Holden v Van Houten

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1128 of 2011

BETWEEN: TIMOTHY MARK SHUTTLEWORTH HOLDEN (AS THE TRUSTEE OF THE PROPERTY OF HALINA VAN HOUTEN)

JUDGE: JESSUP J DATE: 13 January 2012 PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 The applicant, Timothy Mark Shuttleworth Holden, was the trustee of the bankrupt estate of the respondent, Halina Van Houten. In the present proceeding, he claims declarations and other orders such as would entitle him to his remuneration as trustee, and would entitle him to recover that remuneration from the respondent's property, which remains vested in him pursuant to the Bankruptcy Act 1966 (Cth) ("the Act"). The respondent resists those claims largely because, in her submission, she should never have been made bankrupt in the first place and, recognising this, the applicant ought not to have incurred the costs and expenses, or performed the work, upon which he relies in connection with his present application. 2 On 11 September 2008, judgment in the sum of $11,218.08, including interest and costs, was given against the respondent in the (State) Magistrates Court at Moorabbin. That judgment was in favour of a company from whom, it seems, the respondent had received real estate services in connection with the intended sale of a property of hers. It appears that the judgment was made in default of appearance, since, in her affidavit filed in this proceeding, the respondent swore that it was not until 11 September 2008 that she was aware of the claim against her. However that may be, the judgment remained, and was not paid. 3 On the strength of that judgment, the creditor sought the making of a sequestration order in relation to the property of the respondent in the Federal Magistrates Court of Australia. Such an order was made by a registrar on 23 February 2010. The applicant was appointed the respondent's trustee in bankruptcy. Having ascertained that the respondent was the registered proprietor of a unit in Wilson Street, Brighton, the applicant lodged a caveat over that property and, on 25 March 2010, informed the respondent accordingly. By letter dated 23 March 2010 delivered to the respondent on 29 March 2010, the applicant informed the respondent of her bankruptcy, and requested that she complete a statement of her affairs. 4 The respondent did not complete a statement of her affairs as required by s 54 of the Act and, on 13 May 2010, the applicant referred that matter to the enforcement unit of the Insolvency and Trustee Service Australia. Ultimately, the respondent was prosecuted for her failure to lodge a statement of affairs and, on 25 November 2010, found guilty of that offence. 5 On 21 October 2010, the respondent applied in the Federal Magistrates Court for a review of the sequestration order made on 23 February 2010. On 15 December 2010, a Federal Magistrate extended the time for the respondent to file her application for review and, acting pursuant to s 153B of the Act, ordered that the respondent's bankruptcy be annulled. No reasons of the Federal Magistrate have been put before the court on the present occasion, but it appears that the Federal Magistrate was influenced by the circumstance that the original claim which had given rise to the Magistrates Court order on 11 September 2008 was statute-barred. 6 Thus the respondent's bankruptcy came to an end. However, there remained the matter of the applicant's remuneration. He claims remuneration for his time, and for the time spent by his staff, and for costs and expenses incurred, within two broad categories. With respect to the period up to the making of the annulment order on 15 December 2010, he claims for work done, and for costs and expenses incurred, in the conventional administration of the respondent's bankrupt estate. With respect to the period subsequent to that order, he claims for work done, and for costs and expenses incurred, in seeking to have the respondent pay the first category of remuneration, costs and expenses. Although she has a global objection to the applicant having undertaken any work at all in relation to her bankruptcy, the respondent does not place in contest the necessity for the applicant, and his staff, to have undertaken the work which they did, or the reasonableness of the costs and expenses which they incurred. Subject to her global objection, the respondent accepts that the remuneration, costs and expenses which the applicant claims are no less than would conventionally be the due of a professional trustee administering a bankrupt estate in the circumstances which obtained. 7 The provision of the Act under which the Federal Magistrate acted on 15 December 2010 was s 153B, subss (1) and (2) of which are as follows: (1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that 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. (2) In the case of a debtor's petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented. The making of an order under s 153B activated the terms of s 154, subss (1) and (2) of which are as follows: (1) If the bankruptcy of a person (in this section called the former bankrupt) is annulled under this Division: (a) all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment are taken to have been validly made or done; and (b) 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; and (c) subject to subsections (3), (6) and (7), the remainder (if any) of the property of the former bankrupt still vested in the trustee reverts to the bankrupt. (2) If the property of the former bankrupt referred to in paragraph (1)(b) is insufficient to meet the costs, charges and expenses referred to in that paragraph, the amount of the deficiency is a debt due by the former bankrupt to the trustee and is recoverable by the trustee by action against the former bankrupt in a court of competent jurisdiction. In the present case, the applicant claims to have judicially resolved the dispute as to his entitlement to apply the property still vested in him in payment of the costs, charges and expenses of the administration of the bankruptcy, including his own remuneration and expenses, pursuant to para (b) of s 154(1). 