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.
Details
AGLC
Pacific Dunlop Ltd v Hogan [1989] FCA 185
Case
[1989] FCA 185
Decision Date
CaseChat Overview and Summary
In the Federal Court of Australia, Boni John Veli and Sandra Sanije Veli, the bankrupts, applied to annul sequestration orders made against them on August 20, 1985, and to be discharged from bankruptcy. They argued that the sequestration orders should not have been made due to an act of bankruptcy occurring more than six months prior to the petition and the existence of a composition agreement with creditors under Part X of the Bankruptcy Act. The court was required to determine whether the sequestration order was validly made and, if not, whether the bankrupts should be discharged from bankruptcy.
The court examined the legal provisions concerning acts of bankruptcy and composition agreements. The court noted that there were subsequent acts of bankruptcy available that could have supported the petition, thus the sequestration order was valid despite the earlier act of bankruptcy. Regarding the composition agreement, the court found that the agreements were vague and did not comply with the statutory definition of a composition. The court also noted that the composition was terminated by a creditors' resolution. The court exercised its discretion not to annul the sequestration orders due to the delay in applying for annulment and the bankrupts' unsatisfactory conduct. The court considered the trustee's report, which highlighted the bankrupts' continued trading while insolvent and their failure to cooperate with the administration of their estates. Based on the report and the provisions of the Bankruptcy Act, the court refused to make an order of discharge for the bankrupts.
The final order of the court was to refuse the application to annul the sequestration orders and to discharge the bankrupts from bankruptcy.