Symes v Holbrook (No.2)
[2004] FMCA 6
•8 January 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SYMES v HOLBROOK (No.2) | [2004] FMCA 6 |
| BANKRUPTCY – PRACTICE AND PROCEDURE – Application for annulment pursuant to s.153B of the Bankruptcy Act where sequestration order made upon debtors petition – matter remitted after appeal to Federal Court – whether solvency at date of bankruptcy was established – trustee’s costs. |
Bankruptcy Act 1966, ss.5(2), 99, 153A, 153A(6), 153B, 154, 154(2)
Bankruptcy Legislation Amendment Act 2002 (Act No 131, 2002)
Symes v Holbrook (2003) FCA 96
Symes v Holbrook (2002) FMCA 26
re: Coyle (1993) 42 FCR 72
re: Williams (1968) 13 FLR 10
Edelsten v Deputy Commissioner of Taxation (1989) 86 ALR
re:Scott (1975) 6 ALR 558
re: Almassy (1999) FCA 1004
Borck v Williams (1994) 49 FCR 16
Nguyen v Official Trustee (2002) FMCA 330
Ivanhoe Grammar v Raschilla (2003) FMCA 30
| Applicant: | FREDERICK KEITH SYMES |
| Respondent: | KIM HOLBROOK |
| File No: | WZ 86 of 2001 |
| Delivered on: | 8 January 2004 |
| Delivered at: | Melbourne |
| Hearing Date: | 2 May 2003 |
| Judgment of: | McInnis FM |
REPRESENTATION
| Counsel for the Applicant: | Mr A.O.Karstaedt |
| Solicitors for the Applicant: | Leask & Co |
| Counsel for the Respondent: | Mr A.F. Carles |
| Solicitors for the Respondent: | Carles Solicitors |
ORDERS
The Applicant’s Bankruptcy Number 803 of 2000 be annulled pursuant to section 153B of the Bankruptcy Act 1966.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
WZ 86 of 2001
| FREDERICK KEITH SYMES |
Applicant
and
| KIM HOLBROOK |
Respondent
REASONS FOR JUDGMENT
(As corrected)
This is an application which has been remitted to this court after a successful appeal by the Applicant to the Federal Court arising from a judgment of this court dismissing the Application on 20 February 2002. In the Application to this court the Applicant had claimed the following:
“1.A declaration that the Applicant's bankruptcy No. 803 of 2000 be annulled pursuant to section 153B of the Bankruptcy Act 1966;
2. Further or alternatively in order that the proof of an alleged debt of $12,744.81 to be expunged pursuant to section 99 of the Bankruptcy Act 1966;
3.Such further or other orders the court may see fit.”
The Federal Court in a decision delivered on 28 February 2003 (Symes v Holbrook (2003) FCA 96) made orders that the appeal be allowed, that the order of this court made on 20 February 2002 be set aside and the matter remitted to this court for determination in accordance with the law.
The relevant statutory provisions of the Act are as follows:
“Section 153B:
If the court is satisfied that a sequestration order ought not to have been made or, in the case of a debtors 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.”
Section 99
"99(1) Where a creditor or the bankrupt considers that, by virtue of a decision of the trustee under subsection 102(1), (2), (3) or (4), a proof of debt has been wrongly admitted, he or she may apply to the Court for an order that the proof be expunged or that the amount of the admitted debt be reduced, and the Court may make an order accordingly."
Although s.99 has now been repealed by the Bankruptcy Legislation Amendment Act 2002 (Act No. 131, 2002) the repeal commenced on
5 May 2003. It should be noted however that before this Court and the Federal Court the primary issue agitated was the exercise of the Court’s discretion under s.153B of the Bankruptcy Act.
The factual background in this matter has previously been set out in my reasons for decision in my earlier decision (Symes v Holbrook (2002) FMCA 26) as follows:
“8.By way of background it does not appear to be in dispute that the applicant is a 52 year old plant operator who was married on 31 March 1985. He remained married and living with his wife Susan until her death by suicide on 16 March 2000. There are two children of the marriage, a daughter aged 16 and a son aged 11. The applicant had worked as a plant operator at the Argyle Diamond Mine in East Kimberley from June 1994 to 17 March 2000. He had worked since about mid 1998 on a rotating shift of four weeks at the mine and one week off.
