) ' 333 Bankruptcy Act 1966 - case stated ~- whether creditor's petition lapsed - sequestration order thereon set aside by High Court - . whether sequestration order a nullity - whether Act requires valid sequestration order - consequences if petition does not lapse Bankruptcy Act 1966 s. 52 Federal Court of Australia Act 1976 ss.5,25 S10 0 ON v. PETER LEOPOLD CLYNE No. P4 of 1983 TOOHEY, JENKINSON & WILCOX JJ. SYDNEY 16 NOVEMBER 1984 IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY OF THE STATE OF NEW SOUTH WALES AND THE DISTRICT No. P4 of 1983 ~—wwewweer ww AUSTRALIAN CAPITAL TERRITORY {t) USTI S' BETWEEN: sIo TLIO Applicant and PETER LEOPOLD CLYNE Respondent QO RD E R J ES G ORDER : Toohey, Jenkinson & Wilcox JJ. DATE OF ORDER 3 16 November 1984 WHERE MADE : Sydney URT 0: THAT: lL. Answer questions reserved by St. John J. as follows: (a) Whether within the meaning of Section 52(4) of the Bankruptcy Act 1966 a sequestration order was made on the petition of the petitioning creditor on 7th October, 1983 - YES ~ 2. (b) If the answer to question 1 is no, whether I have power to extend the period at the expiration of which the petition would lapse to 3rd January, 1985 ~ DOES NOT ARISE. (c) Whether the credtior's petition has now lapsed within the meaning of Section 52(4) - NO. The respondent pay to the applicant his costs of the Stated Case. The petition be remitted to St. John J. for further hearing. ——_ IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT } ' No. Pd of 1983 OF THE STATE OF ' ) U } NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY LY) NS RES y uUsT. -_ JO! BETWEEN: DEPUTY COMMISSIONER OF TAXATION Applicant and PETER LEOPOLD CLYNE Respondent CORAM: TOOHEY, JENKINSON & WILCOX JJ. 16 NOVEMBER 1984 REASONS FOR JUDGMENT TOQOHEY & WILCOX JJ. Following upon the decision of the High Court of Australia in Clyne v. Deputy Commissioner of Taxation (1984) 58 ALJR 398 application was made to this Court by the Deputy Commissioner for an annulment of the statutory sequestration order against Mr. Clyne consequential upon the presentation by him of a debtor's petition. That application was qranted by Sweeney J. His Honour ordered that the hearing of the Deputy Commissioner's creditor s petition, in relation to which a sequestration order had been pronounced on 7 October 1983 but set aside by the High Court, be adjourned to a date to be fixed by the Registrar before any judge of the Court. In the event, it came before St. John J. on 25 October 1984 when evidence was given on behalf of the petitioning creditor, including evidence that the amount claimed in the petition was still owing. However, Mr. Clyne submitted that, pursuant to s.52 of the Bankruptcy Act 1966, the petition had lapsed so that the Court had no jurisdiction to proceed with the matter. Relevantly s.52 provides: "(1) wae (2) cee (3) ase (4) A creditor's petition lapses at the expiration of - (a) subject to paragraph (b), the period of 12 months commencing on the date of presentation of the petition; or 'b) if the Court makes an order under sub-section (5) in relation to the petition - the period fixed by the order, unless, before the expiration of whichever of those periods is applicable, a sequestration order is made on the petition or the petition is dismissed or withdrawn. 15) The Court may, at any time before the expiration of the period of 12 months commencing on the date of presentation of a creditor's petition, if it considers it just and equitable to do so, upon such terms and conditions as it thinks fit, order that the period at the expiration of which the petition will lapse be such period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order." Counsel for the Deputy Commissioner, without prejudice to his submission that no extension was required, sought an order from St. John J. extending the period at the expiration of which the petition would lapse to 3 January 1985 - it having been initially presented on 4 January 1983 - but Mr. Clyne submitted that the .Court had no power to extend time. Thereupon, pursuant to s.25(6) of 'the Federal Court of Australia Act 1976, and at the request of both parties, his Honour reserved for the consideration of a Full Court of this Court three matters: "(a) Whether within the meaning of Section 52(4) of the Bankruptcy Act 1966 a sequestration order was made on _ the petition of the petitioning creditor on 7th October, 1983. (b) If the answer to question 1 is no, whether I have power to extend the period at the expiration of which the petition would lapse to 3rd January, 1985. (c) Whether the creditor's petition has now lapsed within the meaning of Section 52(4)." This Stated Case now comes before us. The primary matter raised by the Stated Case is whether, under the circumstances and by force of s.52(4), the creditor's petition has lapsed. The reasons for fudgment in the High Court make no reference