FEDERAL COURT OF AUSTRALIA

Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellant pay the respondents’ costs of the appeal.

3.    The second and third respondents’ costs in the administration, under the Bankruptcy Act 1966 (Cth), of the estate of the appellant include the costs, charges, expenses and remuneration of and incidental to the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    The central issue in this appeal is whether the primary judge erred in failing to be satisfied that a sequestration order against the estate of the appellant, Louise Francis, ought not have been made by a registrar of the Federal Magistrates Court on 25 July 2011. Ms Francis had applied to his Honour for an order that the sequestration order be annulled pursuant to s 153B(1) of the Bankruptcy Act 1966 (Cth) (the Act). The creditor’s petition alleged that Ms Francis had failed to comply with a bankruptcy notice that was founded on a consent order of a Master of the Supreme Court of Victoria made on 11 May 2006 that she pay one of her former firms of solicitors, Eggleston Mitchell (the firm), their costs assessed in the sum of $11,847.40 (the Master’s order).

2    The primary judge was not satisfied that the sequestration order ought be annulled on any of the three bases put by senior and junior counsel who then appeared for Ms Francis. She had contended that, first, the petitioning creditor was the first respondent, Eggleston Mitchell Lawyers Pty Ltd (the company) and that it was not a creditor of hers, secondly, the Master’s order was not a final judgment within the meaning of ss 40(1)(g), (3) and 41(3) of the Act and, so, could not found the creditor’s petition and, thirdly, she was solvent as at 25 July 2011 because she was able to pay her debts as and when they fell due.

3    Ms Francis, who appeared for herself in the appeal, contended that his Honour erred in failing to be satisfied as to of each of those three matters. She also argued that his Honour had erred in making his alternative finding that, as a matter of discretion, he would not have ordered that the sequestration order be annulled. The second and third respondents (the trustees) are the trustees of Ms Francis’ bankrupt estate.

Background

4    In March 1993, Ms Francis suffered a personal injury. She commenced proceedings against the State of Victoria seeking damages and instructed a solicitor, Christopher Bunnett, to act for her. She alleged that in 2000 Mr Bunnett settled those proceedings without her authority. The State then began proceedings for specific performance in the County Court of Victoria and, in April 2004, Ms Francis retained the services of Mr Russell Mitchell, a solicitor in a firm practising under the name Eggleston Mitchell Lawyers, to act for her in those proceedings. In July 2004, Mr Mitchell forwarded to Ms Francis a memorandum of professional fees due to the firm. Ms Francis disputed those fees. The firm served an itemised bill of costs on her in October 2004, but the fees remained unpaid. That led to the Supreme Court proceedings for the assessment of what was due by her to the firm. The Master’s order was made by consent resolving that dispute on 11 May 2006. It provided, “The bill of costs of the [firm] are assessed in sum of $11,847.40 such sum to be paid by [Ms Francis] to the [firm]”.

5    In 2008, the partnership between Mr Mitchell and Peter Eggleston was dissolved. The company was incorporated in 2008. The members of the firm assigned to the company all of the business, work in progress, book debts and liabilities of their former partnership. The primary judge found, correctly, that the dissolution deed dated 18 July 2008 brought about the dissolution of the partnership between Messrs Eggleston and Mitchell. That deed provided that Mr Eggleston agreed to sell and Mr Mitchell agreed to buy Mr Eggleston’s interest in the firm, including its business name of Eggleston Mitchell Lawyers. The deed authorised Mr Mitchell to conduct the business of the partnership as Mr Eggleston’s agent.

6    On 29 January 2009, the Legal Services Board of Victoria (the Board) entered the company’s name in the Register as an incorporated legal practice and entered the firm’s old business name as the business name under which the law practice carried on business. Thus, the old name of the firm, Eggleston Mitchell Lawyers, became the business name of the company’s law practice. Mr Mitchell said that he transferred all of the firm’s business, including its work in progress, book debts and liabilities to the company on its registration as a law practice. There was no contemporaneous written evidence of any such transfer or assignment. However, the transfer to the company of book debts, including the debt the subject of the Master’s order, was an equitable assignment of an existing chose in action for value and did not need to be in writing for it to be valid and enforceable by the company against the former debtors of the firm: cf Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26-27, see too at 31 per Windeyer J.

