Symes v Holbrook [2002] FMCA 26 (20 February 2002)

Last Updated: 27 March 2002

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SYMES v HOLBROOK [2002] FMCA 26

BANKRUPTCY - Application for annulment pursuant to s.153B of the Bankruptcy Act where sequestration order made upon debtors petition - application unopposed - application refused - whether debtors petition should have been presented - relevant to consider material available at time of presentation of petition.

Re Williams (1968) 13 FLR 10

Re Scott (1975) 6 ALR 558

Re Abbas (1995) 57 FLR 140

Ladyman (1981) 55 FLR 383

Borck v Williamson [1994] FCA 988; (1994) 49 FCR 16

Re Almassy (1999) FCA 1004

Stankiewicz v Plata (2000) FCA 1185

Bankruptcy Act 1966 s 153B

Applicant:

FREDERICK KEITH SYMES

Respondent:

KIM HOLBROOK

File No:

WZ 86 of 2001

Delivered on:

20 February 2002

Delivered at:

Perth

Hearing Date:

19 November 2001

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr D C Leask

Solicitors for the Applicant:

Leask & Co

Counsel for the Respondent:

Mr F Carles

Solicitors for the Respondent:

Carles Solicitors

ORDERS

(1) The application be dismissed.

(2) The applicant shall pay the respondent's costs to be taxed in default of agreement pursuant to order 62 of the Federal Court Rules.

Note: Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH

WZ 86 of 2001

FREDERICK KEITH SYMES

Applicant

And

KIM HOLBROOK

Respondent

REASONS FOR JUDGMENT

Introduction

1. In this application FREDERICK KEITH SYMES (the applicant) claims the following:

1. A declaration that the Applicant's bankruptcy No. 803 of 2000 be annulled pursuant to s 153B of the Bankruptcy Act 1966 (the Act).

2. Further or alternatively an order that the proof of an alleged debt of $12,744.81 to be expunged pursuant to s 99 of the Act.

3. Such further or other order as the court may see fit.

2. The application which was originally commenced in the Federal Court of Australia was transferred to the Federal Magistrates Court by order made on 25 September 2001.

3. KIM DAVID HOLBROOK, (the respondent), a registered trustee in bankruptcy is the respondent to the application.

4. In support of the application the applicant has relied upon affidavits sworn by him on 10 September 2001 and 5 November 2001 and

15 November 2001 together with affidavits of his mother Anna Alena Symes sworn 15 November 2001, his daughter, Belinda Jean Symes sworn 15 November 2001 and an affidavit sworn by his solicitor David Charles Leask sworn 16 November 2001.

5. The respondent has relied upon affidavits sworn by him on

22 October 2001 and 13 November 2001.

6. The deponents were not required for the purpose of cross-examination and the application proceeded by way of submissions for and on behalf of the parties.

7. The respondent did not formally oppose the application for annulment and there was no evidence before the court that the application was opposed by any creditor. Quite properly the respondent's representative however did make submissions bringing to the attention of the court various authorities which may be relied upon in the exercise of the court's powers to grant the application for annulment pursuant to s.153B of the Act. Both Counsel relied upon written submissions which were adopted for the purpose of the application.

The facts

8. By way of background it does not appear to be in dispute that the applicant is a 52 year old plant operator who was married on

31 March 1985. He remained married and living with his wife Susan until her death by suicide on 16 March 2000. There are two children of the marriage, a daughter aged 16 and a son aged 11. The applicant had worked as a plant operator at the Argyle Diamond Mine in East Kimberley from June 1994 to 17 March 2000. He had worked since about mid 1998 on a rotating shift of four weeks at the mine and one week off.

9. During the marriage the applicant indicated that his wife had responsibility for running family finances. The applicant's salary was paid into a joint account and it was the family's sole source of income. As far as the applicant knew he and his wife had one major asset, namely a house a 4 Daly Court Leeming (the property) and it was subject to a mortgage to the ANZ bank which the applicant believed had an outstanding balance in or about 1997 or 1998 of about $50,000. The only other asset owned by the family of some significance was a time-share at the Silver Sands in Mandurah which had been purchased according to the applicant for $500 on

30 October 1992. There were two motor vehicles. As far as the applicant knew his income of $87,900 for the year ending 30 June 2000 was more than adequate to meet outgoings and living expenses of the family.

