Re Margaret Rosemary May and Dennis Lin Heldon Ex Parte: Australia and New Zealand Banking Group Limited v Leslie Morris Hickman [1987] FCA 12 (29 January 1987)

FEDERAL COURT OF AUSTRALIA

Re: MARGARET ROSEMARY MAY and DENNIS LIN HELDON
Ex Parte: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
And: LESLIE MORRIS HICKMAN
No. NSW 4 of 1983
Bankruptcy

COURT

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

CATCHWORDS

Bankruptcy - secured creditor - Lodgment of proof of debt - Security not valued - Whether security surrendered - Amendment of proof of debt.

Bankruptcy Act 1966 (Cth), ss.90, 91

HEARING

CANBERRA
29:1:1987

Counsel for the applicant: Mr G. Nettle

Solicitors for the applicant: Macphillamy Cummins & Gibson

Counsel for the respondent: Mr G.J.D. Richardson

Solicitors for the respondent: Ken Johnston Bedford & Co.

ORDER

Declares that Australia and New Zealand Banking Group Limited ("the applicant") did not surrender to Leslie Morris Hickman as trustee of the bankrupt estates of Margaret Rosemary May and Dennis Lin Heldon for the benefit of creditors generally the security which it held by way of second mortgage registered under the Real Property Ordinance 1925 (A.C.T.) over the Crown lease of the land known as 59 Tallara Parkway, Narrabundah in the Australian Capital Territory, being the land described in Certificate of Title Volume 193, folio 34.

Declares that the applicant is entitled, as against the said Leslie Morris Hickman as such trustee, to retain the net proceeds of the realization of the said security.

Declares that the applicant is under no legal obligation to pay any monies to the said Leslie Morris Hickman as such trustee pursuant to the notice of demand dated 8 October 1985.

Declares that the applicant is at liberty to withdraw the proof of debt lodged with the said Leslie Morris Hickman on or about 28 July 1983 and to substitute therefor a proof of debt in proper form proving for the balance of its debt after deducting the net amount realized upon its said security.

Orders that the applicant pay the costs of the said Leslie Morris Hickman of the application as between solicitor and client and any costs of or associated with the withdrawal and substitution of its proof of debt.

Reserves liberty to the parties to apply.

Note: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.

DECISION

This is an application by Australia and New Zealand Banking Group Limited ("the applicant") for certain declarations and orders against Leslie Morris Hickman ("the trustee") as trustee of the bankrupt estates of Margaret Rosemary May and Dennis Lin Heldon ("the bankrupts"). The principal declaration sought is that the applicant, notwithstanding the events to which it will be necessary to refer, is to be regarded as a secured creditor of the bankrupts and, as such, entitled to retain the net proceeds of sale of a certain property.

2. Margaret Rosemary May and Dennis Lin Heldon became bankrupt on 4 January 1983 and Leslie Morris Hickman, a registered trustee, became the trustee of their joint and separate estates. It is common ground that, at the date of their bankruptcy, the bankrupts were indebted to the applicant in the sum of $47,183.43 and that this sum was secured by a second mortgage registered under the Real Property Ordinance 1925 (A.C.T.) over a Crown lease, of which the bankrupts were the registered proprietors, of certain land known as 59 Tallara Parkway, Narrabundah in the Australian Capital Territory. The memorandum of mortgage, which was dated 18 April 1979, was in favour of The Bank of Adelaide and was expressed to be in consideration of advances made or to be made to the bankrupts or to a company known as Denham Transport Pty. Limited. The rights of the mortgagee thereunder became vested in the applicant upon the merger of The Bank of Adelaide and the applicant in November 1980. The Commonwealth Savings Bank of Australia had a first mortgage over the subject lease.

3. It is also common ground that on 25 January 1980 the bankrupts had executed a guarantee in favour of The Bank of Adelaide in respect of advances made and to be made by the bank to Denham Transport Pty. Limited. At the date of their bankruptcy, the bankrupts were carrying on a business under the business name "Heldon's Carpet Laying and Cleaning Service". The indebtedness of the bankrupts to the applicant arose by reason of moneys advanced by The Bank of Adelaide to Denham Transport Pty. Limited and to the bankrupts in respect of the business carried on by them.

4. On 18 February 1983 one John Rex Carey, acting under a power of attorney, signed a proof of debt on behalf of the applicant in respect of the debt owed to it by the bankrupts and the same was lodged with the trustee on or about that date. It appears that a pro forma proof of debt was used for the purpose and insufficient care was taken to adapt the form to the circumstances of the particular case. The document, omitting formal parts, was in the following terms:

"I JOHN REX CAREY 15 TENNYSON CIRCUIT, FORREST
A.C.T. lodge the following Proof of Debt:

1. Rosemary Margaret May Dennis Lin Heldon was,
at the date on which he became a bankrupt,
namely 4th January 1983 and still is, justly
and truly indebted to Australia and New
Zealand Banking Group Limited in the sum of
$30,183.43 in accordance with the statement
of account annexed hereto.

