Johnson, K & D.

CATCHWORDS

BANKRUPTCY - application €or annulment

- meanlng of

"sequestratlon order ought

not to have been made"

dlstlnctlon between facts exlstlng at time

of sequestratlon

order and facts later comlng Into existence

- exerclse of

dlscretlon to annul

the bankruptcy.

Re Scott (1975 6 A.L.R.

558

Re Grlfflths; Ex parte Huntley (1892) 3 B.C. (N.S.W.)

RE:	KENNETH JOHNSON and DIANNE JOHNSON

NO. W 1746 OF 1986

Jackson J.

Sydney

5 February 1987

IN THE FEDERAL COURT OF AUSTRALIA	)
1

GENERAL	DIVISION	1
)

BANKRUPTCY DISTRICT OF THE STATE OF )

NO. W 1746 Of 1986

)

NEW SOUTH WALES AND	1
)

THE AUSTRALIAN CAPITAL

TERRITORY

)

RE :

- KENNETH

JOHNSON and

DIANNE JOHNSON

Applicants

CORAM :	JACKSON J.
-	DATE :	5 February 1987
PLACE :	Sydney

MINUTES OF ORDER

THE COURT ORDERS

THAT:

The bankruptcles brought about by the sequestration order made In the case of each of the appllcants on 24 November 1986, be annulled.

Note:

Settlement and entry of orders 1s dealt with in Rule

124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA	)
)

DIVISION	GENERAL	1
)

BANKRUPTCY DISTRICT OF THE STATE OF )

No. W 1746 of 1986

)

AND

WALES

SOUTH

NEW

) 1

THE

AUSTRALIAN

CAPITAL

TERRITORY

)

RE :

KENNETH

JOHNSON

and

DIANNE JOHNSON

A p p l l c a n t s

CORAM :

JACKSON J.

DATE :

Februa ry

1987

PLACE :

Sydney

REASONS FOR JUDGMENT

T h e a p p l l c a n t s

a re

husband

and

wife who have a t a l l

material

times

c a r r i e d o n

b u s i n e s s

I n p a r t n e r s h l p involving

t h e

s u p p l y o f p a r t s a n d

l n s t a l l a t i o n

e q u i p m e n t

a s s o c l a t e d

w l t h	t h e c o n v e r s i o n o f	motor	v e h i c l e s	t o	t h e	u s e	of	gas	as
f u e l .

The applicants were made bankrupt

by a sequestration

order made on 24 November 1986.

They were not present or

represented at the hearlng of the credltor's petition which

led to the making of the sequestration order, and it may be

that thelr lack of dlllgence In that regard In relatlon to

thelr own affairs was contributed to

by the fact that on 16

August 1986 the male applicant

had suffered relatlvely serious

in~uries

In a motor accldent.

Whatever be the reason for the

failure of the appllcants to oppose the maklng of the

sequestratlon order, I am satisfied that If the applicants had

placed before the court on that occaslon the true facts as to

their flnanclal sltuatlon, those facts would have demonstrated

that, In terms of s.52(2)(a) of the Bankruptcy Act 1966, the

applicants were then able to pay their debts.

In these circumstances the applicants, relylng

S . 154

(l)(a) of the Bankruptcy Act, applied for an order

annul

llng their bankruptcles.

S.l54(l)(a) provldes relevantly

that :-

Where the court 1s satlsfied "that a sequestratlon order ought not to have been made", the court may make an order annulllng the bankruptcy.

As Lucas J. sald of the part of s.l54(l)(a)

to which

I have referred In Re Scott (1975)

6 A.L.R. 558 at 559:-

"And It has been remarked that these are words of wide to time 1s that the matter should be consldered as If all the true facts as shown in the appllcatlon for the annulment had been before the court when the

sequestration order was

made."

3 .

See too Re Griffiths; ex parte Huntley, (1892)

B.C.

( N . S . W . )

In Re Scott (supra) Lucas

J. drew a distlnctlon between

facts exlstlng at the tlme of the making of the ssouestration

order but not then before the court and facts later coming

lnto existence.

In the present case

the relevant facts fall lnto the

former category, and I am satlsfied that the case

is one

falllng wlthln the relevant part of s.l54(l)(a). The question which then arlses 1s whether I should exerclse the dlscretlon

conferred by s.l54(l)(a)

In favour of the bankrupts.

In this

regard it seems to me that the appllcants have been relatlvely

cavaller In their treatment of the proceedlngs

in the Local

Court leadlng to the judgment debt and In this court. At the

same tlme, however, I think it likely that the serlous

lnjurles from whlch the male appllcant suffered have probably

played a part In leadlng to the maklng

of the sequestratlon

orders.

I propose to exercise my discretlon In favour

annulllng the bankruptcies and I shall hear the parties as to

the appropriate

form of order.

In the Federal Court of Australia, the applicants Kenneth and Dianne Johnson sought annulment of their bankruptcy orders, which were made on 24 November 1986. The applicants ran a business in partnership converting motor vehicles to use gas as fuel. They failed to oppose the creditors' petition that led to their sequestration, possibly due to the husband's serious injuries from a motor accident on 16 August 1986. The applicants argued that if the true facts of their financial situation had been presented at the time, the sequestration order should not have been made, as they were able to pay their debts within the meaning of s.52(2)(a) of the Bankruptcy Act 1966.

The legal issue before the court was whether the sequestration orders should be annulled under s.154(1)(a) of the Bankruptcy Act, which allows for the annulment of a sequestration order if the court is satisfied that it ought not to have been made. The court had to consider whether the applicants had been diligent in opposing the sequestration and whether the true facts of their financial situation would have been sufficient to prevent the sequestration order from being made. The court also had to consider the applicants' conduct in the proceedings in determining whether to exercise its discretion to annul the bankruptcy.

The court found that the applicants had not been diligent in opposing the sequestration order but held that the relevant facts concerning their financial situation were known at the time of the sequestration order and would have been sufficient to prevent the order from being made. The court distinguished these facts from those that arose later, holding that the applicants' case fell within the relevant part of s.154(1)(a). The court also noted the applicants' cavalier treatment of the proceedings but considered that the husband's serious injuries likely contributed to the sequestration orders. The court decided to exercise its discretion to annul the bankruptcies and would hear the parties on the appropriate form of order.

The court annulled the bankruptcies of the applicants and would hear the parties on the appropriate form of order.

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established