Sayer-Jones v Official Trustee in Bankruptcy, in the matter of Sayer-Jones
[2022] FCA 1199
•7 October 2022
FEDERAL COURT OF AUSTRALIA
Sayer-Jones v Official Trustee in Bankruptcy, in the matter of Sayer-Jones [2022] FCA 1199
File number: NSD 315 of 2022 Judgment of: RAPER J Date of judgment: 7 October 2022 Catchwords: BANKRUPTCY – annulment – application for annulment of bankruptcy – where bankruptcy founded on debtor’s petitions – where the applicant relied on no evidence of his own as to the state of his affairs – application for annulment dismissed PRACTICE AND PROCEDURE – application for suppression of the applicant’s name – whether the use of a pseudonym is necessary to prevent prejudice to the proper administration of justice – application refused Legislation: Bankruptcy Act 1966 (Cth) ss 55, 55(3), 57A, 58(1)(b), 58(3), 73, 74, 116, 120, 121, 121A, 122, 127, 139P, 149, 149(4), 153B, 153B(1), 269
Federal Court of Australia Act 1976 (Cth) ss 17(1), 37AE, 37AF, 37AG, 37AG(2)
Federal Court (Bankruptcy) Rules 2016 (Cth) r 7.03
Legal Profession Act 2004 (NSW) s 9
Cases cited: Amihyia v Official Receiver [2004] EWHC 2617 (Ch)
Beaman v Bond [2017] FCAFC 142; 254 FCR 480
Boles v Official Trustee in Bankruptcy [2001] FCA 639; 183 ALR 239
Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307; 5 ABC(NS) 122
Clyne v Deputy Commissioner of Taxation [1985] FCA 4; 5 FCR 1
Clyne v Deputy Commissioner of Taxation (No 3) [1984] HCA 44; 154 CLR 589
Darcey v Pre-term Foundation (unreported, Fox, Wilcox and French JJ, 23 May 1988)
Einfield v The Queen [2010] NSWCCA 87; 200 A Crim R 1
G v The Queen (1984) 35 SASR 349
In Re Betts; Ex p Betts [1897] 1 QB 50
In re Field (A Debtor) [1978] Ch 371
In re Thulin [1995] 1 WLR 165, Ch D
JSC Bank of Moscow v Kekhman [2015] EWHC 396 (Ch); 1 WLR 3737
Maddestra v Penfolds Wines Pty Ltd [1993] FCA 586; 44 FCR 303
Ogawa (formerly Ms PD) v President of the Australian Human Rights Commission (Pseudonym) [2022] FCAFC 160
R v Taufahema [2007] HCA 11; 228 CLR 232
Radich, v Bank of New Zealand [1993] FCA 627; 45 FCR 101
Re Abbas; Ex Parte Official Trustee in Bankruptcy [1995] FCA 337; 57 FCR 140
Re Almassy [1999] FCA 1004; 92 FCR 597
Re Coote [1993] FCA 949; 47 FCR 522
Re Coyle [1993] FCA 244; 42 FCR 72
Re Goddard (unreported, Pincus J, 14 November 1986)
Re Gollan; Ex parte Gollan [1992] FCA 1044; 40 FCR 384
Re Gray; Ex parte Deputy Commissioner of Taxation [1989] FCA 343; 20 ATR 1017
Re Heenan; Ex parte Collins (trading as Hertz Carnarvon Auto Rentals) [1992] FCA 855; 39 FCR 428
Re McCormack (unreported, Pincus J, 6 April 1990)
Re Papps; Ex parte Tapp [1997] FCA 1031; 78 FCR 524
Re Somers; Ex p Union Creditor Bank Ltd (1897) 4 Mans 227
Thompson v Lane (Trustee) (No 3) [2022] FCA 128
Walton v ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) [2022] HCA 3; 399 ALR 1
Williams v Spautz [1992] HCA 34; 174 CLR 509
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Number of paragraphs: 74 Date of hearing: 14 September 2022 Counsel for the Applicant: The applicant appeared in person Solicitor for the Respondent: Mr K Metlej of Craddock Murray Neumann Lawyers ORDERS
NSD 315 of 2022 IN THE MATTER OF ROBERT LYNDON SAYER-JONES
BETWEEN: ROBERT LYNDON SAYER-JONES
Applicant
AND: OFFICIAL TRUSTEE IN BANKRUPTCY
Respondent
ORDER MADE BY:
RAPER J
DATE OF ORDER:
7 OCTOBER 2022
THE COURT ORDERS THAT:
1.The applicant’s interlocutory application for orders under s 37AF of the Federal Court of Australia Act 1976 (Cth) is refused.
2.The application be dismissed.
3.The applicant pay the respondent’s costs as agreed or taxed under r 40.12 of the Federal Court Rules 2011 (Cth).
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
RAPER J:
Introduction
The applicant was made bankrupt by reason of the Official Receiver’s acceptance and endorsement of two debtor’s petitions: s 55(4A) of the Bankruptcy Act 1966 (Cth). The Official Receiver accepted a debtor’s petition on 14 August 2020 and the applicant was made a bankrupt (First Bankruptcy). The applicant will be discharged from this bankruptcy on 15 August 2023 by operation of s 149(4) of the Bankruptcy Act.
On 30 June 2021, the Official Receiver received a debtor’s petition and accepted it on the same day and the applicant was made a bankrupt again (Second Bankruptcy). The applicant will be discharged from the Second Bankruptcy on 1 July 2024.
The applicant now applies under s 153B of the Bankruptcy Act for an annulment of each of the debtor’s petitions in the following terms:
Pursuant to section 153B(1) of the Bankruptcy Act 1966 (Cth) the bankrupt’s bankruptcy is annulled forthwith because the bankruptcy represents an exercise in oppressive futility and is otherwise of no benefit to creditors of any kind whatsoever.