9.During the marriage the applicant indicated that his wife had responsibility for running family finances. The applicant’s salary was paid into a joint account and it was the family’s sole source of income. As far as the applicant knew he and his wife had one major asset, namely a house a 4 Daly Court Leeming (the property) and it was subject to a mortgage to the ANZ bank which the applicant believed had an outstanding balance in or about 1997 or 1998 of about $50,000. The only other asset owned by the family of some significance was a time-share at the Silver Sands in Mandurah which had been purchased according to the applicant for $500 on 30 October 1992. There were two motor vehicles. As far as the applicant knew his income of $87,900 for the year ending 30 June 2000 was more than adequate to meet outgoings and living expenses of the family.
10.The tragic death of the applicant’s wife not surprisingly was described by the applicant as being “a shattering blow”. After the death of his wife the applicant became aware of a number of liabilities purportedly in joint names of himself and his wife or in his sole name and in his wife’s sole name. He gathered together information concerning the debts and found that the debts totalled approximately $300,000 in circumstances where he claims that this was approximately $220,000 more than he anticipated.
11.The Applicant’s wife died intestate. Amongst the outstanding liabilities were debts in relation to 26 credit cards. It is clear from the evidence that of the 26 credit cards only two could be verified as being legitimate and doubts arose as to the authenticity of the applicant’s signature on applications in relation to the other credit cards. It is now evident and seems to be accepted by the parties and indeed creditors that the applications for credit cards were the subject of forged signatures of the applicant and have ultimately been regarded as not his responsibility given the fraudulent circumstances in which the cards were issued.
12.After discovering the financial circumstances were in such a parlous state, the applicant contacted his accountant and after a number of hours of examining the material, was advised to seek the advice of the respondent who for the purpose of this application I accept is an insolvency expert to whom the applicant was referred.
13.The applicant met with the respondent at the respondent’s office on 14 April 2000. It is important to note that this was less than one month after the death of the applicant’s wife. The applicant states that he was then in a state of shock for a number of weeks and uncertain as to how to proceed. At the meeting on 14 April 2000 the applicant states that he told the respondent that the signatures on a number of the credit cards which were purported to be the applicant’s were not in fact those of the applicant. He indicated that the respondent advised him that it was likely the debt would be found to be his if the matter were to proceed to court. The respondent in his affidavit indicates that he does not recall whether the applicant claimed at that meeting that a number of signatures were not his. He disputes advising the applicant that it was likely the debt would be found to be his if the matter went to court and instead asserts that he told the applicant words to the effect that it was “unlikely that he would be able to prove the debts were not his in all instances given the time and cost constraints with which he would be faced and given the fact that he did not have any funds with which to pursue such claims”. The respondent indicates that at that time he formed the view that it was “likely that Mr Symes would still be insolvent even if he could prove some of his claims”.
14.A meeting of the creditors of the applicant was held on 15 May 2000. At that meeting the creditors failed to pass a resolution accepting the applicant’s Part X proposal and also failed to pass a resolution that the applicant file his own petition in bankruptcy. According to the applicant he was then advised to become bankrupt by the respondent and acting on that advice signed a debtor’s petition for bankruptcy on 15 May 2000. The statement of affairs for bankruptcy was in identical terms to the Part X statement of affairs which had been signed on 20 April 2000. The liabilities totalled $310,315 and assets totalled $253,888.
15.The applicant in his affidavit sworn 5 November 2001 asserts that after the meeting of creditors he was not given any written advice by the respondent. He does not seem to challenge however that he wanted the respondent to address claims being made against him by creditors. He asserts he was told by the respondent that it would cost too much to get a solicitor to investigate the matter of disputed claims and suggested at that stage he was not in a position to pay fees to a solicitor.”
It is useful to refer to the judgment of the Federal Court in Symes v Holbrook (2003) FCA 96 where the grounds of appeal before that court were stated to be as follows:
“11.There are four principal grounds of appeal relied upon. The first is that the Federal Magistrates was in error in not finding that the appellant’s debtor’s petition ought not to have been presented within the meaning of s 153B of the Act. Secondly, that he was also in error in not finding that the circumstances of the case justified the exercise of the discretion to make an order annulling the appellant’s bankruptcy. Thirdly, that he erred in his consideration of the matter having regard to particular circumstances and fourthly, that the evidence before the court justifies the exercise of the discretion to annul the appellant’s bankruptcy. The grounds in their content and presentation are closely interrelated.”
