Trouton v Official Receiver in Bankruptcy
[2014] FCCA 2345
•18 October 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| TROUTON v OFFICIAL RECEIVER IN BANKRUPTCY | [2014] FCCA 2345 |
| Catchwords: BANKRUPTCY – Annulment application – where applicant presented a debtor’s petition – where applicant suffering under a mental disability when petition presented – whether petition ought to have been accepted – whether court should exercise its discretion to annul the bankruptcy. |
| Legislation: Bankruptcy Act 1966, ss.6A, 40(1)(daa), 55, 55(2), 153B, 153B(1), 153B(3), 308, 308(c), 308(d) |
| Drake v Jones [2009] FMCA 298 In re Goo Tuck (1892) 2 BC (NSW) 95 Re A Debtor [No. 1 of 1941] [1941] Ch. 487 Re John Coote, Petitioning Creditor Reference by Registrar in Bankruptcy under subsection 55(3) of the Bankruptcy Act 1966 [1993] FCA 627 R v Davison (1954) 90 CLR 353 |
| Applicant: | CHRISTINE NICOLE TROUTON |
| Respondent: | OFFICIAL RECEIVER IN BANKRUPTCY |
| First Supporting Creditor: | SUBWAY SHOE DIFFUSION PTY LTD |
| Second Supporting Creditor: | GEORGE ANTHONY CHEBIB |
| File Number: | BRG 187 of 2014 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 10 October 2014 |
| Date of Last Submission: | 10 October 2014 |
| Delivered at: | Brisbane |
| Delivered on: | 18 October 2014 |
REPRESENTATION
| The Applicant appeared on her own behalf. |
| The Respondent entered a submitting appearance and appeared by Mr Powell of the office of the Australian Government Solicitor. |
| Counsel for the First Supporting Creditor: | Mr McGlade |
| Solicitors for the First Supporting Creditor: | Bennett & Philp |
| Counsel for the Second Supporting Creditor: | Mr Sheaffe |
| Solicitors for the Second Supporting Creditor: | McKays Solicitors |
ORDERS
The application filed on 3 March, 2014 is dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 187 of 2014
| CHRISTINE NICOLE TROUTON |
Applicant
And
| OFFICIAL RECEIVER BANKRUPTCY |
Respondent
| SUBWAY SHOE DIFFUSION PTY LTD |
First Supporting Creditor
GEORGE ANTHONY CHEBIB
Second Supporting Creditor
REASONS FOR JUDGMENT
revised from the transcript
On 14 November, 2013 the applicant, Christine Trouton became bankrupt on her own petition. By this application, she seeks to have her bankruptcy annulled on the basis that at the time she presented her petition for bankruptcy she was so bereft of legal capacity by reason of mental illness that her debtor’s petition ought not to have been presented. She does not argue that the petition ought not to have been accepted by the Official Receiver.
The Official Receiver in bankruptcy entered a submitting appearance.
Two creditors appeared to oppose Ms Trouton’s application. The first, Subway Shoe Diffusion Pty Ltd, has a judgment against Ms Trouton for $21,403.98. At the time Ms Trouton presented her debtor’s petition, she had been served with a bankruptcy notice issued at the request of Subway Shoe Diffusion based upon that judgment.
The second creditor, George Chebib, has been engaged with Ms Trouton in significant litigation in the Supreme Court of Queensland, and subsequently the Court of Appeal, arising out of a domestic relationship between them. Mr Chebib has judgments for costs against Ms Trouton.
Three issues arise on this application. The first is whether, as a matter of law, a person who is devoid of capacity by reason of mental illness might validly present a debtor’s petition. If the answer to that issue is in the negative, the second issue is whether, on the facts, Ms Trouton was so devoid of capacity by reason of mental illness that she ought not to have presented her debtors petition. If that question is answered in the positive, the final issue is whether the Court ought to exercise the discretion to annul her bankruptcy in the circumstances of the case.
Section 153B of the Bankruptcy Act1966 provides for the Court to annul a bankruptcy if the Court is satisfied that, in the case of a debtor’s petition, the petition ought not to have been presented or ought not to have been accepted by the Official Receiver. 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.
