Segler v Child Support Registrar
[2009] FMCA 41
•23 February 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SEGLER v CHILD SUPPORT REGISTRAR | [2009] FMCA 41 |
| BANKRUPTCY – Application to discharge child support debt – whether Court has jurisdiction – extent of power to discharge child support debt – whether limited to arrears at time sequestration order issued. BANKRUPTCY – Application to discharge child support debt – matters for consideration in determining application – income, expenses, assets, liabilities and conduct. |
| Bankruptcy Act 1924 (Cth), s.121(1)(c) Bankruptcy Act 1966 (Cth), ss.5, 27, 35, 35A, 35B, s.40(1)(g) & (3)(b) and (f), 82(1), 82(1A), 82(2), 153(1), 153(2)(c), 153(2A) Bankruptcy Act 1869 (UK), s.31 Bankruptcy Amendment Act 1980 (Cth), s.75(1) Bankruptcy Amendment Bill 1979 Bankruptcy Amendment Bill 1979, Explanatory Memorandum Bankruptcy Legislation Amendment Act 1996, Schedule 1, Items 108, 109, 182, 446 and 453 Child Support (Assessment) Act 1989 (Cth) Child Support (Registration and Collection) Act 1988 (Cth) Constitution, s.75 Deserted Wives and Children Act 1901(NSW) Family Law Act 1975 (Cth) |
| Coventry & Ors v Charter Pacific Corporation Ltd & Anor (2005) 227 CLR 234; [2005] HCA 67 Dewe v Dewe; Snowdon v Snowdon [1928] P 113 Federated Engine-Drivers & Firemen’s Association v Broken Hill Proprietary Co Ltd (1911) 12 CLR 398 Opie v Opie (1951) 84 CLR 362 Paquine v Snary [1909] 1 KB 688 Re Boulton; Ex parte Construction, Forestry, Mining and Energy Union (1998) 73 ALJR 129 Re Canobbio (1943) 13 ABC 238 Re Carter; Ex parte Official Receiver (1941) 12 ABC 193 Re Frankel (1959) 19 ABC 10 Re Hawkins; Ex parte Official Receiver [1892] 1QB 890 Re Morris (1974) 22 FLR 460 Re Partridge; Ex parte Maidens-Fuller (1945) 13 ABC 185 Re Reilly; Ex parte Debtor (1979) 36 FLR 268 Re Stewart; Ex parte Stewart (1995) 60 FCR 68 R v Bolton [1835-1842] All ER Rep 73 Victor v Victor [1912] 1 KB 247 |
| Bacon’s Abridgement (5th Edn), Vol.1 DC Pearce “Bankruptcy and Arrears of Maintenance” (1969) 43 ALJ 560 PP McQuade and MGR Gronow, McDonald, Henry and Meek, Australian Bankruptcy Law and Practice (Sydney: Law Book Co, 1996) |
| Applicant: | MARTIN LEE SEGLER |
| Respondent: | CHILD SUPPORT REGISTRAR |
| File Number: | PEG 230 of 2007 |
| Judgment of: | Lucev FM |
| Hearing date: | 29 May 2008 |
| Date of Last Submission: | 29 May 2008 |
| Delivered at: | Perth |
| Delivered on: | 23 February 2009 |
REPRESENTATION
| Counsel for Mr Segler: | In person |
| Counsel for the Respondent: | Ms I. McCormick |
| Solicitors for the Respondent: | Australian Government Solicitor |
DECLARATIONS AND ORDERS
The Court declares that:
(a)it has jurisdiction to discharge the Applicant’s child support debt; and
(b)any discharge of the Applicant’s child support debt is limited to debts provable in bankruptcy up until the date of sequestration.
In relation to the determination of whether or not to discharge the Applicant’s child support debt the Court is entitled to consider the Applicant’s income, expenses, liabilities and assets, and the Applicant’s conduct prior to the date of the Applicant’s bankruptcy, during the period of the Applicant’s bankruptcy, and since the Applicant’s discharge from bankruptcy.
The matter will be adjourned to 10.00am on 6 March 2009 for further directions.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 230 of 2007
| MARTIN LEE SEGLER |
Applicant
And
| CHILD SUPPORT REGISTRAR |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant, Mr Segler, has a child support debt[1] which he asks this Court to discharge under s.153(2A) of the Bankruptcy Act 1966 (Cth).[2]
[1] Wherever possible the phrase “child support debt” has been used in these Reasons for Judgment to describe the debt which Mr Segler applies to have discharged, rather than the more general “maintenance debt” which can refer to debts other than child support debts.
[2] “Bankruptcy Act.” In these Reasons for Judgment all references to sections of an Act are to the Bankruptcy Act unless otherwise indicated.
Two preliminary issues arise for determination by the Court.
The preliminary issues
There are two preliminary issues in this matter:
a)whether the discharge of a child support debt is a matter within the jurisdiction of this Court and, if the Court has jurisdiction, to what extent it can order discharge of a child support debt;[3] and
b)if the Court has jurisdiction, whether, in determining whether or not to discharge a child support debt following bankruptcy, the Court must consider:
i)Mr Segler’s income, expenses, liabilities and assets during the period of bankruptcy only; or
ii)Mr Segler’s income, expenses, liabilities and assets at the present day.[4]
[3] “Jurisdiction Issue”. The issue of the extent to which the Court can order discharge of a child support debt was not part of the two issues for argument at hearing (see the Court’s Orders of 23 April 2008), but the parties agreed that the Court had jurisdiction to discharge a child support debt, and the real issue for argument at hearing became the extent of the power to discharge a child support debt.
[4] “Discharge Issue”.
Background facts
The relevant facts are largely undisputed and are set out hereunder.
Child Support Agreement
A child support debt arose from a Child Support Agreement[5] made between Mr Segler and Ms Karen Sandra Carey-Hazell on 9 August 1991 in relation to their two children born 26 July 1988. [6] Ms Carey-Hazel is not a party to these proceedings.
[5] “CS Agreement.”
[6] Affidavit of Reginald Keith Parnell, filed 5 May 2008, para.10 and annexure RKP 1. (“Mr Parnell’s 5 May 2008 Affidavit”).
The CS Agreement was lodged with the Family Court of Western Australia[7] on 15 August 1991.[8]
[7] “Family Court of WA”.
[8] Affidavit of Reginald Keith Parnell sworn 15 May 2008, para.13 (“Mr Parnell’s 15 May 2008 Affidavit”).
Bankruptcy history
A sequestration order was made against Mr Segler on 19 September 2001. At that time Mr Segler had unpaid child support arrears of $26,022.97 and late payment penalties of $3,478.19.[9]
[9] Mr Parnell’s 15 May 2008 Affidavit, para.40.
Mr Segler was discharged from bankruptcy on 20 September 2004.[10]
[10] Mr Parnell’s 15 May 2008 Affidavit, para.46.
Mr Segler was not discharged from his child support debt of $26,022.97, but his late payment penalties were remitted.[11]
[11] Mr Parnell’s 15 May 2008 Affidavit, para.50.
