Biondo v Baycorp Collections PDL (Australia) Pty Ltd & Anor [2018] FCCA 1853 (10 July 2018)

Last Updated: 11 July 2018

FEDERAL CIRCUIT COURT OF AUSTRALIA

BIONDO V BAYCORP COLLECTIONS PDL (AUSTRALIA) PTY LTD & ANOR

[2018] FCCA 1853

Catchwords: BANKRUPTCY – Application for an extension of time in which to review a sequestration order made by a registrar – application approximately 15 months out of time – where the applicant claims to have not understood that she was bankrupt – whether the petitioning creditor had a security which it failed to disclose in the creditor’s petition – whether the trustee engaged in misconduct in the administration of the estate – whether the court can and should grant an extension of time on the condition that the applicant and the petitioning creditor pay some of the trustee’s costs.

Legislation: Bankruptcy Act 1966, ss.5(2), 30, 44, 52 Federal Circuit Court of Australia Act 1999, ss.102(2)(i), 104 Federal Circuit Court (Bankruptcy) Rules 2016, r.2.02, Part 1 of Schedule 1 Federal Circuit Court Rules 2001, r.20.01 Federal Court of Australia Act 1976, s.28 National Consumer Credit Protection Act 2009, Schedule 1 National Consumer Credit Code, s.91 Personal Property Securities Act 2009, ss.60, 150 Privacy Act 1988

Cases cited: Allied Mills Pty Ltd v Kim Lien Mai (2010) 240 FLR 480; [2010] FMCA 631 Flint v Richard Busuttil & Co Pty Ltd (2013) 216 FCR 375; (2013) 305 ALR 522; [2013] FCAFC 131 Wright Designed Pty Ltd v McClymont (2006) 232 ALR 683; [2006] FCA 999

Applicant:

JOSEPHINE BIONDO

First Respondent:

BAYCORP COLLECTIONS PDL (AUSTRALIA) PTY LTD (ACN 119 478 778)

Second Respondent

DANIEL PETER JURATOWITCH IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF JOSEPHINE BIONDO

File number:

MLG 2448 of 2016

Judgment of:

Judge Riley

Hearing dates:

14 and 15 June 2018

Date of last submission:

15 June 2018

Delivered at:

Melbourne

Delivered on:

10 July 2018

REPRESENTATION

Counsel and advocate for the First Respondent:

Jane Forsyth of counsel appearing on 14 June 2018 and Mark Harbert appearing on 15 June 2018

Solicitors for the Applicant:

Anthony Raso & Associates

Advocate for the First Respondent:

Danielle McCredden

Solicitors for the First Respondent:

White Cleland Pty Ltd

Counsel for the Second Respondent:

Bridget Slocum

Solicitors for the Second Respondent:

SLF Lawyers

ORDERS

(1) The matter be adjourned to a date to be fixed for hearing on the question of whether the applicant and the petitioning creditor should pay some of the trustee’s costs and remuneration as a condition of an extension of time for the applicant to file her application to set aside the sequestration order made on 13 December 2016.

FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE

MLG 2448 of 2016

JOSEPHINE BIONDO

Applicant

And

BAYCORP COLLECTIONS PDL (AUSTRALIA) PTY LTD (ACN 119 478 778)

First Respondent

DANIEL PETER JURATOWITCH IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF JOSEPHINE BIONDO

Second Respondent

REASONS FOR JUDGMENT

Introduction

1. This is an application for an extension of time in which to file an application for review of a sequestration order made by a registrar.
2. The applicant is the bankrupt, Ms Biondo. The first respondent is the petitioning creditor (“Baycorp”). The second respondent is Ms Biondo’s trustee in bankruptcy (“the trustee”).
3. In considering whether to grant an extension of time, the court must consider:
   1. the length of the delay;
   2. the reasons for the delay;
   100. the prejudice to the respondents; and
   4. the prospects of success of the substantive application.
4. As this was an interlocutory application, the various witnesses were not cross-examined. Consequently, I take their evidence substantially at face value, subject to the documentary evidence. Obviously, if the matter proceeds, and witnesses are cross-examined, a different view may be taken of the facts.

The length of the delay

5. The sequestration order was made by a registrar on 13 December 2016. The applicant had 21 days in which to file an application for review. Obviously, the 21 days would have included the Christmas shutdown period observed by the court and most solicitors. On any view, however, it could have been reasonably expected that any application to review would have been filed by mid January 2017.
6. The application to review was in fact filed on 27 April 2018. That was about 15 months out of time. That is an extraordinarily long period in the bankruptcy context, where the court is urged to deal with matters promptly, and where trustees’ costs can escalate quickly if an application to review the sequestration order is not filed within time.

