Thredgold v Fyfe Pty Ltd

Federal Court of Australia|2013-12-16|Before: Beazley J, Beaumont J, White J

REASONS FOR JUDGMENT 1 The appellant appeals against the dismissal by the Federal Circuit Court (FCC) of his application for the annulment of his bankruptcy. 2 The circumstances giving rise to that application were as follows. 3 On 1 August 2011, judgment by default was entered in the Adelaide Magistrates Court in favour of the respondent against the appellant. The judgment sum, including costs, was $30,313.89. 4 The judgment was unsatisfied. The respondent caused a bankruptcy notice and a creditor's petition to be served on the appellant on 22 February 2012 and 13 June 2012 respectively. Subsequently, on 3 September 2012, the Registrar of the then Federal Magistrates Court made a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). The sole basis for the making of the sequestration order was that the judgment sum of $30,313.89 remained unsatisfied. 5 The parties were in agreement that, in addition to the evidential material placed before the FCC Judge, this Court could have regard to the file of the then Federal Magistrates Court concerning the making of the sequestration order. That file indicated that the appellant had not applied to have the bankruptcy notice set aside or to extend the time within which he could comply with it (s 41(6A), (6C) and (7) of the Bankruptcy Act) but that he had appeared to oppose the making of the sequestration order. 6 Prior to the making of the sequestration order, the appellant had applied (on 6 March 2012) to the Adelaide Magistrates Court to have the default judgment set aside. That application was struck out when the appellant did not appear on 12 April 2012 for the hearing of the application. In addition, the appellant had not filed a further affidavit together with a draft of his proposed defence as contemplated by a Court order of 22 March 2012. 7 After the making of the sequestration order on 3 September 2012, the appellant filed (on 25 September 2012) a second application to have the default judgment in the Adelaide Magistrates Court set aside. The gravamen of this application was that the debt claimed by the respondent was not a debt of the appellant personally but of a company of which he was the director, Your Development Matters Pty Ltd (YDM). The application was successful and on 25 January 2013 the Magistrates Court set the default judgment aside. 8 The appellant then commenced a proceeding in the FCC under s 153B of the Bankruptcy Act to have his bankruptcy annulled. Section 153B(1) provides: (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. Section 154 of the Bankruptcy Act provides for the effect of an annulment. 9 The application of s 153B has been considered in a number of authorities (including Rigg v Baker [2006] FCAFC 179; (2006) 155 FCR 531; Stankiewicz v Plata [2000] FCA 1185; Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307) and the relevant principles are settled. Both the text of s 153B and the authorities indicate that the exercise of the power to annul involves two elements: (a) satisfaction by the Court that the sequestration order ought not to have been made; and (b) the exercise of a discretion: Rigg v Baker [2006] FCAFC 179 at [59]; (2006) 155 FCR 531 at 543. 10 In determining whether a sequestration order ought not to have been made, the Court is entitled to consider not only the circumstances disclosed at the time the order was made, but as they would have been had all the true facts been before the Court at the time. A sequestration order ought not to have been made if, in light of the true facts existing at the time of its making, the judicial officer making the order was "bound" not to make it (Stankiewicz v Plata [2000] FCA 1185 at [19]; Rigg v Baker [2006] FCAFC 179 at [62]; (2006) 155 FCR 531 at 544; Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307 at at [12] (4)). 11 In the proceeding in the FCC, the respondent did not resist the contention that the sequestration order should not have been made. Its opposition to the making of an order of annulment was based on discretionary grounds. Perhaps for that reason, the FCC Judge did not determine whether the sequestration order ought not to have been made. Instead, he proceeded on an assumption that the first element under s 153B had been established and determined the application by reference to discretionary considerations (Thredgold v Fyfe Pty Ltd [2013] FCCA 587 at [11], [28]). 12 The terms of s 153B(1) make it plain that a Court's satisfaction that a sequestration order ought not to have been made is a condition which is essential to the making of an annulment order. Consideration of the discretion does not ordinarily arise unless that condition is satisfied. Further, as a matter of principle, the basis for the determination that the sequestration order ought not to have been made may well be relevant to the exercise of the discretion at the second stage of the s 153B inquiry. For example, the fact that an applicant was blameless in relation to the making of the sequestration order may well be a relevant matter to the exercise of the discretion. These considerations suggest that, ordinarily, a court considering an annulment application should determine whether the first element required by s 153B has been established. 