O'Brien v Sheahan [2005] FCAFC 59 (20 April 2005)

BANKRUPTCY – validity of notice of objection filed by registered trustee – whether at time of objection registered trustee was validly appointed as trustee of bankrupt estate under s 157 of the Act – certificate of appointment issued where registered trustee gave written notification of consent to act but registered trustee not notified in writing of appointment – whether failure to comply with subs 157(2) and (3) of the Act is a formal defect or irregularity within s 306(1) of the Act – whether notice of objection validated under s 306(2) of the Act.

Bankruptcy Act 1966 (Cth)
Bankruptcy Act 1914 (UK)
Bankruptcy Amendment Act 1980 (Cth)
Bankruptcy Legislation Amendment Act 1996 (Cth)
Commonwealth Functions (Statutes Review) Act 1981 (Cth)

Nilant v Macchia [2000] FCA 1528; (2000) 104 FCR 238 applied
Cummings v Mack [2000] FCA 55; (2000) 96 FCR 345 referred to
Plaintiff S157/2002 v Commonwealth of Australia [2003] HCA 2; (2003) 211 CLR 476 applied
Sweeney v Fitzhurdinge [1906] HCA 73; (1906) 4 CLR 716 applied
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 applied
Donnelly v Edelsten [1992] FCA 121; (1992) 34 FCR 556 referred to
Re Rosenboom (1974) 18 CBR (NS) 180 (Ont SC) referred to
Re Ballato; Ex parte Pezzano [1988] FCA 768 referred to
Matthews v Collett [2000] FCA 224E referred to
Re Macchia; Ex parte Macchia v Nilant (2000) 172 ALR 158; [2000] FCA 353 referred to
Kleinwort Benson v Crowl [1988] HCA 34; (1988) 165 CLR 71 referred to
Tsingaris v Official Receiver for the Bankruptcy District of the State of Victoria [1999] FCA 1389 applied
Nikoglou v Official Receiver [2000] FCA 8, (2000) 171 ALR 223 referred to
Official Trustee in Bankruptcy v Byrne (1989) 94 FLR 465 referred to

CHRISTOPHER JOHN O’BRIEN v JOHN SHEAHAN AND THE OFFICIAL RECEIVER IN RESPECT OF THE STATE OF SOUTH AUSTRALIA

SAD 129 of 2004

MARSHALL & MANSFIELD JJ
20 APRIL 2005
ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 129 OF 2004

BETWEEN:	CHRISTOPHER JOHN O'BRIEN APPELLANT
AND:	JOHN SHEAHAN FIRST RESPONDENT THE OFFICIAL RECEIVER IN RESPECT OF THE STATE OF SOUTH AUSTRALIA SECOND RESPONDENT
JUDGE:	MARSHALL & MANSFIELD J
DATE OF ORDER:	20 APRIL 2005
WHERE MADE:	ADELAIDE

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD.129 OF 2004

BETWEEN:	CHRISTOPHER JOHN O'BRIEN APPELLANT
AND:	JOHN SHEAHAN FIRST RESPONDENT THE OFFICIAL RECEIVER IN RESPECT OF THE STATE OF SOUTH AUSTRALIA SECOND RESPONDENT

JUDGE:	MARSHALL & MANSFIELD J
DATE:	20 APRIL 2005
PLACE:	ADELAIDE

2 The appellant had been declared bankrupt and the Official Trustee had been appointed as trustee of the his estate. Shortly before the period for automatic discharge under s 149 of the Act, John Sheahan (the respondent) was appointed, or was said to have been appointed, as trustee of the appellant’s estate. The respondent then gave notice of objection to automatic discharge in accordance with s 149B of the Act. The effect of that notice was to extend the bankruptcy of the appellant for a significant period of time.

3 The appellant brought proceedings to have declared invalid the appointment of the respondent as the new trustee of his estate. The consequence would be that the respondent was not entitled to, and did not, give a valid notice of objection to discharge from the bankruptcy. The Official Trustee who, according to the appellant remained as the trustee of his estate, did not give such a notice. Consequently, he claimed there was no valid notice of objection to discharge, so that automatic discharge occurred pursuant to s 149(4) of the Act.

4 The appellant was made bankrupt by sequestration order made on 5 November 1996. The Official Trustee was appointed trustee of the estate. On 6 December 1996, the appellant provided a statement of affairs to the Official Receiver in respect of the State of South Australia (the Official Receiver). Consequently, in the ordinary course of events, and in the absence of a valid notice of objection, he would have been discharged from bankruptcy at the end of three years from the date in which he filed his statement of affairs: s 149(4) of the Act. It was common ground that the discharge would have occurred at 12 midnight on 6 December 1999.

5 On 16 November 1999, the Deputy Official Receiver on behalf of the Official Trustee instructed the respondent, a registered trustee in bankruptcy, as agent for the Official Trustee of the estate of the appellant to call a meeting of creditors to appoint the respondent as trustee of the estate of the appellant and to assist in the investigations of the affairs of the appellant, to identify his assets and to safeguard them. There had obviously been some earlier communications between the respondent and the Deputy Official Receiver, including as to whether a notice of objection to automatic discharge of the appellant from bankruptcy should be filed. By letter of 18 November 1999, the respondent indicated that he was prepared to take over the administration of the estate of the appellant, and to accept the agency appointment.

