Re Hall
[1994] FCA 625
•09 SEPTEMBER 1994
RE: PETER ARTHUR RAY HALL
EX PARTE: PETER ARTHUR RAY HALL v. The Trustee of the property of PETER ARTHUR
RAY HALL AND THE REGISTRAR IN BANKRUPTCY FOR THE BANKRUPTCY DISTRICT OF THE
STATE OF SOUTH AUSTRALIA
No. SB1291 of 1989
FED No. 625/94
Number of pages - 9
Bankruptcy
(1994) 14 ACSR 488
COURT
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIAN DISTRICT REGISTRY
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
GENERAL DIVISION
BRANSON J
CATCHWORDS
Bankruptcy - discharge of bankrupt - notice of objection to discharge - objection to form of notice - requirement to refer to evidence or other material establishing ground of objection - requirement to state reasons for objection.
Bankruptcy Act ss149, 149B, 149C, 149D, 149F, 149K
Corporations Law ss91A and 229
Re Palmer and Minister for the Capital Territory (1978) 23 ALR 196 at 206
Van Reesema v. Official Receiver in Bankruptcy (1983) 50 ALR 253
Ansett Transport Industries (Operations) Pty Ltd v. Wraith (1983) 48 ALR 500
Our Town FM Pty Ltd v. Australian Broadcasting Tribunal (No 1) (1987) 16 FCR 465
HEARING
ADELAIDE, 19 July 1994
#DATE 9:9:1994
Counsel for the Applicant: Mr J Vaughan
Solicitors for the Applicant: Sly and Weigall
First Respondent in Person: Mr J Huppatz
Second Respondent: No appearance
ORDER
THE COURT ORDERS THAT:
1. The Registrar in Bankruptcy for the Bankruptcy District of the State of South Australia ("the Registrar") amend his records by deleting the entry recording the filing of the notice of objection by the trustee with the Registrar on 8 October 1992.
2. The Registrar enter in his records that the applicant was discharged from bankruptcy on 16 February 1993.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
BRANSON J Application is made on behalf of Peter Arthur Ray Hall ("the applicant") for declarations that:-
(1) The notice of objection to discharge of the applicant from bankruptcy dated 7 October 1992 ("the notice of objection") filed by the first respondent with the second respondent on 8 October 1992 is invalid and of no force or effect;
(2) by force of section 149 of the Bankruptcy Act 1966 the applicant was discharged from bankruptcy on 16 February 1993 being the end of the period of 3 years from the date on which the applicant filed his statement of affairs.
An order of sequestration against the estate of the applicant was made on 20 December 1989. On 16 February 1990 the applicant filed an affidavit sworn on 25 January 1990 verifying a statement of his affairs as at 20 December 1989. In the ordinary course section 149(3) of the Bankruptcy Act ("the Act") would have had the effect that the applicant was discharged from his bankruptcy at the end of the period of three years from the date on which he filed his statement of affairs.
This matter did not follow the ordinary course. On 7 October 1992 the trustee filed with the Registrar a written notice of objection to the discharge ("the notice of objection"). The effect of a valid notice of objection is to extend the period of time which must pass from the date on which the bankrupt filed his or her statement of affairs before the bankruptcy is discharged. Depending on the ground of objection the period of time may become 8 years or 5 years. Objection is now taken on behalf of the applicant to the form of the notice of objection.
Section 149C of the Act provides, so far as is here relevant, as follows:-
"(1) A notice of objection must:
(a) set out the ground or each of the grounds of objection, being a ground or grounds set out in subsection 149D (1) .....
(b) refer to the evidence or other material that in the opinion of the trustee ..... establishes that ground or each of those grounds; and
(c) state the reasons of the trustee ..... for objecting to the discharge on that ground or those grounds.
(2) A notice of objection is not invalid merely because it does not state the ground or grounds of objection precisely as set out in subsection 149D (1) provided that the ground or grounds can reasonably be identified from the terms of notice."
Leaving aside formal matters, the notice of objection is in the following terms:-
"I, James Albert Huppatz, Registered Trustee ..... object to the discharge of Peter Arthur Ray Hall ..... from bankruptcy ..... on the following grounds:-
1. That the bankrupt has after the date of the bankruptcy continued to manage a corporation as mentioned in section 91A of the Corporations Law without having been given leave to do so under section 229 of that Law.
