FEDERAL COURT OF AUSTRALIA Sampson (Trustee), in the matter of Condon (Bankrupt) [2016] FCA 312 File number: NSD 1708 of 2015 Judge: PERRY J Date of judgment: 30 March 2016 Catchwords: BANKRUPTCY –application to distribute dividends amongst creditors who have proved their debts in the bankrupt estate as if bankrupt had filed a statement of affairs and creditors had been stated in it - where bankrupt had not filed a statement of affairs – where trustee had taken steps to notify the bankrupt of his obligation to file a statement of affairs – where trustee had taken steps to ascertain whether there were other creditors Legislation: Bankruptcy Act 1966 (Cth) s 146 Evidence Act 1995 (Cth) s 62 Cases cited: Roufeil (Trustee), in the matter of Jarvie (Bankrupt) [2015] FCA 232 Re Sturt; ex parte Official Trustee in Bankruptcy [2001] FCA 1649; (2001) 117 FCR 1 Date of hearing: 24 March 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 26 Counsel for the Applicant: Mr N Dale, solicitor Solicitor for the Applicant: Gillis Delaney Lawyers ORDERS NSD 1708 of 2015 IN THE MATTER OF THE BANKRUPT ESTATE OF JUSTIN SHANE CONDON DAVID HENRY SAMPSON AS TRUSTEE OF THE BANKRUPT ESTATE OF JUSTIN SHANE CONDON Applicant JUDGE: PERRY J DATE OF ORDER: 24 MARCH 2016 THE COURT ORDERS THAT: 1. On or before 1 April 2016, the applicant publish a Notice of Intention to Declare a First and Final Dividend in the Bankrupt Estate of Justin Shane Condon in the public notices section of two daily newspapers, the first circulating in the district of Dapto, New South Wales, and the second circulating in the State of New South Wales. 2. Pursuant to section 146 of the Bankruptcy Act 1966 (Cth) (Act) the applicant as Trustee of the Bankrupt Estate of Justin Shane Condon distribute a dividend to those creditors who have proved their debts in the Bankrupt Estate of Justin Shane Condon in accordance with Division 5 of Part VI of the Act as if Justin Shane Condon had filed a statement of affairs and those creditors had been stated to be creditors in it. 3. The applicant shall refrain from paying a dividend to any creditor in accordance with Order 2 before midnight on the day which falls 14 days after the later of the dates of publication of the notices in Order 1. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT PERRY J: 1. INTRODUCTION 1 By an application dated 22 December 2015, the applicant (the Trustee), as Trustee of the bankrupt estate of Justin Shane Condon (Mr Condon), seeks an order pursuant to s 146 of the Bankruptcy Act 1966 (Cth) (the Act), namely, that the Trustee distribute a dividend to the creditors who have proved their debts in the bankrupt estate in accordance with Div 5 of Part VI of the Act as if Mr Condon had filed a statement of affairs and those creditors had been stated to be creditors in it (the first order). 2 This application was set down for hearing on 24 March 2016 at 10.15am. While counsel for the Trustee appeared, there was no appearance by Mr Condon. 3 On the morning of the hearing, the Trustee provided draft short minutes of order. There included a further order that the Trustee refrain from paying to Mr Condon any surplus funds remaining after payment of the costs, charges and expenses of the administration of his Bankrupt Estate (including the Trustee's remuneration) and the dividends paid in accordance with the first order until Mr Condon had lodged a statement of affairs with the Office of the Official Trustee and the Trustee had dealt with any claims of any further creditors disclosed in the statement of affairs (the second order). 4 For the reasons I set out below, I considered that it was appropriate to proceed to determine the application in the absence of Mr Condon and to make the first order sought by the Trustee subject to further orders. Those orders were that no distribution was to occur pursuant to the first order until 14 days had elapsed after the last of two further Notices to Declare a First and Final Dividend in Mr Condon's estate had been published in a daily newspaper circulating in the district of Dapto and a daily newspaper circulating in the State of New South Wales. In my view, those further orders sufficiently protected against the possibility that there were other creditors who might otherwise have come to light if a statement of affairs had been filed, as opposed to the second order sought by the Trustee which would potentially defer finalisation of the bankrupt's estate indefinitely. 