In the Matter of Ewins, David & Georgie & Hooper, John v Ewins, David

[1997] FCA 1267

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - Bankruptcy Act 1966 (Cth), ss 188(4) - the giving of an authority under Part X to call a meeting of creditors and take control of debtors’ property - two authorities signed within 6 months - first authority not effective - whether second authority valid under s 188.

Pretorius v Daltons Carpet Tiles Pty Ltd (1984) 1 FCR 346
Re De Kantzow;  Ex parte De Kantzow (1992) 35 FCR 74
Re Saheed;  Saheed v The Official Receiver (1993) 41 FCR 148

JOHN HOOPER v DAVID EWINS, GEORGIE EWINS
In the matter of DAVID & GEORGIE EWINS    
NG 7962/97

BRANSON J
SYDNEY
21 NOVEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7962  of   1997

BETWEEN:

JOHN HOOPER
APPLICANT

AND:

DAVID EWINS
FIRST RESPONDENT

GEORGIE EWINS
SECOND RESPONDENT

JUDGE(S):

BRANSON J

DATE OF ORDER:

21 NOVEMBER 1997

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

The question:  “Whether the authority dated 17 November 1997 signed by the debtors naming and authorising Warren Pantzer to call a meeting of the debtors’ creditors and to take control of the debtors’ property is a valid authority”, be answered “Yes”.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7962 of 1997

BETWEEN:

JOHN HOOPER
APPLICANT

AND:

DAVID EWINS
FIRST RESPONDENT

GEORGIE EWINS
SECOND RESPONDENT

JUDGE(S):	BRANSON J
DATE:	21 NOVEMBER 1997
PLACE:	SYDNEY

REASONS FOR DECISION

The petitioning creditor seeks a sequestration order against the estates of the debtors.  The debtors, certain unsecured creditors and Warren Pantzer (“Mr Pantzer”), a registered trustee, oppose the making of a sequestration order. The debtors, on 17 November 1997, signed a purported authority pursuant to s 188 of the Bankruptcy Act 1966 (Cth) (“the Act”) naming and authorising Mr Pantzer to call a meeting of the debtors’ creditors and to take control of the debtors’ property (“the authority”).

Pursuant to O 29 r 2(a) of the Federal Court Rules, I ordered, by consent, that the question of whether the authority is a valid authority under s 188 of the Act be decided separately from any other question before the hearing of the creditor’s petition.

The only ground upon which it is contended by the petitioning creditor that the authority is invalid is that ss 188(4) prevented the giving by the debtors of the authority. Subsection 188(4), the terms of which are set out below, restricts the capacity of a debtor to give more than one authority pursuant to s 188 of the Act in any six month period.

On or about 23 September 1997, the debtors signed a form of authority in accordance with the approved form naming and authorising the Official Trustee to call a meeting of the debtors’ creditors and to take control of the debtors’ property (“the first authority”).   An Official Receiver has caused the debtors to be notified that the Official Trustee has not consented to act pursuant to the first authority.

Section 188, so far as is here relevant, provides as follows:

“(1)     A debtor who desires that his or her affairs be dealt with under this Part without his or her estate being sequestrated and:

(a)is personally present or ordinarily resident in Australia;

(b)       has a dwelling-house or place of business in Australia;

(c)is carrying on business in Australia, either personally or by means of an agent or manager;  or

(d)is a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;

may sign an authority in accordance with the approved form naming and authorising a registered trustee, a solicitor or the Official Trustee to call a meeting of the debtor’s creditors and to take control of the debtor’s property.

(2)An authority signed by a debtor under this section is not effective for the purposes of this Part unless:

(a)if the person authorised is a registered trustee or solicitor - the person has consented in writing to exercise the powers given by the authority;  and

(aa)if the person authorised is the Official Trustee - an Official Receiver has give the debtor written approval to name the Official Trustee in the authority;  and

(b)the signature of the debtor to the authority and the signature of the trustee or solicitor to the consent are each attested by a witness.

(3)       An authority under this section that is effective for the purposes of this Part is not revocable by the debtor.

(4)       Subject to subsection 192(1), a debtor cannot give an authority within 6 months of giving another authority, unless the Court grants leave to do so.

