Star v Green
[2009] FMCA 612
•18 June 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| STAR v GREEN | [2009] FMCA 612 |
| BANKRUPTCY – Application for annulment of sequestration order – liability of director for insolvent trading – no grounds for going behind default judgment – claimed indebtedness of company not wholly disproved – no evidence that sequestration order ought not have been made – delay in seeking annulment – discretionary reason for refusing annulment – challenge to actions of separate trustee for sale of home appointed by Supreme Court – not within Court’s jurisdiction – application refused. |
| Bankruptcy Act 1966 (Cth), ss.52, 153B, 154, 178 Conveyancing Act 1919 (Cth), 66G Corporations Act 2001 (Cth), ss.95A, 588G, 588H, 588M |
| Cumins v Deputy Commissioner of Taxation (2008) 172 FCR 425 Davidova v Murphy [2009] FCA 601 Miller v Bondi Securities [1994] FCA 1304 Rigg v Baker (2006) 155 FCR 531 Sutherland v Hanson Construction Materials Pty Ltd (2009) 254 ALR 650 Wolff v Donovan (1991) 29 FCR 480 |
| Applicant: | REBECCA JANE STAR |
| Respondent: | MARTIN JOHN GREEN |
| File Number: | SYG 455 of 2009 |
| Judgment of: | Smith FM |
| Hearing date: | 18 June 2009 |
| Delivered at: | Sydney |
| Delivered on: | 18 June 2009 |
REPRESENTATION
| Counsel for the Applicant: | In Person |
| Counsel for the Respondent: | Mr P Raupach |
| Solicitors for the Respondent: | Searle & Associates |
ORDERS
The application for annulment and other orders is dismissed.
The respondent creditors’ costs, including all reserved costs, be taxed and paid from the estate of the applicant bankrupt in the priority fixed by s.109(1)(a) of the Bankruptcy Act 1966 (Cth).
The respondent must serve a copy of this order on the trustee and the Official Receiver in Sydney within 2 days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 455 of 2009
| REBECCA JANE STAR |
Applicant
And
| MARTIN JOHN GREEN |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
Ms Star applies for the annulment of a sequestration order which was made against her estate on 23 March 2007, based on a liability arising from her involvement in a failed business. She now belatedly challenges that indebtedness, and also challenges actions of her trustee in bankruptcy which attempt to realise her equity in her family home.
She and her husband, Mr May, were directors of a company, Staymar Pty Ltd (‘Staymar’), which conducted the business of a Midas Car Care System franchise located at Mona Vale from June 2003 until around September 2004. Staymar was placed in liquidation on 7 June 2005, on a creditor’s petition of GIO Workers Compensation NSW Pty Ltd.
Ms Star and Mr May completed directors’ questionnaires concerning the affairs of Staymar and the reason for its insolvency, and Mr May was examined at a public examination on 1 and 14 June 2006. In Mr May’s responses to the questionnaire, he said: “I ceased trading for a number or reasons, but I first realised I had a problem about one month after commencing trading”. He gave the following causes of the failure of the company:
A lack of customers, whether I could have survived even with customers is moot, but this was caused by a lack of advertising. Another cause of failure was attempted extortion by the Master Franchisee which had an extremely deleterious effect on the health of both myself and my wife. It became apparent after even 6 weeks that there was a problem, and after 3 months that it was critical however I was far too stupid to give up.
In his evidence under examination, Mr May was asked when the trading losses of $115,000 were incurred. He said: “I’d say the situation got worse and worse. I mean it’s, in fact I think the first month I might have even made a profit but that was the last time I did.” Ms Star claimed in her questionnaire responses that she had, in effect, taken no part in the management of Staymar, but had trusted her husband to manage the business.
In their questionnaire responses and Mr May’s evidence, they claimed to have no financial records of the company. Mr Star said they “were set fire to or covered in oil and destroyed … about two months before I closed”. His questionnaire suggested this occurred in a “break-in & vandalism at the Mona Vale shop”.
The liquidator of Staymar is Mr Green, and in that capacity he was the petitioner for the sequestration order against Ms Star and is the respondent to the present annulment application. He commenced proceedings in the District Court in September 2006 against Mr May and Ms Star under section 588M of the Corporations Act 2001 (Cth), alleging that as directors they contravened section 588G by being aware, or being in a position where a reasonable person would be aware, that the company was incurring debts in a situation where it was insolvent at the time, and by failing to prevent that insolvent trading.
