Perovich v Whitton (No 2)

Perovich v Whitton (No 2) involved the trustees of the bankrupt estates of Ms Perovich and Mr Spencer, who had proposed compositions to their creditors. The primary judge and the Full Court of the Federal Court of Australia considered the effect of the debtors' failure to make initial contributions as required by the compositions, and whether the compositions had automatically terminated as a result of that failure. The Full Court was required to determine whether the term 'event' or 'circumstance' in s 222D of the Bankruptcy Act 1966 (Cth) could include an event of default, and whether the compositions provided for automatic termination upon an event of default.

The Full Court held that s 222D of the Bankruptcy Act does indeed provide for automatic termination of a composition upon the occurrence of any circumstance or event, and that an event of default could constitute such an event or circumstance. The Full Court noted that the Explanatory Memorandum for the 2005 amendments to the Bankruptcy Act indicated that the composition could include provisions for automatic termination upon the occurrence of specified events, including default by the debtor. The Full Court rejected the argument that s 222D only applied to events or circumstances specified by the trustee or creditors, holding that the plain terms of s 222D provided for automatic termination upon the occurrence of any such event or circumstance.

The appeal was dismissed, and the appellants were ordered to pay the costs of the first and second respondents. The first respondent was at liberty to resort to the bankrupt estates of the appellants in respect of the difference between his costs reasonably incurred and the costs paid by the appellants.