CATCHWORDS BANKRUPTCY - application for annulment - debtor's petition - whether abuse of process - debtor not insolvent at time of presentation of debtor's petition nor did he belzreve that he was - ulterior private purpose foreign to s.55 - false affidavit "accompanying debtor's petition - bankruptcy annulled. Bankruptcy Act 1966 ss. 55,154 Clyne v. Deputy Commissioner of Taxation (1984) 154 C.L.R. 589 Sandeli v. Porter (1966) 115 C.L.R. 666 In re Betts; Ex parte Official Receiver (1901) 2 KB 39 Re Mottee; Ex parte Mottee (1977) 29 F.L.R. 406 Re Raimondo Moncada Ex parte: Giovanna Mary Moncada and Official Trustee in Bankruptcy No. W175 of 1981 Jackson J. lst May 1986 Sydney IN THE FEDERAL COURT OF AUSTRALTA GENERAL DIVISTON BANKRUPTCY DISTRICT OF THE STATE OF No. W175 of 1981 NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: RAIMONDO MONCADA ° Debtor EX PARTE: GIOVANNA MARY MONCADA Applicant OFFICIAL TRUSTEE IN BANKRUPTCY Respondent JUDGE MAKING ORDER: JACKSON J. DATE _OF ORDER : 1ST MAY 1986 WHERE MADE: SYDNEY MINUTES OF ORDER THE COURT ORDERS THAT: - 1. The bankrupt's bankruptcy which commenced on 4th March 1981 be, and is hereby, annulled. 2. So much of the property as revests in the bankrupt by reason of the annulment of that bankruptcy revest subject to the condition that the remuneration of the trustee be satisfied from that property. 3. The bankrupt pay to the applicant and to the trustee their costs of and incidental to these proceedings, including reserved costs to he taxed. Note: Settlement and entry of orders is dealt with in Rule 124 of the BankruptLy Rules. IN_THE' FEDERAL COURT OF AUSTRALTA GENERAL DIVISION ) ) ) ) BANKRUPTCY DISTRICT OF THE STATE OF ) No. W175 of 1981 ) NEW SOUTH WALES AND ) ) ) THE AUSTRALIAN CAPITAL TERRITORY RE: RATMONDO MONCADA Debtor EX PARTE: GIOVANNA MARY MONCADA Applicant OFFICTAL TRUSTEE IN BANKRUPTCY Respondent CORAM: JACKSON J. DATE: ist May 1986 PLACE SYDNEY REASONS FOR JUDGMENT These are proceedings in which the applicant, the former wife of Raimondo Moncada ("the bankrupt"), seeks an order annulling his bankruptcy, a bankruptcy which had come to pass by the presentation and acceptance by the Registrar of the sate La STS Sawn mntntin, Sites tach ie enchant = Co al a La hte Nt nan Lilt Sem teag ala eae Te nr Fe kaa Tr Ze bankrupt's own petition on 4th March 1981. At that time the bankrupt swore in his Statement of Affairs that his assets consisted of a panel van and some other items, those assets having a total value of $800.00. According to that Statement of Affairs his liabilities, on the other hand, totalled approximately $36,800.00, of which $700.00 was in respect of loans from his sister and mother and father, a further $1,100.00 was stated to be due to Sly & Russell for legal costs and the balance of $35,000.00 was expressed to be due to his former wife, the present applicant, in respect of an order of the Family Court of Western Australia made on 19th November 1980. The relevant order is as follows:- "1. By way of settlement of property the husband pay to the wife the sum of $35,000.00 within one month of the date of this order. 2. %In the event of failure by the husband to pay : to the wife the said sum of $35,000.00 by due date he pay to the wife interest thereon or on so much as remains outstanding from time to time at the rate of 12 1/2% per annum to commence on the date of due payment and until final payment." As I have said the pétition was presented by the bankrupt on 4th March 1981 and, if it stated correctly the assets which he then possessed, there had been a marked decline in his fortunes in the period between 1978 and the date of presentation of the petition. There would have heen a marked decline because it seems clear that in May 1978, when the applicant and the bankrupt Lenn nt ah arene ern la IE Le Sate al en oa La tmnt eet amet am allies Tene Ah a me separated, the bankrupt had held in a bank account a substantial sum of money, and had also been the owner of a home at 157 Croydon Road, Croydon which was unencumbered. The money held in the bank was admittedly in November 1977 about $27,000.00 ~ $28,000.00 and on any view was at least about $21,000.00 in May 1978. The bankrupt contends, however that as a consequence of the breakup of the marriage, he began to gamble heavily and in a short space of time dissipated the whole fund. So far as the house at Croydon is concerned, the bankrupt contends that by a sale completed on 22nd September 1978 he sold the property to his parents for $35,000.00. Of that $35,000.00, $22,000.00 was paid by bank cheque, (a copy of which is in