Dubow v Barnden FCA

REASONS FOR JUDGMENT 1 These proceedings concern an Interlocutory Application made by Ms Yolande Dubow in which she seeks an injunction pending the determination of an appeal to this Court from Orders of the Federal Magistrates Court of Australia (as it was then known) dismissing her application to that Court, restraining the respondent, Mr Andrew Barnden, from selling by auction a property located at 30 First Avenue, Katoomba in New South Wales (the "Katoomba property"). 2 Mr Barnden is the Trustee of the estate of Ms Dubow appointed under the provisions of the Bankruptcy Act 1966 (Cth), on 26 April 2012. 3 Ms Dubow's application was filed electronically on 31 May 2013 as an "Originating Application" in this Court. The application is supported by an affidavit sworn by Ms Dubow on 27 May 2013. It is plain from the affidavit that the context in which Ms Dubow makes this application is in her capacity as an appellant from the Orders made and the Judgment of the Federal Magistrates Court dismissing her application. 4 The background to the present application is this. 5 Ms Dubow has been a solicitor for 30 years. She represents herself on this application. 6 During 2010 Ms Dubow was involved in extensive litigation with an organisation called "Fitness First Australia" and then a firm called Kent Attorneys. Arising out of that litigation, Ms Dubow was ordered to pay certain costs. On 18 October 2011 Ms Dubow sent a debtor's petition and accompanying documents to Insolvency and Trustee Service Australia ("ITSA"). On 28 October 2011 Ms Dubow sent an email to the Official Receiver seeking to withdraw her debtor's petition. On that day Ms Dubow was told that her petition could be withdrawn as it had not been received. Those documents were received at the Official Receiver's Adelaide office on 2 November 2011. ITSA told Ms Dubow that the documents would be returned that day. However, Ms Dubow requested ITSA to hold the documents as she thought that she might wish to act further upon them. ITSA said it would hold the documents until 15 November 2011. On 16 November 2011 the documents and attachments were returned to Ms Dubow. On or about 14 February 2012 Ms Dubow sent her debtor's petition to ITSA again. ITSA received the material on 9 March 2012. Ms Dubow had redated the debtor's petition by inserting the new date of 14 February 2012 in place of the October 2011 date. Ms Dubow initialled the change. 7 On the day that ITSA received the debtor's petition, ITSA returned it and the accompanying statement of affairs (and other documents) to Ms Dubow on the footing apparently that certain questions required to be answered within the statement of affairs had not been answered. In the proceedings before the Federal Magistrate, Ms Dubow apparently contended that on 13 March 2012 she completed the forms as requested, redated the debtor's petition 13 March 2012 and sent the documents to ITSA. On 15 March 2012 the debtor's petition, the statement of affairs and a bundle of 179 accompanying pages of material was received by ITSA in Adelaide. The Federal Magistrate found that the statement of affairs was dated 13 March 2012. The Federal Magistrate also accepted that there was no Trustee's Consent to Act document enclosed with the documents received by ITSA on 15 March 2012. 8 One matter of considerable contention before the Federal Magistrates Court was whether such a consent had been submitted and ought to have been acted upon. In the result, the debtor's petition was accepted by ITSA on 20 March 2012. The Official Trustee became the trustee of Ms Dubow's estate in bankruptcy. On 26 April 2012 Mr Barnden, a Registered Trustee, was appointed trustee of Ms Dubow's estate pursuant to s 181A of the Bankruptcy Act. 9 All of these facts are drawn from [6]-[23] of the reasons of Federal Magistrate Jarrett in the reasons for judgment in the Federal Magistrates Court: Dubow v Official Receiver & Anor [2013] FMCA 217. The judgment appears to have been delivered on 28 March 2013 although there is some controversy about that and Ms Dubow contends that the judgment was published on 2 April 2013. 10 On 8 June 2012 Ms Dubow filed an application in the Federal Magistrates Court under s 153B(1) of the Bankruptcy Act for an order annulling the bankruptcy. That section provides, relevantly, that if the Court is satisfied that, in the case of a debtor's petition, the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy. Such an order may be made whether or not the bankrupt was insolvent when the petition was presented: s 153B(2). If the bankruptcy of a person is annulled under Div 5 of Pt VII which includes s 153B, all sales and dispositions of property and all acts done by the Trustee before the annulment are taken to have been validly done: s 154(1)(a). Further, the Trustee may apply the property of the former bankrupt still vested in the Trustee, in payment of the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the Trustee: s 154(1)(b). 