2. EVIDENCE 5 In support of the application, the Trustee relied upon the affidavits of the Trustee, David Henry Sampson, sworn on 21 December 2015, 2 February 2016 and 16 March 2016, together with the affidavits of: (a) Ann Marie Jessup, the Branch Manager for the Dapto branch of the Credit Union Australia (CUA), sworn on 22 January 2016; (b) Nicolle Anne Greentree, manager at the insolvency and reconstruction firm BPS Recovery which works under the supervision of the Trustee, sworn on 2 February 2016; and (c) Kylie Anne Bennett, an insolvency accountant working under the supervision of the Trustee and Ms Greentree, sworn on 1 February 2016, 14 March 2016 and 23 March 2016. 6 The Trustee also relied upon the exhibit marked "DHS-1" to his affidavit sworn on 21 December 2015 and tear sheets of public notices published in the Illawarra Mercury on Thursday 25 February 2016 and Saturday 27 February 2016 advising in accordance with the orders made on 24 February 2016 of the hearing of the application today. The Trustee also relied upon a printout of the National Personal Insolvency Index (NPII) dated 23 March 2016 which identified that no statement of affairs had been filed by Mr Condon as at that date. 3. BACKGROUND 7 The Trustee was appointed on 10 June 2015 as Trustee of the bankrupt estate of Mr Condon by order of the Federal Circuit Court. The petitioning creditor for the sequestration order made on 10 June 2015 against Mr Condon was Sydney Water, the debt owed being the aggregate amount of unpaid invoices for water usage at 57 Bambil Crescent, Dapto, New South Wales (the property). 8 The only asset in the estate which had a realisable value was the property. On or about 25 January 2016, the Trustee received into the estate bank account the sum of $128,427.58 shortly after completion of the sale of the property. 9 At the time of the originating application in this Court, there were two unsecured creditors: Sydney Water and the CUA. However, the Trustee's investigations revealed that shortly before settlement of the sale of the property, the mortgagee, CUA, paid $17,519.90 to Sydney Water. That payment had the effect of extinguishing all claims which Sydney Water could have had against the estate, including for costs as petitioning creditor. On 18 September 2015, the Trustee published Notices of Intention to Declare a First and Final Dividend in the Sydney Morning Herald and the Illawarra Mercury, but has not received any indication that there are creditors of the estate who have not previously notified the Trustee of their claims. Thus, as at the date of the hearing, there was one known unsecured creditor of Mr Condon, being the CUA. The amount of ordinary unsecured debt claimed in the proof of debt is $1,368.26. 10 As at the date of the hearing, the total amount received into the estate bank account is $128,433.07, comprising $127,633.52 arising from the completion of the sale of the property and $794.06 from CUA arising out of that sale. 11 Since the date of his appointment as Trustee, the Trustee has not: (1) received a statement of affairs from Mr Condon; (2) received a telephone number, email address or address from Mr Condon to enable the Trustee and his staff to contact Mr Condon; (3) received any books and records from Mr Condon relating to his examinable affairs; (4) obtained any information from relatives of Mr Condon about his whereabouts or offers from them to pass on to Mr Condon information or documents from the Trustee's firm addressed to him; or (5) been able to meet Mr Condon, despite the Trustee's attempt to do so on 27 January 2016, as explained below. 4. CONSIDERATION 4.1 Ex parte application 12 Neither Mr Condon nor any creditor appeared at the hearing of the application under s 146 of the Act. However, as Gleeson J held in Roufeil (Trustee), in the matter of Jarvie (Bankrupt) (Jarvie) [2015] FCA 232 at [12], there is no requirement under the Act that any party be named as a respondent to the application and therefore no obligation on the Trustee to serve the application on any other person. Nonetheless, the only admitted creditor, the CUA, was aware of the proceedings. Furthermore, as outlined below, I am satisfied that the Trustee has taken all reasonable efforts to bring the application to Mr Condon's attention so as to afford him an opportunity to be heard on the question of whether he had failed to file a statement of affairs, despite Mr Condon having failed to provide the Trustee with any reliable address for receiving communications or even a telephone number where he could be contacted. I am therefore satisfied that all appropriate steps have been taken to notify Mr Condon of the application and that it is appropriate to proceed to deal with the application in his absence. 