The bankrupt has, since the date of bankruptcy continued to manage Yandall Pty. Ltd., a company of which he was a director and of which his spouse is a director and which is his employer. From information provided by the bankrupt and his accountant it appears that the financial affairs of the bankrupt and the company are intermingled.
2. That the bankrupt has failed, whether intentionally or not, to disclose to the trustee a liability of the bankrupt that existed at the date of the bankruptcy.
Claims have been received from the State Bank Card Centre for $8,934.23 and A.M. Security Pty. Ltd. for $91,761.76 but such debts were not disclosed on the Statement of Affairs filed by the bankrupt."
The grounds of objection set out in the notice of objection are grounds set out in section 149D(1)(b) and (i) of the Act. It therefore cannot be suggested that the notice of objection fails to comply with the requirement of section 149C(1)(a).
However it is contended on behalf of the applicant that the notice of objection fails to comply with section 149C(1)(b) and (c). That is, that it fails to refer to the evidence or other material that in the opinion of the trustee establishes the grounds of objection, and further fails to state the reasons of the trustee for objecting to the discharge on those grounds.
It is useful to consider the role of the notice of objection in the procedure for discharge by operation of law in Division 2 of Part XII of the Act. Section 149 has the effect that, subject to section 149A, a bankrupt in the position of the applicant is by force of the section discharged from bankruptcy at the end of three years from the date on which such bankrupt filed his or her statement of affairs. The applicant filed his statement of affairs on 16 February 1990.
Section 149A of the Act has the effect that if an objection to the discharge of a bankrupt has taken effect then, unless the objection is withdrawn or cancelled, the discharge will not take effect at the end of the period of three years referred to in section 149 but, depending on the grounds of objection, either eight years or five years from the date on which the statement of affairs was filed.
Section 149B of the Act is in the following terms:-
"Subject to the following provisions of this Subdivision, at any time before a bankrupt is discharged from bankruptcy under section 149, the trustee or Official Receiver may file with the Registrar a written notice of objection to the discharge."
The requirements as to the form of the notice of objection are set out in section 149C which is reproduced above. Section 149D specifies the grounds of objection which may be set out in a notice of objection. No issue arises in this case with respect to such grounds.
Section 149F is in the following terms:-
(1) As soon as practicable after a notice of objection is filed by the trustee or Official Receiver:
(a) the trustee or Official Receiver must give a copy of the notice to the bankrupt together with a notice to the effect that the bankrupt may do either or both of the following:
(i) request the Inspector-General to review the decision of the trustee or Official Receiver to file the notice of objection;
(ii) subject to the
Administrative Appeals Tribunal Act 1975, make an application to the Administrative Appeals Tribunal for a review of the decision of the trustee or Official Receiver to file the notice of objection; and
(b) if the trustee is a registered trustee:
(i) if the notice of objection is filed by the trustee - the trustee must give a copy of the notice to the Official Receiver; or
(ii) if the notice of objection is filed by the Official Receiver - the Official Receiver must give a copy of the notice to the trustee.
(2) A notice given to the bankrupt under subsection
(1) must set out the effect of subsection 149K(3).
(3) A contravention of this section does not affect the validity of the objection.
On a review of a decision to file a notice of objection the Inspector-General must cancel the objection if satisfied that:-
"(a) the ground or grounds on which the objection was made was not a ground or were not grounds specified in subsection 149D(1); or
(b) there is insufficient evidence to support the existence of the ground or grounds of objection; or
(c) the reasons given for objecting on that ground or those grounds do not justify the making of the objection; or
(d) (not here relevant)."
The link between the matters referred to above and the matters required by section 149C to be contained in the notice of objection is plain.
It may also be the case, although it is not necessary for me to reach a firm conclusion in this regard, that if review by the Administrative Appeals Tribunal of a decision to file a notice of objection is sought, the notice of objection itself is intended to supply the reasons for decision referred to in section 28 of the Administrative Appeals Tribunal Act 1975. The setting out in the notice of objection of the ground or grounds of objection may well be capable of being regarded as the equivalent of the "findings on material questions of fact" referred to in section 28 of that Act.
As was pointed out by the Full Court in Van Reesema v. Official Receiver in Bankruptcy (1983) 50 ALR 253 at p 258 the discharge of a person from bankruptcy by operation of statute confers on that person a right of great value. The power to object to such discharge is correspondingly great.
It is in the light of the above context that the requirements of section 149C of the Act are to be construed.