11 Div 3 of Pt IV addresses the topic of debtors' petitions. Sections 55(1) and 55(2) provide that a debtor may present a petition against herself to the Official Receiver in the approved form and accompanied by a statement of the debtor's affairs. Section 55(3) provides that the Official Receiver may reject a debtor's petition if the petition does not comply substantially with the approved form or the petition is not accompanied by a statement of affairs or the Official Receiver thinks that the statement of affairs is inadequate. The Official Receiver may reject a debtor's petition if it appears from the information in the statement of affairs (and any additional information supplied by the debtor) that, if the debtor did not become a bankrupt, the debtor would be likely (either immediately or within a reasonable time) to be able to pay all the debts specified in the statement of affairs, and at least one of the factors set out in s 55(3AA)(b) apply: s 55(3AA). 12 The Official Receiver is not required to consider in each case whether there is a discretion to reject under s 55(3AA): s 55(3AB). 13 The Official Receiver must accept a debtor's petition unless the Official Receiver rejects it under s 55 or is directed by the Court to reject it. Where the Official Receiver accepts a petition presented under s 55, the Official Receiver shall endorse the petition accordingly and, upon endorsing the petition, the debtor who presented it becomes bankrupt by force of s 55 and by virtue of presentation of the petition: s 55(4A). 14 Ms Dubow sought to annul her bankruptcy so arising by operation of the provisions just mentioned, on the footing that at the time she presented her debtor's petition she was solvent and therefore the debtor's petition "ought not to have been presented", by her. As to that ground, the Federal Magistrate noted that at para 16 of her affidavit filed in that Court on 8 June 2012 she contended that on the "figures provided, at the relevant time" to the Official Receiver, there were no defaults on her part and no enforcement action was being taken against her. She submitted that she "probably was not insolvent and even if I was, was not eligible to be declared bankrupt": [29] of the reasons. At [30] the Federal Magistrate noted that in her written submissions Ms Dubow had further elaborated on that matter by saying that there were no claims against her to be paid that were not paid or capable of being paid when they fell due and there were no defaults on her part. She said that "at the date of filing the Petition the debtor was "solvent", and or paying all debts as and when they fell due". She said there were no demands for payment that were not or could not be met. 15 At [30] the Federal Magistrate also notes that in her written submissions, Ms Dubow said that several of the debts were mistakenly recorded as her debts; that costs orders in favour of Fitness First were not requested to be paid; and other questions arose in relation to the review of some costs. Questions arose in relation to the validity of a Deed of Release. 16 At [31] the Federal Magistrate found that at the time Ms Dubow presented her petition on 15 March 2012, her statement of affairs was completed in such a way that it was impossible to tell the extent of Ms Dubow's liabilities; the document was poorly completed; and, in respect of the costs orders made in favour of Fitness First, the statement of affairs was incomplete. The Federal Magistrate at [32] noted that Ms Dubow had correctly included in her statement of affairs prospective and contingent liabilities. At [32] the Federal Magistrate observed that the level of those liabilities meant that Ms Dubow could not be sure that she was solvent at the time she presented her debtor's petition. The Federal Magistrate found at [32] that he could not be satisfied, on the balance of probabilities, that Ms Dubow was solvent at that time. 17 At [33] the Federal Magistrate found that he could not be satisfied that Ms Dubow was solvent at the time of the hearing. At [33] the Federal Magistrate said this: The onus of proving solvency is on Ms Dubow and it is not sufficient for Ms Dubow to establish that she has assets that exceed her liabilities if those assets are not presently available or realisable. Ms Dubow does not demonstrate in the evidence that she is solvent, or that her main assets, being real properties, are readily realisable. In my view, Ms Dubow has not discharged the burden that she carries to demonstrate that she was solvent at the time she presented her debtor's petition, or that she could realise assets quickly in order to become solvent. 18 Section 153B(2) of the Bankruptcy Act provides that an annulment order may be made whether or not the bankrupt was insolvent "when the petition was presented". Ms Dubow appeared to be contending that the annulment order ought to be made because at the moment in time when she presented the petition she was solvent and therefore the petition ought not to have been presented. In that sense, Ms Dubow had made solvency at the date of presentation of the debtor's petition, the issue upon which the annulment order ought to be made. It may be that the real focus of the application was the second ground, namely, that the debtor's petition as presented by her "ought not to have been accepted" by the Official Receiver. 