13 However, on the appeal no complaint was made about this aspect of the FCC's reasoning. The respondent repeated its concession that, given the setting aside of the Magistrates Court judgment, the Court could be satisfied that the sequestration order ought not have been made. In that circumstance, I consider it appropriate to determine the appeal on the basis that the first of the two elements required under s 153B has been established. 14 The FCC Judge considered that four matters pointed against the exercise of the discretion in favour of the appellant. These were that the appellant had not demonstrated his solvency, with the evidence indicating on the contrary that at the time of the annulment application he was insolvent because of unrelated debts (at [20]); that the appellant had not made any proposal, let alone arrangement, for the payment of the respondent's costs in obtaining the sequestration order (fixed by the Registrar when making the sequestration order at $7,040.46) (at [21]-[22]); that the appellant had not made any arrangement for payment of the costs of his trustees in bankruptcy (said to be of the order of $23,700) (at [22]); and that the appellant had delayed unreasonably, after service of the bankruptcy notice, in bringing the application to set aside the judgment in the Adelaide Magistrates Court (at [22]-[27]).

The appeal 15 The appellant brings his appeal under s 24(1)(d) of the Federal Court of Australia Act 1976 (Cth). An appeal under s 24 is in the nature of a re-hearing and not an appeal in the strict sense, nor an appeal de novo (Minister for Immigration and Multicultural Affairs v Jia [2001] HCA 17 at [75]; (2001) 205 CLR 507 at 533; Warramunda Village Inc v Pryde [2002] FCA 250 at [34]; (2002) 116 FCR 58 at 66). This means that the Court must consider whether the judgment of the Federal Circuit Court is affected by error (Allesch v Maunz [2000] HCA 40 at [23]; (2000) 203 CLR 172 at 180-1). 16 As the appellant appeals against a discretionary judgment, he must show an error of the kind identified in House v The King (1936) 55 CLR 499 at 504-5, namely, that the FCC Judge failed to have regard to a relevant consideration, had regard to an irrelevant consideration, or made some error of fact or law. If the appellant is unable to establish an error of that kind, the Court may intervene if it is satisfied that the decision is plainly unreasonable or unjust. This Court is not entitled to intervene simply because it considers that, if it had been in the position of the primary judge, it would have taken a different course. 17 The appellant was unrepresented on the appeal, as he was in the proceeding in the FCC. His grounds of appeal are as follows: 1. Statements regarding insolvency are wrong and are not [consistent with the evidence] provided. 2. Statements of dates are wrong and don't fit with [the evidence] provided. 18 A number of the appellant's submissions went beyond these grounds and, further, related to matters which had not been the subject of evidence before the FCC Judge. Several of the submissions appeared to be based on an apprehension that the task of the FCC on the annulment application was to review the correctness of the Registrar's decision on 3 September 2012 to make the sequestration order. This was a misapprehension. The power to annul a sequestration order is to be distinguished from a power to vary or rescind such an order (Rigg v Baker [2006] FCAFC 179 at [60]; (2006) 155 FCR 531 at 543 referring to Cameron v Cole (1944) 68 CLR 571 at 583). In addition, as already noted, the hearing in the FCC proceeded on the assumption that the first element about which the Judge had to be satisfied was established. This makes it unnecessary, in my opinion, to consider the submissions made by the appellant concerning s 52 of the Bankruptcy Act. The appellant also referred to s 60 of the Bankruptcy Act but, in the circumstances of this case, it had no application. This makes it unnecessary to consider the appellant's submission concerning Duckworth v Water Corporation (No 2) [2012] WASC 163 with respect to s 60. 19 In his reply submissions, the appellant referred to, and quoted from, the decision in Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1. That authority was not in Court and I indicated to the appellant that I would read it when considering my decision. It transpires that the passage which the appellant quoted is in the unreported judgment of Beaumont J in Re Clyne; Ex parte Deputy Commissioner of Taxation (Unreported, Federal Court of Australia, 13 September 1985). That judgment concerned the allowance to be made to a bankrupt under s 125 of the Bankruptcy Act for the costs of legal assistance in respect of an examination. The judgment has no bearing on the issues on this appeal.

