Bankrupt’s mental illness excuse dismissed

As Australia’s population ages and the costs of modernity multiply, insolvency practitioners will find themselves dealing more frequently with clients unfit to exercise their responsibilities and obligations. This story is not about them.

This story is about a bankrupt whose attempts to be exempted from a public examination on the grounds that it would exacerbate her mental illness have come to naught in the Federal Court. See: Lavin v Toppi [2016] FCA 801

Artistic agent Dolores Lavin recently applied for leave to appeal the April 15 judgment of Federal Circuit Court Judge Nicholas Manousaridis. The judge had dismissed her application to discharge an examination summons obtained by two of Lavin’s most determined creditors.

Obtained under Section 81 of the Bankruptcy Act, the examination summons requires Lavin to attend court to be questioned about her examinable affairs. But according to the April 15 judgment which is only now free of non-publication restraints, Lavin had argued that she suffered from a mental illness which would “significantly deteriorate” if she was “compelled to undergo an examination, and that her mental condition will impair her ability to participate in the examination”.

After weighing the evidence in support of Lavin’s application – specifically an expert witness’s report prepared by forensic psychiatrist Dr Jonathan Adams – Judge Manousaridis concluded: “I’m not satisfied that the evidence establishes Ms Lavin suffers from the medical conditions from which she claims she suffers.”

Much of the judge’s conclusion was based on inconsistencies between what Lavin had told Dr Adams in interviews for his report and pre-existing evidence already put before the courts during other strands of a dispute which is about to enter its seventh year. Lavin, who was bankrupted by her accountant via a creditors petition she did not oppose in February 2015, clearly disagreed with the conclusion but the judge wasn’t finished.

On May 11 Justice Manousaridis delivered a second adverse judgment. He refused Lavin’s application for a permanent extension of non-publication orders relating to the medical evidence she had relied upon in her failed application to discharge the summons.

Lavin sought leave to appeal this decision too and last month Federal Court Judge Jacqueline Gleeson heard both applications. In delivering her judgment on Tuesday she dismissed them. The respondents to Lavin’s appeal – her ex-mates and former business partners Paola Toppi and Neil Cunningham – won costs.

For Lavin’s bankruptcy trustee Aaron Lucan, the crusading creditors’ motivation and resources are godsends. The Worrells partner will get the results of the examination without having to pay for them which is just a well given the prime asset of Lavin’s estate – a swish apartment in Wylde Street Potts Point valued at at least $3.8 million – is currently out of his grasp. To learn more see: Arrest Warrants Issued For Lavin’s Accountants.

Meanwhile, the Gleeson judgment means the long delayed public examinations of Lavin and two of her accountants – Bill Gertos and Con Saville – will now proceed, barring unforseen obstacles like insanity that’s palpable, or similar.