Reicher, H. v Deputy Commissioner of Taxation of the Commonwealth of Australia

[1990] FCA 614

6 1 4 - 90

JUDGMENT NO. ........ ....... / .... -...-

CATCHWORDS

Bankruptcy - ~ankru~tc) - notice - Compliance with requirements - - Securing payment of the debt to the satisfaction of the Court - Considerations relevant to the Court's determination.

Bankru~tcv Act 1966 - ss.40(l)(g), 41(2)(a)(ii)

RE: HARRY REICHER: EX PARTE: DEPUTY COMMISSIONER OF TAXATION

OF THE COMMONWEALTH OF AUSTRALIA

1 November, 1990

Jenkinson J.

Melbourne

IN THE FEDERAL COURT OF AUSTRALIA )

GENERAL DIVISION	) No. B365 of 1990
BANKRUPTCY DISTRICT OF THE STATE	)

DF VICTORIA 1

- RE: HARRY REICHER

Debtor

EX PARTE:	DEPUTY COMMISSIONER OF
TAXATION 0 F THE
COMMONWEALTH 0  F
AUSTRALIA

Petitioning

Creditor

cQ!BB:	Jenkinson J.
PLACE :	Melbourne
m:	1 November, 1990

REASONS FOR JUDGMENT

Application by a debtor on whom a bankruptcy notice
has been served for an order setting aside the notice or

declaring the Court's satisfaction concerning his securing

payment of the judgment debt on which the notice was founded.

Section 41(l)(a) of the Bankru~tcv Act 1966 provides

that a bankruptcy notice shall be "in accordance with the

prescribed form". Sub-section 41(2) provides:

"The prescribed form of bankruptcy notice shall

be such that the notice -

(a)

requires the debtor named in it, within a specified time (being the time referred to in subparagraph 40(l)(g)(i) or (ii), whichever is appropriate) to -

(i)	pay the judgment debt or sum ordered to be paid in accordance with the judgment or order; or
(ii)	secure the payment of the debt or sum to the satisfaction of the Court or the creditor or his agent, if any, specified in the notice or compound the debt or sum to the satisfaction of the creditor or his agent, if any, specified in the notice; and

(b)

states the consequences of non-compliance with the requirements of the notice.

The judgment debt was for income tax. The bankruptcy notice, which specified $46,704.34 as the sum due under the judgment, issued on 26 February 1990 and was served the next day. On 13 March 1990 an application to set the notice aside was filed. Thereafter a Judge of this Court ordered that the time for compliance with the notice be extended until further order, so that the debtor's application could be heard and determined. On 2 May 1990 the debtor by his counsel gave an undertaking to the Court that save for the

purpose of meeting his reasonable professional and living

dispose of any interest in any property of which he has any	expenses he would not until further order in any manner
interest nor in any manner encumber any such property except with -the leave of this Court or in compliance with an order of another court of competent jurisdiction. There had been instituted in 1989, and have been at material times pending, in the Family Court of Australia proceedings against the debtor by his wife. Among the wife's claims in those proceedings is one that she have the right to occupy, until final determination of the proceedings, a suburban house on
land in Victoria of which the fee simple estate is jointly owned by her and the debtor, and-his interest in which is a

- relatively large part of the debtor's assets. Another of her

.	claims- is for "such orders for property settlement .... as the court shall consider just and equitable". The debtor, on the other hand, claims in those proceedings an order that the land be sold and that his indebtedness to the judgment creditor be discharged by payment out of the proceeds of sale. Shortly before issue of the bankruptcy notice correspondence had passed between the judgment creditor's solicitor and solicitors acting for the debtor and for the wife respectively. The creditor's solicitor had suggested a mortgage to his client by the debtor and the wife of their joint estate in the land as a means of protecting the creditor's interests until the proceedings in the Family Court were completed. The debtor's solicitors indicated their client's willingness to accept the suggestion, but the wife's
solicitors declared her refusal to take that course. The affidavit of a solicitor employed by the debtor's solicitors sworn in support of the debtor's application to this Court on
the day that application was filed, 13 March 1990, included the following statements:

"13. I am instructed that the Applicant is

and has been at all times willing to pay the debt subject of this proceeding. To this end, the Applicant is prepared to secure the payment of the debt to the satisfaction of this Honourable Court by way of execution of a mortgage over the

Matrimonial Home in a registrable form in favour of the Deputy Commissioner of Taxation."

A further affidavit sworn by the same deponent and filed on 2.

May 1990 deposed to. execution by the debtor of a mortgage of which a copy was exhibited. The copy mortgage bore date 2 May 1990.

It was submitted by Mr. Forsyth Q.C. , who appeared with Mr. Rosenbaum for the debtor, that it is not necessary, in order to satisfy the requirement concerning security to which reference is made in 41(2)(a)(ii), that the form of security which in the result satisfies the Court should be in all respects identical with the form of security offered by the debtor to the judgment creditor during the time fixed by the Registrar and specified in the no-tice for compliance with the notice, or with the form of security last offered by the debtor to the judgment creditor before the Court's judgment is

pronounced as to whether it is satisfied. It was sufficient,	in Mr. Forsyth's submission, that before the expiration of the
time specified in the bankruptcy notice the debtor should have proposed to the judgment creditor a form of security and that before the expiration of that time or of any longer time allowed by the Court for compliance a form of security of that kind should have satisfied the Court, in the sense intended by the phrase "to the satisfaction of the Court" in ~.41(2)(a)(ii), and should have been given, or offered, to the judgment creditor.
I shall assume, but without deciding, that Mr. Forsyth's submission is correct. On and after 2 May 1990 Mr. Ginnane of counsel for the judgment creditor advanced a number of submissions to show that the mortgage dated 2 May 1990 could not be regarded as satisfactory security fck payment of
the sum specified in the bankruptcy notice. . Forsyth .
sought to circumvent those submissions by p;oposing the execution of other documents by which in his submission payment of the sum specified in the notice would be satisfactorily secured.
Without formally conceding any of the points involved, Mr. Forsyth took it to be probable that, sitting as a single judge, I would hold that neither the execution and delivery to the mortgagee nor the registration, under the provisions of the Transfer of Land Act 1958, of an instrument of mortgage of one joint proprietor's interest in land under that Act, as this land is, would work a severance of the joint tenancy, and that such a mortgage would afford the mortgagee no security in the event that the mortgagor debtor predeceased his wife. And I do so hold, as Mr. Forsyth foresaw : see
bvons v. Lvona [l9671 V.R. 169. To obviate that defect Mr. Forsyth proposed that the debtor execute and cause to be registered an instrument of transfer of his interest in the land to a company controlled by him. That would sever the joint tenancy. The company would hold its interest in the land on trust for the debtor and would at the debtor's direction mortgage that interest to the judgment creditor.
Evidence having been adduced on behalf of the judgment
creditor which in Mr. Ginnane's submission required the
finding that an exercise by the judgment creditor of his power
of -sale as mortgagee of the mortgagor's interest in the land
would not yield sufficient to discharge the mortgage debt, Mr. -
Forsyth proposed that the debtor and the company appoint to the judgment creditor powers to bring in their names a proceeding' against the debtor's wife under Part IV of the Pro~ertv Law Act 1958 (Vic.) for sale of the land in lieu of partition, whereby a price could be obtained for the land sufficient to discharge out of the debtor's share the mortgage debt.
If the orders determining the proceedings pending in the Family Court require or permit sale with vacant possession of the land immediately after that determination, it seems likely, on the evidence before me, that a mortgage of the debtor's interest granted now to the judgment creditor to secure payment of the sum specified in the bankruptcy notice
would be wholly discharged out of the proceeds of such a sale. It may be, however, that the Family Court will make orders
requiring the debtor to let his wife reside in the house on the land for some years with the children of the marriage. The younger of the two children was born in 1978. I do not know whether that is likely. Only by now conferring on the judgment creditor a power to bring about a sale with vacant possession of the land can the debtor secure payment of the debt : I find that sale merely of the debtor's interest in the land or sale of the land without vacant possession would not be likely to be for a price sufficient to enable that debt to be paid. But the Family court might, if its jurisdiction were invoked by the wife, think it right to restrain the debtor

