Robertson v Ure
[2013] FCCA 812
•28 June 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| ROBERTSON v URE & ANOR | [2013] FCCA 812 |
| Catchwords: BANKRUPTCY – Annulment – application for annulment of bankruptcy – grounds for annulment – sequestration order – whether sequestration order ought not to have been made – whether Applicant was solvent on the Date of Bankruptcy – exercise of Court’s discretion – whether Applicant deprived of the opportunity to adduce further evidence as to her solvency – whether Applicant deprived of natural justice – whether proceedings should have been adjourned to allow Applicant to produce further evidence. |
| Legislation: Evidence Act 1995 (Cth) ss.64, 67, 190 |
| Cases cited: Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400 Deputy Commissioner of Taxation v Khorram [2010] FMCA 554 Drake & Anor v Jones [2009] FMCA 298 Heinrich v Commonwealth Bank of Australia [2003] FCA 315 Helfenbaum v St George Bank Ltd [2001] FCA 1392 Hudson v Whalan [1999] FCA 189 International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 Layton v Westpac Banking Corporation Pty Ltd (2000) 181 ALR 603 Little Creatures Brewing Pty Ltd v Bordin [2006] FMCA 302 Mani v Burness [2010] FCA 1132 Marek v Tregenza (1963) 109 CLR 1 Ozer v Australian Liquor Marketers Pty Ltd [2000] FCA 291 Re Anasis; Ex parte Total Australia Ltd (1985) 11 FCR 127 Re Frank; Ex parte Piliszky (1987) 16 FCR 396 Re McDonald; Ex parte Deputy Commissioner of Taxation (1996) 33 ATR 1 Re Papps; Ex parte Tapp (1979) 78 FCR 524 Re Williams (1968) 13 FLR 10 Rigg v Frank (2006) 155 FCR 531 Sandell v Porter (1966) 115 CLR 666 Stankiewicz v Plata [2000] FCA 1185 Sullivan v Department of Transport (1978) 20 ALR 323; 1 ALD 383 Ure v Robertson [2011] FMCA 750 Wong v Robinson [1995] FCA 805 |
| Applicant: | PATRICIA JUNE ROBERTSON |
| First Respondent: | LYNN KATHLEEN URE |
| Second Respondent: | GREGORY MICHAEL MALONEY |
| File Number: | BRG 94 of 2012 |
| Judgment of: | Judge Scarlett |
| Hearing date: | 18 May 2012 |
| Date of Last Submission: | 18 May 2012 |
| Delivered at: | Sydney |
| Delivered on: | 28 June 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr Sheahan |
| Solicitors for the Applicant: | McCormick Lawyers |
| Counsel for the First Respondent: | Mr Amerena |
| Solicitors for the First Respondent: | Callaghan Lawyers |
| Counsel for the Second Respondent: | Mr Jardine |
| Solicitors for the Second Respondent: | Hopgood Ganim Lawyers |
ORDERS
The sequestration order made on 30 September 2011 and amended on 5 October 2011 against the estate of Patricia June Robertson is annulled as provided by section 153B(1) of the Bankruptcy Act 1966 (Cth).
Any party seeking an Order for costs must file and serve an affidavit setting out the amount of costs sought and the basis upon which those costs are calculated within twenty-eight (28) days and any affidavit in opposition to such Order sought must be filed and served within a further fourteen (14) days.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 94 of 2012
| PATRICIA JUNE ROBERTSON |
Applicant
And
| LYNN KATHLEEN URE |
First Respondent
| GREGORY MICHAEL MALONEY |
Second Respondent
REASONS FOR JUDGMENT
Application
This is an Application for annulment of bankruptcy. On 30th September 2011 Federal Magistrate Jarrett[1] ordered that a sequestration order be made against the estate of the Applicant in these proceedings, noting that the date of the act of bankruptcy was 10th May 2011 (Ure v Robertson[2]). I note that the Applicant was described throughout the judgment as “Patricia Jane Robertson” but on 5th October 2011 the sequestration order was amended to show the Applicant’s correct name – Patricia June Robertson.
[1] As his Honour then was
[2] [2011] FMCA 750
The Applicant seeks that the Court should find that:
a)the sequestration order ought not to have been made; and
b)in the exercise of the Court’s discretion, the bankruptcy ought to be annulled.
The Respondent submits that:
a)the Court would not be satisfied that the sequestration order ought not to have been made; and
b)even if the Court were so satisfied, the Court would not exercise its discretion in favour of the Applicant.
The Trustee is taking a neutral role but seeks to be heard in due course on the question of remuneration.
Background
The bankruptcy proceedings against the Applicant arise from an order for costs made against the Applicant in proceedings in the Supreme Court of Queensland brought by her sister in law, who was the petitioning creditor and is the Respondent to this Application. The proceedings relate to a claimed interest in property at Noosa.
As Jarrett FM recorded in his decision, the costs were assessed and on 4th February 2011 an order was issued that the Applicant[3] should pay to the Respondent the sum of $51,774.00 by way of costs. The order for costs was made against the Applicant on 28th October 2008, as a result of her application to adjourn the trial of the Respondent’s claim against her so that she file a counterclaim against the Respondent, her brother and a company called Summerhill Property Developments Pty Ltd.
[3] For the purpose of this decision, to avoid confusion, the Applicant who was the Debtor in the proceedings before Jarrett FM, will be referred to as “the Applicant” and the Respondent, who was the Petitioner Creditor, will be referred to as “the Respondent”.