(5)       A registered trustee or solicitor who consents to exercise the powers given by an authority must, within 14 days of consenting, give a copy of the authority to the Official Receiver for the District in which the debtor resides.

(6)When an authority becomes effective, the person authorised by it becomes the controlling trustee.”

Section 188 of the Act was amended by the Bankruptcy Legislation Amendment Act 1996 (Cth) (“the amending Act”). Included in the amendments made by the amending Act was the repeal of the then ss 188(4) and the substitution of the present subsections 188(4), (5) and (6). The amending Act also made provision for the first time for the Official Trustee to act pursuant to an authority given under s 188 of the Act.

Crucial to the question to be answered is the issue of when an authority under s 188 of the Act is given within the meaning of ss 188(4). None of the explanatory memorandum relating to the amending Bill containing the provision which became ss 188(4), the second reading speeches nor the report of the Senate Legal and Constitutional Committee on the Bill provides any assistance in this regard.

The petitioning creditor contends that an authority is given within the meaning of ss 188(4) when a document in the approved form, duly completed and signed by the debtor, is delivered to the person authorised thereby to act as controlling trustee. The other parties before me contend that an authority is only given when it becomes effective for the purposes of Part X of the Act (see ss 188(2)).

It is to be noted that s 188 draws certain distinctions between an authority naming the Official Trustee as controlling trustee and an authority naming either a registered trustee or a solicitor as controlling trustee. In the case of an authority naming a registered trustee or a solicitor as controlling trustee, it appears that the debtor may sign an authority in the approved form in advance of the receipt by him or her of the consent of such registered trustee or solicitor to exercise the powers given by such authority. This conclusion, in my view, flows from the difference in wording between paras (a) and (aa) of ss 188(2). Whereas para (aa) provides for the giving of approval by an Official Receiver for the Official Trustee to be named in an authority, para (a) provides for a consent in writing from an official trustee or a solicitor to exercise the powers given by the authority. The approval to name the Official Trustee in an authority must logically be given before the Official Trustee is so named, i.e., before the authority is completed. However, a consent to exercise the powers given by an authority must logically be given at or after the time of the completion of the authority. I note that ss 188(5) of the Act, which has no application to the Official Trustee, appears to have been drawn on this basis.

It follows, in my view, that the first authority has never been effective for the purposes of Part X of the Act, not because the Official Trustee has not consented to act as controlling trustee under the first authority, but because the debtors did not obtain the written approval of an Official Receiver to name the Official Trustee in the authority.

It may be noted that in the case of an authority naming the Official Trustee as controlling trustee, no occasion to obtain the consent of the Official Trustee to exercise the powers given by the authority will arise.  The written approval of an Official Receiver to name the Official Trustee in the authority is required to be obtained before the authority is signed by the debtor, and, once such authority is signed by the debtor, it becomes immediately effective to appoint the Official Trustee as controlling trustee (subsections 188(2) and (6)).

Was the first authority nonetheless an authority given by the debtors within the meaning of ss 188(4) of the Act? Neither the researches of the legal representatives of the parties who appeared before me, nor my own, have found any decision directly bearing on the proper construction of ss 188(4) of the Act. Decisions on s 188 of the Act, as it was prior to the coming into force of the amending Act, provide some insight into the mischief apparently intended to be addressed by ss 188(4). However, they are to be approached with caution so far as the construction of the section is concerned, as they are concerned with a section differently framed from the current s 188.

In Pretorius v Daltons Carpet Tiles Pty Ltd (1984) 1 FCR 346 at 352, the Full Court of this Court concluded that an authority under s 188 of the Act, as it was then worded, authorised only one meeting to be called for the purpose of considering a composition proposed by a debtor. Their Honours remarked:

“We find nothing offensive to the policy of Pt X in the conclusion we have reached as to its construction. On the contrary, we think that such a result accords with the evident policy of the Act. In other words, we think that it is possible to discern from the general structure of Pt X a legislative intention that if a debtor cannot carry the meeting of creditors summoned for the purpose of considering the composition he proffers, then he should not be permitted to call meeting after meeting even ad infinitum in the hope that, by a process of attrition, inconvenience or added expense, he will eventually achieve the acceptance of his proposal. It is significant in this regard that the debtor is assumed to be insolvent: the signing of an authority under s 188 is an act of bankruptcy ... .”