The pleading of the statement of claim was not very detailed, but it identified the incurring of five outstanding debts by Staymar between June 2003 and June 2005. These were debts to GIO Workers’ Compensation (NSW) Ltd of $6,138.82, Energy Australia of $231.90, Midas Australia Pty Ltd of $45,870.74, Abbott Tout solicitors of $19,283.84, and counsel's fees of $3300. A default judgment based on these pleaded liabilities was entered against Ms Star on 8 November 2006 in the sum of $86,872.81, including interest.
A bankruptcy notice was issued against Ms Star based upon that judgment. This was deemed to have been served by post in accordance with Bankruptcy Regulation 16.01(a), and gave rise to an act of bankruptcy on 28 December 2006. There was no action taken at that time by Ms Star to set aside the bankruptcy notice. She claims now not to have been aware of it at the time. Assuming, without deciding, that this was the case, I can see no reason now for deciding that the notice was not deemed to have been validly served under reg.16.01(2)(a), nor for doubting the existence of the act of bankruptcy relied upon in the petition.
Mr Green’s petition against Ms Star based upon the same judgment debt was filed on 19 January 2007, and was listed for hearing before a Registrar on 23 March 2007. The Registrar was satisfied as to all the requisite matters, including due service of the petition and the bankruptcy notice, and made a sequestration order in the absence of any opposition by Ms Star. The sequestration order was made on 23 March 2007 and a trustee, Mr Warner, was appointed as trustee of her bankrupt estate.
Ms Star did not apply to set aside the registrar’s order, nor seek annulment when she was notified of the sequestration order. After some delays, she lodged a statement of affairs. Mr Warner received proofs of debt from Mr Green, and issued several reports to the creditors. These included a report of 4 September 2007, which predicted the possibility of a dividend of up to 94 cents in the dollar if Ms Star's equity in her home were realised.
Meanwhile, the District Court proceedings had continued as against Mr May. Although its course is not detailed in the evidence before me, there is evidence that Mr May filed a defence and the matter was listed before Truss DCJ on 8 June 2007. The evidence also suggests that a motion was also before the Court on that day, or at around that time, brought by Ms Star to set aside the default judgment against her. In circumstances which are obscure on the evidence before me, her motion was refused, and it appears that a default judgment was entered against Mr May upon claims in the total sum of $66,616.98. The lesser amount of the judgment against Mr May is explained by an amendment to the statement of claim which was filed in the District Court before Truss J on 8 June 2007. In the amended pleading, Mr Green removed from the list of then outstanding creditors, Abbott Tout, and the counsel's fees. The judgment against Mr May, therefore, encompassed only the debts of the company in relation to GIO, Energy Australia and Midas Australia. The inference which I would draw is that the other two creditors had been paid during the period between the two default judgments, but it is unclear to me as to when and how this occurred.
There is correspondence in the evidence before me showing that Mr May was fully aware of the District Court proceedings at that time, and that he attempted to represent Ms Star in her application to set aside the default judgment against her. The evidence is obscure as to the extent to which he actively defended the proceedings before Truss DCJ on 8 June 2007. In any event, I am satisfied that he probably had a full opportunity to present their defences on that day in relation to the allegation of insolvent trading.
Ms Star's statement of affairs in her bankruptcy was lodged on 8 August 2007. As I have indicated, Mr Warner subsequently advised creditors that a dividend would be payable if Ms Star's equity in her home were realised. Mr Warner, then applied to the Supreme Court of New South Wales under section 66G of the Conveyancing Act 1919 (Cth) for the appointment of a trustee for sale, and an order for this was made on 11 March 2008. Mr May was joined as defendant to that application, but it is unclear what, if any, opposition he made.
The Supreme Court order appointed Mr Reidy, and not Mr Warner, as the statutory trustee to conduct the sale. There is evidence that he explored the possibility of a consensual sale of the family home to a purchaser presented by Ms Star and Mr May, and that negotiations for the sale proceeded with that person until, for reasons which are obscure on the evidence before me, he withdrew his willingness to buy the home. Ms Star makes criticisms of the requirements which had been raised by Mr Reidy, which she claims discouraged the prospective purchaser. The full circumstances of this are unclear to me on the evidence and, as I shall explain, I do not consider that the present proceedings provide any vehicle by which Ms Star can challenge the actions of the trustee for sale appointed by the Supreme Court of New South Wales.