A discretionary judgment 20 As previously noted, the appeal is, in effect, an appeal against the exercise of a discretionary judgment. This has the effect that the circumstances entitling this Court to intervene on appeal are of a limited kind. 21 Considered generally, a number of matters bear on the exercise of the discretion, once enlivened, under s 153B(1). In Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307 at [12] (8), Tracey J identified those matters as including "unexplained delay in the making of the application, whether or not the applicant is solvent, whether or not the applicant has made full disclosure of his or her financial affairs and a failure by the bankrupt to oppose the creditor's petition and attend the hearing at which the sequestration order was made". Marshall J, in Francis v Eggleston Mitchell Lawyers Pty Ltd [2013] FCA 564 at [26], also listed a number of matters which may guide the exercise of the discretion. 22 The appellant pointed to some errors as to dates and times stated by the FCC Judge in his ex tempore reasons. However, in my opinion these are errors of no consequence. For example, in [2], the FCC Judge recorded that the default judgment had been entered against the appellant in the Adelaide Magistrates Court in September 2011 when the correct date was 1 August 2011. In the same paragraph, the FCC Judge recorded that the appellant had been given leave on 28 February 2013 to commence a counterclaim against the respondent, whereas the appellant asserted that that leave had been granted in January 2013. Errors of this kind are immaterial and need not be addressed further. 23 It is convenient to address the appellant's submissions on appeal by reference to the discretionary considerations upon which the FCC Judge relied. Such an approach is favourable to the appellant as it involves reading his two grounds of appeal in a generous manner.

The conclusion as to solvency 24 The FCC Judge considered, correctly, that it was for the appellant to establish that he was solvent (at [20]). The Judge considered the appellant's solvency by reference to the evidence about his financial position as at the time of the annulment hearing. 25 The evidence indicated that the appellant had the following actual or potential indebtedness: Debt to the respondent $30,313.89 Debt to Martin Robinson Solicitors $10,184.93 Debt to Marciano Lawyers $10,714.65 Debt claimed by Mirona Constructions Pty Ltd (in liq) $25,000.00 Costs of the petitioning creditor $7,040.46 26 The FCC Judge considered it appropriate to ignore, for the purposes of assessing the appellant's solvency, the disputed debt claimed by the respondent. The appellant's potential liability for the trustees' costs may also be put to one side for present purposes. 27 There did not seem to be any dispute about the debt to Martin Robinson Solicitors. It was supported by documentation from that firm and the appellant had at one stage made some payments by way of reduction of his liability. 28 The only evidence of the debt to Marciano Lawyers was the statement by the trustees in bankruptcy that they had received a proof of debt for that amount. The Judge noted that the trustees in bankruptcy had not adjudicated on this debt but accepted that it was a debt of a kind provable in the appellant's bankruptcy. The appellant did not provide any evidence concerning the debt claimed by Marciano Lawyers and submitted only that, if it was not proved, it should be excluded from consideration in relation to his solvency. 29 The Judge noted some uncertainties concerning the debt claimed by Mirona Constructions Pty Ltd (in liq). This included the fact that Mirona Constructions had discontinued that part of a proceeding in the Adelaide Magistrates Court which concerned a claim against the appellant and had, instead, pursued its claim against a co-defendant. The only evidence of the possible existence of the debt was that the liquidator of Mirona Constructions had lodged a proof of debt with the appellant's trustees in bankruptcy. The Judge accepted that the nature of the debt claimed meant that it was provable in the bankruptcy but seemed to accept that there was controversy about the existence of this debt. 30 The Registrar's order of 3 September 2012 had fixed the creditor's costs at $7,040.46 and had directed that they be paid from the estate of the appellant in accordance with the Bankruptcy Act. 31 Although there were some uncertainties in the appellant's debt position, the Judge considered that the position with respect to his assets and income was much more straightforward. The appellant's Statement of Affairs filed with Insolvency and Trustee Service Australia on 12 September 2012 in accordance with s 54 of the Bankruptcy Act disclosed that the appellant had $9 in cash on hand but no other assets at all. In the Statement of Affairs, the appellant acknowledged his indebtedness to Martin Robinson Solicitors. The trustees in bankruptcy reported that the appellant attributed his bankruptcy to an inability to collect debts due to disputes. The appellant did not disclose to the trustees income exceeding the threshold amount from which income contributions could be expected. In a report dated 20 September 2012, the trustees in bankruptcy indicated that their investigations had not identified any assets by which a dividend may be payable to creditors. 