Schuhmacher v Blue Mountains City Council [2009] FMCA 909 (9 September 2009)

Last Updated: 5 October 2009

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SCHUHMACHER v BLUE MOUNTAINS CITY COUNCIL

[2009] FMCA 909

BANKRUPTCY – Annulment of sequestration order by Court – whether order ought not to have been made – creditor’s debt paid after sequestration order – outstanding liabilities for costs – effect of 21 days stay on proceedings under sequestration order – grounds for annulment not established – application dismissed.

Bankruptcy Act 1966 (Cth), ss.52, 153A, 153B

Coleman v Lazy Days Investments Pty Ltd [1994] FCA 1442; (1994) 55 FCR 297 Re Ginnane (1994) 60 FCR 429 Rigg v Baker [2006] FCAFC 179; (2006) 155 FCR 531

Applicant:

F SCHUHMACHER

Respondent:

BLUE MOUNTAINS CITY COUNCIL

File Number:

SYG 1565 of 2009

Judgment of:

Smith FM

Hearing date:

9 September 2009

Delivered at:

Sydney

Delivered on:

9 September 2009

REPRESENTATION

Counsel for the Applicant:

In Person

Counsel for the Respondent:

Mr D Riedstra

Solicitors for the Respondent:

Prime Lawyers

ORDERS

(1) The application for annulment is dismissed.
(2) The respondent creditor’s costs, including all reserved costs, be taxed and paid from the estate of the applicant bankrupt in the priority fixed by s.109(1)(a) of the Bankruptcy Act 1966 (Cth).

