Re Skov, J. v Ex parte Skov, J

[1994] FCA 581

RE: JORGEN SKOV (A Bankrupt)
EX PARTE: JORGEN SKOV
No. QB1030 of 1989
FED No. 581/94
Number of pages - 6
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
GENERAL DIVISION
COOPER J

CATCHWORDS

Bankruptcy - application of the Bankruptcy Act Amendment Act 1991 - no jurisdiction or power in the court to order discharge from bankruptcy - jurisdiction and power of court under section 178 of the Bankruptcy Act 1966 to review decision of trustee to object to automatic discharge.

Bankruptcy Act 1966 Sections 149, 150, 178

Bankruptcy Act Amendment Act 1991 Sections 27, 54

McGoldrick v. Official Trustee in Bankruptcy (1993) 47 FCR 547

Van Reesema v. Official Trustee in Bankruptcy (1983) 69 FLR 424

HEARING

BRISBANE, 29 August 1994
#DATE 30:9:1994

Solicitors for the Applicant: Mr. S.J. Keune of Hewlett and

Company

Solicitors for the Trustee: Mr. D. Myrteza of M.J.

Murray and Associates

ORDER

The Court orders that:

1. The application, insofar as it seeks in paragraph 1 an order that the applicant be discharged from bankruptcy, is dismissed.

2. The application, insofar as the relief claimed in paragraphs 2 and 3 of the application, will be adjourned to the bankruptcy list for 1 November, 1994 for hearing on its merits.

3. The costs of the preliminary objection will be reserved to the judge hearing the application on 1 November, 1994.

The Court direct that:

3. The trustee to file any affidavit material in opposition to the application on or before 4.00 p.m. 17 October, 1994.

4. The applicant to file any affidavit material in reply on or before 4.00 p.m. 24 October, 1994.

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

JUDGE1

COOPER J The applicant, Jorgen Skov, was made bankrupt and his estate sequestrated on 19 November, 1989. Philip Gregory Jefferson was appointed trustee of the bankrupt's estate. On 10 October, 1991 the trustee filed a notice of objection to the discharge of the bankrupt.

1. The applicant has applied for the following orders:-
   

1. That the Bankrupt Jorgen Skov be discharged from bankruptcy.

2. That the objection to discharge lodged by the bankrupt's trustee, Philip Gregory Jefferson dated 10 October 1991 be set aside.

3. Such further or other order as the Court may deem fit.

1. The application is said to be made under section 178 of the Bankruptcy Act 1966 ("the Principal Act"). Section 178 provides:-
   

"If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable".

1. The act complained of by the applicant is the lodging of the objection to discharge by the trustee.

2. The trustee before me argued that since the commencement of section 27 of the Bankruptcy Act Amendment Act 1991 ("the Amending Act"), the Court had neither the jurisdiction nor the power to grant the relief sought. If, however, there was power to review the trustee's decision to object then the trustee wishes to place material before the court on that issue.

3. On 1 July, 1992 when section 27 of the Amending Act came into operation, there was in force an objection to the statutory discharge of the applicant from bankruptcy. Accordingly, the applicant became subject to the new section 149 in respect of his automatic discharge from bankruptcy. By section 149(2), the applicant will be by operation of the section discharged from bankruptcy three years from the commencement of section 27 of the Amending Act. That is on 3 July, 1995.

4. The previous power of the court under section 150 of the Principal Act to order discharge from bankruptcy went with the repeal of section 150 by section 27 of the Amending Act. Discharge from bankruptcy is now dealt with by a statutory code in Division 2 of Part VII of the Principal Act as amended. The court has no power to grant an early discharge from bankruptcy. By section 54 of the Amending Act the objection of the trustee of 10 November, 1991 lapsed upon repeal of section 149(3)(c) of the Principal Act. Thus there is now no operative objection to discharge and it is open to the applicant to apply, if he is so advised and is otherwise eligible, to the trustee for early discharge (section 149S(1), section 149T, section 149X to section 149ZE inclusive). This court therefore has neither the jurisdiction nor the power to grant the relief sought in paragraph 1 of the applicant's application.

5. I turn now to the relief sought in paragraph 2 of the application. It was submitted by the trustee that there was no objection in existence for the Court to review. It was further submitted that since the Amending Act there is now a code for the review of a trustee's decision to object to discharge. Such a code was an administrative process involving the Inspector-General in Bankruptcy or the Administrative Appeals Tribunal (section 149K to 149Q). Consequently, it was submitted, this court neither has the jurisdiction nor the power to review the trustee's decision of 10 October, 1991.

6. A Full Court of this Court (Northrop, Ryan and O'Loughlin JJ) in McGoldrick v. Official Trustee in Bankruptcy (1993) 47 FCR 547 had to consider whether a decision of a trustee to object to discharge was reviewable under section 178 of the Bankruptcy Act after the commencement of section 27 of the Amending Act. The objection and application for review were lodged prior to 1 July, 1992. Their Honours said (at 555-556):-
   

"It was therefore quite appropriate to classify ss 149 and 150 as a code so long as it is understood that it was a code that dealt with discharges of bankrupts and the power to increase or decrease the periods of bankruptcies. As a code, the provisions did not, however, extend to the decision-making process of deciding to enter an objection and the act of entering an objection to an automatic discharge. If that decision or that act was to have been reviewed by the Court, the power of review had to be found in some provision other than ss 149 and 150. In Van Reesema v. Official Trustee in Bankruptcy (1983) 69 FLR 424 Sweeney J said (at 431) :

'The legislature has by subss(3) and (4) conferred upon the trustee, amongst others, the great power of preventing that discharge occurring by entering an objection, which, however, shall not be entered otherwise than on one or more of the specified grounds'. In our opinion there was no reason for the learned trial judge to reject the presence and the utilisation of s 178; he was in error in that regard. The bankrupt was entitled, prior to 1 July 1992, to seek review under s 178 of the trustee's decision to enter an objection. It would be incongruous if the exercise of such a 'great power' could not have been challenged and reviewed by the court. Yet that would have been the result unless s 178 had been capable of being called in aid.

In this regard, it is interesting to note the actual decision in Van Reesema. That case did not involve s 178 of the Bankruptcy Act. There, the sequestration order had been made on 17 September 1979. On 19 November 1981, within the three year period from the date of the bankruptcy, the trustee entered an objection under s 149(3). On 10 March 1982, within the three year period, the bankrupt made an application for an order of discharge under s

150. On 4 January 1983, after the expiration of the three year period, the Court refused the application for discharge. The bankrupt appealed. On the appeal, the question arose as to whether the objection which had been entered by the trustee was valid. A majority of the Full Court, Sweeney and Sheppard JJ, held that the objection did not comply with the requirements of s 149(4) and hence was invalid. The majority of the Full Court held that the bankrupt had been discharged from bankruptcy on 17 September 1982 by operation of law. In the result, the Full Court allowed the appeal, set aside the order of 4 January 1983 and declared that the bankrupt was discharged from bankruptcy upon the expiration of three years from the date of his bankruptcy. Sweeney J said (at 431):- 'Section 149 provides that "subject to this section" a bankrupt is, by force of this section, unless sooner discharged in accordance with s 150, discharged from bankruptcy upon the expiration of three years from the date of the bankruptcy. The legislature has by subss (3) and (4) conferred upon the trustee, amongst others, the great power of preventing that discharge occurring by entering an objection, which, however, shall not be entered otherwise than on one or more of the specified grounds.

The entry of an objection in accordance with these subsections prevents a discharge by operation of law upon the expiration of three years from the date of the bankruptcy. It requires a bankrupt to undertake the trouble and expense of an application to the court, the powers of which are limited by s 150. In the present case I do not find it necessary to decide whether s 149(4) calls for strict compliance or whether substantial compliance is sufficient. Upon either view, the notice relied upon in this case was not, in my opinion, entered on one of the statutory grounds. The event which, by force of s 149(3)(b), may prevent a discharge did not happen. In the result, the bankrupt was discharged from bankruptcy upon the expiration of three years from the date of the bankruptcy'.