7     On 21 December 2010, Ms Francis was served with a bankruptcy notice issued on 17 September 2010. The name of the creditor in the bankruptcy notice was given as “Eggleston Mitchell Lawyers”. Ms Francis did not comply with the bankruptcy notice. The company filed a creditor’s petition in the Federal Magistrates Court. The name of the petitioning creditor was stated as “Eggleston Mitchell Lawyers (ACN 131 952 942)”. The ACN (Australian Company Number) was the company’s.

8    On 25 July 2011, the registrar heard the bankruptcy petition and made the sequestration order against the estate of Ms Francis. She had opposed the making of the order, but her solicitor was late to Court on the day of the hearing, arriving only after his client had been made bankrupt.

9    Ms Francis sought to review the registrar’s order. That application for review failed: Francis v Eggleston Mitchell Lawyers [2011] FMCA 805. She appealed from that decision but did not comply with directions and the Federal Court Rules 2011 (Cth) and, as a result, a judge of this Court dismissed the appeal without any adjudication of its merits: Francis v Eggleston Mitchell Lawyers Pty Ltd (No 2) [2012] FCA 485.

10    That appears to have led to Ms Francis filing the application for annulment pursuant to s 153B of the Act on 8 January 2013.

11    Subsequently, a deed of confirmation between Mr Mitchell, on behalf of the firm, and the company, executed on 1 February 2013, noted the approval given by the Legal Services Board to the incorporation of the company and confirmed the transfer to it on 29 January 2009 of the firm’s business, including work in progress, book debts and liabilities.

12    The primary judge dismissed the annulment application after a full hearing.

This appeal

13    The appellant raised four grounds of appeal. She asserted that the primary judge:

    erred in finding that the company was a “creditor” of Ms Francis as at the date of the sequestration order;

    erred in finding that the Master’s order was a “final order” capable of being the subject of a bankruptcy notice;

    erred in not finding that Ms Francis was solvent as at the date of the sequestration order; and

    erred in the way in which he said that he would have exercised his discretion against annulling the sequestration order had he otherwise been satisfied that it ought not to have been made.

14    The first three grounds mirrored the grounds upon which the appellant had relied before the primary judge. The preparation of the appeal for hearing did not progress smoothly. Ms Francis represented herself. However, her notice of appeal had been prepared by counsel. A series of directions hearings conducted in the week preceding the hearing of the appeal secured, albeit at the last minute, the preparation of a rudimentary bundle of materials loosely described as an appeal book. Notwithstanding deficiencies, those materials, and a bundle of further documents provided to the Full Court at the hearing by the lawyers for the company, nevertheless provided a sufficiently certain factual basis upon which the hearing of the appeal could proceed. Both the company and the trustees were represented by counsel.

The legislative scheme

15     For present purposes the following provisions of ss 40, 41, 43 and 153B of the Act are relevant to the issues arising in the appeal, namely:

40(1)    A debtor commits an act of bankruptcy in each of the following cases:

…

(g)    if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

…

comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;

…

(3)    For the purposes of paragraph (1)(g):

…

(d)    a person who is for the time being entitled to enforce a final judgment or final order for the payment of money shall be deemed to be a creditor who has obtained a final judgment or final order;

…

41(3)    A bankruptcy notice shall not be issued in relation to a debtor:

(a)    except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40(1)(g) or a person who, by virtue of paragraph 40(3)(d), is to be deemed to be such a creditor;

…

43(1)    Subject to this Act, where:

(a)    a debtor has committed an act of bankruptcy; and

    (b) at the time when the act of bankruptcy was committed, the debtor:

(i)    was personally present or ordinarily resident in Australia;

…

the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.

…

153B (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.

(Emphasis added).

16    Tracey J helpfully summarised a number of principles relevant to the exercise of the discretionary power conferred by s 153B in Bulic v Commonwealth Bank of Australia Limited [2007] FCA 307 at [12] including the following:

Section 153B(1) and its predecessors have been considered in many decisions of this and other Courts. These authorities establish a number of relevant propositions. They are:

…

(2)    An applicant who seeks an annulment of his or her bankruptcy “carries a heavy burden”. It is incumbent on an applicant “to place before the Court all relevant material with respect to his or her financial affairs so that the Court may be properly informed and may make a judgment that is based on the actual circumstances of the applicant”: Re Papps; Ex parte Tapp (1997) 78 FCR 524 at 531.

(3)    In determining whether or not a sequestration order “ought not to have been made” the Court is not confined to a consideration of whether the order should have been made on the facts known to the Court at the time at which it was made. The Court must take account of facts, known at the time at which the sequestration order was made and at which it determines an annulment application, even if those facts were not before the Court at the time at which the sequestration order was made: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243; Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426.

(4)    A sequestration order “ought not to have been made” if, on the facts known at the time of the annulment application, the Court would have been bound not to make the sequestration order: Re Frank; ex parte Piliszky (1987) 16 FCR 396.

…

(6)    If the Court is so satisfied, it is not precluded from annulling the bankruptcy because the bankrupt had not sought to have the default judgment set aside or failed to oppose the creditor’s petition or failed to seek a review of the sequestration order: Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426.

(7)    The power conferred on the Court by s 153B(1) is discretionary in nature. Even if persuaded that the sequestration order ought not to have been made, the Court can, in appropriate circumstances, decline to annul the bankruptcy: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243.

(8)    Considerations which may have a bearing on the exercise of discretion include 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: Re Williams (1968) 13 FLR 10 at 24–5; Boles at 247; Re Papps; ex parte Tapp (1997) 78 FCR 524 at 531; Rigg v Baker (2006) 155 FCR 531 at 548 [79] (per French J); Cottrell v Wilcox [2002] FCA 1115 at [7]. Additional considerations are collected in D. A. Hassall, “Annulment of Bankruptcy and Review of Sequestration Orders” (1993) 67 ALJ 761 at 766.

Was the petitioning creditor, in fact, a creditor?

17    Ms Francis’ counsel had submitted to the primary judge that the creditor who had sought the sequestration order was identified as “Eggleston Mitchell Lawyers (ACN 131 952 942)”, whereas Ms Francis had retained the services of a different creditor, namely the firm. They argued that the firm was a partnership and not the company referred to in the creditor’s petition as the creditor. They contended that as the Master’s order predated the incorporation of the company, the Master’s order could only have established that in May 2006 the debt the subject of the creditor’s petition was owed to the firm. They argued that there was no, or no sufficient, evidence that any assignment of the judgment debt to the company had occurred.

18    The primary judge rejected that argument and found that the dissolution deed between the partners of the firm and the arrangements that Mr Mitchell made on the registration of the company by the Board had resulted in an assignment in favour of the company of the book debt the subject of the Master’s order. Hence, his Honour concluded that the company was a creditor of Ms Francis as and from 29 January 2009 who was entitled to proceed before the registrar on the creditor’s petition.

19    On appeal, Ms Francis maintained in her written submissions that “the necessary step to effect an assignment of that debt to [the company] had not taken place” and that there was “no finding of fact at first instance that overcomes the legal problems inherent in the assignment of the (asserted) debt”.

20    No argument was put by counsel to the primary judge that the way in which the creditor was named in each of the bankruptcy notice or the creditor’s petition affected the outcome. All counsel argued the case below on the common basis that the company was the entity claiming as the creditor in the bankruptcy notice and the creditor’s petition. Ms Francis did not contend at trial that she had relied on any confusion or defect in the way in which the creditor’s name appeared in those documents: see s 306 of the Act. The issue was whether the company was her creditor in respect of the debt the subject of the Master’s order at the times that the bankruptcy notice operated and sequestration order was made. It was common ground that no notice of the assignment to the company of the Master’s order had been given to her. Accordingly, if she had complied with the bankruptcy notice by paying the firm, in whose name it was issued, that would have been a good discharge of the debt.

