Re Hallam, F.D.W Ex parte Marks, S.G. v Hallam, F.D.W

[1992] FCA 288

Nor ,%c ~,STR\LJTIGAI

JCIDGiLlENT No. ... ........ . .....,........ 288 1 Q2-

IN THE FEDERAL COURT OF AUSTRALIA	)
1
VICTORIA DISTRICT REGISTRY	1 No VB 836 of 1988
1
BANKRUPTCY DIVISION	1

BETWEEN:  FREDERICK DOUGLAS WILLIAM IIALLAM

(Bankrupt)

EX PARTE:  STEPHEN GRAHAn MARKS
(as Trustee of the Bankruut
Estate of FREDERICK DOUmAS
WILLIAM HALLAM1

(Applicant)

AND:  FREDERICK DOUGLAS WILLIAM HALLAM
(Respondent)

Coram:	Ryan J
Date:	1 April 1992

Place: Melbourne

MINUTES OF ORDER

THE COURT ORDERS THAT:

1.   The order of Woodward J made annulling the sequestration order made herein on 5 July

1988 be and the same is hereby rescinded.

2.    The respondent, Frederick Douglas William Hallam, pay the applicant's taxed costs of and incidental to the

... application dated 6 August 1990 including any reserved
costs.

NOTE :	Settlement and entry of orders is dealt with in Rule
124 of the Bankru~tcv  Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

)

VICTORIA DISTRICT REGISTRY	1	No VB 836 of 1988
)
BANKRUPTCY DIVISION	)

BETWEEN :  PREDERICK DOUGLAS WILLIAM RAttAW

(Bankrupt)

EX PARTE:  STEPHEN GRAHAM MARKS
fas Trustee of the Bankrupt
Estate of PREDERICK DOUGLAS
WILLIAM HAtLAWl

(Applicant)

AND:  FREDERICK DOUGLAS WILLIAM HALLAM
(Respondent)

Coram:	Ryan J
Date:	1 April 1992
Place	: Melbourne

REASONS FOR JUDGMF.NT

. . Riran J:  The applicant -whoe is the trustee of the .bankrupt

. . . .

estate of Frederick Douglas William Hallam seeks an order pursuant to s.37(1) of the Bankru~tcv Act 1966 rescinding an

order for annulment of bankruptcy made by Woodward J on 13

December 1989 pursuant to s.l54(1)(g) of the Act.

M r Hallam, a farmer of Hopetoun Victoria became bankrupt on 5

July 1988 on the creditor's petition of MD & J John Pty Ltd

. .

(trading as "Shell Depot Horsham"). On 10 November 1989-he
applied to the Court under s.150 of the Act for a discharge
from bankruptcy. His affidavit in support of that application
contained the following paragraphs:

My Trustee, Stephen Marks of Sothertons has been advised of the following monies available. On the basis of this advice, which follows, my trustee has advrsed me that the total monies available (being $55,000.00) will pay out all my Creditors in the amount of 100 cents in the dollar.

The monies available to pay out my creditors are as follows:-

a.	$40,000.00 being received pursuant to Orders made by Mr Justrce Ormrston in the Supreme Court on the 14th day of April 1989.
b.	$15,000 from Dalgety Farmers.

$20,000 of this sum is presently berng held in the trust account of the firm of Solicitors Testart Robinson & Pitts. The balance of the $40,000.00 Judgment is presently being held in the trust account of my frrm of Solicitors, being Nicholas O'Donohue & CO less $300.00 being the Application fee for my application for discharge of Bankruptcy.

At the time of swearrng this my Affrdavit my Solicrtors Nrcholas O'Donohue & CO have received instructions from me to release the sum of $19,700.00 to my trustee, Stephen Graham Marks, rn order to satisfy my credrtors.

Further, wrth respect to the $20,000.00 held rn the trust account of Testart Robrnson & Pltts, they have recerved simllar instruct~ons from me to release these monies to my Trustee, Stephen Marks, in satrsfaction of my Creditor's claims.

Further, Geoff Shady, Frnance Manager of Dalgety Farmers has advised me that the sum of $15,000.00 is available to pay out my creditors in order that my bankruptcy may be discharged.

Further, Mr Shady of Dalgety Farmers has recerved authorrty from me this day to forward the sum of $15,000.00 to my trustee, Stephen Marks, wrth the sole object of payrng out my credrtors.

On the basrs of the above, rn my submrssion, the sum of $55.000.00 is presently available to uav out mv credrtors. The

of the creditors berng onl'y -held GP by procedural matters which I understand are to be dealt with bv rnv trustee's	- -
employee Mr Geoff Taylor.

10.  Further, my trustee's employee, Mr Geoff Taylor, has advised me that the sum of $55,000.00 wall pay out my creditors at 100 cents rn the dollar."