For the reasons which follow, even if the applicant was able to claim “futility” as a basis to annul his bankruptcy arising from his own debtor’s petitions by reason of an absence of assets, which is not accepted by the Court, the applicant has failed to satisfy the Court that he does not have any assets and the bankruptcy would be futile. The applicant did not lead direct evidence as to the state of his financial affairs. His reliance on the investigations by the respondent, the Official Trustee in Bankruptcy, is insufficient to discharge his onus.
The applicant also applied for a suppression order under s 37AF of the Federal Court of Australia Act 1976 (Cth) (FCA Act) that the applicant in these proceedings be referred to by a pseudonym. The reasons for the refusal of this application are dealt with at the end of this judgment at [65]–[73].
Section 153B of the Bankruptcy Act
Section 153B relevantly provides:
153B Annulment by Court
(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.
(2) In the case of a debtor’s petition, the order may be made whether or not the applicant was insolvent when the petition was presented.
(3) The trustee must, before the end of the period of 2 days beginning on the day the trustee becomes aware of the order, give to the Official Receiver a written certificate setting out the former bankrupt’s name and bankruptcy number and the date of the annulment.
Penalty: 5 penalty units.
Note: See also section 277B (about infringement notices).
(4) Subsection (3) is an offence of strict liability.
Note: strict liability, see section 6.1 of the Criminal Code
Applicable principles
The authorities reveal that the following principles are relevant when determining whether to annul a bankruptcy arising from a debtor’s petition:
First, the person seeking an annulment bears the onus of proof.
Secondly, the relevant factors which the Court is required to take into account are different depending on whether the bankruptcy arises from a sequestration order or a debtor’s petition – accordingly care must be taken when considering the authorities which have arisen in the respective circumstances: Thompson v Lane (Trustee) (No 3) [2022] FCA 128 (per Logan J) at [6]–[10].
Thirdly, the terms of s 153B(1) require that the Court be satisfied that either or each of the debtor’s petitions “ought not to have been”:
(a)presented to the Official Receiver; or
(b)accepted by the Official Receiver; and
(c)even if (a) or (b) is satisfied, the Court maintains the discretion to determine whether it should annul the bankruptcy.
Fourthly, the expression “ought not to have been presented” is ordinarily treated as comprehending circumstances where there was a lack of awareness of facts that, had they been known at the point of presentation, would have resulted in there being no bankruptcy. For example, where evidence is led that the debtor was solvent at presentation: Re McCormack (unreported, Pincus J, 6 April 1990) cited with approval in Re Abbas; Ex Parte Official Trustee in Bankruptcy [1995] FCA 337; 57 FCR 140 at 142 and Re Coyle [1993] FCA 244; 42 FCR 72 at 77. In Re Almassy [1999] FCA 1004; 92 FCR 597 at [14], Mansfield J opined that:
… it is necessary for the applicant to establish some circumstance which meant that she was not eligible to present the petition to establish that it ought not have been presented. It is only if that point is reached that the Court has a discretion to annul the bankruptcy.
Fifthly, a petition ought not to have been “presented” for an improper purpose, that is its presentation constituted a “misuse” of the Court’s processes: Re Almassy at [22]–[23]. An abuse will occur where the petition was presented for a predominant purpose foreign to that proceeding: Beaman v Bond [2017] FCAFC 142; 254 FCR 480 at [99] (citing Williams v Spautz [1992] HCA 34; 174 CLR 509 at 526 and 529) and [103]. In Re Almassy the purported basis for annulment was that the applicant did not realise at the time of presentation the amount of fees and charges which may be charged against her estate: at [3]. Justice Mansfield refused her application for annulment on the basis that she was not solvent at the time she presented the petition nor identified any other factor which, had it been known at the time, would have led to a conclusion that her petition ought not to have been presented. It was not suggested that she was “misusing the processes of the Court”: at [22]–[23].
Sixthly, however this “liberal approach” allowing for the rewinding of the bankruptcy when the petition “ought not to have been presented” should not be applied to the expression “ought not to have been accepted by the Registrar” (as s 153B and its legislative predecessor provided) (emphasis added): Re Abbas, at 142–143. Whilst it apparent that the legislative regime considered in Re Abbas involved the petition being accepted by the Registrar rather than the Official Receiver, I am of the view that the principles espoused in that case may be applied to the current regime. This expression “ought not to have been presented” is limited to those circumstances where the procedural and related requirements of s 55(3) have not been met.
Justice Moore observed in Re Abbas, referring to Pincus J’s reasoning in Re Goddard (unreported, 14 November 1986) and the approval of the same by Drummond J in Re Coyle, that the expression “ought not to have been accepted by the Registrar” concerned cases where the procedural and related requirements under s 55(3) and, at the time, s 55(4A), had not been met. His Honour went on to accept that it was clear that the Registrar’s capacity to refuse to accept a debtor’s petition was limited, referring to Northrop J’s reasoning in Re Coote [1993] FCA 949; 47 FCR 522 at 529 and found, at 144:
In my opinion the power to annul in s 153B is limited to such a situation if the ground for annulment is that the petition ought not to have been accepted. Any other construction of the relevant part of s 153B would proceed on the basis that the Registrar has a power to consider other facts or matters when deciding to accept the petition. There is plainly no power to do so. It would be a curious result if it was intended that the power to annul was to be exercised by the Court by reference to the prior exercise of a power by the Registrar that has no legislative foundation. The scope of the expression “ought not to have been presented” and the nature of the inquiry the Court might undertake if that ground is advanced, lends weight to this construction of the expression “ought not to have been accepted”. The former would permit a more wide ranging inquiry complementing the narrower inquiry arising from reliance on the ground concerning acceptance. There is no reason why both grounds cannot be relied upon: see Re Coyle, though they were not in this application. Nothing was pointed to by counsel for the applicant which demonstrates that either the petition or the statement of affairs did not comply with s 55(2). Accordingly the application to annul the bankruptcy must fail. I dismiss the application with costs.
