Bond v Rees Group

REASONS FOR JUDGMENT 1 The applicant (Mr Ian Bond) has applied to the Court for an annulment of his bankruptcy. The application is made under s 153B of the Bankruptcy Act 1966 (Cth) ("the Act"). 2 Mr Bond became bankrupt in the following circumstances. On 18 May 2011 the respondents obtained judgment against him and a company of which he was a director - Burke Bond Financial Pty Ltd - in the County Court of Victoria. The litigation arose from a commercial dispute between the parties. The judgment was for $275,000. On 23 May 2011 a bankruptcy notice was issued at the request of the respondents claiming the amount due under the judgment. The bankruptcy notice was served on Mr Bond on 8 June 2011. 3 On 16 June 2011 Mr Bond filed an application in the former Federal Magistrates' Court seeking orders setting aside the bankruptcy notice. That application was refused on 8 August 2011. Mr Bond failed to comply with the bankruptcy notice. 4 On 8 September 2011 a creditor's petition was filed. 5 On 23 September 2011 the Victorian Court of Appeal granted Mr Bond a stay of the County Court judgment pending the hearing and determination of an appeal which he had lodged. As a result the hearing of the creditor's petition in the Federal Magistrates' Court was adjourned on a number of occasions. 6 On 7 February 2013 the Court of Appeal dismissed Mr Bond's appeal. 7 On 21 February 2013 the creditor's petition came on for hearing in the Federal Magistrates' Court. The Registrar ordered that a sequestration order be made against Mr Bond's estate. 8 The judgment debt remains unpaid. 9 In his application Mr Bond advised that he made the application for annulment "on the basis the Rees Group receive the dividend of $80,000 owed to my group via offset against the $250,000 judgement [sic] debt …". 10 The $80,000 appeared in Mr Bond's statement of affairs as a debt which he claimed was owed to him by two companies and an individual. 11 The $250,000 judgment debt to which Mr Bond referred in his statement of affairs was not accepted by his trustee who reported to creditors that the true figure was the $275,000 which had been awarded by the County Court. 12 In his application and in a supporting affidavit Mr Bond asserted that he had been "the prime whistleblower" who had exposed fraudulent behaviour in the Rees Group of companies. 13 Mr Bond deposed that he had been engaged by the Rees Group as an internal auditor and compliance advisor in 2006. He resigned in March 2009. He did so, he said, because entities in the Rees Group had engaged in what he described as "unregistered, illegal schemes and dealings". Some four years on, as a result of these activities, various entities within the group had either been wound up or been placed in administration owing large sums of money. In the course of these processes evidence of the fraudulent conduct, which had not been available to him at the time at which the sequestration order had been made, had come to light. 14 The respondents opposed Mr Bond's application. They contended that, at the time at which the sequestration order was made, Mr Bond was insolvent and that the sequestration order would have been made even if all of the "new" evidence, relied on by Mr Bond, had been before the Court at the time at which it made the order. 15 Section 153B(1) of the Act relevantly 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." 16 In Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307 at [12] I distilled a number of relevant propositions from the authorities which had considered s 153B of the Act and its predecessors. Those propositions, relevantly, were: "… (2) An applicant who seeks an annulment of his or her bankruptcy "carries a heavy burden". It is incumbent on an applicant "to place before the Court all relevant material with respect to his or her financial affairs so that the Court may be properly informed and may make a judgment that is based on the actual circumstances of the applicant": Re Papps; Ex parte Tapp (1997) 78 FCR 524 at 531. (3) In determining whether or not a sequestration order "ought not to have been made" the Court is not confined to a consideration of whether the order should have been made on the facts known to the Court at the time at which it was made. The Court must take account of facts, known at the time at which the sequestration order was made and at which it determines an annulment application, even if those facts were not before the Court at the time at which the sequestration order was made: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243; Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426. (4) A sequestration order "ought not to have been made" if, on the facts known at the time of the annulment application, the Court would have been bound not to make the sequestration order: Re Frank; ex parte Piliszky (1987) 16 FCR 396. (5) The Court will be so satisfied if it is established that the debtor was not, at the time the sequestration order was made, indebted to the petitioning creditor: Re Deriu (1970) 16 FLR 420 at 422. (6) If the Court is so satisfied, it is not precluded from annulling the bankruptcy because the bankrupt had not sought to have the default judgment set aside or failed to oppose the creditor's petition or failed to seek a review of the sequestration order: Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426. (7) The power conferred on the Court by s 153B(1) is discretionary in nature. Even if persuaded that the sequestration order ought not to have been made, the Court can, in appropriate circumstances, decline to annul the bankruptcy: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243. (8) Considerations which may have a bearing on the exercise of discretion include unexplained delay in the making of the application, whether or not the applicant is solvent, whether or not the applicant has made full disclosure of his or her financial affairs and a failure by the bankrupt to oppose the creditor's petition and attend the hearing at which the sequestration order was made: Re Williams (1968) 13 FLR 10 at 24-5; Boles at 247; Re Papps; ex parte Tapp (1997) 78 FCR 524 at 531; Rigg v Baker [2006] FCAFC 179 at [79]; Cottrell v Wilcox [2002] FCA 1115 at [7]. Additional considerations are collected in D. A. Hassall, "Annulment of Bankruptcy and Review of Sequestration Orders" (1993) 67 ALJ 761 at 766." 17 Mr Bond has failed to make a case for the annulment of his bankruptcy. He does not deny that he is indebted to the respondents in the sum of $275,000. This is the unpaid judgment debt incurred in the proceeding before the County Court. He claims that he is owed $80,000 by Rees Managed Investments Pty Ltd, one of its directors and GR Finance Ltd (in liq). He has not sought to test or enforce this claim in Court. Even if it be assumed that he had an entitlement to this sum it would reduce but by no means eliminate his indebtedness to the respondents were it to be obtained and paid to them. His statement of affairs and other material which is in evidence confirms that he was insolvent at the time that the relevant sequestration order was made. He did not contend otherwise. 18 There is, therefore, no basis for the Court to conclude that the Federal Magistrates' Court would, on the facts known to it, have been bound not to have made the sequestration order. The contrary is true. 19 The evidence which has since come to light and which suggests that companies in the Rees Group may have, as Mr Bond alleges, engaged in fraudulent activities during and after the period during which he worked for the group is not material for present purposes. The misconduct of the respondents (if there was any) in relation to the conduct of their businesses does not impinge in any way on the existence of the unpaid judgment debt on which the sequestration order was founded. 20 Mr Bond's application must be refused. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey.