Vaucluse Hospital 
Pty Ltd v Phillips & Anor [2006] FMCA 44 (20 January 2006)
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Vaucluse Hospital Pty Ltd v Phillips & Anor [2006] FMCA 44 (20 January 2006)
Last Updated: 31 January 2006FEDERAL MAGISTRATES COURT OF AUSTRALIA
| VAUCLUSE HOSPITAL PTY LTD v PHILLIPS & ANOR | [2006] FMCA 44 |
| Bankruptcy Act 1966, ss.19, 37, 153B, 154, 155A, 155H, 161B, 162, 188, 304A Bankruptcy Regulations 1996, rr. 2.13, 5.3, 8.08, 8.09, 8.34a Federal Magistrates Act 1999, ss.102, 103, 104 Federal Magistrates’ Court Rules 2001, rr.20.01, 20.01A, 20.03, 29.04, 29.05, 29.07, 35 |
13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq.) [1999] FCA 144
Adelaide Bank Ltd v Robert John Badcock [2002] FMCA 10 Barber v Bone Thorpe International Pty Ltd [2001] FMCA 4 BBC Hardward Ltd v Boutros [1988] FCA 217
Blanco v Employees Mutual Indemnity (Workers Compensation) Ltd and Another[2002] FMCA 38
Capsalis v Ozdemir [2005] FMCA 1163 Charlwood Industries Pty Limited v Cubitt and Ors [1995] FCA unrep7377 Clyne v Deputy Commissioner of Taxation [1984] HCA 44; (1984) 154 CLR 589
Daskalovski v The Austral Brick Company Pty Ltd [1998] FCA 782
Demostine Nominees Pty Ltd v Osborne [2002] FMCA 235 Deriu, Re (1970) 16 FLR 420. Duncan v McVeigh [2004] FMCA 759 Garrett v Deputy Commissioner of Taxation [2005] FMCA 19 Gollan, Re [1992] FCA unrep5951; (1992) 113 ALR 475; (1992) 44 FCR 38 Hajimaratis and Casanova [2005] FMCA 1468 Harrington v Lowe [1996] HCA 8; (1996) 190 CLR 311 Harris v Calladine [1991] HCA 9, (1991) 172 CLR 84 Huynh v Conlan [2005] FMCA 1532 Ivanhoe Grammar Schoolv Rachilla [2003] FMCA 30 Kallis v Supreme Concrete Pumping and Machinery Pty Ltd [2005] FMCA 1745
Korda, In the matter of Stockford Limited (Subject to Deed of Company Arrangement)[2004] FCA 1682
Kwiatek, Re, ex parte Big J Ltd v Patterson (1989) 21 FCR 374 Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338 Ottley v The Owners of Strata Plan No.4390 [2005] FMCA 466Rangott v Marshall[2004] FCA 961 Sarina v Council of the Shire of Wollondilly [1980] FCA 66; (1980) 43 FLR 163 Skase, Re; ex parte Donnelly [1992] FCA 429; (1992) 37 FCR 509 Stankiewicz v Plata [2000] FCA 1185 Simon v Vincent J O’Gorman [1979] FCA unrep122; (1979) 41 FLR 95 Symons v Bateman [1999] FCA 658 Taylor v Deputy Commissioner of Taxation [1999] FCA 195 The Queen v Davidson [1954] HCA 46; (1954) 90 CLR 353 Trojan v Corporation of Hindmarsh [1987] FCA 276; (1987) 16 FCR 37 Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574 |
Australian law Reform Commission, General Insolvency Inquiry, Report No 45, (1989) (The Harmer Report)
Quilter ‘The Federal Court’s Powers to deal with Sequestration Orders: The Bankruptcy Act 1966 (Cth) Section 37(2)’ (1997) 15 Australian Bar Review 252
| Trustee in Bankruptcy: | PAUL ANTHONY PATTISON |
| Judgment of: | Riethmuller FM |
| Hearing date: | 5 December 2005 |
| Date of Last Submission: | 5 December 2005 |
| Delivered at: | Melbourne |
| Delivered on: | 20 January 2006 |
REPRESENTATION
| Counsel for the Trustee: | Mr Bird |
| Solicitors for the Trustee: | Leonard Legal |
ORDERS
(1) That the sequestration order made by Registrar Mussett on 3 November 2005 be set aside.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
| VAUCLUSE HOSPITAL PTY LTD |
And
| LUKE PHILLIPS |
| PAUL ANTHONY PATTISON |
REASONS FOR JUDGMENT
1. The respondent suffered an injury in 1996 when he fell three floors. He has been experiencing medical problems since that time which have precluded him from working and left him unable to properly look after his personal and financial affairs. 2. The respondent had been hospitalised at 3. The respondent became bankrupt on 3 November 2005 when a registrar of the Federal Magistrate’s Court made a sequestration order in his absence on an application by 4. Following the bankruptcy order, the respondent's father paid the amount then owing (over $9,000 as a result of legal fees). 5. The respondent then applied for a review of the registrar's decision on 23 November 2005. The application was made within the 21 day time limit provided for in rr.20.01 and 29.04 of the Federal Magistrates Court Rules. 6. The respondent sets out in his affidavit that he does not have any liabilities and does not owe any money to creditors except for a mortgage, which currently has no outstanding sum due. He sets out his financial position as follows:
8. Save for the mortgage referred to in paragraph 9(a) hereof, I do not have any liabilities and do not owe any money to creditors. The Applicant has been paid the debt it was claiming.
9. My assets include:
(a) A one third interest in a residential property at 57 Lynwood Road, Lower Templestowe. The property is jointly owned with my father Nevin and my brother Dean. The property is valued at $500,000.00. There is a mortgage on the property in favour of ANZ Bank. Currently there is no amount owing on the mortgage. My share in the equity in the property is therefore $167,000.00
(b) A savings account with the Commonwealth Bank with a balance of approximately $460.00.
(c) Tools of trade with an estimated resale value of $200.00.
10. My income is $460.00 per fortnight from a disability pension. This was suspended due to the bankruptcy but has now been unfrozen.
11. My expenses are:
(a) $50.00 per week to run a car. The car belongs to my mother and she allows me to use it.
(b) Day to day personal spending money.
12. Some of my expenses are met by other people, including:
(a) Insurance, registration, maintenance costs of the car I drive are met by my mother (the owner of the car).
(b) Living expenses such as household bills and groceries are met by my mother whom I live with, but I contribute when I can.
(c) My 1/3 share of the costs associated with the Lower Templestowe property such as insurance and rates are met by my sister who resides at the property.
7. It appears from other material that the respondent may also have a credit card, but not with any significant debt. 8. The applicant, 9. It is therefore clear that the bankruptcy should be brought to an end. In this case the central issue is whether or not the sequestration order ought to be set aside as a result of a review order under s.104(3) of the Federal Magistrates Court Act 1999 or annulled pursuant to sec 153B of the Bankruptcy Act 1966. 10. The practical difference, in this case, is whether or not the respondent will have to meet the fees and expenses of the trustee. The only asset available to the respondent to meet these fees is his interest in a home. The Trustee claims fees of over $14,000 for work by persons whose charge-out rates vary from $434.00 per hour to $74.00 per hour. The trustee says that 58.9 hours work was undertaken on this estate. I note that a claim for fees in accord with s.162(4) and reg 8.08, is available (despite the absence of a creditor’s meeting) using 85% of the scale of time costing charges provided by ‘IPAA Guide to Fees’ (see <www.ipaa.com.au>). 11. It is difficult to understand why the administration in this case would exceed the minimum rate prescribed under the scheme by the extent claimed (the figure is set by s.161B(1) as indexed in accordance with s.304A and is presently $1,388: see <www.itsa.gov.au>). However, some parts of the claim appear unusual, such as having two employees of the trustee on hourly rates of $341/hour and $210/hour hand delivering the request for a statement of affairs (a pro forma document). Despite the account being prepared on a time costing basis, none of the file notes attached to the trustee’s affidavit have both start and finish times on them. 12. The bankrupt is a disability pensioner unable to properly manage his own affairs receiving a fortnightly pension of little more than the trustee’s hourly rate.
Procedure
13. At the hearing of this application issues arose as to the right of the trustee to be heard and the appropriate procedure to be adopted. In Ivanhoe Grammar School v Raschilla [2003] FMCA 30 McInnis FM said:
11. ... It was noted again during the course of submissions that a Trustee is a person capable of pursuing an application for annulment of the bankruptcy (see Re Steer [1945] 13 ABC 216)
...
33. However, where the Court is minded to make an order simply setting aside a sequestration order and/or dismissing the Creditor's petition it is appropriate that Creditors and, as in the present case, a Trustee in bankruptcy should have the right to be heard in relation to any further orders that may be appropriate in the circumstances.
14. Whilst there is some attraction to limiting the right of the trustee (and potentially other interested parties) to participate only after a preliminary finding that the registrar’s order should not be affirmed it appears to me to create great potential for unwieldy hearings. It also opens the possibility of evidence of the trustee relevant to the main considerations being unavailable until the ‘second stage’ of proceedings. 15. The Federal Magistrates Court Rules 2001 provide for the procedure to be adopted in review applications. A person who intends to oppose an application or petition must carry out the steps in r.29.07. 16. If a trustee (or other interested person) who is not a party wishes to be heard, an application for leave ought to be made in accordance with r.29.05. In an application to review a registrar’s decision an application for leave by a trustee will usually be granted. A trustee can oppose the review of the registrar’s decision, and in the alternative oppose the orders sought on the ground that an annulment order ought to be made. If the trustee says that in the event that the registrar’s order is not affirmed an alternative order (such as an annulment order) is appropriate, the ‘Notice of intention to oppose application’ (Form 149) ought to include as a ground of opposition to the claim (in the alternative) that different orders are appropriate, and set out the terms of such orders. If one of the orders sought by the trustee (whether or not as an alternative to dismissal of the setting aside application) is an annulment order, the trustee ought to comply with r.35. 17. In this case these steps were not taken however, I allowed the trustee to be heard, file material and make an oral application for an annulment as there was no clear statement of the procedure to be followed in the authorities and the respondent did not claim to be prejudiced by such a course. Such process should not be encouraged as it has the potential to result in arguments that the respondent is prejudiced by the trustee’s application or material but opposes an adjournment as they are suffering the consequences of a sequestration order. In these circumstances the trustee might be denied leave.
The law
18. An appropriate starting point for consideration of a matter such as this is the general purpose of the scheme. The underlying principles of insolvency law were identified in the Harmer Report (Australian law Reform Commission, General Insolvency Inquiry, Report No 45, (1989) at 33), which relevantly include:
• The fundamental purpose of an insolvency law is to provide a fair and orderly process for dealing with the financial affairs of insolvent individuals and companies.
• Insolvency law should provide mechanisms that enable both debtor and creditor to participate with the least possible delay and expense.
• An insolvency administration should be impartial, efficient and expeditious.
• The end result of an insolvency administration, particularly as it affects individuals, should, with very limited exceptions, be the effective relief or release from the financial liabilities and obligations of the insolvent.
• Insolvency law should, so far as it is convenient and practical, support the commercial and economic processes of the community.
19. As part of an orderly scheme there must be provision for situations where orders are subsequently found to be inappropriate. Section 37 of the Bankruptcy Act provides for rescission of orders, but not sequestration orders:
37. Power of Court to rescind orders etc.
(1) Subject to subsection (2), the Court may rescind, vary or discharge an order made by it under this act or may suspend the operation of such an order.
(2) The Court does not have power to rescind or discharge, or to suspend the operation of:
(a) a sequestration order; or
(b) an order for the administration of the estate of a deceased person under Part XI.
20. In 1991 when the section was amended, the second reading speech described the intended effect of the provision:
Clause 8 -- Power of court to rescind orders
8.1 The Act provides 3 methods for bringing bankruptcy to an end, namely discharge from bankruptcy, annulment of bankruptcy and rescission of sequestration orders. It is established law that a person against whom a sequestration order is made becomes a bankrupt from the first moment of the day on which the order is pronounced, with the consequence that the trustee must immediately begin to take steps to administer the estate.
8.2 In the case of annulment and of rescission, the bankruptcy is treated for most purposes as never having occurred. The Act does however make provision to validate actions taken by a trustee between the time when a debtor becomes a bankrupt and the annulment of the bankruptcy, but makes no corresponding provision in relation to rescission of sequestration orders. This is an anomalous situation, and gives rise to substantial doubts about the validity of transactions entered into by a trustee in good faith where a sequestration order is made against a person, and time elapses before that sequestration order is rescinded.
Since the consequences of annulment and rescission are largely the same for the debtor, no good purpose is served in retaining rescission as a means of bringing bankruptcy to an end. Accordingly, the Bill contains provision to abolish rescission as a means of bringing bankruptcy to an end, so that discharge and annulment will be the only methods of terminating a bankruptcy.