32 The trustees' later report of 14 March 2013 did not suggest a change in this position and, indeed, revealed the further potential indebtedness to Marciano Lawyers. A 16 May 2013 report revealed the claim of Mirona Constructions Pty Ltd (in liq). 33 The FCC Judge accepted that there was some "controversy" about the existence of some of these debts but accepted the existence of others, in particular, it would seem, that of Martin Robinson Solicitors. He concluded that the evidence showed a "complete inability of the applicant at the present time to liquidate any assets or to generate any income which would be capable of extinguishing any part of those debts" (at [20]). This led him to conclude that the appellant had not established his solvency. 34 The appellant submitted that the FCC Judge had overlooked significant evidence bearing on his solvency. He drew attention to evidence indicating that, as at the date of the sequestration order, he had been in employment and in receipt of a net weekly income of $1,163. This was employment by YDM (of which the appellant was the sole shareholder and director) and was said to be governed by a document entitled "Contract of Employment" on the YDM letterhead dated 1 September 2010. This was a contract of employment of an unusual kind. It was signed by six persons, several of whom the appellant described as investors. Curiously, the contract was not signed by the appellant, nor by anyone else purportedly on behalf of YDM. It does not indicate the nature of the work to be performed by the appellant. Other evidence indicates that it was to be work for YDM in procuring land development. The contract provided that the appellant was to be paid $78,000 per annum for five years, together with phone and internet costs and the provision of a company vehicle. In addition, the contract provided for $300,000 to be paid to the appellant "via his superannuation fund" in respect of a project at 1 Fradd Road, Munno Para West "30 days after settlement or within 10 days of any court action being lodged regardless of the outcome". Further again, the contract provided that the appellant was to receive 40% of the gross profit "via his super fund" for completing that same project. 35 The appellant was imprisoned in the period 6 April 2011 to 6 August 2011. He could not have been performing services under the contract during that period. Not uncommonly, the incarceration of an employee will have the effect of bringing (by one means or another) a contract of employment to an end. However, there is evidence that that did not occur in the appellant's case. A special condition in the contract of employment noted the possibility that the appellant would be imprisoned and provided that, if the imprisonment was less than 12 months and had little, if any, impact on YDM, "his position will be held over and all payment and contract agreements will remain in place although they will be suspended for the period he is incarcerated". The evidence indicated that the appellant had resumed his employment immediately after release from prison and, indeed, that his taxable income in the year ending 30 June 2012 was $76,218. 36 However, it appears that the appellant's employment with YDM came to an end on the making of the sequestration order on 3 September 2012. 37 The appellant also referred to other evidence indicating that his employment by YDM was not illusory and which, he submitted, had been ignored by the FCC Judge. This was evidence that YDM had a contract to purchase development land from some people named Costa, subject to development approvals in respect of the land being granted; that the relevant development approvals had been granted; and that a dispute between YDM and the Costas in the District Court of South Australia regarding the transfer of the land to YDM had been resolved by agreement. This agreement provided for settlement on the transfer of the land from the Costas to YDM to take place on 7 March 2013. On its face, this meant that YDM, on payment of $10 million, would become the owner of a substantial parcel of development land in respect of which development approvals had previously been granted. I note that by the proposed settlement date the development approvals would have lapsed. The applicant submitted, in effect, that this evidence indicated that YDM would be a company of some substance and accordingly in a position to make substantial payments to him. 38 The FCC Judge did not refer at all to this evidence when considering the appellant's solvency. The appellant submitted that this indicated that the Judge had failed to have regard to significant evidence bearing on his solvency. I am satisfied that the appellant has made good this particular contention. However, it does not follow that the Judge's conclusion regarding the appellant's solvency is wrong. 