The current state of affairs in relation to the sale of the family home under the trust for sale is obscure on the present evidence. However, there is no evidence before me of any particular decision made by Mr Warner in relation to the sale of the home, which is under attack by Ms Star, other than his original decision to apply to the Supreme Court for the appointment of a trustee of sale.
The collapse of the negotiations for sale of her home seems to have spurred Ms Star into bringing her present application for annulment and other orders. This was filed on 26 February 2009. It was brought by Ms Star without any apparent legal assistance, and she has throughout the proceedings sought to represent herself.
This has had the consequence that the proceedings had to be conducted in a somewhat informal fashion. I gave Ms Star considerable latitude in the receipt of documents tendered by her, but at the end of the day her case remains somewhat confused in relation to its contentions and evidence. Her submissions completely lacked any reference to the relevant provisions of the Bankruptcy Act, the Corporations Act, and the Conveyancing Act.
The orders sought in the application are:
Final Orders Sought by the Applicant
1.Annulment of the bankruptcy on the grounds that it should not have been made in the first place.
2.The family home not be sold under any circumstance and its residents be made homeless.
3.That no “order for costs” be made against Rebecca Jane Star.
Interim Orders Sought by the Applicant
1.That all current proceedings to sell the bankrupt estate of Rebecca Jane Star be suspended immediately.
2.In particular, that instruction to file a statement of claim in the Supreme Court of NSW seeking possession of the property (the bankrupt estate 2115/7/5) not be granted.
In her closing submissions, Ms Star, claimed that this Court should make an order that the Supreme Court order appointing a trustee for sale should be "repealed". She also reformulated the third order so as to seek positive orders requiring Mr Warner or Mr Green to carry all the costs in the administration of the bankrupt estate, which she referred to as an order "reassigning" the costs.
In relation to Ms Star’s challenges to the sale of the family home by the trustee for sale, there are obvious difficulties facing the making of the orders which she seeks, or orders having that effect. The trustee for sale is not a party to the proceedings in this Court, and this Court has no supervisory jurisdiction over his conduct as a trustee under the order of the Supreme Court. This Court obviously has no jurisdiction to conduct any proceedings by way of review or appeal from the Supreme Court order. The making of that order, and the supervision of its execution, are within the jurisdiction of the Supreme Court, not this Court.
The only jurisdiction which I could identify in this Court to give orders relating to the sale of the family home would be pursuant to its powers to review the conduct of Mr Warner under section 178 of the Bankruptcy Act. This requires the applicant to identify a bankruptcy trustee's decision with which complaint is made, and the application to be made “not later than 60 days after the day on which the person became aware of the trustee's act, omission, or decision”.
As I have indicated above, the only action of Mr Warner that I can identify Ms Star as obliquely complaining about is his decision to apply for an order under section 66G of the Conveyancing Act for the appointment of a trustee for sale. However, I can discern no grounds for doubting the wisdom or necessity of that application in the context of Ms Star's bankruptcy. I can, therefore, find no grounds for reviewing that decision, even if there were reasons why I could overlook the failure to challenge it within 60 days after the date of the relevant decision.
Considering all of Ms Star's submissions to me concerning the sale of her home, she has failed to persuade me that there is any order which this Court could appropriately make, which would interfere with the performance of either Mr Warner or Mr Reidy of their obligations arising respectively under the sequestration order and the Supreme Court order.
Turning to the application for annulment, the Court's power to annul a sequestration order is conferred by section 153B of the Bankruptcy Act. This requires the Court first to be “satisfied that a sequestration order ought not to have been made” and secondly, if it is so satisfied, to exercise a discretion to “make an order annulling the bankruptcy”.
The principles upon which this two stage decision is to be made have been discussed in many authorities. I was referred today to the judgment of Beazley J in Miller v Bondi Securities [1994] FCA 1304 at [19]-[20], where her Honour said:
It is clear, both from the language of s153B and the authorities, that the court has a discretion as to whether or not to annul a bankruptcy. In Re Frank; Ex parte Piliszky (1987) 16 FCR 396 Fisher J, in dealing with s154(1)(a) of the Bankruptcy Act (which relevantly is in the same terms as s153B), stated at 403, after reviewing the authorities:
An order should not be annulled unless the judge was in the circumstances bound not to make it and even then there is a residual discretion not to annul.
