Re Evans, R.A. v Ex parte Sweeney, P.D. [1995] FCA 340

CATCHWORDS BANKRUPTCY PETITION - debtor's petition - annulment - abuse of process of court - petition presented for a purpose foreign to the bankruptcy laws - presented in response to, and to circumvent, income contributions in an earlier bankruptcy BANKRUPTCY PRACTICE - no appearance to oppose application for annulment - application entertained - no application for adjournment Bankruptcy Act 1966, s. 153B Edelsten v Deputy Commissioner of Taxation (NSW) (1989) 86 ALR 257 Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 RE: ROSS ALEXANDER EVANS; EX PARTE: PAUL DESMOND SWEENEY No. QB 292 of 1995 SPENDER J BRISBANE 19 MAY 1995

IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) No. QB 292 of 1995 BANKRUPTCY DISTRICT OF THE ) STATE OF QUEENSLAND ) RE : ROSS ALEXANDER EVANS EX PARTE : PAUL DESMOND SWEENEY

CORAM: SPENDER J PLACE: BRISBANE DATE: 19 MAY 1995 MINUTES OF ORDER THE COURT ORDERS THAT: 1. The bankruptcy of Ross Alexander Evans founded on the presentation of the debtor's petition on 15 February 1995, is annulled pursuant to s. 153B of the Bankruptcy Act (1966). 2. The bankrupt, Ross Alexander Evans, is to pay the applicant's costs of and incidental to this application, including any reserved costs, to be taxed if not agreed. 3. The Official Trustee's costs, of and incidental to this application, be taxed and paid out of the estate of the bankrupt. Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) No. QB 292 of 1995 BANKRUPTCY DISTRICT OF THE ) STATE OF QUEENSLAND ) RE : ROSS ALEXANDER EVANS EX PARTE : PAUL DESMOND SWEENEY CORAM: Spender J PLACE: Brisbane DATE: 19 May 1995 REASONS FOR JUDGMENT This is an application filed on 12 April 1995 on behalf of Paul Desmond Sweeney, as trustee of the estate of Ross Alexander Evans, for an order that the bankruptcy of Mr Evans, in Estate No. 292 of 1995 commenced by debtor's petition which was accepted on 16 February 1995, be annulled on the grounds that the said debtor's petition ought not to have been presented. There was also an application that the bankrupt pay the applicant's costs of and incidental to this application to be taxed. When the matter was called on before the Registrar this morning there was no appearance by or on behalf of Dr Evans. The matter was referred to me and again there was no appearance by Dr Evans or anybody on his behalf. I have entertained the application. I have done this notwithstanding that a letter dated 18 May 1995 from Mr Andrew Douglas, a solicitor, was transmitted by facsimile transmission to the Registrar in relation to the application which had been set down for 9.30 a.m. today. According to that letter, Dr Evans wishes to oppose the application. However, the letter also alleges that Dr Evans will not be in a position to proceed on his opposition to the application. The letter refers to the fact that Dr Evans had been served approximately three weeks prior to 18 May. He consulted Mr Douglas on Thursday, 11 May. He delivered documents on 15 May and, according to Mr Douglas, Mr Douglas became ill on the afternoon of 15 May. The letter said: " ...it is not unreasonable for my client to be granted an adjournment of two weeks to enable him to prepare his case. " The letter concluded by saying: " I am sending a copy of this letter to the Applicant's solicitors today. " The List Officer in the Federal Court advised Mr Douglas that the matter will remain listed if consent from the other side to an adjournment is not received. On 18 May, Bayliss Rodgers, solicitors acting for Mr Sweeney, by facsimile transmission wrote to Mr Andrew Douglas referring to the facsimile transmission received. The letter said: " Your application for an adjournment will be opposed. " And concluded by saying: " We intend to proceed with the application tomorrow. " No application for an adjournment was made today, there being no appearance either by Dr Evans, Mr Douglas or any other person on behalf of Mr Evans. Parties to litigation cannot obtain an adjournment which is opposed simply by making a request and then by not appearing to prosecute the application for an adjournment. I will now deal with the substance of the application. Ross Alexander Evans of 50 Buranda Street, Kirwan, Queensland presented a debtor's petition on 15 February 1995 which was accepted by a Deputy Registrar in Bankruptcy on 16 February, 1995. And Mr Evans became bankrupt on that day. The statement of affairs accompanying that debtor's petition disclosed assets