CATCHWORDS

BANKRUPTCY - order made in Family Court proceeding that Husband pay Wife substantial amount by way of property settlement - Husband files debtor's petition in this Court and accompanying statement of affairs showing indebtedness to Wife as largest debt - debtor's petition is accepted - Wife files application for, inter alia, an order annulling Husband's bankruptcy and an order transferring bankruptcy proceeding to Family Court - application for transfer opposed by trustee in bankruptcy of Husband's estate and by some of the other creditors - considerations relevant to exercise discretion.

Bankruptcy Act 1966 ss 35A, 58, 153B

Re:       JOHN LAWRENCE SHARPE

Ex parte:KERRIE PATRICIA POWELL (applicant); MAX CHRISTOPHER DONNELLY (respondent)

No NB 2700 of 1996

Lindgren J

Sydney

17 October 1996

                       Bankruptcy Act

IN THE FEDERAL COURT OF AUSTRALIA)

GENERAL DIVISION                  )

BANKRUPTCY DISTRICT OF THE        )        No NB 2700 of 1996

STATE OF NEW SOUTH WALES              )

                Re:     JOHN LAWRENCE SHARPE

          Ex parte:     KERRIE PATRICIA POWELL

                                                   Applicant

MAX CHRISTOPHER DONNELLY

                          Respondent

CORAM:    Lindgren J

PLACE:    Sydney

DATE:     17 October 1996

                      MINUTE OF ORDERS

THE COURT ORDERS:

1.   THAT further or other compliance with sub-r 57 (2A) of the Bankruptcy Rules be dispensed with.

2.   THAT proceeding No NB 2700 of 1996 be transferred to the Family Court of Australia.

3.   THAT the costs down to and including 17 October 1996 of the application of Kerrie Patricia Powell filed on 19 September 1996 be the respective parties' costs of proceeding No NB 2700 of 1996.

NOTE:     Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.

                       Bankruptcy Act

IN THE FEDERAL COURT OF AUSTRALIA)

GENERAL DIVISION                  )

BANKRUPTCY DISTRICT OF THE        )        No NB 2700 of 1996

STATE OF NEW SOUTH WALES              )

                Re:     JOHN LAWRENCE SHARPE

          Ex parte:     KERRIE PATRICIA POWELL

                                                   Applicant

MAX CHRISTOPHER DONNELLY

                          Respondent

CORAM:    Lindgren J

PLACE:    Sydney

DATE:     17 October 1996

                    REASONS FOR JUDGMENT

INTRODUCTION

John Lawrence Sharpe ("the Bankrupt" and "the Husband"), and Kerrie Patricia Powell ("the applicant" and "the Wife", married on 8 June 1984.  A decree nisi for dissolution of their marriage was granted on 20 July 1995 in the Family Court of Australia ("the Family Court").  The Wife instituted a proceeding for property settlement and spouse maintenance in the Family Court No SY 10046 of 1996 ("the Family Court proceeding"). 

On 22 August 1996, in the Family Court proceeding, Moss J ordered, inter alia, that the Husband pay to the Wife's solicitors on her behalf $755,794 by way of property settlement pursuant to s 79 of the Family Law Act 1975 within
28 days.  That period expired on 19 September.  Without having paid the amount, on 10 September 1996, the Husband presented his own petition in bankruptcy, accompanied by his statement of affairs and the petition was accepted by the Registrar at 4.10 pm on that day.  The Husband thereby became a bankrupt, and the Wife an unsecured creditor in his bankrupt estate.  The respondent ("the Trustee"), by force of sub-s 156A (3) of the Bankruptcy Act 1966 ("the Act"), became trustee of the Bankrupt's estate. 

On 19 September 1996, the Wife filed in this Court an application seeking an order pursuant to s 153B of the Act that the bankruptcy be annulled; an order pursuant to para 58 (3) (b) of the Act, that she be granted leave to pursue proceedings against the Bankrupt in the Family Court proceeding for spouse maintenance and costs in respect of an application which she filed in that proceeding on 28 August 1996 (see later); and an order pursuant to s 35A of the Act that "the proceedings" be transferred to the Family Court for "consolidation" with the Family Court proceeding.

