CATCHWORDS BANKRUPTCY - sequestration order made in Queensland in 1976 - second sequestration order made in New South Wales in 1977 - second sequestration order ought never to have been made and vubsequently annulled in 1983 - application by bankrupt for declaration that he wae discharged from his first bankruptcy by operation of law on 1 February 1981 pursuant to sub-s. 149(2)(a) - effect of annulment of second bankruptcy on sub-s. 149(3) - whether by reason of 1983 annulment applicant not a person who "again became a bankrupt" subsequent Lo Queensland bankruptcy within sub-s. 149(3)'b) - applicant not discharded by operation of law on 1 February 1981 under 5.149 - discharge granted under s.150. Bankruptcy Act 1966, 33. 5(1), 37, 43(2)(c), 149, 159, 154 RE: CHARLES RAYMOND HAYES EX PARTE: CHARLES RAYMOND HAYES (Estate No. 283 of 1976) SPENDER J. BRISBANE 16 NOVEMBER 1984 IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) } Estate No. 283 of 1976 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: CHARLES RAYMOND HAYES BX PARTE: CHARLES RAYMOND HAYES ORDER JUDGE MAKING ORDER: SPENDER J. DATE OF ORDER: 16 NOVEMBER 1984 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The applicant is hereby discharged from his bankruptcy of 16 December 1976. IN THE PODERAL COURT OF AUSTRALIA } GENERAL DIVISION ) ) BANKRUPTCY DISTRICT OF THE SOUTHERN } DISTRICT OF THE STATE OF QUPENSLAND ) Estate No. 283 of 1976 RE: CHARLES RAYMOND HAYES EX PARTE: CHARLES RAYMOND HAYES SPENDER J. 16 NOVEMBER 1984 REASONS FOR JUDGMENT Thia case involves a consideration of the provisions of the Bankruptcy Act 1966 ("the Act") dealing with discharge and declarations of nullity. The applicant applies for a declaration that he was discharged from bankruptcy by operation of law on 1 February 19B1, under sub-s. 149(2)(a) of the Act. In the alternative, he applies to be unconditionally discharged under s.150 of the Act. The facts forming the backaround of the application are these:- Nw On 16 Decewber 1976, the Supreme Court of Queensland exercising federal jurisdiction in bankruptcy made a sequestration order against the estate of the applicant. On 28 April 1977, a sequestration order was made by the Federal Court of Australia in the Bankruptcy District of the State of New South Wales and the Australian Capital Territory against the estate of the applicant. No other sequestration orders have been made against the estate of the applicant. The petitioning creditor in the New South Wales proceedings vas listed as a creditor in the Statement of Affairs filed in the office of the Registrar in Bankruptcy in Brisbane in respect of the Queensland proceedings. On 22 August 1983, the applicant filed an application in the Registry of the Federal Court of Australia, Bankruptcy District of the State of New South Wales and the Australian Capital Territory, seeking an order that the sequestration order made by the Federal Court on 28 April 1°77 be annulled pursuant to s.154 of the Act. On 4 October 1943 in the Federal Court of Australia in Sydney, Mr Justice Heaumont made that order. See Re: Hayes; ex parte the Bankrupt noted in £1983] F.C.R. 374. Me dustice Heaumont concluded that the New South Wales sequestration order ought not ta have been made because the result of the Queensland sequestration order was that the | bankrupt's property vested forthwith in the Official Receiver, whereupon the petitioning creditor''s right to enforce payment of its debt ceased to exist. Further, 1t ceased to have any legal right to a sequestration order: 1ts rights had been converted to a right to prove in the Queensland bankruptcy. His Honour further considered that it was appropriate to annul the sequestration order pursuant to s.154 rather than rescind it under s.37 of the Act. I note in pagsing that the comment in C1983] F.C.R. 374, "Heaumont d. appears not to have referred to $.37(2) which now provides: 'The Court shall not, after a ' Sequestration order has been' signed and sealed as provided by the rules, rescind or suspend the operation of the order'." SG6N5 TO have been wade in ianorance of the fact that the applicant had been advised by letter dated 28 July 1983 by the Acting Registrar in Bankruptcy in Sydney that: "The sequestration order was made by the Court and only a further order by the Court can affect its status. I would suggest you consider one or other of the following applications to the Court:- (a) Rescission of the order under s.37 of the Bankruptcy Act 1966 as the order has not in fact been entered. (bd) Annulment of the bankruptcy under s.154 of the Act. (c) Discharge of the bankrupt under s.150 of the Act." That letter was part of the material before Mr Justice Beaumont. After Mr Justice Beaumont made the order annulling the New South Wales bankruptcy, the applicant applied to the Registrar in Bankruptcy for the Southern District of the State of Queensland for a certificate of discharge under sub-s. 149(2)(a) of the Act in respect of the applicant's bankruptcy as a result of the sequestration order made in Queensland. The Registrar declined to issus the certificate sought. Hence the application to this Court. So far ag 1s presently relevant, the Act provides: "S¢(1) 'bankrupt' means a person - (a) against whose estate a sequestration order has been made; wn Section 149 provides - "149(1) Subject to this section, a person who becomes a bankrupt after the commencement of this section is, by force of this section, unless sooner discharged in accordance with section 150, discharged from bankruptcy upon the expiration of 3 years from the date of the bankruptcy. (2) Subject to this section, a person who was an undischarged bankrupt immediately before the commencement of this section is, by force of this section, discharged from bankrustcy - (a) in a case where the bankrupt became a bankrupt more than 3 years before the commencement of this section - upon the commencement of this section; or (b) in any other case, unless sooner discharged in accordance with section 150 - upon the expiration of 3 years from the date of the bankruptcy. (3) A bankrupt is not discharged from bankruptcy by virtue of this section if - (a) at the time when he would have been so discharged but for this sub-section, he is still undischarged from an earlier bankruptcy; (b) he has, since the date of the bankruptcy, again become a bankrupt; Section 150 provides -— "150(1) A person who becomes, or has before the commencement of this sub-section become, a bankrupt may apply to the Court for an order of discharge at any time after - (a) his public examination has been concluded; (b) the trustee has notified him in writing, that the trustee does not intend to make an application for his examination under section 69; or (c) the expiration of the period of 12 months commencing on the date of the bankruptcy. (9) Where none of the matters specified in sub-section (6) is established, the Court may — (a) refuse to make an order of discharge; (b) make an order of discharge; or (c) make an order of discharge but suspend the operation of the order as the Court thinks proper, either unconditionally or subject to conditions." Section 154 provides - "154(1) Where the Court is satisfied - (a) that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Registrar; or (b) that the unsecured debts of the bankrupt, being debts that have been proved in the bankruptcy, have been paid in full or the bankrupt has obtained a legal acquittance of them, the Court may make an order annulling the bankruptcy. (2) Where a bankruptcy 1s annulled under this section, all sales and dispositions of property and payments duly made, and ali acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment shall be deemed to have been validly made or done but, subject to sub-section (3), the property of the bankrupt still vested in the trustee vests in such person as the Court appoints or, in default of such an appointment, reverts to the bankrupt for all his estate or interest in it, on such terms and subject to such conditions, if any, as the Court orders. Insofar ag the application for discharge pursuant to 5.150 is concerned, it is possible to be brief. Mr Hayes became bankrupt pursuant to the sequestration order made in Queensland on 16 December 1976, But for the circumstance of the New South Nales sequestration order he would, by operation of law, have been entitled to be automatically discharged on 1 February 1981, the date of the commencement of s.149 of the Act. There is no suggestion of any offence in relation to the bankruptcy nor is there any aspect of his conduct, either before or after his bankruptcy, to suqgest that in the exercise of the Court's discretion an order of discharge should not be made. The Official Receiver, Mr Richards, for and on behalf of the Official Trustee, does not report any matter under sub-s. 150(6) of the Act. The application for discharae pursuant to s.150 is not opposed by the Official Receiver. I would, therefore, be prepared to make an order of discharge pursuant to sub-s. 150(9). The applicant's primary application, however, is fora declaration that he was discharged from bankruptcy by operation of law onl February 1981, under sub-s. 149(2)(a) of the Act. The effect of such a declaration would be to give him a considerably earlier discharge date than an order of discharge under s.150. One may entertain a certain curiosity as to the motive behind the desire of the applicant to be discharged from his bankruptcy retrospectively to 1 February 1981. No dividend has been paid to his creditors. The matter having been raised before me, Mr Hayes gave evidence that he had not acquired any property since 1 February 1981. It was submitted that the reason for his primary application was: . if in future Mr Hayes and his wife want to go into the purchase of the sort of home they are managing (a boarding house), it may well be material to the prospects of their ever borrowing money to do that, as to when he is considered not to be a bankrupt any more in the view of a lender of moneys." I confess to a certain scepticism concerning the validity and weight of this consideration. In any event, the primary application falls to be determined on a proper construction of sub-s. 149(3). ee ee The applicant submits that, in the light of the annulment of the New South Wales bankruptcy, Mr Hayes is not a person now properly to be described as