CATCHWORDS Bankruptcy - joint debtors - joint asset - application for consolidation - Bankruptcy Act, 1966, ss.53, 110 - whether joint tenancy severed by bankruptcy. Re Amor (1963) 18 A.B.C. 242 - not followed Re Boots; Ex parte Official Receiver (1976) 26 F.L.P. 320 - followed Re Holland, unreported, 15 February 1985, Federal Court of Australia - not followed RE: DARRELL CLIVE OSWALD and ANNA OSWALD EX PARTE THE OFFICIAL TRUSTEE IN BANKRUPTCY No. 301 of 1979 No. 488 of 1980 Beaumont, J. 14 June 1985. Sydney IN_THE FEDERAL COURT OF AUSTRALIA No. 301 of 1979 No. 488 of 1980 BANKRUPTCY DISTRICT OF NEW SOUTH wewwerww WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: DARRELL CLIVE OSWALD and ANNA OSWALD EX PARTE: THE OFFICIAL TRUSTEE IN BANKRUPTCY MINUTES OF ORDER Judge making order: Beaumont, J. Date order made: 14 June 1985. Where made: |= Sydney THE COURT ORDERS THAT: 1. Order consolidation as asked. 2. Order that the costs of and incidental to the application be paid out of the consolidated estate. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT OF NEW SOUTH No. 301 of 1979 No. 488 of 1980 weve vny WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: DARRELL CLIVE OSWALD and ANNA OSWALD EX PARTE: THE OFFICIAL TRUSTEE IN BANKRUPTCY CORAM: Beaumont, J. DATED: 14 June 1985. REASONS FOR JUNGMENT The Official Receiver, on behalf of the Official Trustee in Bankruptcy, applies under s.53 of the Bankruptcy Act, 1966 ("the Act") for an order that the proceedings under the bankruptcy of Darrell Clive Oswald on his own petition on 18 April 1979 by force of s.55 and the proceedings under the sequestration order made on 27 May 1980 against his wife, Anna Oswald, be consolidated. The Official Trustee is trustee of both estates. Notice of the application has been given to the bankrupts and their creditors but, possibly because of the relatively small amounts insolved, only the Official Receiver appeared on the application. The bankrupts commenced business in partnership as 2. road haulage contractors in 1974. This business ceased in late 1976. In February 1977, the bankrupts commenced another road haulage business in partnership with two other persons. This business ceased in July 1978. At the time of Mr. Oswald's bankruptcy, the bankrupts were the registered proprietors as joint tenants of an estate in fee simple of a property situate at 17 Alexander Street, Mt. Hutton. Mr. Oswald disclosed the following assets in his statement of affairs: House property at 17 Alexander s Street, Mt. Hutton 19,000.00 Less amount owing on lst mortgage to Newcastle Co-operative Building Society No. 59 13,000.00 6,000.00 Less amount owing on unregistered mortgage to A. Kulas and P.C. Oswald 9,000.00 Deficiency 3,000.00 1978 Falcon Panel Van 6,500.00 Less amount owing on hire purchase agreement to Associated Securities Limited 6,500.00 Nil Cash in hand 10.00 Household furniture and effects 700.00 Book debts 820.00 $1,530.00 Mrs. Oswald disclosed the following assets in her statement of affairs: House property at 17 Alexander $ Street, Mt. Hutton 19,000.00 Less amount owing under ist mortgage to Newcastle Permanent Building Society Limited $13,000.00 Less amount owing under 2nd mortgage to Mr. A. Kulas and Mr. P.C, Oswald 9,000.90 22,000.00 Deficiency $5,000.00 1978 Ford Panel Van 6,500.00 Less amount owing under hire purchase to Associated Midland Corporation Limited 6,500.00 Nil Book debts 1,500.95 The property at Mt. Hutton was sold in May 1984 for a price considerably in excess of the value attributed to it at an earlier date in the statements of affairs: the balance purchase price received by the Official Receiver on completion after the discharge of all mortgages and payment of expenses was $37,662.00. In addition, the sum of $510.56 has been brought to the credit of Mrs. Oswald's estate, principally represented by the proceeds of an interest bearing deposit. Proofs of debts have been lodged in Mr. Oswald's estate by 24 creditors in the sum of $197,283.00; 12 creditors including 10 creditors who have proved in Mr. Oswald's estate, have proved in Mrs. Oswald's estate in the sum of $137,808.00. Section 53 provides as falliows: "(1) Where 2 or more members of a partnership or 2 or more joint debtors have become bankrupts, the Court may consolidate the proceedings upon such terms as it thinks fit. (2) Where the Court makes an order under sub-section (1), section 110 applies in the administration under this Act of all of the estates to which the order relates. (3) Where the Court makes an order under sub-section (1) in relation to the estates of 2 or more bankrupts, the Court may, in the order- (a) declare a specified date to be, for the purpose of the application of the provisions of Division 3 of Part VI in the administration of the joint estate, the date on which all the petitions relevant to the administration of those estates shall be deemed to have been presented; (b) declare a specified date to be, for that purpose, the date of the bankruptcy in respect of each of those estates; and (c) declare a specified time to be, for that purpose, the time that is the commencement of the bankruptcy in respect of all those estates, and, if the Court does so, those estates shall be administered accordingly." The power of consolidation should be exercised "whenever it seems to the interests of everybody concerned 153) in the administration of the estates" (In Re Abbott £1894] 1 Q.B. 442 per Vaughan Williams, J. at p.444; cf. Anmi Pty. Limited v. Williams (1981) 52 F.L.R. 309 per Powell, J. at pp.337-8). In the present case, subjfect to one matter shortly to be mentioned, I think that it is appropriate, having regard to the existence of a single joint asset and the large degree of community between the respective creditors of the bankrupts, that the estates be consolidated (see Re Lamb; Ex parte Melsom (1980) 42 F.L.R. 399 per Brinsden, J. at pp.400-1): the administration of the estates would be facilitated, subject always to the provisions of s.110, as required by s.53(2). The one reservation I have in the matter is whether the Mt. Hutton property formerly held by the bankrupts as joint tenants, now represented by the proceeds of sale and being the only asset now available for distribution among creditors, can be characterised as Joint property for bankruptcy purposes: in the absence of any joint asset, no useful purpose would be served by consolidation (see Re Trott (1863) 7 L.T. 699). In my opinion, although for other purposes, a severance of any joint tenancy may be effected by the bankruptcy of one of the joint tenants, the property remains joint property for the purposes of s.53 and, consequentially, s.110. In Re Amor (1963) 18 A.B.C. 242, the debtors who 6. were husband and wife executed a deed of assignment under Part XI of the Bankruptcy Act, 1924. They were the joint registered proprietors of real property. They carried on business in partnership. Paine, J. sitting in the Court of Insolvency, held that the property constituted an asset held by the debtors in their separate capacities and was thus primarily available for thelr separate debts. Paine, J. was there concerned with s.84(4) of the 1924 Act which was as follows: "(4) In the case of partners, the joint estate shall be applicable in the first instance in payment of their joint debts, and the separate estate of each partner shall be applicable in the first instance in payment of his sé@parate debts. tf there 1s a surplus of the separate debts, it shall be dealt with as part of the joint estate, If there 1s a surplus of the joint estate it shall be dealt with in proportion to the right and interest of each partner in the joint estate." (It will be noted that s.84(4) of the earlier Act differs from 5.110 in the material respect that s5.84(4) is prefaced by the introduction "In the case of partners ..." whereas s.110(1) commences "In the case of joint debtors, whether partners or not ...".) Paine, J. held that the word "joint" in s.84(4) should be construed as referring only to partnership affairs and that joint ownership does not of itself create a partnership. A different view of the question considered in Amor was expressed by Riley, J. in Re Boots; Ex parte Official Receiver (1976) 26 F.L.R. 320. A sequestration order was made against a husband and wife who carried on a business in partnership. The estate included partnership assets and joint non-partnership assets, including the matrimonial home; proofs were lodged by creditors of the partnership. The trustee of the estates sought directions, inter alia, whether, for the purposes of s.110, joint non-partnership assets and joint non-partnership liabilities should be treated as joint assets and liabilities. Riley, dg. held that a bankruptcy of partners is a bankruptcy of joint debtors and no distinction should be made between partnership assets and liabilities and joint non-partnership assets and liabilities. It followed that for the purposes of s.110, in the case of joint debtors who are partners (1) the joint estate includes all property jointly owned by the debtors, whether or not they are entitled to it as partners; and (2) all debts owed by the debtors jointly, whether or not incurred in connexion with the partnership business, are joint debts. In so concluding Riley, J. disagreed with the decision and reasoning in Amor, relying principally on Hoare v. Oriental Bank Corporation C1877] 2 App.Cas. 589 which was apparently not cited to Paine, J.. Reference was also made to the differences, already mentioned, in the opening parts of s.84(4) and the present s.110, with which Riley, J. was concerned. I agree with the reasoning of Riley, J. and would respectfully follow it. However, the Official Receiver has drawn attention in this context to the recent decision of Fisher, J. in Re Holland, unreported, 15 February 1985, in an ex parte application by the Official Receiver for directions whether property held by the bankrupts, husband and wife, as joint tenants, should be treated as a joint asset for the purposes of s.110. The bankrupts, who had incurred both joint and separate debts, were made bankrupt at different times on different petitions. It was held that since bankruptcy effected a severance of the joint tenancy, the property should ke treated as part of the separate estate of the bankrupts for the purposes of s.110. Fisher, dg. said (at p.3): "Tt is always open to a joint tenant to destroy the joint tenancy by severance, thereby converting the estate into a tenancy in common. Severance is achieved in a number of ways, and in particular by alienation, wholly or partially and whether such alienation be voluntary or involuntary. An example of an involuntary alienation is the bankruptcy of one of the joint tenants and the consequent vesting of his interest in his trustee - See Megarry & Wade the Law of Real Property 4th Edition pages 404-5, Morgan v Marquis Ci8531 9 Exch 145 at pages 147,148; 156 E.R. 62 at page 63. Re Butlers Trusts £1888] 38 Ch.D 286." In Morgan v. Marquis, supra, one of two tenants in common of certain goods committed an act of bankruptcy, after which the defendants, by direction of the other tenant in common, sold the goods. It was held by Pollock, C.B., Parke, B., Alderson, B. and Platt, B. that the assignees of the bankrupt could not recover from the defendants the proceeds of the sale in an action at law for money had and received, nor maintain detinue. Parke, B. however, acknowledged that the matter could, indeed must, he settled by an account between the parties in a court of bankruptcy or equity (E.R. at p.64). That 1s to say, the decision is not determinative of the application of a provision such as s.110. The only other authority relied on by Fisher, J. {(Meggary and Wade op. cit. at pp.404-5 merely cite Morgan v. Marguis), In Re Butler's £1888] 38 Ch.D.286, is also nota bankruptcy case. For the purpose of the construction of a will in the events that had happened, it was there held that marriage did not operate as a severance of the wife's joint tenancy in circumstances which it 1s umnecessary to consider. In my opinion, even if it be accepted that, for certain purposes, involuntary alienation on bankruptcy can sever a joint tenancy, it does not follow that property jointly held in cases such as Amor, Boots, Holland and the present case should be treated as a separate asset for the purposes of s.110. It would a strange result if bankruptcy had that operation in this type of case where the property was held jointly at the moment of bankruptcy. I think that s.110 takes the property of the bankrupts, joint or separate, as it finds it and the bankruptcy does not ipso 10. facto work any instant conversion of that property from something jointly held into the separate estate of the debtor. In short, I find myself in respectful agreement with Riley, J. in Boots (apparently not cited in Holland) and in respectful disagreement with Fisher, J. in Holland. In the result, I propose to order consolidation. I make the following orders: 1. Order consolidation as asked. 2. Order that the costs of and incidental to the application be paid out of the consolidated estate. | certify that this and the | preceding Pages ere a true copy of the reasons for judgment herein of The Honourable Mr Justice Beaumont. SHOU Associate Dated [4-6 -29 on oe - fe " / i 7 {< Sb 7 ,c-, \- CATCHWORDS Bankruptcy - joint debtors - joint asset - application for consolidation - Bankruptcy Act, 1966, ss.53, 110 - whether joint tenancy severed by bankruptcy. Re Amor (1963) 18 A.B.C. 242 - not followed Re Boots; Ex parte Official Receiver (1976) 26 F.L.R. 320 - followed Re Holland, unreported, 15 February 1985, Federal Court of Australia - not followed RE: DARRELL CLIVE OSWALD and ANNA OSWALD EX PARTE THE OFFICIAL TRUSTEE IN BANKRUPTCY No. 301 of 1979 No. 488 of 1980 Beaumont, J. 14 June 1985, Sydney IN THE FEDERAL COURT OF AUSTRALIA No. 301 of 1979 BANKRUPTCY DISTRICT OF NEW SOUTH No. 488 of 1980 WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: DARRELL CLIVE OSWALD-and ANNA OSWALD EX PARTE: THE OFFICIAL TRUSTER IN BANKRUPTCY MINUTES OF ORDER Judge making order: Beaumont, J. Date order made: 14 June 1985. Where made: Sydney THE COURT ORDERS THAT: 1. Order consolidation as asked. Ze Order that the costs of and incidental to the application be paid out of the consolidated estate. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. ee tee IN _ THE FEDERAL COURT OF AUSTRALIA No. 301 of 1979 No. 488 of 1980 BANKRUPTCY DISTRICT OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: DARRELL CLIVE OSWALD and ANNA OSWALD EX PARTE: THE OFFICIAL TRUSTEE IN BANKRUPTCY CORAM: Beaumont, J. DATED: 14 June 1985. REASONS FOP JUDGMENT The Official Receiver, on behalf of the Official Trustee in Bankruptcy, applies under s.53 of the Bankruptcy Act, 1966 ("the Act") for an order that the proceedings under the bankruptcy of Darrell Clive Oswald on his own petition on 18 April 1979 by force of s.55 and the proceedings under the sequestration order made on 27 May 1980 against his wife, Anna Oswald. be consolidated. The Official Trustee is trustee of both estates. Notice of the application has been given to the bankrupts and their creditors but, possibly because of the relatively small amounts insolved, only the Official Receiver appeared on the application. The bankrupts commenced business in partnership as road haulage contractors in 1974. This business ceased in late 1976. In February 1977, the bankrupts commenced another road haulage business in partnership with two other persons. This business ceased in July 1978. At the time of Mr. Oswald's bankruptcy, the bankrupts were the registered proprietors as joint tenants of an estate in fee simple of a property situate at 17 Alexander Street, Mt. Hutton. Mr. Oswald disclosed the following assets in his statement of affairs: House property at 17 Alexander $ Street, Mt. Hutton 19,000.00 Less amount owing on lst mortgage to Newcastle Co-operative Building Society No. 59 13,000.00 6,000.00 Less amount owing on unregistered mortgage to A. Kulas and P.C. Oswald 9,000.00 Deficiency 3,000.00 1978 Falcon Panel Van 6,500.00 Less amount owing on hire purchase agreement to Associated Securities Limited 6,500.00 Nil Cash in hand 10.00 Household furniture and effects 700.00 Book debts 820.00 $1,530.00 Mrs. Oswald disclosed the following assets in her statement of affairs: House property at 17 Alexander 3 Street, Mt. Hutton 19,000.00 Less amount owing under lst mortgage to Newcastle Permanent Building Society Limited $13,000.00 Less amount owing under 2nd mortgage to Mr. A. Kulas and Mr. P.C,. Oswald 9,000.00 22,000.00 Deficiency $5,000.00 ~ 1978 Ford Panel Van 6,500.00 Less amount owing under hire purchase to Associated Midland Corporation Limited 6,500.00 Nil Book debts 1,500.95 The property at Mt. Hutton was sold in May 1984 for a price considerably in excess of the value attributed to it at an earlier date in the statements of affairs: the balance purchase price received by the Official Receiver on completion after the discharge of all mortgages and payment of expenses was $37,662.00. In addition, the sum of $510.56 has been brought to the credit of Mrs. Oswald's estate, principally represented by the proceeds of an interest bearing deposit. Proofs of debts have been lodged in Mr. Oswald's estate by 24 creditors in the sum of $197,283.00; 12 4. creditors including 10 creditors who have proved in Mr. Oswald's estate, have proved in Mrs. Oswald's estate in the sum of $137,808.00. Section 53 provides as follows: "(1) Where 2 or more members of a partnership or 2 or more joint debtors have become bankrupts, the Court may consolidate the proceedings upon such terms as it thinks fit. ~ (2) Where the Court makes an order under sub-section (1), section 110 applies in the administration umder this Act of all of the estates to which the order relates. (3) Where the Court makes an order under sub-section (1) in relation to the estates of 2 or more bankrupts, the Court may, in the order- (a) declare a specified date to be, for the purpose of the application of the provisions of Division 3 of Part VI in the administration of the joint estate, the date on which all the petitions relevant to the administration of those estates shall be deemed to have been presented; (b) declare a specified date to be, for that purpose, the date of the bankruptcy in respect of each of those estates; and (c) declare a specified time to be, for that purpose, the time that is the commencement of the bankruptcy in respect of all those estates, and, if the Court does so, those estates shall be administered accordingly." The power of consolidation should be exercised "whenever it seems to the interests of everybody concerned cata? . eS Sat oe - tenn in the administration of the estates" (In Re Abbott £18941] 1 Q.B. 442 per Vaughan Williams, J. at p.444; cf. Anmi Pty. Limited v. Williams (1981) 52 F.L.R. 309 per Powell, J. at pp.337-8). In the present case, subject to one matter shortly to be mentioned, I think that 1t is appropriate, having regard to the existence of a single joint asset and the large degree of community between the respective creditors of the bankrupts, that the estates be consolidated (see Re Lamb; Ex parte Melsom (1980) 42 F.L.R. 399 per Brinsden, J. at pp.400-1): the administration of the estates would be facilitated, subject always to the provisions of s.110, as required by s.53(2). The one reservation I have in the matter 1s whether the Mt. Hutton property formerly held by the bankrupts as joint tenants, now represented by the proceeds of sale and being the only asset now available for distribution among creditors, can be characterised as joint property for bankruptcy purposes: in the absence of any joint asset, no useful purpose would be served by consolidation (see Re Trott (1863) 7 L.T. 699). In my opinion, although for other purposes, a severance of any joint tenancy may be effected by the bankruptcy of one of the joint tenants, the property remains joint property for the purposes of s.53 and, consequentially, s.110. In Re Amor (1963) 18 A.B.C. 242, the debtors who --— 6. were husband and wife executed a deed of assignment under Part XI of the Bankruptcy Act, 1924. They were the joint registered proprietors of real property. They carried on business in partnership. Paine, J. sitting in the Court of Insolvency, held that the property constituted an asset held by the debtors in their separate capacities and was thus primarily available for their separate debts. Paine, J. was there concerned with s.84(4) of the 1924 Act which was as follows: "(4) In the case of partners, the jount estate shall be applicable in the first instance in payment of their joint debts, and the separate estate of each partner shall be applicable in the first instance in payment of his separate debts. If there is a surplus of the separate debts, it shall be dealt with as part of the joint estate. If there is a surplus of the joint estate it shall be dealt with in proportion to the right and interest of each partner in the joint estate." (It will be noted that s.84(4) of the earlier Act differs from s.110 in the material respect that s.84(4) is prefaced by the introduction "In the case of partners ... whereas s.110(1) commences "In the case of joint debtors, whether partners or not ...".) Paine, J. held that the word "joint" in s.84(4) should be construed as referring only to partnership affairs and that joint ownership does not of itself create a partnership. . TST we ter yen armen te anette eee - A different view of the question considered in Amor was expressed by Riley, J. in Re Boots; Ex parte Official Receiver (1976) 26 F.L.R. 320. A sequestration order was made against a husband and wife who carried on a business in partnership. The estate included partnership assets and joint non-partnership assets, including the matrimonial home; proofs were lodged by creditors of the partnership. The trustee of the estates sought directions, inter alia, whether, for the purposes of s.110, joint non-partnership assets and joint non-partnership liabilities should he treated as joint assets and liabilities. Riley, J. held that a bankruptcy of partners 15 a bankruptcy of joint debtors and no distinction should be made between partnership assets and liabilities and joint non-partnership assets and liabilities. It followed that for the purposes of s.110, in the case of joint debtors who are partners /1) the joint estate includes all property jointly owned by the debtors, whether or not they are entitled to it as partners; and (2) all debts owed by the debtors jointly, whether or not incurred in connexion with the partnership business, are joint debts. In so concluding Riley, J. disagreed with the decision and reasoning in Amor, relying principally on Hoare v. Oriental Bank Corporation £18773 2 App.Cas. 589 which was apparently not cited to Paine, J.. Reference was also made to the differences, already mentioned, in the opening parts of s.84(4) and the present s.110, with which Riley, J. was concerned. ie fo ree me oe -- oe ne aa. - eer ror ane ae 8. I agree with the reasoning of Riley, J. and would respectfully follow it. However, the Official Receiver has drawn attention in this context to the recent decision of Fisher, J. in Re Holland, unreported, 15 February 1985, in an ex parte application-by the Official Receiver for directions whether property held by the bankrupts, husband and wife, as joint tenants, should be treated as a joint asset for the purposes of s.110. The bankrupts, who had incurred both joint and separate debts, were made bankrupt at different times on different petitions. It was held that since bankruptcy effected a severance of the joint tenancy, the property should be treated as part of the separate estate of the bankrupts for the purposes of s.110. Fisher, J. said (at p.3): "It is always open to a joint tenant to destroy the joint tenancy by severance, thereby converting the estate into a tenancy in common. Severance 1s achieved in a number of ways, and in particular by alienation, wholly or partially and whether such alienation be voluntary or involuntary. An example of an involuntary alienation is the bankruptcy of one of the joint tenants and the consequent vesting of his interest in his trustee - See Meqarry & Wade the Law of Real Property 4th Edition pages 404-5, Morgan v Marquis C1853] 9 Exch 145 at pages 147,148; 156 E.R. 62 at page 63. Re Butlers Trusts C1888] 38 Ch.D 286." In Morgan v. Marguis, supra, one of two tenants in common of certain goods committed an act of bankruptcy, after which the defendants, by direction of the other tenant in common, sold the goods. It was held by Pollock, C.B., 2 eee ee ee oral 9. Parke, B., Alderson, B. and Platt, B. that the assignees of the bankrupt could not recover from the defendants the proceeds of the sale in an action at law for money had and received, nor maintain detinue. Parke, B. however, acknowledged that the matter could, indeed must, be settled by an account between the parties in a court of bankruptcy or equity (E.R. at p.64). That 15 to say, the decision is not determinative of the application of a provision such as s.110. The only other authority relied on by Fisher, J. (Meqgqary and Wade op. cit. at pp.404-5 merely cite Morgan v. Marquis), In Re Butler's C1888] 38 Ch.D.286, 1s also not a bankruptcy case. For the purpose of the construction of a will in the events that had happened, 1t was there held that marriage did not operate as a severance of the wife's joint tenancy in circumstances which it is unnecessary to consider. In my opinion, even if it be accepted that, for certain purposes, involuntary alienation on bankruptcy can sever a joint tenancy, it does not follow that property jointly held in cases such as Amor, Boots, Holland and the present case should be treated as a separate asset for the purposes of s.110. It would a strange result if bankruptcy had that operation in this type of case where the property was held jointly at the moment of bankruptcy. I think that s.110 takes the property of the bankrupts, joint or separate, as it finds it and the bankruptcy does not ipso 10. facto work any instant conversion of that property from something jointly held into the sé€parate estate of the debtor. In short, I find myself in respectful agreement with Riley, J. in Boots (apparently not cited in Holland) and in respectful disagreement with Fisher, J. in Holland. In the result, I propose to order consolidation. I make the following orders: 1. Order consolidation as asked. 2. Order that the costs of and incidental to the application be paid out of the consolidated estate. | certify that this and the q preceding Pages Ere a true copy of the reasons for judgment herein of The Honourable Mr Justice Beaumont. atl Luo» Assorinte Dated {4-6 ~——-— -_— een = ger ee moneeyernes be = re see