Re Agrillo; Ex parte the Bankrupt

[1977] FCA 16

BANKRUPTCY ACT 1 9 6 6

I N THE FEDERAL COURT OF BANKRUPTCY )

BANKRUPTCY DISTRICT OF THE STATE OF NO. N.S.W. 4 4 4 O f 1 9 7 6

NEW SOGTH WALES AND THE AUSTRALIAN )

TERRITORY CAPITAL 1

Re: ANTONIO AGRILLO

Ex parte: THE BANKRUPT -

APPLICATION FOR .WNULVXNT

REASONS FOR JUDGMENT

m:.t-. . .

I n i t s amended form t h i s i s an a p p l i c a t i o n b y t h e

bankrupt f o r annulment o f h i s bankrup tcy . It i s opposed by the

p e t i t i o n i n g c r e d i t o r , t h e Deputy Commlsaioner of Taxat icn .

The Deputy Commissioner ob ta ined a d e f a u l t

judgment against t h e a p p l i c a n t i n t h e District Cour t of New South

Wales on 6 May 1975. I t was for $2,045.74 on h i s claim and

$13.50 f o r costs, and it o r d e r e d t h a t t h e a p p l i c a n t p a y t h e t o t a l

of $2,059.24 t o the Regis t ra r of t h e C o u r t f o r t h w i t h .

On 24 November 1975 the Deputy Commissioner caused

a bankruptcy not ice t o i s s u e claiming $2,059.24 and $110 for

in terest , a t o t a l of $2,169.24. That bankruptcy notice was

served on t h e a p p l i c a n t on 1 9 December 1975 and on 2 January 1 9 7 6

he committed an ac t of bankrup tcy by f a i l i ng t o ccrnply w i t h it.

The Deputy Commissioner on 2 Culy 1 9 7 6 f i l e d a

c r e d i t o r ' s p e t - i t i o n w h i c h c o n t a l n e d	i n t e r	a l i a t h e f o l l c w i n g
staternent:

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I .

-2 .

The debtor is justly and truly indebted

to me in the sum of $1,991.62 being the

balance due under the final judgment recovered in the District Court of New South Wales on

the 6th day of May 1975 ($1,859.24) for income

tax and additional tax for late payment and

$132.38 interest thereon to 2nd January 1976".

I The return date of the petition was 23 September 1976.

On 31 August the applicant obtained from an

assistant registrar of the District Court an order (pursuant to

s.88 of the District Court Act 1973) "that the unpaid amount of

the judgment debt be paid by instalments of $100 per month, the

first such payment to be made on or before 2 8 September 1976".

A sequestration order was made against the estate

of the bankrupt on 23 September. It is common ground that,at that

I

!	time, the order for payment by instalments was in force. The
first submission on behalf o the bankrupt is that therefore the
!
sequestration order ought not to have been made and the court
should accordingly pursuant to S. 154(1) (a) of the Bankruptcy Act

1

!	1966 annul the bankruptcy, because when the sequestration order was made the debt on which the petitioning creditor relied was
I
I	not, within the meaning of S. 44(1) (b) (ii) of the Act, "payable
either immediately or at a certain future time".

Under the District Court Act the judgment creditor

may apply for leave to pay the judgment debt, or the balance of it

then owing to the judgment creditor, by such instalments payable

at such times as may be specified in the application: s.88(1) (a);

and the registrar may order that the judgment debt be paid by

such instalments payable at such times as are specified ir. the

application: S. 88(4)(a)(i). No question was raised as to the

validity of the order here that payment of the unpaid balance

(then amounting to $1,991.62) of the jud3ment debt be made	by
monthly instalments of $100.

The provisions of ss.44 and 52 of the Bankruptcy Jet

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.I

1966 relevant t o t h e p r e s e n t q u e s t i o n are as fo l lows:

"44 (1).	A	c r e d i t o r ' s p e t i t i o n s h a l l n o t	be	presentec
a g a i n s t	a	d e b t o r u n l e s s

(a) t h e r e is owing by t h e d e b t o r t o t h e

p e t i t i o n i n g c r e d i t o r a d e b t t h a t amounts

t o F i v e h u n d r e d d o l l a r s ... :

(b) t h a t d e b t . . .

