Tarwala v Amirbeaggi as trustee for bankruptcy

order made by: MURPHY J DATE OF ORDER: 23 december 2022

1. The application for annulment be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MURPHY J: 1 The applicant in this proceeding, Mary Tarwala (née Keating), was made bankrupt on 9 September 2021 upon lodgement of a debtor's petition for bankruptcy and its acceptance by the Official Receiver in Bankruptcy. By an application dated 14 October 2021, Ms Tarwala sought an order to annul the bankruptcy pursuant to s 153B of the Bankruptcy Act 1966 (Cth) (the Act). Shabnam Amirbeaggi, the trustee of Ms Tarwala's bankrupt estate (Trustee), is the respondent to the application. 2 At the conclusion of the hearing of the application I informed the parties that the application would be refused. I now make orders and provide reasons.

Legislation and RELEVANT principles 3 Section 153B of the Act relevantly provides: Annulment by the Court (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. … (Emphasis added) 4 Thus, for a bankruptcy founded on the presentation and acceptance of a debtor's petition, s 153B provides that before the Court may make an order annulling the bankruptcy, it must be satisfied: (a) either, or each, that the debtor's petition ought not to have been: (i) presented by the debtor; or (ii) accepted by the Official Receiver; and (b) the Court should, in the exercise of discretion, annul the bankruptcy. 5 Section 153B has been the subject of consideration by this Court and other courts on many occasions. The following principles apply.

Onus 6 The onus of proving that a bankruptcy should be annulled under s 153B of the Act is borne by the applicant. An applicant who seeks an annulment of his or her bankruptcy "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 actual circumstances of the applicant": Re Papps; Ex parte Tapp (1997) 78 FCR 524 at 531 (O'Loughlin J).

The meaning of "ought not to have been…" 7 Where a bankruptcy arises from a sequestration order made upon a creditor's petition, the expression "ought not to have been made" comprehends circumstances where the judge or registrar making the order was not aware of facts that, had they been known at the time of making the order, would have resulted in the sequestration order not being made: Re Abbas [1995] FCA 337; 57 FCR 140 at 142 (Moore J). It is necessary for the applicant to show that, on the true facts, the judicial officer was bound not to make a sequestration order: Re Whittall (unreported, Federal Court of Australia, Kiefel J, QG 7598 of 1997, 7 August 1998). 8 Where a bankruptcy is based on the presentation and acceptance of a debtor's petition, the expression "ought not to have been presented" requires a similar approach. 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 (Mason J). 9 Section 55 of the Act sets out a number of procedural and related requirements for a debtor's petition, including: (a) the debtor's petition shall be accompanied by a statement of affairs completed by the debtor: s 55(2)(b); (b) the debtor's petition must be rejected unless the debtor has a relevant connection with Australia at the time when the petition was presented: s 55(2A); (c) a debtor who is a party (as debtor) to a debt agreement must not present a debtor's petition unless given permission by the Court to do so: s 55(5A); (d) a debtor who has executed a personal insolvency agreement is not entitled to present a debtor's petition without leave of the Court to present a petition: s 55(6); and (e) a debtor in relation to whom a stay under a proclaimed law applies is not entitled to present a debtor's petition without leave of the Court: s 55(6A). If the debtor's petition does not comply with these requirements then it can be said that the petition "ought not to have been presented": Thompson at [14]. 10 The phrase "ought not to have been presented" also comprehends circumstances where there was a lack of awareness of facts that, had they been known at the point of presentation the petition, would have resulted in there being no bankruptcy: Sayer-Jones v Official Trustee in Bankruptcy [2022] FCA 1199 at [11] (Raper J). It has been described as a requirement for the applicant to establish some circumstances that meant that he or she was not eligible to present the petition: Re Almassy [1999] FCA 1004; 92 FCR 597 at 14 (Mansfield J). For example, that the petitioning debtor was not insolvent when the debtor's petition was presented: Re McCormack [1990] FCA 143 cited with approval in Re Abbas at 142. In Re Coyle, A.G. & Anor [1993] FCA 244; 42 FCR 72 at 77 Drummond J said "[i]t 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 the time he was insolvent…" 11 The meaning of the expression "ought not to have been accepted" is restricted by the basis upon which the Official Receiver may reject a debtor's petition pursuant to s 55(3) of the Act. The section provides: The Official Receiver may reject a debtor's petition if: (a) the petition does not comply substantially with the approved form; or (b) the petition is not accompanied by a statement of affairs; or (c) the Official Receiver thinks that the statement of affairs accompanying the petition is inadequate. 12 In Re Coote (1993) 47 FCR 522 at 529 Northrop J held that, in the absence of a direction from the Court, the only power of the Registrar (who at that time had the role of making any such decision) to reject a debtor's petition was if the petition did not meet the requirements of s 55(2) of the Act. In Re Abbas at 143-144 Moore J held that the phrase "ought not to have been accepted" must be considered in the context of the fact that the Registrar's capacity to refuse to accept a debtor's petition was limited to circumstances where the conditions precedent to s 55(3) of the Act were not satisfied. That applies equally to the current regime under which the Official Receiver (rather than the Registrar) has the role of deciding whether to accept or reject a debtor's petition: Sayer-Jones at [13].

