Re Nguyen, V.P. & Anor Ex parte Official Trustee in Bankruptcy
[1991] FCA 357
•25 JUNE 1991
Re: VAN PHAT NGUYEN and SON LANH LUU
Ex Parte: OFFICIAL TRUSTEE IN BANKRUPTCY
Nos. 347 of 1988 and 112 of 1989
FED No. 357
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
GENERAL DIVISION
French J.(1)
CATCHWORDS
Bankruptcy - consolidation - common law and general principles - statutory history - partnership - debtors petitions - nine months apart - joint and separate debts - cause of action against one creditor - official trustee's desire to assign cause of action to bankrupts - relationship to consolidation process unclear - adjustment of deemed date of presentation of petition - implications uncertain - application dismissed.
Bankruptcy Act 1966 s.30, s.53
Bankruptcy Act 1849 (UK) s.98
Bankruptcy Act 1861 (UK) s.88
Bankruptcy Act 1869 (UK)
Bankruptcy Act 1883 (UK) ss.106, 112
Bankruptcy Act 1914 (UK) s.110
Bankrutpcy Act 1924 ss. 31, 34
Bankruptcy Amendment Act 1980
Bankruptcy Rules r.23A
In Re Abbott (1894) 1 QB 442
Ex parte Emly; Re Lye (1811) 1 Rose 61
Anmi Pty Ltd v. Williams (1981) 52 FLR 309
Re Kriegel, Waring and Co. Ex parte Trotman (1893) 68 LT 588
Re Sydney Barker and Co. (1914) 21 Mans 238
Ex parte Strutt; Re Higton (1821) 1 Gl and J 29
Ex parte Part; Re Hope (1832) 2 Deac and Ch 1
Ex parte Sheppard Re Bulman (1833) 3 Deac and Ch 190
Re Trott (1863) 7 LT 699
Re Oswald (1985) 61 ALR 339
Re Owen; Ex parte G. James Pty Ltd (1987) 73 ALR 636
Sungravure Pty Ltd v. Middle East Airlines Airliban SAL (1975) 134 CLR 1
HEARING
PERTH
#DATE 25:6:1991
Counsel for the Official Trustee: Ms S. Di Francesco
Solicitors for the Official Trustee: Australian Government Solicitor
Counsel for the National Australia Mr C. Belyea
Bank:
Solicitors for the National Mallesons Stephen Jaques
Australia Bank
ORDER
The Court orders that the application is dismissed.
The Official Trustee is to pay the National Australia Bank's costs of the application to be taxed and paid out of the estate.
Note: Settlement and entry of Orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
On 10 May 1988, Van Phat Nguyen filed his debtors petition with the Registrar in Bankruptcy at Perth. On 27 February 1989 his wife, Luu Son Lanh did the same. Both were previously trading in partnership in an export/import business under the name Viex Imports/Exports. Mr Nguyen's bankruptcy was discharged by effluxion of time on 10 May 1991. Luu Son Lanh is still an undischarged bankrupt.
Mr Nguyen and Mrs Luu have evidently been advised that they have a cause of action against the National Australia Bank and the former manager of its Wanneroo Branch. The Official Receiver intends to apply to the Court for an order approving the assignment of that cause of action from the Official Trustee to Mr Nguyen and Mrs Luu. In the meantime he seeks an order for the consolidation of their estates. The application is brought under s.53 and alternatively s.30 of the Bankruptcy Act 1966. The orders sought are in the following terms:
"...the abovementioned proceedings be consolidated pursuant to the provisions of Section 53 of the Bankruptcy Act 1966 and for the following Declarations: a. The 10th day of May 1988 to be, for the purpose of the application of the provisions of Division 3 of Part VI in the administration of the joint estate, the date on which all the petitions relevant to the administration of those estates shall be deemed to have been presented. b. The 10th day of May 1988 to be, for that purpose, the date in respect of each of these estates. c. The first instant for the 10th day of May 1988 to be, for that purpose, the time that is the commencement of the bankruptcy in respect of all estates."