(i) is a l i q u i d a t e d sum due a t law o r i n

e q u i t y o r p a r t l y	a t	l a w a n d p a r t l y
i n e q u i t y ; a n d

(ii) is p a y a b l e e i t h e r i m m e d i a t e l y o r

a t a c e r t a i n f u t u r e time; ... 11 , .

" 5 2 ( 1 ) . A t t h e h e a r i n g of a c r e d i t o r ' s p e t i t i o n

t h e Court s h a l l r e q u i r e p r o o f of -

.. .

(c) t h e fact t h a t t h e d e b t . . . on which the

p e t i t i o n i n g c r e d i t o r relies is ...

s t i l l owing,

and , i f it is satisfied w i t h t h e p r o o f o f t h o s e

m a t t e r s , may make a s e q u e s t r a t i o n order a g a i n s t

t h e es ta te of t h e d e b t o r " .

t

The p r o v i s i o n s of S. 4 4 ( 1 ) set out above are n o t

s u b s t a n t i a l l y d i f f e r e n t f r o m t h o s e o f S. 4 (1) ( a ) , (b) of the

Eng l i sh A c t of 1 9 1 4 ; b u t S. 52(1 ) (c) d i f f e r s f r o m t h e c o r r e s p o n d i n g

S. 5 (2) of t h e E n g l i s h A c t i n t h a t t h e la t ter p rov ides t h a t a t

t h e h e a r i n g t h e C o u r t s h a l l r e q u i r e p r o o f "of t h e d e b t of t h e

p e t i t i o n i n g c r e d i t o r " . Lord Evershed in In re a Debtor; Ex p a r t e

the Debtor v . Scott (1954) ,1 W.L.R. 1 1 9 0 , having set o u t t h e

r e l e v a n t p r o v i s i o n s of S. 4 (1) and S. 5 ( 2 ) , s a i d ( a t 1 1 9 6 )

"The s t a t u t e i t s e l f makes it q u i t e p l a l n t h a t t h e

p e t i t i o n i n g c r e d i t o r ' s d e b t - t h a t is, t h e d e b t

. on w h i c h t h e p e t i t i o n e x p r e s s e s i t s e l f as founded -

must be p roved to Se ex i s t ing and have the qua l i t y

and character ment ioned i n s e c t i o n 4 , bo th a t t h e

date when t h e p e t i t i o n was p r e s e n t e d , a n d a t t h e

d a t e o f t h e h e a r i n g " .

H i s Lordship went on t o speak of a f u r t h e r r e q u i r e m e n t o f t h e

common law of b a n k r u p t c y " , n o t e x p r e s s l y s t a t e d in t h e s t a t u t e ,

which he descr ibed as f o l l o w s ( i b i d ) :

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"The r e q u i r e m e n t , i n my judgment, i s t h a t t h e

p e t i t i o n i n g c r e d i t o r ' s debt must a l s o be shown

t o have ex i s t ed and to have the n e c e s s a r y c h a r a c t e r

a n d q u a l i t y s t a t e d i n s e c t i o n 4 a t t h e d a t e of t h e

act of bankruptcy as well as a t t h e d a t e o f t h e

p r e s e n t a t i o n and h e a r i n g of t h e p e t i t i o n " .