10. The tragic death of the applicant's wife not surprisingly was described by the applicant as being "a shattering blow". After the death of his wife the applicant became aware of a number of liabilities purportedly in joint names of himself and his wife or in his sole name and in his wife's sole name. He gathered together information concerning the debts and found that the debts totalled approximately $300,000 in circumstances where he claims that this was approximately $220,000 more than he anticipated.

11. The Applicant's wife died intestate. Amongst the outstanding liabilities were debts in relation to 26 credit cards. It is clear from the evidence that of the 26 credit cards only two could be verified as being legitimate and doubts arose as to the authenticity of the applicant's signature on applications in relation to the other credit cards. It is now evident and seems to be accepted by the parties and indeed creditors that the applications for credit cards were the subject of forged signatures of the applicant and have ultimately been regarded as not his responsibility given the fraudulent circumstances in which the cards were issued.

12. After discovering the financial circumstances were in such a parlous state, the applicant contacted his accountant and after a number of hours of examining the material, was advised to seek the advice of the respondent who for the purpose of this application I accept is an insolvency expert to whom the applicant was referred.

13. The applicant met with the respondent at the respondent's office on 14 April 2000. It is important to note that this was less than one month after the death of the applicant's wife. The applicant states that he was then in a state of shock for a number of weeks and uncertain as to how to proceed. At the meeting on 14 April 2000 the applicant states that he told the respondent that the signatures on a number of the credit cards which were purported to be the applicant's were not in fact those of the applicant. He indicated that the respondent advised him that it was likely the debt would be found to be his if the matter were to proceed to court. The respondent in his affidavit indicates that he does not recall whether the applicant claimed at that meeting that a number of signatures were not his. He disputes advising the applicant that it was likely the debt would be found to be his if the matter went to court and instead asserts that he told the applicant words to the effect that it was "unlikely that he would be able to prove the debts were not his in all instances given the time and cost constraints with which he would be faced and given the fact that he did not have any funds with which to pursue such claims". The respondent indicates that at that time he formed the view that it was "likely that Mr Symes would still be insolvent even if he could prove some of his claims".

14. A meeting of the creditors of the applicant was held on 15 May 2000. At that meeting the creditors failed to pass a resolution accepting the applicant's Part X proposal and also failed to pass a resolution that the applicant file his own petition in bankruptcy. According to the applicant he was then advised to become bankrupt by the respondent and acting on that advice signed a debtor's petition for bankruptcy on 15 May 2000. The statement of affairs for bankruptcy was in identical terms to the Part X statement of affairs which had been signed on

20 April 2000. The liabilities totalled $310,315 and assets totalled $253,888.

15. The applicant in his affidavit sworn 5 November 2001 asserts that after the meeting of creditors he was not given any written advice by the respondent. He does not seem to challenge however that he wanted the respondent to address claims being made against him by creditors. He asserts he was told by the respondent that it would cost too much to get a solicitor to investigate the matter of disputed claims and suggested at that stage he was not in a position to pay fees to a solicitor.

16. I should add for the sake of completeness that in his affidavit sworn 10 September 2001 the applicant refers to being advised by the respondent to become bankrupt and that, as indicated earlier, acting on that advice the applicant signed a debtors petition for bankruptcy on 15 May 2000. He claims that after recovering from the emotional shock of his wife's death he then attempted to investigate further the circumstances in which liabilities had arisen. There appears to be some dispute between the parties as to whether the applicant understood his financial affairs or simply had trouble understanding how the debts arose. In any event there does not seem to be any dispute that the applicant requested the respondent's assistance. The applicant does suggest however that he did not understand what was involved in a proposed arrangement.

17. In his affidavit sworn 5 November 2001 the applicant for the first time refers to an alleged reaction by the respondent to the suggestion that the applicant was going to seek legal advice to see what he could do about disputed debts. The applicant suggests that the respondent's reaction was to simply "laugh at me". That suggested reaction is strongly denied by the respondent. He does concede however that he may on occasions smile or attempt lighthearted humour at meetings with people in financial difficulty in order to alleviate a tense situation.

18. Although the allegation is part of the material in my view it does not advance the matter any further for and on behalf of the applicant and despite the existence of some corroborative material in the affidavit sworn by the applicant's mother and daughter of the meeting, I am satisfied if there was any reaction then it was simply done in the context of an attempt by the respondent to alleviate a tense situation. In any event it is perfectly understandable that the applicant and close relatives would be likely in all the circumstances to be extremely sensitive during this most difficult time and it is not surprising that an interpretation has been placed on the conduct of the respondent which with hindsight has caused some distress. It is not however in my view a significant issue that is relevant for the determination of the present application.

