Re Quinn, Geoffrey Frank Michael Ex Parte Quinn, Geoffrey Frank Michael Official Trustee In Bankruptcy
[1995] FCA 1045
•22 DECEMBER 1995
CATCHWORDS
BANKRUPTCY - s73(2) Bankruptcy Act 1966 ("the Act") - whether s73 applies to a discharged bankrupt - whether person continues to be described as "bankrupt" for all times after a sequestration order notwithstanding discharge - Full Court decision of Official Receiver in Bankruptcy v Todd (1986) discussed - s73 compared with s81 of the Act - whether necessary for s73 to apply to discharged bankrupt for purposes of effective administration - legislative history of s81 discussed - whether s73 imposes a duty on a trustee - whether efficient administration a consideration for s73 - whether Todd's case leads to the view that "bankrupt" wherever appearing in the Act always includes reference to an undischarged bankrupt - effect of 1992 amendments discussed - whether s73(4) refers to a person with current status of a "bankrupt" - whether any special considerations inherent to make it appropriate for "bankrupt" to refer to undischarged bankrupt in s73.
Bankruptcy Act 1966 (Cth) ss73(1), 73(2), 73(4), 73(5), 5(1) 43(2), 74(5), 152, 153(1), 81.
Official Receiver in Bankruptcy v Todd (1986) 70 ALR 119
Re Gaskell [1904] 2 KB 478
RE: GEOFFREY FRANK MICHAEL QUINN
EX PARTE:GEOFFREY FRANK MICHAEL QUINN
OFFICIAL TRUSTEE IN BANKRUPTCY
No NB 1666/90
Tamberlin J
Sydney
22 December 1995
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION )No. NB 1666/90
BANKRUPTCY DISTRICT )
OF THE STATE OF NEW SOUTH WALES
RE: GEOFFREY FRANK MICHAEL QUINN
EX PARTE: GEOFFREY FRANK MICHAEL QUINN
Applicant
OFFICIAL TRUSTEE IN BANKRUPTCY
Respondent
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 22 DECEMBER 1995
MINUTE OF ORDERS
THE COURT ORDERS THAT:
The application be dismissed.
The applicant pay the respondent's cost of the application.
NOTE: Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION ) No. NB 1666/90
BANKRUPTCY DISTRICT )
OF THE STATE OF NEW SOUTH WALES
RE: GEOFFREY FRANK MICHAEL QUINN
EX PARTE: GEOFFREY FRANK MICHAEL QUINN
Applicant
OFFICIAL TRUSTEE IN BANKRUPTCY
Respondent
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 22 DECEMBER 1995
REASONS FOR JUDGMENT
The applicant seeks an order requiring the respondent ("the Trustee") to call a meeting of creditors of the applicant pursuant to s73(2) of the Bankruptcy Act 1966 ("the Act") and send to each creditor before the meeting a copy of the applicant's proposal accompanied by a report.
The applicant was made bankrupt on a creditors' petition on 7 September 1990. He was discharged from bankruptcy without objection on 17 November 1993.
On 20 October 1995 the applicant sent to the Official Trustee in Bankruptcy ("the Trustee") an offer of composition with the creditors of his bankrupt estate. The Trustee declined to call a meeting on the basis of his view that s73 relates to compositions or arrangements with creditors by a "bankrupt" and that the section does not apply in the instant case, because the applicant was discharged from bankruptcy in November 1993.
Statutory Provisions
The relevant provisions of the Act are as follows:
"5(1) "bankrupt" means a person:
(a) against whose estate a sequestration order has been made; or
(b) who has become a bankrupt by virtue of the presentation of a debtor's petition;
...
"end" means:
(a)in relation to a bankruptcy - the discharge of the bankrupt from the bankruptcy or the annulment of the bankruptcy."
"43(2)Upon the making of a sequestration order against the estate of a debtor, the debtor becomes a bankrupt, and continues to be a bankrupt until:
(a)he or she is discharged by force of subsection 149(1) or in accordance with Division 3 of Part VII; or
(b)his or her bankruptcy is annulled by force of subsection 74(5) or 153A(1) or under section 153B."
"73(1)Where a bankrupt desires to make a proposal to his creditors for:
(a)a composition in satisfaction of his debts; or
(b)a scheme of arrangement of his affairs;
he may lodge with the trustee a proposal in writing signed by him setting out the terms of the proposed composition or scheme of arrangement and particulars of any sureties or securities forming part of the proposal.
73(2) The trustee shall call a meeting of creditors and shall send to each creditor before the meeting a copy of the proposal accompanied by a report in it.
...
73(4) The creditors may, by special resolution, accept the proposal.
73(5) A creditor who has proved his debt may assent to or dissent from the proposal by written notice to that effect delivered to the trustee before the meeting or sent by post to the trustee and received by him before the meeting, and in that case the creditor shall, for the purposes of this Division, be deemed to have been present at the meeting and to have voted according to his assent or dissent."
"74.(5)Upon the passing of a special resolution at a meeting of creditors of a bankrupt under subsection 73(4), the bankruptcy is annulled, by force of this subsection, on the date on which the special resolution was passed."
"152A discharged bankrupt must, even though discharged, give such assistance as the trustee reasonably requires in the realization and distribution of such of his or her property as is vested in the trustee."
"153(1) Subject to this section, where a bankrupt is discharged from bankruptcy, the discharge operates to release him from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his security for the benefit of creditors generally". (Emphasis added)
Applicant's Submissions
The principal submissions of the applicant may be summarised as follows:
The applicant is a "bankrupt" within s73 of the Act.
As a result of the definition of "bankrupt" in s5(1) once a sequestration order has been made against a person then such person continues at all times thereafter to come within the description of "bankrupt". This is said to be so notwithstanding discharge of the person from bankruptcy and the terms of ss43(2) of the Act set out above.
The decision of the Full Federal Court in Official Receiver in Bankruptcy v Todd (1986) 70 ALR 119 provides support for the above propositions.
As the decision in Todd's case is central to the submissions of the applicant it is necessary to examine it in some detail.
In Todd's case, two judges of this Court Pincus J, at first instance and Spender J, dissenting, on appeal, held that the power to summon a bankrupt under s81 of the Act for examination applied only when the person to whose affairs the proposed examination relates is, at the time, a "bankrupt", by
which is meant a person who is an undischarged bankrupt or one whose bankruptcy has not been annulled. See 70 ALR 119 at 129.
The majority judges on appeal, Fisher and Lockhart JJ reached a contrary conclusion.
The majority judgments express the view that the definition of "bankrupt" in s5(1) of the Act is not subject to any temporal limitation. The result of this view is that once a sequestration order has been made against the estate of a person, or once a person has become a bankrupt by virtue of the presentation of a debtor's petition, the person comes within the description contained in the statutory definition and continues to apply at all times to that person, subject of course to a contrary intention in the context of the particular provision in question. The description does not cease to apply to the person upon discharge from bankruptcy. In a descriptive sense, a person once having been a bankrupt will always remain within that description, notwithstanding that the person's status as a bankrupt has ceased to exist. He or she can always be referred to as a "bankrupt" in the sense that historically the person has been a bankrupt. The Court, held that the power of the Trustee to summon a "bankrupt", conferred by s81, applied in respect of a bankrupt person even after discharge from bankruptcy.
Section 81 of the Act as it stood at the time of the Full Court decision in 1986 was as follows:
"81(1)The Court ... may, on the application of a creditor who has proved his debt and on such terms as to costs as the Court ... thinks fit to impose, or on the application of the Official Receiver or the trustee, at any time summon -
(a)the bankrupt or a spouse of the bankrupt;
.....
to attend, on a date and at a time and place fixed in the summons, before the Court .... to give evidence concerning and produce any books ... in his custody or power relating to, the bankrupt or his trade dealings, property or affairs." (Emphasis added)
Fisher J who agreed with the conclusions and reasons given by Lockhart J said at 120:
"I see a clear distinction in the Bankruptcy Act 1966 ("the Act") between the temporal impact of a sequestration order upon the assets and liabilities comprising the estate of the bankrupt and upon his status as a bankrupt.
......
This estate comprising his assets available for distribution among his creditors vests upon bankruptcy in the trustee for the benefit of these creditors whose rights to sue to recover debts are converted into rights of proof against the estate in the hands of the trustee. Upon discharge the bankrupt is released from his debts subject to certain specified exceptions. The Act does not link temporally the completion of the administration of the bankrupt's estate, and in particular the ascertainment of the assets, their respective whereabouts and the realisation and distribution, with the obtaining of a discharge with its consequential change of status and release from debts. Many years may separate the date of discharge of the bankrupt on the one hand and the release of the trustee upon completion of his administration."