As his Honour records at paragraph [2] of the decision:
On 4 April, 2011 the petitioning creditor applied to the Insolvency and Trustee Service for the issue of a bankruptcy notice against the debtor and the bankruptcy was issued. It was served upon her on 19 April, 2011.[4]
[4] Ure v Robertson at [2]
His Honour went on to state:
4. It was not suggested that the debtor complied with the bankruptcy notice. Accordingly, she committed an act of bankruptcy on 10 May, 2011.[5]
[5] Ure v Robertson at [4]
On 25th May 2011 the Respondent caused a creditor’s petition to be issued relying upon the act of bankruptcy constituted by the Applicant’s failure to comply with the bankruptcy notice.
On 14th July 2011 the Applicant filed a notice of her grounds of opposition to the petition, which was:
That the petition be dismissed pursuant to s.52(2) of the act (sic) namely that the debtor can pay her debts and in the alternative that there is sufficient cause for the petition to be dismissed.[6]
[6] Ibid at [6]
Jarrett FM said in his judgment that the Applicant had argued both of the grounds set out in her notice of opposition “namely solvency and that there is other sufficient cause for declining to make a sequestration order”.[7]
[7] Ibid at [10]
His Honour went on to state:
13.The debtor submits that she is able to pay her debts as and when they are due and payable in accordance with the interpretation of the legislation set out above.
14.The evidence upon which the debtor relies is a deposition by her solicitor, Mark Ian Gregory contained in his affidavit filed on 14 July, 2010 in the following terms:
24.I am informed by Mrs Robertson verily believe own unencumbered home in Byron Bay which she conservatively values 2.5 million dollars and has no debts save for the claim before this court which she has offered to pay in full from her funds as is detailed in the letter she caused to be forwarded by our office to the Applicant solicitors on 29 June 2011
(errors in the original)
15.That paragraph was the subject of objection from the petitioning creditor, apart from other reasons, for the reason of hearsay. There are many difficulties with that paragraph as original evidence of the matters stated in it. The objection as to its admissibility was conceded. In any event, if I am wrong about the concession, I rule that the paragraph set out above be struck out. It is clearly inadmissible.
16.that being so, there is no evidence before me that the debtor has the ability to pay her debts as and when they fall due, from her own money or otherwise...[8]
[8] Ure v Robertson (supra) at ]13]-[16]
His Honour then went on to consider an amount of $800,000.00 that the Applicant had deposited to her solicitors’ trust account in order that the Respondent would remove a caveat over the title to a property which she intended to sell. The amount of $800,000.00 was equivalent to the monetary value of the claim in respect of which she had lodged the caveat. His Honour recorded that the money was deposited into the trust account on certain terms and conditions, which were that the sum of $800,000.00:
…to be invested on my behalf until such time as:
· The written consent of the Ures and myself has been provided to Messrs McCormick Lawyers to attend to a distribution of the principle (sic) or;
· Until an Order of a Court of competent jurisdiction has been made as to the distribution of same, or;
· The Ures having failed to commence proceedings, I respect of the matters raised on their behalf in the letter…[9]
[9] Ibid at [17]
On 29th June 2011 the Applicant offered to pay the costs order out of the $800,000.00 on deposit but the Respondent refused to agree to the payment of the costs from this amount. The Applicant submitted that she was able to pay the costs order out of her money held on trust by her solicitors.
Jarrett FM rejected this argument, saying:
19.In my view, however, the debtor’s argument misconstrues the basis upon which the funds have been invested by her solicitors. The $800,000 is in the legal ownership of the debtor’s solicitors to be held by them on the terms and conditions of the trust established by the authority, direction and undertaking. The potential beneficiaries of the fund are the debtor and the Ure’s, but their respective entitlements, if any, have not been settled, either by agreement or order of a court of competent jurisdiction.
20To the extent that the debtor argues that she has funds available which could be used to pay the debt, if only the Ure’s would agree, it is clear from the authority, direction and undertaking, and the Supreme Court claim that at best the invested funds could only be described as a contingent asset of the debtor – her interest is qualified by the terms of the authority and she has no present entitlement to that money. Moreover, there is no indication in the evidence as to when her entitlement, if any, will vest.[10]
[10] Ure v Robertson at [19]-[20]
His Honour then considered the Applicant’s claim that for other sufficient cause a sequestration order ought not to be made, for the reasons that:
a) the debtor has a bona fide counterclaim and set off against the petitioning creditor for a sum greater than the asserted debt;
b) the petitioning creditor seeks a sequestration order for a collateral purpose, namely to place pressure on the debtor in relation to the ongoing Supreme Court Proceedings; and
c) the petitioner seeks to use the “Insolvency Regime” for the purpose of enforcing a debt.[11]
[11] Ibid at [24]
His Honour considered and rejected all three of those arguments. Accordingly, he made the sequestration order against the estate of the Applicant, along with an order for costs.
Evidence
The Applicant relied on the following affidavits:
a)the affidavit of the Applicant filed 1st February 2012;
b)the affidavit of Mark Ian Gregory filed 2nd March 2012;
c)the further affidavit of the Applicant filed 30th March 2012; and
d)the affidavit of David Sullivan filed 30th April 2012.
The Respondent relied on the following affidavits:
a)the affidavit of Bruce John Affleck filed on 30th march 2012; and
b)the affidavit of Bruce John Affleck filed on 30th April 2012.
