FEDERAL COURT OF AUSTRALIA

Nilant v Macchia [2000] FCA 1528

BANKRUPTCY – statement of affairs – requirements of s 54(1) of Bankruptcy Act 1966 (Cth) – whether “Proceedings” in s 306 extends to the making out and filing of a statement of affairs – whether failure to comply with s 54 is a “formal defect” or “irregularity” capable of rectification by s 306 Bankruptcy Act.

Bankruptcy Act 1966 (Cth), ss 54(1), 306

Nilant v Macchia (1997) 78 FCR 419 referred to

Sofia v Pattison (Federal Court of Australia, Finkelstein J, unreported, 20 October 1997) referred to

Tsingaris v Official Receiver (Vic) [1999] FCA 1389 referred to

Trihakis v Official Receiver (Vic) [1999] FCA 1426 referred to

Nikoglou v Official Receiver in Bankruptcy (2000) 171 ALR 223 referred to

Official Trustee in Bankruptcy v Street [2000] FCA 216 referred to

Official Trustee in Bankruptcy v Halls [2000] FCA 354 referred to

In re a Debtor; Ex parte the Debtor v Bowmaker Ltd (No. 1) [1951] CH 313 referred to

Pillai v Comptroller of Income Tax [1970] AC 1124 referred to

Kleinwort Benson v Crowl (1988) 165 CLR 71 referred to

Coleman v Lazy Days Investments Pty Ltd (1994) 55 FCR 297 referred to

Bull v The Attorney-General for New South Wales (1913) 17 CLR 370 referred to

Re Wheeler and Reynolds; Ex parte Kerr v Crowe (1988) 20 FCR 185 referred to

Re Wimborne; Ex parte the Debtor (1979) 24 ALR 494 referred to

R v Westminster (City) London Borough Rent Officer; Ex parte Rendall [1973] 3 All ER 119 referred to

Krextile Holdings Pty Ltd v Widdows [1974] VR 689 referred to

Ex parte Johnson (1883) 53 LJ Ch 309 referred to

Re A Debtor (No 819 of 1970); Ex parte Biart [1974] 1 WLR 1475 referred to

Re Laxon & Co [1892] 3 Ch 31 referred to

CHARLES PHILIPPE LOUIS NILANT v MARIO SILVERIO MACCHIA

W 62 of 2000

HILL, CARR and WEINBERG JJ

27 OCTOBER 2000

PERTH

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.         The appeal be allowed.

2.         Within 7 days, the appellant shall file and serve a minute of orders and submissions in support of that minute. 

3.         The respondent shall, within 7 days of service of the above documents file and serve his submissions in response and his suggested minute of orders.

4.         The matter be otherwise adjourned.

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

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

HILL J

1                     The appellant, Mr Nilant (“the Trustee”), is the trustee of the bankrupt estate of the respondent, Mr Macchia (“the Bankrupt”), who became bankrupt as the result of a sequestration order made on 16 September 1991.  The substantial issue in the appeal is whether the learned primary Judge, whose decision is the subject of the appeal, had power to make an order under s 306 of the Bankruptcy Act 1966 (Cth) (“the Act”) to declare that a statement of affairs signed by the bankrupt on 4 September 1991 and presented to the Registrar in Bankruptcy on that date was deemed to have been made out and filed in the office of the Registrar and a copy furnished to the trustee on 16 September 1991 in compliance with the requirements of s 54(1) of the Act.

The background facts

2                     On 16 May 1991 a creditor of Mr Macchia presented a petition to the Court seeking a sequestration order against his estate.

3                     On 16 July 1991 Mr Macchia and his brother signed a joint authority under s 188 of the Act authorising the trustee to take control of their joint and several property and to convene a meeting of their creditors under Part X of the Act.  At or around that time Mr Macchia and his brother gave to the trustee a statement of their respective affairs and a statement of their joint affairs prepared as at 9 July 1991.  The creditors resolved that the debtors be required to lodge petitions in bankruptcy within seven days.  Accordingly on 4 September 1991 each of Mr Macchia and his brother presented his own petition to the Registrar.  Each petition was accompanied by a statement of affairs verified by affidavit sworn on 4 September 1991.  The petition lodged by Mr Macchia was referred by the Registrar to the Court pursuant to s 55(3B) of the Act for a direction whether to accept or reject the petition, there being a pending creditors petition before the Court.  The brother became a bankrupt on his own petition.  Ultimately the Registrar was directed by a Judge of the Court to reject Mr Macchia’s petition and a sequestration order was made on the creditors petition and the trustee became his trustee in bankruptcy.

4                     It is unnecessary to chronicle the correspondence passing thereafter between the trustee and the bankrupt.  It suffices to say that much of that correspondence indicates that Mr Macchia was at least to some extent misled by the trustee as to his obligations under the Act and its consequences.  It was not until 21 January 1994 that Mr Macchia filed with the Registrar a statement of affairs completed by him which bore the date 6 April 1993.  A copy of that document had, so the bankrupt said, been forwarded to the trustee by Mr Macchia’s solicitor on or around 6 April 1993.

