L and H Group v Milton

[2015] FCCA 3572

FEDERAL CIRCUIT COURT OF AUSTRALIA

L & H GROUP v MILTON & ORS [2015] FCCA 3572

Catchwords:
BANKRUPTCY – referral from Official Receiver for a direction from the Court whether to accept or reject a debtor’s petition presented by
first respondent – consideration and application of s.55(3B) of the
Bankruptcy Act 1966 – applicable and relevant authorities considered –
Official Receiver directed to reject the debtor’s petition – applicant’s costs referred to Registrar.

Legislation:

Bankruptcy Act 1966 (Cth), s.55(3B)

Clyne v Deputy Commissioner of Taxation & Ors (1984) 154 CLR 589
Official Receiver of the Bankruptcy District of Victoria v Walia (1997) 79 FCR 299
Re Francis Edward Johnson and Anthony James Johnson Ex Parte: Westpac Banking Corporation, Equus Financial Services Limited, Philip Arthur Hennessy, Joseph Dwyer, Nick Russo and Alexander Robert Mackay Macintosh [1995] FCA 1554
Re Grady; ex parte BBC Hardware Ltd (unreported Federal Court of Australia, Spender J, QP 256 of 1996, 13 May 1996)
S & J Promotions Pty Ltd v Hough [2014] FCCA 339

Applicant: L & H GROUP (A LIMITED PARTNERSHIP)

First Respondent: STEPHEN MILTON (TRADING UNDER THE UNREGISTERED BUSINESS NAME OF ‘PORT LINCOLN COVE ELECTRICAL’)

Second Respondent: MARK MILTON

Third Respondent: JOY MILTON

File Number: MLG 2065 of 2015

Judgment of: Judge Wilson

Hearing date: 10 December 2015

Date of Last Submission: 10 December 2015

Delivered at: Melbourne

Delivered on: 10 December 2015

REPRESENTATION

Counsel for the Applicant: Mr D. Cafari

Solicitors for the Applicant: Davies Moloney

No appearances by the First, Second or Third Respondents

Counsel for the Official Receiver Mr K. Maat

Solicitors for the Official Receiver: Australian Financial Security Authority

THE COURT DIRECTS THAT:

Pursuant to s.55(3B) of the Bankruptcy Act 1966, the Official Receiver reject the Debtor’s Petition by Steven Milton presented to the Official Receiver on

1 October 2015.

THE COURT ORDERS THAT:

1. The Applicant’s costs of, and incidental to, today’s application be reserved for determination by a Registrar.

2. The hearing of the Creditor’s Petition is otherwise referred to a Registrar for hearing and determination forthwith.

AND THE COURT NOTES THAT:

A.The First, Second and Third Respondents were called outside of Court at 2.21 p.m. today and there were no responses to the call by the Respondents.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 2065 of 2015

L & H GROUP (A LIMITED PARTNERSHIP)

Applicant

And

STEPHEN MILTON (TRADING UNDER THE UNREGISTERED BUSINESS NAME OF ‘PORT LINCOLN COVE ELECTRICAL’)

First Respondent

MARK MILTON

Second Respondent

JOY MILTON

Third Respondent

REASONS FOR JUDGMENT

(As revised from transcript)

Introduction

1. By referral dated 7 October 2015, the Official Receiver asked the Court to give a direction whether to accept or reject a debtor’s petition that the first respondent, Mr Stephen John Milton (“the first respondent”), presented to the Official Receiver on 1 October 2015.[1]

   [1] Referral of debtor’s petition filed 14 October 2015.

2. Under s.55(3B) of the Bankruptcy Act 1966 (“the Act”),

   
   

   the Official Receiver is required to refer a debtor’s petition to the Court for a direction to accept or reject the petition if a creditor’s petition is pending against a group of persons, whether they are joint debtors or members of the partnership, that includes the debtor against whom the debtor’s petition is presented. 

3. A creditor’s petition is, and as at today’s date remains, pending against a number of debtors of a partnership and includes the first respondent. 

Synopsis

1. For the reasons that follow, I direct the Official Receiver to reject the debtor’s petition presented to the Official Receiver on 1 October 2015 by the first respondent. 

Factual setting

1. On 17 April 2014, L & H Group (“the applicant”), a limited partnership, entered judgment in the County Court of Victoria against the

   
   

   first respondent together with Mr Mark Milton and Ms Joy Milton (“the second and third respondents, collectively “the respondents””) for the sum of $178,842.99, together with interest of $17,805.90.

2. The County Court of Victoria also ordered the respondents to pay costs, to be assessed in default of agreement.

3. On 16 July 2015, the applicant issued a bankruptcy notice against the respondents. The bankruptcy notice was duly served on all three. As at 26 October 2015, the judgment debt stood at $224,500.30 according to the affidavit of Mr Andrew John Soos sworn that day.[2] The debt has increased since then.

   [2] Affidavit of Debt filed on 27 October 2015, at [2].