The explanation for the delay

7. The applicant relied on:
   1. the two affidavits that she swore on 26 April 2018 and 6 June 2018;
   2. an affidavit sworn by her son, Simon on 26 April 2018;
   100. an affidavit sworn by her husband, Michaelangelo on 6 June 2018; and
   4. the two affidavits affirmed by her solicitor on 30 May 2018 and another on 31 May 2018.
8. However, notwithstanding all of that material, the applicant did not squarely advance any concise reason for the delay in filing the application. Rather, the applicant claimed that it was in February 2018 that she understood the bankruptcy was real. She claimed that she did not recall receiving any documents relating to the bankruptcy but now knows that bankruptcy related documents were served on her on two occasions. She now thinks that she must have put down the documents while she was in a medicated state and her son, Simon, must have picked them up. There was no suggestion that the applicant does not speak, read or write English.
9. In considering this claim, it is necessary to consider the history of the matter, which is as follows.
10. The applicant and Michaelangelo jointly own their family home. The mortgage over the property was repaid in full in 2006, although a discharge of mortgage has never been lodged. Real estate agents in late 2016 valued the property at between $640,000 and $700,000. The trustee gave the applicant’s share in the property a value of $337,500 in March 2017, giving the property a value of $675,000 in total.
11. The applicant worked in various factories as a process worker. In recent years, she has been on a disability pension. A medical report^[1] indicated that:
    1. in 2007, the applicant had neurosurgery which resulted in her becoming deaf in her left ear;
    2. she has a history of depression and pain in her back and left knee; and
    100. she is on medication which may cause drowsiness and impact on her better judgment.
12. In 2008, Simon was refused a car loan because his income was limited. He needed a reliable car for work. The applicant agreed that Simon could apply to St George Bank for a secured car loan in her name. The loan, including various charges, was for about $49,000. The applicant understood that if Simon missed any payments, St George could repossess the car and sell it to pay down the loan.
13. The applicant said that:
    1. in the beginning, she made the repayments;
    2. later, Simon would give the money to Michaelangelo and he would take it to the bank;
    100. payments were made using a payment book which was provided by St George;
    4. if the payments were late, the bank would telephone and then the payment would be made;
    5. in 2015, Simon told the applicant that the final repayment on the loan had been paid after the last voucher in the payment book was used;
    6. the applicant believed that the loan had been discharged in full; and
    7. the applicant did not receive any telephone calls or letters from St George saying that the loan had not been fully repaid.
14. According to file notes exhibited to the affidavit sworn by Adam Dalzell on 31 May 2018 on behalf of the petitioning creditor, field agents of St George attended the applicant’s home over 30 times between 2 April 2009 and 8 March 2015 because the applicant was in arrears on her payments for the car. Sometimes, the agents left calling cards. Sometimes, they spoke to the applicant, Michaelangelo, or Simon. Sometimes, they were given bank cheques or cash of between $3,800 and $6,300 for arrears. Sometimes, they were told the payments had not been made for reasons such as that Simon had been in hospital or Simon had cash flow problems or the applicant had been in hospital. Sometimes, the agents asked that the security be relinquished but the applicant refused.
15. According to Simon, he paid off the car loan in 2015 when all of the slips in the payment book had been used. He told the applicant at that time that the car had been paid off.
16. An account statement from St George shows that:
    1. at the time of the last repayment on 22 September 2014, there was an outstanding balance of $6,760.78; and
    2. on 14 May 2015, there was an outstanding balance of $7,252.11.
17. St George then assigned the debt to Baycorp. By letter dated 12 November 2015 addressed to the applicant at her home address, Baycorp notified the applicant that the debt she owed to St George had been assigned to Baycorp on 30 June 2015. Baycorp also said in that letter that, if the outstanding amount of $7,890.16 was not paid by 17 December 2015, Baycorp may commence legal proceedings against her and/or repossess the car, which may not extinguish the entirety of the debt.
18. The applicant denied having seen that letter until her solicitor showed her a copy in about March 2018. She said that there had not been any attempt to repossess the car, which remained garaged at her home.
19. Under cover of a letter dated 28 January 2016 addressed to the applicant at her home, and apparently sent by post, Baycorp served a copy of a Magistrates’ Court complaint on the applicant. The covering letter repeated that the applicant’s debt to St George had been assigned to Baycorp. The complaint gave further details of the assignment. The applicant said that she did not recall seeing that letter before.
20. On 15 September 2016, Baycorp obtained a default judgment against the applicant for $7,976.49, with interest of $705.09 and costs of $1,194.58, making a total of $9,876.16.
21. On 29 September 2016, Baycorp had a bankruptcy notice issued to the applicant for an amount of $9,912.05, which sum included additional interest. An affidavit indicates that the applicant was personally served with the bankruptcy notice on 8 October 2016. The affidavit stated that the applicant appeared to read the bankruptcy notice at the time of service. The applicant did not comply with bankruptcy notice.
22. On 10 November 2016, Baycorp issued a creditor’s petition against the applicant. An affidavit indicates that the applicant was personally served with the creditor’s petition on 17 November 2016. The affidavit stated that the applicant appeared to read the creditor’s petition at the time of service.
23. The creditor’s petition was heard on 13 December 2016. The applicant did not file a notice of opposition or appear at the hearing of the creditor’s petition. A registrar made a sequestration order against the estate of the applicant. The trustee was appointed as the trustee of the applicant’s bankrupt estate on 13 December 2016.
24. On 13 December 2016, the trustee sent the applicant a letter by registered post to her home address:
    1. advising her that she was bankrupt pursuant to a sequestration order;
    2. asking her to complete the enclosed statement of affairs form;
    100. advising her about the circumstances in which a bankruptcy may be annulled;
    4. advising her about various other issues related to her bankruptcy; and
    5. saying that the contact person in the trustee’s office was Jemma Gan and giving Ms Gan’s telephone number.
25. According to Simon, on 14 December 2016, a person went to the property and asked for the applicant. Simon said she was not at home. The person told Simon he was personally served with documents for the applicant. The person told Simon that the applicant was made bankrupt. Simon replied that there must be a mistake. Simon read the documents and saw a telephone number for Ms Gan. Simon rang the telephone number, and someone told him that Ms Gan would call back. Someone rang back later. Simon told them that he thought someone was trying to extract money from his mother as part of a scam. Simon asked the person to contact him rather than the applicant. Simon considered that it was a scam because he was being given limited information by the caller and they would not answer all of his questions.
26. On 14 December 2016, Mr Mike Waters, who identified himself as a solicitor, telephoned the trustee’s office and left a message about the applicant. Mr Georgas, of the trustee’s office, returned the call later that same day. Mr Waters told Mr Georgas that the bankrupt had given him the statement of affairs form. Mr Georgas told Mr Waters that the applicant needed to complete the statement of affairs form within 14 days and that they could then discuss the applicant’s options.
27. On 22 December 2016, Ms Gan telephoned Mr Waters and asked him for a mailing address. He said to send correspondence directly to the applicant and she would pass on a copy to him.
28. In about January 2017, a Commonwealth Bank ATM machine swallowed the applicant’s card. The applicant telephoned her bank, and was given a telephone number to call.