5                     It was the trustee who finally forwarded the statement of affairs to the Registrar.  A consequence of the failure to file with the Registrar the statement of affairs until January 1994 was that Mr Macchia was not eligible for discharge until three years had elapsed from the date of filing, ie 22 January 1997.  In the result the bankrupt remained a bankrupt for some 5½ years.

6                     One further matter should be noted.  Mr Macchia’s mother died intestate on 21 March 1995.  The principal item of property in her estate was real estate in Perth.  Mr Macchia’s sister claimed in a caveat lodged before the mother’s death that she was entitled to the whole beneficial interest.  The question of the beneficial ownership of that property remained unresolved at the time of the proceedings below.  If as at the date of his mother’s death Mr Macchia had not been discharged from bankruptcy, any interest Mr Macchia had in the real estate would be available to his creditors.

7                     It was in the light of the rather unsatisfactory way in which the matter had been dealt with as between the trustee and Mr Macchia that the latter applied to the Court for a declaration that a statement of affairs had been filed by him with the Court as at 16 September 1991 with the consequence that, pursuant to s 149 of the Act, he was discharged from bankruptcy on 17 September 1994.  Accordingly an order was made abridging the period of time before discharge from bankruptcy pursuant to s 149(3) to 13 months to the date on which Mr Macchia had filed his statement of affairs.  The trustee appealed that order and a full Court in Nilant v Macchia (1997) 78 FCR 419 allowed the appeal.  The full Court remitted the matter to the learned primary Judge for further consideration observing at 428:

“It may be that some other basis can be advanced[apart from s 33(1)(c)]for treating one or other of the statement of affairs filed by the respondent as having been duly filed in accordance with the Act.”

8                     Ultimately an amended application came before the learned primary Judge seeking orders that would have the consequence of treating one or other of the statements of affairs made by Mr Macchia to have been deemed to have been filed in the office of the Registrar in Bankruptcy on 17 September 1991.  As the learned primary Judge observed, “[i]n effect, the applicant relied upon ss 30(1)(b) and 306 of the Act to seek a declaration that a ‘proceeding’ under the Act had not been invalidated by a formal defect or irregularity”.  Section 306(1) reads as follows:

“Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.”

The decision appealed from

9                     The learned primary Judge noted a number of single judge decisions including Sofia v Pattison (Federal Court of Australia, Finkelstein J, unreported, 20 October 1997), Tsingaris v Official Receiver (Vic) [1999] FCA 1389 per Weinberg J, Trihakis v Official Receiver (Vic) [1999] FCA 1426 per Kenny J, Nikoglou v Official Receiver in Bankruptcy (2000) 171 ALR 223 per Marshall J and Official Trustee in Bankruptcy v Street [2000] FCA 216 where judges of the Court sitting at first instance had held that the word “proceeding” in s 306 was not confined to curial proceedings but rather was to be given a wide meaning.  In particular Finkelstein J in Sofia held that s 306(1) could operate to permit the making of a declaration that a statement of affairs not filed with the Registrar as required by s 54 be treated as having been filed on a nominated date in accordance with s 54 with the consequence that the failure to file the statement of affairs did not operate to extend the period of bankruptcy.  In the particular circumstances of that case a statement of affairs had been left on the counter of the registry though not filed.  The case was one where no injustice was seen by his Honour to result.  Further it was his Honour’s view that there was clear power to make the order sought.  His Honour said:

“Section 5(1) contains a definition of the word ‘proceeding’.  It means a ‘proceeding under this Act’.  This is not a helpful definition for present purposes.  On one view the word may mean a curial proceeding under the Bankruptcy Act.  But the cases that deal with s 306 make it clear that the word is not to be confined to such proceedings.  In McDonald Henry & Meek, Australian Bankruptcy Law and Practice (5th ed), in the commentary dealing with s 306, reference is made to cases where it has been accepted that deficiencies in a bankruptcy notice may be cured by an order under s 306(1).  A bankruptcy notice is plainly not a curial proceeding.  Further, there are two decisions of the Federal Court that establish that the word ‘proceeding’ should be given a wide meaning.  The first is Re Wheeler & Reynolds; ex parte Kerr and Crowe v Anor (1988) 20 FCR 185.  There Spender J said in relation to the application of the section to a defective bankruptcy notice:

‘Although the Registrar’s act in issuing the notice is an administrative rather than a judicial act, it is nonetheless a proceeding as contemplated by s 307.  It is a proceeding under the Act but is not a step in any proceeding in the court.’

The second decision is Re Staples & Anor; Ex parte Baker (1996) 67 FCR 541 which was concerned with the conduct of an investigation under s 12 of the Bankruptcy Act and a deficiency in connection with that investigation which was sought to be overcome by s 306(1).  In that case Spender J said (at 547):

‘I think the word, ‘proceeding’ has to be read more widely than a reference to a proceeding in court.’