evidence) and the remainder by cash. The bankrupt then paid the Commissioner of Taxation about $4,000.00 in cash and decided, he contends, to keep the money in cash in an empty beer box ina shed at 157 Croydon Road, Croydon. By an accident, his father (at some stage in January 1979 or perhaps in early February 1979) cleaned out the, shed and, treating the beer box and contents as rubbish, burnt the money. Before me the bankrupt preferred not to give evidence as to the losses to which I have referred and instead his counsel relied on the transcript of his evidence in his examination under s.69 of the Bankruptcy Act 1966 and on a transcript of evidence given by him in the Family Court on 21st November 1983. Having Lene te eat a aL tae atti Mra T Aon Cd tian ain ee Saat EE RN ree aambnerttateM Sekt FEA bat eee cere Se AS nw et an et wine he s 4. perused that material and considered it in the light of the other evidence before me, I am not satisfied that the losses of money by gambling and by the burning of the remaining proceeds of sale occurred. The stories (at least when taken together) are sufficiently improbable to require as a practical matter some corroboration before they could be believed, and there is none. In addition, the detail of the evidence of losses given by the bankrupt on the occasions to which I have referred is unsatisfactory. He was unable to give evidence concerning the gambling losses other than to say that on about six occasions a Man named Frank, a man whom he met at a coffee lounge at Leichhardt, and whom he could not identify, had taken him toa house at Cabramatta which he could not identify in an old Japanese car which he could not identify. He said that he had there lost the whole of the $21,000.00, a contention which does not sit well with paragraph 25 of his affidavit in the Family Court of Western Australia sworn on lith September 1978 when he said that he "commenced to gamble heavily at clubs and in private card games". I also find it impossible to believe that having been to the same house on six occasions he could not further identify its location. I regard his evidence contained in those transcripts in relation to the loss of the $21,000.00 as unsatisfactory overall and I do not accept it. So far as concerns the burning of the proceeds of sale of the house, it strains one's credulity to believe that a person ele ~- watt ana tt al EL mt er et EES Al A th at iit a Reet ae a rt a to Se who had gambled away his savings of at least $21,000.00 a few nonths before could be so cavalier in handling another very large sum. of money as to place it in a shed. The bankrupt's mother gave evidence that in the family it had been the custom for the bankrupt's parents to keep substantial sums of money in cash in the house and I suppose that one might, if that evidence were accepted, more readily draw the conclusion that it would not be surprising for the bankrupt to keep substantial sums of money otherwise than in the bank. I do not believe her evidence on this point, however, and I thought it clear from her demeanour when giving evidence that this was one of a significant number of instances when she was prepared to say whatever she thought would , best assist her son's case, regardless of the truth. Further, the bankrupt's mother was the only participant in the transaction of the sale of the Croydon house who gave evidence before me although both the bankrupt and the father were available to give evidence. The bankrupt's mother's evidence on the sources of funds for the purchase was entirely unsatisfactory and I do not believe it. Indeed, it seems to me very doubtful whether the transfer of the property to the bankrupt's parents was intended to transfer beneficial ownership to them and, whilst I am not prepared to make a finding on the issue, I have considerable suspicion that the money said to have been gambled away was in fact used as the source, or the substantial source of funds to provide the bank cheque for $22,000.00 which changed hands at "completion" of the sale in September 1978. : me In the result L am not satisfied that the money said to have been burnt was lost in that manner. The result which follows is that in 1978 the bankrupt had funds in a bank account and either an equitable interest in the "Croydon house or the funds in lieu, and there is nothing to show that the position had changed at the time when he presented his petition. . 