The l a t t e r passage in Lord Evershed 's judgment was

regarded by Gibbs J. i n R e Mendonca (19691, 15 F.L.R. 256, 258-9,

as a c c u r a t e l y s t a t i n g t h e law. Both i n I n re a Debtor (supra)

and i n R e Mendonca ( s u p r a ) t h e d a t e relevant t o t h e d e c i s i o n was

the d a t e of t h e ac t of bankruptcy. Gibbs J. i n t h e l a t t e r case

( a t 257-8) spoke of "The w e l l - s e t t l e d r u l e t h a t t h e deb t of the

p e t i t i o n i n g c r e d i t o r m u s t b e a d e b t w h i c h e x i s t e d a t t h e d a t e of

t h e act of bankruptcy", which he said was n o t a l t e r e d b y t h e

Bankruptcy Act 1 9 6 6 , and continued:

" I n t h e p r e s e n t c a s e ... it becomes material t o

c o n s i d e r e x a c t l y w h a t t h i s r u i e r e q u l r e s . It is

clear t h a t , t o s u p p 0 r t . a p e t i t i o n , t h e p e t i t l o n i n g

c r e d i t o r ' s d e b t m u s t amount t o $500 and must be a

l i q u i d a t e d sum payable e i ther immedia te ly or

a t a c e r t a i n f u t u r e tire ( s . 4 4 ( 1 ) ( a ) and ( b ) ) .

I n my opin ion , the debt must a l so have answered

t h i s d e s c r i u t i o n a t t h e d a t e of t h e ac t of

bankrup tcy , o r as Warrington L . J . s a i d !.n I n re

Debtors , ( 1 9 2 7 ) 1 Ch. 1 9 , 2 9 , ' t h e d e b t must ,

a t t h e d a t e of t h e ac t of bankruptcy, be such a

d e b t as could be re l ied upon by t h e p e t i t i o n i n g

c r e d i t o r t o s u p p o r t h i s b a n k r u p t c y p e t i t i o n ' . "

The q u e s t i o n i n t h i s case is whe the r t he deb t

must a n s w e r t h e d e s c r i p t i o n c o n t a i n e d i n S. 4 4 (1) (a) and (h) n o t

on ly a t t h e d a t e of p r e s e n t a t i o n of t h e p e t i t i o n ( c f . S o p h i a n v .

A. J. C l i f f o r d & Son, (1947) K.B. 212) ) and a t t h e d a t e of t h e a c t

of bankruptcy but also a t t h e d a t e o f t h e h e a r i n g of t h e p e t i t l o n .

Lord Evershed, i n the judgment t o which I have re fer red , took it

for g r a n t e d t h a t it must. . .

I n Re Snowden ( 1 9 6 9 ) , (1.970) A.L.R. 229 , 229-230,

Gibbs J. he ld tha t t h e terms of S. 4 4 ( 1 ) ( a ) and 52(1) (cj "1-cave

1

no doub t t ha t a p e t i t i o n i n g c r e d i t o r who seeks a s e q u e s t r a t i o n

o rde r mus t p rove tha t a debt amounting t o a t least $500 was owing

m. -5-

a t t h e d a t e of t h e p r e s e n t a t i o n of the pe t i t i on and r ema ins owing

a t t h e d a t e o f t h e h e a r i n g " : i n o t h e r w o r d s , t h a t t h e d e b t m u s t

a n s w e r t h e d e s c r i p t i o n c o n t a i n e d i n S. 4 4 (1) (a) a t t h e d a t e o f

the hear ing . If t h a t i s so I see no reason why it shou ld no t

a t t h e same time h a v e t o a n s w e r t h e d e s c r i p t i o n c o n t a i n e d i n

S. 4 4 (1) (b) .

It was p o i n t e d out on b e h a l f o f t h e p e t i t i o n i n g

c r e d i t o r t h a t , w h e r e a s t h e E n g l i s h S. 5 ( 2 ) r e q u i r e s p r o o f o f

" t h e d e b t of t h e p e t i t i o n i n g c r e d i t o r " , S . 5 2 ( 1 ) (c) of t h e