The discretion to annul 13 Consideration of the discretion to annul the bankruptcy does not arise until after the Court finds that the sequestration order ought not to have been made or the debtor's petition ought not to have been presented or accepted: Thredgold v Fyfe Pty Ltd [2013 FCA 1363 at [12] (White J). The discretion means that even where an applicant demonstrates that the debtor's petition ought not to have been presented or accepted, the Court can, in appropriate circumstances, decline to annul the bankruptcy: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243. 14 In Thompson at [11] Logan J set out the following non-exhaustive list of factors that may be relevant to the exercise of the discretion to annul a bankruptcy arising from a debtor's petition: (a) whether the applicant is presently solvent; (b) whether the applicant has made full disclosure of his or her financial affairs; (c) any unexplained delay in the application; (d) the reason why the bankrupt presented the debtor's petition, including whether the bankrupt had earlier been served with a bankruptcy notice, whether the bankrupt had failed to comply with any such notice and whether there was then pending a creditor's petition; (e) why it was that the bankrupt lodged a statement of affairs with the debtor's petition which disclosed insolvency and what the true position then was as to his or her ability to pay their debts as and when they fell due; and (f) whether the applicant has made any proposal for the payment of the fees and disbursements of his or her trustee in bankruptcy and, if not, why not.

Solvency 15 Section s 153B(2) is facultative. It permits, but does not mandate, the making of an annulment order whether or not the bankrupt was insolvent when the petition was presented: Thompson at [10]. 16 The meaning of "solvent" and "insolvent" are defined in ss 5(2) and (3) of the Act as follows: (2) A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable. (3) A person who is not solvent is insolvent. (Emphasis in original.) 17 Insolvency is a question of fact to be ascertained from a consideration of the person's or company's financial position taken as a whole, having regard to commercial realities and in light of all circumstances: Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; 53 NSWLR 213 at 223; Williams (in liq) v Scholz [2008] QCA 094 at [109] (Muir JA); Re Newark Pty Ltd (in liq) [1993] 1 Qd R 409; 6 ACSR 255 at 413 (Thomas J). 18 Section 95A of the Corporations Act 2001 (Cth) and ss 5(2) and (3) of the Act enshrine the cash flow test of insolvency: Keith Smith East West Transport Pty Ltd (in liq) v Australian Taxation Office [2002] NSWCA 264; 42 ACSR 501 at [33]. The test involves an assessment of an ability to meet any debts as and when they fall due, which focuses on liquidity and the viability of the person or business. That is appropriate because the words "as and when they become due and payable" requires looking into the future beyond the day on which the question of solvency or insolvency is to be determined: New Cap Reinsurance Corp Ltd (in liq) v Westpac Banking Corp (No 9) [2008] NSWSC 1015; 68 ACSR 176 at [44]. 19 Under the cash flow test the debtor's solvency will depend on whether he or she can pay the debts, not on whether the relevant balance-sheet shows a surplus of assets over liabilities: Bank of Australasia v Hall (1907) 4 CLR 1514 at 1521 (Isaacs J). In general, it will be no answer for a person or company which is unable to meet its debts to say that the person or company's assets exceed its liabilities overall, as doing so will not satisfy the test of being able to pay debts "as and when they become due and payable": Re Cube Footwear Pty Ltd [2013] 2 QSC 398; 2 Qd R 501 at [1] (Jackson J). 20 It is not necessary that the relevant person be able to pay all of his or her debts from his or her own moneys. If, having regard to commercial realities, the Court is satisfied that funds can be obtained from borrowings secured on assets, or unsecured borrowings, it may be that the person has funds to pay his or her debts as they fall due and will therefore be solvent: Lewis v Doran (2004) 184 FLR 454 at [116] (Palmer J); Lewis v Doran (2005) 219 ALR 555 at [109]-[112] (Giles JA with whom Hodgson and McColl J JA agreed). 21 Notwithstanding the availability of assets that may be converted into cash whether by sale, mortgage or pledge, they must be able to be realised within a relatively short period of time and be of a certain class in order to establish solvency: Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18 at [32]-[40] (Rares, Flick and Bromberg JJ). What is a "relatively short time" is not defined, but in Hall at 1543 Isaacs J held that the cash must be realisable "in time to meet the indebtedness as the claims mature". 22 It is not for the Court to guess when funds may become available. It is for the party bearing the relevant onus to adduce evidence as to the date upon which the funds are likely to become available so that the court may consider whether or not this is reasonable: Big River Group Pty Ltd v Visnic [2010] FMCA 276 at [9]. 23 A preponderance of assets over liabilities may not be material to the question of a person's solvency. While a person's balance-sheet position may be a useful indicator of solvency, the balance sheet test is only useful as a "rule of thumb": Quick v Stoland Pty Ltd [1998] FCA 1200; 87 FCR 371 at 380.

The EVIDENCE 24 In support of her application, Ms Tarwala relied on affidavits sworn 4 October 2021, 4 November 2021, 2 March 2022, 22 March 2022 and 6 April 2022, with numerous annexures (the first, second, third, fourth and fifth Tarwala affidavits). 25 The Trustee objected to the admissibility of various parts of the fourth and fifth Tarwala affidavits and their annexures. I accept that some parts of those affidavits are objectionable, including because they are hearsay, have little relevance to the application or are in reality submissions. But having regard to the fact that Ms Tarwala is self-represented, and does not understand the rules of evidence, I took the view that the course most consistent with the overarching obligation under s 37M of the Federal Court of Australia Act 1976 (Cth) was to rule on the most egregious examples and otherwise allow the evidence, subject to weight. Ms Tarwala was not cross-examined. 26 The Trustee relied on the affidavit of Shabnam Amirbeaggi affirmed 25 March 2022. Ms Amirbeaggi was not cross-examined.

