Re Fabricuius v Ex parte Morgan & Associates (Regd)

[1991] FCA 120

Re: HERMAN JOHANNUS JOSEPH FABRICIUS
Ex parte: MORGAN AND ASSOCIATES
No. P38 of 1990
FED No. 120
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
O'Loughlin J.(1)

CATCHWORDS

Bankruptcy - s.49 - circumstances when it will be appropriate to make an order for substitution of petitioning creditor - not necessary for application to substitute to be made within six months of relevant act of bankruptcy.

HEARING

ADELAIDE

#DATE 15:3:1991

Counsel for the Applicant : Mr D.G. Morgan

Solicitors for the Applicant : Morgan and Associates

Counsel for the Debtor : Mr S. Adams

Solicitors for the Debtor : Adams Kandelaars

Counsel for the Petitioning
Creditor : Mr A. Rogers

Solicitors for the Petitioning
Creditor : Rogers Branch and Co.

ORDER

1. Morgan and Associates be substituted as petitioners.

2. The petition may be proceeded with hereafter as if the substituted creditors had been the petitioning creditors.

3. The question of costs and consequential orders be reserved.

Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124.

JUDGE1

This is an application by creditors of the debtor for an order that they be substituted as petitioning creditors.

1. A Creditors' Petition was filed in this court on 15 February 1990 naming Mr and Mrs. J.C. Van Antwerpen as the petitioning creditors; it was served on the debtor on 14 April 1990. The petition is currently extended to 15 February 1992. The act of bankruptcy upon which the petition was based was alleged to be the failure by the debtor to comply with a bankruptcy notice on or before 1 January 1990. The bankruptcy notice was based upon a final judgment that was obtained by the petitioning creditors against the debtor on 15 April 1988 in the District Court of Adelaide in Action No. 600 of 1985. The amount due pursuant to the relevant Certificate of Judgment was $30,356.58.

2. The debtor filed a notice of his intention to oppose the petition on the ground that:-
   

"The judgment debtor intends to bring further application in the District Court Adelaide to set aside the default judgment obtained against him."

It is common ground that the effect of that notice was that the debtor was denying that he was indebted to the petitioning creditors in the judgment debt or in any amount at all.

1. The hearing of the petition has been adjourned from time to time whilst appropriate proceedings were instituted by the debtor in the District Court of Adelaide. Ultimately, those proceedings were successful; the judgment was set aside. But the petitioning creditors have since appealed to the Full Court of the Supreme Court of South Australia against the order setting aside the judgment; that appeal has not yet been heard. Predictably, the debtor has sought an order dismissing the petition. But on 12 March 1991 Messrs Morgan and Associates, the former solicitors of the debtor, applied for an order that they be substituted as the petitioning creditors pursuant to the provisions of s.49 of the Bankruptcy Act 1966 (Cth) ("the Act").

2. That section is in the following terms:-
   

"49. Where a creditor's petition is not prosecuted with due diligence or where for any other reason the Court considers it proper to do so, the Court may permit to be substituted as petitioner or petitioners another creditor or other creditors to whom the debtor is indebted in the amount required by this Act in the case of a petitioning creditor, and the petition may be proceeded with as if the substituted creditor or creditors had been the petitioning creditor."

1. Morgan and Associates have two judgments against the debtor; one is in Action No. 303 of 1989 in the Local Court of Southern Districts for the sum of $3,193.46; the other is for the sum of $1,719.42 in Action No. 3378 of 1988 in the Local Court of Southern Districts.When giving evidence in opposition to the application for an order to substitute, the debtor admitted to the first judgment debt but exhibited some confusion with respect to the second. As I understand it, he felt that it was (or should be) part of the larger sum. It is not necessary for that issue to be resolved in these proceedings. It is sufficient that he admitted a debt in a sum of $3,193.46 and that there is a judgment against him for that debt. The applicants have therefore established that the debtor is indebted to them "in the amount required" - that is, in the amount of $1,500 or more (para 44(1)(a) of the Act).

2. Mr Adams, counsel for the debtor, maintained that the setting aside of the District Court judgment must mean, notwithstanding the appeal to the Full Court, first that the petitioning creditors cannot proceed on the petition and secondly, that the "real basis" (as he described it) for the prosecution of the creditors' petition has disappeared. He therefore argued that the petition should be dismissed and that no order for substitution should be made. In my opinion it is not correct to say that "the real basis" has disappeared. Notwithstanding that the District Court judgment has been set aside, the debtor still committed an act of bankruptcy on 1 January 1990 when he failed to comply with the Bankruptcy Notice that had been issued by Mr and Mrs. Van Antwerpen. The setting aside of the District Court judgment "would not nullify the act of bankruptcy committed by the debtor": Re Vella; Ex parte Seymour (1983) 67 FLR 287 per Morling J. at 292.

