THREDGOLD v Fyfe Pty Ltd

[2013] FCCA 587

FEDERAL CIRCUIT COURT OF AUSTRALIA

THREDGOLD v FYFE PTY LTD [2013] FCCA 587

Catchwords:
BANKRUPTCY – Annulment application – judgment on which creditor’s petition set aside – discretion – application refused.

Legislation:  

Bankruptcy Act 1966, ss.12, 153B

Re Almassy (1999) 92 FCR 597
Drake & Anor v Jones [2009] FMCA 298
Layton v the Westpac Bank of Australia [2000] FCA 1752

Applicant: MARK THREDGOLD

Respondent: FYFE PTY LTD

File Number: ADG 40 of 2013

Judgment of: Judge Lindsay

Hearing date: 11 June 2013

Date of Last Submission: 11 June 2013

Delivered at: Adelaide

Delivered on: 13 June 2013

REPRESENTATION

Applicant: Self represented

Counsel for the Respondent: Mr Neate

Solicitors for the Respondent: Lynch Meyer

ORDERS

1. The Application filed on 26 February 2013 do stand dismissed.

2. The applicant pay the respondent’s costs of and incidental to this Application as agreed within twenty-eight (28) days or as taxed thereafter.

FEDERAL CIRCUIT COURT OF AUSTRALIA

AT ADELAIDE

ADG 40 of 2013 

MARK THREDGOLD

Applicant

And

FYFE PTY LTD

Respondent

REASONS FOR JUDGMENT

1. This is an application pursuant to s.153B of the Bankruptcy Act 1966 (“the Act”) under sub-section (1) which provides that if the Court is satisfied that a sequestration order ought not to have been made or in the case of a debtor’s petition that the petition ought not to have been presented or it not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.

2. The relevant date of the sequestration order is 3 September 2012.  The creditor’s petition was filed on 2 May 2012.  The bankruptcy notice was served in February 2012, and just to set the scene by the identification of other relevant dates, the judgment was entered by the creditor against the debtor in Magistrates Court proceedings in September 2011.  An application to set aside that judgment was made very shortly after the making of the sequestration order in September 2012.  On 25 January 2013 the Magistrates Court acceded to the application to set aside the judgment that had been entered and on 26 February 2013 the application for annulment was made to this Court.  The only other date perhaps I should note at this stage is 28 February 2013.  That was when, pursuant to leave given in January 2013 to the applicant in these proceedings, the respondent in the Magistrates Court proceedings, exercised the leave he had been given to file a counter-claim.  The counter-claim was in the amount of $572,900. 

3. The debt underlying the petition was in respect of fees said to have been incurred by the creditor in respect of survey or survey/engineering work provided to the debtor in respect of a development application.  The application for annulment is opposed by the creditor and in opposing it, at the time of registering its opposition in its Response, the creditor indicated that the reasons why the application for annulment was opposed were:

   a)Firstly, because the applicant was not solvent and I will come back to that in a moment and in particular as to the relevant dates for assessing the solvency of the applicant;

   b)That no arrangement had been made in respect of the petitioning creditor’s costs in respect of the obtaining of the sequestration order which costs were in the amount of approximately $7,000;

   c)That no arrangements had been made in relation to the trustee’s costs which rounding off in relation to the information that has been provided to me this afternoon are approximately $30,000;

   d)That there had been a lack of co-operation by the debtor in respect of the administration of the estate by the trustee; and

   e)the delay in the bringing of the application.

4. Perhaps I can begin with the last of the grounds of opposition first.  I am not able to identify any delay in the bringing of this application per se.  If the assessment of delay is made relative to the event of the sequestration order itself, the application was brought very shortly after the sequestration order was made and was made; on the debtor’s account, on account of information provided by the Registrar at the time of the making of the sequestration order.  The delay in bringing the application itself does not appear to me to be material but there are other delays associated with the matter that form the background to the present predicament of the debtor which, in my view are relevant and I will return to a discussion of those in a moment. 

