Vetter v Powerhouse Logistics Pty Ltd

[2008] FMCA 602

FEDERAL MAGISTRATES COURT OF AUSTRALIA

VETTER v POWERHOUSE LOGISTICS PTY LTD [2008] FMCA 602

BANKRUPTCY – Annulment application – whether sequestration order should have been made considered – factors relevant to the exercise of discretion considered.

Bankruptcy Act 1966 (Cth), s.153B

Jabir v PFD Food Services South Australia Pty Limited [2001] FMCA 13

Applicant: RAPHAEL ALBERT VETTER

Respondent: POWERHOUSE LOGISTICS PTY LTD

File Number: SYG 397 of 2008

Judgment of: Driver FM

Hearing date: 24 April 2008

Delivered at: Sydney

Delivered on: 24 April 2008

REPRESENTATION

The Applicant appeared in person

Solicitors for the Respondent: Mr B Gower
Insight Litigation and Legal Services Pty Ltd

ORDERS

1. The annulment application is dismissed.

2. The costs of the respondent creditor in relation to the annulment application, be paid in accordance with the Bankruptcy Act 1966 (Cth).

3. The costs of the trustee, if any, in relation to the annulment application are to be paid from the bankrupt estate as costs of the administration of the estate.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 397 of 2008

RAPHAEL ALBERT VETTER

Applicant

And

POWERHOUSE LOGISTICS PTY LTD

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

1. I have before me an annulment application filed on 20 February 2008 seeking orders that a sequestration order and other orders made on 19 December 2007 be rescinded. 

2. The application is supported by the affidavit of the applicant, Mr Vetter, also filed on 20 February 2008.  In addition, I have before me as evidence the affidavit of service of the bankruptcy notice ultimately leading to the sequestration order, an ANZ Bank deposit slip for $655 dated 18 December 2007 (exhibit A1), a bundle of documents relating to the earlier bankruptcy proceedings (exhibit R1) and correspondence from the Australian Taxation Office to the bankrupt's trustee dated 20 February 2008 (exhibit R2). 

3. I had, before dealing with the matter in Court today, perused file SYG266 of 2006 being the file relating to the earlier bankruptcy proceedings and, in particular, a transcript of what occurred before his Honour Lloyd Jones FM on 4 December 2007. 

4. Section 153B of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) provides, relevantly, that if the Court is satisfied that a sequestration order ought not to have been made, the Court may make an order annulling the bankruptcy. There are two issues on such an application. The first is whether the sequestration order should not have been made. The second, if the answer to that question is, yes, is whether the Court should, in the exercise of discretion, annul the bankruptcy.

5. Issues relevant to that exercise of discretion have been referred to on a number of occasions including by me in Jabir v PFD Food Services South Australia Pty Limited [2001] FMCA 13 at [16]. The relevant factors include whether the bankrupt was represented on the return of the creditor's petition and whether the pertinent issues could have been raised at the hearing of the creditor's petition, the commercial morality of the bankrupt prior to the sequestration order being made, the bankrupt's conduct during the course of the bankruptcy prior to the annulment application, whether the bankrupt was, at the time of the annulment application, insolvent and whether the applicant has made any proposal for payment of fees and charges incurred by the trustee in the course of the administration.

6. The first question is whether the sequestration order should not have been made.  Mr Vetter has raised two issues in support of the contention that the sequestration order was wrongly made.  The first is that he was not present when the orders were made, which was unfair.  The second is that he was solvent. 

7. The creditor's petition had a rather long history.  It was filed on 25 January 2006 and the sequestration and other orders were ultimately made on 19 December 2007.  It was therefore dealt with over approximately two years.  There were numerous hearings in relation to the creditor’s petition over that period, both before a registrar and before Lloyd-Jones FM. 

