REASONS OF THE PRIMARY JUDGE
21 At first instance it was not disputed that at the time that the appellant presented her debtor's petition, a creditor's petition had been presented by Body Corporate for Arila Lodge CTS 14237 (BCAL) (now the second respondent on this appeal) and was pending before the then-named Federal Circuit Court of Australia. The creditor's petition was founded on a bankruptcy notice specifying a debt in the amount of $80,266.85. Upon the appellant becoming bankrupt on her own petition, BCAL's creditor's petition was dismissed. The costs of those proceedings were ordered to be paid from the appellant's bankrupt estate with the same priority as if a sequestration order had been made on it.
22 As on this appeal, the trustee of the bankrupt estate, Mr Morgan Lane, abided the event at first instance. Mr Lane nonetheless participated in the proceedings, including by providing a report to the primary judge and expressing an opinion as to the appellant's solvency.
23 The primary judge observed that there was little authority concerning the annulment of a bankruptcy grounded in the acceptance of a debtor's petition, but considered that it was possible to derive relevant considerations by reference to s 55 and s 153B of the Act. He observed (correctly) that s 153B(2) provided for an annulment order to be made in the Court's discretion whether or not the debtor was solvent at the time of the presentation of his or her petition (at [10], [19]).
24 The primary judge cautioned himself against uncritically applying cases concerning annulment of a bankruptcy created by sequestration order on a creditor's petition, or applying principles deriving from such cases too mechanically (at [10]).
25 The primary judge identified (again correctly) that the question of annulment involved a two-step process (at [7]) and that the onus of proving that the bankruptcy should be annulled fell on the appellant (at [8]).
26 The primary judge emphasised that a bankrupt carries a heavy burden to make full disclosure of his or her financial affairs (citing Re Papps; Ex parte Tapp (1987) 87 FCR 524 at 531). His Honour said (at [12]):
This does not, of course, mean that the standard of proof applicable to facts in an annulment application is anything other than the ordinary, civil standard of proof on the balance of probabilities: s 34A, Bankruptcy Act. What it does mean is that an applicant must be completely candid. An apparent absence of candour, especially where it suggests that an applicant's true present financial position may not be one of solvency, or may be much worse than asserted, may well offer a basis upon which to exercise a discretion so as not to annul a subsisting bankruptcy.
27 The primary judge identified a number of considerations arising from the terms of s 55 of the Act the inform that question of whether a debtor's petition ought not to have been presented or accepted. The correctness of that summary is not challenged on this appeal and is here set out in full:
14 Regard to s 55 of the Bankruptcy Act discloses a number of bases upon which a debtor's petition ought not to be presented:
(a) flowing from s 55(2)(b), if it is not accompanied by a statement of affairs completed by the debtor;
(b) flowing from s 55(2A), the debtor has no relevant connection with Australia at the time when the petition was presented, the relevant connections being that the debtor:
(i) was personally present or ordinarily resident in Australia; or
(ii) had a dwelling-house or place of business in Australia; or
(iii) was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager.
(c) flowing from s 55(5A), the debtor is a party (as debtor) to a debt agreement and has not been given permission by the Court to present a debtor's petition;
(d) flowing from s 55(6), the debtor has executed a personal insolvency agreement and has not received the leave of the Court to present a petition against himself or herself unless:
(i) the agreement has been set aside; or
(ii) the agreement has been terminated; or
(iii) all the obligations that the agreement created have been discharged.
(e) flowing from s 55(6A), a stay under a proclaimed law is applicable to the debtor and the debtor has not received the leave of the Court to present a petition against himself or herself.
15 Regard to s 55 of the Bankruptcy Act also discloses a number of bases upon which the Official Receiver is empowered not to accept a debtor's petition:
(a) flowing from s 55(2), the debtor has no relevant Australian connection (as detailed above);
(b) flowing from s 55(3):
(i) the petition does not comply substantially with the approved form; or
(ii) the petition is not accompanied by a statement of affairs; or
(iii) the Official Receiver thinks that the statement of affairs accompanying the petition is inadequate.
