Pyramid Building Society (In liq) v Terry

The High Court of Australia considered an appeal concerning the nature of a contingent liability within the framework of a Part X composition under the *Bankruptcy Act 1966* (Cth). The dispute arose between the liquidator of the Pyramid Building Society and Mr and Mrs Terry, who had entered into a composition agreement. The central question was whether a contingent liability, specifically under a guarantee, constituted a "provable debt" for the purposes of this composition.

The court was required to determine whether the contingent liability of Mr and Mrs Terry under a guarantee, which had not yet crystallised into a present debt at the time of the composition, was a debt provable in their Part X composition. This involved an examination of the relevant provisions of the *Bankruptcy Act 1966* (Cth), particularly those defining "provable debt" and the operation of compositions.

The High Court, in allowing the appeal, reasoned that the definition of "provable debt" in section 82 of the *Bankruptcy Act* is broad and encompasses contingent liabilities. Their Honours considered the purpose of Part X compositions, which is to provide a mechanism for debtors to reach an agreement with their creditors for the payment of their debts, and concluded that excluding contingent liabilities would undermine this purpose. The court found that the liability under the guarantee, although contingent at the time of the composition, was a provable debt. Consequently, the Court of Appeal's decision was set aside, and the appeal by Mr and Mrs Terry was dismissed.