FEDERAL COURT OF AUSTRALIA
Mouglalis v Bendigo and Adelaide Bank Ltd [2017] FCAFC 47
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Order 2 of the orders made by the Court on 20 May 2016 be amended such that the concluding clause of that order reads, “with the date of commencement of each of the bankruptcies being 19 February 2015”.
2. Save as aforesaid, the appeal be dismissed.
3. The first respondent’s costs be taxed and paid out of the estate of the appellants in accordance with s 109(1)(a) of the Bankruptcy Act 1966 (Cth).
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
BESANKO J:
1 I have had the advantage of reading in draft the reasons for judgment of Logan J. I agree with his Honour that, subject to the amendment to the order which he has identified (and which I will assume has been made for the purpose of these reasons), the appeal should be dismissed. I also agree, for the reasons his Honour gives, that s 222(8) of the Bankruptcy Act 1966 (Cth) (“the Act”) does not give the Court the power to change or vary the date of discharge from bankruptcy determined in the manner laid down in s 149(4) of the Act.
2 I wish to make some observations about the appellants’ submissions concerning the effect of the decision of the Full Court of this Court in Hingston v Westpac Banking Corporation (2012) 200 FCR 493 (“Hingston”) and to reserve for future consideration the operation of s 115(1B) of the Act in a case such as the present case.
3 For the purposes of the reasons which follow, it is necessary to keep in mind five key dates. On 16 May 2012, the appellants were declared bankrupt by orders of the then Federal Magistrates Court of Australia. A trustee in bankruptcy was appointed to their individual estates and to their joint estate. The appellants lodged their respective statements of affairs on 12 December 2012. At meetings held on 3 December 2013, the creditors of the appellants accepted, by special resolution, a proposal by the appellants pursuant to s 73 of the Act for compositions satisfying their debts in respect of each of the three estates. On 19 February 2015, the first respondent applied for an order terminating or setting aside the compositions and for sequestration orders. On 20 May 2016, the primary judge made the orders which are the subject of the present appeal.
4 As in this case, Hingston concerned the setting aside of a composition in satisfaction of a bankrupt’s debts. The primary judge in that case had made a sequestration order with effect from the date the bankrupt had become bankrupt by virtue of the presentation of his own petition. The Full Court held that the consequence of the making of a sequestration order in that case was that, absent an earlier act of bankruptcy, the date of bankruptcy was the date upon which the composition was set aside (at [116]). It is not necessary to examine the correctness of that proposition. The Court was concerned that that was not the correct result. The Court said (at [118]):
Section 76B which applies s 222 in relation to a composition bears the heading in part “setting aside … a composition”. The notion inherent in s 76B and s 222 in providing for the setting aside of a composition is that Dr Hingston, on the one hand, will be restored to his pre-composition position as a bankrupt, and the creditors, on the other hand, will be restored to their position as creditors of the bankrupt estate of the debtor. An order under s 222(8) as applied by s 76B, together with s 30(1)(b), that properly reflects the restoration of the pre-composition position (when a composition has been set aside in the circumstances prevailing in Dr Hingston’s case), serves to protect the interests of the creditors by enabling the trustee to examine the conduct of the bankrupt (in terms of an examination of whether any voidable dispositions have occurred for the purposes of the Bankruptcy Act or other conduct) by reference to the date on which the debtor became bankrupt on his own petition arising out of the Official Receiver’s acceptance of the petition and supporting Statement of Affairs, on 4 August 2009, rather than a postponed date much later in time (15 October 2010) which would apply as the commencement of the bankruptcy, on the making of a sequestration order under s 222(10).
5 I do not think the Court could have been formulating a general rule that applies in all cases or if it was, with respect, I would not follow it. I say that because a court quite clearly has the power by reason of ss 76B and 222 of the Act to make what will be, in effect, a second sequestration order at the time it sets aside a composition. The Full Court then proceeded on the basis that an order setting aside a composition did not have the effect of negating the annulment of the prior bankruptcy effected by s 74 of the Act by the passing of the special resolution in support of the composition (at [127]). The Court said (at [129]):
The annulment effected by s 74(5) operates subject to remedial orders serving the purpose of the Bankruptcy Act made within power as conferred by s 222(8) and s 30(1) in the exercise of the Court’s jurisdiction in bankruptcy under s 27. Section 222 contemplates by s 222(1) and s 222(5) the setting aside of the composition which involves setting aside the constituent elements of the particular composition, namely, the making of the proposal for compromise put to the meeting under s 73 and the acceptance of the proposal by the special resolution of the creditors on 2 October 2009 under s 73(4). Since the annulment of the bankruptcy takes effect by force of s 74(5) upon the passing of the special resolution, an order setting aside the composition comprising the proposal and its acceptance, sets aside the statutory event upon which the annulment depends, namely, acceptance by special resolution. It follows that upon setting aside the composition, the parties are to be restored to their pre-composition positions as bankrupt on the one hand, and creditors of the bankrupt on the other.
6 In the result, the Full Court set aside the sequestration order made by the primary judge and made the following order:
3. Order 2 of the orders of the primary judge is set aside and in its place the following order is made:
2. Consequent upon Order 1 of the orders of the primary judge as varied by these orders, Guy Richard Hingston (“Hingston”) and the creditors of Hingston are restored to the positions they were in before the making by Hingston, and subsequent acceptance by his creditors by special resolution on 2 October 2009 of Hingston’s composition proposal under s 73 of the Bankruptcy Act, such that Hingston, on the one hand, is and has been bankrupt on and from 4 August 2009 pursuant to the acceptance by the Official Receiver under s 55 of the Bankruptcy Act on 4 August 2009 of Hingston’s debtor’s petition presented under s 55 of that Act, and the creditors of Hingston, on the other hand, are and have been on and from 4 August 2009 creditors of the bankrupt estate of Hingston.
