Palmer v Delic (No.1)
[2014] FCCA 2637
•26 November 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| PALMER v DELIC (No.1) | [2014] FCCA 2637 |
| Catchwords: BANKRUPTCY – Personal Insolvency Agreement – whether a material particular was omitted from the Statement of Affairs of the debtor – whether it is in the interests of creditors to set aside a Personal Insolvency Agreement following death of debtor – whether Personal Insolvency Agreement should be set aside. |
| Legislation: Bankruptcy Act 1966 (Cth) s.222 |
| Palmer v Delic (No.2) [2014] FCCA 2708 |
| Applicant: | CHRISTOPHER JOHN PALMER |
| Respondent: | ANGELA VINKA DELIC, AS LEGAL PERSONAL REPRESENTATIVE OF DENNIS JAKOV DELIC |
| File Number: | SYG 2804 of 2014 |
| Judgment of: | Judge Emmett |
| Hearing dates: | 20 October 2014, 21 November 2014 |
| Date of Last Submission: | 21 November 2014 |
| Delivered at: | Sydney |
| Delivered on: | 26 November 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr Geoffrey McDonald |
| Solicitors for the Applicant: | Gavin Parsons and Associates |
| No appearance by or on behalf of the respondent on 20 October 2014. | |
| Solicitor for the Respondent on 21 November 2014: | Yvonne Chan (Era Legal) |
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2804 of 2014
| CHRISTOPHER JOHN PALMER |
Applicant
And
| ANGELA VINKA DELIC, AS LEGAL PERSONAL REPRESENTATIVE OF DENNIS JAKOV DELIC |
Respondent
REASONS FOR JUDGMENT
This is an application by the Controlling Trustee of a Personal Insolvency Agreement executed on 29 April 2013 in respect of Dennis Jakov Delic (“the PIA”), inter alia, seeking orders to set aside the PIA.
The Controlling Trustee brings the application pursuant to ss.222(5) and 222(6) of the Bankruptcy Act 1966 (Cth) (“the Act”) seeking to set aside the PIA on the basis that a material particular was omitted from the Statement of Affairs of Mr Delic, the debtor, and that it is in the interests of creditors that the PIA be set aside.
Section 222(5) of the Act is part of Part X, Division 3 of the Act, which contains general provisions relating to the appointment of a Controlling Trustee in respect of a personal insolvency agreement. Section 222 of the Act provides for the setting aside of a personal insolvency agreement, relevantly, where the Inspector General, Controlling Trustee or a creditor seeks such an order and the Court is satisfied that the debtor has omitted a particular from the statement of the debtor’s affairs, or included an incorrect and material particular in that statement. Section 222(6) of the Act provides that the Court must not make an order under s.222(5) of the Act unless it is satisfied that it would be in the interests of the creditors to do so.
Relevantly, ss.222(5) and 222(6) of the Act are as follows:
“ 222 - Court may set aside personal insolvency agreement
…
(5) If a personal insolvency agreement is in force, the Court may, on application by:
(a) the Inspector-General; or
(b) the trustee; or
(c) a creditor;
make an order setting the agreement aside if the Court is satisfied that:
…
(e) the debtor has:
(i) omitted a material particular from the statement of the debtor's affairs given under subsection 188(2C) or (2D); or
(ii) included an incorrect and material particular in that statement; or
…
(6) The Court must not make an order under subsection (5) unless it is satisfied that it would be in the interests of the creditors to do so.”
The Controlling Trustee is represented before me today by Mr Geoffrey McDonald, of counsel. The respondent did not appear.
In support of that application, Mr McDonald read the affidavit of the applicant, the Controlling Trustee, Christopher John Palmer, sworn 8 October 2014. The applicant was appointed as Controlling Trustee on 8 March 2013 and held a meeting of creditors on 16 April 2013 for the purposes of approving the PIA.
When entered into, the PIA identified a number of creditors, a list of which is annexed to the applicant’s affidavit.
