FEDERAL COURT OF AUSTRALIA

Ross v Jones, in the matter of McCloskey [2001] FCA 797

BANKRUPTCY – application by wife for annulment of former husband’s bankruptcy consequent upon acceptance of debtor’s petition – proceedings pending in Family Court of Australia – transfer of annulment application to Family Court of Australia

Bankruptcy Act 1966 (Cth) s 35A, s 153B

Federal Court Rules O 77 r 42

Re Sharpe; ex parte Powell v Donnelly (Lindgren J, 17 October 1996, unreported) followed

Re Maas; ex parte Maas v Brien (Whitlam J, 17 July 1997, unreported) referred to

Mitchell v McGillivray [2001] FCA 326 referred to

Re Sabri; ex parte Sabri v Brien (1995) 60 FCR 131 followed

IN THE MATTER OF CHARLES EDWARD MCCLOSKEY (A BANKRUPT)

GLYNIS PAULINE ROSS v MICHAEL GREGORY JONES

N 7209 OF 2001

STONE J

29 JUNE 2001

SYDNEY

IN THE MATTER OF CHARLES EDWARD MCCLOSKEY (A BANKRUPT)

REASONS FOR JUDGMENT

1                     This proceeding concerns an application for an order pursuant to s 153B of the Bankruptcy Act 1966 (Cth) (“Act”) annulling the bankruptcy of Charles Edward McCloskey, the former husband of the applicant. Mr McCloskey was made bankrupt on his own petition which was presented on 2 April 2001. On 12 June 2001 I heard an application made by the applicant that this proceeding be transferred to the Family Court pursuant to s 35A of the Act.  At the conclusion of the hearing I made the following orders:

1.         an amended application, including particulars of the grounds upon which the annulment is sought, be filed by 4 pm on 12 June 2001;

2.         this proceeding be transferred to the Family Court of Australia pursuant to s 35A of the Bankruptcy Act 1966 (Cth);

3.         on the applicant giving the usual undertaking as to damages, the respondent be restrained from advertising for sale or from selling, disposing of or otherwise encumbering any assets or property which form part of the estate of the bankrupt, Charles Edward McCloskey without first giving the applicant seven days written notice.;

4.         costs in the Federal Court of Australia to be determined by the Family Court of Australia.

At the time I said that I would provide my reasons for making those orders at a later date.  These are my reasons.

2                     The application was supported by an affidavit sworn by the applicant on 30 April 2001.  The following summary of facts is drawn from that affidavit which was not challenged by the respondent, the trustee of Mr McCloskey’s estate. 

3                     The applicant and Mr McCloskey were married on 22 September 1979.  There are four surviving children of the marriage, aged between seven and fifteen.  The parties separated on 5 December 1998 and the marriage was dissolved by decree of the Family Court of Australia on 26 April 2000.  The applicant (a medical practitioner specialising in endocrinology) and Mr McCloskey (a registered pharmacist) jointly own two properties in Ashfield, Sydney. One property (“Hardy Street property”) is the former matrimonial home in which the applicant resides with the children of the marriage.  Mr McCloskey resides in the other property (“Chandos Street property”).  The parties have joint responsibility for the children who are to live with the applicant with contact allowed to Mr McCloskey.

4                     The applicant alleges that lodging the debtor’s petition was an abuse of process done merely to frustrate related proceedings in the Family Court of Australia (“Family Court”).  The applicant alleges that Mr McCloskey was not insolvent when the debtor’s petition was presented.  The applicant claims that the matter should be transferred to the Family Court under s 35A of the Act so that the issue of the assets and liabilities of Mr McCloskey (and their true value) can be assessed in one place.  It was submitted that, given the small amount of the deficiency and the claims made by the applicant, the matter should not be attracting costs in two courts.

5                     The Family Court proceedings relate to an application filed by the applicant on 3 March 2000, seeking orders in relation to the children and the transfer of both the Hardy Street property and the Chandos Street property to the wife.  Mr Freeman, counsel for the applicant, drew my attention to financial statements sworn by Mr McCloskey on 19 April 2000 and 25 January 2001.  Without going into the details of those statements, they appear to show a substantial excess of assets over liabilities.  The Family Court matter was fixed for hearing over three days commencing on Monday, 5 February 2001 but was postponed to Monday, 2 April 2001.

6                     The application that this proceeding be transferred to the Family Court was opposed by the respondent Trustee.  Mr Skinner, counsel for the Trustee, raised the following objections:

1                    the application for annulment under s 153B does not comply with the requirement in O 77 r 42 to state the grounds upon which the annulment is sought;

2                    sending the matter to the Family Court would involve the Trustee in applications in the Family Court made under s 79 of the Family Law Act 1975 (Cth);

3                    determining the matter in the Family Court would involve creditors who have a right of appearance being obliged to appear in the Family Court although the proceeding involves the issue of bankruptcy in a commercial matter;

4                    The Family Court is not equipped to deal with annulment applications.

7                     Mr Skinner put his submissions forcefully and persuasively. They all, however, share the difficulty that, if his arguments are correct, s 35A of the Act would have no operation. Mr Skinner did not point to any special circumstances that would, in my view, distinguish it from other matters that might be transferred. 

8                     In response to Mr Skinner’s submissions, Mr Freeman, for the applicant, referred me to a number of authorities, including Re Sharpe; ex parte Powell v Donnelly (Lindgren J, 17 October 1996, unreported) (“Re Sharpe”),whichconcerned an application for annulment of a bankruptcy which arose from the presentation of a debtor’s petition presented by the husband while related matters were pending in the Family Court.  Lindgren J considered submissions similar to those raised by Mr Skinner today. His Honour did not accept those submissions and held that:

“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.”

9                     The above comment was approved by Whitlam J in Re Maas; ex parte Maas v Brien (17 July 1997, unreported) and by Carr J in Mitchell v McGillivray [2001] FCA 326 at [14]. I agree with Lindgren J’s comments and reject the submissions made by Mr Skinner for the reasons given by Lindgren J in Re Sharpe. The identification of the assets and liabilities of Mr McCloskey and the determination of their proper value appear to be relevant both to this proceeding and to the proceeding in the Family Court. In those circumstances, and particularly given the small amount of the deficit in Mr McCloskey’s estate, I decided that the matter was appropriate for transfer. 

10                  The difficulty with the application referred to in item 1 of par [5] above could be overcome by the filing of an amended application which I ordered to be done by 4.00 pm on 12 June 2001.  The applicant did not press her initial claim for an order that this matter be consolidated with the Family Court proceedings. Clearly that is a matter for the Family Court and not for this Court.  In that regard it is appropriate to refer to the comments of Davies J in Re Sabri; ex parte Sabri v Brien (1995) 60 FCR 131 at 133:

“What I would take the opportunity to observe, however, is that the Family Court, when it exercises jurisdiction in the transferred matter will be exercising the jurisdiction of the Federal Court and will be bound to apply the principles of the Bankruptcy Act and to give those principles their full force and effect.  Discretionary powers such as are conferred upon the Family Court by s 79 of the Family Law Act will not be applicable.”

11                  Those comments are clearly correct and should give the Trustee some comfort that considerations appropriate to s 79 of the Family Law Act will not be applicable to the transferred proceeding.

Associate:

Dated:              29 June 2001