8.3 Section 37 of the Act gives courts power to rescind, vary and discharge orders, and to suspend the operation of orders.
It empowers rescission of a sequestration order or an order for the administration of the estate of a deceased person in bankruptcy, but only where the order has not been signed and sealed as provided by the Bankruptcy Rules made under the Act. The power to rescind therefore depends entirely upon whether formal administrative procedures under subordinate legislation have bean carried out, even though, as mentioned previously, a person against whom a sequestration order is made becomes a bankrupt from the first moment of the day on which the order is pronounced.
3.4 Clause 8 provides for the repeal of section 37 and the insertion of a new section 37 which preserves the powers of courts to rescind, vary and discharge orders, and to suspend the operation of orders, but which specifically precludes the rescission of sequestration orders and orders for the administration of deceased estates in bankruptcy. After the commencement of the Bill, in relation to sequestration orders and administration orders under Part XI of the Act, in those cases where rescission orders night have been sought or made, the appropriate orders to be made will be orders under section 153B or section 252B for the annulment of the sequestration order or administration order.
21. Section 153B of the Bankruptcy Act 1966 provides for a court to make an order annulling the bankruptcy if ‘satisfied that a sequestration order ought not to have been made’. The effect of an annulment order is provided for in s.154 of the Bankruptcy Act, which provides:
154 Effect of annulment
(1) If the bankruptcy of a person (in this section called the former bankrupt ) is annulled under this Division:
(a) all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment are taken to have been validly made or done; and
(b) the trustee may apply the property of the former bankrupt still vested in the trustee in payment of the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee; and
(c) subject to subsections (3), (6) and (7), the remainder (if any) of the property of the former bankrupt still vested in the trustee reverts to the bankrupt.
(2) If the property of the former bankrupt referred to in paragraph (1)(b) is insufficient to meet the costs, charges and expenses referred to in that paragraph, the amount of the deficiency is a debt due by the former bankrupt to the trustee and is recoverable by the trustee by action against the former bankrupt in a court of competent jurisdiction.
...
22. In some cases the protection provided for by s.154(1)(a) is important, such as where the trustee has dealt with the assets or funds. 23. It is clear that in cases involving estates administered pursuant to orders made by judges or federal magistrates, it was the intention of the legislature that generally sequestration orders not be later set aside, but rather annulment orders made: for example see Stankiewicz v Plata [2000] FCA 1185. 24. The court appears to retain a residual discretion to set aside a sequestration order in limited circumstances: see Quilter ‘The Federal Court’s Powers to deal with Sequestration Orders: The Bankruptcy Act 1966 (Cth) Section 37(2)’ (1997) 15 Australian Bar Review 252. 25. The courts will necessarily have such a power on appeal. As Gyles J said in Rangott v Marshall [2004] FCA 961:
24. It seems that the Act does not expressly address the imposition of an appellate regime upon the provisions in relation to sequestration and bankruptcy. That may be an accident of history.
...
29. I am bound by Simon v Vincent J O’Gorman Pty Ltd to conclude that the appellate provisions apply to a sequestration order. That being so, they cannot be read down. It would follow from the Full Court decision that the sequestration order made on 13 August 2002 and the consequent appointment of the applicant as trustee are set aside. If full effect is given to these provisions it is as if the sequestration order had never been made and the respondent had never been a bankrupt. On that basis the applicant is no longer trustee of the estate of the respondent and was not trustee at the date this proceeding was commenced. That conclusion appears to be consistent with the reasoning in Guss v Johnstone [2000] HCA 26; (2000) 74 ALJR 884; 171 ALR 598 at [56]–[63] that concerned a different, but not dissimilar, issue although no argument by counsel was directed to that decision. Precisely how the eggs broken from 13 August 2002 to the present day are to be unscrambled is a question that does not arise in the present proceeding (cf the authorities referred to by Sackville J in Shephard v Chiquita Brands South Pacific Limited [2004] FCAFC 76 at [65]).
26. In Clyne v Deputy Commissioner of Taxation [1984] HCA 44; (1984) 154 CLR 589 Deane J (at 605) raised the issue of whether an annulment order should be made on an appeal but noted it was not argued. Deane J concluded that the "appellant debtor should [not] be refused the orders to which he is prima facie entitled upon his success on the only matters which any of the parties have raised on the appeal." 27. Notably, there do not appear to be any judgments in appeals refusing to set aside the trial judge’s orders in favour of making an annulment order. In Simon v Vincent J O’Gorman Pty Ltd [1979] FCA 75; (1979) 41 FLR 95 Franki J said at [18]:
Counsel for the official receiver cited a judgment of Gibbs J. in Re Deriu (1970) 16 FLR 420 in which it was said that in circumstances where a sequestration order ought not to have been made because the debtor was not indebted to the petitioning creditor, the proper way of getting rid of the sequestration order was to annul it under s. 154 of the Act. However, in that case his Honour was considering an application for rescission under s. 37 of the Act and not an appeal from the making of a sequestration order. In all the circumstances I consider that if we decide that the sequestration order was wrongly made we should uphold the appeal in such a way as to avoid the consequences and stigma of bankruptcy attaching to the appellants and possibly affecting the rights of any other creditors. The order which was made by the High Court in Wren v. Mahony was: "Appeal allowed with costs. Order of the Court of Bankruptcy set aside and in lieu thereof order that the petition be dismissed with costs" (1972) 126 CLR, at p 238 . A similar order was made by the Full Court of this Court in Re Schierholter; Ex parte Geis [1978] FCA 6; (1978) 32 FLR 22 . Both appellants appealed by filing the one notice of appeal, but there is evidence before us that, although the solicitors still remain on the record for both appellants, the second appellant does not wish to pursue the appeal. Since the order made by the trial judge was that the court "hereby makes a sequestration order against the estate of the debtors", it is appropriate to make an order that the appeal be allowed. (at p102)
28. In the same case, Lockhart J said (at paragraph 15 of his judgment):
In Wren v. Mahony [1972] HCA 5; (1972) 126 CLR 212 the High Court ordered that an appeal by the bankrupt against the making of a sequestration order be allowed, that the order of the Federal Court of Bankruptcy be set aside and in lieu thereof that the petition be dismissed. The Full Bench of this Court made an order to the same effect in Re Schierholter; Ex parte Geis [1978] FCA 6; (1978) 32 FLR 22. These decisions confirm the view I have reached notwithstanding that the point asserted by the respondents does not appear to have been argued in either case. (at p109)
29. Significantly, Symon’s case involved a delay of six years from sequestration order to appeal. However, the Full Court did not accede to submissions that it decline to make orders as a result of the delay. 30. In Kallis v Supreme Concrete Pumping & Machinery Pty Ltd [2005] FMCA 1745 reliance is placed on a ‘statement of general principle’ in Re Deriu (1970) 16 FLR 420 (at [18]) to support the proposition that annulment is a more appropriate order than setting aside. In Deriu Gibbs J (as he then was) said that:
... where a sequestration order ought not to have been made, because the debtor was not indebted to the petitioning creditor, the proper way of getting rid of the sequestration order is by annulling it under s. 154. Indeed, as Williams J. pointed out in Cameron v. Cole (1944) 68 C.L.R., at p. 610, the rescission of the sequestration order would not put an end to the bankruptcy (see s. 43(2) of the Bankruptcy Act 1966-1969).