4.2 Substantive consideration of the application under s 146 of the Act 4.2.1 Applicable provisions 13 A statement of the bankrupt's affairs is required to be filed by the bankrupt under s 54(1) of the Act which provides that: Where a sequestration order is made, the person against whose estate it is made shall, within 14 days from the day on which he or she is notified of the bankruptcy: (a) make out and file with the Official Receiver a statement of his or her affairs; and (b) furnish a copy of the statement to the trustee. 14 However, s 146 of the Act provides: Where a bankrupt has failed to file a statement of his or her affairs as required by this Act, the Court may, on the application of the trustee, upon such terms as it thinks fit, order that distribution of dividends amongst the creditors who have proved their debts shall proceed in accordance with this Division as if the bankrupt had filed a statement of his or her affairs and those creditors had been stated to be creditors in it. 15 Two questions arise on the application under s 146 of the Act, as Gleeson J held in Jarvie at [5]: (1) Has Mr Condon failed to file a statement of his affairs as required by the Act? (2) If yes, should the Court in the exercise of discretion order that distribution of dividends among the creditors who have proved their debts in the bankrupt's estate proceed in accordance with Div 5 of Part VI of the Act as if Mr Condon had filed a statement of affairs and those creditors had been stated in it? 16 As to the first question, it is not necessary to establish a wilful refusal or neglect to file the statement of affairs. Rather, as Sackville J held in Re Sturt; ex parte Official Trustee in Bankruptcy [2001] FCA 1649; (2001) 117 FCR 1 (Re Sturt) at [13], a mere omission to file will suffice. As his Honour further explained at [14]: In my view, s 146 should be construed to apply to a case where the bankrupt has not filed a statement of affairs, albeit through circumstances beyond his or her control. As I have explained, s 146 is intended to facilitate the distribution of dividends among the creditors of the bankrupt in circumstances where the trustee has not had the benefit of a statement of affairs prepared by the bankrupt. It would not be consistent with the statutory object to confine s 146 to a case where the bankrupt's omission to file a statement of affairs is the result of a wilful refusal to do so or neglect of his or her statutory obligations. 17 As to the second question, Sackville J explained in Re Sturt at [19] that: Of course, on any application under s 146 of the Bankruptcy Act the Court must be satisfied that it is appropriate to make an order. The Court may need to be satisfied, for example, that creditors have been notified of the application and have had an opportunity to be heard (although ordinarily the application would be made in the interests of creditors). As in this case, the Court might require evidence that the trustee has taken appropriate steps to ascertain whether there are creditors, other than those who have come to its attention by filing a proof of debt or otherwise. 4.2.2 Has Mr Condon failed to file a statement of affairs as required by the Act? 18 The Trustee relied upon the following evidence as to his efforts to alert Mr Condon to his obligation to provide a statement of affairs, and as to Mr Condon's failure to do so. (1) The Trustee deposed to writing a letter dated 11 June 2015 to Mr Condon at the property notifying of the appointment of the Trustee and of Mr Condon's obligations regarding his statement of affairs. (2) The Trustee also gave evidence of sending a further letter dated 29 June 2015 to Mr Condon at the same address advising that Mr Condon was required to attend the Trustee's office on 8 July 2015 so that the Trustee could conduct an interview in relation to Mr Condon's examinable affairs and enclosing a notice to attend on the Trustee pursuant to s 77 of the Act. (3) The Trustee also attempted to contact Mr Condon to request a statement of affairs from him through engaging process servers who attended at the property on four separate occasions between 22 and 30 June 2015. (4) Evidence was given of the provision of the blank statement of affairs form with other documents on 20 January 2016 by Ms Jessup at the CUA. In this regard, Ms Jessup gave evidence first of a conversation with Mr Condon in the branch on the morning of 20 January 2016 regarding his bankruptcy and the sale of the property to the following effect: [Mr Condon] said: "My property is due to