39 The Judge was correct, in my opinion, in considering the evidence of the appellant's solvency as at the date of the annulment application and not just at the date upon which the sequestration order was made (see Re Williams (1968) 13 FLR 10 at 25; Re Coyle (1993) 42 FCR 72 at 78; Miller v Bondi Securities (Unreported, Federal Court of Australia, Beazley J, 2 September 1994) at [64] and [74]; Cottrell v Wilcox [2002] FCA 1115 at [7]; Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307 at [12] (8); Francis v Eggleston Mitchell Lawyers Pty Ltd [2013] FCA 564 at [26], each of which discusses solvency using the present tense). 40 This means that it would not have been appropriate for the Judge to consider only the evidence concerning the appellant's income as at 3 September 2012, together with the prospects at that time of the land development proceeding. 41 When considered as a whole, the evidence did not establish the appellant's insolvency. 42 The significance of the evidence concerning the potential development on the land to be acquired from the Costas, on which the appellant placed great reliance, is diminished by the circumstance that, on 13 March 2013, the Registrar of this Court made an order winding up YDM in insolvency and appointed a liquidator. Although the evidence did not indicate the position one way or another, this circumstance makes it quite unlikely that YDM had settled on the contract with the Costas on 7 March 2013, requiring as it did the payment of $10 million to the Costas. The appellant did not provide evidence that YDM had the capacity in early 2013 to settle on the Costa transfers. 43 The circumstances giving rise to the liquidation of YDM were not explained in the evidence before the FCC Judge. Given that YDM is a company of which the appellant is the sole shareholder and director, this seems a significant omission in the evidence. 44 It is to be observed that the two lump sums contemplated by the Contract of Employment were to be paid to the appellant's superannuation fund, and not to him personally. 45 It is also pertinent to note that, in each of his six affidavits filed in the FCC in support of the annulment application, the appellant described himself as "unemployed". The appellant did not provide any evidence of his engagement in remunerative activities after 3 September 2012. 46 As already noted, the report to creditors prepared by the appellant's trustees in bankruptcy dated 20 September 2012 indicated that, apart from the sum of $9 in a bank account, the appellant had no assets available for distribution in the bankruptcy. At the very least, there remained the undisputed debt to Martin Robinson Solicitors of $10,185 and the debt claimed by Marciano Lawyers. 47 In my opinion the evidence to which the FCC Judge did not refer does not assist the appellant in establishing solvency at the time of the annulment application. This additional evidence tends to confirm, rather than detract from, a finding of insolvency. The Judge was correct to find that the appellant had not discharged the relevant onus. As has been observed on several occasions, applicants for the annulment of a bankruptcy carry a heavy burden. It is incumbent upon such applicants to place before the Court all relevant material with respect to their financial affairs so that the Court may be properly informed and make a judgment based on the full facts and actual circumstances of those applicants (Re Papps; Ex parte Tapp (1997) 78 FCR 524 at 531). This the appellant did not do. 48 The appellant referred to Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596 for the proposition that the statement in s 5(2) of the Bankruptcy Act that "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" does not mean that the person must be "willing and able" to do so. However, this is not a case for the application of Re Sarina: the applicant had not adduced evidence of his capacity to pay his debts, nor had he adduced evidence that his failure to pay those debts was occasioned by an unwillingness rather than an incapacity to do so. As I have indicated, the appellant did not adduce evidence as to his current financial position which would have enabled a conclusion that he was unwilling, rather than unable, to pay his debts as and when they fell due. 49 The appellant referred to his prospects of success on a counterclaim against the respondent in the Adelaide Magistrates Court. The FCC Judge placed no weight on this circumstance, noting that the form of the counterclaim had not even been proved in evidence before him. The appellant did not establish any error by the Judge in this respect. 50 For those reasons, I consider that the Judge's conclusion in respect of the appellant's insolvency has not been shown to be wrong.