21    The primary judge was correct to find that the company was beneficially entitled to the firm’s book debts, including the chose in action represented by any right of the firm to enforce or bring proceedings in respect of the money due to it under the Master’s order. That was because the book debts and rights had been assigned, first, by the firm to Mr Mitchell on the dissolution of his partnership with Mr Eggleston as reflected in the deed of 18 July 2008 and, secondly, by Mr Mitchell to the company on its registration by the Board. The company carried on its business under the old business name of the firm which was used as the name of the creditor.

22    Accordingly, the company was entitled to enforce the Master’s order as a judgment for the payment of money. It follows that if the Master’s order was a “final order” within the meaning of s 40(3)(d) of the Act, the company was “deemed to be a creditor” of Ms Francis by force of that provision when it served the bankruptcy notice on her and subsequently. The first ground of appeal fails.

Was the Master’s order a final order?

23    The second ground of appeal asserted that the primary judge had erred in finding that the Master’s order was a final order capable of being the subject of a bankruptcy notice or the creditor’s petition presented by the company upon which the sequestration order was made.

24    The primary judge found at [15] that r 63.11(1) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) provided at the time that the Master’s order was made:

If costs are taxed otherwise than under a judgment or order for costs, an order of the Taxing Master for payment of any amount found to be due may be enforced in the same manner as a judgment for the payment of money.

25    His Honour reasoned that the Master’s order had not been made pursuant to an order of a judge of the Supreme Court but nonetheless had the effect of finality conferred by r  63.11(1).

26    Ms Francis’ written submissions contended that the primary judge “did not address the issue of the apparent conflict between the terms of the Legal Practice Act 1996 (Vic) and the relevant rules of court that existed at the time of Master Wood’s order”. She contended that subordinate legislation “cannot make an order arising out of a taxation of a solicitor’s bill enforceable as a final order when the language of the Act does not permit that outcome”.

27    It is not necessary to examine the source under which the Master’s order was made for the purposes of this appeal. Critically, the Master’s order was an order for the payment of money made by a superior court of record, namely the Supreme Court of Victoria. An order of a superior court of record, even if made in excess of jurisdiction, is, at the worst, voidable, and is valid and binding unless and until it is set aside: Cameron v Cole (1944) 68 CLR 571 at 590 per Rich J with whom Latham CJ agreed at 585, see too at 598, 599 per McTiernan J and 607 per Williams J; Re Macks; Ex parte Saint (2000) 204 CLR 158 at 177 [20]-[21] per Gleeson CJ, 184 [49], 187 [57] per Gaudron J, 215-217 [152]-[156] per McHugh J and 235-236 [216] per Gummow J; see too DMW v CGW (1982) 151 CLR 491 at 507 per Mason, Murphy, Wilson, Brennan and Deane JJ.

28    The Master’s order was an order made for the purpose of resolving a dispute between the parties as to the quantification of the amount owing by Ms Francis on the firm’s contested bill of costs. The Master’s order brought finality to that aspect of the dispute. It required that Ms Francis pay the sum of $11,847.40 to the firm. It was an order of the Supreme Court that was valid and binding. The order was expressed as being made by consent, but it came to be made after a contested hearing before the Master.

29    A judgment or order for the payment of an amount of money is “final” within the meaning of the Act if it ascertains or establishes a pre-existing right of the party in whose favour it is given. In Clyne v Deputy Commissioner of Taxation (NSW) (1983) 48 ALR 545 at 547-548, Gibbs CJ, with whom Murphy, Wilson, Brennan and Deane JJ agreed, said of the phrase “final judgment” as used in ss 40(1)(g), (3)(d) and 41(3)(a) of the Act:

A final judgment within the meaning of the provisions of the Bankruptcy Act has been held to mean a judgment obtained in an action by which the question whether there was a pre-existing right of the plaintiff against the defendant is ascertained or established: … In other words it is a judgment which finally disposes of the rights of the parties: … The fact that a judgment is subject to appeal or that it may later be set aside or become inoperative does not mean that it is not final: …

(Emphasis added).