6 On 25 November 1999, the respondent circulated a notice to creditors of the estate of the appellant calling a meeting of creditors for 2 December 1999. The purpose of the meeting included enabling the creditors to consider appointing the respondent as trustee of the bankrupt estate of the appellant. The respondent pointed out that, unless an objection to discharge was served, the appellant would be discharged from bankruptcy automatically on 7 December 1999. On 1 December 1999, the Deputy Official Receiver appointed Ian Lock (a partner of the respondent) to represent the Official Trustee at the meeting of creditors to be held on 2 December 1999. Mr Lock attended the creditors’ meeting in that capacity.

7 On 1 December 1999 the respondent executed a ‘Consent to Act as Trustee’ of the bankrupt estate of the appellant (the consent). The consent referred to him being appointed as ‘a successive trustee under s 158’ of the Act. In fact, the proposed appointment of the respondent as trustee was to be made under s 157 of the Act. Section 157 generally concerns the appointment of a trustee, whereas s 158 concerns the appointment of more than one trustee or trustees in succession: s 158(2).

8 At the creditor’s meeting held on 2 December 1999 a resolution was carried that the respondent be appointed as trustee of the bankrupt estate of the appellant in place of the Official Trustee.

9 On 3 December 1999 the respondent wrote to the appellant advising him that, at the meeting held on 2 December 1999, it was resolved that he be appointed trustee of the appellant’s estate in place of the Official Trustee. That letter also enclosed a notice of objection to discharge. Nothing presently turns upon the terms of that notice of objection to discharge. Its final paragraph stated that, if the objection were upheld, the bankruptcy of the appellant would be extended to 7 December 2000. It appears that, despite the requirement of s 149B(1) of the Act, that notice of objection to discharge was not filed with the Official Receiver at that time.

10 By facsimile sent to, and received by, the Official Receiver at about 12.05 pm on 6 December 1999 a further notice of objection to discharge was filed with the Official Receiver. It was dated 6 December 1999. It was in the same terms as the previous notice of objection to discharge, except that the final paragraph indicated that, if the objection were upheld, the bankruptcy of the appellant would be extended to 7 December 2001.

11 By further facsimile sent to, and received by, the Official Receiver at 2.11 pm on 6 December 1999, the respondent sent to the Official Trustee the document entitled ‘Consent to Act as Trustee’ bearing the date 1 December 1999. It was signed by the respondent and expressed his consent to be trustee of the bankrupt estate of the appellant, ‘being a successive trustee under s 158 of the Act’. The learned judge at first instance found that was a copy of the consent. The cover sheet for that facsimile suggests the Official Receiver had been pursuing that document.

12 On 6 December 1999 the Official Receiver issued a certificate of appointment of the respondent as registered trustee of the estate of the appellant, recording the appointment as having been made on 2 December 1999.

13 At 2.35 pm on 6 December 1999, yet a further notice of objection to discharge was sent to, and received by, the Official Receiver. It was in the same form as the previous documents of 3 December 1999, and 6 December 1999, except that the final paragraph indicated that if the objection were upheld, it would have the effect of extending the bankruptcy to the appellant to 7 December 2004. The cover sheet described this document as the amended objection. We will call it the final notice of objection to discharge.

14 The final notice of objection to discharge was sent to the appellant on 7 December 1999. The covering letter pointed out that the amendment related to the date of extending the bankruptcy to 7 December 2004.

15 The appellant instituted the proceedings on 4 July 2003. He sought declaratory orders that the respondent was at no time the trustee of his bankrupt estate, that no valid notice of objection to his automatic discharge from bankruptcy was filed or served, and that the certificate of appointment of the respondent as trustee of his bankrupt estate dated 6 December 1999 is void and of no effect. He claimed a declaration that the respondent is deemed to have declined appointment as trustee of his bankrupt estate, and an injunction restraining the respondent from acting as trustee of his bankrupt estate.

16 The foundation for his claims was that s 157 of the Act had not been complied with. It deals with the appointment of trustees. It relevantly provides:

‘(1) Where a debtor becomes a bankrupt, the creditors may, if the Official Trustee is the trustee of the estate of the bankrupt, by resolution, at a meeting of creditors, appoint a registered trustee to the office of trustee of the estate of the bankrupt in place of the Official Trustee.

17 It is convenient to refer to the steps provided for by s 157. On 2 December 1999 the creditors of the bankrupt estate of the appellant resolved at a meeting to appoint the respondent as trustee in place of the Official Trustee. However, the Official Trustee did not notify the appellant in writing of that appointment as provided by s 157(2) of the Act. The respondent had executed the consent on 1 December 1999, and by facsimile sent at 2.11 pm on 6 December 1999 the consent was provided to the Official Receiver. The appellant contended that s 157(3) was not satisfied as the respondent did not inform the Official Trustee in writing within 10 days after notification of his appointment under s 157(2) that he accepted office as trustee of the bankrupt estate of the appellant. He could not have done so, the argument ran, as he had received no notification under s 157(2). The point was also taken that the consent was not given to the Official Trustee but to the Official Receiver. Consequently, as the last step in this line of argument, s 157(5) operated so that the absence of valid notification under s 157(3) meant that the respondent is deemed to have declined the appointment resolved upon by the creditors. The certificate of appointment issued by the Official Receiver on 6 December 1999, upon which the appointment of the respondent as trustee would have taken effect, was argued to be a nullity in those circumstances.

18 The learned judge at first instance first noted that any failure of the Official Receiver and of the respondent literally to follow subs 157(2) and (3) was not by any mistake on their part. The Official Receiver’s practice was to obtain the consent of the registered trustee proposed to be appointed as trustee by the creditors under s 157(1), and then to appoint that registered trustee as the agent of the Official Trustee to call the proposed creditors’ meeting. Once the creditors’ resolution was passed, the Official Trustee regarded the necessary consent as having been given and proceeded to issue the certificate of appointment. That is the procedure which was followed in this matter.