The application was first before me on 20 September 1996.  The Bankrupt and the Trustee, as well as the applicant, appeared, as they have done throughout, by solicitor or counsel.  Orders relating to service were made and the hearing was stood over to 24 September 1996.  On that date oral submissions were made and a direction was given for the exchange of written submissions and the further hearing of the application was stood over to 1 October 1996 when further evidence was read and there was oral elaboration on the written submissions.

The hearing to date has related only to the application in so far as it seeks a transfer to the Family Court.

LEGISLATION

The applicant relies on s 35A of the Act.  Relevantly that section provides as follows:

     "35A(1)Subject to subsection (2), where a proceeding is pending in the Federal Court, the Federal Court may, on the application of a party to the proceeding or of its own motion, transfer the proceeding to the Family Court.

         (2)..........................................

         (3)Subject to subsection (4), where a proceeding is transferred to the Family Court:

             (a)  the Family Court has jurisdiction to hear and determine the proceeding;

             (b)  the Family Court also has jurisdiction to hear and determine matters not otherwise within its jurisdiction (whether by virtue of paragraph (a) or otherwise):

                 (i)    that are associated with matters arising in the proceeding; or

                 (ii)   that, apart from subsection 32(1) of the Federal Court of Australia Act 1976, the Federal Court would have had jurisdiction to hear and determine in the proceeding;

             (c)  the Family Court may, in and in relation to the proceeding:

                 (i)    grant such remedies;

                 (ii)   make orders of such kinds; and

                 (iii)  issue, and direct the issue of, writs of such kinds;

                 as the Federal Court could have granted, made, issued or directed the issue of, as the case may be, in and in relation to the proceeding;

              (d)  remedies, orders and writs granted, made or issued by the Family Court in and in relation to the proceeding have effect, and may be enforced by the Family Court, as if they had been granted, made or issued by the Federal Court;

             (e)  appeals lie from judgments of the Family Court given in and in relation to the proceeding as if the judgments were judgments of the Federal Court constituted by a single Judge, and do not otherwise lie; and

             (f)  subject to paragraphs (a) to (e) (inclusive), this Act, the Federal Court of Australia Act 1976, the Rules of Court made under that Act, and other laws of the Commonwealth, apply in and in relation to the proceeding as if:

                 (i)    a reference to the Federal Court (other than in the expression 'the Court or a Judge') included a reference to the Family Court;

                (ii)  a reference to a Judge of the Federal Court (other than in the expression 'the Court or a Judge') included a reference to a Family Court Judge;

                 (iii)  a reference to the expression 'the Court or a Judge' when used in relation to the Federal Court included a reference to a Family Court Judge sitting in Chambers;

                 (iv)   a reference to a Registrar in Bankruptcy, a Deputy Registrar in Bankruptcy or a Registrar of the Federal Court included a reference to a Registrar of the Family Court; and

                 (v)    any other necessary changes were made.

         (4)where any difficulty arises in the application of paragraphs (3)(c), (d) and (f) in or in relation to a particular proceeding, the Family Court may, on the application of a party to the proceeding or of its own motion, give such directions, and make such orders, as it considers appropriate to resolve the difficulty.

         (5)An appeal does not lie from a decision of the Federal Court in relation to the transfer of a proceeding under this Act to the Family Court."

The word "proceeding" is defined in sub-s 5 (1) of the Act to mean a proceeding under the Act.  Section 153B, referred to in the present application, provides, relevantly, that if the Court is satisfied that a debtor's petition ought not to have been presented or ought not to have been accepted by the Registrar, the Court may make an order annulling the bankruptcy.  It is not disputed that the applicant, as an unsecured creditor in the bankruptcy, is entitled to apply under s 153B.

Paragraph 58 (3) (b), also referred to in the application, provides, relevantly as follows:

     "58(3)  Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:

             (a)  ...............................

             (b)  except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding."

The applicant wishes to take fresh steps in the Family Court proceeding in respect of the Bankrupt's indebtedness to her pursuant to the order of 22 August 1996 in that proceeding and otherwise to take fresh steps in that proceeding (see later).