Implicit in the reasoning of the majority is that the Court, in the exercise of the powers conferred by s 149(8), (9) or (12) or s 150, has power to determine the validity of an objection to discharge entered under s 149(3). We can see no valid reason why the Court should not exercise the power conferred by s 178 to, in substance, review a decision of a trustee to enter an objection under s 149(3). In doing so, the Court is not exercising a power conferred by s 149 or s 150. It follows that s 54 of the Amending Act does not operate to cause the application by the appellant under s 178 to lapse. It should be noted that s 178 applies with respect to a trustee only and not with respect to the other persons mentioned in s 149(3)."

1. Because all existing objections lapsed upon the commencement of section 27 of the Amending Act, the provisions in sections 149K to 149Q relate as a matter of construction to objections filed pursuant to section 149B of the Principal Act as amended. Indeed, section 54(1) of the Amending Act contemplates that if there is to be any objection to discharge after 1 July, 1992 it will be a fresh objection filed in accordance with sections 149A and 149B of the Principal Act as amended. Whether or not section 178 remains available to review a decision of a trustee to object after 1 July, 1992, was left open by the Full Court in McGoldrick (47 FCR at 554). However, that is not this case and it is unnecessary to express any view on that question.

2. In Van Reesema v. Official Trustee in Bankruptcy (1983) 69 FLR 424 a Full Court of this Court (Sweeney, Sheppard and Beaumont JJ) by a majority held that if an objection was invalid, the then section 149 of the Principal Act operated by force of the section to discharge the bankrupt from bankruptcy after three years. Van Reesema was an appeal from a refusal of the court to grant a discharge under section 150 of the Principal Act; it was not a review under section 178. However, the reasoning of the majority, which was accepted by the court in McGoldrick, was that the power of a trustee to object to discharge was subject to controls, reviewable, and if exercised invalidly, did not operate to deny a bankrupt the benefit of a statutory discharge.

3. The importance to the applicant in the present case to seek to set aside the decision of 10 October, 1991 as invalid is that, if successful, the period of time before the discharge of his bankruptcy falls to be determined under section 149(3), and not under section 149(2) of the Principal Act as amended. If determined under section 149(3) the applicant would have been discharged on 1 July, 1992 or three years from the filing of his Statement of Affairs, whichever is the later. The Statement of Affairs was filed on 16 March, 1990. Therefore, if the trustee's objection was invalid the applicant would, by the operation of section 149(3), have been discharged from bankruptcy on 17 March, 1993. If the applicant can establish that the giving of the notice of objection was invalid, he would be entitled to a declaration that he was discharged from his bankruptcy upon the expiration of three years after filing his statement of affairs (Van Reesema at 433).

4. In my opinion the court has jurisdiction and power under section 178 of the Bankruptcy Act 1966 to review the decision of the trustee of 10 October, 1991 to object to the applicant's automatic discharge from bankruptcy. Whether or not the power ought to be exercised remains to be determined on the basis of the material filed, to include such material as the trustee may wish to file in opposition to the application.

5. The application, insofar as it seeks in paragraph 1 an order that the applicant be discharged from bankruptcy, is dismissed.

6. The application, insofar as the relief claimed in paragraphs 2 and 3 is concerned will be adjourned to the bankruptcy list for 1 November, 1994 for hearing on its merits.

7. I direct the trustee to file any affidavit material in opposition to the application on or before 4.00 p.m. 17 October, 1994.

8. I direct the applicant to file any affidavit material in reply on or before 4.00 p.m. 24 October, 1994.

9. The costs of the preliminary objection will be reserved to the judge hearing the application on 1 November, 1994.