The Trustee relied on the following affidavits:
a)the affidavit of Gregory Michael Moloney sworn 16th March 2012; and
b)the affidavit of Gregory Michael Moloney sworn 30th April 2012.
Only Mr Gregory was required to give oral evidence
In her affidavit filed on 1st February 2012, sworn on 31st January 2012, the Applicant gave an account of the ongoing proceedings in the Supreme Court brought by the Respondent against her and her counterclaim against the Respondent, Mr Ronald Ure and Summerhill Property Developments.
The Applicant went on to depose that the Bankruptcy Notice was served upon her on or about 19th April 2011 and that on or about 25th May 2011 the creditor’s petition was served upon her. She deposed that:
27.At the time of receiving the Bankruptcy Notice and Creditor’s Petition, I had money to pay the amount of the debt. In order to have this dispute resolved and the debt paid immediately, I instructed my solicitor to have it paid out of the money subject to the Undertaking and being held in my solicitor’s trust account. I understood that the money was being held on trust, for that precise reason.
28.On or about 29 June 2011, I caused my solicitor to write to the Petitioning Creditor on my behalf and offer to pay the Petitioning Creditor’s debt from the trust money the subject of the undertaking (Offer). Annexed hereto and marked Annexure PJR 13 is a true and correct copy of the letter containi9ng the Offer and dated 29 June 2011.
29. The Petitioning Creditor refused the Offer.[12]
[12] Affidavit of P.J. Robertson 31.1.2012 at paragraphs [27]-[29
The Applicant further deposed at paragraph [32] of her affidavit:
I found the bankruptcy proceedings to be very stressful and I did not swear any affidavits in support of my case in the bankruptcy proceedings.[13]
[13] Ibid at [32]
The Applicant deposed that the bankruptcy has stalled her counterclaim in that:
As a result of the Sequestration Order, I am now unable to progress the Supreme Court Proceeding. If the bankruptcy is annulled, I intend on immediately providing instructions to my solicitors to issue Ronald Ure and Summerhill with rule 444 letters, in respect of their failure to provide non-party disclosure, and to diligently prosecute the counterclaim in the Supreme Court Proceeding.[14]
[14] Ibid at [36]
In her affidavit, the Applicant deposed that as at the Date of Bankruptcy her gross personal assets were approximately $3,384,543.97 and her gross liabilities were approximately $57,424.41 plus any fees payable to her solicitors.
As well as having money in bank accounts, a motor car and other items of personal property, the Applicant owns unencumbered real estate in Byron Bay, New South Wales with an estimated value of $2,500,000.00. She stated that:
41.I am currently, and was at the Date of Bankruptcy, in a position to borrow against the Byron Bay Property to discharge any debts if required.[15]
[15] Ibid at [41]
The Applicant deposed that she lives in the property at Byron Bay and her solicitor is located in Noosa. She finds that the significant distance between Noosa and Byron Bay make it difficult for her to have face to face meetings with her solicitor.
The Applicant deposed that she was 76 years of age and had some health injuries, having undergone knee replacement surgery in December 2011. She further deposed that:
I have also found the Supreme Court Proceeding and the Bankruptcy Proceeding to be very stressful.[16]
[16] Affidavit of P.J. Robertson 31.1.2012 at [69]
In her further affidavit sworn on 28th March and filed on 30th March 2012 the Applicant deposed that she did not realise how serious the matter of the payment of the costs order was until she received the Creditor’s Petition, at which stage she sought advice from her solicitor. She said that she wanted the money paid from the $800,000.00 in her solicitor’s trust account because:
a)She felt she had been unfairly deprived of the money in circumstances where the Respondent did not have a legitimate claim; and
b)Payment from the money in the trust account would resolve the issue quickly.
The Applicant went on to explain further:
6. Prior to instructing my solicitor to send the letter mentioned in paragraph 28 of my first affidavit, we discussed whether the trust money could be used for paying the debt. The advice I received was that it is likely that the money could be used for that purpose. I also thought that because I clearly had enough money to pay the debt, that I would not be made bankrupt.
7. Even after the Petitioning Creditor rejected my offer to pay the debt from the trust money, I thought that the Court would allow it to be paid from the trust money. I also thought that there was no chance I would be bankrupted.
8. If I had known that the trust money was not going to be allowed to be used, I would have made other arrangements to pay the debt. Although I did not have sufficient cash money in my personal bank account to pay the debt immediately, I could have made arrangements to secure payment within a very short amount of time. For example, I had:
a.over $143,000.00 in my superannuation account. Although this was set up as an allocated pension, I could have drawn down sufficient funds in a short period of time;
b.the Byron Bay Property was unencumbered and worth approximately $2,500,000.00. I could have easily borrowed against this property in order to pay the debt; and
c.a Jaguar car worth approximately $46,000.00, which I could have sold in order to pay the majority of the debt.[17]
[17] Affidavit of P.J. Robertson 28.3.2012 at paragraphs [6]-[8]
The Applicant was not required for cross-examination.
David Sullivan deposed in his affidavit sworn on 28th April and filed on 30th April 2012 that he is a registered valuer and had received instructions to provide an independent market valuation of the Applicant’s property at Byron Bay. He valued the property at $1,425,000.00.
Mr Sullivan was not required for cross-examination.
Mark Ian Gregory is the Applicant’s solicitor. In his affidavit, sworn on 2nd March 2012 and filed the same day, he deposed that his primary practice is in family law. He set out a similar history of the Supreme Court litigation as the Applicant had done. He also gave a similar account of the Applicant’s instructions to him to offer to pay the amount of costs out of the $800,000.00 held in his trust account.
Mr Gregory deposed that:
From the time the Petitioning Creditor made demand of the debt, to the time the Sequestration Order was made, I was of the view and I advised my client, that it ought to be paid from the $800,000.00 being held in my firm’s trust account subject to the undertaking.[18]
[18] Affidavit of M.I. Gregory 2.3.2012 at paragraph [47]
He set out his reasons at to why he held that view, some of which were the subject of successful objections.
Mr Gregory also set out an account of his dealings with the Trustee in an attempt to have the Trustee agree to annul the bankruptcy.
Mr Gregory was cross-examined by Mr Amerena of counsel, who appeared for the Respondent. He was shown a Retainer Agreement that he had with his client, which was admitted into evidence. Mr Gregory said that he had not rendered an account to the Applicant for the proceedings and so there was nothing owing.
The Respondent relied on two affidavits by Bruce John Affleck, who is the Respondent’s solicitor.
In his affidavit sworn and filed on 30th March 2012, Mr Affleck gave evidence of having instructed counsel in Court at the hearing before Jarrett FM. He deposed that the only affidavit put before the Court on behalf of the Applicant was the affidavit of her solicitor referred to by his Honour at paragraphs [14] and [15] of his judgment. His recollection was that counsel for the Applicant had conceded that the paragraph of Mr Gregory’s affidavit referred to in his Honour’s judgment was in face hearsay. He also copies of correspondence with the Trustee and the Applicant’s solicitor.
In his later affidavit sworn and filed on 30th April 2012, Mr Affleck tendered copies of further correspondence and referred to several subpoenas.
Mr Affleck was not required for cross-examination.
The Trustee relied on the affidavits of Gregory Michael Moloney, Chartered Accountant, of 16th March and 30th April 2012. Mr Moloney is the Trustee of the Bankrupt Estate of the Applicant, His affidavits set out details of his dealings with the Applicant and her solicitor and the work he had performed.
Significantly, at paragraph [76] of his affidavit of 16th March 2012, Mr Moloney deposed:
Whilst I am still waiting to receive certain of the books and records I am presently otherwise satisfied that there is no conduct on the part of the Bankrupt that would disqualify her from an annulment under section 153B(1) of the Act.
Mr Moloney was not required for cross-examination.
The Relevant Law
Subsection 153B(1) of the Bankruptcy Act 1966 (Cth) provides:
(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.
In deciding whether to make an order annulling the bankruptcy, the Court must satisfied that:
a)the sequestration order ought not to have been made; and
b)in the exercise of the Court’s discretion, the bankruptcy ought to be annulled.
The path that the Court must follow is clearly set out in Heinrich v Commonwealth of Australia[19] at [20]:
The Court must first consider whether the sequestration order ought not to have been made. If it so finds, then the Court must consider whether, in the exercise of its discretion, the bankruptcy should be annulled: Re Deriu (1970) 16 FLR 420. Later evidence of previously unknown facts may disclose matters which show that the sequestration order ought not to have been made. That is, the Court is entitled to consider not only the case as disclosed at the time when the sequestration order was made, but also those facts now known then to have existed. The Court excludes those facts which have occurred since the order was made. Later evidence of previously unknown facts may disclose matters which show that the sequestration order ought not to have been made.[20]
[19] [2003] FCA 315
[20] Per Carr, Finn & Sundberg JJ at [20]
The principles have also been set out by the Full Court of the Federal Court in Stankiewicz v Plata[21] where it was held at [19]:
[19]In Re Williams (1986) 13 FLR 10, Gibbs J explained the approach to be taken to the then equivalent of s153B of the Bankruptcy Act (at 23):
“In determining the question whether the sequestration order ought not to have been made, the court is entitled to consider not only the case as disclosed at the time the order was made, but as it would have been disclosed had all the true facts been before the Court on the making of the order. If the Court is satisfied that the order ought not to have been made, it is not bound as a matter of course to annul the order, but must consider in the light of all the circumstances of the case whether the order ought to be annulled.” (Citations omitted).[22]
[21] [2000] FCA 1185
[22] Stankiewicz v Plata (supra) at [19] per Drummond, Sackville and Dowsett JJ
In Drake & Anor v Jones[23], Barnes FM[24] advised caution at [99]-[100]:
99.The Court’s power to annul a bankruptcy is discretionary. In exercising that discretion the Court must take into consideration the whole of the circumstances of the case…and the interests of the bankrupt, creditors and the public interest. (Citations omitted).
100.As Starke J indicated in Cameron v Cole (citation omitted) the discretion to annul must be exercised with great caution and only in special circumstances…[25]
[23] [2009] FMCA 298
[24] As her Honour then was
[25] [2009] FMCA [99]-[100]
Submissions
Counsel for the Applicant submitted that the sequestration order ought not to have been made because at the time of the hearing of the creditor’s petition:
a)The Applicant was solvent;
b)Evidence which was not before the Court would have clearly established her solvency; and
c)The Applicant was deprived of the opportunity to adduce further evidence as to her solvency following the exclusion of evidence going to her solvency.
It was further submitted that the test for establishing whether a debtor is able to pay his or her debts was considered in Sandell v Porter[26] where Barwick CJ (with whom McTiernan J agreed) held at 670:
Insolvency in s. 95[27] as an inability to pay debts as they fall due out of the debtor’s own money. But the debtor’s own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.[28]
[26] (1966) 115 CLR 666
[27] Here his Honour was referring to s. 95 of the Bankruptcy Act 1924-1960, see now s.52(2) of the Bankruptcy Act 1966
[28] (1966) 115 CLR 666 at 670
Counsel for the Applicant also referred to the decision of Katz J in International Alpaca Management Pty Ltd v Ensor[29] at [17]-[18].
[29] [1999] FC 72
It was submitted that at the time of the date of bankruptcy, the Applicant was solvent, as she estimated her gross personal assets at approximately $3,384,543.97. The debt the subject of the Creditor’s Petition was $51,771.74. The Applicant estimated her gross liabilities, including that debt, to be approximately $72,000.00.
The Applicant’s Byron Bay Property was unencumbered at the time and the Applicant was in a position to borrow against the security of that unencumbered property. Mr Sheahan submitted that the Applicant’s situation can be distinguished from the position of the applicant in Stankiewicz v Plata[30], where the matrimonial home was subject both to a mortgage and orders of the Family Court.
[30] supra
The Applicant also had other moneys available to her, including a superannuation policy totalling $143,854.23, upon which she could draw down.
There was no evidence of the availability of those assets or funds before the Court at the time of the hearing of the Creditor’s Petition. Mr Sheahan referred the Court to the decision of Sackville J in Wong v Robinson[31] where his Honour held:
However, in determining whether the sequestration order “ought not to have been made”, it is important to take into account the evidence relating to the applicant’s financial position at the time the order was made. In particular, if the applicant was clearly solvent, ordinarily the Court would dismiss the petition even if she were unwilling to pay her debt…
[31] [1995] FCA 805
It was conceded that the Applicant found the bankruptcy proceedings very stressful and did not swear any affidavit material in support of her opposition to the making of the sequestration order. The only evidence before the Court was the affidavit of Mr Gregory, where the particular paragraph relating to the Applicant’s financial position was objected to on the ground of hearsay.
Mr Sheahan submitted at paragraphs [40] to [44]:
40.Irrespective of whether or not the objection was conceded, by the manner in which the evidence was disposed of, effectively in the reasons for judgment, the applicant was not afforded an opportunity to adduce further evidence as to solvency which existed at the time and could have been obtained. That evidence would have established the solvency of the applicant.
41.The fact that an objection is conceded does not automatically result in the evidence being rejected. The court retains a discretion to permit evidence which might otherwise be hearsay; see for example s. 190(3) of the Evidence Act 1995 (Cth); see also ss. 64(2) and 67(4) of the Evidence Act 1995 (Cth).
42.Upon the striking out of paragraph 24 of the affidavit, it is submitted the proper course, given the quasi-penal consequence of bankruptcy,[32] would have been to provide the applicant with an opportunity to adduce further evidence. This could have been achieved simply by:
(a)standing the matter down to allow further affidavit material to be obtained or oral evidence to be adduced; or
(b)adjourning the application to permit further admissible evidence on the fundamental issue of the applicant’s solvency.
43.It is submitted that, by the striking out of the paragraph effectively at the time of delivery of judgment, the applicant was not given a reasonable opportunity of adducing evidence on the issue of her solvency.
44.The fact that an adjournment was not sought on the making of the objection, or indeed even if the objection was conceded or ruled upon at the hearing, is not determinative against the applicant.[33]
[32] Ahern v Deputy commissioner of Taxation (unreported, Beaumont J, 18 October 1984) cited in Mani v Burness [2010] FCA 1132 at [22]
[33] Applicant’s Outline of Submissions at paragraphs [40]-[44]
Counsel for the Applicant relied on the decision in Sullivan v Department of Transport[34] where Deane J said at 343:
A refusal to grant an adjournment can constitute a failure to give a party to proceedings the opportunity of adequately presenting his case…No such application for an adjournment was, however, made. If it had been, it is highly probable that the Tribunal would have acceded to it; indeed counsel who appeared for the appellant stated that he did not dispute that, if the appellant had applied for an adjournment, the Tribunal would have granted it. The absence of any application for an adjournment does not however, necessarily conclude the issue adversely to the appellant. The failure of a tribunal which is under a duty to act judicially to adjourn a matter may, conceivably, constitute a failure to allow a party the opportunity of properly presenting his case even though the party in question has not expressly sought an adjournment…
[34] (19878) 20 ALR 323; 1 ALD 383
Counsel for the Applicant referred the Court to the decision in Deputy Commissioner of Taxation v Khorram[35] where Lloyd-Jones FM[36] where granted the respondent to a creditor’s petition an adjournment to allow for the sale of the respondent’s and her husband’s home to allow her to obtain the benefit of her share of the sale to meet the demands of her creditors.
[35] [2010] FMCA 554
[36] As his Honour then was
Further, Mr Sheahan submitted that even an unwitting denial of natural justice is so fundamental a fault in the structure of a decision of a dispute that a party who has not been heard is entitled to a hearing (see Re Anasis; Ex parte Total Australia Ltd[37] per Burchett J at 13).
[37] (1985) 11 FCR 127
It was further submitted that where the Court finds that the sequestration order ought not to have been made, it still has a discretion as to whether or not to make an annulment order. The submission is that the Court should exercise its discretion to annul the bankruptcy.
It is submitted that the Court may take into account the Applicant’s conduct the bankrupt’s conduct prior to the annulment application (Marek v Tregenza[38]; Ozer v Australian Liquor Marketers Pty Ltd[39]).