If the word ‘proceedings’ in s 306(1) is not given the wide meaning which his Honour thought it should be given, it might fairly be said that s 306(1) has little work to do.  This case is a good example of one where a provision such as s 306(1) should, if the circumstances permit, be used to overcome the problem that confronts these applicants.  I am of the view that s 306(1) does apply to ‘proceedings’ taken under s 54(1).”

10                  Subsequent to the cases to which the learned primary Judge referred is the further decision of Lehane J in Official Trustee in Bankruptcy v Halls [2000] FCA 354.  In that case each of the bankrupts had not filed statements of affairs in the office of the Registrar but instead had delivered two original copies to an office of the Insolvency and Trustee Services.  The bankrupt applied under s 149S of the Act as it then stood for an early discharge from bankruptcy.  There was a requirement of his obtaining an early discharge that the application be made after six months from the date of filing of the statement of affairs.  Lehane J held that the application for and grant of an early discharge was a proceeding for the purposes of s 306 of the Act and that it was open to hold that although s 149S of the Act required that the application for the discharge be made only after the expiry of the specified period, nevertheless strict compliance with that provision was not essential.  His Honour accordingly made the declaration requested. 

11                  In none of the cases relied upon by his Honour does it seem that argument was addressed to the power of the Court to make orders under s 306 (with or without the aid of 30(1)(b) of the Act) so as to relieve a bankrupt from a failure within the time stipulated in the subsection to comply with s 54(1) of the Act.

The history of section 306

12                  Section 306 had its origin in s 82 of the Bankruptcy Act 1869 (UK).  That section was to be found in Part IV of that Act under the heading “Supplemental Provisions ... as to proceedings” containing ss 80 to 82.  Section 80 paragraphs 1 to 6 related to curial proceedings, subsection 7 to the manner of proving a debt through an agent of a corporation, subsection 8 to the appointment of representatives at meetings of creditors and subsection 10 to stays of proceedings in bankruptcy.  Section 81 concerned the consequence of annulment of adjudications in bankruptcy by a court.

13                  The explanation for the enactment of s 306 is now lost in time.  It may, however, be noted that prior to 1849 there existed as the forerunner of the modern bankruptcy notice a debtor’s summons.  This was at one stage a demand to be served upon a debtor requiring that he appear before the Bankruptcy Court to be examined as to his capacity to repay a debt  The 1849 English Bankruptcy Act modified the procedure to the extent that the debtor’s summons became merely a demand for payment of a debt.  Non-compliance with a debtor’s summons by a trader was made an act of bankruptcy. 

14                  By the time the Bankruptcy Act 1869 was enacted the debtor’s summons was not directly curial.  However, the debtor could apply to the Court in Bankruptcy to dismiss the summons on the basis that the debtor was not indebted at all, or not indebted in the necessary amount so as to constitute an act of bankruptcy (L50).

15                  It appears early to have been accepted that formal defects in bankruptcy petitions could be cured.  So, for example, the misdescription of the debtor in a petition, was held to fall within the predecessor to s 306 in the English Bankruptcy Act 1869:see Ex parte Kirkwood; In re Mason [1879] 11 ChD 724

16                  In ex parte Johnson (1883) 53 LJCh 309, the English Court of Appeal had to consider whether a debtor’s summons was a “proceeding in bankruptcy”.  Cotton LJ had little difficulty in holding that it was, because it was issued for the purpose of founding upon it an adjudication in bankruptcy.  Lindley LJ was of the same view.  At 312 his Lordship said:

“But if we look at subsection 6 of section 6, at the form of the debtor’s summons in the schedule to the Rules of 1870, and at the Rules themselves, we see that a debtor’s summons and the proceedings upon it are referred to throughout as ‘proceedings in bankruptcy’.  Proceedings in bankruptcy are not exclusively proceedings after adjudication.”

17                  The Bankruptcy Act 1883 (UK) provided for the issue of bankruptcy notices as we know them. Non-compliance with a bankruptcy notice was made an act of bankruptcy founding an adjudication.  It thus became necessary for the courts to decide whether a defect or irregularity in a bankruptcy notice came within the equivalent of s 306 so that it could be cured.  Likewise the issue arose whether a defect in service of a bankruptcy notice could be cured.

18                  By 1891 it was well established by In re Collier; Ex parte Dan Rylands Ltd [1891] 8 Morr 80 that because the commission of an act of bankruptcy was a serious matter involving consequences of a penal nature, it was important that necessary preliminaries were complied with.  In consequence the courts declined to allow amendment of bankruptcy notices except in the case of merely formal defects.  The history of this litigation is dealt with in the judgment of Harman J in In re a Debtor; Ex parte the Debtor v Bowmaker Ltd (No. 1) [1951] CH 313, particularly at 317-320. 

19                  The bankruptcy law was consolidated in England by the Bankruptcy Act 1914.  Section 147(1) of that Act provided in virtually identical terms to s 306:

“No proceeding in bankruptcy shall be invalidated by any formal defect or by any irregularity, unless the court before which an objection is made to the proceeding is of the opinion that substantial injustice has been caused by the defect or irregularity, and that the injustice cannot be remedied by any order of that court.”