31. As an order ‘setting aside’ a sequestration order does not suffer the same limitations of a ‘rescission’ order (see Symon’s case, Rangott’s case and Quilter) and as Deriu did not involve the review of delegated judicial power I find Deriu of little assistance in the present proceedings. 32. It is against this background that one must consider an application for review of a registrar’s order.
Delegated judicial power
33. In this case the sequestration order was made by a registrar exercising delegated power. The power to delegate powers to the registrars is contained in ss.102 and 103 of the Federal Magistrates Act 1999. Rule 20.00A(1)(c) and Schedule 4 of the Federal Magistrates Court Rules 2001 delegate the power to make a sequestration order to the registrars of the court. 34. Power to review a decision of a registrar is provided for in s.104 of the Federal Magistrates Act 1999:
Section 104 - Registrars--additional provisions
Registrars to act independently
(1) Despite any other provision of this Act and any provision of the Public Service Act 1999 or any other law, a Registrar is not subject to the direction or control of any person or body in relation to the way in which he or she exercises powers under subsection 102(2) or under a delegation under subsection 103(1).
Review of the exercise of Registrars’ powers
(2) A party to proceedings in which a Registrar has exercised any of the powers of the Federal Magistrates Court under subsection 102(2) or under a delegation under subsection 103(1) may:
(a) within the time prescribed by the Rules of Court; or
(b) within any further time allowed in accordance with the Rules of Court;
apply to the Federal Magistrates Court for review of that exercise of power.
(3) The Federal Magistrates Court may, on application under subsection (2) or on its own initiative, review an exercise of power by a Registrar under subsection 102(2) or under a delegation under subsection 103(1), and may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised.
Referral to Court by Registrars
(4) If an application for the exercise of a power referred to in subsection 102(2) or under a delegation under subsection 103(1) is to be, or is being, heard by a Registrar, and:
(a) the Registrar considers that it is not appropriate for the application to be determined by a Registrar acting under section 102 or under a delegation under subsection 103(1); or
(b) an application is made to the Registrar to arrange for the first-mentioned application to be determined by a Federal Magistrate;
he or she must not hear, or continue to hear, the application and must make appropriate arrangements for the application to be heard by a Federal Magistrate.
35. The procedure to be followed is set out in rule 20.03 of the Federal Magistrates’ Court Rules 2001 which provides:
Reg 20.03 - Procedure for review
The review of an exercise of power by a Registrar:
(a) must proceed by way of a hearing de novo; and
(b) may receive as evidence any affidavit or exhibit tendered before the Registrar; and
(c) may with leave receive further evidence; and
(d) may receive as evidence:
(i) any transcript of the proceeding before the Registrar; or
(ii) if there is no transcript, an affidavit sworn by a person who was present at the proceeding before the Registrar as a record of the proceeding.
36. The power to make a sequestration order is a judicial power that must be exercised by a justice under the Constitution: The Queen v Davison [1954] HCA 46; (1954) 90 CLR 353.The ability of a court to delegate power to make a sequestration order to registrars (despite registrars not being justices within the meaning of Chapter III of the Constitution) is now without doubt: see Harris v Caladine [1991] HCA 9 and Taylor v Deputy Commissioner of Taxation [1999] FCA 195. 37. There, however, are important limits on the delegations of such powers. In Harris v Caladine [1991] HCA 9 the High Court, considering the delegation of judicial power under theFamily Law Act 1975. Mason and Deane JJ (as their Honours then were) said:
11. It seems to us that, so long as two conditions are observed, the delegation of some part of the jurisdiction, powers and functions of the Family Court as a federal court to its officers is permissible and consistent with the control and supervision of the Family Court's jurisdiction by its judges. The first condition is that the delegation must not be to an extent where it can no longer properly be said that, as a practical as well as a theoretical matter, the judges constitute the court. This means that the judges must continue to bear the major responsibility for the exercise of judicial power at least in relation to the more important aspects of contested matters. The second condition is that the delegation must not be inconsistent with the obligation of a court to act judicially and that the decisions of the officers of the court in the exercise of their delegated jurisdiction, powers and functions must be subject to review or appeal by a judge or judges of the court. For present purposes it is sufficient for us to say that, if the exercise of delegated jurisdiction, powers and functions by a court officer is subject to review or appeal by a judge or judges of the court on questions of both fact and law, we consider that the delegation will be valid. Certainly, if the review is by way of hearing de novo, the delegation will be valid. The importance of insisting on the existence of review by a judge or an appeal to a judge is that this procedure guarantees that a litigant may have recourse to a hearing and a determination by a judge. In other words, a litigant can avail him or herself of the judicial independence which is the hallmark of the class of court presently under consideration.
38. Dawson J said:
20. ... a federal court must retain effective supervision and control over the exercise of its functions by its officers. If it does not do so, those functions may be seen to be exercised by an officer of the court, not as a delegate, but as a person of independent authority. A federal court must be able to exercise a real choice for itself over those matters, if any, which are to be delegated. Effective supervision and control will not be maintained if there are insufficient judges for the purpose or if for any other reason the court lacks the necessary capacity. Where the judicial power of the Commonwealth is vested in a federal court, the exercise of that power must be by or on behalf of the court itself, that is, the court consisting of judges, notwithstanding that the court may employ for that purpose an organization extending beyond the judges themselves. Whether or not the exercise of judicial power is by or through the court itself will be a matter of practical as much as of theoretical judgment.
