Stanton S.J. v Deputy Commissioner of Taxation [1995] FCA 730

IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) BANKRUPTCY DISTRICT OF THE ) No. NB507 of 1994 STATE OF NEW SOUTH WALES ) RE: STEPHEN J STANTON Debtor EX PARTE: DEPUTY COMMISSIONER OF TAXATION Creditor

CORAM: HILL J PLACE: SYDNEY DATED: 2 MAY 1995

REASONS FOR JUDGMENT Before the Court is an application by Mr Stanton that his bankruptcy be annulled. Mr Stanton, who is a practising barrister, was made bankrupt pursuant to a sequestration order made on 8 March 1994, by Foster J. On 29 March 1994, Foster J stayed the operation of that sequestration order pending the determination of an appeal lodged by Mr Stanton against that order. The Deputy Commissioner of Taxation was the petitioning creditor and no other creditor appeared when the matter was called on for hearing. Mr Stanton has given evidence of the circumstances which led up to the making of the sequestration order. It is not necessary to detail them in full, suffice it to say that he was involved in certain criminal proceedings which culminated in a trial commencing on 15 November 1993 and ultimately resulted in an acquittal. It seems in part that he

neglected his own financial affairs save that he put himself in the hands of a consultant who was instructed to raise moneys to discharge a liability to the Deputy Commissioner of Taxation, but who apparently failed in this task. Mr Stanton has deposed that as at the time the petition was heard he had assets totalling in excess of $1 million and liabilities of $602,103. Of these liabilities, the amount of $480,000 was secured by mortgage to what is now known as BankWest. The debt to the Australian Taxation Office was in the amount of $34,000 and has now been discharged, as has an amount of $5,00 owing to the Australian Government solicitor. The situation, as it is at present, is that of the amounts owing by Mr Stanton and unsecured the only outstanding creditor is Household Finance Corporation, which was owed the sum of $8,000. That company has been advised of the present application and has confirmed that it does not oppose it. Mr Stanton has sworn that he had no other creditors except as set out in an annexure to his affidavit and has contemplated that the amount owing to BankWest, which is in any event secured over a property considerably in excess of the amount of indebtedness, was intended to be discharged. The application is founded upon s153B of the Bankruptcy Act 1966 ("the Act") which requires that the Court be satisfied that the sequestration order ought not to have been made. This ground contrasts with what was earlier a ground for annulment, namely, the payment in full of all debts. For the Court to be satisfied that a sequestration order ought not to have been made, there is much to be said for the view that the Court must be satisfied on the balance of probabilities that had the facts disclosed to the Court been known by the judge who heard the petition, no order would have been possible other than an order dismissing it. Section 52 of the Act makes it clear that, notwithstanding proof of all of the matters of which that section requires proof, the Court retains a discretion whether or not to make a sequestration order. In other words, although there may be proof that a bankruptcy notice has been issued on behalf of a creditor and remains unpaid so as to constitute an act of bankruptcy in an amount in excess of the prescribed amount, the Court retains a discretion whether or not to proceed to make a sequestration order. It is generally accepted that if a debtor demonstrates solvency the petition will be dismissed (cf Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596) but the matter still remains in the discretion of the Court and under the Court's control. From this it follows that if nothing more were shown than that a debtor was solvent at the time the petition was heard, a debtor would not have made out a case that the sequestration order ought not to have been made for the simple reason that the issue lay in the discretion of the Court. However, the present case goes beyond demonstrating solvency. It demonstrates in addition the circumstances which led to Mr Stanton's neglect of his own affairs and on the evidence I am satisfied that the case is one of the rare cases where it can be said that the sequestration order ought not to have been made. It is relevant that the order is not opposed by the one unsecured creditor whose debt remains outstanding and that other debts have been paid. Accordingly, I would order, subject to the imposition of a condition that within seven days of today's date Mr Stanton consent to an order that the appeal lodged by him to the Full Court from the order made by Foster J be dismissed or that he seek leave in that time to discontinue that appeal, that his bankruptcy be annulled. I order that Mr Stanton pay the costs of the Commissioner of Taxation as assessed by agreement in the sum of $500.00. I certify that this and the preceding three (3) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Hill.