Prior Proceedings in the Family Court of WA
On 10 April 1996 Mr Segler applied to the Family Court of WA concerning the child support for which he was then liable. In a judgment handed down by the Family Court of WA on 29 January 1997 Mr Segler’s application to vary the CS Agreement to discharge child support arrears was dismissed.[12]
[12] Mr Parnell’s 15 May 2008 Affidavit, paras.27 and 34.
On 18 June 1996 Ms Carey-Hazell filed an enforcement application in the Family Court of WA seeking to recover child support arrears accrued to 30 September 1995. On 9 August 1996 Mr Segler lodged an application against the Child Support Registrar[13] with the Family Court of WA seeking a stay of a collection order. On 10 September 1996 the Family Court of WA refused to grant Mr Segler a stay and dismissed Ms Carey-Hazell’s application for enforcement.[14]
[13] “CS Registrar”.
[14] Mr Parnell’s 15 May 2008 Affidavit, paras.29, 32 and 33, and Annexure RKP 4 to Mr Parnell’s 11 March 2008 Affidavit.
Mr Segler commenced proceedings in the Family Court of WA against Ms Carey-Hazell in November 2004, seemingly to discharge at least part of his child support debt.[15] The application was argued, and a draft judgment issued from the Family Court of WA, as a consequence of which Mr Segler gave notice of his intention to file a notice of discontinuance of the application.[16]
[15] Mr Parnell’s 15 May 2008 Affidavit, para.47, and Annexure RKP 8 to Mr Parnell’s 11 March 2008 Affidavit.
[16] Mr Parnell’s 15 May 2008 Affidavit, para.47, and Annexure RKP 8 to Mr Parnell’s 11 March 2008 Affidavit.
On 2 September 2005 the CS Registrar commenced enforcement proceedings against Mr Segler in the Family Court of WA in relation to an alleged child support debt of $104,189.79 as at 18 August 2005.[17] Orders issued by consent in relation to the CS Registrar’s enforcement proceedings in the following terms:
2. There be a declaration of the debt in the amount of $122,818.21 as at 3 March 2006.
3. Until further order of the Court, Mr Segler pay to the Registrar the amount of $1,000 per month commencing on 10 March 2006, being a contribution to his child support arrears;
4. Mr Segler is to provide to the Registrar documentary evidence of his income and expenses every 2 months commencing on 8 May 2006 and ongoing;
5. The matter be adjourned generally;…[18]
[17] Mr Parnell’s 15 May 2008 Affidavit, para.52.
[18] Mr Parnell’s 15 May 2008 Affidavit, paras.53, 55 and 58 (“the September 2005 Orders”).
The CS Registrar states that Mr Segler has not complied with these orders except for making one payment of $1,000. The CS Registrar has not elected to commence contravention proceedings.[19]
[19] Mr Parnell’s 15 May 2008 Affidavit, paras.59 and 61.
Mr Segler lodged an application in the Family Court of WA against Ms Carey-Hazell on 25 November 2005 seeking to amend the CS Agreement and discharge the child support debt. Mr Segler’s application was dismissed on 14 February 2006.[20]
[20] Mr Parnell’s 15 May 2008 Affidavit, paragraph 56.
The child support debt sought to be discharged
Mr Segler applied on 19 November 2007 to have the whole of his child support liability, of $162,806.27, discharged.
In an Amended Application filed on 26 February 2008, Mr Segler seeks to discharge two amounts of child support debt. Firstly, child support arrears and late payment penalties of $29,053.56 accrued up to the date of sequestration on 19 September 2001. Second, $64,471.62 for child support arrears and late payment penalties accumulated between 19 September 2001 and 20 September 2004 when Mr Segler was discharged from bankruptcy.
Jurisdiction Issue
Jurisdiction generally
The Federal Court and this Court have jurisdiction in bankruptcy under s.27, exclusive of the jurisdiction of all other courts, with the exception of the jurisdiction of the:
a)High Court under s.75 of the Constitution; and
b)the Family Court under ss.35 and 35A.
The Federal Court and this Court may transfer a proceeding under the Bankruptcy Act to the Family Court or the Family Court of WA.[21]
[21] Sections 35A and 35B.
Discharge from liability for the child support debt
The parties agree that the Court has jurisdiction to make an order discharging Mr Segler from the child support debt. Consent alone does not confer jurisdiction on the Court,[22] and it is the Court’s first duty to be satisfied that it has jurisdiction to deal with the subject matter of the proceedings.[23]
[22] R v Bolton [1835-42] All ER Rep 71 at 73 per Lord Denman CJ (“Bolton”).
[23] Bolton at 73-74 per Lord Denman CJ; Federated Engine-Drivers & Firemen’s Association v Broken Hill Proprietary Co Ltd (1911) 12 CLR 398 at 415 per Griffith CJ (“FEDFA”). See also FEDFA at 428 per Barton J and 454 per Isaacs J and Re Boulton; Ex parte Construction, Forestry, Mining and Energy Union (1998) 73 ALJR 129 at 133 per Kirby J.
In this matter the Court is satisfied, and agrees with the parties, that it has jurisdiction under the Bankruptcy Act to make an order discharging Mr Segler’s child support debt because:
a)section 153(1) provides power for a general discharge, subject to the other provisions of the section;
b)section 153(2)(c) provides that the discharge of a bankrupt does not release the bankrupt from any liability under a maintenance agreement or maintenance order, subject to any order of the Court made under s.153(2A);
c)section 153(2A) gives the Court a discretion in discharging a bankrupt from bankruptcy to release the bankrupt from liability to pay arrears due under a maintenance agreement or maintenance order to the extent, and subject to any conditions, that the Court thinks fit;
d)section 82(1A) provides that a child support debt of the type incurred by Mr Segler is a debt provable in bankruptcy;
e)section 40(3)(b) provides that, for the purposes of s.40(1)(g), a judgment or order that is enforceable as or in the same manner as a final judgment obtained in an action is deemed to be a final judgment, and the proceedings in which the judgment or order was obtained is deemed to be the action in which it was obtained; and
f)section 40(3)(f) provides that, for the purposes of s.40(1)(g), an order made after its commencement (on 16 December 1996)[24] for the payment by a person of arrears of maintenance is deemed to be a final order against that person.
[24] Bankruptcy Legislation Amendment Act 1996 (Cth) (“Bankruptcy Amendment Act 1996”), Schedule 1, Items 108, 109 and 446.
The Court therefore has jurisdiction to, at least, discharge a bankrupt, and in so doing, release the bankrupt from liability to pay a child support debt under a maintenance agreement or maintenance order, either in whole or in part and subject to conditions. For present purposes, it does not appear to be disputed that Mr Segler’s child support debt arises from a maintenance agreement or maintenance order.[25]
[25] As defined in s.5, and set out below at para.34.
The real question which arose in this case was the extent of the power to make an order under that jurisdiction, and whether it was limited to child support debts provable in the bankruptcy at the time the sequestration order issued or extended to child support debts incurred after the sequestration order issued. In this respect, the parties differ.
Mr Segler’s position was that:
a)section 153(2A) does not qualify the Court’s ability to only discharge debts provable in bankruptcy;
b)section 153(2A) is an amendment, and extends what was previously a more limited provision;
c)the words “to such extent, and subject to such conditions as the Court thinks fit” give the Court unfettered discretion; and
d)section 153(2A) does not provide that it is subject to s.153(1).
The CS Registrar says that a child support debt during the period of bankruptcy is not a provable debt, and argues that the power under s.153(2A) is limited to debts provable in bankruptcy up until the date of sequestration.
The CS Registrar cites Re Stewart; Ex parte Stewart[26] in which the Federal Court said:
[t]here is no doubt that the exception of maintenance liability from the general operation of s.153(1) … reflects the importance which the legislature attaches to the satisfaction of enforceable maintenance liabilities. It goes without saying that the custodial parents, the children, and the public in general, have a real interest in seeing such obligations discharged.[27]
[26] (1995) 60 FCR 68 (“Stewart”).
[27] Stewart at 79 per Cooper J
The CS Registrar says that in Stewart the Federal Court did not suggest that child support debts could be discharged after the date of entry into bankruptcy, and in that case, the child support debt was only discharged up to the date of entry into bankruptcy.
The CS Registrar further says no case law, policy reason, public interest reason or section of the Bankruptcy Act supports the proposition that the Court’s jurisdiction to discharge child support debt extends to more than the provable debt in bankruptcy.
The CS Registrar submits that the existence of s.153(2A) shows that there may be some situations where maintenance liabilities should be discharged as at the date of sequestration but that the Court should only do so where the public interest would best be served by such an order.
To determine this dispute it is necessary for the Court to examine the relevant provisions of the Bankruptcy Act, and their historical and legislative antecedents in more detail.
Relevant legislation
Section 153 provides as follows:
153 Effect of discharge
(1) Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her 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 or her security for the benefit of creditors generally.
Note: The operation of this section in relation to accumulated HEC debts and semester debts under the Higher Education Funding Act 1988 is affected by section 106YA of that Act.
(2) The discharge of a bankrupt from a bankruptcy does not:
(a) release the bankrupt from:
(i) a debt on a recognizance; or
(ii) a debt with which the bankrupt is chargeable at the suit of the sheriff or other public officer on a bail bond entered into for the appearance of a person prosecuted for an offence against a law of the Commonwealth or of a State or Territory of the Commonwealth; or
(aa) release the bankrupt from liability to pay an amount to the trustee under subsection 139ZG(1); or
(b) release the bankrupt from a debt incurred by means of fraud or a fraudulent breach of trust to which he or she was a party or a debt of which he or she has obtained forbearance by fraud; or
(c) subject to any order of the Court made under subsection (2A), release the bankrupt from any liability under a maintenance agreement or maintenance order.
Note: A discharged bankrupt remains liable under any pecuniary penalty order because such liabilities are not provable in bankruptcy, see subsection 82(3A).
(2A) The Court may order that the discharge of a bankrupt from bankruptcy shall operate to release the bankrupt, to such extent and subject to such conditions as the Court thinks fit, from liability to pay arrears due under a maintenance agreement or maintenance order.
(3) The discharge of a bankrupt from a bankruptcy does not affect the right of a secured creditor, or any person claiming through or under him or her, to realize or otherwise deal with his or her security:
(a) if the secured creditor has not proved in the bankruptcy for any part of the secured debt–for the purpose of obtaining payment of the secured debt; or
(b) if the secured creditor has proved in the bankruptcy for part of the secured debt–for the purpose of obtaining payment of the part of the secured debt for which he or she has not proved in the bankruptcy;
and, for the purposes of enabling the secured creditor or a person claiming through or under him or her so to realize or deal with his or her security, but not otherwise, the secured debt, or the part of the secured debt, as the case may be, shall be deemed not to have been released by the discharge of the bankrupt.
(4) The discharge of a bankrupt from a bankruptcy does not release from any liability a person who, at the date on which the bankrupt became a bankrupt:
(a) was a partner or a co‑trustee with the bankrupt or was jointly bound or had made a joint contract with the bankrupt; or
(b) was surety or in the nature of a surety for the bankrupt.
(5) Where a bankrupt has been discharged from a bankruptcy, all proceedings taken in or in respect of the bankruptcy shall be deemed to have been validly taken.
In relation to a debt provable in bankruptcy s.82(1) and (1A) provide that:
(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
(1A) Without limiting subsection (1), debts referred to in that subsection include a debt consisting of all or part of a sum that became payable by the bankrupt under a maintenance agreement or maintenance order before the date of the bankruptcy.
Section 40(1)(g) and (3)(b) and (f) provide as follows:
(1) A debtor commits an act of bankruptcy in each of the following cases:
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia--within the time specified in the notice; or
(ii) where the notice was served elsewhere--within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
….
(3) For the purposes of paragraph (1)(g):
(b) a judgment or order that is enforceable as, or in the same manner as, a final judgment obtained in an action shall be deemed to be a final judgment so obtained and the proceedings in which, or in consequence of which, the judgment or order was obtained shall be deemed to be the action in which it was obtained;
…
(f) an order made after the commencement of this paragraph under the Family Law Act 1975 for the payment by a person of arrears of maintenance for another person shall be deemed to be a final order against the first‑mentioned person obtained by the other person.
Section 5 contains the following relevant definitions:
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;
debt includes liability;
maintenance agreement means:
(a) a maintenance agreement (within the meaning of the Family Law Act 1975) that has been registered in, or approved by, a court in Australia or an external Territory; or
(b) any other agreement with respect to the maintenance of a person that has been registered in, or approved by, a court in Australia or an external Territory;
but does not include a financial agreement within the meaning of the Family Law Act 1975;
maintenance order means:
(a) an order relating to the maintenance of a person, including an order relating to the payment of arrears of maintenance, that is made or registered under a law of the Commonwealth or of a State or Territory of the Commonwealth; or
(b) an assessment made under the Child Support (Assessment) Act 1989;
provable debt means a debt or liability that is, under this Act, provable in bankruptcy;
the date of the bankruptcy, in relation to a bankrupt, means the date on which a sequestration order was made against his or her estate or, if he or she became a bankrupt by virtue of the presentation of a debtor’s petition, the date on which he or she became a bankrupt by force of section 55, 56E or 57, as the case requires.
Legislative history
An ancient verity
That a husband must support his wife and children was an ancient verity. Bacon’s Abridgement said that:
A husband is obliged to maintain his wife and may by law be compelled to find her necessaries as meat, drink, clothes, physics etc. suitable to the husband’s degree, estate or circumstances.[28]
[28] Bacon’s Abridgement (5th Edn), Vol.1. at page 448, citing the argument of Lord Chief Baron Hale in Manby v Scott.
In Australia the ancient verity has been varied by legislation, both Commonwealth and State, relating to deserted wives and children, maintenance and marriage, and, in recent decades, the Family Law Act 1975 (Cth),[29] the Child Support (Assessment) Act 1989 (Cth) and the Child Support (Registration and Collection) Act 1988 (Cth). Additionally, bankruptcy legislation has been amended so that a bankrupt’s child support debts can be discharged by an appropriate court.
[29] “Family Law Act”.
The question remains, however, to what extent, and in this regard an examination of the legislative history is helpful.
English Bankruptcy Acts pre-1924
The position in England prior to 1924 (the date of the enactment of the first Commonwealth bankruptcy legislation) was that maintenance debts and arrears were not debts for the purposes of bankruptcy.[30]
[30] Victor v Victor [1912] 1 KB 247 distinguishing between annuities payable under a contract or deed upon separation, which were provable debts in bankruptcy, from alimony under orders of the Divorce Court on judicial separation, which were not debts provable in bankruptcy: see at 252 per Cozens-Hardy MR and 252-253 per Fletcher Moulton LJ; Dewe v Dewe; Snowdon v Snowdon [1928] P 113 at 119-120 per Lord Merrivale; Paquine v Snary [1909] 1 KB 688 at 690 per Vaughan Williams LJ.
Australian position pre-1924
Consistent with the position in England, the position in Australia prior to 1924 was that maintenance debts and arrears were not debts for the purposes of bankruptcy.[31]
[31] DC Pearce “Bankruptcy and Arrears of Maintenance” (1969) 43 ALJ 560 at 562 (“Pearce – Arrears of Maintenance”).
Bankruptcy Act 1924 – s.121(1)(c)
Section 121(1)(c) of the Bankruptcy Act 1924 (Cth)[32] provided that an order of discharge did not “release a bankrupt from any liability…under an affiliation or maintenance order,…except to such an extent and under such conditions as the Court expressly orders in respect of that liability…”.
[32] “Bankruptcy Act 1924”.
Section 121(1)(c) of the Bankruptcy Act 1924 was dealt with in several judgments of the former Federal Court of Bankruptcy. In Re Carter; Ex parte Official Receiver[33] it was held that a wife’s alimony was not provable in the bankruptcy of her husband, but an order of the Supreme Court of New South Wales in its divorce jurisdiction for the maintenance of the children of the marriage was provable in bankruptcy. The Federal Court of Bankruptcy relied upon s.121(1)(c) of the Bankruptcy Act 1924, and said that its provisions:
bring one to the inescapable conclusion that the Bankruptcy Court was in future to have the jurisdiction to decide whether and if so to what extent a man was to be released from liability under a maintenance order and further as a corollary to that jurisdiction that the debt should be provable in the bankruptcy….The jurisdiction would be meaningless unless the debt were provable.[34]
[33] (1941) 12 ABC 193 (“Carter”).
[34] Carter at 200 per Lukin J.
In Re Canobbio[35] the Federal Court of Bankruptcy did not accept the view adopted in Carter. In Canobbio the Federal Court of Bankruptcy said:
It was apparently intended, having regard to the language of s.121(1), that upon an order of discharge, the bankrupt should remain liable for the debts and liabilities therein mentioned, subject to the conditions appearing in clauses (a) and (c) of sub-s.(1), and it does not, in my opinion, follow, because the Court is empowered under clause (c) to reduce or qualify any liability therein mentioned, that such a liability thereby becomes a provable debt. If no order is made under s.121(1)(c), the liability of the bankrupt continues, and because the Court is empowered to vary the extent of the liability, I cannot see how the nature of the liability is altered. I think, therefore, that there is nothing in s.121(1)(c) to transform any liability therein mentioned which was not a provable debt into a provable debt or to give a creditor in a bankruptcy any greater right that he otherwise was entitled to.[36]
[35] (1943) 13 ABC 238 (“Canobbio”).
[36] Canobbio at 243-244 per Clyne J.
In Canobbio the Federal Court of Bankruptcy annulled its earlier sequestration order on the basis that the wife’s claim for arrears of maintenance was not a provable debt, it being the only liability sought to be proved against the husband in bankruptcy.
Canobbio therefore continued to follow the line that arrears of maintenance were not provable in bankruptcy, but adopted the view that s.121(1)(c) of the Bankruptcy Act 1924 allowed the Federal Court of Bankruptcy to reduce or qualify a liability, even if that liability was not a provable debt.
In Re Frankel[37] Mr Frankel had been committed to prison for non-compliance with an order made by a New South Wales Children’s Court under which he was ordered to pay arrears of maintenance to his wife. He sought to be discharged from prison on the basis that his subsequent bankruptcy entitled him to be discharged from custody under provisions of the Bankruptcy Act 1924. The Federal Court of Bankruptcy held that arrears of maintenance could not be the subject of proof and was not constituted a debt for the purposes of bankruptcy.[38] Mr Frankel remained in prison.[39]
[37] (1959) 19 ABC 10 (“Frankel”).
[38] Frankel at 12 per Clyne J.
[39] Frankel at 13 per Clyne J.
In Re Partridge; Ex parte Maidens-Fuller[40] the Federal Court of Bankruptcy distinguished Canobbio (where arrears of maintenance were due and payable under an order of a Victorian Court of Petty Sessions) and held that a judgment entered in the New South Wales District Court, which was a court of record, for a certified amount due under a maintenance order, which judgment was enforceable as a final judgment in an action, converted the husband’s liability for maintenance under the order into a judgment debt, and thus the wife was a creditor with a provable debt under the Bankruptcy Act 1924.[41]
[40] (1945) 13 ABC 185 (“Partridge”).
[41] Partridge at 187-188 per Clyne J.
In Opie v Opie[42] the High Court determined that a judgment under State maintenance legislation, being a judgment entered in a District Court for the purposes of enforcing a maintenance order, was not a final judgment “in an action”, and therefore not a final judgment for the purposes of the issuance of a bankruptcy notice under the Bankruptcy Act 1924.[43]
[42] (1951) 84 CLR 362 (“Opie”).
[43] Opie at 372-373 per Dixon and Williams JJ, and 374-375 per McTiernan J.
In Re Morris[44] the question was whether arrears of maintenance accrued, under State maintenance legislation, before the making of a sequestration order constituted a debt provable in bankruptcy under the Bankruptcy Act, and, if so, in what circumstances and to what extent.[45] Although not a case under the Bankruptcy Act 1924 it was necessary for judgments under the Bankruptcy Act 1924 to be considered.[46] Having reviewed the legislative and case law history, the Federal Court of Bankruptcy in Morris preferred the view taken in Canobbio to that taken in Carter. It did so because, having referred to the antecedent English and New South Wales bankruptcy provisions, the Federal Court of Bankruptcy agreed with what was said in Pearce –Arrears of Maintenance:
The decisions prior to the enactment of the Bankruptcy Act 1924 had shown that arrears of maintenance were not provable in bankruptcy. If these cases were intended to have been set aside by the Bankruptcy Act, it would surely have been reasonable to expect there to have been a clear statement to that effect. To infer such an intention from the provisions of s.121(1)(c) would seem to be going too far. This appears to be the view that Clyne J took of the matter [in Canobbio].[47]
[44] (1974) 22 FLR 460 (“Morris”).
