REBA v Low
[2008] FMCA 1030
•1 August 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| REBA v LOW | [2008] FMCA 1030 |
| BANKRUPTCY – Sequestration order – second bankruptcy – previous bankruptcy discharged by effluxion of time – whether provable debt in second bankruptcy – formal requirements for issuance of sequestration order – failure to provide details of debt agreement on day search made – whether formal defect or irregularity. |
| Bankruptcy Act 1966 ss.43(1)(a) and(b), 44(1)(a), (b) and (c), 47(1), 52(1)(a), (b) and (c), 58(3)(a) and (b), 82(1) and (3), 306(1) Bankruptcy Regulations 1966 (Cth) reg 16.01(1)(a) and (2)(a) Corporations Act 2001 (Cth) s.553B Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) rr.4.02, 4.04(1)(a) and (b), 4.04(2), 4.05(a), (b), (c) and (d), 4.06(3)(a) and (b)(i) and (ii), (c), 4.06(2),(3)(a), (b)(i) and (ii) and (c) and (4) Real Estate and Business Agents Act 1978 (WA), ss.102(1)(a) and 103(1)(b) Trade Practices Act 1974 (Cth) ss.46 and 37 |
| Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56 Harris v Deputy Commissioner of Taxation [2007] FMCA 290 La Pegna & Anor v Commissioner of Taxation (2006) 204 FLR 364; [2006] FMCA 1643 McIntosh & Anor as Trustees of the Estate of Camm (A Bankrupt) v Linke Nominees Pty Ltd [2008] QSC 79 Re Allchurch (1993) 44 FCR 182 State of Victoria v Mansfield (2003) 130 FCR 376; [2003] FCAFC 154 Mathers & Anor v Commonwealth (2004) 134 FCR 135; [2004] FCA 217 |
| Applicant: | REAL ESTATE & BUSINESS AGENTS SUPERVISORY BOARD |
| Respondent: | GLENN WILLIAM LOW |
| File Number: | PEG 30 OF 2008 |
| Judgment of: | Lucev FM |
| Hearing date: | 12 June 2008 |
| Date of Last Submission: | 12 June 2008 |
| Delivered at: | Perth |
| Delivered on: | 1 August 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr J McGrath |
| Solicitor for the Applicant: | Ms J King |
| For the Respondent: | Mr G Low in person |
ORDERS
The matter be adjourned to 10.15am on 19 August 2008 for further hearing.
Costs reserved.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 30 OF 2008
| REAL ESTATE & BUSINESS AGENTS SUPERVISORY BOARD |
Applicant
And
| GLENN WILLIAM LOW |
Respondent
REASONS FOR JUDGMENT
Introduction
The Respondent Debtor, Glenn William Low, was made bankrupt on 24 November 2004. That bankruptcy expired by effluxion of time on 19 April 2008.
The Applicant Creditor, who was not a creditor in the first bankruptcy, now seeks to make the Respondent Debtor bankrupt for a second time by the issuance of a sequestration order by this Court.
Issues
There were two issues in relation to this matter:
a)is the alleged debt a provable debt under s.82 of the Bankruptcy Act 1966 (Cth);[1] and
b)have the formal requirements for the making of a sequestration order been met by the Applicant Creditor.
[1] “Bankruptcy Act”.
In the course of the preparation of these reasons a matter adverted to, but not much developed at hearing, has also become an issue – namely the nature of the penalty (fine and costs) imposed on the Respondent Debtor.
Provable debt
Relevant facts
The Applicant commenced disciplinary proceedings against the Respondent Debtor in 2002. Those proceedings were transferred to the State Administrative Tribunal[2] in January 2005 after that body was established by reason of the enactment of the State Administrative Tribunal Act 2004 (WA).[3]
[2] “SAT”.
[3] “SAT Act”.
On 12 April 2006 SAT made orders arising from the disciplinary proceedings against the Respondent Debtor. Those orders were that the Respondent Debtor:
a)be fined $10,000 payable to the Applicant Creditor within 28 days; and
b)pay the Applicant Creditor’s costs fixed at $65,000 within 28 days.[4]
[4] “SAT Orders”; Affidavit of Rebekah Ruth Dornan, sworn 18 March 2008, paras. 11-14 and Annexures D and E (“Dornan’s 18 March 2008 Affidavit”).
