Story, G. L. v Boulton, W. M

[1992] FCA 1004

CATCHWORDS

BANKRUPTCY - application for rescission under S. 37 -

importance of the public interest - effect of Bankruptcy Amendment Act 1991 - whether retrospective in relation to an extant appeal - comment that working of new sections 73 and 74 should be monitored with a view to consideration of further amendments to protect the public, including future creditors.

Bankruptcy Act 1966, ss. 37, 73 and 74
Bankruptcy Amendment Act 1991, S . 51(1)

Acts Interpretation Act 1901, S . 8

In re Hester. Ex parte Hester (1889) 22 QBD 632
Re Stern fa bankrupt1 [l9821 1 WLR 860 at 866

Totterdell v. Nelson (1990) 26 FCR 523

GREGORY LAIRD STORY v WILLIAM McLEAN BOULTON

QG 94 of 1992

AUSTFULlA

Burchett, French and Einfeld JJ.

Sydney

18 September 1992

RECEIVED

FEDERAL COURT OF

IN THE FEDERAL COURT OF AUSTRALIA	)
1
QUEENSLAND DISTRICT REGISTRY	1 QG 94 of 1992
1
GENERAL DIVISION	)

BETWEEN:  GREGORY LAIRD STORY

Appellant

AND:  WILLIAM McLEAN BOULTON

Respondent

Judges Making Order: Burchett, French and Einfeld JJ.

Where Order Made:	Sydney
Date of Order:	18 September 1992

MINUTE OF ORDER OF THE COURT

THE COURT ORDERS THAT the appeal be dismissed.

Note:	Settlement and entry of orders dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA	)
9UEENSLAND DISTRICT REGISTRY	QG 94 of 1992

1

GENEFAL DIVISION )

BETWEEN :  GREGORY LAIRD STORY

Appellant

AND :  WILLIAM McLEAN BOULTON

Respondent

CORAM: Burchett, French and Einfeld JJ.
PLACE: Sydney

DATE : 18 September 1992

EX TEMPORE REASONS FOR JUDGMENT

BURCHETT J.: A sequestration order was made against the appellant, M r Story, on 17 March 1992, but was not immediately signed and sealed by the registrar. The petitioning creditor shortly afterwards applied for orders suspending the operation of the sequestration order or rescinding it. These orders were sought under S. 37 of the Bankruptcv Act 1966, which then provided for rescission or suspension of the operation of a sequestration order, but only where it had not been signed and

order was subsequently signed and sealed. The present appeal	sealed. The application was refused on 4 June 1992, and the
from the refusal of the application was then filed by the bankrupt.
However, before the appeal could be heard, a substituted S. 37 came into force on 1 July 1992 by virtue of the proclamation of the provisions of S. 8 of the Bankruptcy Amendment Act 1991 (number 9 of 1992). Section 51(1) of that Act provides:

"Subject to this section, each amendment of the Principal Act that is made by this Act, other than the amendment of section 19 of the Principal Act that is made by section 6 of this Act, and relates to bankruptcies applies according to its tenor in relation to persons who were bankrupt at the commencement of that amendment as it applies in relation to persons who become bankrupt after that commencement."

Although the meaning of S. 51(1) is somewhat obscured by
the words "and relates to bankruptcies", it may be that the
power under S. 37 has disappeared. The Acts Interpretation
1901, S. 8, may, however, have preserved the S. 37 power
for the purposes of thls particular appeal. It is noteworthy
that special provision has been made in the Bankruptcy
Amendment Act for other categories of pending proceedings, but
not for such a proceeding as the present. Perhaps this is one

case where the principle expressio unius est exclusio alterius

applies.

The amendments to the Act also included new provisions relating to annulment, pursuant to which the bankrupt submitted a scheme of arrangement under S. 73, and obtained an automatic discharge, by virtue of S. 74(5), on 28 July 1992. However, the present appeal is pressed on the footing, firstly, that there is a difference between rescission and annulment, and secondly, that success in the appeal would, it is claimed, overthrow the very scheme of arrangement the acceptance of which by the creditors was effective to produce an annulment of the bankruptcy.