The trustee's report which was before t h e Court at the time of the application for discharge concluded with the following

paragraphs:

"9.	Dividends to Credators
On 15 November, 1989 I gave notice to creditors of my intention to declare a first and final dividend in this estate, and required creditors to lodge proofs of debt with me by 28 November, 1989. At the date of making this report, proofs of debt have been received and dealt with as follows:-

Admitted to rank for dividend	$ 38,913
Further information required	$ 1,328
Claims rejected for	$ 20,450

I intend to pay all admitted unsecured creditors a first and final dividend of 100 cents In the dollar after the 21 days referred to in Section 145(6) has expired, ie; on or shortly after 19 December, 1989.

10. Bankruvts lsicl Av~lication for Discharae

In view of the fact that the bankrupt has fully co-operated Ln the administration of has estate, and the bankrupts [sic] spouse has made arrangements to ensure I have sufficient funds to pay all proven and admitted creditors 100 cents in the dollar, I am not aware of any reason to oppose this applacation by the bankrupt for a drscharge under Section 150 or, should the Court grant leave to amend the application to an application under Section 154(l)(b), to oppose such amended applrcation. "

It appears that Woodward J took the view that it was more appropriate for Mr Hallam to apply for an annulment of his bankruptcy and gave leave to amend the application accordingly. His Honour then made an order that the bankruptcy be annulled. The actual terms of the order of 13

December 1989 are: 

"1.	Leave is granted to amend the Application to an Applicatron for Annulment.
2.	The Sequestration Order made on the 5th day of July 1988 be annulled pursuant to Sectlon 154(l)(b) of the Bankruptcy Act."

However, the expectation of the bankrupt and his trustee that all proved creditors would be paid in full has been disappointed as appears from these paragraphs from the trustee's affidavit in support of the present application:-

"4. In that Affidavit [in support of the application for discharge], the Bankrupt states (as he had previously stated to me) that there were moneys available to pay a dividend of 100 cents in the dollar to proved creditors in the total amount of $55,000.00, comprising two separate amounts, $40,000 and $15,000, the latter sum to be provided by Dalgety Farmers.

5.    On the basis of the indications that had been made to me by and

on behalf of the Bankrupt and his wife (as reported in my report to this Honourable Court dated 11 December 1989) 1 saw no reason to oppose the Applicataon for Discharge or, should the Applicataon be amended, an Applicataon for Annulment of the Bankruptcy. (Such an amendment of the Bankrupt's Application was duly granted by this Honourable Court on 13 December 1989).

6.    However, contrary to the statements made by the Bankrupt to me and in his said Affidavit, I have not received the sum of $15,000.00 from Dalgety Farmers. I have only received $39,700.00 from Messrs Testart Robrnson & P ~ t t s being the amount, loosely described as $40,000.00 held by that firm and by Messrs Nicholas O'Donohue & CO (as recounted in paragraphs 5 and 6 of the Bankrupt's said Affrdavit.)

7.    My requests to the Bankrupt and his wife and to Dalgety Farmers for payment of the said sum of $15,000 have been fruitless to date.

8. The creditors of the former bankrupt estate have been pressing for a dzstribution of the monies held by me. However, as I could not distribute 100 cents m the dollar (because I still have insuff~cient funds to do so) and because the Bankrupt has expressed an objection to my drawing fees calculated in accordance with the scale approved by cred~tors, I encouraged the Bankrupt to give an authority under Section 188 of the Bankruptcy Act 1966 as a means by which his affairs could be administered. Nevertheless, it now appears that the Bankrupt is reluctant to take any step to rationalise his present financial position.''

The following explanation of the shortfall in the funds necessary to pay all his creditors in full has been provided

present application:	in an affidavit sworn by Mr Hallam in opposition to the	"8.	In relation to the amount of $15,000.00 mentioned in paragraph 6 of the Marks affidavit, I say that this amount, which is also set forth in paragraph 3 of my earlier affidavit, was an estimate by me of the value of my wool clip based on then prevailing market prices.
9.	In the event, due to fluctuations in wool prices the price paid for my wool was $13,507.25. Now produced and shown to me and marked with the letters "FDH-5" is a true copy of a statement of Dalgety Farmers Ltd recording this amount.
10.	After Dalgety Farmers Ltd deducted amounts owed to them, an amount of $9,014.38 remained due and owing to me. Now produced and shown to me and marked with the letters "FDH-6' is a true copy of the statement of Dalgety Farmers Ltd recording this amount.

11.    I am informed by Mr Geoff Shady, Victorian Finance Manager, Dalgety Farmers Ltd, that on 15 December, 1989 Dalgety Fanners Ltd pursuant to my instructions, sent to the Trustee a cheque for $9,014.38. Mr shady has been requested by my solicrtor to swear an affidavit in this proceeding to this effect.

12.    Because the amount paid to the Trustee was less than I had originally anticipated, my wife directed her solicitors to pay to the Trustee amounts held in trust on her behalf. Now produced and shown to me and marked with the letters "FDH-7" is a true copy of the authorization given by my wife to her solicitors.

13.    I am informed by my wife and verily believe that $11,113.42 LS currently being held Ln trust by her former solicitors and is available for distribution to the Trustee.''