In Re Williams (1968) 13 FLR 10, the court was concerned with a misleading statement in the affidavit verifying the petition, namely, an assertion that, the statements in the petition were within the deponent's own knowledge true, when this was not the case. Gibbs J said at 23 (also dealing with s154):
Section 154(1) provides that where the court is satisfied (inter alia) that a sequestration order ought not to have been made the court may make an order annulling the bankruptcy. Under this section there are two matters which the court has to consider, first, whether a sequestration order ought not to have been made, and then, if the court is satisfied of that, whether in the exercise of the court's discretion the order should be discharged (see Delph Sing v Wood [1918] HCA 69; (1918) 25 CLR 497 at 498, per Street J whose decision was affirmed by the High Court). 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 (Re Cook (1946) 13 ABC 245 at 249). 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. (Delph Sing v Wood at 498-9; Re Lawson (1939) 11 ABC 137 at 139).
His Honour concluded, at 24, that on the evidence before him, the statements were in fact true and stated: "(i)f the matter is viewed in the light of the evidence that has been placed before me as well as in the light of the affidavits placed before (the trial judge) it seems to me that it cannot be held that the sequestration order ought not to have been made." Other factors which his Honour took into account in the exercise of his discretion in refusing to annul the bankruptcy were that the bankrupt had delayed for a period of over two years before making the application for annulment and had not placed any evidence before the court to show that he was solvent. Further his Honour stated at 25 “In all the circumstances of the case, even if it were right to say, contrary to the view that I have formed, that the sequestration order ought not to have been made, I would in the exercise of my discretion refuse this application for annulment”.
More recent cases have referred to the same authorities, and have isolated the same principles (see, for example, French J in Rigg v Baker (2006) 155 FCR 531 at [59] and following paragraphs, and Flick J in Davidova v Murphy [2009] FCA 601).
I now turn to consider whether, taking into account such evidence as is now before me as to Ms Star's circumstances in March 2007 at the time of the sequestration order, the Court would have been “bound” not to make the sequestration order.
The evidence and submissions of Ms Star fail to persuade me that this was the case. Essentially, she argued that the Court would be bound not to accept the affidavit of debt which was then before the Court. This relied upon the District Court default judgment against Ms Star, and asserted that “the amount of $89,027.71 is owing” by Ms Star to Staymar Pty Ltd (in liquidation) and Mr Green, being the petitioners.
Ms Star’s evidence and submissions attack that assertion, and invite the Court to go behind the default judgment from two angles. The first challenged whether any liability under section 588G of the Corporations Act could properly be found against Ms Star at that time. The second, challenged whether a liability in the amount of the default judgment and the petition existed at that time, assuming some liability for insolvent trading could arise.
In relation to liability under 588G, I am far from satisfied that Ms Star’s evidence and submissions to me have raised even grounds for a Bankruptcy Court to exercise it's preliminary discretion whether to “go behind” a default judgment. The principles in relation to this were set out in Wolff v Donovan (1991) 29 FCR 480 at 481-482 and 495-487, which cite the well known authorities.
The evidence before me includes the affidavit of Mr Green, as liquidator of Staymar, which was before Truss DCJ in June 2007 in the proceedings that continued in the District Court against Mr May, after default judgment was entered against Ms Star. It attached the directors’ questionnaires and Mr May's evidence in his public examination, including his statements about the failure of Staymar which I have extracted above. His statements clearly supported Mr Green’s opinion that the company’s financial position was such that it was trading while insolvent by the end of the relevant period, and also that this state of affairs had existed probably many months previously, if not from soon after the inception of the business. On this evidence alone, I would be unwilling to re-open the issues of insolvent trading under the Corporations Act. Mr Green’s opinion as liquidator was also before the District Court, which was that the company was trading while insolvent since 18 June 2003, and he referred to evidence supporting that opinion.
I do not consider that Ms Star has now raised any sufficient doubt about Mr Green’s evidence, which would have justified a Bankruptcy Court in March 2007 going behind the default judgment. I certainly do not consider that it was ‘bound’ to have done that.