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY

SYG 1565 of 2009

F SCHUHMACHER

Applicant

And

BLUE MOUNTAINS CITY COUNCIL

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

1. Mr Schuhmacher applies to annul a sequestration order made by Driver FM on 12 May 2009, pursuant to s.153B(1) of the Bankruptcy Act 1966 (Cth).
2. He incurred a default judgment for $6,468.63 in the Local Court at Katoomba on 1 August 2007, for rates owing to the Council. The debt remained outstanding, until Mr Schuhmacher paid it by two instalments on 28 May 2009 and 1 June 2009, after the making of the sequestration order. He did not make any payments in reduction of the debt over the period during which bankruptcy proceedings were pursued against him.
3. The history of the bankruptcy proceedings included the failure by Mr Schuhmacher to comply with a bankruptcy notice based upon the same judgment, which was served personally on him on 21 August 2008. The petition was filed on 16 January 2009, and was served personally upon him on 3 February 2009. There were then three adjournments of the petition at listings before the Registrars on 6 March 2009, 20 March 2009, and 14 April 2009.
4. The petition was referred for hearing to Driver FM on 5 May 2009. A transcript of what transpired before His Honour is not in evidence before me, but His Honour made orders adjourning the petition. The orders note “the undertaking of the applicant”, which I assume to mean Mr Schuhmacher, “to make a payment of $4,000 to the respondent by 8 May 2009”. I take the respondent to mean the Blue Mountain City Council. His Honour also ordered Mr Schuhmacher to file an affidavit of solvency by 8 May 2009.
5. Neither the undertaking nor the order to file an affidavit of solvency were met by Mr Schuhmacher before the matter was listed again before Driver FM on 12 May 2009. His Honour, on that day, had before him two notices of grounds of opposition to the petition. These did not dispute the liability to the Council under the default judgment, but protested that Mr Schuhmacher was unable to pay the rates without selling his home. He also alleged that it was “unclear as to amount owing”, and:
   • Offered to pay $140 per week reasonable offer at first notice. Unreasonable to proceed to this action for my home.
   • Illness – stroke – diabetes – pensioner – invalid.
6. There is no transcript before me as to what transpired before Driver FM on 12 May 2009, and his Honour has not published a judgment. I assume that Driver FM gave reasons which would appear on a transcript or in a revised ex-tempore judgment, if either of these documents were procured. However, no party before me today has tendered any such evidence of His Honour’s reasoning. The Court’s file shows that there was before His Honour, all necessary evidence of the existence of the debt and act of bankruptcy relied upon in the petition, and of satisfaction of the other requirements under s.52 of the Bankruptcy Act which precondition the making of a sequestration order.
7. There was not, as I have indicated, any evidence before His Honour as to Mr Schuhmacher’s ability to pay his debts generally, and his grounds of opposition appeared to concede that he was not able to do that in a reasonably foreseeable period. The personal circumstances of Mr Schuhmacher which were asserted could not, in themselves, provide “other sufficient cause” for the Court to decline to make a sequestration order in its discretion under section 52(2)(b).
8. Mr Schuhmacher has not presented any better evidence in support of his grounds of opposition before me today on the annulment application. On all the evidence now before me, I am far from satisfied that a sequestration order “ought not” have been made on 12 May 2009 by Driver FM.
9. Satisfaction as to this is a necessary condition upon my having the power which is now invoked by Mr Schuhmacher under section 153B(1) of the Bankruptcy Act 1966 (Cth). It requires the court to be satisfied “that a sequestration order ought not to have been made”, and there is long-standing authority that the reference to “ought not to have been made” means that the Court must be satisfied that the earlier Court would have been “bound” not to make a sequestration order taking into account any additional evidence (see the authority cited by French J in Rigg v Baker [2006] FCAFC 179; (2006) 155 FCR 531 at [62]).
10. Mr Schuhmacher’s arguments in support of annulment essentially went to matters of discretion, both in relation to Driver FM’s exercise of his discretion not to proceed to make a sequestration order on 12 May 2009, or to my present discretion under section 153B to annul the petition if there is power to do so under that section.
11. He made various assertions as to what had been said in the course of the proceedings before Driver FM, suggesting that he had been led to understand that his bankruptcy would be ended if he paid the Council’s debt. However, in the absence of a transcript and/or judgment I am unable to give these assertions from the bar table any weight. Mr Schuhmacher also made contradictory assertions that the Council had agreed to enter into a debt agreement for the payment of the outstanding rates by way of instalments, and also that the Council had not agreed to this, but that it should have agreed to enter into such an agreement. He asserted also that Driver FM either ordered, recommended or suggested to the parties at some stage in the proceedings before him, that they should agree upon the payment of the debt by way of instalments.
12. Whatever was said in the course of proceedings before Driver FM as to the desirability of Mr Schuhmacher reaching agreement with the Council for the payment of all his outstanding rates and their expenses, the fact is that the Council moved on a petition for a sequestration order before His Honour on 12 May 2009, His Honour exercised his discretion to proceed on the petition on that day, and the making of that order was clearly open to him. I am not now sitting on appeal from His Honour’s exercise of discretion, although I note that on the material before me there is nothing to suggest that his discretion in relation to adjourning the petition miscarried in any fashion on that day. The matters asserted by Mr Schuhmacher could only become relevant to my decision today in relation to annulment, if they could establish that Driver FM was ‘bound’ not to make the sequestration order, or if Mr Schuhmacher could otherwise establish this. I am not satisfied that he has done so.
13. Mr Schuhmacher now points to the regrettable fact that the making of the sequestration order and the consequential costs order in favour of the petitioning creditor has given rise to further substantial liabilities which will have to be met from his estate. These include taxed costs of the petition of $6,252, and the costs of administration which have been incurred to date, which the trustee claims exceed $18,000. It is not my function in the course of today’s proceeding to assess the correctness or appropriateness of the trustee’s calculations of the costs of administration, but undoubtedly, there would be a substantial amount which would be properly due in relation to administration. As was pointed out by the solicitor for the trustee, these expenses and all the debts of the Council owing at the time of the bankruptcy will have to be paid, if not with Mr Schuhmacher’s agreement and co-operation, then by the sale of what appears to be the one asset in the estate, a property at Blackheath.
14. I can understand Mr Schuhmacher’s dismay that the matter has now reached a stage where he is looking at a liability far exceeding the amount of the rates which he did not pay over the long period after the entry of the judgment in 2007. However, I do not have power in the present proceeding, in my opinion, to discharge him from his bankruptcy which has resulted from his slowness to pay his debt.
15. Mr Schuhmacher referred to Order 5 in Federal Magistrate Driver’s Orders made on 12 May 2009. This said:
    • Proceedings under the sequestration order be stayed for a period of 21 days in accordance with s.52(3) of the Bankruptcy Act 1966 (Cth).
16. His Honour’s reasons for making that order are not shown in the absence of a published judgment or a transcript. However, it is reasonable to assume that Driver FM thought it appropriate to allow that period for Mr Schuhmacher to pay all his debts and to reach arrangement with the trustee to allow the trustee to issue a certificate of annulment under section 153A(1). Such a certificate could only have been issued once “all the bankrupt’s debts have been paid in full”, and subsection (6) of 153A indicates that the bankrupt’s debts include all debts that have been proved in the bankruptcy, interest payments on those debts if they bear interest, “and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration expenses of the trustee.”
17. It is clear on the evidence before me that, although Mr Schuhmacher did attend within the 21-day period to the payment of the $6,468.63 upon which the petition was based, he did not pay or reach agreement for the payment of the other amounts which would have been required to have been paid before the trustee could issue an annulment certificate under s.153A at that time or, indeed, at the present time. The trustee therefore became obliged to commence his administration of the estate upon the expiry of that period.
18. The effect of a s.52(3) stay order is that the status of bankruptcy and the vesting effects of the making of a sequestration order arising under the Bankruptcy Act itself are not affected (see the Full Court’s judgment in Evans v Heather Thiedeke Group Pty Ltd which is extracted by Ryan J in Re Ginnane (1994) 60 FCR 429 at 449). The order only stays “proceedings” under the order, and this encompasses any judicial or administrative steps which are required to be taken under the [1994] FCA 1442; Act (see Coleman v Lazy Days Investments Pty Ltd (1994) 55 FCR 297 at 301). However, contrary to Mr Schuhmacher’s submission, it did not have the effect that he was not made bankrupt on 12 May 2009, nor that he was discharged from bankruptcy merely by paying the creditor’s debt relied upon in the petition, nor that he was not liable for the costs awarded in the sequestration order or for the expenses of the bankruptcy administration incurred after the lapse of the 21 days.
19. Considering all of Mr Schuhmacher’s submissions today, I am not persuaded that the making of Order 5 by Driver FM, or his other orders, was attended by any irregularity providing grounds for an annulment under section 153B(1).
20. For all the above reasons, I shall therefore refuse the present application for annulment.

I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Smith FM

Associate: Michael Abood

Date: 2 October 2009