On 12 November 2013, the debtor’s accountant wrote to the Controlling Trustee with information that the debtor had earned an income of $628,123 for the 12 months prior to 8 March 2013. A copy of that correspondence was attached to the applicant’s affidavit. The Statement of Affairs lodged by the Controlling Trustee and signed by the debtor disclosed that the debtor had earned an income of only $77,000 for that same 12 month period.
As a result of receiving the debtor’s accountant’s letter, the Controlling Trustee formed the view that the debtor’s Statement of Affairs had been materially understated in the report to creditors prior to the execution of the PIA in failing to disclose a debt to the Australian Taxation Office.
On 19 November 2013, the applicant provided the creditors with a report detailing this information and making certain recommendations, a copy of which is annexed to his affidavit. That report disclosed to the creditors the amount of undeclared income which was expressed to range from $481,464 in the year ending 30 June 2010, to $628,123 in the year ending 30 June 2013.
The report informed the creditors that the debtor had omitted a material particular in his Statement of Affairs. The report stated that, as a result, the information contained within the initial report to creditors was likely to be inaccurate insofar as it referred to the estimate of the realisations, should the debtor become a bankrupt, and the comparison of the likely return to creditors in a bankruptcy, as compared to that under the PIA.
The applicant deposed that it was his view that those inaccuracies materially affected the decision of the creditors when voting to approve the PIA. The report suggested that it was possible that the PIA would not have been approved had those particulars been known at the time.
The applicant recommended that the debtor be made bankrupt so that a Trustee in Bankruptcy could be appointed and complete an investigation into the debtor’s affairs.
The report informed the creditors that, as the debtor had otherwise complied with his obligations under the PIA, creditors were unable to terminate the PIA, and that it was necessary to apply to the Court for an order to that effect. The report informed the creditors of the applicant’s intention to apply to the Court to have the PIA set aside and advised creditors of the orders that the applicant would seek.
The report also informed the creditors that the report was intended to be notice to the creditors of the Controlling Trustee’s intention to make an application to the Court as soon as practicable after the forthcoming meeting of creditors. A meeting of creditors was duly called for 2 December 2013. A list of known creditors was attached to the report.
The minutes of the creditors’ meeting are annexed to the applicant’s affidavit. Those minutes disclose the attendees at that meeting. The minutes further disclose that reference was made to the report of the applicant as Controlling Trustee and that he intended to approach the Court to set aside the PIA. The minutes disclose that the applicant chaired the meeting and invited creditors to make statements to the meeting and to ask any questions about this agenda item. The minutes also note that there were no questions or statements from creditors.
In considering whether the Court should make the orders sought by the Controlling Trustee, the Court must be satisfied that the debtor omitted a material particular from the debtor’s Statement of Affairs in that Statement of Affairs.
The material particular relied upon by the Controlling Trustee is the discrepancy in the amount of income disclosed by the debtor in his Statement of Affairs, being $77,000, as opposed to the position, disclosed on 12 November 2013, of an income in the vicinity of $680,000.
On the evidence before me, I am satisfied that such a discrepancy was made and is a material particular.
The Court must further consider whether it would be in the interests of the creditors to set aside the PIA.
Before the PIA was able to be set aside pursuant to s.222 of the Act, the debtor died around 20 January 2014.
The Controlling Trustee, through his counsel, submits that it would be in the interests of creditors to set aside the PIA based on the following submissions:
i)The omission of a material particular in the Statement of Affairs presented to the creditors prior to entering into the PIA.
ii)It is highly likely that the PIA would not have been entered into if the omission of that material particular had been known to all the creditors.
iii)None of the creditors opposed approaching the Court to set aside the PIA.
iv)It is the intention of the Controlling Trustee that a Trustee in Bankruptcy be appointed to the Estate of the debtor who died between 20 and 21 January 2014. Such an appointment would provide greater powers of investigation and realisation of any assets that may be contained in the debtor’s Estate as provided for in Part V of the Act.
