Re Anthony Raymond Whittall; Ex Parte: Western Holdings (Noosa) Pty Ltd (in Provisional Liquidation) (receivers and managers appointed) [1998] FCA 939 (7 August 1998)

Last Updated: 11 August 1998

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - application to annul - whether sequestration order ought not to have been made

Bankruptcy Act 1966 (Cth) s 153B, 41(7), 52(2)

Re Deriu (1970) 16 FLR 420 Appl

Re Williams (1968) 13 FLR 10 Appl

Re Frank; ex parte Piliszky (1987) 16 FCR 396 Appl

Re Gollan; ex parte Gollan (1992) 40 FCR 38 Refd

Re Anthony Raymond Whittall; ex parte Western Holdings (Noosa) Pty Ltd (In Provisional Liquidation) (Receivers and Managers Appointed)

QG 7598 of 1997

Kiefel J

Brisbane

7 August 1998

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 7598 of 1997

RE:	ANTHONY RAYMOND WHITTALL Applicant
EX PARTE:	WESTERN HOLDINGS (NOOSA) PTY LTD (IN PROVISIONAL LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) Respondent

JUDGE(S):	KIEFEL J
DATE:	7 August 1998
PLACE:	BRISBANE

REASONS FOR JUDGMENT

Mr Whittall applies, pursuant to s 153B Bankruptcy Act 1966 (Cth), for an order that his bankruptcy be annulled on the ground that a sequestration order ought not to have been made. After a series of adjournments, rendered necessary to enable notice of the application to be given to persons or corporations claiming to be creditors, the Court was asked to deal with this matter by way of written submissions on behalf of the applicant. That course was followed and submissions were later received. The trustee then informed the Court that he did not wish to argue the matter in any way and provided no submissions. No creditor sought to do so.

The sequestration order against Mr Whittall's estate was made on 16 March 1995 on the petition of Western Holdings (Noosa) Pty Ltd (In Provisional Liquidation)(Receivers and Managers Appointed) and that petition was founded upon a judgment of the Supreme Court of Queensland in the sum of about $104,000. The debt in question was alleged to have arisen in 1991 when the company loaned that sum to Mr Whittall. Mr Whittall was a director and shareholder of the company. He disputes the extent of the interest of the other shareholder who, it appears from the extensive but largely irrelevant material referred to in submissions, was in part responsible for later action being taken against Mr Whittall in connexion with his dealings with the company. That action resulted in his conviction for offences under the Corporations Law. No details are provided of those offences save that they relate to an improper use of his position for gain.

Mr Whittall deposes to not having received a copy of the writ of summons or the application for judgment which was subsequently entered in default of his appearance to the writ. He was then residing in New Zealand and, it seems, service was effected upon his elderly mother who did not advise him of their receipt. Mr Whittall returned to Australia in 1996. The first he says he heard of the matter was when the bankruptcy notice was served upon him in December 1994. He referred the matter to his solicitors who then obtained a copy of the judgment. An application was filed to set the judgment aside and a notice was given of opposition to the petition. The solicitor who then acted for Mr Whittall (who was then employed by the same firm which continues to represent him), Mr Eaddy, stated that he considered Mr Whittall had good prospects in the application. If the evidence available to this Court concerning service was accurate, that may have been so.

Mr Whittall's case also had regard to the debt alleged to be owed by him to the company and to what it was said the company owed him. The affidavit filed by him in connexion with the application to set aside judgment explained that the monies advanced by the company were utilised to purchase a unit. This appears to have been a home unit which was registered in his name. The "precise financial arrangements" were alleged to have been structured for him by his then accountant and solicitor. He then went on in his affidavit:

"14. ...There was no agreement that I would repay the sum advanced immediately upon receiving a demand as alleged or immediately upon sale of the property as alleged. No terms of agreement were settled at all nor was there any discussion in relation to same although I, as a majority shareholder and director, intended that such borrowings would, upon the advice of my accountant, be off set against future dividends to be paid by the company, directors' fees or success fees. I was to be paid a salary of $35,000 by the company and to receive 7.5 per cent of each and every shipment worth approximately $A1.8M."

His affidavit then went on to explain that the unit had been sold and there should have been sufficient to pay out what was owed. This must not have been the case. He then further stated that he had received no salary from the company and that

"my company, Western Holdings (Radiata) Pty Ltd is owed an amount of some $104,000 by the plaintiff".

On that basis he asserted the existence of a counterclaim, set off or cross-demand equal to or exceeding the amount of the judgment debt.