[45] Morris at 461 per Riley J.
[46] Much of the preceding and subsequent history of the relevant legislation and case law in these reasons for judgment reflects the careful and considered reasons for judgment in Morris, which obviously owe a debt to the scholarship in Pearce – Arrears of Maintenance.
[47] Pearce –Arrears of Maintenance at 562 (cited in Morris at 464 per Riley J).
In Morris the position as it stood prior to the enactment of the Bankruptcy Act was summarised as follows:
The principles established at this stage by the authorities may in my opinion be summarized as follows:(1) if a husband was in arrears under a maintenance order but his wife had not obtained a judgment…there was no debt, and therefore the wife could neither serve a valid bankruptcy notice founded on the arrears nor prove in the husband’s bankruptcy for the amount of the arrears…;(2) if the wife had obtained a judgment…there was a debt and she was a creditor…who accordingly could prove for the arrears in her husband’s bankruptcy; but (3) the judgment she had obtained was not a final judgment in an action within the meaning of s.52(j) of the Bankruptcy Act 1924 and therefore she could not found a bankruptcy notice on it…[48].
[48] Morris at 466 per Riley J.
Bankruptcy Act 1966
The Bankruptcy Act was proclaimed to take effect from 4 March 1968.
Bankruptcy Act 1966 – s.153
Section 153(1) remains unchanged since 1968.
Section 153(2) as enacted in 1968 provided that the discharge of a bankrupt from a bankruptcy does not:
(c) release the bankrupt from liability under a maintenance order, except to such extent and subject to such conditions as the Court orders.
A review of the Parliamentary Debates indicates that this provision did not excite the attention of the Parliament.
The Report of the Committee Appointed by the Attorney-General of the Commonwealth to Review the Bankruptcy Law of the Commonwealth[49] observed as follows with respect to the provision which would become s.153(2)(c) upon passage of the Bankruptcy Act in 1968:
The Committee does not think that the exclusion from the debts released by a bankrupt’s discharge of liability under a judgment against him in an action for seduction or for breach of promise of marriage or as a respondent or co-respondent in a matrimonial cause is justified and recommends that the discharge of a bankrupt should release him from such liability. Under section 121, the Court can make an order expressly releasing him from these liabilities. The Committee considers however, that discharge should not release a bankrupt from his liability under an affiliation or maintenance order except to such an extent and subject to such conditions as the Court orders.[50]
[49] “Clyne Committee Report”.
[50] Clyne Committee Report at para.237.
In Morris the Federal Court of Bankruptcy said that s.121(1)(c) of the Bankruptcy Act 1924 was “the equivalent of s.153(2)(c)”[51] of the Bankruptcy Act. In Morris it was held that arrears were not provable and there was no debt within the meaning of s.82(1), nor any liability within the meaning of s.82, which did not include liability to a court of a person bound by a maintenance order, save where judgment had been entered.[52] Based on the provisions of the relevant State maintenance legislation (which it is unnecessary to set out here) it was held in Morris, based on the judgment in Partridge, that entry of the judgment converted the obligation under the maintenance order into a debt and the wife into a creditor.[53] In Morris powers conferred under the relevant State maintenance legislation to discharge, suspend, vary or annul maintenance orders, even where there was default, were held not to be available where a liability for arrears had become a judgment debt.[54]
[51] Morris at 470 per Riley J.
[52] Morris at 470-471 per Riley J.
[53] Morris at 471 per Riley J.
[54] Morris at 471 per Riley J.
In Morris the Federal Court of Bankruptcy also held that where at the date of bankruptcy there were arrears but no judgment entered there was no provable debt nor creditor, and that any judgment subsequently obtained was not one to which the bankrupt would become subject to by reason of an obligation incurred before the date of the bankruptcy within the meaning of s.82(1), because the obligation is one inter partes and not an obligation of the type imposed by a maintenance order, with the consequence that the debt would not be provable.[55]
[55] Morris at 471 per Riley J. Morris was decided before the inclusion of s.82(1A).
In Morris the Federal Court of Bankruptcy concluded that the arrears of maintenance would only constitute a provable debt to the extent to which they were the subject of a judgment entered under the provisions of the relevant State maintenance legislation “before the date of bankruptcy”.[56]
[56] Morris at 471-472 per Riley J.
The current form of s.153(2) and (2A) is a consequence of amendments in 1980 which:
a)extended the non-release of liability under s.153(2)(c) to a maintenance agreement; and
b)put the provisions concerning conditional release from liability in a separate sub-section, s.153(2A), to which s.153(2)(c) was subject.[57]
[57] Bankruptcy Amendment Act 1980 (Cth), s.75(1) (“Bankruptcy Amendment Act 1980”).
The Explanatory Memorandum to the Bankruptcy Amendment Act 1980 referred to these changes and said that under the amendments:
a) an order of discharge will not now release a bankrupt from a maintenance agreement…. At present only a maintenance order is saved.
b) it is made clear that the Court, when making an order of discharge, has the power only to discharge the liability to pay arrears of maintenance but not to discharge the maintenance order or agreement itself….[58]
[58] Bankruptcy Amendment Bill 1979, Explanatory Memorandum, page 90 (“1979 Explanatory Memorandum”).
The Explanatory Memorandum also noted that “maintenance order” and “maintenance agreement” were both now to be defined in the Bankruptcy Act.[59]
[59] 1979 Explanatory Memorandum, page 90. See now the definitions in s.5 of the Bankruptcy Act set out at para.34 above.
Section 153 remains unamended in relevant respects since the 1980 amendments.
The authors of Australian Bankruptcy Law and Practice,[60] having noted the traditional position with respect to the obligation of a husband to his wife and children in respect of maintenance, go on to observe that:
It has previously been held the liability for the amount ordered to be paid for the maintenance of a wife is not constituted a debt for the purposes of bankruptcy (Re Frankel (1959) 19 ABC 10) unless at the time of bankruptcy has become the subject of a judgment: Re Morris (1974) 22 FLR 460. However, see now s82(1A)…inserted by Act No. 44, 1996, which includes a debt consisting of all or part of a sum that became payable by a bankrupt under a maintenance agreement or maintenance order before the date of the bankruptcy. See also subs (2A) above which gives the court power to release certain debts for maintenance.[61]
[60] PP McQuade and MGR Gronow, McDonald, Henry and Meek, Australian Bankruptcy Law and Practice (Sydney: Law Book Co, 1996) (“ABLP”).
[61] ABLP at para. 153.2.15.
It is unnecessary for present purposes to detail the legislative history of the definitions of “maintenance agreement” and “maintenance order”. It suffices to observe that:
a)the CS Agreement is a maintenance agreement as defined; and
b)the September 2005 Orders of the Family Court of WA include a maintenance order as defined.
Bankruptcy Act – s.82
In Coventry & Ors v Charter Pacific Corporation Ltd & Anor[62] the High Court dealt with the history of s.82, tracing it back through s.81 of the Bankruptcy Act 1924 (and its colonial antecedents) to a variety of 19th century English statutes,[63] but most importantly to s.31 of the Bankruptcy Act 1869 (UK) in which s.82 finds its origin.[64]
[62] (2005) 227 CLR 234; [2005] HCA 67 (“Coventry”).
