CATCHWORDS
Bankruptcy - Composition - whether discharged bankrupt entitled to take advantage of the procedure under s 73 of the Bankruptcy Act and thereby secure an annulment - whether a discharged bankrupt is nevertheless a "bankrupt" for the purposes of s 73.
Bankruptcy Act 1966 s 5(1), s 43(2), s 55(8), s 73, s 74, s 149, s 153, s 153A, s 153B
Bankruptcy Amendment Act 1991
Official Receiver v Todd (1986) 14 FCR 177 at 183, 184, 189 considered
Re Oates; Ex p Deputy Commissioner of Taxation (Cth) (1987) 17 FCR 402 considered
Oates v Commissioner of Taxation (1990) 27 FCR 289 considered
Worrell v Westpac Banking Corporation (1994) 51 FCR 304 considered
Re Baines (1902) 86 LT 691 referred
In re Pilling [1903] 2 KB 50 referred
GEOFFREY FRANK MICHAEL QUINN v OFFICIAL TRUSTEE IN BANKRUPTCY
No. NG 91 of 1996
CORAM: Wilcox, Whitlam and Lehane JJ
PLACE: Sydney
DATE: 7 June 1996
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )
GENERAL DIVISION ) No. NG 91 of 1996
ON APPEAL FROM A SINGLE JUDGE
OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN: GEOFFREY FRANK MICHAEL QUINN
Appellant
AND: OFFICIAL TRUSTEE IN BANKRUPTCY
Respondent
CORAM: Wilcox, Whitlam and Lehane JJ
PLACE: Sydney
DATE: 7 June 1996
MINUTE OF ORDERS
THE COURT ORDERS:
1. THAT the appeal is dismissed with costs.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )
GENERAL DIVISION ) No. NG 91 of 1996
ON APPEAL FROM A SINGLE JUDGE
OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN: GEOFFREY FRANK MICHAEL QUINN
Appellant
AND: OFFICIAL TRUSTEE IN BANKRUPTCY
Respondent
CORAM: Wilcox, Whitlam and Lehane JJ
PLACE: Sydney
DATE: 7 June 1996
REASONS FOR JUDGMENT
THE COURT: On 7 September 1990 the appellant became a bankrupt on a creditor's petition. As from 17 November 1993 he was discharged from bankruptcy by force of s 149 of the Bankruptcy Act 1966 (the Act). In October 1995 he asked the respondent (the Trustee) to call a meeting of his creditors for the purpose of considering an offer of a composition which the appellant wished to propose, and which he claimed to be entitled to propose under s 73 of the Act. The Trustee refused, on various grounds, to call a meeting. The ground that matters is that the appellant, having been discharged from bankruptcy, was no longer entitled to take advantage of the procedure under s 73. The appellant commenced proceedings in the Court in which he sought an order requiring the Trustee to convene a meeting of his creditors. A judge of the Court (Tamberlin J) dismissed the application and the appellant now appeals against his Honour's decision.
The legislation
Section 73 of the Act provides as follows:
73(1) Where a bankrupt desires to make a proposal to his creditors for -
(a) a composition in satisfaction of his debts; or
(b) a scheme of arrangement of his affairs,
he may lodge with the trustee a proposal in writing signed by him setting out the terms of the proposed composition or scheme of arrangement and particulars of any sureties or securities forming part of the proposal.
(2) The trustee shall call a meeting of creditors and shall send to each creditor before the meeting a copy of the proposal accompanied by a report on it.
(3) The bankrupt may, at the meeting, amend the terms of his proposal.
(4) The creditors may, by special resolution, accept the proposal.
(5) A creditor who has proved his debt may assent to or dissent from the proposal by written notice to that effect delivered to the trustee before the meeting or sent by post to the trustee and received by him before the meeting, and in that case the creditor shall, for the purposes of this division, be deemed to have been present at the meeting and to have voted according to his assent or dissent.
Section 74 provides that upon the passing of a special
resolution as contemplated by subs 73(4) "the bankruptcy is annulled,
by force of this subsection, on the date on which the special resolution was
passed". It may be noted in passing
that s 74 was amended by the Bankruptcy Amendment Act 1991. Previously annulment under the section
required
the approval of the Court as well as a special resolution of creditors; as a
result of the amendment only the special resolution is now required.
The only person who can make a proposal under s 73 is "a bankrupt". Subsection 5(1) of the Act defines "bankrupt" as:
... a person -
(a) against whose estate a sequestration order has been made; or
(b) who has become a bankrupt by virtue of the presentation of a debtor's petition.
