Once an individual is made bankrupt, their bankruptcy can be annulled in one of two ways:

  1. If the trustee in bankruptcy is satisfied that the bankrupt’s debts have been repaid in full; or 
  2. By order of the Court pursuant to section 153B of the Act if the Court is satisfied that a sequestration order or debtor’s petition “ought not be have been made… or presented”.

In the matter of Mehajer v Weston in his Capacity as Trustee of the Bankrupt Estate of Salim Mehajer [2019] FCA 1713 Justice Lee applied the principles governing an application for an annulment of bankruptcy under section 153B(1) of the Bankruptcy Act 1966 (Cth) (the Act).

Background

On 20 March 2018, a sequestration order was made against Mr Mehajer’s estate. 

On 17 April 2018, Mr Mehajer sought an annulment of the bankruptcy under section 153B(1) of the Act on three grounds:

  1. There were alleged defects in the creditors’ petition;
  2. He claimed that he had sufficient funds to repay his debts at the date of the sequestration order; and
  3. As Mr Mehajer was incarcerated at the time of the hearing, an adjournment of the creditors’ petition ought to have been granted (Adjournment Contention).

Considerations

In coming to his decision, Justice Lee considered the following principles:

  1. Evidence 

The applicant who seeks an annulment of his bankruptcy “carries a heavy burden”; it is incumbent on an applicant “to place before the Court all relevant material with respect to his or her financial affairs so that the Court may be properly informed and may make a judgment that is based on the full facts and the actual circumstances of the applicant”.

      2. Sequestration order “ought not be made”.

In assessing whether a sequestration order “ought not be made”, the inquiry is a broad one and is not confined to a consideration of whether the order should have been made on the facts known to the Court at the time it was made.

A sequestration order ought not be made if the Court would have bound not to make a sequestration order.

     3. Discretionary Power

The Court retains a discretion as to whether to annul a bankruptcy; even if persuaded that the sequestration order ought not to have been made, the Court can, under appropriate circumstances, decline to annul the bankruptcy.

Using their discretion, the Court may consider:

(a) Delay by the bankrupt;

(b) Whether or not the applicant for annulment at the time of the hearing is solvent;

(c) Whether or not the applicant has made full disclosure of the financial affairs;

(d) Whether there was a failure by the bankrupt to oppose the creditor’s petition; and

(e) Whether there was a failure by the bankrupt to attend the hearing at which the sequestration order.

Decision

Justice Lee dismissed Mr Mehajer’s application to annul his bankruptcy. 

Justice Lee noted that the Adjournment Contention was by far Mr Mehajer’s strongest point. That being said, this was balanced against the “fact that the true financial position of Mr Mehajer was… hopelessly insolvent at the time any such applicant for adjournment”. 

In these circumstances, he confirmed that Mr Mehajer failed to sustain an argument that the sequestration order ought not to have been made on the basis that he was solvent or because the proceeding ought to have been adjourned. 

Comment

This decision is useful in reiterating what factors the Court will consider when deciding whether to order an annulment under section 153B(1) the Act.

It demonstrates that the Court’s power to annul a bankruptcy is subject to a high level of discretion.

 

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