(c) flowing from s 55(3AA), it appears to the Official Receiver from the information in the statement of affairs (and any additional information supplied by the debtor) that, if the debtor did not become a bankrupt, the debtor would be likely (either immediately or within a reasonable time) to be able to pay all the debts specified in the statement of affairs and either or each of the following is applicable:
(i) it appears from the information in the statement of affairs (and any additional information supplied by the debtor) that the debtor is unwilling to pay one or more debts to a particular creditor or creditors, or is unwilling to pay creditors in general;
(ii) before the current petition was presented, the debtor previously became a bankrupt on a debtor's petition at least 3 times, or at least once in the period of 5 years before presentation of the current petition.
28 The primary judge discussed the meaning of "solvency" and "insolvency" before turning to consider the "bankruptcy form" completed by the appellant. His Honour said that the form raised more questions than it answered. He observed that the appellant had stated that:
(1) she had been unemployed for 7 years and that her only source of income in the last 12 months and anticipated following 12 months were government pensions and allowances of about $1,100.00 per fortnight;
(2) she had five unsecured creditors with estimated debts totalling $505,500.00 (including a claim asserted by BCAL in the amount of $400,000.00). All but $500.00 was "disputed" by the appellant;
(3) she had an interest of unspecified value in her father's estate;
(4) she owned a house in Hawthorne and a unit in Toowong (in the complex of which BCAL was the body corporate), with a combined value of $3.5m; and
(5) the Hawthorne house was subject to a mortgage to Suncorp Bank connected with a $2 m debt which she disputed.
29 The primary judge referred to the change of the appellant's status brought about by bankruptcy. His Honour said that Ms Thompson's assertion on the face of the forms that she was insolvent because of legal action did not provide a reason in of itself for the Official Receiver to accept her petition (at [32]). His Honour observed:
Her declared income and non-realty assets were, with respect, modest but so, too, was her only undisputed debt. Further, even allowing for a dispute as to the amount of the estimated secured debt, there was an apparent surplus of more than $1 million in her net realty asset position. In turn, that surplus was more than enough, if realised, to meet the declared disputed debts. On the face of the "Bankruptcy Form", Ms Thompson may well have been insolvent but that position was not clear. Given what was declared, Ms Thompson's case may just possibly have been one where, within a reasonable time she could have paid her debts and where she was unwilling to pay debts to particular creditors. Potentially then, the case was one where it may have been possible for an Official Receiver, pursuant to s 55(3AA) and as a matter of discretion, to reject Ms Thompson's petition.
30 The primary judge nonetheless concluded (at [33]) that the Official Receiver was not obliged under s 55(3AB) to reject the petition under s 55(3AA). His Honour said that it was not a case where a debtor's petition "ought not to have been accepted" within the meaning of s 153B because:
The standard posited by that section is not met where, as a matter of discretion, a petition might not be accepted by an Official Receiver but where there is no obligation to exercise that discretion.
31 Importantly for present purposes, the primary judge said that the case was not one which turned on whether or not the debtor's petition ought not to have been presented or accepted, even though the appellant had those raised those issues on her application ( at [36]). The real issue, his Honour said, was whether the appellant's bankruptcy should be annulled in the exercise of the Court's discretion (at [36]). The primary judge said that an important question in that regard was "whether or not she is, having regard to the test as explained above, solvent?".
32 On the question of solvency, the primary judge accepted the opinion of the trustee that the appellant was "not solvent" and rejected the arguments of the appellant as to why he should not act on it. The main focus of the "solvency" enquiry was not so much the financial position of the appellant at the time of presenting the debtor's petition, but the sufficiency of the property vested in the trustee to discharge all of the appellant's liabilities. In respect of the 'debt' side of that equation, his Honour's starting point was the total amount of claims specified in proofs of debt received by the trustee (none of which had been admitted by the trustee). They totalled $1,332,934.00. Of that amount, $820,479.00 was claimed by "BCAL C/- Grace Lawyers".
