The Trustee of the Property of James Tomaras, a Bankrupt v Tomaras

[2017] FCCA 2473

FEDERAL CIRCUIT COURT OF AUSTRALIA

THE TRUSTEE OF THE PROPERTY OF JAMES TOMARAS, A BANKRUPT v TOMARAS [2017] FCCA 2473

Catchwords:
BANKRUPTCY – Failure of bankrupt to file a statement of affairs – application to distribute dividends from bankrupt estate to proven creditors in accordance with Part VI of Division 5 of the Bankruptcy Act 1966 (Cth) – discretion of Court to make an order under s.146 of the Bankruptcy Act 1966 (Cth) – application allowed – orders made under s.146 of the Bankruptcy Act 1966 (Cth).

Legislation:

Bankruptcy Act 1966 (Cth), ss.54, 146, 161, div.5 of pt.VI

Federal Circuit Court Rules 2001 (Cth), r.7.01

Cases cited:

Re Shaw; Ex parte Official Trustee in Bankruptcy [1999] FCA 968
Re Sturt; Ex parte Official Trustee in Bankruptcy (2001) 117 FCR 1; [2001] FCA 1649

Applicant: THE TRUSTEE OF THE PROPERTY OF JAMES TOMARAS, A BANKRUPT

Respondent: JAMES TOMARAS

File Number: SYG 1947 of 2017

Judgment of: Judge Smith

Hearing date: 10 October 2017

Date of Last Submission: 10 October 2017

Delivered at: Sydney

Delivered on: 20 October 2017

REPRESENTATION

Solicitors for the Applicant: Ms H Hitch, Matthews Folbigg Lawyers

No appearance by or for the respondent.

ORDERS MADE BY THE COURT

1. Pursuant to s.161 of the Bankruptcy Act 1966 (Cth) (“the Act”) and r.7.01 of the Federal Circuit Court Rules 2001 (Cth), leave be granted to amend the name of the applicant to The Trustee of the Property of James Tomaras, a Bankrupt.

2. Pursuant to s.146 of the Act, the distribution of dividends from the bankrupt estate of the respondent, to the creditors which have proved their debts, proceed in accordance with Pt VI, Division 5, as if the bankrupt had filed a statement of his affairs and the creditors had been stated to be creditors therein.

3. The applicant’s costs of the application be paid from the estate of the bankrupt.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 1947 of 2017

THE TRUSTEE OF THE PROPERTY OF JAMES TOMARAS, A BANKRUPT

Applicant

And

JAMES TOMARAS

Respondent

REASONS FOR JUDGMENT

1. The respondent became a bankrupt on 15 December 2009 pursuant to a sequestration order made in this Court. On the same day, Roderick Mackay Sutherland was appointed as trustee of the respondent’s bankrupt estate.

2. On 21 June 2017, Mr Sutherland commenced these proceedings, seeking an order under s.146 of the Bankruptcy Act 1966 (Cth) (Act) that a distribution of dividends be made to the creditors of the bankrupt estate who have proved their debts, and an order that the costs of the application be paid from the estate of the respondent.

3. Mr Sutherland was subsequently replaced as trustee by Mr Stewart Free pursuant to an order of the Federal Court of Australia made on 28 June 2017. Mr Free continued the proceedings.

4. The respondent was served with the application and the affidavits relied on by Mr Free but did not appear at the hearing.

5. The hearing was conducted in the respondent’s absence and on that day I made the orders sought in the application, as well as an order changing the name of the applicant. These are the reasons for those orders.

6. Section 146 of the Act provides:

   Where a bankrupt has failed to file a statement of his or her affairs as required by this Act, the Court may, on the application of the trustee, upon such terms as it thinks fit, order that distribution of dividends amongst the creditors who have proved their debts shall proceed in accordance with this Division as if the bankrupt had filed a statement of his or her affairs and those creditors had been stated to be creditors in it.

7. The purpose of that provision is to give the Court the means of ensuring that the absence of a statement of affairs does not prejudice those with an interest in the bankrupt’s affairs: Re Shaw; Ex parte Official Trustee in Bankruptcy [1999] FCA 968 at [4]. In Re Sturt; Ex parte Official Trustee in Bankruptcy (2001) 117 FCR 1; [2001] FCA 1649 (Sturt), Sackville J found that that view of the purpose of s.146 of the Act was supported by other provisions in div.5 of pt.VI of the Act and continued, at [10]:

   … Section 140(1) of the Bankruptcy Act requires the trustee “with all convenient speed” to declare and distribute dividends amongst the creditors who have proved their debts. Section 140(2) provides that, subject to the retention of such sums as are necessary to meet the cost of administration or to give effect to the provisions of the Bankruptcy Act, the trustee shall distribute as dividends all moneys in hand. Section 145 provides that, when the trustee has realized all the property of the bankrupt, or so much of it as can be realized without needlessly protracting the trusteeship, he or she shall declare and distribute the final dividend. These duties are subject to certain conditions, such as the requirement in s 140(3) that, before declaring the first dividend, the trustee must give written notice of the intention to declare a dividend to anyone known to be a creditor, but who has not lodged a proof of debt. Nonetheless, the statutory scheme makes it clear that a principal object of the legislation is to ensure the distribution of dividends to creditors as soon as is feasible.

