Re Coote
[1993] FCA 949
•17 DECEMBER 1993
Re: JOHN COOTE, PETITIONING CREDITOR
REFERENCE BY REGISTRAR IN BANKRUPTCY UNDER SUBSECTION 55(3) OF THE BANKRUPTCY
ACT 1966
No. VP932 of 1993
FED No. 949/93
Number of pages - 10
Bankruptcy
(1993) 120 ALR 134
(1993) 47 FCR 522
COURT
IN THE FEDERAL COURT OF AUSTRALIA
EXERCISING FEDERAL JURISDICTION IN BANKRUPTCY
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
NORTHROP J
CATCHWORDS
Bankruptcy - s.55 Bankruptcy Act 1966 - debtor's petition - circumstances in which Registrar may refer petition to Court - sufficient nexus of debtor with Australia
HEARING
MELBOURNE
#DATE 17:12:1993
ORDER
THE COURT DIRECTS:
1. That the Registrar reject the petition.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
NORTHROP J Section 55 of the Bankruptcy Act 1966 empowers a debtor to present to the Registrar in Bankruptcy a petition against himself or herself. The petition must be in the prescribed form and must be accompanied by a statement of the debtor's affairs. Under subsection 55(3), if the petition and the statement of affairs so presented appear to the Registrar to comply with subsection 55(2), the Registrar must accept the petition. In any other case, the Registrar may reject the petition or refer it to the Court for a direction to accept it or reject it. Under subsection 55(4), the Registrar must comply with a direction given by the Court on a reference under subsection 55(3). Under subsection 55(4A), where the Registrar accepts a petition under s.55, the debtor who presented the petition becomes a bankrupt. Thereafter, the provisions of the Bankruptcy Act apply to that bankrupt.
On 5 August 1993, John Coote ("the Debtor") presented his petition to the Registrar in Bankruptcy for the Bankruptcy District of the State of Victoria. The petition was signed by the Debtor while in Australia. The petition stated that the Debtor was a consultant and resided at 8205 Santa Monica Bl Los Angeles U.S.A. The accompanying statement of affairs disclosed $1,530,037.29 owing to unsecured creditors and that the Debtor had no assets. In the statement, the Debtor gave the same address as his residence, stated that he was given advice about insolvency by a friend who is a solicitor, gave the name and address of a person in Los Angeles as a contact person and stated that he was not employed in Australia. He stated he was self-employed and was not married and estimated his income for the next 12 months at US $20,000. He stated he was born on 12 June 1949 and that his last tax return lodged in Australia was for the year 1988 which had been prepared by Bongiorno & Co., 312 St Kilda Road, Melbourne. He stated further that he was being sued in the Supreme Court of Victoria by B N Finance in action No. 7682/93.
When presenting his petition, the Debtor left with the Registrar a letter, undated, as follows:-
"I have not lived in Australia for 7 years, while visiting recently I was served with the enclosed writ. Place find enclosed forms pertaining to Bankruptcy. If you wish to contact me you can call me on the below number, although I am often away for long periods".
The address and phone number were those of his residence in Los Angeles. The enclosed writ was in action No. 7682/93. The principal claimed in that writ was disclosed as a debt in the statement of affairs. The interest claimed in the writ, amounting to $110,794.70, was not included in the statement of affairs.
The Registrar did not accept the petition under subsection 55(3). He was concerned by the fact that, apart from the existence of the debts disclosed in the statement of affairs, there appeared to be no connection between the Debtor and Australia and that therefore, there was no power conferred upon him to accept the petition. Accordingly, the Registrar, pursuant to s.55(3), referred the petition to the Court for a direction to accept or reject it.
Section 27 of the Bankruptcy Act confers jurisdiction in bankruptcy on the Federal Court of Australia. By reason of the definition of "bankruptcy" contained in subsection 5(1), this means jurisdiction under or by virtue of the Bankruptcy Act. Section 55 confers on the Federal Court the power to give a direction upon a reference to it by a Registrar under subsection 55(3).
Upon the reference to it, the Court directed the Registrar to notify the Debtor by prepaid post addressed to the Los Angeles address that the Court would hold a public hearing of the reference on 29 October 1993 and that if the Debtor intended to appear he should advise the Registrar, compare Bankruptcy Rule 25. This was done by letter dated 30 August 1993. The Debtor did not contact the Registrar. The Debtor did not appear before the Court on 29 October 1993.