In Drake v Jones [2009] FMCA 298 Barnes FM (as her Honour then was) summarised the position in relation to annulment applications as follows:
30. The authorities suggest that there are only limited circumstances in which a bankruptcy can be annulled on the basis that the debtor’s petition ought not to have been presented by the bankrupt. The power may be exercised where it is established that the presentation of the debtor’s petition was an abuse of process, for example where the debtor was not in fact insolvent but improperly sought bankruptcy as a “haven from a proper claim by a creditor” as discussed in Re Almassy (at [19]) (and see Re Moncada; Ex parte Moncada and Official Trustee in Bankruptcy (1986) 11 FCR 205); if it was for the purpose of placing the debtor’s estate beyond the reach of a person who would imminently become a creditor (see BWK Elders (Australia) Pty Ltd v White [2004] FCA 1611); or where a bankrupt had gone bankrupt twice in error (see Official Receiver (NSW), in the matter of D’Elboux [2002] FCA 510). In Re Mottee; Ex parte Mottee and Another (1977) 29 FLR 406 Riley J stated in relation to the concept “ought not to have been presented” (which was then in s.154(1)(a) of the Bankruptcy Act) that “… in my opinion the consequent bankruptcy may be annulled where a debtor was not ‘entitled to use the machinery of the Bankruptcy Act’ (Re A Debtor; Ex parte The Debtor v. Allen [1967] Ch. 590, at p. 596) and the presentation of his petition may properly be characterized as an abuse of the procedure provided by s 55” (and see Re Almassy).
Ms Trouton’s application for an annulment does not fall squarely within any of those categories of cases discussed by Federal Magistrate Barnes. Her case, in some senses, is unique.
Ms Trouton points out that s.55 of the Bankruptcy Act provides:
(1) Subject to this section, a debtor may present to the Official Receiver a petition against himself or herself.
(2) A petition presented by a debtor under this section:
(a) shall be in accordance with the approved form; and
(b) shall be accompanied by a statement of the debtor’s affairs and a copy of that statement.
She argues that if I accept that at the time of signing the debtor’s petition on 14 November, 2013 she was not of sound mind and did not understand what she was doing, I would be satisfied that she lacked sufficient capacity to present her debtor’s petition. In those circumstances, she argues that the debtor’s petition ought not to have been presented because the requirements of s.55 of the Act were not satisfied and her actions lacked the necessary voluntary character required for the presentation of a debtor’s petition.
She argues that s.55(2) of the Act requires that the debtor’s petition be accompanied by a statement of affairs. She points out that s.6A of the Act requires that, to be effective, a statement of affairs must contain a declaration by the debtor that the matters set out in that statement are true and correct. She argues that her mental state at the time she completed her statement of affairs was not sufficient for her to be able to give such a declaration. Evidence of that, she says, is her claim that the information that she provided in the statement was not correct. She argued that she clearly did not have capacity to be able to determine the current state of her financial affairs or attest to the accuracy of the information she had provided because it contained many errors.
It follows, she says, that she was not able to comply with the requirements of s.55 of the Act as at 14 November, 2013 because:
a)her actions lacked the necessary voluntary character; and
b)she could not give a statement of affairs as required by the Act
and so the petition ought not to have been presented.
As to Ms Trouton’s argument that the presentation of a debtor’s petition is a voluntary act by the person submitting the petition, the cases refer to a bankruptcy established by the presentation of a debtor’s petition (or similar procedure) as a “voluntary bankruptcy”: e.g., Re John Coote, Petitioning Creditor Reference by Registrar in Bankruptcy under subsection 55(3) of the Bankruptcy Act 1966 [1993] FCA 627 at [16] and R v Davison (1954) 90 CLR 353.
It follows from this, she argues, that a debtor’s petition which cannot be presented voluntarily, ought not to be presented at all. She argues that because the presentation of a debtor’s petition is the voluntary act of the debtor, the debtor’s intention to present the petition must be relevant. More than that, it is necessary. She argues that a debtor must intentionally present a petition for his or her own bankruptcy. It follows, according to her argument, that where the debtor is incapable of forming the requisite intention because of mental incapacity, the Court should conclude that the petition ought not to have been presented.
I was referred to no authority which bears on the legal capacity required for a person to validly present a debtor’s petition. The case was presented by Ms Trouton on the basis that if I was satisfied that she was deprived of legal capacity by reason of mental incapacity at the relevant time, I should as a matter of course, find that she ought not have presented her debtor’s petition. Each of the creditors, whilst not conceding the point, did not appear to argue strongly against that proposition.
The Bankruptcy Act itself does not answer question. It is silent on the question of the requisite legal capacity to present a debtor’s petition. It would seem, however, that “full” legal capacity is not necessary for there to be a voluntary bankruptcy. In In re Goo Tuck (1892) 2 BC (NSW) 95 the bankrupt, made so upon his own petition, was an infant. He had no estate or liabilities other than the estate and liabilities which devolved to him by virtue of his membership of a partnership. According to the brief report of the case, the infant did not know that his infancy was an answer to the claims of the creditors of the partnership of which he was a member. He sought that his bankruptcy be annulled on the basis that he was not indebted to the partnership’s creditors as he had mistakenly believed. The bankruptcy was annulled on that basis. There appears to have been no suggestion that the incapacity that arose by reason of the applicant’s infancy, meant that he could not petition for his own bankruptcy. The conclusion I draw from that is that legal capacity in the sense of that attained by a person of sound mind having reached the age of 18 years (or perhaps 21 years when that case was decided), is not necessary before a debtor can present his or her own petition in bankruptcy.