2. Security is not held by the creditor or by
any person on my/his behalf for payment of
the whole or any part of the sum specified
in Paragraph 1.

3. The following security is held by the
creditor for the payment of part/the whole
of the sum specified in Paragraph 1:

Guarantee - $15,000 N. Plasier &
M.R. May; guarantee $25,000 D.L.
Heldon/M.R. May; 2nd RM ACT L'Hold
(Narrabundah)

4. The vouchers by which the debt can be
substantiated are specified in the statement
of account."

The statement of account referred to in par.1 set out the following particulars:

"Date of Consideration or nature Amount
transaction of debt

Guarantees in favour of -

4th JANUARY Denham Transport Pty Limited $23,628.56 Dr
1983 advanced account

Plus interest and fees accrued $ 1,216.75 Dr
to 4.1.83

4th JANUARY Heldons Carpet laying and $21,231.00 Dr
1983 Cleaning Service (& Partners)

Plus interest and fees accrued $ 1,107.12 Dr
to 4.1.83
______________.
$47,183.43 Dr

Interest after 4.1.83 accrues
at a rate of $16.59 per day on
total indebtedness

Estimated value of security $17,000.00"

The date shown as the date of each transaction is clearly incorrect: the date shown is the date of the bankruptcy.

5. The then manager of the Belconnen Mall branch of the applicant, one Colin Killer, was, according to his affidavit sworn 19 May 1986 and filed herein, responsible for the preparation and lodging of the proof of debt. He has sworn that it was his intention and that of the applicant at that time that the applicant should retain the benefit of the mortgage security held by it and prove as an unsecured creditor for the difference between the debt and the value of the security.

6. The trustee wrote to the applicant by letter dated 6 July 1983 as follows:

"BANKRUPT ESTATE OF M R MAY & D L HELDON

I have an offer of $49000 for the Narrabundah
property. This amount includes $500 in respect
of the vendor's legal costs and would be subject
to deduction of any amounts due in respect of
rates etc. currently unpaid. This offer is for a
limited period and I should be glad to have your
views on whether it should be accepted. I
believe that the first mortgage debt currently
stands at about $24000, and in the end result
such a sale would make about $24000 available in
respect of your Bank's second mortgage.

2. I have given notice of my intention to
disclaim the lease under the provisions of the
Bankruptcy Act, but I have not yet disclaimed.
Although the position is far from clear, it has
been suggested that if I do disclaim the lease
would revert to the lessor and become merged in
the Crown's proprietorship of what I can only
refer to as its 'freehold', and the lease would
so cease to exist. Your Bank's mortgage is over
the Crown lease, so that it might be lost in the
result. I would have no desire to create
difficulties by disclaimer nor, for that matter,
become involved in the creation of legal
precedent: perhaps the Bank has some views that
it may care to communicate to me."

7. On or about 25 July 1983 the trustee telephoned Mr Killer. According to Mr Killer's affidavit, a conversation then took place over the telephone. According to the trustee, the telephone call was for the purpose of arranging a meeting and that meeting took place later on the same day. I was informed that Mr Killer, having read the trustee's affidavit, agreed that the trustee went to the bank to see him. Mr Killer said that the trustee informed him that the proof of debt should be amended. Mr Killer made a note of the conversation as follows:

"The trustee of Bankrupt Estate of M.R. May and
D.L. Heldon, Mr Les Hickman, has advised that
proof of debt dated 18/2/83 should be amended and
again executed by the Bank's Attorney. He
advised that when proceeds of the Narrabundah
house are to hand he will call for an amended
Proof of Debt."

According to the trustee, who gave a somewhat fuller account of the conversation, he informed Mr Killer that the security had been undervalued; that, as trustee, he had a right to buy out the security at the value the applicant had placed upon it; that he had given serious consideration to raising the money himself but decided not to do so as it would have involved him giving a personal guarantee and he was not prepared to do so at the time. The trustee said that he also informed Mr Killer that the proof of debt incorrectly referred to the guarantees as being security for the debt and stated that the applicant did not have to lodge a proof of debt immediately - that it could do so at any time - and that he would be obliged to notify the applicant just before payment of a dividend if it had not lodged a proof of debt. He further said that, at Mr Killer's request, he returned the proof of debt to him.

8. A second proof of debt was then prepared and signed by Mr Carey. It bears the date 18 February 1983 (presumably because it was in substitution for the proof of debt of that date previously lodged with the trustee) but was lodged with the trustee on or about 28 July 1983. Omitting formal parts, the document was in the following terms:

"I JOHN REX CAREY 15 TENNYSON CIRCUIT FORREST ACT
lodge the following Proof of Debt:

1. ROSEMARY MARGARET MAY DENNIS LIN HELDON was,
at the date on which he became a bankrupt,
namely 4th Jan 1983 and still is, justly and
truly indebted to Australia and New Zealand
Banking Group Limited in the sum of
$47,183.43 in accordance with the statement
of account annexed hereto.

2. (Deleted)

3. The following security is held by me/the
creditor for the payment of part of the sum
specified in Paragraph 1:

2nd registered mortgage over property
situated at 59 Tallara Parkway,
Narrabundah ACT.

4. The vouchers by which the debt can be
substantiated are specified in the statement
of account."

The particulars shown on the attached statement of account were in substantially similar terms to that attached to the earlier proof of debt save that the words and figures "Estimated value of security $17,000.00" were omitted.

9. Mr Killer has also sworn that, at the time the above proof of debt was prepared and lodged, it was his intention and that of the applicant that the applicant should continue to retain the benefit of the mortgage security and prove as an unsecured creditor only for any deficit.

10. The applicant replied to the trustee's letter dated 6 July 1983 by letter dated 24 August 1983 reading as follows:

"BANKRUPT ESTATE OF M.R. MAY AND D.L. HELDON

Further to your letter of 6/7/83 regarding the
offer you have received on the Narrabundah
property owned by the abovenamed we advise that
this matter has been referred to our
Administration. They have agreed in principal to
accepting the offer of $49,000 but prior to
formal acceptance of the offer clarification of
the vendor's costs and your costs are required.

Accordingly we seek your advices in this regard
and also whether the offer still stands."

11. The applicant's solicitors wrote to the trustee a letter dated 2 November 1983 as follows:

"HELDON & MAY (IN BANKRUPTCY)

We act for the ANZ Bank the second mortgagee of a
property situated at 59 Tallara Parkway,
Narrabundah which is part of the above bankrupts'
estate.

We are instructed by our client to advise that it
is prepared to agree to the sale of the property
based on the offer of $49,000.00. Our client
further consents to your accepting the refund of
$1,000.00 from the Commonwealth Bank, this sum to
be added to the Bank's mortgage debt.

Accordingly, we would appreciate it if you would
advise us as to when the sale of this property
can be arranged. We enclose herewith a
settlement authority from the Bank to be signed
and returned to us."

12. A further letter dated 2 December 1983, was addressed to the trustee by the applicant's solicitors in the following terms:

"We refer to our letter of 2 November 1983.

Would you please advise when it is anticipated
that the property will be sold. Would you then
please return the settlement authority forwarded
with our letter of 2 November 1983."

13. A telephone conversation took place on 7 December 1983 between the trustee and the applicant's solicitor in which the trustee referred to the receipt by him of a proof of debt from the Commissioner of Taxation in the sum of $25,000 including a claim for preferential payment in accordance with s.221P of the Income Tax Assessment Act 1936 (Cth). A note of the conversation made by the applicant's solicitor records the trustee as saying that, in consequence of the Commissioner's claim, it was unlikely that the applicant "will get anything from (its) second mortgage".

14. On 16 December 1983 a letter was addressed to the trustee by the applicant's solicitors in the following terms:

"We refer to our letter of 2 December 1983 and to
our subsequent telephone conversation on 7
December 1983.

We note that you have received a Proof of Debt
from the Commissioner of Taxation which alleges a
preferential claim to that of our client, the ANZ
Bank. We would appreciate it if you would advise
us of details of the claim by the Taxation
Commissioner and as to how the Commissioner could
have preference over our client's security of a
second mortgage.

We look forward to your early reply."

15. A further letter, dated 10 January 1984, was sent by the applicant's solicitors to the trustee. It was in the following terms:

"We refer to our previous correspondence and in
particular to our letters of 2 November 1983 and
16 December 1983.

We have been advised by Messrs Vandenberg Reid
Pappas & Macdonald, the solicitors for the
Commonwealth Bank, that you now propose to sell
the mortgaged premises by way of tender. We join
with the solicitors for the Commonwealth Bank in
objecting to this course of action. Both the
Commonwealth Bank and our client are entitled as
mortgagees under our respective mortgages, to
seek possession of the premises for the failure
by the mortgagors to meet their mortgage
instalments. Our client and the Commonwealth
Bank are then entitled to rely on their security
to sell the premises and to recover their secured
debts. It was on this basis that we advised you
on 2 November 1983 that our client was prepared
to agree to the sale of the property based on the
offer of $49,000.00.

In the circumstances, we fail to see how the
Commissioner for Taxation can claim a preference
over our client's security over the mortgaged
premises. We do not appreciate your failure to
advise our client that you would not proceed with
the arranged sale and that you propose now to
sell by tender. We would request that you keep
us fully advised of your proposals in respect to
the mortgaged premises so that we can take
appropriate instructions from our client to
obtain possession of the mortgaged premises and
to arrange for the sale of the premises under the
power contained in the Memorandum of Mortgage.
In the circumstances, would you please advise
whether you are prepared to hand over possession
to the mortgagees to allow them to sell the
mortgaged premises.

We request your urgent reply."

16. The trustee replied by letter dated 12 January 1984 as follows:

"I have your letter of 10 January 1984.

Firstly, let me say that the Solicitors for the
Commonwealth Bank were made aware that, to enable
the proposed sale at $49,000 to take place, it
was necessary for me to have title in my name as
proprietor. Production of the Certificate of
Title to enable registration of transmission from
the bankrupts to myself was delayed for a
considerable time until Waight & Co., acting on
my behalf, made it quite clear that the necessary
action to enforce production would be taken, and
in fact the necessary documents (including
affidavits) had been prepared. My present
proposition to sell by tender was in part the
result of that delay and its effect on the
proposals for finance by the intending purchaser,
and in part by the effect of the claim to
priority payment by the Commissioner for
Taxation.

I have already set out in a letter to you that I
am required by Section 221P of the Income Tax
(Assessment) Act 1936, as amended, to apply the
assets of the bankrupt that have vested in me or
are under my control, in priority payment of the
Commissioner of Taxation, in so far as his claim
relates to unremitted group tax deductions.
Section 221P specifically provides for priority
to the Commissioner over secured creditors, and I
cannot see that your client's mortgage makes it
more than a secured creditor. Without prejudice,
I think that I can say that had the mortgage been
given to your client in satisfaction or part
satisfaction of its debt, then the position would
have been different in view of the mortgage then
being something other than a security.

I take it from your letter that my possession of
the mortgaged property is admitted.

Even if there had been circumstances which would
have led me to a decision to comply with your
request in the ultimate paragraph of your letter,
it is my view that it would be in clear breach of
Section 221P of the Income Tax (Assessment) Act
1936 as amended to give possession to the
mortgagee to allow the sale of the premises.

I do think that my proposal to sell by tender
would give a period, during the time taken in the
sale, to determine the rights of the parties in
distribution of the proceeds of sale."

17. On 25 January 1984 a letter was addressed by the solicitors for the trustee to the solicitors for the Commonwealth Savings Bank of Australia. It was as follows:

"We refer to our letter dated the 5th January
1984 and to telephone conversations between the
writer and your Mr Pappas about that time.

In a spirit of compromise our client suggests a
further proposal. That is that your client may
conduct a sale by whatever method they deem
appropriate and following completion of the sale
funds are held 'in Trust' pending the Order or
Directions from the Federal Court. Our client's
only other requirement would be that Kelly and
Co. Real Estate Agents of Mawson be agents in
conjunction with any sale process.

Our client makes this proposal on the basis that
each of our clients should be prepared to receive
funds from the property according to the
requirements of the Law as we submit there is a
proper dispute as to the requirements of the Law
in this case, then the Court will have to
determine the correct disposition of proceeds.

We would be pleased if you would advise by
telephone your client's instructions in this
regard."

18. On the same date, 25 January 1984, the solicitors for the trustee wrote to the applicant as follows:

"We act for Mr Les Hickman who has been appointed
Trustee of the Estate of the abovementioned
bankrupts and is now registered proprietor by
Transmission of the abovementioned property. We
understand that the Commonwealth Savings Bank is
registered as First Mortgagee and your bank as
Second Mortgagee over the property.

Our client has had a Proof of Debt submitted by
the Australian Taxation Office seeking that part
of their indebtedness receive priority pursuant
to Section 221P of the Income Tax Assessment Act.
Our firm has had correspondence with the
solicitors for the Commonwealth Savings Bank and
the position from that correspondence is that
there is a dispute as to whether the provisions
of section 221P in the circumstances of this case
override the right of secured creditors to sell
the property upon the default of the mortgagors
pursuant to the terms of the relevant mortgage.
The Commonwealth Bank wishes to arrange for the
sale by public auction and the Trustee, our
client, wishes to arrange for the sale by private
tender. We enclose a copy of our most recent
letter to the first mortgagee's solicitors and
would be pleased if you would similarly indicate
whether so far as you are concerned the sale
might be conducted under the procedure outlined
therein and secondly, and most importantly, that
the sale proceeds be held pending the
determination of the legal argument by the
Federal Court.

We would be pleased if you could indicate your
attitude to the matter as soon as possible,"

19. The solicitors for the Commonwealth Savings Bank of Australia replied to the letter dated 25 January 1984 from the solicitors for the trustee by letter dated 31 January 1984 reading as follows:

"We acknowledge receipt of your 'Without
Prejudice' letter of 25 January 1984.

As already advised, we are already instructed by
the First Mortgagee to arrange sale of the
subject property by public auction at the
earliest possible date. Our client will not
agree to hold the sale funds in trust. You are
already aware of our client's views concerning
those funds and are aware that our client claims
absolute entitlement to the funds subject to the
interest of the Second Mortgagee and the
bankrupts. Should your client wish to seek
certain orders or directions in the Federal Court
then of course he is entitled to do so.

Our client will select its own Agent to conduct
the sale.

We note that we are still awaiting your advice
whether or not Messrs Heldon & May are prepared
to deliver up vacant possession of the property
following its sale. We understood that you would
advise us concerning that matter without delay
and would be most grateful to receive that
advice. You of course will appreciate that if
Messrs Heldon & May fail to vacate the property
and it becomes necessary to take legal action to
obtain possession, then the surplus of funds
which might otherwise become available to your
client in payment of his fees, or indeed to the
Commissioner of Taxation, will be depleted."

20. By letter dated 2 February 1984 the solicitors for the applicant informed the solicitors for the trustee that the applicant was not agreeable to the trustee selling the property by private tender and that it was the applicant's wish that the property be sold by the first mortgagee by public auction.

21. A letter dated 13 February 1984 was then addressed by the solicitors for the trustee to the solicitors for the applicant. It read:

"Thank you for your letter of 2 February 1984.
Our client has instructed us to reply further
that in view of the provisions of Section 221P of
the Income Tax Assessment Act and Section 58 of
the Bankruptcy Act our client has decided to
reject your client's proof of debt insofar as it
claims to be a secured creditor but to admit it
as to quantum.

We have advised the first mortgagee on our
client's behalf that if the Narrabundah property
is sold and the proceeds disbursed in a way which
interferes with the operation of the Bankruptcy
Act and the Income Tax Assessment Act then our
client will institute proceedings as may be
necessary against such person or company, its
agents and advisers who have held money contrary
to the provisions of those Acts.

Naturally if your client wishes to dispute our
client's rejection of its proof of debt then
appeal avenues are available."

22. The solicitors for the applicant replied by letter dated 15 February 1984, the letter containing the following paragraph:

"We deny the right of the Trustee to reject our
client's claim to be a secured creditor. We do
not believe it is necessary for us to appeal on
behalf of our client on the Trustee's attitude.
We simply advise that our client proposes to join
with the Commonwealth Bank in realising their
securities on the Narrabundah property."

23. The property was sold at auction by the Commonwealth Savings Bank of Australia as first mortgagee on 7 April 1984 for $56,500. Settlement took place on 30 May 1984 and on or about 11 July 1984 the applicant received from the solicitors for the first mortgagee the sum of $20,084.17 representing the balance of the proceeds of sale after payment to the first mortgagee of all monies due and owing to it and the payment of outstanding rates and solicitor's costs and disbursements.

24. Nothing further happened until 1 November 1984 when the trustee himself wrote to the solicitors for the applicant a letter of that date which included the following paragraph:

"Under cover of a letter dated 28 July 1983, your
client submitted a proof of debt in the sum of
$47183.43. That Proof of Debt is in such a form
as to indicate that the Bank had surrendered its
security for the benefit of creditors generally,
a view which in my opinion is supported by the
failure to give, at the proper time, the notice
required by the Bankruptcy Act at Section 91(4)."

The letter requested comment.

25. On 24 November 1984 the trustee wrote directly to the applicant in the following terms:

"I refer to your Proof of Debt in this matter,
which is now noted as admitted in the amount of
$47183.43; but that amount will be subject to
deferment in payment of any dividend to the
extent to which interest is included in the
'Heldon Carpet Laying and Cleaning Service and
Partners' item at a rate greater than 12% per
annum, as provided by the Bankruptcy Act.

It is noted that your Proof of Debt was in such
form as to show a surrender of your security for
the benefit of creditors generally i.e., it was
made as prescribed by Section 90(2) rather than
in the manner prescribed by Section 90(4) and (5)
of the Bankruptcy Act.

Some 4 weeks ago, I wrote to the Solicitors who
acted for your Bank in the sale of the mortgaged
property and I would have expected some reply if
the position were not as set out above. I have
now had to assume that the position in regard to
the Proof of Debt, as I see it, was intended."

26. The applicant's solicitors replied by letter dated 4 December 1984:

"We refer to your letters dated 1 & 24 November,
1984.

After receipt of your first letter, Counsel was
briefed to consider our client's position. We
expect to be in a position to supply details once
Counsel's advice is obtained in the near future.

Regarding your second letter, under no
circumstances are you entitled to assume that our
client has surrendered its security for the
benefit of the creditors generally. Our client
strongly denies it had, by any statement, in any
proof of debt or in any other way, surrendered
its security. Our client has at all times
maintained that it was, and is, a secured
creditor of D.L. Heldon and M.R. May standing as
an unsecured creditor only as to the balance of
the debt after the security has been realised."

27. The trustee addressed a further letter to the solicitors for the applicant on 12 December 1984 but it is, I think, unnecessary to set out its contents.

28. By letter dated 12 March 1985 the solicitors for the applicant sought the trustee's consent to the proof of debt being amended so as to state the bankrupts' indebtedness to the applicant at $27,099.26, being the balance remaining after accounting for the amount realised on its second mortgage over the property.

29. The trustee replied by letter dated 3 April 1985. It is not necessary to set out the text in full. Its effect was to decline to consent to the amendment proposed. Further correspondence passed between the trustee and the solicitors for the applicant but it is, I think, unnecessary to refer to it except to note that, by letter dated 19 July 1985 (received by the trustee on 26 August 1985), the solicitors for the applicant purported to withdraw the proof of debt lodged on 28 July 1983 and to substitute for it a further proof of debt enclosed with that letter and that by letter dated 11 September 1985 to the applicant's solicitors the trustee declined to accept that the proof of debt could be withdrawn or to act upon the substituted document. The proof of debt enclosed with the letter dated 19 July 1985 was for the amount of $27,099.26 and was undated. It should also be noted that the trustee, by notice addressed to the applicant and dated 8 October 1985, demanded payment of the monies held by the applicant and representing the balance of the proceeds of sale of the property.

30. On 2 June 1986 the applicant commenced the present proceedings in this Court.

31. By virtue of s.58 of the Bankruptcy Act 1966 (Cth) ("the Act"), upon bankruptcy, the property of a bankrupt vests in the trustee of his estate and, except as provided by the Act, it is not thereafter competent for a creditor to enforce any remedy against the person or property of the bankrupt in respect of a provable debt. Nothing in that section, however, affects the right of a secured creditor to realize or otherwise deal with his security. Division 1 of Part VI of the Act (ss.82-107) makes provision for the proof of debts in a bankruptcy administration. For the purposes of the Act, a creditor is to be taken not to have proved a debt until a proof of debt lodged by him in respect of that debt has been admitted (s.83). A creditor who desires to prove a debt in a bankruptcy must lodge, or cause to be lodged, with the trustee a proof of debt in accordance with s.84. A proof of debt is to set out particulars of the debt, is to be in the accordance with the prescribed form, is to specify the vouchers, if any, by which the debt can be substantiated and is to state whether or not the creditor is a secured creditor (sub-s.84(2)).

32. Sections 90 and 91 of the Act provide:

"90. (1) A secured creditor is entitled to
prove the whole or a part of his secured debt in
the debtor's bankruptcy in accordance with the
succeeding provisions of this Division, and not
otherwise.

(2) A secured creditor who surrenders his
security to the trustee for the benefit of
creditors generally may prove for the whole of
his debt.

(3) A secured creditor who realizes his
security may prove for any balance due to him
after deducting the net amount realized, unless
the trustee is not satisfied that the realization
has been effected in good faith and in a proper
manner.

(4) A secured creditor who has not realized
or surrendered his security may -

(a) estimate its value; and

(b) prove for the balance due to him
after deducting the value so
estimated.

(5) A secured creditor to whom sub-section
(4) applies shall state particulars of his
security, and the value at which he estimates it,
in his proof of debt.

91. (1) Where a secured creditor has lodged
a proof of debt in respect of the balance after
deducting the estimated value of his security,
the trustee may at any time redeem the security
on payment to the creditor of the value at which
it has been estimated by the creditor.

(2) If the trustee is dissatisfied with the
value at which a security has been estimated by a
creditor, he may require the property comprised
in the security to be offered for sale at such
times and on such terms and conditions as are
agreed on by the creditor and the trustee or in
default of agreement, as the Registrar directs.

(3) If any such property is offered for sale
by public auction, the creditor, or the trustee
on behalf of the estate, is entitled to bid for,
and purchase, the property.

(4) The creditor may at any time, by notice
in writing, require the trustee to elect whether
he will, or will not, exercise his power of
redeeming the security or of requiring it to be
realized and if the trustee does not, within 3
months after receiving the notice, notify the
creditor, in writing, that he elects to exercise
the power -

(a) he is not entitled to exercise it;

(b) subject to sub-section (5), any equity
of redemption or other interest in the
property comprised in the security that
is vested in the trustee vests in the
creditor; and

(c) the amount of the creditor's debt shall,
for the purposes of this Division, be
deemed to be reduced by the amount at
which the creditor has estimated the
value of the security.

(5) The vesting of an equity of redemption
or other interest in property by virtue of
paragraph (4)(b) is subject to compliance with
any law of the Commonwealth or of a State or
Territory of the Commonwealth requiring the
transmission of such interests in property to be
registered."

Where a secured creditor has lodged a proof of debt in respect of the balance due after deducting the estimated amount of his security, he may, at any time, apply to the trustee or the Court for permission to amend the proof of debt by altering the estimated value (s.92) and permission may be granted in the circumstances there set out. A creditor may, with the consent of the trustee, amend a proof of debt lodged by him (sub-s.98(1)) but that provision does not authorise the amendment of the proof of debt of a secured creditor by altering the estimated value of his security (sub-s.98(2)). Section 94 provides:

"94. Where a secured creditor who has lodged
a proof of debt in respect of the balance due
after deducting the estimated value of his
security subsequently realizes his security, or
it is realized under section 91, the net amount
realized shall be substituted for the estimated
value of the security and section 93 applies as
if the proof of debt had been amended accordingly
by the creditor under section 92."

33. The submission that there was a surrender by the applicant of its security to the trustee for the benefit of creditors generally depends solely upon the form of the proof of debt lodged with the trustee on 28 July 1983. There is no evidence of any other action on the part of the applicant which is inconsistent with it maintaining the position of a secured creditor seeking to take advantage of whatever benefit its security might confer upon it. There is, for example, no evidence that the applicant voted as an unsecured creditor at any meeting and it certainly received no dividend in the estate on the basis that it was an unsecured creditor in the sum of $47,183.43. Whether, if any such event had occurred, it would necessarily have been decisive of the question I need not stay to consider.

34. The proof of debt lodged on 28 July 1983 stated that the bankrupts were indebted to the applicant in the sum of $47,183.43, the full amount of the indebtedness, and asserted that security by way of a second mortgage was held for payment of part of the debt. No estimate was made of the value of the security but the absence of such a valuation can, in the circumstances, hardly, of itself, amount to an unequivocal statement that the security was being surrendered. Indeed, the statement that security was held for the payment of part of the debt is inconsistent with such a surrender.

35. There is, on the evidence, no doubt as to the position taken by the applicant prior to the lodging of the proof of debt on 28 July 1983. That position is made clear if one has regard to the form of the proof of debt which was lodged on 18 February 1983 and to the conversation between Mr Killer and the trustee on or about 25 July 1983 which led to its being withdrawn. That form of proof of debt has its own textual difficulties but both the proof of debt and the conversation are inconsistent with the applicant's position being that it was surrendering its security and proving as an unsecured creditor for the whole of its debt. The conversation proceeded on the basis not that the applicant was surrendering its security but on the basis that it had undervalued the security with the consequence that the amount for which it should have been proving in the bankrupt estate was less than the amount shown on the form. That it was the applicant's intention in February 1983 to prove for the balance after deducting the value of the security is also supported by Mr Killer's statement to that effect in his affidavit sworn 19 May 1986, a statement upon which he was not cross-examined.

36. Regard may also be had to the correspondence which passed between the trustee and the applicant and its solicitors concerning the proposed sale of the property. The correspondence written on the applicant's behalf is consistent only with the applicant being a creditor having a security over the property and being entitled to whatever benefits that security might confer. The correspondence written by the trustee or on his behalf prior to the letter dated 13 February 1984 is also consistent only with an acknowledgment by the trustee that that was the position. The same can be said of the telephone conversation between the trustee and the applicant's solicitor on 7 December 1983. It may be acknowledged that, if the lodging of the proof of debt on 28 July 1983 amounted to an unequivocal act of surrender of the security, subsequent assertions in correspondence that the applicant was still a secured creditor would be of little avail. However, as the lodging of the proof of debt was not, in my view, such an unequivocal act, the subsequent correspondence may, I think, properly be taken into account as illustrative of the applicant's intention. In this latter regard it may also be noted that Mr Killer has sworn that it was the applicant's intention when lodging the proof of debt on 28 July 1983 not to surrender its security and his statement to that effect was not challenged by the trustee.

37. Inept as the drafting of the form was, I do not think it can be said, in truth, that it amounted to a surrender of the applicant's security to the trustee for the benefit of creditors generally. Apart from the textual difficulty with the form itself, the other matters to which I have referred all point in the opposite direction. I am, therefore, of opinion that the applicant remained a secured creditor of the bankrupts and that it is entitled to retain, as against the trustee, the proceeds of the realization of its security.

