Woods and Lombe (As Trustees of the Bankrupt Estate of Barnes) v Barnes

[2016] FCCA 1792

FEDERAL CIRCUIT COURT OF AUSTRALIA

WOODS AND LOMBE (AS TRUSTEES OF THE BANKRUPT ESTATE OF BARNES) v BARNES [2016] FCCA 1792

Catchwords:
BANKRUPTCY – Application by trustees for orders for sale of property – bankrupt seeking to further agitate matters previously addressed in Federal Court proceedings – orders made as sought by trustees.

Legislation:

Bankruptcy Act 1966 (Cth)

Applicant: ROBERT SCOTT WOODS AND DAVID JOHN FRANK LOMBE (AS TRUSTEES OF THE BANKRUPT ESTATE OF LINDSAY HAROLD BARNES)

Respondent: LINDSAY HAROLD BARNES

File Number: MLG 216 of 2016

Judgment of: Judge Burchardt

Hearing date: 3 June 2016

Date of Last Submission: 3 June 2016

Delivered at: Melbourne

Delivered on: 20 July 2016

REPRESENTATION

Counsel for the Applicant: Ms Barbone

Solicitors for the Applicant: White Cleland

The Respondent: In Person

ORDERS

THE COURT DECLARES THAT:

1. The Applicants, in their capacity as Trustee of the Bankrupt Estate of the Respondent, are the beneficial owners of the whole of that piece of property comprised in Certificate of Title Volume 8670 Folio 877 and known as 5 Robin Hood Court, Doncaster East in the State of Victoria (“the Property”).

THE COURT ORDERS THAT:

1. The Applicants, in their capacity as Trustees of the Bankrupt Estate of the Respondent, are the beneficial owners of the whole of that piece of property comprised in Certificate of Title Volume 8670 Folio 877 and known as 5 Robin Hood Court, Doncaster East in the State of Victoria ("the Property").

2. The Respondent deliver vacant possession of the Property to the Applicants by 4pm on 20 September 2016.

3. Upon delivering possession of the Property to the Applicants, the Respondent must remove all personal possessions which he wishes to retain and any personal possessions or personal property remaining at the Property will be deemed to have been abandoned and may be disposed of in any manner that the Applicants see fit.

4. The Applicants have the sole conduct of the sale of the Property and be authorised to instruct an agent and/or auctioneer for that purpose.

5. The Property be sold by public auction with a reserve recommended by the real estate agent conducting the sale.

6. In the event that the Property is passed in at auction, it shall be sold by private treaty at a price recommended by the real estate agent conducting the sale.

7. The Applicants be empowered to sign all documents and do all things on behalf of the Respondent as necessary to give effect to the sale.

8. Costs of the Applicants to be paid out of the estate of the bankrupt.

9. Liberty to apply.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 216 of 2016

ROBERT SCOTT WOODS AND DAVID JOHN FRANK LOMBE (AS TRUSTEES OF THE BANKRUPT ESTATE OF LINDSAY HAROLD BARNES)

Applicant

And

LINDSAY HAROLD BARNES

Respondent

REASONS FOR JUDGMENT

1. On 5 February 2016 the applicants, who are the trustees of the respondent’s bankrupt estate, filed an application.  The orders sought effectively seek to sell the respondent’s home at 5 Robin Hood Court, Doncaster East.  An affidavit filed in support of the application by Robert Scott Woods supports the application.  Mr Woods annexed an order proving the appointment of the trustees. 

2. The affidavit referred to an application by the respondent to have the bankruptcy annulled and noted that Ms Danielle McCredden, Mr Woods’ solicitor, was to prepare an affidavit providing the summary of that matter.  Mr Woods deposed to the bankrupt being the sole registered proprietor of the property to which I have referred, and he further annexed correspondence to the respondent seeking his cooperation in the sale of the property, to which the respondent had not replied. 

3. It should be noted that it is quite clear that the trustees were indeed properly appointed.  It is clear from the affidavit from Ms McCredden, to which I will come shortly, that the application to annul the bankrupty was only conditionally successful, and that the respondent is indeed the owner of the home where, during the hearing today, he indicated he resides alone and it is clear that he has not cooperated with the trustee.  It is not relevant, in my view, as to whether or not Mr Barnes actually received the correspondence from the trustee asking for his cooperation.  From what he said to me, and from the position he adopts, it is clear that he would not cooperate in any event. 

