Plant v Ken Smith Electronics P/L & Others
[2000] FMCA 7
•30 October 2000
IN THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
Registry: Sydney Applicant Wayne Douglas Plant Respondent 1: Ken Smith Electronics Pty Limited Respondent 2: Alan Richard Nicholls as the Trustee of the Property of Wayne Douglas Plant, a Bankrupt File No: SZ25/2000 Hearing Dates: 26 October 2000 Date of Decision: 30 October 2000 Before: Kenneth Raphael FM Primary Legislation: Bankruptcy Act 1966 (Cth) (s.153B)
Industrial Relations Act 1996 (NSW) (s.41, s.182)Application: BANKRUPTCY – Annulment of bankruptcy – Bankruptcy notice -Failure of certificate to comply with s.182 of the Industrial Relations Act 1996 (NSW) – Notice misleading -Discretion Matter for Decision: Principal Matter REPRESENTION Applicant: Mr Brian Skinner of Counsel instructed by Bowles Lawyers First Respondent: Ms Patricia McDonald of Counsel instructed by Lazarus Smith Solicitors Second Respondent: Ms Michelle Painter of Counsel instructed by Jones King Lawyers ORDERS: 1. Application dismissed
2. Applicant to pay the 1st and 2nd Respondent’s costs
IN THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
SYDNEY REGISTRY
No SZ25/2000
BETWEEN:
WAYNE DOUGLAS PLANT
Applicant
and
KEN SMITH ELECTRONICS PTY LIMITED
First Respondent
ALAN RICHARD NICHOLLS AS THE TRUSTEE OF THE PROPERTY OF WAYNE DOUGLAS PLANT, A BANKRUPT
Second Respondent
REASONS FOR JUDGMENT
1. On 30 May 2000 Wayne Douglas Plant who had had a sequestration order made against him on 26 October 1998 applied to the Federal Court of Australia for annulment of that order pursuant to s.153B of the Bankruptcy Act 1966 (Cth). That section states:
“153B If the court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor’s petition that the petition ought not to have been presented … the court may make an order annulling the bankruptcy.”
2. The matter was transferred to this Court by order of Madgwick J on 30 August 2000.
3. It is now well accepted that in order for an applicant to succeed in an application under this section the applicant must establish both that the sequestration order ought not to have been made and that it is proper for the court to exercise its discretion to annul the order. (See comments of Katz J in Ozer v Australian Liquor Marketers Pty Limited & Pascoe, unreported FCA 5 October 1999 para 17, Delph Sing v Wood (1918) 25 CLR 497, Marek v Tregenza (1963) 109 CLR 1).
4. The events which led up to the making of the sequestration order in this matter are not in dispute. The bankrupt was one of a number of parties against whom proceedings had been commenced in the Industrial Commission of NSW and against whom judgment was given by Marks J on 5 November 1997. The total amount of the judgment was $142,765. The bankrupt was not represented in those proceedings although he had taken some legal advice prior thereto. A number of companies with which he was associated were also parties to those proceedings and he represented them himself as their advocate. In the time between the handing down of the judgment and the issue of a bankruptcy notice on 8 July 1998 no steps were taken by the bankrupt or the companies to appeal against the decision of Marks J.
5. Paragraph 1 of the bankruptcy notice is in the following terms:
“Ken Smith Electronics Pty Limited
of: 53 Hood Street
YAGOONA NSW 2199
(“the creditor”)
claims you owe the creditor a debt of $142,765.00 as shown in the Schedule.”
6. In paragraph 2 of the notice it states:
“A copy of the judgment or order relied upon by the creditor is attached.”
