respondent. Application for annulment dismissed; applicant ordered to pay respondents' costs (Orders 1–2; Reasons [16]).
Key principles
An application under s 153B of the Bankruptcy Act 1966 (Cth) for annulment requires the Court to be satisfied that the sequestration order ought not to have been made (Reasons...
Evidence that the sequestration order ought not to have been made must be grounded in the material before the Court; unsupported assertions of an extrajudicial settlement that...
An annulment application is not established by a bankrupt's request to be restored to the pre-bankruptcy status quo for the purpose of negotiating a compromise; in the absence of...
Issues before the court
Whether the sequestration order of 13 September 2001 ought not to have been made so as to justify annulment under s 153B of the Bankruptcy Act 1966...
Whether the applicant's assertion that an arrangement was reached at the 9 August 2001 court precincts (so he need not attend on 13 September 2001)...
Whether the apparent size of trustee costs relative to the original debt could, of itself, justify annulment.
Plain English Summary
Mr Grundy sought annulment of his bankruptcy under s 153B, asserting an earlier agreement excused him from attending the adjourned hearing which resulted in sequestration. The Court found contemporaneous solicitor correspondence showed no settlement had been reached; the applicant did not offer to pay or secure the Wattyl debt or trustee costs and sought only restoration to negotiate. The Court refused annulment because it was not satisfied the sequestration order ought not to have been made. The application was dismissed and the applicant ordered to pay costs.
AI-generated legal information, not legal advice. Zoe can make mistakes. Check the cited source, and for advice about your situation consult a qualified Australian lawyer.
Deep Dive
1,573 words · generated 22/08/2026
What happened
This is an application brought by Mr Phillip Grundy for annulment of his bankruptcy under s 153B of the Bankruptcy Act 1966 (Cth). The factual background is: Wattyl Australia commenced bankruptcy proceedings against Mr Grundy, and on 13 September 2001 Registrar Tesoriero made a sequestration order based on a debt claimed by Wattyl of $8,495.05 (Reasons [1], [3]). Mr Grundy contended that defective goods (a spray paint unit) and consequent loss of work led to business collapse, hospitalization and loss of income; the evidence for his claimed losses was unspecific and lacking documentary support (Reasons [1]–[2]). Mr Grundy alleged that at a hearing on 9 August 2001 an agreement or understanding was reached with Wattyl (via its solicitor) such that he need not attend the adjourned hearing on 13 September 2001; he did not attend and was sequestrated (Reasons [9]–[11]).
Cited legislation
2 cited instruments linked from this judgment.
After the Federal Magistrate (Raphael FM) affirmed the sequestration order on 13 March 2002 and Mr Grundy's appeal to a single judge was pending, Moore J made interlocutory stay orders protecting the sale of the debtor's property (Grundy v Wattyl Australia [2002] FCA 615; Reasons [4]). Mr Grundy then filed an annulment application under s 153B (filed 29 April 2002, heard 21 August 2002). Conti J heard the annulment application, deferred decision until the related appeal (which Downes J subsequently dismissed, Grundy v Wattyl Australia Pty Ltd [2002] FCA 1480), and after that dismissal refused annulment on 11 December 2002 (Reasons [13]–[16]). The Court dismissed the application and ordered costs against Mr Grundy (Orders; Reasons [16]).
Why the court decided this way
Two principal reasons drove the decision.
First, the Court required satisfactory evidence that the sequestration order ought not to have been made, as is required by s 153B. Conti J indicated he would postpone ruling until the single-judge appeal had been resolved because a successful appeal would have eliminated the underlying sequestration and made the annulment application moot (Reasons [13]). Once Downes J dismissed the appeal and his reasons were before the Court, Conti J concluded that there was no material to satisfy s 153B. Specifically, the Court rejected Mr Grundy's factual claim that a settlement or adjustment had been agreed in the court precincts on 9 August 2001 so that he was entitled to be absent on 13 September 2001. The solicitor's written correspondence of 13 August 2001 objectively demonstrated that the matter had simply been adjourned to obtain instructions, not because an arrangement had been concluded (Reasons [9]–[11]). The Court therefore found no ground that the sequestration order ought not to have been made.
Second, the Court emphasised the absence of any offer by Mr Grundy to pay or secure the debt to Wattyl or to meet trustee administration costs. Conti J observed expressly that Mr Grundy had not sought annulment on the payment basis of s 153A but rather sought restoration of the status quo so he could negotiate with creditors; that posture did not satisfy the Court (Reasons [14]). Therefore s 153B relief was not established.
