TOWNSEND v Brake - [2005] FMCA 533

FEDERAL MAGISTRATES COURT OF AUSTRALIA

TOWNSEND v BRAKE

[2005] FMCA 533

BANKRUPTCY – Annulment – trustee’s costs.

Duncan v McVeigh &Anor 2004 759
Stankiewicz & Plata (2000) FCA 1185
Re McDonald; ex parte the Deputy Commissioner of Taxation (1996) 33 ATR 1

Applicant:

JULIE-ANN TOWNSEND

Respondent:

PAUL NEWTON BRAKE

File Number:

BRG93 of 2004

Judgment of:

Coker FM

Hearing date:

15 February 2005

Delivered at:

Townsville

Delivered on:

22 April 2005

REPRESENTATION

Applicant:

Self-Represented

Respondent:

Self-Represented

ORDERS

That the bankruptcy of the applicant pursuant to the sequestration order made on 20 June 2003 be annulled.
That the sequestration order made on 20 June 2003 be set aside.
That the costs of the administration of the estate of the applicant, including the transfer back to the applicant of any real property, be fixed in the sum of $15,000.
That there be no order as to costs in relation to proceedings before this Court.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
TOWNSVILLE

BRG93 of 2004

JULIE-ANN TOWNSEND

Applicant

Versus

PAUL NEWTON BRAKE

Respondent

REASONS FOR JUDGMENT

These proceedings were commenced on 24 February 2004. The applicant is Julie-Ann Townsend. The applicant is a person bankrupt pursuant to an order made in the Federal Magistrates Court at Brisbane on 20 June 2003. The respondent, Paul Newton Brake, is trustee of the estate, pursuant to the bankruptcy order made on 20 June 2003.
The application of 24 February 2004 seeks both interim and final orders. The orders on a final basis, and that is what is being dealt with at this time, that are sought by the applicant are in the following terms:
(1)that the bankruptcy of the applicant be annulled on the grounds that the applicant has paid every creditor in full including trustee's fees;
(2)that a declaration that the trustee has deliberately contributed to the excessive charges imposed on the bankrupt by over administering a very simple estate; and
(3)that the trustee is liable in damages for preventing my dealing with my property during the peak of a real estate boom prevented me renting it, selling it and charging fees that were excessive in the circumstances.
A response has been filed on behalf of the trustee. That response, a Notice of Opposition, was filed on 31 March 2004. It seeks orders in relation to this matter generally for the dismissal of the orders sought in the application filed on 24 February 2004. In order 1(a) of the Notice of Opposition, the trustee says:
1.(a) The respondent trustee is not satisfied that all of the bankrupt applicant's debts as defined in section 153A6 of the Bankruptcy Act have been paid in full and accordingly the bankruptcy has not been annulled under section 153A(6) of the Bankruptcy Act.
(b)to the extent the Court has power to direct the trustee to have been paid in full that all the bankrupt applicant's debts be so satisfied or to dispense with the requirement that the trustee so satisfied, it is not an appropriate exercise of the Court's discretion to make such direction or to dispense with that requirement.
(c)to the extent that rule 35 of the Federal Magistrates Court rules 2001 may apply to this application, the applicant bankrupt has not followed the procedures required to be followed by law; and
(d) the application fails to identify any proper basis in law for the order sought therein whether sections 153A or 153B of the Bankruptcy Act or any other power.
2. In respect of all remaining interim and final orders, the application be dismissed on the basis that neither the bankrupt applicant nor the application identify any proper basis in law for the orders sought therein.
Sections 153A and 153B are relevant in relation to these proceedings. They provide as follows:
Section 153A
(1)         If the trustee is satisfied that all the bankrupt's debts have been paid in full, the bankruptcy is annulled by force of this subsection on the date on which the last such payment was made.
(1A) In determining whether there has been full payment of a debt that bears interest, the interest must be reckoned up to and including the date on which the debt, including interest is paid.
(2)    The trustee must, as soon as practicable, after that date give to the official receiver a written certificate setting out the former bankrupt's name and the bankruptcy number and the date of the annulment.
(4)     For the purposes of this section, if a debt has been proved by a creditor but the creditor cannot be found or cannot be identified, the debt may be paid to the official receiver and if so paid is taken for the purposes of this section to have been paid in full to the creditor.
(5)     If money is paid to the official receiver under subsection 4 the official receiver must pay the money into the consolidated revenue fund and the provisions of subsections 254(3) and (4) apply in relation to that money as if it had been paid into the consolidated revenue fund by a trustee under subsection 254(2), and
(6)     In this section, bankrupt's debts means all debts that have been proved in the bankruptcy and includes interest payable on such of those debts as bear interest and the costs, charges and expenses of the administration of the bankruptcy including the remuneration and expenses of the trustee.
Section 153B provides as follows:
(1)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 ought not to have been accepted by the official receiver, the Court may make an order annulling the bankruptcy.
(2)In the case of a debtor's petition the order may be made whether or not the bankrupt was insolvent when the petition was presented.
This matter has had a lengthy history. As I say, the actual Bankruptcy Order was made on 20 June 2003. The material before the Court appears quite clearly to show that within a matter of a few days and, certainly, by 25 June 2003, contact had been made between the applicant and the trustee or, at least, the trustee's office.
There appears to have been considerable divergence thereafter, as to the position in relation to the matter and that has led to the application being made by the applicant, including, particularly, the declaration sought with regard to the trustee having deliberately contributed to the excessive charges imposed on the bankrupt, by over administering the estate, and further, that there is some declaration sought in relation to the trustee allegedly being liable in damages for preventing dealings with the property, during the peak of the real estate boom.
I should say at this time, that I am not satisfied that a declaration can be made in relation to the trustee having deliberately contributed to excessive charges imposed but there certainly, in my view, is power to fix a sum in relation to costs, in respect of the administration of the estate. More particularly, I am not satisfied that there is a power under the provisions of the Bankruptcy Act for a finding that a trustee is liable for unspecified damages in relation to the possible dealing with property, particularly, when, as I understand the material, there is no evidence of either the increases possible in relation to the property or, more particularly, evidence as to any intention with regard to the sale or disposal of the property.
In any event, there were a number of attempts to resolve the issue between the applicant and the trustee, including orders made with regard to costing of the trustee's file in relation to the administration of the estate, up to November 2004. That did occur, but again and, unfortunately, it was the case that the parties were unable to reach agreement. It is for that reason that there is now before me the actual application with regard to annulment.
Suffice it to say, I am satisfied that it is not possible to make an order under section 153A. It quite specifically provides for the trustee to be satisfied that the bankrupt's debts have been paid in full, and if so satisfied, that the bankruptcy be annulled by force of section 153A, on the date on which the last payment was made. There is a requirement, however, that the trustee must provide to the official receiver a certificate setting out the former bankrupt's name and the bankruptcy number and the date of annulment.
In this instance, it is quite clear that the trustee is not so satisfied with regard to the issue of the certificate, relating not so much or, in fact, at all, to the non-payment of the creditor's debts, but rather the requirement that there be consideration of the expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee.
The trustee's position, is to say that there has never been satisfaction to him in relation to those fees and that, therefore, the certificate cannot issue. In my view, it would be a nonsense for the Court to direct the issue of a certificate, notwithstanding the fact that the trustee, in whom the authority is vested, is not satisfied that there has been a basis upon which there could or should be annulment and the issue of the necessary certificate.
What is left, therefore, is the provisions of section 153B of the Bankruptcy Act, relating to the Court making the order for annulment and, in fact, whether the Court is satisfied that a sequestration order, ought not to have been made. The difficulty that arises in relation, to that particular aspect of the matter at least, initially, is that it, of its nature, considers that there should not have been any order made and that therefore, any order for the bankruptcy of the estate is void

ab initio
.
What must be considered, is the fact that the Registrar, having heard the matter in the Federal Magistrates Court at Brisbane on 20 June 2003, was satisfied that there was evidence, properly before the Court, which gave rise to the issue of the bankruptcy order. There are, however, a number of factors that were of some concern in relation to the issue of the proceedings, and more particularly the making of the order on 20 June 2003.
Quite clearly, the creditor's petition was brought on behalf of the applicant's former partner, as a result of a costs order which was made in Family Law proceedings. There was dispute in relation to those costs. However, on the face of it, they had not been paid and, as I understand the evidence before the Court, the direction that was given by the applicant's former partner to his solicitors, was to take whatever steps necessary to obtain payment of the amount assessed in relation to costs. Those steps were the creditor's petition, to which I have referred.
I am mindful, however, of the fact that the applicant, clearly, was ill advised in relation to how she should deal with that application. It would seem to me that, if, in fact, there had been proper consideration of the financial circumstances of the applicant, at the time of the actual hearing of the creditor's petition then, at the very least, there would have been some consideration given to adjourning the proceedings so as to enable another arrangement to be made, without the making of the sequestration order.
I am mindful of the various considerations that arise in relation to an application for annulment. I have had the opportunity, in particular, of considering the reasons of Riethmuller FM in Duncan v McVeigh &Anor [2004] FMCA 759. That was an application in which there was also an annulment sought of a bankruptcy, which had issued.
Riethmuller FM, at length went through issues in relation to the contention as to whether a sequestration order should or should not have been made. In that matter there were two grounds upon which the application was brought but the first of those was, certainly, a question of whether or not the applicant was solvent. In respect of solvency, Riethmuller FM gave regard to the comments of the Full Court of the Federal Court of Australia in: Stankiewicz & Plata (2000) FCA 1185 where the Full Court said:
There are authorities which suggest that a bankrupt whose assets exceed his or her debts at the date of the sequestration order ordinarily will be entitled to an annulment of the bankruptcy, at least if the bankrupt gives undertakings to pay the costs of the petitioning creditor and the trustee's cost of administration.
There is also consideration given to further writings and determinations in relation to the matter, and in particular, the decision of Spender J in Re McDonald; ex parte the Deputy Commissioner of Taxation (1996) 33 ATR 1, where his Honour, when speaking of such matters, said:
This principle is said to follow from section 52(2)(a) of the Bankruptcy Act which provides that if the Court is satisfied that the debtor is able to pay his or her debts, it may dismiss the creditor's petition. In general, a debtor who so satisfies the Court will succeed in having the creditor's petition dismissed.
As I say, the unfortunate circumstance in relation to this matter is that the Registrar, for reasons that are not clear to me, either was not made aware of the excess available funds held by the applicant, in property owned by her nor, in fact, was there consideration given to an adjournment in relation to the proceedings. It would seem to me, therefore, to be clear that there is a basis upon which, under section 153B, the Court, if satisfied that the sequestration order should not have been made, can make an order for the annulment of the sequestration order.
What is clear from the material, is that within a reasonably short period of time, steps were taken with regard to the payment of the creditors. What I distinctly gain the impression of, however, is that during the administration of the estate that was to occur, there was a fundamental breakdown in any relationship that existed, or it may never have existed, between the applicant and the trustee or, at least, the employees of the trustee, insofar as the administration of the estate was concerned.
Very quickly, the applicant began to express concern in relation to the administration of the estate and, very quickly, it would seem the trustee or his employees took a position which was very firm and, perhaps, understandable in relation to the matter. However, it is clear that the applicant was in a position of solvency. It is clear from the actions that were taken by the applicant in relation to these proceedings, that within a short period of time, the debts to creditors had been paid and that there was sought to be some clarification of the position with regard to obtaining an annulment of the bankruptcy, under the provisions of section 153A.
I have had, of course, the opportunity of reading all of the material in relation to this matter and, in particular, the supporting affidavit of the trustee, filed on 31 March 2004. Annexed to that affidavit is a letter from the trustee to the applicant of 10 February 2004. In that letter the trustee says the following:
