Official Trustee in Bankruptcy v. Bassola, T.A. (No. 3).

[1986] FamCA 12

OFFICIAL TRUSTEE IN BANKRUPTCY v. BASSOLA, T.A. (No. 3).

(1986) FLC ¶91-760

Other publishers' citations: (1986) 11 FamLR 557

Full Court of the Family Court of Australia.

Judgment delivered 11 July 1986.

Before: Murray, Joske and Nygh JJ.

Murray J.: This is an appeal by the Official Trustee in Bankruptcy against an order made by Connor J. on 30 July 1985, whereby his Honour held that he had jurisdiction pursuant to sec. 85 of the Family Law Act to set aside the disposition of the husband of his estate and interest in the former matrimonial home of the parties effected by the husband filing his petition in bankruptcy under the Bankruptcy Act 1966 and the operation of sec. 58 of the Bankruptcy Act, and against his further order on 30 August 1985 that he should exercise his discretion pursuant to sec. 85 to set aside that disposition.

The facts in the matter are uncomplicated. The parties were married on 26 February 1972 and they had two sons, born on 1 September 1972 and on 21 February 1975 respectively. The parties lived together in a country town until they separated on 14 August 1981. On 6 March 1984 the wife filed an application for a property settlement and sought that a home owned jointly by the parties and subject to two mortgages should vest in her. In addition she sought guardianship and custody of the children who were living with her in the former matrimonial home as well as maintenance for the children and herself. On 29 May 1984 the husband filed an affidavit in answer to the wife's claim in which he conceded that the wife should have the jointly-owned home but subject to her paying off the mortgage debts. He also sought other orders which are not relevant in this matter.

On 31 May 1984 the husband's petition in bankruptcy was accepted by the Registrar in Bankruptcy under sec. 55 of the Bankruptcy Act 1966. The husband thereupon by force of sec. 55(3)(b) became a bankrupt. The whole of his estate accordingly vested in the Official Trustee by virtue of sec. 58(1). The Official Trustee was granted leave to intervene in the proceedings and claimed that no order could be made in respect of the husband's property under sec. 79 of the Family Law Act 1975 because he was now the owner of it. On 27 June 1984 the wife filed an application under sec. 85 seeking to set aside the husband's petition in bankruptcy.

Counsel for the Official Trustee before us argued that the Family Court has no jurisdiction in bankruptcy and no jurisdiction to modify, vary or annul the operation and effect of sec. 58 or any other provision of the Bankruptcy Act 1966, and in setting aside the disposition said to be constituted by the husband filing a petition in bankruptcy and its acceptance by the Receiver in Bankruptcy, and the operation of sec. 58 of the Bankruptcy Act, it exceeded the jurisdiction of the Court under the Family Law Act. He also argued that in any event, by presenting a debtor's petition in bankruptcy, the husband did not make a ``disposition'' of property within the meaning of sec. 85 of the Family Law Act; and the vesting of a bankrupt's property in the Official Trustee, as a result of the operation of sec. 58(1) of the Bankruptcy Act, does not constitute a ``disposition'' of property made by the bankrupt husband within the meaning of sec. 85 of the Family Law Act.

Section 85(1) says:

``In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.''

Stroud's Judicial Dictionary defines ``instrument'', inter alia, as a ``writing, and generally imports a document of a formal legal kind''. To my mind, there is no doubt that a debtor's petition in bankruptcy comes well within that definition. The petition however itself does not dispose of any property. The vesting of the debtor's property in the Official Trustee occurs by operation of sec. 58, which in turn operates consequent upon sec. 55, and neither side sought to maintain that the debtor's petition per se was an instrument which could be set aside under sec. 85(1). Nor did the learned trial Judge purport to set aside the debtor's petition per se. His view was that if the Court set aside the ``disposition'' constituted by the combination of the filing of the petition and the statutory consequences of sec. 58, the husband's status as a bankrupt would be unaffected and the order would only have the effect of restoring the property to the husband.

The relevant parts of sec. 55 of the Bankruptcy Act read:

``55(1) Subject to this section, a debtor may present to the Registrar a petition against himself accompanied by a statement of his affairs, verified by affidavit, and a copy of that statement.

(2) The petition and statement of affairs shall each be in accordance with the prescribed form.

(3) Where it appears to the Registrar that a petition presented to him under this section is in accordance with the prescribed form and that the statement of affairs accompanying the petition is also in accordance with the prescribed form or the Court directs, under sub-section (4), the Registrar to accept the petition —

(a) the petition shall be accepted by the Registrar, who shall endorse it accordingly; and
(b) thereupon, by force of this sub-section, the debtor becomes a bankrupt by virtue of the presentation of the petition.

(4) Where it appears to the Registrar that a petition presented to him under this section, or the statement of affairs accompanying such a petition, is not in accordance with the prescribed form, the Registrar shall not accept the petition unless the Court, upon reference by the Registrar, directs him to accept it.

(8) A person who becomes a bankrupt by force of this section continues to be a bankrupt until —

(a) he is discharged by force of section 149;
(b) he is discharged by order of the Court; or
(c) his bankruptcy is annulled under section 74 or 154.''

Section 149 provides for discharge after three years, and the alternative to discharge, namely annulment, is dealt with by sec. 154 which gives the Bankruptcy Court power to annul the bankruptcy.

The relevant parts of sec. 58 of the Bankruptcy Act read:

``58(1) Subject to this Act, where a debtor becomes a bankrupt —

(a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and
(b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.

(2) Where a law of the Commonwealth or of a State of Territory of the Commonwealth requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner of any such property that is part of the property of the bankrupt, that property, notwithstanding that it vests in equity in the trustee by virtue of this section, does not so vest at law until the requirements of that law have been complied with.

(3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor —

(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.

