Federal Court of Australia

Meagher and Cronan (Trustee), in the matter of Laguzza (Bankrupt) v Laguzza [2024] FCA 314

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 146 of the Bankruptcy Act 1966 (Cth) (Act), the applicant proceed in accordance with Part VI, Division 5 of the Act with the distribution of dividends of the Bankrupt Estate of Linda Laguzza (Estate), amongst the creditors who have proved their debts in the Estate as at the date of the Order of this Honourable Court, as if the bankrupt had filed a statement of affairs and those creditors had been stated to be creditors therein.

2.    The applicant give notice of these orders by ordinary post and by email to the nominated email address for the respondent and each of the respondent’s creditors and persons claiming to be creditors of the respondent, within 3 business days of the making of these orders.

3.    There be liberty to any party claiming to be prejudiced by the making of these orders to apply to vacate or vary the orders on no less than 48 hours’ notice.

4.    The applicant’s costs of and incidental to the application under section 146 of the Act be paid out of the Estate of the Bankrupt in accordance with section 109 of the Act.

5.    The Registrar provide forthwith copies of the following documents:

(a)    a copy of these orders;

(b)    the reasons for judgment (as revised from the transcript) delivered today; and

(c)    all of the affidavits filed in the proceeding;

to the following persons:

(a)    the present federal Member for Bennelong, Mr Jerome Laxale MP at PO Box 8721 Epping NSW 2121; and

(b)    the Secretary of the Department of Communities and Justice (NSW), Mr Michael Tidball at Locked Bag 5000 Parramatta NSW 2124.

6.    The Registrar provide forthwith a copy of the reasons for judgment (as revised from the transcript) to:

(a)    the parties.

(b)    the Attorney-General of the Commonwealth (for consideration of such law reform as he sees fit in the context of a need for express statutory provision for welfare referrals in bankruptcy proceedings).

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

LOGAN J:

1    On 29 March 2023, a registrar of the Federal Circuit and Family Court of Australia (Division 2) (Circuit Court) made a sequestration order against the estate of Linda Laguzza (the bankrupt). One sequel to the making of a sequestration order is provided by s 54(1) of the Bankruptcy Act 1966 (Cth) (the Act). That section requires that, after the making of a sequestration order, the bankrupt, within 14 days from the day on which he or she is notified of the bankruptcy, make and file with the Official Receiver a statement of his or her affairs, and furnish a copy of the statement to the trustee. The Act provides for a monetary penalty in respect of a contravention of that obligation. There is power to extend the time for compliance.

2    Notwithstanding what the evidence reveals to be a number of endeavours by the trustees of Ms Laguzza’s bankrupt estate, Ms Anne Meagher and Mr Jason Cronan (the trustees), Ms Laguzza has failed to file the requisite statement of affairs. The trustees went to the extent of procuring from the Official Receiver a notice to Ms Laguzza under s 77CA of the Act which, on its face, compelled her to provide a statement of affairs. That notice was issued by the Official Receiver on 28 June 2023. Still, thereafter, Ms Laguzza failed to make the required statement of affairs.

3    The administration of Ms Laguzza’s bankrupt estate has reached the point where the trustees have identified two creditors:

(a)    the owners of the strata plan in respect of the premises in Ryde, where Ms Laguzza resides, in the amount of $40,606.39; and

(b)    the City of Ryde Local Council in an amount of $5,191.96.

The latter looks to be for local government rates and charges, and doubtless represents a debt upon which there are accumulating charges.

4    The evidence discloses that the trustees have also taken steps to identify other potential creditors in respect of the bankrupt. The trustees have communicated with the Australian Taxation Office. They have also given notice of the bankruptcy to no less than 51 separate financial institutions. They have also published a notice in a major newspaper of an intention to declare a first and final dividend. That advertisement was published on 13 February 2024.

5    Against this background, the trustees have applied to the Court for an order under s 146 of the Act that the distribution of dividends, amongst the creditors who have proved, proceed in accordance with the Act, as if the bankrupt had filed a statement of her affairs and those creditors had been stated to be the creditors on it.

6    Notice of that application and of today’s hearing of the application has been given to the bankrupt. There has been no appearance today by or on behalf of the bankrupt, or by or on behalf of any person claiming to be a creditor of the bankrupt.

7    It has been said that the purpose of s 146 of the Act is to:

... give the court the means of ensuring that the absence of a statement of affairs does not prejudice those with an interest in the bankrupt’s affairs.

