FEDERAL COURT OF AUSTRALIA

2000 Olympic Games Pty Ltd v Daly [2000] FCA 1286

BANKRUPTCY – circumstances in which it was appropriate to substitute a petitioning creditor.

Re Buckley; Ex parte James Hardie & Co Pty Ltd (1976) 27 FLR 496referred to

2000 OLYMPIC GAMES PTY LIMITED v TERENCE JOHN DALY; EX PARTE DRUIN PTY LIMITED

N 8324 of 1999

BURCHETT J

6 SEPTEMBER 2000

SYDNEY

THE COURT ORDERS THAT:

(1)               The proposed substituted petitioning creditor be substituted;

(2)               Costs be costs in the petition.

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

EX PARTE:                    DRUIN PTY LIMITED

REASONS FOR JUDGMENT

BURCHETT J

1                     In this matter, an application has been made to substitute a creditor as petitioner.  The petition is not on the most common ground of non-compliance with a bankruptcy notice, but is on the ground contained in s 40(1)(i).  I am told that reliance is also placed on paragraphs (j) and (l), but particularly the ground is (i) – “if he or she signs an authority under section 188.”

2                     The question which has been raised in the petition, in which a large sum of money is alleged to be owing to the petitioning creditor, but not under a judgment, is whether that sum of money or any of it is actually owed.  An aspect of the dispute about that is whether there is a set off, and if so for how much, which the debtor is entitled to rely on.  Rather than pursue this dispute, there being no question as to the act of bankruptcy, what Mr Condon (who appears both for the present petitioning creditor and also for the applicant for substitution) contends is that he should be permitted to substitute a petitioner who has a debt which is the subject of a judgment, and is not in dispute.

3                     One ground of opposition is raised.  The debtor says that where the existing petition is opposed on the ground that there is no debt, or no debt falling within terms of s 44(1) of the Bankruptcy Act 1966 (Cth), an order for substitution should not be made without requiring proof that, in fact, the petitioning creditor is, or at least at the time of the institution of the proceeding was, entitled to such a debt.

4                     I think the authorities are clear that it cannot be right to say the substitution can only be made where there is such a debt, because in numerous cases courts have made orders substituting a petitioner after the petitioning creditor had accepted payment.  That leaves the alternative form of the submission, that it would be necessary to prove there was such a debt at the time of the institution of the proceedings brought by the petitioning creditor.  No authority is cited where that has ever been held.  In McDonald, Henry and Meek, Australian Bankruptcy Law and Practice, 5^th edition, vol 1, p 2852 (update 17) the statement is made:

“A deficiency in some requirement relating to the original petitioning creditor alone (for example the tender and acceptance of the amount of that creditor's debt) will not invalidate the petition, but a fundamental deficiency in the bankruptcy proceeding itself (such as a defective act of bankruptcy or a fundamentally flawed petition), or a deficiency relating to the substituted creditor, will invalidate it.”

The authorities cited for this proposition do not include any case in which a problem like the present has been discussed.

5                     Some assistance may be obtained from Re Buckley; Ex parte James Hardie & Co Pty Ltd (1976) 27 FLR 496 at 501, where Riley J said:

“But the object of s 49 is to enable the substituted creditor to continue the proceedings commenced by the petition of the petitioning creditor (Re Faulkner (1960) 19 ABC 34, at p 35) and it is a common occurrence for a petitioning creditor to have to supplement his affidavit of service of the bankruptcy notice by adducing further evidence at the hearing.”

What Riley J was adverting to was plainly a deficiency in the evidence before the Court, to establish the petition, at the time the order for substitution was made; and he was indicating that the problem would be capable of cure by the time the matter came to be heard.  He was not suggesting that the defect required to be cured before an order of substitution could be made.

6                     In my opinion, it would be contrary to the whole purpose of s 49 to hold that it is necessary to prove a debt which is no longer the relevant debt before permitting the substitution.  If there were a defect going to the commission of the act of bankruptcy, of course an order permitting substitution should not be made, as McDonald, Henry and Meek points out in the passage to which I have referred.  But I cannot see that the question is whether the original petitioner would succeed in making out a case at a hearing.  The question is whether there is a petition alleging an act of bankruptcy on which the person seeking substitution should be permitted to rely, by being substituted, so as to continue the current proceeding rather than start all over again.

7                     In my opinion it is, therefore, appropriate to make an order in the present case, and I do order that the proposed substituted creditor be substituted.

Associate:

Dated:  12 September 2000