Pacific Dunlop Ltd v Hogan

[1989] FCA 185

IN THE FEDERAL COURT OF AUSTRALIA	)
1
EXERCISING FEDERAL JURISDICTION	) No. 576 of 1985
)
IN BANKRUPTCY	1

BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA

Re :  BONI JOHN VELI AND SANDRA SANIJE VELI

Bankrupts

EX Parte: BONI JOHN VELI AND SANDRA SANIJI VELI

Applicants

and

DAVID HENRY SCOTT, AS TRUSTEE OF THE ESTATES

OF THE BANKRUPTS

Respondent

COURT: NORTHROP J.

DATE:	19 APRIL 1989
PLACE :	MELBOURNE

EX-TEMPORE REASONS FOR JUDGMENT

he history of this matter is somewhat unusual in

By application dated 21 October 1988, Boni John

Veli and Sandra Sanije Veli, ("the bankrupts") are seeking

orders that the sequestration orders made against them on 20

August 1985 be annulled pursuant to paragraph 155(l)(a) of the Bankruptcy Act 1966 and, alternatively, for an order of

rge under paragraph 150(l)(c) of the Bankruptcy Act.

that the sequestration order was made on 20 August 1985 and,

apparently, was founded upon an act of bankruptcy which had

occurred in December 1984 but the petition was not presented

until 12 July 1985 being a date more than 6 months after that

act of bankruptcy had occurred.

Paragraph 44(l)(c) of the Bankruptcy Act provides:

" 4 4 ( 1 ) A creditor's petition shall not be presented

against a debtor unless-

(a) ...

(c) the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition."

Therefore, having regard to the effect of paragraph

44(l)(c) a sequestration order ought not to have been made

based upon the act of bankruptcy which had occurred in
December 1984.

It is alleged also that the sequestration order

should not have been made because of the effect of s.238 of

the Bankruptcy Act. That is a section within Part X of the

Act which provides for arrangements with creditors without

sequestration. Paragraph 238(2)(a) provides:

"238(2) Subject to sub-sections ( 3 ) and ( 4 ) , it is not

competent for a creditor, so long as a

composition under this Part remains valid-

(a)	to present a creditor's petition against
the debtor, or to proceed with such a

petition presented before the composition

was accepted, in respect of a provable

debt. "

In this case it is said that that provision applies

since at the time the sequestratlon order was made on 20

August 1985 there was a composition under Part X in relation

to	each of the bankrupts and therefore the sequestration
order ought not to have been	made.

In order to understand the problem, reference is

made to s.154 of the Bankruptcy Act. This section confers a

power upon the Court to annul	a	bankruptcy. The relevant
provisions are as follows:

"154(1) Where the Court is satisfied-

(a) that a sequestration order ought not to have been made ...

the Court may make an order annulling the

bankruptcy."

The first matter to note is the provision of

paragraph (a) which provides that the power arises where the

Court is satisfied that a sequestration order ought not to

have been made.	There IS authority for the proposition that
annullment, the Court is able to look at the facts as they	in that paragraph, when consrdering an application for
are known at the time of the hearing of the application and
to determine whether having regard to all those facts a
sequestration ought not to be made; see for example Re -
Griffiths; ex parte Huntley (1892) 3 B.C. (N.S.W.) 6 at p.9.
Thus, for example, if it could be shown that there was
another act of bankruptcy available upon which the
sequestration order could have been made, then that is
sufficient to prevent the Court from being satisfied that the
sequestration order ought not to have been made.

In the present case there are two further acts of

bankruptcy, apart from one relied upon at the hearing of the

petition, which were in existence at he time the

sequestration order was made. Paragraphs 40(l)(i) and ( j )

of the Bankruptcy Act provide that	a debtor commits an act of
bankruptcy:-

"(i)	if he	signs an authority under section 188;
and

(j) if a meeting of his creditors is called in

pursuance of such an authority;"

In the present case, each of the bankrupts signed an authority under 5.188 of the Bankruptcy Act on 12 April

1985.   A meeting of creditors was called in respect of each

bankrupt on 30 April 1985. Each of these events constitutes

an act of bankruptcy and would have been sufficient to

support the presentation of the petition upon which the

sequestration order was made. Therefore, on that basis, I am

not satisfied that the sequestration order ought not	to have
been made based upon the provisions of paragraph	44( 1)(c) of
the Bankruptcy Act.

