Re Dawson, P. v Ex parte Dawson, P. & Anor

[1985] FCA 116

Re: PETER DAWSON
Ex Parte: PETER DAWSON
And: ARTHUR ANDERSEN AND CO. (A FIRM)
No. BANKRUPTCY NOTICE No. 2 of 1985
Bankruptcy
59 ALR 355 / 5 FCR 133

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Pincus J.(1)

CATCHWORDS

Bankruptcy - deed of assignment under Part X - application to have deed declared void - bankruptcy notice issued - whether competent to issue notice before declaration.

Bankruptcy - Bankruptcy notice issued after execution of deed of assignment purporting to be under Pt X. - Whether bankruptcy notice valid - Application to have deed declared void - Bankruptcy Act 1966 (Cth), ss 228(2).

HEADNOTE

Held: 1. The application for issue, and consequent issue, of a bankruptcy notice constitute the commencement of legal proceedings in respect of a provable debt and are therefore caught by the words of s 228(2)(c).

2. A deed of assignment is to be treated as valid for the purposes of s 228(2) until declared void under s 222.

3. Accordingly, a bankruptcy notice issued after the execution by the bankrupt of a deed of assignment (which was valid on the face of it) under Pt X. will be set aside even while an application is pending to have the deed declared void.

HEARING

Brisbane, 1985, March 25, 29. #DATE 29:3:1985
APPLICATION

Application for an order that a bankruptcy notice be set aside.

G. A. Thompson, for the applicant.

M. A. Wilson, for the respondents.

Cur adv vult

Solicitors for the appellants: T. V. Martin & Co.

Solicitors for the respondent: Geoffrey Edwards & Co.

GFV

ORDER

1. Bankruptcy Notice No. 2 of 1985 is set aside.

2. The respondents pay the costs of and incidental to this application to be taxed.

Orders accordingly

JUDGE1

Mr Peter Dawson applies for an order that a bankruptcy notice served on him by Arthur Andersen and Co. (a firm) be set aside.

1. On 6 November 1984 Mr Dawson executed a deed of assignment of all his divisible property under Part X. Robert William Morton, a registered trustee, executed the same document on 10 December 1984 and it was filed on 11 December 1984. On 31 January 1985 Mr Dawson was served with a bankruptcy notice issued at the behest of Arthur Andersen and Co. and on 12 February 1985 he applied to set it aside, that application being set down for hearing on 25 March 1985.

2. On 22 March 1985 Arthur Andersen and Co. made application for orders that the deed be declared void on the grounds that "(a) it was not entered into in accordance with Part X of the Bankruptcy Act 1966" and "(b) the debtor omitted material particulars from his statement of affairs under section 195 of the said Act". That application is set down for hearing on 22 April next. Although there are cross-applications involved, I shall call Mr Dawson the applicant and Arthur Andersen and Co. the respondents.

3. When Mr Dawson's application was called on, Miss Wilson, counsel for the respondents, asked that the matter be adjourned until 22 April, to be heard with the application by Arthur Andersen and Co. Mr Thompson, counsel for the applicant, opposed that and explained that he wished to argue that, whatever the fate of the respondents' application, the issue of the bankruptcy notice by the respondents was incompetent, under s.228(2), and the notice should therefore be set aside. I refused the application for an adjournment.

4. Mr Thompson argued that under the 1924 Act a deed of assignment was treated as good until a declaration of voidness, which declaration had no retrospective effect. He also pointed out that the applicant, who had assigned all his divisible property, could hardly comply with the requirements of the bankruptcy notice. These submissions have force, but the question whether the notice is bad depends upon two questions of construction of s.228.
   
   

Issue of Bankruptcy Notice - s.228(2)(c)

1. The first is whether the issue of a bankruptcy notice falls within s.228(2)(c). In full, s.228(2) reads as follows:-
   
   

"228(2) Subject to sub-sections (3) and (4), where a deed of assignment has become binding on the creditors of the debtor, it is not competent for a creditor, so long as the deed remains valid -

(a) to present a creditor's petition against the debtor, or to proceed with such a petition presented before the deed became so binding, in respect of a provable debt;

(b) to enforce any remedy against the person or property of the debtor in respect of a provable debt; or

(c) to commence any legal proceedings in respect of a provable debt or take any fresh step in such a proceeding."

