitlement.
I accept in the present case that the amounts claimed in the creditor’s petition were contributions properly struck by the applicant. This was supported by the affidavit of debt of Michelle Soper that has been filed in the proceedings and the further affidavit of debt filed in court today.
Section 79(2) of the SSMA empowers an owners’ corporation to levy interest at the rate of 10 per cent if a contribution is not paid at the end of one month. The applicant has an absolute right to recover interest as a debt under s.80 of the SSMA and the only way in which interest can be waived or the rate of interest reduced is if the applicant passes a special resolution at its annual general meeting. In the present case there is no evidence that such a resolution has been passed.
Section 80(1) of the SSMA permits the applicant to recover as a debt any levies/contributions not paid at the end of one month after they become due and payable, together with any interest and the expenses of the applicant incurred in recovering the contributions/levies. I accept that the amounts claimed in the petition are amounts that relates to outstanding levies, interest and expenses due and payable by the respondent.
It is the applicant’s submission that the sum pleaded in paragraph 1 of the creditor’s petition is a debt owed by the respondent to the applicant. It is a debt because the sum of $6,451.63 comprised of outstanding contributions due and payable for the period 1 October 2008 to 1 June 2010.
Section 80(1) of the SSMA states “an owners corporation may recover as a debt a contribution not paid at the end of one month after it becomes due and payable, together with any interest payable and the expenses of the owners corporation incurred in recovering those amounts.”
As a result of the respondent’s failure to pay the contributions within one month, interest has accrued and expenses were incurred.
Section 80(1) of the SSMA gives the applicant the right to treat all such outstanding sums to be a debt because the respondent failed to pay contributions within the prescribed period.
Mr Strang submitted orally that the sum claimed on the petition cannot be categorised as a debt and disputed that the amount is owing but offered no further explanation why he was of the view that the outstanding contributions, interest and expenses were not a debt.
The applicant disagreed with the proposition put by Mr Strang to the Court that the sum claimed is not a debt because once a levy or contribution has been struck and not paid within one month then the applicant may recover that amount as a debt: Owners of Strata Plan 50164 v O’Connor [2010] FMCA 833 at [44].
Section 80 of the SSMA makes the outstanding levy, interest and expenses a debt which the applicant is then entitled to recover in a fashion that it chooses to. One of the ways in which the applicant can recover a debt under s.80 is by utilising an avenue open to it under the Bankruptcy Act.
In McClymont v Owners Strata Plan No 12139 [2009] FMCA 1079, Smith FM said:
In my opinion the right of an owners corporation to pursue recovery of unpaid strata contributions for bankruptcy proceedings does not arise under s.80 but under the provisions of the Bankruptcy Act available to the owners corporation as a creditor for debts recovered or recoverable under s.80.
It follows in my view that for the purposes of s.244 of the Bankruptcy Act the applicant is not required to have the judgment debt as that section gives the applicant the right to claim a debt of not less than $5,000.00 owed by a deceased person to a creditor or debts amounting in the aggregate to not less than that amount or so owing to any two or more creditors[1].
[1] The evidence discloses that the applicant pursued debt recovery proceedings to a judgment against the deceased in ignorance of the fact that he was dead. That judgment is not relied upon. Neither in my view could it be.
In the case of Proprietors Units Plan No 52 v Gold (1993) 168 ALR 6 at 88 (“Gold”) the Full bench of the Federal Court of Australia dealt with the equivalent of s.80 in the SSMA in the Australian Capital Territory being s.48 of the Unit Titles 1970 (ACT) (“the Unit Titles Act”). In that case the Full Court was considering whether the body corporate was entitled to recover its expenditure in the recovery of unpaid levies from a defaulting member as a debt.
Section 48 of the Unit Titles Act stated:
where a corporation has incurred any expenditure or performed any repairs, or work or act that it was required and authorised by its articles or by or under this Act or any other law enforced in that territory to perform, the expenditure, repairs, work or act having been rendered necessary by reason of any wilful or negligent act or omission on the part of, or breach of any provision of its articles by, a member of the corporation, the amount of that expenditure or any amount expended by it in performing the repairs, work or act is recoverable from the member as a debt.
In Gold the argument that was put to the Court by counsel for the respondent was that under s.48 of the Unit Titles Act did not create a liability but provided a means by which such a liability may be enforced.
The Full Court of the Federal Court of Australia overruled the single judge to hold that s.48 of the Unit Titles Act created a statutory debt which a member is liable to pay as soon as the amount of the body corporate expenditure has been ascertained. It does not merely simplify enforcement of an antecedent liability. It was therefore not necessary for the appellant to have obtained a court order for its costs before the appellant could rely on s.48. It was clear to the Full Court that the expenditure incurred by the body corporate was predicated on an obligation imposed with each member to pay contributions by an ascertainable due date.