settle. I want to know when I will get the money left over after the Credit Union is paid out." [Ms Jessup] said: "The settlement will be on Wednesday. Settlements are normally at 2 or 3pm." [Mr Condon] said: "So money should be coming in for me on Wednesday?" [Ms Jessup] said: "No. The money left over after the Credit Union is paid out will go to the trustee who is looking after your bankruptcy." [Mr Condon] said: "I'm going to come back at 4 o'clock to find out what has happened with the settlement." Ms Jessup then spoke with Ms Greentree who provided her with a blank statement of affairs form, a sealed copy of the originating application in these proceedings and a sealed copy of the affidavit of David Henry Sampson sworn 21 December 2015, and asked her to give them to Mr Condon when he returned. Ms Jessup gave evidence that Mr Condon returned later that day at about 4.00 pm. She then advised him that she had spoken to BPS Recovery who are looking after his bankruptcy and that the sale of the property had settled earlier that afternoon. She also gave him the documents provided by Ms Greentree and explained that BPS Recovery had tried to send them to him at his home address. She then arranged for Mr Condon to speak to BPS Recovery on the telephone in the CUA branch. (5) In her affidavit sworn on 2 February 2016, Ms Greentree describes the telephone conversation between herself and Mr Condon arranged by Ms Jessup on 20 January 2016. In that conversation, Ms Greentree explained among other matters the need for Mr Condon to fill out the statement of affairs form which Ms Jessup had given him and that the application had been filed in Court so that creditors could be paid because no statement of affairs had been provided. She also explained that if Mr Condon completed the statement of affairs, there would be no need to go to Court and that the Trustee could come down and help Mr Condon with completing the statement of affairs on 27 January 2016 at 10.00 am. Ms Greentree also gave evidence that, when she asked Mr Condon if he had a phone number, address or email address where he could be contacted, Mr Condon replied to the effect "No. I'm just living on different people's lounges" but he did promise to meet with the Trustee at the CUA branch in Dapto on 27 January 2016. (6) In her affidavit sworn 1 February 2016, Ms Bennett explained that she arranged for a public notice to be published in the Illawara Mercury on 22 January 2016 advising of the s 146 application in these proceedings and containing an invitation to Mr Condon to contact the Trustee's solicitors. (7) The Trustee gave affidavit evidence that he attended at the CUA branch at Dapto on 27 January 2016 for the purpose of assisting Mr Condon to complete the statement of affairs in accordance with the arrangements made between Mr Condon and Ms Greentree. However, despite the Trustee waiting for over half an hour, Mr Condon did not appear. (8) The Trustee further relied on the NPII printout dated 23 March 2016 which disclosed that no statement of affairs had been filed by Mr Condon with the Official Receiver. 19 I am satisfied on the basis of this evidence that Mr Condon has been aware at the latest since 20 January 2016 of his bankruptcy and of his obligation to file a statement of affairs under the Act but that he has failed to file the statement of affairs. 20 I note that the Trustee also sought to rely upon the affidavit of Ms Bennett sworn 23 March 2016 that she was advised by Ms Jessup from CUA branch at Dapto that one of her staff members had given "the letter you sent us" to Mr Condon in Woolworths at Dapto and the email from the staff member to Ms Bennett annexed to Ms Bennett's affidavit stating that the staff member had given Mr Condon "the letter that was addressed to Justin". However, notwithstanding evidence that the staff member concerned was not available to sign an affidavit deposing as to what had occurred before the hearing, the evidence of Ms Bennett as to what she had been told by Ms Jessup about what one of her CUA staff members had said that she had done was remote hearsay, as opposed to first hand hearsay, and so inadmissible: see s 62, Evidence Act 1995 (Cth). Nor was "the letter you sent us" or "the letter that was addressed to Justin" identified in the affidavit or annexed email respectively so that there was no evidence as to what was given to Mr Condon. In those circumstances I have not had regard to this evidence. 