7 At the risk of stating the obvious, it is to be noted that this order is not a sequestration order and is perhaps an order in the nature of a declaration. At all events, it is not a sequestration order which was the order made in this case. The date of the commencement of bankruptcy in the case where a sequestration order is made is governed by the provisions of the Act and, in particular, s 115(1B) or if that is not the case, by the exercise of a judicial discretion. The important point to note is that in this case there was no challenge by the appellants on the appeal to the making of sequestration orders.
8 The primary judge ordered that the bankruptcies commence on the date the respondent issued its proceeding in which it included an application for sequestration orders pursuant to s 222(10) of the Act. In the circumstances of this case where no earlier act of bankruptcy was identified, that would be the appropriate date if s 115(1B) applied. It follows that the date identified by the primary judge was the appropriate date either by reason of the application of s 115(1B) or, assuming his discretion did not miscarry, by the exercise of the primary judge’s discretion. The appellants argued that s 115(1B) is a “default” or “fall-back” provision (written submissions paragraph 8) and the first respondent was content to proceed on this assumption while at the same time not conceding that s 115(1B) did not have an inflexible operation (written submissions paragraph 26(2)(i)). In those circumstances, I am disposed not to decide the point about the operation of s 115(1B) if (as I think in this case) there was no error in the exercise of the primary judge’s discretion. With respect, I would therefore reserve for future consideration Logan J’s analysis of s 115(1B) which culminates in his conclusions in paragraph 43.
9 I have carefully considered the primary judge’s analysis. He was aware that the three year period operated from the date the bankrupts filed their respective statement of affairs (at [46]). On the other hand, he said that his order would give the appellants the benefit of the “new bankruptcies commencing retrospectively” (at [52]). It is true that the bankruptcies commenced retrospectively, although for the purposes of discharge, the three year period specified in s 149(4) of the Act does not commence until after new statements of affairs have been filed following the sequestration orders. Even if the primary judge was mistaken as to the effect of his orders in terms of the date of the bankrupts’ discharge from bankruptcy, I do not think that that was a material mistake in the exercise of his discretion. To conclude otherwise would be to conclude that he was bound to make an order that fixed the commencement of bankruptcy on a date prior to 12 December 2012 when the bankrupts filed their respective statements of affairs. In practical terms, that would be an order like that made in Hingston rather than a sequestration order. As I have said, there was no challenge to the primary judge’s decision to make sequestration orders.
10 In any event, as I have said, I do not think a court which sets aside a composition is bound to make an order that the parties be restored to their pre-composition position. The fact that the bankrupts might lose the benefit of the filing of statements of affairs pursuant to the “first” bankruptcy and before the compositions were entered into (and I assume that to be the case rather than deciding the point), cannot “drive” the exercise of the discretion when a sequestration order is made.
11 I think that the primary judge’s decision was correct. If there was an error in the exercise of the discretion, I would re-exercise it with the same result.
I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. |
Associate:
REASONS FOR JUDGMENT
LOGAN J:
12 Mr Michel Mouglalis and his wife, Mrs Julie Mouglalis were made bankrupt on 16 May 2012 by an order made by the then Federal Magistrates Court. That same order appointed a Mr Clout as the trustee of their respective individual and joint bankrupt estates. On 3 December 2013, meetings of their creditors, by special resolution, accepted a proposal by them, made pursuant to s 73 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), for compositions satisfying their debts in respect of each of these three bankrupt estates.
13 On 19 February 2015, pursuant to s 76B and s 222 of the Bankruptcy Act, the Bendigo and Adelaide Bank Ltd (Bendigo Bank) applied to set aside these compositions. On 18 February 2016, the primary judge (White J) upheld Bendigo Bank’s application, deciding that the compositions should be set aside and a new trustee appointed to investigate the affairs of Mr and Mrs Mouglalis: Bendigo and Adelaide Bank Limited v Clout [2016] FCA 119 (the initial judgment). Having signified that he was disposed to make orders to that effect, the primary judge directed the bringing in of orders, including consequential orders, to give effect to his reasons for judgment. The only formal order made that day was, “Bendigo Bank is to file and serve within seven days minutes of the orders which will be appropriate to give effect to the Court’s conclusion that the compositions of the bankrupt estates of the Second and Third Respondents be set aside.”
14 The subject of what consequential orders ought to be made subsequently proved to be controversial. On 20 May 2016, after earlier hearing submissions from the parties about the controversy, the primary judge made the following orders:
1. The compositions entered into by:
1.1 the Second Respondent;
1.2 the Third Respondent; and
1.3 the Second and Third Respondents jointly;
on 3 December 2013 be set aside pursuant to ss 76B and 222 of the Bankruptcy Act 1966 (Cth).
2. Pursuant to ss 222(10) and 222(11) of the Act, a sequestration order be made against:
2.1 the estate of Michel Emmanuel Mouglalis;
2.2 the estate of Julie Ann Mouglalis; and
2.3 the joint estate of Michel Emmanuel Mouglalis and Julie Ann Mouglalis;
with the effective date of bankruptcy in three estates being 20 February 2015.