19 As to that ground, Ms Dubow contended that the petition and the statement of affairs did not reveal any outstanding debts which were not being paid (or had not been paid) as and when they fell due. Further, Ms Dubow contended that the third version of the debtor's petition (dated March) as accepted, was served by post "and was not accompanied by any signed acknowledgement as per the rest of the petition". Ms Dubow contended that a failure to comply with reg 4.11 of the Bankruptcy Regulations 1996 (Cth) gave rise to the result that the debtor's petition ought not to have been accepted as compliance with the regulation is mandatory. Ms Dubow relied upon reg 4.11(3) of the Bankruptcy Regulations to the effect that the Official Receiver must not accept a debtor's petition under s 55 of the Bankruptcy Act unless the debtor has given to the Official Receiver a signed acknowledgement that the debtor has received and read the prescribed information (being information prescribed for the purposes of s 55(3) of the Bankruptcy Act by reg 4.11(1) of the Bankruptcy Regulations). Ms Dubow contended that her debtor's petition ought not to have been accepted on the footing that if the Official Receiver had not misread an amount owing to Fitness First of $37,133.00 as $371,333.00, the Official Receiver would have clearly seen that Ms Dubow had "a surplus in the Asset Pool to service the Debt claimed". 20 As to these matters, the Federal Magistrate said at [37] that there was no obligation upon the Official Receiver to "scrutinise the debtor's petition in the way [suggested]". The Official Receiver might elect to do so and might exercise a discretion to reject the petition but the Bankruptcy Act cast no statutory obligation upon the Official Receiver to do so: s 55(3AB). The Federal Magistrate said that in addressing these remarks, he was dealing with the second limb of s 153B(1) concerning the circumstances in which the Official Receiver ought not, that is to say, must not accept a debtor's petition, being circumstances which would support an order for the annulment of the bankruptcy arising upon acceptance and the events described in s 55(4A) of the Bankruptcy Act. 21 At [38] the Federal Magistrate found that he could not be persuaded that the evidence established that the Official Receiver had failed to consider whether the petition ought to be rejected under s 55(3AA) and having regard to s 55(3AB) and s 55(4) of the Bankruptcy Act, the Federal Magistrate was not prepared to infer that the Official Receiver had failed to consider the petition under s 55(3A) of the Bankruptcy Act having regard to the Bankruptcy Regulations. Section 55(3A) provides that before accepting a debtor's petition, the Official Receiver must give the debtor the information prescribed by the regulations. At [39] the Federal Magistrate found that the petition presented on 15 March 2012 had Ms Dubow's acknowledgment on it and "the reverse of the debtor's petition had certain 'Prescribed Information' printed upon it". It is not clear by this finding whether the reference to certain information is intended to be a finding that all of the prescribed information was available to Ms Dubow. 22 Finally, the Federal Magistrate found at [42] that even if he was wrong about whether either limb of s 153B as it applies to a debtor's petition had been made out on the evidence, he would decline to exercise the Court's discretion to annul the bankruptcy because Ms Dubow's bankruptcy had come about upon her own application which she had elected to make having taken advice from a registered bankruptcy trustee, Mr Hugh Ramsay; Ms Dubow had sought to avoid legal proceedings being pursued against her by Fitness First by presenting her own petition; despite seeking to be made bankrupt upon her own petition, Ms Dubow now says that her petition ought to have been rejected by the Official Receiver; and the evidence establishes that Ms Dubow is presently insolvent as she is unable to meet costs orders against her that are now due and payable. At [43] the Federal Magistrate observes that Ms Dubow actively agitated the acceptance of her petition and yet she says that at the time of presentation of the debtor's petition she knew, and the Official Receiver ought to have realised, that she was actually solvent. That led the Federal Magistrate to conclude at [43] that Ms Dubow's conduct in presenting a debtor's petition when she thought that she was not insolvent, presented for the purpose of bringing the Fitness First matters to an end by operation of s 60 of the Bankruptcy Act, amounted to an abuse of process. 23 In the result, Ms Dubow's application for annulment was dismissed. 