On 12 January 2007 the Applicant Creditor registered the SAT Orders in the District Court of Western Australia, thereby allowing the Applicant Creditor to enforce the SAT Orders as if they were orders of the District Court of Western Australia.[5] A copy of the SAT Orders sealed by the District Court of Western Australia and certified by a Registrar of that court was provided to the Applicant Creditor on or about 11 October 2007.[6] The sealed and certified copy of the SAT Orders was attached to the Bankruptcy Notice served upon the Respondent Debtor.[7]
[5] SAT Act, s.85; Dornan’s 18 March 2008 Affidavit, paras. 17-18 and Annexure G.
[6] Dornan’s 18 March 2008 Affidavit, paras. 19 and 20 and Annexure H.
[7] Dornan’s 18 March 2008 Affidavit, paras. 19-22 and Annexures H and I; Affidavit of Service of Rebekah Ruth Dornan, sworn 8 February 2008, paras. 2-5 and Annexure A (“Dornan’s 8 February 2008 Service Affidavit”).
The Bankruptcy Notice was served on 14 January 2008, and the Respondent did not comply with that Bankruptcy Notice, thereby committing an act of bankruptcy on 4 February 2008.[8]
[8] Dornan’s 8 February Service 2008 Affidavit, paras. 2-5 and Annexure A.
The petition was presented on 8 February 2008.[9]
[9] Affidavit of Julia King, sworn 7 February 2008, paras. 1, 2 and 3 (“King’s Affidavit”); Creditor’s Petition filed 8 February 2008.
At the time of the commission of the act of bankruptcy on 4 February 2008 the Respondent Debtor was an undischarged bankrupt. That bankruptcy expired by the effluxion of time on 19 April 2008. The Trustee of the Respondent Debtor’s bankrupt estate was served with a copy of the Creditor’s Petition.[10]
[10] Dornan’s 18 March 2008 Affidavit, paras. 23-24 and Annexure J.
The Respondent Debtor filed a Notice of Grounds of Opposition to Petition opposing the petition on the following grounds:
“1.As at the date set down for hearing of the petition by the Court, Glenn William Low remains an undischarged bankrupt.
2.All prior documentation forwarded to the Respondent by the Applicant has been forwarded to the Trustee of the Bankrupt Estate of Glenn William Low.”[11]
[11] Notice of Grounds of Opposition to Petition, dated 26 February 2008 (“Notice of Opposition”).
The Respondent has also raised two further grounds of opposition by way of affidavit, those being:
a)that the proceedings in respect of which the debt arose commenced prior to the commencement of the date of the existing bankruptcy;[12]
b)that the debt the subject of the action, being a fine of $10,000, is not a pecuniary penalty order as defined by the Bankruptcy Act and is therefore not a provable debt.[13]
[12] Affidavit of GlennWilliam Low, sworn 28 February 2008, paras. 9-12 (“Respondent Debtor’s 28 February 2008 Affidavit”).
[13] Respondent Debtor’s 28 February 2008 Affidavit, paras. 20-24.
The petition had been listed before a Registrar of the Court on 4 and 31 March 2008 and on 12 May 2008, but on the latter date was adjourned to be heard by a Federal Magistrate as a consequence of the nature of the issues raised by the Respondent Debtor. In the time that the matter was being dealt with by a Registrar the first bankruptcy expired by effluxion of time.
Consideration
Undischarged bankruptcy
As explained above, by the time that the Court heard the Creditor’s Petition the Respondent Debtor was no longer an undischarged bankrupt.
It is clear that s.59 of the Bankruptcy Act contemplates the possibility of one or more bankruptcies, including current bankruptcies, as it speaks of “a person who is a bankrupt” and who “again becomes a bankrupt”.[14]
[14] Bankruptcy Act, s.59(1).
Section 59 of the Bankruptcy Act prescribes a scheme whereby there can be more than one bankruptcy in relation to a single person, and contemplates that they might be concurrent, and provides for distinct bankrupt estates, and different trustees if necessary. Section 59 also deals with the division of the assets between different bankrupt estates of the same person.