Subsection 43(2) of the Act provides that:
Upon the making of a sequestration order against the estate of a debtor, the debtor becomes a bankrupt, and continues to be a bankrupt until -
(a) he or she is discharged by force of subsection 149(1) or in accordance with Division 3 of Part VII; or
(b) his or her bankruptcy is annulled by force of subsection 74(5) or 153A(1) or under section 153B.
Reasoning
If the matter were free from authority, a conclusion
that the appellant is not "a bankrupt", for the purposes of
s 73, might be reached with little difficulty. It is true that subs 5(1) defines the
term by reference only to the event upon which the state of bankruptcy
commences, but s 43 provides that a debtor continues to be a bankrupt
until he or she is
discharged or the bankruptcy is annulled.
It is not an unusual use of language to say that a state of affairs is
to continue until a stated time, meaning that it is to continue to that time
and no longer. It would, for example, be
odd to construe a provision to the effect that a person appointed to an office
was to hold the office until he or she reached a stated age as saying nothing
as to whether the person would continue to hold the office after attaining the
age: cf Official Receiver v Todd (1986) 14 FCR 177 at 189 per
Spender J.
But the matter is not free from authority. In Todd, the majority of the Full Court held that in subs 81(1) of the Act, as it then stood, the phrase "the bankrupt" included a person who had become a bankrupt and had subsequently been discharged from bankruptcy: thus, such a person might be summoned for examination under that section. Lockhart J (with whom Fisher J agreed) said at 183:
The definition applies unless the contrary intention appears: s 5(1). The definition of "bankrupt" in s 5(1) is not subject to any temporal constraints. Once a sequestration order has been made against the estate of a person or once a person has become a bankrupt by virtue of the presentation of a debtor's petition, that person fulfils the description required by the statutory definition. The description applies to him as aptly after, as it does before, he is discharged from bankruptcy or his bankruptcy is annulled.
In relation to subs 55(8), which deals with the commencement and duration of a bankruptcy commenced by the lodging of a debtor's petition in terms similar to those used in subs 43(2) in relation to a bankruptcy beginning with a sequestration order, his Honour (at 183, 184) said this:
Section 55(8) must be read in the light of the Act as a whole, especially s 153 which provides for the effect of a discharge from bankruptcy in terms which I have already set out. Properly interpreted the subsection means that upon a debtor becoming a bankrupt by force of s 55(3) following presentation of his own petition he becomes subject to bankruptcy "regarded as a series of judicial and administrative acts and rights and powers" to borrow the language of Sir Wilfred Greene MR in Re A Debtor [1939] Ch 489 at 501. After he is discharged from bankruptcy by force of s 149 or by order of the court under s 150, although the bankrupt ceases to be subject to many of the obligations and sanctions which flow from his state of bankruptcy, he nevertheless remains liable to certain of them; a few of which I mentioned earlier. In that sense he no longer continues to be a bankrupt. He is no longer an undischarged bankrupt. He is a discharged bankrupt but he remains a person against whose estate a sequestration order has been made.
Section 81 was amended, following Todd, to remove the ambiguity which had given rise to a sharp difference of opinion in that case: the amended section now makes it clear that a discharged bankrupt is amenable to examination. It is unnecessary for the purposes of this case for us to discuss the observations of the members of the Full Court in Todd. It is sufficient to say that Todd is not authority for a proposition that wherever in the Act the word "bankrupt" is used it includes one who has become a bankrupt but has been discharged.
Todd, however, does not stand alone. There is authority (Re Oates; Ex p Deputy
Commissioner of Taxation (Cth) (1987) 17 FCR 402; Oates v Commissioner
of Taxation (1990) 27 FCR 289) to the effect that a discharged bankrupt may
apply for an annulment under the previous s 154 (now replaced by
ss 153A and 153B). It may be said
in passing that those cases also demonstrate, as does Worrell v Westpac
Banking Corporation (1994) 51 FCR 304, that a discharged bankrupt may
derive substantial practical advantage from
an annulment. An annulment under
s 154 was available in two circumstances: one was where the Court was
satisfied that a sequestration order ought not to have been made or a debtor's
petition ought not to have been presented or ought not to have been accepted;
the other was where the Court was satisfied that the unsecured debts of the
bankrupt, proved in the bankruptcy, had been paid in full or the bankrupt had
obtained a "legal acquittance of them". There are obvious reasons of policy
justifying a construction which would enable a discharged bankrupt to apply for
an annulment in either of those circumstances, just as there were obvious reasons
of policy, on which the Full Court explicitly relied, supporting the
construction of s 81 adopted in Todd.