3. David Mansfield, Registered Trustee in Bankruptcy, of Deloitte Touche Tohmatsu be appointed as the trustee in bankruptcy of the joint and several estates of the Second and Third Respondents in lieu of David Clout.
4. The Applicant’s costs, including any reserved costs but excluding the costs of and incidental to the hearing on 10 March 2016, and the First Respondent’s costs be taxed and paid from the joint and several estates of the Second and Third Respondents in accordance with the Bankruptcy Act as if they were the costs of a petitioning creditor.
5. The Applicant is to pay the costs of the Second and Third Respondents of and incidental to the hearing on 10 March 2016, but excluding any costs associated with the travel to Adelaide by counsel for the Second and Third Respondents for the hearing.
6. Otherwise, there be no order with respect to the costs of the proceedings.
- Bendigo and Adelaide Bank Limited v Clout (No 2) [2016] FCA 561.
15 Mr and Mrs Mouglalis have appealed only against Order 2 of those made on 20 May 2016 but not so as to challenge the sequestration decision itself. The respondents to the appeal are Bendigo Bank and the new trustee, Mr Mansfield. Bendigo Bank was the only active party respondent in respect of the appeal. Mr Mansfield filed a submitting appearance.
16 There is no appeal in relation to the primary judge’s conclusion that the compositions should be set aside nor, as noted, against the decision of the primary judge that the case was one for the making of sequestration orders in respect of Mr and Mrs Mouglalis. The grounds of appeal are as follows:
1. The learned primary judge erred in granting sequestration orders effective from 20 February 2015, which such orders did not restore the joint and several estates of the First and Second Appellants to the positions they were in before the acceptance by the creditors of the compositions which were set aside.
2. The learned primary judge erred in not, or not appropriately, following the full court decision of Hingston v Westpac Banking Corporation (2012) 200 FCR 493.
3. In the alternative, the learned primary judge erred in not making an order pursuant to section 222(8) of the Bankruptcy Act 1966 that the Appellants be discharged from bankruptcy on an appropriate date or alternatively that a sequestration order be made with an effective date of bankruptcy not later than 3 December 2013.
17 Narrow though the bases of challenge may be, they entail a significant issue with respect to insolvency law and practice in relation to sequels to the setting aside of compositions.
18 Obviously enough, ground 2 takes as its premise that Hingston v Westpac Banking Corporation (2012) 200 FCR 493 (Hingston v Westpac) was correctly decided by the Full Court. Bendigo Bank did not submit otherwise in responding to the appeal.
19 A consideration of the merits of the appeal should commence with the text of s 222 and s 76B of the Bankruptcy Act. Section 222 provides:
S 222 Court may set aside personal insolvency agreement
Setting aside on grounds of unreasonableness etc.
(1) If a personal insolvency agreement is in force, the Court may, on application by:
(a) the Inspector-General; or
(b) the trustee; or
(c) a creditor;
make an order setting the agreement aside if the Court is satisfied that:
(d) the terms of the agreement are unreasonable or are not calculated to benefit the creditors generally; or
(e) for any other reason, the agreement ought to be set aside.
Setting aside on grounds of non-compliance with this Part etc.
(2) If a personal insolvency agreement is in force, the Court may, on application by:
(a) the Inspector-General; or
(b) the trustee; or
(c) a creditor; or
(d) the debtor;
make an order setting the agreement aside if the Court is satisfied that:
(e) the agreement was not entered into in accordance with this Part; or
(f) the agreement does not comply with the requirements of this Part.
(3) The Court must not make an order setting aside a personal insolvency agreement on the ground that it does not comply with the requirements of this Part if the agreement complies substantially with those requirements.
(4) The Court must not make an order under subsection (2) unless the application for the order is made before all the obligations that the personal insolvency agreement created have been discharged.
Setting aside on grounds of false or misleading information etc.
(5) If a personal insolvency agreement is in force, the Court may, on application by:
(a) the Inspector-General; or
(b) the trustee; or
(c) a creditor;
make an order setting the agreement aside if the Court is satisfied that:
(d) the debtor has given false or misleading information in answer to a question put to the debtor with respect to any of the debtor's conduct or examinable affairs at the meeting of creditors at which the resolution requiring the debtor to execute the agreement was passed; or
(e) the debtor has:
(i) omitted a material particular from the statement of the debtor's affairs given under subsection 188(2C) or (2D); or
(ii) included an incorrect and material particular in that statement; or
(f) the debtor was subject to a requirement under subsection 194A(3) to table a statement, and the debtor has:
(i) omitted a material particular from that statement; or
(ii) included an incorrect and material particular in that statement; or
(g) the controlling trustee has:
(i) omitted a material particular from the declaration given by the controlling trustee under subsection 189A(3); or
(ii) included an incorrect and material particular in that declaration; or
(h) the controlling trustee was subject to a requirement under subsection 194A(5) to table a statement, and the controlling trustee has:
(i) omitted a material particular from that statement; or
(ii) included an incorrect and material particular in that statement; or
(i) a person who became the trustee of the agreement has:
(i) omitted a material particular from the declaration given by the person under subsection 215A(3) or (4); or
(ii) included an incorrect and material particular in that declaration.
(6) The Court must not make an order under subsection (5) unless it is satisfied that it would be in the interests of the creditors to do so.
(7) The Court must not make an order under subsection (5) unless the application for the order is made before all the obligations that the personal insolvency agreement created have been discharged.
