United Petroleum Pty Ltd v Bousaleh

[2020] FCCA 2226

FEDERAL CIRCUIT COURT OF AUSTRALIA

UNITED PETROLEUM PTY LTD v BOUSALEH [2020] FCCA 2226

Catchwords:
BANKRUPTCY – Bankruptcy Act 1966 (Cth) – Application for review of a sequestration order made by Registrar of the Court – petitioning creditor paid out and no other creditor sought to be substituted – Debtor solvent – sequestration order set aside and Creditor’s Petition dismissed – Debtor’s Bankruptcy Trustee entitled to costs, expenses and remuneration in the period since the making of the sequestration order – Trustee not guilty of any conduct disentitling her to her costs, expenses and remuneration – annulment order ought also be made under s.153B of the Bankruptcy Act 1966 (Cth) so as to enable Trustee to avail herself of s.154.

Legislation:

Bankruptcy Act 1966 (Cth), ss.5, 54, 153B, 154

Federal Circuit Court of Australia Act 1999 (Cth), s.104
Federal Magistrates Act 1999 (Cth)
Federal Circuit Court (Bankruptcy) Rules 2016 (Cth)
Federal Circuit Court Rules 2001 (Cth)

Cases cited:

Flint v Richard Busuttil & Company Pty Ltd and Another (2013) 216 FCR 375

Pattison v Hadjimouratis (2006) 155 FCR 226

Applicant Creditor: UNITED PETROLEUM PTY LTD

Respondent Debtor: GAIL CHRISTINE BOUSALEH

Intervener (as to costs): KATHERINE ELIZABETH BARNET IN HER CAPACITY AS TRUSTEE OF THE ESTATE OF GAIL CHRISTINE BOUSALEH

File Number: SYG 1758 of 2019

Judgment of: Judge Dowdy

Hearing date: 22 July 2020

Delivered at: Sydney

Delivered on: 18 August 2020

REPRESENTATION

There was no appearance for the Applicant Creditor.

Counsel for the Respondent Debtor: Mr G. Fernie

Solicitors for the Respondent Debtor: DWF Law (Australia)

Counsel for the intervener Trustee in Bankruptcy: Mr D. Robertson of Counsel

Solicitors for the intervener Trustee in Bankruptcy: Colin Biggers & Paisley Lawyers

THE ORDERS OF THE COURT ARE AS FOLLOWS:

1. The sequestration order made on 15 August 2019 is set aside.

2. The Creditor’s Petition filed on 11 July 2019 is dismissed.

3. The bankruptcy of the Respondent Debtor is annulled pursuant to s.153B of the Bankruptcy Act 1966 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 1758 of 2019

UNITED PETROLEUM PTY LTD

Applicant Creditor

And

GAIL CHRISTINE BOUSALEH

Respondent Debtor

KATHERINE ELIZABETH BARNET IN HER CAPACITY AS TRUSTEE OF THE ESTATE OF GAIL CHRISTINE BOUSALEH

Intervener (as to costs)

REASONS FOR JUDGMENT

Introduction and Procedural History

1. This proceeding commenced through the filing of a Creditor’s Petition by United Petroleum Pty Ltd (the Creditor) on 11 July 2019, in which it sought a sequestration order against the estate of Gail Christine Bousaleh (the Debtor) for her failure to comply with a Bankruptcy Notice served on her on 14 June 2019 in relation to a judgment debt obtained by the Creditor against the Debtor in the Supreme Court of New South Wales for $133,317.38, including interest.

2. The Creditor’s Petition was heard by Registrar Morgan on 15 August 2019 when the Debtor failed to appear and a sequestration and other orders were made, as follows:

   THE COURT ORDERS THAT:

   1. The estate of Gail Christine Bousaleh be sequestrated under the Bankruptcy Act 1966.

   2. The Applicant Creditor’s costs fixed in the sum of $8,562.23 be paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.