FACTS

The parties to the marriage separated on 21 February 1994 and, as noted earlier, a decree nisi for dissolution of their marriage was made on 20 July 1995.  There are two children of the marriage, twin sons born on 6 November 1984.  In January 1995, the Husband and the Wife made an agreement relating to the Husband's financial support of the children.  On 29 May 1996, consent orders were made for the Wife to have custody of them and for the Husband to have access.

The Husband is a practising barrister.  The Wife has, from time to time, practised as a clinical psychologist.  The Wife's application for property settlement and spouse maintenance was listed for hearing over seven days before Moss J commencing on Tuesday 6 August 1996.  The applicant was represented by Mr C A Porter QC with Mr G Richardson of counsel instructed by Barkus Pearson, and the respondent was represented by Mr G M Johnston of counsel instructed by Gillis Delaney Brown.  The parties to the proceeding had, subject to his Honour's view, agreed that the Wife would be cross examined and that this would be followed immediately by the cross examination of the Husband.  His Honour concurred.  The Wife was cross examined for most of Tuesday 6 August and all of Wednesday of 7 August.  Counsel for the Husband indicated at the end of the hearing on 7 August that he would not be much longer in cross examining the Wife. 

At the resumption of the hearing on 8 August, there was a surprising turn of events.  Counsel for the Husband informed the Court that there would be no need for the Wife to re-enter the witness box for further cross examination.  He handed to his Honour a document which was described as an "open offer of settlement" to the Wife which had not been seen by her or her counsel until that moment.  Counsel for the Husband informed his Honour that his instructions and the retainer of his instructing solicitor had been terminated.  The Husband, who had been present throughout the hearing on 6 and 7 August, was not present.  It was thus made clear that he would take no further part in the hearing which would continue on an undefended basis. 

Moss J observed in his Reasons for Judgment that the development was an "extraordinary turn of events" which "took the applicant and her counsel completely by surprise" since they had come to court, as his Honour had, expecting that the cross examination of the Husband would commence within half an hour or so and would occupy at least the remainder of the day.  On the application of senior counsel for the Wife, the proceeding did not continue immediately on Thursday 8 August but was stood over to the following morning, Friday 9 August.  In the meanwhile, the Husband was advised that the proceeding would continue in his absence if he did not appear.  He did not appear and the hearing continued to completion in his absence on Friday, 9 August.

On that date, Moss J made certain orders by way of injunction and interim property settlement.  The injunctions restrained the Husband from, in effect, disposing of certain identified property until further order.  The orders by way of interim property settlement included orders for transfer of certain property to the Wife on account of the Husband's obligation to her under final orders when made.

His Honour delivered Reasons for Judgment on 22 August.  He referred to the affidavit evidence which had been filed by the Husband but on which, because of the circumstances which I have outlined, he had not been cross examined.  He said that in the state of the evidence it was not possible for him to establish with precision the net asset position of the Husband and that if he had been able to do so, he would have ordered that the Husband pay the Wife, by way of property settlement, an amount which, together with the Wife's net assets, would have amounted to 50% of the total net assets.

I need not give a detailed account of the orders and declarations made on 22 August.  There were 15 of them.  The one most relevant for present purposes is that noted earlier, that the Husband pay to the Wife's solicitors the sum of $755,794.  The Wife was ordered, following payment, to transfer to the Husband her shares in Bibute Nominees Pty Ltd ("Bibute"), the trustee of the J L Sharpe Family Trust ("the Trust").  Pending payment, injunctions were ordered directed to preventing the Husband from dissipating assets.  Directions were made for the making of written submissions on an application by the Wife for indemnity costs.  The Wife was given liberty to apply in respect of the implementation of the orders on seven days' notice.  Her spouse maintenance claim was stood over generally with liberty for her to restore it for further directions on 3 days' notice.

On 28 August 1996, the Wife filed an application in the Family Court proceeding returnable on 17 October 1996 for orders pursuant to s 85 of the Family Law Act setting aside transfers of certain property by Bibute as trustee of the J L Sharpe Family Trust on 8 August 1996 to Andrew Louis Sharpe ("the Son"), the Husband's son of a former marriage.  By that application she also sought an order that the Husband make and serve an affidavit as to other assets transferred to the Son by Bibute or by the Husband on 8 August, and an order appointing her trustee for sale of all property transferred. 