I otherwise adopt the reasoning of the Federal Court in the Appeal decision in relation to the issue of solvency as follows:
“17.Section 5(2) of the Act provides that a person is “solvent” if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable. Section 5(3) provided that a person who is not solvent is “insolvent”. The test of solvency reflects the well-known test in Sandell v Porter (1966) 115 CLR at 670 Barwick CJ. There it is stated that:
“the conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due with indicates insolvency.”
It is also useful to set out the reasoning of the Federal Court which in turn summarises the submissions similar to those made before this court and otherwise identifies issues which are now remitted to this court for further consideration. I set out the following:
“18. The submissions for the appellant that he was solvent at the time of the presentation or acceptance of his petition, so that it ought not to have been presented or accepted, start from the following facts:
Assets $253,888
Liabilities: $310,315Net deficiency: $56,427
The appellant contends that this should have been adjusted by off-setting the alleged debts from credit cards in the names of himself or the joint names of himself and his wife of which he had no knowledge. The result should then have been seen as:
Assets: $253, 888
Liabilities: $310,315
Less: $ 74,400
Total: $235,915Surplus: $17,973
19 That simple equation needs to be understood against the facts which were before the Federal Magistrate. In the trustee's report dated 22 October 2001 the following summary was given of the effect of the statement of affairs filed by the appellant:
Assets $ $ Cash at bank 3,838 Cash – Controlling Trustee 3,300 Household furniture and effects 6,500 Other Assets – Camera 250 Residence at 4 Daly Court, Leeming 230,000 Less: Due to Perpetual Trustees-Home Loan (194,000) 36,000 Sea-Doo Jet Ski 10,000 Less: Due to AGC (2,300) half share 7,700 3,850 Total Assets 53,738 Liabilities Unsecured Creditors (10-The bankrupt solely) (82,843) Unsecured Creditors (10-The bankrupt – joint with Mrs Symes Nil (31,172) Total Liabilities Nil (114,015) NET SURPLUS/(DEFICIENCY) $Nil ($60,277)
20. In relation to the creditors, the appellant stated in his affidavit that as a result of enquiries by him and others made on his behalf, "most of the creditors whose liabilities led to the bankruptcy now accept that I have no liability to them." He annexed a schedule of creditors' listings for both himself and himself and his wife jointly "with an indication in respect of each creditor as to their attitude to the apparent liability." The lists open themselves to the following analysis:
Total value of creditors on both lists: $111,871
List relating to appellant alone:
Total value: $80,699
Paid in full: $16,603
Written off by creditor: $30,294
Under consideration by creditor: $21,056
Not pursued by creditor: $12,744
List relating to appellant and wife jointly:
Total value: $31,172 (excluding mortgage on home)
Paid in full: $12,941
Not to be pursued by creditor: $10,309
Written off by creditor: $220
"no liability": $846"under consideration": $6,855
21. So far as it is recorded that a debt on the lists has been "paid in full," it should be noted that another avenue for annulment exists pursuant to s 153A if the trustee is satisfied that "all the bankrupt's debts have been paid in full..."
22. Counsel for the appellant relied upon the figure of $74,405 as the value of the debts which should not have been taken as part of the indebtedness of the appellant on the presentation or acceptance of the petition. This was constituted by a selection of 6 debts from the list relating to the appellant alone and one from the joint list. These debts may be analysed from the lists as follows (although the overall total differs slightly):
Written off by creditor: $30,294
"under consideration": $21,100"not to be pursued": $23,054
Before the Federal Magistrate were the claims by the appellant in his evidence that the debts had been dealt with in the ways claimed. Those claims were supported by copies of the correspondence with each creditor. Examination of the dates of that correspondence shows the position of the creditor so relied upon was the result of correspondence post-dating the date of bankruptcy (15 May 2000) by a considerable period. In other words, at the date of the bankruptcy the fact that debts were to be written off or not pursued was not known and so could not have been in evidence. The matters so relied upon by the appellant before the Federal Magistrate were not therefore matters which can assist him in his contention that the petition he brought "ought not to have been" presented or accepted. Had the appellant had the means to investigate the creditors prior to taking the step of lodging the petition, the case may have been different in that respect. Absent that, the case for annulment must be judged on the facts as they existed at the date of the act of bankruptcy as now known.
