CATCHWORDS
Bankruptcy - Bankruptcy notice - Stay of execution - Injunctive order restraining disposition and encumbrance of a debtor's assets - Whether existence of order at time of issue or time of service of bankruptcy notice or during period for compliance necessary to enable the "equity" invalidating the bankruptcy notice to be raised.
Bankruptcy Act 1966 - ss. 40(1)(g), 41(3)(b)
SYLVIA BOSCOLO v. BOTANY COUNCIL
NG570 of 1996
Jenkinson, O'Loughlin and Sackville JJ.
Sydney
16 October, 1996
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG570 of 1996
GENERAL DIVISION )
On appeal from a judgment of a single justice of the Court
BETWEEN: SYLVIA BOSCOLO
Appellant
AND: BOTANY COUNCIL
Respondent
CORAM: Jenkinson, O'Loughlin and Sackville JJ.
PLACE: Sydney
DATE: 16 October, 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The respondent's costs of the appeal be paid by the appellant.
3. The trustee's costs of appearance on the hearing of the appeal be costs and expenses of the trustee within s.109(1)(a) of the Bankruptcy Act 1966.
(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 ) No. NG570 of 1996
BANKRUPTCY DIVISION )
On appeal from a judgment of a single justice of the Court
BETWEEN: SYLVIA BOSCOLO
Appellant
AND: BOTANY COUNCIL
Respondent
CORAM: Jenkinson, O'Loughlin and Sackville JJ.
PLACE: Sydney
DATE: 16 October, 1996
REASONS FOR JUDGMENT
JENKINSON J.
Appeal from an order dismissing the appellant bankrupt's application for review of a Deputy Registrar's exercise of power to make a sequestration order against the estate of the bankrupty under s.52(1) of the Bankruptcy Act 1966.
The respondent had procured the issue on 26 August 1994 of a bankruptcy notice to the appellant which was served on 21 January 1995. The bankruptcy notice was founded on a final order of the Land and Environment Court of New South Wales for costs of a proceeding between the parties in that Court. The sum payment of which was alleged in the notice to be due was $4553.78 and that sum included interest to 24 August 1994. The appellant did not comply with any of the requirements of the bankruptcy notice, but on the hearing of the petition of the respondent which was founded on that failure of compliance the appellant submitted, before Einfeld J. and before this court, that the existence at the time of issue of the notice and during the period within which compliance with its requirements might have been made of an order of the Family Court of Australia restraining the appellant from "transferring, assigning or further encumbering by way of mortgage or charge or otherwise" a parcel of land of which she claims the fee simple ownership brought about the result that the failure of compliance did not constitute an act of bankruptcy. In support of that submission counsel for the appellant relied upon a passage from the reasons for a judgment of a Full Court of this Court in Wiltshire-Smith v. Mellor Olsson (1995) 57 F.C.R. 572 at 584-587, in these terms:
"This question requires consideration of whether execution on the judgment had been stayed within the meaning of ss 40(1)(g) and 41(3)(b) of the Bankruptcy Act 1966 (Cth). For the purpose of these provisions there need not be an express order of a court staying execution on the particular judgment on which the creditor relies: Re Seers (1955) 17 ABC 11, Penning v Steele Tube Supplies Pty Ltd (1988) 18 FCR 568 at 575-576. It was held in Re Solomon; Ex parte Reid (1986) 10 FCR 423 by Beaumont J that the effect of the appointment of a receiver under a Mareva type order made under the Companies (New South Wales) Code to take control of the debtor's property was to prevent the petitioning creditor at the time of the issue of the bankruptcy notice from being able to execute against any of the property of the debtor without leave of the Supreme Court and that, as leave had not been obtained, execution should be deemed to have been stayed. That decision was approved and applied by a Full Court of this Court in Penning v Steel Tube Supplies Pty Ltd which held that the judgment underlying a bankruptcy notice was deemed to have been stayed at the time of the issue of the bankruptcy notice by virtue of an order under s 50 of the Bankruptcy Act which had placed all property of the debtor under the control of a trustee. See also director of Public Prosecutions v Kunz (1993) 43 FCR 374 where a similar conclusion was reached as to the effect of an order pursuant to s 243E of the Customs Act 1901 (Cth) which restrained the property of the judgment debtor and directed the Official Trustee in Bankruptcy to take custody and control thereof. In Re Solomon; Ex parte Reid Beaumont J at 425-426 summarised the relevant principles upon which these decisions rest:
`It is well established that, for the purposes of s 41(3)(b), execution is deemed to have been stayed where a judgment creditor is not "in a position to issue immediate execution upon it": per Bowen LJ in Ex parte Ide; Re Ide (1886) 17 QBD 755 at 760; Re Pannowitz; Ex parte Wilson (1975) 38 FLR 184 at 187-188; cf Re A Debtor [1984] 1 WLR 1143 at 1153-1154; [1984] 2 All ER 257 at 266. It is also trite law that a judgment creditor may not, without leave of the court which appointed the receiver, levy execution against the property comprised in the appointment of the receiver; see J O'Donovan, Company Receivers and Managers (1981), at p 321; R P Meagher, W M Gummow and J R Lehane, Equity Doctrines and Remedies (2nd ed, 1983), at p 663. Any attempt to interfere with that property is an interference with an officer of the court in the performance of his functions. If done without leave of the court, it is a contempt of court. It will not be permitted even if the property concerned is not yet in the actual possession of the receiver: see Ames v Trustees of Birkenhead Docks (1855) 20 Beav 332 at 353; 52 ER 630 at 638.'