19 His Honour then proceeded to address the contentions. He concluded that the respondent had complied with s 157(3), that is that he had informed the Official Trustee in writing within 10 days of notification of his appointment by the Official Trustee that he accepted the office as trustee of the bankrupt estate of the appellant. That notice, his Honour found, had been given on 3 December 1999 by sending the consent to the Official Receiver on that date. (In fact, the earlier findings indicate that notice was sent to Official Trustee on 6 December 1999, but that would not affect the essence of his Honour’s conclusion.) His Honour did not remark upon whether there was any significance in the consent being given to the Official Receiver rather than to the Official Trustee.

20 His Honour also concluded a notice from the Official Trustee in accordance with s 157(2) was not necessary, because the obligation to give such a notice did not arise. It did not arise because the Official Trustee did not believe it was necessary to give such notice to the respondent as the respondent had previously consented to his appointment and was aware of the creditors’ resolution. His Honour drew a comparison with s 156A dealing with the giving of consent by a registered trustee to becoming trustee of a bankrupt estate of a debtor in anticipation of, and upon, the making of a sequestration order. In the absence of such a consent, the Official Trustee becomes the trustee: s 160 of the Act. Where the first trustee is the Official Trustee, s 157 empowers the creditors of the bankrupt estate to appoint a registered trustee. His Honour said:

Unlike s 156A, his Honour pointed out that s 157(2) contemplates that the registered trustee so appointed may not be aware of the impending appointment prior to the creditors’ meeting. Hence, he concluded that s 157(2) is to address that circumstance. Usually, that circumstance does not arise. As his Honour said:

That occurred in this instance. The respondent had previously consented to his appointment and was aware of the creditors’ resolution. He concluded that there was no need for notice of the creditors’ resolution to be given to the respondent, so the obligation under s 157(2) did not arise.

21 The learned judge at first instance also dealt with the alternative contention, based upon the claim (which he had rejected) that the sending of the consent did not satisfy the requirements of s 157(3) of the Act. He described subs 157(2)-(5) as providing:

His Honour described those subsections as ensuring fulfilment of the creditors’ wishes. He also observed that s 157(5) would not operate where the registered trustee orally informed the Official Trustee of acceptance of the office of trustee although s 157(3) requires notice in writing to be given, suggesting strict compliance with s 157(3) is not necessary.

22 Hence, his Honour concluded that subs 157(2) and (3) do not require strict compliance with their terms before the Official Receiver can issue to the registered trustee a certificate of appointment. He concluded:

23 Finally, his Honour addressed the respondent’s contentions that, in any event, s 306 would operate to validate his appointment on 6 December 1999 as trustee of the estate of the appellant. Strictly speaking, it was not necessary to do so. He concluded that, even if the contentions of the appellant about s 157 were correct, s 306 would validate the formal defects and irregularities caused by the alleged failures of the Official Trustee and of the respondent to comply strictly with s 157. Although he did not expressly say so, his focus was only upon s 306(1) of the Act.

25 Firstly, his Honour recognised that ‘proceedings’ in s 306(1) are not confined to a court proceeding: Nilant v Macchia [2000] FCA 1528; (2000) 104 FCR 238. The relevant ‘proceeding’, he found, was the resolution of the creditors of 2 December 1999 appointing the respondent as trustee of the estate of the appellant in place of the Official Trustee. Any failure on the part of the Official Trustee to comply strictly with s 157(2), or on the part of the respondent to comply strictly with s 157(3), would be a formal defect as those subsections are facultative, that is are to put in place the resolution of the creditors. Moreover, his Honour found there was no injustice caused by the alleged defect or irregularity because strict compliance with those provisions would have led to the trustee’s valid appointment as trustee of the estate of the appellant in any event, and the appellant assumed at the time that the respondent had in fact been so appointed.

26 The learned judge at first instance therefore concluded that the respondent was validly appointed as trustee of the estate of the appellant, effective from 6 December 1999 when the certificate of appointment issued. The consequence was that the final notice of objection to discharge was effective to prevent the automatic discharge from bankruptcy of the appellant.

27 The Act was introduced following what is commonly called the Clyne Committee Report (Report of the Committee Appointed by the Attorney-General of the Commonwealth to Review the Bankruptcy Law of the Commonwealth, Commonwealth Government Printer, 1962). See Cummings v Mack [2000] FCA 55; (2000) 96 FCR 345 at [42]. That report considered provisions of the Bankruptcy Act 1924-1960 (the former Act) dealing with the appointment of trustees to be generally satisfactory: Clyne Committee Report, par 239. It suggested only minor alterations to the former Act on that topic. Section 157 as first enacted reflected the draft Bill suggested by the Clyne Committee Report.

28 Part VIII Div 1 of the Act, when enacted, in dealing with the appointment of trustees carried forward the procedures under the former Act. Following a bankruptcy, the creditors by resolution could appoint a registered trustee as trustee of the estate of the bankrupt (s 157), or they could do so in the event of a vacancy in the office of trustee (s 159). Section 160 provided for the official receiver for the district to be the trustee of the estate of the bankrupt until a creditors’ resolution under s 157(1), or if there were no such appointment of a trustee by the creditors or in the event of there being a vacancy in the office of trustee. Section 159(3) made it clear that a vacancy in the office of trustee existed, so the creditors could resolve to appoint a registered trustee as trustee of the estate of the bankrupt, where the official receiver for the district was trustee by reason of s 160. The provisions initially were much the same as those which applied under s 19 of the Bankruptcy Act 1914 (UK) and the Bankruptcy Acts of the several Australian States, as well as under the former Act: Clyne Committee Report, pars 17-18.