7 5 8.154(1)(a) of the Bankruptcy Act 1966 provides that:- "(1) Where the Court is satisfied - (a) -». in the case of a debtor's petition, that the petition ought not to have been presented . or ought not to have been accepted by the Registrar; the Court may make an order annulling the bankruptcy." ! It is clear from the observations of Gibbs C.J., Murphy, Brennan and Dawson JJ. in Clyne v. Deputy Commissioner of "Taxation (1984) 154 C.L.R. 589 at 598 that if the presentation by a debtor of a debtor's petition amounts to an abuse of the process provided by s.55 of the Act it can properly be said that, in terms of s.154(1)(a), the petition "ought not to have been presented" and that power exists to annul the bankruptcy. One of the circumstances in which the presentation of a debtor's petition may relevantly amount to an abuse of the 'process is when the debtor is not,at the time of presentation of ya ee hae teeta ltl a a Tah cat cette AN Ta ee tats te laa Oe wets tele 7. the debtor's petition, insolvent in the sense described in Sandell v. Porter (1966) 115 C.L.R. 666 at 670. I say that the circumstance that the debtor is not insolvent may (as distinct from "must") give rise to an abuse of process because the debtor may not be insolvent in fact but may "reasonably" (or perhaps "honestly" - it is unnecessary to decide which is the correct test) but wrongly believe that he is insolvent, and in such a case the presentation of the petition would not be an abuse of process. Compare In Re Betts; Ex parte Official Receiver (1901) 2 K.B. 39 and Re Mottee; Ex parte Mottee (1977) 29 F.L.R. 406 at 412, 413. In the present case I am satisfied that the bankrupt was not insolvent at the time when he presented his petition under 3.55 and I am satisfied that he did not believe that he was. On that ground I would regard the presentation of the petition as an abuse of process. Further I am satisfied that the purpose of the bankrupt in presenting his own petition was to seek to make it more difficult for the applicant to recover the money which he had been ordered to pay her by way of property settlement, and that in the light of the bankrupt's actual assets, that purpose was the pursuit of an ulterior private purpose, an ulterior private purpose which, to use the words of Gibbs C.J., Murphy, Brennan and Dawson JJ. in Clyne v. Deputy Commissioner of Taxation (supra) at 599, was in the particular case a purpose foreign to the purpose of 5.55 of the Bankruptcy Act. i, _ - in Seto on "+. a c. cei elem i ee a npn Salas a cd etm Te et tm hee me eS te tet ee Aa) ° ; 7 a - 8. . Another matter is that, in the light of the findings which "I have made, there has been a grossly untrue affidavit presented _ by the bankrupt to the Registrar and in those circumstances the petition should not have been presented. If the true facts had then been known, the petition should not have been accepted. The question which then arises is whether the discretion to annul the bankruptcy should be exercised. In that regard it seems to me clear that it should, in order to enable the applicant to seek to enforce the order for property settlement made in her favour, without such additional difficulties as may be caused by a bankruptcy which should not have occurred. The only feature which militates against annulment is the length of time which has elapsed since the bankruptcy. No prejudice has been established by the bankrupt, however, and I am also not satisfied that any delay by the applicant is a delay for which she is culpable. It is unnecessary, in the light of the views which I have expressed, to deal with a number of other matters raised before me, including the question whether the judgment of the Family Court of Western Australia has given rise to relevant estoppels as between the applicant and the bankrupt. In the circumstances, I shall make the following orders:- OST err ee ee oe wes peers a aah rn % 1. I order that the bankrupt's bankruptcy which commenced on 4th March 1981 be, and is hereby, annulled. 2. I order that so much of the property as revests in the bankrupt by reason of the annulment of that bankruptcy revest subject to the condition that the remuneration of the trustee be satisfied from that property. 3. I order that the bankrupt pay to the applicant and to the trustee their costs of and incidental to these proceedings, including reserved casts to he taxed. In the light of the views which I have taken and in the light of the material brought before me I have decided to direct the Registrar to send the papers to the Director of Public TT Prosecutions for the purpose of enabling him to consider whether the question of a prosecution for perjury should be further examined. Reasons for Judgment hera:urof his Honcur : Mr. Justice Jacksau j ¢ : Asscciate i Dated: /- gG