Sheldon v Boyded Industries Pty Ltd T/as Heartland Parts & Anor [2016] FCCA 3299 (14 November 2016)

Federal Circuit Court of Australia

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Sheldon v Boyded Industries Pty Ltd T/as Heartland Parts & Anor [2016] FCCA 3299 (14 November 2016)

Last Updated: 21 December 2016

FEDERAL CIRCUIT COURT OF AUSTRALIA

SHELDON v BOYDED INDUSTRIES PTY LTD T/AS HEARTLAND PARTS & ANOR

[2016] FCCA 3299

Catchwords: BANKRUPTCY – Annulment application – debt owed to petitioning creditor paid – bankrupt solvent at time of sequestration order – no opposition to annulment application.

Legislation: Bankruptcy Act 1966, s.153B

Cases cited: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239; [2001] FCA 639 Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307 Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18 Re Sarina; Ex parte Wollondilly Shire Council [1980] FCA 66; (1980) 30 ALR 266 Yang v L & H Group (a limited Partnership) [2015] FCA 932

Applicant:

STUART ANDREW SHELDON

First Respondent:

BOYDED INDUSTRIES PTY LTD T/AS HEARTLAND PARTS ACN 000 091 464

Second Respondent:

OFFICIAL RECEIVER

File Number:

SYG 2649 of 2016

Judgment of:

Judge Barnes

Hearing date:

14 November 2016

Date of Last Submission:

14 November 2016

Delivered at:

Sydney

Delivered on:

14 November 2016

REPRESENTATION

Counsel for the Applicant:

Mr De Buse

Solicitors for the Applicant:

Kazi Portolesi Lawyers

Solicitors for the Respondents:

No appearance

ORDERS

(1) The bankruptcy of the Applicant is annulled pursuant to section 153B of the Bankruptcy Act 1966 (Cth).

FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY

SYG 2649 of 2016

STUART ANDREW SHELDON

Applicant

And

BOYDED INDUSTRIES PTY LTD T/AS HEARTLAND PARTS ACN 000 091 464

First Respondent

OFFICIAL RECEIVER

Second Respondent

REASONS FOR JUDGMENT

1. On 6 September 2016, a registrar of this court made a sequestration order against the estate of Mr Sheldon and the estate of Paul Michael Boatwright in circumstances where neither Mr Sheldon nor Mr Boatwright appeared at the hearing. The debt that formed the basis for the bankruptcy notice and was relied on in the creditor’s petition was said to relate to a guarantee given by Mr Sheldon and Mr Boatwright based on a default judgment of the Local Court dated 12 May 2016 for a debt of $16,815.72 against Milperra Road Smash Repairs Pty Ltd (Milperra). Mr Boatwright and Mr Sheldon are the directors of Milperra.
2. Mr Sheldon and Mr Boatwright each filed an annulment application on 29 September 2016. As requested, I heard the applications together on 14 November 2016. I made orders on that day annulling the bankruptcy of each of Mr Sheldon and Mr Boatwright pursuant to s.153B of the Bankruptcy Act 1966 (Cth). I indicated that I would provide reasons for my order at a later date. These are my reasons in relation to Mr Sheldon’s application.
3. Mr Sheldon relied on affidavit evidence from himself and his solicitor and documents tendered for the purposes of both matters.
4. The evidence is that after Mr Sheldon received a letter from the Australian Financial Security Authority (AFSA) dated 13 September 2016 advising him that he had been made bankrupt, he brought this to the attention of Mr Boatwright. Mr Boatwright, by arrangement with the petitioning creditor’s debt collection agents (Macquarie Collections), transferred the sum of $23,926.74 (the amount of the debt then due to Boyded Industries Pty Ltd, interest and fees) to Macquarie Collections. A receipt was issued dated 19 September 2016.
5. On 22 September 2016, Macquarie Collections notified Mr Sheldon and Mr Boatwright of receipt of the payment, that they had notified AFSA that the payment had been made and that Boyded Industries Pty Ltd (the petitioning creditor) would consent to any application to annul the bankruptcies.
6. After the annulment applications were filed, the petitioning creditor’s consent was confirmed by email from Macquarie Collections to the solicitor for Mr Sheldon and Mr Boatwright of 13 November 2016. The petitioning creditor played no part in these proceedings.
7. In addition, Mr Sheldon’s trustee in bankruptcy (the Official Trustee in Bankruptcy) advised his solicitors that provided a debt of $290,879 in respect of director’s penalties in relation to Milperra that was owed jointly and severally by Mr Sheldon and Mr Boatwright to the Deputy Commissioner of Taxation was paid in full (with non-vested funds/assets), the Official Trustee would not object to the annulment of the bankruptcy under s.153B of the Act.
8. That debt reflected director’s penalty notices in respect of PAYG withholding tax. It had been the subject of a payment arrangement towards which payments were made. However the Deputy Commissioner of Taxation lodged a proof of debt in the amount in question.
9. On 8 November 2016 the debt to the ATO was paid in full by Mr Sheldon’s wife from an inheritance she had received from the estate of her late mother. In evidence is a copy of a receipt from the ATO. There is also evidence that on 21 October 2016 “fees” owed to AFSA in respect of the trustee’s expenses of administration were paid.
10. The Official Trustee in Bankruptcy was aware of the scheduled hearing of the annulment application but did not appear and did not object to an annulment.
11. In these circumstances and in the absence of any appearance by or on behalf of any supporting creditor, Mr Sheldon sought that his bankruptcy be annulled. His counsel relied on a number of matters in support of a contention that the sequestration order ought not to have been made. It was submitted that the default judgment entered against him should not have been made because the pleading attached to the claim made no reference to him or to any claim against him. He also contended that he was solvent in the sense that he was able to pay his debts at the time of the sequestration order.
12. Section 153B(1) of the Bankruptcy Act provides that:
    • If the court is satisfied that a sequestration order ought not to have been made...the court may make an order annulling the bankruptcy.
13. The principles applicable to an annulment application under s.153B(1) are well-established (see Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307 and Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18). The applicant for annulment bears a heavy burden and is required to place before the court all relevant material concerning his financial affairs. In determining whether a sequestration order “ought not to have been made”, the court is not confined to a consideration of whether the order should have been made on the facts known to the court at the time at which it was made. Rather, it must take into account other facts existing at the time of the sequestration order, even if those facts were not before the court at the time at which the sequestration order was made. Facts that have occurred after the time of the sequestration order are not relevant in considering whether the sequestration order ought not to have been made, but are relevant to the exercise of the court’s discretion to annul if that condition is met.
14. In determining whether the sequestration order ought not to have been made, the issue for the court is whether, on the facts at the time which are now known to have existed, the court making the sequestration order would have been bound not to make the sequestration order.
15. I am satisfied on the evidence before the court that the sequestration order ought not to have been made in relation to Mr Sheldon. First, the judgment that formed the basis for the creditor’s position was a default judgment. It was entered against Milperra, Mr Boatwright and Mr Sheldon. The claim relied on as the basis for such judgment listed those three defendants. However within the statement of claim filed in the Local Court proceedings there was no mention of Mr Sheldon and no claim against him. Rather, payment was sought from Milperra for goods sold to it on credit by the plaintiff and orders against Mr Boatwright pursuant to a guarantee.
16. As counsel for Mr Sheldon submitted, the default judgment entered against Mr Sheldon was based on an incomprehensible claim in that the statement of claim made no reference to Mr Sheldon or to a third defendant and, in its terms, would have been liable to be struck out on application by Mr Sheldon as not sufficiently identifying the basis on which he was sued.