20                  That subsection was in a part of the Act headed “Miscellaneous”.  The part continued to be concerned with representations by corporations, partnerships or lunatics but referred to proceedings specifically not only in s 147(1) but also in ss 145 and 150.

21                  Section 145 was concerned with the computation of time allowed under the Act for “the doing of any act or the taking of any proceeding” and s 150 referred to proceedings under a bankruptcy petition. 

22                  The 1924 Commonwealth Bankruptcy Act reproduced in s 7(1) the provisions of the 1914 UK legislation.  There had been a virtually identical provision in the State bankruptcy laws of New South Wales, Victoria, Western Australia and Tasmania being respectively ss 151, 41, 127 and 76. The 1924 Act applied, by virtue of s 6, to proceedings in bankruptcy pending as at the date it came into force.  Section 27(2)(b) of the 1924 Act empowered the Federal Bankruptcy Court at its discretion to amend at any time any written process, proceeding or notice under the Act.  The Court was given power to extend or abridge times limited by the Act for doing things.

23                  Ultimately the 1966 Act in s 306(1) adopted the language of s 7(1) of the 1924 Act.  The Royal Commissioner established to enquire into the operation of the bankruptcy laws under the chair of Clyne J did not find it necessary to comment upon the proposed s 306.

24                  The most recent authoritative decision in the United Kingdom on a section corresponding to s 306 is the decision of the Privy Council in Pillai v Comptroller of Income Tax [1970] AC 1124.  Lord Diplock who delivered their Lordships’ advice had no trouble in pointing out that the issue of a bankruptcy notice by the High Court of Malaya was a proceeding in bankruptcy and described as such in the bankruptcy rules of that country, citing In re a Debtor [1938] Ch 694.  The case established beyond doubt that it was only where failure to comply with the statutory provisions as to the form of a bankruptcy notice was such as could not reasonably mislead a debtor, that such failure could be treated as a formal defect to be validated by sections such as s 147(1) of the UK Bankruptcy Act 1914 or s 306 of the present Australian legislation.

25                  Although in Pillai a bankruptcy notice was in fact issued by a Malayan court and might thus be said to be a curial process, it can be accepted in Australia that s 306 can apply to validate a bankruptcy notice where there has been a mere formal defect or irregularity notwithstanding that such a notice is not a curial process: Kleinwort Benson v Crowl (1988) 165 CLR 71 at 77.

Section 306 in context

26                  The word “proceeding” in s 306(1) must be read having regard to the context in which the word appears.  That it extends to curial proceedings is, as the above discussion makes clear, undoubted.  Historically,  the role of the courts was not limited to the making of an order sequestrating the estate of a debtor.  From the moment debtor committed an act of bankruptcy the courts were, at least potentially, involved in the supervision of the bankrupt, his conduct and his affairs and, in the event of a sequestration order being made the process of the getting in of assets and the pro rata division of the estate among creditors was under the supervision of the courts, at least until discharge or annulment. 

27                  The language of s 306 itself provides the best guide to what is meant by “proceedings under this Act”.  First it is clear that the proceeding must be one which but for s 306 is invalidated by reason of the formal defect or irregularity referred to.  Second, and perhaps equally important, is that the proceeding, albeit itself not curial, must be such as to be capable of coming before the Court on an objection concerning that invalidity.  To use the language of argument in Re Parfitt (1889) 58 LJ QB 428 at 430 (the context was an argument as to the applicability of scales of costs in bankruptcy proceedings), the proceeding must be one which could come into the bankruptcy court if questioned.  Both bankruptcy notices and bankruptcy petitions would qualify.  So too could a defect in the appointment of a trustee in bankruptcy or a defect or irregularity in an application for annulment or a formal defect in a proof of debt.

28                  The present circumstances are, however, quite different to the examples which are referred to above.  Even if it is accepted that the filing of a statement of affairs is a “proceeding” (and clearly the question whether a statement of affairs was filed is one which could be the subject of decision by the Court if an issue arose whether a statement was filed in due time, or perhaps even whether what was filed was a statement of affairs) it is hard to see how the failure to file would be a proceeding which was invalidated by some defect of irregularity.  Section 54 of the Act is a mandatory requirement that a person against whom a sequestration order is made, inter alia, file within 14 days of notification of the bankruptcy a statement of affairs.  No proceeding is invalidated by the failure to file a statement of affairs, even if it is possible to categorise such a failure as being a “formal defect” or an “irregularity”.  The failure gives rise to an offence, the penalty for which is prescribed by the section.  Once a statement is filed, albeit outside the time prescribed, it is filed.  Before the statement is filed there is nothing to invalidate.  Once the statement is filed and the filing has taken place, the filing is not invalidated.  All that has happened is that the statement has been filed outside the prescribed period. 