7. The schedule in the bankruptcy notice appears on page 3 of the document as follows:
Column 1 Column 2 1. Amount of judgment or order $142,765.00 plus 2. Legal costs if ordered to be paid and a specific amount was not included in the judgment or order (see Note 1 below) N/A plus 3. If claimed in this Bankruptcy Notice, interest accrued since the date of judgment or order (see Note 2 below) $9,270.00 4. Subtotal $152,035.00 less 5. Payments made and/or credits allowed since date of judgment or order NIL 6. Total debt owing $152, 035.00 8. In the attachment to the notice there is a document entitled: “CERTIFICATE (Evidence Act, 1995 and s.182 Industrial Relations Act 1996)”. This certificate sets out the orders made by Marks J on 5 November 1997 and states they were entered on 2 April 1998. There is then contained in a box an excerpt from s.182 as follows:
“s.182 states: (1) Any amount ordered to be paid by the Commission (including costs, but not including a criminal or civil penalty) is to be certified by the Industrial Registrar. (2) A certificate given under this section must identify the person liable to pay the certified amount. (3) A certificate of the Industrial Registrar that: (a) is given under this section; and (b) is filed in the office of a court having jurisdiction to give judgment for a debt of the same as the amount stated in the certificate, operates as such a judgment. (4) An appeal lies to the Commission under Part 7 against any amount certified by the Industrial Registrar under this section. (5) An appeal lies to a Full Bench of the Commission under Part 7 against an order by the Commission for the payment of costs.”
9. The bankrupt did not respond to the bankruptcy notice; on 17 September 1998 a creditor’s petition was presented and on 23 October 1998 a sequestration order was made. The bankrupt was present at the time the sequestration order was made.
10. The bankruptcy petition dated 17 September 1998 contains a statement that it is “filed by Barry Lazarus Lawyers for the Commonwealth Bank of Australia”.
11. The applicant, in support of his argument that the sequestration order ought not to have been made, makes the following points:
1. The bankruptcy notice is defective by not including a calculation of interest as required by Note (2) in respect of the sum of $9,270 allegedly claimed. He submits that if that argument is not accepted because the court finds that no claim for interest was made as the only amount claimed is the $142,765 appearing in paragraph (1) of the notice, then the existence of two different sums alleged to be owed, namely the figure appearing in paragraph (1) and the figure appearing as number (6) in column (2) of the schedule ($152,035 under the heading “Total Debt Owing”) is confusing and this confusion would have been enough to have had the original bankruptcy notice set aside.
2. The certificate annexed to the bankruptcy notice is not “a certificate filed in the office of a court having jurisdiction to give judgment for a debt of the same amount stated in the certificate” and it is only when the certificate is filed in that manner that it operates as a judgment. If it does not operate as a judgment then paragraph (2) of the bankruptcy notice (the attachment of a copy of the judgment or order relied upon) is not complied with and thus the bankruptcy notice is defective.
3. The signing of the petition by the solicitor as “Solicitor for the Commonwealth Bank of Australia” was confusing and rendered the petition defective.
12. The bankruptcy jurisdiction is known for the particular care that is taken with the form of documents used to obtain a sequestration order. This is not unreasonable. The effects of bankruptcy upon a citizen are only slightly less serious than the effects of a prison sentence. It is described as having “quasi-penal consequences”: Ahern v DCT (Qld) (1987) 76 ALR 137. The citizen loses his ability to travel freely outside the country, he loses his ability to be an officer of corporations, he is severely restricted in his financial dealings and he is obliged to respond to requests for information made to him by his trustee. These restrictions on the liberties of a person were seriously regarded in the 19th century and were not to be permitted unless the procedures by which they took effect were properly complied with. Things have now changed. Legislative amendments such as those contained in s.41(5) and (6) of the Bankruptcy Act and judicial decisions such as Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 have had the effect of countenancing the validity of bankruptcy notices where the amount claimed has been over or under stated. What these changes have not done is to depart from the essential principle that a bankruptcy notice will be a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice: James v Federal Commissioner of Taxation (1995) 93 CLR 631 at 644. It does not matter whether the debtor is or is not actually misled: In re a Judgment Debtor, 530/1908 (1908) 2 KB 474 at 481.
