FEDERAL COURT OF AUSTRALIA Vonidis v BMW Australia Finance Limited [2011] FCA 589 Citation: Vonidis v BMW Australia Finance Limited [2011] FCA 589 Appeal from: Vonidis v BMW Australia Finance Limited [2010] FMCA 972 Parties: ALEXANDER VONIDIS v BMW AUSTRALIA FINANCE LIMITED (ACN 007 101 715) File number: VID 7 of 2011 Judge: FOSTER J Date of judgment: 31 May 2011 Catchwords: BANKRUPTCY – whether the appellant was denied procedural fairness when a Registrar of the Federal Magistrates Court made a sequestration order against his estate in his absence in circumstances where service of the bankruptcy notice and of the creditor's petition had been effected in accordance with orders for substituted service made by the Federal Magistrates Court – whether the sequestration order made against the appellant's estate should be set aside pursuant to reg 16.05(2)(a) of the Federal Magistrates Court Rules – whether the appellant's bankruptcy should be annulled Legislation: Bankruptcy Act 1966 (Cth) s 153B Federal Magistrates Court Rules 2001 regs 6.14 to 6.16 and 16.05(2)(a) Federal Court Rules O 35 r 7 Cases cited: Vonidis v BMW Australia Finance Limited [2010] FMCA 972 related Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 applied Bright v Femcare Ltd (1999) 166 ALR 743 cited Bulic v Commonwealth Bank of Australia Limited [2007] FCA 307 followed Kostokanellis v Allen [1974] VR 596 referred to Re Daskalovski; Ex parte The Austral Brick Co Pty Ltd [1998] FCA 782 cited Rigg v Baker (2006) 155 FCR 531 applied Date of hearing: 27 May 2011 Place: Sydney (via video link to Melbourne) Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 60 Counsel for the Appellant: Mr DK Carlile Solicitor for the Appellant: Starnet Legal Pty Ltd (Mr K Boden) Counsel for the Respondent: Mr GW Moffatt Solicitor for the Respondent: Mills Oakley Lawyers (Mr A Sergi) There was no appearance either by or on behalf of the Appellant's trustees in bankruptcy IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 7 of 2011 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: ALEXANDER VONIDIS Appellant AND: BMW AUSTRALIA FINANCE LIMITED (ACN 007 101 715) Respondent JUDGE: FOSTER J DATE OF ORDER: 31 MAY 2011 WHERE MADE: SYDNEY (VIA VIDEO LINK TO MELBOURNe) THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The costs of the respondent of and incidental to the appeal be paid out of the appellant's bankrupt estate in accordance with the Bankruptcy Act 1966 (Cth). Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 7 of 2011 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: ALEXANDER VONIDIS Appellant AND: BMW AUSTRALIA FINANCE LIMITED (ACN 007 101 715) Respondent JUDGE: FOSTER J DATE: 31 MAY 2011 PLACE: SYDNEY (VIA VIDEO LINK TO MELBOURNE) REASONS FOR JUDGMENT 1 On 27 July 2010, upon the application of the respondent as petitioning creditor (the creditor), a sequestration order (the sequestration order) was made against the estate of the appellant by a Registrar of the Federal Magistrates Court of Australia. On the same day, Peter Robert Vince and Kylie Maree Wright were appointed as the appellant's trustees in bankruptcy. 2 By Application filed in the Federal Magistrates Court on 16 August 2010, the appellant claimed the following relief: 1. A declaration that the applicant did not receive Notice of the Bankruptcy Notice and or the Creditor's petition. 2. An Order annulling the bankruptcy pursuant to section 153B of the Bankruptcy Act 1966. 3. An Order that the respondent pays the applicant's costs of this application. 4. Further and or alternative relief as the Court deems appropriate. 3 Subsequently, shortly before the hearing of that Application, the appellant amended his Application so as to include within his claims for relief a claim for an order setting aside the sequestration order. The claim for this additional order was made "… pursuant to regulation 16.05 of the Federal Magistrates Court Rules, 2001". Regulation 16.05 provides that the Federal Magistrates Court may vary or set aside its judgment or order after it has been entered if (inter alia) the order was made in the absence of the party seeking to set aside that order (reg 16.05(2)(a)). In the present case, the sequestration order was made in the absence of the appellant. The sequestration order was entered on 27 July 2010. Thus, the power bestowed upon the Federal Magistrates Court by reg 16.05(2)(a) was engaged. The decision then to be made by the Federal Magistrates Court was whether, in the circumstances of the present case, it should exercise its discretion to set aside the sequestration order. 4 In a judgment delivered on 20 December 2010, a Federal Magistrate dismissed the appellant's Application (Vonidis v BMW Australia Finance Limited [2010] FMCA 972). The Federal Magistrate also ordered that the costs of the trustees and of the creditor of the application before him be paid out of the estate of the appellant in accordance with the Bankruptcy Act 1966 (Cth) (the Act). 