19. There seems little doubt in my view that the applicant was understandably distraught and distressed for a significant period of time after the death of his wife and the trauma of that event was compounded by his difficult financial circumstances which at least in relation to the extent of the debt I am satisfied the applicant found difficult to understand.

20. It is not in dispute that the solicitors for the applicant wrote to potential creditors of the applicant advising of the application before this court and indeed enclosing a copy of the notice of application in Form 155, the application and affidavit of the applicant sworn 10 September 2001. It is also not in dispute that the applicant's solicitor received approximately 5 replies to the letters he had sent to approximately 23 creditors. As indicated earlier there is no objection to the application by any of the creditors to whom notice is given and I am satisfied that the creditors listed and referred to in the affidavit of the applicant's solicitor received notice of this application.

21. The respondent in the trustee's report filed pursuant to Order 77 Rule 44 concludes that he had received three claims from creditors of the estate totalling $17,467.92 and that the cause of bankruptcy was at least in part excessive use of credit facilities by the applicant's late wife. It is asserted by the respondent that "despite a number of requests the bankrupt has yet to provide me with evidence that all creditors have written off their debts on the basis that they were all incurred fraudulently by someone other than the bankrupt as has been asserted by the bankrupt". The respondent in relation to the applicant's conduct states that since the date of bankruptcy the applicant's conduct has been unsatisfactory "on the whole and that he failed to provide information to me as and when requested." As a result it is said by the respondent that "an objection to the discharge of the bankrupt was filed on 9 August 2001 (and thereby extending the term of his bankruptcy from 3 years to 8 years) on the basis that he failed to provide details of his income".

22. As I understand it the applicant refutes the suggestion that he has not co-operated and suggests that advice had not been requested. Some reliance was placed upon the report of the trustee to which I have referred where the trustee states, "I still however require further documentation before I can complete my assessment of the bankrupt's income and withdraw my objection. I have not yet asked the bankrupt for this information pending the results of this his application for annulment".

23. There is no issue taken with a conclusion drawn by a document examiner namely Mr John Gregory whose report appears as exhibit FKS 3 to the affidavit of the applicant sworn 10 September 2001 where a conclusion is drawn that there is forgery or fraud in relation to at least one of the debts arising out of the credit card issued by Citibank Visa card pursuant to an application dated 20 January 1998.

Applicant's submissions

24. It was submitted on behalf of the applicant that there is a discretion of the court pursuant to s.153B of the Act to annul the bankruptcy. It is submitted that the applicant's petition had been presented on the basis of his inability to meet liabilities which were the result of the apparently fraudulent attaining and use of credit cards in the name of the applicant.

25. Reference was made to the court's entitlement to take into account facts which were not before the court on the making of the order. (See Re Williams (1968) 13 FLR 10 at p 203).

26. It was submitted that the test which should be applied is that the application should be considered as if all the true facts as shown in the application for the annulment had been before the court when the order was made. (See Re Scott (1975) 6 ALR 558).

27. Section 153B of the Act provides:

"If the court is satisfied that a sequestration order ought not to have been made or, in the case of a debtors 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".

28. It was submitted on behalf of the applicant that the expression "ought not to have been made" may be interpreted as meaning that the court making the order was not aware of facts which had they been known may have led to no order being made. (See Re Abbas (1995) 57 FLR 140).

29. In exercising its discretion the factors the court is able to take into account, according to the submissions of the applicant, are the circumstances in which the petition was presented, the attitude of the creditors, the conduct of the applicant in relation to the circumstances leading to the presentation of the petition and conduct since the date the order was made and the question of the trustees entitlement to remuneration.

30. The unchallenged evidence of the applicant it was submitted is that his inability to meet his liabilities immediately following the death of his wife was due to factors outside the applicant's knowledge and beyond his control. The majority of the relevant debt arose as a result of the fraudulent attaining and use of credit cards by the applicant's wife and that accordingly there is no element of the applicant's conduct in relation to the circumstances in which the majority of the debt arose which should weigh against the applicant in the exercise of the court's discretion.

31. It was further submitted that all creditors whose proofs of debt have been admitted by the respondent have been served with notice of the application and the majority of the creditors consented to the annulment whether prior to or since the issue of the application. It is submitted and I accept that no creditors have signified opposition to the application.

32. It is submitted that any objection based on unsatisfactory conduct of the applicant should not be allowed as information sought has not been requested.

