Re Stanley James Harrison, A Bankrupt Ex Parte: the Official Trustee In Bankruptcy (As Trustee of the Property of Stanley James Harrison, A Bankrupt) v the Registrar In Bankruptcy and Stanley James Harrison [1987] FCA 30 (11 February 1987)

FEDERAL COURT OF AUSTRALIA

Re: STANLEY JAMES HARRISON, a bankrupt
Ex Parte: THE OFFICIAL TRUSTEE IN BANKRUPTCY (as trustee of the property of
Stanley James Harrison, a bankrupt)
And: THE REGISTRAR IN BANKRUPTCY and STANLEY JAMES HARRISON
No. 249 of 1968
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
EXERCISING FEDERAL JURISDICTION IN BANKRUPTCY
Northrop J.

CATCHWORDS

Bankruptcy - automatic discharge - bankrupt subject to two bankruptcies - whether second bankruptcy discharged automatically - effect of withdrawal of objection to discharge - effect of amendments to Bankruptcy Act.

Bankruptcy Act 1966 ss.149, 150

Re Hayes; Ex parte Hayes 59 ALR 219

HEARING

MELBOURNE
11:2:1987

Counsel for Applicant: Mr G.T. Bigmore

Solicitor for Applicant: Mr G.T. Bigmore

Counsel appearing as amicus curiae for the Respondents: Mr B. Braun

ORDER

THE COURT DECLARES THAT Stanley James Harrison was, on 6 May 1974, discharged from the bankruptcy created by the sequestration order made on 5 June 1968, the discharge occurring by virtue of the provisions of sub-section 149(5) of the Bankruptcy Act 1966 in operation on 6 May 1974 being the date on which the objection to discharge of the bankruptcy was withdrawn.

THE COURT ORDERS THAT the application be dismissed.

(This order is to be settled and filed in accordance with Rule 124 of the Bankruptcy Rules.)

DECISION

This application raises for consideration what might be described as an unintended consequence of amendments made to the Bankruptcy Act with respect to the automatic discharge of bankrupts subject to two or more bankruptcies.

2. On 20 May 1965, the Federal Court of Bankruptcy made a sequestration order against Stanley James Harrison ("Harrison") on the petition of the Deputy Commissioner of Taxation. That order ("the first bankruptcy"), was made in matter No. 198 of 1965 and was based upon a failure by Harrison to comply, on or before 23 November 1964, with the requirements of a bankruptcy notice. On 5 June 1968, the Federal Court of Bankruptcy made a further sequestration order against Harrison on the petition of the Deputy Commissioner of Taxation. That order ("the second bankruptcy"), was made in matter No. 249 of 1968 and was based upon a failure by Harrison to comply, on or before 18 December 1967, with the requirements of a bankruptcy notice. At the time of the second bankruptcy, Harrison was an undischarged bankrupt under the first bankruptcy.

3. Before the Bankruptcy Act 1966 came into operation on 4 March 1968, the Bankruptcy legislation made no provision for the automatic discharge of bankrupts by effluxion of time. The Bankruptcy Act 1966 contained provisions relating to the automatic discharge of bankrupts by effluxion of time. Section 149 of the 1966 Act is set out in full:-

"149. (1) Subject to this section, a person
who becomes a bankrupt after the commencement of
this Act is, by force of this section, unless
sooner discharged in accordance with the next
succeeding section, discharged from bankruptcy upon
the expiration of five years from the date of the
bankruptcy.

(2) Subject to this section, a person
who was an undischarged bankrupt immediately before
th commencement of this Act, whether he became a
bankrupt under a law of the Commonwealth or of a
State or Territory, is, by force of this section,
unless sooner discharged in accordance with the
next succeeding section, discharged from bankruptcy
upon the expiration of three years from the
commencement of this Act or five years from the
date on which the sequestration order was made
against his estate or he otherwise became a
bankrupt, whichever is the later.

(3) This section does not operate to
discharge a bankrupt from a bankruptcy if -

(a) at the time when he would have been so
discharged but for this sub-section, he
is still undischarged from an earlier
bankruptcy; or

(b) the Registrar, the trustee or a creditor
has entered an objection, in the
prescribed manner, to the discharge of
the bankrupt by force of this section
and the objection has not been withdrawn
before the time when the bankrupt would
have been so discharged but for this
sub-section.

