Teese v Woodgate
[2004] FMCA 558
•8 September 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| TEESE v WOODGATE | [2004] FMCA 558 |
| BANKRUPTCY – Whether court should annul the bankruptcy of the Applicant under s.153B Bankruptcy Act 1966 – whether bankrupt was solvent at time sequestration order was made – whether application should be dismissed due to failure of the bankrupt to give notice to creditors of current application before the Court as required by FMCA Rules – whether debts can be satisfied out of bankrupt’s own resources – where bankrupt proposes to re-finance property – where no evidence provided that she would be able to do so and raise sufficient funds to repay all creditors – whether Court should order an inquiry into the conduct of the trustee. |
Legal Aid Act 1979 (NSW), s.57
Bankruptcy Act 1966 (Cth), ss.73, 153(B), 179
Federal Magistrates Court Rules 2001, R 35
Teese v Clinch Neville Long [2003] FCA 274
Woodgate v Vamoter & Anor [2003] FMCA 338
Re Gollan; Ex parte Gollan (1992) 40 FCR 38
Re Deriu (1970) 16 FLR 520
Insurance Manufacturers of Australia v Sherriff [2000] FCA 1505
| Applicant: | ANN CAROLYN TEESE |
| Respondent: | GILES GEOFFREY WOODGATE |
| File No: | SZ 1303 of 2004 |
| Applicant: | GILES GEOFFREY WOODGATE |
| Respondent: | ANN CAROLYN TEESE |
| File No: | SZ 1297 of 2004 |
| Delivered on: | 8 September 2004 |
| Delivered at: | Sydney |
| Hearing date: | 24 August 2004 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Solicitor for the Applicant: | D Knaggs |
| Counsel for the Respondent: | B Skinner |
| Solicitors for the Respondent: | Sally Nash & Co |
ORDERS
Proceedings No. SZ 1303/2004 and SZ 1297/2004 be dismissed.
The bankrupt give possession of the land known as 262 Clovelly Road, Clovelly being the whole of the land contained in Certificate of Title Folio Identifier A/417444.
The bankrupt vacate the premises known as 262 Clovelly Road, Clovelly on or before 15 September 2004.
Leave to issue a writ of possession on 15 September 2004.
The costs of both applications be costs in the administration of the bankrupt’s estate.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ 1303 of 2004
| ANN CAROLYN TEESE |
Applicant
And
| GILES GEOFFREY WOODGATE |
Respondent
SZ 1297 of 2004
| GILES GEOFFREY WOODGATE |
Applicant
And
| ANN CAROLYN TEESE |
Respondent
REASONS FOR JUDGMENT
On 16 October 2003 the bankrupt lodged an amended application for orders relating to the administration of her estate. The orders sought were as follows:
A1That all sales and other realisations of property in the bankrupt estate Administration No. NSW 40 (Ct file SZ 450/01), including sale by auction on 16 October 2003 or otherwise 3/39 Melrose Place Clovelly, be stayed until further order.
A2That the court inquire into the conduct of the Trustee of the Estate, Giles Geoffrey Woodgate.
A3That the Trustee not receive (or, if he has already received, that he personally or otherwise reimburse to the Estate) all fees and expenses since 9 May 2003.
A4That the Trustee be removed.
A5That by leave of the court the Bankruptcy be annulled.
A6Further or other Order.
A7That the Trustee pay the Applicant’s costs.
These orders were sought in proceedings SZ 1303/2004, formerly the Federal Court proceedings NZ311 of 2003. There are other proceedings under File No SZ 1297/2004 in which the respondent trustee seeks possession of land known as 262 Clovelly Road Clovelly being the whole of the land contained in Certificate of Title Folio Identifier A/417444 and that the bankrupt vacate those premises on or before 7 September 2004. A further order seeking leave to issue a writ of possession on 7 September 2004 was also requested.
Ms Teese had been made bankrupt by Order of the Federal Court of Australia on 20 August 2002. Mr Woodgate is her trustee. There have been numerous proceedings between the parties and also between the trustee and a mortgagee of the bankrupt’s property. The result of these proceedings is that the bankrupt’s estate, which originally consisted of two quite valuable properties in the eastern suburbs of Sydney, has now been severely diminished.
