McCallum v The Official Trustee in Bankruptcy

1. Pursuant to s 153B of the Bankruptcy Act 1966 (Cth), the bankruptcy of the applicant, by virtue of the sequestration order made on 3 September 2004, bankruptcy no. NSW 4210/4/7, be annulled forthwith.
2. The requirements in rr 7.02(2) and 7.03 of the Federal Court (Bankruptcy) Rules 2016 be dispensed with save that these orders be entered in the National Personal Insolvency Index within one day after their making and a copy of these orders be given to the respondent within seven days after the entry is stamped.
3. The hearing be adjourned to 9.30 am on 12 June 2018. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MOSHINSKY J: 1 By application dated 17 May 2018, the applicant seeks an order annulling his bankruptcy under s 153B of the Bankruptcy Act 1966 (Cth) arising from a sequestration order made on 3 September 2004 in circumstances where his debtor's petition had been accepted by the Official Receiver on 30 August 2004. 2 The application is supported by two affidavits of the applicant, sworn on 17 May 2018 and 22 May 2018, and an affidavit of Elyn Lucas, of the solicitors for the applicant, affirmed on 22 May 2018 (addressing the service of the application and the response of the Official Trustee in Bankruptcy). 3 The Official Trustee in Bankruptcy has been served with a copy of the application and the affidavit of 17 May 2018. The Official Trustee does not oppose the orders sought. In an email to the Court dated 21 May 2018, a Senior Case Manager on behalf of the Official Trustee stated that the Official Trustee "neither supports nor objects" to the application for annulment. The email also provided some helpful background information concerning the matter. 4 The background circumstances, in brief terms, are as follows. On 30 August 2004, the applicant was made bankrupt upon the acceptance of his debtor's petition (the first bankruptcy). Four days later, on 3 September 2004, a sequestration order was made by the Federal Magistrates Court of Australia upon the presentation of a creditor's petition by AMP Finance Limited (the second bankruptcy). This was based on a judgment debt in favour of AMP Finance Limited. The judgment debt pre-dated the acceptance of the debtor's petition. 5 Subsequently, on 31 August 2007, the applicant was discharged from the first bankruptcy. It seems that, although the applicant may have been aware at some point in time of the second bankruptcy, he subsequently overlooked that bankruptcy. After the discharge of the first bankruptcy, the applicant assumed that he was no longer bankrupt. He did not appreciate, until very recently, that he remained bankrupt pursuant to the second bankruptcy. It is in these circumstances that the applicant has applied to the Court, on an urgent basis, for annulment of the second bankruptcy (together with certain additional orders that I do not propose to deal with at this stage). 6 Section 153B of the Bankruptcy Act relevantly provides 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. 7 In determining whether a sequestration order ought to have been made the Court may 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": see Re Cook (1946) 13 ABC 245 at 259 per Clyne J; Re Williams (1968) 13 FLR 10 at 23 per Gibbs J. 8 The relevant time for determining whether a sequestration order ought not to have been made is the time when the order was made: see Re Raymond; Ex parte Raymond (1992) 36 FCR 424 at 425 per Spender J. 9 Facts which have come into existence since the making of the order are not relevant to the question whether it ought to have been made: see Re Scott [1975] Qd R 125 at 126-127 per Lucas J; Re Frank; Ex parte Piliszky (1987) 16 FCR 396 (Re Frank) at 400 per Fisher J; Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 at 350 per Gummow J. 10 The circumstances under which a sequestration order "ought" not to have been made were described by Fisher J in Re Frank (at 403): [A] judge "ought" not to have made an order only if he was "bound" not to make the order. 11 In Pollock v Deputy Federal Commissioner of Taxation (1994) 94 ATC 4148, Carr J set out five propositions relevant to applications for annulment. They were derived from the judgment of Riley J in Re Calderon (unreported, Federal Court of Bankruptcy, Riley J, 31 May 1977) as follows (at 4153-4154): 1. It is the applicant for annulment who alleges, and it is therefore for him to bring himself within the section and satisfy the Court, that the sequestration order ought not to have been made. 2. The Court to whom the application is made seeks to ascertain the actual state of affairs at the time when the sequestration order is made. 3. In order to ascertain that actual state of affairs the Court hearing the application for annulment looks at the facts that were before the Court which made the sequestration order and at any other facts that were not before that Court but are shown on the hearing of the application for annulment to have been in existence when the sequestration order was made. 4. Having considered all the facts so looked at, the Court determines whether on those facts the applicant has satisfied it that the sequestration order ought not to have been made. 5. If it is so satisfied, the Court is not bound to annul the sequestration order but must consider in all the circumstances of the case whether it ought to be annulled. 12 A person who seeks an annulment 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 full facts and the actual circumstances of the applicant": see Re Papps; Ex parte Tapp (1997) 78 FCR 524 at 531 per O'Loughlin J; Bulic v Commonwealth Bank of Australia Ltd (2007) 5 ABC(NS) 122; [2007] FCA 307 at [12] per Tracey J. 13 Section 153B confers a discretion: even if the Court is satisfied that an order "ought not to have been made", there thereafter remains a discretion as to whether a bankruptcy should be annulled: see Bulic v Commonwealth Bank of Australia at [12] per Tracey J. 14 In the present case, I am satisfied that the sequestration order of 3 September 2004 ought not to have been made. Upon the acceptance of the applicant's debtor's petition on 30 August 2004, the rights of the petitioning creditor, AMP Finance Limited, were converted into a right to prove in the first bankruptcy. Accordingly, there was no longer a debt due and payable to the petitioning creditor and there was, therefore, no jurisdiction to make the sequestration order: see s 52(1)(c) of the Bankruptcy Act: see Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 at 594-596. The close proximity between the date of acceptance of the debtor's petition, and the date upon which the sequestration order was made, may explain how this came about. 15 Further, I consider it appropriate in the circumstances, as disclosed in the affidavits, to annul the second bankruptcy. I note that the applicant has, in his second affidavit, confirmed that he is able to pay his debts as and when they fall due and has provided other details concerning his financial position. 16 For these reasons, I will make an order annulling the applicant's bankruptcy arising from the sequestration order made on 3 September 2004. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.