Re Gollan; ex parte Gollan

[1992] FCA 1044

Re: DARRYL GOLLAN
Ex parte: DARRYL GOLLAN
No. Q B2323 of 1992
FED No. 1044
Number of pages - 8
Bankruptcy
(1992) 113 ALR 475
(1992) 40 FCR 38

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
GENERAL DIVISION
Spender J.(1)

CATCHWORDS

Bankruptcy - creditor's petition - judgment debt - sequestration order made by Registrar - debtor did not appear at hearing of petition - sequestration order not perfected - debtor solvent at time of making of sequestration order - judgment debt and all unsecured creditors paid - material evidencing debtor's solvency not before Registrar - Court has power to rescind, vary or discharge sequestration order made by Registrar - meaning of words 'ought not to have been made' - interests of petitioning creditor protected by costs order.

Bankruptcy Act 1966 ss. 14, 31A, 37, 52, 153B

Re Scott (1975) 6 ALR 558

Trojan v. Corporation of Hindmarsh (1987) 16 FCR 37

Re Frank; ex parte Piliszky (1987) 16 FCR 396

Sarina v. Council of the Shire of Wollondilly (1980) 48 FLR 372

Re Deriu (1970) 16 FLR 420

Re Griffiths; Ex parte Huntley (1892) 3 BC (N.S.W.) 6

Re Raymond; ex parte Raymond (unreported judgment of Spender J. of 30 June 1992)

HEARING

BRISBANE, 9 December 1992

#DATE 9:12:1992

Counsel for the applicant Mr L.A. Stephens
instructed by: Robinson Hoskin

Counsel for the petitioning Mr M.J. Drysdale
creditors instructed by: Justin F. O'Sullivan and Edgar

ORDER

THE COURT ORDERS THAT:

1. The sequestration order made against the estate of

Darryl Gollan by District Registrar Ramsey on 11 November 1992 be set aside and in lieu thereof the petition be dismissed.

2. The applicant pay the costs of the petitioning creditor

of and incidental to the petition, including all reserved costs, to be taxed if not agreed.

3. The applicant pay the costs of the petitioning

creditor, and of the Official Trustee, to be taxed if not agreed.

4. The applicant pay the reasonable costs of the

administration undertaken by the Official Trustee of Mr Gollan's estate, to be taxed if not agreed.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

SPENDER J. This is an application made to the Court on behalf of Darryl Gollan, to review or reconsider the sequestration order against the estate of Darryl Gollan made by District Registrar Ramsey on 11 November 1992, on the petition of Peter White and Patricia White, and seeking an order dismissing that petition. Alternatively, the application seeks an order for the annulment of the sequestration order on the ground that the sequestration order ought not to have been made. The application also seeks an order dispensing with service of the application on each creditor of the applicant and abridging time for the hearing of the application. In the course of submissions, counsel also sought to dispense with service of the application on the trustee.

1. The facts in this matter are somewhat unusual. From the affidavit of Mr Gollan it appears that on or about 1 October 1992 he was served with a creditor's petition which led to the making of the sequestration order against his estate. He says that he was of the opinion, when the petition was served on him, that if the matter was to be taken further it would be by normal debt collection procedures such as seizure of assets or monies owing to him. For that reason, he says, he did not appear at the time of the hearing of the petition on 21 October 1992. On that date the petition was adjourned to 11 November 1992 but no further notice was sent to him advising him of the date to which the hearing of the petition had been adjourned. On 11 November 1992 the District Registrar made a sequestration order on the petition.

2. It appears that Mr Gollan, until 27 April 1992, conducted the business of Tattersall's Hotel, Toowoomba as licensee. The petitioning creditors made a complaint to the Human Rights Commission concerning a claimed refusal of service at that hotel at the time Mr Gollan was licensee, and findings were made by the Commission. The material suggests that on 1 October 1991, Pincus J. in the Federal Court ordered Mr Gollan to pay an amount of $1000.00 to Peter White and $2000.00 to Patricia White with costs of $3375.61, as a result of taxation made by the taxation officer on 16 March 1992.