The existence of more than one bankrupt estate is recognised by the learned authors of Australian Bankruptcy Law and Practice who say:
“In the case of a creditor’s petition the petitioning creditor should immediately give notice of the new petition to the trustee of the first bankruptcy if he wishes to have any appropriate assets preserved for the second bankruptcy.”[15]
[15] Darvall and Fernon (Eds), McDonald, Henry and Meek, Australian Bankruptcy Law and Practice (Vol 1), para. 59.2.05.
The position with respect to s.59 of the Bankruptcy Act was broadly summarised in Re Allchurch:
“Under a regime which permits automatic discharge with the effluxion of time, situations where a bankrupt is discharged from the earlier bankruptcy whilst the administration of the later bankruptcy is still in progress will be common. It has been understood since in In re Brealey (1900) 26 VLR 209 that the release of a bankrupt by discharge does not release the bankrupt estate from debts provable in the bankruptcy. Hence even after the discharge of the bankrupt from the earlier bankruptcy, proofs of debt could be received in that bankruptcy. Unless the trustee of the earlier bankruptcy was able to amend the proof of debt filed in the later bankruptcy, the creditors of the earlier bankruptcy would be disadvantaged. The power to amend the proof of debt provided in 59(1)(c)(iii) is not by its terms limited to debts proved in the earlier bankruptcy prior to the discharge of the bankrupt from the earlier bankruptcy. If the applicant's argument is correct such a limitation would nonetheless be imposed to the disadvantage of the creditors of the earlier estate. This limitation could also complicate the administration of the earlier bankruptcy in a case where s.59 applied. These considerations point to a construction of s.59 which would permit the trustee of the earlier bankruptcy to lodge, or add to, a proof of debt in the later bankruptcy regardless of whether the bankrupt has been discharged from the earlier bankruptcy.”[16]
[16] (1993) 44 FCR 182 at 189 per von Doussa J. See also McIntosh & Anor as Trustees of the Estate of Camm (A Bankrupt) v Linke Nominees Pty Ltd [2008] QSC 79 at paras. 69, 71-72 and 75.
There is therefore no basis on which a sequestration order ought not issue merely because the Respondent Debtor was a current bankrupt at the time the proceedings commenced, nor because he is now a discharged bankrupt in relation to the first bankruptcy.
The Respondent Debtor says that the $65,000 he has been ordered to pay under the SAT Orders is a provable debt within the first bankruptcy. The rationale for this is that the costs were ordered about a matter that arose before the date of the first bankruptcy.
In Foots v Southern Cross Mine Management Pty Ltd[17] the High Court was dealing with litigation arising out of a costs order made by the Supreme Court of Queensland.[18] The appeal turned upon the construction of s.82 of the Bankruptcy Act, particularly the identification of debts and liabilities provable in bankruptcy, and whether the proceedings in which a costs order was made were proceedings subject to s.58(3) of the Bankruptcy Act requiring leave of the Federal Court or this Court before a creditor takes any fresh step in a proceeding in bankruptcy.[19] Having dealt with the nature of costs orders the majority in the High Court found that no obligation was incurred prior to bankruptcy in respect of a costs order made subsequent to bankruptcy.[20] This was because the proof of a costs order and the proof of an underlying debt were distinct matters, and the risk that a costs order may be made was “not a contingent liability within the sense of s.82(1) … [and the] order for costs itself is the source of the legal liability and there is no certainty that the court in question will decide to make an order.”[21] The High Court went on to find that it could not be said that “exposure to an adverse costs order is ‘incidental’ to liability for the underlying judgment debt.”[22] A costs order is not incidental to a judgment debt, and therefore is not a provable debt for the purposes of s.82 of the Bankruptcy Act.[23]
[17] [2007] HCA 56 (“Foots”).
[18] Foots at para. 1 per Gleeson CJ, Gummow, Hayne and Crennan JJ.
[19] Foots at paras. 2-3 per Gleeson CJ, Gummow, Hayne and Crennan JJ.
[20] Foots at paras. 35 and 65 per Gleeson CJ, Gummow, Hayne and Crennan JJ.
[21] Foots at paras. 36 and 65 per Gleeson CJ, Gummow, Hayne and Crennan JJ.
[22] Foots at paras. 37 and 65 per Gleeson CJ, Gummow, Hayne and Crennan JJ.
[23] Foots at paras. 37 and 65 per Gleeson CJ, Gummow, Hayne and Crennan JJ.
