Stewart v Grauby

REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 This is an application to extend time to appeal from an order made by the Federal Magistrates Court of Australia (the Federal Magistrates Court) dismissing the applicant's application for an annulment under s 153B of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). The order of the Federal Magistrates Court was made on 8 May 2012. The applicant's notice of appeal was required to be filed within 21 days after that date, namely on or before 29 May 2012. The applicant's application is made pursuant to r 36.05 of the Federal Court Rules 2011 and was filed on 4 June 2012. 2 Each of the respondents opposes the application. The first respondent is the applicant's former wife. They were divorced on 7 February 2011. The second respondent is the applicant's trustee in bankruptcy.

Background 3 The brief background facts are as follows. 4 A sequestration order was made against the applicant's estate on 24 February 2010. The amount claimed to be owed in the creditor's petition was $2,315. However, by the time the sequestration order came to be made, the amount owed to the creditor, including for costs to be taxed, was significantly in excess of that sum. When the creditor's petition was heard the then presiding Federal Magistrate noted that the applicant had not provided evidence of his assets or liabilities and had thus not satisfied the Court of his ability to pay his debts. The presiding Federal Magistrate was not satisfied at that time that there was sufficient cause for a sequestration order not to be made. The sequestration order was made accordingly. 5 On 16 March 2010, the applicant sought a review of that decision in the Federal Magistrates Court. The application for review was not competent and was dismissed with costs on 13 April 2010. 6 At the time the sequestration order was made, the applicant had a half interest in a home unit property known as 9/13-15 Clyde Street, Cronulla. That interest has vested in the second respondent pursuant to s 58(1)(a) of the Bankruptcy Act. The first respondent owns the other half interest. She has agreed to join the trustee in the sale of the property. The property is currently mortgaged to St George Bank Limited. 7 The applicant has been unable to work since November 2011. He is on sickness benefits. This appears to be his only source of income which is between $16,000 and $20,000 per annum although as I will later explain, the applicant does not accept this to be the case. 8 On 7 February 2012 the applicant filed an initiating application in the Federal Magistrates Court pursuant to s 79 of the Family Law Act 1975 (Cth) (the Family Law Act) seeking a property settlement with the first respondent. The applicant seeks to have the whole of the first respondent's interest in the Cronulla home unit property transferred to him as well as certain other assets. 9 On 22 February 2012, the applicant filed his application for annulment. As I have noted, his application was based on s 153B of the Bankruptcy Act, which 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. … 10 The only ground advanced as to why the sequestration order should not have been made, and thus the reason why the annulment should be granted, was that the applicant was solvent at the time of his bankruptcy. 11 In the annulment proceeding the second respondent gave evidence that, on a balance sheet test, the applicant had a surplus of assets over liabilities at the date of his bankruptcy. However, on a cash flow test, he did not have sufficient income or property that could be pledged or realised within a relatively short period of time to pay his overdue debts. The second respondent expressed the opinion that, based on the information available to him, the applicant was insolvent as at the date of his bankruptcy and remains so. 12 It is important to note that in the course of the annulment proceeding, counsel for the applicant made it clear that the applicant did not wish the Cronulla home unit property to be sold. Rather he wished to obtain a mortgage advance on this property or on some redistribution of the first respondent's assets consequent upon the family law proceeding pending in the Federal Magistrates Court. 13 The presiding Federal Magistrate in the annulment proceeding did not accept that the applicant was solvent at the time of the hearing of the creditor's petition. His Honour was satisfied that the only asset available to the applicant in order to pay his debts was the applicant's share in the Cronulla home unit property. The only possible way that money could have been raised was for the property to be sold. However, the applicant did not wish that to happen. 14 His Honour also stated that he would not have annulled the applicant's bankruptcy for discretionary reasons. In that connection his Honour said at [19] as follows: In case it should be found that I am wrong in the views I have expressed in regards to Mr Stewart's solvency at the time of the sequestration order, I would add that I would have exercised my discretion not to annul the sequestration order because, on the evidence before me, the only way in which the very large expenses of both the petitioning creditor and the trustee could be repaid was from the sale of a property that Mr Stewart has made it clear he has no intention of selling. There is currently a valid possession order on the property and an agreement between the joint owners (the trustee and Ms Grauby) to sell it. That would seem to me to be the best solution all around. If Mr Stewart is right about the value of the property, there may well be a surplus after payment of all his debts, including those costs and expenses. The effect of that will be to annul his bankruptcy pursuant to s 153A of the Act. If I allowed the annulment under s 153B upon the current evidence, there is no possibility of Mr Stewart raising the required funds because his only source of income is sickness benefits, and he would need the consent of Ms Grauby to raise the amount of the loan on the property; he has not established that he has the ability to do this. 15 The applicant contends that in addition to the Cronulla home unit property (which he values at $420,000), cash deposits, motor vehicles, shares and other non-specified "considerable assets", there is currently in excess of $500,000 in the superannuation account in the first respondent's name. 16 Following the hearing of the applicant's annulment application, but before judgment was given on 8 May 2012, the applicant received documentary advice that the first respondent had superannuation in the sum of $510,331.97.