29. On Friday 13 January 2017 at 6:44pm, the applicant called the number, which was Ms Gan’s, and left a message asking her to call back on a particular telephone number. On Monday 16 January 2017 at 9:33am, Ms Gan returned the call, and left a message asking the applicant to return her call. On 16 January 2017 at 6:39pm, the applicant and a male telephoned Ms Gan and left a message asking her to return the call.
30. On 17 January 2017, Ms Gan spoke to the applicant by telephone. Ms Gan informed the applicant that she was calling in relation to her recent bankruptcy. The applicant thought Ms Gan was calling from the Commonwealth Bank. Ms Gan corrected the applicant. The applicant said that she was not bankrupt and asked how can someone be made a bankrupt without doing it themselves? Ms Gan advised the applicant that a creditor, Baycorp, went to court and made her bankrupt for an unpaid debt. The applicant said that she had done nothing to cause herself to become bankrupt.
31. The applicant asked Ms Gan to hold the line and went to find her husband. When the applicant returned, the call had been disconnected. Simon said in his affidavit that he disconnected the call because he believed that the caller was trying to deceive the applicant and it was a scam. The applicant said in her affidavit that she told Simon about the telephone call later that night. He told her the call must have been a mistake.
32. After the call was disconnected, Ms Gan immediately rang back. The telephone was answered by a man who said that he was the bankrupt’s son. Simon has acknowledged that he took that call. To Ms Gan, he sounded similar to Mr Waters. Simon refused to give his name to Ms Gan and said that his mother was on disability benefits and was not bankrupt. Ms Gan said that the applicant had been made bankrupt on 13 December 2016 on a creditor’s petition and Mr Juratowich of Ms Gan’s office was appointed as trustee. Simon advised Ms Gan that:
    1. the matter had been referred to the family’s lawyer as his mother was not bankrupt;
    2. he would sue Ms Gan for making his mother bankrupt;
    100. Ms Gan should leave his mother alone;
    4. his lawyers would be in touch; and
    5. Ms Gan should go away.
33. Simon has said that, at the time, he believed that he was protecting his mother, and believed that the St George loan had been paid off. By the end of January 2017, he had been told that the debt related to Baycorp, but he had never heard of them, except for the notice he received in January 2016 which he believed had been sorted out. Simon said in his affidavit that the situation did not make sense to him.
34. On 18 January 2017, Simon rang Ms Gan. They discussed the reasons why the applicant had become bankrupt. Simon then said:
    1. as the lawyers had done nothing, he would handle the situation;
    2. he would help his mother to fill in the statement of affairs; and
    100. any further questions should be directed to him.
35. Ms Gan informed Simon about the possibility of an annulment and the possibility of the sale of the property. Ms Gan said that the statement of affairs had to be completed before an annulment figure could be calculated. Simon then said:
    1. he would source the funds for an annulment; or
    2. Michaelangelo would refinance the property.
36. It was common ground at the hearing before this court that the applicant had not given the trustee any authority to discuss her bankruptcy or negotiate with Simon.
37. On 24 January 2017, the trustee wrote to the applicant at her home address:
    1. confirming that she had been made bankrupt by the court on 13 December 2016;
    2. advising that her property had vested in the trustee;
    100. advising that her share of the property was worth $337,500;
    4. informing her that it was possible for a third party to buy the trustee’s interest in the property;
    5. informing her that the bankruptcy could be annulled after she lodged her statement of affairs; and
    6. informing her that, the longer it took to resolve the matter, the higher the trustee’s fees would be.
38. The applicant did not respond to that letter. As the statement of affairs was not lodged within time, the trustee referred the matter to his solicitors. On 8 March 2017, the trustee’s solicitors wrote to the applicant at her home address. The letter set out the background to the matter, reiterated the requirement to lodge a statement of affairs, discussed the possibility of an annulment, and said that, if an agreement were not reached in relation to an annulment within 14 days, the solicitors would commence proceedings for the sale of the property. The applicant did not respond to that letter.
39. By letter dated 27 March 2017, the trustee’s solicitors gave the applicant a further seven days to enter into an annulment agreement. The applicant did not reply to that letter.
40. On or about 20 April 2017, Simon called Ms Gan. He said that:
    1. the applicant had received multiple letters about the statement of affairs, which had been completed; and
    2. the applicant wished to travel to Italy and enquired when the bankruptcy could be finalised.
41. Ms Gan said that, once the statement of affairs was provided, the trustee could prepare an annulment calculation. Simon told Ms Gan that the funds for the annulment would come from a mortgage over the property.
42. Simon filled in the statement of affairs form and dispatched it for the applicant, although she signed it. Simon told the applicant that the form was connected with scammers and she needed to do the form to fix up her problems with the Commonwealth Bank.
43. On 4 May 2017, Ms Gan and Mr Georgas telephoned Simon. They said that, as Simon was not the bankrupt, they were limited in the matters that they could discuss with him. They asked for a copy of the statement of affairs and said that, once it was provided, they could calculate the annulment figure. Simon told them that the statement of affairs had been posted. Mr Georgas asked Simon to email the completed copy of the statement of affairs to the trustee’s office.
44. On 4 May 2017, the trustee obtained a copy of the applicant’s statement of affairs from the Australian Financial Security Authority. It was dated 9 April 2017. The statement of affairs indicated that the applicant had a solicitor, who was incorrectly named in the statement of affairs as Filix Vittelo, rather than Felix Vitiello. His address was given as Springvale Road, Springvale, without a street number, and without a telephone number. It was not suggested that the trustee made any attempt to contact the solicitor, Mr Vitiello.
45. On 10 May 2017, the trustee wrote to the applicant at her home address advising that the annulment figure was $87,354.77 and asking for payment by 30 June 2017. The applicant did not respond to that letter.
46. On or around 14 June 2017, Ms Nolan of the trustee’s office telephoned Simon about the date for payment of the annulment amount. Simon told her that he could not come up with $80,000 by 30 June 2017. Ms Nolan said that she would send him a letter extending the time to 21 July 2017. He said that seemed reasonable. He asked that the letter be emailed to him.
47. On 13 July 2017, the trustee’s solicitors wrote to Simon:
    1. enclosing a copy of the trustee’s letter to the applicant dated 10 May 2017;
    2. explaining the calculation of the annulment figure;
    100. giving the applicant until 15 August 2017 to pay that amount; and
    4. saying that, if the amount was not paid by that date, the solicitors would commence proceedings for the sale of the property.
48. On 4 August 2017, in a telephone conversation with Ms Poulakis of the trustee’s solicitor’s office, Simon advised that the annulment figure would be paid and asked for the details of the bank account into which to pay the amount. Those details were provided to Simon by email later that day.
49. On 15 August 2017, Simon advised Ms Poulakis by telephone that the annulment amount would be paid that day. On 16 August 2017, Ms Poulakis wrote to Simon at the property and by email to the effect that the annulment amount had not been paid and saying that if it was not paid by 18 August 2017, steps would be taken to take possession of the property.
50. On 22 August 2017, Simon emailed Ms Poulakis saying that:
    1. the annulment amount had been paid;
    2. he had taken out a loan to pay for it;
    100. he had legal information that Baycorp had made his mother bankrupt illegally; and
    4. under law, you cannot bankrupt a person on a disability pension whose only asset is a home and a car worth less than $7,000.
51. Ms Poulakis replied, saying among other things, that Simon should seek legal advice if he considered that there were irregularities with the bankruptcy.
52. The trustee did not receive the annulment amount on or around 22 August 2017 or at all.
