BANKRUPTCY AND INSOLVENCY – appeal from refusal by primary judge to annul bankruptcy pursuant to s 153B(1) of the Bankruptcy Act 1966 (Cth) – where bankrupt lodged debtor’s petition based on legal advice – where bankrupt did not demonstrate that debtor’s petition ought not to have been presented or accepted – where discretion to annul bankruptcy did not arise – where bankrupt failed to comply with s 77(1)(a) Bankruptcy Act 1966 (Cth) and provide books to trustee in bankruptcy – where bankrupt failed to disclose all relevant material with respect to her financial affairs – where bankrupt unable to demonstrate appealable error in relation to finding that she was not solvent – appeal dismissed
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Thompson v Lane (Trustee) [2023] FCAFC 32
Case
[2023] FCAFC 32
Decision Date
CaseChat Overview and Summary
The appeal in Thompson v Lane (Trustee) involved the bankrupt, Ms Thompson, seeking to overturn the primary judge's decision not to annul her bankruptcy under section 153B(1) of the Bankruptcy Act 1966 (Cth). The dispute arose from Ms Thompson lodging a debtor’s petition based on legal advice, with the primary judge rejecting her appeal due to her inability to demonstrate that the petition should not have been presented or accepted. Additionally, Ms Thompson did not comply with section 77(1)(a) of the Act by failing to provide books to the trustee in bankruptcy, Mr Lane, and did not disclose all relevant material concerning her financial affairs. The central issue before the court was whether the primary judge erred in finding that Ms Thompson was insolvent at the time her bankruptcy was declared and that there was no error in refusing to annul the bankruptcy.
The court found that Ms Thompson had not demonstrated any appealable error in relation to the primary judge’s finding of insolvency. The primary judge's opinion that Ms Thompson was insolvent was supported by substantial evidence, including Mr Lane's testimony that creditor claims exceeded the estimated recoveries in the administration. Ms Thompson did not provide expert evidence to contradict Mr Lane's findings, and the primary judge concluded that even on a generous assessment of her assets, the proceeds would have been insufficient to meet her debts. The court further noted that Ms Thompson's failure to comply with disclosure obligations undermined her position.
The appeal was dismissed, and Ms Thompson was ordered to pay the respondents’ costs of the appeal. This decision underscored the importance of compliance with statutory obligations and the requirement to provide comprehensive evidence to successfully challenge a finding of insolvency and the subsequent annulment of bankruptcy.
Orders
Orders of the court
1. The appeal is dismissed.
2. The appellant pay the respondents’ costs of the appeal.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Having regard to the grounds of appeal, the appellant failed to establish any error in the primary judge’s rejection of her central argument. This is for the following reasons.Evidence before the primary judge Mr Lane’s evidence before the primary judge was as follows (in summary):(1)the administration is to-date without funds, apart from a refund received in the amount of $930.00;(2)Mr Lane has received proofs of debt totalling $1,146,213 from creditors, with the largest being the body corporate in the amount of $820,479;(3)no determination has been made concerning the proofs of debt because no dividend has been gained;(4)Mr Lane has received copies of orders of the Federal Circuit Court whereby it was ordered that the body corporate’s costs in two proceedings (including the proceedings pursuant to its creditor’s petition) be paid with the same priority as if a sequestration order had been made against the appellant;(5)the mortgagee of the Hawthorne property has sold that property by public auction. On the best information available to Mr Lane, he estimates that there may be surplus proceeds from the Hawthorne property for the benefit of the administration of at least $348,750.00;(6)Mr Lane has obtained desktop appraisals of the Arila Lodge unit which is estimated to be valued between $645,000 and $760,000. The body corporate has made a claim that the outstanding levies, penalty interest and recovery costs totalling $549,711.49 are amounts owing on the unit to be paid at settlement of the sale of the unit, which has a similar effect to that of a secured debt;(7)Mr Lane has not identified any other avenues of recovery for the benefit of the bankrupt estate;(8)Mr Lane has not seen and the appellant has not produced any evidence that the Hawthorne and Toowong properties were readily realisable as at the date of her bankruptcy and nor has he seen any evidence that the appellant had any liquid funds available to pay her debts at that time. In his opinion, the appellant was insolvent as at 1 July 2020;(9)Mr Lane has incurred costs and outlays totalling $192,455.71 and has only been reimbursed $691.24 of that sum. This figure does not include the legal costs associated with appearing at first instance and in this appeal;(10)based on the information currently available to Mr Lane and his inquiries to date, the bankrupt estate is not solvent with the value of creditor claims exceeding the estimated recoveries in the administration;(11)Mr Lane estimated that the likely return to unsecured creditors would be between $0.17 and $0.4241 in the dollar. No expert evidence was adduced by the appellant to contradict Mr Lane’s evidence. Under cross-examination below, Mr Lane maintained the position that, based on the figures currently available, he was not satisfied that the appellant’s bankrupt estate was solvent. The primary judge agreed. At [84] J, his Honour stated:On the evidence, by the time when she signed her Bankruptcy Form on 26 June 2020 and when, shortly thereafter, the debtor’s petition portion thereof was accepted by an Official Receiver, Ms Thompson had already defaulted on borrowings from Suncorp Bank such that it had entered into possession of the Hawthorne Property. She was by then subject to multiple costs orders even the fixed components of which were, in the main, unpaid and she was greatly in arrears in amounts owed to BCAL. Her income was insufficient to meet even those debts. She was unable within any reasonable time, or even on the evidence at all, to borrow funds even to meet the amount specified in the bankruptcy notice. Even on a generous assessment of the equity she had in the Hawthorne Property and even assuming, also generously, that each of that property and the Toowong Unit might then have been sold within a reasonable time thereafter, the proceeds of sale would have been insufficient to meet her debts. She has certainly not proved otherwise. Even accepting, in light of s 153B(2) that an annulment order might be made even though she was insolvent when her debtor’s petition was presented, neither has she proved that the position is any better at present. …