Lastly, critical to any claim for annulment is the Court having before it proper evidence as to the state of the bankrupt’s affairs. As observed by the Full Court in Clyne v Deputy Commissioner of Taxation [1985] FCA 4; 5 FCR 1 at 6 – 7:
It is not enough that the court has no information to indicate that there are assets: see Bayne v Blake (1909) 9 CLR 360 at 364 and In Re Leonard; Ex p Leonard [1896] 1 QB 473, in both of which cases it was pointed out that when the petition is presented it will not – normally, their Honours meant – be possible to say whether there will prove to be assets or not. Even an appearance of absence of assets after investigation has been held to be an insufficient reason for refusing to make a sequestration order: see Re Field [1978] 2 All ER 981.
Accordingly, it is not enough that there is an “appearance of the absence of assets after investigation.” The test is not, contrary to what the applicant submits, whether there would be no dividends to creditors, the question is whether the bankruptcy itself is futile taking into account the numerous purposes of a bankruptcy.
The Evidence
At hearing, the applicant did not rely on any of his filed affidavit evidence for the purpose of the application for annulment but rather sought to rely on and tendered the respondent’s evidence, namely the affidavit of Ms Joyce Fu, a Senior Case Manager employed in the Estate Administration Division of the Australian Financial Security Authority. Ms Fu has day to day carriage of this matter.
The applicant also relied on a documentary tender Exhibit A, which comprised of correspondence between the applicant and the respondent including attaching notices prepared for his creditors notifying them of the annulment application, an email from a partner at HWL Ebsworth, dated 30 May 2021, to the applicant, five letters from the applicant’s treating psychiatrists between 2009 and 2019, a letter from his father to the Legal Profession Admission Board in 2009 and documents relating to his separate court proceedings. With respect to the medical letters, he relied upon them to establish that he is a “vulnerable person with a history of mental health issues”. However, the applicant conceded that there is “no contemporaneous current evidence that… the illness diagnosed is causing [him] any sort of hardship” but rather forms part of the overall circumstances that the Court may have regard to based on Darcey v Pre-term Foundation (unreported, Fox, Wilcox and French JJ, 23 May 1988).
During the course of the hearing, the applicant sought leave (which was granted) to file further evidence, evincing compliance with previous orders of this Court that he file an affidavit of service of notice of the application to each person known to him to be a creditor as required by r 7.03 of the Federal Court (Bankruptcy) Rules 2016 (Cth). The applicant filed such evidence after the hearing on 20 September 2022.
The applicant’s submissions
The applicant submitted that the Court would be satisfied that either the petition “ought not to have been presented” or “ought not to have been accepted by the Official Receiver” (arising from either of the limbs identified in s 153B(1)) on the following bases.
Certain aspects of the applicant’s written and oral submissions were of limited assistance given they were predicated on the basis of facts being established upon him reading his own filed affidavits which he chose not to read. There is, therefore, a significant disjunct between his submissions as to the state of the evidence and what is in fact before the Court.
The applicant submits that he falls within a “narrow class of cases where the Court can have no doubt that his bankruptcy is a futile exercise and should annul it so he can be restored to a normal life and demonstrate commercial morality by paying the petitioning creditor in full and discharge his financial obligations”. There is no petitioning creditor. The “narrow class” within which he falls, he submits is because he is an impecunious debtor (who has nothing) as opposed to an insolvent debtor (who has some assets).
The applicant submits that he has no assets and there will be no assets (during the life of the bankruptcies). However, unusually he relies on none of his own evidence to verify the same but rather the fact of the results of searches of the respondent. By reason of the same, the applicant submits that there is a rule, arising from Re Somers; Ex p Union Creditor Bank Ltd (1897) 4 Mans 227 and In Re Betts; Ex p Betts [1897] 1 QB 50, that if “there will be no dividend paid and that’s accepted” then the bankruptcy should be annulled. The applicant contends that this purported “rule” constitutes a “fundamental common law right which has not been abrogated by the Bankruptcy Act”, relying on Re Gray; Ex parte Deputy Commissioner of Taxation [1989] FCA 343; 20 ATR 1017; Maddestra v Penfolds Wines Pty Ltd [1993] FCA 586; 44 FCR 303; Radich, v Bank of New Zealand [1993] FCA 627; 45 FCR 101 and Darcey.
The applicant submits that the bankruptcy is oppressive, unduly harmful to him as a pervading stressor in his life and by which it precludes him from earning a living.
He further submits that the bankruptcy constitutes an abuse of process by reason of there being no assets for distribution and therefore constitutes “an instrument of oppression” which “is causing [him] financial hardship” because he cannot be self-employed (relying on Radich; Clyne v Deputy Commissioner of Taxation (No 3) [1984] HCA 44; 154 CLR 589). He also claims it is an abuse by reason of the operation of the common law principles in Betts which was confirmed in In re Field (A Debtor) [1978] Ch 371. When asked by the Court to clarify how a claim of abuse of process can arise when it is a process the applicant brought about himself by voluntarily making a petition, the applicant submitted, that it is an abuse because by acceptance there was “an improper purpose” and that when the “debtor’s petition came [to] the official trustee. It disclosed no assets. They [the Official Receiver] should have rejected it”.
Furthermore, the applicant relies on his particular circumstances, namely the fact of his separate court proceedings giving rise to a “stigma” which “justifies the making of the order” (relying on G v The Queen (1984) 35 SASR 349). He submits that the bankruptcy is “an ordeal” resulting in considerable damage to his professional livelihood (relying on R v Taufahema [2007] HCA 11; 228 CLR 232 and Einfield v The Queen [2010] NSWCCA 87; 200 A Crim R 1).