4. The affidavit of Mr Woods, together with the foreshadowed affidavit of Ms McCredden, and the application in this case, was served personally upon Mr Barnes on 13 February 2016.  The affidavit of Ms McCredden sets out the history of the annulment application.  It annexes a decision of his Honour Beach J of the Federal Court given on 28 August 2015.  In that judgment his Honour traversed the bases upon which the applicant sought that the Sequestration Order be annulled.  They are set out at paragraph 24 of his Honour’s judgment. 

5. The first matter asserted was that Mr Barnes was able, at the time of the Sequestration Order, to pay his debts as and when they fell due.  The second was that there was no valid service of the Creditor’s Petition.  The third was that the hearing of the Petition ought to have been adjourned.  On that footing, the Sequestration Order should not have been made.  His Honour rejected the first and second bases, but upheld the third basis in what his Honour described as “the unusual circumstances of the case”.  His Honour’s analysis of Mr Barnes’ solvency at the relevant time runs from paragraphs [26]-[47].

6. It involved a comprehensive assessment of the assertions advanced by Mr Barnes as to his capacity to have paid the original debt upon which the bankruptcy was based.  His Honour described much of the evidence indicated by Mr Barnes at paragraph 39 as “questionable”.  His Honour concluded at [46]-[47]:

   “If the current material had been placed before the Court at the time of sequestration order, I am not satisfied that s.52(2)(a) would have then been satisfied. 

   It also follows that on that same material, Mr Barnes is not now solvent.  That would be a basis for refusing to exercise my discretion to annul the bankruptcy, even if the s.153(B)(1) condition was satisfied. But I am able to deal with any question of a lack of solvency established by the present material by imposing a condition, as I will, that the annulment will only be effective upon the discharge or compromise of all debts which are still due and payable.  If Mr Barnes cannot discharge the condition there will be no annulment.  If he can, the solvency question becomes relevantly moot, at least so far as present creditors of Mr Barnes are concerned.”

7. His Honour went on to consider whether there was valid service of the petition. His Honour was of the clear view, at [48], that there was valid service, pursuant to the substituted service order. His Honour noted various matters asserted by Mr Barnes as to why he might not have received the Creditor’s Petition, and his denials that he had ever attempted to avoid service. His Honour noted that the orders were nonetheless properly complied with, at [53]. His Honour found, at [56]:

   “In summary, the evidence adduced by Mr Barnes is insufficient to prove non-delivery and therefore that there was not due service of the creditor’s petition.”

8. There is nothing in his Honour’s judgment that suggests that any argument was presented to his Honour to the effect that the substituted service order should not have been made.  Finally, his Honour considered whether an adjournment should have been granted, and came to the conclusion, at [58], that it should have.  His Honour noted that:

   “…he needed more time to obtain evidence showing his capacity to refinance so that he could attempt to establish the matters required by s.52(2)(a), alternatively pay out the petitioning creditor and other debts in order to resolve the petition by agreement.  Moreover, such an adjournment would not have been self-evidently futile given his significant equity in the property at the time.  What was problematic was his capacity to refinance given his status and income levels, and whether he could service the relevant debt.

   Second, his medical condition and his personal circumstances necessitated an adjournment. In my view and given the unusual circumstances of this case, an adjournment of the petition ought to have been granted.  If it had, the sequestration order would not have been made, at least at that time.” 

9. His Honour went on, however, to find that it was appropriate to impose a condition to the annulment, namely, in effect, the payment out of the creditors and the reasonable costs of the trustees.  As his Honour had said at paragraph [66(b)]:

   “…the condition is designed to enable Mr Barnes to do what he says he would have done at the time if the sequestration order had not been made.  He will now be given that opportunity.”

10. Accordingly, his Honour concluded that it was appropriate to annul the bankruptcy upon terms, which effectively required Mr Barnes, within 60 days, to pay his creditors and to pay the reasonable costs of the administration of the estate to the trustees.  Ms McCredden’s affidavit went on to put in evidence correspondence sent to the respondent seeking compliance with the condition that his Honour had imposed, and deposed to the lack of response.  Once again, while it is possible that Mr Barnes did not receive such correspondence, the fact is that he was well aware of the condition precedent and it is quite clear that it was not complied with.