The property known as 3/39 Melrose Place Clovelly was ordered to be sold by me on 8 August 2003. On 16 October 2003 Sackville J dismissed an application to injunct that sale. The sale took place and so order A1 of the Application in Matter No SZ 1303/2004 is functus. The property at 262 Clovelly Road Clovelly has been transferred into the name of the trustee but according to his report to creditors (Exhibit 2 in these proceedings) it is required to be sold in order to pay a dividend to creditors and the trustee’s costs and charges.
At the commencement of the proceedings Mr Knaggs applied for an adjournment on the grounds that the bankrupt had sought legal aid and been refused but that the refusal was the subject of an appeal. There are provisions (s.57 Legal Aid Act 1979) in the New South Wales legal aid legislation for courts to grant adjournments where appeals against refusal of legal aid certificates have been lodged. For reasons which I gave at the hearing I did not believe that this was an appropriate case for an adjournment to be granted. Mr Knaggs then continued to represent the applicant on a pro bono basis for which the court extends its gratitude.
In order to understand the context in which these applications are made it is necessary to deal shortly with some of the history. On 29 October 2002 the bankrupt lodged an application for annulment of her bankruptcy. This application was withdrawn on 28 November 2002 before FM Driver. His Honour also ordered at that time that no further application for annulment be sought or granted without leave of the court. Paragraph A5 of the current application for annulment has added to it the words “by leave of the court”.
The applicant sought leave to appeal out of time from the decision of Driver FM. Leave was refused by Lindgren J on 28 March 2003 (Teese v Clinch Neville Long [2003] FCA 274). On 9 May 2003 the bankrupt put a proposal to her creditors. At the time the proposal was put the bankrupt had not completed her statement of affairs. She did complete that statement on 16 May 2003 some nine months after she had been declared bankrupt. The bankrupt had previously written to her trustee on 9 October 2002 in the following form:
“Dear Mr Woodgate,
On the 1st October 2002, in the Federal Magistrates Court the Magistrate, before adjourning my matter to the 29th October 2002, suggested that the matter should be settled between the parties.
A propos the discussions after Court and with this in mind, I made an offer to Clinch Neville Long to settle the matter as requested, in order to quit the bankruptcy.
My offer was rejected and I believe Clinch Neville Long have sent you a copy of my letter to them.
As discussed with you and with my friends on the 1st October 2002; and immediately after my application to set aside the Sequestration Order was adjourned to the 29th October 2002; I advised you that I intend to terminate the bankruptcy at the earliest possible time as I am not insolvent.
Would you establish from Clinch Neville Long exactly how much they claim to settle this matter.
Would you kindly advise me of your exact fees up and until 5pm Friday next.
On settlement of Clinch Neville Long and your account, I understand you are able to annul and finalise the matter forthwith.
I look forward to meeting with you to do so.
Please advise by return fax.
Sincerely,
Miss Ann Carolyn Teese”
That letter was responded to by the trustee on 11 October 2002 providing the applicant with information concerning his fees but noting that the matter could not proceed whilst she had not completed a statement of affairs. The arrangement which the bankrupt proposed in May 2003 was consistently put forward by her in these proceedings as being an arrangement to pay everyone 100 cents in the dollar. A close examination of the document, which is found as Exhibit E in her affidavit of 16 October 2003, indicates that the matter is not so simple. Firstly the arrangement requires the trustee to provide a final total of provable debts in the administration of the bankrupt’s estate. At the time the application was lodged this was impossible because the bankrupt had not filed a statement of affairs. The arrangement also required the trustee to do all things within his power to assist to complete a loan against the security of the unit at 3/39 Melrose Place and then went on to say:
“Upon settlement the trustee shall receive a bank cheque made out to the trustee’s trust account for the full amount of the provable debt as nominated in 1 above as full and final settlement of the provable debts.”
However, at the time the application was received there was doubt in the trustee’s mind as to the validity of the Vamoter mortgage.
