Stankiewicz v Plata [2000] / Annulment of sequestration order/FEDERAL COURT OF AUSTRALIA

Stankiewicz v Plata [2000] FCA 1185

BANKRUPTCY – annulment of sequestration order under s 153B of the Bankruptcy Act 1966 (Cth) – whether order “ought not to have been made” – bankrupt’s non-attendance at adjourned hearing of petition – surplus of assets over liabilities.

Bankruptcy Act 1966 (Cth), ss 37(2), 52(2)(a), 109, 153B.

Federal Court of Australia Act 1976 (Cth), s 35A(6).

Legal Profession Practice Act 1958 (Vic).

Federal Court Rules, O 52 r 15; O 77 r 8

Re Williams (1968) 13 FLR 10, applied.

Re Ditford; ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347, cited.

Re Ginnane; ex parte Ginnane (1994) 60 FCR 429, cited.

Re Gollan; ex parte Gollan (1992) 40 FCR 38, cited.

Re MacDonald; ex parte Deputy Commissioner of Taxation (1996) 33 ATR 1, cited.

Sarina v Wollondilly Shire Council (1980) 48 FLR 372, cited.

Re Stubberfield; ex parte Paradise Grove Pty Ltd (1995) 134 ALR 169, cited.

Trojan v Corporation of Hindmarsh (1987) 16 FCR 37, cited.

Sandell v Porter (1966) 115 CLR 666, cited.

Re Wong; ex parte Wong (unreported, Sackville J, 15 September 1995), cited.

BRONISLAW STANKIEWICZ v FRANK PLATA & JOE CASCONE

V 375 of 2000

DRUMMOND, SACKVILLE & DOWSETT JJ

22 AUGUST 2000

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 375 OF 2000

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	BRONISLAW STANKIEWICZ APPELLANT
AND:	FRANK PLATA FIRST RESPONDENT JOE CASCONE SECOND RESPONDENT
JUDGES:	DRUMMOND, SACKVILLE & DOWSETT JJ
DATE OF ORDER:	22 AUGUST 2000
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The costs of the creditor and the trustee be taxed and paid out of the bankrupt’s estate in the priority fixed by s 109(1)(a) of the Bankruptcy Act 1966 (Cth).

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 375 OF 2000

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	BRONISLAW STANKIEWICZ APPELLANT
AND:	FRANK PLATA FIRST RESPONDENT JOE CASCONE SECOND RESPONDENT

JUDGES:	DRUMMOND, SACKVILLE & DOWSETT JJ
DATE:	22 AUGUST 2000
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

THE COURT

THE PROCEEDINGS

1 This is an appeal from a judgment of a Judge of this Court, dismissing an application by the appellant (“the bankrupt”) for annulment of his bankruptcy. The sequestration order against the estate of the bankrupt was made by a Registrar of the Court on 11 March 1998. The trial Judge gave his ex tempore judgment on 21 September 1999.

2 The bankrupt appeared in person both before the trial Judge and in this Court. The application filed by him sought an order that “the order of the Court made [on] 11 March 1998 be set aside and annulled under section 153B of the Bankruptcy Act [1966 (Cth)]”. Despite the reference to the order being “set aside”, the trial Judge treated the application as limited to relief under s 153B of the Bankruptcy Act, which provides 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”.

3 The trial Judge was correct in dealing with the application in this way. The Court does not have power to rescind or discharge a sequestration order: Bankruptcy Act s 37(2)(a). The Court has power to review a decision of the Registrar to make a sequestration order: Federal Court Rules (“FCR”), O 77 r 8(3). An application for review of a decision must, however, be brought within twenty-one days of the decision: FCR, O 77 r 8(2); see also Federal Court of Australia Act 1976 (Cth), s 35A(6). The bankrupt did not seek review of the decision of the Registrar within the specified time. Nor was any application ever brought for an extension of time in which to seek review of the sequestration order: cf Re Gollan; Ex parte Gollan (1992) 40 FCR 38.

4 The present appeal from the judgment of the trial Judge was not brought within the time prescribed by FCR, O 52 r 15(1)(a). On 30 May 2000, however, the Chief Justice made an order extending time for the filing and service of a notice of appeal.

5 The bankrupt filed a notice of appeal within the extended time. The notice of appeal identified only two grounds:

“1. The Court verdict [was] u[n]just.

2. The verdict [was] made in the absence of [the bankrupt].”

It appears that the references in the notice of appeal to the “verdict” were intended to be to the sequestration order made on 11 March 1998.