The petitioning creditor's costs 51 The FCC Judge said that the authorities indicated that, ordinarily, Courts determining annulment applications expect the applicant to pay the costs incurred by the petitioning creditor in obtaining the sequestration order or to disclose proper arrangements for the payment of those costs. The Judge was correct in this respect: Stankiewicz v Plata [2000] FCA 1185 at [32]; Rigg v Baker [2006] FCAFC 179 at [78]; (2006) 155 FCR 531 at 547-8; Francis v Eggleston Mitchell Lawyers Pty Ltd [2013] FCA 564 at [26]. The FCC Judge noted that no such arrangements were proffered by the appellant. Accordingly, the FCC Judge was correct in regarding this as a relevant consideration. 52 The Adelaide Magistrates Court judgment has not yet determined the appellant's defence that the debt claimed by the respondent was owed by YDM and not by him personally. There is, however, some documentary evidence which appears to support the appellant's claim that the respondent's pursuit of him for these debts was in error. If that error be established, it could be said that the petitioning creditor has brought these costs upon itself. In that event, it could be said that in the present case this consideration may warrant less weight than has been given to it in some of the authorities. 53 However, given that the identity of the person or entity liable for the debt claimed by the respondent has not yet been determined by the Adelaide Magistrates Court, it would have been inappropriate for the FCC Judge to proceed on the basis that the appellant's contention is correct. It would have been open to the appellant to make a conditional undertaking with respect to the petitioning creditor's costs or, on the contingency that he may ultimately be found personally liable for the respondent's debt, to have secured those costs in an appropriate way. He did neither. 54 Accordingly, I consider that the FCC Judge did not err in regarding the appellant's failure to proffer some arrangement, even a conditional arrangement, for the payment of the respondent's costs as being a relevant matter in the exercise of the discretion.

The trustees' costs 55 As noted earlier, s 154 of the Bankruptcy Act provides for the effects of an annulment order. Subsection (1)(b) permits the trustee in bankruptcy to apply the property of the former bankrupt still vested in the trustee in payment of the costs, charges and expenses of the administration of the bankruptcy. Subsection (2) provides that if the property of the former bankrupt referred to in subs (1)(b) is insufficient for this purpose, the amount of the deficiency is a debt due by the former bankrupt to the trustee and is recoverable by the trustee by action against the former bankrupt in a court of competent jurisdiction. 56 The trustees' costs were said to be of the order of $23,700. 57 Although the Bankruptcy Act itself provides the means for recovery by the trustee of its costs, an applicant's willingness to proffer arrangements for payment of the costs is a relevant matter to the exercise of the discretion on an annulment application (Stankiewicz v Plata [2000] FCA 1185 at [32]; Cottrell v Wilcox [2002] FCA 1115 at [13]; Francis v Eggleston Mitchell Lawyers Pty Ltd [2013] FCA 564 at [26]). The FCC Judge regarded the circumstance that the trustees' costs had not been paid and that there was no realistic proposal for their payment in the immediate future to be a relevant consideration. He was right to do so. No error has been shown by the appellant in respect of the Judge's consideration of this discretionary aspect.

The delay in bringing the application 58 The FCC Judge accepted that the appellant had not delayed unreasonably after obtaining the setting aside of the judgment in the Adelaide Magistrates Court on 25 January 2013. He had commenced his application for annulment of the bankruptcy one month later, on 26 February 2013. 59 However, the Judge considered that the appellant had delayed unreasonably in applying to have the default judgment entered on 1 August 2011 set aside and that this had the consequence that the application for annulment had been delayed unreasonably. 60 A brief chronology of the relevant events is as follows: 1 August 2011 Default judgment entered in Adelaide Magistrates Court 6 August 2011 Appellant released from jail 22 February 2012 Bankruptcy notice served on appellant 6 March 2012 First application by appellant to set aside the default judgment 12 April 2012 First application to set aside the default judgment struck out. Appellant did not attend at the hearing, and had not filed a fresh affidavit including a draft defence as contemplated by a previous Court order 13 June 2012 Service of the creditor's petition 3 September 2012 Making of the sequestration order 25 September 2012 Appellant files second application to set aside the default judgment 25 January 2013 Adelaide Magistrates Court sets aside the default judgment 26 February 2013 Appellant applies for annulment of his bankruptcy