[63] Coventry CLR at 243-246 per Gleeson CJ, Gummow, Hayne and Callinan JJ; HCA at paras.22-27 per Gleeson CJ, Gummow, Hayne and Callinan JJ.
[64] Coventry CLR at 246 per Gleeson CJ, Gummow, Hayne and Callinan JJ; HCA at para.27 per Gleeson CJ, Gummow, Hayne and Callinan JJ. See also Coventry CLR at 253 per Gleeson CJ, Gummow, Hayne and Callinan JJ; HCA at para.51 per Gleeson CJ, Gummow, Hayne and Callinan JJ, observing that “the drafting of the relevant provisions of the Bankruptcy Act 1966 [is] for all practical purposes identical to the statutory language considered in those [19th century English] cases.
Although Coventry turned upon the meaning of s.82(2)[65] and whether the relevant demand was provable in bankruptcy, the High Court made a number of relevant general observations. They included:
a)it is upon the definition of the concept of debt provable in bankruptcy that the provisions for the effect of discharge from bankruptcy in s.153 hinge;[66]
b)section 82(1A) is an extension to the concept of debts provable in bankruptcy so as to include the particular obligations arising under maintenance agreements or maintenance orders, in the context of debts and liabilities provable in bankruptcy that are otherwise identified in very wide terms;[67]
c)that s.82 “shows that not all claims are provable in bankruptcy” and that the content given to what is provable in bankruptcy “is to be fixed by reference to the operation of other provisions of the statute”;[68] and
d)that “[s]ome claims stand outside the reach of the statute”, and that the Bankruptcy Act, considered in the context of its history, did not provide for a bankrupt to be freed from every kind of debt or liability.[69]
[65] Coventry CLR at 238 per Gleeson CJ, Gummow, Hayne and Callinan JJ; HCA at para.5 per Gleeson CJ, Gummow, Hayne and Callinan JJ.
[66] Coventry CLR at 241 per Gleeson CJ, Gummow, Hayne and Callinan JJ; HCA at para.17 per Gleeson CJ, Gummow, Hayne and Callinan JJ.
[67] Coventry CLR at 243 per Gleeson CJ, Gummow, Hayne and Callinan JJ; HCA at para.20 per Gleeson CJ, Gummow, Hayne and Callinan JJ.
[68] Coventry CLR at 253 per Gleeson CJ, Gummow, Hayne and Callinan JJ; HCA at para.50 per Gleeson CJ, Gummow, Hayne and Callinan JJ.
[69] Coventry CLR at 257 per Gleeson CJ, Gummow, Hayne and Callinan JJ; HCA at para.70 per Gleeson CJ, Gummow, Hayne and Callinan JJ.
Although, as indicated above, these observations were made in the context of a case which turned upon s.82(2), they can be applied more generally to a consideration of what debts are provable in bankruptcy, and what debts may be discharged from bankruptcy, and when any discharge might be operative.
Section 82(1A) was inserted into the Bankruptcy Act by the Bankruptcy Amendment Act 1980. At that time it was in the following form:
(1A) Without limiting the generality of subsection (1), debts and liabilities referred to in that subsection shall be taken to include a debt or liability by way of the whole or a part of:
(a) a periodical sum that became payable by the bankrupt before, but not more than one year before, the date of the bankruptcy under a maintenance agreement or maintenance order (whether entered into or made, as the case may be, before or after the commencement of this subsection); and
(b) a lump sum (whether payable in one amount or by instalments) that became payable by the bankrupt before the date of the bankruptcy under a maintenance agreement or maintenance order (whether entered into or made, as the case may be, before or after the commencement of this subsection).
The 1980 amendments included in provable debts periodical sums which became payable within a year before the date of the bankruptcy and a lump sum which became payable before the date of the bankruptcy under a maintenance agreement or maintenance order.
The 1980 form of s.82(1A) was repealed in 1996 and replaced with the current provision.[70]
[70] See para.32 above.
The effect of the 1996 amendment under the Bankruptcy Legislation Amendment Act 1996 (Cth) was to provide for the same debts to be provable in any bankruptcy without the 12 month limitation.[71] The Explanatory Memorandum provided that:
Debts provable in a bankruptcy include debts consisting of all or part of a sum that became payable by the bankrupt under a maintenance order or maintenance agreement before the date of bankruptcy. Since the Child Support Registrar was created by the Child Support (Registration and Collection) Act 1988, maintenance has been collected by the Registrar on behalf of those covered by the scheme. Debts owed to the Registrar are debts due to the Commonwealth, and as such, ordinary unsecured debts. The Registrar is not limited as to any time period in relation to which he or she can claim for unpaid arrears of maintenance, and the purpose of the substitution of existing subsection 82(1A) with the proposed new subsection is to place ordinary maintenance creditors not covered by the Child Support Scheme in the same position as the Registrar, by doing away with the 12 month time restriction relating to proof for unpaid arrears.[72]
[71] Bankruptcy Legislation Amendment Act 1996 (Cth) (“Bankruptcy Amendment Act 1996”), Schedule 1, Item 182.
[72] Bankruptcy Amendment Bill 1979, Explanatory Memorandum, para.75.2.
By reason of the 1996 amendments s.82(1A) applies to debts under maintenance agreements or maintenance orders current on or after 16 December 1996 regardless of when the agreement or order was made.[73]
[73] Bankruptcy Amendment Act 1996, Schedule 1, Item 453.
Bankruptcy Act – s.40
The relevant history of s.40(1)(g) and (3)(b) is set out in the following extract from Morris:
On 14th December, 1962, the committee, presided over by Clyne J., appointed in 1956 by the Attorney-General of the Commonwealth to review the bankruptcy law of the Commonwealth, delivered its report. It made three recommendations in respect of s. 52(j), of which the second and third were as follows:
"57. Secondly, the committee recommends that where leave is given by a court to enforce an award made on a submission to arbitration, being an award by which money is payable by a debtor to another person, the award should, for the purposes of this paragraph, be deemed to be a final order obtained by that person against the debtor and the arbitration proceedings should be deemed to be the proceeding in which that final order was obtained. It has been held by the Federal Court of Bankruptcy (Re Stanton Hayek, (43)) that such an award is not a final order within the meaning of present par. (j) and cannot, therefore, be the basis of a bankruptcy notice.
"58. Thirdly, the committee recommends that, for the purposes of this paragraph, a judgment or order that is enforceable as, or in the same manner as, a final judgment obtained in an action should be deemed to be a final judgment so obtained and that the proceeding in which, or in consequence of which, the judgment or order was obtained should be deemed to be the action in which it was obtained. Such a provision will have the effect of altering the law as declared in the case of Opie v. Opie (44) in which a judgment entered in the Supreme Court of New South Wales upon the filing of a certificate granted under s. 13A of the Deserted Wives and Children Act of that State (which was enforceable under State law as a final judgment obtained in an action) was held by the High Court not to be a judgment in an action for the purposes of the Bankruptcy Act and that a bankruptcy notice issued on the basis of the judgment must therefore be set aside. The committee takes the view that, if State law provides that a judgment is to be enforceable as a final judgment in an action, the bankruptcy law should treat the judgment similarly."