to this matter. The comment is made on behalf of the creditor that it would be surprising for the Court to have remitted the matter if there had been any question in the mind of their Honours as to the continued life of the petition. The oem - 4. relevant dates were referred to in the judgments and the Bench included members with considerable experience in bankruptcy 'matters. However, the matter is not the subject of any express determination in the High Court and, as the creditor concedes, it is open to the debtor to take the point in this Court. Section 52(4) provides for the lapse of a petition unless "a sequestration order is made on the petition" within twelve months or time is extended. The petition was presented on 4 January 1983 and a sequestration order was made within twelve months of that date, namely on 7 October 1983. That sequestration order has now been set aside by the High Court as being beyond power but that does not mean that the order was a nullity. The Federal Court is a superior court of record: see s.5(2) of the Federal Court of Australia Act. An order of a superior court of record which is, for any reason, irregular is not a nullity, but merely voidable: see Cameron v. Cole (1943) 68 CLR 571 at pp.590- 591, 598, 599 and 604-605; Taylor v. Taylor (1979) 143 CLR 1 at pp.7-8. This approach was implicitly adopted by the majority Justices in the High Court in this case when they referred at p.400 to decisions where a second sequestration order had erroneously been made on a petition founded on a debt provable in the existing bankruptcy. They went on: "It was held that the creditor had no legal right to the second sequestration order which should be rescinded. The proper course was, in our opinion, to annul rather than to rescind the order." 5. Annulment would, of course, have been unnecessary if the second order, which was - for the same reasons as in the present 'case - beyond power, had been a nullity when made. One of the two events specified in s.52(4) as necessary to prevent lapse of the petition did occur. Mr. Clyne submits that the requirement of the sub-section is for a valid sequestration order. He argues that, were it not so, the life of the petition would be extended indefinitely. This is the result of the view we take but it need not occasion concern; the Court maintains control over the petition and may make such orders, including an order substituting anew creditor or dismissing the petition, as the circumstances require. The alternative position, which may accord to a debtor immunity in respect of a particular petition in relation to which an irregular order had been made, possibly with important consequences in respect of the commencement of the bankruptcy and the assets available for distribution to his creditors, is much more difficult to reconcile with the principles underlying the Act. Question 1 in the Stated Case should be answered in the affirmative in which event Question 2 does not arise. Question 3 should be answered in the negative. I certify that this and the four preceding pages are a true copy of the Reasons for Judgment herein of their Honours Mr. Justice Toohey and Mr. Justice Wilcox | acereern Kavarna i é Date: 16 November 1984 Associate IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY No. P4 of 1984 weer ww Questions Reserved By The Honourable Mr. Justice St. John RE: PETER LEOPOLD CLYNE , Debtor EX PARTE: THE DEPUTY COMMISSIONER OF TAXATION Petitioner CORAM: Toohey, Jenkinson and Wilcox JJ. PLACE: Sydney DATE: 16 November, 1984 REASONS FOR JUDGMENT Jenkinson J. Questions reserved by a single judge exercising jurisdiction in bankruptcy. During the hearing of a creditor's petition St. John J. reserved several questions, pursuant to s.25(6) of the Federal Court of Australia Act 1976, for the consideration of a Full Court, and adjourned the hearing of the petition in the mean time. The special case transmitted, in compliance with Order 50 Rule 2(c), by the learned judge is in these terms: "), On the 4th January, 1983, the Deputy Commissioner of Taxation ('the petitioning creditor') presented a petition against Peter Clyne ('the judgment debtor'). Annexed hereto and marked 'A' is a copy of the said petition. The hearing of the said petition, after a number of adjournments, commenced before this Court on the 19th September, 1983, before his Honour Mr. Justice Beaumont. On the 7th October, 1983, a sequestration order was made by his Honour. The matter was appealed to a Full Court of this Court, and then to the High Court of Australia, and on the 3lst July, 1984, the High Court set aside the said sequestration order, and remitted the matter to this Court to proceed in accordance with its judgment. Annexed hereto and marked 'B' is a copy of the said judgment incorporating the Orders made by the Court. Between the 4th January, 1983, and the 4th January, 1984, no order was