However, rather than approaching the issue from the point of view of Ms Trouton’s capacity to validly lodge a debtor’s petition with the Official Receiver, what few authorities there are that deal with bankrupts of unsound mind tend to indicate that the correct enquiry is whether the debtor could have committed the relevant act of bankruptcy given their mental infirmity.
I think that Ms Trouton’s argument that the presentation of a debtor’s petition must necessarily be an intentional act on the part of the debtor is correct. It could hardly be said to be something that could be accomplished unintentionally or by accident. The presentation of a debtor’s petition requires the completion of relevant documents, an acknowledgment that the debtor has read and received certain prescribed information and the completion of a statement of affairs. It must be an act which necessarily involves intention on the part of the debtor.
In Re A Debtor [No. 1 of 1941] [1941] Ch. 487 Farwell and Morton JJ determined that a person of unsound mind (whether so found by inquisition or not) can be adjudicated a bankrupt. However, their Honours said at page 494:
With regard to the query of Rigby L. J. [in Re Farnham [1895] 2 Ch. 799 at 810] ‘how can a lunatic commit an act of bankruptcy?’, we do not doubt that a person of unsound mind is incapable of committing an act of bankruptcy which involves intent on his part, but in the case which we are considering this question does not arise, since the act of bankruptcy, even if it can be treated as involving any intent on the part of the debtor, was committed before the debtor came under the jurisdiction of the Court in Lunacy.
(my emphasis)
Their Honours drew a distinction between a debtor who was of unsound mind and had been so found by inquisition and was therefore under the jurisdiction of the Court in Lunacy. They were not dealing with a debtor of unsound mind, not so found by inquisition. Nonetheless, it seems clear enough from their Honours comments that a person of unsound mind is incapable of committing an act of bankruptcy “which involves intent on his part”.
Just what is meant by a person of unsound mind is unclear. There is, of course, a plethora of authority that deals with that phrase in various areas of law in which it appears. The phrase “unsound mind” appears in s.308 of the Bankruptcy Act but its appearance in that section is not particularly helpful. Section 308 of the Bankruptcy Act provides:
Representation of corporation etc.
Subject to this Act, for the purposes of this Act:
(a) a corporation may act by any person duly authorized in that behalf by the corporation;
(b) a partnership may act by any of its members or a duly authorized agent;
(c) a person of unsound mind may act by a person authorized or empowered by law to act for him or her; and
(d) any person may act by his or her agent duly authorized in that behalf.
Section 308 does not require a person of unsound mind to act by way of a person authorised or empowered by law to act for him or her. The section appears to be permissive. It seems to contemplate that for some purposes a person of unsound mind might nonetheless be competent to act for the purposes of the Bankruptcy Act. I reach that conclusion because s.308(d) permits a person to act by his or her agent duly authorised in that behalf. It does not require a person to act by an agent. A similar form of words is used by s.308(c) of the Act. If it was the intention of Parliament that a person of unsound mind should act only by an agent, the section could have used words to that effect. But it does not.
There is no evidence that suggests that at the time Ms Trouton lodged her debtor’s petition there was any other person authorised or empowered by law to act for her. The debtor’s petition does not purport to have been lodged by anyone else on Ms Trouton’s behalf although, the following appears at the foot of the debtor’s petition:
Declaration of person who assisted with the completion of forms
I declare that before this form was completed, I carefully read through/interpreted for the person name above the prescribed information and the questions on this form or[where the person is physically incapacitated] satisfied myself that the person had read and understood the information and questions. The responses provided in this form are those of the persons named above.
Reason the debtor required your assistance
Mental incapacity
Full name and address of person assisting
Patricia Ann Trouton …
Patricia Ann Trouton is the mother of the applicant in these proceedings.
Section 40(1)(daa) of the Bankruptcy Act provides that a debtor commits an act of bankruptcy if the debtor presents a debtor’s petition under the Bankruptcy Act.
If the presentation of a debtor’s petition is an act of bankruptcy and if the presentation of the debtor’s petition must be a voluntary and intentional act by the debtor, it follows having regard to the observations of Farwell and Morton JJ in Re a Debtor (above), that a person of unsound mind, whatever that might mean, is incapable of committing an act of bankruptcy constituted by the presentation of a debtor’s petition if the unsoundness of mind was sufficient to remove from them their capacity to act intentionally. It appears to be the ability to form an intention to perform the relevant act that is important.
