Whitton v Perovich

In the Federal Court, Whitton, the trustee of the bankrupt estates of Perovich and Spencer, applied for directions in relation to compositions made with their creditors. The dispute centred around whether the compositions had been terminated due to the debtors' failure to make the required contributions. The court had to determine if this failure amounted to a default under the terms of the compositions and whether, as a result, the compositions had been automatically terminated.

The primary legal issues were whether the debtors' failure to pay on time constituted a default under clause G of the compositions and, if so, whether section 222D of the Bankruptcy Act applied to terminate the compositions upon default. The court also considered whether the trustee should be allowed to amend his application and whether Mango Boulevard, one of the creditors, had standing to be heard in the application.

The court found that the debtors' failure to pay on time did not constitute a "default of the contributions payable" as defined in clause G of the compositions. Instead, it was a default in the timely payment of contributions. The court held that clause G was not intended to make the timing of the payments strictly essential, as the parties had not expressly provided for strict compliance, and the nature of the subject matter did not indicate that time was intended to be of the essence. The court rejected the application of section 222D to terminate the compositions upon default, ruling that sections 222A, 222B, and 222C were the only mechanisms by which compositions could be terminated for default. Consequently, the court determined that the compositions had been terminated, and the parties were restored to their positions before the compositions were made.

The court ordered that the trustee must notify the Official Receiver of the termination of the compositions. Both Perovich and Spencer, along with their creditors and the trustee, were restored to their positions immediately before the compositions were made. The court also ordered that the trustee's costs of the application be paid from the bankrupt estates of Perovich and Spencer, and granted the parties liberty to apply further.