53. On 6 October 2017, the trustee’s solicitors wrote to the applicant at the property:
    1. summarising the various communications with the applicant and Simon;
    2. confirming that the annulment figure had not been paid;
    100. saying that the trustee had been very patient; and
    4. advising that the trustee would shortly seek orders for possession and sale of the property.
54. The applicant did not reply to that letter. However, on 12 October 2017, the solicitor, Mr Vitiello, contacted Ms Nolan of the trustee’s office and asked for copies of correspondence and court documents. Ms Nolan advised Mr Vitiello to contact the trustee’s solicitors. Mr Vitiello did not do so.
55. On 20 November 2017, the trustee issued an application for the possession and sale of the property. The application was personally served on the applicant at the property on 26 November 2017 at 7:45pm. The process server’s report stated that:
    1. at the time of service, the applicant was in the front seat of a car parked in the drive way;
    2. she refused to accept service;
    100. the process server explained the contents of the documents and left them on the bonnet of the car; and
    4. a male exited the driver’s seat of the car and became verbally abusive.
56. The applicant said that Simon was in the car with her. He told her that the documents probably related to the St George loan, which he claimed had been repaid.
57. Michaelangelo was personally served with the possession and sale application on 22 November 2017.
58. On 11 January 2018, the trustee wrote to the applicant reminding her of the forthcoming hearing of the possession and sale application and inviting her to discuss annulling her bankruptcy. The applicant did not reply to that letter.
59. On 12 February 2018, the possession and sale application was heard by Judge McNab of this court. The applicant did not appear. Orders were made for the possession and sale of the property.
60. On 15 February 2018, the applicant and Michaelangelo were each personally served with a letter from the trustee enclosing copies of the possession and sale orders. According to the applicant, her son, John, was handed these documents. He read them to the applicant and Michaelangelo and then contacted a solicitor, Mark Harbert, to represent the applicant.
61. On 22 February 2018, Mark Harbert, the solicitor for the applicant, telephoned the trustee’s solicitor and said he intended to apply for a 60 day stay of the possession and sale orders. On 27 February 2018, the trustee consented to orders for a 60 day stay. That stay expired on 27 April 2018.
62. On 27 April 2018, the applicant filed the present application for an extension of time to seek orders setting aside the sequestration order.
63. The applicant did not explain the delay between the applicant engaging Mr Harbert as her solicitor on or about 22 February 2018 and the application for an extension of time being filed on 27 April 2018. Even if the 21 day time limit began to run on 22 February 2018, the application for an extension of time in which to file an application for review would have been about 40 days late. That is a prolonged period in the bankruptcy context. As mentioned above, the applicant did not provide any explanation at all for the delay between when Mr Harbert became involved and the filing of the extension of time application.
64. The applicant sought to explain her delay from January 2017 until 27 April 2018 on the basis of medical conditions and pharmaceuticals that caused her confusion. However, expert medical evidence is required for such a submission. The medical evidence provided to the court consisted of a letter from a general practitioner exhibited to the applicant’s first affidavit (Exhibit JB-1 annexed to the affidavit of the applicant sworn on 26 April 2018). The letter only said that the medications that the applicant took may cause drowsiness and may impact on a person’s better judgment. Leaving aside the fact that the doctor was not himself on oath, the doctor did not give any evidence that the applicant had complained to him about drowsiness or about having exercised poor judgment. The medical evidence, such as it is, is cast in general terms and mentions possible side effects. The medical evidence does not say anything about any side effects experienced by the applicant.
65. Moreover, the medical evidence did not address how the applicant could have failed to understand, or could have failed to engage professional assistance to help her understand:
    1. the letter that Baycorp sent her on 12 November 2015, explaining that the debt she owed to St George had been assigned to Baycorp;
    2. the Magistrates’ Court complaint sent to her on 28 January 2016;
    100. the bankruptcy notice that was personally served on her on 8 October 2016;
    4. the creditor’s petition that was personally served on her on 17 November 2016;
    5. the trustee’s letter sent to her on 13 December 2016 by registered post;
    6. the telephone advice from Ms Gan on 17 January 2017 to the effect that she was bankrupt;
    7. the trustee’s letter dated 24 January 2017;
    8. the effect of the statement of affairs that she signed or about 9 April 2017;
    9. the trustee’s letter dated 10 May 2017;
    10. the trustee’s letter dated 6 October 2017;
    11. the application for possession and sale of the property that was personally served on her on 26 November 2017; and
    50. the trustee’s letter to her dated 11 January 2018.
66. It was suggested from the bar table that Simon had intercepted the written communications to the applicant and had not passed them on to her. However, Simon’s evidence did not go that far. Obviously, intercepting mail intended for another person is an offence. I would not form the view that Simon had intercepted the applicant’s mail without more cogent evidence than presently exists.
67. Simon said in his affidavit sworn on 26 April 2018, that on 14 December 2016 he opened a document that he had been personally served with after being told it was a document for his mother. This may have been the creditor’s petition. Opening that letter would not have involved interfering with mail, because it was delivered personally rather than through the mail system.
68. There is an affidavit saying that the creditor’s petition was personally served on the applicant on 17 November 2016, after the female person served acknowledged that she was Josephine Biondo. To the extent that Simon claimed that he was served with the creditor’s petition, there is an inconsistency in the evidence. However, it is immaterial, because Simon did not say in his affidavit that he did not give the document to the applicant. Simon’s evidence does not provide any reason to doubt that the applicant received the creditor’s petition, even if it was via him.
69. The applicant said that she did not recall receiving any documents about the bankruptcy. However, that evidence falls well short of saying that she did not actually receive any documents relating to the bankruptcy. The applicant also said that she acknowledged that she may have been served with documents but can categorically state that she does not recall anyone telling her that they were important.
70. That claim is insufficient to explain why the applicant did not act sooner. It is not for a process server to explain that personally served documents are important. Their importance is obvious from the fact that they were personally served. Similarly, the letters from Baycorp and the trustee were obviously important. The applicant’s acknowledgement that she may have been served with documents speaks volumes.
71. It seems to me that, at best, the applicant was wilfully blind about her debt to Baycorp and her bankruptcy. Wilful blindness is not an adequate explanation for a delay of the magnitude in this case.
72. I am concerned that the trustee communicated on many occasions with Simon rather than with the applicant herself. This may be a breach of the Privacy Act 1988. It was also poor administration. It would not have been difficult to tell Simon that the trustee would not communicate with him without a written authority from the applicant. Requiring a written authority may have obviated many of the problems that have arisen in this case.
73. I am also concerned that the applicant in this case may have suffered some very serious consequences in an effort to help Simon financially. However, the origin of the debt does not explain the persistent and wilful refusal on the applicant’s part to deal with the debt once she was sent the first letter from Baycorp on 12 November 2015. If the applicant had dealt with the issue then, her financial problems would have been a fraction of their present size.