The Court also noted the troubling disparity between the original debt and apparent trustee costs (citing Downes J at [31]), but considered that issues about the reasonableness of individual administration charges were not determinative in the annulment application and could be pursued by other means if appropriate (Reasons [15]).
Before and after state of the law
Before this decision, the statutory framework was unchanged: s 153A provides annulment where debts are paid or secured; s 153B provides annulment where the sequestration order ought not to have been made. This judgment reinforces established principles of proof and the practical operation of s 153B:
The Court reiterates that s 153B requires positive satisfaction that the sequestration order should not have been made, not merely assertion of a claimant's version of events.
The decision affirms that documentary contemporaneous material (letters, court documents) will be given primary weight to test later affidavits by an applicant claiming an extrajudicial settlement or understanding.
The judgment clarifies that an applicant's desire to be restored to the pre-bankruptcy position to negotiate with creditors is not, by itself, a sufficient basis for annulment under s 153B; without an offer to pay or to secure debts, or other compelling material showing the sequestration should not have been made, annulment will be refused.
After the decision, practitioners can rely on Conti J's focus on contemporaneous documents and the need for a realistic evidentiary basis when advancing s 153B applications. While the case does not change statutory text, it demonstrates how judges will apply s 153B in practice where the applicant's factual proofs are weak and no payment/offer is forthcoming.
Key passages with plain-English translation
Reasons [11]: "The content of that request for instructions demonstrates, objectively speaking, that no arrangement was reached in the precincts of the Registrar's court on 9 August 2001, contrary to Mr Grundy's affidavit evidence."
Plain English: The solicitor's written note from 13 August 2001 shows there was no settlement on 9 August; therefore Mr Grundy's claim he need not appear on 13 September is not supported by the contemporaneous record.
Reasons [13]: "I formed the view ... that I should postpone decision-making upon the present annulment application until after the conclusion of that appeal."
Plain English: Conti J delayed deciding the annulment application until the related appeal was decided, because if the appeal succeeded there would be no sequestration left to annul.
Reasons [14]: "Moreover no offer has been made by Mr Grundy to satisfy or secure his Wattyl indebtedness, and the trustee's costs of bankruptcy administration ..."
Plain English: Mr Grundy never offered to pay or secure the debt that led to bankruptcy. Annulment under s 153A (payment) was not pursued, and his argument under s 153B failed for lack of adequate evidence.
Reasons [15]: The Court notes the bankruptcy administration costs appear to have ballooned to around $60,000 against an original debt of about $8,000.
Plain English: The Court recognises the case looks unfortunate because administration costs seem disproportionate to the original debt, but that problem does not automatically justify annulling the bankruptcy; any contest about particular charges should be addressed through the appropriate avenues.
Reasons [16]: "The application must be dismissed with costs."
Plain English: The Court refuses the annulment and orders Mr Grundy to pay the respondents' legal costs.
What fact patterns trigger this precedent
This judgment is most directly relevant where:
A bankrupt applies for annulment under s 153B after a sequestration order made on the creditor's petition; and
The bankrupt claims a prior extrajudicial settlement or some arrangement that would have made the adjourned hearing unnecessary, but the only contemporaneous documents contradict that claim; and/or
The bankrupt seeks restoration to negotiate compromises rather than offers or actual payment/security under s 153A; and/or
There is an existing appeal against the sequestration order, so the court may defer s 153B resolution until that appeal is decided.
Practitioners should note that where contemporaneous documentary evidence does not corroborate an applicant's asserted settlement, and no offer to pay or secure debts is made, s 153B relief is unlikely to be granted.
How later courts have treated it
This judgment is a single-judge Federal Court decision applying s 153B to the facts of this case. It cites and follows the outcome of the single-judge appeal decision (Downes J, Grundy v Wattyl Australia Pty Ltd [2002] FCA 1480) and refers to earlier interlocutory orders by Moore J ([2002] FCA 615). Conti J relies on Downes J in explaining why the annulment application should be refused after the appeal. The decision is fact-specific and will be used primarily for its practical guidance: the weight to be given to contemporaneous documents, the insufficiency of mere assertions of agreement, and the limited utility of post hoc claims to restitution where no payment or security is offered.
Because the Court expressly deferred decision pending the related appeal and then relied on Downes J's dismissal, future courts might treat the decision as confirming the approach that s 153B requires cogent proof the sequestration should not have been made, but the case is not a broad doctrinal pronouncement on bankruptcy law. It will be persuasive in like factual circumstances.
Still-open questions
The judgment recognises the systemic problem that trustee and administration costs can, in some cases, far exceed the initial petition debt (Reasons [15]). Conti J noted this concern but declined to allow it to determine the annulment application. The case does not resolve how, in practice, disproportionate administration costs should be challenged: what procedural route is optimal, and to what extent courts will entertain challenges to charges when a bankrupt alleges the proceedings themselves were unduly costly. That remains a live question for subsequent litigation or review processes.