24 The Federal Magistrate also made orders that an application filed by Ms Dubow in the Federal Magistrates Court on 30 August 2012 be adjourned to a hearing on 26 April 2013. That application (BRG 519/2012) filed in the Federal Magistrates Court is an application commenced by Mr David Dubow and Ms Dubow against the Official Receiver and Mr Barnden. On 26 April 2013 that application was adjourned to a date to be fixed in the Federal Circuit Court of Australia "following the determination of the appeal of the annulment of bankruptcy application". 25 That application (BRG 519/2012) is concerned with 9 claims for relief. It seems common ground that all parts of that claim are adjourned and reserved for later determination consequent upon the resolution of the appeal from the dismissal of Ms Dubow's annulment application. The only relevant part for present purposes of that application is claim 7. That claim is framed in terms which make it difficult to comprehend. Nevertheless the claim seeks a declaration that the Katoomba property be declared exempt property having regard to the circumstances of a particular purchase transaction and the relationship between a law of New South Wales and a law of the Commonwealth. There is no further content to that matter. 26 However, for present purposes, Ms Dubow says that there is a proceeding in the Federal Magistrates Court which is reserved for later determination and which concerns the property her Trustee proposes to sell on 15 June 2013. Moreover, the appeal she has instituted in this Court seeks the setting aside of the dismissal of her annulment application and, in place of that order, an order annulling her bankruptcy. Ms Dubow contends that should she be successful in the appeal, she will be prejudiced because the Katoomba property may well have been sold before the orders of the appeal court are made and, in the result, a successful appeal will be nugatory at least as far as the preservation of her Katoomba property is concerned. 27 There is no doubt that as things stand, the Katoomba property vested forthwith in her Trustee by operation of s 58 of the Bankruptcy Act subject to any question of whether the Katoomba property, for one reason or another, is not, by operation of s 116(2) property divisible among the creditors for the purposes of s 116(1) of the Bankruptcy Act. However the Katoomba property is nevertheless vested in the Trustee and the Trustee has become the registered proprietor on the Certificate of Title. There is also a registered mortgagee who has served notices of demand for arrears of mortgage payments which may or may not result in steps being taken by the mortgagee to exercise a power of sale quite apart from any step the Trustee may seek to take. 28 In the appeal to this Court from the dismissal of the annulment application, Ms Dubow seeks to agitate 12 grounds of appeal. They include grounds that the decision of the Federal Magistrate was not supported by the evidence; lengthy delay occurred; the decision is not based upon any evidence but only inferences; the decision reflects error of law in relation to s 153B and Ms Dubow's "right" to nominate a Trustee; the decision miscarried by a failure to consider evidence and the interests of both the secured and unsecured creditors; Ms Dubow enjoyed a right to nominate a Trustee to administer her bankrupt estate, a consent to act had been signed and the debtor expected that the nominated trustee would be appointed; the decision miscarried in the assessment of the debtor's duties in filing and completing a debtor's petition; the decision reflects error of law in relation to s 153B(2); the decision reflects errors of fact about particular debtors; the decision fails to take account of the Official Receiver's misreading of the amount of the debt due to a particular creditor; the decision fails to take account of the amount expended by the creditor; and the decision fails to take account of unpleasant interchanges described in ground 12 of the notice of appeal which causes Ms Dubow to hold a reasonable apprehension of bias on the part of the Federal Magistrate. 29 It is necessary to mention all of these matters for a number of reasons. First, Ms Dubow's affidavit fails to set out and swear to the foundation facts which give rise to an arguable ground of appeal. Ms Dubow's affidavit says, relevantly, she is the appellant; she has filed an application in the Federal Magistrates Court concerning the property, in part, which is reserved for later determination; in March 2013 Federal Magistrate Jarrett delivered the principal judgment; a notice of appeal was filed and served; on 26 April 2013 the other application in the Federal Magistrates Court was stood over pending the appeal; on 25 May 2013 Ms Dubow became aware that steps had been taken to make arrangements for the sale of the Katoomba property by auction on 15 June 2013; items of personal property would need to be collected by the property; settlement of the appeal index is scheduled for 26 June 2013; the solicitors for Mr Barnden propose to seek security for costs of the appeal; the Trustee has made no applications to the Court in relation to available property; the sale of the property is of no benefit to the creditors or the bankrupt; the sale of the property will only benefit the Trustee and the Trustee ought not to be taking steps to sell the Katoomba property pending the appeal. 