[38] (1963) 109 CLR 1
[39] [2000] FCA 291
The Trustee has deposed on 16th March 2012 that whilst he was still waiting on certain books and records from the Applicant, he was satisfied of her conduct and that she has not done anything that would disqualify her from annulment.
Mr Sheahan submitted that there were several reasons that could explain the delay in providing books and records to the Trustee, including the Applicant’s age and state of health, the fact that she lives so far away from her solicitor, and the fact that Mr Gregory operates a small firm and does not usually in bankruptcy law.
It was also submitted that the Applicant’s solvency is a cogent reason for annulling her bankruptcy (Layton v Westpac Banking Corporation Pty Ltd[40] at [18]).
[40] (2000) 181 ALR 603
It is submitted that the Applicant’s bankruptcy should be annulled. It should be further ordered that the Applicant pay:
a)The Petitioning Creditor’s debt and costs of the petition;
b)The reasonable costs and remuneration of the Trustee as well as its costs of this Application.
Counsel for the Respondent submitted that the first of the two elements of s.153B requires the Court to be satisfied that the sequestration order ought not to have been made. The first element would not be satisfied if the court were to be merely persuaded that on the true facts:
a)It would have been open to a judicial officer in bankruptcy not to make the sequestration order on the date that it was made; or
b)Even that, the judicial constituting this Court would not have made that sequestration order.
Rather, the Court must be persuaded that no judicial officer acting reasonably in accordance with law would, on the true facts, have made the relevant sequestration order. It is only in these circumstances that such a judicial officer would have been “bound” not to make the order (re Frank; Ex parte Piliszky[41]; Hudson v Whalan[42] and Rigg v Baker[43]).
[41] (1987) 16 FCR 396 per Fisher J at 402, 403
[42] [1999] FCA 189 per Sackville, North & Hely JJ at [7]-[14]
[43] (2006) 155 FCR 531 per French J at [62], per Cowdroy J at [109]
In respect of the second element, which requires the court to exercise a discretion, Mr Amerena submitted that even if the court were satisfied that the sequestration order ought not to have been made, the Court is not bound as a matter of course to annul the order but must consider in the light of all the circumstances of the case whether the order ought to be annulled (Re Williams[44]; Drake & Anor v Jones[45]).
[44] (1968) 13 FLR 10 per Gibbs J at [23]
[45] supra
An applicant for annulment bears not only the civil onus of proof but a heavy burden. In Re Papps; Ex parte Tapp[46] O’Loughlin J said at 531:
…the test to be applied when a person comes before the court seeking an annulment of his or her bankruptcy is one that is akin to ‘full and true disclosure’. It is incumbent upon such an applicant to place before the Court all relevant material with respect to his or her financial affairs so that the Court may be properly informed and may make a judgment that is based on the full facts and the actual circumstances of the applicant. A person who seeks an annulment carries a heavy burden…
[46] (1979) 78 FCR 524
The petitioning creditor in the sequestration hearing had at the date of the sequestration order a prima facie entitlement to the making of the order. On the true facts the onus of proving the matters referred to in s.52(2)(a) and (b) remains on the Applicant.
As to the meaning of s.52(2)(a) of the Act, Mr Amerena submitted that:
a)It requires more than a mechanical comparison between the extent of the liability upon which the creditor relies and the apparent value of the assets possessed by the debtor, but rather the debtor must establish that the assets are available to be realised and are readily capable of realisation;
b)There must be evidence before the Court that assets, if they are to be counted towards the debtor’s solvency, are capable whether by sale, mortgage or pledge of being realised within a realistic or relatively short timeframe and, to this end, proper evidence of value, not speculation is required (Heinrich v Commonwealth Bank of Australia[47]);
c)In determining whether a debtor is able to pay his or her debts, a Court is not entitled to assume that the debtor will realise assets that are necessary for the debtor to maintain a reasonable level of existence (International Alpaca Management Pty Ltd v Ensor[48]; Helfenbaum v St George Bank Ltd[49]);
d)As Hely J held in Australia & New Zealand Banking Group Ltd v Foyster[50] at [19]:
Under s 52(2)(a) the respondent must satisfy the Court that he is ‘able to pay his…debts’, including liabilities: s 5(1). In my view, the subsection refers to a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations…as well as debts which are presently due and payable.
e)The issue whether the debtor must be able to pay his or debts as and when they fall due from his or her “own funds”.
[47] supra
[48] supra
[49] [2001] FCA 1392 per Finkelstein J (with whom Wilcox & Von Doussa agreed) at [24]
[50] [2000] FCA 400
There must be satisfactory evidence of the fact or sufficient prospect of an adequately serviceable unsecured debt (see Little Creatures Brewing Pty Ltd v Bordin[51]).
[51] [2006]FMCA 302
The Respondent’s submission is that the on the true facts the Applicant had insufficient assets realisable within a relatively short timeframe so as to be able to pay all her debts or liabilities already due or falling due immediately thereafter. The primary reason, it is submitted, why the Applicant’s finances were in this state at that time was due to her response to “some very poor and incorrect advice she received from her solicitor”.[52] This advice was the effect that the debt owing ought to be paid form the sum of $800,000.00 held in the solicitor’s trust account. The Applicant’s attitude was that even if the Respondent were to refuse her offer to pay the debt from that money she thought that the Court would allow the debt to be paid from that amount. She asserted that she assumed that there was no chance that she would be bankrupted and concedes that she did not make arrangements to investigate how quickly she could secure money to pay the debt because of the attitude she held, which if not prompted by her solicitor’s advice was reinforced by it.
