Owners - Strata Plan No 74611 v Yu, in the matter of Yu
[2024] FedCFamC2G 1159
•11 October 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Owners - Strata Plan No 74611 v Yu, in the matter of Yu [2024] FedCFamC2G 1159
File number(s): LNG 12 of 2024 Judgment of: JUDGE FORBES Date of judgment: 11 October 2024 Catchwords: BANKRUPTCY – application for review of Registrar’s decision to dismiss application for sequestration order – de novo hearing of creditor’s petition – whether creditors petition claims debt which exceeds statutory minimum – where criteria for issue of bankruptcy notice requires judgment or orders having been obtained against debtor for greater than statutory minimum – where criteria for creditor’s petition requires outstanding debt in excess of statutory minimum – criteria in ss 41 and 44 of Bankruptcy Act 1996 (Cth) discussed – where creditor’s petition does not have to rely on same debt as bankruptcy notice - where additional debts incurred prior to act of bankruptcy can be included creditor’s petition – conditions for making sequestration order satisfied Legislation: Bankruptcy Act 1996 (Cth) s 43, 44, 52
Federal Circuit and Family Court of Australia Act 2021 (Cth) s 256
Strata Schemes Management Act 2015 (NSW)s 83, 86
Cases cited: Autron Pty Ltd v Benk [2011] FCAFC 93
Emerson v Wreckair Pty Ltd [1992] 33 FCR 581
McClymont v Owners of Strata Plan No. 12139 [2009] FMCA 1074
Owners of Strata Plan 50164 v O'Connor [2010] FMCA 833
Division: Division 2 General Federal Law Number of paragraphs: 37 Date of hearing: 11 October 2024 Place: Melbourne Solicitor for the Applicant: Ms Ikin; CCA Legal Pty Ltd Respondent: No appearance ORDERS
LNG 12 of 2024 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF JINGPING YU
BETWEEN: THE OWNERS - STRATA PLAN NO 74611
Applicant
AND: JINGPING YU
Respondent
ORDER MADE BY:
JUDGE FORBES
DATE OF ORDER:
11 OCTOBER 2024
THE COURT ORDERS THAT:
1.The orders made by Registrar Ellis on 20 June 2024 be set aside.
2.The estate of the Respondent Debtor, Jingping Yu, is sequestrated pursuant to section 43 of the Bankruptcy Act 1996 (Cth) (the Act).
3.The Petitioning Creditor’s costs of the application before the Registrar and in the review proceeding be fixed in the sum of $9,011, such costs to be payable from the bankrupt estate.
4.The Applicant serve a copy of these orders upon the Respondent forthwith.
AND THE COURT NOTES THAT:
A.The date of the act of bankruptcy is 4 March 2024.
B.Brett Richard Geoffrey Harrison has signed a consent to accept appointment as sole trustee of the bankrupt estate under s 156A of the Act.
C.Pursuant to rule 17.05(2)(a) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) the Court or a Registrar may vary or set aside a judgment or order after it has been entered if it was made in the absence of a party.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order 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
(ex tempore reasons revised from transcript)JUDGE FORBES
These are ex tempore reasons relating to an application dated 9 July 2024 whereby the applicant, The Owners - Strata Plan Number 74611, seek review of a decision of orders made by a Registrar of this Court on 21 June 2024. These final published reasons include citations to authorities and relevant extracts that I did not read in full in the delivery of my reasons ex tempore. These published reasons have also been amended from the transcript to correct for grammatical errors and to improve comprehension.
On 20 June 2024, Registrar Ellis dismissed a creditor's petition which sought a sequestration order under section 43 of the Bankruptcy Act 1996 (Cth) (the Bankruptcy Act) against the estate of Jingping Yu, the debtor. The Registrar ordered that the application be dismissed and that there be no order as to costs.
In an affidavit sworn 9 July 2024, the applicant's solicitor, Ms Ikin, deposed that the petitioning creditor was ordered to file and serve evidence and submissions prior to the hearing before the Registrar specifically in relation to levies, interest and legal expenses claimed on the creditor's petition. In her submissions to the Court today, Ms Ikin expressed her understanding that the creditor's petition was rejected by the Registrar because the Registrar was not satisfied that a number of costs, expenses and other debts could be claimed as the basis for the creditor's petition.