No evidence was put before this Court by either the accountant (Mr Fisher-Stamp) or the solicitor who were involved in the transaction with the company in 1991, when the unit was purchased. The failure to call the latter might be explained, since he is one of the parties against whom Mr Whittall seeks to commence proceedings to recover some millions of dollars in damages. It is these actions which appear to provide the impetus for his application for annulment. The accountant, who was the most likely critical witness, was going to be called when this matter first came on for hearing and indeed an adjournment was sought to facilitate that course. He was not however subsequently called.

Mr Eaddy explained the steps and decisions taken in relation to the application to set aside judgment and to oppose the petition for bankruptcy in February and March 1995. Elsewhere in the material it is asserted that Mr Whittall was hindered in his pursuit of these claims. His committal took place on 27 March 1995 and he was convicted following the trial on 18 August 1995. There is nothing however to suggest what was the length of the trial, but then again there is nothing to suggest that the subject matter of the committal and trial was complex or required a great deal of preparation. One can however accept that he would have been under some pressure at this time. His then solicitor said, in his affidavit filed for the purpose of these proceedings:

"8. I recall Mr Fisher Stamp explaining to me that there was a legal/accounting rationale for the title of the Noosa unit to be in the name of Mr Whittall rather than in the name of Western Holdings Noosa. What the precise rationale was I was not told nor did I ask.

9. As to the charactiseration of the monies advanced to Mr. A. R. Whittall for the purchase of an Unit as a loan I recollect Mr Fisher-Stamp saying that it was always the intention that the loan would in due course be set off against Directors fees, commissions and success fees.

10. That from such information provided to me by Mr Fisher-Stamp it appeared therefore that until the appropriate resolutions were made by Western Holdings Noosa Mr Whittall was in fact a Trustee for the company and held the title to the Noosa unit as such."

This is said to provide corroboration for Mr Whittall's case. In relation to the characterisation of the loan the solicitor went on to give Mr Whittall's account:

"11. It was not until some 6 to 8 weeks later on or about the 26th April 1991 that Mr A R Whittall acting I am advised and verily believe on instructions from his Solicitor Mr P Lynch and Accountant Mr Fisher-Stamp, that the sum of $103,000.00 or thereabouts was characterised as a loan at a time when a decision had been made by Mr Whittall acting on legal and accounting advice I am advised and verily believe that Western Holdings Noosa should be placed into liquidation.

12. That I am advised by Mr Whittall and verily believe that at the time that he swore such acknowledgment of Loan at no stage was he advised to obtain independent legal advice or of the ramifications of characterising the monies used to purchase the unit as a personal loan from Western Holdings Noosa."

After then saying that he considered Mr Whittall had good prospects of setting aside the default judgment he explained:

"16. I recall that at the adjourned date the advice of Counsel to Mr Whittall was to withdraw his application to set aside default judgment and allow the matter to proceed to bankruptcy. At the same time it was intimated by the Solicitors appearing for Western Holdings Noosa that in any event there was in the pipeline a claim from some creditor or other in the sum of $400,000.00 which would be immediately proceeded with if Mr Whittall continued to oppose the Creditors' Petition and not withdraw his Application for Setting Aside of Judgment.

17. Because of the pending proceedings in the District Court the threat of further civil proceedings, the absence of funds sufficient to fight the civil actions, it was the view of the Counsel to the best of the writer's recollection that in these circumstances it would be better and easier if Mr Whittall allowed himself to go bankrupt as that would effectively forestall all further civil proceedings and allow Mr Whittall to focus upon the criminal proceedings in the District Court when everything would come out.

18. Mr Whittall was loathe to take this course of action but indicated that if that was the advice of Counsel then he would simply follow Counsel's Advice which he did."

It would therefore seem that the decision to characterise the advance to Mr Whittall as a loan was somehow connected with the company being placed into liquidation, although the connexion is not made clear. Then it would appear that the decision was made not to pursue his defence or to avoid bankruptcy because of the prospect of further civil litigation being brought against him.

Mr Whittall was released from prison in June 1996 and returned to Australia in October 1996. He explains that he was unable to take steps in relation to his bankruptcy because of lack of funds. The trustee in bankruptcy has also been unable to take any steps other than a public examination of Mr Whittall due to lack of funds. There does not appear to be any property or funds which could be made available to creditors.

