Re Peter Ronald Blanch & Iva Tagi Blanch

[1984] FCA 373

Re: PETER RONALD BLANCH
And: IVA TAGI BLANCH
No. NSW 128 of 1983
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Neaves J.

CATCHWORDS

Bankruptcy - Annulment - Moneys paid to trustee in bankruptcy sufficient to pay 100 cents in the dollar to unsecured creditors who had previously proved their debts - Moneys not distributed by trustee - Whether Court could be satisfied that unsecured debts of the bankrupt paid in full - Bankruptcy Act 1966, s.154.

Bankruptcy Act 1966 s.154

HEARING

CANBERRA

#DATE 15:11:1984

ORDER

1. Declares that the material placed before the Court in support of the application under section 154 of the Bankruptcy Act 1966 for the annulment of the bankruptcies of Peter Ronald Blanch and Iva Tagi Blanch does not satisfy the Court that the unsecured debts of the bankrupts, being debts that have been proved in the bankruptcies, have been paid in full.

2. Orders that the application be adjourned generally with liberty to the bankrupts to restore the same to the list on 7 days' notice to the Official Trustee in Bankruptcy.

JUDGE1

This is an application by Peter Ronald Blanch and Iva Tagi Blanch ("the bankrupts") each of whom became a bankrupt on 28 February 1983 by force of section 57 of the Bankruptcy Act 1966 ("the Act"). The application is for the annulment of the bankruptcies pursuant to section 154 of the Act. The ground of the application is that the material placed before the Court should satisfy it that the unsecured debts of the bankrupts, being debts that have been proved in the bankruptcies, have been paid in full (paragraph 154(1)(b)).

1. The evidence establishes that three creditors have lodged claims against the joint estate for amounts totalling $1741.56, three creditors have lodged claims against the separate estate of Peter Ronald Blanch for amounts totalling $3016.44 and four creditors have lodged claims against the separate estate of Iva Tagi Blanch for amounts totalling $3965.08. Those claims have been admitted to rank for dividend as ordinary claims.

2. On 1 July 1981 Peter Ronald Blanch, while driving a motor vehicle in the course of his employment, was involved in a collision with another vehicle. He commenced proceedings in the Supreme Court of the Australian Capital Territory for damages in respect of the injuries he received in that collision. The proceedings were settled on 9 August 1984, the settlement resulting in a substantial sum being paid to Mr Blanch. On 13 September 1984 he instructed his solicitor to pay to the trustee of the bankrupt estates sufficient moneys from the proceeds of the settlement of the action to pay all the creditors whose debts had been proved in his bankruptcy and that of Iva Tagi Blanch. An amount of $8723.08 was subsequently paid to the Official Trustee in Bankruptcy ("the trustee"). According to the trustee's report dated 16 October 1984 that sum is sufficient to pay to all unsecured creditors who had before that date proved in the joint or separate estates 100 cents in the dollar in respect of their proved debts. The amount does not, however, cover the trustee's fees or any debts which might be proved between 16 October and 16 November 1984. I shall refer to the significance of 16 November 1984 later in these reasons.

3. Mr Blanch has also taken steps to pay in full other unsecured creditors of his who have not proved in his bankruptcy.

4. Upon receipt of the sum of $8723.08 to which I have referred, the trustee took the appropriate steps pursuant to section 140 of the Act to cause notice to be given of his intention to declare a dividend in the joint and separate estates of the bankrupts. Pursuant to sub-section 140(7), the trustee is bound not to declare the dividend until the expiration of 21 days after the expiration of the period specified in the notice as the period within which creditors may lodge their proofs of debt. In the circumstances of this case that date is 16 November 1984.

5. The question that arises for decision is whether by paying to the trustee the sum of $8723.08 it can properly be said, in terms of paragraph 154(1)(b) of the Act, that the unsecured debts of the bankrupts, being debts that have been proved in the bankruptcies, have been paid in full.

6. Counsel for the bankrupt relied upon the absence from paragraph 154(1)(b) of the Act of any express requirement that the payment in respect of a bankrupt's unsecured debts be made to the creditors: all that the language requires, he said, is that the unsecured debts of the bankrupt have been paid in full. That requirement is satisfied, so it was argued, if a sum sufficient to pay those debts in full has been paid to a person who is under a duty to distribute that sum amongst the proved creditors so that each will receive 100 cents in the dollar in respect of his proved debt.

7. Alternatively it was submitted that, if it be necessary for the purposes of paragraph 154(1)(b) of the Act to show that the moneys have been paid to the creditors, the Official Trustee in Bankruptcy, as the trustee of the bankrupt estates, is for this purpose to be treated as the agent of those creditors. Receipt by the trustee of an amount equal to the total of the proved unsecured debts constitutes, so it was submitted, the receipt by each creditor who has proved in the estate of the amount of his debt.

8. For the trustee it was submitted that, if the bankruptcies were annulled under section 154 of the Act prior to the trustee distributing by way of dividend the sum of $8723.08, the trustee would lack authority to distribute that sum by way of dividend amongst the creditors and would be bound, subject to any order of the Court vesting those moneys in any person or persons, to treat the moneys as having reverted to the bankrupts (see sub-section 154(2)). It was also argued that, if the bankruptcies were annulled under paragraph 154(1)(b), an estoppel by record might be pleaded in bar in the event that any creditor who had proved his debt sought to bring proceedings against the bankrupts or either of them in respect of that debt. It followed, so it was submitted, that the creditors who have proved their debts cannot properly be said to have been paid in full until the amount available to the trustee has been distributed in such a manner that each such creditor has received 100 cents in the dollar in respect of his proved debt. Payment to the trustee did not, so the argument ran, constitute payment to the creditors: the trustee was not an agent for the creditors in any relevant sense.

9. In reply it was submitted on behalf of the bankrupts that the moneys paid to the Official Trustee in Bankruptcy were impressed with a statutory trust and, even if the effect of an order annulling the bankruptcies under section 154 was to extinguish that trust, the creditors in respect of whose proved debts the moneys had been paid to the trustee would retain a right at common law to have the moneys distributed to them by the trustee as moneys had and received by the trustee for their benefit.

10. The submissions put to the Court on behalf of the bankrupts have not satisfied me that their unsecured debts, being debts that have been proved in the bankruptcies, have been paid in full. My reasons for reaching that conclusion may be stated shortly.

11. The trustee of the estate of a bankrupt is charged with the due and proper administration of the estate in accordance with the Act and the provisions of the general law in so far as they may be applicable. For this purpose the trustee has the powers and duties specified in the Act. Those duties include the discovery of the bankrupt's property (section 81), the admission or rejection of proofs of debt (section 102), the realization of the bankrupt's property (section 129) and its distribution by way of dividend amongst the creditors who have proved their debts (section 140). In the administration of the estate the trustee is subject to the control of the Court (section 179) and is, subject to the Act, to have regard to any lawful directions given by resolution of the creditors at a general meeting (section 177).

12. All moneys received by the trustee in the course of administering the bankrupt estate must be dealt with in accordance with the statute. His obligation is, subject to the retention of such sums as are necessary to meet the cost of administration or to give effect to the provisions of the Act, to distribute as dividend all moneys in hand (sub-section 140(2)). Procedures are prescribed to ensure so far as possible, that all creditors of the bankrupt have an opportunity, by proving their debts, to share in the distribution of the estate.

13. A consideration of the trustee's duties in relation to the distribution of the moneys brought to the credit of the estates of the bankrupts demonstrates, so it seems to me, that it is not correct to regard the bankrupts' unsecured debts as having been paid in full by reason only of the circumstance that the trustee is holding sufficient funds to pay a dividend of 100 cents in the dollar on the debts that have been proved. The matter may be tested by assuming that, in response to the notice which the trustee has given pursuant to section 140 of the Act, further creditors of the bankrupts or either of them lodge proofs of debt which are admitted. Such creditors would be entitled to participate in the proposed dividend and the moneys now held by the trustee would be distributable amongst all the proved creditors, including those whose proofs have, on the above hypothesis, been admitted since the receipt by the trustee of the moneys to be distributed. It would, in those circumstances, be quite contrary to the fact to regard the unsecured debts of the bankrupts as having been paid in full: each creditor would receive something less than 100 cents in the dollar. It is no answer to say that it is unlikely that any additional creditors will be discovered. Equally it is no answer to say that an order of annulment now made would preclude any other creditors from participating in the distribution of the amount now held by the trustee. The question is whether, as a necessary condition precedent to the making of an order of annulment, the Court can be satisfied that the unsecured debts that have been proved have been paid in full.

14. Some light is also thrown on the question that now arises for decision by the provisions of sub-section 154(4). That sub-section deals with the situation where a debt has been proved by a creditor but the creditor cannot be found or cannot be identified. In such circumstances the debt may be paid to the Registrar in Bankruptcy and, if so paid, is, for the purposes of section 154, to be "deemed to have been paid in full to the creditor". The provision is by no means conclusive but the deeming provision it contains suggests that the legislature has used the expression "paid in full" as encompassing only payments received by the creditor himself or by an agent duly authorised to receive payment on his behalf. The trustee is not, in my opinion, to be regarded as such an agent by reason only of his undertaking the role of trustee.

15. In the result the application fails. However, having regard to the particular circumstances of the case including the likelihood that within a short time the bankrupts will be in a position to satisfy the Court that their unsecured debts, being debts that have been proved in the bankruptcies, have been paid in full, it seems to me to be appropriate not to dismiss the application but to stand it over generally with liberty to the bankrupts to restore it to the list on 7 days' notice to the Official Trustee in Bankruptcy. I so order.