Re Andrew George Stanley Gibbons and Susanne Patricia Gibbons v Deputy Registrar In Bankruptcy and Bank of New Zealand [1991] FCA 38 (20 February 1991)

FEDERAL COURT OF AUSTRALIA

Re: ANDREW GEORGE STANLEY GIBBONS and SUSANNE PATRICIA GIBBONS
And: DEPUTY REGISTRAR IN BANKRUPTCY and BANK OF NEW ZEALAND
No. NX 94 of 1990
FED No. 102

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
Hill J.(1)

HEARING

SYDNEY
20:2:1991

Counsel and Solicitors V.R.W. Gray instructed
for Applicant: by Smits Leslie Barwick

Solicitors for M.A. Corel of Kemp Strang and
Second Respondent: Chippindall

DECISION

Mr and Mrs Gibbons, ("the applicants") seek review in proceedings commenced summarily under s.14(5) of the Bankruptcy Act 1966 ("the Act") of a decision by Registrar Dawson to refuse to accept a debtor's petition sought to be lodged by them as joint debtors under s.57 of the Act. It is not disputed that the petition was in accordance with the prescribed form or that it was accompanied by the relevant documents referred to in s.57(2). At the outset of the hearing, I ordered, without opposition of the applicants, that the Bank of New Zealand be joined as a party to the application.

2. The background to the application can be shortly stated. On 26 June 1990, each of the applicants signed an authority, as described in s.188(1) of the Act, authorising their solicitor, Mr Landerer, to call a meeting of their creditors. In each case, the signing of the authority was the commission of an act of bankruptcy: s.41(1) of the Act. A meeting of creditors was subsequently called and ultimately there was purported to be passed a special resolution to approve a composition presented to the meeting. On 1 August 1990, the second respondent to the present application filed with the court an application seeking orders that the compositions were void or should be set aside, and that the estates of each of the debtors be sequestrated. Reliance was placed upon ss.229 and 239 of the Act.

3. As at 19 February 1991, these proceedings had been heard by Mr Justice Gummow, and the parties had been notified that his Honour proposed to deliver judgment at 9.30 am today. On that day, the applicants sought to present a debtor's petition under s.57 of the Act, being joint debtors who were not in partnership with one another. The petition stated that the applicants were not disqualified by the Act from presenting such a petition. The statement of affairs, presented with the petition, is said to include some creditors who were not creditors bound by the composition.

4. The Registrar formed the view, based upon the literal wording of s.57(7) of the Act, that that sub-section applied and precluded him from accepting the petition unless the leave of the court was obtained. It is not suggested that the present was a case in which the court would have granted such leave, and it is indeed conceded that if the Registrar had any discretion in the matter, it would have been unreasonable for the Registrar to have exercised that discretion favourably to the applicants, having regard to the fact that a sequestration order might be made this morning by Gummow J, and that post-composition creditors could prove in the bankruptcy there brought about. In addition, regard must be had to the fact that the relation back period in that bankruptcy to 26 June 1990 was longer than the period of six months from yesterday's attempt to file a debtor's petition.

5. This morning Gummow J delivered judgment in the application brought by the Bank of New Zealand. His Honour declared, pursuant to s.222(2) of the Act, that the composition accepted on 18 July 1990 at a concurrent meeting of creditors of the applicants is void, on the ground that this composition was not accepted by a special resolution as required by s.204 of the Act. His Honour also ordered that the estates of the applicants be sequestrated, but suspended the operation of this order until 4.15 pm today or earlier further order. His Honour suspended the operation of the sequestration order to permit the present application to be made before me.

6. Section 57(7) of the Act provides as follows:

"A debtor who has executed a deed of assignment or
a deed of arrangement under Part X or whose
creditors have accepted a composition under that
Part is not, except with the leave of the Court,
entitled to join in presenting a petition under
this section unless -
(a) the deed of assignment has been declared void
or the final dividend has been paid under it;
(b) the deed of arrangement has been declared void
or has been terminated; or
(c) the composition has been declared void, has
been set aside or terminated or the final payment
has been made under it;
as the case requires."

7. For the applicants it was submitted that the sole purpose of s.57(7) and sections comparable to it (eg ss.55(6) and 56(10)) was to give effect to the provisions of s.240 of the Act. That section provides by sub-s.(1):

"Subject to this section, a composition under this
Part operates, unless set aside, declared void or
terminated under this Part, to release the debtor
from all provable debts, other than those (if any)
that would not be released by his discharge from
bankruptcy if he had become a bankrupt on the day
on which the composition was accepted."

8. Thus, as a result of the composition being accepted, a provable debt as at that time will, subject to the provisions of s.240, be by force of statute released, unless and not until, the composition is declared void or terminated. Once the composition is declared void, as was the case this morning, the provable debt will revive.