Prejudice

74. The petitioning creditor did not claim that it would suffer any prejudice if the sequestration order were set aside.
75. During the hearing, the court said that, according to many authorities, setting aside a sequestration order has the effect that the trustee would suffer prejudice because he would not be entitled to his remuneration. However, the applicant drew the court’s attention to the decision of the Full Court of the Federal Court in Flint v Richard Busuttil & Co Pty Ltd (2013) 216 FCR 375; (2013) 305 ALR 522; [2013] FCAFC 131 where the court said:
    • 48. It follows that the appeal should be allowed. Ms Flint applied for an order setting aside the sequestration order. The trustee asked to be heard on the question.
    • 49. The trustee was given leave to intervene as a party to protect his position. He submitted that an order annulling the bankruptcy should be made under s 153B of the Bankruptcy Act in order that his costs and remuneration be protected in accordance with s 154. If the sequestration order were set aside, the creditor’s petition dismissed and no order annulling the bankruptcy made, the authorities reveal that the trustee would have no statutory basis for any remuneration and his action (and the consequences thereof) would be left to the general law: see the discussions in Austral Brick Company Pty Ltd v Daskalovski [1998] FCA 782; Symons v Bateman [1999] FCA 658; Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338 (Kyriackou) and Pattison v Hadjimouratis (2006) 155 FCR 226 (Pattison). The exposure of the trustee to that position in this case would be a gross injustice, as we later explain.
    • 50. An order for annulment would provide a simple means of enabling the trustee to recover his costs and remuneration in the administration of the bankruptcy. Ms Flint opposed the making of such an order on the ground that it is not possible to annul an order which was made without power.
    • 51. Still, in Pattison the Full Court (by majority) held that it was open to the Court to make orders both setting aside a sequestration order and annulling the bankruptcy. No party in this appeal contended that Pattison was wrongly decided and the course it sanctioned appears to be within the terms of s 153B.
    • 52. The difficulty with adopting this course in the present case, however, is that it would place the totality of the burden of the trustee’s costs and remuneration on Ms Flint. For the reasons that follow this would be an unjust outcome.
    • 53. On the one hand, Ms Flint is not without blame. Her completed statement of affairs lodged on 31 July 2013 reveals that she is solvent. Yet, she has steadfastly and without apparent justification refused to discharge the judgment debt that gave rise to the creditor’s petition and she failed to prove solvency at the hearing. Furthermore, she did not appeal within the 21-day period provided by the Federal Court Rules and required an extension of time to bring the appeal. In the meantime the trustee was undertaking work in the administration of the bankrupt estate.
    • 54. On the other hand, Busuttil [ie, the petitioning creditor] should share some of the responsibility for the trustee’s costs and remuneration. In its own interests it ought to have applied for an extension of the period for compliance with the creditor’s petition before the statutory period lapsed. It could have recognised that there was doubt about the validity of the federal magistrate’s order and the risks of moving on the petition in those circumstances (especially having regard to the impact on third parties). It could have issued a fresh bankruptcy notice. It could have conceded the point at the heart of the appeal.
    • 55. In these circumstances, the preferable course is to set aside the sequestration order and dismiss the petition, but to make consequential orders dealing with the costs and remuneration of the trustee. No party submitted that such orders were either inappropriate or beyond power. Irrespective of the position under the Bankruptcy Act, all the parties accepted that the Court had power to make them under s 28 of the Federal Court of Australia Act 1976 (Cth).
    • 56. Given the nature of the work undertaken, the benefit of that work to Ms Flint, the respective responsibilities of the parties for the positions in which they find themselves, and Ms Flint’s refusal to pay the judgment debt the subject of the petition (in circumstances where the report to creditors in evidence on the appeal indicates that she is and was at all material times solvent), Ms Flint and Busuttil should each pay a proportion of the trustee’s costs and remuneration. In all the circumstances, we consider that the fair result is that Ms Flint pay 75% and Busuttil 25%. Ms Flint’s costs in the appeal and of the proceeding below, however, should be borne by Busuttil, reflecting the usual order that costs follow the event.
76. As can be seen, the Full Court of the Federal Court in Flint v Busuttil reaffirmed the established position that, under the Bankruptcy Act 1966, the effect of setting aside a sequestration order is that the trustee is not entitled to recover an amount for his costs and remuneration. However, in Flint v Busuttil, the Full Court of the Federal Court held that it had power, when it set aside a sequestration order on appeal, to make an order under s.28 of the Federal Court of Australia Act 1976 requiring a party to pay some or all of the trustee’s costs and remuneration.
77. Section 28 of the Federal Court of Australia Act 1976 provides that:
    • (1) Subject to any other Act, the Court may, in the exercise of its appellate jurisdiction:
      • ...
      • (b) give such judgment, or make such order, as, in all the circumstances, it thinks fit, or refuse to make an order;
    • ...
78. The trustee wished to rely on Flint but was unable to point to any comparable provision in the Federal Circuit Court of Australia Act 1999. The trustee referred to rule 20.01 of the Federal Circuit Court Rules 2001 (“the court’s general rules”), which provides that:
    • (1) For subsection 104(2) of the Act, application for review of the exercise of a power by a Registrar must be made within:
      • (a) for the exercise of a power of the Court under the Family Law Act or Family Law Regulations mentioned in items 3 to 30 of the table in rule 20.00A—28 days; and
      • (b) otherwise—7 days.
    • (2) A time prescribed under subrule (1) may be extended in a proceeding:
      • (a) by the Court or a Registrar on any terms as the Court or Registrar thinks fit; or
      • (b) with the consent of the parties to the proceeding.
79. The trustee relied on that rule to say that the court could make an order for the trustee’s costs and remuneration as a condition of the extension of time. However, r.20.01(1) of the court’s general rules does not apply in the present case. Clearly, this is not a family law matter, so it does not fall under r.20.01(1)(a) of the court’s general rules. It was common ground that the time limit in the present case is not seven days. Consequently, this matter does not fall under r.20.01(1)(b) of the court’s general rules. Therefore, this case does not give rise to a time limit prescribed under r.20.01(1) of the court’s general rules, and therefore r.20.01(2) of the court’s general rules has no application.
80. It was common ground that the time limit in the present matter is 21 days. That time limit is derived from r.2.02 of the Federal Circuit Court (Bankruptcy) Rules 2016 which provides that:
    • (1) For the purposes of paragraph 102(2)(i) of the Act, the following powers of the Court are prescribed:
      • (a) a power of the Court under a provision of the Bankruptcy Act referred to in Part 1 of Schedule 1;
      • (b) ...
    • (2) ...
    • (3) Subject to any direction by the Court or a Judge to the contrary, an application under subsection 104(2) of the Act for review of the exercise of a power of the Court by a Registrar must be made by filing an application in accordance with Form B3A within 21 days after the day on which the power was exercised.
81. One of the powers of the court prescribed under a provision of the Bankruptcy Act 1966 referred to in Part 1 of Schedule 1 of the Federal Circuit Court (Bankruptcy) Rules 2016 is the power to make sequestration orders. By s.102(2)(i) of the Federal Circuit Court of Australia Act 1999, a power prescribed in the rules of court may be exercised by a registrar.
82. The review by a judge of this court of a sequestration order made by a registrar occurs pursuant to s.104 of the Federal Circuit Court of Australia Act 1999 which relevantly provides:
    • (2) A party to proceedings in which a Registrar has exercised any of the powers of the Federal Circuit Court of Australia under subsection 102(2) ... may:
      • (a) within the time prescribed by the Rules of Court; or
      • (b) within any further time allowed in accordance with the Rules of Court;
      • apply to the Federal Circuit Court of Australia for review of that exercise of power.
    • (3) The Federal Circuit Court of Australia may, on application under subsection (2) ... review an exercise of power by a Registrar under subsection 102(2) ... and may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised.
83. The power to give an extension of time in the present case is derived from r.2.02(3) of the Federal Circuit Court (Bankruptcy) Rules 2016, which provides that the application is to be brought within 21 days:
    • Subject to any direction by the Court or a Judge to the contrary ....
84. The power in r.2.02(3) of the Federal Circuit Court (Bankruptcy) Rules 2016 to give a direction to the contrary allows the court to give an extension of time in relation to a sequestration order made by a registrar. Subsection 104(3) of the Federal Circuit Court of Australia Act 1999, which permits the court on review of a decision of a registrar to make such order as it thinks fit, is relevantly indistinguishable from s.28 of the Federal Court of Australia Act 1976.
85. Consequently, I consider that the court in the present case has power to make an order setting aside the sequestration order on the basis that the applicant and the petitioning creditor would also be ordered to pay some or all of the trustee’s costs and remuneration.
86. Consequently, the degree of prejudice that the trustee may suffer from an extension of time in the present case would depend on how much of his costs and remuneration the order required the applicant and/or the petitioning creditor to pay. The parties have not addressed the court on this question yet, so it is not possible to be ascertain whether the trustee would suffer any, and if so, how much prejudice from an order granting the extension of time. I propose to hear the parties on this question.