A hearing under section 256(1) of the Federal Circuit and Family Court of Australia Act2021 (Cth) seeking a review of a Registrar's decision petition is a hearing de novo and the creditor's petition must be considered afresh. The review does not hinge or focus upon any error in the decision of the Registrar. In a hearing de novo, the petitioning creditor is the true applicant and carries the onus of proving the application by bringing forward the evidence required by section 52 of the Bankruptcy Act. Accordingly, the petitioning creditor must prove, and the Court must be satisfied, that the requirements for making a sequestration order have been established. The Court's sole focus of attention is whether the matters set out in section 52 have been made out.
BACKGROUND
By a creditor's petition dated 5 March 2024, the applicant applied to the Court for a sequestration order under section 43 of the Bankruptcy Act against Jingping Yu. The petitioning creditor is an owner's corporation, and the debtor is an owner of property which is the subject of the relevant strata plan. Pursuant to a strata management agreement, which forms part of the evidence before the Court, the debtor is liable to pay various strata levies and other costs in relation to the property.
The petitioning creditor relies upon a number of affidavits in these proceedings. Each of those are contained in an electronic court book filed by the applicant and are listed in the index to that court book as follows:
·Affidavit Verifying Paragraphs 1, 2 and 3 of the Creditor’s Petition (affirmed 5 March 2024)
·Affidavit Verifying Paragraph 4 of the Creditor's Petition (affirmed 5 March 2024)
·Affidavit of Service of Bankruptcy Notice (filed 5 March 2024)
·Affidavit of Service of Creditors Petition (filed 29 May 2024)
·Affidavit in Support of Application for Review of Registrar’s Decision (filed 11 July 2024)
·Affidavit of Service of Application for Review of Registrar's Decision and Affidavit in Support (filed 8 October 2024)
·Affidavit of Service of Orders dated 7 August 2024 (filed 8 October 2024)
·Affidavit of Lauren Ikin (sworn 11 September 2024)
·Affidavit of Service of Affidavit of Lauren Ikin (filed 8 October 2024)
·Affidavit of Service of Submissions (filed 8 October 2024)
The respondent debtor did not appear in the proceedings before me. The respondent debtor has not taken any steps to participate in these proceedings or in the proceedings before the Registrar.
Nonetheless, based on the affidavits which have been filed, I am satisfied that service has been effected of all key documents, including the creditor's petition, and other documents in these proceedings. I am satisfied that the respondent has been afforded a proper opportunity to participate in these proceedings and to file any opposing material. The respondent has not filed anything, and I take the evidence filed on behalf of the petitioning creditor to be unchallenged.
The creditors petition asserts that the respondent debtor owes the applicant owners corporation the amount of $13,431.51 as at 4 March 2024. That amount is particularised in the petition to comprise three judgments obtained against the debtor in the Local Court of New South Wales for unpaid strata levies which total $13,412.67, being:
(1)$4,288.82 for which sum judgment was obtained on 20 June 2023 (proceeding number 2022/00374546)
(2)$6,003.33 for which sum judgment was obtained on 12 October 2023 (proceeding number 2023/00265812)
(3)$3,120.52 for which sum judgment was obtained on 12 January 2024 (proceeding number 2023/00420691)
In addition to the judgment debts, the creditor claims costs incurred in obtaining writs of execution and garnishee orders and various processing fees amounting to $3,599.70, interest calculated on each of the judgment sums (which have been set out in schedules to the petition) in the amount of $365.79, and an outstanding strata levy amount for which the debtor is liable (which became due and payable after the last statement of claim was issued, but before the act of bankruptcy) totalling $1,296.65. Against those claims the applicant allows credits toward the judgments totalling $5,243.30, being payments made in June and October 2023 and January 2024.
The circumstances in which various judgments were obtained and other debts incurred are described in an affidavit of Ms Ikin sworn on 11 September. In that affidavit, Ms Ikin deposes that a bankruptcy notice was issued by the Australian Financial Security Authority on 27 February 2024, which comprised the three judgment debts for unpaid levies under the Strata Schemes Management Act 2015 (NSW) (the SSM Act), statutory interest pursuant to that Act, and expenses incurred by the applicant pursuant to that Act.