He propounds that it would be inconsistent with the Bankruptcy Act to continue in these circumstances where there will be no dividend or employment relying on the following authorities: Amihyia v Official Receiver [2004] EWHC 2617 (Ch); Field; Boles v Official Trustee in Bankruptcy [2001] FCA 639; 183 ALR 239; Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307; 5 ABC(NS) 122.
The applicant contends that it is not necessary to demonstrate an improper purpose and asked the Court to compare Beaman; Williams v Spautz; and see Walton v ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) [2022] HCA 3; 399 ALR 1.
The applicant submitted rhetorically that:
Had the Official Trustee known about the predicament in which the [applicant] finds themselves the debtor’s petition would not have been accepted because there is no point in subjecting a person to the quasi-penal consequences of bankruptcy? Events post sequestration can lead to an order of annulment (see Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239).
Furthermore, the applicant submits that “it would be wrong to confine the discretion to annul a bankruptcy to a situation in which the bankruptcy receives a financial windfall and is restored to solvency”. Rather “the discretion must be exercised with reference to all the circumstances of the case and involve a proper assessment as to what is required by commercial morality” by reference to Re Gollan; Ex parte Gollan [1992] FCA 1044; 40 FCR 38; JSC Bank of Moscow v Kekhman [2015] EWHC 396 (Ch); 1 WLR 3737; In re Thulin [1995] 1 WLR 165, Ch D; Re Heenan; Ex parte Collins (trading as Hertz Carnarvon Auto Rentals) [1992] FCA 855; 39 FCR 428.
Lastly, the applicant relied on the fact that he was prepared to provide the following undertaking:
The applicant proposes to provide an undertaking that his creditors are paid by 1st February 2023 because once the bankruptcy is annulled he can apply himself to commercial endeavours which do not involve reputational considerations. Such an undertaking would be punishable by contempt (see Microsoft Corporation & Microsoft Pty Ltd v Marks (1996) 69 FCR 117). 10. [sic] The Court can make an order that if payment is not made the order of annulment can be rescinded (see Re Papps; Ex parte Tapp (1997) 78 FCR 524) which would lead to the termination of bankruptcy in the ordinary course of events.
The respondent’s submissions
In essence, the respondent contends five matters. First, the Court does not have a general power to annul the applicant’s bankruptcies. The applicant “has not contended, nor adduced evidence, to establish that the debtor’s petitions pursuant to which he became bankrupt “ought not to have been presented” or accepted either as being an abuse of process or not meeting the requirements of s 55 of the Bankruptcy Act” (emphasis removed). Secondly, it is unlikely that “futility” (even if established) is a ground on which the Court can annul the applicant’s bankruptcies. Thirdly, in any event, even if the Court is empowered to annul the applicant’s bankruptcies on the ground of “futility”, the evidence does not establish that the bankruptcies are an exercise in oppressive futility. Fourthly, there are matters arising in the administration of the applicant’s estates that militate against the Court exercising its discretion to grant an annulment; and fifthly, in all the circumstances, the public interest in the proper administration of the bankruptcy regime does not warrant an annulment of the applicant’s bankruptcies.
Further, the respondent contends that the burden of proof of all matters in relation to the annulment lies with the applicant to “place before the Court all 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”: Re Papps; Ex parte Tapp [1997] FCA 1031; 78 FCR 524 at 531. The respondent contends that the applicant has not done this.
In any event, even if it were able to be established that futility had relevance to the determination of this question, it is not “clear beyond question” that the applicant lacks assets or that the “presentation of the petition amounts to oppression”: Clyne at 6; see also Field at 375. The respondent contends that the courts have been “increasingly reluctant to allow debtors to avoid bankruptcy” due to a lack of assets: see Maddestra at 308 in respect of a sequestration order.
Consideration of the application for annulment
The difficulty for the applicant is that his “futility” submissions are premised on the existence of a state of affairs for which he has not proven by evidence. The applicant submits the bankruptcy is “futile” on the basis that he has “no assets” nor that there is any possibility of obtaining any further assets during the life of the bankruptcy – given the absence of any asset stream or ability on his part to obtain employment. However, the applicant tendered no evidence of his financial affairs nor as to the absence of employment prospects. His reliance on the evidence of Ms Fu reveals the contrary (with respect to the alleged absence of assets). Her evidence reveals that:
(1)the applicant made three transfers totalling $2,750 from one account to fund his share-trading account on or around 22 to 25 June 2020 (during the life of the First Bankruptcy);
(2)contrary to the applicant’s debtor’s petitions and accompanying Statement of Affairs, where he disclosed no assets – the applicant did have bank accounts containing small sums – the largest being to the value of $1,941.15;
(3)the applicant was a third-party signatory on four accounts in relation to a company, Quick Collect Pty Ltd and the Lazy Bob Trust;
(4)the applicant had access to a trust account under the applicant’s mother’s name;
(5)the applicant was a trustee of a trust account held on behalf of the Lazy Bob Trust; and
(6)funds were recovered in the bankruptcy administration from the sale of undisclosed shares and a payment of $1,882.69 was made to a creditor of the applicant.
The applicant relied on certain bank statements contained in Ms Fu’s evidence revealing limited funds in his bank accounts. He also made various submissions, by reference to Ms Fu’s evidence, that it could be inferred, to the extent that he had business interests, that he has not received any significant dividend from those businesses and that they were not functioning as at the current date because his ownership or involvement in them had ceased. There is no way that such inferences can be drawn from Ms Fu’s evidence. Again, the applicant made submissions without relying on evidence to prove the underlying basis for the submission. They cannot be accepted by the Court. With respect to the Lazy Bob Trust, the applicant made submissions as to its purpose and the absence of any commercial activity but again without relying on any evidence save for an email from his accountant in September 2020 as to the accountant’s understanding of the purpose of a particular unidentified trust. This cannot be accepted without proper evidence.
Furthermore, he relied on the fact of his tax returns revealing no income and that the Official Trustee Report in September 2020 regarding the absence of assets and that no dividend was expected to be paid in the estate.