29 At that time subs 157(2)-(5) provided the means by which the creditors’ appointment of a trustee should be effected. In substance, those provisions are to the same effect as the existing subs 157(2)-(5) in the Act. The minor differences are a consequence of the different functions then carried out, namely that the Official Receiver for the district was the default trustee and so had to give the notification required by s 157(2) and to receive the notification of acceptance under s 157(3), and the Registrar rather than the Official Receiver was responsible for issuing the certificate of appointment under s 157(3). Section 12 of the Bankruptcy Amendment Act 1980 (Cth) changed the title of The Official Receiver in Bankruptcy to the Official Trustee in Bankruptcy, and continued that entity as a body corporate established under the Act. Section 3 and Sch 1 Pt 1 cl 289 of the Bankruptcy Legislation Amendment Act 1996 (Cth) (the 1996 Amending Act) provided for the Official Receiver rather than the Registrar to issue the certificate of appointment under s 157(3). The 1996 Amending Act extensively amended s 18 of the Act, including to empower the Official Receiver to exercise the powers of the Official Trustee. It will be necessary to refer to s 18 in a little detail below. The 1996 Amending Act also, inter alia, amended the regulation making power in s 315. It was followed by the Bankruptcy Regulations 1996, which included the establishment of the National Personal Insolvency Index. Those changes were partly to give effect to the establishment of a ‘One Stop Service’ for bankrupts and insolvent debtors within the Insolvency and Trustee Service, Australia, the relevant division of the Attorney-General’s Department, and the rationalising of bankruptcy administration: Bankruptcy Legislation Amendment Bill 1996, Explanatory Memorandum, s 2(a).

30 The present expression of subs 157(1) and (2) was enacted by s 137 of the Commonwealth Functions (Statutes Review) Act 1981 (Cth). The right of the creditors to resolve to appoint a registered trustee as trustee of the estate of a bankrupt was dependent upon the Official Trustee being the trustee of that estate. Otherwise it maintained the substance of the previous expression of s 157(1). Section 157(2) as substituted also was to reflect that precondition to a creditors’ resolution under s 157(1), although (as the learned judge at first instance observed) it did so by the curious device of referring to the Official Trustee as ‘the relevant trustee’.

31 The significant amendment to the Act by the Commonwealth Functions (Statutes Review) Act 1981 (Cth), for present purposes, was the enactment of s 156A of the Act. It provides for a registered trustee to become the trustee of the estate of a bankrupt at the time of the sequestration order. That change meant that it was no longer necessary that there be the default appointment of an official receiver (later, the Official Trustee) under s 160 as the first trustee of the estate of a bankrupt. The appointment of a registered trustee as the trustee of a bankrupt estate may occur under s 156A(3) upon the making of a sequestration order. The condition upon which s 156A(3) operates is the signed consent of the registered trustee being given prior to the sequestration order to the Registrar (later, the Official Trustee) to being so appointed.

32 The provisions relevant to the appointment of trustees can be seen to have several features. They enable the creditors to select (and under s 156A in the first instance the petitioning creditor to select) the trustee of the estate. If no consent of a registered trustee is given before the sequestration order, s 160 makes the Official Trustee the trustee. If a registered trustee is to be the trustee upon the making of a sequestration order, the proposed trustee must have consented to appointment to that office before the making of the sequestration order. Regulation 8.06 of the Bankruptcy Regulations requires the consent to be filed with the Official Receiver as soon as practicable after it is signed or, if a sequestration order is made, within two days of the order. The consent which s 156A(1) requires will generally be secured by the petitioning creditor. An appointment by creditors after the sequestration order under s 157(1) by contrast does not require the consent of the registered trustee to have been given or filed before the creditors’ resolution. Section 157 provides a series of steps after the resolution to secure that consent. If it is not given in a timely manner, that is within 10 days of the notification under s 157(2), then the appointment made by the creditors is deemed to have been declined. If the appointment made by the creditors is accepted, the Official Receiver is to issue a certificate of appointment under s 157(3) and the appointment made by the creditors takes effect only from the date of the certificate of appointment. Those processes ensure that the creditors, and the trustee including the Official Trustee, and the public through inspection of the National Personal Insolvency Index, may clearly know who is the trustee of the estate of a bankrupt at a particular time.

33 The essential steps under s 157 for the appointment of a registered trustee as trustee of the estate of a bankrupt in the place of the Official Trustee are, in our view:

We think the legislative purpose is clear that each of those elements must exist before a registered trustee becomes trustee of the estate of a bankrupt in the place of the Official Trustee: see per Gleeson CJ in Plaintiff S157/2002 v Commonwealth of Australia [2003] HCA 2; (2003) 211 CLR 476 at 488-489, [20]. The resolution of the creditors is the starting point for the operation of s 157. The resolution of the creditors however does not take effect until the certificate of appointment is issued: s 157(4). The certificate of appointment may only be issued when the proposed trustee has consented to being so appointed.