In Owners of Strata Plan 50164 v O’Connor [2010] FMCA 833 (“O’Connor”) I confirmed that there was no requirement that the debt relied upon to support the creditor’s petition be a judgment debt, or even the same debt as the one used to create the act of bankruptcy.
My comments were in the context of s.44 of the Bankruptcy Act but those comments apply with even more force to a debt under s.244 of the Bankruptcy Act, where no act of bankruptcy is required.
In O’Connor I further confirmed that s.80 of the SSMA gives the owners corporation the right to treat all such outstanding items as a debt because of the failure to pay contributions within one month after they had become due and payable. I said[2]:
I think the better view is that the effect of s.80(1) is to establish a debt due and payable to the owners corporation which is a liquidated debt for the purposes of s.44 of the Bankruptcy Act.
[2] at [45].
Therefore, on the authority of Gold and the case of O’Connor the sum claimed in the creditor’s petition is a debt which is a liquidated sum for the purposes of s.244 of the Bankruptcy Act and therefore meets the threshold requirement under s.244.
In the circumstances Mr Strang’s argument that the sum claimed in the creditor’s petition cannot be categorised as a debt is misconceived as the amount claimed are amounts legitimately due and owing to the applicant under the SSMA. Further, the debt is a liquidated sum which has become due and payable by the estate to the applicant. Therefore the sum sought to be recovered under s.244 of the Bankruptcy Act does not require to be a judgment debt so as to enable the applicant to bring an application under s.244.
The petition in the present case was not based upon an act of bankruptcy as would normally be required under s.44 of the Bankruptcy Act. Section 244 has no such pre-requisite. Section 244 appears in Part XI of the Act, which is concerned with the administration of estates of deceased persons in bankruptcy. Section 244(1)(a) provides that where a debt of not less than $5,000.00 was owing by the deceased person to a creditor, the creditor to whom the debt is owing may present a petition to the Court for an order for the administration of the estate of the deceased person under Part XI.
Under s.244(11), at the hearing of the petition, the Court must require proof of:
a)matters as stated in the petition;
b)service of the petition; and
c)the fact that the debt to which the petition relates is still owing.
If the Court is satisfied with the proof of those matters, the Court may make an order that the estate be administered under Part XI. Under s.244(12), if the Court is not satisfied with the proof of any of those matters or is of the opinion that, for other sufficient cause, the order sought ought not to be made, the Court may dismiss the petition.
The Court therefore has the power and jurisdiction to make an order under Part XI and that power is not predicated upon the commission of an act of bankruptcy. This position is to be contrasted with a proceeding brought under Part IV of the Act. In a proceeding brought under Part IV, it is necessary, under s.43(1)(a) of the Bankruptcy Act, that the Court be satisfied, before making an order on the petition by a creditor, that the debtor has committed an act of bankruptcy.
Even if an act of bankruptcy has been committed, the Court may, under s.52(2)(a) of the Bankruptcy Act, dismiss the petition if the Court is satisfied that the debtor is able to pay his or her debts. Under s.52(2)(b) the Court may also dismiss the petition if it is satisfied that, for other sufficient cause, a sequestration order not to be made. There is no equivalent of s.52(2)(a) in Part XI, although there is an equivalent of s.52(2)(b), to be found in s.244(12).
I accept that the debt claimed by the applicant has not been paid, and it is open to the applicant to press for an order under s.244 as it would be within the power and jurisdiction of the Court to make such an order. If the respondent debtor had paid the debt prior to the hearing of the petition the Court could have exercised its discretion to dismiss the petition as the petitioning creditor would not have been able to prove that the debt to which the petition related was still owing. However, the debt has not been paid
In the present circumstances the executors of the deceased estate have had notice of the amount claimed in the petition as amounts owing to the applicant but they have failed to take any steps to quickly pay off those amounts such as to arrest the escalation of any interest and costs upon the outstanding sum or to avoid the administration of the estate. No serious steps were taken by the executors to comply with the estate’s obligation to pay contributions.
In the affidavit of Faiyaaz Shafiq filed and sworn on 25 November 2010 it is deposed that the executors have had some disagreement with the applicant surrounding the access to common property which they say was one of the reasons for refusing to pay the sum claimed. This reason however, was not mentioned by Mr Strang in his oral submissions. There is no evidence that the applicant has denied any such access and even if it did the denial of that access is an issue separate to an obligation imposed upon the respondent for the payment of contributions as and when they fall due.
The deceased in this matter died in April 2005. Five years has elapsed since the date of death within which the executors could have taken steps to seek a grant of probate or letters of administration. The applicant has searched the records of the Supreme Court of New South Wales to ascertain if a grant of probate or letters of administration was issued. The results of those searches are reflected in the affidavit of Faiyaaz Shafiq sworn and filed 25 November 2010 in these proceedings.
