Re James Louis Florance Ex Parte: Turimetta Properties Pty Limited [1980] FCA 7 (11 February 1980)

FEDERAL COURT OF AUSTRALIA

Re: JAMES LOUIS FLORANCE
Ex parte: TURIMETTA PROPERTIES PTY. LIMITED
No. P 309 of 1979
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Lockhart J.

CATCHWORDS

Bankruptcy - creditor's petition - petitioning creditor held to be a secured creditor - whether petition may be amended to permit secured creditors to state willingness to surrender security or estimate value of security or such statements must be made in petition when presented - exercise of discretion in favour of amendment

HEARING

SYDNEY
11:2:1980

ORDER

1. Leave be granted to the petitioning creditor to amend paragraph 3. of the petition by deleting paragraph 3. in its present form and substituting the following: -

"3. The company holds security over part of the property of the debtor for payment of the amounts specified in the last preceding paragraph, being the debtor's interest in all those pieces or parcels of land situate at Mona Vale in the Shire of Warringah, Parish of Narrabeen and County of Cumberland, being the whole of the land comprised in Certificate of Title Volume 7199 Folio 118; Volume 9244 Folio 186 (excluding the land referred to in dealing number P 60375) and Volume 12710 Folio 224 and 225, but the company is willing to surrender the security for the benefit of the creditors generally in the event of a sequestration order being made against the estate of the debtor."

2. The petitioning creditor be directed to reverify and re-serve the petition as amended in accordance with the Bankruptcy Rules and the practice of this Court;

3. The further hearing of the petition be adjourned to a date to be fixed.

4. Costs be reserved.

DECISION

On 17 September 1979 I gave judgment on the grounds of opposition to the petition and adjourned the further hearing of the petition to allow the parties to consider my reasons for judgment and to enable the petitioning creditor to apply, if it wished, to amend the petition. I held that the petitioning creditor is a secured creditor of the debtor, applying the decision of the High Court in Harvey & Ors. v. Commercial Bank of Australia Limited [1937] HCA 81; (1937) 58 C.L.R. 382. The petitioning creditor had not complied with the requirements of the Act and the Rules relating to the presentation of petitions by secured creditors including the requirements of s. 44 (3) and (4) of the Bankruptcy Act 1966 ("the Act").

The petition was relisted for hearing on 14 December 1979 when counsel for the petitioning creditor sought leave to amend the petition as follows: -

(a) By deleting paragraph 3. and substituting the following paragraph:

"3. The company holds security over part of the property of the debtor for payment of the amount specified in the last preceding paragraph, being the debtor's interest in all those pieces or parcels of land situate at Mona Vale in the Shire of Warringah, Parish of Narrabeen and County of Cumberland being the whole of the land comprised in certificates of title volume 7199 folio 118, volume 9244 folio 186 (excluding the land referred to in dealing No. P 60375) and volume 12710 folios 224 and 225, but the company is willing to surrender the security for the benefit of the creditors generally in the event of a sequestration order being made

against the estate of the debtor."

(b) By adding the following words to paragraph 4: "The debtor has committed the following further act of bankruptcy, namely that on the 30th April 1979 he signed an authority under s.188 of the Act."

The petitioning creditor also sought an order dispensing with the necessity

of reverification and reservice of the amended petition. The orders sought were opposed by the debtor.

Counsel for the debtor contended first, that there is no power in the court to allow the petition to be amended and second, that if there is such power, in all the circumstances of the case, the amendment ought not to be allowed.

The argument as to lack of power was put on the ground that the relevant provisions of s. 44, namely sub-sections (3) and (4), upon their proper construction, require, as a condition precedent to the right of a secured creditor to present a petition in bankruptcy, that he includes in the petition a statement that he is willing to surrender his security for the benefit of creditors generally in the event of a sequestration order being made against the debtor (sub-section (3)), and that he sets out in the petition particulars of his security (sub-section (4)); and that those requirements are not merely as to the matters that must be stated in the petition.

Section 44 provides: -

"44. (1) A creditor's petition shall not be presented against a debtor

unless

(a) there is owing by the debtor to the petitioning creditor a debt that amounts to Five hundred dollars or two or more debts that amount in the aggregate to Five hundred dollars, or, where two or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to Five hundred dollars;

(b) that debt, or each of those debts, as the case may be

(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and

(ii) is payable either immediately or at a certain future time; and

(c) the act of bankruptcy on which the petition is founded was committed within six months before the presentation of the petition.

(2) Subject to the next succeeding sub-section, a secured creditor shall, for the purposes of paragraph (a) of the last preceding sub-section, be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him exceeds the value of his security.

(3) A secured creditor may present, or join in presenting, a creditor's petition as if he were an unsecured creditor if he includes in the petition a statement that he is willing to surrender his security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.