The enforceable orders founding the Respondent Debtor’s legal liability to the Applicant Creditor are the SAT Orders sealed and certified by the District Court of Western Australia on 12 January 2007. Because the foundation for the liability is an order which only became enforceable on 12 January 2007, that is after the Respondent Debtor’s first bankruptcy, the liability under the SAT Orders did not arise from an obligation incurred before the first bankruptcy. The liability arising from the SAT Orders is therefore not a provable debt in the first bankruptcy, and issues concerning the competency of the Applicant Creditor to enforce any remedy, or the requirement to obtain leave of the Federal Court or this Court to commence proceedings do not arise, on that basis.[24]
[24] Bankruptcy Act, s.58.(3)(a) and (b).
Penalty
In the hearing the issue of the nature of the penalty imposed on the Respondent Debtor arose. It was not much developed, and the submissions on it were somewhat ambiguous, and no reference was made to authority on the point. In preparing these Reasons for Judgment it has assumed some significance.
The proceedings in SAT were disciplinary proceedings in the nature of an inquiry into conduct, in which if SAT was satisfied (as it was) that proper cause existed for disciplinary action, allowed SAT to impose a fine not exceeding $10,000 on the Respondent Debtor.[25]
[25] Real Estate and Business Agents Act, 1978 (WA), s.102(1)(a) (“REBA Act”); REBA Act, s.103(1)(b).
The REBA Act distinguishes between “offence” and “disciplinary action”,[26] and deals separately with a range of specified offences.[27] Because the proceedings before SAT are administrative in nature, inquiring into conduct and giving rise to disciplinary action in respect to the profession or vocation then carried on by the Respondent Debtor it might be argued that were not “proceedings in respect of an offence against a law” for the purposes of s.82(3) of the Bankruptcy Act, which provides that penalties or fines imposed in respect of an offence against a law are not provable in bankruptcy. In State of Victoria v Mansfield where the alleged parking infringements involved alleged unlawfulness and specified “a penalty for the alleged offence” the enforcement orders arising following non-payment of the fines were held to be penalties or fines imposed in respect of an offence against a law. [28]
[26] REBA Act, s.105(1) and (2). See also s.104 (providing for automatic cancellation of licence on conviction for certain offences).
[27] See, for example, REBA Act, ss.106 (persons carrying on business after licence cancelled), 96 (obstruction of supervisors), 84 (penalty for breach of Part VI).
[28] (2003) 130 FCR 376 at 378 and 391-392 per Black CJ, Kenny and Downes JJ; [2003] FCAFC 154 at paras. 2 and 47-48 per Black CJ, Kenny and Downes JJ (“Mansfield”). See too Mathers & Anor v Commonwealth (2004) 134 FCR 135 at 138 per Heerey J, [2004] FCA 217 at para 18 per Heerey J, describing the “infringement penalties for parking offences” (“Mathers”).
More pertinent to the present case is Mathers. Mathers dealt with s.553B of the Corporations Act 2001 (Cth) which provides as follows:
“(1)Subject to subsection (2), penalties or fines imposed by a court in respect of an offence against a law are not admissible to proof against an insolvent company.
(2)An amount payable under a pecuniary penalty order, or an interstate pecuniary penalty order, within the meaning of the Proceeds of Crime Act 1987, is admissible to proof against an insolvent company.”
Mathers involved a contravention of ss.46 and 47 of the Trade Practices Act, and the Federal Court had to consider whether that was an “offence against a law” within the meaning of s.553B(1) of the Corporations Act. It is best to set out the Federal Court’s conclusions in full:
“24 In my opinion what must be construed is the expression “offence against a law” in s.553B(1) of the Corporations Act. The Trade Practices Act does not purport to say what is the construction to be put on language used in other legislation.
25 The word “offence” has no fixed technical meaning in the law: Kingswell v The Queen (1985) 159 CLR 264 at 276. A failure to do something prescribed by a statute may be described as an offence although Parliament does not impose a criminal sanction upon it, but a mere pecuniary sanction which is to be recovered as a civil debt: Brown v Allweather Mechanical Grouting Co [1954] 2 QB 443 of 447.
26 In ordinary speech “offence” does not necessarily connote criminal conduct. According to the Shorter Oxford Dictionary, “offence” can be:
A breach of law, duty, propriety, or etiquette; a transgression, sin, wrong, misdemeanour or misdeed.