8. On 4 December 2007 when the matter came before his Honour, the creditor pressed for the making of a sequestration order.  Mr Vetter was present at that time.  It was apparent to his Honour that the formal requirements for the making of a sequestration order had been satisfied.  The only issue was whether Mr Vetter might be able to put his affairs in order and so persuade the Court that he was in a position to meet his debts.  His Honour put to Mr Vetter the proposition that he was insolvent as at 4 December 2007.  On page 5 of the transcript at line 4 his Honour stated:

   So you are not in a position to repay the debt at the moment.

   Mr Vetter responded:

   No, I am not, your Honour, because I wasn't working for six months so to speak and had to sort of scale back activities.  But I've been advised that I'll be okay to go back next week and take full responsibility of everything again and produce more income by being actually at work.

9. The position was that Mr Vetter had failed to pay an amount claimed by the judgment creditor on service of a bankruptcy notice and had thereby committed an act of bankruptcy.  Mr Vetter had obtained the third of three instalment orders on 11 August 2005.  The two earlier instalment orders had been discharged for non-compliance.  The bankruptcy notice was served on 26 July 2005.  It follows and I find that the final instalment order was issued after service of the bankruptcy notice.

10. Given the timing, in my view, the issue of the instalment order did not operate as a stay on the judgment debt at the time the bankruptcy notice was served.  Non-compliance with a bankruptcy notice established an act of bankruptcy supporting the creditor's petition.  In any event, although Mr Vetter had made a number of payments in relation to the final instalment order, he had also missed a significant number of payments or made payments late.  He was therefore not meeting his obligations under the final instalment order as and when they fell due.  I have before me as part of the bundle, exhibit R1, an affidavit of non-compliance in relation to the final instalment order.

11. Lloyd Jones FM, generously gave Mr Vetter a final opportunity to put his affairs in order but made clear that if the position had not been rectified when the matter was due to return before him on 19 December 2007, it was almost inevitable that a sequestration order would be made.  Mr Vetter did not attend Court on that day and submits that the Court should not have proceeded in his absence due to a proven medical condition.  However, that medical condition was well known to Lloyd-Jones FM when the matter was earlier before him and, in my view, there was nothing that Mr Vetter could have said if he had attended that would have prevented the sequestration and other orders being made.  The fact was that in the intervening period Mr Vetter had not been able or willing to rectify his financial position.  He was unable to meet his debts as and when they fell due and was insolvent.  The making of the orders in his absence was not procedurally unfair.   Neither did the mere existence of the third instalment order in respect of which Mr Vetter was undoubtedly in default, prevent the making of a sequestration order.

12. I find that the sequestration and other orders made by the Court on 19 December 2007 were properly made.

13. It is not strictly necessary to consider whether, if the sequestration order should not have been made, the Court should have exercised its discretion in favour of Mr Vetter.  I note however that there are a number of factors that would weigh against the exercise of discretion in Mr Vetter's favour.  Importantly, Mr Vetter has been uncooperative in the administration of the bankrupt estate.  He has failed to lodge a statement of affairs which has led to the trustee making application to the Director of Public Prosecutions for criminal charges to be laid.  Mr Vetter's financial affairs are poorly documented but exhibit R2 indicates that it is likely that the Commissioner of Taxation will be a creditor in the estate in addition to the creditor on the creditor's petition.  No proposal has been made for the payment of the trustee's expenses since the sequestration order was made.

14. The available material also indicates that Mr Vetter's position has also not changed in any material particular since the sequestration order has been made.  He is no better able to discharge his financial obligations now than he was then.  In my view, he remains insolvent. 

15. Having regard to all of those considerations I have come to the view that the annulment application should be dismissed and I will so order. 

16. I will further order that the costs of the respondent creditor and of the trustee, if any, in relation to the annulment application be paid from the bankrupt estate, as costs of the administration of that estate in the case of the trustee and in accordance with the Bankruptcy Act in the case of the respondent creditor, including reserved costs.

I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate: 

Date:  12 May 2008