[52] Outline of Submissions of the Respondent Petitioning Creditor at paragraph [[25]
Counsel for the Respondent referred to the Applicant’s asset of the property at Byron Bay, which she asserted had a resale value of $2,500,000.00. However, the valuation of Mr Sullivan gave a much lower figure, namely $1,425,000.00. Mr Amerena submitted that:
The fact that the applicant overestimated the value of the Byron Bay property by an excess of $1,000,000.00 reflects poorly on her reliability to give an accurate account of her financial affairs generally.[53]
[53] Ibid at [27]
It was further submitted that the Applicant’s Jaguar motor car should not be counted as an asset for the reasons given by the Full Court of the Federal Court in Helfenbaum v St George Bank Ltd[54]. Again, there is no evidence before the Court as to its proper value, aside from the Applicant’s own assertion. Mr Moloney, the Trustee, was of the view that the estimated red book value of the car was $36,000.00 but there was no evidence of what the car might fetch if it had to be sold in a reasonably short timeframe.
[54] supra
Third, the Respondent takes issue with the Applicant’s pension, noting that the Applicant herself had given two different versions as to her rights of commutation in respect of the allocated pension.
The Applicant’s jewelry ought not to be taken into account as no effort had been made for it to be valued nor had a value even been asserted.
As to the $800,000.00 in the trust account, Mr Amerena submitted that this was not realisable within a short timeframe and “there is no new evidence before the Court which in any way falsifies the reasoning of Jarrett FM in respect to this issue”.[55]
[55] Outline of Submissions of the Respondent Petitioning Creditor at [31]
Counsel for the Respondent dismissed the assertion that the interest accrued or payable in respect of the $800,000.00 in the trust account could be used to pay the debt, noting that:
a)the Applicant has progressively drawn on that interest to pay her legal costs and disbursements since February 2007; and
b)the Applicant only invested $750,000.00 of the $800,000.00 subject to the undertaking.[56]
[56] Ibid at [32] page 12
Mr Amerena was dismissive of the amounts the Applicant claimed to hold in various bank accounts.
In short, he submitted that as at 30th September 2011 the Applicant only had available to pay her debts cash from her bank accounts in the amount of $19,664.23.
It was further submitted that on the true facts the Applicant’s debts and liabilities as at 30th September 2011 were substantially more than she disclosed in her material in support of her Application. The Trustee provided a letter which attached three proofs of debt, namely:
a)Australian Taxation Office in the sum of $12,820.00;
b)The Petitioning Creditor in the sum of $1,380,109.03; and
c)Summerhill Property Developments Pty Ltd in the sum of $207,904.19.
In summary, it was submitted that as at 30th September 2011, the Court should conclude that the Applicant had the following assets capable of realisation within a relatively short timeframe in order to pay her debts:
a)Money in her bank accounts $19,664.23
b)Interest on the $800,000.00 in the trust account $40,426.06
Total $60,090.29
The Applicant’s admitted debts were:
a)The debt the subject of the bankruptcy notice $52,424.41
b)Net interest on the debt $2,723.33
c)Admitted legal fees including GST $16,500.00
d)Australian Taxation Office $12,820.00
e)Admitted petitioner’s costs $5,866.00
Total $90,333.74
However, it was submitted that the Applicant had not negatived debts and liabilities totalling another $256,206.91 arising from the proofs of debt lodged by the Respondent and Summerhill Property Developments Pty Ltd.
Further, the largest debt of all, it is submitted, is the $800,000.00 itself, which is claimed in the Supreme Court proceeding. This has not been negatived.
In the alternative, even if the condition precedent is satisfied, it is submitted that the Court should not exercise its discretion in favour of the Applicant by making an annulment order. The undertaking given by the Applicant at paragraph [82] of her affidavit of 31st January 2012 is inadequate.
Again, it is submitted that the Applicant has not given an undertaking:
a)to pay the costs of the petitioning creditor thrown away in the annulment proceedings (Rigg v Baker[57]; Stankiewicz v Plata[58]); or
b)to pay the taxed costs of the petitioning creditor in the sequestration proceeding (see Re McDonald; Ex parte Deputy Commissioner of Taxation[59]).
[57] supra
[58] supra
[59] (1966) 33 ATR 1 per Spender J at 3
The Respondent submits that the Application should be dismissed and the Respondent’s costs should be paid out of the bankrupt’s estate, on an indemnity basis.
Conclusions
It is clear that the first matter for the Court to consider is whether, on the true facts, the sequestration order ought not to have been made. The second step is to consider, in the exercise of the Court’s discretion, whether the sequestration order should be annulled.
It is clear that the true facts were not placed before the Court on the hearing of the Application for a sequestration order. The responsibility for this lies squarely with the Applicant.
It is clear that the Applicant failed to take the matter seriously from the time that the assessment of costs was made by the Supreme Court on 4th February 2011. If the Applicant was of the view that there was no urgency to pay the costs, her view should have changed abruptly on or about 19th April 2011 when the Bankruptcy Notice was served on her.
However, it was not until the Applicant was served with a Creditor’s Petition on or about 25th May 2011 that either she, or her solicitor, took any steps to deal with what was clearly a serious situation. Even then the response was inadequate.
The Applicant instructed her solicitor to write to the Respondent to suggest that the debt should be paid out of the $800,000.00 held in the trust account under the undertaking given earlier, in the belief, mistaken as it turned out, that payment of the costs was one of the reasons why the money was placed in the trust account.