The prospects of success of the substantive application

87. The substantive application, if an extension of time is granted, is an application to set aside the sequestration order made by a registrar on 13 December 2016. Such applications are hearings de novo. That is, the court decides the matter afresh on the facts as they currently stand. The matter that the court decides is whether a sequestration order should be made against the applicant.
88. Applications for sequestration orders are governed by s.52 of the Bankruptcy Act 1966, which relevantly provides:
    • (1) At the hearing of a creditor’s petition, the Court shall require proof of:
      • (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
      • (b) service of the petition; and
      • (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
      • and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
    • (1A) ...
    • (1B) ...
    • (2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
      • (a) that he or she is able to pay his or her debts; or
      • (b) that for other sufficient cause a sequestration order ought not to be made;
      • it may dismiss the petition.
89. In the present case, the petitioning creditor provided to the court during the hearing on 14 June 2018 an affidavit of debt. An affidavit of service of the creditor’s petition and the affidavit verifying the petition were already on the court file. The matters stated in those affidavits were not challenged. Consequently, s.52(1) of the Bankruptcy Act 1966 is satisfied, and the court could affirm the sequestration order.
90. However, under s.52(2) of the Bankruptcy Act 1966, the court should also consider the prospects of the applicant successfully establishing that she is solvent. Solvency is usually a weighty factor in favour of setting aside a sequestration order because a solvent person should not normally be made, or remain, a bankrupt. Insolvency is usually a weighty factor in favour of affirming the sequestration order because it is generally in the interests of the community that an insolvent person be bankrupt. However, under s.52(2) of the Bankruptcy Act 1966, the court must also consider whether there is any other sufficient cause to refrain from making a sequestration order and give appropriate weight to any such matter.
91. The applicant’s debts, leaving aside anything that she may owe the trustee, which is yet to be determined, are as follows:
    1. the petitioning creditor: $9,912.05;
    2. Commonwealth Bank: $6,641.55; and
    100. Latitude Financial Services: $6,949.09.
92. That makes a total of $23,502.69. The debts to the Commonwealth Bank and Latitude Financial Services are credit card debts that became due in their entirety upon the applicant’s bankruptcy.
93. In addition, the Australian Taxation Office advised the trustee that the applicant presently does not have an assessed liability for income tax but she may have such a liability when she lodges her income tax returns for the 2006, 2007 and 2011 income years. For present purposes, it suffices to say that the applicant does not have any outstanding tax liabilities that have fallen due. Consequently, her potential taxation liability can be disregarded.
94. At the hearing in this matter, on 14 June 2018, the applicant claimed that she would be able to pay the amount of $23,502.69 shortly. She indicated that the employer of her son, John, would lend him $23,500 within 30 days to settle the present matter. The applicant provided to the court (exhibit 1) a letter from John’s employer to that effect.
95. After the hearing, on 20 June 2018, while this decision was reserved, the applicant paid into court the sum of $23,502.69. Mr Harbert emailed chambers to alert the court to that payment. However, there was no indication of its source.
96. Subsection 5(2) of the Bankruptcy Act 1966 provides that:
    • A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
97. Previously, the Bankruptcy Act 1966 required that, for a person to be solvent, the person had to be able to pay his or her debts as and when they fell due from his or her own money. It is no longer the case that, to be solvent, a person must be able to pay their debts from their own money. Consequently, it is immaterial that John’s employer may have provided a loan to John for the applicant to use to pay her debts. Subject to any amount that the applicant may be required to pay the trustee, the applicant, one way or another, is able to pay her debts, albeit well after they fell due.
98. In making an assessment of solvency for the purposes of an application to set aside a sequestration order, the court would not normally take into account the trustee’s costs and remuneration. That is because the trustee would not normally be entitled to his costs and remuneration if the sequestration order is set aside. However, in the present case, the application is for an extension of time, and the trustee seeks an order that any extension of time be subject to an order that the applicant pay some or all of the trustee’s costs and remuneration.
99. Consequently, until there has been a resolution of the question of whether the applicant should be required to pay some or all of the trustee’s costs and remuneration as a condition of the grant of an extension of time, it is not possible to determine whether the applicant has reasonable prospects of successfully proving that she is solvent.
100. In relation to s.52(2)(b) of the Bankruptcy Act 1966, the applicant argued that there was sufficient cause to not affirm the sequestration order. The applicant argued that the creditor’s petition was deficient because it asserted that the petitioning creditor did not hold security over the applicant’s property when, in fact, in the applicant’s submission, the petitioning creditor did hold security over the applicant’s property.
101. It is common ground that the creditor’s petition filed on 10 November 2016 said that the petitioning creditor did not hold security over the property of the applicant. It is also common ground that St George, prior to its assignment of the debt to the petitioning creditor, held security over the applicant’s property.
102. The parties differed on the impact on this case of the Personal Property Securities Act 2009 (“the PPSA”). The applicant said that various of its provisions meant that the petitioning creditor did have security. The petitioning creditor said that:
     1. it had not perfected its security;
     2. in any event, it was unable to enforce its security, due to the provisions of s.91 of the National Credit Code, which is contained in Schedule 1 of the National Consumer Credit Protection Act 2009; and
     100. in any event, it wished to amend the creditor’s petition to surrender its security.
103. In relation to point (c), the petitioning creditor filed an application on 8 June 2018 in which it sought leave to amend the creditor’s petition pursuant to s.30 of the Bankruptcy Act 1966 to delete its claim that it did not hold security over the applicant’s property, and to substitute for that claim the following:
     • The applicant creditor holds a security in the form of a charge over a Holden Commodore [details omitted] but surrenders its security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.
104. The applicant argued that the petitioning creditor should not be given leave to amend. The applicant’s point seemed to be that she had been made bankrupt on the false claim that the petitioning creditor did not hold security over the applicant’s property, and the petitioning creditor should not be allowed to fundamentally change the nature of the case at this stage.
105. The applicant relied on Wright Designed Pty Ltd v McClymont (2006) 232 ALR 683; [2006] FCA 999 at [25] where Rares J said:
     • I am of opinion that s 44(5) does not permit Wright Designed to claim falsely in the petition that it holds no security and, if that is proved wrong, to turn around and say that it could present the petition anyway without having voluntarily offered, under s 44(3), to surrender the security for the benefit of creditors generally. Such a construction of s 44 reflects the principle of bankruptcy law that all unsecured creditors should be treated equally and a secured creditor should not be allowed to prove for its full debt as an unsecured creditor as well as keeping its security: see Harvey v Commercial Bank of Australia Ltd [1937] HCA 81; (1937) 58 CLR 382 at 392-393; [1937] VicLawRp 64; [1938] ALR 58 at 63–4 (Harvey) per Dixon J with whom Rich J agreed at (at CLR 386; ALR 361); see too per Starke J (at CLR 387; ALR 61).
106. That case is obviously very different from the present. In Wright Designed, the petitioning creditor did not voluntarily offer to surrender its security. In the present matter, the petitioning creditor is seeking to do just that. Wright Designed is of no assistance to the applicant.
107. The applicant also relied in Allied Mills Pty Ltd v Kim Lien Mai (2010) 240 FLR 480; [2010] FMCA 631 where Jarrett FM, as his Honour then was, said:
     • 14. I am not bound by Rares J decision but I can see no reason why I would not follow it. It is persuasive authority which I apply in this case.
     • 15. In my view, the petitioning creditor’s submissions are misconceived. There was an obligation on the petitioning creditor to list its security in the creditor’s petition and in circumstances where it failed to do so the petition is invalid because the petitioning creditor was not authorised to present the petition at all.
     • 16. The irregularity in the petition however can be cured by amendment and an amendment was foreshadowed during the course of the argument in this case. Whether the Court should allow an amendment or not, of course, is a question of discretion and a relevant factor will be the prejudice to each of the parties if the amendment is permitted or refused as the case maybe. Additionally, the efficacy of the amendment needs to be taken into account and, as the cases demonstrate, the reason for the failure to disclose the security is of some importance as well. If the failure to disclose the security in the petition was properly characterised as inadvertent then a grant of leave will be more easily forthcoming. If the Court forms the view that the failure to disclose the security was deliberate, by reason of some misunderstanding of the law for example, then a grant of leave is not likely to be forthcoming: Re Debtor (No 39 of 1974) [1977] 1 WLR 1308 and, again, Rares J in Wright Designed Pty Limited (Subject to Deed of Company Arrangement) v McClymont, [2006] FCA 999.