5 As the Federal Magistrate correctly noted at [32] of his reasons, the appellant never applied to the Federal Magistrates Court for a review of the Registrar's decision to make a sequestration order. The application determined by the Federal Magistrate was based upon reg 16.05(2)(a) of the Federal Magistrates Rules 2001 and s 153B of the Act (annulment) and on those provisions alone. The appellant's sole contention was that he should be granted the relief which he sought because he had not been aware of the bankruptcy proceedings at any time before 27 July 2010, when the sequestration order was made. His case was that he was first made aware of those proceedings on 10 August 2010. He also argued that he was solvent, in any event, in answer to the creditor's contention that he was not able to pay his debts as and when they fell due. 6 On 10 January 2011, the appellant appealed to this Court from the Federal Magistrate's decision. The grounds of appeal specified in the appellant's Notice of Appeal in this Court are in the following terms: 1. The Honourable Court erred in failing to annul the bankruptcy in circumstances where it held that the appellant had not been served with the bankruptcy notice and creditors petition. 2. The Honourable Court erred in failing to exercise its discretion to annul the bankruptcy. 3. The Honourable Court erred in failing to give adequate weight to the fact that it determined that the appellant had not been served with the bankruptcy notice and creditors petition. 4. The Honourable Court erred in giving too much weight to the issue of solvency of the appellant. 7 In this Court, the appellant seeks an order setting aside the Federal Magistrate's decision and an order annulling his bankruptcy. 8 The appeal in this Court is by way of rehearing. In order to succeed, the appellant must demonstrate that the judgment of the Federal Magistrate was infected with appellable error (Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [20]–[25] (pp 434–435) per Allsop J). 9 These Reasons for Judgment determine the appellant's appeal in this Court. The Relevant Background Facts 10 By an agreement styled "Prestige Purchase Agreement" dated 14 December 2004 (the hiring agreement), the appellant hired from the creditor a green pre-owned 1998 Ford Explore-Up Wagon XLT (the vehicle). The total of the instalments payable under the hiring agreement was $22,922.40. 11 In the hiring agreement, the appellant's residential address was shown as "132 Belgrave Ferny Creek Road, Tecoma, Vic" (the Tecoma address). In that agreement, the Tecoma address was also specified as the address where the vehicle would ordinarily be kept during the currency of the hiring agreement. 12 In 2006, the appellant failed to make several payments which had become due and payable under the hiring agreement. For that reason, the creditor terminated that agreement. 13 In late 2006, after the creditor had terminated the hiring agreement, it repossessed the vehicle. The vehicle was then sold by the creditor and the proceeds of sale were credited by it against the amount which was then due and payable to it by the appellant under the hiring agreement. 14 The creditor then made demand upon the appellant for the amount which it alleged was then due to it by the appellant under the hiring agreement. The appellant failed or refused to pay any further amount to the creditor. 15 The creditor then sued the appellant in the Melbourne Magistrates Court. On 7 October 2008, the creditor obtained a default judgment against the appellant in the amount of $28,752.21. The appellant has not taken any steps to set aside that judgment. Apparently, he was aware from about 2006 that the creditor was pursuing him for moneys allegedly due under the hiring agreement, yet he took no steps then or subsequently to address the creditor's claim. 16 In 2009, the creditor attempted to bankrupt the appellant. That attempt failed for reasons which I need not discuss in these Reasons for Judgment. 17 On 30 October 2009, upon the application of the creditor, Bankruptcy Notice VN 2245 of 2009 (the bankruptcy notice) was issued against the appellant. The creditor had difficulty serving the bankruptcy notice upon the appellant. 18 On 10 February 2010, a Registrar of the Federal Magistrates Court made an order for the substituted service of the bankruptcy notice. That order was in the following terms: THE COURT ORDERS THAT: 1. Personal service of bankruptcy notice number VN 2245 of 2009 is dispensed with. 2. The bankruptcy notice be served as follows: (1) by posting the following documents (collectively, the "Documents") by ordinary mail addressed to the respondent at 132 Belgrave-Ferny Creek Road, Tecoma, Victoria, 3160 ("Address"): (a) a covering letter; (b) a sealed copy of this order; (c) the bankruptcy notice; and (d) a copy of any authorisation of the Official Receiver extending the time for service of the bankruptcy notice; and (2) by handing the Documents to a person apparently over the age of 16 years apparently residing at the Address or, in the event that no such person is in attendance, by placing the Documents in the letter box at the Address. 