Ms Star referred me to the fact that, at the end of its trading life, the company still had an un-drawn bank facility in the region of just under $10,000. However, this was obviously insufficient to meet the debts then outstanding, and there is no evidence showing a prospect that Staymar would have been able to repay its bank borrowings from its own income or resources. Ms Star also suggests, without satisfactory evidence being presented, that the directors’ personal assets might have exceeded any indebtedness of Staymar.
Insolvency for the purposes of section 588G adopts the definition in section 95A of the Corporations Act. This has been considered in many cases, including recently by Barrett J in Sutherland v Hanson Construction Materials Pty Ltd (2009) 254 ALR 650. His Honour said:
[11] The emphasis must be upon the extent of cash and other liquid assets compared with the quantum of debts due and payable and to become due and payable in the immediate future. Insufficiency of cash or liquid resources to pay those debts is indicative of insolvency. The insufficiency becomes determinative if it is shown that it is more than a temporary lack of liquidity. In essence, there is a question whether the inability to pay is purely temporary.
Clearly, the focus is upon the cash and liquid assets of the company, and not the assets owned by its directors personally, absent any legal obligation on their part to make personal assets available to a company or its creditors. As Barrett J also explained, a range of considerations can come into play before concluding that the company was trading while insolvent. However, the evidence before me does not satisfy me that there was good reason to doubt that a liability on Ms Star arose under s.588G of the Corporations Act, so as to provide a foundation for the default judgment against Ms Star.
Nor do I consider that the evidence now before me raised sufficient substance for possible defences under section 588H of the Corporations Act being available to her, if the matter had been defended in the District Court. Ms Star's responses to her director’s questionnaire excluded the possibility that she had reasonable grounds to believe the company was trading solvently. Whilst it might be understandable for her to have preferred to have pursued her career in teaching, and to have trusted Mr May to manage the company, I do not consider that this attitude could have absolved her from her duties as a director. I do not, therefore, consider that she has raised a sufficient basis for pointing to defences being available under sub-sections (2), (3) or (5) of section 588H. Nor does her evidence establish that she had a ground of defence by reason of illness coming within s.588H(4). There is evidence that she suffers from an episodic illness giving rise to periods of incapacity, but the medical evidence about this points only to such episodes having occurred during the business life of the company for a short period in February 2002 and a shorter period in September 2003. It hardly provides an explanation for her failure to take part in the management of Staymar over the whole relevant period.
I therefore do not consider that Ms Star has been able to point to evidence which, if placed before the bankruptcy court in March 2007, would have been bound to have caused it to refuse to accept the liability for insolvent trading upon which the default judgment was based.
Turning to Ms Star's challenge to the quantification of her liability, essentially, it attempted to show that the default judgment was unsupportably inflated at the time that it was entered, and that the debt relied upon in the petition was similarly overstated as at the date of the sequestration order.
I accept that it is clear that subsequent to the making of the sequestration order, Mr Green acknowledged that the debts of Staymar owed to Abbott Tout and the barrister had been paid, at a time and from a source which is not revealed in the evidence. This is implicit in the subsequent amended statement of claim filed in the District Court, and from the judgment which was entered against Mr May in a lesser amount than the previous default judgment against Ms Star. However, there is no implication, from the evidence concerning this, that the indebtedness to these creditors did not exist at the time of the default judgment against Ms Star nor, indeed, at the time of the making of the sequestration order. The lesser amount of the judgment entered against Mr May does not, therefore, not support a conclusion that the Bankruptcy Court in March 2007 should have looked behind the affidavit verifying the debt relied upon in the petition on the ground that it overstated the indebtedness at that time.
Ms Star has not challenged the existence at some time of the indebtedness of Staymar to the lawyers. She does, however, now seek to persuade me that the indebtedness of Staymar to GIO, Energy Australia, and Midas Australia never existed, and should not have been recovered from her in the default judgment.
