wt Req Bankruoriy - apolicatizon ror tLteave to enter an <cbiecticn ta discharge - bankrupt not served with application - whether Court may proceed ex parte - statutory period of bankruptcy under s.149(1) about to expire - prior obiection entered by trustee - whether susbequent obiections required to be entered within three vear statutory period Bankruptcy Act 1966 s.149 Bankruptcy Rules rr.49, 102 RE: ALEXANDER GAVIN BROWN - Bankrupt EX PARTE: DAI-ICHI KANGYO AUSTRALIA LTD. - Applicant No. 279 of 1983 TOOHEY J. PERTH 16 MAY 1986 IN THE FEDEFsaL CourT OF AUSTRALIA GEVERAL DIVISION BANKFUPTC?Y OLSTRICT OF THE STATE OF WESTERN AUSTPALIA RE: ALEXANDER GAVIN BROWN Bankrupt EX PARTE: DAI-ICHI KANGYO AUSTRALIA LID. Applicant MINUTE OF ORDER JUDGE MAKING ORDER: TOOHEY J. DATE OF ORDER: 2 Mav 1986 WHERE MADE: Perth THE COURT ORDERS THAT: Pursuant to 5.149 of the Bankruptcy Act 1966 the applicant have leave to enter an objection to the discharge of the bankrupt from bankruptcy in accordance with the notice of obiection tendered to the Court and as amended by the Court. The notice of obiection be entered not later than 4.00 p.m. on 9 May 1986. The costs of this application be reserved. ee ees ese tae < ie) re] oh cu a Ga c P i ao Ls) Tt i iv) ts Note: Settlement and entrv of orders 15 with on Rule 124 of the Bankruptcy Rules n dealt IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA No. 279 of 1983 we ~w~ errr RE: ALEXANDER GAVIN BROWN Bankrupt EX PARTE: DAI-ICHI KANGYO AUSTRALIA LTD. Applicant CORAM: TOOHEY J. 16 May 1986 REASONS FOR JUDGMENT On 9 May 1986 I qave leave to the applicant, Dai-Ichi Kangyo Australia Ltd., to enter an objection pursuant to para.149(3)(c) of the Bankruptcy Act 1966 to the discharge of the bankrupt, Alexander Gavin Brown, notwithstanding that the application for leave to enter an objection had not been served upon the bankrupt. I said that I would give reasons for that decision; these are my reasons. On 10 May 1983 Mr. Brown became a bankrupt on the filing of his own petition. His statement of affairs disclosed personal liabilities amounting to $10,483,810 and contingent liabilities, arising from quarantees aqiven as a director of a number of companies, amounting to $7,571,000. The applicant 1s a creditor to the extent of $553,360.89 pursuant to a quarantee qiven by the applicant. In the absence of an objection, sub-s.149(1) of the Act would have operated to discharge the bankrupt at midniaght on 10 May 1986, not 3 Mav as suggested by counsel for the applicant. and_Gritfiths; Ex parte Vanauard Service Print (unreported decision of Toohev J., delivered 29 March 1985). However, on 28 February 1986 the trustee of Mr. Brown's bankrupt estate entered an obiection to discharge on the following grounds: "(1) That the bankrupt 1s able, or is likely within 5 vears from the date of the bankruptcy to be able, to make a sianificant contribution to his estate. (2) That the discharge of the bankrupt by force of this section would prejudice the administration of his estate. (3) That the conduct of the bankrupt, either in respect of the period before or the period after the date of the bankruptcy, has been unsatisfactory". The effect of the trustee's obiection was to extend the bankruptcy to a period of five years, subject of course to the bankrupt's entitlement to seek an earlier discharage under sub-s.150(1) and subject to the various steps open under s.149. Notwithstanding the objection lodged by the trustee, Dai-Ichi Kangyo Australia Ltd. wished to lodge its own objection, based on the conduct of the bankrupt - see para.149(4)(d). so long as the trustee's objection remained on foot, there could be no automatic discharge of the bankrupt at the expiration of three years. However, because of the possibility that the trustee might thereafter withdraw his objection, the applicant was anxious to protect its position. Counsel for the applicant was concerned that, once the period of three years had passed, his client could not seek leave to enter an objection, evenif the trustee's objection remained. I do not think that concern was well founded. Sub-section 149(1) reads: " 149. (1) Subject to this section, a person who becomes a bankrupt after the commencement of this section 1s, by force of this section, unless sooner discharged in accordance with section 150, discharged from bankruptcy upon the expiration of 3 vears from the date of the bankruptcy". It 1s apparent that the automatic discharge at the expiration of three vears 1s subject to whatever else may appear in 5.149, Sub-section 149(3) provides that a bankrupt is not discharged from bankruptcy by virtue of the 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; (c) the Registrar, the Inspector-General or the trustee has entered, or a creditor has, with the leave of the Court, entered, an objection, in accordance with the prescribed form andin the prescribed manner, to the discharge of the bankrupt by force of this section and the objection has not been withdrawn or lapsed before the time when the bankrupt would have been so discharged but for this sub-section; or (d) an order of the Court under sub-section (12) is in force in relation to the bankrupt". It seems to me that once the trustee entered an obtection and so longa as that objection remained in force, it was open to a creditor to seek the leave of the Court to enter its own objection. There is nothing in para.