a person tsho "again became a bankrupt" after the making of the Queensland sequestration order. It was not contended by the applicant that an annulment means void ab initio, at least for all purposes. One reason is in sub-s. 154(2), whereby the validity of acts done by the trustee or any person acting under the authority of the trustee or of the Court before the annulment is expressly preserved. Another is that an offence committed during the period of bankruptcy prior to an annulment is still an offence and is not undone retrospectively as it were by an order annulling the bankruptcy: Director of Public Prosecutions v. Ashley [1955] Crim L.R. 565 and comment thereon in 18 Mod. L.R. 415. In this regard reference may profitably be made to Bailey v. Johnson (1872) L.R. 7 Exch 263, which is a civil case, where Cockburn L.J. said at p.265: "The effect of s.81 fof the Bankruptcy Act, 1869, which deals with the effect on property of an annulment] is, subject to any bona fide disposition lawfully made by the trustee prior to the annulling of the bankruptcy, and subject to any condition which the Court annulling the bankruptcy may by its order impose, to remit the party whose bankruptcy is set aside to his original situation." 10. Blackburn d. expressly abstained from giving an opinion as to whether the effect of annulment "is in every case to go back to the beginning". The primary argument for the applicant is simply that the intention of s.149(3) is to avoid the effect which sub-s. (1) of 3.149 would otherwise have: the provisions of sub-s. 149(1) are not to apply in the circumstances set out in sub-s. 149(3)(a) and (b). However, it is submitted that, on a proper construction of sub-s. (3), it was not intended to have that effect where the second bankruptcy was one which ought not to have been made and which has subsequently been annulled. The thrust of the applicant's submission is consistent with the terms of the author's words in the eighth edition of Lewis, Australian Bankruptcy Law at p.221 - "Annulment should be contrasted with rescission of a sequestration order under s.37 in that annulment legally 'obliterates' the fact of bankruptcy, subject to s.154(2)." One has to recognize, nonetheless, that 5.154 can operate, not only in those circumstances where a sequestration order ought not to have been made, or in the case of a debtor's petition where the petition ought not to have been presented or ought not to have been accepted by the Registrar, but it can also operate where the unsecured debts of the bankrupt, being debts that have been proved in the bankruptcy, have been paid in full or the bankrupt has obtained a legal acquittance of then. me erp mr ll. Moreover, independently of how the sequestration order came to be made, sub-s. 43(2)(c) provides: "(2) Upon the making of a sequestration order against the estate of a debtor, the debtor becomes a bankrupt, and continues to bea bankrupt until - (c) his bankruptcy is annulled under section 74 or 154." In the circumstances of this case: (2) by virtue of the making of the Queensland sequestration order on 16 December 1976, Mr Hayes became a bankrupt; (ii) by virtue of the making of the New South Wales sequestration order on 28 April 1977, Mr Hayes became a bankrupt which status persisted until 4 October 1983, when that bankruptcy was annulled. Sub-section 149(1) does not apply in this case because Mr Hayes did not become bankrupt after the commencement of the section. Mr Hayes would, but for the provisions of sub-s. 149(3), be entitled to discharge as at 1 February 1981 as being a person who was an undischarged bankrupt immediately before 1 February 1981 and who became bankrupt more than 3 years before that date. ee wee, " a ee ees . ee: ee Ome then has ta consider gub-s. 149(3). The time at which attention has to be directed is 1 February 1981. On 1 February 1981, Mr Hayes was not discharged from his New South Wales bankruptcy by virtue of sub-s. 149(3)(a) in that, on that date, he was still undischarged from his earlier (Queensland) bankruptcy. On 1 February 1981, Mr Hayes was not discharged from his Queensland bankruptcy by virtue of sub-s. 149(3)(b) because, on that date, he had, since 16 December 1976 - the date of the Queensland bankruptcy - again become a bankrupt, namely on 28 April 1977 when the New South Wales sequestration order was made against him. It 1s not to the point that that order ought not to have been made: pursuant to sub-s. 43(2) he became a bankrupt on the making of that order and continued to be a bankrupt by virtue of the making of that order until his bankruptcy founded on that order was annulled under s.154 which was 4 October 1983. It therefore follows in my view that Mr Hayes is not a person entitled to a discharge of bankruptcy by operation of law pursuant to the provisions of s.149 of the Act. As he is a person who is not entitled to automatic discharge his release from bankruptcy has to be obtained by order of the Court pursuant to s.150 of the Act. oe For the reasons 13. I have outlined earlier, he is entitled to be discharged by virtue of the provisions of s.150 and I therefore order that Mr Hayes is discharged. od ror lod pie a - , ~ ! "