In relation to the GIO debt of $6,138.82, she points to assertions made by Mr May over a long period, challenging the claimed indebtedness of Staymar for the renewal of a workers compensation insurance policy for a period which extended beyond the operating life of the company. Over many years, he has asserted that “Staymar Pty Ltd ceased trading some months ago, and this policy was cancelled. It should not be renewed”. This was the assertion made in a facsimile dated 17 November 2004 to the GIO. However, the assertion was rebutted in January 2005 by GIO, on the ground that the procedures for cancelling the workers compensation policy had not been effected, including the completion of requisite forms verifying necessary information about employees and claims.
I am ready to accept that there was a dispute about the GIO claim at that time, and that this dispute may in the minds of Ms Star and Mr May still be on foot. However, the fact is that this claim by GIO must have been accepted by the Supreme Court when, on its petition, it ordered the winding up of Staymar and the appointment of Mr Green. I do not consider that sufficient evidence has now been put before this Court to cause it to doubt the acceptance by Mr Green of a proof of debt by GIO, and his recovery of that debt from the directors under the judgments of the District Court. I certainly am not satisfied that it was ‘bound’ to reject that part of the claimed indebtedness at the time that the sequestration order was made.
In relation to the small electricity account, there is conflicting documentation before me now. A proof of debt for the outstanding electricity account was lodged with Mr Green in the liquidation of Staymar, and this was accepted by him in the absence of any proper documentation from the directors of Staymar showing its payment. In this respect, I infer that Mr Green acted upon the statements of Mr May in his questionnaire and under oath at the public examination, asserting that no financial records remained in existence or in their possession.
In the course of the present proceeding, and notwithstanding the previous statements of Mr May, Ms Star produced to the Court a cheque book of Staymar which contains a cheque butt dated 7 December 2004, showing Energy Australia as a payee in the amount of $231.90. She submitted that I should accept that this cheque butt established the payment of the outstanding electricity account for which a proof of debt was accepted by Mr Green. However, there is no annotation to the cheque butt to indicate which account it related to, and I am not satisfied that necessary connecting evidence is before me now.
Even if there is such evidence, I do not consider that it would demonstrate that the Bankruptcy Court in March 2007 was bound not to make a sequestration order based upon the affidavit of indebtedness, which assumed that this amount was correctly included in the default judgment entered against Ms Star. As Beasley J pointed out in Miller (supra) at [26], where a Bankruptcy Court looks behind a default judgment to find out whether there was “in truth no debt at all’, it is not sufficient for the Bankruptcy Court to be satisfied that there was an overstatement of an indebtedness in the default judgment (see also Cumins v Deputy Commissioner of Taxation (2008) 172 FCR 425 at [8] and [10]). Her Honour applied this principle where the Court was dealing with an application for annulment on the ground that the judgment debt or part of it was not owing. I would respectfully agree with her Honour. I do not consider that Ms Star’s contention, even if it were well made, that the electricity account was wrongly included in the judgment obtained against Ms Star in 2006 should satisfy the Court in terms of section 153B(1) that the sequestration order ought not have been made.
Clearly, the major element of Staymar’s indebtedness recovered from the directors was the claimed indebtedness to Midas. Its proof of debt and supporting documentation given to Mr Green is in the evidence before me, as it was before the District Court. It encompasses numerous invoices for amounts which were presumably due under the various franchise agreements, relating to rent, provision of materials, and franchising fees owing by Staymar to Midas. The evidence before me does not raise any doubts about the existence of Staymar’s indebtedness on these accounts.
Nor does the evidence before me provide reason for looking behind that indebtedness, based upon assertions by Ms Star that she and Mr May and Staymar had counter claims against Midas in relation to the making and conduct of the franchising agreements. The basis for such claims is totally absent in the evidence before me. There is reference to there having been proceedings in the Supreme Court against Midas, and to such proceedings being unfinalised in 2006 and 2007. However, none of the pleadings in that matter are in evidence; none of the orders made in the course of their case management and finalisation are in evidence; there is no evidence suggesting that a favourable outcome was ever arrived at in favour of Ms Star and Mr May or their company; and there is no evidence suggesting that there ever was a prospect of an outcome which would have removed the indebtedness to Midas which was recovered from Ms Star in the default judgment.
For all the above reasons, I have concluded that Ms Star's submissions have not raised sufficient evidentiary foundation for looking behind the District Court default judgment, so as to find that there was no indebtedness which could have been recovered from her.