If the executors had taken reasonable steps in seeking the grant of probate or letters of administration the applicant would have possibly been able to obtain a payment of their debt as the executors would have been authorised to make payments to the creditors of the estate out of the proceeds of the estate. In the absence of a grant in my view the executors do not have any proper authority to use the funds of the estate so as to satisfy the debt owed to the applicant. Further, the applicant will not be able to obtain the payment of future contributions or levies until the executors have sufficient authority to deal with the assets of the estate.
As a consequence of the failure on the part of the executors to obtain a grant, strata contributions have become due and payable to the applicant accruing interest and expenses thereby resulting in the applicant being forced to bring these proceedings. As no legal representative had been appointed under a grant the applicant therefore sought to exercise its rights of recovery pursuant to s.244 of the Bankruptcy Act and is entitled to treat the failure by the respondent to pay the sum claimed as an indication that the estate is incapable of paying the contributions. The only evidence that has been put forth to support an argument that the estate is able to is exhibit R1 which is an advertisement in a local newspaper purporting to invite claims on the estate to be submitted to an entity known as “The Office of the Executors and Trustee of the Estate of the Late Edwin John Strang”. The advertisement was published on 7 December 2010. The timing and content of that notice does not persuade me that the executors have made any serious attempt to deal with the liability of the estate.
In Rivwest Finance Ltd v Baun & Ors [2005] FMCA 595 (“Rivwest”) FM Smith in granting an order for the administration of the deceased estate noted as follows:
The present Act does not expressly require the Court to address the solvency of the estate, but confers a broad discretion upon proof of an unsatisfied debt. This has significance since the previous legislation expressly raised solvency as an issue, and required the Court to dismiss a petition if it was “satisfied that there is a reasonable probability that the estate will be sufficient for the payment of the debts owing by the deceased………”. Plainly, under s244 of the present Commonwealth Act, I am not required to form either of these opinions, and may order that the estate should be administered under Part XI even if I am able to form an opinion of the solvency of the estate.
In this particular case it is established that the sum claimed in the petition is a debt and the solvency of the estate has not been raised by the respondent except incidentally in the course of oral submissions. The applicant accepts that the Court has a broad discretion in this respect, however, it submits that the present case is one which does not require the exercise of such a discretion.
In Rivwest Smith FM in relation to the issue of insolvency went on and said further at [10]-[12]:
In the context of deceased estates, “insolvent” can have the meaning of” insufficient for the payment in full of the debts and liabilities of the deceased” as revealed upon the final accounting in the administration of the estate. However, a prediction as to this before the estate’s administration is finalised may be difficult, and may require assessment of an uncertain future course of administration. As the previous legislation indicated, it should not normally be expected that a Court of Bankruptcy can do more than assess the future possibilities in relation to solvency upon final administration.
In some situations it may appear that administration of the estate under the Bankruptcy Act is a desirable procedure to enable the best administration of the estate to achieve solvency. Such administration brings the benefits of a professional and independent administrator armed with extensive powers of investigation and with access to the Acts provision for setting aside improvident or improper property transfers. Plainly in a case where this cause appears appropriate, the Court should not hold back until it can reach a judgment that the estate will be found to be insolvent upon a final accounting.
In my opinion, the general interest of creditors may be given greater attention when exercising a discretion under bankruptcy law than it is given under state law governing estate administration.
In the present case the executors have failed to take any reasonable steps to seek a grant of probate or letters of administration, thereby depriving the Court of any certainty in regards to whether the estate is still solvent. Even though Mr Strang had the opportunity to put evidence of solvency before the Court he has not done so. He has provided evidence of the lot owned by the estate in the strata plan. The property is now encumbered as Mr Strang has apparently placed a caveat on the title.
The independent trustee would also have the powers to realise the asset or assets of the estate in order to pay not only the debt owed to the applicant creditor but also to any other secured or unsecured creditors. In the prevailing circumstances that the prospect of creditors being paid without significant further delay could be advanced if the estate was administered in bankruptcy. A trustee in bankruptcy would have extensive powers to investigate whether the estate has failed to account for assets and whether the estate has sufficient assets to pay off its creditors including the applicant. If the executors co-operate with the trustee in a sensible way the trustee may be able to resolve all of the claims on the estate without having to resort to any further litigation. If there was any further litigation the trustee will be in a better position to conduct such litigation on behalf of the estate.
In such circumstances no sufficient cause has been shown on the evidence against the order sought by the applicant. Even though the executors of the estate have failed to articulate any such reason the applicant has properly raised these matters such as to ensure that the Court is satisfied that there is no sufficient cause shown upon which the petition should be dismissed.