8 The applicant's case is straightforward, and clearly invokes the provisions of s 154(1)(b) of the Act. Subject only to a consideration of the submissions of the respondent, the applicant is clearly entitled to the orders which he seeks. 9 The respondent's position is that the applicant ought to have recognised, from the outset, that it was quite wrong of him to have been performing work, and incurring costs and expenses, in the purported administration of her estate. Since the original debt was statute-barred, the creditor ought not to have obtained judgment in September 2008, and ought not to have obtained a sequestration order in February 2010. The real justice of the matter, according to the respondent, was recognised by the Federal Magistrate on 15 December 2010, and properly delivered to the respondent by the annulment order which was made on that day. Having secured judicial recognition of the flaw in the creditor's original claim, the respondent should not now be called upon the pay the remuneration of the applicant who, as a professional working in the area, ought to have been alive to the limitations point from the outset. 10 The respondent referred also to the principle that, fundamentally, bankruptcy was for insolvent people. She asserted that she was never insolvent, and implied that the bankruptcy laws had been used for the wrong purpose in her case. The judgment debt was not for a substantial sum, and, according to the respondent, the applicant ought to have realised that it was not such as could reasonably have given rise to her insolvency. 11 Whatever the general sense the respondent's submissions may carry, the difficulty for her is that the circumstances to which she adverts are not recognised by the Act as standing between the applicant and his entitlement to remuneration. It is not for the applicant, as trustee, to second guess the justification for the making of a sequestration order. That order having been made, and the applicant having been appointed as trustee, his duties were the conventional ones. He was obliged to take the order as a given, and to take the steps prescribed by the Act to get in the respondent's assets for the purpose of satisfying her creditors. The policy of the Act, given expression by the provisions of s 154 upon which the applicant relies, is that a trustee is entitled to his or her remuneration in respect of, and to costs and expenses incurred in the administration of, an estate where the relevant bankruptcy was annulled. The high level submissions of the respondent do not come to grips with the reality presented by the provisions of the legislation. 12 The respondent placed much reliance upon the following passage from the judgment of Weinberg J in Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338 at [42]: It seems to me that a trustee who administers a bankrupt estate, in the knowledge that the bankrupt is challenging the validity of the sequestration order, must exercise caution when incurring expenses whilst the status of the bankruptcy remains uncertain. I can well understand why, in Austral, given the facts of that case, involving as it did a resolution of a dispute between a debtor and a creditor, Emmett J concluded that it was appropriate to order the annulment of the bankruptcy, rather than simply setting aside the sequestration order. There was something to be said for making the putative bankrupt's estate meet the costs needlessly thrown away, particularly given the fact that there had been a short administration. The argument for fixing the estate with the costs and expenses of the administration seems to me to be less cogent when the putative bankrupt should never have been the subject of a sequestration order in the first place. That is particularly so when the sequestration order is based upon a bankruptcy notice that has always been attacked as invalid. His Honour's reasoning has been applied by the Federal Magistrates Court in other cases. However, the very point which his Honour had to decide - in circumstances where he had previously ruled that the bankruptcy notice, which gave rise to the sequestration order, was invalid - was whether the proceeding should be determined by an order setting aside the bankruptcy, or by an order annulling the bankruptcy. Recognising that an order of the latter kind would give rise to the trustee's entitlements under s 154 of the Act, and seeing no reason why the person who had wrongly been made bankrupt in that case should bear the costs of the trustee, his Honour decided that he would set aside the bankruptcy, rather than annul it. 13 By contrast in the present case, an order by way of annulment was made under s 153B of the Act, and so made on the application of the respondent herself. There is no scope for me to exercise the discretion which lay in the power of Weinberg J in Kyriackou to choose as between annulling, and setting aside, the bankruptcy. Once the bankruptcy had been annulled in the present case, the applicant's rights flowed under s 154 as a matter of statutory entitlement. The considerations to which Weinberg J adverted in Kyriackou are, therefore, of no application in the present case. 14 Although it is not necessary to do so, I would point out that, with respect to all but a very short period after the sequestration order was made, it could not be said that the applicant was administering the respondent's estate "in the knowledge that the bankrupt is challenging the validity of the sequestration order". The sequestration order was made on 23 February 2010, and it was not until 21 October 2010 that the respondent applied for a review of that order. Whatever else may have been the force of Weinberg J's observations in Kyriackou, this circumstance does, in my view, place the facts of the present case some distance away from the facts which apparently subsisted in that case. 15 For the above reasons, I propose to make orders substantially as sought by the applicant. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.