     • 17. Here, until the hearing today, the petitioning creditor’s attitude was that it was not required to disclose the charging order because it was not a security. That stance changed today and the petitioning creditor seemed to accept that the charging order was indeed a security but, nonetheless, the submission continued that there was no obligation of any consequence at least on it to disclose the security in the petition. That was clearly an erroneous view of s.44 and, in particular, s.44(3), (4), (5) and (6).
     • 18. But, notwithstanding that the deliberate nature of the petitioning creditor’s failure to disclose the relevant charging order, the amendment foreshadowed does not cure the difficulties that the petitioning creditor faces. The amendment that was foreshadowed was to delete the present paragraph 3 of the petition and substitute the following:
       • That the petitioning creditor holds security over the property of the respondent debtors pursuant to a charging order of the Magistrates Court of South Australia in the amount of $4,509.60.
     • 19. In the foreshadowed amendment there is no offer, as required by s.44(3), to surrender the security for the benefit of creditors generally in the event that a sequestration order is made against the debtors. That is a pre-condition to a secured creditor presenting a petition, it seems to me, having regard to what Rares J says and having regard to the terms of the section. A secured creditor is only treated as an unsecured creditor for certain purposes and on certain conditions - those conditions need to be fulfilled before the secured creditor may present a petition as if he or she were an unsecured creditor.
     • 20. Those conditions will not be fulfilled even if the amendment is granted. For that reason the amendment is not efficacious. The amendment will be refused.
     • 21. In the absence of an efficacious amendment to the creditor’s petition the petition cannot succeed against the two respondents Kim and Canh, and the sequestration orders against them should be set aside, the costs orders discharged and the petition will be dismissed.
108. As can be seen, the reason that leave to amend was refused in Allied Mills was that the proposed amendment would not have been efficacious. The proposed amendment in the present case would be efficacious.
109. However, Allied Mills also indicates that, in considering whether to grant leave to amend in circumstances such as the present, it is necessary to consider the prejudice to the other parties and the reason for the petitioning creditor’s failure to disclose the security.
110. It was not suggested that there was any prejudice to the trustee that would flow from the petitioning creditor being granted leave to amend.
111. The applicant, as I understand it, argued that the prejudice to her from an amendment is that the creditor’s petition as it stands is invalid because it did not disclose the security that the petitioning creditor held over the applicant’s property, and the sequestration order should be set aside for that reason.
112. In relation to whether the petitioning creditor actually held a security over the applicant’s property, the applicant noted that St George assigned all of its right, title and interest in its contract with the applicant to Baycorp. The applicant noted that assignment included assignment of the security interest. The applicant also noted that Baycorp provided her with notice of the assignment by letter dated 12 November 2015 and said that perfected the security.
113. The petitioning creditor argued that it had not perfected its security interest by registering it. Section 150 of the PPSA permits the Registrar to register a financing change statement. It may be that the financing change statement needed to be registered for the security to be enforceable. However, a failure to take a particular step in connection with enforceability, being a step on which there was no time limit, does not mean that the petitioning creditor did not have a security over the applicant’s property.
114. That is consistent with s.60 of the PPSA, which provides that:
     • If a security interest in collateral is transferred, the transferred interest has the same priority immediately after the transfer as it had immediately before the transfer.
115. In the present case, there was no suggestion that St George’s security had not been perfected. Therefore, after the assignment, Baycorp had a security with the same priority that St George had previously had. That is, Baycorp had a security.
116. However, contrary to Jarrett FM’s view in Allied Mills, I am not persuaded that a creditor’s petition is invalid if a creditor falsely claims in the petition that it does not hold security. That is because the Parliament clearly contemplated that circumstance when it enacted s.44(5) and (6) of the Bankruptcy Act 1966. Those subsections provide that:
     • (5) Where a secured creditor has presented, or joined in presenting, a creditor’s petition as if he or she were an unsecured creditor, he or she shall, upon request in writing by the trustee within 3 months after the making of a sequestration order, surrender his or her security to the trustee for the benefit of the creditors generally.
     • (6) A secured creditor to whom subsection (5) applies who fails to surrender his or her security when requested to do so by the trustee in accordance with that subsection is guilty of contempt of court.
117. It is clear from those subsections that the effect of a creditor wrongly claiming in the petition that it was not a secured creditor is not that the petition is invalid and the sequestration order should necessarily be set aside. Subsections 44(5) and (6) of the Bankruptcy Act 1966 clearly contemplate that the bankruptcy may continue in such circumstances, albeit that the security will become available for the benefit of creditors generally.
118. Having said that, I accept that the reasons for the false claim in the creditor’s petition that the petitioning creditor did not hold a security over the applicant’s property are relevant considerations in determining whether to grant leave to amend.
119. Mr Dalzell said in his affidavit sworn on 31 May 2018 that:
     1. Baycorp was prohibited by s.91 of the National Credit Code from taking possession of the car;
     2. when Baycorp was assigned the debt, a decision was made that the security would never be enforced;
     100. consequently, Baycorp did not request an assignment of the security and never became registered as the holder of the security;
     4. Baycorp’s normal procedure in such circumstances is to ask the original creditor to register a discharge of the security;
     5. through an oversight by an operator, Baycorp never asked St George to discharge the security; and
     6. if it had been asked, Baycorp would have waived the security.
120. Section 91 of the National Credit Code provided that:
     • (1) A credit provider must not, without the consent of the court, take possession of mortgaged goods if the amount currently owing under the credit contract related to the relevant mortgage is less than 25% of the amount of credit provided under the contract or $10,000, whichever is the lesser.
       • Criminal penalty: 100 penalty units.
     • (2) However, the restriction does not apply:
       • (a) to a continuing credit contract; or
       • (b) if the credit provider believes on reasonable grounds that the debtor has removed or disposed of the mortgaged goods, or intends to remove or dispose of them, without the credit provider’s permission or that urgent action is necessary to protect the goods.
     • (3) Subsection (1) is an offence of strict liability.
       • Note: For strict liability, see section 6.1 of the Criminal Code.
     • (4) In any proceedings in which it is established that a credit provider has taken possession of mortgaged goods contrary to subsection (1), the burden of establishing that the possession of the goods was lawfully taken by virtue of subsection (2) lies on the credit provider.
     • (5) Nothing in this section prevents a credit provider from accepting the return of goods under section 85.
121. In the present case, at the time that St George assigned the debt to Baycorp, the amount outstanding was less than 25% of the amount originally lent and was less than $10,000. However, s.91 of the National Credit Code did not absolutely prohibit repossession of the car. Baycorp could have repossessed the car if it had obtained the consent of the court, or if it reasonably seemed to Baycorp that the applicant had removed or disposed of the car, or was going to.
122. Consequently, s.91 of the National Credit Code did not have the effect that Baycorp did not hold security over the applicant’s property. Section 91 of the National Credit Code simply meant that there were limits on the enforceability of Baycorp’s security.
123. For present purposes, I consider that Baycorp held security over the applicant’s property and Baycorp failed to disclose that security in the creditor’s petition because it thought, in accordance with its usual procedures, that it had asked St George to discharge the security.
124. In all the circumstances of this case, it seems to me that it would be proper to give the petitioning creditor leave to amend the creditor’s petition as foreshadowed, if the extension of time is granted. I consider that the petitioning creditor’s explanation for wrongly stating in the creditor’s petition that it did not hold security over the applicant’s property is adequate. It was in the nature of an administrative error. I also do not consider that there is any relevant prejudice to the applicant as the creditor’s petition was not invalid in any event, and there is nothing to indicate that she would have done anything differently if the petitioning creditor had surrendered its security in its original creditor’s petition.
125. Having said that, the false claim in the creditor’s petition that the petitioning creditor did not hold any security over the applicant’s property goes to the question of whether the petitioning creditor should contribute to the trustee’s costs and remuneration, if an extension of time is granted.