As I have noted at the outset of these reasons, the trustee did not seek to make submissions on this application. His report noted two objections to Mr Whittall's automatic discharge, the first being lodged on 12 May 1995 and arising as a result of Mr Whittall's failure to provide written information about his income and expected income. A second objection was lodged on 17 November 1995 and was based upon his failure to notify his change of address. The solicitors for Mr Whittall say that the trustee is reconsidering these matters and that the difficulties with the committal and trial, and later imprisonment, provide the explanation for the lack of response. This does not appear to be entirely accurate since there was correspondence between the solicitors and the then trustee in relation to the first set of information and a request of them in relation to the address. Nevertheless the trustee has not disputed these assertions.

The Court may make an order annulling a bankruptcy, pursuant to s 153B, if it is satisfied, amongst other things, that the petition ought not to have been presented. There are two matters to be taken into account in considering such an application: whether a sequestration order ought not to have been made; and if that conclusion is reached, whether, in the exercise of the Court's discretion, the order should be discharged: Re Deriu (1970) 16 FLR 420, 421; and Re Williams (1968) 13 FLR 10, 23. With respect to the first enquiry, the Court is entitled to consider not only the case that was then disclosed, but what would have been disclosed on the hearing of the petition had all the true facts been placed before the Court: Re Williams, 23. In the case where there was shown to have been no debt in existence there would not be less ambit for the exercise of the Court's discretion. An annulment would usually be appropriate. That is not however the case here.

Mr Whittall does not dispute the debt. What he seeks to do now is to set up a counterclaim, set off or cross demand. He did not seek to set aside the bankruptcy notice on that ground, pursuant to s 41(7) although that would not have prevented the Court, on the hearing of the petition, from dismissing it on the basis that "other sufficient cause" was shown that a sequestration order ought not to be made: s 52(2), or from ordering an adjournment until the matter was determined.

With respect to the first matter to be considered on an application for annulment, I would need to be satisfied that the true facts concerning the amount owed by the petitioning creditor to Mr Whittall were such that the District Registrar was, in light of the true facts, bound not to make a sequestration order since the phrase "ought not to have been made" in s 153B (the former s 154) is imperative in its terms: Re Frank; ex parte Piliszky (1987) 16 FCR 396. Even then, as Fisher J pointed out, there remains a residual discretion not to annul.

I am unable to reach such a conclusion on the evidence presented. The circumstances generally relating to the loan by the company and the basis for its repayment by Mr Whittall are nebulous. There is no corroboration of Mr Whittall's assertions. The accountant who could have been called was not. The assertion that a debt was even owed by the company to Mr Whittall is unclear, in light of the somewhat inconsistent assertion that the same amount as that said to be due to him by way of salary and commission was owed to another company, Western Holdings (Radiata) Pty Ltd. The true nature of the transaction concerning the unit and the characterisation of the purchase monies as a debt by Mr Whittall appears to have been made in connexion with the winding up of Western Holdings (Noosa) Pty Ltd. It raises sufficient doubt as to require independent verification of it. Nor, in my view, could one have any confidence in the amount asserted to be owed, by way of salary and commission or otherwise, since no breakdown is provided of it and there is nothing pointed to in the books of account which would verify it.

Even had I been satisfied that a sequestration order ought not to have been made, I would not have been inclined to exercise my discretion to do so. There is no acceptable explanation as to why the application to set aside the judgment was not proceeded with, nor as to the applicant's failure to oppose the bankruptcy proceedings. The material, to the contrary, shows that a decision was made to accept bankruptcy because of the prospect of other civil litigation and because, in any event, there was another creditor which would proceed with its claim for some $400,000. I take this to refer to the Australian and New Zealand Banking Group Ltd to whom monies were said to be owed under a guarantee.

If a person is found to be solvent at the time a sequestration order is made, a Court would ordinarily dismiss the petition: Re Gollan, ex parte Gollan (1992) 40 FCR 38. That would have answered the first question relevant to an application to annul, which is to say that the order ought not to have been made. It would also have gone some way towards the exercise of a discretion in favour of annulment, the second question. There is no suggestion here that the applicant was in that position. There were and remain substantial creditors, such as the bank mentioned above. Even accepting that some debts are disputed, and it is not possible to determine whether there is any substance in those contentions, the position of the creditors in my view would have to be further considered if I were otherwise inclined to make an order for annulment. That position is not however reached.

The application will be refused.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel

Associate:

Dated:

Counsel for the Applicant:	Mr M W Jarrett
Solicitor for the Applicant:	Klooger Phillips & Co
Solicitor for the Respondent:	Shine Roche McGowan
Date of Hearing:	25 March 1998, 27 March 1998, 15 April 1998, 22 May 1998
Date of Judgment:	7 August 1998