61 The Judge noted that he had little evidence concerning the apparent inactivity of the appellant in relation to setting aside the default judgment in the period between 1 August 2011 and 22 February 2012. He considered, wrongly, that the appellant had made no application to have the default judgment set aside in the period of approximately seven months between the service of the bankruptcy notice on 22 February 2012 and his filing of his second application to have the default judgment set aside on 25 September 2012. The Judge overlooked the application filed on 6 March 2012, which was less than three weeks after the bankruptcy notice had been served on 22 February 2012. In this respect, the Judge has misunderstood the relevant history in a material respect. 62 However, the significance of this oversight by the Judge is mitigated by the circumstance that the first set aside application failed by reason of default on the appellant's part. The reasons for that default were not explained in the evidence before the Judge. Further, even after the first set aside application was dismissed, the appellant waited another five months before making his second application. It is reasonable to surmise that it was the making of the sequestration order on 3 September 2012 which prompted the second application. 63 The appellant proffered two explanations before the FCC Judge for his apparent delay. The first was a lack of understanding on his part of the appropriate procedure. The second was that he had chosen to pursue a negotiated resolution of his predicament. The Judge considered that there was insufficient evidence to support the first explanation and said that he did not find the second to be "persuasive". The appellant did not provide any evidence of attempts by him to achieve a negotiated settlement with the respondent. He did provide evidence of negotiations with Martin Robinson Solicitors and of attempts to negotiate the sale of his shares in YDM for a nominal sum, but neither of those steps, if successful, would have resolved the present respondent's claim against him. The appellant did not point to any error in the Judge's reasoning on this topic. Instead he merely repeated his explanation for the delay. 64 The only factual error in this part of the Judge's reasoning was the Judge's mistaken belief that the appellant had taken no action at all to have the Magistrates Court judgment set aside until 25 September 2012. 65 The Judge also noted that in the period since 1 August 2011, while the appellant had been inactive, YDM had gone into liquidation. The Judge did not explain the significance which he attached to this circumstance. It is possible that he was drawing an inference that until YDM had gone into liquidation, there was no practical incentive for the appellant to pursue the setting aside of the Magistrates Court judgment because the appellant's defence, if established, would implicate his company, YDM. Alternatively, the Judge may have inferred that the appellant deliberately waited until YDM went into liquidation in order to deprive the respondent of a means of recovery against it. 66 It is not possible to draw a firm conclusion as to the Judge's reasoning in this respect. Either inference would have required the Judge to make further findings of fact, and this he did not do. This amounts to a further error in the Judge's reasoning. 67 This means that I consider that the appellant has established two errors by the Judge in his consideration of the element of delay. This has the consequence that this Court should address the matter afresh. 68 On that reconsideration, I take into account that it is not clear when the appellant first became aware of the default judgment entered against him in the Magistrates Court. All that can be said is that it must have been at least by 22 February 2012 when the bankruptcy notice was served on him. I accept that it is likely that the appellant did have some earlier notice, but how long that was before 22 February 2012 is unclear. This reduces the scope for criticism of the appellant on account of inactivity in that period. 69 The appellant did take timely action after the service of the bankruptcy notice but his application failed for want of prosecution. There is scope for criticism of the appellant's conduct in that respect. 70 It is a sobering circumstance that just on 17 months elapsed between the entry of the default judgment, on the one hand, and the setting aside of that default judgment, on the other. None of that lapse of time can be attributed to the conduct of the respondent or of the trustees in bankruptcy. In the meantime, the appellant's bankruptcy had proceeded. The long period of time is therefore a factor counting against the appellant in the exercise of the discretion. 71 In my opinion, however, the most significant factor is that the appellant did not prove his solvency. That circumstance, supported by the absence of any arrangement by the appellant for the payment of the petitioning creditor's costs, the trustees' costs and the considerable lapse of time point against a favourable exercise of the discretion to grant an annulment of the appellant's bankruptcy.

Summary 72 In summary, although I consider that the appellant has demonstrated some deficiencies in the Judge's reasons which require consideration of the discretion afresh, I would reach the same conclusion as did the Judge. This means that the appeal should be dismissed. 73 I will hear from the parties as to any consequential orders and as to the interlocutory application filed by the appellant on 10 July 2013, consideration of which has been adjourned to the delivery of judgment. I certify that the preceding seventy-three (73) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White.

Bankruptcy Act 1966(Cth)ss 41, 43, 52, 54, 60, 153B, 154

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