CATCHWORDS Bankruptcy Notice based on Family Court Order re settlement of property ~- review of Registrar's decision declining to issue bankruptcy notice ~ whether orders made by Family Court pursuant to s.79(1) of Family Law Act 1975 were in substance "final" for the purposes of s.40(1)(g) of the Bankruptcy Act 1966. RE: FERDINAND NEMETH EX_PARTE: LINDA MARY NEMETH No.B4874 of 1986 Beaumont, J. Sydney RECEN ET) 42 NOV1986 ERAL COURT OF FED AUSTRALIA WNCIPAL, qearstey 12 November 1986 hea web sal. re en te ee ae crt ee reer meen eS IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF NEW SOUTH WALES No.B4874 of 1986 AND THE AUSTRALIAN CAPITAL TERRITORY) RE: FERDINAND NEMETH EX PARTE: LINDA MARY NEMETH Applicant MINUTES OF ORDER Judge making order: Beaumont, J. Date order made: 12 November 1986 Where made: Sydney THE COURT ORDERS THAT: The application to -review the refusal of the Registrar to issue a bankruptcy notice be dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. Oe + meyer ey eee Re qa reine ee of nm Pi italia teamieteicnneliten sant vot rn e IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF NEW SOUTH WALES No.B874 of 1986 ee ee ee AND THE AUSTRALIAN CAPITAL TERRITORY) RE: FERDINAND NEMETH EX PARTE: LINDA MARY NEMETH Applicant CORAM: Beaumont, J. DATED: 12 November 1986 REASONS FOR JUDGMENT On 17 June 1986, the Family Court of Australia (Nygh J.) in proceedings brought by the applicant, Linda Mary Nemeth, against her husband, Ferdinand Nemeth, made, amongst others, the following orders: "1. That within three (3) months of this date the husband pay to the wife the sum of four hundred and fifty thousand dollars ($450,000.00) by way of settlement of property and that in default of such payment within such period such sum carry interest in accordance with Order 40 Rule 1 of the Family Law Rules. 2. That in the event of the husband having insufficient assets for the purpose of the payment by him to the wife of the whole or any proportion of the said sum of four hundred and fifty thousand dollars ($450,000.00) the husband do all acts and things including the exercise of all voting and rights and powers vested in him for the weeps em Se RR eon ee eee errr topo oe eee ayo en te 2. . purpose of causing such sum of four hundred and fifty thousand dollars ($450.000.00) or such proportion thereof as shall be unable to be paid from his assets to be paid to the wife from the property of the F. Nemeth Family Trust being the trust constituted by deed made on 12th day of May 1976. 6. That the order for maintenance for the wife made herein on the 19th day of August 1983 as varied on the 15th day of September 1983 be discharged as at the date when such order last stood paid." The orders were made in the exercise of the powers conferred upon the Family Court by the provisions of Part VIII of the Family Law Act 1975. That Part deals with maintenance and property and its general scheme may be summarised as follows. In proceedings with respect to the maintenance of a party to the marriage, the Family Court may make such order as it thinks proper for the provision of maintenance (s.74). In proceedings with respect to the property of the parties to a marriage or either of them, the Family Court may make such orders as it thinks fit altering the interests of the parties in the property, including an order for a settlement of property in substitution for any interest in the property and including an order requiring either or both of the parties to make, for the benefit of either or both of the parties or a child of the marriage, such settlement or transfer of property as the Family Court determines (s.79(1)). Where, on application by a person affected by an order made under s.79, the Court is satisfied, inter alia, that - "(b) in the circumstances that have arisen since the order was made it is impracticable for the order to be carried out or 3. impracticable for a part of the order to be carried out; (c) a person has defaulted in carrying out an obligation imposed on him by the order and, in the circumstances that have arisen as a result of that default, it is just and equitable to vary the order or to set the order aside and make another order in substitution for the order; " the Family Court may, in its discretion, vary the order or set the order aside and, if it thinks fit, make another order under s.79 in substitution for the order so set aside (s.79A(1)). In proceedings under Part VIII, subject to exeptions not presently relevant, the Family Court shall, so far as practicable, make such orders as will finally determine the financial relationships between the parties to the marriage and avoid further proceedings between them (s.81). Power is conferred upon the Family Court to discharge or suspend a mainteriance order (s.83). Mrs. Nemeth applied to the Registrar of this Court for the issue of a bankruptcy notice, claiming that the sum of $450,000.00, together with interest, was due by Mr. Nemeth to her under what she says is a final order obtained in the Family Court on 17 June 1986. The Registrar declined to issue a bankruptcy notice on the grounds (1) the order was not an order for the payment of arrears of maintenance within s.40(3)(£) of the Bankruptcy Act 1966 ("the Act"); and (2) the order was not otherwise a "final judgment" or "final order" within the meaning of s.40(1)(g) of the Act. Mrs. Nemeth now seeks review of the Registrar's decision (see s.14(5) of the Act). Poaeeehaie iad pV Re ee 9 rata te he 4. By s.40(1)(g) of the Act, a debtor commits an