3. The material before me indicates that at the time of the making of the sequestration order Mr Gollan was solvent. His assets exceed his liabilities by a very large sum, more than $420,000.00. He swears, and it is not challenged, that at that time he was able to meet his day to day expenses as and when they fell due. The evidence before me shows that since the making of the sequestration order, a bank cheque for the amounts ordered by Pincus J. to be paid and for the taxed costs was forwarded to the solicitors for the petitioning creditors. I am informed that the source of those funds was Mr Gollan's wife, and a possible complication by the vesting of his assets in the trustee on the making of the sequestration order is not therefore relevant in the events that have happened.

4. Mr Gollan's affidavit suggests that all of his unsecured creditors, as at 11 November 1992, have been paid, although the propriety of those payments might be questioned. The source of the funds to pay those unsecured creditors in the statement of affairs, is not clear, although in paragraph 17 of his affidavit Mr Gollan says:
   

" I have since paid each of these creditors and the debts outstanding at the time of the making of the sequestration order have been paid. "

1. When the application was filed on 27 November 1992, I made an order in chambers directing that the sequestration order not be perfected, pursuant to r. 124 of the Bankruptcy Rules, until further order.

2. There is a number of matters thrown up by the application. The first concerns the repeal of s. 37 of the Bankruptcy Act 1966 ('the Act') and the substitution of a new s. 37 by Act No. 9 of 1992. As a consequence of the new s. 37, the Court, subject to s. 37(2), may rescind, vary or discharge an order made by it under the Act, or may suspend the operation of such an order. But by s. 37(2), the Court does not have power to rescind or discharge or to suspend the operation of, inter alia, a sequestration order.

3. There would, therefore, be no power to rescind the making of the sequestration order of 11 November 1992 if that order had been made by the Court. The order was made by the District Registrar in consequence of powers delegated to him pursuant to s. 31A. It seems to me that the effect of s. 37 is to abolish rescission as a means of bringing bankruptcy to an end, so that discharge and annulment are the only methods of terminating a bankruptcy. However, my view is that there still remains power in the Court, pursuant to s. 14(5) to review a sequestration order made by a Registrar under the powers delegated pursuant to s. 31A, and that it would be competent on summary application, to set aside the sequestration order made on the creditor's petition, and to dismiss the petition.

4. The material in support of the present application was not before the District Registrar. However s. 52(2) provides that if the Court is not satisfied with the proof of any of the matters referred to in s. 52(1), or is satisfied by the debtor that he is able to pay his debts, or that for any other sufficient cause, a sequestration order ought not be made, it may dismiss the petition.

5. As to the words "ought not to be made," those words appear not only in s. 52(2) but also in s. 153B, which gives to the Court power which is in the following terms:
   

" If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Registrar, the Court may make an order annulling the bankruptcy. "

1. In Re Griffiths; Ex parte Huntley (1892) 3 BC (N.S.W.) 6 at 9 Manning J. said that the words "ought not to have been made" were "large enough to include all the principles which seem to have guided the Lord Chancellor and Judge in dealing with the cases before them prior to the Act of 1883, for I take it that the words 'ought not to have been made' do not mean only upon the case as disclosed at the time, but as it would have been disclosed had all the true facts, as shewn in the application for the discharge, been before the Judge on the making of the order."

2. In Re Frank; Ex parte Piliszky (1987) 16 FCR 396 Fisher J. said at 403:
   

" In the light of the various contrasting avenues open to a bankrupt to approach the court to have the sequestration order set aside, it is in my opinion necessary to attach significance to the 'careful provisions' of s. 154, and in particular the words 'ought not to have been made'. In my opinion it can be said that a judge 'ought' not to have made an order only if he was 'bound' not to make the order. In circumstances where it was open to a judge to make an order in the exercise of his discretion, it can only be said he 'ought not to have made the order' if none of the circumstances could justify the making of an order. Alternatively it can be established that an order 'ought' not to have been made because subsequent evidence discloses that all of the true facts were not before the court when the order was made: Re Cook (1946) 13 ABC 245 at 249."

1. Recently, in Re Raymond; ex parte Raymond, (unreported judgment of 30 June 1992), I was concerned with the construction of the words "ought not to have been made" as they appeared in the then s. 154(1) of the Bankruptcy Act, and I respectfully disagreed with the judgment of Lucas J. in Re Scott (1975) 6 ALR 558. I had reference there to the observations of Manning J. in Re Griffiths (supra), and also to the observations of Gibbs J., as he then was, in Re Deriu (1970) 16 FLR 420.