At 121-122 his Honour said:
"It is to my mind for practical purposes necessary that a trustee should have at all times whilst he is engaged in the administration of a bankrupt's estate power to make effective inquiries concerning possible assets and their whereabouts. In complex estates and, ... in circumstances where bankrupts seek to avoid making full disclosure of their activities, the time available prior to discharge can be insufficient to complete active investigation. ... To my mind the use of the word "bankrupt" in s81 should not be construed as limiting the scope of that section to the period prior to discharge, certainly in circumstances where the estate is still in the process of administration and the assets still being got in. "
From the above it appears that a central consideration underlying the decision was the necessity for a trustee to be able to make "effective" inquiries when carrying out the administration of the bankrupt estate. Accordingly, it was considered essential for the trustee to have a wide and comprehensive power to investigate the affairs, dealings, assets and liabilities of the bankrupt even when such investigation is carried out after discharge.
A similar approach was taken by Lockhart J in his judgment. At page 127 his Honour said:
"Since the undistributed property of the bankrupt remains vested in the trustee after discharge there are sound reasons of policy why the machinery of the law and the administration of bankruptcy should continue to be available to the trustee and the creditors to assist the trustee in the performance of his continuing duties of collection, realisation and distribution of such of the bankrupt's assets as are vested in before the discharge. Section 81 is an important weapon in the trustee's armoury..."
In his judgment, Lockhart J analysed the inquisitorial power to summon persons for examination in bankruptcy in order to elicit information that may be relevant for the proper administration of the bankruptcy and which might assist the process of finding and recovering assets available for distribution. His Honour referred to s152 of the Act which required a "discharged bankrupt" to give assistance to the trustee in the realisation and distribution of such of his property as vested in the trustee. His Honour considered that ss81 and 152 are complementary to each other. He said:
"They do not cover the same field, though they do overlap. In particular, s 152 applies only to a discharged bankrupt, whereas s 81 applies to the bankrupt and other persons. Section 152, unlike s 81, confers no power of summons and examination. The scope of s 152 is confined to "the realization and distribution" of such of the discharged bankrupt's property as is vested in the trustee, whereas s 81 is in aid of discovering the existence of any property of the bankrupt, and the powers which it confers extend to obtaining information respecting the bankrupt or his trade, dealings, property or affairs.
....
I would not be disposed to conclude that the powers which s81 confers fail to survive a bankrupt's discharge unless the language of some relevant provision of the Act plainly leads to that conclusion."
His Honour proceeded to consider s43(2) which provides that a person who has become a bankrupt continues to be a bankrupt until discharge or annulment. He did not, however, agree that this provision required a conclusion that a person ceased to come within s81 upon discharge from bankruptcy.
By the Bankruptcy Amendment Act No 119 of 1987, the provisions of s81 of the Act, as considered in Todd's case, were repealed and a substituted subsection inserted as follows:
"81(1)Where a person (in this section called the "relevant person") becomes a bankrupt, the Court or the Registrar may at any time (whether before or after the end of the bankruptcy) on the application of:
(a) a person (in this section called a "creditor") who has or had a debt provable in the Bankruptcy;
(b) the trustee ... or
(c) the Official Receiver;
summon the relevant person, or an examinable person in relation to the relevant person, for examination in relation to the bankruptcy."
In the course of argument in the present case, reference was made to the Explanatory Memorandum covering the amendments to
s74 of the Act, which was circulated by the Minister for Justice and Consumer Affairs in 1991.
At pp 49-50 of the Explanatory Memorandum it is said:
" 15.2The Bill will introduce a number of important reforms to the law of discharge from and annulment of bankruptcy. In particular, the law will be reoriented so as to provide incentives to bankrupts to pay their creditors in full, or to reach an agreement with the creditors whereby the creditors accept less than payment in full, but nevertheless get some return, and the bankrupt is accorded the opportunity for a fresh financial start. An obstacle to the speedy rehabilitation of bankrupts ... is that court approval and orders must be obtained .... To ensure that the system works more efficiently, where a bankrupt proposes a composition or scheme and this is accepted by special resolution of the creditors, the passing of the special resolution will operate to annul the bankruptcy automatically.
.....
16.1. Compositions and schemes of arrangement, once accepted by special resolution of creditors and approved by the court are binding on all of the creditors of the bankrupt, so far as relates to the provable debts of the bankrupt. The Bill will change this so that acceptance of the composition or scheme by special resolution of creditors will operate to bind the creditors in relation to the provable debts of the bankrupt". (Emphasis added).
The amendment to s74 is directed to making annulment automatic upon the passing of a special resolution pursuant to s73(4) without the need to obtain court approval and orders. The purpose was to give the bankrupt a swift and less expensive opportunity to make a fresh financial start.