The applicant’s submission was in effect that if there were any significant assets or distribution then the Official Trustee would have uncovered them. I do not accept the premise that it is sufficient for a bankrupt to rely on the evidence of the Official Trustee without putting his own evidence as to the state of his affairs. I accept that a bankrupt, as has been done here, is able to rely on the evidence of the Official Trustee as to what he or she “has uncovered” and his or her tax returns. However, this evidence can only go so far. Ultimately, it is within the applicant’s knowledge as to the true state of his or her affairs not the Official Trustee or the Australian Tax Office.
This is particularly necessary where the evidence reveals, as in this case, that the applicant has not been entirely frank with the Official Trustee as to his true position. The evidence of Ms Fu revealed that the applicant did not disclose any assets in the First and Second Debtor’s Petition and accompanying Statement of Affairs. Notwithstanding these representations, the applicant held numerous assets, albeit of insignificant value. The applicant only disclosed one debt in the First Bankruptcy when there were multiple debts of not insignificant value. Whilst I accept that the absence of frankness may arise from a lack of sophistication or attenuating circumstances of the applicant at the time he or she files his or her petition, the Court needs to be satisfied of the same with the benefit of evidence from the applicant. Here, there is no evidence to explain why the applicant, having conducted a business, did not do this. I accept that he has placed before the Court evidence of “vulnerability” in a general sense but this evidence is in no way contemporaneous to the filing of the petitions nor directed to this issue.
The applicant conceded that one of the factors the Court may take into account, in the exercise of the Court’s discretion as to whether to annul the bankruptcy, includes the level of frankness to the Official Trustee. He further conceded that if the Court does not have any evidence before it of the applicant establishing the extent of his assets as they were at the time of each of the petitions and as they are now, this would be a factor going against the exercise of the discretion.
As to the absence of the possibility of obtaining further assets, the applicant’s difficulty is repeated: Where there is an absence of evidence as to the state of his affairs and questions remain unanswered as to his true position, this doubt infects his submission regarding his future state of affairs. The difficulty for the Court is that the applicant has not put before it evidence as to this absence.
Furthermore, to the extent that the applicant submits that he cannot be employed or self-employed by reason of either the bankruptcy or the separate court proceedings, he has put on no evidence, save for an email, dated 30 May 2021 from a partner at HWL Ebsworth, proffering a view (without the context being disclosed) that it would be “wise” for the applicant to “delay any admission application” until the separate court proceedings are disposed of. It is difficult to attribute any real weight to this evidence. At its highest it is a suggestion regarding delaying admission to practising law. It relates to the effect of extant separate court proceedings on admission not regarding the circumstances of bankruptcy affecting employability. The applicant did not provide the Court with any real assistance as to the effect on legal practice of his bankruptcy and only referred to s 9 of the Legal Profession Act 2004 (NSW). The applicant put on no evidence as to any steps he had taken to obtain admission to practice, attempts to obtain other employment outside the legal field nor any evidence as to the fact of the separate court proceedings impeding his capacity to obtain any work (skilled or unskilled outside the field of law). I do not accept, absent evidence, that the applicant will have absolutely no ability to obtain employment or be self-employed during the life of the bankruptcies.
In addition, to the extent that the applicant submitted that the effect of annulment would mean that he could become employed and/or engage in work for the benefit of his creditors, again the applicant put on no evidence before the Court as to the nature of the work, how it would generate income and would be of benefit to creditors.
Accordingly, given that the applicant has not proven the underlying premise essential for the foundation of his futility argument, there is no need for the Court to consider whether in fact such an argument can be raised in the context of a debtor’s petition giving rise to the bankruptcy rather than a sequestration order.
However, for completeness, whilst not needing to, I would make the following general observations with respect to the applicant’s “futility” argument.
The applicant contended that it had been recognised in Amihyia (applying Betts) that if the continuation of the bankruptcy is “futile and oppressive” then the Court may, at common law, annul it. I do not accept the applicant’s submission.
First, the applicant took the Court to no authority where the Court had annulled a bankruptcy arising from a debtor’s petition where there is no dispute that the debtor (as in this case) was insolvent at the time of the petitions being presented and remains so. To the extent that there has been recognition of the “futility” argument, it has arisen where the bankruptcy has resulted from a sequestration order not a debtor’s petition. The case of Amihyia is clearly distinguishable from this case in fact and law: the bankruptcy arose from a creditor’s petition. The applicant proved he had no assets nor any prospect of assets: at [6]. The bankruptcy arose on the finding of the Court, from circumstances in which the applicant was in no way responsible – the applicant was a trustee of a charity: at [13]. The unpaid debt arose from the termination of a contract by the charity with which the applicant had no involvement: at [5].
Similarly, the cases of Betts, Field and Somers, do not assist the applicant. All the bankruptcies arose from a creditor’s petition not a debtor’s petition. In all cases, the Court required the applicant to prove on his own evidence that he had no assets nor a possibility of obtaining them: see Betts at 52. Indeed, in Field, Megarry VC refused the bankrupt’s appeal against a receiving order on the basis that the bankrupt had not discharged his heavy burden of proof to prove destitution, both present and future, and stated at 375E–377B:
Put shortly, he contended that where it was established that the debtor had no assets and no prospects of acquiring any, the court should dismiss the petition; for to make a receiving order – in such circumstances would merely increase the costs, and would do no good. In the present case, he said, the debtor fell within this doctrine, and so the receiving order should be set aside.
Now it is plain that there is considerable support for some doctrine of this sort; but it is equally plain that the doctrine is hedged about by important precautions. After all, if it were open to a debtor to avoid having a receiving order made against him simply by alleging utter destitution, both present and future, such pleas of destitution might become popular; and prospective bankrupts might hasten to rid themselves of any assets or prospects which might hamper them in making such a plea. A man may indeed be too poor to be made bankrupt: but the burden of proof is heavy.