11. The matter came before the Court on 19 April 2016.  Ms McCredden appeared on behalf of the trustees and the respondent appeared in person.  I directed the respondent to file and serve a response affidavit and notice of address for service on or before 9 May 2016, and adjourned the matter for further directions on 10 May 2016. On 10 May 2016, the matter was adjourned for hearing on 3 June 2016. Nothing was said by the respondent on that occasion to indicate that he would in any way be unable to prepare himself for a hearing within that amount of time and be ready to proceed on the day.

12. When the matter came before the Court this morning the respondent sought an adjournment.  He informed the Court that he was going to appeal to the High Court.  This was the primary basis for the adjournment.  Further, he stated that he needed a statement from the trustee to explain why two of the trustees’ employees came to his house and delivered documents and that therefore it was easy to find him.  In other words, he was seeking proof to buttress his underlying position that the order for substituted service should not have been made.  I pointed out that his own assertions would be sufficient on an interim basis in any event to bring that matter into issue.

13. Counsel for the trustees opposed the adjournment application and pointed out that no application for special leave had been filed.  Mr Barnes then indicated, in response to questions from the bench, that he has not yet consulted a lawyer and detailed the very unfortunate and unsatisfactory interaction he had had with his previous lawyers.  I indicated to Mr Barnes that he had not required any of the applicant’s witnesses for cross-examination, and he indicated he would wish to do so.  He had not turned his mind to what questions he would put to them. 

14. I traversed the nature of Ms McCredden’s affidavit with him, and I was unable to identify in my own mind any possible question that Mr Barnes could put that would relevantly touch upon the matters before the Court.  Although I did not put the same traverse in respect of the trustees’ affidavits, the same is clearly true.  The gravamen of Mr Barnes’ complaints is set out in his affidavit.  It refers to his desire to have further evidence, which I have already dealt with.  It repeats his criticism of the order for substituted service, and explains why such attempts as were made were unsuccessful.  He also assertsthat he was never insolvent and, erroneously, that that fact was accepted by Beach J in his decision.

15. Mr Barnes faces a number of very obvious difficulties.  He has no right of appeal to the High Court.  He would have to make an application for special leave.  Beach J’s decision and orders were handed down as long ago as 28 August 2015.  Any application for special leave would be considerably out of time in any event.  While, of course, it would be a matter for the High Court to adjudicate any application for special leave that may in due course be filed, for my part it does not seem at all likely that he will be able to identify any error in Beach J’s decision.

16. To seek to raise now an assertion that the order for substituted service should never have been made, assuming I am correct that it was not raised before his Honour, faces obvious further difficulties. Moreover, his Honour’s recitation of Mr Barnes’ asserted facts shows that his Honour was well aware how it was that the substituted service orders came to be made, and I would say, for my part, that the history Mr Barnes sets out would only go to support the making of such orders.

17. The fact is that Mr Barnes was given an opportunity to put his affairs in order by Beach J, and did not take it.  His Honour’s orders were clear.  The bankruptcy has therefore not been annulled because Mr Barnes did not comply with the orders Beach J made.  There is no possible basis upon which Mr Barnes can resist the trustees’ application in this particular matter.  The trustee is required to realise the assets of the bankrupt estate for distribution to meet the creditors’ debts and the reasonable costs of the administration of the estate.  It is most unfortunate that Mr Barnes has not sought, and obtained, competent legal advice. 

18. Like Beach J, I share a measure of sympathy for Mr Barnes, who has obvious health difficulties, but the fact is that the step the trustees are seeking to take is a perfectly proper one, and I see no basis upon which the application could successfully be resisted.  Insofar as Mr Barnes appeared to suggest impropriety by the creditor in the manner in which the substituted service orders were obtained, and that seems to me to be the only aspect of the creditor’s conduct of which he does make complaint, the reality is that all those issues were before Beach J in substance and his Honour has determined them.  For these reasons it is clearly appropriate to make the orders that the trustee seeks.

19. I have prepared draft orders which reflect those in the originating application. As the orders are clearly incomplete, lacking certain machinery provisions, I will hear from the parties before making final orders.

I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Judge Burchardt

Date: 20 July 2016