(4) Where a petitioning creditor is a secured creditor, he shall set out in the petition particulars of his security.

(5) Where a secured creditor has presented, or joined in presenting, a creditor's petition as if he were an unsecured creditor, he shall, upon request in writing by the trustee within the prescribed time after the making of a sequestration order, surrender his security to the trustee for the benefit of the creditors generally.

(6) A secured creditor to whom the last preceding sub-section applies who fails to surrender his security when requested to do so by the trustee in accordance with that sub-section is guilty of contempt of court."

There are no reported cases to which my attention was drawn that support the

contention of counsel for the debtor. Counsel for the petitioning creditor referred me to a number of cases where petitioning creditors were given leave to amend petitions to enable compliance with the requirements of the relevant bankruptcy legislation corresponding to s. 44 of the Act. The cases include In Re A Debtor 1922 2 K.B. 109; In Re Small 1934 1 Ch. 541; and In Re A Debtor 1977 1 W.L.R. 1308. They are cases where petitioning creditors, being secured creditors, were allowed to amend the petitions to make the appropriate allegations relevant to their security; but the leave to amend was sought and given, after sequestration orders were made. I do not regard that fact as material. What matters is that courts have given leave to petitioning creditors to amend petitions to allege the matters required by the relevant bankruptcy legislation corresponding to s. 44 of the Act notwithstanding that the relevant allegations were not made in the petitions at the time of their presentation.

Counsel for the debtor sought to distinguish these cases and the relevant sections of the bankruptcy legislation in England and of the 1924 Act in Australia on the ground that they were cast in materially different language from s. 44 of the Act, thus leading to the conclusion for which he contends.

There is an initial attraction in the argument of counsel for the debtor. Sub-section (2) of s. 44 deems a secured creditor to be a creditor only to the extent, if any, by which the amount of the debt owing to him exceeds the value of his security. It is a deeming provision for the purposes of paragraph (a) of sub-section (1) namely, for the purpose of determining the amount of the debt owing by the debtor to the petitioning creditor. Sub-section (1) is introduced by the language "A creditor's petition shall not be presented against a debtor unless . . .". The underlining is mine. Counsel for the debtor contended that this suggests that there is no right to present a petition in the case of a secured creditor unless there remains, after he has valued his security, an unsecured component of at least $500.00.

Sub-section (3) is couched in language that at first glance supports the debtor because it provides "A secured creditor may present . . . a creditor's petition as if he were an unsecured creditor if he includes . . .". The underlining is mine.

In my opinion, the contention is unsound.

Section 55 of the Australian Bankruptcy Act 1924 provided that, if a petitioning creditor was a secured creditor, he must in his petition: -

(a) State that he is willing to give up his security for the benefit of the creditors in the event of a sequestration order being made against the

debtor; or

(b) Give an estimate of the value of his security, in which case he may be admitted as a petitioning creditor to the extent of the balance of the debt due to him, after deducting the value so estimated, in the same manner as if he were an unsecured creditor.

That section also required such a petitioning creditor, upon application

being made by the trustee or Official Receiver within the prescribed time after the making of a sequestration order, and upon payment of the estimated value stated in the petition, to give up his security for the benefit of the creditors.

Notwithstanding the difference in language between the relevant provisions of s. 44 of the Act on the one hand and those of s. 55 of the 1924 Act, and of the English Bankruptcy Act 1914 and earlier English bankruptcy legislation on the other hand, in my opinion the language of s. 44 of the Act does not bring about the rather radical change contended for by counsel for the debtor.

It is true that sub-section (2) of s. 4 of the English Act provides (s. 55 (2) of the Australian Act of 1924 is substantially the same): "If the petitioning creditor is a secured creditor, he must, in his petition, either state that he is willing to give up his security for the benefit of the creditors in the event of the debtor being adjudged bankrupt, or give an estimate of the value of his security . . ." so that this requirement is clearly as to what must be stated in the petition itself and is not in the language of a condition precedent to the right to present a petition.

However, in my opinion s. 44, so far as material to the questions before me, does not achieve any different result; nor can I discern from the language of s. 44 or any other section of the Act any reason why a different result was intended to be achieved by Parliament when enacting s. 44.

Indeed, s.55 of the 1924 Act (s. 4 of the English Act of 1914 is substantially the same) itself is introduced by the words "A creditor shall not be entitled to present a petition against a debtor unless . . ." (the underlinings are mine) followed by the requirements as to the minimum monetary amount to found a petition, the debt being a liquidated sum, the act of bankruptcy on which the petition is grounded having occurred within a specified period before the presentation of the petition, and the debtor being domiciled in Australia or England as the case may be.