Other matters

126. In addition to the usual matters that need to be considered in relation to the extension of time application, the applicant argued that there are other relevant factors, being the trustee’s misconduct in relation to the administration of the estate. These factors go to the questions of how much of the trustee’s costs and expenses should be paid as a condition of the extension of time being granted, and who should pay them.
127. The applicant has brought a separate application about the trustee’s alleged misconduct, which has not yet been fully argued. However, I consider that it is open to the court to come to a preliminary view about these matters for the purposes of determining the extension of time issue. For example, as a condition of granting the extension of time, the court could require the applicant to pay $40,000 of the trustee’s costs and expenses, and the petitioning creditor $10,000. Then, upon the hearing of the application to set aside the sequestration order, the annulment application and the misconduct application, the court might determine that the applicant should pay some or all of the balance of the trustee’s costs and remuneration or should make no further payment at all.
128. The applicant argued that the trustee acted wrongfully by communicating with Simon, without authority, rather than with the bankrupt herself. I accept that submission. In doing so, the trustee possibly breached the Privacy Act 1988. At the very least, by communicating with Simon, without authority, rather than the applicant herself, the trustee engaged in poor administration that may have prolonged this matter.
129. Additionally, the applicant argued that the trustee’s costs far exceed a reasonable amount for a debt of the size of the applicant’s original debt to the petitioning creditor. The applicant’s debt as disclosed in the creditor’s petition was $9,912.05. There were also the other debts to the Commonwealth Bank and Latitude Financial Services of approximately $13,500, but they appear to have only become due because of the bankruptcy. The trustee said in his affidavit that his remuneration to 4 June 2018 was $53,900 and his costs (for example, for solicitors) to 4 June 2018 were $35,840. That totals $89,740.
130. The trustee estimated that he would incur further fees of $10,000 to $20,000 for opposing the current proceedings and if he had to sell the property. The further fees can be put to one side at present, because the costs of the present proceedings would be dealt with by a costs order in the usual way and the other costs have not yet been incurred.
131. Trustee’s costs and remuneration of about $90,000 on a debt of less than $10,000 seems extraordinary. However, the applicant contributed to that level of costs and remuneration by being wilfully blind in relation to the bankruptcy and by not dealing with it promptly. She gave the trustee no option but to seek orders for the sale of the property. Having said that, the trustee would have done better to have communicated only with the applicant rather than with Simon. If the communications had been on the correct footing, this matter may have been resolved earlier.
132. Additionally, the applicant criticises the trustee’s handling of issues related to the applicant’s car. The trustee wrote in his report to creditors dated 10 February 2017 (exhibit 2):
     • Upon my appointment, I wrote to VicRoads requesting a search of any motor vehicles registered in the bankrupt’s name currently or at any time in the previous five years. VicRoads has advised that the bankrupt is the current owner of a 2006 Holden Sedan (“Holden”). A Personal Property Securities Register completed on 13 December 2016 reveals that St George has a registered security interest in the Holden.
     • I have written to St George seeking details of its security and the current amount owed. St George has since advised that the debt was on sold to the Petitioning Creditor. After correspondence with the Petitioning Creditor, I note that the portion of its secured debt (circa $72,702) is significantly higher than the estimated value of the Holden (circa $11,200). Accordingly, I do not intend on conducting further investigations into same and there will be no return to the Estate from this matter.
133. The applicant argued that the trustee knew that the petitioning creditor’s security was worth more than its debt and should therefore have brought the matter back to court for directions on around 10 February 2017. On the trustee’s figures, the security was worth $11,200, and the debt was $9,900. The applicant implied that the court could have required the petitioning creditor to enforce its security.
134. Certainly, if the trustee had brought the matter back to court, it would have brought to a head the issue of whether the petitioning creditor held security over the applicant’s property. There would also have been costs involved in bringing the application, which may have seemed disproportionate to the debt.
135. It is unclear why the trustee thought that the petitioning creditor had a secured debt of $72,702. It is also unclear why the trustee appeared to have not realised that the value of the car, on his own figures, exceeded the petitioning creditor’s debt.
136. In any event, as a minimum, I consider that the trustee should have asked the petitioning creditor to surrender its security under s.44(5) of the Bankruptcy Act 1966. In addition, obviously, the applicant should herself have taken appropriate steps to end the bankruptcy as soon as possible. It seems to me that there were misapprehensions and folly on all sides.
137. The applicant also criticised the petitioning creditor, saying that, if it had enforced its security, at the very least, it would have recovered enough money to reduce the debt to under $5,000, which is the minimum debt for a creditor’s petition. Consequently, the applicant argued, she would not have been made bankrupt. That is all somewhat speculative, as no one has provided to the court a sworn valuation of the car. But, in any event, the applicant herself could have taken steps to promptly bring the bankruptcy to an end.

Conclusion on the extension of time

138. In all the circumstances of this case, it seems to me that it would be proper to give the applicant an extension of time to bring her application to set aside the sequestration order, on the condition that the applicant, and possibly the petitioning creditor, pay some or all of the trustee’s costs and remuneration. I will hear the parties on how much, if any, of the trustee’s costs and remuneration should be paid by the applicant and how much, if any, should be paid by the petitioning creditor.
139. Obviously, if the applicant fails to pay any amount she is ordered to pay within the time allowed, there will be no extension of time, and her only option will be to seek an annulment of the bankruptcy.
140. I will make directions for the parties to make submissions on the amounts, if any, that the applicant and the petitioning creditor ought to be ordered to pay as a condition of granting the extension of time in which to bring the application to set aside the sequestration order made on 13 December 2016.

I certify that the preceding one hundred and forty (140) paragraphs are a true copy of the reasons for judgment of Judge Riley

Associate:

Date: 10 July 2018

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^[1] Exhibit JB-1 annexed to the affidavit sworn by the applicant on 26 April 2018.