2. As to whether, if the information concerning solvency had been before the Registrar, the sequestration order "ought not to have been made", s. 52(2) confers a discretion on the Court to decline to make a sequestration order.

3. In Sarina v. Council of the Shire of Wollondilly (1980) 48 FLR 372, the Full Court in a joint judgment (Bowen C.J., Sweeney and Lockhart JJ.) at 376 stated the law to be as follows:
   

" The question now arises whether, as the appellant is able to pay his debts, the court is bound to refuse to make a sequestration order or has a discretion to refuse to do so. This involves the construction of the word 'may' in s. 52(2) in the context 'may dismiss the petition'. The question is whether 'may' is mandatory or facultative. "

And at 377:

" The power conferred upon the court by s. 52(2) is permissive not mandatory, although it seems that the occasions on which the discretion not to dismiss the petition might be exercised would not be frequent. It may, in a proper case, require the refusal of a sequestration order yet permit the adjournment of the petition rather than its dismissal. The variety of circumstances that may arise in particular cases renders plain the undesirability of seeking to define parameters of the exercise of the power.

Counsel for the respondent submitted that notwithstanding the ability of the appellant to pay his debts within the meaning of s. 52(2), the court, in the exercise of its discretion, should make a sequestration order against the estate of the appellant. The essence of the argument was that as the appellant was able to pay the debt due to the respondent but was unwilling to pay it, the court should make a sequestration order as a mark of its disapproval of such conduct. In our opinion that would not be a proper exercise of discretion on the facts of this case. This case does not fall within the ambit of the discretion conferred by s. 52(2), nor does it call for the adoption of any course except dismissal of the petition. "

1. The position in Sarina as appears from the judgment at first instance by Deane J. at (1980) 43 FLR 163, and as observed by the Full Court in the passage to which I have just referred, is to be contrasted with the situation in Trojan v. Corporation of Hindmarsh (1987) 16 FCR 37. In that case, the Court, which consisted of Northrop, Jenkinson, and Burchett JJ., said at 47:
   

" If, in the present case, the respondent had been remitted to its rights of recovery in respect of its judgments by means other than bankruptcy, it would have faced enormous difficulties in enforcing those rights so as to recover from the appellant who, so far as the respondent is concerned, is indebted to the full amount of the judgments. In those circumstances, as distinct from a case where ample assets were available upon which to levy execution, the principle laid down in the Sarina case would not necessarily be satisfied by a sterile demonstration of an ability to achieve a payment which was not in reality at all likely to be compelled. Section 52(2)(a) envisages a situation which will probably bear fruit in payment. "

1. Consistent with those cases, had the material concerning Mr Gollan's solvency been before the Registrar, in the proper exercise of his discretion, he would have declined to make the sequestration order sought by the petitioning creditor. He would nonetheless have been able to protect the interests of the petitioning creditor by an appropriate order as to costs.

2. In this case, the applicant before me undertakes through his counsel to pay the costs of the petitioning creditor before the Deputy District Registrar and of this application, and to pay the costs of the Official Trustee reasonably incurred by him in the administration of the estate pursuant to the sequestration order made on 11 November 1992 and the costs of the Official Trustee on this application.

3. It seems to me that I ought to exercise the review powers under s. 14(5) and order that the order for the sequestration of the estate of Darryl Gollan made by District Registrar Ramsey on 11 November 1992 be set aside and in lieu thereof the petition be dismissed. I should indicate that if I were not minded to make those orders, I would have dispensed with compliance with requirements of r. 57 in relation to service on the creditors and the requirement for a report by the trustee and made an order pursuant to s. 153B annulling the bankruptcy of Mr Gollan.

4. However, it is preferable to proceed on the basis that, had the material relating to solvency been before the District Registrar, the appropriate course would have been to dismiss the petition and on the summary review, provided by s. 14(5), it seems to me that I ought to make orders setting aside the order sequestrating the estate of Mr Gollan on 11 November 1992 and in lieu thereof, dismiss the petition.

5. I order that Mr Gollan pay the costs of the petitioning creditor of and incidental to the petition, including all reserved costs, to be taxed if not agreed. I order the applicant on this application to pay the costs of the petitioning creditors and of the Official Trustee, to be taxed if not agreed, and I order that Mr Gollan pay the reasonable costs of the administration undertaken by the Official Trustee of his estate to be taxed, if not agreed.