The presentation and acceptance of the debtor's petition 27 The Bankruptcy Form was accepted by the Official Receiver on 9 September 2021. The evidence does not disclose the date upon which Ms Tarwala lodged that form. Given that Ms Tarwala completed and lodged the Bankruptcy Form online, I infer that she lodged the form that day. 28 A few days after she lodged the Bankruptcy Form Ms Tarwala indicated to the Official Receiver that wished to withdraw it. On 14 October 2021, she filed the application to annul her bankruptcy.

The reason(s) Ms Tarwala presented the debtor's petition 29 In March 2017, Ms Tarwala commenced a proceeding in the Magistrates' Court of Victoria against her brother and sister-in-law, John and Elizabeth Keating, seeking damages in detinue and conversion for taking into possession and selling her motor vehicle. On 18 July 2018, Ms Tarwala lost that case on the basis that it was time barred, and was ordered to pay Mr and Mrs Keating's costs of the proceeding in the amount of $44,000. Ms Tarwala was legally represented in the Magistrates' Court proceeding by a solicitor, Mr James McConvill. One would hope that she was advised against commencing the proceeding if the claim was plainly statute barred, however there is no information as to that. 30 On 21 August 2018, Ms Tarwala filed an appeal against the Magistrates' Court judgment in the Court of Appeal of the Supreme Court of Victoria. Again, if the claim was plainly statute barred, one would hope that she was advised against commencing an appeal, but there is no information as to that. On 3 July 2019, the solicitors for Mr and Mrs Keating, Patten Robins Lawyers, filed a summons seeking summary judgment of the appeal on the basis that it had no real prospect of success. On 22 November 2019, the Supreme Court granted summary judgment against Ms Tarwala and ordered her to pay the costs of the appeal on a party-party basis, to be taxed if not agreed. 31 In answer to Question (Q)34 in the Bankruptcy Form Ms Tarwala said that she was indebted to Mr and Mrs Keating in the sum of $55,000 for their legal costs arising from the unsuccessful appeal. She said the following (at Q56): Following my unsuccessful claim in the Magistrates Court, Melbourne, for replacement value of my car when my brother took possession of it, I appealed this Decision in the Court of Appeal with legal representation. John Keating took separate action in the same court to have my Appeal dismissed, which it was. Under duress, I agreed to pay $50,000 but knew I had no way of satisfying this demand. In other evidence Ms Tarwala said that the $50,000 debt had "crept up" to $55,000 "without explanation." 32 She described the cause or causes of her bankruptcy as "legal action", and said (at Q18) that "[t]he cause(s) of her insolvency" were: Erosion of my financial assets through legal action I took in 2017 and lost, and action taken against me by the same party, family members, in 2019. Excessive costs claimed by the other side and undue pressure from other side to make a commitment I could not meet in December 2020, plus my own legal expenses. Further, financial support of my daughter who has had cancer and now suffers from chronic illness, and her daughter (age 15). 33 Essentially, Ms Tarwala said that she filed for bankruptcy because she could not afford to pay the $55,000 debt in circumstances where: her financial position had already been eroded through her own legal costs in proceedings in the Magistrates' Court and Supreme Court appeal; having been required to pay $44,000 in adverse costs to Mr and Mrs Keating; and having had to support her sick daughter and granddaughter. 34 In the first Tarwala affidavit, Ms Tarwala provided a somewhat different reason for her lodging the debtor's petition. She deposed that she lodged the petition at a time when she was suffering from "extreme distress and exacerbated mental health issues", her health had worsened, she had lost a lot of weight, she had begun to suffer from anxiety and panic attacks, and felt besieged by the events in her life. She said: While I was suffering from an episode of poor mental health, I made the [annulment] application, as I believed it would relieve me of my stress. I did not seek advice and I made this decision impulsively. I now regret this action. I informed the Respondent of my change of heart and she advised me to seek legal advice immediately to have the bankruptcy terminated. 35 In the fifth Tarwala affidavit, Ms Tarwala said that her granddaughter is mentally disturbed and receives psychiatric treatment. She also said that her granddaughter had beaten her at around the time that she lodged the Bankruptcy Form, which she said was a significant contributing factor to her doing so. 36 The fifth Tarwala affidavit annexed a letter dated 30 March 2021 from her treating general practitioner, Dr Michael Zheng. In the letter Dr Zheng said that: [Ms Tarwala] has been stressful due to family matters. She suffers from chronic pain from a right shoulder [which] required regular analgesia. She has poor sleep/insomnia from stress and chronic pain. It has significantly impaired her physical function and impaired her capacity [for] making rational decision[s]. 37 Ms Tarwala also deposed that another factor contributing to her "unwise decision" to lodge the Bankruptcy Form was an asserted inability to elicit advice from her solicitor, Mr McConvill, in relation to: (a) how to deal with the (allegedly) excessive costs claimed by Mr and Mrs Keating's solicitor, Patten Robins; and (b) whether bankruptcy was an avenue she should pursue. She said that she did not receive straightforward advice from Mr McConvill. On her account, when she asked Mr McConvill about bankruptcy he said only "[w]ell, it's cheaper that way than the other way", and at no point did he advise her not to file for bankruptcy. She said that when she told Mr McConvill that she had filed the Bankruptcy Form he replied only "[w]ell, you did it!".