Factual Background
The material in support of the application is sparse. There is the assertion in an affidavit sworn by the Official Receiver, filed with the application, that the majority in number and value of debts disclosed by both bankrupts and/or their creditors since the dates of their bankruptcies were joint debts. In the opinion of the Official Receiver, consolidation of the estates is warranted for their proper administration. And after referring to his intention to apply to the Court for approval to transfer and assign the cause of action against the National Australia Bank and its former manager he said:
"I am advised that the consolidation of the estates is necessary to facilitate the application."
On 7 May 1991 a notice pursuant to r.23A of the Bankruptcy Rules was sent to each creditor and objections to the consolidation application required within 14 days of the notice. Only one objection was received, that being from the National Australia Bank. By a letter dated 23 May 1991, the Bank objected to the application on the basis that there had been no reason given for it.
Some background to the proposed application emerges from the minutes of a meeting of creditors of Van Phat Nguyen held on 20 November 1990. The purpose of the meeting, chaired by Mrs Bull representing the Official Receiver, was to consider the bankrupt's request for authority to pursue the action against the Bank and its manager. At that meeting a resolution was moved to authorise Mr Nguyen to pursue the action for damages. The National Australia Bank voted against the proposal and as it was the major creditor whose debt exceeded the combined total of creditors in favour of the resolution, the resolution was defeated. The need for an application by the Official Trustee to seek approval from this Court for the assignment of the chose in action arose accordingly.
The only evidence in opposition to the application for consolidation was by way of an affidavit sworn by Mr Belyea, a solicitor acting for the National Australia Bank. The affidavit which was read without objection, indicated that as at 10 May 1988 the money owing to the Bank by Mr Nguyen was pursuant to three facilities, only one of which involved his wife. Under a guarantee given on that facility they jointly owed $96,000. A document produced by the Official Receiver summarised joint and separate debts of Mr Nguyen and Mrs Luu, evidently by reference to the statements of affairs and creditor claims. These show nine joint debts totalling $183,006.91, of which $119,282.69 was owed to the Bank. Mr Nguyen's separate debts came to $253,328.51, while those of Mrs Luu amounted to $3,051.24. It is not necessary to descend to the detail of the evidence to conclude that as at the date of Mr Nguyen's bankruptcy, a significant proportion of his debts and the greater part of Mrs Luu's were joint debts.
Before turning to the merits of the consolidation application, it is necessary to consider the relevant provisions of the Bankruptcy Act 1966 and something of their background.
Statutory FrameworkThe present application is brought under s.53 of the Bankruptcy Act 1966 which provides:
"53(1) Where two or more members of a partnership or two or more joint debtors have become bankrupt, the Court may consolidate the proceedings upon such terms as it thinks fit.
(2) Where the Court makes an order under subsection
(1), section 110 applies in the administration under this Act of all of the estates to which the order relates.
(3) Where the Court makes an order under subsection
(1) in relation to the estates of two or more bankrupts, the Court may, in the order-
(a) declare a specified date to be, for the purpose of the application of the provisions of Division 3 of Part VI in the administration of the joint estate, the date on which all the petitions relevant to the administration of those estates shall be deemed to have been presented;
(b) declare a specified date to be, for that purpose, the date of the bankruptcy in respect of each of those estates; and
(c) declare a specified time to be, for that purpose, the time that is the commencement of the bankruptcy in respect of all those estates, and, if the Court does so, those estates shall be administered accordingly."
Section 110 which is referred to in sub-s.53(2) provides:
"110(1) In the case of joint debtors, whether partners or not, the joint estate shall be applied in the first instance in payment of their joint debts, and the separate estate of each joint debtor shall be applied in the first instance in payment of his separate debts.
(2) If there is a surplus in the case of any of the separate estates, it shall be dealt with as part of the joint estate and if there is a surplus in the case of the joint estate, it shall be dealt with as part of the respective separate estates in proportion to the right and interest of each joint debtor in the joint estate."
Section 53 is found in Div. 2 of Part IV of the Act. Part IV is entitled "Proceedings in Connection with Bankruptcy" and Div. 2 has the heading "Creditors' Petitions". Debtors' petitions are dealt with in Div.3 of Part IV. Section 30 of the Act which is relied upon in the alternative, provides in the relevant parts:
"30(1) The Court -
(a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part X or Part XI coming within the cognizance of the Court; and
(b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter."
The Power to Consolidate
It seems that the power to consolidate separate proceedings in bankruptcy was exercised by English Courts long before it had any statutory form - In Re Abbott (1894) 1 QB 442 at 444 (Vaughan Williams J.). Where the joint property of two bankrupts could not be distinguished from their separate property their estates might "be blended together, and the joint and separate creditors paid pari passu, as if they were all creditors of the same class" - Ex parte Emly; Re Lye (1811) 1 Rose 61; Re Kriegel, Waring and Co; Ex parte Trotman (1893) 68 LT 588 at 589. But the mere fact that proofs might be difficult to investigate or that there might be difficult questions as to whether creditors were joint or separate, would not necessarily justify consolidation - Anmi Pty Ltd v. Williams (1981) 52 FLR 309 at 338 (Powell J.) citing Re Kriegel, Waring and Co. Ex parte Trotman (supra) and Re Sydney Barker and Co. (1914) 21 Mans 238.
Joint and separate creditors of different bankrupts could resolve to accept a consolidation of the estates and the Courts of Bankruptcy would refer the resolution to their Commissioners to inquire whether it would be for the general benefit "but the court (would) not, upon such a resolution alone, bind the interest of the absent creditors of both classes" - Ex parte Strutt; Re Higton (1821) 1 Gl and J 29; Ex parte Part; Re Hope (1832) 2 Deac and Ch 1. In such a case the dissent of one creditor could be fatal:
"Where the Court consolidated two estates, against the dissent of a creditor, it was only because an order to keep distinct accounts could not, from the nature of the transactions, be complied with. But where the accounts can be kept distinct, then any creditor has a right to dissent, and the Court has no power to divert the course of payment of the creditors from that mode which the law has pointed out, namely, by applying the separate estate to the separate creditors, and the joint estate to joint creditors; otherwise, it would be like taking a man's money from his pocket, when he did not choose to part with it." - Ex parte Sheppard Re Bulman (1833) 3 Deac and Ch 190.
A species of consolidation seems to have been contemplated by s.98 of the Bankruptcy Act 1849 (12 and 13 Vic C 106) which provided for multiple petitions against one or more members of a partnership to be dealt with in the same court and the later petitions to be annexed to and form part of the first. Explicit reference to consolidation seems first to have been made in s.88 of the Bankruptcy Act 1861 which represented a broadening of the power under s.98 of the 1849 Act. The court was then authorised to "consolidate the proceedings or any part thereof under two or more petitions for adjudication of bankruptcy". In Re Trott (1863) 7 LT 699, Commissioner Goulburn thought s.88 and its unrepealed predecessor, s.98 of the 1849 Act, "were intended to assist in the administration of assets". Where two persons had been in a partnership which dissolved and filed separate petitions with no joint assets he would not order consolidation:
"If there had been a joint estate, he would have consolidated these proceedings, upon the principle of administering assets which pervaded the old Act; but that was not the case here, and as he did not think the object contemplated was a better administration of assets, the court would decline to exercise its discretion in favour of this application, which must therefore be refused."
The Bankruptcy Act 1883 saw the restatement in s.106 of a general power to consolidate:
"Where two or more bankruptcy petitions are presented against the same debtor or against joint debtors, the Court may consolidate the proceedings, or any of them, on such terms as the Court thinks fit."