9. It was submitted, as is obvious, that after a composition, a debtor might incur further debts ("post-composition debts") which might, in due course, be the basis of the presentation of a petition against a debtor by a post-composition creditor. It was said that s.57(7), and like sections, should not be construed so as to deny the opportunity to a debtor to present his own petition leading to the anomalous result that the debtor could be made bankrupt by the court pursuant to a sequestration order being made but could not himself invoke the statutory procedure in the Act so as to become a bankrupt by the presentation of his own petition. Hence, it was submitted that s.57(7) and like sections should be construed as being limited to petitions which have operation in respect of pre-composition debtors, and should not apply to debtor's petitions which have operation in respect of post-composition debtors.

10. The submission receives some support from a comment made by the learned authors of McDonald, Henry and Meeks, Australian Bankrupty Law and Practice, 5th edition in the note to s.57(7) which ultimately refers back to a note to s.55(7). In that latter note the learned authors comment:

"... Section 222 gives the court jurisdiction to
declare a composition void. It is submitted that
this subsection does not prevent the debtor from
presenting a petition in respect of debts owing to
a different body of creditors from that in respect
of which the deeds or composition were entered into."

11. There is an immediate difficulty in the manner in which the comment is formulated in that a debtor's petition is not in its terms in respect of any particular body of creditors at all.

12. In my view, the submission must be rejected for a number of reasons. First, it must be said that the words of s.57(7) and comparable sub-sections do not contain the limitation which the submission suggests. To accept this submission would involve reading words into the sub-section to the effect that the prohibition in the sub-section would have no operation to any case where the debtor has incurred post-composition debts, even presumably of $1.

13. Second, notwithstanding the submission, the section does not preclude a debtor from presenting his own petition. It merely prescribes the leave of the court as a necessary condition precedent to a debtor presenting his own petition. This is consistent with the general principle of the Act that the court take control of the bankruptcy and supervise it. The sub-section therefore permits the court to take into account the particular circumstances of a case.

14. In many situations, although a composition may be extant, there may be post-composition debts which warrant the granting of leave by the court to permit a debtor to present his own petition. In other cases, such as the present, the existence of an application to set aside a composition would be a factor necessarily to be taken into account in determining whether leave should or should not be given. In this way, the position with a debtor's petition is equated with that where, after a composition and while it is extant, a post-composition creditor presents to the court a petition for the making of a sequestration order. The court may, at that time, adjourn the petition or in particular circumstances might, as a matter of discretion, decline to make the sequestration order.

15. Fourth, the submission brings about the result, as ultimately conceded, that s.57(7) and comparable sub-sections, has virtually no application at all. If the submission be accepted, the only case that would fall within the sub-section would be the case of the presentation of the petition where there were no post-composition debts. But in such a case, and where the composition debts have all been released by force of s.240 of the Act, it is hard to see how the court could ever exercise its discretion to give leave when the ensuing bankruptcy would be one where there were no creditors to prove. Such would be a case where the bankruptcy, if ultimately a petition were accepted, would be annulled on the basis that the petition was one which ought not in the first place to have been presented.

16. The legislative history throws little light upon the matter, but certainly does not support the submissions of the applicants.

17. The provisions of the present Act arise as a result of the report of the committee appointed by the Attorney-General of the Commonwealth to review the bankruptcy law of the Commonwealth in 1962 (the Clyne Committee). As that report discloses, the recommendation for the procedure, presently prevailing, of the presentation by a debtor of his own petition followed upon the decision of the High Court in R v Davison [1954] HCA 46; (1954) 90 CLR 353 which held that the then practice of the Registrars in making sequestration orders on debtor's petitions offended s.71 of the Constitution. As a result, the Committee recommended, and its recommendation was accepted, that the Act be amended so that a debtor become a bankrupt by force of the Act.

18. Provision was made for the Registrar to refer a debtor's petition to the court where there was doubt whether the petition or the accompanying statement of affairs was in proper form. The procedure was otherwise to be automatic.

19. In the 1966 legislation, which followed the report of the Clyne Committee, s.55(6) was in terms identical to the present sub-section. No comment is made in the report as to the effect of the sub-section. There was, however, no power in the law as enacted in 1966 for a joint debtor's petition to be presented by joint debtors not parties; Re Pepper (1969) 14 FLR 282. Thus, the Bankruptcy Amendment Bill of 1979 proposed amending the Act to insert the present s.57, which, not surprisingly, in sub-s.(7) contained the same prohibition against the presentation of a petition without leave, as was imposed where a sole debtor presented his own petition. See the Explanatory Memorandum to the Bankruptcy Amendment Bill 1979 circulated by the Minister representing the Minister for Business and Consumer Affairs, the Hon P.D. Durack.

20. There is likewise no discussion in the Explanatory Memorandum of 1979 which casts any light upon the provisions of s.57(7). However, in my view, neither resort to policy nor a reading of the literal words of the section gives any support to the applicants, indeed, quite to the contrary.

21. For the reasons I have already indicated, I am of the view that the submission is misconceived and that the applicants' application for review must be dismissed. I order that the costs of the second respondent be paid out of the estate of the applicants as if such costs were costs in the application under s.222 of the Act.