Re Morris, B.H. v Ex parte The Australian & New Zealand Banking Group Ltd

[1991] FCA 217

Re: BERNARD HAROLD MORRIS
Ex Parte: THE AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED and BANK OF NEW
ZEALAND
No. P2117 of 1990
FED No. 217
Bankruptcy
29 FCR 1

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
Beaumont J.(1)

CATCHWORDS

Bankruptcy - Creditor's petition for bankruptcy - s.44(4) of the Bankruptcy Act 1966 - whether petitioner was a secured creditor.

HEARING

SYDNEY

#DATE 26:4:1991

Solicitor for Debtor: Mr. O'Neill of Corrs Chambers

Westgarth

Counsel and Solicitor Mr. Newlinds instructed by
for Creditor Kemp Strang and Chippindall

Counsel and Solicitor for Mr. Epstein instructed by
Substituted Creditor: R.B. Kandy and Co.

ORDER

1. Declare that at the time of presentation of its petition, the Australian and New Zealand Banking Group Limited was a secured creditor of the debtor for the purposes of s.44 of the Bankruptcy Act 1966.

2. Reserve costs.

3. Stand petition over to 21 May 1991 before a Registrar.

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

JUDGE1

The debtor has taken a preliminary objection to the form of the petition in one respect. In order to understand the objection, it is necessary to refer to the history of the dealings between the parties as follows.

1. By mortgage ("the mortgage") under the Real Property Act 1900 (N.S.W.) dated 3 November 1983, John George Pound, Keith Walter Marieus Johanson and the debtor ('the mortgagors") mortgaged to the Australian and New Zealand Banking Group Limited ("the ANZ Bank") certain lands ("the lands") located at Freeburn Island in the Clarence River for the purpose of securing to the ANZ Bank the monies therein agreed to be paid. The consideration for the mortgage was expressed to be advances made or to be made by the ANZ Bank to the mortgagors or to Harbour Prospecting Pty. Limited, therein described as "the customer". The mortgagors gave a personal covenant (in the common bank "all monies" form) to repay all monies owed to the ANZ Bank by the mortgagors or the customer.

2. (The lands were vested in the mortgagors, as joint tenants, pursuant to a transmission application registered on 29 April 1982. In the transmission application, it was stated that the mortgagors were the executors of the will of Arthur Harold Morris, deceased.)

3. By summons filed in the Supreme Court of New South Wales on 22 September 1989, in proceedings No. 50492 of 1989, the ANZ Bank, as plaintiff, claimed from the customer, and from the debtor, as the second defendant, the sum of $101,790.98 and from Mr. Pound, as the third defendant, and Mr. Johanson, as the fourth defendant, the sum of $37,030.93. The nature of the dispute was described by the ANZ Bank as follows:
   

"The First Defendant is indebted to the Plaintiff in respect of its current account with the Plaintiff in the sum of $37,030.93 including accrued interest and bank charges. The Second Defendant is indebted to the Plaintiff in the sum of $64,760.05 including accrued interest and bank charges. Each of the Second, Third and Fourth Defendants has guaranteed to the Plaintiff the indebtedness of the First Defendant ($37,030.93) and the First Defendant has guaranteed to the Plaintiff the indebtedness of the Second Defendant ($64,760.05)."

1. Reference was later made in the summons to the mortgage.

2. On 8 June 1990, judgment was entered in the Supreme Court proceedings. It was ordered that the debtor pay the ANZ Bank the sum of $76,979.30 plus costs of $1,532.00.

3. By its creditor's petition dated 4 September 1990, the ANZ Bank stated, inter alia, the following:
   

"2. The debtor is justly and truly indebted to me in the sum of $78,511.30 being the amount due under the final judgement recovered in the Supreme Court of New South Wales on the 8th day of June 1990 the consideration for such debt being pursuant to a guarantee and overdrawn account.

3. I,...do not, nor does any person on my...behalf, hold any security over the property of the debtor or any part of it for the payment of the amount specified in paragraph 2."

1. The debtor now objects to the absence from the petition of any reference to the mortgage, relying on the provisions of s.44(4) of the Bankruptcy Act 1966 ("the Act").

2. (It should be noted that on 13 March 1991, a Registrar ordered that the Bank of New Zealand be substituted as petitioning creditor. It claims that the debtor is indebted to it in the sum of $11,792.67. However, the parties have asked the Court to deal with the preliminary objection to the original petition at this stage without yet considering what effect, if any, the order for substitution might have in this context.)

3. The conditions on which a creditor may petition are for bankruptcy specified in s.44 of the Act. With respect to a "secured creditor", s.44 makes the following provision:
   

"(2) Subject to subsection (3), a secured creditor shall, for the purposes of paragraph (1)(a), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him exceeds the value of his security.

(3) A secured creditor may present, or join in presenting, a creditor's petition as if he were an unsecured creditor if he includes in the petition a statement that he is willing to surrender his security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.

(4) Where a petitioning creditor is a secured creditor, he shall set out in the petition particulars of his security."

1. The interpretation provision (s.5(1)) defines "secured creditor", in relation to a debtor, to mean -
   

"a person holding a mortgage, charge or lien on property of the debtor as a security for a debt due to him from the debtor."

1. In the interpretation provision, there is a wide definition of "property", but there is no special definition of "property of the debtor."

2. On behalf of the substituted creditor, it was argued that, because the debtor, in granting the mortgage as an executor and trustee, was dealing only with a legal title to the lands and not a beneficial interest, the ANZ Bank should not be regarded as a "secured creditor" for the purposes of s.44 of the Act. It was submitted that the Act is concerned only with the debtor's beneficial interests in property and does not bring into the estate of a bankrupt, as property divisible among his creditors, property held by the bankrupt upon trust (see s.116(2)(a)).

3. In my opinion, the ANZ Bank was a secured creditor for the purposes of s.44. It is true that the lands were vested in the debtor, Mr. Pound and Mr. Johanson as executors and trustees. But it is not said that their mortgage of the lands to the ANZ Bank was beyond their powers or otherwise bad. In these circumstances, it must, I think, be assumed that the mortgage was validly granted. It was granted over property of which the debtor was one of the registered proprietors. It must follow, in my opinion, that the ANZ Bank should be regarded as a secured creditor for present purposes.

4. I should add that the position if the debtor becomes a bankrupt will be governed by other provisions of the Act, for instance, s.116(2)(a). But as Dennis Rose points out in his work, "Lewis, Australian Bankruptcy Law", 9th ed., at p 89, the expression "property of the bankrupt" is a technical one. This special concept does not, in my view, assist in the resolution of the present question.

5. I propose to declare that, at the time of the presentation of its petition, the ANZ Bank was a secured creditor of the debtor.