In Re Solomon, Ex parte Reid, Penning v Steel Tube Supplies Pty. Ltd. and Director of Public Prosecutions v. Kunz the orders in each case had the effect of placing all the property of the debtor (apart from an immaterial exception in the first case) under the control of an officer appointed by order of the Court. There remained no property against which the judgment creditor could execute and, moreover, the orders of the Court had the effect of restraining the judgment debtor from satisfying the judgment as any application of his property by him for that purpose would be inconsistent with the receiver's right to possession: see Penning v Steel Tube Supplies Pty Ltd at 574. In the present case, the order of 10 March 1993 operated only in respect of the assets of the newsagency. The order imposed no restraint in law upon the appellant making free use as he saw fit of his other property. The present case is therefore not covered directly by these decisions.
It has been established that conduct by a judgment creditor which prevents a judgment debtor from paying the debt may operate to disentitle the judgment creditor from proceeding to immediate execution. In Re Sedgwick; Ex parte Sedgwick (1888) 5 Morr 262 Lord Esher MR said (at 263-264):
`...there is an equity laid down - a just equity which goes to the extent only that if a creditor gives a notice requiring payment in seven days and actually and in fact prevents the debtor from paying, such creditor cannot rely upon the notice and it will be set aside. The question is whether in the eyes of any person of ordinary fairness in business it will be said that the creditor has in a business sense prevented the debtor from paying. But the possibility that he may have prevented him is not sufficient. The question is whether the creditor has done something which prevents the debtor in fact from complying with the summons. He may do so in different ways. He may put a legal difficulty in the debtor's way, and although he puts no legal difficulty he may have done something which in fact may prevent payment. The question must be whether he has in fact prevented the debtor from complying. The fact that the creditor has made it more difficult for the debtor to pay than if the creditor had done nothing at all does not go to that extent.'
A
similar principle was recognised in Re
Bond; Ex parte Capital and Counties Bank Ltd [1911] 2 KB 988, in Re Wilson; Ex parte Jones (1916) 85 LJKB
1408; [1916] All ER 1060 and by a Full Court of this Court in Wallace v Trade Credits Ltd (1983) 72
FLR 252 at 254. The onus in such
a case is on the debtor to prove affirmatively that the claim in respect of
which the bankruptcy notice was issued could and would have been paid but for
some act or omission on the part of the creditor: Bracia Czeczowiczka v Otto Markus [1936] 1 All ER 944 at 949.
In the present case, however, it was not the act or omission of the respondent as judgment creditor that removed from his control assets which the appellant could otherwise have used to pay the respondent. No `Equity' of the kind referred to by Lord Esher MR could arise here as between the appellant and the respondent as payment was prevented by order of a court. In Re Solomon; Ex parte Reid, Beaumont J reached a similar conclusion on the facts of that case. His Honour however went on to say (at 427-428):
`No doubt, an "equity" of the type envisaged by Lord Esher would disentitle a judgment creditor from proceeding to immediate execution but, in my view, this is not an exhaustive statement of the matters that may disqualify a judgment creditor from issuing a bankruptcy notice. There is no reason, of logic or otherwise, to limit the operation of s 41(2)(b) to cases where the debtor can establish an "equity". In my opinion, the existence of any relevant circumstance sufficient to disentitle a judgment creditor from proceeding immediately to execution falls within the implied prohibition contained in s 41(3)(b).'