3. Service of the bankruptcy notice be deemed to be effected on 4 March 2010 upon condition that the 2 events referred to in paragraph 2 occur by 18 February 2010. 4. The costs of this application be costs incidental to any petition based on non-compliance with the bankruptcy notice. 5. Liberty to apply. 19 On 29 March 2010, upon the application of the creditor, a Creditor's Petition against the appellant was issued (the creditor's petition). As had been the case with the bankruptcy notice, the creditor experienced difficulties in effecting service of the creditor's petition upon the appellant. 20 On 17 June 2010, another Registrar of the Federal Magistrates Court made an order for the substituted service of the creditor's petition. That order provided for a mode of service which was substantially the same as the mode of service of the bankruptcy notice which had been ordered in February 2010. 21 As I mentioned at [1] above, on 27 July 2010, the sequestration order was made against the estate of the appellant. That order was made in the absence of the appellant. 22 It was common ground at the hearing before the Federal Magistrate that some documents had been left at the Tecoma address with a person who is said to be the appellant's mother. It is not clear from the Federal Magistrate's judgment which documents were left at the Tecoma address from time to time. However, no point was taken before the Federal Magistrate and no point has been taken before me that the creditor had failed to effect service in the manner specified in the two orders for substituted service to which I have referred at [18] and [20] above. There was evidence before the Registrar who made the sequestration order which proved service of the relevant process in accordance with those orders. At the hearing of the appeal, Counsel for the creditor sought to adduce evidence establishing that service of the bankruptcy notice and of the creditor's petition had been effected in accordance with the two relevant sets of orders for substituted service made by Registrars of the Federal Magistrates Court. I refused the creditor's application to adduce evidence on appeal. I did so because the evidence sought to be adduced was directed to proving facts which were not in dispute before the Federal Magistrate or before me and which had been proven to the satisfaction of the Registrar who made the sequestration order at the hearing of the creditor's petition on 27 July 2010. In those circumstances, there was no need to prove those facts yet again. The Decision of the Federal Magistrate 23 The Federal Magistrate held that: (a) The appellant had not been personally served with at least some of the documents filed in the bankruptcy proceedings leading up to the making of the sequestration order. His Honour noted that the appellant had testified before him that he had not been served with the bankruptcy notice or the creditor's petition ([1], [2] and [15]–[17] of his Honour's reasons); (b) Until 10 August 2010, the appellant had not been aware that bankruptcy proceedings had been brought against him ([17] of his reasons); (c) He was not satisfied that the appellant was solvent and able to pay his debts as and when they fell due ([31] of his reasons); (d) The sequestration order should not be set aside; and (e) The appellant's bankruptcy should not be annulled. 24 There is no challenge in the appeal before me to the Federal Magistrate's findings of fact concerning service which I have summarised at subpars (a) and (b) of [23] above. In addition to making those findings, at [4] of his reasons, the Federal Magistrate also found that the orders for substituted service which had been made by Registrars of the Federal Magistrates Court from time to time (which included the orders to which I have referred at [18] and [20] above) were all properly made. 25 At [19]–[26] of his reasons, the Federal Magistrate discussed the evidence tendered on behalf of the appellant in support of his contention that he was solvent. At [27]–[31] of his reasons, the Federal Magistrate said: 27. I accept the submissions of counsel for the creditor that Mr Vonidis' affidavit material does not go anywhere near proving that he is solvent and able to pay his debts as and when they fall due. The assets listed in his affidavit as being said to be wholly within his control (leaving aside the first assertion of assets worth $190,000 in his first affidavit) are completely unsupported by any degree of independent valuation. Indeed, there is no proof beyond Mr Vonidis' bare