Ancillary orders
(8) If the Court makes an order under subsection (1), (2) or (5), the Court may make such other orders as the Court thinks fit.
(9) An order under subsection (8) may be an order directing a person to pay another person compensation of such amount as is specified in the order. This subsection does not limit subsection (8).
Application for sequestration order
(10) The trustee or a creditor may include in an application under subsection (1), (2) or (5) an application for a sequestration order against the estate of the debtor. If the Court, on the first-mentioned application, makes an order under this section setting the personal insolvency agreement aside, it may, if it thinks fit, immediately make the sequestration order sought.
(11) The making of an application by the trustee or a creditor for a sequestration order under this section is taken, for the purposes of this Act, to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of subsection 43(1), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply in relation to such an application.
Court may dispense with service on debtor of notice of application
(12) The Court may, if it thinks fit, dispense with service on the debtor of notice of an application by the Inspector-General, the trustee or a creditor under this section, either unconditionally or subject to conditions.
20 Section 222 of the Bankruptcy Act is made applicable to compositions by s 76B of that Act, which provides:
S76B Setting aside and termination of a composition or scheme of arrangement
Sections 222 to 222D, 224 and 224A apply, with such modifications (if any) as are prescribed by the regulations, in relation to a composition or scheme of arrangement under this Division as if:
(a) the composition or scheme were a personal insolvency agreement executed by the debtor; and
(b) the trustee of the composition or scheme were the trustee of the personal insolvency agreement.
21 As applied by s 76B, s 222(10) of the Bankruptcy Act authorised the making of the sequestration order in respect of Mr and Mrs Mouglalis. Subsection 222(11) has a particular deeming effect in relation to the making of an application for such an order. The other premise upon which each of the parties conducted their respective cases was that this deeming provision had no material role to play in the determination of the appeal.
22 The appellants took as their starting point the following observation made by the Full Court in Hingston v Westpac, at [125] with respect to the purpose of s 222(8) of the Bankruptcy Act:
The statutory purpose of s 222(8) as applied by s 76B to compositions is to confer power on the Court to restore the relevant participants, consequent upon, relevantly here, an order under s 222(1) or s 222(5) to the position they would have been in had the composition not been accepted by special resolution and had the consequent annulment of the bankruptcy not occurred.
The appellants submitted that, as they were “relevant participants” in the composition set aside, the identified statutory purpose of restoring them to the position in which they would have been had the compositions not been set aside was subverted by an order which specified their effective date of bankruptcy as 20 February 2015. That was because, so they submitted, that date was “at or near” the date upon which each of them would have been discharged from bankruptcy automatically, by operation of s 149(4) of the Bankruptcy Act namely, three years after the filing of their respective individual and joint statements of affairs. These were filed on 12 December 2012. Thus, had there been no composition and in the absence of any objection to their discharge, Mr and Mrs Mouglalis would have been discharged from bankruptcy on 12 December 2015.
23 That one might quibble with the appellants’ description of the specified effective date of bankruptcy as “at or near” what would otherwise have been their discharge date does not detract from merits, if any, of their “subversion” contention. That is because their further submission was that, as specified by the challenged order, they were not just made bankrupt a second time but consigned to discharge at least three years from 20 February 2015, if not three years after they filed new statements of affairs. They submitted that, at the earliest, their new discharge date would be 20 February 2018, if not later. This, so the submission went, was hardly to restore Mr and Mrs Mouglalis to their pre-composition position.
24 In developing their submission the appellants drew attention to s 115(1B) of the Bankruptcy Act, which provides:
(1B) If a person becomes a bankrupt because of a sequestration order made under Division 6 of Part IV or under Part X, then the bankruptcy is taken to have relation back to, and to have commenced at, the time of the commission of the earliest act of bankruptcy committed by the person within the period of 6 months immediately before the date on which the application for the sequestration order was made.
25 Section 76B falls within Div 6 of Pt IV and s 222 falls within Pt X of the Bankruptcy Act.
26 The appellants noted that s 40(1)(n) of the Bankruptcy Act, which provides that the setting aside of a composition is an act of bankruptcy, could not supply a relation back date for the purposes of s 115(1B), because the application for the sequestration order was consequential relief sought at the time when the application for the setting aside of the composition was filed. The order setting aside the composition was made after that application was filed. The appellants further submitted, and Bendigo Bank did not gainsay, that there was no act of bankruptcy committed by them in the 6 months which preceded the filing of the bank’s application on 19 February 2015. On this basis, they submitted that an important issue in the appeal was whether s 115(1B) means that the effective period of bankruptcy must commence at the earliest on a date ascertained in accordance with that subsection or whether it merely supplied what they termed the “default position” in the event that there was no other suitable date in the circumstances of the case which ought to be imposed pursuant to, for example, s 222(8) of the Bankruptcy Act.
27 The primary judge accepted that there was no act of bankruptcy committed by Mr and Mrs Mouglalis in the 6 months which preceded the filing of the Bendigo Bank’s application. In specifying that the effective date of the bankruptcies was 20 February 2015 his Honour acted on the basis that this was the effect of s 115(1B) of the Bankruptcy Act in circumstances where there was no act of bankruptcy in the 6 months which preceded that filing. It is patent from his Honour’s reasons for judgment that he accepted the statutory purpose of s 222(8) and s 76B of the Bankruptcy Act was as described by the Full Court in the passage from Hingston v Westpac quoted above. However, he regarded the circumstances of the present case as distinguishable from those of Hingston v Westpac for two reasons:
(a) unlike the present, it was not a case in which the compositions would be set aside because they were unreasonable and not calculated to benefit creditors generally; and
(b) unlike in the present case, the orders in Hingston v Westpac were made during the currency of the three year period fixed by s 149 which, but for the annulment of the bankruptcy caused by the acceptance of the composition, would have resulted in Dr Hingston’s automatic discharge from bankruptcy.