In light of the death of the debtor, the question as to whether such an order should be made must consider the effect of Part XI of the Act, which deals with the administration of Estates of deceased persons in bankruptcy. Part XI of the Act specifically provides for a creditor of the deceased Estate or the legal personal representative of the deceased Estate to present a petition for the administration in bankruptcy of the insolvent Estate of a deceased person.
I accept that the application to set aside the PIA was based on the premise that the applicant would be appointed as Administrator of the deceased debtor’s insolvent Estate.
In separate reasons, I have considered whether the applicant in this case has standing to present such a petition and concluded that he does not (see Palmer v Delic (No.2) [2014] FCCA 2708).
Where the applicant has no standing to present a petition to administer the deceased debtor’s Estate in bankruptcy, I am not persuaded that it is necessarily in the interests of the creditors who participated in the PIA to have that PIA set aside.
Under the PIA, the respondent provided funds for distribution pursuant to the PIA in the amount of $180,000 (“the PIA Funds”). In the event that the PIA is terminated prior to its fulfilment, the PIA provides that the whole of the PIA Funds, less any amounts already distributed by the applicant, must be returned to the respondent within seven days. It may be that creditors, other than secured creditors, are only those who approved the PIA, in which case they may be the only creditors entitled to participate in any distribution of the PIA Funds.
Creditors, other than secured creditors, are defined in the PIA as those who attended a meeting on 16 April 2013 at which the PIA was approved by special resolution in discharge and satisfaction of the debts owed to those creditors.
The present application, if successful, would have the effect that the PIA Funds would be returned to the respondent, rather than remaining available to the creditors who were parties to the PIA.
Pursuant to s.222(6) of the Act, relevantly, the Court must not make an order setting aside a personal insolvency agreement on the grounds of the omission of a material particular, unless it is satisfied that it is in the interests of creditors to do so. Where the applicant is the only person seeking to present the petition for administration of the deceased debtor’s Estate and he has no standing to do so, in light of the decision made by me in Palmer v Delic (No.2) [2014] FCCA 2708 and for the reasons in paragraph 25 above, I am not satisfied that it is in the interests of creditors to set aside the PIA.
However, the following Orders were made by me on 20 October 2014:
“1. Under subsection 222(5) of the Bankruptcy Act 1966 (Cth), the Personal Insolvency Agreement, executed on 29 April 2013, in respect of the Estate of Dennis Jakov Delic, now deceased, be set aside.
2. Pursuant to s.222(12) of the Bankruptcy Act 1966 (Cth) compliance with the requirements of r.10.03 and r.10.04 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) be dispensed with.
3. The applicant to file and serve written submissions in relation to the appointment of the Controlling Trustee to administer the Estate of Dennis Jakov Delic, now deceased, by 27 October 2014 together with draft Declarations and Orders, other than relating to the setting-aside of the Personal Insolvency Agreement, executed on 29 April 2013, in respect of the estate of Dennis Jakov Delic, now deceased.”
At the time those Orders were made the Court had not received submissions from the applicant in relation to the standing of the applicant to seek to set aside the PIA. As stated above, having received those submissions and having considered that issue in Palmer v Delic (No.2) [2014] FCCA 2708, it is no longer appropriate to enter the Orders made on 20 October 2014. To date no order has been entered in this matter.
On 21 November 2014, the parties appeared before me for the purpose of my informing them of my decision that the applicant had no standing to present a petition to administer the deceased debtor’s Estate in bankruptcy and to invite further submissions as to whether it remained in the interests of creditors to set aside the PIA.
Directions were made for the filing of further written submissions as to why it would remain in the interests of creditors for the PIA to be set aside in light of my decision in Palmer v Delic (No.2) [2014] FCCA 2708 that the applicant has no standing to present a petition to administer the deceased debtor’s Estate in bankruptcy. Those submissions were to be filed by 25 November 2014. On 25 November 2014, counsel for the applicant confirmed that no further submissions were to be filed on the issue.
Accordingly, the Orders made by me on 20 October 2014 should be set aside and the application, filed on 9 October 2014, should be otherwise dismissed.
I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for judgment of Judge Emmett
Associate:
Date: 26 November 2014