The decision turns heavily on contemporaneous documentary evidence. It leaves open the precise evidential threshold for proving an extrajudicial settlement: while this case shows that contemporaneous solicitor correspondence can be dispositive, courts may in other contexts accept credible oral evidence corroborated by other documents or conduct. The contours of credible proof of pre-hearing compromise remain fact-sensitive.
Final note required by Zoe: This is a structured legal-information analysis of the Court's Reasons. It is not legal advice, and I can make mistakes. Before you rely on this analysis, use it in litigation, or act on it, have a qualified Australian lawyer check it.
Judgment (4 paragraphs)
[1]
REASONS FOR JUDGMENT
1 This proceeding is one of a series involving the appellant ("Mr Grundy"), the first respondent ("Wattyl"), and the second respondent ("Mr Pascoe"). Mr Pascoe is the trustee of Mr Grundy's bankrupt estate. Mr Grundy has appeared in person at all hearings which have taken place. The genesis of Mr Grundy's bankruptcy was the conduct by him of business as a painting contractor. He purchased paint and painting equipment from Wattyl, including in particular a spray paint unit. That unit was so deficient, Mr Grundy has asserted for some time, as to have caused Mr Grundy to lose about 3 "major jobs", for which the spray paint unit had been acquired, and to have caused damage to his reputation as a tradesman.
2 As a consequence of the asserted deterioration of his business, and the distress thereby occasioned to him, Mr Grundy claimed further that he became hospitalised with a heart condition, and received no financial income, other than social welfare, for about 3 months, until he was able to secure a technological teaching position at the Mirriwinni Gardens Aboriginal Academy. I should add that Mr Grundy has provided no documentary evidence of the losses of income and earnings to which he has made unspecific reference.
3 On the application of Wattyl, Mr Grundy was made bankrupt on 13 September 2001 by sequestration order of Registrar Tesoriero, based on a debt of $8,495.05 claimed by Wattyl. An appeal against the order for his bankruptcy was dismissed by Federal Magistrate Raphael on 13 March 2002, and his Worship affirmed the sequestration order on that day. Thereafter Mr Grundy lodged notice of appeal against the decision of Raphael FM to a single judge of this Court, pursuant to s 24 of the Federal Court of Australia Act 1976 (Cth).
4 On 2 April 2002, Mr Grundy commenced proceedings in the Court, by notice of motion filed on 2 April 2002, for an order '[t]hat the sale of 2A Mount Vincent Road Mount Vincent by the Trustee in bankruptcy be stayed pending the outcome of the appeal and that I be given all rights and access to property". A number of affidavits were filed by Mr Grundy in support of the notice of motion. On 14 May 2002, Moore J made the following orders in those proceedings (Grundy v Wattyl Australia [2002] FCA 615):
"1. Until further order the proceedings under the sequestration order made on 13 September 2001 in relation to the estate of Mr Phillip Grundy be stayed insofar as it permitted or required the sale of 2a Mount Vincent Road, Mount Vincent.
2. Until further order the Trustee be restrained from selling the property.
3. Until further order and upon Mr Phillip Grundy giving an undertaking to vacate the property within 7 days of any judgment dismissing his appeal from the judgment of the Federal Magistrate of 13 March 2002, the Trustee permit Mr Phillip Grundy to enter and occupy the property until judgment in the appeal.
4. Cost of the stay application be costs in the appeal."
5 On 29 April 2002, Mr Grundy opened what may be described as a "second front" in his litigious response to Wattyl's bankruptcy proceedings brought against him, by making application for an order, pursuant to s 153B of the Bankruptcy Act 1966 (Cth) ("the Act"), for the annulment of his bankruptcy. The annulment application came on for hearing before me on 21 August 2002.
6 The claims for final relief made by the applicant in his application for annulment are reproduced below:
"1. That the bankruptcy be annulled in full New Evidence being presented to the Court.
2. That all costs related to the said bankruptcy be borne by the Respondent Wattyl Australia and/or their legal representative Lamich & Co Solicitors.
3. They (sic) Mr Phillip Grundy and Mr William Lawrence Grundy Senior be compensated by the respondent/s for damages as detailed in Mr Phillip Grundy's Affidavit to the amount of $150,000.00 being for stress, anxiety, depression, loss of lifestyle, loss of employment, loss of income. Denial of basic human rights."
