Re McDonald; ex parte Deputy Commissioner of Taxation
[1996] FCA 410
•18 Apr 1996
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION )
No. QB 1426 of 1995
BANKRUPTCY DISTRICT OF THE ) No. QB 1427 of 1995
STATE OF QUEENSLAND )
RE:CHRISTINE ANNE MACDONALD and KEVIN ROBERT MACDONALD
EX PARTE:DEPUTY COMMISSIONER OF TAXATION
MINUTES OF ORDER
JUDGE MAKING ORDER: Spender J
DATE OF ORDER: 18 April 1996
WHERE MADE: Brisbane
THE COURT DECLARES that it is satisfied that a sequestration order ought not to have been made of the estate of Kevin Robert MacDonald or the estate of Christine Anne MacDonald.
THE COURT ORDERS THAT:
(1)the bankruptcy of Christine Anne MacDonald be annulled;
(2)the bankruptcy of Kevin Robert MacDonald be annulled;
(3)each of Mr and Mrs MacDonald pay the taxed costs of the petitioning creditor in the sum of $1924.80;
(4)each of Mr and Mrs MacDonald pay the costs of the administration of the Official Trustee of their estates before the making of the order annulling their bankruptcy, which I fix in each case at $2265;
(5)each of Mr and Mrs MacDonald pay the costs of this application of the Deputy Commissioner of Taxation to be taxed, if not agreed, but those costs are not to include any reserved costs;
(6)each of Mr and Mrs MacDonald pay to the Deputy Commissioner of Taxation, within 21 days of the date of these orders, the sum of $39,000 in part discharge of the debt owing by each of them to the Deputy Commissioner of Taxation.
THE COURT GRANTS liberty to apply.
NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION )
No. QB 1426 of 1995
BANKRUPTCY DISTRICT OF THE ) No. QB 1427 of 1995
STATE OF QUEENSLAND )
RE:CHRISTINE ANNE MACDONALD and KEVIN ROBERT MACDONALD
EX PARTE:DEPUTY COMMISSIONER OF TAXATION
CORAM: Spender J
DATE: 18 April 1996
PLACE: Brisbane
REASONS FOR JUDGMENT
This is an application by Christine Anne MacDonald and Kevin R. MacDonald that the bankruptcy consequent upon a sequestration order made by the Court on 21 June 1995 in each case be annulled. The application is made under s 153B of the Bankruptcy Act 1966 which provides:
"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 Registrar, the Court may make an order annulling the bankruptcy. "
The ground on which it is said that the sequestration order ought not to have been made is that, at the time it was made, each of Mr and Mrs MacDonald was solvent.
Like many of these cases, the application for annulment comes after there has been no appearance by any of the debtors to oppose the making of the sequestration order nor any application made by them at any time concerning any of the bankruptcy proceedings. The sequestration order, in a sense, was made by default and by the Court in complete ignorance of any matters that might have been relevant to whether the sequestration order should have been made. As I indicated in Re Gollan; Ex parte Gollan (1992) 40 FCR 38, the conduct by the debtors can be met by appropriate orders including costs orders.
If the true position is that, had the Court been properly informed of relevant material, it would not have made the sequestration order, then the discretion which the Court is given by s 153B is enlivened.
The facts of this case, unlike the facts in Re Gollan and many others, indicate that, in the case of each debtor, it is a reasonably close run thing whether at the time of the sequestration order the debtor was solvent. At that time, the combined claims by the Commissioner of Taxation were of the order of $78,000. The material before me indicates that the MacDonalds owned their matrimonial home at Palm Beach; and that it had a value not less than $150,000 (Mr MacDonald asserts that its value was $162,000 and a valuation on behalf of the Australian Taxation Office indicates a valuation as at 24 August 1995 its value was $150,000. Why that date was chosen as the date of valuation at the moment escapes me.)
Speaking in broad-brush terms, the equity in the home by the MacDonalds was, at least, $132,000, there being owing to Suncorp under the mortgage, an amount of about $18,000.
There are assets to which Mr MacDonald deposes. They are associated with his plumbing business, apart from a Toyota cruiser (which is said to have a value of $20,000).
On the material before me, I think that both Mr and Mrs McDonald were, in the sense explained in the High Court in Sandell v Porter (1966) 115 CLR 666 particularly in the observations of Sir Garfield Barwick at p 670, solvent at the date of the making of the sequestration order.