Section 112 of that Act provided for the property of partners to be vested in one trustee and for proceedings under petitions against partners to be consolidated as the court thought just. Identical language to that of s.106 of the 1883 Act was used in s.110 of the Bankruptcy Act 1914 (UK). Specific provision for the property of partners to be vested in the one trustee was made by s.116 of the 1914 Act along the same lines as s.112 of the 1883 Act.
The first Commonwealth bankruptcy legislation, Bankruptcy Act 1924, reproduced ss.116 and 110 of the 1914 United Kingdom statute as ss.31 and 34 respectively. The provision of the Bankruptcy Act 1966, equivalent to s.31, was s.53 which, in its original form, was in the following terms:
"Where sequestration orders have been made against two or more members of a partnership or two or more joint debtors the Court may consolidate the proceedings upon such terms as it thinks fit."
In 1968 s.53 was amended to read:
"Where two or more members of a partnership or two or more joint debtors have become bankrupts the Court may consolidate the proceedings upon such terms as it thinks fit."
From the time of its enactment in 1966, s.53 has appeared in Division 2 of Part IV of the Act under the divisional heading "Creditors' Petitions". But the explanation given for the 1968 amendment in the Second Reading Speech of the Attorney-General Mr N.H. Bowen (as he then was) was in the following terms:
"When partners become bankrupt it is advantageous in the administration of the bankruptcies for the separate proceedings in respect of each partner to be consolidated. Under the new Act this can be done when sequestration orders are made against partners on a creditor's petition but it cannot be done when the partners become bankrupt on their own petitions. The purpose of cl.4 is to correct this deficiency."
And in 1980 by the Bankruptcy Amendment Act 1980, sub-ss.(2) and (3) of the section were added in. Section 53 therefore, although in a division otherwise dealing entirely with creditors' petitions, applies to partners or joint debtors who become bankrupt by way of debtor's petition as well as those who become bankrupt by way of creditor's petition.
Reflecting the common law of bankruptcy that preceded the statutory ancestors of s.53, it has been said that the power of consolidation should be exercised "whenever it seems to the interests of everybody concerned in the administration of the estates" that it should be done - Re Oswald (1985) 61 ALR 339 at 342 (Beaumont J.) citing Re Abbott (1894) 1 QB 442 at 444 (Vaughan Williams J.). And the considerations which have been treated as relevant to the question of consolidation in the past may be taken into account subject to the caution expressed by Pincus J. in Re Owen; Ex parte G. James Pty Ltd (1987) 73 ALR 636 at 638 when he remarked upon the code-like appearance of the Bankruptcy Act 1966 and the need to ascertain its meaning first from its language unqualified by considerations derived from antecedent law - citing Sungravure Pty Ltd v. Middle East Airlines Airliban SAL (1975) 134 CLR 1 at 22. It is nevertheless consistent with that approach, when examining the power conferred by s.53, to have regard to the objects of the consolidation procedure in its statutory ancestors and at common law.
Apart from the question of assignment of the chose in action by way of the alleged cause of action against the National Australia Bank, there is no obvious benefit to be derived from consolidation of the two estates in this case. The dates of the bankruptcies of the two bankrupts are over nine months apart. One of the orders sought would treat Mrs Luu's bankruptcy as having commenced nine months earlier than it did. This may have implications for the recovery of possible preferences or other dispositions before that date. For under s.53(3) and under the terms of the first declaration sought, presentation of the petition in Mrs Luu's case would be backdated nine months "for the purpose of the provisions of Division 3 of Part VI" which relates to property available for the payment of debts. The major creditor opposes the proposed consolidation which, despite the assertion in the Official Receiver's affidavit, does not appear to be necessary for the proper administration of the estates. And no reason has been advanced to explain why consolidation would be necessary or desirable to facilitate the assignment of the cause of action against the Bank.
In all the circumstances, I am not satisfied that consolidation is necessary or desirable to assist in the proper administration of the two estates and the application will be dismissed.
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