The other ground upon which it 1 s alleged that the

bankruptcy ought not to have been made 1s the existence of a

composition at the time of the making of the order, namely,

20 August 1985. There are before the Court copies of the

special resolutions passed	at the meetings of creditors held
on 30 April 1985.	Those meetings must have followed the

signing by the bankrupts of authorities under s.188 of the

Bankruptcy Act. In his affidavit in support of the

application M r Veli states the authorities were signed on	12
April 1985.	Insofar as Mr Veli was concerned, the special

resolution was as follows:-

"It was resolved that the creditors accept a

composition in full satisfaction of their debts

whereby the debtors pay 20 cents in the dollar to be

paid within 21 days after the Trustee provides the

debtor a list of proveable unsecured debts or the

18th June, 1985 whichever is the sooner."

There are difficulties inherent in that resolution

in that normally it is the trustee who determines what are the debts which can be proved and which are proved, and it is the debtor who provides information to the trustee as to who

he thinks are his creditors who have provable debts. Yet in

this case it is the trustee who is required to provide the

debtor with	a	list of provable unsecured debts. In any
event, 18 June seems to	be the date upon which this had to	be
done, although nothing is said as to what	is to happen if

neither event occurs. It may well be that if nothing of that

kind occurs at all, the resolution would cease to have any

effect and it may well be that there is no composition	at
all.

The resolution in relation to Mrs Veli is even more

vague. It was as follows:-

"It was resolved that the creditors accept a

composition in full satisfaction of their debts

whereby the debtor be not required to contribute to

the cr ditors subject to Mr. Boni Veli

satisfactorily completing	his composltion under Part
X of the Bankruptcy	Act."

On the face of it there appears to be a condition subsequent to be satisfied but	in reality, In my opinion, it
is a condition precedent. In other words, unless	Hr. Boni
completes his composition under Part	X, then there is nothing

to be acted upon under this resolution, particularly when Mrs

Veli is not required to pay anything at all. Having regard

to the definition of composition in the Bankruptcy Act, see

sub-section 187(1), there is a very strong argument that

there is no composition at all. That definition is:-

'"composition" means an arrangement (not being an

arrangement entered into for the purposes of a

proclaimed law) by which	the creditors of a debtor-
(a)	agree to accept payment of the debts due to them by instalments; or
(b)	agree to accept, in full satisfaction of the debts due to them, less than the full amount of those debts, whether in the form of money
or other property and whether by instalments

or otherwise;"

The matter is further complicated by the fact that

by a special resolution of creditors at a meeting held on 26

August 1985 it was resolved that the composrtion as resolved at the meeting of creditors of Mr Veli held on 30th day of April be terminated. This resolution, apparently, was taken pursuant to s.241 of the Bankruptcy Act which provides:-

"241 Where a debtor has failed to carry out or

comply with a term of a composition under this

Part, the creditors may, by special resolution

at a meeting called for the purpose, terminate

the composition."

There is no evidence before the Court as to whether
in fact the resolution was based upon that section. There is
no direct evidence that either debtor failed to comply with

any of the requirements of the composition, particularly in

the case where Mrs Veli was not required to make any payments

although it is urged upon me to infer that the termination was brought about because of the failure by Mr Veli to pay

the 20 cents in the dollar, the subject of the special

resolution affecting him made on the earlier occasion.

In all the circumstances, I am not satisfied that

the sequestration order ought not o have been made in this
case and in so concluding, I am not satisfied that there was

in fact in existence a composition under Part X of the

Bankruptcy Act at the date that the sequestration order was made.

Further, the authorities seem to suggest that in

the context of sub-section 154(1),	of the Bankruptcy Act	the
Court has	a	residual discretion whether to make an order
under that sub-section	or not.	There may be doubt about this

but I am prepared to act upon those authorlties. In the

present case, the order was made on 20 August 1985. By

letter dated 1 September 1985, a deputy registrar in

bankruptcy wrote to the bankrupts referring to the order
which had been made, referring to what were described as the

compositions under Part X of the Bankruptcy Act which were in existence on the date of the sequestration order, referring

to sub-section 238(2) which provides that	so long as	a
composition remains valid,	it is not competent for	a creditor

to proceed with a creditor's petition, referring to paragraph

44(l)(c) of the Bankruptcy Act and continued:-

"This information may be of use to you in

considering whether to make an application to the
Court to have your bankruptcy annulled pursuant to
paragraph 154(l)(a). However, it would be desirable

to seek legal advice on this matter.

In any event I would be grateful for a letter

informing me whether or not you intend applying to

have your bankruptcy annulled. A reply within

fourteen days would be appreciated."

A copy of the letter was sent to Mr Scott, the trustee of the

bankrupts# estates.	A further	letter	was	sent	to	the
bankrupts by the	deputy	registrar	in	bankruptcy	on	30

September 1988 referring	to the first letter and enclosing	a
copy and saying:-

"Please inform the Registrar in writing whether you

intend to make any application	to court in relation
to your bankruptcy.
A reply within 14 days would	be appreciated."

In his affidavit in support of the appllcatron Veli refers to the first letter and says M C

he gave it to M r

Scott, the trustee under the bankruptcy	but at a time well
after the composition had been terminated.	M C Veli then says
he got the second letter	but does not say what happened about
that. Be	then goes on to say that:-

'I have recently had Legal Advice in relation to

these affairs and I now, having had our position

explained to me, request that the court annul1 the

bankruptcy of myself and my wife made on the 20th

August, 1985.

There is a long period from September 1985 until

the date the application was filed in October 1988. This

delay is not explained satisfactorily despite the fact that

the bankrupts knew of the existence of a basis for applying

for an annullment. In my opinion, this is a factor to be

taken into account in conjunction with matters already
mentioned whereby I should exercise my residual discretion

and not make orders annulling the sequestration orders.

The other order sought by the bankrupts is that

they be discharged. This application is based upon paragraph

150(l)(c) of the Bankruptcy Act, which provides that:

"lSO(1) A person who becomes . .. a bankrupt may apply to

the Court for an order of discharge at any time

after-

(a) ...

(c) the expiration of the period of 12 months commencing on the date of the bankruptcy."

There has been proof of that requirement being

satisfied. The court, therefore, has power to make an order

discharging the bankrupts fromtheir	bankruptcy. Sub-section
150(3) provides:

"150(3) On the hearing of an application under this

section, the Court shall take into consideration

a report in writing by the trustee concerning

the bankrupt, his conduct, trade dealings,

property and affairs both in respect	of the
period before and	the period after the applicant

became a bankrupt."

Sub-section 150(12) provides-

"150(12) A report referred to in sub-section (3) is, for

the purposes of this section, prima facie

evidence of the statements contained in it."

Sub-section lSO(5) provides-

"150(5) The Court shall, if any of the matters

specified in sub-section (6) is established-

(a)	refuse to make an order of discharge; or
(b) make an order	of discharge but suspend the

operation of the order as the Court thinks
proper, either unconditlonally or subject

to conditions."

The report filed in this application drscloses,

among other things, one of the matters referred to in

sub-sect :ion 150(6) and I read the relevant part:-

"150 (6 ) The matters upon the establishment of which the

Court may exercise the powers specified in

sub-section (5) are as follows:-

(a) ...

(b) that the bankrupt has, after knowing

himself to be insolvent, contlnued to

trade or obtained credlt to the amount of

$100 or upwards;"

Therefore one of the matters in sub-section 150(6)

has been established. The Court may refuse to make an order

on that basis.	In addition, under sub-section 150(9) it is
provided that:-

I .

- 11 -

"150(9) Where none of the matters pecified In

sub-section (6) is established, the Court may-

(a) refuse to make an order of discharge;

(b) make an order of discharge; or

(c)	make an order of discharge but suspend the operation of the order as the Court thinks proper, either uncondltionally or subject to conditions."
In the present case the report	by the trustee has

been filed in accordance with s.150	of the Bankruptcy Act.
It discloses what can only	be described as an unsatisfactory

course of conduct by the bankrupts since the sequestration

orders were made. They were engaged in the trucking

business, a business which is well known as belng unreliable c

as far as financial return is concerned. They got themselves

into financial difficulties. It appears that much of this

was done by lack of proper bookkeeping and possibly lack of
proper understanding of the conduct of a business. But even

after the sequestration orders had been made and even after

the letters from the Deputy Registrar in Bankruptcy they

continued to carry on as if they were not bankrupt. In

paragraph 26 the trustee sets out a number of matters

relating to the conduct of the bankrupts. Those matters are

set out:-

"26.	In my opinion:-
(a) The conduct of t :he bankrup ts In respect of

the ueriod before their bankruptcy was

unsatisfactory in that they each failed to

comply with the terms of a composition

purportedly entered into pursuant to the
provisions of Part X of the Bankruptcy Act,

(b)	The conduct of the female bankrupt since the date of bankruptcy has been unsatisfactory, and she has failed to co-operate in the administration of her estate in that she has
failed to c mply with e trustee's

instructions to deliver up certain items of furniture and jewellery attached by notlce of attachment of property dated 5 December 1987.