33 The property of the bankrupt estate was held to include a recovered amount of $930.00. Save for that amount, the primary judge said at [39] that the "bankrupt estate is presently without funds".
34 As to the Hawthorne property, the primary judge held that Suncorp Bank had entered into possession of the property prior to the presentation of the debtor's petition. The property had been sold by 19 December 2020 and settlement on the sale had occurred on 18 January 2021. The trustee estimated that "at least $368,750" was payable to the appellant's bankrupt estate after discharge of the debt owed to Suncorp Bank and its recovery costs. The settlement statement indicated that that very amount had been paid by Suncorp Bank to the Deputy Commissioner of Taxation. However, as no proof of any taxation debt had been lodged, the trustee had assumed the sum to be a recoverable asset and the primary judge took the amount into account in considering the property available to discharge liabilities (at [43]).
35 The primary judge addressed submissions of the appellant to the effect that the Hawthorne property had been sold at an undervalue, given that a government assessment had valued the unimproved land at $3,500,00.00. His Honour said that the valuation raised "an interrogative note ... in terms of whether Suncorp Bank discharged its duties as mortgagor [sic] in possession" (at [46]), but the remedy in that respect was an action for damages that had vested in the trustee. The primary judge did not consider the realisation of the Hawthorne property would support a conclusion that the appellant "was solvent either at 26 June 2020 or at present".
36 The primary judge concluded that the evidence did not indicate the appellant's claimed interest in her father's estate had any value, adding that the executor of the deceased estate had lodged a proof of debt in the amount of $186,221.00 said to be owed by the appellant to the estate, and the appellant's evidence had not shown that amount to be excessive.
37 As to the Toowong unit, the primary judge held that it was subject to debts (estimated by the trustee at $412, 605.97) that could be enforced against any purchaser, making it difficult to sell unless they were first discharged (at [55]). The primary judge concluded that a sale of the unit after discharge of those debts would net $332,394.03 and that the value of the real property assets was (at most) $681,144.03, which fell "dramatically short" of the trustee's preliminary assessment of the other debts, let alone the trustee's costs of administering the bankrupt estate (at [58]).
38 The trustee's claimed costs and expenses were $192.455.71. The primary judge said that the appellant "had made no proposal, as part of her annulment application" as to how the trustee's expenses might be settled, either in whole or in part", and that the costs of the administration were in part a reflection of the lapse of time between the presentation of the debtor's petition and the commencement of the annulment application (at [60]).
39 The primary judge went on to discuss aspects of the proof of debt lodged by BCAL, $128,858.30 of which included amounts owing pursuant to fixed costs orders or cost orders that were yet to be assessed. His Honour traced some of the litigious history resulting in BCAL's claims, which had their genesis in a dispute about a water leak in the Toowong block of units for which the appellant was alleged to be responsible. The primary judge applied, by analogy, the same principles guiding the Court's power to make a sequestration order in cases where judgment debts are in issue (at [70]). His Honour continued:
71 Annulment does not affect sales and dispositions of property and payments duly made and acts done, by the bankrupt's trustee, or any person acting under the authority of the trustee or the Court, before the annulment: s 154(1)(a) of the Bankruptcy Act. Further, a trustee is entitled to be reimbursed in respect of costs of administration out of property which on bankruptcy vested in the trustee: s 154(1)(b) and s 154(2). Subject to this and to other exceptions in s 154 not presently relevant, the effect of annulment is that the remainder (if any) of the property of the former bankrupt still vested in the trustee reverts to the bankrupt: s 154(1)(c) of the Bankruptcy Act.
