Watson v Deng, in the matter of Deng
[2024] FedCFamC2G 1451
•17 December 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Watson v Deng, in the matter of Deng [2024] FedCFamC2G 1451
File number(s): SYG 1446 of 2024 Judgment of: JUDGE CAMERON Date of judgment: 17 December 2024 Catchwords: BANKRUPTCY – Review of registrar’s decision to make a sequestration order – hearing de novo – sequestration order set aside – creditor’s petition to be heard on a date to be fixed. Division: General Number of paragraphs: 15 Date of hearing: 17 December 2024 Place: Sydney Applicant: The applicant appeared in person by video conference Counsel for the Respondent: Mr S Lees Solicitor for the Respondent: Ren Zhou Lawyers ORDERS
SYG 1446 of 2024 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF CHENG DENG
BETWEEN: ADAM WATSON
Applicant
AND: CHENG DENG
Respondent
ORDER MADE BY:
JUDGE CAMERON
DATE OF ORDER:
17 DECEMBER 2024
THE COURT ORDERS THAT:
1.The time for filing of an application for review of the registrar’s decision be extended to 3 December 2024.
2.The sequestration order entered on 8 August 2024 be set aside.
3.The creditor’s petition be listed for further hearing on a date to be fixed in 2025.
4.The parties have liberty to apply on 3 days’ notice.
5.The costs of and incidental to the application to review a registrar’s decision be reserved.
THE COURT NOTES THAT:
1.The parties are to confer on a timetable and to submit a draft to the Court for its consideration.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE CAMERON
A creditor's petition commencing this proceeding was filed on 28 June 2024. A sequestration order was made by the registrar on 8 August 2024 and an application for review of the registrar's decision was filed on 3 December 2024. I record that a notice to creditors was filed on 5 December 2024 but I have noted no evidence to indicate that that was served on any particular creditors. Similarly, I am not aware whether the trustee is aware of today's hearing of the application for review and whether he would have wanted to say something given that his fees are at risk. In particular, I am unaware of the trustee's position in relation to the proceeding, what he has done, what fees he has incurred and for which he would seek to be compensated.
The first matter I need to address on this application for review is the fact that when it was originally filed, the Court's registry listed the matter for a first return date early in 2025. When I became aware of this, I brought the matter forward to today, because applications for review of a registrar's decision need to be determined promptly, particularly in a case such as this, where a sequestration order has been made.
As I have already noted, the sequestration order was made in August, but the application for review was not made until December. The application for review is some considerable time out of time, and leave is required in order for it to be prosecuted. In that connection, I have regard to the affidavit of the respondent debtor, Cheng Deng, affirmed 2 December 2024, and in particular to his evidence concerning the alleged service upon him of a bankruptcy notice, a creditor's petition and various other documents. His evidence is that he was unaware of this proceeding and unaware of the bankruptcy notice until he was contacted by the trustee. There has been no cross-examination of either party on their affidavits filed in the Court and I make no findings as to the correctness of those affidavits. However, on a prima facie basis it is certainly arguable, given the evidence in Mr Deng's affidavit, that he was unaware of this proceeding until notified by the trustee of the sequestration order. In the circumstances, I consider it appropriate to extend time for the filing of the application for review to 3 December 2024 and I order accordingly.
The matter then is whether the sequestration order made by the registrar should be confirmed, set aside or perhaps even annulled. I am satisfied that the sequestration order should be set aside, but that outcome is not without its complications.
My reasons for reaching those conclusions are that, first, based on the affidavit evidence filed in the Court so far, I am not persuaded that when the bankruptcy notice was served, if it was served, that it was accompanied by a copy of the Local Court judgment that Mr Watson, the creditor, has obtained against Mr Deng. The consequence of a copy of the order evidencing the underlying judgment of the Local Court not being attached to the bankruptcy notice when it is said to have been served, is that, for the purposes of grounding an act of bankruptcy, the bankruptcy notice is a nullity and any purported act of bankruptcy based on such service is not an actual act of bankruptcy.
Secondly, the affidavit verifying the creditor's petition was sworn or affirmed on 30 May 2024, but it affirms the correctness of the statement in paragraph 4 of the petition that the respondent debtor failed to comply with the requirements of the bankruptcy notice on or before 12 June 2024. Plainly, a person cannot swear that something has happened in the future. That suggests that the creditor's petition was defective or certainly inadequate for its purpose.
Thirdly, because a hearing of an application for review of a registrar's decision involves a hearing de novo, the function of today's proceeding was to determine whether the sequestration order should be confirmed or set aside, which required a full hearing of the creditor's petition and presentation of evidence sufficient to satisfy the Court that a sequestration order could be made today. However, Mr Watson has not provided the Court with fresh final affidavits of debt or of search.
The Court is not in a position to make a sequestration order today and is really in no position to do anything other than set aside the order made by the registrar. However, I am not persuaded that simply setting aside the sequestration order is where the matter should end, noting in that connexion that it is now more than six months since the purported act of bankruptcy. I am persuaded that as a litigant in person Mr Watson has been caught rather flat-footed, not knowing what was required of him. He did not have legal representation and whether he could have secured some, even if not of his first choice, is unclear. Listening to his submissions persuades me that he was at a considerable disadvantage today and that the matter should not be decided without giving him the opportunity to put his arguments armed with a better appreciation of what is required.
I note in that regard that before a decision on the creditor’s petition may be reached, a number of issues have to be resolved. The first of these is whether Mr Deng was served with necessary documents, a matter of considerable importance.
So also is whether there was an underlying debt. This is a matter that Mr Deng has raised but Mr Watson was in no position to address. A sequestration order ought not be made if there is a substantial question as to whether the debt on which the creditor relies on was owing, and if there is such a question, the Court should look into it and decide that. I am not in a position to do that today and I note that Mr Deng has said that if the sequestration order is set aside, he will move to set aside the default judgment in the Local Court, which is the basis of this proceeding.
I have concerns in relation to the Local Court judgment because although Mr Watson alleged in the statement of claim in the Local Court that he was owed money in relation to the rent of a shop in Crown Street, Wollongong, the lease on which he relied indicated that he was not the registered proprietor of the premises in question and was not the lessor noted on the lease. That situation was confirmed by a recent Land Titles Office search on 23 November 2024 which indicates that another person is the registered proprietor of that property.
Mr Watson has submitted to the Court today that the debt allegedly owed by the company associated with Mr Deng, and of which Mr Deng was the guarantor, was assigned to him by the owner of the shop. It is apparent that Mr Watson was unaware that an assignment of a debt needs to be pleaded and proved in order to be enforceable. He yet may be able to prove the assignment, but the statement of claim in the Local Court certainly does not seem to justify a judgment in his favour.
It has also been submitted that the affidavit filed in the Local Court in support of default judgment was filed prematurely and that the necessary time period in the Local Court for the entry of default judgment had not elapsed at the time default judgment was granted. That is a matter of some concern.
For these reasons it is certainly arguable at the moment that the underlying debt is more apparent than real.
Overall, I have come to the conclusion that the registrar should not have, on 8 August 2024, made a sequestration order, but I am not persuaded that the whole proceeding should be dismissed at this point. I will set aside the sequestration order entered by the registrar on 8 August 2024 but I will not dismiss the creditors petition. I will leave it on foot and bring the matter on for hearing early in the new year.
I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Cameron. Associate:
Dated: 24 January 2025
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