Under s.51(xvii) of the Constitution, the Parliament has power to make laws for the peace, order and good government of the Commonwealth with respect to bankruptcy and insolvency. The Bankruptcy Act is a law made by the Commonwealth under that power. However, there must be some limitation on the application of such a law. Thus, the Bankruptcy Act could not normally apply, say, to a citizen of Iceland who had never been present in Australia, was not a resident in Australia, had no place of business or place of residence in Australia, or was not carrying on business in Australia. This is illustrated by Re Sawers; Ex parte Blain (1879) 12 ChD 522. There, the Court of Appeal held that the English Court of Bankruptcy had no jurisdiction to make a sequestration order against a foreigner. The position is stated clearly by Cotton LJ at 531-2:-
"Let us see what the case is. We are not dealing with the question which might arise if an English Act of Parliament had expressly said that, as against a Chilian subject, or any other alien who had never been in England, the Court should, on certain facts being proved, entertain a petition and make an adjudication. In such a case it might be the duty of the Court, acting in the execution of the English Act of Parliament, whatever the consequences might be, and however foreign nations might object, to say, This is the English statute, and we must act on it, and the question which you, a foreigner, raise we are bound to disregard. I do not say that would be so, because, if the Act had clearly gone beyond the power of the English Legislature, there might be a question. But that is not so here. All we have to do is to interpret an Act of Parliament which uses a general word, and we have to say how that word is to be limited, when of necessity there must be some limitation. I take it the limitation is this, that all laws of the English Parliament must be territorial - territorial in this sense, that they apply to and bind all subjects of the Crown who come within the fair interpretation of them, and also all aliens who come to this country, and who, during the time they are here, do any act which, on a fair interpretation of the statute as regards them, comes within its provisions. Of course it is not necessary that a person to be subject to an English Act should be domiciled here. If he is resident here temporarily, and does an act which comes within the intent and purview of a statute, he, as regards that statute, as does every alien who comes here in regard to all the laws of this realm, submits himself to the law, and must be dealt with accordingly. As regards an Englishman a subject of the British Crown, it is not necessary that he should be here, if he has done that which the Act of Parliament says shall give jurisdiction, because he is bound by the Act by reason of his being a British subject, though, of course, in the case of a British subject not resident here, it may be a question on the construction of the Act of Parliament whether that which, if he had been resident here, would have brought him within the Act, has that effect when he is not resident here. As regards a British subject, whether he is here or not, he can be made bankrupt, if the Act of Parliament has declared that, in the events which have happened, he can be made bankrupt. But, as regards foreigners, there is prima facie no right to bind them if they are not here. I think, therefore, that the true interpretation of the general word "debtor" in the Bankruptcy Act is, a debtor subject to the English bankruptcy law. I say to the English bankruptcy law, and not to the English law generally, for this reason, that we are dealing with a question of bankruptcy; and it may be that there are English statutes which give our Courts power to deal with foreigners who are not here as regards matters which, according to all principles, ought to be adjudicated upon by our Courts, such as, for instance, questions relating to real property situate in England. Of course it is right that questions of title to such property should be adjudicated upon here, and there may well be English statutes giving our Courts power to deal with suits relating to the title to real property in England as regards aliens, and for the purpose of serving them. But that is a very different thing from saying that you shall deal with a foreigner who has never been here, and has never submitted himself to the English Act of Parliament, in the special subject of bankruptcy to which this Act refers. In my opinion, we are not justified in giving the interpretation which we are asked to give to the word "debtor," simply because some convenience would result from so doing, or some inconvenience may result from not doing so. We have to consider what is the fair interpretation of the Act, and we must not give to general words an interpretation which would, in my opinion, violate the principles of law admitted and recognised in all countries."
It must be remembered that a sequestration order affects the status of the person made bankrupt. That status applies to the bankrupt while within Australia. It may affect his property outside Australia. It results in many restrictions being imposed upon the bankrupt. Bankruptcy is designed to enable the assets of a bankrupt to be distributed fairly among the creditors and upon discharge from bankruptcy to be freed from liability for any debts not paid in full. This enables the discharged bankrupt to start again, as it were, without the difficulties imposed by unpaid debts. For this reason, great care must be exercised before a sequestration order is made. Further, jurisdiction to make a sequestration order must be established before an order is made.