(4) An objection entered under the last
preceding sub-section may be withdrawn in the
prescribed manner.

(5) Where -

(a) such an objection is withdrawn after the
time referred to in paragraph (b) of
sub-section (3) of this section;

(b) there is no other objection to the
bankrupt's discharge that has not been
withdrawn; and

(c) the bankrupt's discharge is not
prevented by paragraph (a) of
sub-section (3) of this section,

the bankrupt is, by force of this section, unless
sooner discharged in accordance with the next
succeeding section, discharged from bankruptcy upon
the withdrawal of the objection.

(6) In sub-sections (2), (3) and (5) of
this section -

`bankrupt' includes an insolvent;

`bankruptcy' includes insolvency."

Section 150 contains provisions empowering a Court exercising jurisdiction in bankruptcy to order the discharge of a bankrupt.

4. Under sub-section 149(2), and ignoring for the moment the other provisions of s.149, Harrison would have been discharged from the first bankruptcy on 4 March 1971, being three years after the commencement of the 1966 Act. Likewise, under sub-section 149(1), and ignoring for the moment the other provisions of s.149, Harrison would have been discharged from the second bankruptcy on 5 June 1973.

5. Sub-section 149(3) imposes bars to the automatic discharge of bankrupts by effluxion of time. Paragraph 149(3)(a) imposed no bar to Harrison being discharged from the first bankruptcy on 4 March 1971 and if that happened, that paragraph would have imposed no bar to Harrison being discharged from the second bankruptcy on 5 June 1973. The bar imposed by paragraph 149(3)(b) arises only on action being taken by the Registrar, the trustee or a creditor. On 19 January 1971, in each of the first bankruptcy and the second bankruptcy, the trustee of the estate of Harrison took that action. In each bankruptcy an identical objection was entered and filed on 20 January 1971. The objection is set out in full:-

"The Bankruptcy Act 1966-1970
NOTICE OF OBJECTION TO DISCHARGE

Bankruptcy District of the ) No. 198 of 1965
State of Victoria ) - and -
No. 249 of 1968

Re: STANLEY JAMES HARRISON of 13
Brock Street, Euroa, Sawmiller; a
bankrupt.

I, Morris Alexander Ogilvie of 99 Queen
Street, Melbourne, Official Receiver and Trustee of
the estate of the bankrupt object to the discharge
of the bankrupt of 36 Brock Street, Euroa in the
State of Victoria, from bankruptcy by force of
Section 149 of the Bankruptcy Act 1966-1970 on the
following grounds:-

1. That a Sequestration Order was made against
Stanley James Harrison on the 20th day of May,
1965.

2. That a Sequestration Order was made against
Stanley James Harrison on the 5th day of June,
1968.

3. That the bankrupt remains undischarged in
respect of both Sequestration Orders.

DATED this 19th day of January, 1971.

Official Receiver
Trustee".

6. At that time the Bankruptcy Act did not specify the grounds upon which any objection could be entered. Nice questions arise whether the objections filed had any legal effect. The existence of the second bankruptcy did not operate as an automatic bar to the discharge of the first bankruptcy. On the application of the principles of statutory interpretation, the express provisions of paragraph 149(3)(a) would tend to suggest that the existence of the second bankruptcy would not, of itself, constitute a proper objection under paragraph 149(3)(b). It is not necessary to determine that question in these proceedings and for present purposes I will proceed on the basis that the entering of the objections prevented the automatic discharge of the bankruptcies under sub-sections 149(2) and 149(1) respectively.