   3. A copy of this order be provided by the Applicant Creditor to the Official Receiver in Sydney within 2 days.

   THE COURT NOTES THAT:

   4. The date of the act of bankruptcy is 5 July 2019.

   5. A consent to act as trustee signed by Katherine Elizabeth Barnet (the Trustee) has been served on the Respondent.

   (the sequestration order)

3. On 19 August 2019 the Trustee forwarded for completion to the Debtor a Statement of Affairs, noting that the sequestration order had been made on 15 August 2019.

4. On 30 August 2019 the solicitor for the Debtor sent an email to the Trustee which advised in substance that:

   a)he acted for the Debtor;

   b)the bankruptcy appeared to have been prematurely obtained; and

   c)an application was being made to set aside the bankruptcy and that he expected the Creditor to support that application.

5. By email in response dated 3 September 2019 the Trustee advised, and requested from, the Debtor’s solicitor as follows:

   a)advised that the Trustee agreed to suspend the realisation or recovery of any property of the Debtor for a period of 14 days;  

   b)requested an update on the progress of the foreshadowed application to set aside the bankruptcy;

   c)requested that in the interim the Debtor agree not to deal with any of her property, other than in the ordinary course of business;

   d)requested that the Debtor complete and return her Statement of Affairs by 9 September 2019; and

   e)advised that the Trustee’s costs to date constituted about $6,000.

   I note that the debtor never gave any agreement or undertaking not to deal with her property as requested, and did not complete and return the Statement of Affairs to the Trustee until 9 October 2019. 

6. The Debtor lodged an Application for Review of the sequestration order on 9 September 2019 (formally regarded as filed on 11 September 2019) (the Review Application) which was on its face made returnable before me on 27 September 2019. It sought that the orders made by Registrar Morgan on 15 August 2019 be set aside on the following grounds:

   1.a.     The Applicant has a claim against the Respondent for monies owing.

   b. The claims about monies owing between the Applicant and Respondent have been settled in full.

   c. The Applicant is not insolvent.

7. By email dated 10 September 2019 the Debtor’s solicitor advised the Trustee that the Debtor had filed the Review Application and asked whether the Debtor had any creditors other than the Creditor. This email attached an unsealed and unfiled copy of the Review Application. The Trustee responded to the Debtor’s solicitor’s email by email of the same date, advising that the Australian Taxation Office (ATO) was owed $204,593.30 and the ANZ Bank owed $34,984.30, and noting that the Statement of Affairs had still not been received.

8. By email dated 12 September 2019 the Debtor’s solicitor advised the Trustee that the Debtor believed her debt to the ATO was only around $4,000 and sought confirmation of the amount of $204,593.30. On the same day the Trustee provided to the Debtor’s solicitor a copy of the ATO’s proof of debt dated 29 August 2019 in the amount of $204,593.30, and in response on 13 September 2019 the Debtor’s solicitor advised the Trustee as follows:

   I am now intending to withdraw the application to set aside the sequestration order.

   I await instructions from my client to confirm this but there seems little point in pursuing this from my end given the size of the ATO debt.

9. The Debtor did not serve a copy of the filed Review Application on the Trustee. Without advising the Trustee and contrary to the advice given to the Trustee that the Review Application was going to be withdrawn, the Debtor’s solicitor instructed Mr Fernie as city agent to appear at the scheduled directions hearing on 27 September 2019, which date was unknown to the Trustee. Mr Fernie then informed me in Court that he mentioned the matter on behalf of the Creditor and handed up a letter dated 24 September 2019 from the Creditor’s solicitor to the Debtor’s solicitor, which stated in short that the debt owed by the Debtor to the Creditor had been paid pursuant to settlement terms which included a condition that the Creditor would not oppose any application to set aside the sequestration order. On the basis of the representations then made to me I made orders setting aside the sequestration order. I note that no criticism is made of Mr Fernie himself in this connection.

