catchwords

BANKRUPTCY - notice of objection to automatic discharge from bankruptcy - question of law involved in form and content of notice of objection - grounds of objection - whether evidence relied on adequately set out - challenge to evidence relied on  - whether reason for objection adequately set out

Bankruptcy Act 1966 (Cth) ss 149, 149A, 149B, 149C,  149D(1)(g)

Van Reesema v Official Receiver in Bankruptcy [1983] 50 ALR 253

Re Ansett; Ex parte Ansett v Pattison [1995] 56 FCR 526

Re Hall [1994] 14 ACSR 488

Re Ellis; Ex parte Jefferson (unreported, Drummond J, 17 February 1995)

Re Graeme John Harris; Ex parte Graeme John Harris and Official Trustee in Bankruptcy

No. NB 429 of 1993

EINFELD J

SYDNEY

6 JUNE 1997

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY)    No.NB429 of 1993

BANKRUPTCY DIVISION               )   

  Re:GRAEME JOHN HARRIS

                                           Bankrupt

Ex parte:GRAEME JOHN HARRIS

                                           Applicant

And:OFFICIAL TRUSTEE In BANKRUPTCY

                                           Respondent

MINUTE OF ORDERS

The Court orders that:

1.   The application be dismissed.

2.   The trustee’s costs of and pertaining to this application, including any reserved costs, be paid by the bankrupt.

Note:     Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.

EINFELD J

SYDNEY

6 JUNE 1997

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY)    No.NB429 of 1993

BANKRUPTCY DIVISION               )   

   Re:GRAEME JOHN HARRIS

                                           Bankrupt

    Ex parte:GRAEME JOHN HARRIS

                                           Applicant

   And: OFFICIAL TRUSTEE IN

        BANKRUPTCY

                                           Respondent

REASONS FOR JUDGMENT

Introduction

This is an application by Dr Graeme John Harris (the bankrupt) for declarations that the notice of objection lodged to prevent his automatic discharge from bankruptcy is invalid and consequently that he was discharged on 7 April 1996 pursuant to section 149 of the Bankruptcy Act 1966 (Cth) (the Act).  The bankrupt also seeks orders that the records of the Registrar in Bankruptcy be amended to reflect these declarations.  It was for this reason that the Registrar in Bankruptcy was joined as a party in these proceedings.  In the event that the bankrupt’s application is successful, orders will be made that may require some registry records to be amended.  However, it is completely unnecessary for the Registrar to be joined as a party for such orders to take effect.  Consequently I order that the Registrar in Bankruptcy be struck out as a respondent.

The applicant was made bankrupt on 24 February 1993 upon the making of a sequestration order against his estate.  He filed his statement of affairs on 7 April 1993.  In the normal course of events, section 149(4) of the Act would have operated to bring about his automatic discharge from bankruptcy 3 years later.  However, a notice of objection (the notice) was lodged by the Official Receiver, on behalf of the Official Trustee as trustee of the bankrupt’s estate (the trustee) in accordance with section 149B of the Act, the effect of which in this particular case would, by section 149A(2)(a)(i), be to extend the duration of the bankruptcy for a further five years, postponing discharge until 7 April 2001.

Basis of application

The bankrupt submitted that the notice of objection does not conform with the applicable statutory requirements as set out in section 149C of the Act:

 (1)  A notice of objection must:

   (a)  set out the ground or each of the grounds of objection, being a ground or grounds set out in subsection 149D(1) but not being a ground or grounds of a previous objection to the discharge that was cancelled; and

      (b)  refer to the evidence or other material that, in the opinion of the trustee or Official Receiver, establishes that ground or each of those grounds; and

   (c)  state the reasons of the trustee or Official Receiver for objecting to the discharge on that ground or those grounds.

It has been held that a failure to comply with these requirements either strictly or substantially will render the notice invalid and does not avoid the automatic discharge of the bankrupt: Van Reesema v Official Receiver in Bankruptcy [1983] 50 ALR 253 at 260; Re Hall [1994] 14 ACSR 488 at 492-4.  The principle enunciated in Van Reesema, which was adopted by Justice Branson in Re Hall, was predicated on the fact that the right to be discharged from bankruptcy is of great value and so the gravity of objecting to that discharge is correspondingly great, thus importing the requirement of strict or substantial compliance with the procedure for lodging a valid objection.