5. The factor of the alleged lack of co-operation between the debtor and the trustee is not a matter that figures large in the exercise of my discretion.  There has been relatively little activity in terms of bringing of applications or issues arising requiring the co-operation of the debtor.  True it is that has been some level of non-disclosure or lack of candour by the debtor in relation to a debt owing to a solicitor, by the name of Robinson, but other than that there do not appear to be any issues of significance that go into the exercise of the discretion relating to co-operation or the lack thereof.

6. I should say how it comes about that I am approaching the matter from the point of view of the exercise of the discretion. It will be seen that the language of s.153B sub-section (1) of the Act is indicative of the existence of the discretion. The Court is not required to make an order once it is satisfied that a sequestration order ought not to have been made. The Court may make such an order. 

7. Justice Mansfield in the case of Re Almassy (1999) 92 FCR 597 describes the discretion as being at large. That was an expression that troubled, to some extent Federal Magistrate Barnes (as she then was) in the decision of Drake & Anor v Jones [2009] FMCA 298 in particular, the reference at [106]. I regard the exercise of the discretion as being at large and not being constrained by any specific criteria, certainly not by any criteria that are identified in the Act itself.

8. I have moved straight to the issue of the exercise of the discretion because in the circumstances of this case and the circumstances of this argument, the first limb of the s.153B(1) exercise, that is, the consideration whether the petition ought not to have been presented, was not agitated before me. The gravamen of what is alleged by the debtor to be the source of his difficulty is that the debt owing to the creditor in respect of the survey engineering work done in respect of the development was not a debt of his but a debt of his company, YDM Proprietary Limited, a company of which he was an officer. He says that in truth from the beginning, and I assume that means from the date at which the accounts (and there were a series of them) were raised by the creditor against him, the debt was not one that was owed by him but by YDM Proprietary Limited.

9. I should note that from March 2013, YDM Proprietary Limited has been in liquidation.

10. So that being his argument in relation to the circumstances in which the original debt arose, he brought an application to set aside the judgment that had been obtained in default in the Magistrates Court.  The proceedings in the Magistrates Court named the applicant personally as the defendant.  Judgment was entered against him personally.  He brought his application to set aside that judgment, as I say, shortly after the sequestration order was made and, as I have indicated in January 2013, he was successful.  I have the Court record in relation to that application.  It appears to have been the subject of a series of directions and other hearings but ultimately the Magistrate has been satisfied that the order made in his absence or in default of his appearance ought to have been set aside so the issue as to the entity by whom the money was owing to the creditor is presently undetermined.

11. So that the judgment debt that underpinned the petition has been extinguished. I have not been provided with a great deal of material in relation to the circumstances in which the judgment came to be obtained or matters which will be relevant to the ultimate course of those Magistrates Court proceedings, but the respondent, the creditor in these proceedings, has been content for me to proceed upon the basis of an assumption that the Court will make a finding in due course that the petition ought not to have been presented. So as far as my invigilation or scrutiny of the circumstances in which it came to be entered against the defendant personally is concerned, it is unnecessary for me to do that. I proceed on the assumption that the Court would make such an order. And that leaves us then with the second limb of s.153B(1) which is the question of the exercise of the discretion. That accounts for why I have gone straight to that part of the exercise.

12. I have indicated that the latter two of the five matters the creditor raises in opposition to the annulment application are not matters that appear to me in the context of this case to be of significant weight.  I will move to the other matters.  The first question is the question of solvency.  That solvency is a matter relevant to the exercise of the discretion as to whether or not is to annul is the subject of a number of decisions of the Full Court of the Federal Court.  The decision of the Federal Court of Australia in Layton v the Westpac Bank of Australia [2000] FCA 1752, is authority for the proposition that the issue of solvency in the context of the exercise of the discretion to annul is one that is to be looked at both at the time of the making of the sequestration order and at the date of determination of an application such as that before me. In reality in this case the position of the applicant in September of 2012 and now is not materially different.

13. In relation to the issue of solvency, I am not strictly assisted by the definition of solvency which is to be found in s.5(2) of the Act. That definition is there to assist me in understanding the use of that expression where it appears in the Act itself and I am told that where it appears in the Act I am to take it as meaning that, in the language of s.5(2):

    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.