10. Unbeknownst to me at the time, the Debtor had not complied with r.7.05 of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) by either notifying the Trustee of the Review Application at least seven days prior to its return date or giving notice of it to any of her other creditors.

11. On 30 September 2019 the Debtor’s solicitor informed the Trustee of the appearance before me on 27 September 2019 and the setting aside of the sequestration order. Correspondence then ensued between the respective solicitors, but the Debtor refused to consent to the setting aside of my orders of 27 September 2019 and indicated that any such application for the same would be opposed. Accordingly, on 2 October 2019 the Trustee filed an Interim Application seeking to set aside my orders of 27 September 2019 under r.16.05(2) of the Federal Circuit Court Rules 2001 (Cth), which Interim Application was listed before his Honour Judge Cameron as Duty Judge. His Honour set the Interim Application down for hearing before him on 4 October 2019, when Mr D. Robertson of Counsel appeared for the Trustee and Mr E. Thompson of Counsel appeared for the Debtor to oppose the setting aside of my orders of 27 September 2019. In the result Judge Cameron set aside my orders, which had the effect of reinstating the bankruptcy of the Debtor, and the matter was set down for directions before me at a date to be advised. Judge Cameron ordered that the Trustee’s costs of the Interim Application be paid by the Debtor because of the failure of the Debtor to comply with r.7.05 of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), as noted in [10] above.

12. The Review Application then had four further directions hearings before me and on 20 December 2019 was listed for hearing on 24 March 2020. The March hearing was vacated because of COVID-19, and ultimately the Review Application was listed for hearing on 22 July 2020. At one of those directions hearings, namely on 15 November 2019, an order was made by the consent of the Trustee and the Debtor that the Trustee file and serve any Report in the proceeding by 5pm on 5 December 2019. On 10 December 2019 the Trustee filed her Report (Trustee’s Report), dated 6 December 2019 which concluded that for the reasons summarized at [11.9] of the Trustee’s Report, the Debtor was insolvent for the purposes of s.5(2) and (3) of the Bankruptcy Act 1966 (Cth) (the Act). Another directions hearing had to be adjourned because of the Debtor’s failure to comply with a previous order to file her Written Submissions in support of the Review Application, and she was ordered to pay the costs thrown away by the unproductive appearance before the Court.    

Review Application Hearing

1. At the hearing Mr Fernie again appeared as city agent for the Debtor’s solicitors and Mr Robertson of Counsel appeared for the Trustee. An application for review of a sequestration order involves and requires a hearing de novo with the Creditors Petition being heard afresh, and a decision being given on the material presented at that fresh hearing. No party appeared at the hearing to press for the making of a sequestration order against the Debtor. The Creditor did not appear because it has been paid its judgment debt. No other creditor applied to be substituted as petitioning creditor. The ATO did not appear and the Trustee accepted that an arrangement satisfactory to the ATO had been made between it and the Debtor. Further, the Trustee accepted that the arrangement between the ATO and the Debtor entered into since the Trustee’s Report meant that the Debtor is now solvent. Accordingly it follows that the Review Application must succeed and at the very least the sequestration order set aside and the Creditor’s Petition dismissed and that is the question for determination here; namely whether as submitted by the Debtor the only orders which ought be made are that the sequestration order be set aside and the Creditor’s Petition dismissed, or alternatively as submitted by the Trustee, there should also be a further order, namely that the Debtor’s bankruptcy be annulled under s.153B of the Act.

2. The purpose of the making of an annulment order in the present context is sufficiently explained by the following passages from the judgment of the Full Court of the Federal Court of Australia comprised of Allsop CJ, Katzmann and Perry JJ in Flint v Richard Busuttil & Company Pty Ltd and Another (2013) 216 FCR 375 (Flint) at 384 – 385 [48] – [51]:

   What orders should be made?

   [48]It follows that the appeal should be allowed. Ms Flint applied for an order setting aside the sequestration order. The trustee asked to be heard on the question.