23. Other such factors in the evidence before the Federal Magistrate which did not assist the appellant's case for annulment included the following. The house property was estimated to be worth $230,000 but was stated as being subject to a mortgage of $194,000. It was properly open to inference on those facts that there was not any ability to borrow further against that property to achieve solvency at the time of bankruptcy. The trustee's report shows the jet ski was sold at auction for $6000 to that the alleged assets would be reduced by $4000.
24.There was the further evidence relevant to the appellant's capacity to raise cash resources that on 17 March 2000 he had left his employment at Argyle Diamond Mine so that he had a substantially reduced income at the date of the hearing.
25.Furthermore, at that date the appellant was indebted to the respondent for controlling trustee's fees for the Part X proposal which had not been accepted by creditors: Borck v Williamson (1994) 49 FCR 16 at 20, 21. The trustee's report shows outstanding fees of $12,920.34. The appellant has not shown that he was able to pay this debt at the date of bankruptcy.
26.There was additional evidence of the appellant's difficult financial position at the time of the bankruptcy hearing. He could not afford to commence payments to creditors of $119 per month. He was not then in a position to pay solicitor's fees.
27. However, there were three matters before the Federal Magistrate which had the potential to lead him to a different result to that which he reached.
28. The first was a report of a forensic document examiner who examined the signatures purporting to be those of the appellant on the application for Citibank Visa card from which arose a debt in the sum of $12,744.81. The examiner concluded there was no evidence that the questioned signatures of the appellant on the application for the card were written by him. The report of the examiner is evidence of the true facts which existed at the time of the occurrence of bankruptcy and so was required to be taken into account by the Federal Magistrate to the effect that the debt resulting from the use of the card could not have been the appellant's debt.
29.The credit cards the subject of the Federal Magistrates' finding in par 11 are in the same category. When he found that "it is now evident and seems to be accepted by the parties and indeed creditors that the applications for credit cards were the subject of forged signatures of the [appellant]" the Magistrate made a finding having the effect that debts resulting from the use of those cards were not the appellant's debts at the date of his bankruptcy. However, he did not make a finding on either the value of the debts to which the credit cards related or identify which of the debts in evidence were the product of the use of one of the forged credit cards. Either or both of those facts was a material fact to determining the effect of the exclusion of those debts from the liabilities of the appellant at the date of the bankruptcy and whether that resulted in the appellant having been solvent at that date.
30.There was a further area of material fact raised on the appeal. In his affidavit sworn on 10 September 2001 in support of his application for annulment the appellant gave evidence concerning the secured loan over the home. He said the house was encumbered to ANZ for about $50,000. It is apparent, however, that the position which has been accepted by the trustee is that referred to above which in turn accords with evidence given in relation to his secured creditors. The reasons of the Federal Magistrate do not address the conflict between the appellant's evidence and other evidence in this respect.
31. In my opinion it follows he was in error of law in ignoring relevant material in relation to the material fact of the forgeries as found by him, in assigning a value to them, in addressing the conflict in evidence concerning the housing and in then determining whether in all the circumstances solvency at the date of bankruptcy was established: Craig v South Australia (1995) 184 CLR 163at 179 considered and applied in Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323.
32. For the respondent it is submitted that it would be relevant in any event to the annulment of the appellant's bankruptcy that no provision has been made for payment of the trustees' fees: Almassy; Stankiewicz v Plata (2000) FCA 1185. Given that there is a statutory requirement for an annulment pursuant to s 153A, it is submitted that as a matter of discretion it should be a pre-condition to annulment pursuant to s 153B. It is said that if this were not done the respondent would have a prima facie entitlement to a sequestration order so that it would be futile to grant annulment in such circumstances. Submissions for the appellant contested this issue. Given that I consider the matter should be remitted to the Federal Magistrate for findings on the material facts to which I have referred, that issue would properly be argued before him and so should not be determined now.”