I am satisfied that any creditors who have lodged proofs of debts have been paid and where appropriate I have given notice of rejection of the claim, in one case the period to appeal from my rejection has not expired but clearly I do not anticipate any appeal. I consider that your bankruptcy will be annulled under section 153A of the Bankruptcy Act as soon as my remuneration and expenses have been paid.
The letter goes on:
I note my remuneration up to 12 December 2003 has been advised to you and creditors. No request for taxation has been received and I am proceeding on the basis that the issue of what is my remuneration up to 12 December 2003 is now finalised. My remuneration for work carried on from 13 December 2003 to the present time -
which is the date of the letter 10 February 2004 -
is approximately $1300 plus GST according to my time costing records. While I appreciate limited work to progress their file was carried out post 12 December 2003 work, which entailed costs, was carried out to begin to respond to your letter of complaint to ITSA dated, 8 December 2003. Such costs ceased to be incurred after being advised that to avoid further costs you did not wish me to respond further.
In addition, there is approximately $580 plus GST for expenses, a total of say $2200 including the 8 per cent ITSA charge and GST subject to correction of errors and omissions. I hold $1100.90 at the present time being the $10,000 received less remuneration of $8099.10 and less the 8 per cent ITSA realisation fee of $800. Unavoidable costs to complete the administration would include seeking approval for further remuneration, writing a final report to creditors and retransmitting the two properties back to you.
Provided I am satisfied that any rates that accrue during the bankruptcy in relation to either property had been paid if I did not have to consider the issue set out in the next paragraph, I consider that upon receipt of a further $2300 including GST the government charges on retransmitting land and the 8 per cent ITSA charge I could draw down all or the major part of the cost to complete, prepare and lodge any land retransfer forms and issue an annulment certificate under section 153A of the Bankruptcy Act.
I emphasis that this guesstimate of cost to complete is on the basis that the finalisation proceeds smoothly and is, in any event, only my guesstimate at the present time. My understanding is, pursuant to section 125 of the Queensland Duties Act 2001, no duty is payable on the revesting of the properties to you but I give no warranty in that regard. There is a Land Titles Office fee of about $122. Details of my expenses and post 12 December 2003 remuneration would be notified to you and creditors.
If you or a creditor consider that such costs are excessive that can be taxed if required. Once the costs are determined one way or another if there is a surplus the excess would be refunded to you. If there was a shortfall then the shortfall would be recoverable from you notwithstanding any annulment that may have occurred in the meantime.
The letter then goes on:
One significant potential additional cost is the potential cost of responding to the various complaints and allegations that you have made or may make in future in respect of my work. I note if all you wish to do is to require my remuneration or cost to be taxed then so be it, subject to you complying with any time limits or making a successful application to extend any time limit. I can finalise the file without making any further provision for the potential costs of taxation given that in the event that the bill is reduced by less than 15 per cent you will have to pay both the taxing fee and my costs of taxation.
If, however, you have already referred, or in the future refer your complaints to the Federal Police, or have already commenced a private prosecution against me or in the future commence such a private prosecution, or make a complaint in some way other than by requiring taxation then it is difficult to provide a good estimate to you of the costs to finalise the administration.
I note that any potential investigation or private prosecution may not be finalised for several years and the costs of responding to that may be thousands of dollars. I consider it appropriate that our respective rights and obligations be finalised on a timely basis. I can apply to the Court for a release and/or seek directions as to how your allegations should be dealt with. The costs of making such an application may be considerable.
I again invite you to consider withdrawing your threat to take any action against me in respect to the work carried out to date other than requiring costs to be taxed if you so make a valid requirement for taxation. If we are to proceed on this basis a release would need to be prepared and signed. Previously you have alleged that it is somehow improper to invite you not to undertake, not to bring a private prosecution etcetera. Frankly, I cannot see it as improper but you may wish to seek legal advice on this matter. If, however, you do not wish to sign a release I propose to make an application to the Court. Please let me know how you wish to proceed.