assertion that they exist. Assuming that they do, there is nothing that would enable the Court to have any satisfaction as to their value, and indeed Mr Vonidis has totally failed to put before the Court any information that would enable the Court to evaluate whether or not these items, assuming they do exist, are his. According to his affidavits, he is a marketing manager. Why these items, which would appear to be retail items such as coffee tables and spas and billiard tables and the like, would be his is not in any way clear. Putting the matter shortly, Mr Vonidis' materials completely fail to convince me that he has assets in his possession to the value of $70,000. Even if he does, the capacity to realise these as ready cash would also be open to considerable question. 28. So far as the chattels in the possession of the company in liquidation are concerned, these are the subject of curial controversy, and it is clear that they will not be available, even if Mr Vonidis were ultimately to be successful, for a very long time. 29. Assuming in Mr Vonidis' favour that the assistance of his mother is reasonably readily available, I note that in terms it is limited to a sum less than the debt clearly owing to the petitioning creditor, leaving aside the other debts that the trustee's investigations say are extant. 30. I am satisfied, based upon the information provided by the trustee, that in fact Mr Vonidis' debts are something more of the order of over $80,000, (see affidavit of Ms Wright filed on 28 October 2010 – Ms Wright was not requested for cross-examination). To this should be added, of course, the cost of the administration of the estate and, depending upon the outcome of this proceeding, the costs thereof. 31. I am not satisfied that Mr Vonidis is solvent and able to pay his debts as and when they fall due. 26 The Federal Magistrate then proceeded to consider the principles upon which the discretion afforded to him pursuant to reg 16.05 of the Federal Magistrates Court Rules 2001 and s 153B of the Act ought be exercised. 27 At [34]–[35] of his reasons, his Honour said that the power to set aside orders pursuant to reg 16.05 was discretionary and that a party seeking to set aside a judgment made in his or her absence was required to explain why he or she had been absent and to demonstrate that he or she had some prospects of success in his or her case. His Honour then referred to the judgment of Emmett J in Re Daskalovski; Ex parte The Austral Brick Co Pty Ltd [1998] FCA 782. In that case, Emmett J declined to set aside a sequestration order in circumstances where the bankrupt estate had already been administered in bankruptcy. The basis for setting aside the order which Emmett J had under consideration was O 35 r 7 of the Federal Court Rules. That rule was relevantly in substantially the same terms as reg 16.05 of the Federal Magistrates Court Rules. 28 Following the reasoning of Emmett J in Daskalovski, his Honour declined to set aside the sequestration order in the present case. At [40] of his reasons, his Honour said: 40. In this case the sequestration order was made on 27 July 2010 and the trustees were appointed on that date. It is clear there has been substantial administration of the estate and consequentially substantial fees engendered. This is not a case where the trustee proceeded incautiously. The sequestration order was made following orders of this Court for substituted service which were complied with. 29 In addition, his Honour considered that he was entitled to have regard to the conduct of the bankrupt when considering whether to exercise the discretion reposed in him pursuant to reg 16.05. In this regard, his Honour noted that the bankrupt had failed to furnish a Statement of Affairs to his trustees. His Honour took the view that this was a relevant additional factor to be taken into account in the exercise of his discretion. 30 Furthermore, one of the critical planks in his Honour's reasons for declining to set aside the sequestration order was the fact that the trustees had commenced to administer the bankrupt's estate. His Honour took the view that the reasoning of Emmett J in Daskalovski was binding on him and that, in conformity with that reasoning, he should decline to exercise his discretion to set aside the sequestration order. 31 His Honour then discussed and determined the appellant's annulment application. After setting out s 153B(1) of the Act, his Honour extracted [12] of the judgment of Tracey J in Bulic v Commonwealth Bank of Australia Limited [2007] FCA 307. The Federal Magistrate held that the so-called deficiencies in service were not sufficient in themselves to cause him to exercise his discretion to annul the bankruptcy. He again referred to his finding concerning the solvency of the appellant. He concluded that the appellant had failed to establish any ground for annulling his bankruptcy. 