sought or made in accordance with the provisions of Section 52(5) of the Bankruptcy Act. On the 12th October, 1984, this Court (Mr. Justice Sweeney) ordered that the petition be adjourned to a date to be fixed by the Registrar for hearing before any Judge of this Court. The petition came on for hearing before me on the 25th October, 1984, and evidence was given by the petitioning creditor including evidence that the amount claimed in the petition was still owing. The judgment debtor then submitted that I have no jurisdiction to proceed with the matter and that the petition must be dismissed, on the ground that it has lapsed - Bankruptcy Act, Sections 52(4) and 52(5). The petitioning creditor then applied to me (without prejudice to his submission that no extension was required) to extend the period at the expiration of which the 3. petition would lapse to 3rd January, 1985. 10. The judgment debtor then submitted that I had no power to extend the period as requested by the petitioning creditor. 11. Both parties then requested me, pursuant to Section 25(6) of the Federal Court of Australia Act 1976 to reserve the following three questions for' the consideration of a full Court of this Court. (a) Whether within the meaning of Section 52(4) of the Bankruptcy Act 1966 a sequestration order was made on the petition of the petitioning creditor on 7th October, 1983. (b) If the answer to question 1 is no, whether I have power to extend the period at the expiration of which the petition would lapse to 3rd January, 1985. (c) Whether the creditor's petition has now lapsed within the meaning of Section 52(4)." Annexure "B" to the special case consists of the reasons for judgment delivered in the High Court of Australia in the appeal to which paragraph 4 of the special case refers, as well as the orders made by that Court. Those reasons are reported sub. nom. Clyne v. Deputy Commissioner of Taxation and Ors. (No. 3) (1984) 58 A.L.J.R. 398. This Court was informed that on 12 October 1984 Sweeney J. made an order annulling the bankruptcy which resulted from the acceptance of the judgment debtor's own petition, to which reference is made in those annexed reasons for judgment. But no reference to that order 1s to be found in the special case. The omission was not remarked during 4. the hearing of the questions reserved. The preferable course would, I think, be to resume the hearing, so that the parties might be invited to make any submissions they desired to advance concerning the effect of the omission, and any applications either desired to make in respect of the omission. The other members of the Court having taken a different view, I will abstain from proposing, or concurring in an order disposing of the questions. But, being presently of the opinion that the answer to the question whether the petitioning creditor's petition has lapsed by virtue of the operation of s.52(4) of the Bankruptcy Act 1966 must be the same whether or not the other bankruptcy has been annulled, I will state my reasons for that opinion. Sub-sections (4) and (5) of s.52 of the Bankruptcy Act 1966 are in these terms: "52(4) A creditor's petition lapses at the expiration of - (a) subject to paragraph (b), the period of 12 months commencing on the date of presentation of the petition; or (b) if the Court makes an order under sub-section (5) in relation to the petition - the period fixed by the order, unless, before the expiration of whichever of those periods is applicable, a sequestration order is made on the petition or the petition is dismissed or withdrawn. 52(5) The Court may, at any time before the expiration of the period of 12 months commencing of the date of presentation of a creditor's petition, if it considers it just and equitable to do 5. so, upon such terms and conditions as it thinks fit, order that the period at the expiration of which the petition will lapse be such period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order." The judgment debtor submitted that the Bankruptcy Act 1966 evinced a legislative intention to curtail the period during which uncertainty might endure as to whether an act of bankruptcy should result in a sequestration order upon the petition of a creditor. To understand the expression "a sequestration order" in s.52(4) as comprehending a sequestration order which is set aside on appeal would be to frustrate that intention, according to the judgment debtor's submission, and to produce the result that the petition on which such a sequestration order had been made would not be subject to lapse, whatever the duration of the period during which it continued pending. Such a result could not have been intended by the legislature, 1t was submitted. Further, the judgment debtor submitted, the reasons for the order setting aside the sequestration order in this case demonstrated that the latter order was a nullity, so that it was to be