Simeon v Prior (No.2)
[2014] FCCA 1743
•6 August 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SIMEON v PRIOR (No.2) | [2014] FCCA 1743 |
| Catchwords: BANKRUPTCY – Application for review of Registrar’s decision to make a sequestration order – whether to set aside sequestration order and dismiss creditors petition – whether to make orders requiring compliance with rules requiring filing of necessary affidavits or waive compliance. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.43, 44, 47, 52(1) & (2), 306(1) Federal Circuit Court of Australia Act 1999 (Cth), ss.3, 42 |
| Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27 Totev v Sfar & Anor (2008) 167 FCR 193; [2008] FCAFC 35 |
| Applicant: | NICHOLAS SIMEON |
| Respondent: | JOHN PRIOR |
| File Number: | PEG 264 of 2013 |
| Judgment of: | Judge Antoni Lucev |
| Hearing date: | 6 August 2014 |
| Date of Last Submission: | 6 August 2014 |
| Delivered at: | Perth |
| Delivered on: | 6 August 2014 |
REPRESENTATION
| For the Applicant: | In person |
| Counsel for the Respondent: | Ms PA Martino |
| Solicitors for the Respondent: | P. A. Martino, Barrister & Solicitor |
ORDERS
To the extent necessary, the Court waives compliance with rr.4.02, 4.04, 4.05 and 4.06 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) generally and in relation to affidavits filed by the respondent on 4 and 5 August 2014, with the Court also granting leave to file those affidavits on 4 and 5 August 2014.
The applicant’s application for review filed 7 October 2013 be dismissed.
The sequestration order made by Registrar Jan on 16 September 2013 be affirmed.
The respondent’s costs of this application, including reserved costs, be taxed, if not agreed, by a Registrar of this Court under Part 40 of the Federal Court Rules 2011 (Cth) and paid out of the estate of the bankrupt, Nicholas Simeon, in accordance with the Bankruptcy Act 1966 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
PEG 264 of 2013
| NICHOLAS SIMEON |
Applicant
And
| JOHN PRIOR |
Respondent
REASONS FOR JUDGMENT
(Edited ex tempore reasons)
In Simeon v Prior [2014] FCCA 1662 (“Simeon (No.1)”) this Court concluded that there was no basis for this Court, in its capacity as a court exercising bankruptcy jurisdiction, to go behind the judgment of the Supreme Court of Western Australia in Prior v Simeon [2010] WASC 382 (“Prior”), and in particular in reaching that conclusion this Court found that three essential facts emerged as follows:
a)that by reason of the provisions of a Trust Deed and a Deed of Agreement, Mr Simeon was indebted to Mr Prior in the sum of $1,275,649.73 at the time of judgment in Prior in respect of the mortgage and other expenses for what was described as the Reynolds Road Property;
b)Mr Simeon was unable to raise finance to repay Mr Prior the debt of $1,275,649.73 prior to judgment in Prior being delivered; and
c)there was no evidence that Mr Simeon had income which would enable him to pay the judgment debt of $1,275,649.73.
See Simeon (No.1) at paras.46-48 and 53(a) per Judge Lucev.
The Court also concluded that in order to afford the parties procedural fairness, it was necessary to hear further oral submissions in relation to what course the Court might adopt in relation to non-compliance by Mr Prior with the requirement to file and serve various affidavits under the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) (“FCC (Bankruptcy) Rules”), particularly having regard to rr.4.02, 4.04, 4.05 and 4.06. In that regard, the Court observed that the following issues arose:
a)whether the Court can or ought to waive compliance with the provisions of the FCC (Bankruptcy) Rules, or the Federal Circuit Court Rules 2001 (Cth) (“FCC Rules”) insofar as they may be applicable;
b)whether the Sequestration Order against Mr Simeon’s estate ought to be set aside and Mr Prior’s creditors petition dismissed for non-compliance with the FCC (Bankruptcy) Rules; and
c)whether the Court ought to grant Mr Prior leave to file the necessary affidavits required for compliance with the FCC (Bankruptcy) Rules at this stage of the hearing,
and noted that the course to be adopted may be affected by the objects of the Federal Circuit Court of Australia Act 1999 (Cth) (“FCCA Act”) and FCC Rules: see FCCA Act, s.3 and FCC Rules, r.1.03, and the requirements of the Bankruptcy Act, including ss.52(1) and 306(1), and issues of case management and the interests of justice and the administration of justice: see Simeon (No.1) at paras.51-52 per Judge Lucev.
It was in the interests of justice that there be no denial of procedural fairness to both parties before the Court made final orders, and therefore the matter was adjourned to today to give the parties the opportunity to address these issues: see Simeon (No.1) at para.52 per Judge Lucev.
