Zodiac Investments Pty Ltd v Brelsford

REASONS FOR JUDGMENT 1 This is an application for an order that the bankruptcy of the first respondent be annulled, or in default of the making of such an order, for other relief. The application is brought under s 153B of the Bankruptcy Act 1966 (Cth) ("the Act"). 2 On 27 January 1999 the first respondent presented his own debtor's petition which was accepted by the Official Receiver. The applicants submit that the petition ought not to have been presented by the first respondent and ought not to have been accepted by the Official Receiver. 3 The applicants submit that the presentation of the petition was an abuse of process designed to thwart District Court proceedings between the applicants and the first respondent. The presentation of the debtor's petition, it is submitted, was for a purpose foreign to the bankruptcy laws. The Official Receiver, it is submitted, having knowledge of the District Court proceedings, should not have accepted the petition. 4 There is no doubt that in an appropriate case the Court may annul a bankruptcy if the presentation of the debtor's petition was an abuse of process: Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589; Edelsten v Deputy Commissioner of Taxation (NSW) (1989) 86 ALR 257. 5 It may be an abuse of process to file for bankruptcy with the intention of thwarting the orders of a court seized of proceedings in which the bankrupt is a party, at least where the bankrupt is solvent and where the subject matter of the proceedings is the ascertaining, creating or dividing of property or interests in property eg Family Court proceedings: see Re McKean; Page v McKean [1996] FCA 412; Re Lukic & The Official Trustee in Bankruptcy (1996) 21 FamLR 48. However, it will not be an abuse of process nor to achieve a purpose foreign to the bankruptcy law where the petition is filed to protect the bankrupt, who is insolvent, from the evils which might befall him or her at the suit of the bankrupt's creditors; notwithstanding that it may thwart the creditors in any action they are taking or proposing to take against the bankrupt: Ex parte; Painter Re Painter [1895] 1 QB 85 at 91; In re Harry Dunn; Ex parte The Official Receiver v Harry Dunn [1949] Ch 640 (CA) at 647; Re Mottee; Ex parte Mottee (1977) 29 FLR 406 at 415; Re Heenan; Ex parte Collins v Official Receiver (1992) 39 FCR 428 at 434. 6 The first respondent and his wife previously carried on an upholstery business. His wife is the daughter of the second applicant. The first and second applicants advanced money to the first respondent and his wife. The first respondent's marriage failed and he and his wife are now divorced. The first and second applicants subsequently sought to recover the whole of the monies advanced, from the first respondent. 7 Recovery proceedings ended up in the District Court and were defended. The proceedings were listed for hearing on 27 January 1999. On 26 January 1999 the first respondent advised the applicants' solicitor that he would consent to judgment and to an order that monies held in the trust account of Cranston McEachern pending the outcome of the District Court proceedings be transferred to the trust account of V Pennisi & Associates and be applied in partial satisfaction of the judgment. On 27 January 1999 the bankrupt attended at the District Court and consented to the entry of judgment and the making of the orders. Judgment was entered by Boulton DCJ on 27 January 1999. The first respondent deposed in his affidavit that he disclosed to the District Court judge that he had, that morning filed his petition in bankruptcy and that, although he agreed with the orders, he was a bankrupt. His Honour made the orders notwithstanding such disclosure. He was not cross-examined on his affidavit. 8 The first respondent deposed as to the reasons he presented his own petition. He said : "7. After my ex-wife and I separated, Mr Bennett, and his company, Zodiac Investments Pty Ltd commenced proceedings against me (although not my ex-wife) to recover the debt. I resisted those proceedings. 8. Those proceedings were expensive, and cost me a considerable amount in legal fees, particularly to my solicitors Messrs Cusack Galvin & James. By late January 1999 the matter had been listed for trial and was due to be heard in the District court at Brisbane on 27 January 1999. I could no longer afford to retain solicitors to fight the case, and I had other debts which were due and owing which I could not pay. I therefore simply wished to cease incurring liabilities which I could not afford to pay, and realised that the only option was for me to go bankrupt. 9. Accordingly, I arranged to see a representative of Clout & Associates on the morning of hearing of the matter on 27 January 1999. I arrived at Clout & Associates at about 8.30 am on 27 January 1999. There I met Ms Ginett Muller, who explained the bankruptcy provisions to me and we discussed my affairs. She advised me that I ought to file my own Petition in Bankruptcy, and I completed a Statement of Affairs and Debtors Petition. Copies of those documents are annexed to Ms Muller's Affidavit as 'GM1' and 'GM3'. That is my signature on those documents." 9 Ms Muller, an accountant with Clout & Associates, in an affidavit filed on behalf of the second respondent, deposed to meeting with the first respondent on the morning of 27 January 1999 and after considering the first respondent's financial affairs, formed the view that he was insolvent. She then advised him in respect of bankruptcy and his presenting his own petition. Ms Muller is an employee of the trustee, the second respondent. She has overseen his bankrupt estate to date and expresses the opinion that the first respondent has been insolvent from in or about August 1997. 10 I find that the first respondent filed for his bankruptcy for the reasons he deposed to and after taking appropriate professional advice. I find that at the time of presenting his petition, he was insolvent. 11 In these circumstances the presentation of the debtor's petition was not an abuse of process, nor was it for a purpose foreign to the bankruptcy law. The applicants, in consequence, do not make out the ground that the petition ought not to have been presented as a ground for annulment. 12 The applicants do not make out a case that the debtor's petition was accepted by the Official Receiver notwithstanding the conditions precedent in s 55 of the Act were not satisfied. Accordingly, they are not entitled to an annulment on the ground that the debtor's petition ought not to have been accepted: Re Abbas; Ex parte Official Trustee in Bankruptcy (1995) 57 FCR 140. 13 The application so far as the relief claimed in paragraph 1 is concerned, is dismissed with costs. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper.