Re Kenneth Johnson and Dianne Johnson [1987] FCA 23 (5 February 1987)

FEDERAL COURT OF AUSTRALIA

Re: KENNETH JOHNSON and DIANNE JOHNSON
No. W1746 of 1986
Bankruptcy

COURT

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

CATCHWORDS

Bankruptcy - application for annulment - meaning of "sequestration order ought not to have been made" - distinction between facts existing at time of sequestration order and facts later coming into existence - exercise of discretion to annul the bankruptcy.

Bankruptcy Act 1966 ss.52(2)(a), 154(1)(a).

Re Scott (1975 6 ALR 558

Re Griffiths; Ex parte Huntley (1892) 3 BC (N.S.W.) 6

HEARING

SYDNEY
5:2:1987

ORDER

The bankruptcies brought about by the sequestration order made in the case of each of the applicants on 24 November 1986, be annulled.

Note: Settlement and entry of orders is dealt with in Rule

124 of the Bankruptcy Rules.

DECISION

The applicants are husband and wife who have at all material times carried on a business in partnership involving the supply of parts and installation of equipment associated with the conversion of motor vehicles to the use of gas as fuel.

2. The applicants were made bankrupt by a sequestration order made on 24 November 1986. They were not present or represented at the hearing of the creditor's petition which led to the making of the sequestration order, and it may be that their lack of diligence in that regard in relation to their own affairs was contributed to by the fact that on 16 August 1986 the male applicant had suffered relatively serious injuries in a motor accident. Whatever be the reason for the failure of the applicants to oppose the making of the sequestration order, I am satisfied that if the applicants had placed before the court on that occasion the true facts as to their financial situation, those facts would have demonstrated that, in terms of s.52(2)(a) of the Bankruptcy Act 1966, the applicants were then able to pay their debts.

3. In these circumstances the applicants, relying on s.154(1)(a) of the Bankruptcy Act, applied for an order annulling their bankruptcies. S.154(1)(a) provides relevantly that:-

Where the court is satisfied "that a sequestration
order ought not to have been made", the court may
make an order annulling the bankruptcy.

4. As Lucas J. said of the part of s.154(1)(a) to which I have referred in Re Scott (1975) 6 ALR 558 at 559:-

"And it has been remarked that these are words of wide
import and one test which has been applied from time
to time is that the matter should be considered as if
all the true facts as shown in the application for
the annulment had been before the court when the
sequestration order was made."

See too Re Griffiths; ex parte Huntley, (1982) 3 BC (N.S.W.) 6. In Re Scott (supra) Lucas J. drew a distinction between facts existing at the time of the making of the sequestration order but not then before the court and facts later coming into existence.

5. In the present case the relevant facts fall into the former category, and I am satisfied that the case is one falling within the relevant part of s.154(1)(a). The question which then arises is whether I should exercise the discretion conferred by s.154(1)(a) in favour of the bankrupts. In this regard it seems to me that the applicants have been relatively cavalier in their treatment of the proceedings in the Local Court leading to the judgment debt and in this court. At the same time, however, I think it likely that the serious injuries from which the male applicant suffered have probably played a part in leading to the making of the sequestration orders. I propose to exercise my discretion in favour of annulling the bankruptcies and I shall hear the parties as to the appropriate form of order.