Re Mark Andrew Fitzgerald Ex Parte: the Bankrupt [1988] FCA 34; 1983 Bankruptcy 99 ALR 189 (23 February 1988)

FEDERAL COURT OF AUSTRALIA

Re: MARK ANDREW FITZGERALD
Ex parte: THE BANKRUPT
Nos. E454 & 455 of 1983
Bankruptcy
99 ALR 189

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Pincus J.(1)

CATCHWORDS

Bankruptcy - two bankruptcies - second beyond Court's power - whether should be annulled - whether second (annulled) bankruptcy prevents automatic discharge - conflicting decisions.

Bankruptcy Act 1966, ss.149, 150, 154

HEARING

BRISBANE
23:2:1988

Counsel for the debtor: Mr P.R. Dutney

Solicitors for the debtor: Messrs M.J. Kitchen & Co.

Counsel for the creditor: Mr P.E. Nolan

Solicitors for the creditor: Messrs W.T. Purcell, Chadwick & Skelly

ORDER

Orders that the second bankruptcy founded upon the sequestration order made on 3 October 1983 be annulled under s.154(1) of the Bankruptcy Act 1966;

Declares that by virtue of s.149(1) of the Bankruptcy Act 1966 the applicant is discharged from the bankruptcy consequent upon the acceptance of his debtor's petition on 3 October 1983; and

Orders that there be no order as to costs.

NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

DECISION

I have before me applications for annulment of bankruptcy or alternatively discharge from bankruptcy.

2. On 26 October 1982, there was presented against the applicant a petition for sequestration by a creditor, and a sequestration order was made on it by an order of 3 October 1983. However, on the same date the applicant had presented his own petition and it was accepted before the sequestration order was made.

3. By reason of acceptance of the debtor's petition, the debtor became bankrupt (s.55(3) of the Bankruptcy Act 1966), but that circumstance was not drawn to the attention of the judge who made the sequestration order.

4. Mr. Dutney, for the applicant, argued that the second bankruptcy should be annulled under s.154(1) on the ground that the sequestration order "ought not to have been made". He relied upon the decision of the High Court in Clyne v. Deputy Commissioner of Taxation [1984] HCA 44; (1984) 55 ALR 143. The reasoning adopted by their Honours in that case applies here; the debt on which the creditor's petition was founded was one provable in the bankruptcy which began when the debtor's petition was accepted. For the same reasons as the Court there gave, this Court:

"... had no power to make the order that it did
while the bankruptcy which resulted from the
acceptance of the debtor's petition continued."

5. In those circumstances, it is clear that the order "ought not to have been made" and no sufficient reason appears for declining to exercise the power to annul the bankruptcy; in particular, it is not shown that the filing of the debtor's petition constituted an abuse of process.

6. The next step in Mr. Dutney's argument, delivered in anticipation of an order annulling the sequestration order on the ground that there was no power to make it, was that the annulment had such retrospective effect as to make s.149(3)(b) of the Act inapplicable.

7. Section 149(1) provides for automatic discharge three years from the date of bankruptcy and would, but for the second bankruptcy, which I have annulled, have brought about the discharge of the applicant on 3 October 1986. However, s.149(3)(b) says that:

"A bankrupt is not discharged from bankruptcy by
virtue of this section if -

...

(b) he has, since the date of the bankruptcy,
again become a bankrupt".

8. Counsel for a creditor, Mr Nolan, contended that, on annulment of the second bankruptcy, the provisions of s.149(3)(b) continued to apply, with the result that the applicant could obtain a discharge only as a matter of discretion under s.150. Mr Nolan further contended that, for reasons appearing in affidavit material relied on by him, the Court's discretion under s.150 is affected by subs.(5) which says that, on proof of certain matters, either an order of discharge must be refused or a conditional or suspended order of discharge must be made.

9. Mr. Dutney contended that, logically, it is necessary first to determine which of the two provisions - s.149 or s.150 applies. If the former applies, that is so because from the time of annulment the applicant must be "treated as if he were never bankrupt" - per Sheppard J. in Re Oates; Ex parte Deputy Federal Commissioner of Taxation 88 ATC 4038 at 4040.

10. In that case, Sheppard J. expressed the view that an order annulling a bankruptcy has a very different operation from an order of discharge in that the former, subject to the operation of s.154(2), "places the bankrupt in the same position as he was prior to the making of the sequestration order".

11. If the applicant is now to be "treated as if he were never bankrupt", then he cannot be prevented from relying upon s.149 by the sequestration order; that must be treated as completely inoperative, but with what result? One possibility is that on annulment of the second bankruptcy the applicant is deemed to have been discharged three years after the first - i.e. on 3 October 1986. That must surely have been the result if the annulment had been ordered before that date. Another possibility is that he is now discharged. Still a third is the conclusion at which Spender J. arrived in Re Hayes; Ex parte Hayes (1984) 59 ALR 219. His Honour expressed the view (p 224) that the applicant there continued to be a bankrupt until the date of annulment and was not entitled to a discharge under s.149. In my opinion, Spender J.'s reasons regard an annulment under s.154 not as requiring that the person in question be treated as if he were never bankrupt but merely as putting an end to his bankruptcy as from the date of annulment.

12. Numerous editions of the standard English work on bankruptcy (currently called "Williams and Muir Hunter The Law and Practice in Bankruptcy", 19th ed.) have contained statements to the effect that:

"... where the annulment is on the ground that the
adjudication ought never to have been made, the
court will in all respects try to remit the
bankrupt to his original position ..." (p.149 of
current edition).

13. The technique of "trying" to remit the bankrupt to his original position is illustrated by the case referred to in the work, Bailey v. Johnson (1872) LR 7 Ex 263, an appeal from a decision reported in [1851] EngR 240; (1871) LR 6 Ex 279. Referring to s.81 of the English Bankruptcy Act 1869, Cockburn C.J. at p 265 of the report on appeal referred to the effect of that section, dealing with annulment, as being "to remit the party whose bankruptcy is set aside to his original situation".

14. In Bailey's case, because of the annulment of a bankruptcy, money paid by the trustee was, so the Court said, to be looked at "as though it were money paid in his name instead of in the name of Bullard, for having become his by virtue of the annulling of his bankruptcy, it is to be considered as his at the moment when it was paid in ..." (Bullard was the trustee). To give effect to the theory that the bankrupt is restored to his original situation, the facts were reconstructed. Blackburn J. agreed with Cockburn C.J., but abstained from expressing an opinion as to "whether the effect of s.81 is in every case to go back to the beginning ..."

15. A quite different view of these provisions was taken in a criminal case to which Spender J. referred in his reasons in Re Hayes; that was Director of Public Prosecutions v. Ashley (1955) Crim.LR 565 which is authority for the view that bankruptcy offences may be prosecuted after annulment; that is hardly treating the erstwhile bankrupt as if he had never been one.

16. It is necessary to decide between these competing approaches. In my respectful opinion, the explanation of the effect of annulment given by Sheppard J. is in general agreement with the old case of Bailey v. Johnson and the explanation of that case made in successive editions of Williams. Without going further than is necessary to determine the point before me, I propose to apply the doctrine espoused in Re Oates.

17. It did not appear to be suggested at the hearing before me that the applicant here should have a retrospective declaration of discharge from the earlier bankruptcy, if that is possible; I propose simply to declare that by virtue of s.149(1) of the Act the applicant is discharged from the bankruptcy consequent upon the acceptance of his debtor's petition on 3 October 1983.

18. That conclusion makes it irrelevant to consider whether, as Mr Nolan contended, matters falling within s.150(6) have been established. However, because of those circumstances, there will be no order as to costs.