Although the Full Court was, in the above case, concerned with the issue of whether a number of meetings might be called pursuant to one authority, their Honours’ remarks as to the legislative intention disclosed by Part X give some support to the notion that the calling of a number of meetings under different Part X authorities would equally be inconsistent with the broad purpose of Part X.

In Re De Kantzow;  Ex parte De Kantzow (1992) 35 FCR 74, Lockhart J held that Part X of the Act permitted a debtor who had authorised a solicitor to call a meeting of his creditors, after a meeting called pursuant to such authority had failed to accept a composition proposed by the debtor, to sign another s 188 authority naming a registered trustee as controlling trustee. His Honour in that case at 76 noted that s 188, as it was then worded, drew a marked distinction between an authority given by a debtor to a solicitor and an authority given by a debtor to a registered trustee. The authority given to a solicitor under s 188 before the 1996 amendments was an authority simply to call a meeting of creditors; the solicitor was not given authority to control the property of the debtor. As a consequence, when the meeting of creditors called by the solicitor had concluded without the passage of any special resolution pursuant to s 204 of the Act, no one was in control of the debtor’s property other than himself. His Honour concluded that the debtor was consequently free to invoke again the procedure for which s 188 made provision.

In Re Saheed;  Saheed v the Official Receiver (1993) 41 FCR 148, Gray J, in an ex tempore judgment, concluded that a debtor who had given a s 188 authority to a registered trustee could, after the meeting called by such registered trustee had concluded without the passing of any special resolution under s 204 of the Act, issue a second authority to a solicitor to call a meeting of his creditors, notwithstanding that his property remained under the control of the registered trustee.

Having regard to the above authorities, it seems to me that the present ss 188(4) of the Act is intended to limit the power of a debtor to issue within a six month period more than one authority under s 188 of the Act where such authorities can result in successive meetings of creditors being called. The limitation provided by ss 188(4) is that a second authority can only be given within such period where the Court grants leave to do so.

I see no reason to conclude that ss 188(4) is intended to limit the ability of a debtor to sign an authority naming a solicitor or registered trustee as controlling trustee merely because, within a period of six months from the signing of such authority, the debtor signed a similar authority which did not ever become effective. That is, in my view, ss 188(4) is intended to limit the power of a debtor to give successive effective authorities; it is not intended to prevent a debtor who has failed to obtain the consent of a solicitor or registered trustee to exercise the powers given by the authority to seek such consent from another solicitor or registered trustee, or to prevent a debtor, who has wrongly signed an authority naming the Official Trustee without having obtained the approval of an Official Receiver to do so, from later signing an authority which is, or is capable of becoming, effective.

In this case, the authority first signed by the debtor named the Official Trustee as the controlling trustee. The authority was not, nor could it ever be, effective as an Official Receiver had not given approval for the Official Trustee to be named in the authority. In such circumstance, in my view, ss 188(4) did not operate to limit the power of the debtor to sign another authority naming Mr Pantzer, a registered trustee, as controlling trustee. Such authority became effective upon Mr Pantzer consenting in writing to exercise the powers given by the authority (ss 188(2)(a)). Mr Pantzer gave his consent to exercise such powers by signing an appropriate form of consent on 17 November 1997.

I answer the question, “Whether the authority dated 17 November 1997 signed by the debtors naming and authorising Warren Pantzer to call a meeting of the debtors’ creditors and to take control of the debtors’ property is a valid authority?”:  Yes.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Decision herein of the Honourable Justice Branson.

Associate:

Dated:            21 November 1997

Counsel for the Petitioning Creditor:	Mr D. Smallbone
Solicitors for the Petitioning Creditor:	Hillman, Mara & Consultants Solicitors
Solicitor appearing for four unsecured creditors	Mr E Neumann of Craddock, Murray and Neumann
Solicitor appearing for the debtors:	Mr R Legg of Burridge & Legg
Solicitor appearing for Mr Pantzer:	Mr K Pringle of Gordon & Johnstone
Date of Hearing:	18 November 1997
Date of Decision:	21 November 1997