7. On 22 February 1974, pursuant to sub-section 149(4), the objection to the discharge of the first bankruptcy was withdrawn. That withdrawal, which was filed on 25 February 1974, is set out in full:-

"BANKRUPTCY ACT 1966-1973
WITHDRAWAL OF OBJECTION TO DISCHARGE

BANKRUPTCY DISTRICT OF THE )
STATE OF VICTORIA ) NO 198 OF 1965

RE: STANLEY JAMES HARRISON of 13 Brock
Street, Euroa, Sawmiller; a bankrupt

I, Morris Alexander Ogilvie, of 99 Queen
Street, Melbourne in the State of Victoria,
Official Receiver and Trustee of the estate of the
abovenamed bankrupt withdraw the objection to the
discharge of Stanley James Harrison of 13 Brock
Street, Euroa in the State of Victoria from
bankruptcy by force of Section 149 of the
Bankruptcy Act 1966-1973 that was filed by me on
the 19th day of January, 1971.

DATED this 22nd day of February, 1974

M.A. OGILVIE
OFFICIAL RECEIVER/TRUSTEE".

Upon that withdrawal being filed, and applying sub-section 149(5), Harrison was discharged automatically from the first bankruptcy on 25 February 1974.

8. On 3 May 1974, pursuant to sub-section 149(4), the objection to the discharge of the second bankruptcy was withdrawn. That withdrawal, which was filed on 6 May 1974, is set out in full:-

"BANKRUPTCY ACT 1966-1973
WITHDRAWAL OF OBJECTION TO DISCHARGE

BANKRUPTCY DISTRICT OF THE )
STATE OF VICTORIA ) No. 249 of 1968

RE STANLEY JAMES HARRISON of
13 Brock Street, Euroa,
Sawmiller; a bankrupt.

I, Morris Alexander Ogilvie, of 99 Queen
Street, Melbourne in the State of Victoria,
Official Receiver and Trustee of the estate of the
abovenamed bankrupt withdraw the objection to the
discharge of Stanley James Harrison now of Anderson
Street, Euroa in the State of Victoria from
bankruptcy by force of Section 149 of the
Bankruptcy Act 1966-1973 that was filed by me on
the 19th day of January, 1971.

DATED this third day of May, 1974.

M.A. OGILVIE,
TRUSTEE."

9. Upon that withdrawal being filed, and applying sub-section 149(5), it would appear that Harrison was discharged automatically from the second bankruptcy on 6 May 1974. The objection had been withdrawn after the time when Harrison would have been discharged from the second bankruptcy but for the entering of the objection; see paragraph 149(5)(a); there was no other objection to Harrison's discharge that had not been withdrawn, see paragraph 149(5)(b); and Harrison's discharge was not prevented by an earlier bankruptcy, the first bankruptcy having been discharged on 25 February 1974; see paragraph 149(5)(c). Accordingly, by force of s.149, it would appear that Harrison was discharged from his second bankruptcy on 6 May 1974.

10. This was the view taken by the Registrar in Bankruptcy for the Bankruptcy District of the State of Victoria. With respect to each of the first and second bankruptcy, Harrison requested the Registrar to issue a certificate of discharge under Rule 51. That rule provided:-

"Where a bankrupt is discharged from
bankruptcy by force of section 149 of the Act, the
Registrar may, on request, issue a certificate of
discharge, in accordance with Form 25."

11. On 8 March 1974, the Registrar gave his certificate under Rule 51 with respect to the first bankruptcy certifying that Harrison:-

"was discharged from the bankruptcy under the
sequestration order dated the 20th day of May,
1965, by force of section 149 of the Bankruptcy Act
1966-1973 on the 25th day of February, 1974."

12. On 14 May 1974, the Registrar gave his certificate under Rule 51 with respect to the second bankruptcy certifying that Harrison:-

"who became a bankrupt on the 5th day of June, 1968,
was discharged from bankruptcy by force of section
149 of the Bankruptcy Act 1966-1973 on the 6th day
of May, 1974."

After 14 May 1974, Harrison and the trustee thought that Harrison had been discharged from the second bankruptcy.

13. As from 1 February 1981, a new s.149 was inserted into the Bankruptcy Act 1966; see s.72 of Act No. 12 of 1980. That new s.149, subject to minor amendments not presently relevant, is still in operation. For present purposes, the differences between the old s.149 and the new s.149 are:-

1. the time at which an automatic discharge
occurred is reduced from 5 years to 3 years
from the date of bankruptcy; see new
sub-sections 149(1) and (2);

2. an additional automatic bar to the discharge
is that since the date of bankruptcy, the
bankrupt has again become bankrupt; see new
paragraph 149(3)(b); and

3. objections to discharge from bankruptcy could
be entered on certain grounds only; see new
sub-section 149(4).

14. On 16 November 1984, judgment in Re Hayes; Ex parte Hayes 59 ALR 219 was published. The facts of that case have certain superficial similarities to the facts of the present case. The office of the Official Receiver considered that the reasons for judgment in Re Hayes made doubtful the effect of the withdrawal of the objection in the second bankruptcy where the withdrawal of the objection in the first bankruptcy was not filed before the time at which the first bankruptcy would have been discharged automatically.

15. The major issue decided in Re Hayes related to the nature of a bankruptcy which was annulled by order of the Court. The facts relevant for present purposes can be summarised. Hayes became a bankrupt on 16 December 1976. Under the old s.149, he would have been discharged automatically from that bankruptcy on 16 December 1981. A second sequestration order was made against the estate of Hayes on 28 April 1977. This bankruptcy was based upon a debt which was a provable debt in the bankruptcy of 16 December 1976. It should not have been made. It was annulled by order of the Court made on 4 October 1983 but was held to be in existence until then. Under the old s.149, it would have been discharged automatically on 28 April 1982.

16. The new s.149 came into operation on 1 February 1981. Under the new paragraph 149(1)(b), the bankruptcy of 16 December 1976 would have been discharged automatically on 1 February 1981 but the automatic bar to discharge introduced by the new paragraph 149(3)(b), namely that the bankrupt had, since the date of that bankruptcy, again become a bankrupt, prevented that automatic discharge. This followed because the bankruptcy of 28 April 1977 was in existence. That bankruptcy was not discharged automatically on 1 February 1977 because of the existence of the bankruptcy of 16 December 1976. The new s.149 contains no provision for the automatic discharge of a bankruptcy when an automatic bar to a discharge ceases to operate after the time when the automatic discharge should have occurred. In this regard, that position is to be contrasted with the position where an objection to discharge is withdrawn after the date when an automatic discharge would otherwise have occurred. Thus, the old sub-section 149(5) and the new sub-section 149(14) each contain provisions for the automatic discharge of a bankruptcy where an objection is withdrawn or, in the case of the new sub-section 149(14), lapses.

17. Accordingly, in Re Hayes, the Court did not need to consider the effect of the new sub-section 149(14) which in substance provides that where an objection to the automatic discharge of a bankruptcy is withdrawn or otherwise lapses after the time when the bankrupt would have been discharged automatically but for the lodging of the objection "the bankrupt is, by force of this section, discharged from bankruptcy upon the withdrawal or lapsing of the objection."

18. In my opinion, Re Hayes has no bearing on the issue presently before the Court. The present application must be decided on the proper application of s.149 in operation at the time the withdrawals of the objections occurred in 1974 and on the facts existing at the time of each of the withdrawals.

19. Section 149 of the Bankruptcy Act in operation at that time is set out at the beginning of these reasons. The automatic discharge provided for in sub-section 149(1) is expressed in the form "by force of this section ... discharged from bankruptcy". The automatic discharge provided for in sub-section 149(2) is expressed in the form "by force of this section ... discharged from bankruptcy". The automatic discharge provided for in sub-section 149(5) is expressed in the form "by force of this section ... discharged from bankruptcy". In each case the operative words refer to "this section", not "this sub-section".

20. The conditions precedent to the application of sub-section 149(5) are:-

1. the withdrawal of the objection after the time
there would have been an automatic discharge
where no objection had been lodged;

2. there is in existence no other objection to
the discharge of the bankrupt from the
bankruptcy; and

3. the bankrupt is not undischarged from an
earlier bankruptcy.

21. In the present case, each of those conditions precedent had been satisfied with respect to the first bankruptcy on 27 February 1974 being the date the objection to the automatic discharge of that bankruptcy was withdrawn. Prima facie, therefore, Harrison was discharged from the first bankruptcy on 27 February 1974; see sub-section 149(5).

22. Likewise, each of those conditions precedent had been satisfied with respect to the second bankruptcy on 6 May 1974 being the date the objection to the automatic discharge of that bankruptcy was withdrawn. Prima facie, therefore, Harrison was discharged from the second bankruptcy on 6 May 1974; see sub-section 149(5).

23. On 6 May 1986, the Official Receiver filed an application in the second bankruptcy seeking a declaration that Harrison was:-

"on the 1st day of February, 1981, discharged from
the bankruptcy herein by virtue of the provisions
of sub-section 149(2) of the Bankruptcy Act, 1966
(as it now stands)."

The effect of the new paragraph 149(2)(a) is the same as sub-section 149(1) of the Act in operation prior to the new s.149 coming into operation on 1 February 1981 except the period is three years instead of five years. The declaration sought depended upon the second bankruptcy being in existence immediately before the new s.149 came into operation. The issue raised by the application was whether the second bankruptcy had been discharged automatically on 6 May 1974. In support of the application, the solicitor appearing for the Official Receiver contended that it had not been discharged.

24. The solicitor did not dispute the fact that the first bankruptcy had been discharged automatically on 27 February 1974, but with respect to the second bankruptcy he contended that on 6 May 1974 when the objection to the discharge of the second bankruptcy was withdrawn, the condition precedent imposed by paragraph 149(5)(c), namely that Harrison's "discharge is not prevented by paragraph" 149(3)(a), was not satisfied. It will be remembered that that paragraph prevents the automatic discharge if at the relevant time, the bankrupt "is still undischarged from an earlier bankruptcy". The solicitor contended that on its proper construction, the automatic discharge provided for in sub-section 149(5) could not apply if, at the time the bankruptcy would have been discharged under sub-sections 149(1) or (2), the bankrupt was "still undischarged from an earlier bankruptcy".

25. This contention is rejected. On its proper construction, the conditions precedent prescribed by sub-section 149(5) are to be considered at the time the objection is withdrawn. This is made clear by a consideration of sub-section 149(4) and the concluding words of sub-section 149(5). An objection may be withdrawn. Where an objection is withdrawn, provided the three conditions precedent are satisfied, the bankrupt is "by force of this section ... discharged from bankruptcy upon the withdrawal of the objection"; emphasis added. The relevant time is the time of the withdrawal of the objection. The fact which invokes the operation of sub-section 149(5) is the withdrawal of the objection. The essential question is whether the three conditions precedent are satisfied at that time. Nothing further is to be done. Similarly, the relevant times under sub-sections 149(1) and (2) are "the expiration of five years from the date of the bankruptcy" and "the expiration of three years from the commencement of this Act or five years from the date on which the sequestration order was made ... whichever is the later" respectively. In each of these situations it is necessary to consider whether a bar to the automatic discharge exists at the relevant time. Once that time has passed, the relevant sub-section cannot be activated by a change of circumstances giving rise to new facts.

26. This opinion is consistent with Re Hayes. This can be illustrated by considering what the position would have been if the objection to the second bankruptcy had been withdrawn while the objection to the first bankruptcy remained in existence. On that hypothesis, the second bankruptcy would not have been discharged since at that time the third condition precedent would not have been satisfied in that Harrison would not have been discharged from the first bankruptcy. If, subsequently, the objection to the first bankruptcy had been withdrawn, Harrison would have been discharged automatically from the first bankruptcy but not from the second bankruptcy. Nothing had occurred which brought the provisions of sub-section 149(5) into operation with respect to the second bankruptcy. Consistently with the opinion expressed in Re Hayes, the provisions of s.149 providing for the automatic discharge apply only when the section can operate on facts in existence at the relevant time under sub-sections 149(1), (2) or (5). Once that time has passed, the sub-sections can have no effect when circumstances change.

27. In the result, the application is refused. To avoid any confusion, a declaration is made that Harrison was, on 6 May 1974, discharged from the bankruptcy created by the sequestration order made herein on 5 June 1968, the discharge occurring by virtue of the provisions of sub-section 149(5) of the Bankruptcy Act 1966 in operation on 6 May 1974 being the date on which the objection to discharge of the bankruptcy was withdrawn.