In construing s 73, it is necessary to
remember that, subject to certain exceptions which for present purposes do not
matter, subs 153(1) provides that where a bankrupt is discharged from
bankruptcy, the discharge operates to release him or her from all debts
provable in the bankruptcy. The
appellant has been discharged from bankruptcy; accordingly his debts have been released by s 153. Only in an artificial sense can debts which
were provable in his bankruptcy still be regarded as "his
debts". It is equally artificial to
say that those who were entitled to prove in his bankruptcy are still to be regarded
as "his creditors". That
becomes all the more obvious when it is seen that a discharged bankrupt - that
is, a person in the position of the appellant - may have incurred debts since
discharge. The construction of s 73
which the appellant urged us to adopt would have it that, for the purposes of
the section, those new debts are not to be regarded as "his debts"
nor the persons to whom they are owed as "his creditors";
nevertheless debts which before discharge he owed, but now does not owe, are to
be
regarded as "his debts" and the persons to whom he previously
owed them, but now does not, are to be regarded as "his
creditors". Similarly, no doubt, in
para 73(1)(b) "his affairs" would be taken to be his past affairs and
not to include his present affairs. Nor
does it end there: for who would vote upon the proposal? Apparently the "creditors": but
those whom it was said we should regard as comprising that class are no longer
in fact creditors; the appellant's debts previously owed to them have been
released. It may be that they are no
longer, therefore, eligible to vote: see Re Baines (1902) 86 LT 691, a
decision in this respect unaffected by the disapproval of other aspects of it
in In re Pilling [1903] 2 KB 50.
Before turning to policy considerations on which the appellant relied, it should be noted that there is a significant difference between the language of s 73 and that of the former s 154 and the present s 153A. Only s 73 refers to "his debts" and "his creditors". Paragraph 154(1)(b) dealt with circumstances where the court was satisfied "that the unsecured debts of the bankrupt, being debts that have been proved in the bankruptcy, have been paid in full or the bankrupt has obtained a legal acquittance of them". Section 153A provides for annulment where the trustee is satisfied that all "the bankrupt's debts" have been paid in full; but subs (6) defines "bankrupt's debts" as debts proved in the bankruptcy, interest on those debts and the costs of the administration including the remuneration and expenses of the trustee.
As well as relying on the authorities to which
we have referred, counsel for the appellant submitted that there were policy
reasons, and reasons relating to the purpose of the
amendments made by the Bankruptcy Amendment Act 1991, particularly to
s 74, which should lead us to adopt the construction for which he
contended. He said that an evident and
stated purpose of the amendment of s 74 (eliminating the requirement of
court approval as a condition of annulment) was to encourage the resolution of
bankruptcy administrations by negotiated settlements between bankrupts and
creditors; and that purpose was equally applicable after discharge (because
discharge does not necessarily mean that the administration is complete) as
before. Counsel also submitted that
because, under the amended Act, an annulment under s 153A is possible only
when debts have been paid in full (there is no longer provision for the
alternative of "legal acquittance") it should be inferred that the
gap which would otherwise arise was intended to be filled by the continuing
operation of s 73. Counsel said
that there is no evident reason why, if a composition made one day before
discharge can result in annulment, a composition having that effect should be
impossible one day after discharge.
Attractively as those arguments were put, in
our view they are not sufficient to require a construction of s 73 which
would read its words in an unnatural sense.
Additionally, and for what it is worth, we do not think that the
appellant has the better of the policy argument. Counsel conceded that the construction for
which he contended would mean, in principle, that a time would never come after
which a discharged bankrupt was precluded from taking advantage of s 73,
even many years after the administration was complete and relevant records
destroyed. Equally, it is not difficult
to imagine circumstances in which a discharged bankrupt might convert discharge
into unmerited annulment by a very small additional payment. It might also be asked why, if s 73
could
be availed of in that way, it was thought necessary to have a separate
provision in s 153A conditioned on payment of proved debts in full.
Conclusion
For these reasons the Court announced, at the conclusion of the appellant's submissions, that the appeal would be dismissed with costs. We so order.
I certify that this and the preceding 8 pages are a true copy of the Reasons for Judgment of the Court.
Associate:
Dated: 7 June 1996
Heard: 27 May 1996
Place: Sydney
Decision: 7 June 1996
Appearances:Mr P B Walsh of counsel instructed by S J Rugendyke appeared for the appellant.
Mr F Gleeson of counsel instructed by Gordon & Johnstone appeared for the respondent.