6 The notice of appeal named two respondents. The first respondent (“the creditor”), the former solicitor of the bankrupt, was the petitioning creditor in the proceedings determined by the Registrar. The creditor opposed the application before the trial Judge and contended before us that the appeal by the bankrupt should be dismissed. The second respondent (“the trustee”) is the trustee of the bankrupt estate. The trustee has undertaken to abide by such orders as the Court sees fit to make.

THE COURSE OF EVENTS

7 The creditor acted for the bankrupt in relation to Family Court proceedings between the bankrupt and his former wife. Disputes arose between the bankrupt and the creditor. The Legal Profession Tribunal (“the Tribunal”), to which the disputes had been referred under the Legal Profession Practice Act 1958 (Vic) (since repealed and replaced by the Legal Practice Act 1996 (Vic)), identified three claims that had been made by the bankrupt:

(i) the creditor had settled the Family Court proceedings on terms that were beyond his instructions;

(ii) the bankrupt’s signature to an agreement for the payment of outstanding legal fees had been procured by physical duress exerted by the creditor; and

(iii) work performed by the creditor in relation to a house at Werribee had been performed on behalf of the bankrupt’s former wife and therefore the bankrupt was not liable to pay the legal fees relating to that work.

8 The Tribunal addressed these claims in a hearing which lasted three days. The Tribunal rejected all the bankrupt’s factual claims against the creditor and, on 11 September 1997, ordered the bankrupt to pay the creditor’s legal fees, interest and costs. These orders were registered in the Magistrates’ Court at Melbourne on 2 October 1997.

9 On 22 October 1997, the creditor issued a bankruptcy notice based on the orders of the Magistrates’ Court. The bankruptcy notice claimed the sum of $5,411.67 as the amount due in respect of the order of the Magistrates’ Court. The bankrupt failed to comply with the bankruptcy notice, thereby committing an act of bankruptcy.

10 On 23 December 1997, the creditor issued a creditor’s petition, based on the act of bankruptcy. The petition was made returnable on 25 February 1998. The evidence before the trial Judge showed that the bankrupt, without advising the creditor, filed a medical certificate with the Court. By letter addressed to the Court the bankrupt sought an adjournment of the proceedings because of his inability to attend Court on the return date.

11 Presumably in response to the bankrupt’s letter, the Registrar adjourned the creditor’s petition to 11 March 1998. The Registrar directed that a copy of his orders be served by post on the bankrupt at his residential address and that an affidavit of service be filed prior to the next hearing. The creditor complied with these directions.

12 The bankrupt did not appear before the Registrar on 11 March 1998. He sent a further medical certificate to the Court by mail. It appears from the Court file that the letter was received by the Court on 10 March 1998. The Registrar nonetheless heard the petition on the following day and made a sequestration order against the estate of the bankrupt.

13 On 23 March 1999 (that is, after the sequestration order had been made), the bankrupt commenced proceedings against the creditor in the County Court of Victoria, claiming damages, inter alia, by reason of the alleged failure of the creditor to explain the terms of settlement in the Family Court proceedings. Those proceedings were struck out by the County Court on 23 April 1999. The bankrupt did not appear on the hearing of the application to strike out the proceedings. It should be noted that the County Court proceedings were filed by the bankrupt within the time prescribed by FCR, O 77 r 8(2) for seeking review of the sequestration order made by the Registrar.

14 On 5 May 1999, the trustee instituted proceedings in the Supreme Court of Victoria against the bankrupt, seeking orders for possession of the property jointly owned by the bankrupt and his former wife. On 21 June 1999, the trustee obtained a default judgment for recovery of possession of the property. On 22 June 1999, the Supreme Court issued a warrant of possession against the bankrupt.

15 On 9 August 1999, the bankrupt filed the application seeking annulment of his bankruptcy. The bankrupt supported his application by an affidavit. In that affidavit, he asserted that he had been sick on 11 March 1998 and could not attend Court for that reason. He also repeated allegations against the creditor, all of which had been rejected by the Tribunal in its decision of 11 September 1997.

THE TRIAL JUDGE’S REASONS

16 The trial Judge briefly recounted the history of the dispute between the bankrupt and the creditor, incorporating for this purpose the reasons of the Tribunal. His Honour pointed out that the affidavit in support of the application for annulment had merely restated the principal allegations rejected by the Tribunal. Accordingly, his Honour saw no reason to go behind the determination of the Tribunal.

