Turner, A v Trevorrow, R.W

[1993] FCA 695

67s 73

IN THE FEDERAL COURT OF AUS!L'RALIA	JUDGMENT No. ........ ........ ..I ..,.,
EXERCISING FEDERAL JURISDICTION	No VP 356 of 1993
IN BANKRUPTCY

BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA

RE :  ALAN TURNER

Debtor

EX PARTE:  RONIUD WILLIAM TREVORROW AND

R & P TREVORROW PTY LTD

Petitioning Creditors

COURT :  NORTHROP J

m RECEIVED

PLACE :	MELBOURNE
DATE :	29 JULY 1993

AUSTRALIA

EX TEMPORE REASONS FOR JUDGMENT	PRINCIPAL
REGISTRY

is the return of a petition brought by the judgment

creditors against the debtor. The real difficulties arising
at the hearing of the petition result from two main causes.
First, there was never, until the course of the hearing today,
an accurate statement of the grounds upon which the debtor
proposed to object to the making of the sequestration order as
required by Bankruptcy Rule 20 and Form 8 of the Bankruptcy
Rules. Secondly, there was an absence of any direct evidence
which is admissible in a court of law. Much of the evidence,
although not objected to, was hearsay evidence. This, of
itself, gives rise to great difficulties in determining what
weight should be given to that evidence. Of more importance
is the fact that the debtor himself has not given any evidence
on matters relevant to the issues before the Court. It may be
that this has resulted from pressures to have the matter heard

This

speedily but, again, there is no direct evidence before me to

L

express a view one way or the other on that. Accordingly the
Court must proceed, on the basis of the material before the
Court, and to make findings to the best of its ability on that

material, deficient though it be.

At the beginning of the hearing, the petitioners sought

leave to amend paragraph 1 of the petition. The petition was

presented on 5 April 1993 and paragraph 1 read:

"1. The debtor was at the date of the commission of the

act of bankruptcy specified in paragraph 4 of this
petition personally present in Australia."

One factual matter is clear and can be accepted, namely,

that on the date the act of bankruptcy is alleged to have
occurred, namely 2 April 1993, the debtor was not in
Australia. Section 43 of the Bankruptcy Act provides that the
Court has jurisdiction to make a sequestration order in cases

specified therein.	I will read subsection (1) of that
section:

"43(1) Subject to this Act, where:

(a) a debtor has committed an act of bankruptcy; and

at the time when the act of bankruptcy was

(b) committed, the debtor:

(i) was personally present or ordinarily resident

in Australia;

(ii)had a dwelling-house or place of business in Australia;

(iii) was carrying on business in Australia,
either personally or by means of an agent
or manager; or

(iv)was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;

the Court may, on a petition presented by a creditor,

make a sequestration order against the estate of the

debtor. "

In view of the fact that on 2 April the debtor was not

personally present in Australia, it is obvious that in its then existing form the petition was bound to fail. At the commencement of the hearing of the petition, leave was granted

to the petitioning creditors to amend the petition by deleting
paragraph 1 and substituting therefore a new paragraph 1 as
follows :

"1. The debtor was, at the date of the commission of the

act of bankruptcy specified in paragraph 4 of this
petition,

(i) ordinarily resident in Australia;

(ii)had a dwelling house or place of business in Australia; or

(iii)was carrying on business in Australia either personally or by means of an agent or manager."

At the same time the Court ordered that there need not be

a re-serving of the petition as amended.

The hearing of the petition continued on the basis that

at least one of the jurisdictional facts could be established

to justify the making of a sequestration order. In fact,

notice of that proposed amendment had been given to the debtor
on 22 June 1993.

By a notice of appearance dated 29 June 1993 the

solicitor for the debtor had given notice of intention to
appear at the hearing and the grounds of objection. The
grounds of opposition were stated to be as follows:

"The ground of opposition to the petition is that the debtor was not served with the bankruptcy notice, nor were the contents of the bankruptcy notice known to him

prior to the date of the alleged act of bankruptcy."

It was apparent, quite clearly, that this did not state

all the real grounds of opposition sought to be relied upon by
the debtor, the substantive ground relied upon being that the
debtor, at the time of the act of bankruptcy on 2 April 1993,

did not come within any of the matters specified in

subsection 43(1) of the Bankru~tcv Act. Accordingly, leave

was granted to the debtor to amend his notice of appearance to

rely upon grounds of opposition as follows:

"1. The debtor was not served with the bankruptcy

notice, nor were the contents of the notice brought

to his attention prior to the date of the alleged

act of bankruptcy;

2.    The debtor denies he has committed the act of bankruptcy as alleged in the petition;

3.    The debtor denies that at the date of the alleged act of bankruptcy he was -

3.1 ordinarily resident in Australia;

3.2	had a dwelling house or place of business in Australia; or
3.3	was carrying on business in Australia either personally or by means of an agent or manager."