The jurisdiction of the Court to make a sequestration order against a debtor upon a petition by a creditor is restricted. Section 43 imposes the limitation. Subsection 43(1) is as follows:-
"43 (1) Subject to this Act, where:
(a) a debtor has committed an act of
bankruptcy; and
(b) at the time when the act of bankruptcy was committed, the debtor:
(i) was personally present or ordinarily resident in Australia;
(ii) had a dwelling-house or place of business in Australia;
(iii) was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager; the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor."
This section establishes the necessary connection or nexus between the Bankruptcy Act, the jurisdiction of the Court and the debtor to make a sequestration order. On its face there is no such restriction or limitation expressed in s.55 with respect to a debtor's petition.
Before the Bankruptcy Act 1966 came into operation, the Bankruptcy Act 1924 (the "1924 Act") applied. It contained very different provisions. Section 54 of the 1924 Act provided that if a debtor committed an act of bankruptcy the Court had jurisdiction and power "on a bankruptcy petition being presented either by a creditor or by the debtor" to make an order called a sequestration order. Section 57 of the 1924 Act corresponded with s.55 of the 1966 Act. It provided that in the debtor's petition the debtor had to allege that he was unable to pay his debts and that the presentation of the petition would be deemed an act of bankruptcy and that "the Court may therefore make, or refuse for good and sufficient cause to make, a sequestration order". The connection or nexus between the making of a sequestration order, the 1924 Act and Australia would seem to arise from the definition of "debtor" in s.4. The definition was inclusive, not definitive. It was as follows:-
"4. In this Act, unless the contrary intention appears -
"Debtor" includes any person, whether a British subject or not, who at the time when any act of bankruptcy was done or suffered by him-
(a) was personally present in Australia; or
(b) ordinarily resided or had a place of residence in Australia; or
(c) was carrying on business in Australia, personally, or by means of an agent or manager; or
(d) was a member of a firm or partnership which carried on business in Australia".
This definition is not helpful. It does not give a definitive meaning to the word "debtor". Unless the word "includes" is to be construed as meaning that any debtor who did not come within one of the categories thereafter specified is not a debtor for the purposes of, among other provisions, sections 54 and 57 of the 1924 Act, the definition would be meaningless. This, however, would be an extreme interpretation.
The restriction on the exercise of the power of the Court to make a sequestration order on a creditor's petition was imposed indirectly by paragraph 55(1)(d) of the 1924 Act. That paragraph was as follows:-
"55 (1) A Creditor shall not be entitled to present a petition against a debtor unless -
(a) the debt owing by the debtor to him, or, if two or more creditors join in the petition, the aggregate of the debts owing to the several petitioning creditors amounts to fifty pounds; and
(b) the debt is a liquidated sum, whether due at law or in equity or partly at law and partly in equity, and payable either immediately or at some certain future time; and
(c) the act of bankruptcy on which the petition is grounded has occurred within six months before the presentation of the petition; and
(d) the debtor is domiciled in Australia, or, within a year before the date of the presentation of the petition, has ordinarily resided or had a dwelling-house or place of business in Australia, or has carried on business in Australia, personally or by means of an agent or manager, or is or within the said period has been a member of a firm or partnership which has carried on business in Australia by means of a partner or partners, or an agent or manager."
For the purposes of this reference, this historical analysis of the Bankruptcy Act is not particularly helpful. Under s.57 of the 1924 Act, the Court had a discretion to refuse to make a sequestration order on the petition of the debtor "for good and sufficient cause". It may well have been good and sufficient cause for the Court to refuse to make a sequestration order on the petition of a debtor who had no connection with Australia of the type specified in subsection 55(1) of the 1924 Act but this need not be pressed further.