After the orders were made by the Federal Court a directions hearing conducted by this court permitted the applicant to file and serve any further affidavits consistent with the matters arising out of the appeal with the respondent likewise being permitted to file and serve any further affidavits he wished to rely upon. The matter then proceeded to a further hearing on 2 May 2003. At the further hearing the Applicant sought to rely upon affidavits sworn on 16 July 2002, 9 August 2002 and 24 April 2003. The affidavit sworn 16 July 2002 was a lengthy document which had in fact been prepared for the purpose of the appeal before the Federal Court. It had not been received by the Federal Court but was relied upon by the Applicant when the matter was remitted. The affidavit with annexures comprised 99 pages and was received by this court without objection by the respondent.
The Applicant further sought to rely upon an affidavit by Brian Waugh sworn 16 July 2002 which likewise had been prepared for the purpose of the Federal Court appeal but not received by that court. In addition, the Applicant sought to rely upon an affidavit of his father, Reginald Keith Symes sworn 23 April 2003, an affidavit of the Applicant's, mother Anna Elena Symes sworn 24 April 2003 and an affidavit of the Applicant's son Martyn Kane Symes, sworn 24 April 2003.
In his detailed affidavit sworn 16 July 2002 the Applicant refers to numerous documents relating to the following debts totalling $280,811.88:
a)ANZ Banking Group Ltd $10,616.81;
b)AMP Bank Ltd $1068.12;
c)Bank of Western Australia Ltd $21,056.60;
d)Citibank Centre $12,744.81;
e)GE Capital Finance $2732.29;
f)Westpac Banking Corporation $15,877.48;
g)Esanda Finance Corporation $10,398.11;
h)FAI Home Loans $188,086.17;
i)Tower Financial Services Group $220.48;
j)Bank of Western Australia $846.69;
k)AVCO Financial Services $6855.10;
l)Police and Nurses Credit Society Ltd $10,309.22.
In relation to each of those debts the Applicant deposed that in many instances the signatures on the application forms were not his signatures, nor did he authorise anyone to sign on his behalf. On many occasions he deposes that he was in fact working at Argyle Diamond Mine on the date which appears next to his signature. The Applicant does not produce any employment records to corroborate the assertion that he was working on the dates claimed in his affidavit.
It should be noted that a great deal of the material now relied upon by the Applicant appears to have been obtained by Brian Wall who deposed in his affidavit sworn 16 July 2002 that the documents forming annexures to the Applicant's affidavit of 16 July 2002 are “from my files which I provided to the applicant's solicitors on 12 June 2002.”
The deponent does not say when the documents were obtained or indeed whether they were available to be produced to the court at the previous hearing when the matter was heard at first instance.
The Applicant in paragraph 19 of his affidavit sworn 16 July 2002 states the following:
“The documents annexed to this affidavit were recently provided by Mr Brian Wall at my request. Mr Wall is a private investigator. I knew Mr Wall by reason of the fact that his daughter went to school with my son. In or about June 2000 I told Mr Wall about the difficulties that had arisen in relation to the debts the subject of this matter, and he agreed as a friend to assist me. At that time I had already gone into bankruptcy. Mr Wall contacted and corresponded with the various creditors. At the time of applying to annul my bankruptcy I did not tell my solicitor that Mr Wall might have further relevant documentation as I did not know that he required anything further for the purposes of the application.”
From the passage to which I have just referred I conclude that at least some of the documents now relied upon were available to the Applicant but not produced to the court, presumably for the reasons stated by the Applicant. I do not accept that the reason given is a valid excuse for the failure to produce documents at an earlier stage before this Court.
In his affidavit the Applicant in considering the FAI home loan refers to a five-page document from FAI Home Loans dated 19 February 1997 headed ‘Proposed Mortgage Loan’ containing details of proposed mortgage loan from FAI of $148,000 for the purpose of refinancing debts. He refers to the document being signed "F.K. Symes" on page 4 and states, "The signature appears to be mine." I take it from that acknowledgment that the signature is in fact that of the Applicant and he had signed the document in 1997 for the purpose of refinancing debts and raising a mortgage loan of $148,000.
Interestingly the Applicant then refers to a further document which appears to be related to the application for a loan from FAI which purports to be signed by him on the second, third and fourth pages.
He states:
“I do not believe that the signature on the second page is mine. However, the signatures on the third and fourth pages appear to be mine.”