28 The second of these considerations had a particular significance for the primary judge, as it had also, in his Honour’s view, for the Full Court in Hingston v Westpac. That was because it had carried with it in that case a correlative ability on the part of Dr Hingston’s trustee in bankruptcy to object for cause, pursuant to s 149B, to his discharge from bankruptcy. His Honour considered that this ability would not be present in the present case if the result were just a restoration of the discharge date which would have been applicable to Mr and Mrs Mouglalis had there been no composition. His Honour observed (at [49]), “An awareness by a bankrupt that a trustee may object to the automatic discharge from bankruptcy operates as an incentive to the bankrupt to cooperate in the discharge of the trustee’s duties with respect to the bankrupt estate.” He saw it as desirable, having regard to the behaviour which he had outlined in the initial judgment, that Mr and Mrs Mouglalis have this awareness. His Honour further reasoned (at [51] and [52]):
51 It is appropriate to keep in mind that an order pursuant to s 222(8) is not the only means by which the parties may be returned to their pre-composition positions. A sequestration order pursuant to s 222(10) may also serve to achieve, in substance, the same effect.
52 In saying this, I am not overlooking that Mr and Mrs Mouglalis may be in bankruptcy for a longer period than would have been the case had the composition proposals not been passed. However, I think it pertinent in this respect that Mr and Mrs Mouglalis have brought upon themselves the circumstance by which this is occurring, namely, by propounding composition proposals which plainly were not calculated to benefit their creditors generally. Further, they have the benefit of the new bankruptcies commencing retrospectively.
29 For these reasons, the primary judge made orders set out above, including that under challenge. So doing, meant that it was unnecessary for his Honour to consider a form of order promoted to him as an alternative by Bendigo Bank. That alternative was the making of an order in these terms:
Consequent upon Order 1 above, Michel Emmanuel Mouglalis and Julie Ann Mouglalis (the “bankrupts”) and the creditors of the bankrupts are restored to the positions they were in before the making by the bankrupts, and subsequent acceptance by their creditors by special resolution is on 3 December 2013, of the bankrupts’ composition proposals under s 73 of the Bankruptcy Act, such that the bankrupts, on the one hand, I and have been bankrupt on and from 16 May 2012 pursuant to the orders of the then Federal Magistrates Court on 16 May 2012 and the creditors of the bankrupts, on the other hand, are and have been on and from 16 May 2012 creditors of the bankrupt estate of the bankrupts; provided that the period of bankruptcy shall be extended for 18 months from the date of these orders unless further extended or annulled at an earlier date in accordance with the provisions of the Bankruptcy Act.
As will be seen, the terms of this suggested alternative order were an adaptation of the order made by the Full Court in Hingston v Westpac, at [130].
30 As the appellants submissions progressed, this originally promoted alternative came to have attraction for them.
31 That attraction arose in this way.
32 The order made by the primary judge specifies an “effective date of bankruptcy” (20 February 2015) but gives no indication as to when the appellants are to be discharged from bankruptcy. By s 149(4) of the Bankruptcy Act, it is provided:
(4) If the bankrupt becomes a bankrupt after the commencement of section 27 of the Bankruptcy Amendment Act 1991, the bankrupt is discharged at the end of the period of 3 years from the date on which the bankrupt filed his or her statement of affairs.
33 In the present case, if the effect of setting aside the composition were, as Hingston v Westpac held, to undo the annulment and to continue the original bankruptcies, Mr and Mrs Mouglalis would, by that order and in the absence of some other provision, be taken to be discharged from those bankruptcies on 12 December 2015, three years after they filed their statements of affairs in respect of those bankruptcies. The primary judge accepted that this was the effect of applying the views expressed in Hingston v Westpac in the circumstances of the present case. That, as noted, was influential in his decision to make a sequestration order and to specify an effective date of bankruptcy.
34 That adopting the construction favoured in Hingston v Westpac would otherwise have resulted in a discharge of Mr and Mrs Mouglalis from their original bankruptcies might well, with respect, give pause for thought about the correctness of that construction. One reason why the Court is, by s 222(10), given a power immediately to sequestrate upon the setting aside of a composition might well be that the setting aside of the composition does not undo the annulment of the original bankruptcy effected by s 74(5). After all, the Act does not expressly empower the Court to annul that bankruptcy. On this basis, the making of the sequestration order restores a status, that of bankrupt, lost in respect of the earlier bankruptcies by annulment. In this sense, there would be a restoration of the pre-composition position.
35 Be this as it may, it is not necessary in this case to pass on the correctness of Hingston v Westpac. Neither party sought so to do nor did Mr and Mrs Mouglalis seek to set aside the sequestration order itself, only to contend that there was power to fix a discharge date, notwithstanding s 149(4).