4. The applicant filed a creditor’s petition on 10 September 2015. It was duly served on all judgment debtors. On 1 October 2015,

   
   

   the first respondent purported to present his own petition. 

5. Joint and several trustees have consented to act if a sequestration is ordered.[3] The Official Receiver, being concerned about the state of affairs, asked the Court for a direction. 

   [3] Trustee Consent to Act Declaration filed 10 September 2015.

Consideration

1. The entitlement of a debtor to present his own petition and the operation of s.55(3B) of the Act was considered by the

   
   

   Honourable Justice Finkelstein in Official Receiver of the Bankruptcy District of Victoria v Walia (“Walia”).[4] In Walia, his Honour said –

   [4] (1997) 79 FCR 299.

   The right to present a debtor's petition is found in Div 3 of Pt IV of the Bankruptcy Act. Section 55(1) provides that a debtor may present a petition against himself or herself. Section 56A(1) allows a debtor's petition to be presented against a partnership by either all of the partners or a majority of the partners if they are resident in Australia. Section 57(1) permits joint debtors to present a petition jointly against themselves. In each case the petition is to be presented to the Official Receiver. In each case if the petition is not rejected or if the Official Receiver is not directed by the Court to reject it, the Official Receiver is required to endorse the petition and, upon that endorsement being made, the petitioning debtor or the partnership to whom the petition is directed or the petitioning joint debtors (as the case requires) will become bankrupt: see ss 55(4A), 56E and 57(5). No judicial act is involved as the act of endorsement is purely administrative in character. Indeed no judicial power can be conferred on the Official Receiver. The reason is that it would be unconstitutional for the Commonwealth Parliament to do so: see R v Davison (1954) 90 CLR 353. The judicial power of the Commonwealth can only be vested in a court constituted under ss 71 and 72 of the Constitution. Thus it is that the Official Receiver has no adjudicative role to play in connection with the presentation or acceptance of a debtor's petition.

   …

   If a debtor wishes to present a petition to the Official Receiver against himself or herself that petition must be in the approved form and must be accompanied by a statement of affairs: s 55(2). The Official Receiver may reject a debtor's petition if the petition does not substantially comply with the approved form or is not accompanied by an adequate statement of affairs: s 55(3). In one circumstance the Official Receiver is directed to refer a debtor's petition to the Court for a direction to accept it or reject it. That circumstance is where a creditor's petition has been presented against a group of debtors and the debtors' petition has been presented by one member of that group: see s 55(3B). By s 55(4) the Official Receiver must accept a debtor's petition unless the Official Receiver rejects it under subs (3) or is directed by the Court to reject it. Further, there are three categories of debtor who are not entitled to present a petition without the permission of the Court. Section 55(5A), (6), and (6A), describe those categories. If a petition is presented by a debtor who is not entitled to do so no bankruptcy will result: see s 55(7).[5]

   [5] (1997) 79 FCR 299 at 300.

2. In this case, the creditor’s petition will be heard before a Registrar if I make orders directing the Official Receiver to reject the debtor’s own petition. Depending on which petition is operative, the date of sequestration will be different, as will the relation back period. 

3. [6] [2014] FCCA 339.

   This issue was addressed by his Honour Judge Jarrett of this Court in

   
   S & J Promotions Pty Ltd v Hough[6]

   where his Honour said -

   The effect of the acceptance of the debtor’s petition will be to shorten the relation back period…Shortening the relation back period by some four months may possibly place property which otherwise would vest in the trustee beyond the trustee’s reach.[7]

   [7] [2014] FCCA 339 at [13].

4. In my judgment there is a real likelihood that the relation back period will alter if the debtor’s petition is accepted. That has the likelihood of altering claims by actual or potential claimants. In my opinion that is highly undesirable. 

5. The High Court of Australia discussed issues associated with alteration to the relation back period in Clyne v Deputy Commissioner of Taxation & Ors.[8]

   [8] (1984) 154 CLR 589 at [599].

6. It is relevant to consider the fact that the creditor’s petition in this case, by the applicant, was first in time.[9]

   [9] See Re Francis Edward Johnson and Anthony James Johnson Ex Parte: Westpac Banking Corporation, Equus Financial Services Limited, Philip Arthur Hennessy, Joseph Dwyer, Nick Russo and Alexander Robert Mackay Macintosh [1995] FCA 1554; Re Grady; ex parte BBC Hardware Ltd (unreported Federal Court of Australia, Spender J, QP 256 of 1996, 13 May 1996).

7. In my view, the petitioning creditor is entitled to have his petition determined. The risk of an alteration to the relation back period will follow if the Official Receiver accepts the debtor’s petition enhancing uncertainty surrounding the sequestration of the debtor’s estate. 

8. Pursuant to s.55(3B) of the Act, I direct the Official Receiver to reject the debtor’s petition.

9. The applicant’s costs of and incidental to this day’s appearance be reserved to the Registrar who will determine orders in respect of the sequestration of the estate of the first respondent. 

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Judge Wilson

Associate: 

Date: 4 February 2016