Also on 28 August the Wife filed an application in the Family Court proceeding returnable on 30 August for various injunctions pending the hearing of her application under s 85, directed to preventing dissipation of assets by the Husband and to rendering effective the orders which she had already obtained.  The orders sought included an order that pending payment of the sum of $755,794, the Husband be restrained from banking professional fees received and that he endorse cheques received for such fees to the Wife's solicitors, and sign and deliver to them forms of direction addressed to those who owed him fees directing them to pay such fees to the Wife's solicitors.

On 30 August 1996, Judicial Registrar Loughnan made certain orders in the Family Court proceeding on the Wife's application filed on 28 August for injunctive relief.  The orders restrained the Husband from disposing of certain property (including fees from professional practice, not exceeding $6,000 per week).  Otherwise, the application was stood over to 25 September 1996.

I turn now to the debtor's petition which, as noted earlier, was filed on 10 September 1996.  The "estate summary" forming part of the accompanying statement of affairs revealed assets of $1,206,750, and liabilities of $1,644.802 comprising amounts owing to unsecured creditors of $1,534,802 and amounts owing to secured creditors of $110,000.  It revealed income in the preceding 12 months of $160,000 and income expected in the next 12 months of $160,000.  The two most substantial assets disclosed in the schedule of assets were outstanding professional fees  of $300,000 and a 40% interest in a farm near Glen Innes of $500,000.  The most substantial unsecured creditor shown was the Wife.  She was shown as a creditor to the extent of $900,000 including the amount of the order made in the Family Court proceeding "+ costs".  Other unsecured creditors of some relevance to the present application are two bookmakers to whom amounts of $54,910 and $33,145 were allegedly owed.

On 19 September 1996, the Husband filed three forms of process in the Family Court: a notice of appeal to a Full Court against the orders of Moss J made on 22 August 1996; an application in relation to child support seeking discharge of the parties' agreement made in January 1995 in relation to the support of the twin sons of the marriage; and an application for review of the exercise of power by Judicial Registrar Loughnan on 30 August 1996.

The following aspects of the Family Court proceeding remain pending:

(a)  a ruling on the Wife's submission that the Husband should be ordered to pay her costs of the property settlement application on an indemnity basis;

(b)  her application under s 85 of the Family Law Act for orders setting aside transactions;

(c)  her application filed on 28 August 1996 for injunctive relief;

(d)  her application for costs in respect of the hearing before the Judicial Registrar on 30 August 1996 (the costs of that hearing were reserved);

(e)  her application for spouse maintenance.

According to her affidavit, the applicant seeks the order annulling the bankruptcy on the ground that the Bankrupt's statement of affairs failed to reveal assets, understated the value of assets disclosed, and overstated his indebtedness to the applicant.  According to para 14 of the applicant's affidavit, upon the hearing of her application for annulment of the bankruptcy, the following matters would need to be determined:

     "14.1whether the debtor was insolvent, the identity and value of each of his assets;

      14.2the debtor's liabilities, the identity of each and the extent of each;

      14.3the debtor's true income;

      14.4whether a presentation of the petition was an abuse of process with the intent of frustrating existing Orders and pending proceedings in the Family Court of Australia and an attempt to delay my recovery of any award against the debtor;

      14.5whether the debtor ought have presented or the Registrar ought have accepted his petition:

           14.5.1in circumstances where there was an existing Order of the Family Court restraining the debtor from inter alia, dispossessing himself of his interest in certain items of property; or

           14.5.2the debtor was not insolvent at the time.

      14.6whether in the event that the debtor failed to disclose to the Court the existence of the injunction referred to in 14.5 at the time of the presentation of his petition amounted to a fraud on the Court such as to constitute a ground for annulment pursuant to s.153B of the Act or alternatively a basis for the discharge of the bankruptcy in the inherent jurisdiction of the Court."

Rule 57 of the Bankruptcy Rules regulates applications for annulment under s 153B.  Sub-rule 57 (2A) requires that a copy of the application be served on the trustee in bankruptcy not later than 28 days before the hearing of the application and on each creditor not less than 14 days before the hearing of the application.  The applicant did not comply with these time constraints.