32 His Honour then dismissed the appellant's application. Consideration The Consequences of the Federal Magistrate's Findings Concerning Service 33 In his written Outline of Submissions filed on 29 April 2011, the appellant contended that a necessary consequence of the Federal Magistrate's finding that he was not aware of the bankruptcy proceedings was that he had not been afforded procedural fairness at the hearing before the Registrar on 27 July 2010. The appellant then submitted that, once the Federal Magistrate had arrived at that conclusion, he should not have gone further and should not have enquired into the question of the appellant's solvency. The Federal Magistrate should have ceased his consideration of the matter altogether at that point and set aside the sequestration order. The appellant also submitted that, in any event, the evidence before the Federal Magistrate was more than sufficient to justify a finding that he was, in fact, solvent or, at least, arguably solvent at the time that the sequestration order was made and at the time of the hearing before the Federal Magistrate. 34 In par 7 of his written Outline, the appellant submitted that: 7. The appellant should have been able to challenge the debt by making application to set aside the default judgment, which had been obtained against him in the Magistrates Court of Victoria. Had he been served with the Bankruptcy Notice then he would have been able to make such application and could have also applied for an extension of time in respect to the bankruptcy notice to be able to have the application to set aside default judgment heard and determined. This very important legal right has been taken from the appellant and the Court ought not have proceeded to dismiss his application once it accepted that the appellant had not been served with the Bankruptcy Notice. 35 The appellant's written submissions to the effect that he had been denied procedural fairness address his first and third grounds of appeal. In his written Outline, he did not specify whether the allegation that he was denied procedural fairness was to be regarded as a basis for the exercise of the Court's discretion pursuant to reg 16.05 of the Federal Magistrates Court Rules or pursuant to s 153B of the Act, or both. 36 Regulations 6.14 to 6.16 of the Federal Magistrates Court Rules give to that Court the power to make orders for substituted service. Once service has been effected in accordance with the method or methods provided for in the orders for substituted service, such service is to be regarded as sufficient service for all purposes under those rules. 37 I very much doubt that, in the absence of a successful challenge to the orders for substituted service, a party whose attention is not, in fact, drawn to a particular listing by the notifications and procedures mandated by orders for substituted service, can nonetheless, seek to attack orders made on the occasion of that listing on the ground of denial of procedural fairness. My reservations on this aspect are supported by the observations made by Lehane J at [21] (pp 751–752) in Bright v Femcare Ltd (1999) 166 ALR 743. 38 However, even if it be assumed for present purposes that the appellant was denied procedural fairness at the hearing which took place before the Registrar on 27 July 2010, any denial of procedural fairness did not occasion any prejudice to the appellant. The appellant was given every opportunity to support the application which he made before the Federal Magistrate on 18 November 2010 with such evidence and submissions as he considered appropriate. On that occasion, he was legally represented. In addition, he did not contend at the hearing before the Federal Magistrate that he had been denied procedural fairness before the Registrar and that that denial, in and of itself, was sufficient to support the relief which he claimed before the Federal Magistrate. 39 Even if I were to entertain the submission now advanced based upon a denial of procedural fairness, the prejudice to which the appellant points in par 7 of his written Outline is not real prejudice. The appellant has never taken any steps to set aside the judgment obtained against him by the creditor in the Melbourne Magistrates Court nor has he made any attempt at all to discharge the debt upon which that judgment was founded. The appellant gave no evidence as to when and in what circumstances he first learned of the existence of that judgment. Nor did the appellant attempt, at any time, to compound or compromise the claims made against him by the creditor arising out of the defaults for which he was apparently responsible under the hiring agreement. The prejudice claimed by the appellant is illusory. 