   [49]The trustee was given leave to intervene as a party to protect his position. He submitted that an order annulling the bankruptcy should be made under s 153B of the Bankruptcy Act in order that his costs and remuneration be protected in accordance with s 154. If the sequestration order were set aside, the creditor’s petition dismissed and no order annulling the bankruptcy made, the authorities reveal that the trustee would have no statutory basis for any remuneration and his action (and the consequences thereof) would be left to the general law: see the discussions in Austral Brick Company Pty Ltd v Daskalovski [1998] FCA 782; Symons v Bateman [1999] FCA 658; Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338 (Kyriackou) and Pattison v Hadjimouratis (2006) 155 FCR 226 (Pattison). The exposure of the trustee to that position in this case would be a gross injustice, as we later explain.

   [50]An order for annulment would provide a simple means of enabling the trustee to recover his costs and remuneration in the administration of the bankruptcy. Ms Flint opposed the making of such an order on the ground that it is not possible to annul an order which was made without power.

   [51]Still, in Pattison the Full Court (by majority) held that it was open to the Court to make orders both setting aside a sequestration order and annulling the bankruptcy. No party in this appeal contended that Pattison was wrongly decided and the course it sanctioned appears to be within the terms of s 153B.

3. In practical terms, the question then translates into whether the sequestration order ought be:

   a)set aside under s.104(3) of the Federal Circuit Court of Australia  Act 1999 (Cth) (the FCCA) with the Creditor’s Petition dismissed, which would result in the Trustee having no recourse for seeking relief with respect to the costs, charges, expenses and remuneration arising out of her administration of the Bankrupt Estate of the Debtor (Trustee’s remuneration) otherwise than at general law as explained in Flint at [49]; or

   b)both set aside and annulled under s.153B of the Act, with the Creditor’s Petition dismissed, which would give the Trustee the benefit of s.154, allowing her to apply the property of the Debtor still vested in her in payment of her Trustee’s remuneration.

4. I note that in Pattison v Hadjimouratis (2006) 155 FCR 226 (Pattison) Nicholson J considered s.104(3) of the FCCA as it then stood in the same terms under the Federal Magistrates Act 1999 (Cth) (the FMA) and said of it as follows at 231 [11] – [12]:

   [11]… The power of review is provided for in s 104(3) of the FMA. The same section provides for the breadth of power vested in the federal magistrate to undertake the review. The scope of those powers is expressed in terms which admit of the making of an order of annulment, subject to annulment being open and appropriate. The critical question is whether the option of annulment is excluded (when there is a finding that the sequestration order ought not to have been made) by the de novo character of the review and the finding. At the point when the federal magistrate comes to consider the making of an order he or she will be faced by the existence of a sequestration order and a trustee appointed in the administration of what at that point is still a bankrupt estate. Section 43(2) provides that a bankrupt continues until discharge or annulment. Until the federal magistrate makes an order on the review the status of a bankrupt continues. The finding that the sequestration order ought not to have been made does not itself operate to change that status.

   [12]It is at that time that the statutory powers in s 104(3) of the FMA become relevant. I do not read those powers as being limited by the reference in s 104(3) “to the matter in respect of which the power was exercised”. That is, I do not read those words as picking up some limitation from the nature of the review but rather as being descriptive of what “any order or orders” thought fit must generally relate to. In short, the words of the statutory vesting of power evidence an intention of giving the federal magistrate the widest possible choice of powers to address the outcome of the review. Even though he or she may have found that the sequestration order ought not to have been made, the status of the bankruptcy is not at that point changed until the making of an order. It is therefore open for the bankruptcy to be annulled if, for reasons appearing before the federal magistrate, annulment is a preferable course of action even though the federal magistrate has found that it ought not to have been made. Given the breadth of the powers vested by statute, I do not consider that the making of such an order of annulment would be a recognition of the validity of the sequestration order: rather it would be an order to resolve the circumstances found to be inappropriate as the result of a finding to the contrary.