Some comment on the present ss. 73 and 74 seems necessary. These recent amendments to the Act permit a virtually automatic annulment by arrangement with creditors. This, of course, flies in the face of the policy which has been hitherto maintained for well over one hundred years. The public interest, of which the Court is guardian, has been asserted strongly in matters of this kind, on the plain basis that creditors have individual interests and cannot be expected to throw their own good money after bad in the general commercial interests of the rest of the community. Decisions asserting these principles include In re Flatau. Ex parte Official Receiver [l8931 2 QB 219, In re Hester. Ex parte Hester (1889) 22 QBD 632, and Re Stern (a bankrupt) [l9821 1 WLR 860 at 866 in England, and in the Full Court of this Court, the unreported decision in Boral Johns Perm Industries Ptv Limited v. K & G Piccardi, Dick & Dons Ptv Ltd,

present case illustrates the point. The bankrupt has obtained	decision in Totterdell v. Nelson (1990) 26 FCR 523. The (Wilcox, Burchett and Hill JJ, 23 June 1989), and the reported
an annulment without ever being publicly examined. His deficiency was $12 million, and it seems clear that creditors have no interest in the bankruptcy, from which they will get nothing. Nor does it seem to me that they will get anything from the annulment, nor would they from a rescission if that were granted.
The bankrupt proposes to raise $5 million, through a finance company, in order to resume his previous line of business as a merchant banker or property developer. There is nothing to suggest the present provisions of the Bankru~tcv
Act have been effective to provide any protection to the public, including future creditors, or to provide any inquiry in order to ascertain the extent of any protection that may be required. The amendments to the Act should, I think, clearly be monitored carefully, and if they continue to work in this way, consideration ought to be given to appropriate further amendments to protect the public, the interest of which is not a matter of which the creditors are the guardians, nor are trustees charged simply with particular administrations.
In the present case, a judge had actually considered whether the bankruptcy should be terminated by way of rescission or suspension of the sequestration order. Consent of creditors was urged upon him, but, applying the authorities to which we have referred, Mr Justice Drummond held that the
bankruptcy should continue in the public interest, and in that of future creditors. Although the amendments to the Act have enabled any investigation of the matter to be aborted, I can
see no error at all in his Honour's approach.
It was urged upon us that the judge gave too much prominence to factors other than the proposal, vague as it was, of the bankrupt, and the attitude of the creditors, including the petitioning creditor. What his Honour did was to consider the very matters now put to us, but together with them he weighed also the public interest. The authorities fully justify this approach. For myself, I entertain no doubt that I would have reached the same conclusion. It was a case involving a very large deficiency (as I have said, about $12 million), and the rather shadowy arrangements to which most of the creditors were raising no opposition, or to which they were consenting, were simply not capable of being regarded as open to full scrutiny. Doubts remained both about their nature, and about the circumstances in which the approval of the creditors in respect of them had been sought.
It remains to say that there is no substance, on the face of the judgment, in any of the complaints made about the way in which his Honour dealt with particular aspects of the matter. But if there were a valid point, my view that his conclusion was quite unavoidable on the evidence means that I could not regard some merely incidental error as a ground for allowing the appeal. The appeal should be dismissed.
FRENCH J.: I agree with the reasons of the presiding judge.
I acknowledge in relation to the extent of the deficiency to
which he has referred that the appellant now says that certain of the debts in the statement of affairs, on affidavit material placed before his Honour, were contingent and/or disputed and/or the subject of counter-claim. However, this appeal is to be decided on the material before his Honour. There is no real justification put forward for not drawing those matters to his Honour's attention at the time. I am satisfied that, on the material before his Honour, he was fully entitled to draw the inferences that he did and to arrive at the conclusion that he did.
EINFELD J. : I also agree with the views of Burchett J. It is difficult to believe that the Parliament as the ultimate voice of the people intended to remove protection of the publlc from considerations arising upon the discharge of bankrupts or the annulment of bankruptcies. The present consequence of the 1991 amendments to which Burchett J. has referred is that bankrupts may rejoin the community as fully participating incurrers of new debt and accepters of fresh credit merely by persuading past creditors to agree that they do so. Experience shows this is unlikely to be protective of the community's financial interests. In this case the bankrupt is optimistic about his future prospects. All I can say is that there is little objective evidence to support that optimism.

are a true copy of the Reasons for Judgment herein	I certify that this and the preceding five (5) pages
of his Honour Mr Justice Burchett, his Honour Mr
Justice French and his Honour Mr Justice Einfeld.
Date: 18 September 1992
M r G L Story appeared in person; there was no appearance on behalf of the respondent.
Date of hearing:  18 September 1992