treated, in relation to the operation of s.52(4), as if it had never been made. Some of the passages, in the reasons for judgment of the members of the High Court who heard the appeal to which paragraph 4 of the special case refers, upon which the judment debtor relied in support of that submission are these: "It seems to us for a number of reasons that 6. it is not possible for the court in those circumstances to make a sequestration order while the bankruptcy which resulted from the acceptance of the debtor's petition continues to exist." "And there are other reasons which support the conclusion that a sequestration order cannot be made in circumstances such as the present, while the bankruptcy which resulted from the acceptance of the debtor's petition remains on foot." (Clyne v. Deputy Commissioner of Taxation (No. 3) Ti364) 58 A.L.J.R. 398 at 400, 401, per Gibbs CJ., Murphy, Brennan and Dawson JJ.) «.. the Federal Court lacks jurisdiction to make a sequestration order in these circumstances." (58 A.L.J.R. at 403, per Deane J.) A legislative intention to restrict the period during which a creditor's petition may continue pending is to be discerned in sub-sections (4) and (5) of s.52. The means adopted to give effect to that intention may be open to question : in Re Draper; Ex parte Brosalco Pty. Ltd. (1983) 48 A.L.R. 656 McGregor J. held that s.52(5) did not preclude the exercise, more than twelve months after the presentation of a creditor's petition, of a power, which his Honour held to be conferred by s.33(1)(c), to order that the period at the expiration of which the petition would lapse should be a period of twenty four months from the date of presentation of the petition, but the judgment debtor submitted that s.52(5) did preclude the exercise of any such a power. If McGregor J. were in error on both points - as to neither of which is it necessary to express an opinion - and sub-sections (4) and (5) of s.52 operate to deny courts exercising jurisdiction in bankruptcy power to prevent or, perhaps one should say, undo, 7. after the expiration of twelve months from the date of presentation of a creditor's petition, the lapse of that petition, which was pending at the expiration of that period and upon which no sequestration order had been made before the expiration of that period, yet that manifestation of the legislative intention would not in my opinion afford any clear guidance as to whether the words "a sequestration order is made on the petition", in s.52(4), comprehend the making of a sequestration order which is subsequently set aside on appeal. An intention to circumscribe the power of courts exercising jurisdiction in bankruptcy to enable a petition to remain on foot before a hearing which results in a sequestration order or dismissal or withdrawal of the petition has taken place does not in my opinion betoken an intention also to deny or to circumscribe that power in the uncommon circumstances to which the setting aside of a sequestration order on appeal gives rise. The construction of the sub-sections ought not, I think, to be much influenced by any presumption concerning legislative intention in relation to those uncommon circumstances. The natural meaning of the final clause of s.52(4) is that the occurrence of one or other of three actual events is specified within an ascertainable period of time. The sub-section as a whole declares a legal consequence of the passage of a period of time without the occurrence of any of those three actual events in that period. There is in my opinion nothing in the legislative context to suggest that any of those three actual events are to be understood as of 8. significance in s.52(4) only if the legal effect of the event continues undisturbed by subsequent order of a court. The three events are selected, it would seem, because the occurrence of any of them signifies a normal termination of a proceeding the duration of which it is intended by the legislature to control. There is in my opinion nothing in s8.52(4), or elsewhere in the Act, to suggest that in sub-section (4) or (5) of s.52 an attempt has been made to exercise that control, after the proceeding has terminated upon the occurrence of one of those three events, in relation to the unusual supervenient events to which sections 37(1), 38 and 154(1) may give rise. Even if the sequestration order made by Beaumont J. were characterised as void ab initio, as the judgment debtor submitted, that might not preclude a conclusion that a sequestration order had been made, for the purposes of s.52(4), before the expiration of the period of twelve months commencing on the date of presentation of the petition. But in my opinion that characterisation cannot be given to the order : Cameron v. Cole (1943) 68 C.L.R. 571 at 590-591 (per Rich J.), 598-599 (per McTiernan J.), 604-6-7 (per Williams J.); Latham C.J. contra, at 584-586.