13. In the instant case the bankruptcy notice is misleading. The amounts claimed to be owed by the alleged judgment debtor are different in paragraph (1) and in the schedule. This is not a case of over or under statement of the amount owed which might bring it within the formal misstatements that are now permitted. A debtor receiving the notice would be confused as to whether he or she is to pay the greater or the lesser sum. The fact that the greater sum is made up of the original sum plus interest that is not calculated in accordance with the clear requirements of the notice is an additional factor that goes to the question of whether or not a bankruptcy notice must be in the prescribed form. That conundrum is presently being considered by the High Court and a Full Bench of the Federal Court. This Court does not think it necessary to pass an opinion on that matter in view of its finding that the notice is misleading on its face.
14. The second alleged defect in the notice is that it is said to rely on the certificate of the Registrar of the NSW Industrial Relations Commission and that the certificate itself is not a judgment because it does not become one until “it is filed in the office of a court having jurisdiction to give judgment for a debtor the same amount stated in the certificate”. In this case the appropriate court would be the District Court. If the certificate does not operate as a judgment then it cannot be executed upon. In Re Alan Harry Gibbs ex parte Paul Antony Triscott (1995) 65 FCR 80 Drummond J said:
“Only a judgment on which a creditor is entitled to issue execution at the time of the issue of the bankruptcy notice can constitute a final judgment of the kind referred to in s.40(1)(g) of the Bankruptcy Act see Pepper v McNiece (1941) 64 CLR 642 at 657; Re Pannowitz; ex parte Wilson (1975) 38 FLR 184 at 187-188. It follows that if there was an impediment to Mr Triscott executing on the costs order, which impediment was not cleared away before the bankruptcy notice was issued, then Mr Triscott, as a creditor of Mr Gibbs would nevertheless not have had an order of the kind referred to in s.40(1)(g) when the notice was issued.”
15. It is quite clear from the words of s.182 of the Industrial Relations Act that it is only after the certificate is filed that it can operate as a judgment and therefore only after the certificate is filed that the judgment can be executed upon. If a judgment cannot be executed upon it cannot form the basis of a bankruptcy notice and therefore the notice issued against Mr Plant is defective in a substantive manner and would, had application been made at the proper time have been set aside. These are not technicalities of the type discussed by Drummond J in Amos v Brisbane TV Limited, unreported, FCA 19 June 2000 at para 24.
16. Although it is not strictly necessary, having found on two grounds that the bankruptcy notice should be set aside, to consider the third reason for arguing that the sequestration order ought not to have been made the Court will for the sake of completeness indicate that the signing of the petition by the creditor’s solicitor as “Solicitor for the Commonwealth Bank of Australia” is not a substantive defect which would entitle the debtor to the setting aside of the petition.
17. The Court being satisfied that the sequestration order ought not to have been made must now consider whether it should nonetheless remain in force. In the commentary on s.153B in McDonald, Henry & Meek, Australian Bankruptcy Law and Practice, the learned authors paraphrase the numerous authorities in this way:
“It has been held that the exercise of the jurisdiction to annul being a matter of discretion the court would not annul as a matter of course because all the creditors consented to the annulment, but would consider all the circumstances of the case, the interests of the general body of creditors and the interests of the public and would be guided by the provisions of the statute as to annulment.”
18. The learned authors go on to quote O’Loughlin J in RePapps ex parte Tapp (1997) 78 FCR 524 at 531:
“The test, when a person comes to court seeking an annulment, is one that is akin to “full and true disclosure”. It is incumbent upon such applicant to place before the court all relevant material with respect to his or her financial affairs so that the court may properly be informed and make a judgment that is based upon the full facts and circumstances. A person who seeks an annulment carries a heavy burden.”
19. Counsel for Mr Plant submitted on his behalf that the annulment should be given for the following reasons:
1. That Mr Plant had a genuine reason for seeking the annulment, namely, to appeal the judgment which had caused him to fall into bankruptcy in the first place. The delay in making such an appeal was readily acknowledged and said by Mr Plant in evidence to have been caused by the fact that he did not have funds as he was not working prior to 1999.
2. Mr Plant had been full and frank in his dealings with the Trustee, had answered all the questions put to him by the Trustee and had cooperated during his bankruptcy.