27. An order made by a Registrar is reviewable by way of a hearing de novo. That means that the court reviewing the order begins afresh and exercises for itself any discretion exercised below by the Registrar. The parties commence the application again, subject to any restrictions in the rules upon the calling of evidence or provisions relating to the use before the court of evidence called before the Registrar. A hearing de novo involves the exercise of the original jurisdiction and "the informant or complainant starts again and has to make out his case and call his witnesses": Builders Licensing Board v. Sperway Constructions (Syd.) Pty. Ltd. [1976] HCA 62; (1976) 135 CLR 616, at p 620; see also Reg. v. Pilgrim (1870) LR 6 QB 89, at p 95; Campbell, "Judicial Review and Appeals as Alternative Remedies",[1982] MonashULawRw 8; (1982) 9 Monash University Law Review 14, n.3.
30. That I think is the consequence of the specific provision that the review be by way of hearing de novo. But even if there had been no such provision the result would, in the absence of any provision to the contrary, have been much the same. For where the function of exercising a discretion is delegated by a court, as it may be delegated to a Registrar, the exercise of the delegated discretion cannot confine the exercise of the same discretion by the person in whom it is primarily reposed:Evans v. Bartlam [1937] AC 473, at p 478; Blundell v. Rimmer [1971] 1 WLR 123, at p 128; [1971] 1 All ER 1072, at p 1076; and C.M. Van Stillevoldt B.V. v. EL Carriers [1983] 1 WLR 207, at p 210; [1983] 1 All ER 699, at p 702. Upon a hearing by way of review of the decision of a Registrar the court is exercising its own discretion.
39. The practical consequences upon the nature of the hearing process that may be adopted on a review were discussed by Northrop J in Re Kwiatek ex parte Big J Ltd v Patterson(1989) 21 FCR 374 where his Honour said:
32. Under s.31A, a Registrar of the Court is exercising powers conferred by the Act initially on the Court itself. The Registrar is an officer of the Court. A party to a proceeding before the Registrar exercising a power referred to in s. 31A(1), may make application that the proceeding be referred to the Court whereupon the Registrar must make arrangements for it to be heard by the Court. Where a review of the exercise of the power by a Registrar is undertaken by the Court it is important that there should be as little restriction as possible on the method by which the review is conducted. In reality, the Court is exercising a power conferred initially upon it. Unless authority constrains me to take a different view, it is my opinion that the review should be a rehearing based upon the evidence before the Registrar supplemented by any evidence the parties desire to produce.
...
35. Having concluded that the review under s. 31A of the Act is a rehearing based upon the evidence before the Registrar, some general observations are made. In the present case, lengthy affidavits were filed on behalf of the petitioning creditor and the Trustee containing evidence of what had occurred at the hearing before the Registrar. In the present case, that evidence was not relevant to the review. In most cases evidence of that kind would not be relevant. The review is based upon the affidavits relied upon at the hearing of the application before the Registrar. If oral evidence was given at that hearing, the parties could agree that the transcript of that evidence be used on review, otherwise oral evidence would need to be led at the review itself. The hearing of the review by the Court is in reality a hearing de novo and the Court relies upon the facts properly brought before it by the parties to the review.
40. Whilst s.37 of the Bankruptcy Act 1966 does limit the power of the court to later set aside a sequestration order made by a judge or federal magistrate, it does not limit the power to review an order by a registrar. This was made clear by Spender J in Re Gollan [1992] FCA unrep5951; (1992) 113 ALR 475; (1992) 44 FCR 38 where his Honour said:
7. There is a number of matters thrown up by the application. The first concerns the repeal of s. 37 of the Bankruptcy Act 1966 ('the Act') and the substitution of a new s. 37 by Act No. 9 of 1992. As a consequence of the new s. 37, the Court, subject to s. 37(2), may rescind, vary or discharge an order made by it under the Act, or may suspend the operation of such an order. But by s. 37(2), the Court does not have power to rescind or discharge or to suspend the operation of, inter alia, a sequestration order.
8. There would, therefore, be no power to rescind the making of the sequestration order of 11 November 1992 if that order had been made by the Court. The order was made by the District Registrar in consequence of powers delegated to him pursuant to s. 31A. It seems to me that the effect of s. 37 is to abolish rescission as a means of bringing bankruptcy to an end, so that discharge and annulment are the only methods of terminating a bankruptcy. However, my view is that there still remains power in the Court, pursuant to s. 14(5) to review a sequestration order made by a Registrar under the powers delegated pursuant to
s. 31A, and that it would be competent on summary application, to set aside the sequestration order made on the creditor's petition, and to dismiss the petition.
41. Re Gollan was later referred to with approval by Emmett J in BBC Hardware Ltd v Boutros [1998] FCA 217. 42. In Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574 the Full Court concluded not only that s.37 did not restrict the court’s powers when reviewing a decision of a registrar, but also that the court had power to stay the operation of a sequestration order pending a review of a registrar’s decision, noting that:
21. ... if the effectiveness of the review of a Registrar's decision by a Judge is so restricted that important aspects of the decision may be required to be carried out, over a significant period, before its correctness is judicially determined, there may well be a question whether the Constitutional requirements are satisfied.
43. This approach has been applied in Adelaide Bank Ltd v Robert John Badcock [2002] FMCA 10 and Demostine Nominees Pty Ltd v Osborne [2002] FMCA 235 where stays were ordered. 44. Whilst a short time limit for reviews can be imposed (see Harrington v Lowe [1996] HCA 8) it is nonetheless clear that the constitutional validity of the delegated power requires the court to exercise ‘effective supervision and control’ of registrars exercising such power. The court must begin ‘afresh and exercise for itself any discretion exercised below by the Registrar’ (see Harris v Caladine above). The registrar’s order cannot limit the order of the court, otherwise the court would not be considering the question ‘afresh’ nor exercising ‘for itself’ the discretion exercised by the registrar. If a registrar’s order is not appropriate, prima facie it should be set aside 45. Of course, other events may occur in the time it takes for a review application to be heard. This may result in prejudice to another party who has relied upon the decision of the registrar, particularly in circumstances where the short time limit for a review application has passed. Such circumstances may indicate that an annulment order is more appropriate in a particular case. 46. In Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338 Weinberg J, on an appeal from the Federal Magistrates Court, concluded that:
39. In the normal course, it would be appropriate simply to allow the appeal, set aside the sequestration order, and leave the Official Trustee to pursue whatever remedies he might have under the Act, or by virtue of the general law, in order to recoup expenses incurred. It is highly unlikely that the Court has power to order the first respondent to meet these costs, given that they do not arise out of the litigation itself.