29                  Given the penal nature of the obligation created by s 54, it is difficult to see that breach of the section, no matter how inadvertent, could be categorised as merely formal.  The policy behind s 54 is clear.  The obligation to file a statement of affairs in a public register is intended to make information concerning the bankrupt’s affairs available to creditors and, for that matter, members of the public.  The former may inspect without payment of a fee, the latter only on payment of a fee.  But it is in the interests of the public in the encouragement of morality in trading that the financial situation of a bankrupt debtor be open to inspection.  Because, ordinarily, the administration of the estate and ultimate distribution of dividends from the estate, will be dependent upon the trustee having full details of the trade dealings and debts of a debtor, the statement is to be made available as well to the trustee in bankruptcy.  Given the scheme of the legislation and the important role that the statement of affairs plays in it, there is considerable difficulty in seeing that Parliament would have intended that the Court, through s 306, have the ability to treat non-compliance with the statutory obligation as merely formal.  And this is so, even in a case such as the present, where the details of the bankrupt’s affairs were clearly available to the Trustee and to creditors who were sent the information required to be included in the s 54 statement  to enable them to consider whether to accept the proposed composition.

30                  It may be said that it is unfortunate that there not be open to the Court some means of alleviating the consequences to the bankrupt in a case such as the present where failure to comply with the obligation under s 54 in circumstances not really the fault of the bankrupt, operate to prolong, unfairly, the course of the bankruptcy.  The power of the Court (in s 33(1)(c) to extend the time fixed for filing the statement) is not an adequate remedy as the present case and the former appeal to the full Court make clear.

31                  It is thus with some reluctance, that I find myself unable to agree with the learned primary Judge that the Court has power by virtue of s 306(1) to treat the bankrupt's failure to comply with s 54 as in some way a compliance.  In so saying I should not be thought to be expressing a view that the cases upon which his Honour relied were necessarily wrongly decided.  To the extent that those cases held (at least by implication) that s 306(1) was not confined to validating steps in curial proceedings leading up to the making of a sequestration order but could extend beyond that to the validation of other formal defects or irregularities, including irregularities in compliance with non-curial requirements such as s 54, I agree with them.  However it is neither necessary nor appropriate here to consider whether the result in each case was correct.  I prefer to confine my remarks to the circumstances here under consideration.

32                  In my view his Honour had no power to make the order he did.  I would accordingly allow the appeal.

Costs

33                  Before the learned primary Judge there was little argument on the question of power to make the order sought.  Rather, such argument as there was, centred more upon whether, the power under s 306 existing, the Court should exercise it.  It seems from a perusal of the transcript that the view taken by his Honour was that the orders of the full Court in the earlier appeal indicated the acceptance of a view by their Honours on appeal that power did exist, albeit that no direct reference was made in that decision to the provisions of s 306.  On the other hand, it is fair to say that submissions were made, at least in general terms, on behalf of the Trustee that s 306 had no application to a case such as the present. 

34                  In the circumstances it seems to me that the Trustee is entitled to his costs, not merely of the appeal, but of the proceedings below but subject to any order that may be made under s 6 of the Federal Proceedings (Costs) Act 1981.

Associate:

Dated:              27 October 2000

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

CARR J:

35                  I have had the advantage of reading drafts of the respective reasons for judgment of Hill J and Weinberg J.  Hill J has set out the factual and procedural background to the matter and some details of the provenance of what is now s 306 of the Bankruptcy Act 1966 (Cth) (“the Act”).  I am grateful to him for having done so.

36                  I agree that the appeal should be allowed.  My reasons, in summary, are as follows:

1.         The word “Proceedings” in s 306 extends, in my view, to the “… mak[ing] out and fil[ing] …” by a bankrupt of a statement of his or her affairs.  I agree, respectfully, with Weinberg J’s view in that regard and the assumption (for the purposes of the decision) to the same effect made by Hill J.  In Coleman v Lazy Days Investments Pty Ltd (1994) 55 FCR 297 I was asked to stay proceedings under a sequestration order, pending an appeal.  I took the view (at 301) that the preparation and filing of a statement of affairs was probably a proceeding under a sequestration order.  It was the only proceeding which I expressly declined to stay – see 303-304.

2.         Where there has been an attempt to comply with s 54 of the Act, but in the course of such an attempt there is a formal defect or an irregularity occurs, then, subject to the conditions expressed in s 306(1), the proceeding (making out and filing the statement of affairs) will not be invalidated.  I regret that I appear to differ with Hill J on this point.  I agree with him that it is not necessary or appropriate to consider whether the result in each of the cases relied upon by the learned primary judge, and referred to in paragraphs 18 to 24 of Weinberg J’s reasons was correct.  But I acknowledge that the view which I express in this paragraph is consistent (and intended to be so) with the approaches taken by the judges who decided those cases.

3.         In the present matter, where there has been no attempt to comply with s 54 until (at the earliest) 6 April 1993, there was no proceeding which by the operation of s 306 could escape invalidity due to formal defect or irregularity.

37                  I agree with Hill J and Weinberg J that the result in this matter is unfortunate and regrettable.  As the Full Court observed in Nilant v Macchia (1997) 78 FCR 419 at 428, the situation is one which ought to be looked at by those responsible for amending the Act.