The matter which Beaumont J held disentitled the judgment creditor in that case from issuing a bankruptcy notice was not conduct of the judgment creditor, but the appointment of the receiver by order of the Supreme Court under the companies (New South Wales) Code. Once it is recognised that a petitioning creditor may be disqualified from issuing a bankruptcy notice by reason of a restraint imposed by order of a court on all the property of the judgment debtor thereby removing his ability to make payment, there is, no reason why a court order imposed on some only of the property of the judgment debtor which has the same practical effect should not be recognised as a relevant circumstance sufficient to disentitle a judgment creditor from proceeding immediately to execution. In our opinion such an order will have this consequence where in practical reality, although not strictly in law, the order `in any way prevent(s) the debtor from paying his debt' (Re Bond; Ex parte Capital and Counties Bank Ltd at 991) or where it 'deprives or may deprive the judgment debtor of assets which he could otherwise use to pay the judgment creditor and thus comply with the bankruptcy notice' (Wallace v Trade Credits Ltd at 254). To adapt the test proposed by Lord Esher MR in Re Sedgwick; Ex parte Sedgwick cited above, the factual inquiry to determine the practical effect of the order is whether in the eyes of ordinary fairness in business it will be said that the order has in a business sense prevented the debtor from paying."
Counsel for the appellant and counsel
for the respondent debated before this court the question whether it is the
existence of the curial "restraint imposed ... on ... the property of the
judgment debtor" at the time of issue of the bankruptcy notice, or that
existence at the time of service of the notice, or that existence at both those
times, which raises the "equity" to which Lord Esher and Beaumont J.
referred. This debate was provoked by
the circumstance that in this case no such a restraint was proved to have
existed at the time when the bankruptcy notice was issued. The question under consideration was
carefully argued by counsel upon a number of authorities : see Re Moss; Ex parte Tour Finance Ltd.
(1968) 13 F.L.R. 101; Walsh v. Deputy
Federal Commissioner of Taxation (1984) 156 C.L.R. 337; Re Di Giacomo; Ex parte Boral Steel Ltd.
(1983) 68 F.L.R. 106; Schekeloff; Ex
parte Schekeloff v. The Hopkins Group Ltd. 1989) 22 F.C.R. 407. But, if it be assumed that the existence of
the restraint at the time of service of the bankruptcy notice and throughout
the period, in this case of 28 days, allowed for compliance with its requirements,
suffices to raise the
"equity", the evidence before Einfeld J. could not in my opinion support
a finding that the Family Court order did "in a business sense"
prevent the appellant from paying the amount claimed in that notice before the
expiration of that period.
The evidence before the trial judge as to the appellant's assets and liabilities was of the values and amounts in May and June 1966, not in January or February 1995. It is possible to draw from the evidence an inferred finding as to the approximate values of the assets and the approximate amounts of the liabilities at the time of service of the bankruptcy notice. The only asset (other than cash at bank and household and personal effects worth in the aggregate less than 1000) which might in January and February 1995 have been a source of funds for payment of the amount claimed in the bankruptcy notice was the land subject to the Family Court order said to be worth $125,000 and constituting security for a debt of about $55,000 to a bank. The liabilities aggregated about $65,000. It is not unlikely, but I hesitate to infer, that at that time some of the liabilities were judgment debts on which statutory interest had by then accrued. There was no evidence as to the income of the appellant at that time. There was evidence that in the middle of 1996 funds sufficient to pay the debt on which the bankruptcy notice had been founded might have been promptly obtained if the land subject to the Family Court order had not been subject to that restraint. But there was no evidence as to the availability of such funding in January and February 1995. In order to determine whether the Family Court order had "in a business sense prevented the debtor from paying" the court would have to determine whether a prospective lender to whom the debtor's financial circumstances were truthfully disclosed would have advanced the amount required to pay the amount claimed in the notice upon the security of the land, if the land had been free of the curial restraint. such inferred findings as the evidence permits concerning those financial circumstances at the beginning of 1995 do not justify a conclusion that a hypothetical lender would have made the required advance, or a conclusion that the appellant would have sought such an advance. There was no evidence by the appellant that she would have sought such an advance during the period limited for compliance with the bankruptcy notice. Her testimony that in the middle of 1996 she desired to seek such an advance in order to prevent sequestration of her estate then is an unsafe basis for an inference that she would have sought the advance in order to comply with a requirement of the bankruptcy notice.