30    The word “final” in the expression “final judgment or final order” in s 40(1)(g) is used in this sense: Autron Pty Ltd v Benk (2011) 195 FCR 404 at 411 [26] per Lander, Tracey and Yates JJ. An order for costs that are subsequently quantified in a sum certain by a taxation and, pursuant to rules of court, then inserted into an order that the amount be paid, is a final order for the purposes of s 40(1)(g) of the Act: Worchild v The Drink Nightclub (Qld) Pty Ltd (2005) 224 ALR 339 at 341 [10] per Kiefel, Jacobson and Greenwood JJ.

31    The Master’s order was a final order for the payment of money. That is because the order itself resolved a pre-existing dispute. It was made by a court for the payment of money by Ms Francis and had the effect of ascertaining the firm’s and her rights in respect of that dispute: Clyne at 547-548. It follows that the Master’s order was a final order for the purposes of ss 40(1)(g), (3)(d) and 41(3)(a). Therefore, the second ground of appeal fails.

Was Ms Francis solvent on 25 July 2011?

32    Ms Francis argued, with some force, that as his Honour had accepted that, as at the date of the sequestration order, her unencumbered property was worth approximately $500,000 and that the quantum of her debts due to other lawyers was about $21,000, any conclusion that she was insolvent could not be justified. She contended that, if these be the only facts to be taken into account, she had the ability to approach a bank or a lending institution to obtain a loan on the security of the property to repay the debts and, so, was solvent at the time the sequestration order was made.

33     Ms Francis’ counsel and solicitors had put substantial affidavit evidence to the primary judge and made detailed written submissions that asserted that the value of her real property was in excess of $650,000 and that she had few liabilities, including “a small debt of $6,987.60 owed to Lewis Holdway” and “relevant tax liabilities … in the sum of $26,875.63”. Those submissions also accepted that Ms Francis had a number of other liabilities, but those other liabilities can presently be left to one side, as they were by his Honour. Ms Francis’ counsel’s written submissions below then contended that her two main liabilities (including that owed to Mr Bunnett) could not be “satisfactorily estimated on any admissible evidence”. If included, they would have increased her liabilities by about $200,000. Ms Francis’ counsel’s submissions also referred to regular distributions made to her from a discretionary trust and concluded by saying that her “assets more than outweigh her liabilities and she receives sufficient ad hoc income to pay her debts”.

34    The primary judge rejected Ms Francis’ contention that she was solvent. His Honour reasoned as follows:

[20]    Ms Francis contends that as at 25 July 2011 she was solvent. She points to her position, at that time, as the sole registered proprietor of a property in West Melbourne, worth approximately $500,000. The property was unencumbered, save for a City West Water caveat of no great consequence. Ms Francis gave affidavit evidence of her preparedness to use her property as security for a loan to pay her debts should she need to do so. She claims that the income she received from a discretionary trust was usually sufficient for her to pay her debts.

[21]    There is no evidence before the Court of the ability of Ms Francis to realise her property within a relatively short time. This is a critical issue when considering the question of solvency. A mere surplus of assets over liabilities as at 25 July 2011 does not mean that she was solvent at the time.

[22]    The authorities stemming from Sandell v Porter (1966) 115 CLR 666 reveal that solvency is to be adjudged by the ability of the debtor to realise assets “within a relatively short time” and by reference to the broader question as to whether the debtor can pay debts as and when they become due and payable. There is no evidence of Ms Francis’s ability to pay the debt arising out of the order of Master Wood or the not insignificant sums payable to other solicitors she has engaged to act on her behalf. In this regard, I do not take into account the alleged debt to a Mr Christopher Bunnett which relates to cost orders post-dating the sequestration order.

[23]    As at 25 July 2011, it is not clear that Ms Francis would have been in a position to realise her West Melbourne property within a relatively short time. Consequently, I am not satisfied that, had he been apprised of the true facts as to Ms Francis's liabilities and assets, Caporale R would have been bound not to make the sequestration order.