The matter then proceeded to hearing, the issues being

defined by the petition and by the grounds of objection. In
the course of that hearing much evidence was given, much of it

irrelevant to the issues between the parties and much of it,

as I said before, of a hearsay nature. In addition,

admissions of facts made by the debtor were relied upon by the

petitioning creditors.

The act of bankruptcy alleged in the petition was that

the debtor did not comply on or before 2 April 1993 with the requirements of a bankruptcy notice addressed to the debtor, service of which was deemed to have been effected on 19 March

1993 in accordance with the order of Deputy Registrar Agnew
made 19 February 1993 for substituted service, nor satisfy the
Court that the debtor had a counter-claim set off or a cross-
demand equal to or exceeding the sum specified in paragraph
(a) of the bankruptcy notice. The bankruptcy notice was based
upon a judgment of the County Court of Victoria and was dated
10 November 1992. It was a 14 day notice. The amount claimed

was $116,701.02 and the judgment in the County Court was for

damages for assault against the debtor.

Apparently there were great difficulties in serving the

debtor even though at that time he was living at a house owned
by his brother but rented by the debtor at 9 Lane Crescent,
Reservoir. Attempts were made to serve the debtor there but
those attempts failed. Eventually an order for substituted
service was made by the Deputy Registrar of the Court on 19
February 1993. I will read the relevant part of that order:

"1. Personal service of the bankruptcy notice is

dispensed with.

2.    In lieu thereof the bankruptcy notice be served as follows :

(a) By posting a letter stating the date of posting

and enclosing a copy of the bankruptcy notice

signed and stamped by the Registrar and a copy of today's order by ordinary mail addressed to the debtor at 9 Lane Crescent, Reservoir, in

the State of Victoria; and

By handing a letter addressed to the debtor

(b) containing a copy of the bankruptcy notice

signed and stamped by the Registrar and a copy
of today's order to a person apparently over
the age of 16 years apparently residing at said
address.

3.    Service of the bankruptcy notice be deemed to be effective on Friday, 19 March 1993 upon condition that the two events referred to in paragraph 2 occur before the expiration of 21 days of the date of this

order. "

That order was entered on 3 March 1993 and service of the bankruptcy notice was made in conformity with the requirements of that order. However, the debtor had departed from

Australia on 28 February 1993

The effect of the debtor's failure to comply with the

bankruptcy notice was that he had committed an act of

bankruptcy under paragraph 40(l)(g) of the Bankru~tcv	Act, the
date of the act of bankruptcy being 2 April 1993.

The first ground of opposition raised by the debtor gives

rise to some difficulty because it alleges that the contents
of the notice were not brought to the attention of the debtor
before the act of bankruptcy on 2 April. That must happen in
many cases.

An order for substituted service of a petition or a

bankruptcy notice is not to be given as of course and some of
the problems associated with this are discussed in the
judgment of the Full Court given in of Ginnane v Diners Club
Limited, unreported, 19 April 1993 in matter No VG 365 of

1992, a decision of the Full Court of the Federal Court of

Australia, comprising Sheppard J, Einfeld J and myself. In

the present case, there is no direct evidence that the debtor
did not receive notice of the bankruptcy notice, although in
all probability he did not receive such notice before the act
of bankruptcy on 2 April 1993. The bankruptcy notice was left
at the address in Lane Crescent, Reservoir, apparently with a

stranger and there is nothing to suggest what happened to

that. There is evidence to show that the debtor, before he

left Australia, gave instructions to Australia Post at
Reservoir to redirect any mail addressed to him or to a
company, A.L. Turner Pty Limited, to a post office box number,
being that of his mother, in the country. That mail so re-

addressed by the post office was in fact forwarded to that

post office box and this has continued even up until recently.

The debtor's mother gave evidence that she forwarded the mail so received unopened but placed in a special postal delivery bag, addressed to her son in Germany, but that the first overseas posting was not sent until shortly after 2 April 1993, being the date when the son commenced a language course at an institution in Germany. However, the mere fact that a debtor does not receive a bankruptcy notice is not, of itself, sufficient to make the bankruptcy notice invalid. Here, the debtor did not apply to have the bankruptcy notice set aside when in all probability he did received notice of it.