“Criminal offence” is therefore a species of the genus offence.
27 In any event, there is no infallible litmus test which can reliably determine which offences or proceedings are “civil” and which are “criminal”.
28 In Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd (2003) 77 ALJR 1629 the High Court was concerned with a question as to the appropriate standard of proof in proceedings under the Excise Act 1901 (Cth) and the Customs Act 1901 (Cth). Hayne J, with whom Gleeson CJ and McHugh J agreed, said (at [114]):
Arguments founded on classification of the proceedings as “civil” or “criminal” as determinative of the standard of proof, must fail. As reference to the historical matters mentioned earlier reveals, the classification proposed is, at best, unstable. It seeks to divide the litigious world into only two parts when, in truth, that world is more complex and varied than such a classification acknowledges. There are proceedings with both civil and criminal characteristics: for example, proceedings for a civil penalty under companies and trade practices legislation. The purposes of those proceedings include purposes of deterrence, and the consequences can be large and punishing.
29 In my opinion, a contravention of s 46 or 47 of the Trade Practices Act is an “offence against a law” within the meaning of s 553(B)(1) of the Corporations Act. Plainly those provisions of the Trade Practices Act answer the description of “a law”. A contravention of those sections is an “offence” against that law. The following features demonstrate that a contravention of s 46 or 47 has much in common with the public law aspects of criminal offences in the strict sense:
· a contravention of s 46 or 47 is a breach, or as the Short Oxford Dictionary tells us, a violation or transgression of that law
· that law takes the form of a general prohibitory norm – “A corporation shall not …”
· the sanction authorised by s 76 is a pecuniary penalty payable to the Commonwealth; it is not a compensation for a person wronged, as is provided in the separate remedies for damages (s 82) or compensation (s 87(1A))
· a penalty fixed under s 76 is discretionary; the Court has regard to public interest aspects, such as general deterrence, and features of moral blameworthiness, such as previous contraventions”
· a s 76 penalty is in truth a punishment, designed to deter conduct which Parliament has determined is contrary to public welfare”.[29]
[29] Mathers FCR at 139-140 per Heerey J; FCA at paras. 24-29 per Heerey J.
In this case there were various allegations made against the Respondent Debtor by the Applicant Creditor which were investigated by SAT. Essentially, the relevant allegations related to s.68 of the REBA Act which provided as follows:
“68 . Trust accounts, use of
(1) Every agent who holds a current triennial certificate shall maintain one or more trust accounts, designated or evidenced as such, in the prescribed manner, with an authorised financial institution and shall, as soon as practicable, pay to the credit of that account or those accounts all moneys received by him for or on behalf of any other person in respect of transactions.
(2) Moneys so paid into any such trust account shall not be available for the payment of the debt of any other creditor of the agent, or be liable to be attached or taken in execution under the order or process of any court at the instance of any such creditors.
(3) An agent may pay out of a trust account such of the proper charges relating to transactions as are payable by the persons on whose behalf the moneys are received but may do so only when those charges lawfully fall due.
(4) Moneys received by an agent for or on behalf of another person in respect of a transaction shall not be withdrawn from a trust account except for the purposes of the transaction, or as otherwise authorised by this Act, or as otherwise authorised by the person or persons lawfully entitled to the moneys.
(5) An agent shall pay moneys withdrawn from a trust account to the person or persons lawfully entitled or authorised to receive them.
(6) An agent shall —
(a) keep full and accurate accounts of all money received or held by him on account of any other person and of all payments made by him of that money;
(b) before the end of the next business day after the day on which the money is received or paid, enter in the accounts particulars of the amount so received or paid and the person from whom it was so received or to whom it was so paid;
(c) keep the accounts in such manner that they can be conveniently and properly audited; and
(d) correctly balance the accounts at the end of each month.”.[30]
[30] Dornan’s 18 March 2008 Affidavit, Annexure D at pages 6-7 where Eckert J (the presiding member of SAT) sets out s.68 of the REBA Act in SAT’s Judgment giving rise to the SAT Orders.