3. Mr Adams' next argued that an application to substitute pursuant to s.49 must be made within six months of the act of bankruptcy on which the petition is founded. He pointed to section 44 of the Act; the effect of that section is that a creditor's petition is not to be presented against a debtor unless (inter alia) the act of bankruptcy on which the petition is founded was committed within six months before the presentation of the petition. Mr Adams argued that the existence of such a restriction on the original petitioning creditors should likewise apply to any substituting creditor. He pointed to a statement in McDonald Henry and Meek Australian Bankruptcy Law and Practice at page 1321 which was contrary to his argument. The learned authors there say, but without quoting any authority for their proposition:-
   

"The Court can substitute another creditor as petitioner in place of a petitioning creditor where more than six months have elapsed since the act of bankruptcy occurred upon which the petition was founded."

1. Mr Adams relied upon remarks of Vaughan Williams J. in In Re Maund; Ex parte Maund (1895) 1 QB 194 at 197. Dealing with an application to amend a petition by adding the names of two other persons as petitioning creditors his Honour said:-
   

"It is perfectly clear that the Court ought not to allow, after three months have elapsed from the date of the committal of the act of bankruptcy, the introduction of creditors, as petitioning creditors, who could not themselves present a petition..."

His Honour also referred to the remarks of Cave J. in In Re Maugham; Ex parte Maugham (1888) 21 QBD 21 to the same effect. It was Mr Adams' argument that I should follow those authorities.

1. However the short answer is that this argument and these authorities have already been rejected by the Full Court in Dean v Q.U.F. Industries Limited (1981) 51 F.L.R. 317 which, unfortunately, was not referred to in argument. The Court said at page 323:-
   

"It has not, however, been accepted in Australia that the power to order substitution under s.49 of the 1966 Act or its predecessor in the 1924 Act (s.35) is or was limited to the period within six months of the act of bankruptcy relied upon in the petition. In our view, notwithstanding the great respect which must be accorded to the English authorities, such a limitation of the provisions of s.49 is neither necessitated by any basic principle of bankruptcy law nor warranted by any principle of statutory construction."

1. Mr Adams next claimed that the factual background to this application was such that it was not appropriate to make an order for substitution; he submitted that, it being a matter of discretion, the Court should exercise its discretion in favour of the debtor because of the extreme delays that have occurred. This proposition can be disposed of quickly; the delays that have so far occurred have been principally at the request of the debtor whilst he attempted (ultimately successfully) to have the District Court judgment set aside.

2. It remains for me to consider whether or not I should otherwise exercise my discretionary power in the debtor's favour.

3. Because of the possibility of confusion on the part of the debtor, I will limit my comments to the judgment debt of $3,193.46. It was obtained as long ago as 9 March 1989. It therefore satisfies the test in McNamara v Langford (1931) 45 CLR 267 in that it was a debt that was in existence at the time of the act of bankruptcy (1 January 1990) upon which the petition was founded. The debtor has never at any time made any attempt to challenge the debt or any part of it. On the contrary, he admitted in evidence that he owed it. I have already referred to the question of delay; far from it being prejudicial to the debtor it was mainly for his benefit that the delays have occurred. It enabled him to challenge successfully the default judgment that the Van Antwerpens had obtained.

4. Both Mr Morgan and the debtor gave evidence and much time was devoted to their competing accounts of the events of 20 March 1990. Mr Morgan said that on that day he personally served the debtor with two Bankruptcy Notices. However the debtor said that Mr Morgan merely pointed to the existence of the Bankruptcy Notices, threatening to serve them if satisfactory arrangements were not made for payment of all outstanding accounts. I do not find it necessary to resolve this dispute because the matter of greater importance is that the debtor conceded that on 20 March 1990 Mr Morgan was, at the least, pressing for payment.

5. Evidence was also led that another Bankruptcy Notice was served by Mr Morgan on the debtor as recently as February of this year. Mr Adams challenged the validity of this notice pointing to an inconsistency in the name of the creditors. In the Bankruptcy Notice the creditors are identified as "Morgans (Reg'd)" whereas the relevant Certificate of Judgment identifies the creditors as "Morgan and Associates (Reg'd)". Again it is not necessary to determine whether this discrepancy invalidates the Bankruptcy Notice; the matter of importance is that it drew to the debtor's attention once more the fact that he was being pursued for payment of this debt. All of this means that the debtor has been well aware that he is indebted to his former solicitors and he knows that they have been pressing for payment. So far as the Court is concerned, they emerged as creditors only recently but this is wholly understandable; until the District Court judgment was set aside they were content to allow the matter to proceed on the original petition.

6. I have come to the conclusion that I should exercise my discretion in favour of the applicants for substitution. Accordingly there will be an order in terms of s.49 permitting Morgan and Associates to be substituted as petitioners. It is further ordered that the petition may be proceeded with hereafter as if the substituted creditors had been the petitioning creditors.

7. I will hear counsel on the question of costs and consequential orders.