In relation to the other elements arising under s.52 of the Bankruptcy Act at the time of the making of the sequestration order in March 2007, I do not consider that Ms Star has raised any reason for concluding that the Court was bound not to make a sequestration order at that time based upon any formal defect in the proceedings. Nor is there any evidence before me suggesting that Ms Star was, at that time, able to pay her debts. Moreover, she has not established that she is now able to pay her liabilities currently owing, particularly since they now include the expenses of the administration of her bankrupt estate which have accumulated over the years since the making of the sequestration order (see s.154 of the Bankruptcy Act).
Insofar as Ms Star's submissions might suggest that the existence of potential cross claims against Midas might have provided “other sufficient cause” under section 52(2)(b), for the reasons I have given above, I am unpersuaded that these submissions have any foundation in the evidence before me.
Ms Star's submissions did not address the requirements of the Bankruptcy Act in relation to the making of sequestration orders or the requirements of section 153B. Her submissions ranged very widely, expressing her perception of unfairness in being made bankrupt, incurring the expenses of the bankruptcy administration, and of losing her family home. I have taken all her submissions of this nature into account. I have also given particular consideration to her protests that her husband at all times was more responsible for the failure of Staymar, and that he should be made responsible for its liabilities in preference to her. However, I do not consider that these considerations would have provided other sufficient cause for not making the sequestration order in March 2007, and I am certainly not persuaded that the Court would have been “bound” to have given those considerations that effect in the exercise of a discretion at that time.
For all the above reasons, I am not satisfied that Ms Star has established the foundation for the making of an order under section 153B of the Bankruptcy Act, because I am not satisfied “a sequestration order ought not to have been made” against Ms Star.
This conclusion means that I do not have to consider whether there are discretionary reasons for declining to annul the bankruptcy, if I were so satisfied. However, I note that powerful reasons for exercising my discretion against Ms Star would appear to arise from her delay in seeking to annul the sequestration order over a period of nearly two years.
As Beasley J said in Miller, when considering delay:
The need for there to be both finality and certainty as to the outcome of litigation, so that the affairs of interested and affected parties can be appropriately ordered, are powerful reasons why delay of the length involved here in bringing an application for annulment should militate against making an order for annulment. The delay must of course be considered in context, including in light of the applicant's personal circumstances. However, notwithstanding the distressing personal circumstances in which the applicant found herself at the time of and after the making of the sequestration order, I am of the opinion that the delay here was lengthy and is a factor which weighs against the exercise of the discretion.
Further discretionary factors would face Ms Star, including the absence of evidence of current solvency, and of her willingness and ability to pay the expenses of administration which, contrary to her protests, it appears to me that the Bankruptcy Act would require her to pay were the sequestration order to be annulled.
For the above reasons, I am not persuaded that Ms Star has established any relief which can be given for her grievances by this Court, and I consider it appropriate to dismiss the application.
That outcome, in my opinion, provides good reason for me to decline to make in her favour costs orders or orders in relation to the costs of administration, such as Ms Star seeks in paragraph 3 of her application.
In relation to the legal costs of this proceeding, Mr Green seeks his costs of actively opposing the application, and on an indemnity basis. It was not submitted that Ms Star was put on notice at any time that such an application would be made if she persisted with her application. It was, however, submitted that she should first, before coming to Court, have attempted to present her opposition to the making of the sequestration order to Mr Green and to Mr Warner, her trustee in bankruptcy, before commencing the annulment proceeding.
There is no clear evidence before me as to what correspondence before litigation was or was not exchanged between the parties. It appears to me that both Mr Green and Mr Warner were probably on notice of most of Ms Star’s contentions and complaints which I have ruled upon in the above judgment, before the commencement of the annulment application. It is not apparent to me that it was so obviously necessary for Ms Star to have engaged in some other communications before seeking annulment, in the absence of which she should incur indemnity costs.
I accept that Ms Star has genuine grievances which have not previously been put before the Court. It was not manifestly unreasonable for her to have applied to the Court for annulment of her bankruptcy in the face of the threatened loss of her home. I therefore would not order indemnity costs against her, although I consider that normal principles in relation to the costs of an unsuccessful application should be applied. I also consider it appropriate to order that these costs should be paid out of the bankrupt estate in the same priority as the costs of Mr Green in relation to his petition.
I certify that the preceding fifty-nine (59) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Michael Abood
Date: 3 July 2009
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