34 In this matter, the Official Trustee did not give written notice under s 157(2) because the practice was generally to regard it as unnecessary. That was simply because the Official Trustee had already discussed with the respondent his proposed appointment, and both the respondent and the Official Trustee (through an agent) were present at the creditor’s meeting. They each knew of the creditors’ resolution. There may also have been no written consent strictly in terms of s 157(3) if there had to be notification given in terms of s 157(2) as there would be no activating event for its enlivenment. Nor did the 10 day response period contemplated by s 157(5) start to run in the absence of that activating event.

35 With respect to the learned judge at first instance, we do not think subs 157(2) and (3) are independent of subs (5) so that the consent to be given within the time prescribed by s 157(5) may simply be given orally. Where there is a need for the consent of the registered trustee to the appointment, subs 157(2)-(5) require written communications. There is obviously the benefit of certainty which attaches to written communications. Subsection 157(5) refers to the registered trustee ‘so’ informing the Official Trustee of acceptance of the appointment. That must be a reference back to the notice of consent in writing referred to in subs 157(3). Moreover, the 10 day period in s 157(5) only runs from the notification given by the Official Trustee of the appointment by the creditors under s 157(2). It does not run from the creditors’ resolution. The legislature, by requiring written communication, has in our view sought to avoid the risk of ambiguity or impermanence which oral communications may carry. Each of those provisions can thus be seen to be interdependent in their operation in that way. Given the legislative ancestry of s 157, we also do not consider that the contrast between the need for a prior written consent from a registered trustee if that trustee is to be appointed upon the making of a sequestration order under s 156A and the procedure for a post-resolution consent from a registered trustee provided for in s 157 following a creditors’ resolution under s 157(1) has the significance which his Honour found. Section 157 has a long history, apparently back to when consent of the proposed trustee to the appointment by the creditors was not commonplace. It does not necessarily reflect a ‘legislative package’ in the Commonwealth Functions (Statutes Review) Act 1981 (Cth) with s 156A.

36 The relevant contrasting feature, in our view, is that s 156A requires an anticipatory written consent, whereas s 157 neither requires nor provides for an anticipatory written consent. When s 156A was introduced, the legislature could readily have amended s 157 to provide for the option (or indeed the requirement) of an anticipatory written consent. It may be that there are sound policy or practical reasons for not so providing, even if the proposed trustee is aware in advance of the proposed appointment. The proposed trustee, even if in anticipation of the creditors’ resolution there is a preparedness to accept appointment, may receive further information at or prior to the creditors’ meeting (or after it) which may affect the proposed trustee’s preparedness to undertake the responsibilities of the appointment as trustee. Information may emerge which may affect the proposed trustee’s independence, due to involvement in some other matter, or which may render the proposed trustee vulnerable to an objection to the appointment by a particular creditor under s 157(6) of the Act. The proposed trustee may then no longer be prepared to accept the appointment. There may be other reasons for a change of mind.

37 In any event, the legislature did not in 1981 or subsequently provide for a registered trustee to consent to appointment in anticipation of a creditors’ resolution under s 157(1). Thereafter the Act as amended should be read as reflecting the ongoing intention of the legislature: Sweeney v Fitzhurdinge [1906] HCA 73; (1906) 4 CLR 716 at 735, including that s 156A and 157 provide different timing requirements for the proposed trustee’s consent. In addition, the timing impositions of s 157(2): ‘as early as practicable’, and of s 157(3) and (5) indicate a legislative intention that the creditors’ resolution under s 157(1) should be given effect by the issue of a certificate of appointment promptly after the resolution. The purpose of subs 157(2)-(5) is facultative. It is to provide procedures to give effect to the exercise of power by the creditors under s 157(1). But their purpose is also to provide the means of securing, within a limited time, the certainty of consent on the part of the proposed trustee and to prescribe a means of determining a certain time at which the creditors’ resolution takes effect, namely the issue of the certificate of appointment. Moreover, the wording of subs 157(1)-(5) is itself quite clear (other than the curious device of referring to the Official Trustee as ‘the relevant trustee’). There is no textual ambiguity, nor any reason to adopt a meaning other than the normal meaning of the words used which can be discerned from the purpose of the provisions, either alone or in their context in the Act as a whole. In our view, s 306 provides such avenue as the legislature intended to provide to escape the consequences of failure to comply with the terms of subs 157(2) and (3).

38 For those reasons, we have reached the view that the Official Trustee was required to comply with s 157(2) of the Act. It is common ground that no notification in terms of s 157(2) was given to the respondent. In our view, any consequences of that failure are to be determined by reference to s 306 of the Act.

39 The respondent nevertheless, on 6 December 1999, provided to the Official Trustee the consent. It was provided before, and in the absence of, a notice under s 157(2) of the Act. The 10 day time limit imposed by s 157(5) before an appointment should be deemed to have been declined had not commenced to run. The initiating wait for it to do so, namely the notice given under s 157(2), had not occurred. The consent was in any event provided within 10 days of the creditors’ resolution of 2 December 1999. On any view, it was provided therefore before the respondent could be deemed to have declined the appointment by reason of s 157(5). In substance, the consent amounted to informing the Official Trustee that the respondent accepted the office as trustee of the estate of the appellant. We put aside for the moment that the consent was to be appointed as ‘a successive trustee under s 158’ of the Act. Subject to that reservation, the consent meets the requirements of s 157(3). It was promptly followed by the certificate of appointment.