of $2,500 and a total liability of $34,100. The vast bulk of the liabilities constituted compulsory contributions totalling $33,000 in respect of contributions assessed by Mr Paul Desmond Sweeney, the Trustee in an earlier bankruptcy of Dr Evans. Dr Evans said that he was employed as a part-time medical practitioner by the Willows Medical Centre. He said that his income for the past 12 months was $21,000, and his estimate for the next 12 months was $20,000. The bankrupt also disclosed that he was an undischarged bankrupt, and that Mr Paul Sweeney was the Trustee of that estate. According to the cause of the bankruptcy claimed by Dr Evans in the debtors petition, his bankruptcy is attributable to reassessments of compulsory contributions in 1994, resulting in his inability to meet the liability. There is a much older bankruptcy of Dr Evans. He first became bankrupt on 31 October 1983. In respect of that bankruptcy, he was discharged pursuant to section 149 of the Bankruptcy Act (1966) on 1 November 1986. The bankruptcy of which Mr Sweeney is Trustee occurred on 19 February 1992 upon a creditor's petition issued by Commercial Rentals Pty Ltd. Initially the Official Trustee was the trustee of the estate of the bankrupt pursuant to that bankruptcy, but at a meeting of creditors held on 20 April 1994, Mr Sweeney was appointed Trustee. According to the affidavit of Mr Sweeney, before his appointment as Trustee, the Official Trustee had requested certain information from the bankrupt and the bankrupt failed to provide that information. Based on that default and the failure of the bankrupt to attend a public examination which had been arranged at the instigation of a creditor of the estate, Mr Sweeney lodged an objection to the bankrupt's automatic discharge on 29 June 1994. When Mr Sweeney was appointed Trustee he requested certain information from Dr Evans as to his liability to make compulsory income contributions. The bankrupt did not provide the requested information, and Mr Sweeney thereupon made certain default assessments which, for the period to 30 June 1995, would total $59,064.78. Mr Sweeney swears that the bankrupt failed to pay the first instalment due in respect of the said assessments, which led to Mr Sweeney lodging a further objection to the bankrupt's automatic discharge on 13 October 1994. Dr Evans requested the Inspector General in Bankruptcy to review the compulsory income contribution assessments issued, and also to review the objections which had been lodged. Upon that review, Mr Sweeney agreed to withdraw the first part of his first objection, namely that the bankrupt failed to supply written information about the bankrupt's property income or expected income, but the Inspector-General upheld the balance of Mr Sweeney's objections and confirmed the compulsory income contribution assessments. As a result of the objections which have been upheld and are in force, the bankrupt will remain a bankrupt in Estate No. 388 of 1992 until 27 April 2000. Dr Evans has failed to pay any instalments towards compulsory income contribution assessments. In respect of his debtors petition presented on 15 February 1995, Dr Evans has made it clear in his statement of affairs and also in his discussions with Insolvency and Trustee Service Australia ("ITSA") staff that the reason for the presentation of the debtors petition resulting in his third bankruptcy was to release him from his compulsory contribution liability. The report of Digby Nicholas Bartholomew Ross, the Official Receiver for the Bankruptcy District of the State of Queensland, indicates that on 19 April 1995 ITSA received a letter from the bankrupt proposing a scheme of arrangement to effect the annulment of both bankruptcies. The proposal contemplates a payment of $40,000 to the Official Trustee for the benefit of his creditors - I assume in both bankruptcies - in full settlement of his debts. There are other proposals in relation to it. The short point on the present application is whether the debtors petition ought not to have been presented. Section 153B provides: " If the court is satisfied that a sequestration order ought not to have been made or, in the case of a debtors 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. " Mr Sweeney deposes to a belief that as a result of answers by Dr Evans and his wife during a public examination in Townsville on 25 March 1994 and other documents, Dr Evans does not maintain a bank account. His medical practice is conducted in his wife's name, and