The flaw in that plan was that the release of the money depended on the Respondent’s agreement and, when that was not forthcoming, there was no Plan B. It could well be said that the response was perilously late, because the offer was not made until the Creditor’s Petition had already been served. If the offer had been made once the costs assessment issued on 4th February, or even when the Bankruptcy Notice was served on or about 19th April, it would have been clear to the Applicant and her solicitor that this avenue of payment was not going to be viable. In any event, there would have been more time available to make arrangements for payment that did not depend on the consent of the Respondent.
Even when that consent was not forthcoming, the Applicant’s response was inadequate. There appeared to have been a complacency in the belief that either:
a)the Court would make an order that the debt should be paid out of the $800,000.00 in the trust account subject to the undertaking; or
b)that, even if the Court did not make such an order, in some way the Court would not find that the Applicant was insolvent.
Clearly, the Applicant found the bankruptcy proceedings very stressful, but it was the task of her solicitor to advise her of the seriousness of the situation and assist her to take proper steps:
a)to raise the money necessary to pay the debt prior to the hearing; or
b)to provide evidence in proper form to show that the Applicant was solvent.
The Applicant deposed that she had the ability to obtain the necessary funds by borrowing against the value of the unencumbered real estate, even if the value was considerably less than she estimated, but she took no steps to do so.
Worse still, the Applicant did not depose to an affidavit setting out her assets in order to show that she had the funds available to pay the debt. The solicitor’s affidavit, deposing to a hearsay statement by the Applicant that she owned a property at Byron Bay worth $2,500,000.00 which was unencumbered was, with respect, woefully inadequate. The onus was on the Applicant to prove that she was solvent; a hearsay statement by her solicitor in an affidavit was doomed to failure. It may well be that the Applicant’s solicitor does not usually practice in the Bankruptcy jurisdiction, but it was the solicitor’s responsibility to ensure that the Applicant was properly represented before the Court.
True it is that counsel was briefed, but counsel was not provided with the evidence to meet the Petitioner’s Case. It is a matter for conjecture whether counsel ever advised the Applicant’s solicitor of the danger the Applicant was facing without any admissible evidence of her solvency.
To my mind it is irrelevant whether or not the Applicant’s counsel conceded at the hearing that the statement in the solicitor’s affidavit was inadmissible. The fact is that a hearsay statement of that nature was never going to be sufficient to establish the Applicant’s solvency.
I am not persuaded that the Applicant was in some was deprived of natural justice because an adjournment was not granted to enable her to provide some evidence that would be adequate to establish her solvency. Unlike Mr Sullivan in Sullivan v Department of Transport[60], who was unrepresented, the Applicant was represented by a solicitor and counsel. No adjournment was sought.
[60] supra
The material before the Court was sufficient to establish that a sequestration order should issue. The Applicant did not provide evidence to the Court in admissible form that would have established her solvency.
In my view, had the “true facts” been placed before the
Court, a sequestration order would not have been made. It is certainly the case that the Applicant’s estimate of the value of the Byron Bay property, at $2,500,000.00, was wildly optimistic. Nevertheless, Mr Sullivan valued the property at $1,425,000.00, and it is not in issue that the property was unencumbered. A property of that value would be unlikely not to be accepted as security for a loan of $52,000.00 odd.
It is unlikely that the Court would have considered the value of the Jaguar Car in the circumstances, but proper evidence of the Applicant’s superannuation interest, had it been placed before the Court, would have been taken into account.
The Applicant’s debts and liabilities estimated by the Respondent at $90,333.74 would not have altered the situation at all. I do not accept the Respondent’s contention that there are other debts and liabilities amounting to $256,206.91 which would have been taken into account, noting that they all arise from claims made by parties in the Supreme court litigation which has not been decided. Such claims would be speculative at best.
Still less do I accept the Respondent’s submission that the Applicant has not negatives the claim of $800,000.00 which is the sum claimed against her in the Supreme Court by the Respondent. That sum of money exists. It is in the Applicant’s solicitor’s trust account. It may not be regarded as a sum of money available to the Applicant to meet the Petitioning Creditor’s claim for costs, but it is by definition available to meet the Respondent’s primary claim, should it be established in the Supreme Court.
That is why that sum of money is in the trust account subject to the undertaking. Its very existence under the undertaking negatives the Respondent’s claim.
In summary, I am satisfied that the Applicant was solvent at the time as she had the ability to realise funds within a relatively short time and, if she had placed admissible evidence before the Court, a sequestration order would not have been made.
I turn next to the exercise of the Court’s discretion. The Respondent’s quibbles about the inadequacy of the undertakings given by the Applicant in her affidavit are just that, with respect. It is relevant that she has cooperated with the Trustee, who does not consider that the Applicant has displayed any conduct that would disqualify her from an annulment under s.153B(1) of the Bankruptcy Act.
The Applicant ended up in the predicament that she fell into because of the inadequacy of her response to the Bankruptcy Notice and the Creditor’s Petition and the inept way that her case was presented to the Court. This will almost certainly sound in costs. However, as Mr Sheahan of counsel submitted on her behalf, the Applicant is clearly solvent under the Act and there would be no public interest in denying her application for annulment.
I propose to order that the sequestration order made against the Applicant is to be annulled. I will consider submissions on costs and the Trustee’s remuneration.
I certify that the preceding one hundred and sixteen (116) paragraphs are a true copy of the reasons for judgment of Judge Scarlett
Associate:
Date: 15 July 2013
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