36 A particular imperative for the appellants to contend that the discharge date was not fixed by s 149(4) was the appreciation, which emerged in the course of submissions, that upon the making of that sequestration order, the terms of s 54 of the Bankruptcy Act were, prima facie, engaged. If so, Mr and Mrs Mouglalis ought to have filed their respective individual and joint statements of affairs within 14 days from the day on which they were notified of the bankruptcy effected by that sequestration order: s 54(1) and s 54(2) of the Bankruptcy Act. On this basis and again prima facie, the three-year period in which they would, by s 149(4), be discharged from bankruptcy had yet to commence.
37 If s 54 of the Bankruptcy Act were engaged, that no such statement had been filed would mean that s 33A of the Bankruptcy Act, which, in specified circumstances, allows the Court to order that a statement of affairs be treated as having been filed at a time before it was actually filed, would be inapplicable.
38 The significance of this prima facie operation of s 149(4) of the Bankruptcy Act led the appellants to submit that s 222(8) of the Bankruptcy Act empowered the Court to fix a discharge date. On this basis, it was submitted that the 18 month hence alternative originally promoted by Bendigo Bank would achieve the result desired by the primary judge of enabling a reasonable period within which the new trustee might conduct investigations. It would also be in conformity, so it was submitted, with the statutory purpose identified in Hingston v Westpac, because that was about the period left before automatic discharge at the time when the compositions had been approved. Fixing this period, it was submitted, would thus, as nearly as possible, restore Mr and Mrs Mouglalis to the position in which they would have been but for the compositions.
39 As originally put, Bendigo Bank’s submissions sought just to uphold the orders made by the primary judge. No reference to s 149(4) was made in those submissions. It came, though, to be conceded in the course of Bendigo Bank’s oral submissions that it was not possible to identify from those orders what would be Mr and Mrs Mouglalis’ discharge date. In the course of those submissions, the Bank accepted, if not promoted, the application of s 54 to Mr and Mrs Mouglalis so as to require the filing of statements of affairs. A reason for that from the Bank’s perspective was that the statements earlier filed necessarily contained stale information. Even so, Bendigo Bank did not oppose the making of an order which took up the alternative it had promoted before the primary judge, provided that s 149(4) was inapplicable.
40 Such was the potential significance of the prima facie application of s 149(4) of the Bankruptcy Act in respect of the relief sought the Court determined that the parties ought to have an opportunity to file supplementary submissions on that subject and on the power, if any, conferred by s 222(8) (as applied by s 76B) to fix some different, earlier, discharge date. I have considered those submissions.
41 It may very well be that the predicament presented in the circumstances of the present case is the result of an uncritical assimilation in the Bankruptcy Act of personal insolvency agreements with compositions.
42 A personal insolvency agreement will always antedate and, in many cases, obviate bankruptcy. Where such an agreement is made but set aside, s 222 provides a means by which bankruptcy can occur by court order. In that circumstance, there will, almost invariably, for the purposes of the operation of s 115(1B), be at least one act of bankruptcy in the six months prior to the filing of the application to set aside the personal insolvency agreement. That act of bankruptcy will be the signing of the s 188 authority for the calling of a meeting at which a resolution for the approval of the personal insolvency agreement, made an act of bankruptcy by s 40(i) of the Bankruptcy Act. Given the time prescribed by s 194 of the Bankruptcy Act within which a meeting of creditors to consider a personal insolvency agreement proposal must be held and a need to apply promptly for the setting aside of any such agreement approved by resolution and consequential sequestration, it is inherently likely that the signing of the s 188 authority will occur in the six months prior to the filing of any such application. In this fashion, a date of commencement of bankruptcy pursuant to s 115(1B) will be readily ascertainable. Further, there will be no anterior bankruptcy and s 54 and s 149(4) of the Bankruptcy Act will operate in the same way as with a sequestration order made under s 52 so as respectively to oblige the filing of a statement of affairs and to provide, consequentially, for when discharge is automatically to occur in the absence of objection.
43 In contrast, a composition will always post-date bankruptcy. As the present case illustrates, especially where a composition is promoted well into the usual period of bankruptcy, it by no means follows that there will be any act of bankruptcy in the six months prior to the filing of an application for the setting aside of that composition and consequential sequestration. Equally, by the time when an order setting aside a composition comes to be made what would otherwise have been the period until discharge of the original bankruptcy may well, as here, have expired.
44 The language of s 115(1B) does not, with respect, readily commend a construction of the subsection which includes the date of the filing of the application in “the period of 6 months immediately before the date on which the application for the sequestration order was made” (emphasis added). Neither is such a construction supported by context. Considered collectively, the various subsections in s 115 are directed to the fixing of a relation back period. Only in the case of a debtor’s petition presented when no creditor’s petitions is pending and the debtor has not committed any act of bankruptcy in the past 6 months, and accepted by the Official Receiver without a direction from the Court, is the date of the presentation of that petition fixed as the date of commencement of the bankruptcy: s 115(2), item 4 in table. There is no corresponding “default” provision in s 115(1B). That may well be an unintended omission but that is not a warrant for ignoring the language of s 115(1B). Applying that language, that subsection did not fix the filing date of the application as the date of the commencement of the bankruptcies. Even so, that there were no acts of bankruptcy in the prior six month period and in light of the need for there to be a date of commencement of the bankruptcies, it was in any event logical to adopt the date on which the application was made as the commencement date. Given the inapplicability of s 115(1B), s 30(1)(b) of the Bankruptcy Act, supplied ample power to fix the commencement by reference to the application’s filing date. As it happens the primary judge appears to have been misled into thinking that the filing date was 20 February 2015, whereas the court record shows that the application was filed electronically on 19 February 2015 at 4:16pm. As it was received prior to 4:30pm that day, the application is taken to have been filed on 19 February 2015: r 2.26(3)(a), Federal Court Rules 2011 (Cth). The commencement date needs to be corrected accordingly.
