Re Vincent, Clifton George Ex Parte State Bank of NSW

[1996] FCA 284

IN THE FEDERAL COURT OF AUSTRALIA     )
GENERAL DIVISION  )

BANKRUPTCY DISTRICT OF THE           )  No. NP 368 of 1996
STATE OF NEW SOUTH WALES                  )

RE:CLIFTON GEORGE VINCENT

Debtor

EX PARTE:STATE BANK OF NEW SOUTH WALES LIMITED

Petitioning Creditor

CORAM:    HILL J
PLACE:    SYDNEY
DATED:    2 APRIL 1996

REASONS FOR JUDGMENT

On 25 March 1996 Mr Vincent, the debtor, presented to the Registrar a debtor's petition.  At the time he did so, there was pending against him a creditor's petition issued by the State Bank of New South Wales ("the State Bank") and based upon an act of bankruptcy being said to be the non-compliance with a bankruptcy notice said to have been served upon Mr Vincent.  The failure to comply with the bankruptcy notice took place on 17 August 1995 and the creditor's petition was dated 8 November of the same year.

There has been considerable litigation between the parties leading to the above circumstances.  That litigation relevantly can be traced back to 7 April 1995 when judgment was given by the Supreme Court of New South Wales in favour of the State Bank against the debtor for the sum of $2,560,729.89.  The debtor, in the statement of affairs accompanying his own petition, says that he has assets of only $254.60.

An appeal was lodged against the judgment obtained in the Supreme Court of New South Wales to the Court of Appeal.  No expedition was sought of the appeal and it is unlikely that the appeal would be heard before 1997 or 1998.

The creditor's petition has been specially fixed for hearing for a period of three days commencing 10 April 1996.  An original estimate had been made on behalf of the debtor that the hearing would take some fifteen days.  When the matter was fixed for hearing, Lehane J made orders, inter alia, for the filing of indexed volumes of evidence proposed to be tendered and an outline of the submissions proposed to be made.  The relevant documentary material was to be filed not later than three weeks before the date fixed for hearing.  That period has now expired and the documents have not yet been filed.

At the hearing of the petition there will be, among other matters assuming the debtor's petition is not accepted, argument about service of the notice.  Orders for substituted service had been made initially by a registrar.  A review was brought it seems before Foster J who varied the orders made by the Registrar, whereafter an application for leave to appeal was brought to the Full Court and heard on 20 September 1995.
The Full Court declined leave indicating that it would be more appropriate that any issue of service be heard at the time of the petition.

Mr Conway who appeared for Mr Vincent submitted that his client should be permitted to present his own petition because so to do would avoid the necessity for at least the three day hearing, and potential appeals thereafter, particularly on the question of service.

Counsel for the State Bank drew my attention to some evidence that was before Foster J in the proceedings before his Honour and also to the judgment of Foster J which referred to that evidence.  The evidence in question is evidence given by Mr Conway, the debtor's solicitor, concerning the sale of a property, Shamnor Pty Limited ("Shamnor"), for some $2 million and the destination of the proceeds of sale.  The cross-examination did not put a date upon the transaction, save that Mr Conway was asked whether he had acted for Shamnor in the two years prior to the cross-examination.  Mr Conway, however, in a series of pages of the transcript, objected to answering questions on the grounds of legal professional privilege.  Those objections extended to whether in fact he acted for Shamnor (a matter in respect of which it is hard to see that privilege could exist following the Full Court's decision in Packer v Commissioner of Taxation (1984) 84 ATC 4666) and covered matters such as whether and when the hotel had been
sold; what the proceeds of sale were; and what had happened to them.

It was put to Mr Conway that part of the proceeds of sale had been paid to Mr Conway on account of Mr Vincent's legal expenses.  Mr Conway denied knowledge of that and the matter was not thereafter followed up.

Foster J in his judgment in respect of substituted service, formed the view that Mr Vincent had made deliberate efforts to avoid service of the bankruptcy notice and to thwart compliance with requirements imposed with respect to the effecting of substituted service.  To some extent it may be argued that those matters are findings by Foster J creating an issue of estoppel between the parties with respect to them, insofar as they were relevant to the issue of substituted service.  However, as no submission was made to this effect, I will not pursue that matter further.

His Honour said of Mr Vincent (at 18):

"His behaviour appears to have been devious in the extreme.  Moreover, I entertain a strong suspicion based on material that emerged during the cross-examination of his solicitor that the debtor has been seeking to deal in a clandestine way with assets which might arguably be available to satisfy in part the judgment against him."

The material which Foster J referred to presumably was the material tendered in evidence before me covering the cross-examination of Mr Conway to which I have already referred.  It is not easy to see, having read that cross-examination, how his Honour reached the conclusion he did, if what was deduced before me was the whole of the relevant material, as I must assume it was.