. .	until the determination of the proceedings pending in that Court from conferring on the judgment creditor such a power. This Court could not in my opinion have satisfaction in that mode of securing payment of the sum specified in the bankruptcy notice until it had caused the wife to be notified of what was proposed and had afforded her an opportunity to invoke that jurisdiction. If it be a consideration irrelevant to the exercise of the discretionary function impliedly conferred on this Court by the phrase "to the satisfaction of the Court" in s.41(2)(a)(ii) that the interests of the wife or of the children may be prejudiced by the giving of the security proposed, as to which I need express no opinion, it cannot in my opinion be a consideration irrelevant to the exercise of that function that the land to which the proposal relates is in joint ownership and is an important subject of	proceedings between the two joint owners in another superior	court, the jurisdiction of which to alter the owners'
interests in that land has been invoked by the owner who is
neither party to the proceeding in this Court nor, so far as
has appeared, aware of the proposal. Indifferent to the
interests and wishes of the wife a court exercising bankruptcy
jurisdiction may perhaps be. But such a court ought not in my
opinion to declare its satisfaction with a proposed
transaction which another court exercising the judicial power
of-the Commonwealth has jurisdiction to forbid, and which that
other court may think it right to forbid, without affording a
person whose interests may be affected by the transaction an

.

opportunity to invoke that jurisdiction. In those circumstances I am brought to the conclusion that the debtor has -failed to offer a security to the satisfaction of this Court. An important consideration for this Court in determining whether the security offered is satisfactory is the time involved in bringing about the desired result that the debtor secure payment of the debt specified in the notice. Time spent in presenting to this Court the case for and against the conclusion that what is offered is satisfactory may, at least in this case, be disregarded in weighing that consideration. But those cases having been presented, my conclusion that this Court's approval of what is offered by way of security ought not to be granted until after notice of the offer is formally given to the wife and until after determination by the Family Court of any application which the wife should thereupon promptly make and prosecute for an

giving effect to his offer leads in my opinion to the further	injunctive order of that Court restraining the-debtor from
conclusion that this Court should now dismiss the debtor's application for a declaration of satisfaction with the offer, on the ground that the time necessarily involved, and the further time which may be involved hereafter in giving the security renders the offer unsatisfactory.

There is in my opinion another reason for concluding

that the offer is unsatisfactory. I have found that only upon a sale of the land, not upon sale of the debtor's interest in the land, is the price likely to be sufficient to enable the sum specified in the bankruptcy notice to be paid to the mortgagee judgment creditor. Even if it be assumed that no injunctive restraint would be exercised by the Family Court on the debtor, sale of the land without the donsent of the wife while she retains her interest in the land, whether that interest be joint or in common, can be achieved only by means

of an order made under Part IV of the proDertv ~ a w - Act 1958.

Even if it be assumed that such an order would certainly be made on the application of the judgment debtor and the company holding his legal interest on trust for him, they being

"parties interested . . . . to the extent of one moiety . . . . in

the property" within the meaning of those words in s.223 of that Act, the delay necessarily involved in instituting and

prosecuting to judgment an action under Part IV requires, in

my opinion, the conclusion that the security offered ought not

to be regarded as one which would "secure payment of the debt or sum to the satisfaction of the Court". Reference was made to DeDutV Commissioner of

Taxation 1N.S.W.I v. Swain (1988) 81 A.L.R. 12 as authority

both for the proposition that an applicant for an adjournment in order to give priority to another proceeding bears a heavy onus and for the proposition that the family Court of Australia in the performance of its duty to adjust rights as between the parties to a marriage has no power to deprive

other parties of their rights. I do not apprehend that anything I have said contravenes either proposition. Putting aside the circumstance that what is here in question is not in form_ an application for an adjournment, and the circumstance that the deferment of remedy here in question is contemplated by the Bankru~tcv Act 1966 itself, I have merely assumed, without deciding, that the debtor might establish a case for giving priority to the proceedings in the Family Court, but

