S and J Promotions Pty Ltd v Hough

[2014] FCCA 339

FEDERAL CIRCUIT COURT OF AUSTRALIA

S & J PROMOTIONS PTY LTD v HOUGH [2014] FCCA 339

Catchwords:
BANKRUPTCY – Creditor’s petition – where debtor one of two joint debtors – where debtor presents debtor’s petition prior to hearing of creditor’s petition – reference by Official Receiver pursuant to s.55(3B) of the Bankruptcy Act1966.

Legislation:

Bankruptcy Act 1966, ss.55, 55(3AA), 55(3B).

Clyne v Deputy Commissioner for Taxation (1984) 154 CLR 589
Official Receiver of the Bankruptcy District of Victoria v Walia (1997) 79 FCR 299
Re Grady; ex parte BBC Hardware Ltd (unreported Federal Court of Australia. Spender J, QP 256 of 1996, 13 May, 1996)
Re: Johnson and Johnson ex parte Westpac Banking Corporation & Ors (unreported Federal Court of Australia. Cooper J, QP 526 of 1995, 20 September, 1995)

Applicant: S & J PROMOTIONS PTY LTD

Respondent: GREGORY DAVID HOUGH

File Number: BRG 981 of 2013

Judgment of: Judge Jarrett

Hearing date: 23 January 2014

Date of Last Submission: 6 February 2014

Delivered at: Brisbane

Delivered on: 26 February 2014

REPRESENTATION

Solicitor for the Applicant: Mr Burnett

Solicitors for the Applicant: Gall Stanfield & Smith

No Appearance for the Respondent

ORDERS

1. Direct that the Official Receiver decline to accept the debtor’s petition presented by the debtor Gregory David Hough on 10 January, 2014.

2. A sequestration order be made against the estate of Gregory David Hough.

3. The petitioning creditor’s costs, including reserved costs, if any, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act1966.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT BRISBANE

BRG 981 of 2013

S & J PROMOTIONS PTY LTD

Applicant

And

GREGORY DAVID HOUGH

Respondent

REASONS FOR JUDGMENT

1. On 28 August, 2013 judgment for $76,940.22 was given by the Magistrates Court of Queensland at Southport for the petitioning creditor against Gregory Hough and Deborah Hough.

2. The petitioning creditor caused a bankruptcy notice to be issued against the debtors.  It was served on the Houghs on 23 September, 2013.

3. By 14 October, 2013 the Houghs had failed to comply with the requirements of the bankruptcy notice.

4. On 30 October, 2013 the petitioning creditor issued a creditor’s petition against the Houghs.  On 28 November, 2013 a sequestration order was made in respect of the estate of Deborah Jane Hough.  However, for reasons not presently relevant, the hearing of the petition against Gregory Hough was adjourned to 23 January, 2014. 

5. On 10 January, 2014 Mr Hough presented a debtor’s petition to the Official Receiver. The Official Receiver, as required by s.55(3B) of the Bankruptcy Act1966, referred the debtor’s petition to the Court for a direction to accept or reject it.

6. On 23 January, 2014 the creditor’s petition which was pending before a Registrar, was transferred to me because the Registrar does not have power to deal with referrals made pursuant to s.55(3B) of the Act. On that day, the petitioning creditor’s solicitor, for the first time, became aware of the pending debtor’s petition.

7. When the reference from the Official Receiver and the creditor’s petition came before me, I offered the petitioning creditor’s solicitor the opportunity to make submissions, in writing if necessary, as to whether the Court should direct the Official Receiver to accept or reject the debtor’s petition.  The petitioning creditor’s solicitor took up the opportunity to make written submissions, but otherwise pressed the creditor’s petition.

8. Section 55 of the Act deals with debtor’s petitions and the circumstances in which they may be presented to the Official Receiver. Subject to s.55(3AA) and s.55(3B), the Official Receiver must accept a properly submitted petition: Official Receiver of the Bankruptcy District of Victoria v Walia (1997) 79 FCR 299.