If such a person is incapable of committing an act of bankruptcy by presenting their own debtor’s petition, it must follow that the petition ought not to have been presented.
It seems to me therefore, that if I conclude on the facts that Ms Trouton was of unsound mind or suffering from a mental incapacity sufficient to deprive her of her capacity to form the requisite intention to present a debtor’s petition, I should conclude that she ought not to have presented this particular debtor’s petition.
That then requires a consideration of the second issue I identified earlier, namely whether, in fact, she lacked that capacity. In that respect, Ms Trouton relies upon an affidavit from a Dr Greg Richardson sworn on 25 September 2014 and filed in this Court on 26 September 2014. Dr Richardson was not cross-examined. There is a report, dated 6 March 2014, annexed to Dr Richardson’s affidavit. In that report Dr Richardson outlines his involvement with Ms Trouton and then says this:
It is my opinion that her decision to declare herself bankrupt on 14 November 2013 was a precipitously considered decision, and that she did not seek assistance from other parties in making this decision. I believe she was significantly overwhelmed and distracted by the other issues in her life such that, given her underlying anxiety and depression, her decision to declare bankrupt was ill-considered with her being incapable of making a fully informed decision at that time with her decision-making being impaired by both her depression, her anxiety, her recovery from substance abuse and requirement for prescribed medication.
(my emphasis)
Dr Richardson was asked to provide an addendum to his report, which he did on 23 September, 2014. In his addendum he says this:
It is my belief that –
• at the time of signing the deed petition on 14 November 2013, Ms Trouton was not of sound mind to understand the actions she was undertaking due to mental health issues complicated by having been hospitalised in the Princes Alexandra psychiatric unit on 31 October 2013. I have provided care for Ms Trouton since 16 February 2010. She is currently prescribed Seracol, Avanza and Valium.
• Ms Trouton was reviewed today on 22 September 2014 and is – I found her to be of sound mind and capable of understanding the current court proceedings before her with her now living in her own accommodation and engaged in employment as a fashion sales assistant for four days per week.
The rest is not particularly relevant.
Ms Trouton gives evidence about her state of mind around the relevant time and points out that shortly prior to the presentation of her debtor’s petition, she was hospitalised for mental health issues.
As I remarked earlier, Dr Richardson’s evidence was not challenged, nor were his qualifications to give it. There is no reason not to accept Dr Richardson’s evidence and, in particular, his evidence that when Ms Trouton presented her petition, she was “incapable of making a fully informed decision at that time, her decision-making being impaired by both her depression, her anxiety, her recovery from substance abuse and requirement for prescribed medication”. I find, therefore, at the time that she presented her petition in bankruptcy she was incapable of committing an act of bankruptcy because she lacked the capacity to form the requisite intent.
That does not mean, however, that the bankruptcy must be annulled. The Court has a residual discretion to determine whether to annul the bankruptcy. As to that matter the authorities make it clear that solvency is an important issue.
In her supplementary outline of argument, Ms Trouton recognises that. She acknowledges that an applicant’s solvency is a significant factor in the exercise of the Court’s discretion to annul a bankruptcy. She suggests, however, that s.153B(3) which provides that an order for annulment can be made whether or not the debtor is solvent at the time the petition is presented is significant in this case.
The supporting creditors point out that Ms Trouton is hopelessly insolvent. Her statement of affairs, inaccurate as it is, discloses no assets and 25 unsecured creditors owed a total of some $663,333. Ms Trouton’s own submission suggests that she owes at least $500,000 to creditors at the time she presented the petition. There is no evidence to suggest that the position has changed since then, although she now says that she has had the chance to properly consider her financial position, she disputes approximately $320,000 of that total and says that it is not owed by her personally. However, even if that is true, she still owes a substantial sum and has no assets with which to discharge the debt.
She acknowledges her indebtedness to the supporting creditors, although suggests that she might take some steps towards expunging those liabilities. For example, in relation to the judgment in respect of the creditor Subway Shoe Diffusion, she suggests that she might take steps to attempt to defend the proceedings in which the judgment was obtained. But even if all of those things come to pass, it seems that, on her own evidence, she remains insolvent.
The laws of insolvency exist to protect creditors. The laws of insolvency also bring benefits to debtors. That the applicant for annulment is insolvent, demonstrably so on her own evidence, is a matter which, in my view, tells against the exercise of the discretion in this case. No good reason was suggested as to why Ms Trouton’s estate ought not to be administered in accordance with the Bankruptcy Act, given her state of insolvency.
Notwithstanding that the petition, on my findings, ought not to have been presented, I decline to order that the bankruptcy be annulled. In those circumstances, the application for annulment is refused.
I certify that the preceding thirty-nine (39) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered on 18 October 2014.
Associate:
Date: 3 December 2014
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