17 The trial Judge noted that there had been a suggestion that the bankrupt may not have been aware of the sequestration order. His Honour pointed out that the bankrupt’s dealings with the trustee, which had led to the belated filing of a statement of affairs on 1 March 1999, indicated that he had been well aware that the sequestration order had been made. The trial judge said that the application for annulment seemed to have been provoked by the actions of the trustee to recover possession of the property jointly owned by the bankrupt and his former wife.

18 In the result, the trial Judge dismissed the application for the annulment of the bankruptcy.

THE PRINCIPLES

19 In Re Williams (1968) 13 FLR 10, Gibbs J explained the approach to be taken to the then equivalent of s 153B of the Bankruptcy Act (at 23):

“In determining the question whether the sequestration order ought not to have been made, the court is entitled to consider not only the case as disclosed at the time the order was made, but as it would have been disclosed had all the true facts been before the Court on the making of the order. If the Court is satisfied that the order ought not to have been made, it is not bound as a matter of course to annul the order, but must consider in the light of all the circumstances of the case whether the order ought to be annulled.” (Citations omitted.)

20 In Re Ditford; ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347, Gummow J observed (at 350) that the “true facts” which are to be considered include those known at the hearing of the annulment application to have existed at the time the sequestration order was made, but exclude those facts that have occurred since the order was made. See also Re Ginnane; ex parte Ginnane (1994) 60 FCR 429, at 445-446; Re Gollan; ex parte Gollan(1992) 40 FCR 38, at 40-41.

REASONING

21 The first contention raised by the bankrupt was that the trial Judge had failed to take account of the fact that the sequestration order had been made in the bankrupt’s absence, at a time when he was ill.

22 There was evidence to support the trial Judge’s finding that the bankrupt had received notice of the adjourned hearing of the creditor’s petition. Indeed the fact that the bankrupt forwarded a medical certificate to the Court the day before the hearing demonstrates that he was well aware that the hearing was to take place. The bankrupt’s complaint appeared to be that the Registrar should have adjourned the hearing scheduled for 11 March 1998, until a date when he had recovered from his illness. We are prepared to assume, without deciding, that an erroneous refusal to adjourn a creditor’s petition might be sufficient of itself to establish that the order “ought not to have been made” for the purposes of s 153B of the Bankruptcy Act.

23 The evidence in this case falls well short of establishing that the Registrar erred in declining to grant an adjournment. The medical certificate supplied by the bankrupt to the Court was unsupported by an affidavit. The certificate was a printed form completed in handwriting. The form stated (in print) that the bankrupt was suffering from a medical condition “and was/is unfit for work”. The form identified the bankrupt’s medical condition in handwriting and stated that he had been under the care of “this surgery” since 1993. The form did not say that the bankrupt’s apparently longstanding condition prevented him from attending Court. Indeed the form was not directed to the question of the bankrupt’s fitness to attend court in person on 11 March 1998.

24 In these circumstances, it cannot be said that the Registrar erred in declining to adjourn the petition on 11 March 1998. Nor was the trial Judge in error in the conclusion he reached. The certificate provided by the bankrupt did not address the question of his fitness to attend court on 11 March 1998. Moreover, it must be borne in mind that the Registrar had already adjourned the petition on one occasion, on the faith of a medical certificate provided by the bankrupt. The Registrar was entitled to take the view that the bankrupt had not made out a case for a further adjournment of the petition. This ground of appeal must fail.

25 The bankrupt’s second claim, in essence, repeated the allegations that had been made by him in the proceedings determined by the Tribunal. As has been noted, the Tribunal considered the bankrupt’s claims at a hearing that lasted three days and, in substance, rejected all of them. In his written submissions, the bankrupt asserted that the Tribunal had conducted the proceedings before it “with no regard for Australian or international standards”. This contention was repeated in supplementary written submissions which also alleged bias on the part of the Tribunal. The evidence before the trial Judge does not establish or even suggest that the Tribunal’s procedures were flawed. Nor is there any basis in the evidence for the bankrupt’s assertion that the Tribunal member exhibited bias. Nothing else in the evidence justifies concluding that the trial Judge erred in upholding the Registrar’s decision not to go behind the orders made by the Legal Profession Tribunal. This ground of appeal also fails.

26 We should mention one issue that was not raised by the bankrupt either before the trial Judge or in his written submissions, but was referred to by the Court in oral argument on the appeal. The trustee’s report, made on 13 September 1999, showed that the bankrupt at that time had a half-share in the former matrimonial home. The half share had been independently valued as having a net realisable value of $99,000. After allowing for the interests of the mortgagee and caveators, the bankrupt’s net equity was said to be $36,220. Unsecured creditors and costs amounted to $20,573, as follows:

Petitioning Creditor’s taxed costs 2,143

Creditors claims 5,412

Trustee’s Remuneration to 10/09/1999 9,850

House property insurance 318

Legal costs 2,850

$20,573

It follows that the bankrupt’s assets at the date of the trustee’s report exceeded his liabilities, most of which related to costs and the remuneration of the trustee.