In Re Hall Justice Branson set out her interpretation of the intentions which underpin the requirements of section 149C:

I consider that s 149C is intended to give a bankrupt a comparable entitlement to be fully informed by a notice of objection to discharge from bankruptcy as to the bases upon which such notice has been filed.  He or she must determine whether to take the matter further, and if so whether to make representations to the trustee or Official Receiver, seek an internal review by the Inspector-General or an external review by the Administrative Appeals Tribunal or proceed in an appropriate court of law.

In this matter the bankrupt submitted that, as a matter of law, the notice does not comply with any of the requirements of section 149C(1).

1.   The grounds of objection

In respect of the grounds of objection, the notice is relevantly in the following terms (sic):

I, George Lionel Caddy, Official Receiver for the bankruptcy District ‘the State of New South Wales’....object to the discharge of Graeme John Harris, the bankrupt...by force of Section 149B of the Bankruptcy Act 1966, on the following grounds:-

Section 149D(1)(g)

‘at any time during the period of 5 years immediately before the commencement of the bankruptcy, the bankrupt:

(i)  spent money but failed to explain adequately to the trustee the purpose for which the money was spent; or

(ii)disposed of property but failed to explain adequately to the trustee why no money was received as a result of the disposal or what the bankrupt did with the money received as a result of the disposal;’

The bankrupt submitted that section 149D(1)(g) is comprised of two distinct limbs and that for section 149C(1)(a) to be satisfied, the notice must specify which of those two limbs is relied on.

Reference should also be made to section 149C(2):

A notice of objection is not invalid merely because it does not state the ground or grounds of objection precisely as set out in subsection 149D(1) provided that the ground or grounds can reasonably be identified from the terms of the notice.

2.    The evidence relied on

The second requirement for a valid notice of objection is that it must refer to the evidence or other material that allegedly establishes the specified grounds of objection.

The principle was stated in Re Hall that a bankrupt needs to be able to identify the evidence relied upon so that it may be reviewed and a course of action decided on.  Applying this interpretation to the question of whether a notice sufficiently set out the evidence relied upon, Justice Branson concluded:

A reference to such evidence or other material must at least, I consider, identify such evidence or other material in an unambiguous way.

The notice of objection should put the bankrupt in a position where he or she can identify, and if necessary search out, the evidence or other material relied upon for the purpose of the objection.  Only if the bankrupt is in a position to do this can he or she sensibly determine:

(a)whether to make representations to the party who filed the notice of objection concerning such evidence or the use made of it;

(b)whether it would be appropriate to seek a review to allow the accuracy of such evidence or other material to be challenged;

(c)whether, on any review, the weight accorded to such evidence or other material should be questioned;

(d)whether there may be answering evidence or material which might fruitfully be sought out for the purposes of any review.

It is not intended to suggest that the above is an exhaustive list of the legitimate purposes of...’the evidence or other material’...

In terms of the application before her Honour, she concluded that the evidence set out in that particular notice did not provide the bankrupt with ‘sufficient information to make sensible and informed decisions’ on the matters extracted.

It is clear from the explanation of Justice Branson that in assessing an application to invalidate a notice of objection, the Court must refer to the test as set out in section 149C(1)(b).  That test does not require the Court to undertake a review of the merits of the trustee’s decision to lodge a notice of objection or to review the evidentiary basis for the decision.  Thus in this case, the Court does not have to decide whether the explanation given by the bankrupt for the spending of the money was adequate, nor whether the evidence referred to in the notice supports a conclusion that it was adequate.  The Court’s concern is whether the notice sufficiently sets out the evidence and other material relied on, in a manner that would allow the bankrupt to make informed decisions about his approach to the notice and its effect on his bankruptcy.  If it does not, then the Court has the power to declare the notice invalid.

It follows that if the evidence is sufficiently set out, the bankrupt can identify it and pursue a review on the merits.  Section 149F of the Act provides that a bankrupt must be informed of his right to apply to either the Inspector-General or the Administrative Appeals Tribunal (AAT) for such a review.  Subject to the reservations expressed by Justice Drummond in Re Ellis; Ex parte Jefferson (unreported, 17 February 1995), this Court may also be an appropriate avenue of review under its jurisdiction in section 30(1) to deal with any question of fact or law arising in the course of administering the Act.  However, as Justice Branson held in Re Hall, the requirement imposed by section 149C(1)(b) is that the bankrupt be able to make sensible and informed decisions about how he might proceed in terms of pursuing such a review, whether it be to the Inspector-General, the AAT or an appropriate Court.  In this application, the Court is required to decide only if that test has been satisfied.