No explanation is given as to why a signature would appear on two out of three pages in the same document as those of the Applicant whereas the signature on page 2, which the Applicant does not believe is his signature, has been inserted. Without the advantage of expert evidence it is difficult for the court to determine whether the Applicant's belief is well-founded in relation to the signature on page 2 of the document exhibited as FKS18, although it appears to be at least very similar to the signatures which are admitted as being those of the Applicant that appear at pages 3 and 4 of the same document.
The further document relating to FAI is a mortgage document (exhibit FKS21) which the Applicant concedes has his signature and is dated 24 February 1997. That signature is witnessed by a
“P. Trevean”. In another document, however, entitled Variation of Loan Agreement, which is a five-page FAI document marked exhibit FKS22, the Applicant refers to page 3 of that document purporting to have been witnessed by P. Trevean and increasing the amount of credit under the loan agreement by $50,000. Although stating that the signature on the mortgage document (FKS21) “appears to be mine”, the Applicant then further deposes that he did not recall signing the document and cannot explain how his signatures came to be on the document. He did not recall ever having met or spoken to any person by the name of ‘Trevean’.
Hence, there are two documents, one being a mortgage document (FKS21) where the Applicant claims "the signature appears to be mine" and another being a "variation of loan agreement" (FKS22) where the Applicant refers to the signature being one which purports to be his signature. Both are witnessed by ‘Trevean’. The first dated 24 February 1997 is not said to be executed on a date when the Applicant was not in Perth.
The evidence concerning the documents is somewhat unsatisfactory.
It relies to a large extent on material gathered over an unspecified period of time by a representative of the Applicant who apparently obtained documents which were not the subject of the hearing at first instance. The analysis of the documents seems to depend upon the Applicant's perception of whether the signatures appeared to be his signature rather than any expert evidence as to those signatures.
There is a lack of corroboration as to the Applicant's absence when the documents were allegedly dated and signed. Of course a date appearing on a document may not necessarily be the date when all parties signed the document.
A mortgage document dated 24 February 1997 contains the signature which the Applicant has stated "appears to be mine" and, as stated earlier, that signature is witnessed by Trevean. Despite acknowledging that the signature appeared to be the Applicant's, he then stated he had never met or spoken to any person by the name of Trevean though was unable to depose that he was not in Perth on 24 February 1997 when the mortgage document was signed and purportedly witnessed by Trevean.
A reasonable conclusion one might draw is that the Applicant has determined his whereabouts on specific dates when documents were executed and based upon that information has then decided whether the signatures on the documents were signatures of the Applicant or otherwise. This goes beyond the suggestion in evidence before the court on a previous occasion that the Applicant's signature had been forged on a number of credit card applications.
One of the inevitable consequences of permitting further affidavit material to be relied upon is that the Applicant has further time to reflect upon the material and then make other assertions of fact.
The affidavit of the Applicant sworn 9 August 2002 refers to the affidavit of the Applicant sworn 10 September 2001 and 16 July 2001 and seeks to clarify matters referred to in those affidavits.
It has been submitted by the Applicant that the bankruptcy should be annulled on the basis that the debtor was solvent at the time the debtor’s petition was presented. Reliance was placed upon the decision of Drummond J and re: Coyle (1993) 42 FCR 72 at page 77-78 and it was submitted that generally it would not be possible for a debtor to establish that his bankruptcy should be annulled on the ground the “petition ought not to have been presented” when it is clear at the time that he was insolvent. It was submitted that in that case the Court did not decide that the debtor seeking the annulment is required to positively establish that he was solvent at the time but rather on the converse basis that generally annulment will not be granted where it is clear that he was insolvent. It was submitted the exercise of the discretion to annul a bankruptcy is not restricted to the situation where the debtor positively establishes that he was not bankrupt at the time of presentation of his petition.
Reliance was placed upon the decision in the Federal Court in
re: Williams (1968) 13 FLR 10 where it was held that in considering on Application for annulment 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 known. It was submitted that the case for annulment need only be established on the balance of probabilities (see Edelsten v Deputy Commissioner of Taxation (1989) 86 ALR 257).Submissions made otherwise relied upon the affidavit material to which I have referred on the basis that the credit card debts were incurred fraudulently and the Applicant had no knowledge of other debts or the accounts to which they related to until after his wife’s death nor did he authorise the debts or indeed sign documentation relating to that material. The Court should therefore be hesitant to conclude that the Applicant is truly indebted in relation to any or all of those alleged debts. The total of the credit card debts is $74,405.33 which was submitted were incurred fraudulently and without the Applicant’s knowledge. In the further affidavit sworn 16 July with regard to the mortgage debt of $188,086.17 to FAI Home Loans it was submitted that whilst the Applicant’s signature does appear on the documentation relating to the initial loan of $148,000.00, it is noted the Applicant does not recall signing these documents and was unaware prior to his wife’s death of any mortgage to or any loans from FAI or Perpetual Trustees or any proposal for such mortgage or loan. It is clear that this submission is different to the other submissions concerning forgery and/or fraud. For the present purposes, I accept and find that the Applicant’s signature does appear on the documentation and the amount of the loan of $148,000.00 is a debt properly incurred.
It was submitted that the extension of that loan by $50,000.00 to $198,000.00 has a signature purporting to be the Applicants but it is claimed his signature does not appear in the documents. I have some difficulty in accepting that evidence given the vague nature of the Applicant’s evidence in relation to the witness ‘Trevean’. In my view, it is proper to conclude in the absence of evidence being called from Mr Trevean that the Applicant did in fact duly execute both the mortgage and the extension of mortgage. I so find on the balance of probabilities in the present case.
Hence I am not prepared to find that the debt of $198,000.00 to FAI or Perpetual Trustees is not a debt properly due and payable by the Applicant. I am not prepared to accept as submitted by the Applicant that that debt should be treated as having been fraudulently incurred without the Applicant’s authorisation. I am prepared to accept however that the amounts owing on the credit cards and other debts being $74,405.33 and $18,320.38 respectively, making a total of $92,725.71 are not debts due by the Applicant but instead at the very least appear to be, prima facie, debts fraudulently incurred in the name of the Applicant.
If the amount of $92,725.71 is set off against liabilities reflected in the Trustee’s report then it makes the issue of solvency one which at least on the balance of probability having regard to the authorities to which the Applicant has referred arguable.
I have noted though do not place great weight on the affidavit evidence now produced in relation to the alleged capacity of the Applicant to borrow from members of his family at the time of presentation his of claim for bankruptcy. It seems to me that in the circumstances if that were truly the situation then the money would have been forthcoming at the critical time and indeed would have been forthcoming by now in order to make arrangements to discharge debts. In any event as I have indicated, I have not placed a great deal of weight on that material. Likewise the potential earning by the Applicant whilst difficult to assess, I am prepared to conclude that he had the capacity to earn had he chosen to do so in the amount of somewhere in the region of $87,900.00 per annum. I am satisfied that it is appropriate in considering the resources available to the Applicant that the Court could at least consider his income earning capacity which in the present circumstances would at least appear to be a realistic opportunity to earn at the time of presenting the petition.
The Respondent maintained the position of not opposing the Application for annulment and otherwise relied upon written submissions and made oral submissions before the Court. I accept that the relevant facts of those at the date of bankruptcy (see re:Scott (1975) 6 ALR 558). The authorities otherwise referred to by Nicholson J in the appeal decision to which I have already referred and in particular the decision of Mansfield J in re: Almassy (1999) FCA 1004 are applicable.
It was submitted on behalf of the Respondent that in assessing solvency the Court should have regard to the definition set out s.5(2) of the Bankruptcy Act and the Court should not simply apply a ‘balance sheet’, that is surplus over assets test. It was submitted and I accept that a person may be asset rich but income poor and therefore still be insolvent. It was submitted in the present case that the house property is estimated to be worth $230,000.00 which was subject to a substantial mortgage and there would be little or no ability to borrow further against the property. I accept that submission. The Applicant was a joint owner of that house with his late wife and it appears he becomes entitled to his wife’s half share by survivorship. I also accept that submission which is not an issue. At the very least it was submitted the Applicant shall take the wife’s half share subject to all encumbrances. Again in my view the matter is clearly open to the Court to conclude. It is unnecessary for me to further analyse the encumbrances issue given that I am not prepared to find on the material before me that the Applicant is not a valid joint signatory to the original mortgage and extension referred to earlier in this judgment.
It was submitted by the Respondent that in considering the income of the Applicant the Court should look at the actual income at the time rather than hypothetical income had he returned to work at the Argyle Diamond Mine. In my view that is too stringent and in the present case I am prepared to look at the Applicant’s income earning capacity at the relevant time as part of his financial resources as stated earlier.