    That provides a useful guide for my assessment of solvency more generally in the context of the exercise of the discretion in this case.

14. In terms of the issues of solvency then, there are a number of debts that are capable of being relevant.  There is the judgment debt itself.  I think for the purposes of this application, the consideration of solvency within the exercise of the discretion, I have to ignore that debt, which is of the order of something like $30,000.  I have to ignore it because I know that it is a matter that is still controversial now that the order has been set aside in the Magistrates Court.  The reality is, of course, that it is the debt that accounts for the existence of the sequestration order itself.  I am not, in any formal sense, not recognising the existence of the debt but I do not think it would be appropriate given the breadth of the discretion I have to take it into account in the context of the assessment as to whether or not the annulment should be granted in this case.

15. There are the creditor’s fees of approximately $7,000 which remain due and owing and I will return to those in a moment as a separate criteria in relation to the exercise of the discretion. There is an amount of money of approximately $10,000 owing to a solicitor by the name of Marciano. That debt is presently unadjudicated by the trustee but pursuant to s.82(1) of the Act, it is certainly a debt that is provable in bankruptcy.

16. [I had thought at the time of delivery of oral reasons that Mr Marciano was present in Court at the time I heard submissions. He was not. That was made clear to me at the conclusion of the delivery of my oral reasons. In fact, it was an employee of the applicant’s accountant who was present. I will explain why it was that he was present in a moment. Both that explanation and these words in parentheses are matters I indicated I would add to the oral reasons at the time I settled them.] 

17. Mr Robinson’s debt remains owing and there is a debt from the liquidator of a company called Mirona Constructions which was the subject of some of the affidavit material provided by the applicant and as to the course of the conduct of unrelated Magistrates Court proceedings in which proceedings against the debtor were discontinued against him but proceeded with in against another defendant.  Whether and if so in what way the discontinuance of those proceedings affects the debt that is said to be provable in the context of the administration of this estate is something I can not come to any conclusion about.  I can only recognise that the trustee’s advice to the creditor and through him to the Court is that that is a debt that is provable in the bankruptcy. 

18. As against any ambiguities associated with any of these debts, the position in terms of assets or income on the part of the applicant is much more straightforward.  There are no assets. There is no income.  There is none that have been identified either in the trustee’s report or in the documents that have been put before me other than what is said to be the possible fruits of the litigation that has been conducted in the Magistrates Court and which may well have to, ultimately, be conducted in a jurisdiction other than the Magistrates Court given the amount that is sought in the counter claim.  It is said that the consequences of the creditor proceeding against the debtor personally rather than YDM Proprietary Limited is that he has been unable to secure employment and that on account of that and other consequential losses the creditor is said to be liable (I assume) in some sort of damages claim for that amount of money. 

19. Curiously, I did not have a copy of the counter claim filed by the debtor in the Magistrates Court.  I say curiously because being the only asset, the only potential asset of the applicant, I would have thought I would have been provided with as much clear information about that as possible.  Other than that I know of the existence of a counter claim, it can not be taken any further in the context of this application.  I do not even know what the cause of action is said to be.  Not knowing that, I am not in a position to make any kind of assessment prima facie or otherwise of the prospects of success of that claim. 

20. It is for the applicant to establish to my satisfaction his solvency.  Approaching the matter on that basis, I am clearly not satisfied of the question of solvency both on account of the existence of debts, some, but not all of which are matters of controversy. As I say, there is no ambiguity associated with the complete inability of the applicant at the present time to liquidate any assets or to generate any income which would be capable of extinguishing any part of those debts. 

21. I included the creditor’s legal fees for obtaining the sequestration order as part of the debts relating to that issue of solvency. They are a discrete issue themselves in terms of the exercise of the discretion.  The authorities make it clear that ordinarily in the context of an annulment application the Court would expect the petitioning creditor’s costs in obtaining a sequestration order to either have been paid or for proper arrangements to have been made for them and some of the cases indicate the lengths to which the Court will go to structure some mechanism for the future of payment of those costs.  I have been provided with no basis to structure any such scheme in this case other than being invited to take a sanguine view about the litigation in the Magistrates Court but no proper basis has been provided to me to enable me to take such a view.