Section 149C(1)(b) requires the notice of objection to "refer to the evidence or other material that, in the opinion of the trustee ..... establishes" the ground or each of the grounds of objection. It may be noted that there is no requirement to "set out" such evidence or other material.
The Full Tribunal of the Administrative Appeals Tribunal said in Re Palmer and Minister for the Capital Territory (1978) 23 ALR 196 at p 206 as to the provision of reasons for a decision in respect of which an application could be made to that Tribunal:-
"... The citizen's entitlement to be fully informed was not merely an incident arising in the course of and for the purpose of a review by this Tribunal. It is a right which arises consequent upon a decision being made which is capable of being so reviewed, and the reasons, when properly given, ensure that the citizen is sufficiently informed to determine whether he wishes to take the matter further, and if so whether to make representations to the Minister, proceed in the appropriate court of law or to seek a review by this Tribunal."
I consider that section 149C is intended to give a bankrupt a comparable entitlement to be fully informed by a notice of objection to discharge from bankruptcy as to the bases upon which such notice has been filed. He or she must determine whether to take the matter further, and if so whether to make representations to the trustee or Official Receiver, seek an internal review by the Inspector-General or an external review by the Administrative Appeals Tribunal or proceed in an appropriate court of law.
The terms of the notice of objection in this matter are set out above. If the notice satisfies the requirements of section 149C(1)(b) with respect to ground 1 it can only be by reason of the inclusion in it of the paragraph which reads as follows:-
"The bankrupt has, since the date of the bankruptcy continued to manage Yandall Pty. Ltd., a company of which he was a director and of which his spouse is a director and which is his employer. From information provided by the bankrupt and his accountant it appears that the financial affairs of the bankrupt and the said company are intermingled."
The assertion that the bankrupt has since the date of the bankruptcy continued to manage Yandall Pty Ltd in the circumstances does no more than identify the corporation which it is alleged that the applicant has, after the date of bankruptcy, continued to manage. The assertion is not itself a reference to evidence or other material upon which an opinion could be based. The assertions that he was once a director of the company, that his spouse is a director of the company and that the company is his employer by themselves take the matter no further.
Where a notice of objection sets out a ground of objection based on sections 91A and 229 of the Corporations Law, section 149C(1)(b) of the Bankruptcy Act requires at the least, in my view, reference to the evidence or other material that in the opinion of the trustee or Official Receiver establishes that the bankrupt has during a relevant period acted as a director or promoter of a corporation or been in any way concerned in or taken part in the management of the corporation. In the circumstances of this case the notice of objection might have been expected to contain a reference to evidence or other material capable of establishing that the applicant had continued after his bankruptcy to be engaged in the making of decisions with respect to the corporation in a way indicative of control of the corporation.
It is not clear whether the statement that from "information provided by the bankrupt and his accountant it appears that the financial affairs of the bankrupt and the company are intermingled" is intended to be a reference to "the evidence or other material" as required by section 149C(1)(b) or a statement of the reasons of the trustee for objecting to the discharge on the grounds set out in the notice of objection (see section 149C(1)(c)). If the former, it fails in my view to "refer to the evidence or other material" as required by the paragraph. A reference to such evidence or other material must at the least, I consider, identify such evidence or other material in an unambiguous way.
The notice of objection should put the bankrupt in a position where he or she can identify, and if necessary search out, the evidence or other material relied upon for the purpose of the objection. Only if the bankrupt is in a position to do this can he or she sensibly determine:-
(a) whether to make representations to the party who filed the notice of objection concerning such evidence or the use made of it;
(b) whether it would be appropriate to seek a review to allow the accuracy of such evidence or other material to be challenged;
(c) whether, on any review, the weight accorded to such evidence or other material should be questioned;
(d) whether there may be answering evidence or material which might fruitfully be sought out for the purposes of any review.
It is not intended to suggest that the above is an exhaustive list of the legitimate purposes served by the reference in the notice of objection to "the evidence or other material" that in the opinion of the trustee establishes the ground or grounds of objection set out in the notice. However, the notice of objection in this case did not, in my view, provide the bankrupt with sufficient information to make sensible and informed decisions with respect to the above matters.
I conclude that the notice of objection does not refer to the evidence or other material that, in the opinion of the trustee, establishes the first ground of objection referred to in the notice as required by section 149C(1)(b) of the Act.