Ms Tarwala's financial position 38 Ms Tarwala detailed her financial position in the Bankruptcy Form. She acknowledged that she had an unsecured debt of $55,000 for legal costs owed to Mr and Mrs Keating (Q34), and she disclosed no assets or income which would enable her to pay that debt. She stated that: (a) she lives at 5 Atica Walk, Clyde North, Victoria (the Clyde North Property), which is owned by a family trust, of which her granddaughter is a beneficiary (Q22) and that she does not have any interest in real property, whether as registered owner or otherwise (Q44); (b) she has been unemployed for five years and four months (Q27); (c) the only income she received and/or expected to receive was a Commonwealth government benefit of $24,770 per annum (Q28); (d) she did not expect to receive a tax refund for the current or any previous financial years (Q33); (e) she has only $15 in cash (Q37); (f) she has a total of only $1,088.68 money in her bank accounts (Q38); (g) she owns a 2004 Ford Falcon with an estimated resale value of only $300 (Q41); (h) she further disclosed that: she has no superannuation accounts (Q39); does not own and was not entitled to any shares (Q40); does not own any jewellery, antiques, collectables, timeshare, copyrights, patents, trademarks or work tools valued at over $2,000 (Q42); she does not expect to receive an inheritance under a will (Q43); does not have any managed investments (Q45); does not own any digital assets (Q46); does not have any accounts other than bank accounts where money or value is stored (Q47); is not owed money by anybody (Q48); and she has no assets valued at over $2,500 other than general household furniture (Q50); and (i) over a period of 15 months from on or around 1 January 2020 she had contributed approximately $90,000 in relation to repairs and renovations to a house which her daughter leased which was "falling down". It appears that the house was to be sold to her daughter, but an attempt to purchase the house in 2018 had failed (Q49).

The quantum of the relevant debt 39 In the Bankruptcy Form, Ms Tarwala said that the debt she owed to Mr and Mrs Keating for their legal costs in the Supreme Court appeal was $55,000, but the evidence indicates that it is more likely than not that the debt is greater than that. On 22 November 2019, the Supreme Court granted summary judgment against Ms Tarwala in the appeal and ordered her to pay the costs of the appeal on a party-party basis, to be taxed if not agreed. On 29 October 2020, Patten Robins filed a bill of costs in taxable form in the Supreme Court seeking costs in the appeal in the sum of $67,989.35 and disbursements of $42,834.60, being $110,823.95 in total. Then, on 4 December 2020, Mr McConvill filed a notice of general objections to the costs sought by Patten Robins. 40 The evidence does not include a costs assessment or order of the Supreme Court of Victoria Costs Court setting out the amount of any costs assessment then made. However, based on the following evidence it is appropriate to infer that the costs were assessed in the sum of $86,000. Ms Tarwala relied on documents annexed to the third Tarwala affidavit, being: (a) a document titled "A clear statement outlining the creditors at the time the petition was made", which states: The Costs Court … reduced the costs claimed of $108,000 in the Supreme Court hearing to $86,000. (b) a letter from Ms Tarwala to the Victorian Legal Services Board (VLSB) dated 16 December 2021 which states: The Other Party [Mr and Mrs Keating] took a separate initiative to have my Appeal struck out. They were successful. They claimed $108,000. It was sent to the Costs Court by the presiding judge which then decided on $86,000. This was unsatisfactorily negotiated to $55,000 which remains open. Also, in a case management hearing on 7 March 2022, Ms Tarwala informed me that the costs of the appeal had been assessed at $86,000 by the Costs Court of the Supreme Court. 41 There is no evidence of any agreement by which Mr and Mrs Keating agreed to reduce the amount to be paid to them in satisfaction of that debt. The highest the evidence rises is to indicate that at some point there were some negotiations about a reduction to $50,000, which (according to Ms Tarwala's evidence) then "crept up" to $55,000 "without explanation". In submissions, Ms Tarwala was at pains to explain that there was no agreement to reduce the costs to $50,000. She said that while a reduction to $50,000 was discussed, Mr and Mrs Keating did not agree to reduce the debt to that amount, and she did not agree to pay costs in such an amount. The evidence shows that rather than agreeing to pay costs in an amount of $50,000, Ms Tarwala has made a complaint to the VLSB against Patten Robins, in which she alleges, amongst other things, that the firm's costs for representing Mr and Mrs Keating in the appeal are excessive.

