Re Nigel Bruce Henderson and Marlene Henderson Ex Parte: A Debtor'S Petition [1985] FCA 209 (14 June 1985)

FEDERAL COURT OF AUSTRALIA

Re: NIGEL BRUCE HENDERSON and MARLENE HENDERSON
Ex Parte: A DEBTOR'S PETITION
No. P542 of 1985
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF NEW SOUTH
WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Beaumont, J.

CATCHWORDS

Bankruptcy - debtors' petition presented against partnership by less than a majority of partners - Court's powers under Bankruptcy Act, 1966, s.56.

HEARING

SYDNEY
14:6:1985

ORDER

1. Direct the Registrar not to accept the petition presented herein on 3 April 1985.

2. Order that the debtors pay the costs of John William Henderson and Jennifer Margaret Henderson of this application.

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

DECISION

The Registrar has referred a debtor's petition to the Court pursuant to s.56(6)(a) of the Bankruptcy Act, 1966 ("the Act"). The petition is undated but was presented by Nigel Bruce Henderson and Marlene Henderson, his wife ("the debtors") on 3 April 1985 in the following form:

(form omitted)

2. The other partners named in the petition, John William Henderson and his wife, Jennifer Margaret Henderson ("the opponents") oppose the petition.

3. Mr. N.B. Henderson and Mr. J.W. Henderson are brothers. In 1983, the debtors and the opponents entered into partnership carrying on the business of a take-away food bar at Kurri Kurri, New South Wales. By a written agreement dated 31 December 1983 it was provided, inter alia, that the partnership could be determined on one month's notice (cl.3) and that the capital of the partner ship should "belong to the partners in equal one-half (sic) shares" (cl.6). Since there are four partners, this provision should be construed by ignoring as repugnant the reference to "one-half" (see Fitzgerald v. Masters [1956] HCA 53; (1956) 95 CLR 420 at p 437) with the result that each partner had a one-quarter share.

4. The partnership business was not profitable. In September 1984, the opponents purported to withdraw from the partnership without giving the required notice. On 17 October 1984, they gave the debtors one month's notice of their intention to terminate the partnership pursuant to cl.3 of the partnership agreement and enquired whether the debtors wished to purchase their interest in the business. (Clause 3 also purported to confer on the continuing partners an "option" to purchase the interest of the retiring partners "at a price to be decided upon between the parties".) Thereafter, negotiations took place between the parties with a view to the acquisition by the debtors of the opponents' interest in the business. In the meantime, the debtors continued to operate the business on their own account, incurring a number of liabilities in that behalf. However, the negotiations did not lead to any agreement at that stage.

5. In about March 1985, fresh negotiations commenced between the parties. On this occasion, it was proposed that the opponents acquire the debtors' interest in the business. On 25 March 1985, agreement was reached and reduced to writing in the form of a deed of confirmation dated 15 May 1985. The deed recited the partnership and its dissolution on 17 November 1984 pursuant to notice given in that behalf. It further recited that after that date the debtors "carried on the ... business on their own behalf retaining for themselves any profits and incurring themselves certain liabilities ...". It further recited that on 25 March 1985 the debtors agreed with the opponents that the debtors would retire from the business and that the opponents would thereupon take over the buiness and its assets subject to the opponents' agreeing to accept responsibility for all the liabilities of the partnership as at 17 November 1984 together with certain liabilities, viz., liability under a lease of the premises from Seconda Insurance Brokers Pty. Limited; under a loan from Beneficial Finance Corporation Limited; and under a lease of plant from National Acceptance Corporation Pty. Limited respectively. The deed in its operative provisions confirmed the assignment to the opponents of the debtors' interest in the assets of the partnership and the indemnity of the debtors given by the opponents in respect of the partnership debts. Thus, although their respective liabilities to creditors is, of course, a different matter, as a matter of private contract, the position as between the partners is as follows: in the periods up to 17 November 1984 and as from 25 March 1985, respectively, the opponents are liable for the debts incurred in the conduct of the business but the debtors are liable for the debts incurred between 18 November 1984 and 24 March 1985.

6. In his statement of affairs filed with the petition, Mr. N.B. Henderson ("the first debtor") discloses personal assets of $3,895.00 consisting of a small amount of cash, household furniture and effects and a motor vehicle. He discloses liabilities of $35,601.68, some of which are clearly personal debts. Reference is also made to liabilities incurred by the debtors on their own account in 1985 in connection with the business, for instance, a debt of $3,086.55 owed to Beneficial Finance Corporation Limited. However, the first debtor also discloses a debt of $12,500.00 owed to Beneficial Finance Corporation Limited which is presumably the debt agreed to be taken over by the opponents under the deed of confirmation and if so, a debt of the original partnership. In her statement of affairs, Mrs. M. Henderson ("the second debtor") discloses no assets but debts of $8,621.18. It would appear that most of the liabilities disclosed were incurred in the conduct of the business by the debtors between November 1984 and March 1985. It also seems that there has been no duplication by the first or the second debtor in his or her statement of affairs of the debts acknowledged to be owed by them respectively. However, no attempt was made in either statement of affairs to reflect the impact of the arrange ment evidenced by the terms of the deed of confirmation. In particular, no mention is made in either statement of affairs of the value to the debtors of the indemnity afforded by the opponents in respect of the debts of the original partnership.

7. The first debtor, in oral evidence, said that he and the second debtor had been sued by several creditors. Having consulted an accountant, they had decided to petition for their own bankruptcy. Having conceded their insolvency, it is clear that they should now become bankrupt but the question arises as to the impact of their bankruptcy upon the position of the opponents who are apparently still conducting the business.