9. Section 55(3B) of the Act provides:

   55  Debtor’s petition

   …

   (3B)The Official Receiver must refer a debtor’s petition to the Court for a direction to accept or reject it if there is a creditor’s petition pending against a group of debtors (whether they are joint debtors or members of a partnership) that includes the debtor against whom the debtor’s petition is presented.

   Example 1: When Anna presents a debtor’s petition against herself, there is a creditor’s petition pending against Anna and Tim as joint debtors. The Official Receiver must refer the debtor’s petition to the Court.

   Example 2: When Peter presents a debtor’s petition against himself, there are 2 creditor’s petitions pending against him alone. The Official Receiver is not required to refer the debtor’s petition to the Court, because Peter does not form a group by himself.

   (3C)If the Court directs the Official Receiver to accept the debtor’s petition, the Court must specify the time of the commencement of the bankruptcy that results from acceptance of the debtor’s petition.

   (4)The Official Receiver must accept a debtor’s petition, unless the Official Receiver rejects it under this section or is directed by the Court to reject it.

10. As Finklestein J pointed out in Walia (above):

    …If a debtor's petition complies with the requirements of s 55(2) and is not the subject of a reference under s 55(3B) the debtor is entitled to be made a bankrupt and no question can arise that requires the consideration of the Court. If the presentation of the petition is an abuse of process the Court has power to annul the bankruptcy: compare Re Bond (1888) 21 QBD 17; Re Betts; Ex parte Official Receiver [1901] 2 KB 39; Re A Debtor; Ex parte The Debtor v Allen (An Infant by His Father and Next Friend N G Allen) [1967] Ch 590.

11. The notion that the Official Receiver can be directed to reject a petition on a reference under s.55(3B) because the petition is an abuse of process is not inconsistent with the notion that a debtor is entitled to be made a bankrupt if the debtor’s petition otherwise complies with the requirements of s.55 of the Act.

12. A debtor’s petition will be an abuse of the process provided by s.55 of the Act where the debtor presents a petition for the purpose of making it impossible for a creditor to obtain a sequestration order on a pending petition and for the further purpose of shortening the period of relation back, possibly placing property which otherwise would vest in the trustee beyond his reach: Clyne v Deputy Commissioner for Taxation (1984) 154 CLR 589 at 599.

13. The effect of the acceptance of the debtor’s petition will be to shorten the relation back period.  There is evidence before me that the debtor has been selling assets (see the affidavit of Tanya Asquith filed on 6 February, 2014).  Shortening the relation back period by some four months may possibly place property which otherwise would vest in the trustee beyond the trustee’s reach.

14. Moreover, I infer that the presentation of the debtor’s petition was for the purpose of making it impossible for the petitioning creditor to obtain a sequestration order on its petition.  It is also relevant to consider that the creditor’s petition was first in time: Re Grady; ex parte BBC Hardware Ltd (unrep. Fed Ct of Aust. Spender J, QP 256 of 1996, 13 May, 1996) and Re: Johnson and Johnson ex parte Westpac Banking Corporation & Ors (unrep. Fed Ct of Aust. Cooper J, QP 526 of 1995, 20 September, 1995).

15. There is nothing before me to suggest that there is any advantage that would accrue to the petitioning creditor or the debtor’s creditors generally by the making of an order directing the Official Receiver to accept the debtor’s petition.

16. In the circumstances, I direct the Official Receiver to decline to accept the debtor’s petition presented by the debtor on 10 January, 2014.

17. Having regard to the material on the creditor’s petition and in particular the affidavits filed on 22 January, 2014, I am satisfied of each of the matters of which the Act requires proof.

18. I order that the estate of Gregory David Hough be sequestrated.  I note that the date of the act of bankruptcy is 14 October, 2013.

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered on 26 February, 2014.

Deputy Associate: 

Date:  26 February 2014