It is noted that paragraph 24(1)(a) of the 1924 Act empowered a Registrar to hear debtor's petitions and to make sequestration orders thereon. In The Queen v Davison (1954) 90 CLR 353, the High Court held that paragraph 24(1)(a) was void on the ground that it attempted to authorize a person not constituting a court under the Constitution to exercise part of the judicial power of the Commonwealth. In the same case, an indication was given of a method by which a voluntary sequestration could arise without the need of a judicial order. At 365-6 Dixon CJ and McTiernan J discuss the matter. Part of that discussion is set out:-
"In the now long history of the English law of bankruptcy the process by which a compulsory sequestration has been brought about has always been of a description which may properly be called judicial: see Holdsworth, History of English Law, vol. 8, pP 238 et seqq. It is unnecessary to trace the history of voluntary sequestration but for a very long time it has been the subject of judicial order. There is nothing, however, inherent in the nature of voluntary sequestrations to make it impossible for the legislature to provide some other means than a judicial order for the purpose. No doubt it is imperative that some public or overt fact or event should mark the commencement of a voluntary sequestration. The power conferred by s.51(xvii) upon the Parliament to make laws with respect to bankruptcy and insolvency is wide and there is no reason for doubting that under it the commencement of a voluntary sequestration might be made to depend on any act, matter or thing that might be chosen as appropriate."
Section 55 of the 1966 Act is based upon this line of reasoning. This is illustrated by subsection 55(4A) of the 1966 Act:-
"55 (4A) Where the Registrar accepts a petition presented under this section:
(a) he or she shall endorse the petition accordingly; and
(b) upon the Registrar endorsing the petition, the debtor who presented the petition becomes a bankrupt by force of this section and by virtue of presentation of the petition."
It is necessary now to come forward to the Bankruptcy Act 1966. In legal theory, any person, whether having any connection or nexus with a country, may submit to the jurisdiction of a court of that country. The Bankruptcy Act, by implication, imposes restrictions on that general principle where a creditor petitions for a sequestration order against the estate of a debtor; see subsection 43(1). A debtor may be served with a petition while outside Australia, but that is a different issue. At the hearing of the petition, the Court, by subsection 52(1), is required to have proof of the matters stated in the petition. One of the matters required to be stated in the petition is identification of compliance with the requirements of subsection 43(1). The debtor is not required to submit to the jurisdiction of the Court. Even then, the Court has a discretion to dismiss the petition; see subsection 52(2).
Reference is made to the provisions of s.56 of the Bankruptcy Act. These provisions enable a debtor's petition against a partnershiP Special problems are involved arising from the fact that not all partners may desire to present a petition. The particular provisions relating to this need not be considered. What is important is the limitation imposed by subsection 56(1), namely making residence in Australia a condition. The subsection is set out:-
"56(1) A debtor's petition against a partnership may be presented to the Registrar by all the members of the partnership or by a majority of the members of the partnership who are resident in Australia at the time of the presentation of the petition."
The difference between the limitation contained in subsection 56(1) and the absence of a similar limitation in subsection 55(1) has been used to support the view that the application of s.55 is not to be limited in any way. It is said that the bankruptcy of the petitioning debtor arises by Act of Parliament by virtue of the presentation of the petition and its acceptance by the Registrar. This view is expressed in Nygh, Conflict of Laws in Australia, 5th Ed. P485:-
"The Act does not lay down any jurisdictional prerequisite in relation to debtors' petitions: s.5, except where a debtor's petition is presented against a partnershiP In the latter case it is provided that a debtor's petition may be presented by the majority of those members of a partnership who are resident in Australia at the time of presentation of the petition: s.56(1). It is to be presumed from these provisions that the omission of jurisdictional requirements is deliberate. If the debtor is the only person involved, he or she may in effect submit to the jurisdiction of the Australian courts."
Action taken by a Registrar under s55 or s56 is not action within the jurisdiction of the Court. It must be emphasised that subsection 55(4A) of the Bankruptcy Act operates of its own force upon the Registrar endorsing a debtor's petition that the petition is accepted. The debtor thereupon becomes a bankrupt. There is no order of a Court. There is no question of jurisdiction of a Court arising. The bankrupt is subject to the provisions of the Bankruptcy Act and only indirectly to the jurisdiction of the Court if, in that bankruptcy, any person makes an application to the Court. In these circumstances the bankrupt could not object to the jurisdiction of the Court since the bankrupt has submitted to the jurisdiction by presenting a debtor's petition to the Registrar in bankruptcy even though the Registrar is not an officer of the Court.