Accordingly, the contention of counsel for the debtor that the court has no power to permit the amendment sought by the petitioning creditor to paragraph 3 of the petition fails.

I turn to the question whether, as a matter of discretion, the leave to amend the petition ought to be granted.

I shall not deal with all the grounds relied on by counsel for the debtor to support the contention that the application to amend ought not to be granted as some of them were disposed of in the course of argument.

Counsel for the debtor contended that, as there had been a full hearing on all the matters raised by the notice of opposition to the petition, including the ground that the petitioning creditor was a secured creditor; and, as those matters had been contested by the petitioning creditor, and the question whether or not it was a secured creditor found against it, it would not be right to allow the petition to be amended at this stage. This contention fails. To permit a secured creditor to amend the petition by stating the ingredients necessary to found its right to present the petition as a secured creditor is an amendment that must not be lightly granted; but the fact that the petitioning creditor has failed on one of the points raised by the notice of opposition, namely whether it is a secured creditor, is not of itself, in my opinion, a sufficient ground to refuse the application to amend.

Counsel for the debtor contended that the petitioning creditor knew at all material times of all the facts necessary to found the conclusion that it was a secured creditor; yet, it presented the petition in its present form disclaiming that it was a secured creditor, and that in those circumstances, it would not be right to allow the amendment.

The debtor has succeeded in his argument that the petitioning creditor is a secured creditor of the debtor; but solely because of the application to the facts of this case of the principles enunciated by the High Court in Harvey's Case. The researches of counsel for the debtor in this case brought Harvey's Case to light, notwithstanding the absence of references to it in established text books on bankruptcy law and later reported cases. There is no suggestion that the petitioning creditor knew of Harvey's Case when it presented the petition. Indeed, the petitioning creditor did not know that it was a secured creditor of the debtor until my reasons for judgment on 17 September 1979. This is not a case of a petitioning creditor, knowing or suspecting that it holds a security over property of the debtor, falsely alleging in its petition that it is an unsecured creditor of the debtor. Rather it is the case of a creditor believing that it was, at all material times, an unsecured creditor of the debtor, and finding in the course of litigation in bankruptcy that it is in fact a secured creditor. It seeks now to regularise the position by alleging in the petition the facts necessary to establish, in conformity with the Act, the Bankruptcy Rules and Forms, that it is in truth a secured creditor. Further, no evidence of any prejudice sustained by the debtor has been adduced, save that which would necessarily flow from the making of a sequestration order against him.

The fact that the petitioning creditor resisted in the course of the proceedings before me, the conclusion that it was a secured creditor says nothing as to its entitlement to be given leave to amend paragraph 3. of the petition.

Accordingly, in my opinion, the petitioning creditor should be granted leave to amend paragraph 3. of the petition.

As to the application to amend paragraph 4. of the petition by adding as an alternative act of bankruptcy the fact that the debtor on 30th April 1979 signed an authority under s. 188 of the Act, I accept the contention of counsel for the debtor that such an amendment is impermissible because of the requirement of s. 44 (1) (c) namely, that the act of bankruptcy on which the petition is founded must be committed within six months before the presentation of the petition. The petition was presented on 1 March 1979. This act of bankruptcy was committed later, namely on 30 April 1979. Clearly, there is no entitlement to the amendment sought. Although counsel for the petitioning creditor did not concede that this was so, the point was but faintly argued.

Counsel for the debtor contended that, if leave is given to amend paragraph 3. of the petition, the necessity for reverification and reservice of the amended petition should not be dispensed with. Counsel for the petitioning creditor offered nothing in opposition to the argument of counsel for the debtor on this point.

In my opinion, as leave should be given to amend paragraph 3. of the petition, it should be reverified and reserved in accordance with the usual practice of the court.

I make the following orders: -

1. I grant leave to the petitioning creditor to amend paragraph 3. of the petition by deleting paragraph 3. in its present form and substituting the following: -

"3. The company holds security over part of the property of the debtor for payment of the amounts specified in the last preceding paragraph, being the debtor's interest in all those pieces or parcels of land situate at Mona Vale in the Shire of Warringah, Parish of Narrabeen and County of Cumberland, being the whole of the land comprised in Certificate of Title Volume 7199 Folio 118; Volume 9244 Folio 186 (excluding the land referred to in dealing number P 60375) and Volume 12710 Folio 224 and 225, but the company is willing to surrender the security for the benefit of the creditors generally in the event of a sequestration order being made against the estate of the debtor."

2. I direct the petitioning creditor to reverify and reserve the petition as amended in accordance with the Bankruptcy Rules and the practice of this Court;

3. I adjourn the further hearing of the petition to a date to be fixed.

4. I reserve costs.