In Rivwest Smith FM also referred to Re Estate of Hancock(deceased): Hancock Prospecting Pty Ltd v Estate of Hancock [1999] FCA 295 where Tamberlin J said:
Where the Court is not satisfied with the proof of any of the matters set out in 244(11) or is of the opinion that for other sufficient cause the order sought ought not to be made it may dismiss the petition section 244(12).The reference to this Part is to Part XI of the Act which governs the administration of estates of deceased persons in bankruptcy. The above provisos do not require it to be established that the estate is insolvent. However, the order is discretionary, insolvency is clearly a matter which should generally be taken into account in exercising the discretion.
In Meinhardt (Hong Kong) Ltd v William Lindsay Meinhardt (Deceased) & Ors (No.2) [2006] FCA 1323 in granting an order for the administration of the deceased estate Jessup J at [56] commented:
If, under an administration pursuant to Pt XI of the Bankruptcy Act, the debts of the estate cannot be paid in full, there will be no assets for distribution amongst the beneficiaries under the Mr Meinhardt’s will; it could hardly then be claimed that there was any particular advantage in an administration pursuant to the Administration and Probate Act. If on the other hand, during a Pt XI administration it transpires that all debts of the estate can be paid in full, and those debts are paid in full, the order under s244 would thereupon be annulled by the operation of s252 of the Bankruptcy Act. The remaining assets is the estate would then be distributed according to the will of the testator and the requirements of the Administration and Probate Act. Although it may be thought that there is a certain inconvenience in such a possible two-stage process, it would at least be, in my view, a fair and appropriate one, in that the rights of creditors would first be protected under the Bankruptcy Act and, if the situation arises, the rights of beneficiaries would then be advanced under the Administration and Probate Act.
The respondent has not put into serious issue the solvency of the deceased estate and the Court cannot be satisfied about the solvency of the estate. In such circumstances and in the absence of any material put to the Court by the executors the Court is unable to determine the question of solvency. It is therefore proper for the Court to order the administration of the estate and to allow the independent trustee to administer the estate to protect the interest of creditors and the beneficiaries.
The applicant has satisfied the proof of the matters set out in s.244(11) of the Bankruptcy Act and therefore in accordance with s.244 the estate of the deceased should be administered in bankruptcy. As referred to in the affidavit of Faiyaaz Shafiq filed and sworn 25 November 2010, the applicant took steps under New South Wales state law to recover the sum owed to it but ceased any further action under state law upon learning of the death of the deceased. Even after pursuing its rights under the Bankruptcy Act the applicant has not been able to resolve the issue of the sum owed to the applicant with the executors of the estate as they have failed to understand the obligations imposed upon the estate under the SSMA in so far as the payment of contributions, interest and expenses are concerned.
Further, in response to Mr Strang’s argument regarding the applicant having a lien over the assets of the estate the applicant submits and I accept that it does not have any such lien over the assets of the deceased as it is not in possession of the assets of the deceased.
As a result the applicant cannot be considered to be having a lien and therefore cannot be considered to be able to exercise its rights under a lien.
Conclusion
Having heard Mr Strang at some length, I satisfied myself of the matters of which s.244 of the Bankruptcy Act requires proof. I refer in particular to the matters required to be proven at a hearing pursuant to s.244(11). I was able to satisfy myself also in relation to s.244(6) that a debt is owing to the petitioning creditor in a liquidated sum due at law and payable immediately. I was also able to satisfy myself by reference to the death certificate that the late Mr Strang was personally present in Australia at the time of his death, contrary to submissions to the contrary by Mr Graeme Strang. That is sufficient to satisfy s.244(6)(b) and it is not necessary for a petitioning creditor to prove matters relating to the other subparagraphs of s.244(6)(b).
I have considered whether the Court should refrain from making a sequestration order having regard to the fact that the deceased estate has a significant asset, being the lot in the strata plan giving rise to the debt in the form of unpaid strata contributions and that the liability is relatively small. It may be that the deceased estate is solvent. As noted above, I have been unable on the evidence to determine that issue. While insolvency does not have to be proved for the purposes of s.244, it is a relevant consideration in the exercise of the Court’s discretion.
I have also considered whether a sequestration order should be made in view of the possibility of the executor, Mr Strang, seeking probate over the will. He tendered a cutting from a suburban newspaper which was intended, as I understand it, to persuade me that he was taking steps towards that end. However, it is significant that the deceased Mr Strang died in 2005 and it was only two days before the hearing today that any steps were taken by Mr Graeme Strang in order to pursue probate, that step being limited to the placement of a notice in the suburban newspaper.
Having heard the parties, I formed the strong view that the appropriate course, in the circumstances of this case, is to make orders for the administration of the deceased estate in bankruptcy pursuant to Part 11 of the Bankruptcy Act. I will so order.
I certify that the preceding sixty-six (66) paragraphs are a true copy of the reasons for judgment of Driver FM
Date: 15 December 2010
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