4.2.3 Should the discretion be exercised to make an order under s 146 of the Act? 21 As to the exercise of discretion under s 146, the Trustee submits first that: (a) the evidence summarised at [18] above demonstrates that all reasonable steps have been taken to notify Mr Condon of the s 146 application and of his obligation to provide a statement of affairs; (b) that evidence also establishes that it is unlikely that Mr Condon will provide assistance to the Trustee to settle a list of his creditors or otherwise to file a statement of affairs; (c) notwithstanding the small amount of the debt still owing, the CUA is prejudiced because the Trustee holds sufficient funds to declare and pay a dividend which will result in payment to that creditor in full plus interest, but the Trustee cannot make such payment in the absence of a statement of affairs or an order under s 146 of the Act; (d) Mr Condon will benefit if the order is made under s 146 because the Trustee can complete the administration of the estate, any surplus could then be paid to Mr Condon and the bankruptcy may be annulled under s 153A of the Act. 22 As to the last of these factors, the Trustee currently holds the sum of $94,521.45. If the application is successful, the Trustee expects that Mr Condon will receive a surplus even after the payment of further disbursements including legal fees, Trustee's remuneration, a dividend to CUA in relation to its unsecured claim and interest on that claim. 23 Secondly, the Trustee relied upon the steps taken by him to ascertain whether there were any other creditors including: (a) searches of records and inquiries made with Land and Property Information, Roads and Maritime Services, Australian Securities & Investments Commission and the Australian Taxation Office to ascertain any outstanding liabilities; (b) correspondence with financial institutions notifying of the Trustee's appointment in seeking to identify bank accounts; (c) correspondence with relatives of Mr Condon in an effort to obtain information about his examinable affairs and also books and records; (d) identification of, and dealing with, liabilities of the bankrupt estate to the deceased estate of the late Maria Henrietta Vervoort through the Trustee's investigations and information received from Josephine Hodge, the executor of the deceased estate (Ms Hodge and the late Ms Vervoort being related in some way to Mr Condon). 24 Finally, in compliance with orders I made on 24 February 2016, the Trustee sent a letter to CUA notifying of the hearing of the s 146 application on 24 March 2016 and of CUA's entitlement to attend and be heard at that hearing. The Trustee also published advertisements directed to the attention of Mr Condon in the Mercury Illawarra, a daily newspaper circulating in the district of Dapto, advising of the s 146 hearing and of Mr Condon's entitlement to attend and be heard. A letter addressed to Mr Condon was also sent to Ms Jessup at CUA branch at Dapto by email and ordinary prepaid post enclosing a letter addressed to Mr Condon reproducing the text of the notice. 25 Having regard to all of these considerations, I accept the Trustee's submission that it is appropriate to make the order sought under s 146 of the Act. However, given in particular the factors referred to at [21(b)] and [21(d)] above, the small amount of the only currently known debt and the evidence suggesting that Mr Condon is currently living in circumstances of hardship without a home in which to live, I am not prepared to make an order in terms of the second order which may indefinitely defer finalisation of the bankrupt's estate and result in further costs being incurred by the estate. I consider that a proper and fair balance would be struck between Mr Condon's interests and those of any other possible creditors by requiring that the Trustee publish again the Notice of Intention to Declare a First and Final Dividend in daily newspapers circulating in the Illawarra district and in New South Wales and requiring that no distributions be made until 14 days have elapsed after publication of the last of those notices. In reaching this view, I also have had regard to the fact that the Trustee published a Notice of Intention to Declare a First and Final Dividend in the bankrupt estate of Mr Condon some six months ago. 5. CONCLUSION 26 For these reasons I consider that an order should be made under s 146 of the Act to enable the bankrupt estate to be finalised subject only to further publication of the Notice of Intention to Declare a First and Final Dividend. No order was considered necessary by the Trustee for his costs and so was not sought. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perry. Associate: Dated: 30 March 2016