40 It would be quite wrong, in my view, to burden Mr Kyriackou, who is the successful appellant in this proceeding, with the costs of administering a bankrupt estate that should never have been made the subject of a sequestration order. Regrettably, that leaves the Official Trustee with no obvious and immediate recourse against either the appellant, or the first respondent. It also leaves him with what might be considered to be a legitimate sense of grievance. He may be out of pocket for doing no more than what he was required by statute to do.
41. It might be thought that the Act is deficient in failing to provide for the summary recovery by a trustee of the costs of administering an estate, and his or her reasonable remuneration, in circumstances where a sequestration order has had to be set aside. Perhaps the party responsible for those costs having been unnecessarily incurred, in this case the first respondent, ought to be summarily liable for them. There may be some cases, in which it will be appropriate to annul a bankruptcy under s 153B, thereby triggering the operation of s 154, rather than setting aside a sequestration order. Certainly, Emmett J took that approach inAustral. French J, in Symons, was prepared to contemplate a similar course, though not without reservations. In my opinion, this is not such a case.
42. It seems to me that a trustee who administers a bankrupt estate, in the knowledge that the bankrupt is challenging the validity of the sequestration order, must exercise caution when incurring expenses whilst the status of the bankruptcy remains uncertain. I can well understand why, in Austral, given the facts of that case, involving as it did a resolution of a dispute between a debtor and a creditor, Emmett J concluded that it was appropriate to order the annulment of the bankruptcy, rather than simply setting aside the sequestration order. There was something to be said for making the putative bankrupt’s estate meet the costs needlessly thrown away, particularly given the fact that there had been a short administration. The argument for fixing the estate with the costs and expenses of the administration seems to me to be less cogent when the putative bankrupt should never have been the subject of a sequestration order in the first place. That is particularly so when the sequestration order is based upon a bankruptcy notice that has always been attacked as invalid.
43. In this case, a balance must be struck between the rights of the appellant, who should never have been made bankrupt in the first place, and the Official Trustee, who has simply done what the Act requires him to do. In my view, the particular circumstances of this case require that that balance tilt in favour of the appellant. It follows that the Official Trustee must bear his own costs and expenses of the administration unless he elects to institute proceedings to recover them: see generallyWenkart v Pantzer [2003] FCAFC 210; (2003) 132 FCR 204 at 207. That is a matter for the Official Trustee. It does not fall within the ambit of any costs order that can properly be made in relation to this appeal.
47. In submissions about the decision in Kyriackou counsel for the trustee referred to the statutory obligations of the trustee in administering an estate. Section 19(1) of the Act provides for the duties of trustees which include:
(b) determining whether the estate includes property that can be realised to pay a dividend to creditors;
(c) reporting to creditors within 3 months of the date of the bankruptcy on the likelihood of creditors receiving a dividend before the end of the bankruptcy;
...
(f) taking appropriate steps to recover property for the benefit of the estate;
...
(j) administering the estate as efficiently as possible by avoiding unnecessary expense;
(k) exercising powers and performing functions in a commercially sound way.
48. Part VIII of the Act provides for the registration of trustees, and in particular s.155A and s.155H require consideration of whether a trustee has exercised his or her powers and carried out his or her duties ‘properly’. Importantly s.155H(5) provides for the regulators to prescribe standards for trustees, which appear in Schedule 4A of the regulations (see regulation 8.34A). 49. Whilst regulation 5.3(1) of Schedule 4A provides for steps a trustee must take ‘as soon as practicable after an authority under section 188 of the Act becomes effective’ no similar temporal imperative appears in the Schedule with respect to the conduct of a trustee appointed as a result of a sequestration order. However, regulation 2.13 clearly contemplates that a trustee will exercise considerable professional judgement in the manner in which he or she proceeds to administer an estate. Regulation 2.13 provides as follows:
2.13 Costs incurred to be necessary and reasonable. In conducting an administration, the trustee must:
(a) incur only those costs that are necessary and reasonable; and
(b) before deciding whether it is appropriate to incur a cost, compare the amount of the cost likely to be incurred with the value and complexity of the administration.
a) the sequestration order is made with respect to a relatively small debt;
b) the sequestration order is made in the absence of the bankrupt;
c) the debt is not incurred in the course of business or commercial dealings; and
d) the bankrupt appears to have a significant asset, such as a home.
52. These are, of course, only some of the indicators or factors which will be considered by a trustee when exercising his or her professional judgment, none of which are determinative of a particular approach a trustee ought to take in any particular case. 53. In this regard it must also be borne in mind that undertaking the role of trustee is a function that a trustee embarks upon aware of the inherent risk that he or she may not be remunerated. If an estate contains no assets that can be realised then the trustee will remain without remuneration, unless creditors are prepared to fund investigations. Prescribed remuneration rates are higher than the scale fees for similar work carried out in the course of litigation, presumably (at least in part) to recompense trustees for the risk inherent in the function. 54. The result is that a lack of remuneration ‘may be an incident of the risk associated with the performance of the trustee's duties in the period between the sequestration order and the expiry of the 21 days’: see Garrett v Deputy Commissioner of Taxation [2005] FMCA 19 at [34] per Lindsay FM. It is certainly a well accepted incident of the risk inherent in the performance of the trustees duties in assetless estates. 55. In Blanco v Employees Mutual Indemnity (Workers Compensation) Ltd and Another [2002] FMCA 38, Driver FM said:
14. Mr Haylen, for the trustee, submitted to me that it was open to the Court to exercise a discretion not to grant the relief sought by the applicant, having regard to the events leading up to and following the making of the sequestration order. This presents something of an intellectual conundrum. On the one hand, the review of a sequestration order made by a registrar involves rehearing of the creditor’s petition. If there was no basis for the sequestration order then it should not have been made and ought to be set aside. On the other hand, time has moved on since the making of the sequestration order. There is authority that it is open to the Court to have regard to considerations relevant to an annulment application on the review of a registrar’s decision to make a sequestration order: BBC Hardware Ltd v Boutros (unreported, Federal Court of Australia, 6 March 1998, per Emmett J). That is what I did in Barber v Bone Thorpe International Pty Ltd [2001] FMCA 4.There will be circumstances in which it is reasonable and proper to decline to set aside a sequestration order that should not have been made in the interests of creditors, and having regard to the public policy considerations arising from the Bankruptcy Act. Such cases ought not to be common. The legislature has drawn a distinction between the review of a registrar’s decision and an annulment application. The former is subject to a short time limit while the latter can be made years after a sequestration order. Clearly, the significance of the administration of a bankrupt’s estate increases as time passes. In most cases a review application will be determined within a short time after the sequestration order is made and events following that sequestration order will not be particularly significant.