(c)	The male bankrupt has failed to co-operate in the administration of his estate in that he
has failed to comply with the trustee's

instructions to deliver up certain items of furniture and jewellery attached by notice of attachment or property dated 5 December 1987.

(d)	The conduct of the male bankrupt since the
date of bankruptcy the been qas

unsatisfactory in that:-

(i) On or about 15 October 1987, the male bankrupt purchased goods from Billy

Gyatt's Discount City to the value of

$1,902.00 by giving a valueless cheque

for that amount without disclosing

that he was an undischafged bankrupt.

(ii)    On 31 March 1988 the male bankrupt

opened a cheque account with the ANZ

Bank at its Footscray Market Agency

without advising the bank that he was

an undischarged bankrupt. Three

cheques for $50.00, $219.00 and

$184.00 respectivelywere presented to

the bank for payment before any funds

were desposited to the account. A

further cheque for $217.00 was drawn

on the account when there were no

funds to meet it. The account was

closed by the bank on 15 April 1988.
(iii) The bankrupt admitted	at his public

examination that during the period
that he was employed by a company

Kratpatch Pty. Ltd. (namely December

August 1986) to 1985 he

misappropriated	funds	belonging	to
Delta	Petroleum	amounting	to

approximately $50,000.00.

(iv) On 22 April, 1987 a cheque for

$3,419.92 drawn on the bankrupt's

account at the National Australia

Bank, Bently branch, was presented	f o r
payment.	At the time, the account was
overdrawn to the extent of	$596.23 and
it is doubtful whether	or not the bank

, ..

- 13 -

was aware that he was an undischarged
bankrupt. The cheque was subsequently

dishonoured.

(V) On 7 May 1987 the bankrupt deposited a

cheque for $5,150.00 to the credit of
his National Australia Bank account.

The cheque was drawn on the bankrupt's

AN2 Richmond account and at his public

examination, the bankrupt admitted

that at the time he drew the cheque	he
knew it would not be met.	On the same
day, 7 May 1987, the	bankrupt withdrew

$3,500.00 from his National Australia

Bank account; but after being

contacted by the bank manager, the bankrupt deposited $3,350.00 to the

account on 8 May 1987 comprising

$3,200.00 in cash and $150.00 by way
of a cheque which was the property of

Kratpatch Pty. Ltd.

(e)	The conduct of both bankrupts in respect of the period before the date of the bankruptcy
was unsatisfactory in that they jointly

contracted debts provable in the bankruptcy

without having at the time of contracting

each such debt any reasonable or probable
grounds of expectation of being able to pay

the same after taking into consideration

their other liabilities at the time. In

particular, bankrupts the incurred

liabilities to Yellow Rock Pty. Ltd. and Ford

Credit Limited."

The first matter relates to the compositions.

There seemed to be certain strange features about the

compositions which have not been fully explained	by	the
bankrupts. In	my opinion that	is a factor to take into

account in the exercise of my discretion on this application for discharge. Paragraph (b) alleges that the conduct of the female bankrupt has been unsatisfactory in that she has

failed to co-operate in the administration of her estate in that she has failed to comply with the rustee's instructions to deliver up certain items of furnlture and jewellery

attached by notice of attachment of property dated 5 December

1987. Paragraph (c) alleges the male bankrupt has failed to

co-operate in the administration of his estate in that he has
failed to comply with the trustee‘s instructions to deliver
up certain items of furniture and jewellery attached by
notice of attachment of property dated 5 December 1987. In

his affidavit M r Veli refers to these matters and says:

“Failure to deliver up furniture and jewellery.

These items of furniture and jewellery are still held

by the Debtors and have not been collected	by the
trustee. This	is in relation to myself and my wife.”

I find that almost incomprehensible having regard 1

to the duty of the bankrupts to hand over to the trustee all

property which vested in the trustee upon the sequestration

c

order being made.

I did give consideratron to whether I should make

an order of discharge on condition that the furniture and
jewellery be handed over to the trustee, but assuming I had

the power to do that I am of the view that any such

conditional order would be unsatisfactory. Having regard to

the general conduct of the bankrupts I could not be

satisfied, with any certainty, that the condition would	be
fulfilled.

In all the circumstances, therefore, having regard

to the provisions of sub-section	150( 5) of the Bankruptcy
Act, and the proof of the matter in paragraph 150(6)(b), and	-
also in the exercise of the powers under sub-section 150(9), I refuse to make an order of discharge.

Accordingly, the order of the Court is that the

application be refused.