Ownership of the Clyde North Property 42 In the Bankruptcy Form Ms Tarwala stated that she lived at the Clyde North Property which was purchased by a family of which her granddaughter was a beneficiary (Q22). She said that she has no interest in any real property whether as a registered owner or otherwise (Q44). 43 Ms Tarwala's affidavits provided the following background and further details: (a) in or around November 2018, following the Sheriff's Office attempting to execute a Warrant to Seize Property at her (then) home at 14 Hammersmith Way, Cranbourne East, Victoria (the Cranbourne Property), and upon discovering that Patten Robins had applied a lien against the title of her Cranbourne Property, she "immediately set up a discretionary trust"; (b) the Warrant was for a debt of $46,099.03, which represented $44,000 in legal costs ordered in the Magistrates' Court proceeding plus interest and other charges. The Court order was made on 18 July 2018 and Ms Tarwala had not, at the time the Sheriff attended, paid that debt; (c) Ms Tarwala created a discretionary trust, the Kathleen Endsleigh Investment Trust (the Trust) by a deed dated 28 November 2018 (the Deed) doing so through the Cranbourne office of accountants RJ Sanderson & Associates Pty. The Deed provided that Ms Tarwala was the sole trustee and sole appointor, and that the trustee and appointor had an unfettered discretion in the exercise of their respective rights under the Deed. The primary beneficiary of the Trust was Ms Tarwala's granddaughter, Leah Williams, with secondary and tertiary beneficiaries, which on my reading of the Deed did not include Ms Tarwala; (d) on 20 October 2019, Ms Tarwala sold the Cranbourne Property to an unrelated party for $441,000. Using the proceeds of that sale, the Trust made an off-the-plan purchase of the Clyde North Property. Acting on behalf of the Trust, Ms Tarwala made the initial deposit on the Clyde North Property in June 2020, and finalised the purchase in May 2021; (e) in the Bankruptcy Form, Ms Tarwala estimated the value of the Clyde North Property at $410,000 (Q55). Annexed to the fourth Tarwala affidavit is a letter dated 22 March 2022 in which Bradley Hawkins of RJ Sanderson states that the cost of the Clyde North Property was $416,121; that a loan of $80,879 is associated with the property, which means that the property has a net value of $335,242; (f) on 29 April 2021, by a Deed of Ratification and Amendment (the Amending Deed), Ms Tarwala ceased to be the trustee of the Trust, and a corporate trustee, Katherine Endsleigh Locker Pty Ltd, was appointed in her place. The directors of the corporate trustee are Ms Tarwala and her daughter Samineh Tarwala; and (g) also on 29 April 2021, by resolution of the directors of the corporate trustee, Ms Tarwala, her daughter, and her granddaughter, became the primary beneficiaries of the Trust. 44 In an email Ms Tarwala sent to Mr McConvill on 27 November 2021, upon which she relied, she said that the purpose of purchasing the Clyde North Property through the Trust "was not specifically to deprive the creditor of payment. My purpose was to stop my brother proposing a caveat over real estate that was in my name. This was done the first time irrespective of whether I had the cash to pay him or not…". That email is not probative evidence as to whether or not the course of action adopted by Ms Tarwala was undertaken in an attempt to put her home out of reach of her creditors, but it is unnecessary to decide whether or not that was so.

The Trust's financial accounts 45 Ms Tarwala relied on financial statements of the Trust for the financial year ended 30 June 2021 (the FY21 accounts), prepared by RJ Sanderson, annexed to the fifth Tarwala affidavit. 46 The FY21 accounts show that in that period: (a) the Trust earned income from "tutoring services" in the amount of $10,385. I infer that the tutoring services were provided by Ms Tarwala, who is a retired schoolteacher. After deduction of accountant's fees and administration expenses the Trust made a net profit for the period of $9,479; (b) the assets of the Trust were: (i) $787 in a bank account and $10 in cash; and (ii) the Clyde North Property, with an estimated value of $416,121. The Trust's total assets are stated at $416,918. (c) the liabilities of the Trust were: (i) "Beneficiaries' Accounts" in the amount of $336,029; and (ii) Bank loans of $80,879. The Trust's total liabilities are stated at $416,908. The net assets of the Trust are therefore stated to have been $10. 47 A note to the FY21 accounts provides the following information about the "Beneficiaries' Accounts". It states: Beneficiary Accounts Beneficiary Accounts Summary Funds Invested 326,550 Profit Distributed 9,479 Total Beneficiaries Accounts Summary 336,029

Detailed Beneficiary Accounts Mary Keating Funds Introduced 326,550 Share of Profit 9,479 Total Mary Keating 336,029 Total Detailed Beneficiary Accounts 336,029

The references to "Mary Keating" are references to Ms Tarwala. 48 The FY21 accounts record that Ms Tarwala "introduced" funds to the Trust of $326,550, which I infer were the funds she received from the sale of the Cranbourne Property. They do not, however, describe whether those funds were, for example, gifted to the Trust or loaned to the Trust by Ms Tarwala. The evidence is unclear. 49 Ms Tarwala also relied a letter by Mr Hawkins of RJ Sanderson dated 6 April 2022, annexed to the fifth Tarwala affidavit. The letter states: Further to our letter dated 22 March 2022, we have additional information to explain Mary Keating financial interest in Kathleen Endsleigh Investment Trust and have commentary regarding her solvency. Mary Keating funded the purchase of 5 Atica Walk ("the property") using personal funds. The purchase price of the property was $414,900 and part of the purchase (the balance of $89,670) was funded by a bank loan from Liberty. The property is held by Kathleen Endsleigh Locker Pty Ltd as trustee for Kathleen Endsleigh Investment Trust. We also note that Mary was the only beneficiary to a provided funding for the property purchase. Mary also derives the trust's income by providing tutoring services. Further, it was resolved that for the financial year ending 30 June 2021, Mary would be distributed 100% of the balance of the distributable income of the trust. Therefore, her interest in the trust is the net asset value of the trust of $336,029. As per the financial reports provided, you will see that as of 30 June 2021, Mary Keating had a trust beneficiary account balance of $336,029. We note that Mary's daughter, Samineh Tarwala, is also a Primary Beneficiary of the Trust. However, as of 30 June 2021, she has a nil beneficiary account balance given she has not contributed financially to the trust, nor has she been distributed any of the distributable income of the trust since its inception. In addition to the trust beneficiary account balance of $336,029, Mary has some personal assets which she has included on her document named 'Complete List of Assets and Liabilities'. She has household assets valued at approximately $3000, Ford Falcon 2006 valued at approximately $300 and money held in NAB bank accounts totalling approximately $800. Net Assets Trust Beneficiary Account Balance $336,029 Personal Assets $4,100 Personal Liabilities Nil Total Net Assets $340,129 Given the positive net asset position, we contend that Mary Keating is still solvent. *Please note there is an incomplete negotiation with Mary [Tarwala's] brother at the Supreme Court of $55,000 which is currently in dispute. This has not been included in our analysis of Mary's Net Asset position. (Emphasis added.)