The committee embodied those recommendations in respectively pars. (a) and (b) of cl. 40(3) of the draft Bill contained in the third schedule to its report, and those paragraphs became, without undergoing any alteration, pars. (a) and (b) of s. 40(3) of the Bankruptcy Act 1966 (now the Bankruptcy Act 1966-1973). Similarly, the committee's draft cl. 40(1)(g) became s. 40(1)(g), which replaced the former s. 52(j). It will be convenient to set out here the relevant provisions of s. 40:
"(1) A debtor commits an act of bankruptcy in each of the following cases:
...
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not--
(i) where the notice was served in Australia--within the time fixed by the Registrar by whom the notice was issued; or
(ii) where the notice was served elsewhere--within the time fixed for the purpose by the order giving leave to effect the service,
comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained;
...
"(3) For the purposes of paragraph (g) of sub-section (1) of this section--
(a) where leave is given by a court to enforce an award made on a submission to arbitration, being an award under which money is payable by a debtor to another person--
(i) the award shall be deemed to be a final order obtained by that person against the debtor; and
(ii) the arbitration proceedings shall be deemed to be the proceeding in which that final order was obtained;
(b) a judgment or order that is enforceable as, or in the same manner as, a final judgment obtained in an action shall be deemed to be a final judgment so obtained and the proceedings in which, or in consequence of which, the judgment or order was obtained shall be deemed to be the action in which it was obtained;".
When one is attempting to discover the intention of the legislature in enacting a statutory provision, there are circumstances in which it is permissible to have resort, with due caution, to the report of a committee which preceded the provision in question in order to find from it what was the evil, defect or mischief which the provision was intended to remedy: Letang v. Cooper (45); Maxwell on the Interpretation of Statutes, 12th ed., pp. 52-54. I am far from applying any of those three pejorative nouns to either of the decisions in Re Stanton Hayek and Opie v. Opie, but in my opinion the circumstances here are such that I am entitled to conclude from the paragraphs I have quoted from the report that the object of the legislature in enacting pars. (a) and (b) of s. 40(3) in 1966 was to ensure that, notwithstanding those two decisions, it would be possible to found a bankruptcy notice on, respectively, an award and a judgment obtained under legislation such as s. 13A of the Deserted Wives and Children Act. [74]
[74] Morris at 467-469 per Riley J.
It is not necessary to repeat what has been set out above from the judgment in Morris in relation to s153: it suffices to say that much of what is set out might equally be set out in relation to s.40.[75]
[75] See especially paras.55-57 above.
The terms of s.40(3)(f) plainly evince a Parliamentary intention that a maintenance order made under the Family Law Act be deemed to be a final order against the person obliged to pay maintenance under the order.
Analysis of Jurisdiction Issue
Examined together, but otherwise in isolation from the remaining provisions of the Bankruptcy Act, s.153(2)(c) and (2A) might arguably allow the Court to release Mr Segler from his child support debt, and do so at any time, in any amount and subject only to such conditions, if any, as might be imposed by the Court. A release on that basis might be said to be a result which reflected the legal position as outlined in Canobbio. So examined, s.153(2)(c) and (2A) are not sufficiently dissimilar in effect to s.121(1)(c) of the Bankruptcy Act, 1924 to warrant an outcome different to that in Canobbio.[76]
[76] Morris at 464 per Riley J.
As late as 1974 a maintenance debt was not provable in bankruptcy without judgment because s.40(3)(b) was not engaged and there was no debt provable under s.82(1).[77] But where there was judgment entered before the date of bankruptcy a maintenance debt was provable in bankruptcy.[78]
[77] Morris at 470 per Riley J.
[78] Morris at 471-472 per Riley J.
The effect of the various amendments to ss.82 and 153 in 1980 and 1996 was to:
a)extend the non-release of liability to maintenance agreements;[79]
b)make provable in bankruptcy any sum payable under a maintenance agreement or maintenance order before the date of the bankruptcy;[80] and
c)make a maintenance order under the Family Law Act a final order against the person to whom it applied.[81]
[79] Section 153(2)(c).
[80] Section 82(1A).
[81] Section 40(3)(f).
The effect of those amendments, together with the earlier introduction of s.40(1)(g) and (3)(b), is to effectively reverse by statutory amendment the position as it stood at the time Canobbio was determined. Now maintenance agreements and maintenance orders are provable in bankruptcy for any sum payable before the date of the bankruptcy.
In the Court’s view an examination of ss.40(1)(g) and (3)(b) and (f), 82(1) and (1A) and 153(2)(c) and (2A), together with the relevant definitions in s.5, shows that Parliament has intended those provisions to operate so as to:
a)extend non-release liability from maintenance debts;
b)make provable in bankruptcy maintenance debts the subject of maintenance orders or maintenance agreements before the date of bankruptcy; and
c)limit the maintenance debt dischargeable to that provable in the bankruptcy, that is, maintenance debt as at the date of bankruptcy.
The above interpretation is consistent with the observations of the High Court in Coventry concerning s.82, namely, that s.82(1A) extends the concepts of debt provable in bankruptcy to the obligations arising under maintenance orders and maintenance agreements, in the context of debts and liabilities provable in bankruptcy,[82] and that it is upon that concept of debt provable in bankruptcy that the discharge provisions hinge.[83]
[82] Coventry CLR at 243 per Gleeson CJ, Gummow, Hayne and Callinan JJ; HCA at para.20 per Gleeson CJ, Gummow, Hayne and Callinan JJ.
[83] Coventry CLR at 241 per Gleeson CJ, Gummow, Hayne and Callinan JJ; HCA at para.17 per Gleeson CJ, Gummow, Hayne and Callinan JJ.
The Court therefore concludes that any discharge of a maintenance debt (such as Mr Segler’s child support debt) must be limited to debts provable in bankruptcy up until the date of sequestration.
Both Morris and Stewart also generally support the contention that any discharge of a maintenance debt can only be of a provable maintenance debt as at the date of bankruptcy.[84]
[84] Morris at 472 per Riley J; Stewart at 80 per Cooper J.
The Discharge Issue
The discharge issue arises because the Court has jurisdiction to discharge Mr Segler’s provable child support debt as at the date of sequestration.
Mr Segler’s position
Mr Segler submits that in determining whether or not to discharge the child support debt the Court must only consider his income, expenses, liabilities and assets during the period of bankruptcy.
Mr Segler says that the making of a discharge order is discretionary,[85] and that the discretion is to be exercised according to the “same principles which were applicable to the discharge by the Court of a bankrupt from bankruptcy.”[86]
[85] Applicant’s discharge submissions, para.1.
[86] Applicant’s discharge submissions, para.2 citing Stewart at 78 per Cooper J.