56. Driver FM’s view that ‘the legislature has drawn a distinction between the review of a registrar’s decision and an annulment application’ is a little more generous than seeing it as ‘an accident of history’ (see Rangott above). However the distinction described is nonetheless an important one. Section 37 of the Bankruptcy Act is clearly aimed at estates that have had substantial administration and not appeals or reviews of registrar’s decisions. 57. In Huynh v Conlan [2005] FMCA 1532 I set aside a sequestration order obtained against a putative debtor who could not speak English, on the basis of a judgment debt founded on a forged mortgage. The solicitor for the applicant had notice of the forgery prior to the sequestration order being made. The putative debtor was of limited means and should never have been made bankrupt. I adopted an approach of first determining whether the review would be successful, and then whether the circumstances showed that it was appropriate to annul the bankruptcy rather than setting it aside, saying:
It is appropriate to identify considerations relevant to the discretion to make a order other than setting aside the registrar’s orders.54. In this case I am not satisfied that it is appropriate to annul the bankruptcy rather than setting aside the sequestration order. The applicant ought never to have been made bankrupt. There is no evidence that the rights of persons other than the trustee or parties to this litigation would be affected by an order setting aside the sequestration order rather than an annulment order. Whilst the applicant’s interest in a home was transferred to the trustee this is easily rectified. Had the trustee dealt with this interest during the course of the bankruptcy in a way that involved a third party it would have been a factor in favour of an annulment order, however that did not occur here.
The interests of creditors
58. In determining whether to make an annulment order, rather than setting aside a registrar’s decision, the interests of all of the creditors must be considered. In BBC Hardware Ltd v Boutros [1998] FCA 217 Emmet J adjourned the proceedings, as there was a suggestion that there may have been another creditor who wished to be substituted, even though the debt owing to the petitioning creditor was paid the day after the petition was served. The final outcome is not reported. 59. In Barber v Bone Thorpe International Pty Ltd [2001] FMCA 4 Driver FM set aside a sequestration order, but allowed the creditors petition to remain on foot to be determined on another day (depending upon the debtors conduct with respect to other proceedings in the state courts). Driver FM approached the matter on a similar basis to an annulment application, setting aside the judgment on the basis of the debtor being ordered to meet the trustee’s expenses. The practical effect of orders that the debtor meet the trustee’s expenses meant that, in the context of that case, there was no practical difference of the type that arises here. A similar approach was adopted by Roberts FM in Ottley v The Owners of Strata Plan No.4390[2005] FMCA 466, although no costs orders were sought or made in favour of the trustees.
Administration of the estate
60. In Daskalovski v The Austral Brick Company Pty Ltd [1998] FCA 782, Emmet J (in a short ex tempore judgment) concluded that it was appropriate to annul a sequestration order rather than setting it aside in circumstances where the estate had been administered. His Honour said:
I should add that I would have been satisfied that the Court has jurisdiction and power pursuant to Order 35 Rule 7 to make an order setting aside the sequestration order made in the absence of the Debtor in circumstances where the Debtor was not served with the petition. However, it seems to me inappropriate to make an order under that rule where the estate has already been administered in bankruptcy, as is the case here.
The Act, and the rules made under the Act which have now been incorporated into the Federal Court Rules, provide for the protection of creditors in the event of an order being made under section 153B. There is no similar regime applicable specifically for the setting aside of an order or a judgment pursuant to Order 35 Rule 7. That is not to say that, in an appropriate case, the power contained in Order 35 Rule 7 ought not to be exercised. However, such a power would normally be exercised in circumstances where the matter comes before the Court very soon after the order has been made and before there has been any administration in bankruptcy pursuant to a sequestration order.
61. Similarly, in Symons v Bateman [1999] FCA 658 French J referred to the comments of Emmett J in Daskalovski before declining to make consent orders setting aside a sequestration order until further material was placed before the court addressing the extent of the work undertaken by the trustee and the need for the application of s.154 of the Bankruptcy Act. The final outcome is not reported. 62. Comments confirming the importance of this consideration can be found in Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338 and Clyne v Deputy Commissioner of Taxation [1984] HCA 44; (1984) 154 CLR 589 per Deane J at 605. 63. The significance of this consideration will vary from case to case, depending upon the steps that have been taken and the need for the protections available under s.154.
Protection of the trustee’s fees
64. In Ivanhoe Grammar School v Raschilla [2003] FMCA 30 McInnis FM ordered an annulment, being of the view that the debtor ought to pay the trustee’s fees and expenses, but that there was no power to make an order to that effect if the sequestration order were set aside. 65. Using s.153B solely to overcome a lack of power to order that a party pay the trustee’s remuneration and expenses (or part thereof) in a review or appeal is an approach that requires considerable care. To allow the consequences of a registrar’s order upon those choosing to participate in the effect of the order to become a basis to refuse to set it aside has the appearance of a less than appropriate review. 66. The purpose of Div 5 of Part VII (and s.37) was not to provide a method for making orders for the remuneration and expenses of trustees. The provisions do not allow for the exercise of any discretion of the type usually exercised with respect to costs: see for example Re Skase; ex parte Donnelly [1992] FCA 429; (1992) 37 FCR 509. The provisions of the Actwith respect to the fees of trustees are presently outdated. In cases involving reviews there will rarely have been a creditor’s meeting to approve fee rates. Whilst r.8.08 refers to 85% of the IPAA Guide to Hourly Rates, that guide has not been updated for many years (according to the IPAA website <www.ipaa.com.au>). The IPAA now also issue covering notes to the guidelines stating:
When calculating the appropriate fee, there should be a careful review of the quality and quantity of work performed ensuring that the staff mix and rate is commensurate with the nature and complexity of work done, taking into account the stress, specialist skills and urgency required to meet deadlines.
