Porter and Porter and Ors

[2018] FamCA 433

FAMILY COURT OF AUSTRALIA

PORTER & PORTER AND ORS [2018] FamCA 433

FAMILY LAW – BANKRUPTCY – Applications by the bankrupt husband’s Trustee pursuant to s 79A of the Family Law Act and to set aside a binding child support agreement – Where the wife applied to annul the husband’s bankruptcy – Where the application is dismissed.

Family Law Act 1975 (Cth)
Bankruptcy Act 1966

Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589

APPLICANT: Ms Porter

1^st RESPONDENT: Mr Porter

2^nd RESPONDENTS: P Pty Ltd

3^rd RESPONDENTS: Q Pty Ltd

4^th RESPONDENTS: R Pty Ltd

5^th RESPONDENT: Mr Dunst & Mr Simons as Trustees in Bankrupt Estate of Mr Porter

6^th RESPONDENTS: Ms O

7^th RESPONDENTS: S Pty Ltd

FILE NUMBER: SYC 4014 of 2012

DATE DELIVERED: 12 June 2018

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Watts J

HEARING DATE: 26 April 2018

REPRESENTATION

SOLICITOR FOR THE APPLICANT: Applicant Wife in person

SOLICITOR FOR THE RESPONDENT: Respondent Husband in person

COUNSEL FOR 2^ND – 4^TH RESPONDENTS & 6^TH – 7^TH RESPONDENTS: Mr McDonald

SOLICITOR FOR 2^ND – 4^TH RESPONDENTS & 6^TH – 7^TH RESPONDENTS: Litigants in person

SOLICITOR FOR 5^TH RESPONDENT: Litigant in person

Orders

(made 26.4.18)

1. The application to annul the husband’s bankruptcy is dismissed. I reserve my reasons for making that decision.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Porter & Porter and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 4014  of 2012

Ms Porter

Applicant

And

Mr Porter

1^st Respondent

And

P Pty Ltd

2^nd Respondent

And

Q Pty Ltd

3^rd Respondent

And

R Pty Ltd

4^th Respondent

And

Mr Dunst & Mr Simons as Trustees in Bankrupt Estate of Mr Porter 

5^th Respondent

And

Ms O 

6^th Respondent

And

S Pty Ltd

7^th Respondent

REASONS FOR JUDGMENT

1. On 26 April 2018, I dismissed the wife’s application to annul the husband’s bankruptcy. I reserved my reasons for doing so. I now provide those reasons.

2. On the 24 January 2018, the husband applied to become bankrupt and completed a debtor’s petition. On 31 January 2018, Mr Dunst and Mr Simons (“the Trustee”) were appointed joint and several trustees for the bankrupt husband. 

3. On 1 February 2018, the Trustee consented to an application by the wife for the Trustee to be jointly and severally joined as parties to these proceedings.

4. The Trustee seeks to pursue applications formally made by the husband under s 79A Family Law Act 1975 (the Act) to set aside a property settlement order that was made in 2014 and further, pursuant to s 83 of the Act, to set aside a spousal maintenance order that was made at the same time. In addition, the Trustee seeks to set aside a binding child support agreement that was entered into at the same time the property settlement and spousal maintenance orders were made.

5. On 12 April 2018, the wife made an application to annul the husband’s bankruptcy. The Trustee resisted that application.

6. Initially the Trustee asserted that the court did not have jurisdiction to deal with the wife’s application for annulment. The Trustee argued that the Family Court of Australia can only make orders under the Bankruptcy Act 1966 if it has been transferred from the Federal Court of Australia or the Federal Circuit Court pursuant to s 35A of the Bankruptcy Act 1966. 

7. However, s 35(1) of the Bankruptcy Act 1966 is in the following terms:

   (1)    If, at a particular time:

   (a)a party to a marriage is a bankrupt; and

   (b)the trustee of the bankrupt's estate is:

   (i)a party to property settlement proceedings in relation to either or both of the parties to the marriage; or

   (ii)an applicant under section 79A of the Family Law Act 1975 for the variation or setting aside of an order made under section 79 of that Act in property settlement proceedings in relation to either or both of the parties to the marriage; or

   (iii)a party to spousal maintenance proceedings in relation to the maintenance of a party to the marriage;

   then, at and after that time, the Family Court has jurisdiction in bankruptcy in relation to any matter connected with, or arising out of, the bankruptcy of the bankrupt.

8. When that section was drawn to the Trustee’s attention, the Trustee withdrew the submission in relation to the lack of jurisdiction.

9. Section 153B(1) of the Bankruptcy Act provides:

   Annulment by Court

   (1)    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 or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.