40 It follows that the appellant has failed to demonstrate that the Federal Magistrate erred by not ceasing his consideration of the matter once he was satisfied that the appellant was unaware of the bankruptcy proceedings which the creditor had launched against him and was unaware of the hearing of the creditor's petition fixed for 27 July 2010. 41 For these reasons, the appellant has not made out either ground 1 or ground 3 of his grounds of appeal. That is to say, he has failed to make out either of those grounds whether they are based upon reg 16.05(2)(a) or s 153B of the Act, or both. The Challenge to the Federal Magistrate's Decision under Reg 16.05(2)(a) (Solvency) 42 Counsel for the appellant submitted that the Federal Magistrate erred when he refused to set aside the sequestration order pursuant to reg 16.05(2)(a) of the Federal Magistrates Court Rules. It was submitted that, having correctly identified the test to be applied when considering such an application (that is to say, a test which was closely analogous to the principles enunciated in Kostokanellis v Allen [1974] VR 596: As to which, see [34]–[37] of his Honour's reasons), his Honour nonetheless went on to apply a far more stringent test when it came to assessing the appellant's solvency. 43 It was common ground before the Federal Magistrate and before me that the Court was entitled to examine the appellant's capacity to pay his debts as and when they fell due in order to come to a view about his solvency. The appellant submitted, however, that all that the appellant needed to show was that he had some prospects of proving that he was solvent, not that he was in fact solvent. The appellant then submitted that he had, in any event, proven before the Federal Magistrate that he was, in fact, solvent. Alternatively, he submitted that he had proven that he had some prospect of establishing that he was solvent or that he was arguably solvent. 44 These submissions ignore the fact that it was for the appellant to satisfy the Federal Magistrate that the sequestration order should be set aside. In order to do that, in the circumstances of the present case, the appellant was obliged to satisfy the Federal Magistrate that he was, in fact, solvent. Given that the creditor was challenging that proposition, it was incumbent upon the appellant to demonstrate solvency as at 27 July 2010. It was not enough to show that he was arguably solvent. Had the appellant attended at the hearing before the Registrar on 27 July 2010 and sought to resist the making of a sequestration order against his estate on that occasion, he would have had to address the question of his solvency, there and then, because the question of his solvency was clearly an issue between him and the creditor. The question having been raised, it was incumbent upon the appellant to prove that he was solvent, not merely that he had some prospect of proving that he was solvent or that it was arguable that he was solvent. Such a low level of proof would not have sufficed. 45 Cognisant of the fact that I might hold that he had to do more than establish an arguable case that he was solvent, if he were to succeed in his appeal, the appellant also attempted to persuade me that he was, in fact, solvent as at July 2010. He took me through the evidence directed to solvency that was tendered before the Federal Magistrate. However, the appellant's submissions paid no regard to the findings of the Federal Magistrate. The Federal Magistrate made a finding that the appellant was not solvent. That finding was amply supported by the evidence before him. I do not think that the Federal Magistrate approached the task before him on a wrong basis. The appellant failed to demonstrate any error in that finding. The finding was essentially a finding of fact which I am not persuaded should be overturned. In any event, I do not disagree with the Federal Magistrate's finding on this point. The existence and value of those assets which the appellant submitted should be held by the Court to be assets owned by him were problematic, to say the last, whereas debts in excess of $87,000 were demonstrated to be owed by the appellant to his creditors. 46 In any event, the Federal Magistrate based his decision in relation to the appellant's claim based upon reg 16.05(2)(a) primarily upon the circumstance that the trustees had embarked upon the administration of the appellant's bankrupt estate thus making setting aside the sequestration order inappropriate for the reasons explained by Emmett J in Daskalovski. In my view, the Federal Magistrate did not err in giving significant weight to this factor in his decision not to set aside the sequestration order. 