Sub-rule 57 (3) requires that a trustee who has been served with an application file a report not later than 10 days before the hearing date about the Bankrupt's conduct and examinable affairs.  Notwithstanding the applicant's non-compliance with the 28-day service period, the Trustee, through Ms Nash, helpfully filed a report pursuant to sub-r 57 (3) in Court on 1 October 1996.  As has always been made clear by Ms Nash, the non-compliance with rule 57 by the applicant has had the effect that it has not been possible for the Trustee to provide as ample a report as he would have done. 

In his report, the Trustee observes that according to the statement of affairs which accompanied the debtor's petition, the Bankrupt was insolvent, but that according to the affidavit of the applicant which accompanied her application for annulment, he appears to have been solvent.  The Trustee reports that in the short time available to him, he has not been able to obtain formal valuations of the Bankrupt's assets but that it appears to him that the main area of difference between the Bankrupt and the applicant lies in the amounts owed by the Bankrupt's debtors to the Bankrupt for professional fees.  The Trustee has not been able to comment on this issue as the Bankrupt's records are held in the Family Court.  In the meanwhile, the Bankrupt is forwarding all cheques drawn in his favour to the Trustee who is banking them in the account of the bankrupt estate.  By agreement with the Bankrupt, the Trustee is, for the time being, allowing him a weekly amount with which to conduct his practice as a barrister and on which to live.

I am satisfied that all of the Bankrupt's creditors are aware of the present application and have, with one exception noted below, expressed their views on it. 

I propose to make an order dispensing with compliance with sub-r 57 (2A) to the extent to which it has not been complied with.

The Bankrupt's unsecured creditors as revealed by his statement of affairs and their attitude to a transfer to the Family Court are as follows:

The Trustee also opposes a transfer to the Family Court.

REASONING

In the course of submissions I was referred to many considerations which, it was said, favoured, on the one hand a transfer, or on the other hand a retention, of the present proceeding.  I was also referred to decisions on other applications under s 35A of the Act.  But s 35A confers a discretion, and, in the context of discretionary assessments, no two cases are identical.

It seems to me important that three considerations be borne in mind throughout.  The first is that the annulment issue will be the first issue in the present proceeding to be decided, whether it be decided by this Court or by the Family Court.  If the bankruptcy should be annulled, the application for leave under s 58 (3) (b) will be rendered otiose and the Trustee will have no further role to play.  The second consideration is that whether the issues in the bankruptcy proceeding should fall to be decided by this Court or by the Family Court, they will be decided in accordance with law.  The third consideration is that ultimately, in the light of the detailed provisions of sub-ss 35A (3), (4) and (5) of the Act quoted earlier, no shortcoming in the machinery or procedures available in the Family Court was pointed to as a factor favouring retention of the bankruptcy proceeding in this Court.

I proceed to note submissions against a transfer not disposed of by the foregoing considerations.

(1)  This Court is experienced in the bankruptcy jurisdiction.  For several reasons, I do not find this submission persuasive in the present context.  Sub-section 35A (1) expressly contemplates that it may be appropriate to transfer a particular proceeding under the Act to the Family Court, notwithstanding that that Court does not customarily exercise jurisdiction in respect of such proceedings.  Further, it is not amiss to note that there is a first time that an individual Judge of this Court will exercise jurisdiction in bankruptcy and that it is common knowledge that not all Judges of this Court practised extensively in bankruptcy prior to appointment. The foregoing considerations do not signify that the submission is devoid of merit: the fact is that over time a Judge of this Court builds up experience in bankruptcy whereas judges of the Family Court do not.  But this consideration should not be given undue weight: a Judge of the Family Court is able to study the structure and relevant provisions of the Act and the precedential glosses on them.

(2)  The legal representatives appearing for the Trustee and the Bankrupt are more "comfortable" in litigating bankruptcy issues in this Court.

     Again, I do not find the submission particularly persuasive.  The solicitor and barrister who have appeared for the Trustee and the Bankrupt respectively are, it is true, particularly experienced bankruptcy practitioners.  No doubt counsel who appears for the applicant is an experienced Family Law practitioner.  I do not assume that the advocacy of the former in relation to the bankruptcy issues will be less persuasive in the Family Court than in this Court, to the disadvantage of their respective clients.

(3)  The Trustee will become immersed in what promises to be a somewhat protracted family law proceeding and the legal costs of his involvement will work a disadvantage to unsecured creditors.