The bankrupt lodged a statutory declaration with the application for annulment in which she listed her creditors. The list included the names of six creditors whose claims she disputed. In the final paragraph of the statutory declaration she says:
“I am again in the process of arranging funds to pay out all unsecured creditor’s claims as proved by the trustee and I am ready willing and able to do so within fourteen days of the receipt of the final payout figure from the trustee. Such a final payout will be made in full but under protest and without admissions so as not to prejudice my rights to later raise legal remedies in relation to any part of the final payment.”
It will be seen from the above why the bankrupt’s attempt to annul her bankruptcy in this way failed before a meeting of creditors on 29 August 2003.
The bankrupt has also made much of the fact that at the time the sequestration order was made against her she was solvent. Her claim for solvency is supported by her ownership of the two properties in Clovelly, although both were mortgaged. It is possible that if both properties had been sold at or around the time of the making of the sequestration order then all the bankrupt’s creditors would have been paid in full and a small amount of money would have been left over for the bankrupt. But this is not the definition of solvency. The bankrupt was unable to pay her debts as and when they fell due from her own funds or from funds which she was capable of raising on the security of her property within a reasonable time. She told me that one of her mortgagees, Vamoter Pty Limited, was prepared to lend her more money but when I asked her if she had requested further funds from them for the purpose of paying out the petitioning creditor prior to the sequestration order she informed me that she had not done so. The fact is that the bankrupt considered the debt to her former solicitors to have been improperly incurred and she was reluctant to make payment of it.
It should also be noted that the bankrupt made no attempt to appeal against the making of the sequestration order on the grounds of her solvency, relying instead in her application to Lindgren J in the purported error of the learned Federal Magistrate in not going behind the judgment. At [20] to [22] His Honour summed up the application:
“In the meanwhile, Ms Teese had appealed against the judgment of McClellan J in the State Bank proceeding to the New South Wales Court of Appeal. On 26 April 2002 Ms Teese served on Clinch Neville Long a notice of motion returnable on Monday 29 April 2002 before the Court of Appeal, making various complaints. On 29 April 2002 Handley JA struck out the motion in so far as it related to Clinch Neville Long and ordered Ms Teese to pay their costs.
On 2 August 2002 the FMC made an order extending the life of the creditor's petition and the further hearing of the petition was adjourned to 20 August 2002 and Ms Teese was directed to file an affidavit of means by 16 August 2002, which she failed to do.
On 20 August 2002 Ms Teese sought an adjournment of the hearing of the creditor's petition and a Registrar referred the matter to Driver FM. The transcript of the hearing before his Honour on that day is in evidence. His Honour heard submissions in support of the application for adjournment but refused the application, referring to fact that the creditor's petition had been before the FMC for more than twelve months. The hearing of the petition was, however, adjourned to 4.00 pm the same afternoon.”
On 21 July 2003 I heard the Vamoter proceedings (Woodgate v Vamoter & Anor [2003] FMCA 338). Judgment was handed down on 8 August 2003 the substantive order in which was:
“The court declares that the whole of the land contained in certificate of title Folio ID 3SP73113 being land known as 3/79 Melrose Place Clovelly (the “property”) shall vest in the applicant pursuant to s.58 of the Bankruptcy Act subject to an equitable charge securing the sum of $84,000.00 plus interest in favour of Vamoter Pty Limited ACN 003 442 813.”
Although the current application has been on the file since 16 October 2003 it is an application which suffers from a number of defects. Looking first at the application for annulment the grounds upon which this is sought have not been specified although they have been articulated today as based on the ground of solvency, this constituting a reason why the sequestration order ought not to have been made pursuant to s.153(B) of the Bankruptcy Act 1966 (Cth) (the “Act”). Whilst solvency is a ground, Re Gollan; Ex parte Gollan (1992) 40 FCR 38 proof of that status would have to be established. To my mind the bankrupt has not established that she was solvent at the time of the sequestration order. But the bankrupt has other problems. Firstly she has failed to comply with the provisions of Part 35 of the Federal Magistrates Court Rules 2001 and in particular with Part 35 Rule 35.03 providing notice to creditors of the application. This failing is to my mind fatal to the bankrupt’s application today. These are creditors who have already refused an application by the bankrupt under s.73 of the Act. There is no reason to believe that some or all of them would not have wished to have something to say about this application.