The provisions of s55(3A) of the Bankruptcy Act 1966 (Cth) ("the Act")  were introduced following the deficiencies revealed by the then existing procedure in the case of Clyne v Deputy Commission of Taxation (1984) 154 CLR 589. Under the Act as it then stood, the presentation of a debtor's petition automatically had the consequence that the debtor became bankrupt by force of the statute. Mr Clyne like Mr Vincent, had presented his own petition at a time when there was a petition outstanding against him. As is the case with Mr Vincent, so with Mr Clyne, there were different periods of relation back.

There perhaps the close resemblance to the two cases may end.  There was certainly an abundance of evidence in Clyne that Mr Clyne would use all avenues open to him to defeat the Commissioner of Taxation by putting moneys and other assets outside his reach.  Ultimately an application was made to this Court to set aside the bankruptcy brought about by operation of statute on the grounds that there had been an abuse of process.  The orders of the Court setting aside that bankruptcy were affirmed on appeal by a Full Court of this Court.  Thereafter, Mr Clyne's petition was heard and he was made bankrupt on the petition of the Deputy Commissioner of Taxation.

It is clear from a reading of the decision of the High Court in Clyne's case, to which I have referred, and more so from the proceedings ultimately to set aside Mr Clyne's own petition, that before a court setting aside a bankruptcy brought about by the presentation of the a debtor's petition, it was necessary to show that there had been some abuse of the process contained in s55 of the Bankruptcy Act.  Such an abuse would be shown in circumstances where there were different relation back periods and the Court at least, formed the view that one of the purposes of presenting the petition was to avoid the operation of an earlier relation back period.

The manner in which the Court approached these matters is illustrated by a number of cases, including Edelsten v Deputy Commissioner of Taxation (NSW) (1989) 86 ALR 257. The present procedure adds a qualification to the ability of a debtor to present to the Registrar a petition having the consequence of automatic bankruptcy. The reservation is ultimately that found in s55(3)A, namely, that if there is an outstanding creditor's petition pending against the debtor, inter alia, the Registrar is obliged to refer the debtor's petition to the Court for a direction to accept or reject it. The Registrar is obliged then to comply with a direction given by the Court. There is nothing in s55 which operates as a guide to the matters which the Court should take into account in deciding whether a declaration should be given by the Court, or that directions be given by the Court to the Registrar in accordance with s55(3A) either to reject or to accept the petition.

However, it is clear enough that where circumstances suggest that one of the purposes of a debtor issuing or presenting his or her own petition is to take advantage of a different perpetuity period, and thus reduce the assets available for distribution among the creditors, it would be appropriate for the Court to direct the Registrar not to accept the petition.  It may also perhaps be noted that there is no presumption, where a debtor's petition has been presented but there is an outstanding petition pending, that the court will direct the Registrar to reject the debtor's petition.  It will be necessary for the Court in deciding the matter to have regard to all matters to determine where the justice of the situation lies.

In the present case there is of course, as there almost always will be, a different relation back periods relevant to the debtor's petition and the creditor's petition.  The earliest available act of bankruptcy upon which the
creditor's petition depends is the failure to comply with the demands of the bankruptcy notice on 17 August.  As there is no other act of bankruptcy suggested there is a period of some eight months difference in the relation back period for the creditor's petition and that relevant to the debtor's petition.

That, of its own, would not necessarily lead to a conclusion that the debtor's petition should be rejected.  No doubt the fact that considerable costs can be avoided to the parties by the creditor's petition not proceeding, will be likewise a matter in favour of an order directing that the debtor's petition be accepted in the absence of other factors.

Here there is one additional matter over and above the Shamnor transaction which leads me to conclude that the creditor's petition should proceed and that is that when documents were required to be forthcoming in respect of the issues to arise under that petition, Mr Vincent did not comply and failed to produce information which could no doubt have been used by the State Bank in the present proceedings to strengthen its position.

When I add that to the conclusion drawn by Foster J that there had been an endeavour to avoid service, and bearing in mind that at this stage by definition there can have been no public examination of a debtor, I am of the view that the
present is a case where an order should be made that the debtor's petition be not presented.

What we do seem to have is a case where there is a very large amount owing by Mr Vincent.  He has a very small amount in hand with which to meet that large debt and there are circumstances which, if investigated, could bring about a situation where moneys obtained from the realisation of assets of Shamnor could become available to creditors.  However, one cannot at this stage form any decided view about this for reasons which I have already indicated.

I would, for these reasons, direct the Registrar to reject the debtor's petition.

I will direct that the costs of the petitioning creditor be treated as costs in the petition, and that the costs of this morning's proceedings be treated as costs in the petition.

I certify that this and the
preceding eight (8) pages
are a true copy of the Reasons
for Judgment herein of his Honour
Justice Hill.

Associate:

Date:  24 April 1996

Solicitor for Debtor:       P Conway of Tribe Conway & Co

Counsel and Solicitors      J E Thomson instructed by

for Petitioning Creditor:    Minter Ellison

Date of Hearing:            2 April 1996

Date Judgment Delivered:         2 April 1996