Whether the petition "ought not to have been presented"

The reasons for lodging the petition 50 In the fifth Tarwala affidavit, under the heading "Why the petition should not have been presented" Ms Tarwala took issue with written submissions dated 12 November 2021 filed on her behalf by Mr McConvill. Those submissions said that "[a]t the time of making the petition for Bankruptcy, the Applicant was unfortunately suffering from severe symptoms of anxiety and mental distress that were exacerbated by family related issues." Ms Tarwala said that she would not have worded the submissions in that way and that the causes of her distress were the family issues she was experiencing. She also said that a beating she claimed to have received from her granddaughter at around the time that she filled out the Bankruptcy Form was a significant contributing factor in her filing for bankruptcy. Ms Tarwala also disagreed with the 12 November 2021 submissions because they failed to mention the distress caused by her former solicitor's alleged "inability to provide legal protection for me over a period of time", nor to mention the role of Patten Robins in her legal matters (I assume in relation to how that caused her distress). 51 Curiously, given her other submissions, Ms Tarwala further said that the 12 November 2021 submissions "overstates the issue of my distress". 52 Another factor that Ms Tarwala said contributed to her decision to file for bankruptcy was that Mr McConvill did not provide her with appropriate advice as to how to deal with the (allegedly) excessive costs claimed by Patten Robins, and whether bankruptcy was an avenue she should pursue. Although, in the Bankruptcy Form, she had answered affirmatively to the question as to whether she had consulted with her lawyer, she submitted that her situation was not "black and white" as she had not had a consultation with a lawyer, gone through all the pertinent issues with him or her, made a conscious and deliberate decision to file for bankruptcy, and "knew exactly what I was doing". She argued that this shows that the petition "ought not to have been presented." 53 The central thrust of this part of Ms Tarwala's submissions is that at the time she filed for bankruptcy she was suffering from serious anxiety and was not thinking rationally, had not received proper legal advice, and as a result unwisely decided to file for bankruptcy. I have no difficulty in accepting that Ms Tarwala was under significant stress and suffering from serious anxiety at the time that she filed for bankruptcy. Nor do I have any difficulty in accepting Ms Tarwala's explanation for the causes of her anxiety and distress. 54 Ms Tarwala did not however establish that Mr McConvill had failed to provide her with appropriate advice in relation to bankruptcy. In the Bankruptcy Form she declared that she had "received bankruptcy information or advice" from Mr McConvill before lodging the form, for which she had paid $250. Then, in the first Tarwala affidavit she deposed that she did not seek advice about whether or not to lodge the Bankruptcy Form. Then, in the fifth Tarwala affidavit she said that on the "one occasion" when she asked Mr McConvill about bankruptcy he said only "[w]ell, it's cheaper that way than the other way." Ms Tarwala did not say what "the other way" was, nor what she understood from those words. The evidence is not clear as to what bankruptcy advice Ms Tarwala sought from Mr McConvill and what advice he provided, if any. 55 While I accept that Ms Tarwala's stress and anxiety was significant to her decision to lodge the Bankruptcy Form, I infer that the underlying cause of her decision was that she was, in fact, insolvent, and was being pursued for a substantial debt which she could not pay. That was the primary driver of her decision, and no doubt also contributed to her anxiety and stress.