8. There are two issues that arise: first, whether the respondent has failed to file a statement of his affairs as required by the Act; and secondly, if so, should the Court exercise its discretion to make an order under s.146 of the Act? The answer to each question is yes.

First issue:     has the respondent failed to file a statement of his affairs as required by the Act?

1. Section 54 of the Act provides:

   Bankrupt’s statement of affairs

   (1)Where a sequestration order is made, the person against whose estate it is made shall, within 14 days from the day on which he or she is notified of the bankruptcy:

   (a)make out and file with the Official Receiver a statement of his or her affairs; and

   (b)furnish a copy of the statement to the trustee.

   Penalty: 50 Penalty units

   (Emphasis in original)

2. Shortly after his appointment as trustee, Mr Sutherland arranged for a draft statement of affairs to be sent to the respondent’s then known address. When that was returned to Mr Sutherland, searches were undertaken in order to establish any current address for the respondent. Further draft statements of affairs were sent to a number of addresses identified as a result of these searches; however, those drafts were also returned to Mr Sutherland.

3. Some time passed.

4. In November 2013 an employee of Mr Sutherland’s firm spoke to the respondent by telephone and obtained an email address from the respondent in order to be able to send him the draft statement of affairs. During the course of this conversation, the respondent revealed that he had been aware of the sequestration order for at least 3 years. The record of the conversation reveals that he told the employee that he had already filed a statement of affairs at the Court.

5. A draft statement of affairs was then sent to the respondent at the email address provided by him.

6. No completed statement of affairs has ever been furnished by the applicant to the trustee.

7. In those circumstances, I am satisfied that the respondent has failed to file a statement of his affairs as required by the Act.

Second issue:     should the Court exercise its discretion to make an order under s.146 of the Act?

1. In determining whether it is appropriate to make an order under s.146 of the Act, the Court must have regard to the circumstances of the case and bear in mind the purpose of the provision.

2. Matters which have been found to be relevant to this issue include:

   a)whether the creditors have been notified of the application and have had an opportunity to be heard;

   b)what steps have been taken to identify those creditors;

   c)the known assets in the estate; and

   d)whether the bankrupt has had the opportunity to address the issues.

3. The discretion under s.146 of the Act is not restricted to circumstances where the bankrupt has, through his or her own fault, failed to file a statement of affairs: Sturt at [14]. However, even if the discretion were so constrained, it would not matter in these proceedings. I am satisfied that the respondent knew about his obligation to file a statement of affairs but has deliberately failed to fulfil that obligation.

4. Mr Sutherland has given evidence by affidavit that details the following matters:

   a)his attempts to identify the creditors of the estate which include personal name searches, re-direction of mail, correspondence with the entities from whom mail he received as a consequence of the direction, consideration and rejection of one proof of debt from a de-registered company, and publication in an Australia-wide daily newspaper of the intention to declare a first and final dividend;

   b)one creditor lodged a proof of debt and was accepted by Mr Sutherland as the only creditor of the estate;

   c)the steps taken to identify and call in property of the estate. This included several properties that were the subject of Family Law proceedings in this Court. Numerous steps were taken to sell those properties and then to divide the proceeds in accordance with the interests held in them. Mr Sutherland deposed to holding $120,810.90 as a result of the sale of property and that this was sufficient to enable a dividend to be paid to the single creditor of the estate;

   d)the administration of the estate was complete except for the distribution of a dividend to the creditor.

5. In addition, evidence was given by an employee of the solicitor acting for the trustee, that she had personally served the respondent with the application, affidavits in support of the application, the orders of the Court transferring the matter to my docket and listing the matter for directions, and that she had served the orders setting the matter down for hearing by email.

6. I accepted all of that evidence and based my conclusion on it.

7. Finally, the creditor whose claim has been admitted has been notified of the application and the time and date of the final hearing. The creditor asked the trustee’s solicitors to ask the Judge “if we can just get this finalised.”

8. In those circumstances, I was satisfied that it was appropriate to make an order under s.146 of the Act and accordingly made the orders sought.

I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Judge Smith

Date:         20 October 2017