Mr Thompson said that the application for issue, and consequent issue, of the bankruptcy notice constituted the commencement of legal proceedings in respect of a provable debt within (c). In answer to that, Miss Wilson relied upon the decision of Lockhart J. in Re Maddox 36 FLR 392, that the issue of a bankruptcy notice does not constitute "proceedings" within the meaning of s.8(1)(a) of the Family Law Act 1975. Reference to that case, however, shows that it turned upon the point that the relevant definition of "proceedings" referred to proceedings in a court. Lockhart J. held that the issue of a bankruptcy notice is not a step in a proceeding in a court. The expression "legal proceedings" is plainly broader than "proceedings in a court" and may, depending on context, include proceedings that have nothing to do with a court: see for example Re Westminster (City) London Borough Rent Office; ex parte Rendall (1973) 3 All ER 119 at p.121.

1. Section 95 of the English Companies Act 1862 empowered the official liquidator of a company, with the sanction of the court, to "bring or defend any action, suit or prosecution or other legal proceeding, civil or criminal, in the name and on behalf of the company". The context in which the expression "legal proceeding" there occurs appears to me redolent of courts, but nevertheless it was held in Re Winterbottom (1886) 18 QBD 446 that the power included "the power to serve a bankruptcy notice, because that seems to be the natural meaning of the words ...". The application for issue of, and issue of, a bankruptcy notice constitute proceedings and I think them to be of a legal sort. I agree with the view in Re Winterbottom as to the natural meaning of "legal proceeding" and apply that case. I am encouraged to do so by the consideration mentioned by Mr Thompson and referred to above, that if the deed is valid the debtor presumably will have no disposable property with which to meet the requirements of the notice.

2. I would add that the applicant also relied upon para. (b) but I have not found it necessary to reach any conclusion as to whether to issue a notice is "to enforce any remedy against the person or property of the debtor in respect of a provable debt".
   
   

Interpretation of s.228(1)

1. The second question is whether the condition mentioned at the outset in s.228(2) subsists, namely that "a deed of assignment has become binding on the creditors of the debtor". That notion is defined by s.228(1):-
   
   

"A deed of assignment that is entered into in accordance with this Part and complies with the requirements of this Part is, upon being duly executed by the debtor and the trustee, binding on all the creditors of the debtor."

If one applies these expressions in isolation, their effect is to make the process of entering into a deed merely provisional; on the face of it, the deed is not made binding unless three conditions are satisfied, the first two being that it is entered into in accordance with Part X and that it complies with the requirement of that part.

1. Under the 1924 Act, it was said by Clyne J. in Re Cohn (1954) 16 ABC 150 at p 152:-
   
   

"In my opinion, if pursuant to a resolution under s.162(1) of the Bankruptcy Act, a debtor thereupon executes a deed of assignment to a trustee named in the resolution, the deed so executed is a valid and subsisting deed until it is declared void."

See also Bridge v. Great Western Portland Cement and Lime Ltd (1932) 48 CLR 522 and Re Cope (1947) 16 ABC 113.

1. There is an evident practical advantage in a deed's being treated as effective until a declaration of voidness is made, namely that creditors know where they stand. For that reason, and in view of the state of the law under the 1924 Act, one would tend to presume that it was intended that s.228 conform to the same principle, that the effect of a declaration of voidness is, at least in general, prospective only. Not without some doubt, I have come to the conclusion that despite the language of s.228(1), the real intention of Parliament was that s.228(2) should operate, whether or not there exists a ground of attack on the deed, until a declaration of voidness.

2. One reason for this conclusion is the presence in s.228(2) of the expression "so long as the deed remains valid". The notion of the deed's remaining valid is consistent with a declaration of voidness having prospective effect only. Otherwise, the draftsman would have used some such language as "if the deed is valid".

3. I note, also, that the remedy the statute provides for a deed's not being in accordance with Part X or not in compliance with the requirements of the part is an application under s.222(1), which may lead to a declaration of voidness under s.222(2); however, s.222(3) is as follows:-
   
   

"The Court shall not make an order declaring a deed to be void on the ground that it does not comply with the requirements of this Part if the deed complies substantially with those requirements."

If, as s.228(1) suggests, a deed that does not comply with the requirements of the part is from the outset not binding, there is little point in the Court's troubling to exercise a discretion under s.222(3). Reading s.222 with s.228, I think the legislature must be taken to have intended that, in accordance with the pre-existing law, the deed is binding on execution unless and until a declaration of voidness is made under s.222. It follows, in my view, that at present the deed, which is on the face of it valid, must be treated as good, for the purposes of s.228(2).

In summary, then, I hold that:-

(i) The application for issue, and consequent issue, of a bankruptcy notice constitute the commencement of legal proceedings in respect of a provable debt and are therefore caught by the words of s.228(2)(c).

(ii) Unless and until a declaration is made under s.222 that a Part X deed is void, it must be treated as valid for the purposes of s.228(2).

1. I therefore set the bankruptcy notice aside and order that the respondents pay the costs of and incidental to this application to be taxed.