47 The fourth ground of appeal relied upon by the appellant also fails. Annulment 48 Section 153B of the Act provides: 153B Annulment by Court (1) If the Court is satisfied that a sequestration order ought not to have been made or, 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 Official Receiver, the Court may make an order annulling the bankruptcy. (2) In the case of a debtor's petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented. (3) The trustee must, before the end of the period of 2 days beginning on the day the trustee becomes aware of the order, give to the Official Receiver a written certificate setting out the former bankrupt's name and bankruptcy number and the date of the annulment. Penalty: 5 penalty units. Note: See also section 277B (about infringement notices). (4) Subsection (3) is an offence of strict liability. Note: For strict liability, see section 6.1 of the Criminal Code. 49 In Rigg v Baker (2006) 155 FCR 531, French J (as he then was) set out the general principles which govern the Court's determination of annulment applications. At [59]–[63] (pp 543–544), his Honour said: 59 The power of the Court to annul a bankruptcy derives from s 153B of the Act. In the case of a bankruptcy created by a sequestration order on a creditor's petition, the power involves two elements: 1. The Court's satisfaction that the sequestration order ought not to have been made. 2. The Court's exercise of a discretion to make an order annulling the bankruptcy. 60 The power to annul a sequestration order is to be distinguished from a power to vary or rescind an order (Cameron v Cole (1944) 68 CLR 571 at 583 per Latham CJ): "When an order for sequestration is annulled the debtor, in respect of his property, is restored to the status quo ante, subject to any order which the Court may make under that sub-section." By virtue of s 37(2) of the Bankruptcy Act rescission has been abolished as a means of bringing a bankruptcy to an end: Re Gollan; Ex parte Gollan (1992) 40 FCR 38 at 40 (Spender J). Nevertheless the nature of annulment with its restorative consequence invites caution in its application: Cameron v Cole 68 CLR at 583 (Latham CJ); 594 (Starke J). 61 In determining whether a sequestration order ought to have been made the Court may consider "not only the case as disclosed at the time that the order was made, but as it would have been disclosed had all the true facts been before the court on the making of the order": Re Cook (1946) 13 ABC 245 at 259 (Clyne J); Re Williams (1968) 13 FLR 10 at 23; [1969] ALR 179 at 184 (Gibbs J). But facts which have come into existence since the making of the order are not relevant to the question whether it ought to have been made: Re Scott [1975] Qd R 125 at 126-127 (Lucas J); Re Frank; Ex parte Piliszky (1987) 16 FCR 396 at 400 (Fisher J); Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 at 350 (Gummow J). 62 The circumstances under which a sequestration order "ought" not to be made were described by Fisher J in Frank 16 FCR at 403: " ... a judge "ought" not to have made an order only if he was "bound" not to make the order." And further (Frank 16 FCR at 403): "In my opinion "ought" in s 154(1)(a) is of imperative significance and an order should not be annulled unless the judge was in the circumstances bound not to make it and even then there is a residual discretion not to annul." That proposition was quoted with evident approval by the Full Court in Hudson v Whalen [1999] FCA 189 at [10]. 63 In Pollock v Deputy Commissioner of Taxation (Cth) (1994) 94 ATC 4148, Carr J set out five propositions relevant to applications for annulment. They were derived from the judgment of Riley J in Re Calderon (1977) (unreported, Federal Court of Australia, Riley J, No NSW 573 of 1976, 31 May 1977) as follows (at 4153-4154): "1. It is for the applicant for annulment who alleges, and it is therefore for him to bring himself within the section and satisfy the Court, that the sequestration order ought not to have been made. 2. The Court to whom the application is made seeks to ascertain the actual state of affairs at the time when the sequestration order is made. 3. In order to ascertain that actual state of affairs the Court hearing the application for annulment looks at the facts that were before the Court which made the sequestration order and at any other facts that were not before that Court but are shown on the hearing of the application for annulment to have been in existence when the sequestration order was made. 4. Having considered all the facts so looked at, the Court determines whether on those facts the applicant has satisfied it that the sequestration order ought not to have been made. 5. If it is so satisfied, the Court is not bound to annul the sequestration order but must consider in all the circumstances of the case whether it ought to be annulled." 50 In the present case, the Federal Magistrate did not make an express finding to the effect that he was not satisfied that the sequestration order should not have been made. He appears to have approached the matter upon the basis that, even if it be assumed that a sequestration order should not have been made, he would not exercise his discretion to annul the appellant's bankruptcy. The Federal Magistrate based this decision primarily upon the fact that the appellant was insolvent. 