The evidence contained in the affidavit of his solicitor, Jack Di Natale, is ambiguous as well as being hearsay. Mr Di Natale states that on 23 June he spoke to the debtor by telephone and that the debtor advised him that he was not aware that a bankruptcy notice had been issued against him before he left Australia on 28 February 1993. There is nothing in that affidavit to suggest that the debtor did not know of the existence of a bankruptcy notice at a later stage. This is one of the problems arising from the absence of any evidence by the debtor himself.

During the course of submissions, counsel for the debtor

referred to some conflicting decisions in Australia in
relation to matters of this kind. In Savers [l9481 Qd R 43,
the Supreme Court of Queensland made a sequestration order in
circumstances where the bankruptcy notice had been served
pursuant to an order for substituted service under subsection

309(2) of the Bankru~tcv Act and it appeared that the notice

had not been received by the debtor but nevertheless the act

of bankruptcy had been proved. In v DeDutv Commissioner

of Taxation 42 ALR 703, a bankruptcy notice was set aside by
the Court in circumstances where there was no way of
determining when the act of bankruptcy occurred because of the
absence of any clear statement of when the act of bankruptcy
was deemed to have occurred when it was served pursuant to an

order for substituted service. Reference was made also to the

case of m, in the Supreme Court of New South Wales being

matters 136 and 137 of 1948 where, apparently, bankruptcy
notices served pursuant to an order for substituted service
could not be relied upon where it was established that the

debtor had not received those notices.

I am prepared to act upon the effect of the order made by the Deputy District Registrar in this matter. It is still on

the record. It states that, on the facts of this case as

subsequently proved, the act of bankruptcy occurred on 2 April

1993. That act of bankruptcy, in my opinion, has been

committed and, even though the debtor may not have had notice of it, that is not sufficient in the present case to say that the debtor was not served with a bankruptcy notice nor that

the contents of the notice were not brought to his attention
prior to the date of the alleged act of bankruptcy so as to

vitiate the petition itself. The debtor has not sought to

have the bankruptcy notice set aside. In my opinion, on the

material before the court, the petitioning creditor has

established the act of bankruptcy as alleged in the bankruptcy

notice.

The next issue is that of jurisdiction. This does give

rise to some difficult questions of law. The facts themselves are not really in dispute and need be stated in a summary form only. It appears that the debtor was the director and

secretary of a company, A.L. Turner Pty Limited, which, at the present time, comprises two shareholders, being his mother who has 11 shares and one other person. The business itself is

engaged in the building trade but the whole of the activities of the company were controlled by the debtor himself. As the mother put it, he really conducted the business of the

company, as it were, on his own behalf. Nevertheless it must
be remembered, that in legal theory, a corporation is distinct
and separate from its shareholders or directors and this is a

matter essential in applying the law in this area.

In Victoria, as is well known, over the last few years,

business has declined and this has affected the business of
the company. The debtor made two trips to Germany and I
accept the fact that he intended to go back in 1993 to engage
in a language course to commence on 1 April 1993 which was to
last for some eight weeks and thereafter to attempt to get
work in Germany with an intention to stay, possibly for five

years, in Germany. There is nothing to suggest he had an

intention of never returning to Australia. The longer term

intentions of the debtor are completely unclear, unspecified
and uncertain. Nevertheless, he left for Germany with his

defacto wife and one child on 28 February 1993.

In the course of their journey, they had a holiday,

arriving in Germany some short time before 1 April. The

debtor then apparently commenced the course. Until they
arrived at the institute for the course, there was no address
apparently in Germany or elsewhere at which they could be
contacted. The debtor had owned a house in Melbourne at
Thomastown, but had been forced to sell that some time in 1992
because of financial problems. Thereafter, he had rented the
house at 9 Lane Crescent, Reservoir, which was owned by his

brother. Apparently he did own other land with a sister. The
company owned land at Thomastown and the company was still

engaging in business activities at the time the debtor left

Australia. The debtor had made arrangements with his mother

to enable her to sign cheques on behalf of the company to pay
accounts of the company, to receive moneys owing to the
company and generally to act on his behalf in Australia in the

management of the company's building business still unfinished

in Australia. The evidence discloses that thereafter the

mother did do that, did receive moneys from debtors of the
company and did make payments to creditors of the company and
that this continued well after 2 April 1993. In these
circumstances, it is necessary to determine whether any one of

the jurisdictional conditions specified in subsection 43(1) of

the Bankru~tcv Act have been satisfied.