40 Subject to considering the precise terms of the consent, in our view, s 157(3) was satisfied in the circumstances. It was a notice in writing to the Official Trustee that he accepted the office of trustee of the estate of the appellant. It was given, on any view, before the expiration of 10 days from a notice under s 157(2) as there was no such notice, and it was within 10 days of the creditors’ resolution. The Official Receiver was required to issue the certificate of appointment. Although subs 157(2), (3) and (5) are interdependent in the way referred to above, as we have indicated in [33] the purpose of s 157 is to provide a means of giving effect to the resolution of the creditors. That is reinforced by s 157(5), which provides that, where the appointed registered trustee does not notify acceptance of the office within the time allowed and so is deemed to have declined it, the Official Trustee must convene another meeting of creditors for the purpose of a further appointment being made by the creditors under s 157(1). The absence of notification of the creditors’ appointment under s 157(2) does not mean there can be no notification of acceptance of the creditors’ appointment under s 157(3). Section 157(2) and s 157(5) can set an outer time limit for the consent under s 157(3), but they do not provide that there can be no consent under s 157(3) if the activating event for the time limit – the notice under s 157(2) – has not been given. The important feature of s 157(3) is the timely consent following the creditors’ resolution. It is not that the consent can only be given after the notice under s 157(2). To reach a contrary view would fail to adopt a meaning of s 157(3) consistent with its language and purpose in the Act: see Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at 381, [69] (Project Blue Sky). It would frustrate, rather than fulfil, the purposes of s 157 to conclude otherwise. For example, following the creditors’ resolution, if the proposed trustee were immediately to inform the Official Trustee in writing of acceptance of the office, at best it would be pointless to then require the Official Trustee to give a notification under s 157(2) and to require the proposed trustee to give a further acceptance or to treat the appointment as declined if there were not a further acceptance.

41 The erroneous reference in the consent to s 158 rather than to s 157 of the Act does not, in our view, mean the consent did not convey to the Official Trustee that the respondent accepted the office of trustee of the estate of the appellant. There is no suggestion elsewhere in the material that either the Official Trustee or the respondent were under any misapprehension that the procedure adopted was for the creditors to appoint a trustee under s 157. That was a shared common purpose and understanding. The reference to s 158 in the consent is simply a minor erroneous reference. The purpose of s 157(3) is for the proposed trustee in a limited time to convey a preparedness to undertake the office of trustee, and then for the Official Receiver to give effect to the creditors’ resolution in the light of the acceptance by issuing the certificate of appointment. That is what the respondent and the Official Receiver respectively did.

42 In our judgment, therefore, the respondent was properly appointed as trustee of the estate of the appellant in accordance with s 157, notwithstanding that the Official Trustee did not give a notice under s 157(2) to the respondent following the creditors’ resolution of December 1999. By a slightly different route to that adopted by the learned judge at first instance we have reached the same conclusion as his Honour.

43 The appellant contended that the consent was ineffective in any event because it was given to the Official Receiver rather than to the Official Trustee. The contention was put in writing, and orally, although there is no ground of the amended notice of appeal which appears clearly to raise the issue. In our judgment the contention must fail. It does not have regard to the changes to the Act effected by the 1996 Amending Act, partly referred to in [29] above. At that time s 18(8) was amended to provide for the Official Receiver to exercise the powers and perform the functions of the Official Trustee. Subsection 18(8AA) and (8A) were also then inserted into the Act. They provide:

As noted in [5], the Official Receiver expressly indicated to the respondent on 16 November 1999 that the instruction then given was as agent for the Official Trustee. The bankruptcy of the appellant was thus identified as a matter in which the Official Receiver was acting in the name of and on behalf of the Official Trustee under s 18(8) of the Act. The respondent then consented to the proposed appointment by letter to the Official Receiver of 18 November 1999 and then consented to the appointment by the consent given to the Official Receiver on 6 December 1999. Each of those communications was clearly received by the Official Receiver on behalf of the Official Trustee and so received by the Official Trustee by reason of s 18(8A). In addition, if the receipt of those communications amounted to the performance of a function of the Official Trustee by the Official Receiver, they were functions performed in the name of and on behalf of the Official Trustee under s 18(8AA). Once the Official Receiver identified that the administration of the estate of the appellant was being conducted for the Official Trustee, the receipt of those consequential communications was in that capacity. It cannot have been the legislative intent that, in such circumstances, the Official Receiver exercising the powers and functions of the Official Trustee must on the occasion of the receipt of each item of correspondence re-communicate to the sender that its receipt is in the name of and on behalf of the Official Trustee.

44 The amended notice of appeal also challenged the validity of the final notice of objection to discharge. The final notice of objection to discharge was described by the respondent to the appellant in a letter of 7 December 1999 as ‘an amended Notice of Objection’, changing the date for extending the bankruptcy to 7 December 2004. It was argued that its validity therefore depended upon the validity of the earlier notice of objection to discharge of 3 December 1999, and that the earlier notice could not validly have been given by the respondent because he was not then the trustee of the estate of the appellant. Also, the notice of objection to discharge of 3 December 1998 was not filed with the Official Receiver. A notice of objection to discharge which has not been filed with the Official Receiver has no effect: Donnelly v Edelsten [1992] FCA 121; (1992) 34 FCR 556.

45 It is clear that the final notice of objection to discharge can be the only valid and operative one. Section 149A of the Act extends the period of bankruptcy if an objection to discharge has taken effect in accordance with s 149G. Section 149B(1) permits a trustee to file with the Official Receiver a notice of objection to discharge, and s 149F requires that a copy of the notice be given to the bankrupt as soon as practicable after it is filed by the trustee. The final notice of objection to discharge was the only notice given after the respondent’s appointment as trustee under s 157(1) took effect, that is after the certificate of appointment issued by the Official Receiver on 6 December 1999. It is therefore the only notice which was filed by the respondent as trustee. It has been assumed (or at least there is no contrary evidence or submission) that details of the final notice of objection to discharge were entered in the National Personal Insolvency Index on 6 December 1999, so that (subject to the particular contention of the appellant that the final notice of objection to discharge did not stand as an independent document) it took effect under s 149G at the commencement of 6 December 1999. If so, it took effect prior to the appellant’s automatic discharge from bankruptcy under s 149(4) and his bankruptcy was therefore extended.