The evidence and other material on which the trustee based the objection were set out in the notice as follows:

1.  Graeme John Harris became bankrupt on the 24th of February, 1993 pursuant to the provisions of Section 44 of the Bankruptcy Act, 1966.  By relation back the commencement of the bankruptcy is deemed to have occurred on 4 March 1991 being within six months of the presentation of the petition on 4 September 1991. 

2.  On the 24th of December, 1992 a former landlord of the bankrupt, Jeannette Cain obtained judgment in an amount of $4328.64 against the bankrupt.

3.  On the 5th January, 1993 the bankrupt drew a bank cheque, payable to cash from this account in an amount of $10,000.  On the 6th of January, 1993 the bankrupt obtained a further bank cheque, again in the amount of $10,000, payable to cash from this account.  Prior to these transactions the account balance was $20,982.20.

4.  On the 19th of January, 1993 on the application of Jeannette Cain a garnishee order was obtained against an account of the bankrupt styled ‘Water Account’ A/C No.501292, at the Seaforth Branch of Westpac Banking Corporation claiming $2,237.73 as the unsatisfied portion of the debt.

5.  Jeannette Cain received $472.95 in respect of this garnishee with an accompanying letter from the Local Court at Manly informing her that the account had insufficient funds to settle the garnishee order in full.

6.  In his Statement of Affairs the bankrupt, in answering Question 40 which asks ‘is anybody holding any money or property  belonging to you?’, answered ‘yes’, and disclosed a debtor as being ‘Belinda Harris’, address ‘unknown’ and the amount owing as being $25,000.

7.  At a public examination held on the 14th of February, 1994, the bankrupt stated that the $20,000 withdrawn from the Westpac Bank account mentioned above was the monies that were loaned to Belinda Harris.  The bankrupt further stated that the money was given to Belinda Harris, with whom he was in a relationship at the time, at her verbal request in order to establish a modelling agency with the bankrupt as one-half owner.

8.  The bankrupt claimed that the monies were lent to Belinda Harris over a two month period in four separate amounts from September 1992.  He also stated that at this time he was unaware that he had been served with a Creditor’s Petition on behalf of the Deputy Commissioner of Taxation in respect of his outstanding taxation liabilities.

9.  At a subsequent point in the examination the bankrupt was shown a letter from Westpac Seaforth confirming the withdrawals as detailed in paragraph 3 above.  He was unable to give any explanation to the Court for the variance in either the dates or amounts given to Belinda Harris.  The bankrupt later admitted that he withdrew the funds, ‘because I was going to have fight (sic) with my current landlord’.

10.  The bankrupt also stated at the public examination that Belinda Harris was employed by Vivien’s Model Agency Pty Ltd.  Subsequent enquiries by the Official Trustee to this agency established that no person by that name had ever been registered on the books of Vivien’s Model Agency.

11.  The bankrupt to date, has failed to properly account for the disbursement of the $20,000 that was withdrawn from his bank account at Westpac Seaforth.  The Official Trustee considers the evidence in respect of the provision of funds to Belinda Harris as highly unlikely at best or unbelievable in the extreme.

The trustee submitted that this material establishes that the bankrupt failed to explain adequately either the spending of a sum of money or the non-receipt of money by the trustee on the disposal of property by the bankrupt.

3.   The reasons for the objection

The third requirement for a valid notice of objection is to be found in section 149C(1)(c) which stipulates that a notice must state the trustee’s reasons for objecting to the discharge on the grounds specified.  In Re Hall, Justice Branson interpreted this requirement as follows:

Plainly compliance with this paragraph requires more than a mere recitation of a ground or grounds of objection set out in s149D(1).  That is, the legislation assumes an exercise of discretionary judgement by the trustee or Official Receiver.  A notice of objection is not intended to be the necessary consequence of the trustee or Official Receiver being able to establish a ground of objection no matter how technical.

In Re Ansett; Ex parte Ansett v Pattison [1995] 56 FCR 526, the ground of objection was stated to be section 149D(1)(f), viz:

(f) the bankrupt failed to pay to the trustee an amount that the bankrupt was liable to pay under section 139ZG; 

The notice then detailed the evidence which established that the amount had not been paid.  The final statement in the notice was:

This amount has not been paid. 