Although s.52(1)(a) of the Bankruptcy Act 1966 lays the burden of proving the act of bankruptcy alleged on the petitioner, it is for a debtor to provide evidence capable of raising the equity to which reference is made in the authorities, in my opinion. No such evidence was in my opinion adduced and the act of bankruptcy was in my opinion proved. The appeal should be dismissed with costs.
The trustee of the appellant's estate appeared by counsel on the hearing of the appeal, and was granted leave to be heard as amicus curiae. The trustee's costs of that appearance should in my opinion be ordered to be costs and expenses of the trustee within s.109(1)(a) of the Bankruptcy Act 1966.
I certify that this and the 8 preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice Jenkinson.
Associate
Dated: 16 October, 1996
IN THE FEDERAL COURT OF AUSTRALIA)
)
NEW SOUTH WALES DISTRICT REGISTRY) No NG 570 of 1996
)
BANKRUPTCY DIVISION )
ON APPEAL FROM A JUDGMENT OF A JUDGE OF THE COURT
B E T W E E N:
SYLVIA BOSCOLO
Appellant
- and -
BOTANY COUNCIL
Respondent
Coram: Jenkinson, O'Loughlin and Sackville JJ
Place: Sydney
Date: 16 October 1996
REASONS FOR JUDGMENT
O'LOUGHLIN J: I have had the opportunity to read a draft of the judgment of Jenkinson J in this matter. I agree with his Honour's reasons and the orders that he proposes.
There is nothing further that I would wish to add.
I certify that this is a true copy of the Reasons for Judgment of the Honourable Justice O'Loughlin
Associate:
Dated:
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG570 of 1996
GENERAL DIVISION )
On appeal from a judgment of a single justice of the Court
BETWEEN:SYLVIA BOSCOLO
Appellant
AND:BOTANY COUNCIL
Respondent
CORAM: Jenkinson, O'Loughlin and Sackville JJ.
PLACE: Sydney
DATE: 16 October, 1996
REASONS FOR JUDGMENT
SACKVILLE J:
I am in general agreement with the conclusions and reasoning of Jenkinson J. However, I wish to add some observations.
The proceedings before the trial Judge were brought by
the present appellant pursuant to the Bankruptcy Act 1966 (Cth)
("the Act"), s.14(5) or s.31A(6).
That review was conducted by way of a hearing de novo of the creditor's petition: Re Kwiatek and Kwiatek; Ex parte Big J Ltd v Pattison (1989) 21 FCR
374 (FCA/Northrop J). The appellant
contended before his Honour that the act of bankruptcy, being non-compliance
with the bankruptcy notice served on 21 January 1995, had not been established. This was because (so it was said) the
requirements of s.40(1)(g) of the Act were not satisfied, in that the judgment
on which the
bankruptcy notice was founded was not one "the execution of which [had]
not been stayed".
The appellant contended, on the basis of the authorities referred to by Jenkinson J, that the time for determining whether the requirements of s.40(1)(g) have been satisfied is the date of service, rather than the date of issue, of the bankruptcy notice. She submitted that, at the date of service of the bankruptcy notice, the judgment was deemed to have been stayed. The deemed stay arose because of the order made by the Family Court of Australia on 19 December 1995, restraining the appellant from transferring or further encumbering a property at Carrington Road, Hamilton Hill, Western Australia.
The appellant relied on the well-established principle that execution of a judgment is deemed to be stayed where a judgment creditor is not "in a position to issue immediate execution upon it": Ex parte Ide; In re Ide (1886) 17 QBD 755 (CA), at 760, per Bowen LJ; Re Pannowitz; Ex parte Wilson (1975) 38 FLR 184 (Fed Ct of Bankruptcy), at 187-188, per Riley J. It follows from this principle that there need not be an express order of a court staying the judgment before a deemed stay arises: Penning v Steel Tube Supplies Pty Ltd (1988) 18 FCR 568 (FCA/FC), at 575-576. The appointment of a receiver to take control of the debtor's property (as in Re Solomon; Ex parte Reid (1986) 10 FCR 423 (FCA/Beaumont J), or the making of an order under s.50 of the Act placing the debtor's property under the control of a trustee (as in Penning v Steel Tube Supplies), will have the effect of deeming the judgment to have been stayed. See also Director of Public Prosecutions v Kunz (1993) 43 FCR 374 (FCA/Ryan J).
In Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572(FCA/FC), at 586-587, the Full Court accepted the proposition that a court order imposed on some only of the debtor's property, which has the "same practical effect" as the appointment of a receiver, should be "recognised as a relevant circumstance sufficient to disentitle a judgment creditor from proceeding immediately to execution". These comments were dicta only, since the Full Court found, on the facts of that case (at 590), that at the relevant dates there was nothing which had the practical effect of preventing the debtor from paying the judgment debt.
In my opinion, I do not think it is inevitable that
the principle applied in Re Solomon
and Penning v Steel Tube Supplies
should extend to a case where the practical effect of a court order "in a
business sense" is to prevent the debtor from paying. In Re
Solomon, Beaumont J pointed out (at 425) that a judgment creditor cannot,
without the leave of the court appointing a receiver, levy execution on
property comprised in the appointment of the receiver. In Penning
v Steel Tube Supplies, the Full Court considered that the appointment by a
court of a trustee to take control of the property of a debtor was
indistinguishable, for present purposes, from the appointment by a court of a
receiver of the debtor's property. The
test formulated in Wiltshire-Smith v
Meller Olsson takes the matter further.
It makes the fate of a creditor's petition founded on non-payment of a
judgment debt,
where the judgment itself has not been stayed, dependent on a factual inquiry
that is likely to be difficult and, from the creditor's perspective,
uncertain. It is one thing to deem a
judgment to be stayed where a court order prevents execution being levied on
any of the debtor's property. It may be
another to deem a judgment stayed where a court order affects only part of the
debtor's property. In the second case,
the impact of the court order on the debtor's ability to pay his or her
judgment debts may well depend on facts and circumstances that are incapable of
ascertainment by the creditor, short of a prolonged court hearing.
I am, however, content to approach the present case on the following assumptions:
– the relevant date for determining whether the judgment in favour of the creditor is deemed to have been stayed is the date of service of the creditor's petition; and
– the test to apply in determining whether the judgment is deemed to have been stayed is that formulated in Wiltshire-Smith v Mellor Olsson.
In Wiltshire-Smith
v Mellor Olsson, at 586, the Full Court held that the onus lay on the
debtor to prove affirmatively that the claim in respect of which the bankruptcy
notice was issued could and would have been paid but for some act or omission on thecase
where the debtor claims that the practical effect of a court order, in a
business sense, was to prevent her paying the debt: compare the terms of ss.
50(1)(g) and 52(1)(a) of the Act. I do
not think the question of onus needs to be resolved in the present case. This is because, in my opinion, the evidence
was incapable of supporting a finding that, but for the stay order, the
appellant would have used the property subject to the stay to obtain funds to
satisfy the requirements of the bankruptcy notice, within the time specified in
that notice.
The evidence before the trial Judge was simply not directed to the appellant's financial position in January and February 1995. Rather, the evidence related to the appellant's financial position in about May or June 1996, some 15 months after the relevant time. Even so, the evidence fell short of establishing that in May or June 1996 the appellant could have borrowed sufficient funds on the security of the Hamilton Hill property (assuming the Family Court order were lifted) to pay the amount due to the judgment creditor within 28 days. The appellant's statements of financial affairs revealed that she had substantial debts, exceeding the claimed equity in the Hamilton Hill property; her income was very modest; and that she had experienced difficulty in paying her debts since 1988.
Nor did the somewhat vague and incomplete evidence adduced by the appellant suggest that a particular lender was prepared to advance funds, so as to allow her to discharge the judgment debt within 28 days of her being required to do so.
In these circumstances, I do not think that the evidence is capable of supporting an inference that in January and February 1995 the appellant would and could have obtained sufficient funds on the security of the Hamilton Hill property to pay the judgment debt due to the creditor. A fortiori, the evidence is insufficient to allow a conclusion that she could have done so within the 28 day period specified on the bankruptcy notice, had the order of the Family Court not been in place.
I agree with the orders proposed by Jenkinson J.
I certify that this and the preceding 5 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville.
Associate:
Dated: 14 October 1996
Heard: 17 September, 1996
Place: Sydney
Decision: 16 October, 1996
Appearances: Mr D.A. Smallbone and Mr R.K.M. Rasmussen, instructed by John Burrell & Associates, solicitors, appeared for the appellant.
Mr L.R. deV. Tyndall, instructed by Houston Dearn & Associates, solicitors, appeared for the respondent.
Mr B.J. Skinner, appeared for the Official Trustee in Brankruptcy, instructed by the Australian Government Solicitor.