27 It can be inferred from the trustee’s report that, at the date the sequestration order was made, the bankrupt’s equity in the matrimonial home probably exceeded the modest debt due to the creditor. Moreover, it probably did so by a significant margin. Whether the bankrupt’s equity in the home was realisable within a relatively short time is, however, a different matter.

28 Orders had been made in the Family Court proceedings on 4 August 1995. These included an order that the matrimonial property

“be sold upon discharge of the mortgage to the [Bank] by the parties on or about the expiration of three years and six months from the date hereof.”

The orders also provided for the bankrupt to pay $400 or $600 per month (the copy orders in evidence are not clear) off the mortgage and his former wife to pay $200 per month. Presumably a calculation had been made that if these monthly payments were made regularly and if interest rates did not rise, the bankrupt and his former wife would pay off the mortgage debt at the expiration of the specified period of three and a half years.

29 There are authorities which suggest that a bankrupt whose assets exceed his or her debts at the date of the sequestration order ordinarily will be entitled to an annulment of the bankruptcy, at least if the bankrupt gives undertakings to pay the costs of the petitioning creditor and the trustee’s costs of administration: Re Gollan, at 41-42, per Spender J; Re McDonald; ex parte Deputy Commissioner of Taxation (1996) 33 ATR 1 (Spender J). This principle is said to follow from s 52(2)(a) of the Bankruptcy Act, which provides that if the Court is satisfied that the debtor “is able to pay his or her debts”, it may dismiss the creditor’s petition. In general, a debtor who so satisfies the Court will succeed in having the creditor’s petition dismissed: Sarina v Wollondilly Shire Council (1980) 48 FLR 372 (FC), at 376; Re Stubberfield; ex parte Paradise Grove Pty Ltd (1995) 134 ALR 169; cf Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 (FC), at 47. We are content to assume, without deciding, that the authorities to which we have referred correctly state the position.

30 In order to satisfy the Court that he or she is “able to pay his or her debts”, it is not necessary for the debtor to show that he or she has cash resources immediately available for this purpose. But the debtor must be able to realise assets, sufficient to pay the debt, within a relatively short time. As Barwick CJ said in Sandell v Porter (1966) 115 CLR 666, at 670, the resources to be considered

“extend to moneys which [the debtor] can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.”

31 Under the terms of the Family Court orders, the matrimonial home was to be sold “upon discharge of the mortgage”. That event was expected to occur by February 1999, just under one year after the sequestration order was made. Whether it would occur at that time depended, inter alia, on whether the bankrupt had maintained and would continue to maintain the mortgage payments as provided for in the Family Court orders. There was no direct evidence before the trial Judge as to whether the bankrupt had made the required payments. If anything, the fact that some $23,629 was still due under the mortgage in October 1998 (as appears from the trustee’s report) suggests that the bankrupt had not made the payments contemplated by the Family Court orders, either before or after the date the sequestration order was made.

In our view, the evidence before the trial Judge was insufficient to establish that the bankrupt was able to pay his debts at the date the sequestration order was made. Although the value of the bankrupt’s assets exceeded his liabilities, his only significant asset, his share in the matrimonial home, could not be realised within a relatively short time. Under the terms of the Family Court orders, the matrimonial home was not to be sold at least until February 1999 and, in the events which seem to have occurred at the date of the sequestration order, not until a date considerably later than February 1999. There was no evidence that the bankrupt had other resources to enable him to pay the debt due to the creditor.

32 It follows that the fact that the value of the bankrupt’s assets at the date of the sequestration order exceeded his liabilities does not establish that the sequestration order should not have been made. It is not necessary to consider whether, in any event, discretionary considerations would have militated against an annulment order being made: cf: Re Wong; ex parte Wong (unreported, Sackville J, 15 September 1995). For example, no undertakings were proffered to the Court by the bankrupt to pay the costs of the petitioning creditor or the trustee.

33 The appeal must be dismissed. The costs of the creditor and the trustee should be taxed and paid out of the bankrupt’s estate in the priority fixed by s 109(1)(a) of the Bankruptcy Act.

I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Drummond, Sackville & Dowsett JJ.

Associate:

Dated: 22 August 2000

The appellant appeared in person.