51 The appellant has not paid the judgment debt nor, as I have already mentioned, has he made any attempt to compromise that debt. Further, the evidence before the Federal Magistrate disclosed that the appellant's trustees in bankruptcy had embarked to some extent upon the administration of his estate and, in the period between 27 July 2010 and 12 November 2010, had incurred fees (including legal fees) which total $36,511.29. The evidence established that the trustees ceased work on the administration of the appellant's estate some time ago and had thus endeavoured to limit as far as was reasonably practicable the fees incurred by them in administering the appellant's estate. The appellant made no commitment before the Federal Magistrate to pay the fees incurred by the trustees in an endeavour to support his application for an order annulling his bankruptcy. 52 Furthermore, the appellant has not filed a Statement of Affairs and has not made full disclosure of his financial affairs. 53 Given the Federal Magistrate's finding that the appellant was insolvent and having regard to the other matters to which I have referred at [51]–[52] above, the exercise of discretion undertaken by the Federal Magistrate did not miscarry. The approach which he took discloses no error on his part. In any event, in my view, the material before the Federal Magistrate did not justify his concluding to the requisite level of satisfaction that the sequestration order should not have been made. In truth, the Federal Magistrate was never required to consider exercising the discretion called for by the second element of s 153B(1) of the Act. The appellant never overcame the obstacle put in the path of his claim by the first element specified in s 153B(1). 54 For these reasons, those grounds in the appellant's Notice of Appeal directed to the contention that the Federal Magistrate should have annulled the appellant's bankruptcy also fail. Appellant's Application to Adduce Additional Evidence on Appeal 55 At the commencement of the hearing of the appeal, Counsel for the appellant informed me that the appellant may wish to adduce further evidence on appeal. He told me that that additional evidence comprised "… an independent verification as to the existence of the stock on hand". He said that the evidence was from an accountant who would prove the existence of stock on hand as claimed by the appellant, the location of that stock and the value of that stock. He described that evidence as "independent evidence". Counsel informed me that he did not have an affidavit from the proposed witness and was not in a position to call the foreshadowed evidence at that time. He was unable to assure me that he would, in fact, make the foreshadowed application. 56 In light of the above matters, the hearing proceeded. Counsel for the appellant and Counsel for the respondent completed their submissions. 57 When Counsel for the appellant completed his submissions in reply, I asked him whether he had any other applications to make. After obtaining instructions, Counsel for the appellant then attempted to tender a letter from the appellant's accountant with which was enclosed a list of stock with values attributed to each item on that list. The accountant purported to assert that the appellant owned all of the stock on the list and that the value of the stock was $70,000.00. The letter was addressed "To Whom It May Concern". No affidavit was available. The witness was not available. 58 I rejected the tender of the accountant's letter. My reasons were: (a) The person who apparently signed the letter had not put his oath to the matters asserted therein and was not immediately available to give evidence. (b) The appellant made no attempt to explain why, if this evidence was important to his case, he had not adduced it before the Federal Magistrate. (c) The author of the letter is an accountant. He is the appellant's accountant. He was not independent of the appellant. The source of his knowledge concerning the location and ownership of the listed items was not made explicit in the letter. Nor did he profess any qualification or expertise that would justify his expressing any opinion as to the value of the items listed. (d) The respondent would have required an adjournment in order to meet this new evidence. Given that the appellant is bankrupt and given that he is insolvent, the making of a costs order against him by reason of such adjournment would provide no comfort or protection to the respondent against the prejudice caused to it by an adjournment. Conclusions 59 The appellant has failed to make out any of his grounds of appeal. His appeal must be dismissed with costs. 60 There will be orders accordingly. I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster. Associate: Dated: 31 May 2011