A u s t r a l i a n Act requires p r o o f t h a t " t h e d e b t ... on which t h e

p e t i t i o n i n g creditor relies is ... st i l l owing"; and it was

submi t t ed tha t p rov ided the deb t was s t i l l owing a t t h e h e a r i n g

it was immaterial fo r t he pu rposes o f S. 5 2 ( 1 ) ( c ) t h a t it was

not then "payable e i ther immedia te ly or a t a c e r t a i n f u t u r e time"

a n d t h e r e f o r e did no t t hen answer the desc r ip t ion con ta ined in

S. 4 4 (1) (b). But what S . 52 (1) (c) r e q J i r e s s h a l l stlll be owing

I

a t t h e h e a r i n g i s " t h e d e b t o n w h i c h t h e p e t i t i o n i n g c r e d i t o r

relies", a n d t h a t d e b t is a d e b t d e s c r i b e d i n S . 4 4 ( 1 ) (a) and (b) -

i n Lord Evershed's words, a deb t wh ich "has the necessa ry cha rac t e r

a n d q u a l i t y s t a t e d i n " S . 4 4 ( l).

The ques t ion then i s whether a t t h e d a t e of the

h e a r i n g t h e d e b t r e l i e d o n i n t h i s c a s e was " p a y a b l e e i t h e r

immediately or a t a c e r t a i n f u t u r e time". The order of 31 August

1976 converted the judgment debt f rom a debt immediately payable

i n t o a debt payable in fu turo , though month ly ins ta lments accrued

due would be immediately payable: cf . I n re a Debtor , ( 1 9 6 7 ) Ch.

590, 594. I n R e Seckold (1933), 5 A.B.C. 1 9 5 , a f t e r t h e d e b t o r had

committed an a c t of bankrup tcy by f a i l i ng to comply wl th a

bankrup tcy no t i ce , an o rde r was made i n t h e Supreme Court of New

South Wales under the Moratorium A c t 1930 (N.S.W.) t h a t payment

-6-

.' .

of the judgment debt on which the bankruptcy not ice was based be

d e f e r r e d so long as t h e d e b t o r p a i d 70/- p e r month i n reduct ior ,

of t h e d e b t on t h e first day of every month commencing from

1 February 1933. There was a p r o v i s o t h a t i f a c e r t a i n e v e n t

happened the whole of the deb t shou ld be payab le fo r thwi th .

Lukin J., i n t h e F e d e r a l C o u r t of Bankruptcy , sa id a t 197 -

"In t h i s case, t h e Court has de fe r r ed the paymen t

of the judgment debt t o equal payments of a p a r t

o f t h e d e b t on t h e first of every month, comencing

o n t h e 1st February, 1933. Such deferment t o pay

c o n v e r t s , i n my opin ion , the ' immedia te ly payable '

( d e b t ) i n t o o n e p a y a b l e ' a t some c e r t a i n f u t u r e

time'. The d e b t so d e f e r r e d f u l f i l s t h e r e q u l r e m e n t s

of S. 55(1) (b) (of the Bankruptcy A c t 1924) . The

f a i l u r e t o pay on any par t icu lar month , o r ( the

happening of t h e s p e c i f i e d e v e n t ) , may, i n e i t h e r

case, accelerate t h e d a t e o f p a y m e n t , b u t d o e s n o t ,

it seems t o me, make the judgment debt any the

less payable a t some c e r t a i n f u t u r e time".

I n t h e p r e s e n t case the order of 31 Augus t means ,

i n my op in ion , t ha t $100 mus t be pa id on 28 September 1976 and

$100 during each of t h e months from and including October 1 9 7 6

l

until t h e balance of the judgment debt is pa id . Each ins ta lment

e x c e p t t h e first accrues due and becomes payable on the l a s t day of

the month. (It is i m p l i c i t t h a t when t h e b a l a n c e i s r e a n c e d t o

an amount less t h a n $100 t h e n t h e l a s t i n s t a l m e n t s h a l l be of t h a t

amount.) If t h e d e b t o r f a i l s t o make any payment i n a c c o r 6 a n c e

w i t h t h e o r d e r t h e payment may b e e n f o r c e d f o r t h e b a l a n c e t h e n

owing: Dist r ic t Court A c t S . 89(2). I n my o p i n i o n t h e a r d e r is i n

s u b s t a n c e a n d e f f e c t s i m i l a r t o t h a t i n R e Seckold, and 1 should

follow t h e d e c i s i o n i n t h a t case.