I would describe In re Betts, Ex parte Betts [1897] 1 Q.B. 50 as the leading case on this branch of the law, were it not for the fact that the judgments so strongly emphasise the special circumstances of the case, and that it is not to be regarded as a precedent for any other case unless the circumstances are the same or exactly similar. There, the debtor was already bankrupt. The petitioning creditor in the second bankruptcy had proved for a prior debt in the first bankruptcy, and only a small dividend had been paid in it; the applicant was undischarged. In those circumstances, the Court of Appeal set aside the receiving order in the second bankruptcy proceedings because, in the words of Lord Esher M.R., at p. 52, the court was
“clearly convinced, not merely by the statement of the debtor, but from all the circumstances of the case, that there cannot be any assets or any prospect of any coming into existence, and that, if a receiving order is made, the only effect will be a mere waste of money in costs.”
In the first bankruptcy, the existence of assets would have been fully probed; and if subsequently assets appeared, they would be taken for the first bankruptcy, and so would not be available for a second bankruptcy until all the debts under the first bankruptcy had been paid.
As Lord Esher pointed out at p. 52, if a debtor merely swears an affidavit saying that it is no use making him a bankrupt because he has no assets and no prospects of having any, the court will not accept this as a ground for not making a receiving order, because at that stage the court is not in a position to know whether that statement is true. During the process of bankruptcy much that was unknown earlier becomes revealed.
…
At first sight, the most helpful case for the debtor seemed to be In re Emma Somers, Ex parte Union Credit Bank Ltd. (1897) 4 Mans. 227.
…
The barmaid contended that no receiving order should be made against her because she had no assets and was not likely to become possessed of any; and this was supported not only by her own affidavit, but also by her brother’s. The registrar nevertheless made a receiving order against her, but on appeal the Divisional Court in Bankruptcy set it aside. Wright J. said at p. 230:
“All the cases agree in saying that the evidence of the debtor alone as to no assets will not do; but in a case like this, where there are no assets and no probability of any becoming available, the court has a discretion to refuse to make a receiving order if, in its opinion, the proceedings are of an oppressive character. Here, in my opinion, they are of an oppressive character, and the court ought to exercise its discretion by refusing a receiving order.”
Accordingly, even putting aside the distinguishing facts, all of these cases tell against annulling a bankruptcy where the applicant had put on no proper evidence proving the absence of any assets, now and in the future.
Secondly, those authorities are not Australian and therefore have not considered the particular strictures of the Bankruptcy Act. Under Australian law, as considered at [7]–[16] above:
(a)“ought not to have been presented” has been found to arise in those limited circumstances where the petitioner was not insolvent, an infant at the time and therefore not liable to answer the claims of creditors or where the petitioner presented the petition for an improper purpose. It did not arise where the petitioner, in effect, changed his or her mind and, for example, did not want to incur the fees or changes that she was not aware of at the time: Re Almassy.
(b)“ought not to have been accepted” has been found to arise only where the procedural and related requirements of s 55 have not been met: Re Abbas. The applicant does not contest that the formal requirements relating to the presentation of the petition were not met nor that any of the prescribed bases upon which the Official Receiver may reject a petition under s 55 arise.
Thirdly, the respondent raised compelling arguments as to why, as a matter of statutory interpretation, this Court would not accept that the futility argument can arise where the bankruptcy has arisen by reason of a debtor’s petition as opposed to a sequestration order. The legislative scheme tells against such an interpretation: s 55(4) on its terms compels the official receiver to accept the debtor’s petition, unless he or she rejects it under this section or is directed by the Court to reject it. The applicant is deemed bankrupt “on the first instant on the day when the petition is accepted by the Official Receiver”: s 57A. The applicant’s argument as to the absence of assets appears to assume it is an absence of assets at the point of acceptance. This is inconsistent with the effect of s 58(1)(b) which includes “after-acquired property” as part of the pool of assets which becomes divisible amongst creditors during the life of the bankruptcy, including making a contribution for prospective income: s 139P.
The applicant’s argument assumed the only purpose of a bankruptcy is to allow for a period in which the applicant’s assets are pooled and distributed to his or her creditors. This is not the case. The statutory regime allows the applicant benefits and provides the public with certain protections. These matters ward against the applicant’s contention: If the applicant is correct and a bankruptcy is not available where the person has no assets (the Official Receiver ought not to have accepted the petition), the effect would be contrary to the express intention of the Bankruptcy Act. This intention is evident from the number of benefits a bankrupt obtains from bankruptcy: The avoidance of harassment by creditors (s 58(3)), the ability to wipe the slate clean with respect to extant debts after the expiry of the bankruptcy (s 149) and to maintain certain assets (s 116(2)) which could otherwise be seized by creditors. Furthermore, even if a person has no assets at the beginning of their bankruptcy, ss 120 to 122 entrusts the trustee with broad powers to recover property which might have been divested prior to the commencement of bankruptcy after the person became bankrupt: s 127.
In addition, there are public policy protections which inhibit the ability of the applicant to obtain credit without disclosing that they are an undischarged bankrupt during the life of the bankruptcy: s 269. Further, the annulment of a bankruptcy has numerous consequences which include allowing third parties to claw back from the trustee what they had paid on the basis that the trustee was never validly acting because the bankruptcy had been set aside ab initio under s 153B. Lastly, there are ways in which a bankrupt can end their bankruptcy earlier than the three-year period and effect an annulment on their own terms: Section 73 permits a bankrupt to put forward a proposal to their creditors which if accepted has the effect of annulment: s 74.
Fourthly, there are compelling arguments as to why, as a matter of discretion, the Court would not annul bankruptcies in this context by reason of the operation of the Bankruptcy Act, its purpose as gleaned from the sections in the three preceding paragraphs and the benefits a bankrupt receives when made bankrupt.