72 Thus, deciding whether or not to annul a bankruptcy may also affect the rights and interests of each of a bankrupt's creditors in being paid their debts in full. If a person remains in bankruptcy, the rights of unsecured creditors (or secured creditors with a deficiency) become rights to prove in the bankruptcy and to receive such distribution as may be payable to them from the property of the bankrupt in accordance with the Bankruptcy Act. Annulment could therefore bring with it for creditors a right to have payment in full. One reason for annulment might be that in truth and reality there is no particular debt or debts such that a person is not presently and never was insolvent.
40 His Honour rejected the appellant's arguments as to the costs orders, including because her arguments were or could have been raised in the litigation to which they related (at [65], [77]), the outcomes were not the result of fraud, collusion or miscarriage of justice (at [74]) and because her assertion that BCAL had not been authorised to commence the litigation was without merit (at [78] - [79]).
41 As to the larger part of the BCAL proof of debt that was not founded in any fixed cost order, the primary judge said that the trustee had engaged a costs assessor to advise him in relation to its claim, but was yet to receive a report (at [80]) and the appellant's onus of proofing that the proof was excessive "as part of demonstrating solvency" had not been discharged.
42 The primary judge referred to the appellant's evidence that on 5 December 2019 she had received an email from a financial institution confirming that she had been approved for a loan in an amount that exceeded the amount specified in BCAL's creditor's petition (still pending at that time). His Honour said that the email was not an unconditional loan of funds and concluded, on the basis of evidence of the trustee, that no loan approval had been given. It would not be sufficient, his Honour said, for the appellant "to demonstrate present insolvency" to prove that she would have been able (had she chosen) to pay the debt demanded in the bankruptcy notice from borrowed funds.
43 The primary judge concluded that at the time that she presented her debtor's petition, the appellant had already defaulted on borrowings from Suncorp Bank, she was the subject of multiple costs orders of which even the fixed components were unpaid, that "she was greatly in arrears in amounts owed to BCAL", and that her income was insufficient to pay those debts. His Honour continued (at [84]):
Even on a generous assessment of the equity she had in the Hawthorne Property and even assuming, also generously, that each of that property and the Toowong Unit might then have been sold within a reasonable time thereafter, the proceeds of the sale would have been insufficient to meet her debts. She has certainly not proved otherwise. Even accepting, in light of s 153B(2) that an annulment order might be made even though she was insolvent when her debtor's petition was presented, neither has she proved that the position is any better at present. Ms Thompson has not proved that she is presently solvent. The evidence before the Court, such as it is, confirms [the trustee's] opinion that she is not solvent. Given this, I am not persuaded that her bankruptcy should be annulled.
44 The primary judge said that the appellant's failure to prove "present insolvency" and her failure to make any proposal for the payment of any part of the trustee's costs of administration provided reasons in themselves not to annul her bankruptcy. Again, his Honour's reference to "present insolvency" equated to an assessment of whether there was sufficient property to be realised within by the trustee with the context of an ongoing bankruptcy to fully discharge the proofs of debts that had been lodged.
45 The primary judge took into account other factors, including that the annulment application had not been made promptly. In conclusion, his Honour said (at [86]):
Another factor is [the trustee's evidence] that, despite numerous requests of her by him to comply with s 77 of the Bankruptcy Act regarding the provision of her books and records, Ms Thompson has failed to do so, though acknowledging that she holds books and records. I accept [the trustee's] evidence on this subject. Ms Thompson's stance, evident in her evidence and submissions, has been to request that [the trustee] advise her as to what documents "we require her to provide". This inverts the requirements of the Bankruptcy Act and, in any event, [the trustee] has made it plain enough what he requires of her. In my view, this is an additional reason why her bankruptcy ought not to be annulled. There is a public interest, given this conduct, in her remaining subject to the restrictions and duties imposed on a bankrupt by the Bankruptcy Act. Her case is one were her estate should continue to be administered in insolvency. There is no public interest, and certainly no interest of creditors, served by the annulment of her bankruptcy.