The trustee asserted that this final sentence constituted a statement of the reasons for the lodging of the objection which would satisfy section 149C(1)(c).  However, there was no statement going beyond the establishment of the ground of objection.  The trustee disclosed no purpose or goal desired to be achieved by the objection.  The trustee’s motives were therefore not clear and the bankrupt was left without an understanding of what may have been required of him.

Justice Olney held the notice to be invalid.  Adopting the views of Justice Branson in Re Hall, his Honour extrapolated on exactly how the reasons of the trustee or Official Receiver might be set out (at 530):

The...requirement suggests that the trustee must address the relevance of the bankrupt’s conduct in relation to the ground of objection in the context of the administration of the estate and to make a judgment whether that conduct provides a basis or reason for the bankruptcy to be extended.  Further, the trustee is required to expose his reasoning in the notice.

His Honour appears to have been unwilling to find that the mere statement that an amount remained outstanding could imply that the purpose of the notice was to force payment of the amount.

It is unclear from the judgment of Justice Olney whether a statement to the effect:

This notice of objection has been lodged in order to secure payment of the amount detailed above.

would, in his Honour’s opinion, have satisfied the requirement of section 149C(1)(c).  The distinction being made is between a mere restatement of the grounds of objection (a statement that the amount of money was not paid) and the disclosure of the reason for the lodging of the objection (a statement that the money was not paid and that the notice has been lodged in order to ensure its repayment).

I am of the opinion that taking the extra step to specify the trustee’s purpose would have constituted an adequate reason for the purposes of section 149C(1)(c).  A statement of reasons in that form would allay the concerns of Justice Branson that a bankrupt should be ‘fully informed by a notice of objection...as to the bases on which such a notice has been filed’.   

So far as concerns the reasons for the objection, it would appear that if the notice had merely stated that no adequate explanation had been received, then it would not have sufficiently stated the reasons.  However, the notice did go beyond this bland repetition of the grounds of objection with the words:

...and it is considered that more accurate information concerning the application of these funds may be provided by the bankrupt...

Conclusions

The notice clearly sets out the grounds on which it is relying.  The fact that the particular ground relied on has two limbs and the trustee has not specified which one is relied on does not invalidate the notice.  Indeed, as contemplated by the reference in section 149C(1)(a) to a ‘ground or grounds’ of objection, the trustee indicated at the hearing that it was in fact relying on both limbs of section 149D(g).  From this notice as a whole, I have no doubt that the bankrupt would have well understood the grounds of the trustee’s objection.

Furthermore the notice quite adequately indentifies the evidence given during the public examination of the bankrupt, which took place on 14 February 1994, and to the inconsistencies that became apparent during that examination.  It is thus obvious that the bankrupt is in a position to review his own evidence (of which a verbatim transcript exists) with a view to deciding whether to seek a review, in the appropriate forum,  of the trustee’s decision to lodge an objection.

The notice also refers to the chain of events surrounding the garnishee order obtained by the bankrupt’s former landlord which was not able to be fully satisfied.  With respect to the evidence supporting these claims, the proceedings by Jeanette Cain were proceedings against the bankrupt himself, and the relevant Westpac bank statements confirming the withdrawals were shown to the bankrupt during the public examination.  From these assertions the bankrupt would certainly be able to identify the detailed evidence as it relates directly to his own personal affairs.

In addition, the notice refers to correspondence between the trustee and Vivien’s modelling agency.  The notice makes clear that one element of the material relied on to show that the inadequacy of the bankrupt’s explanation of his conduct in this connection is the fact that the modelling agency had never heard of the person the bankrupt claimed had worked there and to whom the bankrupt claimed he had paid the money in question.  The bankrupt is certainly in a position to deal with whether or not that information is correct and as a consequence decide on his future course of action.  Moreover, the notice in the present case does take the necessary step of specifically stating the trustee’s reasons for objecting on the grounds specified.

I am quite satisfied that the notice satisfies the criteria laid down by Justice Branson in Re Hall in that it sets out the evidence relied on so as to enable the bankrupt to make ‘sensible and informed decisions’ with respect thereto.  Whether that evidence supports the conclusion that his explanations were not adequate involves a review of the exercise of the trustee’s discretion which is inappropriately undertaken in this application.

To the extent that the form and content of this notice is a question of law, I hold that it satisfies the requirements imposed by section 149C(1)(b).  The notice is valid and I therefore dismiss the bankrupt’s application for a declaration to the contrary.  As a necessary consequence, the other orders sought by the bankrupt are dismissed.  The trustee’s costs of and pertaining to this application, including any reserved costs, are to be paid by the bankrupt.