The allegations against the Respondent Debtor were 19 pages long, but were summarised by Eckert J as alleging that there was proper cause for disciplinary action under s.103(2)(c) of the REBA Act in that the Respondent Debtor “has acted in breach of the [A]ct in that Mr Low breached s.68(4) and 68(6)(a) of the [A]ct between 1 January 02 and 24 April 03.”[31] Having made various factual findings the SAT made a number of conclusions as follows:
a)“as a question of fact and law, that Mr Low has breached s.68(4) of the REBA Act, in that he withdrew, or caused to be withdrawn, trust money in an unauthorised and consequently unlawful manner.”[32]
b)“Mr Low breached s.68(6)(a) of the trust account”, by a failure to include a number of term deposits in the trust account record.[33]
c)In relation to a further allegation that the Respondent Debtor was unfit to hold a licence by reason of his conduct whilst a director of a company during the relevant period, it was found that he was unfit, particularly by reason of the fact that “for the purpose of s.4 of the [A]ct, Mr Low’s conduct was not only intentional and dishonest, but fraudulent.”[34]
[31] Dornan’s 18 March 2008 Affidavit, Annexure D at page 8 of the SAT Judgment.
[32] Dornan’s 18 March 2008 Affidavit, Annexure D at page 34 of the SAT Judgment.
[33] Dornan’s 18 March 2008 Affidavit, Annexure D at page 35 of the SAT Judgment.
[34] Dornan’s 18 March 2008 Affidavit, Annexure D at page 39 of the SAT Judgment.
In relation to the finding sub-paragraph c) above it is relevant to note that s.4 of the REBA Act defines defalcation of a licensee to include:
“criminal or fraudulent conduct of a licensee, or any one or more of the servants or agents of the licensee”.
In that regard the SAT held that it was necessary to first prove that there was criminal or fraudulent conduct of Mr Low as agent, which they found to be the case as set out above.[35]
[35] Dornan’s 18 March 2008 Affidavit, Annexure D at page 37 of the SAT Judgment.
It is relevant to note that the finding in respect of defalcation by the Respondent Debtor was a not insignificant part of the proceedings, and must have factored into the quantum of the fine and costs ordered under the SAT Orders.
Having regard to the SAT Judgment it is apparent that SAT found that the Respondent Debtor breached s.68(4) and (6)(a) of the REBA Act, and that he engaged in intentionally dishonest and fraudulent conduct falling within the definition of defalcation of a licensee under s.4 of the REBA Act. That clearly constitutes a contravention of the relevant provisions of the REBA Act (ss.4, 68(4) and (6)(a)), and in the sense referred to by the Federal Court in Mathers, is arguably a contravention of those sections amounting to an offence against that law.[36] Further, the sanction imposed under s.103 of the REBA Act is a pecuniary penalty, and not seemingly compensation or damages.[37] The penalty to be imposed is clearly discretionary, and in this case SAT heard submissions from the Applicant Creditor that the fine to be imposed ought to be $10,000, and acceded to that submission, fining the Respondent Debtor the maximum amount available. That fine is arguably “in truth a punishment, designed to deter conduct which Parliament has determined is contrary to public welfare”.[38]
[36] Mathers FCR at 140 per Heerey J; FCA at para. 29 per Heerey J.
[37] Mathers FCR at 140 per Heerey J; FCA at para. 29 per Heerey J.
[38] Mathers FCR at 140 per Heerey J; FCA at para. 29 per Heerey J.
In the circumstances, the Court has come to the view that because of the manner in which this issue has arisen, there ought be afforded to the parties an opportunity to pout proper submissions on the point in relation to whether the SAT Orders are in relation to an “offence against a law” for the purposes of s.82(3) of the Bankruptcy Act, and therefore not provable in bankruptcy.
It follows that the matter ought to be adjourned for further hearing on that point.
Formal requirements for issuance of a sequestration order
The Court may make a sequestration order upon proof of the matters set out in s.52(1) of the Bankruptcy Act, and subject to the jurisdiction to make sequestration orders under s.43 of the Bankruptcy Act and the conditions on which a creditor may petition under s.44 of the Bankruptcy Act being met.
Section 52(1) of the Bankruptcy Act provides as follows:
“(1) At the hearing of a creditor's petition, the Court shall require proof of:
(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.”
Section 43 of the Bankruptcy Act provides that the Court may make a sequestration order when:
a)a debtor has committed an act of bankruptcy;[39] and
b)relevantly, at the time when the act of bankruptcy was committed, the debtor was personally present or ordinarily resident in Australia.[40]
[39] Bankruptcy Act, s.43(1)(a).