Associate:

Dated:              27 October 2000

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

WEINBERG J

38                  I have had the advantage of reading in draft the reasons for judgment of Hill J.  I agree with his Honour that the appeal should be allowed.  I shall state briefly my reasons for arriving at that conclusion.

39                  Though the Bankruptcy Act 1966 (Cth) (“the Act”) can hardly be described as “a remedial Act”, s 306(1) is plainly a remedial or beneficial provision.  It is intended to allow a Court to avoid the consequences which might otherwise flow to a creditor, or a debtor, from what is, in effect, a mere formal defect or irregularity associated with a step which must be taken in proceedings in bankruptcy. 

40                  The orthodox view of the approach to be adopted in relation to the interpretation of remedial legislation is that reflected in the dissenting judgment of Issacs J in Bull v The Attorney-General for New South Wales (1913) 17 CLR 370.  His Honour said at 384:

“In the first place, this is a remedial Act, and therefore, if any ambiguity existed, like all such Acts should be construed beneficially … This means, of course, not that the true signification of the provisions should be strained or exceeded, but that it should be construed so as to give the fullest relief which the fair meaning of its language will allow.”  (emphasis added)

41                  In D.C. Pearce and R.S. Geddes, Statutory Interpretation in Australia 4^th ed 1996 the learned authors observe at par 9.3:

“If an Act is intended to benefit a particular person or class of persons, it is preferable for any ambiguity to be resolved in favour of the intended beneficiary.  However, it must be clear that the provision is intended to achieve the beneficial purpose claimed.”

42                  A provision such as s 306(1) of the Act should be construed beneficially, and as generously as the language of the section allows.  It should certainly not be construed in a narrow or pedantic manner.

43                  In my opinion the filing of a statement of affairs is, relevantly, “a proceeding under this Act” within the meaning of that expression in s 306(1) of the Act.  As Hill J has noted, s 306(1) can apply to validate a bankruptcy notice where there has been a formal defect or an irregularity notwithstanding that the issue of such a notice, under s 41 of the Act, involves an administrative act by an Official Receiver, and is not a curial process: see Re Wheeler and Reynolds; Ex parte Kerr v Crowe (1988) 20 FCR 185; and Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 77.  I can see no reason why the filing of a statement of affairs under s 54(1) of the Act should be treated differently.

44                  It seems to me that for the purposes of s 306(1) it matters not in the slightest whether the step which must be taken in proceedings in bankruptcy is one which is taken prior to the sequestration of the bankrupt’s estate, or under the detailed legislative regime which operates thereafter.  There is nothing in the language of s 306(1) which suggests that the subsection ceases to be applicable once a sequestration order has been made.

45                  The particular step in the proceeding with which this appeal is concerned is the obligation which rests upon the bankrupt under s 54(1) of the Act to make out and file a statement of his or her affairs within fourteen days from the day on which he or she is notified of the bankruptcy.  A penalty of five penalty units may be imposed if that requirement is not met. 

46                  The word “proceedings” is apt to cover steps which are taken pursuant to, and in accordance with, the requirements of a statute.  It is not confined merely to applications which take place in a court of law, and to ancillary matters - R v Westminster (City) London Borough Rent Officer; Ex parte Rendall [1973] 3 All ER 119 at 121 per Lord Denning MR. 

47                  In Krexstile Holdings Pty Ltd v Widdows [1974] VR 689 at 693 Gillard J observed:

“…the word [proceedings] is not limited merely to applications to the Court, or to any proceedings that must be brought to the Court under the [Companies Act 1961] in relation to a winding up.  In my opinion, all the matters that flow directly from or are invoked by the making of an order as a part of the process of winding up under the provisions of the Companies Act 1961 are “proceedings in relation to the winding up”.  It is the performance or observance of all the statutory powers and duties … which are comprehended within the expression “all proceedings in relation to the winding up”.” (emphasis added)

48                  In Stroud’s Judicial Dictionary 5^th ed 1986 it is noted that in England, in RSC Ord 64 r 13(now O 3 r 6) and Ord 70 r 1 (now O 3 r 6), the word “proceeding” is used synonymously with a step in an action. It also noted that the taxation of costs is a “proceeding” within the phrase “no actions, suits, executions, attachments or other proceedings shall be continued or commenced without leave”. A debtor’s summons, under the Bankruptcy Act 1869 was a “proceeding in bankruptcy” - Ex parte Johnson (1883) 53 LJ Ch 309.  So too was the examination of a witness under the Bankruptcy Act 1883.  The expression “in any proceedings” under s 29(4) of the Bankruptcy Act 1914 refers to proceedings outside the bankruptcy - Re A Debtor (No 819 of 1970); Ex parte Biart [1974] 1 WLR 1475.  A winding up petition is a proceeding under the Companies (Winding-Up) Act 1890 – Re Laxon & Co [1892] 3 Ch 31.