There seems little doubt that this Court can waive compliance with the provisions of the FCC (Bankruptcy) Rules or the FCC Rules insofar as they may be applicable, if it is appropriate to do so: Martin & Anor v Commonwealth Bank of Australia (2001) 217 ALR 634 at 637-638 per North, Mansfield and Katz JJ; [2001] FCA 87 at para.16 per North, Mansfield and Katz JJ; Totev v Sfar & Anor (2008) 167 FCR 193 at 197 per Emmett J and 204 per Bennett J; [2008] FCAFC 35 at para.15 per Emmett J and para.52 per Bennett J; Napiat Pty Ltd v Salfinger (No. 7) (2011) 202 FCR 264 at 284 per Foster J; [2011] FCA 1322 at para.96 per Foster J (“Napiat (No. 7)”).
In Napiat (No. 7) the Federal Court dispensed with compliance with a requirement to file an affidavit giving details of a debt agreement where no debt agreement in relation to the relevant debt was included in the personal insolvency index, and therefore the failure to file was of no practical effect and caused no prejudice to the respondent: Napiat (No. 7) FCR at 284 per Foster J; FCA at paras.95-99 per Foster J.
In de Robillard v Carver (2007) 159 FCR 38 at 55 per Buchanan J; [2007] FCAFC 73 at paras.93-95 per Buchanan J (with whom Moore and Conti JJ agreed) the Full Court of the Federal Court said that:
93. As the primary judge pointed out, the jurisdiction of the Court to make the sequestration order is granted by s 43 of the Bankruptcy Act. The Court must be satisfied that an act of bankruptcy has been committed in order to make an order of sequestration. Furthermore, s 52 of the Bankruptcy Act requires proof of certain matters “at the hearing of a creditor’s petition”, including that “the debt or debts on which the petitioning creditor relies is or are still owing”.
94. When the matter came before the primary judge proof of the matters required by s 52 of the Act was an evidentiary issue. The jurisdiction of the Court is not fixed in time in the way suggested, nor is it to be measured simply by the adequacy of one party’s initial documents (see Daly v Watson (1994) 50 FCR 544 at 552-523; Bryant v Commonwealth Bank of Australia (unreported, Federal Court of Australia, Beaumont, Whitlam, Moore JJ, NG223/1995, 24 November 1995) at 12-13. As was said in MacDonald 107 FCR 72 at [31] in relation to a similar argument:
A sequestration order can still be made, at the discretion of the Court, if the necessary evidence is before the Court at that stage even though no affidavit verifying the petition was filed with it.
95. The contention that proceedings commenced by filing the creditor’s petition were incurably flawed and beyond jurisdiction because of non-compliance with r 4.02 of the Bankruptcy Rules should be rejected.
In Boutros v Santa Sabina College Ltd [2011] FCA 477 at para.18 per Nicholas J the Federal Court said that there were a number of decisions of the Full Court of the Federal Court supporting the argument that failure to comply with the requirements of r.4.06(3) of the Federal Court (Bankruptcy) Rules 2005 (Cth) (which are harmonised with and the same in all relevant respects as the FCC (Bankruptcy) Rules) did not prevent the adjournment of a hearing of a creditors petition to enable the petitioning creditor to remedy any non-compliance.
Sadly, Mr Simeon’s circumstances are such that he is an 86 year old widowed pensioner, who has been a pensioner since 2003, who was bankrupt between 2003 and 2006, with no income other than his pension since 2003, and no apparent means of repaying the judgment debt of $1,275,649.73. It would be a complete triumph of procedural form over substance for the Court to set aside the Sequestration Order and dismiss the creditors petition at this stage. The consequence of so doing would be to require Mr Prior to begin the bankruptcy process again for no good reason in circumstances where Mr Simeon is incapable of repaying the judgment debt in Prior. To adopt that course would be contrary to the objects of the FCCA Act and FCC Rules which require that proceedings be resolved justly, efficiently and economically using streamlined procedures that avoid undue delay, expense and technicality: see FCCA Act, ss.3 and 42; FCC Rules, r.1.03; in short, in a manner generally consistent with the modern approach to case management: as to which see generally Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27. It would also be contrary to the objects and purposes of the Bankruptcy Act which seeks to protect the interests of genuine creditors and the public interest by ensuring adherence to the mores of commercial morality by participants in commercial activities: Australian Securities and Investments Commission v Forge (2003) 133 FCR 487 at 488 per Branson and Stone JJ and 493 per Emmett J; [2003] FCAFC 274 at para.4 per Branson and Stone JJ and para.29 per Emmett J.
Since the making of orders and handing down of judgment in Simeon (No. 1) the following affidavits have been filed by Mr Prior, or on his behalf:
a)an affidavit of Mr Prior sworn 4 August 2014 verifying the creditors petition;
b)an affidavit of service of the Bankruptcy Notice and search of court records affirmed by Timothy Paul Stott (“Mr Stott”) affirmed 4 August 2014;
c)two affidavits of final search of the National Personal Insolvency Index by Mr Stott affirmed 4 August 2014 and 5 August 2014 respectively;
d)an affidavit of final debt sworn by Mr Prior on 4 August 2014; and
e)an affidavit affirmed by Mr Stott on 5 August 2014 (“Mr Stott’s 5 August 2014 Affidavit”) confirming that he had spoken to the process server who had personally served relevant documents on Mr Simeon on 22 July 2013, and verily believed that Mr Simeon had been served with the creditors petition and an affidavit affirming the creditors petition.