[40] Bankruptcy Act, s.43(1)(b)(i).
Section 44 of the Bankruptcy Act provides that a creditor’s petition is not to be presented unless:
a)the debt is more than $2,000;[41]
b)the debt is a liquidated sum due at law and payable immediately;[42] and
c)the act of bankruptcy on which the petition is founded was committed within six months before the presentation of the petition.[43]
[41] Bankruptcy Act, s.44(1)(a).
[42] Bankruptcy Act, s.44(1)(b).
[43] Bankruptcy Act, s.44(1)(c).
The Applicant Creditor is also obliged by the FMC (Bankruptcy) Rules 2006 (Cth)[44] to put before the Court affidavits:
a)verifying the petition;[45]
b)as to search of the records of the Court and the Federal Court as to any application in relation to the Bankruptcy Notice;[46]
c)of service of the Bankruptcy Notice;[47]
d)of service of documents required to be served under FMC (Bankruptcy) Rules, r.4.05;[48]
e)of search of the National Personal Insolvency Index no earlier than the day before the hearing date for the petition;[49] and
f)of debt on which the creditor still relies as owing.[50]
[44] “FMC (Bankruptcy) Rules”.
[45] Bankruptcy Act, s.47(1), FMC (Bankruptcy) Rules, r.4.02.
[46] FMC (Bankruptcy) Rules, r.4.04(1)(a) and (2).
[47] FMC (Bankruptcy) Rules, r.4.04(1)(b).
[48] FMC (Bankruptcy) Rules, r.4.06(2).
[49] FMC (Bankruptcy) Rules, r.4.06(3).
[50] FMC (Bankruptcy) Rules, r.4.06(4).
Some of the requirements under the FMC (Bankruptcy) Rules overlap with those under the Bankruptcy Act.
In relation to the matters requiring formal proof the Court finds as follows:
a)the matters stated in the petition are supported by King’s Affidavit accompanying the petition;[51]
[51] Bankruptcy Act, ss.47 and 52(1)(a); Federal Magistrates Court (Bankruptcy) Rules (“FMC (Bankruptcy) Rules”, r.4.02; King’s Affidavit, paras. 1, 2 and 3.
b)that the petition was served on the Respondent Debtor on 18 February 2008;[52]
[52] Bankruptcy Act, s.52(1)(b); Affidavit of Henry Hooft, sworn 20 February 2008, para. 2 (“Hooft’s Affidavit”).
c)that the debt on which the Applicant Creditor relies is still owed;[53]
[53] Bankruptcy Act, s.52(1)(c); King’s Affidavit, paras. 2 and 3.
d)that the Respondent Debtor has committed an act of bankruptcy;[54]
[54] Bankruptcy Act, s.43(1)(a); King’s Affidavit, para. 3.
e)that at the time the act of bankruptcy was committed the Respondent Debtor was personally present or ordinarily resident in Australia;[55]
[55] Bankruptcy Act, s.43(1)(b); King’s Affidavit, para. 2.
f)the debt owing by the Respondent Debtor is $75,000, being a sum more than $2,000;[56]
[56] Bankruptcy Act, s.44(1)(a); King’s Affidavit, para. 4; Dornan’s 18 March 2008 Affidavit, paras. 13-22 and Annexures E-I.
g)the $75,000 debt is a liquidated sum, payable immediately;[57]
[57] Bankruptcy Act, s.44(1)(b); Dornan’s 18 March 2008 Affidavit, paras. 13, 14, 21 and 22 and Annexures E and I.
h)that the act of bankruptcy on which the petition is founded occurred on 4 February 2008, being within six months of the presentation of the petition on 8 February 2008;[58]
[58] Bankruptcy Act, s.44(1)(c); King’s Affidavit, para. 3.
i)that a search of the records of this Court and the Federal Court has been made, and that no application has been made to this Court or the Federal Court in relation to the bankruptcy notice;[59]
[59] FMC (Bankruptcy) Rules, r.40.04(1)(a) and (2); Affidavit of Search of Rebekah Ruth Dornan, sworn 8 February 2008, paras. 2-3 and Annexures A and B.