7 The claims for interlocutory relief made by the applicant in the same application are next reproduced below:
"1. That Mr Phillip Grundy and Mr William Lawrence Grundy be given immediate access to Mr Phillip Grundy's property (home) at 29 Mt Vincent Road, Mt Vincent NSW 2323.
2. That all Mr Grundy's assets be freed by the Trustee Sims Lockwood immediately allowing Mr Grundy to make suitable arrangements to pay all creditors without further cost to Mr Phillip Grundy or his representatives."
8 The evidence placed before me at the hearing on 21 August 2002 comprised essentially the content of the following affidavits:
Mr Grundy - sworn 29 April 2002
Mr Grundy's father - sworn 14 April 2002
Mr Pascoe (the trustee in bankruptcy) - sworn 24 May 2002
Mr Lamich (former solicitor for Wattyl) - sworn 24 May 2002.
9 Mr Grundy and his father sought by their respective affidavits to establish that at the first day's hearing of the bankruptcy proceedings on 9 August 2001, over which Registrar Hedge had presided, it was agreed between Mr Grundy and Mr Lamich in the Court's precincts that adjustments would be made to Wattyl's unpaid account for the spray gun, and perhaps for some additional goods also supplied, and that it would therefore not be necessary for Mr Grundy to attend the court at the next hearing of the same bankruptcy proceedings, which was thereupon scheduled for 13 September 2001.
10 Mr Lamich's account of the bankruptcy proceedings was that the same were indeed adjourned by Registrar Hedge until 13 September 2001, but only for the purpose of enabling Mr Lamich to obtain instructions from Wattyl, at Mr Grundy's request, as to whether it would make adjustments to Mr Grundy's account, by reason of the spray gun being allegedly defective, and by reason in any event of Mr Grundy having been allegedly invoiced at a higher price than earlier quoted by Wattyl, and that Mr Grundy did not attend the court on the adjourned date of 13 September 2001, as he should have done in the absence of a settlement of the dispute having occurred in the meantime. Mr Lamich's affidavit is silent as to whether or not he did obtain instructions from Wattyl in relation to Mr Grundy's proposal. Mr Lamich further said that Mr Grundy gave him the telephone number of Mr Grundy's home, and informed him that he (Mr Lamich) could notify Wattyl's response during the day to Mr Grundy's father, or during the evening to Mr Grundy in person. It was in the context of the absence of Mr Grundy from the Court on 13 September 2001 that Registrar Tesoriero made the sequestration order in relation to Mr Grundy's estate on that day.
11 The only documentary evidence as to what occurred in discussion between Mr Grundy and Mr Lamich is contained in Mr Lamich's written request for instructions sent on 13 August 2001 to his principals (who appear to have been a firm of mercantile agents), which, omitting the formal parts thereof, reads as follows:
"The Bankruptcy Petition in this matter has been adjourned to 13 September 2001.
Mr Grundy appeared in person, and we had a discussion with him outside the court. He said that he had two problems.
The first was in relation to pricing, where he had been given quotes at a discount, and then when the invoices were issued from Blacktown, they were at retail prices. The second problem was with the Alesco spray gun which, when he tried to use it with acrylic paint, did not spray, but tended to spit.
He said he has tried on a number of occasions to discuss the matter with your representative, Graham De Silva, without success.
Could you please advise in relation to both these matters."
The content of that request for instructions demonstrates, objectively speaking, that no arrangement was reached in the precincts of the Registrar's court on 9 August 2001, contrary to Mr Grundy's affidavit evidence. Consequently Mr Grundy had no grounds for believing that he did not need to attend the adjourned hearing on 13 September 2001. Mr Lamich's affidavit does not disclose any communication on his part to Mr Grundy as to the outcome of whatever instructions he presumably received in response to his letter of 13 August 2001 to his client, and it may therefore be assumed that he did not further communicate with Mr Grundy. It is I think a matter for regret that Mr Lamich did not do so, but his omission to do so clearly did not excuse Mr Grundy from attending at Court, in his own interests, on the adjourned hearing date.
12 Mr Pascoe's affidavit discloses the following circumstances, following upon his appointment as trustee of Mr Grundy's bankrupt estate on 13 September 2001:
(i) On 19 September 2001, he notified Mr Grundy of the sequestration order of 13 September 2001, and of his appointment as trustee, and sent to Mr Grundy a statement of affairs for completion.
(ii) On 16 October 2001, he wrote again to Mr Grundy as follows, omitting formal parts:
"I refer to my letter dated 19 September 2001. A copy is enclosed.