Section 154 of the Bankru~tcv Act 1966 provides:

"(1) Where the Court is sat~sfied -

(a)	that a sequestratLon order ought not to have been made or, in the case of a debtor's petition, that the petrtion ought not to have been presented or ought not to have been accepted by the Registrar; or
(b)	that the unsecured debts of tne bankrupt, be~ng debts that have been proved m the bankruptcy, have been paid in full or the bankrupt has obtarned a legal acqurttance of them,

the Court may make an order annulling the bankruptcy.

(2) Where a bankruptcy is annulled under this sectron, all sales and d~spositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment, shall be deemed to have been validly made or done but, subject to sub-section (3), the property of the bankrupt still vested in the trustee vests in such person as the Court appoints or,

all his estate or interest in it, on such terms and subject to in default of such an appointment, reverts to the bankrupt for such conditions, if any, as the Court orders.

(3) Where a law of the Commonwealth or of a State or Terrrtory of the Commonwealth requlres the transmission of property to be registered, any such property vested in the trustee at the trme of the annulment of the bankruptcy, notwithstand~ng that it vests in equity in such person as the Court appoints or in the bankrupt, as the case may be, does not vest in that person or the bankrupt at law until the requirements of that law have been complied with.

(4) For the purposes of this section, where a debt has been proved by a credrtor but the creditor cannot be found or cannot be identified, the debt may be paid to the Registrar and, if so paid, shall, for the purposes of this section, be deemed to have been paid rn full to the cred~tor.

(5) Where money is paid to the Registrar under sub-section (4), the Registrar shall pay that money into the Consolidated Revenue Fund and the provisions of sub-sections 254(3) and (4) apply in relation to that money as if it had been paid into the Consolidated Revenue Fund by a trustee in pursuance of sub- section 254(2)."

The application for rescission of the order annulling the bankruptcy is made pursuant to s.37 of the Act which is in

these terms :

"(1) Subject to sub-sections (2) and (3). the Court may rescind,

vary or discharge an order made by it under this Act or suspend the
operation of such an order.

(2) The Court shall not, after a sequestration order has been signed and sealed as provided by the rules, rescind or suspend the operatron of the order.

(3) The Court shall not, after an order for the administrat~on of the estate of a deceased person under Part XI has been signed and sealed as provided by the rules, rescrnd or suspend the operation of the order."

Section 37 is a very wide power and extends in a proper case to enable the Court to rescind or discharge an order annulling a bankruptcy: see Ex Darte Jarvis: In re S~anton (1879) 10 Ch D 179 which was cited with approval in Cameron v Cole (1944) 68 CLR 571 per Latham CJ at 582 and per Starke J at 594.

rescind an order annulling a bankruptcy, it should be	Counsel for Mr Hallam contended that, if there is power to
exercised sparingly. I accept the force of that submission and have approached the exercise of discretion with caution and after affording the parties an adjournment to see whether the trustee could be put in funds with which all creditors could be paid in full, as Woodward J expected they would, so as to avoid the need to disturb his Honour's order of annulment. Regrettably, that has proved impossible because the deficiency of funds needed to satisfy all creditors now identified and to meet further costs and expenses of administration incurred by the trustee has increased to an amount in excess of $50,000.
In these circumstances, I regard it as an appropriate exercise
of the discretion which I consider the Court has to make an
order rescinding the annulment. That will have the effect
that the property of the bankrupt which at the date of the
annulment was vested in the trustee will not revert to M r
Hallam, but will be available for distribution in partial
satisfaction of debts provable in the bankruptcy. Since more
than three years have elapsed since the making of the
sequestration order, Mr Hallam will have been discharged from
bankruptcy by operation of s.149(1) of the Act. That does not
mean that the Court has no power to review, rescind or vary
any order made by it under its bankruptcy jurisdiction. Nor
does it affect the rights of persons who are creditors in the
bankruptcy to a proper realization and distribution of such property as vested in the trustee by virtue of the sequestration order. (See In re a Debtor [l9391 Ch 489 at
502-503).
Moreover, M r Hallam remains obliged by s.154(1) of the Act to afford the trustee any assistance reasonably required in the realization and distribution of property forming part of his bankrupt estate. That includes any property acquired by the bankrupt up to 5 July 1991; see ss.58(1) and 116(l)(a).
Accordingly, I shall order that the order of annulment made on 13 December 1989 be rescinded. Since Mr Hallam has unsuccessfully resisted the making of that order and because he induced, albeit innocently, a mistaken belief that sufficient funds were immediately available to pay his creditors in full, he should pay the trustee's costs of and incidental to the application for rescission, including any reserved costs.

I certify that this and the

preceding seven (7) pages are
a true copy of the Reasons
for Judgment of his Honour

Mr Justice Ryan

Associate: LT<-

Counsel for the Applicant:	Mr GT Bigmore
Solicitor for the Applicant:	JM Smith & Emmerton
Counsel for the Bankrupt/

Respondent:  Mr A Flower

Solicitor for the Bankrupt/

Respondent:  Purves Clarke Richards