45 Correcting the date of the commencement of the bankruptcies achieves nothing in relation to the ascertainment of the discharge date.
46 As to the obligation to file a statement of affairs, the terms of s 54 of the Bankruptcy Act – “Where a sequestration order is made” – are just as applicable to a sequestration order made under s 222 (as applied by s 76B) as they are to one made under s 52 on a creditor’s petition. Why then ought s 149(4) not be similarly applicable?
47 There are formidable difficulties in regarding s 222(8) (as applied by s 76B) of the Bankruptcy Act as a source of power to alter a result for which a provision of that Act, in this case s 149(4) expressly provides. Section 30 of the Bankruptcy Act confers on the Court a power cast in similar, seemingly broad terms to that found in s 222(8). Yet in Clyne v Deputy Commissioner of Taxation (No 3) (1984) 154 CLR 589 at 597 (Clyne), Gibbs CJ, Murphy, Brennan and Dawson JJ observed of s 30 (and of powers conferred under rules of court):
Neither the general power conferred by s 30(1)(b) of the Act to make such orders as the court considers necessary for the purpose of carrying out or giving effect to the Act, nor the power given to the Federal Court by its rules to antedate its orders (O.35, r.3) extends to permit the court to make an order which would bring about a result different from that prescribed by the express provisions of the Act …
That position was recently afformed by the High Court in Vale v Sutherland (2009) 237 CLR 638 at [19].
48 In Rosenfeldt v Official Trustee in Bankruptcy (1997) 79 FCR 340 (Rosenfeldt) Foster J considered that he was bound by Clyne to hold that s 30 of the Bankruptcy Act was not a source of power for the Court to shorten by order the discharge period for which s 149 of that Act provides. In Van- Minnen ( nee Huson ) ex parte Harrison [1999] FCA 43 at [12] (Van- Minnen), R D Nicholson J, though not expressly referring to Clyne, likewise did not consider that s 30 was a source of power to shorten a discharge period for which s 149 provided.
49 Mr and Mrs Mouglalis invited the Court to depart from Rosenfeldt and Van- Minnen. A difficulty about that is that each of these cases, either expressly or by necessary implication, is but an application of more general principle for which Clyne and, latterly, Vale v Sutherland stand. And this Court is bound by both Clyne and Vale v Sutherland.
50 Bendigo Bank did not, in its supplementary submissions, press for a discharge date as would be fixed by s 149(4), though it did submit that the discharge date fixed ought to be 20 February 2018, rather than some earlier dates which Mr and Mrs Mouglalis had promoted. This later discharge date would, Bendigo Bank submitted, be in conformity with the intentions of the primary judge with respect to a need for the investigation of the appellants’ affairs and preserve an ability on his part to object to discharge.
51 Clyne and Vale v Sutherland are particular applications of what has come to be known as “the Anthony Horden principle” (referable to Anthony Horden & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1), which is a principle of construction that a general power in an Act to, for example, make orders does not authorise do an act, for example the making of an order, which would bring about a result which differs from that prescribed elsewhere in that Act. A qualification of this principle is that “it must be possible to say that the statute in question confers only one power to take the relevant action”: Minister for Immigration and Multicultural and Indigenous Affairs v Nystrom (2006) 228 CLR 566, at [59] (MIMA v Nystrom).
52 In Australasian Memory Pty Limited v Brien (2000) 200 CLR 270 (Australasian Memory Pty Limited v Brien), the High Court upheld as valid an order purportedly made under s 447A (orders about how Pt 5.3A is to operate “in relation to a particular company”) of the Corporations Act 2001 (Cth) which had the effect of altering how s 439A of that Act, also within Pt 5.3A, would apply in relation to a particular company under administration. The approach to the construction of s 447A in that case might be regarded as a particular application of the exception to the “the Anthony Horden principle” highlighted in MIMA v Nystrom.
53 That exception is not, in my view, evident as a matter of construction in relation to s 222(8) (as applied by s 76B). In empowering the Court to make such other orders as the Court thinks fit, s 222(8) is directed to “an order under subsection (1), (2) or (5)”, not to a sequestration order, which is made under s 222(10), not those subsections. This inapplicability, as a matter of construction, of s 222(8) negates the appellants’ submission that a sequestration order under s 222 is a special case such that Clyne and Vale v Sutherland are distinguishable. It also, in my view, means that Australasian Memory Pty Limited v Brien cannot be applied by analogy so as to treat the particular power found in s 222(8) (when applied by s 76B) as part of a special code in the Bankruptcy Act dealing with a sequestration order made as a consequence of setting aside a particular compositions and enabling a particular consequential order to be made in the circumstances of a given case. Yet further (and assuming that it was correctly decided), what was said in Hingston v Westpac about s 30 and s 222(8) of the Bankruptcy Act is of no application, because those remarks concerned the making of an order which would have effect in the absence of a sequestration order (recalling that the Full Court set aside the sequestration order made in the original jurisdiction in that case).