See: Re Shaw Official Trustee in Bankruptcy [1999] FCA 968, at [4], per Gyles J.

8    In the past, in dealing with an application of this kind, I have been assisted by a helpful collection of pertinent authority offered by Anderson J in McLean (Trustee) in the matter of Erbas (Bankrupt) v Erbas [2019] FCA 1763, in which his Honour stated:

8    In Barnet (Trustee), in the matter of Zhang (Bankrupt) v Zhang [2017] FCA 924, Lee J stated the following at [22] and [23]:

Section 146 of the Act is “intended to facilitate the distribution of dividends among the creditors of the bankrupt in circumstances where the trustee has not had the benefit of a statement of affairs prepared by the bankrupt”: Re Sturt; Ex parte Official Trustee in Bankruptcy [2001] FCA 1649; (2001) 117 FCR 1 at 4 [14] per Sackville J. Its purpose is “to give the Court the means of ensuring that the absence of a statement of affairs does not prejudice those with an interest in the bankrupt’s affairs”: Official Trustee in Bankruptcy, in the matter of Shaw [1999] FCA 968 at [4] per Gyles J.

In Sturt, Sackville J said (at 5 [19]):

... [o]n any application under s 146 of the Bankruptcy Act the Court must be satisfied that it is appropriate to make an order. The Court may need to be satisfied, for example, that creditors have been notified of the application and have had an opportunity to be heard (although ordinarily the application would be made in the interests of creditors). As in this case, the Court might require evidence that the trustee has taken appropriate steps to ascertain whether there are creditors, other than those who have come to its attention by filing a proof of debt or otherwise.

9    There is no requirement under the Act that the Bankrupt be named as a respondent to the Trustee’s application under s 146: Rahman v Lombe [2018] FCA 457 at [12] per Gleeson J.

9    I am well-satisfied that it is “appropriate”, in terms of s 146, to make the orders sought by the trustees under s 146.

10    Although it may not be necessary in every case to give notice of such an application to the bankrupt, it was, in my view, a prudent step for the trustees to have given such notice in this case. Indeed, it appears that Ms Laguzza is indeed aware of today’s hearing. Counsel for the trustees, on instructions, quite properly informed me that the trustees had received a communication by email this very morning from Ms Laguzza. Whilst the communication concerned is not in evidence, it appears that she is still trying, at least in her own mind, to deal with her bankruptcy.

11    What the evidence discloses though, in my view, is that Ms Laguzza, in all probability, has found herself in a spiralling situation of debt with respect to her residential unit. Indeed, I suspect that, from the evidence, she is in quite some despair. The evidence discloses that she is a single mother. It also discloses that, when she was served with papers concerning the present application, she became quite emotional, and understandably so, if my suspicion is correct, with the process server.

12    The trustees’ investigations have disclosed that Ms Laguzza owns outright her residential unit at Ryde. Whilst there is no formal valuation evidence, it appears that the unit is worth in excess of $700,000. The trustees’ investigations have also disclosed that Ms Laguzza has funds in a bank account in excess of $140,000. That, of course, raises an interrogative note, at least, as to whether Ms Laguzza is indeed insolvent. However, the present application is not one for the annulment of a bankruptcy, neither, obviously, is it a case where it falls to the Court to exercise a discretion as to whether or not to make a sequestration order.

13    There is ample precedent, to which I was helpfully taken by Mr Trewavas of counsel for the trustees, that an order may be made under s 146 of the Act, notwithstanding that, on the facts, it appears that the bankrupt may be solvent: see, for example, In the matter of Stubberfield v Stubberfield (Bankrupt) [1999] FCA 1862, at [17] and [19], per Spender J.

14    I do not see that it is a feature of s 146 of the Act that there is an inhibition from making an order for distribution, flowing from the apparent solvency of a bankrupt. In terms of the scheme of the Act, this must follow. A person becomes bankrupt upon the making of a sequestration order. If, at that time, there is, in the case of someone presumed unable to pay their debts by virtue of non-compliance with a bankruptcy notice, no contrary evidence, then it would be unremarkable that a sequestration order would be made. There would be no basis for concluding that the creditor’s petition was being used as a mere debt-recovery vehicle, or otherwise to conclude that the bankrupt was solvent. Upon a person becoming bankrupt, the trustees are obliged to administer the bankrupt estate in accordance with the Act.