67. The very real difficulties of the type identified in this note were considered in detail by Finklestein J in Korda, in the matter of Stockford Limited (Subject to Deed of Company Arrangement) [2004] FCA 1682 where his Honour reviews many cases and much literature on this issue. Whilst there is power to request a taxation of a trustees claims under r.8.09 this differs from the discretion that a court would exercise with respect to costs. 68. There is potential for injustice as a result of the lack of discretion brought about by utilising a power (annulment) that was not designed to be a power to make orders about fees and expenses of trustees in reviews and appeals. 69. However in some cases, of which Daskalovski v The Austral Brick Company Pty Ltd [1998] FCA 782 is a good example, such potential difficulties do not arise. 70. In other cases it would simply be unjust to allow all the costs of administration to be visited upon the bankrupt. For example, in Capsalis v Ozdemir [2005] FMCA 1163 the owner of a motor vehicle did not defend a claim for damages arising out of a car accident, believing that the driver at the relevant time was attending to the matter. The owner was never liable for the damages, not being the driver or employer of the driver. A sequestration order was made by a registrar on 28 June 2005, and the trustee sent a request for a statement of affairs to the bankrupt on 15 July 2005. On becoming aware of the sequestration order as a result of the request for a statement of affairs the bankrupt applied to set aside the order of the registrar on 29 July 2005. Connolly FM concluded that:
...as in the Kyriackou decision, a balance must be struck between the rights of the applicant, who should never have been made bankrupt in the first place, and the Trustee who has simply done what the Bankruptcy Act requires him to do.
71. In Hajimaratis and Casanova [2005] FMCA 1468 a similar approach was taken to Capsalis v Ozdemir [2005] FMCA 1163 of striking a balance between the debtor and trustee. Notably, in Hajimaratis the bankruptcy was founded on a judgment debt of $2,208.67, and the trustee claimed fees and expenses of over $24,125.98 incurred over a period of around 3 months. 72. In Kallis v Supreme Concrete Pumping & Machinery Pty Ltd [2005] FMCA 1745 the putative debtor was not served, service being effected on another person by the same name. The putative debtor notified the trustee three weeks after the sequestration order that he was not the person named in the documents, in a letter responding to a request by the trustee that he complete a statement of affairs. The trustee agreed not to seek any of the costs of administering the estate, and on this basis McInnis FM ordered that the bankruptcy be annulled rather than set aside.
Summary
73. Reviews of registrar’s orders, like appeals to the Full Court, are outside the intended ambit of s.37 of the Bankruptcy Act 1966. The circumstances leading to appeal and review do not appear to have been contemplated when s.37 was enacted. 74. To ensure the constitutional validity of the delegation of judicial power to registrars the court must maintain effective review processes. This means that the court must consider the matter afresh and exercise any discretion for itself. However, this does not mean that the court should ignore what may have occurred before the registrar or between then and the review hearing, especially if orders may impact upon persons other than the parties and trustee. 75. The Court first considers whether or not the sequestration order should be affirmed. If the sequestration order is not to be affirmed the court should then consider whether the circumstances require that an order, other than an order setting aside the registrar’s order (such as an annulment order) should be made. 76. In determining what orders ought to be made the court has a broad discretion. The considerations that will usually be relevant include the following:
a) Ordinarily, a review application made within the time limit would result in an order setting aside the sequestration order: Kyriackou v Shield Mercantile Pty Ltd (No 2)[2004] FCA 1338 at [39]; Blanco v Employees Mutual Indemnity (Workers Compensation) Ltd and Another [2002] FMCA 38. As with appeals, this is presently a risk inherent in the function of trustees: Garrett v Deputy Commissioner of Taxation [2005] FMCA 19.
b) When considering whether to exercise the discretion to annul, rather than set aside, regard should be had to all of the relevant facts and circumstances, which will usually include:
i) Whether the administration of the estate has resulted in events or transactions for which the protections of s.154 are reasonably required. ii) Whether the review applicant should ever have been made bankrupt; iii) Whether the review has been filed and prosecuted in a timely fashion; iv) The conduct of the parties; and v) The circumstances leading to the sequestration order, including the nature of the debt (such as business or trading debts compared to personal debts), and the amount of the debt.
Conclusions
77. In this case it appears that the effect upon the parties of an order setting aside the bankruptcy compared to an annulment only goes to the question of whether or not the bankrupt will have to pay the expenses of the Trustee in administering the estate for the very short period between the sequestration order and the date of setting aside or annulment. 78. The debt was for a relatively small sum, which is equivalent to only one third of the trustee’s claims for remuneration and expenses. The debt was for hospital fees the bankrupt thought were covered by his medical insurance. The bankrupt is unable to properly manage his own affairs. The debt was paid by his father soon after the sequestration order was made. He is solvent and should never have been made bankrupt. 79. Having regard to the bankrupt’s particular capacities it is difficult to conclude that this is a case of a flagrant, reckless or even negligent disregard of court process, nor was there any collateral advantage to the bankrupt of the type that may be sought by a commercial trader forestalling payment. 80. There is no evidence before me as to why the creditor did not simply move to recover the judgment debt as against the interest of the respondent in the home that he jointly owns with his father and brother. The process is relatively straightforward and relatively inexpensive. As Deane J said in Sarina v Council of the Shire of Wollondilly [1980] FCA 66; (1980) 43 FLR 163 at 165 (affirmed on appeal at [1980] FCA 138; (1980) 48 FLR 372):
This principle is now well accepted and has been restated with approval in a large number of cases, including: Charlwood Industries Pty Limited v Cubitt and Ors [1995] FCA unrep7377 (per Gummow J) and the Full Court decision in Stankiewicz v Plata [2000] FCA 1185.It does not appear to me that it is possible to divine any policy underlying the provisions of the [Bankruptcy] Act to the effect that a creditor should be entitled to make a recalcitrant debtor bankrupt even though the debtor satisfies the court that he is plainly solvent and able to pay his debts. It seems to me that it may well be that the legislative intent was to leave a creditor, in those circumstances, to the ordinary remedies by way of execution and garnishee.
I certify that the preceding eighty-four (84) paragraphs are a true copy of the reasons for judgment of Riethmuller FM
81. Aside from the fact that the bankruptcy scheme is intended for those who are insolvent, this principle also protects against a potential practical problem that could develop of trustees feasting on the assets of solvent estates. 82. This is not a case where the bankrupt could be said to have had a merely ‘sterile’ ability to pay because assets had been placed beyond the reach of the creditors: Trojan v Corporation of Hindmarsh [1987] FCA 276; (1987) 16 FCR 37. In this case the creditor does not appear to have even searched to determine whether the debtor was the proprietor of any real estate (see the letter from creditor’s solicitors to trustee of 10 November 2005). 83. Had the trustee proceeded cautiously, few expenses needed to be incurred in this administration in the early stages it had reached before payment. The trustee has rights to pursue at least part of his claims independently of these proceedings, if he so wishes: see 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq.) [1999] FCA 144. There is no evidence of any need for the general projections of s.154. 84. In the particular circumstances of this case I am not satisfied that it is appropriate to make an annulment order, rather than setting aside the registrar’s sequestration order.
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