I turn to the second ground of objection referred to in the notice of objection. It refers to an alleged failure by the bankrupt to disclose to the trustee certain liabilities that existed at the date of bankruptcy. The following passage constitutes the only material which may be called-in-aid for the purposes of section 149C(1)(b):-
"Claims have been received from the State Bank Card Centre for $8,934.23 and A.M. Security Pty Ltd for $91,761.76 but such debts were not disclosed on the Statement of Affairs filed by the bankrupt."
It may be noted that the above passage does not make it clear whether it is alleged that one claim for $8,934.23 has been received from the State Bank Card Centre or whether a number of claims of the aggregate value of $8,934.23 has been received. The same lack of precision exists with respect to the reference to A.M. Security Pty Ltd. The respective forms of the claims allegedly made are not identified. No reference is made to the dates of the alleged claims. Nothing is referred to which could found an opinion that such claims reflect liabilities of the applicant that existed at the date of the bankruptcy.
I conclude that the notice of objection does not sufficiently refer to the evidence or other material that, in the opinion of the trustee, establishes the second ground of objection referred to in the notice as required by section 149C(1)(b) of the Act.
Section 149C(1)(c) requires that the notice of objection must "state the reasons of the trustee or Official Receiver for objecting to the discharge" on the ground or grounds set out in the notice. Plainly compliance with this paragraph requires more than a mere recitation of a ground or grounds of objection set out in section 149D(1). That is, the legislation assumes an exercise of discretionary judgment by the trustee or Official Receiver. A notice of objection is not intended to be the necessary consequence of the trustee or Official Receiver being able to establish a ground of objection no matter how technical.
The notice of objection here complained of does not, on any reading of it, state in this sense the reasons of the trustee for objecting to the discharge of the applicant on the grounds identified in the notice (see Ansett Transport Industries (Operations) Pty Ltd v. Wraith (1987) 48 ALR 500 per Woodward J at pp 507-508 and Our Town FM Pty Ltd v. Australian Broadcasting Tribunal (No 1) (1987) 16 FCR 465 per Wilcox J at pp 482-484).
The right of any bankrupt to seek a review of the decision of the trustee or Official Receiver to file the notice of objection is significantly undermined by a withholding from him or her of the reasons for the filing of a notice of discharge. The clear intent of section 149C(1)(c) is to ensure that bankrupts are advised of such reasons.
I conclude that the notice of objection does not satisfy the requirements of section 149C(1)(c) of the Act.
What is the consequence of findings that the notice of objection does not comply with either section 149C(1)(b) or 149C(1)(c)? Mr Vaughan, counsel for the applicant, argued that the consequence of non-compliance was that the notice of objection is a nullity. As a consequence, he argued, the applicant was discharged from his bankruptcy by operation of law on 16 February 1993.
As the Full Court said in Van Reesema v. Official Receiver in Bankruptcy the power to prevent a discharge by operation of law is a "great power" (see p 260). In that case the Full Court did not find it necessary to determine whether the then provisions of the Bankruptcy Act called for strict compliance with the requirements of the Act or whether substantial compliance would be sufficient. I similarly find it unnecessary to answer that question with respect to the provisions now in operation. I note, however, that the use of the word "must" in the opening line of section 149C(1) and the terms of subsection (2) of the section would appear to convey the need for close compliance with the requirements of paragraphs (b) and (c) of subsection (1).
In my opinion the notice of objection of which complaint is made in this case fails to satisfy the requirements of section 149C(1)(b) and (c) in any substantial way.
I conclude that the notice of objection was and is ineffective to avoid the discharge from bankruptcy of the applicant by operation of law pursuant to section 149 of the Act on 16 February 1993.
The Court will therefore declare:-
(1) that the notice of objection to discharge the applicant from bankruptcy dated 7 October 1992 filed by the first respondent with the second respondent is invalid and of no force and effect;
(2) that the applicant was discharged from bankruptcy on 16 February 1993 pursuant to section 149 of the Bankruptcy Act 1966.
As a consequence of the above declarations it will be ordered:-
(1) that the Registrar in Bankruptcy for the Bankruptcy District of the State of South Australia ("the Registrar") amend his records by deleting the entry recording the filing of the notice of objection by the trustee with the Registrar on 8 October 1992; and
(2) that the Registrar enter in his records that the applicant was discharged from bankruptcy on 16 February 1993.
I will hear the parties as to costs.
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