I have not yet received your Statement of Affairs and Warning Notice. I advise that you are not automatically discharged until three years after you file your Statement of Affairs. By continuing to ignore this requirement under the Bankruptcy Act you will remain bankrupt for an indefinite period. The following action may now be taken by me without further notice to you:
· Application to the Federal Court of Australia for a summons pursuant to section 81 of the Bankruptcy Act 1966 ("the Act") to be served on you requiring your attendance at a public examination before the Registrar of the Federal Court of Australia.
· Objection to Discharge extending your bankruptcy to eight years from the date you file your Statement of Affairs.
· Referral to the Insolvency & Trustee Service of Australia for failure to file a completed Statement of Affairs with the Official Receiver and a copy to me as your trustee within 14 days of receipt of notification of your bankruptcy. I advise that a penalty of $550 plus the costs of the application is incurred pursuant to section 54(1) of the Act.
If you have any queries in relation to the above please telephone Mike Studman of my office."
(iii) On 5 November 2001, he wrote again to Mr Grundy, no statement of affairs having yet been forthcoming, which included the following:
"I refer to my letter dated 16 October 2001 a copy of which is enclosed.
I have not yet received your Statement of Affairs and Warning Notice and have no alternative than to commence realisation of your assets in order to pay the creditor(s), costs and fees of your bankrupt estate.
Both the petitioning creditor and their solicitors deny your version of events leading up to the making of the Sequestration Order. I note you were in attendance before the Court on 9 August 2001 when the matter was adjourned until 13 September 2001, being the date you were declared bankrupt. The matter was not, as you previously indicated to Mike Studman of my Sydney office, adjourned generally.
Furthermore you have not taken any demonstrable steps to have the Order set aside nor have I been served with any Appeal papers."
Thus it appears that Mr Grundy did get in touch with Mr Pascoe's office some time after 16 October 2001, and prior to 5 November 2001, and claimed (on the telephone) that the bankruptcy court proceedings held on 9 August 2001 were stood over generally, a version at odds with what appears in his affidavit evidence summarised in [9] above, where he speaks in effect of his knowledge of the adjourned hearing date of 13 September 2001, albeit on his asserted basis, which I have rejected, that he thought he was not required to be present at that adjourned hearing.
(iv) On or about 23 November 2001, Mr Pascoe received from Mr Grundy a statement of affairs, which turned out to have been significantly incomplete in terms of the assets which were required to be disclosed.
13 I formed the view, after the conclusion of the proceedings before me, and after learning subsequently that an appeal was shortly to be heard by Downes J from the decision of Raphael FM of 13 March 2002 (see [3] above), that I should postpone decision-making upon the present annulment application until after the conclusion of that appeal. My reason was that if Mr Grundy was to be successful on his appeal, there would be no bankruptcy order remaining susceptible to annulment.
14 On 28 November 2002, Downes J dismissed Mr Grundy's appeal (Grundy v Wattyl Australia Pty Ltd [2002] FCA 1480), his Honour finding no error on the part of Raphael FM. In his reasons for judgment, his Honour traced comprehensively the history of the dispute. Plainly no error is discernible in those reasons, and no material was placed before me from which I could be satisfied, as required by s 153B of the Act, that the sequestration order ought not to have been made. Moreover no offer has been made by Mr Grundy to satisfy or secure his Wattyl indebtedness, and the trustee's costs of bankruptcy administration, or at least any significant part thereof. What Mr Grundy has sought is in effect the restoration of the status quo prevailing prior to his bankruptcy, in order that he could negotiate to discharge such of his debts as he would consider to be fair and appropriate to him. Mr Grundy has thus obviously not sought annulment upon the basis of payment by him of all debts proved in his bankruptcy (s 153A).
15 In [31] of the reasons for judgment of Downes J, his Honour made the following observations:
"I should also mention that it is a sad aspect of this case that although the amount of the debt upon which the sequestration order was made was little more that $8,000.00 it seems that the costs of the Bankruptcy are now of the order of $60,000.00. When one takes into account that the total amount of unsecured debts of the appellant are only slightly in excess of $20,000.00 the resulting situation seems quite unfortunate. A system of bankruptcy administration which can lead to costs significantly more than the total debts of the bankrupt, particularly where the bankrupt has assets worth more than his debts, does not appear to be serving the ends of justice. I can only say that if any of the charges levied in connection with the administration are unreasonable there are no doubt bases upon which they can be challenged. However, these are not matters for me."
The matters to which his Honour has referred are necessarily of concern to myself. However in the light of the contents of the affidavit evidence of Mr Pascoe referred to in [12] above, I think that it must be concluded that Mr Grundy has at least largely contributed to the trustee's costs and expenses by his own conduct.
16 The application must be dismissed with costs.
I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.
[2]
Solicitor for the first respondent: Haylen & McKenzie