54 Another reason for construing s 222(8) in this way is that, when not applied by s 76B to composition cases, it applies to personal insolvency agreement cases. In such cases, as already noted, there will be no prior bankruptcy. The extent to which other provisions of the Bankruptcy Act do not apply to a sequestration order made under s 222(10) is set out in s 222(11). In other words, s 222(11) defines the limits of any extent to which a s 222(10) sequestration order is a special case. There is nothing in that subsection which provides that either s 54 or s 149 of the Bankruptcy Act do not apply to a person made bankrupt by an order under s 222(10).
55 For completeness, I record that I have considered but gained no assistance from the terms of explanatory memoranda in relation to the present provisions of s 222.
56 The Court once had a power (found in the former s 150) to shorten on application and for cause the discharge period for which the Bankruptcy Act otherwise provided but that power was long ago removed from the Bankruptcy Act. The result of the application of the Bankruptcy Act in this case is that, subject to any objection by their trustee, Mr and Mrs Mouglalis will be discharged from bankruptcy three years after they file their respective individual and joint statements of affairs. That result might seem harsh, given that it is much longer than that for which even Bendigo Bank contended. It is, however, the constitutional duty of the judiciary to give effect to the terms of an Act, properly construed, and to leave to parliamentary value judgment the amelioration by legislative amendment of any unintended or harsh consequence of the application of those terms.
57 In the result, subject to the correction of the slip based on the filing date of Bendigo Bank’s application from 20 February 2015 to 19 February 2015 and, in so doing, preferentially adopting the statutory term, “commencement” rather than “effective date”, the orders made by the primary judge should not be disturbed with the appeal being dismissed accordingly. The Bank’s costs on appeal (including reserved costs) should be taxed and paid out of the estate of the appellants in accordance with s 109(1)(a) of the Bankruptcy Act: Culleton v Balwyn Nominees Pty Ltd (No 2) [2017] FCAFC 12 at [8] to [10].
I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. |
Associate:
Dated: 22 March 2017
REASONS FOR JUDGMENT
CHARLESWORTH J:
58 I have had the benefit of reading the draft reasons for judgment of Besanko J and Logan J. I agree that the appeal should be dismissed, subject to the correction of the slip error identified by Logan J.
59 No occasion arose in Hingston v Westpac Banking Corporation (2012) 200 FCR 493 (Hingston) for the Full Court to consider whether, upon the making of a sequestration order under s 222(10) of the Bankruptcy Act 1966 (Cth) (the Act), the Court has a discretion to fix a commencement date or a discharge date different from those dates that might be provided for by the Act itself, nor to identify the principles that might guide the exercise of the discretion, should it exist. The Court in Hingston was concerned to identify the purpose of the discretionary power conferred under s 222(8) of the Act. That is not the power exercised by the primary judge in the present case, and there is no appeal against his Honour’s determination that a sequestration order under s 222(10) be made, rather than a Hingston-type order under s 222(8).
60 The Court in Hingston should not be understood as recognising a discretion under s 222(10) of the Act to fix a commencement date or discharge date different from those dates provided for by the Act itself.
61 For the reasons given by Logan J, I agree that there exists no discretion to alter the discharge date arrived at in accordance with s 149(4) of the Act. As to the identification of a commencement date, if a person becomes a bankrupt because of a sequestration order made on a creditor’s petition, s 115(1) of the Act will in all cases enable the identification of an act of bankruptcy occurring within six months prior to the presentation of the petition and thereby yield a commencement date. That is the result of the requirement in s 44(1)(c) that a creditor’s petition be presented within six months of the act of bankruptcy upon which it is founded. The situation is different when a sequestration order is made on an application under s 222(10).
62 Section 40(1)(n) provides that the setting aside by the Court of a composition constitutes an act of bankruptcy. However, there is no requirement that an application for a sequestration order founded upon the setting aside of a composition be made within six months after the composition is set aside. To the contrary, it appears that the making of the application for the sequestration order is to be included on the application for an order setting aside the composition, as was done in the present case: see s 222(10). For the purposes of s 115(1B), it is difficult to envisage a circumstance where the act of bankruptcy referred to in s 40(1)(n) would pre-date the making of a sequestration order application pursuant to s 222(10). It is in part for that reason that the search by the primary judge for a commencement date calculable by reference to s 115(1B) of the Act appeared fruitless.
63 Neither party advanced a contention that in circumstances such as the present, s 115(1B) should be construed so as to fix, by its own force, the date of the making of the sequestration order application under s 222(10) as the date of the commencement of the appellants’ bankruptcies. I agree with Besanko J that the resolution of that question should be deferred for consideration in a case where the construction of the provision would materially affect the result. This is not such a case. I will briefly elaborate on why that is so.
64 If s 115(1B) yields a commencement date at all, then it appears the only date it could yield is 19 February 2015, being the date on which the application for the sequestration order was filed. There would in that event be no discretion in the Court to alter the commencement date fixed by the operation of the Act, just as there is no discretion to alter the date of discharge calculated under s 149(4).
65 If s 115(1B) does not provide a commencement date, then it would fall within the discretion of the Court to fix one. If the primary judge erred in the exercise of any such discretion he did so upon the appellants themselves submitting (wrongly) that the commencement date for the bankruptcies would bear upon the discharge date and affect the total period for which they would remain bankrupt. For the reasons given by Besanko J at [9], it could not. Assuming the primary judge in those circumstances to have been led into appealable error, I too would re-exercise the discretion to arrive at the same result as that arrived at by both Besanko J and Logan J.
66 I otherwise agree with the orders proposed by Logan J, including as to costs.
I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Charlesworth. |
Associate:
Dated: 22 March 2017