(6) In this section, `after acquired property', in relation to a bankrupt, means property that is acquired by, or devolves on, the bankrupt on or after the date of the bankruptcy, being property that is divisible amongst the creditors of the bankrupt.''

The only assistance given by sec. 85 as to the meaning of ``disposition'' is sec. 85(5) which says: ``In this section, `disposition' includes a sale and a gift.'' The significance of this subsection is that these two forms of alienation are voluntary although it does not necessarily follow that all involuntary alienations are excluded. Certainly in my view, in the context of this subsection, the disposition must have a disponer, namely one of the parties to the marriage, and a disponee. (Re Mal Bower's Macquarie Electrical Centre Pty. Ltd. and the Companies Act (1974) 1 N.S.W.L.R. 254 at p. 257.) That in itself implies that the property must pass from the one to the other, and moreover to come within sec. 85(1) that it passes to the disponee by virtue of some action taken ``by or on behalf of, or by direction or in the interest of'' the disponer. (The emphasis is mine.) The subsection does not use the passive tense. To me, this connotes some control, management or arrangement on the part of the disponer which vests the property in the disponee.

As I have said, the filing of the petition by the debtor does nothing. It does no more than reveal by his statement of affairs that he is insolvent. It is its acceptance by the Registrar in Bankruptcy (which is mandatory in certain circumstances) which achieves a change of status for the debtor — that of bankruptcy. Among the statutory consequences which flow from that change of status is the vesting of all the bankrupt's property, present and after-acquired in the Official Trustee.

So far, on the face of it, it would appear that the husband's filing of his petition with its statutory consequences could come within the ambit of ``disposition'' in sec. 85(1). The debtor, in filing his petition is exercising some control of management, either voluntarily or under pressure from his creditors — it matters little which — over his affairs. The filing of the petition is the trigger which sets in motion those statutory consequences. In my view a ``disposition'' may consist of a number of steps taken in completing a transaction provided there is a causal chain between the first step and the final vesting of property in the disponee.

The stumbling block however, to this Court having the power to set aside a disposition resulting from the statutory consequences arising under the Bankruptcy Act lies, in my view, in sec. 55(8) of that Act itself.

To recapitulate, this subsection provides that a person who has become bankrupt continues as one until he is discharged either by sec. 149 or by order of the Court or his bankruptcy is annulled.

It is clear that the Family Court has no power to discharge the bankruptcy or annul the bankruptcy. That is the preserve exclusively of the Court nominated to exercise such power under the Bankruptcy Act, i.e. the Federal Court. It follows then that this Court has no power to set aside the bankruptcy itself. But a ludicrous result follows if this Court has the power to set aside the so-called disposition without being able to effect the status of bankruptcy, because, by virtue of sec. 58(1)(a) and (b), so long as the husband is a bankrupt, his property must vest in the Official Trustee. If setting aside ``the disposition'' merely results in the property devolving on or revesting in the husband, that property is forthwith caught by sec. 58(1)(a) and (b) and revests in the Official Trustee. It is a consequence of the status of bankruptcy, and it seems to me that this Court is powerless to affect it.

It cannot be the intention of the legislature to give the Family Court power under sec. 85(1) to do something which would in any event be meaningless and of no effect.

In all fairness to the learned trial Judge, it does not appear that the effect of sec. 58(1)(a) and (b) was argued in this matter at first instance.

It was argued by the wife's counsel that there is a parallel between the principles argued in this case and those of Milland and Milland (1981) FLC ¶91-065 where the Full Court of the Family Court determined that this Court has jurisdiction under sec. 85 of the Family Law Act to set aside a deed of assignment under Pt X of the Bankruptcy Act 1966.

I express no view on this. We are not dealing here with a Pt X deed but with the filing of a debtor's petition and my remarks are intended to apply only to the latter.

I am therefore of the view that ``disposition'' in sec. 85(1) does not include the filing of a petition by a debtor and the consequent vesting of his property in the Official Trustee pursuant to sec. 58(1) of the Bankruptcy Act 1966. It follows that the Family Court has no jurisdiction to set aside that so-called ``disposition''.

For all these reasons I would uphold the appeal and set aside the order of Connor J.

Joske J.: I have had the opportunity of reading the judgments of both Murray and Nygh JJ. I also agree that the appeal should be allowed and that the order made by his Honour be set aside. I only wish to add that in my view sec. 85(1) of the Family Law Act does not convey either jurisdiction or power upon the Family Court to set aside the legislative effect of sec. 55 and 58 of the Bankruptcy Act 1966.

Nygh J.: I have read the judgment of Murray J. and agree with her that the appeal should be allowed and the order made by his Honour be set aside. I would merely add a brief comment.

Once it is accepted that the filing of a debtor's petition cannot, by itself, be a ``disposition'' within the meaning of sec. 85(1), since the dispositive effect flows from the operation of sec. 58(1) of the Bankruptcy Act 1966 on the status of bankruptcy created by the acceptance of the petition, it must in my view follow that this assignment by statute cannot be said to be a disposition ``by or on behalf of, or by direction'' of the husband. Nor can the assignment of his assets to the Official Trustee for the benefit of his creditors be described as being in his interests. The fact that the husband has an ulterior or even vindictive motive in presenting the petition does not alter that position.

However, even if I were wrong and the transaction when viewed as a whole can be described as a disposition initiated by the husband and consequently made by him or on his behalf or direction, the attempt by his Honour to revest the husband's interest in the former matrimonial home was nugatory for the reasons explained by Murray J. In that situation, his Honour should not have exercised his discretion under sec. 85(1) since it served no purpose whatever: see Public Trustee (S.A.) and Keays (1985) FLC ¶91-651 at pp. 80,247, 80,248 per Asche, Pawley and Nygh JJ.