At the time the bankruptcy notice was filed, Ms Ikin gave an undertaking to the Authority that, despite some payments having been received as a result of enforcement actions taken against the debtor, the actual amount still owing exceeded the $10,000 statutory minimum by reason of additional levies, interests and costs which had been included in the judgments. Ms Ikin's 11 September 2024 affidavit goes on to explain the payments which had been made by the debtor and she annexes relevant documents relating to that.
But Ms Ikin also deposes that the three judgments, which formed the basis of the Bankruptcy Notice, did not include a quarterly levy contribution of $1,296.65 which fell due on 1 January 2024 and still remains unpaid. She explains that the further levy is claimed as a debt pursuant to section 86 of the SSM Act, and it was a debt due and payable prior to the act of bankruptcy on 5 March 2024.
In addition, the applicant also claims costs incurred pursuant to section 86 of the SSM Act. Ms Ikin deposes that these costs are not claimed in any of the three judgments that formed the foundation for the bankruptcy notice. Rather, these additional costs are made up of costs incurred on the creditor's petition and are a debt payable for work performed by a strata managing agent in relation to levy recovery, fees for the time spent by the strata managing agent in relation to strata levy debt collection, and legal action, and so on.
An annexure to Ms Ikin's affidavit sets out the basis upon which those fees have been calculated and the activities that were involved. Ms Ikin's affidavit also goes on to explain that after each judgment was entered there have been various recovery steps undertaken by the applicant, such as the filing of notices of motion of writs. The costs claimed in relation to those recovery actions have been calculated in accordance with the New South Wales Court Scale as set out in Schedule 2 of the Civil Procedure Regulation 2017 (NSW).
There have also been further fees incurred by the applicant in making payments to the New South Wales Sheriff's Office for execution, the costs claimed as debts and charged in relation to garnishee orders issued to the ANZ Banking Group, and the drafting of a notice of motion in the New South Wales Local Court. For the sake of completeness, other costs have been incurred for things such as title searches and other matters.
CONSIDERATION
Where a creditor wishes to petition the Court to have a debtor made bankrupt, a number of conditions have to be satisfied in accordance with sections 43 and 44 of the Bankruptcy Act. First, the debtor must have an Australian connection in the sense that he or she was personally present or ordinarily resident in Australia, had a dwelling house or place of business in Australia, or was carrying on business in Australia. Secondly, the debtor must owe a debt of at least $10,000 or two or more debts which amount to more than $10,000. The debts must be for a liquidated sum and they must be payable immediately, or at a certain future time. Importantly, the debtor must have committed an act of bankruptcy within six months prior to the presentation of the petition.
One of the matters about which I must be satisfied is that there has been proper service of a bankruptcy notice, the creditor's petition and relevant documents on which the applicant relies. As I have said, I have reviewed the affidavit material, including the affidavits of service, and I am satisfied that service has been effected.
The foundation for the creditor's petition is the bankruptcy notice. The applicant must satisfy the Court that the conditions for the issuing of the notice existed at the relevant time. Assuming that the bankruptcy notice is compliant with the requirements of the Bankruptcy Act and that the respondent debtor has not paid the amount demanded or entered into an alternative compromise, I must then turn to consider whether the creditor's petition meets the requirements of the Bankruptcy Act.
For the bankruptcy notice, the requirement under section 41(1), is that the creditor has obtained a final judgment or final order that is of the kind described in paragraph 41(g) and is for the statutory minimum amount, or two or more final judgments or orders which meet those criteria.
In a written outline of submissions dated 2 October, Ms Ikin submits that the requisite statutory preconditions were met for the bankruptcy notice. I have read those submissions and, where necessary, I will refer to them shortly. However, given the very serious consequences for a debtor if a sequestration order is made, it is necessary for me to pay careful attention to the construction of the Bankruptcy Act and to explain the applicant's asserted compliance with that Act.