The applicant contends that the bankruptcy was tantamount to an abuse of process. He does not differentiate between the bankruptcies as they arise between the first and the second debtor’s petitions and appears to make the allegation with respect to both of his petitions. His submission therefore presupposes (a) that he had and has no assets (which for the reasons outlined above at [35] is not correct) and (b) that the only purpose of becoming bankrupt is for the purpose of securing whatever assets there are and redistributing them to creditors (which is not the case for the reasons identified at [51]–[53] above).
The applicant relied on two authorities in this respect, namely Darcey and Beaman. However, these authorities offer no support for his argument. In both cases the bankruptcies were not annulled. In Darcey, the Court dismissed Mr Darcey’s appeal where he had been unsuccessful in annulling his bankruptcy on the basis of an argument, in like terms to that of the applicant here, that the bankruptcy would be a “futile” exercise (given the absence of any assets and the vocational vow of poverty the applicant had taken). Justice French, with whom Fox and Wilcox JJ agreed, noted that whilst there was an acceptance that Mr Darcey had no assets, this did not:
… dispose of the question whether there might be property available for disposition to his creditors. The fact that assets which have or might yet come his way have been or would be disclaimed or assigned pursuant to his vows, does not provide a complete answer.
I suspect that in the end this sequestration will prove to be a fruitless, time wasting and unmeritorious exercise which has little to do with the public interest. However on the principles established in the cases, I am unable to say that his Honour erred in the exercise of his discretion and I would therefore dismiss the appeal.
Furthermore, the circumstances in which the claim of an abuse of process was raised were very different in Beaman. There, Ms Beaman (Mr Bond’s former de facto partner) applied to the Federal Circuit Court (as it then was) seeking an annulment on the basis that Mr Bond’s debtor’s petition ought not to have been presented because it was an abuse and was for the collateral purpose of frustrating her Western Australian Family Court property proceedings and avoiding the Court ordered payment of $100,000. The Court at first instance and on appeal did not accept that there was an abuse. Justice McKerracher (with whom Gilmour and Charlesworth JJ agreed) reviewed previous authorities that had considered where an abuse may arise: at [99]–[101]. The cases had considered occasions where the predominant purpose of using a legitimately available legal proceeding (namely a debtor’s petition in bankruptcy) was foreign to that proceeding. The proper approach to s 153B is to ascertain the predominant purpose of the petition: at [103]. Furthermore, the Court cited Williams v Spautz at 526 and 529 that the onus of satisfying the Court that there is an abuse of process lies upon the party alleging it and it is a “heavy one”: at [99]. There is no such claim by the applicant here that he brought the proceedings for a predominant reason which was foreign to the legitimate purpose. The applicant put no evidence at all before the Court as to why he presented both petitions.
I accept the submissions of the respondent that the bankruptcies are not tantamount to an abuse of process for the following reasons. First, contrary to the applicant’s submission, the evidence reveals that the applicant did have assets (albeit small) and there has been a small distribution to a creditor. There is no dispute that he was insolvent. On these bases alone, I do not accept that it can be argued that the bankruptcy was an abuse.
Secondly, the applicant has been afforded the following benefits from the bankruptcies – he has been free of being harassed by his creditors, he will have the benefit of wiping the slate clean with respect to extant debts at the expiry of each bankruptcy and has had the ability to maintain certain assets during the life of the bankruptcies.
Thirdly, one of the purposes of a bankruptcy is to give creditors the benefit of the possibility of being paid by reason of assets materialising during the course of the bankruptcy. I am of the view that part of the purpose of the bankruptcy is to allow the Official Trustee to undertake all investigations necessary in order to determine what assets may be available in order to provide a dividend. This takes time. Here, one payment has been made.
Fourthly, the absence of assets does not fall within the recognised circumstances where an “abuse of process” has given rise to annulment. In Re Coyle, a bankrupt applied for annulment where it was clear there would be no dividend for creditors unless the trustee prosecuted a claim for damages that had vested in the trustee and for which the trustee had declined to do so: at 74. Accordingly the purported “abuse” arose from the inaction of the trustee not any action or inaction of the applicant. Despite this however, the Court declined to make the order. In that case, Drummond J considered cases were there had been an annulment which included where the debtor was solvent and where at the time of the debtor’s petition, the debtor was unaware that his infancy was an answer to the claims of all his creditors: at 77. His Honour found, at 78:
Where an insolvent debtor presents his own petition, s 55 is being used for its intended purpose: it cannot be said, in such circumstances, that the petition ought not to have been presented. If a debtor is insolvent at the time he presents his own petition it cannot, in my view, be said that the petition ought nevertheless not to have been presented because the debtor then had a hope or even a reasonable expectation that his fortunes would improve· either in the near future or in the long term. If, after becoming bankrupt on his own petition, the debtor is able for any reason to pay all his debts, then he will be entitled to an annulment of his bankruptcy under s 153A upon complying with the requirements of the section. But that such a situation arises, or may arise, after bankruptcy, in circumstances in which it was anticipated that it would arise at the time the debtor presented his own petition, provides no ground for saying that the petition ought not to have been presented, the debtor then being insolvent in the sense in which the term is used in Sandell v Porter (1966) 115 CLR 666 at 670, at that time.
Given that the applicants were insolvent when they presented their petition, I am not prepared to find that it ought not to have been presented. Their application for annulment should be dismissed for that reason.
However, even if I am wrong in thinking that the circumstances are not such as to enliven the discretion to annul their bankruptcy, there are, in my view, strong discretionary reasons why annulment should be refused.
Consistent with the reasoning above at [53], Drummond J referred to the procedure that was available to the bankrupts to bind themselves to a clear proposal to apply anything they recovered in an action for the benefit of their creditors under s 73: at 79. His Honour refused the request for the annulment and noted, at 80:
In my opinion, since the jurisdiction to annul a bankruptcy conferred on the court by s 153B is a discretionary one, where debtors who remain insolvent seek annulment on the basis that they will be able to confer a benefit on their creditors if the bankruptcy is set aside, the court should generally only grant annulment where the evidence shows that the debtors could obtain annulment under s 74.