46 In our judgment, the appellant’s contention on this aspect must fail. It must fail simply because the final notice of objection to discharge itself complied with the requirements of such a notice specified by s 149C, and included grounds of objection as available under s 149D. It was an amended version of an earlier document which was of no effect for the reason given. But in form and content it was a valid notice of objection which was capable of, and did, have effect independent of the earlier document.

47 As was the case at first instance, it is strictly speaking unnecessary to address the possible application of s 306 to the present circumstances. However, we share the view of the learned judge at first instance that, even if there was any failure to comply with subs 157(2) and (3), s 306(1) would operate to protect the issue of the certificate of appointment by the Official Receiver on 6 December 1999 from invalidity.

48 The Full Court (Hill, Carr and Weinberg JJ) in Nilant v Macchia [2000] FCA 1528; (2000) 104 FCR 238 indicated that the words ‘proceedings under this Act’ in s 306(1) are to be given an operation extending beyond curial proceedings, and extend to steps taken pursuant to, and in accordance with, the requirements of the Act: see e.g. per Weinberg J at 247, [43]. Indeed, Hill J at 244, [27] included as an illustration of the application of s 306(1) the existence of a defect in the appointment of a trustee in bankruptcy. The appellant through senior counsel did not contend that that decision should not be followed. In our judgment, consistent with that decision, the issue of the certificate of appointment by the Official Receiver was a proceeding under the Act. It was an administrative step taken which was capable of coming before the Court on an issue as to its validity: see per Hill J in Nilant v Macchia at 244, [27].

49 That decision determined that s 306(1) did not empower the Court to treat a failure to file with the Official Receiver a statement of affairs as required by s 54(1) of the Act as compliance with it. A mandatory requirement of the Act was simply not complied with, and no proceeding under the Act was invalidated by the failure to comply with it. The Full Court did not need to, and did not, address in detail what generally may amount to a formal defect or irregularity. Hill J at 245, [29] did express the view that breach of s 54 could not be categorised as merely formal. His Honour referred to the penal nature of the obligation it created and to the policy behind the section – the importance to the administration of an estate to have a prompt and full details of the affairs of the bankrupt. Both Carr J at 246, [36] and Weinberg J at 306, [55]-[62] indicated however that s 306(1) could permit the Court to treat a defect or irregularity in the filing of a statement of affairs as capable of being remedied.

50 It has long been recognised that what constitutes a formal defect or an irregularity in proceedings under the Act for the purpose of s 306(1) is a matter of fact: Re Rosenboom (1974) 18 CBR (NS) 180 (Ont SC); Re Ballato; Ex parte Pezzano [1988] FCA 768; Matthews v Collett [2000] FCA 224E; Re Macchia; Ex parte Macchia v Nilant (2000) 172 ALR 158; [2000] FCA 353. Counsel for the appellant did not contend to the contrary. Rather, he contended that both s 157(2) and s 157(3) properly construed were mandatory legislative prescriptions which, therefore, could not attract the protection of s 306(1) if they were not strictly complied with.

51 For the reasons which follow, we do not consider subs 157(2) and (3) separately create or affect legal rights, nor do they contain requirements which the Act makes essential in the sense urged for by the appellant. They are not like the provisions specifying the required contents of bankruptcy notices, where their contents are capable of misleading the debtor or creditors: cf Kleinwort Benson v Crowl [1988] HCA 34; (1988) 165 CLR 71 at 79.

52 As we have discussed earlier in these reasons, subs 157(2)-(5) provide the means by which the creditors’ resolution under s 157(1) is to be given effect. Its effectuation ultimately is by the issue of the certificate of appointment by the Official Receiver under s 157(3) and operates only from the date of that certificate: s 157(4). Those subsections provide the means by which the Official Receiver comes to know when, or whether, to issue a certificate of appointment and when, or whether, the Official Trustee is to call a further meeting of creditors to appoint another trustee under s 157(5). The factor which indicates which of those two alternatives is to be pursued is the consent of the trustee appointed by the creditors given in a timely manner as required by s 157(5). The processes prescribed by subs 157(2) and (3) are private communications except for the certificate of appointment. They are simply the means of the Official Receiver and the Official Trustee ascertaining whether, within the time which s 157(5) allows, the trustee appointed by the creditors does consent to the appointment. The certificate of appointment then achieves the purpose of the Official Trustee, the respondent as trustee, the creditors and the public (through the National Personal Insolvency Register) knowing with certainty who is the trustee of the estate of a bankrupt.

53 Where, as here, the consent was given in writing before the Official Trustee had given notice under s 157(2), and in any event within 10 days of the creditors’ resolution, in our view the failure to give that notice is merely a formal irregularity. Both the respondent and the Official Trustee were aware of the creditors’ resolution. The respondent procured it as agent of the Official Trustee. They were both present at the creditors meeting. The Official Trustee took the view that formal notice under s 157(2) was an unnecessary step. Had the circumstances been different, the Official Trustee may have given notice under s 157(2) so as to activate the 10 day response period under s 157(5). That was not done. The consent had been given in anticipation of the creditors meeting, and was further conveyed or confirmed on 6 December 1999. In such circumstances, we do not consider the failure of the Official Trustee to follow s 157(2) was intended to result in there being no power under s 306(1) to declare the certificate of appointment valid: see Project Blue Sky at 390-391, [93] per McHugh, Gummow, Kirby and Hayne JJ. The use of the word ‘shall’ in s 157(2) should not be read as producing that consequence.