15    That obligation might be brought to an end by an annulment application, where solvency is proved, but there is no such application. In the absence of that, and in circumstances where a bankrupt has not filed a statement of affairs, the trustee of the bankrupt estate is obliged to take such measures as the Act permits in order to bring the administration to a conclusion. The making of an application under s 146 of the Act is one such measure.

16    Although the sequestration order was made by the Circuit Court, the trustees have chosen to bring their application in this Court. For reasons which commended themselves to Parliament, the bankruptcy jurisdiction is shared under the Act as between this Court and the Circuit Court. There can be circumstances where that bifurcation is inconvenient, to say the least. Further, whilst courts of bankruptcy historically have a duty to assist each other, in a practical sense, where the sequestration order is made in the Circuit Court and another application in the bankruptcy is made in this Court, this Court does not have the benefit, in its own records, of the earlier court file.

17    It may be that behind the present application is a pragmatic assessment by the trustees and those advising them as to the likelihood that an application would be heard and determined more promptly in this Court than the Circuit Court. If so, one can hardly blame trustees, seeking to finalise the administration of an estate in a timely way, for making such a forensic choice. But it may also be that the highlighting of that forensic choice discloses an absence of judicial and other resources in the Circuit Court sufficient to allow that court efficiently to discharge its bankruptcy jurisdiction.

18    The petitioning creditor in this case was the strata plan. The foundation for the bankruptcy notice was a judgment debt of $10,008.69 in respect of unpaid strata levies, as a result of a judgment given in the Local Court of New South Wales on 15 June 2022.

19    As can be seen, in the space of some two years and on the face of the present proof of the strata plan, Ms Laguzza’s indebtedness has spiralled by some $30,000. It may well be that part of that spiral is a component in respect of legal costs incurred by the strata plan in pursuing to judgment the outstanding levies, as well as further levies. All of the evidence in this case suggests to me that Ms Laguzza is not, with respect, coping with her present financial situation.

20    That, in turn, provokes the thought that the separation of powers for which our Constitution provides as between legislative, judicial and executive branches of government ought not extend to a compartmentalisation to the point where one branch of government operates to the complete exclusion of others, where evidence discloses that other branches of government may be able to assist a person.

21    The evidence discloses that Ms Laguzza has expressed suicidal thoughts. That does not strike me as, in any way, inherently improbable. In these circumstances, I consider that it is overwhelmingly in the interests of justice that the Court, by a direction to the registrar, bring to the attention of other branches of government Ms Laguzza’s circumstances as revealed by the evidence.

22    Ms Laguzza’s residence at Ryde falls within the Federal electorate of Bennelong. It may well be that there is a range of Federal welfare support which could be provided, or additionally provided, to Ms Laguzza as a sequel to a visit to her by a welfare officer.

23    We also live in a federation, so it may well be that there are state welfare support services that could be provided to her via the New South Wales Department of Communities and Justice.

24    In relation to circumstances where, in matrimonial causes cases, the existence, or potential existence, of domestic and family violence is revealed in evidence before a court exercising jurisdiction under the Family Law Act 1975 (Cth), formal provision is made in that Act for interbranch government referrals. There is no such formal mechanism in the Act, but I do not consider that the absence of such formal provision should inhibit the making of referrals where the evidence discloses a need for that. Wide powers are given to courts in bankruptcy by s 30 of the Act, as indeed are wide powers conferred on this Court in matters within jurisdiction by s 23 of the Federal Court of Australia Act 1976 (Cth). To adopt an overly compartmentalised approach may have, in the circumstances of this case, not just unfortunate, but perhaps tragic, consequences.

25    I therefore propose, in addition to formal orders under s 146 of the Act, to direct the registrar forthwith to send a copy of the orders made today, the reasons for judgment and each of the affidavits on file to:

    The present Federal Member for Bennelong, Mr Jerome Laxale MP; and

    The Secretary, Department of Communities and Justice, New South Wales.

26    I also propose to direct the registrar to send a copy of the reasons for judgment to the Attorney-General for the Commonwealth for such law reform consideration, if any, as he may deem fit in relation to the subject of referrals, where evidence in a bankruptcy proceeding reveals that there may be a need for the same to ensure the health and welfare of a bankrupt or his or her family.

Associate:    

Dated:    28 March 2024