33. In relation to the issue of the respondent's right to payment of the fees, it was submitted that that entitlement arises pursuant to s.162 of the Act and is dependent upon a resolution of the creditors or by a committee of inspection or otherwise in accordance with the regulation. It was noted that a trustee under general law has a right to be reimbursed or indemnified in respect of costs and expenses properly incurred by him in administering the trust (see Ladyman (1981) 55 FLR 383).

34. Based upon the applicant's assertion that he sought advice from the respondent and that the respondent refused the applicant's request to investigate the use of the credit cards because it was too expensive, that the applicant was then put into bankruptcy which resulted in a claim by the respondent for fees and disbursements in the sum of $26,338.10. As I understand the submission it is suggested that the respondent is an experienced insolvency practitioner who ought to have made some assessment of the level of fees and charges that would be incurred by advising the applicant to enter into bankruptcy compared with the costs to be incurred by investigating the credit card debts. The remuneration to the respondent it is therefore submitted should only be allowed insofar as it relates to work properly undertaken by the respondent in relation to the preliminary investigation of the applicant's financial circumstances but not in relation to the presentation of the applicant's petition and later administration of the estate.

Respondent's submissions

35. The respondent does not oppose the application for annulment and properly submits that it is a matter for the court to decide whether the debtor's petition ought not to have been presented or accepted by the Official Receiver.

36. The respondent asserts however that he is entitled to defend allegations that he acted improperly and in relying upon affidavits submitted that he had acted properly and reasonably and the entitlement to remuneration should not be prejudiced by any annulment.

37. It was further submitted and I accept that the respondent being represented at the hearing has a duty to appear personally on the hearing of an annulment application or be represented by properly instructed counsel.

38. For an annulment to be obtained under s.153B it is common ground that the applicant needs to show either that his debtors petition ought not to have been presented or ought not to have been accepted by the Official Receiver. Reference is made in the respondent's submissions to Re Abbas (1995) 57 FLR 140 where it held that the words "ought not to have been accepted by the Registrar" applies where the debtors petition was accepted notwithstanding that the conditions precedent in s.55(3)(a) were not satisfied. It was submitted that following the 1996 amendments transferring the debtors petition function to the Official Receiver that this must now be applied so that a debtors petition "ought not to have been accepted by the Official Receiver" applies only where the formal requirements in s.55(3) relating to the use of the approval form and statement of affairs are not complied with.

39. It was submitted that there is no evidence in the present case that these requirements were not complied with.

40. It was submitted and I accept that the primary argument of the applicant is that the debtors petition ought not to have been presented.

41. I accept that applications for annulment by a bankrupt who has chosen to present his own debtors petition are relatively rare. I was referred to the decision of Mansfield J in Re Almassy (1999) FCA 1004, who had referred to where voluntary bankruptcies had been annulled on application of the bankrupt but in each case the debtor was not insolvent at the time. It was submitted that following the decision of Re Scott to which the applicant had referred the court should look at the relevant facts at the date of the bankruptcy.

42. The respondent submitted that when considering whether the applicant was solvent at the time of the bankruptcy reference should be made to the separate debts listed in exhibit KFS 1 of the affidavit of the applicant sworn 10 September 2001. It was submitted that a number of the debts were paid after the date of bankruptcy and that accordingly they were debts owing as at the date of bankruptcy. Decisions by creditors to not seek recovery after bankruptcy it was submitted are not relevant for the purpose of s.153B of the Act.

43. In relation to the joint debts of the applicant and his wife which were also listed as an exhibit (KFS 2) to the affidavit of the applicant sworn 10 September 2001 similar submissions were made as to the payment of debt which occurred after the date of bankruptcy.

44. The evidence from the document examiner John Gregory it is said reinforces the respondent's view at the outset that the applicant was unlikely to be able to escape liability in all instances due to time and cost constraints as that report only applied to one document.

45. It was further submitted that at the date of bankruptcy the applicant had been indebted to the respondent for the controlling trustee's fees for the Part X proposal which had not been accepted by creditors (see Borck v Williamson [1994] FCA 988; (1994) 49 FCR 16). The outstanding controlling trustees fees at that stage were $12,290.34. It was further submitted the applicant would need to show he was able to pay that debt at the date of bankruptcy. In general terms it was submitted the applicant has not shown he was solvent when he presented his debtor's petition.