54 We have also concluded that the facts that the consent was given before any notice under s 157(2), that the consent referred to s 158 rather than to s 157, and that the consent was on its face sent to the Official Receiver, did not result in the consent not complying with s 157(3). If we are wrong about all or any of those matters, we think each is clearly a merely formal defect or irregularity not resulting in the consent being of no effect nor resulting in the certificate of appointment being invalid. We have construed s 157(3) as permitting the consent to be given before the notice under s 157(2) is given, as we consider that the time specification in s 157(5) is an outer time limit rather than one which precludes a consent before any notice under s 157(2). If that is wrong, for similar reasons to those in [53] above, we think such a departure from s 157(3) was not intended to invalidate the process of giving effect to the creditors’ resolution when the consent was in fact given. To adopt a different view would be to frustrate, rather than to fulfil, the purpose of s 157 which is to enable the creditors to appoint a trustee. Where the consent is, on the evidence, clearly intended to amount to a consent to accept the appointment as trustee made by the creditors, its erroneous reference to the wrong section is also in our view a defect which s 306(1) was intended to validate. There can be no doubt that the creditors, the respondent and the Official Trustee all intended to secure the appointment of the respondent as trustee under s 157 and that the respondent intended to accept that appointment. For reasons similar to those of Weinberg J in Tsingaris v Official Receiver for the Bankruptcy District of the State of Victoria [1999] FCA 1389, we also consider that the sending of the consent to the Official Receiver rather than to the Official Trustee (if that is what is found to have occurred) is a formal defect or irregularity in the circumstances which, by reason of s 306(1), does not make the consent invalid or of no effect and which does not make the certificate of appointment invalid. See also Nikoglou v Official Receiver [2000] FCA 8, (2000) 171 ALR 223 at [10]- [14].

55 The amended notice of appeal did not challenge the determination at first instance that, if s 306(1) were available to validate any defects or irregularities in the appointment of the respondent as trustee of the estate of the appellant, no substantial injustice had been caused by any of those defects or irregularities.

56 The learned judge at first instance did not need to, and did not, deal with the alternative and further matter argued by the respondent that, even if the appointment of the respondent was invalid, the giving of the final notice of objection to discharge would not be invalid by reason of s 306(2) of the Act. A notice of contention was given to maintain that submission by the respondent on this appeal. To address the contention, it is necessary to assume (contrary to our conclusions above) that there was a defect or irregularity in the appointment of the respondent as trustee of the estate of the appellant. It is at that point that the appellant joins issue; he contends s 306(2) cannot apply because there was no appointment of the respondent at all. The appellant did not contend that s 306(2) would not otherwise apply to the final notice of objection to discharge. That is, there was no dispute that the respondent in filing the final notice of objection to discharge was exercising or purporting to exercise a power or function under s 149B of the Act and was then acting in good faith.

57 The contention that there was no appointment of the respondent as trustee of the estate of the appellant is based upon a false foundation. It is that the respondent is deemed by s 157(5) to have declined the appointment. In the circumstances, the 10 day response period before a registered trustee is deemed to have declined an appointment as trustee did not ever start to run. That period runs from the notification under s 157(2). There was no such notification. Section 157(5) therefore could not, and did not, deem the respondent to have declined the appointment at any particular time.

58 Section 157(3) provides for the Official Receiver to issue a certificate of appointment once the consent in writing of the registered trustee is given (and provided the appointment has not been deemed to have declined), and the appointment of the trustee under s 157(1) then takes effect: s 157(4). The appointment is perfected by the certificate of appointment. In this matter, the defects or irregularities alleged concern the means by which the consent of the respondent was provided. In our view, as there is both a creditors’ appointment under s 157(1), and a consent in reality (if not in the procedural form contemplated by subs 157(2) and (3) – if the appellant’s contentions are correct) followed by the perfecting instrument the certificate of appointment, the respondent was appointed as the trustee of the estate of the appellant. Section 306(2) would then, if necessary, operate to prevent the final notice of objection to discharge being invalid if the consent of the respondent was necessary to be procured in the strict way the appellant contended. The operation of s 306(2) in that way is consistent with its operation as discussed in Official Trustee in Bankruptcy v Byrne (1989) 94 FLR 465.

59 Accordingly, we have reached the view that the appeal should be dismissed. The appellant should pay to the respondent his costs of the appeal.

I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Marshall & Mansfield.

Counsel for the Appellant:	ML Abbott QC with A Hawking

Solicitors for the Appellant:	Townsends

Counsel for the Respondents:	G Gretsas

Solicitors for the Respondents:	Gretsas Chrzaszcz

Date of Hearing:	3 November 2004

Date of Judgment:	20 April 2005

1.	The appeal be dismissed.
2.	The appellant pay to the respondents their costs of the appeal.

(1)	the resolution of the creditors under s 157(1);
(2)	the consent of the registered trustee to be so appointed; and
(3)	the issue by the Official Receiver of a certificate of appointment under s 157(3).

Federal Court of Australia - Full Court Decisions

O'Brien v Sheahan [2005] FCAFC 59 (20 April 2005)