Solvency is not really a matter of degree but there was not very much padding in their surplus of assets over liabilities. It is that consideration which troubles me in relation to whether the discretion to annul the bankruptcies should be exercised.
In the time since the making of the sequestration order, the proofs of debt on behalf of the Commissioner have increased both as against Mr and Mrs MacDonald. This has been because of the failure by the MacDonalds to act in their own best interests.
I think a realistic assessment of what the present position is is that the realisable assets are of the order of about $165,000. The costs owing to the petitioning creditor are of the order of $4000. It is likely that the claims to the Deputy Commissioner of Taxation are not lower than $118,000. There is a debt owing to the National Australia Bank of about $2450 and there would be payable to the Official Trustee in respect of his administration of each estate an amount, which Mr Siemon, on behalf of the Official Trustee, has asked me to fix, at $2265 in each case. It seems to me that that is an appropriate thing to do and I proceed on the basis that the costs payable by Mr MacDonald and Mrs MacDonald in each case in respect of the administration by the Official Trustee of the respective estates is $2265.
It is obvious that even if one accepts, as I do, that there is a real likelihood of finance of the order of $97,000 being able to be obtained in respect of the matrimonial home, Mr and Mrs MacDonald are in a very tight financial position.
It is clearly in their interests that they take proper and timely advice in relation to their financial affairs so that this mess in which they are presently found will not be made worse and that they can get back to a proper footing. It is by no means an easy exercise to consider what is the appropriate course on these facts but, conscious as I am of the costs that might be incurred on the basis that the fees and remunerations payable on the realisation of assets is a very considerable sum in this particular case having regard to the assets to be realised, it seems to me that I ought not to expose the MacDonalds to those costs unless I were convinced that to do anything else would be futile.
I am not so satisfied, and I think in the circumstances, the exercise of a sound discretion by the Court is to annul the bankruptcy of each of Mr and Mrs MacDonald.
Those orders will, of course, have to be on terms that the costs that other people have had to incur by virtue of their inactivity and failure to look after their own best interests, are paid.
The orders that I make are these:
that the Court declares that it is satisfied that a sequestration order ought not to have been made concerning the estate of Kevin Robert MacDonald or the estate of Christine Anne MacDonald;
that the bankruptcy of Christine Anne MacDonald be annulled;
that the bankruptcy of Kevin Robert MacDonald be annulled;
that each of them is to pay the taxed costs of the petitioning creditor in the sum of $1924.80;
that each of them is to pay the costs of the administration of the Official Trustee of their estates before the making of the order annulling their bankruptcy which I fix in each case at $2265;
that each of Mr and Mrs MacDonald are to pay the costs of this application of the Deputy Commissioner of Taxation to be taxed, if not agreed, but those costs are not to include any reserved costs.
The final matter is whether I should make any order concerning the payment of any amounts to the Deputy Commissioner of Taxation. I think I should. In the light of the application which invites the Court to make the orders which I have made on terms that, within 21 days, a total of $78,000 is paid to the Deputy Commissioner of Taxation in respect of the obligations of Mr and Mrs MacDonald, I am presently minded to make that order. The application offers to make payment within a certain time of specified amounts. That offer does not, in any way, affect their liability to pay whatever is the appropriate amount to the Deputy Commissioner of Taxation but I anticipate that finance will be obtained promptly and will be applied in reduction of the amounts owed to the Deputy Commissioner of Taxation.
It may very well be, however, that unless something is done about the rest of it, we will be back here with further bankruptcy proceedings.
I order that Kevin Robert MacDonald pay to the Deputy Commissioner of Taxation, within 21 days of the date of these orders, the sum of $39,000 in part discharge of the debt owing by him to the Deputy Commissioner of Taxation. I further order that Christine Anne MacDonald pay, within 21 days of the date of these order, the sum of $39,000 in partial discharge of the debt that she owes the Deputy Commissioner of Taxation.
I grant liberty to apply.
I certify that this and the preceding six (6) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.
Associate
Date: 18 April 1996
Counsel for the applicants : Mr M Martin
Solicitors for the applicants : Baker Johnson
Counsel for the respondents : Mr J A Logan
Solicitors for the respondents: Australian Government Solicitor
Date of Hearing : 18 April 1996
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