A further factor which is relevant however is the issue of the indebtedness of the Applicant to the Respondent for the controlling Trustee’s fees for the Part X proposal which was not accepted by creditors (see Borck v Williams (1994) 49 FCR 16 at 20, 21).
The Trustee’s report showed the outstanding controlling Trustee’s fees of $12,920.34. It was submitted that the onus was on the Applicant to show he has able to pay these debts at the date of the bankruptcy. It was otherwise submitted that the Court should look into the financial position of the Applicant at the time he became bankrupt as he could not afford to pay $119.00 per month, could not afford to pay his fees to his solicitor and the bankrupt’s mother had advised him that he should have become bankrupt at the outset.
It was conceded by the Respondent that the previous affidavits relating to those matters are difficult to reconcile with the recent affidavit evidence including the evidence from relatives indicating that they were willing and able to lend money to the bankrupt at the relevant time.
Whilst I have serious reservations about the state of evidentiary material now produced at a late stage after appeal for the reasons given throughout this decision. Having analysed the material I am prepared to find notwithstanding the apparent inability or unwillingness of the Applicant to pay the Trustee’s fees and/or other expenses that on the balance of probabilities he was not insolvent at the relevant time. There is at least a capacity to realise the assets to which he had then been a joint owner despite the property being subject to a significant encumbrance and for the present purposes I am prepared to accept that he had a real income earning capacity at the relevant time.
Accordingly it is appropriate that I make the declaration sought pursuant to s.153B of the Bankruptcy Act.
The parties made further submissions in relation to the payment of the Trustee’s charges. The Respondent contended that it should be a precondition to the annulment that the Applicant pay the Trustee’s fees. The Applicant contests liability for the Trustee’s fees and refers to earlier affidavit material and asserts that there is a real issue on the material before the court as to whether the Applicant should be liable for the Trustee’s fees. That is a separate issue which the court should not be asked to resolve and this should be left to the Trustee if he so wishes to utilise the procedure under s.154(2) of the Bankruptcy Act to recover his charges.
The Respondent submitted the Trustee has a statutory entitlement to payment of fees and reimbursement of expenses and asserts in this case the Trustee has already waited three years for payment and should not be prejudiced by further delay.
The Respondent further submitted that there is a statutory requirement that a bankrupt must pay the Trustee’s fees in order to obtain a s.153A annulment (see s.153A(6)) and accordingly this should also apply to s.153B as a matter of the Court’s discretion. It was submitted that it is particularly important to require the bankrupt to pay the Trustee’s fees where there has been a delay in bringing the annulment application as the Trustee would have had to do ongoing work in administering the estate. Reference was made to two decisions of this Court in the matters of Nguyen v Official Trustee (2002) FMCA 330 and Ivanhoe Grammar v Raschilla (2003) FMCA 30 where it was submitted that these appear to be to the effect that a Trustee is sufficiently protected by s.154 if the annulment is granted. It was submitted that while s.154 may give the Trustee some protection the rights arising out of that section would be worthless in a case where the bankrupt has no assets and no financial capacity to pay anything to the Trustee.
In my view there is nothing in the present case which would persuade this Court to conclude s.154 of the Bankruptcy Act does not provide sufficient protection to the Trustee for the fees incurred if the annulment is obtained. If Parliament had intended to make it a requirement that the bankrupt should pay the Trustee’s fees in order to obtain an annulment under s.153B then it could have easily have done so as it had done in the case of applications under s.153A. It is not for this Court to speculate as to the prospects of those fees being recovered and it is relevant to take into account that there is some challenge made in relation to those fees which should properly be the subject of another hearing before another Court. Accordingly I reject the submission that an order should be made that the granting of the annulment be conditional upon payment of the Trustee’s fees.
It was further submitted by the Respondent that if the annulment was granted then at the very least the Court should make an order that the Applicant pay the Trustee’s costs of and incidental to the Application. That Application was opposed and the parties agreed that further submissions would be made in relation to the costs issue pending the outcome of this further hearing.
Accordingly subject to receiving further submission in relation to the issue of costs, the order I propose making will be as follows:
The Applicant’s Bankruptcy Number 803 of 2000 be annulled pursuant to section 153B of the Bankruptcy Act 1966.
I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 8 January 2004
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