From the time that that correspondence was received by the applicant, the relationship and interaction between the applicant and the trustee has deteriorated. What is most disturbing, however, is that notwithstanding that the creditors were paid, at least, one year ago, it is still the case that the certificate, pursuant to the provisions of section 153A, has not issued. The trustee, clearly, says that it is impossible to issue such a certificate whilst there remains the possibility of some private prosecution or complaint made, in relation to the proceedings.
I must say that I have given serious consideration to this matter. In my view, the actions taken by the trustee in relation to this matter have been unprofessional. I am satisfied that the proper course would have been to bring this matter to a prompt finalisation. I am satisfied that the approaches made by the applicant, in relation to attempts to finalising the matter as quickly as possible and as inexpensively as possible have been, to a serious extent, unable to be dealt with as a result of the trustees very determined efforts to ensure that no complaint could be brought in relation to the conduct by him, of the administration.
The final two paragraphs to which I have referred, of the letter of 10 February 2004 are, in my view, quite obviously an attempt to force any consideration by the applicant of the proceedings that are now before the Court, not to be brought, because of the financial influence and effect of those proceedings. I am satisfied that the applicant is now, and was at all times, solvent. I am satisfied beyond any doubt that the proper course to follow in relation to this matter is, pursuant to section 153B of the Bankruptcy Act to make an order with regard to the annulment of the bankruptcy order.
I am concerned as to further costs being incurred in relation to these proceedings and to what I consider to have been extremely excessive charges incurred, as a result of the failure to bring this matter to a successful conclusion. I am mindful of the terms of the letter of

10 February 2004 and, in particular, the indications as to costs expended and expectations in relation to future costs. In my view, that was the appropriate time to bring this matter to an end. To suggest that the bankruptcy could never be annulled whilst there was some possibility of a disgruntled client complaining as to the administration of the estate, is bullying in the extreme and is inappropriate.
I intend to fix the trustee's costs in relation to the administration of the estate at $15,000 taking into consideration the amounts already paid and the estimates contained within the correspondence of 10 February 2004. The orders that I intend to make in relation to this matter, therefore, are as follows:
ORDERS DELIVERED
RECORDED : NOT TRANSCRIBED
I will direct that my reasons be published.

I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Coker FM

Associate: C Herbst

Date: 19 May 2005