The authorities referred to by Mr Segler do not assist the proposition that in determining whether to discharge the child support debt the Court must have regard to his income, expenses, liabilities and assets during the period of bankruptcy only. In both Stewart and Re Reilly; Ex parte Debtor[87] the Federal Court took into account a number of matters, before, during and after the period of bankruptcy in determining whether or not to discharge a debt.
[87] (1979) 36 FLR 268 (“Reilly”).
CS Registrar’s position
The CS Registrar argues that the Court must consider Mr Segler’s current financial position in determining whether to discharge the debt and that this proposition is supported by Stewart. The CS Registrar says that in Stewart, the Court considered current income, expenses, assets and liabilities in determining the application for discharge. The CS Registrar submits that Reilly lends general support to the proposition that Mr Segler’s financial situation at the time of the hearing should be considered when assessing whether to discharge the child support debt.
The CS Registrar argues that the Court may be led into error if it considers Mr Segler’s income at the commencement or during his bankruptcy because the Court may effectively be considering a quasi-departure application or a quasi-appeal.
Case law
In Reilly a discharge was granted to the bankrupt. The Federal Court examined the entirety of the circumstances leading to the bankruptcy, including:
a)significant voluntary payments of $150 every week out of a net salary of $158 by the then debtor;
b)the conduct and financial history of the bankrupt during bankruptcy, and
c)the bankrupt’s current circumstances at the time the application for discharge was considered.
The Federal Court said that:
In considering whether a bankrupt should receive a discharge it has been laid down repeatedly that the court must have regard not only to the interests of the bankrupt and his creditors but also to the interests of the public and of commercial morality. In the exercise of its discretion the court must also consider the conduct of the bankrupt relevant to his bankruptcy[88]
and, further the Federal Court said:
It has been said by the authorities more than once that unless the court is satisfied that a man in receipt of income derived from his earnings or otherwise will be able to provide support for himself and his dependants to live on, or is satisfied that he is likely to inherit or otherwise succeed to property, it ought not to impose unduly burdensome conditions so that he cannot improve his position in life and remove all incentive for exertion on his part.[89]
[88] Reilly at 278 per Lockhart J.
[89] Reilly at 279-280 per Lockhart J.
The Federal Court concurred with earlier English authority that a bankrupt is not a slave or chattel of his creditors.[90]
[90] Reilly at 280 per Lockhart J citing Re Hawkins; Ex parte Official Receiver [1892] 1QB 890 at 893 per Vaughan Williams J.
In Reilly, the Federal Court paid particular regard to the bankrupt’s conduct during his time as a pre-bankruptcy debtor, and in observing that he was entitled to make a fresh start in life unfettered by his bankruptcy,[91] said:
It must be remembered that for some three years before his bankruptcy, when he was in a parlous financial position, he voluntarily paid almost all he earned, and that was all he had, to his only creditor.[92]
[91] Reilly at 280 per Lockhart J.
[92] Reilly at 280 per Lockhart J.
In Stewart the Federal Court said that the comments made in Reilly about the considerations that the Court must have regard to as to whether a bankrupt should receive a discharge were:
…of assistance and that the interests of the custodial parent, the children and the general child support scheme should be substituted for the interests of commercial morality.[93]
[93] Stewart at 78 per Cooper J.
The Federal Court in Stewart did not think that the circumstances in Reilly were directly applicable in Stewart which concerned, unlike Reilly, an application for discharge from a child support debt. However:
…the relevant circumstances identified in Reilly…are indicative of a general approach taken by the Court to identify those interests sought to be benefited by the operation of the Bankruptcy Act and which ought to be considered on any exercise of discretion.[94]
[94] Stewart at 79 per Cooper J.
Having noted the importance of the exception of maintenance liability from the general operation of s.153(1) of the Bankruptcy Act as reflecting Parliament’s view that enforcement of maintenance liabilities ought to be satisfied, and that there was “a real interest in seeing such obligations discharged”,[95] the Federal Court said that the existence of s.153(2A):
…recognises that there may be some circumstances wherein it is appropriate to grant relief from the obligations and in those circumstances the legislature must have had in mind that the public interest was best served by the making of an order for discharge.[96]
[95] Stewart at 79 per Cooper J.
[96] Stewart at 79 per Cooper J.
The Federal Court in Stewart made reference to the observations in Reilly concerning the ability of a bankrupt to support himself or herself and his or her family, and the tension between various kinds of family units, particularly second or subsequent family units including de facto relationships and blended families, and in the context of the circumstances of Stewart, which involved a second family said:
If there is an ability to discharge the arrears, then as a general proposition, one would incline against making an order discharging the liability. On the other hand, if there is no likelihood of the arrears ever being discharged the interests of the custodial parent and the children of the former marriage are not served by having the liability hanging over the applicant with no prospect of it being discharged.[97]
[97] Stewart at 79 per Cooper J.
Discharge issue – analysis
In order to determine whether Mr Segler has the ability to discharge the arrears the Court considers that it is self-evident that Mr Segler’s current ability to discharge the arrears must be considered, essentially for the reasons set out in the quote from Stewart in the preceding paragraph.[98] Therefore, the position adopted by the CS Registrar is evidently correct, but for reasons which follow, not complete.
[98] See also Reilly at 278-280 per Lockhart J.
The Court considers that it is necessary, when exercising its discretion and in assessing the interests of the custodial parent and the children as well as the public interest, to have regard to Mr Segler’s financial position, not only during the period of bankruptcy (the position he contends for), but also prior to his bankruptcy, when the child support debts in question[99] actually accrued. Further, having regard to the importance of compliance with the intent of child support legislation,[100] there must be a public interest consideration related to compliance involved in the exercise of the discretion as to whether a child support debt is discharged, and, therefore an examination of the conduct of an applicant for discharge of a child support debt is warranted, such conduct to include conduct before, during and after bankruptcy.[101]
[99] See the conclusion reached at para.81 above.
[100] Reilly at 278 per Lockhart J; Stewart at 79 per Cooper J.
[101] Cf. Reilly.
In all of the above circumstances the Court concludes that in determining whether to discharge a child support debt the Court is entitled to consider Mr Segler’s:
a)income, expenses, liabilities and assets; and
b)conduct,
prior to the date of his bankruptcy, during the period of his bankruptcy, and since his discharge from bankruptcy.
Conclusion, orders and declarations
The Court therefore concludes that:
a)it has jurisdiction to discharge Mr Segler’s child support debt;
b)any discharge is limited to debts provable in bankruptcy up until the date of sequestration.
In relation to its determination of whether or not to discharge Mr Segler’s child support debt the Court is entitled to consider Mr Segler’s income, expenses, liabilities and assets, and Mr Segler’s conduct prior to the date of Mr Segler’s bankruptcy, during the period of Mr Segler’s bankruptcy, and since Mr Segler’s discharge from bankruptcy.
There will be declarations to reflect the above conclusions.
Further Directions
The matter will be adjourned to 10.00am on 6 March 2009 for further directions.
Costs
The Court will hear the parties as to costs.
I certify that the preceding one hundred and four (104) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate: Sandra Gough
Date: 23 February 2009
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