38. A submission was made on behalf of the trustee that the application is properly to be regarded as brought under sub-s.104(1) of the Act which provides that a creditor who is dissatisfied with a decision of the trustee under sub-s.102(1), (3) or (4) in respect of a proof of debt may apply to the Court to review the decision. Section 102 relates to the admission or rejection, in whole or in part, of proofs of debt by the trustee of a bankrupt estate. Sub-section 104(3) provides that, subject to the power of the Court to extend the time, an application under the section to review a decision shall not be heard by the Court unless it was made within 21 days from the date on which the decision was made. It was submitted that, as the proceedings were not instituted until 2 June 1986, an extension of time was necessary and, in view of the very long delay in bringing the proceedings, the Court should exercise its discretion by refusing the necessary extension.

39. The applicant asserted that the proceedings were brought pursuant to s.178 of the Act which provides that a creditor who is affected by any act, omission or decision of the trustee may apply to the Court and the Court may make such order in the matter as it thinks just and equitable. No time limit is prescribed in respect of such an application though, no doubt, delay might be a relevant factor for the Court to consider in determining whether or not to grant relief.

40. The present application will answer the description in sub-s.104(1) only if it is treated as an application to review the decision of the trustee conveyed to the applicant by the letter dated 13 February 1984 purporting to reject the applicant's proof of debt lodged on 28 July 1973 in so far as it claimed to be a secured creditor but to admit it as to quantum. If the relevant decision is the decision of the trustee set out in his letter dated 3 April 1985 declining to consent to the proof of debt being amended, such decision does not appear to be a decision made under sub-s.102(1), (3) or (4). A further possibility is to regard the application as one to review the decision of the trustee made on or about 8 October 1985 to demand payment from the applicant of the monies held by it and representing the balance of the proceeds of sale of the property. That decision was clearly not a decision to which sub-s.104(1) applies.

41. I do not find it necessary to resolve the question under which provision of the Act the application is made though I incline to the view that it is proper to regard it as an application made under s.178. The Court's power to deal with the matters in dispute in undoubted: see s.30 of the Act. But, if the application is properly to be regarded as an application under sub-s.104(1), I would be prepared to grant whatever extension of the time prescribed by sub-s.104(3) is necessary to enable the issue to be resolved. It is clearly necessary for the due administration of the bankrupts' estates that the issue be settled, the trustee having asserted a right to receive payment from the applicant of the net proceeds of the realization of the security. That circumstance is, I think, sufficient to warrant the Court excusing the delay, lengthy though it may be. It is also of some significance in this regard that it would have been open to the trustee to have commenced proceedings at an earlier date to resolve the dispute had the delay been a significant factor in the due administration of the estate but he did not do so.

42. Reference was made in the correspondence and in the submissions put to the Court on behalf of the trustee to the operation of s.221P of the Income Tax Assessment Act 1936 (Cth). In my opinion, no question arises under that section. It imposes no obligation on the applicant as it does not answer the description of a trustee in which the property of the bankrupts vested or to which control of that property passed within the meaning of the provision. It imposes no duty on the trustee of the bankrupts' estates in relation to the net proceeds of the realization of the second mortgage over the bankrupts' property at Narrabundah as the proceeds of that realization have not vested in the trustee or come under his control and, in the light of the declarations which I propose to make, he has no entitlement thereto.

43. For the reasons set out above, I make the following declarations:

1. Declare that the applicant did not
surrender to the trustee for the benefit
of creditors generally the security
which it held by way of second mortgage
registered under the Real Property
Ordinance 1925 (A.C.T.) over the Crown
lease of the land known as 59 Tallara
Parkway, Narrabundah in the Australian
Capital Territory, being the land
described in Certificate of Title Volume
193, folio 34.

2. Declare that the applicant is entitled,
as against the trustee, to retain the
net proceeds of the realization of the
said security.

3. Declare that the applicant is under no
legal obligation to pay any monies to
the trustee pursuant to the notice of
demand dated 8 October 1985.

4. Declare that the applicant is at liberty
to withdraw the proof of debt lodged
with the trustee on or about 28 July
1983 and to substitute therefor a proof
of debt in proper form proving for the
balance of its debt after deducting the
net amount realized upon its said
security.

44. As the applicant was largely, if not wholly, the author of the situation which has given rise to the necessity for the present proceedings, it should, in my opinion, pay the trustee's costs of the application as between solicitor and client and any costs of or associated with the withdrawal and substitution of its proof of debt and I so order. It was submitted that the applicant should also be ordered to pay any additional costs of administration of the bankrupts' estates arising from the delay in bringing this matter before the Court. In the light of what I have said above in relation to delay in bringing the proceedings, I do not think it appropriate to make the order sought and I decline to do so.