Registrar of Titles (WA) v Franzon

Federal Court of Australia|1986-11-14|Before: Pincus J, Kiefel J, Mansfield J

REASONS FOR JUDGMENT 1 This is an application made on 16 June 1999 under s 153B of the Bankruptcy Act 1966 (Cth) for an order annulling the bankruptcy of the applicant. 2 The applicant became bankrupt on her own petition on 2 November 1998: s 57A of the Act. That was the date her petition was accepted and endorsed by the Official Receiver: s 55(4) of the Act. The Official Trustee has appeared on the application to draw certain matters to the Court's attention. I accept the assurance of counsel for the applicant that each of the creditors in the estate of the bankrupt has been given notice of this application. No creditor has sought to appear or to put any material before the Court. 3 The ground of the application is that the applicant did not at the time realise the amount of the fees and charges which may be charged against her estate. The applicant says, and I accept, that had she realised the level of those fees she would not have presented her petition. 4 I have been asked to proceed on the basis that the applicant nevertheless had notice of the level of fees which Official Trustee may recover in the administration of her estate. Section 55(3A) obliges the Official Receiver to provide to the petitioning debtor certain prescribed information before accepting the petition. 5 Regulation 4.11 of the Bankruptcy Regulations ("the Regulations") prescribes that that information must include information about the consequences of bankruptcy (reg 4.11(1)(b)) and about the debtor's right to choose whether the bankruptcy is administered by a registered trustee or by the Official Trustee (reg 4.11(1)(d)). I find that that prescribed information was duly provided. No submission to the contrary was put on behalf of the applicant. That information included that the fees payable, if the bankrupt estate exceeds $4,000 are usually $4,000 plus a percentage on a sliding scale of monies received in excess of $4,000. The applicant's petition includes her confirmation that she had received and read the prescribed information, and a declaration by the person who helped the applicant to complete the statement of affairs that she had read the prescribed information to the applicant. The only reason that the applicant did not appreciate that information provided to her about the potential level of fees is that she was born in the former Czechoslovakia Republic and her principal language is still Slovak, although she has lived in Australia for many years. There is evidence that the applicant tended to indicate she understood information provided to her in English even though she did not fully do so. 6 The statement of affairs discloses that, subject to one contingent asset, the applicant has no assets other than $2.00 in her bank account, and a car valued at $1,000 but which is subject to a consumer mortgage. She has three unsecured creditors totalling $5,163, and a secured creditor under the consumer mortgage for $5,100. She became bankrupt after seeking financial counselling because one of her unsecured creditors was actively pressing her for payment. Her only income is an aged pension. 7 The contingent asset in her estate is the prospect of receiving about $37,500 distribution from an estate of her aunt, who died intestate in the United States on 14 October 1994. Despite inquiries, there has been no confirmation that that sum will be paid in the near future. I was also told in submissions that there is some question as to whether she is entitled to receive that sum. It is contemplated that, if the bankruptcy is annulled, she will engage solicitors to pursue her interest in that estate. 8 If that inheritance is received, it will be sufficient to pay the applicant's debtors. Having regard to the amount of those debts, the charges of the Official Trustee under the Regulations will be in the order of $5,000. In addition, the Bankruptcy (Estates Charges) Act 1997 (Cth) imposes a realisation charge of 8 per cent on her estate. That is estimated to amount to about $3,800. It is the total of those amounts which the applicant wishes to save by having the bankruptcy annulled. 9 Section 153B provides:

"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."

10 Counsel for the applicant accepts that the applicant can succeed only if the Court is satisfied either that the petition of the applicant "ought not to have been presented" by the applicant or if it "ought not to have been accepted" by the Official Receiver. 11 It is not contended that the petition ought not to have been accepted by the Official Receiver. As there is nothing to suggest that the conditions precedent to its acceptance under s 55(3) of the Act were not satisfied, that was a proper position to adopt: Re Goddard (Federal Court, Pincus J, unreported, 14 November 1986); Re Coote (1993) 47 FCR 522; Re Abbas (1995) 57 FCR 140. 12 The applicant relied only upon the Court being satisfied that the petition ought not to have been presented. 13 It was contended that s 153B gives the Court a discretion to annul a bankruptcy based upon a debtor's petition without the applicant having to show some circumstance which disentitled the applicant from presenting the petition. It was said that s 153B gave the Court a discretion at large. It was then contended that the discretion should be exercised in the applicant's favour because, although she was given the prescribed information including information as to the probable charges to be made by the Official Trustee, she did not appreciate the likely level of charges. The level of charges is said to be of particular significance because of the potential size of her estate. 14 In my judgment, it is necessary for the applicant to establish some circumstance which meant that she was not eligible to present the petition to establish that it ought not have been presented. It is only if that point is reached that the Court has a discretion to annul the bankruptcy. 15 The expression "ought not to have been made" in s 153B in respect of a sequestration order being cancelled requires there to be shown that there was some matter upon which the order was made which was not in fact correct, although that might be shown not just from the facts as disclosed at the time, but as they would have been disclosed had all the true facts been disclosed at the time of the making of the order: Re Gollan (1992) 40 FCR 38 per Spender J at 40-42 and cases referred to therein. In Re Whittall [Federal Court, Kiefel J, unreported, 7 August 1998], Kiefel J said that it was necessary to show that, on the true facts, the judicial officer was bound not to make a sequestration order. See also per Fisher J in Re Frank (1987) 16 FCR 396. 16 In respect of the expression "ought not to have been received", a similar threshold has been required. I have referred to decisions on that expression above. Moore J in Re Abbas (above, at 142) noted that the expression "ought not to have …" has been treated as comprehending circumstances where the Registrar or Judge making the order was not aware of facts that, had they been known, would have resulted in no sequestration order being made. His Honour noted also that a similar approach had been adopted to the expression "ought not to have been presented" in relation to a debtor's petition. Thus, if the debtor was solvent at the time the petition was presented, the bankruptcy can be annulled: Re McCormack (Federal Court, Pincus J, unreported, 6 April 1990); and Re Coyle (1993) 42 FCR 72. 17 There is every reason to apply the expression "ought not to have …" consistently to the terms 'made' 'presented' and 'received' in s 153B: Registrar of Titles (WA) v Franzon (1975) 132 CLR 611 at 618 per Mason J. 18 In Re Mottee (1977) 29 FLR 406, Riley J said at 412 of the expression "ought not to have been presented" (then in s 154(1)(a) of the Act) that:

"… in my opinion the consequent bankruptcy may be annulled where a debtor was not "entitled to use the machinery of the Bankruptcy Act (Re A Debtor: Ex parte The Debtor v Allen) [1967] Ch 590 at 596) and the presentation of his petition may properly be characterized as an abuse of the procedure provided by s 55." 19 That expression "ought not to have been presented" in respect of a debtor's petition has been held to encompass circumstances where the debtor was not in fact insolvent but improperly sought bankruptcy as a haven from a proper claim by a creditor: see eg. Re Moncada (1986) 11 FCR 205. The observations of Gibbs CJ, Murphy, Brennan and Dawson JJ in Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 at 598 also indicate that the presentation by a debtor of a debtor's petition may amount to an abuse of the process provided by s 55 of the Act if it can properly be said that the petition "ought not to have been presented". French J in Re Heenan (1992) 32 FCR 428 at 432 also recognised that position, although his Honour found in that case that the petition was not presented for an improper purpose. 20 In Re Coyle (1993) 42 FCR 72, Drummond J considered an application by a debtor to set aside a bankruptcy made on that debtor's petition because the debtor wished to pursue a claim for damages against a third party, and the trustee of his estate was not prepared to do so. His Honour reviewed the relevant authorities. The debtor relied primarily upon that limb of s 153B that the petition ought not to have been presented. His Honour noted two cases in which voluntary bankruptcies had been annulled on the application of the bankrupt: Re McCormack (above) and Re Goo Tuck; Ex parte Goo Tuck (1892) 2 BC (NSW) 95. Each was a case where the debtor was not insolvent at the time; the latter case was somewhat out of the ordinary as the indebtedness in respect of which the debtor presented his petition was incurred when he was an infant, and his infancy provided an answer to the claims of his creditors. 21 After considering those authorities, Drummond J said at 77:

"It will in my view generally not be possible for a debtor to establish that his bankruptcy should be annulled on the ground that "the petition ought not to have been presented" when it is clear that at that time he was insolvent. … Where an insolvent debtor presents his own petition, s 55 is being used for its intended purpose: it cannot be said, in such circumstances, that the petition ought not to have been presented. If a debtor is insolvent at the time he presents his own petition it cannot, in my view, be said that the petition ought nevertheless not to have been presented because the debtor then had a hope or even a reasonable expectation that his fortunes would improve either in the near future or in the long term. …"

22 The applicant did not seek to establish that she was not insolvent at the time she presented her petition. She did not identify any other factor which, had it been known at the time, would have led to a conclusion that her petition ought not to have been presented. It was not suggested by her that she was misusing the processes of the Court. 23 In those circumstances, in my view it has not been established that the petition ought not to have been presented and I must refuse the application. 24 If I am wrong about that, and there is a discretion at large to consider the application, I would nevertheless refuse the application to annul the bankruptcy. I take into account the size of the bankrupt's potential estate, the fact that the creditors are few in number and in amount, and that they have been served with this application, and have not sought to participate in the hearing. I also take into account that the applicant did not in fact understand the potential level of charges on her estate. 25 If the inheritance is received, her creditors will have the protection of the Official Trustee receiving that inheritance and applying it directly to payment of their debts. If the bankruptcy is annulled, they will not have that protection, and will be obliged to pursue recovery of their debts in the normal manner. 26 In addition, I have no information as to the degree of difficulty involved in recovering or endeavouring to recover the inheritance. There is no suggestion that the Official Trustee will not endeavour to do so conscientiously or efficiently. If the bankruptcy is annulled, it seems clear that the applicant will have to engage solicitors to undertake that work. There is no evidence to suggest that they will do so more efficiently or more effectively than Official Trustee, or that the fees which the applicant would then incur would be different from the fees to which Official Trustee may become entitled in the administration of the estate. One premise upon which this application is made is that the extent to which the inheritance (if received) will be eaten into by charges of the Official Trustee in recovering the inheritance will be significantly greater than the extent to which fees incurred by the applicant to solicitors after annulment of the bankruptcy in doing so. That premise is not made out. 27 I also bear in mind that the applicant has made no proposal for payment of fees or charges incurred by the Official Trustee to date. Counsel for the applicant indicated that it would be a proper order to make that the applicant should pay those fees and charges as a condition of the order annulling the bankruptcy. He accepted that there was power to do so: Re McKenzie (1920) 20 SR (NSW) 229. I am prepared to assume that that power exists, but in the present circumstances I do not consider that it would give the Official Trustee adequate protection compared to the present situation where the fees and charges will be payable from the estate under the Official Trustee's control. If the bankruptcy is annulled, the Official Trustee would become an unsecured creditor of the applicant. The applicant might otherwise expend the inheritance sum so as to leave the Official Trustee without practical recourse to it. 28 In those circumstances, in my view, the application in any event would be refused. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Counsel for the Official Trustee: Ms P Tragauer

Solicitors for the Official Trustee: Official Receiver

Bankruptcy Act 1966(Cth)ss 55(3), 55(3A), 55(4)

Bankruptcy (Estates Charges) Act 1997(Cth)

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