The preconditions for issuing a creditor's petition are dealt with in section 44 of the Bankruptcy Act. One of the conditions is that the debt owing to the creditor must be more than the $10,000 statutory minimum.
In this case, the applicant submits, and I agree, that the statutory preconditions for the issue of a bankruptcy notice under section 41 and for the bringing of a creditor's petition under section 44 are not the same. The former, the bankruptcy notice, is conditioned by the creditor having obtained a final judgment or order which exceeds the statutory minimum, whereas the latter, the creditor's petition, is conditioned by the existence of a debt or debts accrued prior to the act of bankruptcy which exceed that minimum.
The written submissions filed by the applicant have helpfully directed me to Autron Pty Ltd v Benk [2011] FCAFC 93 where the Full Court at [34], drew the relevant distinction between the concepts of judgments and orders, on the one hand, and debts, on the other:
“Finally, the appellant’s position is not advanced by reliance on cases that hold that account can be taken of accrued post-judgment interest to support the presentation of a petition under s 44(1) of the Bankruptcy Act: see In re Henry Wilson (1877) 3 VLR 95 at 96; Re Merrington; Ex parte Monds & Affleck Limited (1929) 2 ABC 154. The requirements of s 44(1) of the Bankruptcy Act are clearly distinct from the requirements of s 41(1) in that the statutory minimum amount for the purposes of s 44(1) is in respect of the “debt” owing by the debtor to the petitioning creditor, not the “final judgment” or “final order” on which a bankruptcy notice is required to be based. It is trite that the “debt” relied on to support a creditor’s petition need not be one arising from a judgment or order; nor is there any requirement that a creditor, who petitions for a sequestration order based upon an act of bankruptcy for which s 40(1)(g) provides, rely upon the debt claimed in the bankruptcy notice giving rise to the act of bankruptcy: Emerson v Wreckair Pty Limited (1992) 33 FCR 581 at 588. Indeed, the relevant act of bankruptcy can arise from any of the circumstances set out in s 40(1). Thus the operation of s 41(1) is independent of the operation of s 44(1) of the Bankruptcy Act. Each section should be seen as imposing statutory minimum amounts in respect of two conceptually different conditions, one for the issue of a bankruptcy notice and the other for the presentation of a creditor’s petition.”
The creditor's petition claims a debt owed by the respondent to the applicant that exceeds the statutory minimum, and the creditor submits that that debt was accrued prior to the date of bankruptcy. There is no requirement that the debt relied on to support a creditor's petition be a debt, or even the same debt as the one used to create the act of bankruptcy: see Emerson v Wreckair Pty Ltd [1992] 33 FCR 581.
What the creditor's petition does in this case is to claim the balance of the three judgment debts that underpinned the bankruptcy notice dated 6 February 2024. The creditor's petition is advanced on what remains from the bankruptcy notice, but it includes further debts which occurred prior to the act of bankruptcy.
The petition, as I have said, includes claims for additional levies, interest, costs and expenses associated with the respondent's obligations to the owner's corporation under the relevant strata management agreement and the SSM Act. Ms Ikin's affidavit of 11 September 2024 deals in detail with the items that comprise those additional debts.
I do want to mention specifically two of the debts. One is the levy contribution that fell on 1 January 2024 in the sum of $1,296.65. The petitioning creditor submits that by operation of section 83 of the SSM Act, that unpaid levy contribution is a debt due and payable to the owner's corporation, and that it is a liquidated debt for the purposes of section 44 of the Bankruptcy Act.
Section 83 of the SSM Act states as follows:
83 Levying of contributions
(1)An owners corporation levies a contribution required to be paid to the administrative fund or capital works fund by an owner of a lot by giving the owner written notice of the contribution payable.
(2)Contributions levied by an owners corporation must be levied in respect of each lot and are payable (subject to this section and section 82) by the owners in shares proportional to the unit entitlements of their respective lots.
(3)A contribution levied by an owners corporation becomes due and payable to the owners corporation on the date set out in the notice of the contribution.
(3A) The date set out in the notice must be--
(a)for a contribution levied for the purpose of carrying out emergency repairs--at least 14 days after the day the notice is given, or
(b) otherwise--at least 30 days after the day the notice is given.