49                  In construing the word “proceedings”, and the related expression “proceedings under this Act”, some assistance may be gained from an examination of the meaning attributed to these terms in the United States.  In Black’s Law Dictionary 7^th ed 1999 the following definition of “proceeding” appears at p 1221:

“proceeding.  1.  The regular and orderly progression of a lawsuit, including all acts and events between the time of commencement and the entry of judgment.  2.  Any procedural means for seeking redress from a tribunal or agency.  3.  An act or step that is part of a larger action.  4.  The business conducted by a court or other official body; a hearing.  5.  Bankruptcy. A particular dispute or matter arising within a pending case – as opposed to the case as a whole.

“‘Proceeding’ is a word much used to express the business done in courts.  A proceeding in court is an act done by the authority or direction of the court, express or implied.  It is more comprehensive than the word ‘action’, but it may include in its general sense all the steps taken or measures adopted in the prosecution or defense of an action, including the pleadings and judgment.  As applied to actions, the term ‘proceeding’ may include – (1) the institution of the action; (2) the appearance of the defendant; (3) all ancillary or provisional steps, such as arrest, attachment of property, garnishment, injunction, writ of ne exeat; (4) the pleadings; (5) the taking of testimony before trial; (6) all motions made in the action; (7) the trial; (8) the judgment; (9) the execution; (10) proceedings supplementary to execution, in code practice; (11) the taking of the appeal or writ of error; (12) the remittitur, or sending back of the record to the lower court from the appellate or reviewing court; (13) the enforcement of the judgment, or a new trial, as may be directed by the court of last resort.”  Edwin E. Bryant, The Law of Pleading Under the Codes of Civil Procedure 3-4 (2d ed. 1899).”

50                  A similar approach to the word “proceedings” appears to have been taken in Australia.  See the many and varied usages of that word in Australian Legal Words and Phrases, Butterworths 1999 at pp 204-212, and the extended meaning accorded to it in Butterworths Australian Legal Dictionary 1997.

51                  It is clear that the Act itself makes extremely detailed provision for the steps to be taken in relation to the affairs of a person whose estate has been sequestrated.  Many of these steps involve the giving of written notice, or the filing of particular documents.  Typical examples include:

·        The filing of a statement of affairs under s 54(1).

·        The convening of a meeting of the creditors of a bankrupt, the giving of notice of such a meeting under s 64A, and the form which such a notice must take, under s 64A(2) and s 64B.

·        The giving by the trustee to the Official Receiver of written notice of the passing of a special resolution at a meeting of creditors which has the effect of annulling the bankruptcy, under s 74. 

·        The giving by the Official Receiver of written notice to a third party requiring that party to attend before the Official Receiver to give evidence and produce books in the possession of that party, under s 77C.

·        The issuing by a Court or a Registrar of a summons to attend for examination in relation to the bankruptcy, under s 81. 

·        The issuing by the Official Receiver of an “off-shore information notice”, under s 81A. 

·        The giving by a bankrupt to the trustee of a statement of income derived during a contribution assessment period, under s 139U.

·        The giving by the Official Receiver of written notice requiring a person to make a payment or payments to the trustee towards the discharge of the liability of the bankrupt to make the contribution.

52                  Each of the above provisions sets out a step under the Act which is, in my opinion, a “proceeding under this Act” within the meaning of that expression in s 306(1).

53                  Hill J has drawn attention to the need to consider the word “proceeding” in s 306(1) having regard to the context in which that word appears.  His Honour has observed, correctly, in my view, that the proceeding must be one which, but for s 306(1), would be invalidated by reason of the formal defect or irregularity referred to.  Moreover, the proceeding, albeit itself not curial, must be such as to be capable of coming before the Court on an objection concerning that invalidity.  I agree with his Honour that these conditions are necessarily implicit in the meaning to be accorded to the expression “proceedings under this Act” in s 306(1). 

54                  In the present case, the plain fact is that the appellant did not file a statement of affairs in accordance with the requirements of s 54(1) of the Act, but assumed erroneously that a statement of affairs previously filed with the Registrar on a debtor’s petition would serve that purpose. There was no act on the part of the appellant which could be described as even purported compliance with the requirements of the section.  His failure to comply with the requirements of s 54(1) does not give rise to a “proceeding under this Act” which would be invalidated but for the fact that any defect or irregularity is merely formal.  In these circumstances, there is no proceeding capable of being brought before the Court on an objection concerning that invalidity. 

55                  It does not follow, however, that s 306(1) may not be invoked in other cases involving the failure to comply with the requirement that a statement of affairs be filed .  For example, in Sofia v Pattison [1997] FCA 1586 Finkelstein J dealt with a bankrupt who had left a photocopy of a statement of affairs, and not the original, as s 54(1) implicitly requires, at the counter of the Office of the Registrar of Bankruptcy.  The Registrar was, at that time, the person with whom a statement of affairs was required to be filed.  To my mind the filing of that photocopy constituted purported compliance with the obligations then imposed by s 54 of the Act, that is the “filing” of “a statement of his or her affairs”.  The filing of that statement of affairs was properly regarded as “a proceeding under this Act”.  It was also “a formal defect or irregularity”, in the sense that it could not reasonably have misled the debtor – Pillai v Comptroller of Income Tax [1970] AC 1124 at 1135; Re Wimborne; Ex parte the Debtor (1979) 24 ALR 494; and Kleinwort Benson Australia Ltd v Crowl (supra).  With respect, I agree with Finkelstein J that s 306(1) of the Act operated to enable the “proceeding” in that case to be considered “not invalidated”.