20. Mr Plant gave evidence and was cross-examined by counsel for the opponents about his affairs. It transpired that Mr Plant has both Bachelors and Masters degrees in commerce and has been involved in business all his working life. His affairs were set up in a complex manner involving trusts and an association with a Vanuatu company. However, these matters were not hidden from the Trustee and although the Statement of Affairs may have been completed rather naively, an experienced Trustee could obtain sufficient information from it to commence a series of serious investigations into the sources and disposition of Mr Plant’s wealth. Whilst there were signs from the papers submitted as annexures to the Trustee’s report that such investigations were begun they were by no means completed. No examination of Mr Plant had taken place and although the Trustee suspected that Mr Plant had assets off shore this had not been followed up.
21. Much of the cross-examination of Mr Plant was taken up with his association with the Vanuatu company Shredermeys Limited which was the shareholder in two companies of which Mr Plant had formerly been a Director that owned a property in Bondi Junction in which Mr Plant and his wife had lived and a property in Ultimo in which he and his wife currently live. Mr Plant admitted that money had been borrowed from this company to assist in the financing of the purchase of those properties. In response to questions from the Court and in cross-examination Mr Plant explained that the company had been set up with his first father-in-law for what appeared to be the sale of computer related assets in possible breach of their fiduciary duties to the companies which were employing them at that time. Mr Plant then said that he had little more to do with the company for a while but later arranged to borrow money from it. His dealings were carried out through a company known as Moore Stephens which ran the International Finance Trust Company Limited. In response to a question from the Court Mr Plant stated that although that company believed he owed them some $US 5,000 he had never paid the amount and they had allowed him to borrow money from them.
22. The Court found Mr Plant’s evidence in relation to these aspects of his affairs unconvincing and less than frank. It is most unfortunate that although the Trustee has known about the association with Shredermeys Limited since 1998 he has not examined Mr Plant upon it nor sought any further or more up to date information. There were other matters of concern to the Trustee who had already commenced proceedings against Mr Plant’s wife for recovery of sums paid to her during the relation back period. There was no frank disclosure of how Mr Plant was paying for his accommodation or what had happened to the Bondi Junction property. Finally, no money had been paid to any creditors and the amount owed by the bankrupt was considerably in excess of the judgment debt upon which the bankruptcy was originally founded.
23. Counsel for the bankrupt was right to point out that the bankrupt had responded to the Trustee and that the Trustee had not really acted with quite the zeal that one might have reasonably expected. Perhaps this was because his fees were unpaid, but it is noteworthy that this particular trustee agreed to act as such and did so notwithstanding that he is based in Wagga Wagga and not Sydney. It is hoped that following this decision the Trustee will turn his mind to some of the matters which have caused the Court concern.
24. In responding to the submissions put by counsel for the applicant, counsel for the opponents pointed out that it was clear that Mr Plant was insolvent. The debt upon which the bankruptcy was founded (albeit wrongly) was still due and could be enforced if registered. No appeal had yet been made against it and more importantly no appeal had been made against it in the nine months between the judgment being handed down and the sequestration order being made. During this time Mr Plant had access to quite considerable sums of money which would have enabled him to have obtained advice and brought on the appeal. There is much force in this argument. Furthermore even if the appeal was successful there are other amounts totalling almost $350,000 owed.
25. In all the circumstances the Court believes that it would be inappropriate to annul the bankruptcy of Mr Plant as contrary to the public interest. This is particularly so when the result could well be that another petition might issue which if successful would put Mr Plant in the same position as he was before but his creditors in a worse position in that the relation back period referable to the current bankruptcy would no longer apply.
26. The Court heard argument in relation to costs from all parties. Although critical of the apparent inaction of the Trustee the Court is of the view that it was appropriate that he be represented (see Re Hatcher; ex parte Hatcher unreported, FCA, 6 November 1987 French J) and that the Trustee should be indemnified for his costs in relation to the application from the estate. The unsuccessful applicant should also pay the costs of the opponents who appeared and were represented.
I certify that this and the preceding
pages constitute a true copy of
the Reasons for Judgment of
KENNETH RAPHAEL FM
Dated 30 October 2000………………………………………………
Kristy Alexander, Associate
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