   Jacobson J said at 239 [80] – [81] of Pattison:

   [80]It follows in my opinion that it must be open to the Court on review to uphold the review, dismiss the petition and at the same time make an annulment order under s 153B of the Bankruptcy Act, to the extent that the Registrar’s order was on foot for the period from the date of the order to the date of the order of the Court. Of course, the proceedings will need to be properly constituted for such an order to be made. The proceedings were so constituted here, the Trustee being present on the application, albeit not having been joined formally as a party.

   [81]Alternatively, in the ordinary case, the application before the Court will include a claim, in the alternative, for annulment under s 153B. I do not see why the Court could not simply annul the bankruptcy, rather than dismissing the petition if it be thought that some tension exists between dismissal and annulment.

5. I record that at the hearing for purposes not entirely clear to me Mr Fernie sought leave, which was granted, to amend the Review Application to seek in the alternative to [1] that the bankruptcy of the Debtor be annulled.

Determination

1. In my view for the reasons which follow it would be unfair, unjust and unreasonable for the Trustee to be deprived of her Trustee’s remuneration by denying her recourse to s.154 of the Act as she has not been guilty of any conduct disentitling her to the recovery of her Trustee’s remuneration. The Trustee is entitled to the benefit of two costs orders in this Court which she should be able to recover as a cost of her administration. Further, I was informed by Mr Robertson at the hearing without objection that the committee of creditors in the Bankrupt Estate of the Debtor had approved the Trustee’s remuneration in the sum of $33,881 on 3 December 2019. In my view effective recovery of those costs and remuneration should be available to the Trustee. Subject to any applicable time limits of which I have not been made aware by either of the parties, the Court costs, the approved remuneration and the Trustee’s remuneration up to the setting aside of the sequestration order and annulment remain subject to inquiry and orders of a Court of Bankruptcy under s.90-15 of Sch.2 to the Act, which may be invoked under s.90-20 by a person with a financial interest in the administration of a regulated debtor’s estate, such as the Debtor here.

1. There is no evidence before me with any tendency to suggest that the Trustee has illegitimately or excessively racked up her Trustee’s remuneration. She consented to act as Trustee and was regularly appointed by Registrar Morgan when the Debtor failed to appear at the hearing of the Creditor’s Petition. She carried out her duties in a timely way, advising the Debtor of the sequestration order and forwarding to her a Statement of Affairs. She acted reasonably by advising the Debtor on 3 September 2019 that she would agree to suspend the realization or recovery of any property for a period of 14 days, and in advising the Debtor that the Trustee’s costs to date constituted about $6,000. The Trustee asked for the conventional undertaking not to deal with any property other than in the ordinary course of business, which undertaking was never given. The Trustee, with the Debtor’s consent, assisted the Court by preparing the Trustee’s Report, which indicated at the time that the Debtor was insolvent. She acted reasonably in approaching this Court by the Interim Application to set aside my orders of 27 September 2019 which had been made without her knowledge and which would have effectively deprived her of her Trustee’s remuneration. The Trustee’s remuneration since December 2019 would seem to be almost entirely related to the Review Application and the Debtor’s consistent, and in my view unjustifiable, opposition at all material times to the Trustee being entitled to her Trustee’s remuneration.

2. On the other hand there were a number of undesirable features connected with the Debtor’s conduct during the administration of her Bankrupt Estate, namely:

   a)she failed to comply with s.54(1) of the Act which required her to complete her Statement of Affairs within 14 days of being notified of her bankruptcy; rather she did not complete and return her Statement of Affairs until 9 October 2019, almost two months after having been advised of her bankruptcy by the Trustee on 19 August 2019;

   b)she never gave the conventional undertaking requested by the Trustee on 3 September 2019 not to deal with any of her property other than in the ordinary course of business;

   c)after receipt of the Statement of Affairs, the Trustee by letter dated 17 October 2019 requested of her information that would assist in the administration of the Bankrupt Estate, to which the Debtor never responded and of which the Trustee said at [4.2] of her Trustee’s Report as follows:

   [4.2] I have had limited cooperation from the Bankrupt. On 17 October I sent a letter to the Bankrupt requesting information that would assist me with the preparation of this report and also assist me with the administration of the Bankrupt Estate. As at the date of this report I have not received a response from the Bankrupt or her lawyers…

   d)having entered into a contract for the purchase of real estate situated at William St, Jesmond on 12 May 2019 she thereafter held an equitable estate and interest in that property, but did not disclose it in her Statement of Affairs;

   e)she did not correct her Statement of Affairs between completing and signing it on 3 October 2019 and returning it to the Trustee on 9 October 2019 to reflect the fact that she had settled the purchase of the William St, Jesmond property on 4 October 2019 and on that day borrowed $432,000 from the Westpac Banking Corporation to enable settlement; and

   f)when the existence of the Debtor’s ownership of the William St, Jesmond property and the loan from Westpac was revealed by the Debtor’s solicitor’s affidavits relied on in connection with the Interim Application, the Debtor failed to give a meaningful and reasoned response to the Trustee’s solicitor’s proper enquiries made by emails dated 12 December 2019 and 16 December 2019.      

3. At the hearing Mr Fernie properly conceded that the Trustee was under an obligation to maintain the Debtor’s bankruptcy file until her Review Application was determined. The Debtor’s delinquencies particularised at [20] above abundantly justified that concession and warranted the Trustee’s actions in considering and seeking to explore those delinquencies.

Orders for Relief

1. On the basis of the uncontested and uncontradicted evidence of the Debtor given at [11] and [12] of her affidavit of 13 May 2020, as amplified by Mr Fernie at the hearing without opposition from Mr Robertson, I am prepared to find that for the purposes of s.153B of the Act a sequestration order ought not have been made on 15 August 2019. Paragraphs [11] and [12] were as follows:

   [11] I did not appear to protect my interests on 15 August 2019 for the following reasons:

   (a) My husband and I had both received bankruptcy notices in respect of the judgment obtained by United Petroleum however at different times in about May 2019;

   (b)A joint Creditor’s Petition for my husband and myself in addition to a separate Creditor’s Petition for my husband alone were served on or about July 2019, and these were the initial focus of negotiations with United Petroleum and for the court;

   (c) United Petroleum served me with a separate Creditor’s Petition only three weeks before 15 August 2019;

   (d) I provided relevant material to my husband and our lawyer, Craig Doyle in a meeting 01/08/2019;

   (e) I believed that a representative would appear on my behalf before the Court to either oppose the sequestration;

   (f)I was represented in the joint Creditor’s Petition and I believed that the same representative would appear on my behalf for my separate Creditor’s Petition.

   [12]My understanding is that on 15 August 2019, United Petroleum reached an agreement with us about the Lease. I was in Newcastle. As a result no sequestration orders were made against [my husband] alone and against us jointly but sequestration orders were made against me as I was not represented on the day.

2. Accordingly, it follows from the foregoing that I will make the following orders:

   (1)The sequestration order made on 15 August 2019 be set aside.

   (2)The Creditor’s Petition filed on 11 July 2019 be dismissed.

   (3)The bankruptcy of the Respondent Debtor be annulled pursuant to s.153B of the Act.

3. I note that if I had thought that it were not appropriate for any reason to annul the bankruptcy I would have still been prepared under s.104(3) of the FCCA to make a consequential order that the Trustee should have her Trustee’s remuneration for the whole of the period after the sequestration order was made, which course was taken by the Full Court in Flint: see Flint at 385 – 386 [55] and [58] and order 4 (which order is only reported at (2013) 305 ALR 522 at 532 – 533).

4. I will reserve the costs of the Review Application until the delivery of judgment.

I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Judge Dowdy

Associate:

Date: 18 August 2020