46. It was submitted that the evidence of the applicant to the effect that he no longer owes various debts would be more consistent with an application for annulment under s.153A of the Act on the basis the debts have been paid in full rather than an application under s.153B of the Act. An annulment it is said under s.153A does not require a court application though at this stage as the definition of "bankrupt's debts for the purpose of that section being paid out in full in s.153B(6) include the costs charged and expense of the administration of the bankruptcy" then such an annulment could not be achieved until those costs have been paid.

47. As to the argument raised by the applicant that he was improperly advised or in some way forced into bankruptcy, the respondent submitted that the allegations were not made out on the affidavit material and in any event there was ample evidence that the applicant had an opportunity to seek and indeed did seek advice elsewhere during the Part X process and prior to becoming a bankrupt as to his financial circumstances.

48. The main issue however it was submitted on behalf of the respondent is whether the applicant was solvent at the time of bankruptcy. If solvency cannot be proved then allegations, which are in any event denied by the trustee, are irrelevant for the annulment purposes.

49. It was finally submitted that in the present case there has been a delay of some 18 months by the applicant in bringing the application and that there have been no explanations for that delay.

50. It was noted that there has been no provision for payment of the trustees fees as required by the decisions of Re Almassy (1999) FCA 1004 and Stankiewicz v Plata (2000) FCA 1185.

Reasoning

51. On the evidence before me I am satisfied that there is no material to suggest that the applicant at the time of the act of bankruptcy was solvent. Indeed there is affidavit material to suggest that the applicant could not afford the costs of investigating the facts and circumstances surrounding the then unexpected and inexplicable debt arising from the use of credit cards.

52. I have no doubt that a number of the debts incurred at the time were a complete mystery to the applicant and that the costs of investigating each and every one of those applications is significant. I further have no doubt that there were debts incurred properly at that stage and owed by the applicant which although paid subsequent to the date of bankruptcy were nevertheless debts which a trustee acting in accordance with his responsibilities would regard as properly incurred in all the circumstances and debts for which the applicant was liable.

53. I also have little doubt that in the absence of further detailed material and/or the provision of funds to undertake an expensive investigation that the trustee was entitled to refuse to conclude that other debts which were apparently owed to creditors could not in part at least be the responsibility of the applicant.

54. In considering the discretion which the court undoubtedly has in relation to s.153B of the Bankruptcy Act it is clear in my view that the sequestration order made in the case of debtor's petition in the present case could not be said to be one where the petition ought not to have been presented. The issue is whether in all the circumstances the petition ought to have been accepted by the Official Receiver.

55. The great difficulty in exercising discretion in the present case is that to a large extent information has been obtained since the date of bankruptcy and it is clear on the chronology and the submissions made by the respondent that in any event at the date of bankruptcy there were a number of debts then due and payable by the applicant who at the time was unable to establish solvency. It is common ground that the applicant could not then afford the cost of investigating the circumstances of these debts.

56. Whilst the circumstances of the present case are clearly stressful and undoubtedly tragic, it does not seem appropriate in my view that I should exercise my discretion and find pursuant to s.153B that the petition ought not to have been accepted by the Official Receiver at the date of bankruptcy. On the material then available there was sufficient evidence of debt and insolvency to permit the Official Receiver to accept the debtor's petition.

57. I agree with the submission made for and on behalf of the respondent that in circumstances where it appears that after the date of bankruptcy the debts have either been forgiven or paid that a more appropriate application should be made pursuant to s.153A of the Act. No doubt the quantum of the trustees fees can be dealt with in such an application and presumably the annulment considered according to law.

58. I am satisfied on the material before me that at the time when the applicant consulted the respondent advice was given which with hindsight the applicant may have chosen not to accept. However I am also satisfied that this was a particularly traumatic and upsetting time for the applicant and in those circumstances I prefer the evidence of the respondent who in part relies upon memory and in part relies upon contemporaneous records which accurately reflect the true state of affairs which were then relevant in considering the issue of whether the applicant by his own petition should seek a sequestration order.

59. I do not believe on the material presently before me that there is any basis upon which it could be said that the respondent has acted in a manner which would be considered to be unprofessional or irresponsible. I do accept however that the applicant's dealings with the respondent have caused the applicant and his family great stress though in the circumstances that would appear to be inevitable given the extraordinary financial circumstances and the tragic death of the applicant's wife.

60. It is appropriate therefore that having regard to those findings of fact and for the reasons given that I make the following orders:

(1) The application be dismissed.

(2) The Applicant shall pay the respondent's costs to be taxed in default of agreement pursuant to order 62 of the Federal Court Rules.

I certify that the preceding sixty (60) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 20 February 2002