he receives cheques from the Health Insurance Commission in respect of the provision of medical services by Dr Evans to patients which Dr Evans endorses in favour of his wife, who deposits the cheques to her account. In Edelsten v Deputy Commissioner of Taxation (NSW) (1989) 86 ALR 257, a Full Court of the Federal Court (Lockhart, Wilcox and Pincus JJ) was concerned with an appeal from the annulment of a bankruptcy where the primary judge, Burchett J, had found that the presentation of the debtor's petition was for the purpose of reducing the prospect that certain transactions entered into by him could be set aside as preferences. The appeal to the Full Court was dismissed, the Full Court concluding that a debtor's petition for bankruptcy will constitute an abuse of process if it is presented for a purpose, whatever that purpose may be, which is foreign to the bankruptcy laws. The Full Court applied Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589. The Full Court concluded that the appropriate standard of proof in respect of the appellant's purpose in presenting the debtor's petition was that on the balance of probabilities. In Clyne, Gibbs CJ, Murphy, Brennan and Dawson JJ, at p. 599, said: " In our opinion, a distinction must be drawn between the pursuit of 'an ulterior private purpose' - which may not necessarily amount to an abuse of process - and a purpose foreign to the nature of the process in question...It is a purpose foreign to the bankruptcy laws, and an abuse of process for a debtor to present a petition for the purpose of making it possible for a creditor to obtain a sequestration order on a pending petition and with the further purpose of shortening the period of relation back, possibly placing beyond the reach of the trustee property which would otherwise vest in him. " The Full Court in Edelsten (supra) said, at p. 261: " In Clyne, the High Court was concerned with a case in which the two purposes referred to were established by the evidence. We read their Honours as saying no more than that, in such a case, the petition will constitute an abuse of process. The adoption by their Honours of the touchstone 'purpose foreign to the bankruptcy laws', combined with their use of the English decisions, demonstrates that they saw the facts of the particular case as constituting merely an illustration of a more general principle. In our view, the ratio decidendi of Clyne is that a petition will constitute an abuse of process if it is presented for a purpose, whatever that purpose may be, which is foreign to the bankruptcy laws. " In this case, the question becomes the simple one of whether the purpose of Dr Evans, in presenting his debtor's petition on 15 February this year, which purpose was, I find, to release him from his compulsory contribution and liability in the sense of making those amounts simply debts provable in the bankruptcy founded on the presentation of his debtor's petition, was a purpose foreign to the bankruptcy laws. In my opinion, it clearly is. If it were otherwise, there could be a succession of assessments of income contributions in each particular bankruptcy, the prosecution of which would be frustrated if it were competent for a bankrupt to present a further debtor's petition, in which the earlier income assessments would become simply provable debts. In my opinion, the debtor's petition of Dr Evans presented on 15 February 1995 constituted an abuse of process. It "ought not to have been presented", within the terms of section 153B, and I make an order annulling that bankruptcy. It seems to me right that I should order that the bankrupt, Ross Alexander Evans, pay the applicant's costs of and incidental to this application, including any reserve costs to be taxed, if not agreed. In respect of the Official Trustee's costs, of and incidental to the application by Paul Desmond Sweeney for the annulment of the bankruptcy founded on the presentation of the debtor's petition on 15 February 1995, I order that those costs of the Official Trustee be taxed and paid out of the estate of the bankrupt. I have annulled the bankruptcy founded on the presentation of the debtor's petition on 15 February 1995. I certify that this and the preceding eight (8) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender. Associate Date: 19 May 1995 Counsel for the applicant : Mr R. Perry Solicitors for the applicant: Bayliss Rodgers No appearance for the respondent. Appearance for the Official Trustee: Mr R. Tom Date of Hearing : 19 May 1995