10. The High Court in Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 at 598 said:

    Power to annul a bankruptcy is given by s. 154(1) [the current section 153B(1)] where the court is satisfied, in the case of a debtor’s petition, “that the petition ought not to have been presented or ought not to have been accepted by the Registrar”. The words of this paragraph show that the court has power to annul a bankruptcy resulting from the acceptance of a debtor’s petition even though the petition was properly accepted by the registrar. If the presentation of a petition amounted to an abuse of the process provided by s.55 of the Act, it can rightly be said that the petition ought not to have been presented and in those circumstances power exists to annul the bankruptcy resulting from its acceptance.

11. The wife sought to pursue her application for annulment of the bankruptcy on the basis that the presentation of the husband’s petition in the particular circumstances of this case was an abuse of the process provided in s 55 of the Bankruptcy Act, and in any event, the husband was solvent as at the date of the presentation of the petition. The husband presented his petition for bankruptcy the week before the trial, and was made bankrupt on the morning of the first day of the final hearing on 31 January 2018.

12. It was implicitly the wife’s position that the husband had the ulterior motive of defeating the wife’s application for enforcement of the 2014 orders and binding child support agreement by presenting the petition.

13. Both parties relied on considerable volumes of material.

14. The Trustee had provided the “Second Report to Creditors”.

15. The Trustee gave evidence that:

    15.1.The husband’s secured creditors are owed $3,902,797;

    15.2.The husband’s unsecured creditors are claiming $7,966,358, but that includes a claim by the wife of $4,505,000 (which claim, as I understand it, is based upon her doing a mathematical calculation of all monies payable by the husband to her or on her behalf until 2024 under the 2014 orders and binding child support agreement);

    15.3.Westpac is claiming $1,922,725 in respect of which they have a charge against various medical equipment that has been leased by the husband or entities associated with the husband. The Trustee has assumed that that medical equipment might be able to be disposed of for $576,817, which would leave an unsecured debt to Westpac of $1,345,908. All up the unsecured creditors, excluding the wife, are in the sum of $4,807,266;

    15.4.There are still a significant number of creditors who have yet to have lodged a proof of claims which are predicted to total in the vicinity of $915,180. In questioning by counsel for Ms O, the Trustee said that there were certain significant debts that still had not yet been taken into account but in respect of which the Trustee had some notice. This included a debt to Ms T of an amount of $155,000 and Mr U of an amount of $89,500. Reference was also made to a possible additional claim against the husband by V Pty Ltd for insolvent trading; and

    15.5.The main asset the husband has remaining is the interest he has in the property in which the wife and the children reside. That asset has been assessed as being an amount in the husband’s hands of about $350,000. Consequently, the husband is facing a deficit of $5,372,446 when looking simply at unsecured creditors (excluding the wife).

16. The Trustee raises the issue of preferential payment having been made to the Commonwealth Bank and believes an amount may be able to be recouped from the Commonwealth Bank. However, although there is no clear evidence before me, it seems that it was generally agreed that it may well be that the Commonwealth Bank has an all monies mortgage on the property in which the wife is residing and clawing back an amount from the Commonwealth Bank will only lead to them claiming under the mortgage on the wife’s residence.

17. The husband also has superannuation which is not included in his bankrupt estate.

18. The wife cross examined the Trustee in relation to various creditors and put into question debts totalling about $1.3 million. These debts include the amount of $669,133 allegedly owed to the husband’s partner, Ms O. Whilst the Trustee said he had a formal proof of debt in relation to a number of those debts. I accept that the wife, in the context of the application before me, did not have full opportunity to forensically test whether or not the claims from those creditors could be partially or wholly supported. The wife also questioned the resale value that the Trustee used in determining the Westpac debt regarding the medical equipment.

19. The Trustee opined that the husband was “hopelessly insolvent”.

20. The wife submitted that I should take into account the lack of full and frank disclosure on behalf of the Trustee. The wife referred to parts of her affidavit where she had detailed the occasions on which she had written to the Trustee to attempt to obtain documentation from him. The wife, however, in cross examination did not put to the Trustee that any alleged failure to make a proper disclosure vitiated the overall opinion of the Trustee about the husband’s solvency.

21. In the circumstances, and having looked at all the material, I accept the Trustee’s overriding contention that the husband was insolvent at the time he had presented his petition and, accordingly, it was not an abuse of process to present that petition, notwithstanding the timing of the husband doing so.

22. For those reasons I dismiss the wife’s application for an annulment of the husband’s debtor’s petition.

23. That of course is not the end of the matter. On 26 April 2018, I went on to make some interim orders to attempt to maintain the home in which the wife and children reside, her motor vehicle and to provide an amount of $2,000 each week, until such time that a full scale hearing can be held into the husband’s financial history and current financial circumstances together with his partner Ms O and all their associated companies and trusts. I set the matter down for final hearing in relation to the Trustee’s application under s 79, s 83 and the application to set aside the binding child support agreement.

I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts delivered on 12 June 2018.

Associate: 

Date:  12 June 2018