The primary judge’s reference to the “not insignificant sums payable to other solicitors” appears to have been directed at the following debts, totalling $21,395.80 that the trustees had admitted to proof, namely: $11,372.20 payable to Shayne Daley & Associates, $3,036.00 payable to Foster Nicholson Jones Lawyers and $6,987.60 payable to Lewis Holdway Lawyers.

35    Importantly, Ms Francis’ counsel did not expressly advance to the primary judge any submissions as to her ability to use her property or the likelihood of her future receipt of distributions from the discretionary trust as security for any loan that might enable her to pay her debts as and when they fell due, or at all. There was evidence that Ms Francis had applied for a loan of $520,000 on 22 November 2012 on the security of her property in order to obtain the annulment of her bankruptcy. The prospective lender had responded on 27 November 2012 offering such a loan at the rate of 20% interest per annum and an initial fee of $40,000 on a number of conditions, including that the real property have a minimum valuation of $750,000. There was no evidence that Ms Francis could, or had tried to, satisfy the conditions of that offer and it was not referred to by her counsel in argument at trial in support of any contention that she was solvent at any time, including at the date of the sequestration order.

36    The primary judge used the word “realise” in relation to Ms Francis’ ability to use her assets when discussing her solvency in [21]-[23] of his reasons quoted above. It is likely that his Honour did so in the same way as Barwick CJ had discussed the concept of a debtor realising his or her assets in Sandell v Potter (1966) 115 CLR 666 at 670-671, namely, in the sense of the sale, mortgage or pledge of the debtor’s assets to raise money with which to pay his or her debts. The Chief Justice said, in his well-known judgment:

An essential step in making out that a payment is a preference within s. 95 is to establish by evidence to the satisfaction of the Court that the payer was at the time of the payment insolvent. Insolvency is expressed in s. 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time-relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due.”

(Emphasis added).

37    The West Melbourne property was unoccupied but in a state of disrepair. There was no evidence as to whether a lender at 25 July 2011 would have been prepared to advance a sum of money sufficient to meet her liabilities that were then due on the security of that property or otherwise and whether Ms Francis could, or would, have accepted any terms for such a loan as at the date of her bankruptcy. And, as his Honour noted, by then she had incurred not insignificant liabilities that she had not met when they had been due.

38    The primary judge concluded that he was not satisfied that, had the registrar been apprised of the true facts as to Ms Francis’s liabilities and assets, he would have been bound not to make the sequestration order.

39    Ms Francis has not shown that the primary judge made any error in finding that she had not satisfied him that she was solvent at the date of the sequestration order. As his Honour found, there was no evidence that she had the ability to raise by sale, mortgage or pledge of her property or otherwise sufficient money to meet, as at 25 July 2011, as and when they fell due, her liabilities including the debt, plus interest, owing under the Master’s order, together with $21,395 owing to her other former solicitors.

40    It follows that the third ground of appeal must be rejected.

The discretion

41    Given the conclusion of the primary judge that Ms Francis had not demonstrated that the sequestration order ought not to have been made, it was not necessary for his Honour to consider the manner in which he might otherwise have exercised the discretion to annul conferred by s 153B(1). However, his Honour expressed a number of reasons why, in any event, he would have exercised that discretion adversely to Ms Francis. He identified, among others, the following factors that he considered would have justified a refusal to exercise the discretion in favour of annulment, namely that:

    Ms Francis’ opposition to the bankruptcy proceeding had been designed to avoid her obligation to comply with the Master’s order;

    “fairness and justice dictates that Ms Francis comply with the consent order of 11 May 2006”;

    the absence of any proposal of an alternative to bankruptcy; and

    her failure to co-operate with the trustees.

42    Ms Francis’ written submissions filed in the Full Court contended that the “various matters” identified by the primary judge in respect of the exercise of the discretion “overlook evidence or were irrelevant considerations or were contrary to uncontested evidence”. For example, she submitted that there was no evidence that her opposition to the petition was designed to avoid her obligation to comply with the Master’s order and that it was irrelevant to take into account fairness and justice in relation to whether she should have complied with that consent order.