Whether Ms Tarwala was and remains solvent 56 Ms Tarwala had the onus of proving her solvency to the Court. She had the "heavy burden" of placing before the Court all relevant material with respect to her financial affairs: Re Papps at 531. 57 Ms Tarwala made several contentions in relation to her solvency which can be speedily dealt with. First, she submitted that the 12 November 2021 submissions erroneously said that Ms Tarwala had a net asset value of $65,000, and she said that her net asset value is much more than that. However, the asset on which she relied for that assessment is the Clyde North Property which is owned by the Trust, not by her. Second, she submitted that at the time she lost the Supreme Court appeal she had approximately $140,000 in shares. That may be accepted, but it is beside the point. She lost the appeal in November 2019 and the evidence shows that by that time she filed for bankruptcy she had sold those shares. 58 To prove her solvency Ms Tarwala relied on the FY21 accounts of the Trust and Mr Hawkins' letter of 6 April 2022. But her submissions did not properly explain how those documents show that she was solvent at the time she lodged the debtor's petition, nor as the time the application was heard. 59 The Bankruptcy Form shows that Mrs Tarwala: (a) had been unemployed for five years and four months; (b) the only income she received and/or expected to receive was a Commonwealth government benefit of $24,770 per annum; (c) had at the time a total of only $1,088.68 money in her bank accounts and only $15 in cash; (d) owned a car with an estimated resale value of only $300; (e) did not have any interest in real property, whether as registered owner or not; and (f) had no other substantial assets or expectations of income. 60 The Trust's FY21 accounts show that the Trust's only income was from tutoring services provided by Ms Tarwala in the amount of $10,385. After deduction of accountant's fees and administration expenses the Trust made a net profit of $9,479 for the period. The accounts also show that other than the Clyde North Property, which had an estimated value of $416,121 and a bank loan of $80,879 against it, the Trust had negligible assets. 61 Mr Hawkins' 6 April 2022 letter set out the income and asset position of the Trust, but it also states that, taking into account Ms Tarwala's $336,029 Beneficiary Account balance in the Trust, she had total net assets of $340,129. On that basis, Mr Hawkins said "[g]iven the positive net asset position, we contend that Mary [Tarwala] is solvent." That analysis is, however, misconceived. The evidence does not show that Ms Tarwala was solvent at the time she lodged the debtor's petition, nor that except for the bankruptcy she would now be solvent. 62 First, the cash flow test is the appropriate test for solvency: Keith Smith at [33]. As previously noted, the test focuses on liquidity and the viability of the person and involves an assessment of Ms Tarwala's ability to meet the debt to Mr and Mrs Keating as and when it fell due; not on whether her personal balance sheet or that of the Trust shows a surplus of assets over liabilities: Hall at 1521. The debt was due and payable at the time Ms Tarwala completed the Bankruptcy Form, as she acknowledged therein. 63 Second, even if the balance sheet test were appropriate the evidence does not establish whether the money Ms Tarwala introduced to the Trust to purchase the Clyde North Property was advanced by her as a gift or a loan. If she gifted the money to the Trust then that is no longer her property and does not stand to her account. Conversely, if the money was advanced to the Trust as a loan repayable to Ms Tarwala, then the loan may be able to called in so she can meet the debt. But, in the Bankruptcy Form, Ms Tarwala declared that she had no substantial assets, and did not state that she had loaned $336,029 to the Trust, which was repayable to her at call or on other (undisclosed) terms. Thus the evidence does not establish that it was a loan. And even if the money Ms Tarwala introduced to the Trust was provided by her as a loan, it would not prove that Ms Tarwala was, and remains, solvent. If that money was advanced as a loan, there is nothing to show when and on what terms the loan is repayable so that she is in a position to pay the debt to Mr and Mrs Keating as and when it fell due. 64 Third, as Mr Hawkins' 6 April 2022 letter acknowledges, his analysis of Ms Tarwala's solvency did not take account the debt to Mr and Mrs Keating of (at least) $55,000. It said only that there was an "incomplete negotiation" with regard to the debt that is "disputed" and, for those reasons, the debt had not been included in the analysis. There are several problems with that analysis. 65 Firstly, as I have said, the analysis approaches the question of solvency on a balance sheet test rather than the cash flow test and, notably, Mr Hawkins does not proffer any opinion as to whether Ms Tarwala can pay the debt to Mr and Mrs Keating as and when it fell due. 66 Secondly, the legal costs were assessed by the Costs Court at $86,000. That assessment of reasonable costs cannot simply be put to one side as being "disputed". Of course, a court exercising bankruptcy jurisdiction has power to go behind a judgment which grounds a proof of debt in a bankruptcy: see generally Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132 at [54]-[55] (Kiefel CJ, Keane and Nettle JJ). But this is not a case where it would be appropriate to do so. 67 The claimed liability for costs was brought into existence by the costs order made in the Supreme Court appeal. The quantum of the debt was established by the assessment of the Costs Court in taxing the bill of costs filed in an adversarial proceeding. Upon that assessment, a judgment in the assessed amount was brought into existence by operation of r 63.56 of the Supreme Court (General Civil Procedure) Rules 2015. Ms Tarwala did not appeal that judgment. It is expected that a court exercising bankruptcy jurisdiction will act upon the reliability afforded by such an adjudication: Kitay, in the matter of Frigger (No 2) [2018] FCA 1032 at [41] (Colvin J). Ms Tarwala does not deny that she has a debt to Mr and Mrs Keating; she says only that the costs charged by Patten Robins are excessive, and reasonable costs have been assessed by the Costs Court at $86,000. Even if the debt is later reduced by negotiation or through Ms Tarwala's complaint to the VLSB, there is no evidence to show that she can pay any such reduced amount. 68 The central basis for the contention that Ms Tarwala was and remains solvent is that she has an entitlement under the Beneficiary Account in the Trust in the amount of $336,029. But the fact that Ms Tarwala has an entitlement under the Beneficiary Account does not mean that she will receive that money such that she can pay the debt to Mr and Mrs Keating as and when it fell due. There is no evidence that the Trust has the capacity make such a distribution. The Trust's only income is the modest amount which Ms Tarwala has historically earnt by tutoring and its only substantial asset is the Clyde North Property. The commercial reality is that the Trust cannot provide (at least) $55,000 to Ms Tarwala unless it takes out a mortgage against the property or sells the property. 69 As directors of the corporate trustee, Ms Tarwala and her daughter control the Trust and they could pass a resolution for the Trust to mortgage the Clyde North Property or to sell the property in order to place her in funds to satisfy the debt. But the commercial realities are that neither course is feasible. 70 Looking first at the possibility of (as I infer) another mortgage over the property; there is no evidence to indicate that it is feasible for the Trust to further mortgage the property in order to make a distribution to Ms Tarwala so that she could pay the debt due to Mr and Mrs Keating. As I have said, the Trust's only income is the modest amount which Ms Tarwala has historically earnt by tutoring and Ms Tarwala's only income is an age pension of $24,770 per annum from which she meets her living expenses, and (as I infer) the mortgage payments on the existing $89,670 loan over the property. The evidence does not show that it is feasible for Ms Tarwala or the Trust to service a further loan of (at least) $55,000, and there is no evidence of any other person being willing and able to service the loan. 71 Looking next at the possibility of the Trust selling the property, there is no evidence that Ms Tarwala is prepared to take steps to do so. Notably, she did not any stage submit that she was. 72 Fourth, even if Ms Tarwala had shown a preparedness to take steps to have the Trust mortgage the Clyde North Property or sell it so that she could pay the debt due to Mr and Mrs Keating, (which she has not) she would need to show that payment would occur within a relatively short period of time: Francis at [32]-[40]. As Palmer J said in Hall v Poolman [2007] NSWSC 1330; 65 ACSR 123 at [187]: An asset cannot be taken into account in assessing solvency at a particular time without reference to the time it would realistically take to effect realisation and produce cash. It is no indication of solvency - indeed it is the opposite - to point to property as available to meet debts falling due next month when, even with the utmost expedition, that property cannot be turned into cash for six months. 73 Here, there is no evidence to show when any funds from any mortgage or sale of the Clyde North Property might become available. Ms Tarwala bore the onus to adduce evidence as to that: Big River Group at [9]. 74 Fifth, Ms Tarwala did not put on evidence to show that she had at the time, or now has, the capacity to borrow the money to meet the debt to Mr and Mrs Keating nor that any other person was prepared to step in to assist her. 75 Ms Tarwala did not establish that she was solvent at the time that she lodged the debtor's petition, or as at the date of hearing the application for annulment. I am not persuaded that the petition ought not to have been presented.