In the present reference, the Debtor has presented his petition. The petition is in the prescribed form and was accompanied by a statement of his affairs. Subsection 55(3) provides as follows:-
"55 (3) Subject to subsection 3(A), where a petition is presented under this section, the Registrar shall:
(a) if it appears to the Registrar that the petition, and the statement of affairs accompanying the petition, comply with subsection (2) - accept the petition; or
(b) in any other case - reject the petition or refer it to the Court for a direction to accept or reject it."
Sub-section 55(3A) applies where there is a creditor's petition pending at the time the debtor's petition is presented. It has no application to the facts of this case.
On its face, paragraph 55(3)(a) appears to impose a duty on the Registrar to accept the petition if it appears to the Registrar that the petition and the statement of affairs comply with sub-section 55(2). In this case, in form they so comply. The use of the words "in any other case" at the beginning of paragraph 55(3)(a) are unusual. If it appeared to the Registrar that the petition and the statement of affairs did not comply with subsection 55(2), it would be expected that the Registrar would either suggest to the debtor to provide documents in compliance with the requirements of subsection 55(2) or reject the petition. In the latter case, the decision to reject could be reviewed by the Court under subsection 14(5). The words "in any other case" seem to invoke a wider range of matters than a mere non-compliance with the requirements of subsection 55(2). This view is supported by the next paragraph, 55(3)(b). The reference of the petition to the Court is for "a direction to accept or reject it", not a direction that the petition and statement of affairs either comply or fail to comply with subsection 55(2). The reference to the Court is unfettered. The Court, in the exercise of its judicial discretion, is required to give a direction to the Registrar. In exercising its discretion, the Court should take into account any relevant facts.
Accordingly, in my opinion, even if it appears to the Registrar that the petition, and each statement of affairs accompanying the petition, comply with subsection 55(2) of the Bankruptcy Act, if the Registrar has any doubt as to whether the petition should be accepted, the Registrar should refer the petition to the Court. The doubt would arise from matters other than the form of the petition and statement of affairs. The only power or duty of the Registrar is to accept, reject or refer the petition to the Court. In the absence of a direction from the Court, the only power of the Registrar to reject the petition is if it does not comply with subsection 55(2). On a reference, the power of the Court is not so limited. The Court is able to consider other facts.
In considering this reference, regard must be had to the provisions of the Bankruptcy Act and the policy of the Act. The policy has been stated earlier in these reasons. It is not appropriate that a detailed examination of the provisions of the Bankruptcy Act be undertaken in these reasons. Under s.58, where a debtor becomes a bankrupt, the property of the bankrupt vests forthwith in the Official Trustee. Wide powers are conferred upon the Trustee to get in the property of the bankrupt. The Bankruptcy Act imposes duties on a bankrupt with respect to the bankruptcy including the duty to give to the trustee the bankrupt's passport. The property of a bankrupt which is situated outside Australia may vest in the Trustee, but, even apart from legal problems arising with respect to getting in such property, financial problems make it almost impossible for a Trustee to pursue the issues where the bankrupt has no assets. The legal problems are illustrated by a reference to Re Doyle (dec'd); Ex parte Brien v Doyle (1993) 112 ALR 653. See also Nygh, above at pp 486-7.
From a practical point of view, if the Debtor is made bankrupt, the only effect will be that, upon his discharge, he would be released from his debts in Australia. In other words, the normal period at the expiration of which those debts would be statute bound, is reduced. From a practical point of view, there is no way the Trustee could "take control" of the assets, if any, of the Debtor outside Australia. The whole process takes on the appearance of a fraud upon the creditors. The Court should not permit itself to be used for that purpose.
In this reference, it can be accepted that the Debtor was present in Australia when he presented his petition. He is not a resident of Australia. He has no assets. He has given no address in Australia at which he can be contacted. The task of the Trustee in Bankruptcy in administering the estate would be impossible. Although the Debtor may be an Australian citizen and he has an Australian passport, he has not resided in Australia for seven years. On all the material before the Court, this is a case where the Court should direct the Registrar to reject the petition.
In conclusion, it is suggested that if a Registrar has any doubt whether a debtor's petition should be accepted, even though the Registrar is satisfied the documents comply with the requirements of subsection 55(2) of the Bankruptcy Act, the Registrar should refer the petition to the Court under paragraph 55(3)(b). The Court, in the exercise of its judicial powers, should decide to direct the Registrar to either accept or reject the petition.
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