j)that the bankruptcy notice was served on the Respondent Debtor by post on 14 January 2008, that being the date when the bankruptcy notice would in the due course of post have been delivered to the Respondent’s address;[60]
[60] FMC (Bankruptcy) Rules, r.4.04(1)(b); Bankruptcy Regulations, 1966 (Cth), reg 16.01(1)(a) and (2)(a); Dornan’s 8 February 2008 Service Affidavit, paras. 2-5 and Annexure A.
k)that at least five days before the date fixed for the hearing of the petition the:
i)petition;[61]
[61] FMC (Bankruptcy) Rules, r.4.05(a); Hooft’s Affidavit, paras. 1-2 and Annexure A.
ii)a copy of the affidavit verifying the petition;[62]
[62] FMC (Bankruptcy) Rules, r.4.05(b); Hooft’s Affidavit, paras. 1-2 and Annexure A.
iii)a copy of the affidavit of search of court records;[63]
[63] FMC (Bankruptcy) Rules, r.4.05(c); Hooft’s Affidavit, paras. 1-2 and Annexure A.
iv)a copy of the affidavit of service of the bankruptcy notice,[64]
[64] FMC (Bankruptcy) Rules, r.4.05(d); see Hooft’s Affidavit, paras. 1-2 and Annexure A.
were served on the Respondent Debtor personally (on 18 February 2008);[65]
l)the National Personal Solvency Index was searched on 11 June 2008 (the day before the petition was heard),[66] and that:
i)details of references in that Index to the Respondent Debtor are before the Court;[67]
ii)there is a statement that there are no details of a debt agreement, about the debt agreement on which the Applicant Creditor relies, in the Index on the day when the petition was presented;[68]
iii)there is no statement that there are no details of a debt agreement, about the debt agreement on which the Applicant Creditor relies, in the Index on the day when the search was made;[69]
iv)a copy of the relevant extract of the Index is attached to Symons’ Search Affidavit;[70]
m)there is an affidavit of a person with knowledge of the facts sworn the day before the hearing of the petition, that the debt on which the Applicant Creditor relies is still owing.[71]
[65] Hooft’s Affidavit, paras. 1-2 and Annexure A.
[66] FMC (Bankruptcy) Rules, r.4.06(3); Affidavit off Andrea Marie Symons, sworn 11 June 2008, para. 2 (“Symons’ Search Affidavit”).
[67] FMC (Bankruptcy) Rules, r.4.06(3)(a); Symons’ Search Affidavit, paras. 3-4.
[68] FMC (Bankruptcy) Rules, r.4.06(3)(b)(i); Symons’ Search Affidavit, para. 5.
[69] FMC (Bankruptcy) Rules, r.4.06(3)(b)(ii).
[70] FMC (Bankruptcy) Rules, r4.06(3)(c); Symons’ Search Affidavit, para. 6 and Annexure A.
[71] FMC (Bankruptcy) Rules, r.4.06(4); Affidavit of Andrea Marie Symons, sworn 11 June 2008, paras. 1 and 2 (“Symons’ Debt Affidavit”).
There has not been strict compliance with the formal requirements for issuance of a sequestration order because there is no statement on affidavit that there are no details of a debt agreement, about the debt on which the Applicant Creditor relies, in the Index on the day when the search was made.[72] Neither party appears to have noticed this failure of strict compliance. The Applicant Creditor asserted full compliance; the Respondent Debtor said nothing about compliance.
[72] FMC (Bankruptcy) Rules, r.4.06(3)(b)(ii); para. X above.
Given the manner in which this issue has arisen, it is appropriate that an opportunity be given to the parties to address the consequences of the compliance failure, and in particular whether there is any issue arising under s.306(1) of the Bankruptcy Act.[73]
[73] See La Pegna & Anor v Commissioner of Taxation (2006) 204 FLR 364 at 370-374 per Lucev FM; [2006] FMCA 1643 at paras. 31-54 per Lucev FM; compare Harris v Deputy Commissioner of Taxation [2007] FMCA 290 at paras. 6-18.
The matter will be adjourned to allow the parties that opportunity.
Conclusions and Order
There will be an order adjourning the matter to 10.15am on 19 August 2008 for further hearing. Costs will be reserved.
I certify that the preceding forty-five (45) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate: S. Gough
Date: 1 August 2008
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