8. Although it was open to the first and second debtors to present their individual debtors' petitions pursuant to s.55 (1) of the Act, the petition was purportedly presented pursuant to s.56 of the Act. It provides relevantly:

"(1) A debtor's petition against a
partnership may be presented to the
Registrar by all the members of the
partnership or by a majority of the
members of the partnership who are
resident in Australia at the time of the
presentation of the petition. (emphasis
supplied)

...

(4) Subject to sub-section (6) ... where-

(a) it appears to the Registrar that a
petition presented to him under
this section is in accordance with
the prescribed form and that each
of the statements of affairs
accompanying the petition is also
in accordance with the prescribed
form; or

(b) the Court directs, under
sub-section (5), the Registrar to
accept the petition,

the petition shall be accepted by the
Registrar, who shall endorse it
accordingly, and thereupon, by force of
this section-

(c) except in a case to which paragraph
(d) applies--each of the members of
the partnership becomes a bankrupt
by virtue of the presentation of
the petition; or

(d) in a case where the petition is
accepted by the Registrar in
pursuance of an order of the Court
under paragraph (7)(b)--the
petitioning partner, or each of the
petitioning partners, who gave his
consent for the purposes of that
paragraph becomes a bankrupt by
virtue of the presentation of the
petition.

(5) Where is appears to the Registrar
that a petition presented to him under
this section, or any statement of affairs
accompanying such a petition, is not in
accordance with the prescribed form, the
Registrar shall not accept the petition
unless the Court, upon reference by the
Registrar, directs him to accept it.

(6) Where a petition is presented under
this section against a partnership by
some, but not all, of the members of the
partnership, the Registrar-

(a) shall not accept the petition, but
shall refer it to the Court; and

(b) shall cause notice in accordance
with the rules to be given to each
of the partners who did not join in
presenting the petition.

(7) Upon a reference of a petition under
sub-section (6), the Court-

(a) may direct the Registrar to accept
the petition;

(b) may, with the consent of any one or
more of the petitioning partners,
direct the Registrar-

(i) to amend the petition by
deleting from the petition
the name of the partner, or
of each partner, as the
case requires, who did not
give his consent for the
purpose of this paragraph;
and

(ii) to accept, under
sub-section (4), the
petition as so amended; or

(c) may direct the Registrar not to
accept the petition."

9. The opponents oppose the petition on a number of grounds. Their fundamental objection is that the debtors do not constitute a majority of the members of the partnership as required by s.56 (1).

10. In my opinion, the objection should be upheld as fatal to the validity of the petition.

11. In expressing this view, I have assumed, I think correctly, that because the petition referred to the opponents as the other members of the partnership, it was intended to be directed against the original partnership, that is, the four members of the partnership constituted under the partnership agreement dated 31 December 1983. (Although that partnership was dissolved on 17 November 1984, the affairs of the partnership remained to be wound up for after a dissolution, the obligations of the partners continue so far as is necessary to wind up the affairs of a partnership (see Chan v. Zacharia [1984] HCA 36; (1984) 58 ALJR 353 per Gibbs, C.J. at p 354). Thus, but for the jurisdictional requirement of a majority of partners called for by s.56 (1), it would have been open to the debtors to petition for the bankruptcy of the partnership.)

12. I have also assumed, again I think correctly, that the evidence establishes the existence of three partnerships: the original partnership between the debtors and the opponents; the partnership between the first and second debtors in the period from November 1984 to March 1985; and finally, the present partnership between the opponents. Since the petition refers to the opponents, it must have been directed at the original partnership. (Although the Act refers to petitions against "partnerships", partnerships, of course, have no legal existence apart from the partners, and the proceedings are really against the individual partners so that upon bankruptcy, not only the partnership estate but the separate estates of the partners, are administered in bankruptcy (see Lewis, Australian Bankruptcy Law, 8th Ed. (Rose) at pp.38-9)). It is still open to the debtors to present a petition against their own partnership, being the second partnership described earlier, thus proceeding under s.56 (1) against themselves only without proceeding against the original partnership. Presumably they will now proceed to do so.

13. It is true that s.56(7) gives the Court various powers, including a power to direct the Registrar to amend the petition by deleting the name of any partner who does not consent to the matter proceeding and that the Registrar is bound to accept a petition presented by a majority of partners where the Court so directs (see Re Bourke, Lockhart, J., unreported, 24 August 1982). But, whatever the scope of the Court's powers under s.56 once all or a majority of partners have presented a petition, where, as here, only one-half of the partners has petitioned, the jurisdictional requirements of s.56 (1) have not been satisfied. It must follow that in such a case the Court cannot entertain the petition with a view to exercising any powers of amendment or dispensation. In other words, the powers of the Court under s.56(7) upon a reference being made under s.56(6) are available only if the conditions of jurisdiction stipulated in s.56 (1) have first been satisfied. That the stream cannot rise higher than its source is apparent from the language of s.56 but, in any event, is made clear from the reason for its introduction explained in the Report of the Committee to Review the Bankruptcy Law of the Commonwealth (1962) para.91.

14. In my view, the Court has no power to direct the Registrar to accept or amend a petition where less than a majority of partners have presented it. It follows that I must direct the Registrar not to accept the petition. This direction will be without prejudice to the entitlement of the debtors to present a petition against their own partnership under s.56 (1) or otherwise to proceed under s.55, if appropriate.

15. I make the following orders:

1. Direct the Registrar not to accept the petition
presented herein on 3 April 1985.

2. Order that the debtors pay the costs of John
William Henderson and Jennifer Margaret Henderson of this
application.