It has been said that:
"The overriding intention of the legislature in all Bankruptcy Acts is that the debtor on giving up the whole of his property shall be a free man again, able to earn his livelihood, and having the ordinary inducements to industry."
(See Re Gaskell [1904] 2 KB 478 at 482).
A reading of s73, which makes it applicable to a "discharged bankrupt", is not in keeping with the evident purpose of the amendment which is to enable "speedy rehabilitation" of bankrupts who come to an arrangement with creditors.
It is reasonably clear that the 1987 amendment to s81 was made as a result of the decision of the Full Court in Todd's case which was delivered in December 1986. The new s81(1) removed any doubt that the power to summon a bankrupt extended to a person who had previously become bankrupt whether or not the power was exercised before or after the end of the bankruptcy. This is consistent with the majority view, expressed in Todd's case, that it may be necessary for a trustee to have power to summon discharged bankrupts in order to ascertain the whereabouts and gain control over outstanding assets.
No similar or corresponding amendment was made to s73 after the decision of the Full Court in Todd's case notwithstanding the ambiguity in reference to "the bankrupt" highlighted by that decision.
In my view, the decision in Todd's case is distinguishable from the instant case in the following respects:
That case concerned s81 and not s73. The wording and context of the two provisions are quite different. Section 81 is found in Part V of the Act, is concerned with discovery of bankrupts property and empowers the trustee or a creditor to obtain information considered useful in the administration of the estate. It imposes an obligation on the bankrupt. Section 73, on the other hand, is found in Part IV, Division 6 which relates to composition and arrangements with creditors and it empowers the bankrupt to make an offer of compromise. It imposes a duty on the trustee.
In Todd's case it was considered essential that the trustee should have power at all times during the administration to make effective inquiries. This was in order to properly and efficiently administer the bankrupt estate. That controlling consideration is not present in s73 of the Act.
It was not the ratio of Todd's case that the word "bankrupt" wherever occurring in the Act must always include reference to a "discharged bankrupt". In each case it is necessary to consider the nature, context and purpose of the provision. To enable s81 to operate effectively, it is appropriate to interpret the word "bankrupt", where used in that section, so as to include a person who has been discharged from bankruptcy. This is not so with respect to the use of the term "bankrupt" in s73 because that section can operate in an effective and appropriate manner if the term "bankrupt" is taken to denote a person whose bankruptcy has not come to an end at the time the proposal is made.
In deciding the meaning to be attributed to the term "the bankrupt", in any particular provision, it is necessary to examine the Act to determine whether there are indications to the effect that the term, as used in s73, includes a bankrupt whose status as such no longer continues.
I can find no indication which makes it necessary or appropriate to interpret the term in that way.
There were clearly special and compelling reasons inherent in the nature and purpose of the power conferred by s81 to support the interpretation of the term, "the bankrupt" in s81, as it then stood, so as to include a discharged bankrupt. Having regard to the 1992 amendments to s74 and their purpose, as indicated in the Explanatory Memorandum to those amendments, it is not appropriate to interpret the term "the bankrupt" in s73 as applying to a "discharged bankrupt". Further support for this view is to be obtained both from s152 of the Act which expressly refers to "a discharged bankrupt" and also from the express wording of the amendment to s81 which puts it beyond doubt that a discharged bankrupt is within the section. In both these sections it was considered appropriate to spell out in express and specific terms that the provisions were to apply after discharge from bankruptcy.
It is also relevant, but not determinative, to note that no amendment was made to s73 in 1987 after the decision in Todd's case had pointed to the uncertainty implicit in the term "a bankrupt".
Accordingly, I do not think that the decision in Todd's case is of assistance in the interpretation of s73 of the Act.
It is neither necessary nor appropriate for me, in this case, to express a view on the question as to whether the decision of the Full Court in Todd should be followed, as that decision is distinguishable. Moreover, the question as to the operation of s81, with respect to an undischarged bankrupt, has been placed beyond doubt by the 1992 amendments.
Conclusion
For the reasons which I have set out above it is not necessary to consider the further additional arguments raised by the respondent.
I therefore dismiss the application with costs.
I certify that this and
the preceding fourteen (14)
pages are a true copy of the
Reasons for Judgment herein of
his Honour Justice Tamberlin.
Associate:
Date: 22 December 1995
Counsel for Applicant: Mr J Priestley
Solicitor for Applicant: S J Rugendyke
Solicitor for Respondent: Gordon & Johnstone
Date of Hearing: 12 December 1995
Date Judgment Delivered: 22 December 1995
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