Whether the petition "ought not to have been accepted" 76 Ms Tarwala contended that her petition ought not to have been accepted by the Official Receiver, thus satisfying that limb of s 153B of the Act. 77 She submitted that the Bankruptcy Form she completed was simplistic and "light-weight", and carried an implicit message that it "is just a preliminary step or that this is not serious". She said that she was "under the impression that the Federal Government paid for this simple process of declaring oneself bankrupt" and she believed that there must be a ten day cooling-off period. She also contended that there is an "interface" between her completion of the Bankruptcy Form and AFSA's handling of it, stating as follows: If AFSA's only response is to accept the form with limited or no scrutiny, the normal checks are not there…. It is my view from my experience of the Form, albeit in hindsight, it is possible there was a vacuum. I should be allowed to assume that known, adequate and satisfactory procedures were in place. But considering they appear not to have been at the time I filled out the Bankruptcy Form I submit that the Application "ought not to have been accepted". Relatedly, she said that it "is hard to imagine what a completed form would contain that would cause AFSA to reject it." 78 Ms Tarwala also contended that following her online lodgement of the Bankruptcy Form on 9 September 2021, she instructed Mr McConvill to urgently withdraw it. That may be accepted, but it does not show that the petition ought not to have been accepted. 79 The authorities provide that the meaning of the phrase "ought not to have been accepted" is restricted by the basis upon which it is permissible for the Official Receiver to reject a debtor's petition under s 55(3) of the Act: Re Coote at 529; Re Abbas at 143-144; Sayer-Jones at [13]. That section empowers the Official Receiver to reject a debtor's petition if: (a) the petition does not comply substantially with the approved form; or (b) the petition is not accompanied by a statement of affairs; or (c) the Official Receiver thinks that the statement of affairs accompanying the petition is inadequate. 80 As noted in Thompson at [17]-[18], in modern times the Australian Financial Security Authority has evolved the debtor's petition and the related statement of affairs contemplated by s 55 of the Act into a composite document titled the "Bankruptcy Form". There is no reason why, in terms of s 55, that a statement of affairs might not "accompany" a debtor's petition by being found in the same document. 81 Having regard to the completed Bankruptcy Form, I am satisfied that it substantially complies with the approved form, and includes a statement of affairs. Ms Tarwala did not argue otherwise. Ms Tarwala put on no evidence to indicate that the Official Receiver did think, or ought to have thought, that the statement of affairs accompanying the petition was inadequate. On its face, the Bankruptcy Form comprehensively set out Ms Tarwala's financial position, and nothing in the evidence indicates that the statement of affairs within that document is inadequate. 82 Accordingly, I am not persuaded that the petition ought not to have been accepted.

The discretion 83 Because I am not persuaded that the debtor's petition ought not to have been presented, nor accepted, the question as to the discretion to annul the bankruptcy does not arise: Thredgold at [12]. 84 But against the event that I am found to be wrong in so deciding, I should also note that even if I was satisfied that the debtor's petition ought not to have been presented or accepted, I would not exercise the discretion to annul Ms Tarwala's bankruptcy. Centrally, that is because: (a) at no point in Ms Tarwala's argument did she put forward any proposal pursuant to which the debt she owes to Mr and Mrs Keating will be paid in a timely way, or at all; (b) I am not persuaded that Ms Tarwala is presently solvent. Both before and after the hearing she was given ample opportunity to have the bankruptcy set aside administratively, which would have involved making arrangements to pay the debt to Mr and Mrs Keating, and she did not so. The reality is that the only way she can pay that debt is to take steps for the Trust to mortgage or sell the Clyde North Property to place her in funds so that she can do so. But neither she nor the Trust can service such a mortgage, there is no evidence of anyone being prepared to assist her, and there is no evidence that she is prepared to take steps for the Trust to sell the home in which she lives; and (c) Ms Tarwala has not made any proposal for the payment of the Trustee's costs and charges. 85 In all the circumstances, it would not be in the public interest nor in the interest of creditors that Ms Tarwala's bankruptcy be annulled. It is appropriate to refuse the application for annulment of Ms Tarwala's bankruptcy. Orders have been made accordingly. I certify that the preceding eighty-five (85) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Murphy.