43    Given this Court’s conclusion that the primary judge did not err in concluding that Ms Francis had failed to establish that the sequestration order ought not to have been made, it is not necessary to decide whether his Honour erred in referring to how he would have exercised his discretion had that question arisen. And it would be erroneous to construe his Honour’s alternative reasons for a matter that did not call for consideration with the same scrutiny or careful attention that need be given to the balance of his reasons for decision. Nonetheless, his Honour does not appear to have erred in his conclusion that the discretion to annul ought not be exercised.

44    In any event, the Full Court would have had to exercise the discretion afresh had Ms Francis established that the sequestration order ought not to have been made.

45    Ms Francis did not establish a basis for the favourable exercise of the discretion. The evidence before the primary judge was inconclusive as to the value of the West Melbourne property. It was sold for $455,000 after the dismissal of the proceeding below. The trustees had given an estimate in evidence before the primary judge as at 25 February 2013 that the total amount required to discharge all Ms Francis’ admitted, provable and other debts on an annulment (including the then estimated trustees’ remuneration and expenses of about $84,000) was about $394,000. In an affidavit of 12 April 2013, one of the trustees noted that they had admitted to proof debts totalling $245,569, not including the claims then totalling $75,432.92 by each of the firm and the company.

46    Since then, of course, the trustees have had to administer the bankrupt estate for a further year, including defending Ms Francis’ unsuccessful attempt to enjoin the sale of her property, the conduct of examinations in the bankruptcy and a largely unsuccessful challenge by Ms Francis under s 178 of the Act in the Federal Circuit Court to their admission of proofs of debt. The trustees are likely to have incurred substantial costs and expenses in relation to their administration and litigation over the last year.

47    On the limited material before the Full Court as to Ms Francis’ current financial position and that of her estate, it is likely that the quantum of the debts admissible in her bankruptcy and the costs and expenses of the trustees now exceed the available funds for distribution.

48    At best, it is likely that little, if any, surplus funds from her estate would be available to Ms Francis after an annulment and after the trustees have used the property vested in them to pay the outstanding costs, expenses and charges of their administration under s 154(1)(b) of the Act.

49    Ms Francis has not established why the discretion to annul her bankruptcy ought be exercised in her favour. The primary judge accepted that her solicitor had failed to attend the hearing of the creditor’s petition on time on 25 July 2011 and that that was the reason that the sequestration order was made without any substantive opposition. However, she did not persuade the primary judge or the Full Court that she was solvent at that time. Her then and subsequent conduct demonstrated that she was unwilling to pay the firm’s and the company’s debt that founded the sequestration order.

50    Unwillingness to pay one’s debts is distinct from inability to pay those debts as and when they fall due. In Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596 at 599 Bowen CJ, CA Sweeney and Lockhart JJ said that there was no policy underlying the Act that:

… a debtor should be made bankrupt if he is able to pay his debts but is unwilling to do so. If a debtor is able to pay his debts but is recalcitrant, his creditors may resort to the remedies otherwise afforded by the law such as execution against his property and garnishee proceedings. The words “able to pay his debts” in s 52(2) of the Act do not mean “willing and able” to do so.

51    Those considerations are as true today as they were in 1980. Proceedings under the Act should not be used as a mere form of debt collection. However, while Ms Francis may have been unwilling to pay the judgment debt due to the firm and its assignee, the company, she had given no explanation of her failures to pay any of the debts she owed in July 2011 to her other three former firms of solicitors or for her failure to utilise her assets, including the West Melbourne property, to assist her to do so at any time. In addition, as her counsel accepted at trial, she also had a significant current taxation debt. The primary judge correctly noted Ms Francis’ conduct in failing to co-operate with her trustees or to indicate, beyond challenging their quantification, how she could meet her existing current debts.

52    Those matters suggest that it would be in the public interest not to annul Ms Francis’ bankruptcy, had she been able to establish that the sequestration order ought not to have been made.

Conclusion

53    The appeal must be dismissed with costs. The trustees’ costs should be borne by the bankrupt’s estate.

Associate:

Dated:    7 March 2014