FEDERAL COURT OF AUSTRALIA

Cottrell v Wilcox [2002] FCA 1115

BANKRUPTCY – application under s 153B of the Bankruptcy Act 1966 for an order annulling the bankruptcy – discretionary power of Court to annul a bankruptcy  - whether the Court must be satisfied that the sequestration orders should not have been made – facts unknown at the date of the sequestration order – applicant provided no evidence of solvency

Bankruptcy Act 1966 (Cth) s 153B

Federal Court Rules O 77 r 43, O77 r 44

Wilcox v Cottrell [2001] FCA 1357 cited

Cottrell v Wilcox [2002] FCAFC 232 cited

Stankiewicz v Plata [2000] FCA 1185 referred to

Cottrell v Wilcox [2001] FCA 866 cited

IN THE MATTER OF DAVID MERVYN COTTRELL

DAVID MERVYN COTTRELL v JOHN ALFRED WILCOX

N 7140 of 2002

BRANSON J

3 SEPTEMBER 2002

SYDNEY

THE COURT ORDERS THAT:

1.                  The application be dismissed.

2.                  The trustee’s costs be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

REASONS FOR JUDGMENT

1                     On 21 September 2001 Conti J ordered that a sequestration order be made against the estate of David Mervyn Cottrell (“the applicant”) (Wilcox v Cottrell [2001] FCA 1357).  An appeal against the order of Conti J was dismissed by the Full Court on 14 March 2002 (Cottrell v Wilcox [2002] FCAFC 232).  The applicant has now applied to the Court under s 153B of the Bankruptcy Act 1966 (Cth) (“the Act”) for an order annulling his bankruptcy.  The ground upon which the applicant seeks to have his bankruptcy annulled is that the judgment debt upon which the creditor’s petition was founded was set aside by the Wagga Wagga Local Court on 31 January 2002.  I accept that the judgment debt was set aside on that day. 

2                     The Trustee has prepared, and filed and served, a report containing the information required by O 77 r 44 of the Federal Court Rules.  It is not clear that the applicant has complied with the requirement of O 77 r 43 to notify each of his creditors known to him of his application.  The applicant has provided proof that he notified Goddard Elliott, the solicitors for the judgment creditor, and his Trustee of this application.  The applicant denies that he has creditors apart from Goddard Elliott, solicitors. 

3                     The power of the Court under s 153B of the Act to annul a bankruptcy is a discretionary power.  However, for the discretion to arise in the circumstances of this case, it is necessary for the Court to be satisfied that the sequestration order ought not to have been made.  In this case the Full Court has dismissed an appeal against the sequestration order.  For this reason, only proof of facts unknown at the date of the sequestration order will demonstrate that the sequestration order ought not to have been made.

4                     The Full Court in Stankiewicz v Plata [2000] FCA 1185 at [19]-[20] summarised the relevant principles as follows:

“In Re Williams (1968) 13 FLR 10, Gibbs J explained the approach to be taken to the then equivalent of s 153B of the Bankruptcy Act (at 23):

‘In determining the question whether the sequestration order ought not to have been made, the court is entitled to consider not only the case as disclosed at the time the order was made, but as it would have been disclosed had all the true facts been before the Court on the making of the order.  If the Court is satisfied that the order ought not to have been made, it is not bound as a matter of course to annul the order, but must consider in the light of all the circumstances of the case whether the order ought to be annulled.’ (Citations omitted.)

In Re Ditford; ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347, Gummow J observed (at 350) that the “true facts” which are to be considered include those known at the hearing of the annulment application to have existed at the time the sequestration order was made, but exclude those facts that have occurred since the order was made.  See also Re Ginnane; ex parte Ginnane (1994) 60 FCR 429, at 445-446; Re Gollan; ex parte Gollan (1992) 40 FCR 38, at 40-41.”

5                     The fact that the judgment debt upon which the creditor’s petition was based has been set aside by the Wagga Wagga Local Court is a fact which has occurred since the date of the sequestration order.  The decision of the Full Court to which I have referred and the authorities upon which the decision relies establish that the setting aside of the judgment debt is not itself relevant on this application.  However, the applicant, as I understand him, places reliance on the circumstances which resulted in the Wagga Wagga Local Court setting aside its earlier judgment.  It is not entirely clear whether the true facts concerning these circumstances were before Conti J at the time that he made the sequestration order.  Nor is it clear whether, if they were, the decision of the Full Court in Cottrell v Wilcox [2001] FCA 866, an appeal against a sequestration order made against the applicant’s estate by Conti J on 29 November 2000, would have prevented Conti J from attaching any weight to them. 

6                     I have not found it necessary to determine these issues.  Even if it be assumed that the sequestration order made on 21 September 2001 ought not to have been made, the Court has a discretion to annul, or alternatively not to annul, the applicant’s bankruptcy.

7                     An important factor relevant to the proper exercise of the Court’s discretion is the applicant’s solvency.  The applicant has not, despite my invitation to do so, sought to prove that he is solvent.  I am unable, therefore, to be satisfied that he is solvent. 

8                     The report of the Trustee discloses the Trustee has received proofs of debt in the applicant’s bankruptcy from the following:

Goddard Elliott, solicitors                               $21,434.00

Mason Sier Turnbull, solicitors                        $15,128.00

Jacob Toyota                                                   $7,351.00

James G. Sloan, solicitor                                  $1,227.00

                                                                       ------------

TOTAL:                                                        $45,140.00

9                     The applicant has given affidavit evidence that he has always disputed being indebted to Goddard Elliott and that he will defend any action taken by them to recover their alleged debt.  I note, however, that the debt owing to Goddard Elliott appears to be a judgment debt.  The occasion to defend a recovery action might never arise.  The applicant has further given evidence that he has been advised that partners of Mason Sier Turnbull have written off his debt to them.  It appears that the applicant also makes a number of complains about the professional and personal conduct of certain solicitors from the firm Mason Sier Turnbull.  I am satisfied, however, that Mason Sier Turnbull continue to claim payment of this debt. 

10                  The applicant denies being indebted to Jacob Toyota.  I have not found it necessary to resolve this issue. 

11                  The applicant acknowledges being indebted to James G Sloan, solicitor, but has given evidence that he has reached an agreement with Mr Sloan to pay off the debt by fortnightly instalments.  It appears that one payment has indeed recently been made to Mr Sloan but that an amount of $840.76 is still owing. 

12                  The Trustee’s report indicates that he is aware of three potential claimants in the applicant’s bankrupt estate, namely, the petitioning creditor, one Marie Den Boer and BMW Finance.  In the circumstances I have not found it necessary to give consideration to these potential claims other than to note that, together with the claims by alleged and actual creditors, they tend to suggest that the financial affairs of the applicant require investigation. 

13                  Another important matter in the exercise of the Court’s discretion is the failure of the applicant to make any proposal for the payment of the fees and disbursements of the Trustee.  The Trustee has given evidence that as at the date of his report he had outstanding fees and disbursements of $14,323.06 and that he estimated incurring additional legal and other costs of $7,000.00.  The applicant has told the Court that he has not instructed the Trustee to act on his behalf in any way which could give rise to fees and disbursements of this magnitude.  He has also asserted that he has had very limited contact with the Trustee.  I accept that each of these things is probably the case, but the duties of a trustee in bankruptcy arise under the Act and do not depend upon instructions received from the bankrupt.

14                  In all of the circumstances I am not satisfied that it would be an appropriate exercise of the Court’s discretion to order that the bankruptcy of the applicant be annulled.  The application is dismissed. 

Associate:

Dated:              9  September 2002