17. Such an irregularity or deficiency in pleading may not be sufficient to warrant dismissing a creditor’s petition (or to establish that the sequestration order ought not to have been made if there was in fact a debt due, as now appears to be conceded by Mr Sheldon). However it has not been necessary to decide the case on this basis, because I am satisfied, on the evidence now before the court, that Mr Sheldon’s financial circumstances at the time of the sequestration order were such that he could and would have been able to demonstrate that he was able to pay his debts (see Re Sarina; Ex parte Wollondilly Shire Council [1980] FCA 66; (1980) 30 ALR 266 at 600) such that the sequestration order ought not to have been made. I had regard to these circumstances not only as support for the proposition that the court could be satisfied that the sequestration order ought not to have been made, but also as relevant to the exercise of the discretion.
18. Mr Sheldon has provided a detailed explanation of his past and present financial circumstances in particular in his affidavit of 10 November 2016. He has assets which include a property in his sole name with an estimated value based on a market appraisal obtained from a real estate agent in September 2016 of $1,400,000, four motor vehicles, a superannuation fund, a bank account, home contents and spare motor vehicle parts, with a total asset value over $1,737,000. At the time of the sequestration order, Mr Sheldon’s liabilities were two secured loans from Bluestone Mortgages with a total indebtedness of about $268,700, the debt owed to the petitioning creditor, a credit card debt of $1,500 and the debt to the Australian Taxation Office for which he and Mr Boatwright were jointly liable in the sum of $290,879. It is apparent that Mr Sheldon’s assets included readily available assets which exceeded his liabilities by a significant amount.
19. Mr Sheldon is, as is Mr Boatwright, a director of Milperra which has been operating since 1995 and repairs damaged vehicles. Most of the work is insurance-related. It employs approximately 20 staff members.
20. Neither the mortgagee nor any other creditor appeared at the hearing. I am satisfied that at the time of the sequestration order, Mr Sheldon had sufficient assets or resources, including those that could be readily realised, to meet his liabilities such as to satisfy me that he was able to pay his debts as and when they fell due. I am satisfied that the sequestration order ought not to be have been made.
21. The factors the court may consider in relation to the exercise of its discretion, include any failure by the applicant to attend the hearing at which the sequestration order was made or to oppose such an order and the explanation for such conduct; any delay in seeking annulment; any failure by the applicant to put evidence before the court prior to the sequestration order and the explanation for that failure; whether or not the applicant is solvent; whether or not the applicant has made full disclosure of his financial affairs; the rights and interest of creditors; the applicant’s preparedness to pay any outstanding debts; the conduct of the applicant during the period of bankruptcy, including co-operation with the trustee in bankruptcy; payment of any costs and expenses sought by the trustee; the steps taken by the trustee in administration of the estate; and, generally, whether it is fair or just to the applicant and the creditors to grant the annulment and the public interest (see Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239; [2001] FCA 639 and the more recent discussion of the relevant factors in Francis v Eggleston Mitchell and Yang v L & H Group (a limited Partnership) [2015] FCA 932).
22. Mr Sheldon relied on the payment of all his unsecured creditors, including the petitioning creditor, and the fact that his trustee in bankruptcy did not object to the annulment application. In addition, it was submitted that the circumstances leading up to the making of the sequestration order in his absence had been explained. Reliance was placed on the affidavit evidence of Mr Boatwright, who was responsible for managing the outgoings of the Milperra business. He explained that a previous arrangement for monthly collection of amounts owed to Boyded Industries Pty Ltd had ceased; that the bookkeeper employed by Milperra with responsibility for ensuring all invoices were paid and the books were up to date was experiencing personal problems at the relevant time; and that Mr Boatwright was affected by depression.
23. Mr Boatwright’s evidence was that while he recalled receiving the statement of claim, he took no relevant action because of the numerous matters he was dealing with in the business at the time, involving Workcover, Council and employee issues in circumstances where he had been suffering from depression for some 10 to 15 years and was under the treatment of a medical practitioner. He also recalled receiving the bankruptcy notice and the creditor’s petition and accompanying documents, but referred to a number of personal issues arising at that time. He was not aware that the matter had been listed for hearing but, in any event, did not attend the hearing due to health and employee issues. He had his attention drawn to the sequestration order by Mr Sheldon. He arranged payment of the outstanding debt to the petitioning creditor on 19 September 2016.
24. Mr Sheldon did not recall receiving a statement of claim, the bankruptcy notice or creditor’s petition. His evidence is that he first became aware that he was bankrupt after he received the letter of 13 September 2016 from AFSA. He thereafter took prompt action to ensure that the debt to the petitioning creditor was paid and, in addition, attended to payment of an outstanding credit card debt of $1,500 and the trustee’s expenses and arranged for payment of the debt owed to the Australian Taxation Office.
25. I have had regard to all the circumstances referred to above. In particular I note that since Mr Sheldon was made bankrupt the debt owed to the petitioning creditor, his credit card debt, the trustee’s expenses and the debt to the ATO have all been paid, leaving Mr Sheldon’s only debts the mortgages secured over his property. Mr Sheldon is solvent at present. He has made full disclosure of his financial affairs, including providing a statement of affairs to his trustee in bankruptcy. There was no opposition to an annulment.
26. For these reasons I made an order annulling his bankruptcy.

I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Judge Barnes

Date: 20 December 2016