30 Section 25(2B)(ab) of the Federal Court of Australia Act 1976 (Cth) provides that a single Judge or a Full Court may make an interlocutory order pending, or after, the determination of an appeal to the Court. The appeal lies to this court under s 24 of the Act. That in substance is what Ms Dubow seeks. She does not seek a stay of the order made by the Federal Magistrates Court. That order operated to dismiss her application for an annulment of her bankruptcy which left her bankruptcy as the extant position. In effect, Ms Dubow seeks an order that the Trustee be restrained from taking steps in the bankruptcy in relation to the Katoomba property pending the determination of the appeal which might or might not result in an annulment of her bankruptcy. There is no doubt that the Court has power to grant an interlocutory injunction pending an appeal. Such an order does not operate to stay the bankruptcy. The order, if made, would operate to prevent the Trustee from taking particular steps in the bankruptcy pending the determination of the appeal. 31 In Hollier v Australian Maritime Safety Authority (Federal Court, VG667/1997, 27 April 1998, Sundberg J), Sundberg J said this: A comparable jurisdiction exists where a stay would achieve no purpose, as where there is an appeal from an application that has been dismissed. The Court can grant an injunction against a successful respondent for the purpose of preserving the status quo until the appeal is determined, for instance by restraining the respondent from parting with the subject matter of the claim, as in Orion Property Trust Ltd v Du Cane Court Ltd [1962] 1 WLR 1085. The principal on which the Court acts in applications for injunctions pending appeal is the same as that applicable where a stay pending appeal is sought. It is to ensure that the appeal, if successful, is not nugatory .. As on an application for a stay, an appellant who seeks an interlocutory injunction pending appeal must show some prospect of success on the appeal. That [involves] establishing the existence of a serious question to be tried. .. 32 Injunctions can also be issued in the Court's original jurisdiction under s 23 of the Federal Court of Australia Act to preserve the subject matter of an appeal pending the hearing and the determination of the appeal: Stirling Harbour Services Pty Ltd v Bunbury Port Authority (No 2) [2000] FCA 87. See also Grundy v Wattyl Australia [2002] FCA 615 at [13]-[15]; Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685; Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65. 33 The question to be determined on this application is whether there is an arguable point raised on the proposed appeal and where the balance of convenience lies. There may be an arguable question in relation to the treatment of the evidence by the Federal Magistrate concerning whether Ms Dubow was provided with or had the prescribed information required by reg 4.11 of the Bankruptcy Regulations and the subject of s 55(3A) of the Bankruptcy Act. Ms Dubow contends that the reasons fail to properly address the evidence generally and that an error of law has arisen in relation to the question of whether the Official Receiver was prevented from accepting the debtor's petition by reason of s 55(3A) having regard to the facts relating to the exchanges between Ms Dubow and ITSA. I accept that there is a real prospect that the Katoomba property may well have been sold by the Trustee prior to the determination of the appeal. The ground of appeal which may be arguable, however, is the only ground that is raised as a possibly arguable ground. I am not satisfied that Ms Dubow has demonstrated an arguable point in relation to any of her other contentions. There are simply no facts deposed to by Ms Dubow in her affidavit in support of her application. 34 The appeal record is due to be settled in June. The appeal is likely to come on for hearing in the November sittings. 35 I am not satisfied that the interests of the creditors ought to be deferred until the determination of the appeal. Although the property may be sold by the Trustee, the interests of the creditors require the estate to be administered and what is proposed is the conversion of the property into a cash receipt after payment of the costs and expenses of the sale. 36 I do not propose to grant an injunction restraining the sale. However, I will make a direction that upon the sale of the property and the payment of the costs and expenses of the sale, and the discharge of the interest of any registered mortgagee, the balance proceeds be held by the Trustee pending further direction by the Court as to the application of any of those funds pending the determination of the appeal. Any application by the Trustee can be made upon 7 day's notice to Ms Dubow. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.