(c) of sub-s.149(3) that precludes more than one objection or that requires a second obiection te be Lleadaed before the expiration or three vears from iD the bankruptcy, so long or course as there has been no discharge. Nevertheless, the position is not free from doubt and in the circumstances I acceded to the applicant's request to make an order on 9 May before the period of three vears had expired. I did so on the basis that. in other respects, it was appropriate to make an order ex parte. Counsel for the applicant referred to steps taken by his client to effect service of the application at the bankrupt's last known address in Double Bay, Sydney, and of a report from a process server that there appeared to be no one in occupation at the address and that there was a considerable amount of unclaimed mail there. But I was not asked to make an order for substituted service or dispensing with service. Counsel submitted that an application by a creditor for leave to enter an objection under para.149(3)(c) may be made ex parte and that this was an appropriate case for the granting of leave. There is nothing in the bankruptcy rules comparable to 0.19 r.2 of the Federal Court Rules whereby a judge may dispense with the requirement of service of notice of a motion. And, of course, 0.1 r.11(1) of those Rules excludes their application to proceedings under the Bankruptcy Act, except in a particular which 1s not material. Rule 102 of the Bankruptcy Rules deals with applications to the Court, not required to be made by petition, and includes this provision: "(4) An application shall have written on 1t the names of the persons (if any) on whom the applicant intends to serve the application". mn It is apparent that r.102 envisages that there will be situations in which service of an application is not required. There 1s no aqeneral provision in the Bankruptcy Rules requiring service ot an application on persons affected by it. Equally there 1s no qeneral provision empowering the Court to hear and determine applications ex parte. Cf. English Bankruptcy Rules 1952 v.32. Rather, the scheme of the Act and Rules 1s to make specific provision for service in regard to particular matters which may be the subject of an application to the Court. See for instance r.57 ~ application for annulment; r.58(2) (bd) - application to register as a trustee; r.68(A) - application for release of official trustee. In some cases express provision is made for the hearing of an application ex parte. See for instance r.72 - application by official receiver; ¢.31(2) - application for extension of time for filing a statement of affairs. In some cases there 1s no express provision as to service, thus qiving rise to the question whether service is required or whether the Court may proceed ex parte. One such case is s.134(4), pursuant to which a trustee may apply to the Court for directions. Rule 65, which prescribes the relevant procedure, contains no requirement as to service of the application. It may be that no question of service upon the bankrupt arises, the rule being subject to the principle that a bankrupt cannot interfere with the administration of his estate by the trustee and is therefore not entitled to be given notice of sucn an applicatian. Re David Patrick Leslie (19650) 19 A.B.C. 19 at 25. In the case of an application for leave to enter an objection pursuant to para.149(3)(c), there 1s no rule dealing expressly with such an application. However r.49 deals with obiections to discharge themselves. Rule 49(2) reads: "(2) A person who enters an objection to the discharge of a bankrupt shall cause a copy of the notice and, where the objection 1s entered by leave of the Court, a copy of the order aranting leave, to be posted, by pre-paid certified mail, to - (a) the Inspector-General; (b) the trustee; and (¢c) the bankrupt". Rule 49(1) deals with the entry of the objection itself. It is, I think, a fair inference from the language of r.49(2) that an ex parte application for leave to enter an objection is contemplated. If this were not so, it is hard to see why a copy of the order should be served on the persons mentioned in sub-r.(2). Indeed, the structure of sub-r.(2) is that the objection itself must be served by prepaid certified mail and that where the objection is entered pursuant to leave, a copy of the order must be served in the same way. In both cases the persons mentioned in the sub-rule. includina the bankrupt, are told of something that has happened - that notice of objection has been entered and, where appropriate, that there has been an order of the Court. al the Court must be satisfied tnat the case is a af cours ft) proper one ror the arantina or leave. This requires that the Court be satisfied ainter alla that the applicant is in truth a creditor ot the bankrupt, that the bankrupt has not been discharged from bankruptcy and that there 1s material to support the aground ot obiection upon which the creditor relies. I[t mav be that a prima facie case 1s required - see Re Palenkas; Ex parte Raymor (Brisbane) Pty. Ltd. (1982) 66 F.L.R. 115 at 118. It may be that the matter can be put more broadly in terms that the Court must be satisfied, on the material before it, that it is proper to allow an objection and that the application is not merely frivolous. On either test I am satisfied from the affidavit of Antony Russell Stott, the applicant's finance manager, and the exhibits to that affidavit that an objection in terms of para.(d) of sub-s.(4) 18 proper. It is of course open to the bankrupt, at any time, to apply for a discharge From bankruptcy pursuant to s.150. It is also open to the bankrupt to seek a limitation of the period of the objection pursuant to sub-s.149(9) and for the creditor to seek an extension of the period at the expiration of which the objection will lapse, pursuant to sub-s.149(8), or more generally to seek an order that the bankrupt not be discharged from bankruptcy, pursuant to sub-s.149(12). It is for these reasons that, on 9 May I gave leave to the applicant to enter an objection. However I should refer to two decisions of the Federal Court. One is Re William Moore; Ex parte The Nominal Defendant (unreported decision of Pincus J., delivered 28 June 1985). That sas¢ cancerned an argolication by a creditor for leave to enter an obtection pursuant to s.l49 of the Hankruptcy Act. When the matter came on for hearing, counsel for the applicant sought an adjournment for two weeks and, the statutory period of bankruptcy being about to expire, an order extending the statutory period of bankruptcy until the hearing of the application. The basis of the application for adiournment was that the bankrupt had only recently been served with the affidavit in support of the application. The bankrupt did not appear as he had been told by counsel for the applicant that the application for leave would not proceed. Pincus J. held that he did not have power to make an order extending the period of bankruptcy pending the hearing of the application for leave to enter an objection. It was therefore pointless to adjourn the matter and his Honour dismissed the application for leave. It may seem to be implicit in his Honour's approach that service of the application on the bankrupt was required. But that matter was not arqued before his Honour who concluded his reasons in this way: "I should add that it was not contended by the applicant that I could hear the principal application for leave today. It seems clear in the circumstances that I cannot, because of the indication given to the bankrupt, mentioned above" (emphasis added). The other decision is Re Palenkas, already mentioned. This was an application by a creditor for an order under sub-s.149(12), alternatively for an order for leave to enter an objection under para.149(3)(c). Personal service of the Le) Application was errected on the cankrupt who dia not appear on the hearina of the application. Fatzaerald J. dismissed the application under sub-s.149(12) but agranted leave under para.149(3)(c). Because the bankrupt had been served with the application, the question of an ex parte application did not arise. In my opinion, neither of these decisions is in conflict with the view I have taken that the Court may hear and determine ex parte an application by a creditor for leave to enter an objection pursuant to para.149(3)(c) of the Bankruptcy Act. Although I am of that view, 1t does not follow that, as a matter of practice, such applications should always be heard ex parte. Indeed it 1s preferable that the bankrupt be served with the application. That puts the Court in a better position to determine whether leave should be granted. And it is likely to avoid applications under s.37 of the Act to "rescind, vary or discharge" an order qranting leave. This decision simply recognizes that power to proceed ex parte exists and that exercise of the power was warranted in the present case. I certify that this and the preceding eight pages are a true copy of the reasons for judgment herein of his Honour Mr. Justice Toohey. Jf MarA Associate Dated: 16 May 1986