The court also has a discretion to grant an annulment Re Deriu (1970) 16 FLR 520 and the conduct of the bankrupt is something which the court could take into account. I must also be satisfied that all the debts can now be satisfied out of the bankrupt’s own resources – Insurance Manufacturers of Australia v Sherriff [2000] FCA 1505. The trustee has provided me with a report to creditors which indicates that due to the increasing level of costs incurred in the administration of the bankrupt estate he estimates that a dividend will not be paid to unsecured creditors unless an amount greater than $800,000.00 net is realised from the sale of the Clovelly Road property. According to the proof of debt register there is at the moment the sum of $746,174.22 secured on that property which would mean that it would have to realise a sum in excess of $1,500,000. I am not in possession of any evidence which would indicate that this will happen.
In all the circumstances I would not be prepared to annul the bankruptcy of Ms Teese under s.153B of the Act.
I have made reference to the sale of the property but Ms Teese made it clear to me in her evidence that she did not intend to sell. She believes she could raise a further mortgage on the property. In this regard she offered no evidence as to how she could fund the mortgage repayments, she is not employed. I am not satisfied that any mortgagee would lend such a substantial sum on the security of this property other than for a short period pending sale. Ms Teese has produced certain documentation from potential lenders but the amounts proposed are not sufficient to repay all creditors.
The bankrupt also seeks orders in the nature of orders under s.179 which is in the following terms:
“Control of trustees by the Court
(1) The Court may, on the application of the Inspector-General, a creditor or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following:
(a) remove the trustee from office; and
(b) make such order as it thinks proper.
(2) The Inspector-General or a creditor may at any time require a trustee to answer an inquiry in relation to the bankrupt's estate or affairs.”
As I read this section it is not appropriate to make an order removing a trustee from office without an enquiry. The bankrupt sought that I do that but I informed her during the course of the hearing that this was not a course I would take. Instead I sought from Ms Teese some indication as to why I should cause an enquiry to be made into the conduct of the trustee.
Ms Teese’s main complaint against Mr Woodgate revolves around his alleged refusal to deal with her offer to pay everyone out 100 cents in the dollar from a time shortly after the sequestration order was made. I am satisfied that Mr Woodgate was within his rights to insist that Ms Teese provide him with a statement of affairs before he could properly consider any proposal. Thus any delay which can be alleged against him is a delay between May 2003 and August 2003. Mr Woodgate was entitled to take steps to satisfy himself of the veracity of the bankrupt’s statement of affairs after she had belatedly filed it. That would have taken some time. He had to organise the meeting. He requested money from Ms Teese as security for the costs of the meeting which he was entitled to do. All in all it would be difficult for a court to come to the conclusion that any delay that had occurred was so reprehensible as to cause it to commence an enquiry into the conduct of Mr Woodgate on this ground. There is some evidence concerning Mr Woodgate’s charges. He requested from the creditors that he be paid at an amount 50% higher than his normal scale of fees (see minutes of meeting of creditors 29 August 2003 Exhibit C to affidavit of Ms Teese 16 October 2003). But I have no evidence of what Mr Woodgate’s standard charges are. They may well be considerably less than the IPAA rates. Without evidence it is not possible to reach a state of satisfaction than an enquiry is necessary.
I would not propose to make any orders under s.179 of the Act.
My determinations in relation to the 153B and 179 applications being determinations against the bankrupt mean that there are no grounds upon which the bankrupt can resist the orders in relation to the remaining property. It is well that the property be sold as soon as possible so that the maximum dividend can be paid to creditors. I would propose to dismiss the application filed on 16 October 2003. I will deal with the property as requested by the respondent in draft Short Minutes of Order which were put to me. The cost of both applications will be costs in the administration of the bankrupt’s estate.
I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Raphael FM
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