During the course of submissions, the court was referred

to two cases. The first case was Re Brauch, ex parte
Britannic Securities and Investments Limited [l9781 1 All ER

1004 and particularly at page 1013, where the Court of Appeal

in England reaffirmed the distinction between a company and
those who control the company and the business of the company
and the business of the persons controlling them. Although
the businesses of companies are separate and distinct from the
business of the person controlling them, the Court of Appeal
indicated that the carrying on of the business by the
individual itself could be a business for the purposes of the
bankruptcy law.

This, in my opinion, is consistent with general

principles of law. A business essentially is engaging in an
activity with the intention of making money but sometimes

making a loss. In the present case, the debtor certainly was

engaged in a business being the activity, at the very least,
of managing and controlling the affairs of the company
A.L. Turner Pty Limited. The affairs of the company continued
after he left Australia and he appointed an agent to conduct
those activities on his behalf while he was outside Australia.
Support for this view, in my opinion, is given by the
reasoning of Burchett J in the case of Re Vassis, ex parte

(1985) 64 ALR 407, a case which is very different from

the present, but in some respects has similarities,
particularly in relation to the jurisdictional fact required
by subsection 43(1) of the Bankru~tcv Act. In particular, I
refer to what was said by His Honour at pages 414 to 415 of

that report, where reference was made to paragraph

43(l)(b)(ii) of the Bankru~tcv	Act which is set out earlier in
these reasons.

Burchett J referred to what was said by Gibbs J in

Mendonca; ex parte Federal Commissioner of Taxation (1969) 15

FLR 256 at 260-1, where his Honour there referred:

"to the somewhat wide understanding of those words (ie
was carrying on business) that has come to be established
in bankruptcy law. Illustrations were given to the
effect that the business continues until "the shutters
are put up", and continues until the sums due are
collected, and all debts paid."
In the present case, the business of managing the company

had been carried on by the debtor and that business continued
at least until all sums due were collected and all debts paid.
To enable this to be done, the debtor appointed his mother as
his agent. In my opinion, the decision of Re Brauch does not

prevent that conclusion from being reached in this case.

It is clear that on 2 April 1993 the debtor was not

personally present in Australia. It may be that he was

ordinary resident in Australia. He had departed from
Australia with the intention of doing this language course in
Germany. He apparently had the intention of staying there

some indefinite time, maybe up to 5 years, but the evidence

- here is very, very weak. There is certainly nothing to

suggest he was not going to come back to Australia. He was an
Australian, having been born in Australia, had an Australian
passport and only had had two previous departures from
Australia. Again, adopting the reasoning of Burchett J in &

Vassis, it may well be that on 2 April he was still ordinary

resident in Australia. He certainly had not obtained a

residence of any permanent nature in Germany at that time.

The evidence shows that he did not have a dwelling house in

Australia at the time of the act of bankruptcy. It may well

be he still had a place of business in Australia, the business
being the activities connected with managing the affairs of
the company A.L. Turner Pty Limited. If necessary, I would so
find. However, I am also satisfied that on 2 April the debtor
was carrying on business in Australia by means of an agent or
manager, namely his mother.

Therefore, the jurisdictional fact is established and the grounds relied upon by the debtor must fail.	In those
circumstances, one comes to s52 of the Bankru~tcv	Act. Having

regard to the certificate given by the Deputy Registrar in
Bankruptcy under the provisions of the Bankruptcy Rules,
together with the evidence presented to the Court, I am
satisfied of the matters stated in the petition as amended. I
am satisfied with the service of the petition on the debtor,
which again was served pursuant to an order for substituted
service. I am satisfied that the debts on which the
petitioning creditors rely are still owing. In those

circumstances, normally I would make a sequestration order

against the estate of the debtor. Before so doing, I would

- - ask counsel for the debtor whether there are any other reasons
why such an order should not be made.

For the reasons already given, I make a sequestration

order against the estate of the debtor. I note that Paul

Anthony Paterson of Ernst and Young, Chartered Accountants, a

registered trustee, has consented to act as trustee of the

estate of the debtor.

I order that costs, including any reserved costs, be

taxed and paid according to the Act and I direct that a draft
of this order be delivered to the Registrar within 7 days in
accordance with R124(2).

I certify that this and the preceding fourteen (14) pages are

a true copy of the Ex Tempore Reasons for Judgment of The

Honourable Mr Justice R.M. Northrop.

Associate:

Date:  J [ &p