     If the bankruptcy should be annulled, the Trustee will not be involved beyond the hearing and determination of the application for annulment.  If that application should fail, it seems to me that the Trustee would need to be involved in the Family Court no more than he would if the proceeding were retained in this Court.  It is important, in this connection, to note that an order for transfer does not signify that the bankruptcy proceeding loses its separate identity. 

     The Trustee would be involved in the application in this proceeding for leave under s 58 (3) (b) of the Act if it were to be heard and determined in this Court, just as he would be if it were to be heard in the Family Court, for example.  Where appropriate, the Trustee would be able to seek, and be granted, leave to be excused from attendance in the Family Court.  I am not persuaded that the Trustee's costs will be increased by a transfer of this proceeding to the Family Court, and, in certain respects noted later, they may well be less.

(4)  Most creditors are opposed to a transfer.

     Five creditors oppose a transfer, two have expressed no preference either way, one (the Bankrupt's solicitor) has refrained from expressing a preference, and one (the applicant) favours a transfer.  In terms of amounts of money, creditors to the extent of $464,892 oppose transfer and the applicant, to whom the Bankrupt says he owes an estimated amount of $900,000, favours it.  Clearly, the views of the unsecured creditors are entitled to respect.  But their wishes cannot be allowed to have effect as a substitute for the independent exercise of the Court's discretion.  In any event, the unsecured creditors are not unanimous.

At the end of the day, considerations of efficiency and economy of judicial administration persuade me that the case is an appropriate one for transfer.  There remain to be determined in the Family Court issues touching the nature and extent of the assets and liabilities, income and expenditure, of the Husband.  These issues are directly relevant to the first matter to be determined in the present proceeding, namely, whether the debtor's petition ought not to have been presented or ought not to have been accepted by the Registrar.  While the issues remaining to be determined in the Family Court proceeding may not be identical with those which will arise in this proceeding, there will be substantial overlap.  It will be more efficient, and probably less costly, if issues to arise in both proceedings are resolved in the one court.  As well, depending on the future course of the Family Court proceeding, the risk of inconsistent findings will be reduced.  Further, documents relevant to the application for annulment have apparently been produced to the Family Court in connection with the application for spouse maintenance and property settlement, and are still held by that Court.  Finally, it is efficient if the one Court is familiar with the progress of both proceedings so that progress of them can more easily be interrelated.

The foregoing considerations can, as I said earlier, be described as considerations of "efficiency and economy".  But ultimately, and at a more general level of abstraction, they amount to considerations of what the justice of the case requires.

In conclusion, I should note two matters.  The applicant and the Trustee led evidence of the likely earliest dates available for the hearing of the application for annulment in this Court and in the Family Court.  There was little difference between the two.  I have not found that evidence to be persuasive one way or the other.

The other matter is that the advantages of transfer on which I have relied do not depend upon Moss J's hearing the application in the bankruptcy proceeding.  I mention this because counsel for the Bankrupt indicated that his client would oppose his Honour's hearing it.  Of course, if his Honour were to hear it, there would be available an additional advantage of transfer, namely, that a Judge who is already familiar with the evidence relating to the assets and liabilities and the income and outgoings of the Bankrupt, would be hearing the application for annulment in which related issues arise.

CONCLUSION

There will be an order that proceeding No NB 2700 of 1996 be transferred to the Family Court of Australia.  There will also be an order dispensing further or other compliance with Bankruptcy Rule 57.  Having regard to the fact that the issues raised by the application are, in substance, issues as to what is an appropriate manner of judicial administration, there will be an order that the parties' costs of the application to date be their respective costs of proceeding No NB 2700 of 1996.

                  I certify that this and the preceding 20 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

                  Associate:

                  Dated:          17 October 1996

Heard:            20, 24 September, 1 October 1996

Place:            Sydney

Decision:         17 October 1996

Appearances:      Mr G Richardson of counsel instructed by Barkus Pearson appeared for the applicant.

                  Mr B J Skinner of counsel instructed by Gillis Delaney Brown appeared for the Bankrupt.

                  Ms S Nash, solicitor, of Sally Nash & Co appeared for the Trustee in Bankruptcy.