(4)Regular periodic contributions to the administrative fund and capital works fund of an owners corporation are taken to have been duly levied on an owner of a lot even though notice levying the contributions was not given to the owner.
(5) In this section--
"emergency repairs" means urgent repairs to a building in the strata scheme that are necessary to mitigate a serious and imminent threat to the health or safety of the occupants.
(underlining added)
I accept that the unpaid levy contribution is a debt for the purposes of section 44 of the Bankruptcy Act. In their written submissions, the applicants have directed me to a decision of Driver FM, as he then was, in Owners of Strata Plan 50164 v O'Connor [2010] FMCA 833. In that case, his Honour discussed the issue at some length and, following an earlier decision of Smith FM in McClymont v Owners of Strata Plan No. 12139 [2009] FMCA 1074, Judge Driver concluded that a debt outstanding pursuant to levies recoverable by an owner's corporation under the Act is a debt for the purposes of section 44 of the Bankruptcy Act. In the present case I accept that the levy contribution that fell on 1 January 2024 in the sum of $1,296.65 may properly be included in the creditor's petition for the purposes of meeting the threshold requirement under section 44.
The other major debt which is claimed as part of the creditor's petition is $3,599.70, which represents an array of expenses and costs incurred by the owner's corporation as a result of the respondent's failure to pay their contributions as and when they fell due. These have been charged on the respondent's lot account and the applicant submits that these are debts properly incurred in debt recovery pursuant to section 86 of the SSM Act.
Section 86(2)(a) of the SSM Act provides that an owner's corporation may recover as a debt in a Court of competent jurisdiction a contribution not paid at the end of one month after it became due and payable, together with any interest on that unpaid contribution, and the reasonable expenses of the owner's corporation incurred in recovering those amounts. As is the case with the unpaid levy contribution, I accept that the amount recoverable by the owner's corporation under section 86 is a debt for the purposes of section 44 of the Bankruptcy Act. Accordingly, it is also properly a sum which may be included in the creditor's petition for the purposes of meeting the statutory threshold of $10,000.
The applicants rely on an affidavit of debt of Stephen Ecob affirmed on 10 October 2024. Mr Ecob is a licensed commercial agent for Jamiesons & Associates, who are the licensed strata managers for the petitioning creditor. Mr Ecob has deposed that having examined the financial books and records of the owners corporation, the creditors petition sum of $13,431.51 remains owing.
The applicants have also filed a further affidavit from Mr Ecob affirmed on 10 October 2024 in which he deposes to a search of the National Property Insolvency Index. That search reveals that as at the date of the affidavit there were no details of a debt agreement about the debts on which the applicant relies.
DISPOSITION
Based on the uncontested evidence which has been relied on by the applicant in support of their petition, and the written and oral submissions made to the Court by Ms Ikin, I am satisfied as to the following matters:
(a)first, that the respondent debtor committed an act of bankruptcy on 4 March 2024. That occurred when the respondent failed to comply on or before that date with the requirements of a bankruptcy notice duly served on the respondent on 10 February 2024;
(b)secondly, as at the date of the act of bankruptcy, the respondent debtor owed the applicant creditor the amount of $13,431.51;
(c)thirdly, the act of bankruptcy was committed by the respondent debtor within six months before the presentation of the creditor's petition;
(d)fourthly, at the time of the bankruptcy, the debtor had a dwelling house or place of business in Australia; and
(e)fifthly, the debt remains owing, and proper searches have been made as required by the provisions of the Bankruptcy Act and Regulations.
I am satisfied in those circumstances that a sequestration order should be made against the estate of the respondent debtor.
Further, the applicant has petitioned the Court to fix the applicant's costs and seeks that they be paid from the debtor's estate. A short form bill of costs has been provided to the Court. The applicant seeks costs of $5,370 and disbursements of $3,641 calculated in accordance with the relevant court scale. I am satisfied that those costs have been properly incurred in prosecuting the matter before the Registrar and, again, in the review proceeding before me today.
I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Ex Tempore Reasons for Judgment of Judge Forbes. Associate:
Dated: 6 November 2024
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