The Court may make a sequestration order upon proof of the matters set out in s.52(1) of the Bankruptcy Act, subject to the jurisdiction to make sequestration orders under s.43 of the Bankruptcy Act and the conditions on which a creditor may petition under s.44 of the Bankruptcy Act being met.
Mr Prior, as petitioning creditor, is obliged to put before the Court affidavits:
a)verifying the petition: Bankruptcy Act, s.47(1); FCC (Bankruptcy) Rules, r.4.02;
b)as to search of the records of this Court and the Federal Court as to any application in relation to the bankruptcy notice: FCC (Bankruptcy) Rules, r.4.04(1)(a) and (2);
c)of service of the bankruptcy notice: FCC (Bankruptcy) Rules, r.4.04(1)(b);
d)of service of documents required to be served under the FCC (Bankruptcy) Rules, rr.4.05 and 4.06(2);
e)of search of the National Personal Insolvency Index no earlier than the day before the hearing date for the petition: FCC (Bankruptcy) Rules, r.4.06(3); and
f)of debt on which the creditor still relies as owing: FCC (Bankruptcy) Rules, r.4.06(4).
The Court may decline to issue a sequestration order if:
a)it is not satisfied with the proof of any of the above matters: Bankruptcy Act, s.52(2); or
b)it is satisfied by Mr Simeon that:
i)he is able to pay his debts: Bankruptcy Act, s.52(2)(a); or
ii)for other sufficient cause a sequestration order ought not be made: Bankruptcy Act, s.52(2)(b).
The Court is satisfied as to the matters required to be proved for the making of a sequestration order. Specifically, the Court accepts that there is:
a)an affidavit verifying the petition;
b)an affidavit of search of court records;
c)an affidavit of service of the bankruptcy notice;
d)an affidavit of search of the National Personal Insolvency Index; and
e)an affidavit of debt still owed.
In relation to the affidavit of service of relevant documents the process server was unable to swear the relevant affidavit prior to today’s hearing by reason of work commitments referred to in Mr Stott’s 5 August 2014 Affidavit. In the circumstances, the Court is prepared to waive compliance with regard to the affidavit of service of relevant documents to the extent necessary because the information contained in Mr Stott’s 5 August 2014 Affidavit is confirmed insofar as service of the relevant documents is concerned by the process server’s affidavit sworn 4 August 2013 in the proceedings before the Registrar which resulted in the making of the Sequestration Order: see the affidavit of Shane Hedley Shaw sworn 4 August 2013; and to which the Court may have regard on an application for review: FCC Rules, r.20.03(b).
A petitioning creditor who has made out the requirements set out above has a prime facie right to a sequestration order unless very special circumstances are shown to justify the Court departing from its usual practice: Re Sanders (2003) 1 ABC(NS) 408; [2003] FCA 1079 (“Re Sanders”); affirmed on appeal in Sanders v Knudsen & Yates trading as the Hargreaves Practice [2004] FCAFC 305 at para.14 per Whitlam, Branson and Sackville JJ. No special circumstances arise in this case. For reasons set out above, there is no proof before the Court that Mr Simeon is able to pay the debt referred to in the petition. The test of solvency is not whether Mr Simeon’s assets exceed his liabilities, but whether, looking at all of his financial circumstances, he is able to utilise such cash resources as he can command through the use of his assets to meet his debts as they fall due. Even where assets exceed liabilities it is possible to find that a person is not able to pay their debts within the meaning of s.52(2)(a) of the Bankruptcy Act: Re Sanders; Re Lakatos; Ex parte Lakatos v Deputy Commissioner of Taxation (1996) 33 ATR 145. Mr Simeon has to prove that assets are available to be realised and capable of ready realisation likely to result in payment of the debt within a reasonable time: Re Sanders. There is no such proof before the Court. There is therefore no basis for the setting aside of the Sequestration Order or the dismissing of the creditors petition on the basis that Mr Simeon is able to pay his debts.
There will therefore be orders that:
a)to the extent necessary, the Court waives compliance with rr.4.02, 4.04, 4.05 and 4.06 of the Federal Circuit Court (Bankruptcy) Rules generally and in relation to affidavits filed by the respondent on 4 and 5 August 2014, with the Court also granting leave to file those affidavits on 4 and 5 August 2014.
b)the applicant’s application for review filed 7 October 2013 be dismissed;
c)the sequestration order made by Registrar Jan on 16 September 2013 be affirmed; and
d)the respondent’s costs of this application, including reserved costs, be taxed, if not agreed, by a Registrar of this Court under Part 40 of the Federal Court Rules 2011 (Cth) and paid out of the estate of the bankrupt, Nicholas Simeon, in accordance with the Bankruptcy Act 1966 (Cth).
I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Judge Antoni Lucev
Associate:
Date: 6 August 2014
0
15
7