Counsel for t h e p e t i t i o n i n g c r e d i t o r a lss submit ted

t h a t i n a n y e v e n t t h e d e b t r e l i e d o n b y t h e p e t i t i o n i n g c r e d i t o r

was n o t t h e j u d g m e n t d e b t b u t t h e o r i g i n a l d e b t on which the

judgment was founded , and tha t t ha t deb t was n c t m e r g e d i n t h e

judgment debt : In re - King & Beesley, (1893) 1 Q.B. 1 8 9 ; and was

n o t a f f e c t e d by t h e order f o r payment by instalments. The words

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".

used in paragraph 2 of t h e p e t i t i o n , h o w e v e r , i n my o p i n i o n c l e a r l y

allege indebtedness for the ba lance due under the judgment , and

n o t for t h e o r i g i n a l d e b t . B u t I a g r e e t h a t t h e o r i g i n a l d e b t w a s

not merged in the judgment debt and was n o t a f f e c t e d b y t h e

o r d e r of 31 August. An orde r unde r S . 88 o f t h e District Court

A c t could be made o n l y i n r e s p e c t o f a judgment debt. Had t h e

p e t i t i o n i n g c r e d i t o r a t the hear ing sought and been granted leave

t o amend t h e p e t i k i o n b y a l l e g i n g h i s o r i g i n a l d e b t t h e a r g u m e n t

based on S. 4 4 (1) (b) (ii) w o u l d n o t h a v e b e e n a v a i l a b l e t o t h e

bankrupt . I t h i n k t h e r e f o r e t h a t e v e n i f t h e j u d g m e n t d e b t r e l i e d

upon is n o t payab le e i the r immedia t e ly or a t a c e r t a i n f u t u r e time

I should not on t h a t account a lone annul the bankruptcy .

An a l t e rna t ive submission was made on beha l f of t h e

bankrupt , t o the fo l lowing effect . Though t h e p e t i t i o n h a d b e e n

du ly se rved on t h e b a n k r u p t , t h e r e was a t t h e h e a r i n g n o a p p e a r a n c e

by him or on h i s b e h a l f . H e e x p l a i n s t4at by say ing tha t , hav ing

on about 10 September received n o t i c e t h a t the o r d e r of 31 August

had been made, he thought that order would also dispose of t h e

pending bankhptcy proceedings , and so d i d n o t a t t e n d a t t h e h e a r i n g

of t h e p e t i t i o n . Had he a t tended and g iven ev idence , it is s a i d ,

he would have p u t before t h e Court evidence that would have

p e r s u a d e d t h e C o u r t t h a t i n i t s d i s c r e t i o n a s e q u e s t r a t i o n o r d e r

o u g h t n o t t o b e made and instead an adjournment ought t o be granted

because of t h e " p e n d i n g p r o b a b i l i t y " , as c o u n s e l c a l l e d It, of

t h e p e t i t l o n i n g c r e d i t o r ' s d e b t b e i n g p a i d . A l l t h a t n e e d b e s a i d

as t o t h i s s u b m i s s i o n i s t h a t t h e e v i d e n c e r e f e r r e d t o , so f a r

from i n d i c a t i n g s u c h a p r o b a b i l i t y , c l e a r l y s h o h s t h a t t h e b a n l c r u p t

was i n s o l v e n t when t h e s e q u e s t r a t i o n order was made.

I d i s m i s s t h e a p p l i c a t i o n , a n d o r d e r t h e b a n k r u p t

t o	p a y t h e p e t i t i o n i n g c r e d i t o r ' s	costs ,	i n c l u d i n g r e s e r v e d	costs,
of	t h e a p p l i c a t i o n .