.	-	for the difficulties which I have discussed. And the injunctive orders which I have supposed that the Family Court might be disposed to direct to the debtor are of course orders which would precede sequestration and which would not interfere with any right of a third party.
Both of the grounds for my conclusion that I should not regard the security offered as satisfactory rest on considerations to which in my opinion the legislative scheme concerning bankruptcy notices requires the Court to accord
substantial weight. One consideration is that the capacity of
the debtor effectively to confer the proposed security on the judgment creditor should be proved within the time allowed for the hearing of the application. The other consideration is that the security for payment of the debt proposed by the debtor should be such as the judgment creditor would, in the Court's judgment, be willing to accept if he were having reasonable regard to his own interests. The provisions of the Bankru~tcv Act 1966 concerning bankruptcy notices disclose a legislative intention that a final judgment creditor who is entitled to immediate execution of a judgment not liable to be set aside, and against whom the debtor has no claim of the kind specified in the final clause of paragraph 40(l)(g) of that Act, should be able, by recourse- to those provisions, to bring about the commission by the debtor of an act of bankruptcy unless within a quite short time after service of the bankruptcy notice the debtor pays the judgment debt or secures the payment of the judgment debt to the satisfaction of a Court having jurisdiction in bankruptcy. If the judgment creditor complies with the requirements of the provisions concerning bankruptcy notices and will not accept security or a composition, the commission of the act of bankruptcy can be prevented, if the debtor has no such a claim, only by payment of the judgment debt or by offering such a security as satisfies the Court. Legislation thus empowering the judgment creditor must in my opinion be understood to contemplate that only such a security as will assure the judgment creditor of a prompt and facile satisfaction of the judgment ought to engender the curial satisfaction to which ~.41(2)(a)(ii) refers. The grant. to the Court of power tb preclude the commission of the impending act of bankruptcy by approving a
security unacceptable to the creditor must be supposed to reflect a legislative intention that what it had provided to creditors in paragraph 40(l)(g) of the Bankru~tcv Act 1966 should not be available for unreasonably precipitate use when the debtor was able and willing satisfactorily to assure the creditor of payment of the debt after a short interval by giving a security for that payment. In exercising the discretionary power of giving or refusing its approval of the security offered, the Court would, as I think, be required to determine what delay in payment it considered reasonably consistent with the creditor's interests, and then to determine whether at the end of that period of delay the

-	security could be confidently expected to assure the creditor of prompt satisfaction of the judgment. In this case under present consideration the debtor submits that the period of delay in payment which in all the circumstances this Court should regard as reasonable is the period which will extend until the Family Court has finally determined the proceedings now pending in that Court, or at least until those proceedings have reached a stage at which that Court has manifested its acquiescence in the application, out of the proceeds of sale of the land, of an amount equal to the amount of the judgment debt specified in the bankruptcy notice in discharge of that debt. If it be assumed that that submission ought to be accepted, notwithstanding that the period suggested cannot
payment of the debt specified in the notice will be promptly confidently predict that at the expiration of that period presently be quantified with certainty, yet I cannot
achieved by enforcement of the security proposed. Enforcement against the will of the wife must wait upon a curial order under Part IV of the ProDertv Law Act 1958. Such an order will not, in my opinion, be made until after the Family Court has made known- its acquiescence in sale of the land. Thereafter the wife might further delay the making of an order for sale by opposing it. Even if it be assumed that she could
not then show that "good reason" against sale to which s.223 of that Act refers, she could put the judgment creditor to the trouble and expense of a contested hearing and thus delay the sale.

The application will be dismissed.

I certify that this and the 12

preceding pages are a true copy of the Reasons for Judgment of the Honourable Mr. Justice Jenkinson.

--

/ /	Associate
V

Dated: 1 November, 1990

Counsel for the Applicant	Mr. N.H.M. Forsyth QC and
Mr. N. Rosenbaum
Counsel for the Respondent	Mr. T.J. Ginnane and Mr. A.W. Ellis
Solicitors for the Applicant :	Barker ~osling

Solicitors for the Respondent : Australian Government

Solicitor

Dates of Hearing 21, 22 and 24 May, 1990