22. The petitioning creditor is entitled to his costs and that is especially so in the context of the delays associated with the bringing of the application to set aside (which I will come to in a moment). The fact that they have not been paid, that there is no realistic proposal for their payment is a matter, in my view, highly relevant to the exercise of the discretion.  A fortiori, the fact that the trustees costs have not been paid and that there is no realistic proposal for their payment in the immediate future is another matter that is highly relevant. An employee of the debtor’s accountant is said to have been told by the trustee that no costs would be incurred for which the debtor would be liable, if the judgment were set aside. I regarded myself as unable to receive that hearsay evidence. The presence in Court, so I was told, of that employee and his availability to give evidence made no difference – evidence in chief was to be way of affidavit. The evidence would not have been material to the weight to be given to the fact that the trustee’s costs are unpaid.   Both of those matters, as I say, which ordinarily are relevant in these cases are especially relevant in the context of this case because the costs have been incurred, as a function of the unexplained delay or I should say, the unsatisfactorily explained delay by the applicant in the bringing of his application to set aside the judgment.

23. I regard myself as entitled to bring that matter to account in the exercise of my discretion.  As I say, I do not identify any relevant delay in the bringing of the annulment application itself but to the extent that that application was underpinned by the setting aside of the judgment, it is obviously relevant for me to look at the timeliness with which that application was promoted.

24. The applicant was incarcerated between 6 April and 6 August 2011.  It was some months after that the judgment was entered so the circumstances of his incarceration do not provide any explanation for his not taking steps prior to the entry of the judgment. 

25. I do not have a great deal of information about that period of time, such as would enable me to draw any safe conclusions about the applicant’s knowledge of the entry of that judgment in the months that followed it.  I am on safer ground though from February 2012 onwards which was when the Bankruptcy Notice was served and the Bankruptcy Notice of course explicitly drew his attention towards the existence of the default judgment.  And yet, that being the case, and in the seven months leading up to the sequestration order, no attempt is made by the debt or to set aside the judgment and consequently the sequestration order is made.

26. Paradoxically, as soon as the sequestration order is made there is a timely bringing of the application to set aside the judgment in the Magistrates Court.  The first explanation proffered by the applicant for the delay was essentially a lack of understanding of the procedure.  There is not enough before me to enable me to find that that accounts for the delay in any of the periods I have identified.  The other was the suggestion that it was his preference to pursue a negotiated resolution of this problem, that is, of him being sued rather than his company being sued.  Again, I do not find persuasive in terms of the explanation for the delay. 

27. I am looking at the explanation for the delay because I consider that a relevant part of the exercise of my discretion.  Also relevant to the exercise of my discretion in the context of delay is that since the entry of the judgment, a period in excess of 18 months, we have seen the entity who the applicant says is the true debtor, YDM Proprietary Limited, go into liquidation.  I specifically identify that matter as a matter relevant to the exercise of my discretion related as it is to matters associated with the delay in the bringing of the setting aside application.

28. So it is on account of my assessment of the relevance of the issues of solvency or insolvency in the case of this applicant both at the time the sequestration order was made and at the time of my consideration of this application, and, further, on account of the lack of arrangements that were made for the creditor’s costs or the trustee’s costs and thirdly matters associated with the inadequately or unsatisfactorily explained delay in the bringing of the application to set aside the judgment which underpinned the petition – all of those matters – in my view require me to exercise my discretion adversely to the applicant.  At the risk of repeating myself, I have proceeded upon the assumption that the applicant would make out his contention that the sequestration order ought not to have been made.  Had we proceeded to that point I find that in the exercise of my discretion, and for the reasons I have identified, the application would have been refused in any event and in these circumstances I refuse the application.

I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of Judge Lindsay

Associate: 

Date:  27 June 2013