Even if I am wrong regarding the unavailability of the futility and the abuse arguments, I would nevertheless refuse the application to annul the bankruptcy on discretionary grounds. I do not know the extent of the applicant’s current or potential assets given the absence of proper evidence from the applicant. I have taken into account the number of creditors, the fact that they are aware of the application and have taken no part in the proceedings. I note that there always remains the possibility that the applicant may come to own additional property during the life of the bankruptcy particularly where there is no evidence to support the applicant’s submission that he can obtain no employment or be self-employed in any respect. In addition, I am of the view that it was open for the applicant to put before the Court proper evidence of how his creditors would benefit from the annulment (by reason of his engagement in commercial activity) but he chose not to do so. I am also of the view that he was and remains able to seek the agreement of his creditors to annul his bankruptcy and he has not done so nor put any evidence before the Court regarding this possible avenue.
In those circumstances, in my view, the application in any event should be refused.
Application for a suppression order
The applicant sought orders, inter alia, pursuant to s 37AF of the FCA Act that his name be suppressed and replaced by a pseudonym. I have not set out the extent of the orders sought so as to address the applicant’s sensitivities but have noted the other orders proposed. It is my view that the general description of the order sought is sufficient in the circumstances.
The power under s 37AF is informed by s 37AG. Both sections are extracted as follows:
37AF Power to make orders
(1) The Court may, by making a suppression order or non-publication order on grounds permitted by this Part, prohibit or restrict the publication or other disclosure of:
(a)information tending to reveal the identity of or otherwise concerning any party to or witness in a proceeding before the Court or any person who is related to or otherwise associated with any party to or witness in a proceeding before the Court; or
(b) information that relates to a proceeding before the Court and is:
(i)information that comprises evidence or information about evidence; or
(ii) information obtained by the process of discovery; or
(iii) information produced under a subpoena; or
(iv) information lodged with or filed in the Court.
(2) The Court may make such orders as it thinks appropriate to give effect to an order under subsection (1).
37AG Grounds for making an order
(1)The Court may make a suppression order or non-publication order on one or more of the following grounds:
(a)the order is necessary to prevent prejudice to the proper administration of justice;
(b)the order is necessary to prevent prejudice to the interests of the Commonwealth or a State or Territory in relation to national or international security;
(c) the order is necessary to protect the safety of any person;
(d)the order is necessary to avoid causing undue distress or embarrassment to a party to or witness in a criminal proceeding involving an offence of a sexual nature (including an act of indecency).
(2)A suppression order or non-publication order must specify the ground or grounds on which the order is made.
The power to make a pseudonym order
The Full Court, in Ogawa (formerly Ms PD) v President of the Australian Human Rights Commission (Pseudonym) [2022] FCAFC 160 at [23]–[31], has recently, and helpfully, summarised the relevant principles to be applied when determining whether to make a pseudonym order: Section 17(1) of the FCA Act requires, except where that or another Act authorises, that the jurisdiction of the Court be exercised in open court. This “reflects the fundamental rule of the common law that, with very limited exceptions, the administration of justice must occur in open court”: at [23]. In deciding whether to make an order of this kind, “s 37AE requires the Court to take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice”: at [24]. If the Court decides to make a suppression or non-publication order, it must specify the ground or grounds for doing so (s 37AG(2)): at [25]. One reason for the common law’s insistence that justice be administered in public, transparently, in open court, “is the importance of the common law right of any person to make fair and accurate reports of judicial proceedings”: at [26].
The Full Court affirmed the often forgotten principle by applicants for these kinds of orders that “considerations of embarrassment, convenience or personal sensitivity to the publication of personal and often very private evidence” cannot justify or support the exercise of any inherent or implied power of a court to suppress or prohibit the publication of those matters: at [27].
Rather, such a derogation from the law’s insistence on the principle of open justice may occur only where “the public disclosure of evidence or other matter, or the identity of a party to, or a person involved in, a proceeding would frustrate the administration of justice” (at [28]) and the departure may only occur where it is necessary so as to enable it to do justice. Accordingly, the question therefore is “whether justice cannot be done in any other way” than by granting the order: at [29].
I will apply these principles to the applicant’s application.
Consideration of the application for a pseudonym order
The applicant claims that a pseudonym order is necessary by reason of the fact that he relies on the fact of the past and present separate court proceedings to establish why there has been and will be no prospect of a dividend during the life of his bankruptcies. The applicant is concerned that any media reporting could affect the administration of justice as it arises with respect to his separate court proceedings and notes the stance taken by other courts. Furthermore, he contends that depending on a particular outcome in those proceedings in the future, the pseudonym order will have protected his reputation to the extent that there is reference to the existence of other proceedings in this decision. In addition, by reason of being bankrupt he is unable to bring any proceedings to the extent that there is inaccurate media reporting to protect himself.
I have summarised, in very general terms the submissions of the applicant so as to deal with the sensitivities about which he is concerned may appear in any judgment. I have considered each of the submissions made by the applicant in writing and at hearing and also the evidence he relies upon. I am not satisfied given the very limited reference to any past or current proceedings in the judgment that the applicant has overcome the high bar necessary in order for a pseudonym order to be made or for parts of the judgment to be redacted. I do not accept that the very limited reference to those matters in this decision, about which the applicant is sensitive, will frustrate the administration of justice. Therefore, there is no necessary departure to enable justice to be done.
Accordingly, I dismiss the applicant’s application for a suppression order.
Conclusion
In the annulment proceeding, I make an order dismissing the proceeding. I refuse the applicant’s application for a suppression order. I will make a costs order in the respondent’s favour.
I certify that the preceding seventy-four (74) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Raper. Associate:
Dated: 7 October 2022
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