56                  In Tsingaris v Official Receiver for the Bankruptcy District of the State of Victoria [1999] FCA 1389 the bankrupt filed a photocopy of the statement of affairs with his trustee, the Official Trustee, and not with the Registrar in Bankruptcy as s 54(1) of the Act then required.  However, because of the structure of the Insolvency and Trustee Service, the person who accepted the statement of affairs on behalf of the Official Trustee was also an employee of the Official Receiver.  This person was, in effect, wearing two hats at the time the statement of affairs was filed.  It was on that basis that I held that the obligation to file the statement of affairs should be deemed to have been complied with on 16 December 1996, several weeks after the statement of affairs was filed with the Official Trustee.  That was the date on which s 54(1) was amended to require the Official Receiver to be the person with whom the statement of affairs was to be filed, rather than the Registrar in Bankruptcy.

57                  Similarly, in Official Trustee in Bankruptcy v Street [2000] FCA 216 Sackville J held that s 306(1) of the Act could be invoked in circumstances where there had been an attempt on the part of the bankrupt to comply with her obligations under s 54(1) of the Act.  One of the several respondents in that case had provided two original statements of affairs to the office of the Official Trustee (which was, of course, also the Office of the Official Receiver).  That respondent had not, however, filed those statements of affairs with the Registrar of Bankruptcy, as was required at that time by s 54(1).  Subsequently, on 16 December 1996, the amendments to s 54(1) of the Act came into force.  Of course the Official Receiver had been in possession of the two statements of affairs from the time they were filed with the Official Trustee.

58                  Sackville J held that in the result the “proceedings” (which his Honour described as the filing of the statements of affairs) had not been invalidated by the irregularity associated with those documents having been filed with the Official Receiver rather than with the Registrar in Bankruptcy.  

59                  Sackville J also considered a further irregularity, in Street, in the case of another respondent.  That respondent had not signed the statement of affairs which had been filed with the Official Receiver.  Sackville J observed:

“The Trustee accepts that that is an irregularity for the purposes of s 306(1) of the Bankruptcy Act and that the statement of affairs was in fact acted upon in Ms Hall’s bankruptcy.”

60                  In the case of that respondent his Honour was prepared to make a declaration that the statement of affairs was filed in compliance with s 54(1) of the Act as at the date upon which the Official Receiver took over the functions of the Registrar in Bankruptcy.

61                  A similar approach was taken by Kenny J in Trihakis v Official Receiver (Vic) [1999] FCA 1426 and also by Marshall J in Nikoglou v Official Receiver in Bankruptcy (2000) 171 ALR 223.

62                  In my respectful view s 306(1) of the Act should be construed so as to permit the Court to treat a defect or irregularity in the filing of a statement of affairs as capable of being remedied.

63                  There may be any number of reasons, including some of a purely technical nature, why a statement of affairs filed in purported compliance with the obligations laid down in s 54(1) might fail to satisfy the specific requirements of that subsection.  Grave injustice may be done if s 306(1) is not construed so as to enable purely formal defects or irregularities in relation to steps taken under the provisions of the Act to be overcome. 

64                  Where there has been an attempt to comply with the obligations of s 54(1), whether within the fourteen day period specified, or on some occasion thereafter, it is entirely apt to speak of that attempt as being a “proceeding under this Act”, and as being capable of being regarded by the Court as “not invalidated” by reason of any formal defect or error.  The effect of invoking s 306(1) in such a case is to permit the period of bankruptcy to run from the date of purported compliance with the Act, or perhaps some later date.  It follows that the bankruptcy will not continue for an unconscionably long period merely because of some relatively minor failure on the part of the bankrupt to comply with the strict requirements of s 54(1). 

65                  Regrettably, it seems to me that s 306(1) cannot be invoked in the circumstances of the present case, where no step whatever has been taken by the bankrupt in purported compliance with the requirements of s 54(1).  There is simply no “proceeding” or “step” taken in the course of the bankruptcy which is capable of being the subject of an order that it not be invalidated. 

66                  I appreciate that the resulting distinction between a purported compliance with s 54(1), which is capable of being “cured”, and a complete non-compliance with the subsection, which is not, may be difficult to justify in principle.  The distinction between misfeasance and nonfeasance often gives rise to difficulty, and may not be defensible in logic.  In one sense, both a purported compliance with s 54(1), and a complete non-compliance with the subsection, are merely different ways of saying that the requirements which it prescribes have not been met.  However, it is at least meaningful to describe the filing of a statement of affairs which is done in an irregular manner as a “proceeding under this Act”.  Such a proceeding is properly described as not having been invalidated.  Subsection s 306(1) should be available to cure irregularities associated with purported compliance with s 54(1), even if it cannot be invoked in a case such as the present.

67                  I agree with the orders proposed by Hill J.

Associate:

Dated:              27 October 2000