act of bankruptcy if a creditor who has obtained against the debtor "a final judgment or final order", being a judgment or order the execution of which has not been stayed, has served on the debtor a bankruptcy notice under the Act and the debtor does not comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, being a counter-claim, set-off or cross-demand that he could not set up in the action or proceeding in which the judgment or order was obtained. The interpretation of s.40(1)(g) is relevantly dealt with by s.40(3) as follows: "40(3) For the purposes of paragraph (1)(g) - (b) a judgment or order that is enforceable as, or in the same manner as, a final judgment obtained in an action shall be deemed to be a final judgment so obtained and the proceedings in which, or in consequence of which, the judgment or order was obtained shall be deemed to be the action in which it was obtained; (f) an order made after the commencement of this paragraph under the Family Law Act 1975 [i.e. 19 May 1986] for the payment by a person of arrears of maintenance for another person, being maintenance that was - (i) payable periodically where any periodic payment was payable at a time during the 12 months immediately preceding the making of the order; or (ii) payable (whether in one amount or by instalments) as a lump sum, manera 5. shall be deemed to be a final order against the first-mentioned person obtained by the other person." "Maintenance order" is defined in s.5(1) to mean - "an order with respect to the maintenance of a person, including an order with respect to the payment of arrears of maintenance, being an order made or registered under a law of the Commonwealth — or of a State or Territory of the Commonwealth;" By s.41(3), a bankruptcy notice shall not be issued in relation to a debtor except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of s.40(1)(g). It is necessary first to characterise, for present purposes, the orders made by Nygh J. In making his orders, his Honour was dealing with an amended application by Mrs. Nemeth entitled an "application "for order for alteration of property interests". The main relief sought by Mrs. Nemeth was ~ "(a) That the Respondent do pay to the Applicant the sum of $2,000,000.00 by way of settlement of property. (b) That in the event of the Respondent having insufficient assets for the purpose of the payment by him to the Applicant of the whole of any proportion of the said sum of $2,000,000.00 Order that the Respondent do ail acts and things including the exercise of all voting and other rights and powers vested in him for the purpose of causing the said sum of $2,000,00.00 or such proportion thereof as shall be unable to be paid from his assets to be paid to the Applicant from the property of the F. Nemeth Family Trust being the trust constituted by Deed made the 12th day of May, 1976." ary etme ary ee en eee oe nen ge ene om nee ne -f Comey we cs. ae reo . hee -? te se ee 3 ernetert ora en ae me astern Re NR . 6. In his reasons for judgment, Nygh J. said (at pp.20~1) that, in awarding the sum of $450,000.00, he took into account matters mentioned in several of the paragraphs of s.79(4) of the Family Law Act. The learned Judge concluded his reasons by saying that, subject to the amendments and additions he had indicated, he proposed to make orders in the terms of the amended application (at p.22). It follows that, at least so far as concerns form, the orders were purportedly made pursuant to s.79(1). However, the form of these orders is one thing. Their substance, in terms of the relevant source of the power to make them, may be a different thing. Thus, in Re Jensen; Ex parte Jensen (1982) 65 F.L.R. 97, Fitzgerald J. held that an order which was in a form authorised by s.79 of the Family Law Act - it was expressed to be "as and by way of property settlement" - was, in truth, a maintenance order. As such, it was not a "finat order" for the purposes of s.40(1)(g) of the Act because it was capable of being modified under s.83 of the Family Law Act; further, a maintenance order was not deemed to be a "final judgment" by the operation of s.40(3)(b) of the Act. In Jensen, a consent order was made by the Family Court that "as and by way of property settlement, the husband pay to the wife the following: (a) the sum of $500 today. (b) The sum of $1,500 on or before 28 February 1979. (cc) The sum of $1,500 on or before 31st May 1979. (d) The sum of $1,500 on or before 3lst August 1979". Fitzgerald J. referred to the er woes Pr tee ee sore t aad ayo tyre cee + fa ee erie eee pe et seo - aye eG, . ROD eatin dD ne ee Tn ee 7. distinction drawn by the Family Law Act between orders altering the interests of the parties in property, including orders with respect to settlement of property, on the one hand and orders with respect to maintenance on the other. Fitzgerald J. said (at pp.100-1): "There is no present occasion to consider whether an appropriate "property order' might found a bankruptcy notice, noncompliance with which would constitute an act of bankruptcy. It seems that that may previously have been either decided or assumed: see In the Marriage of Bateman and Patterson (1981) 51 F.L.R. 263. Tf will assume in favour of the wife that an order which can only be questioned in the circumstances specified in s.79A of the Family Law Act is a final order: cf. Re Hanby; Ex parte Flemington Central Spares Pty. Ltd. (1967) 10 F.L.R. 378. The bankruptcy notice served upon the husband was founded upon the Family Court consent order in which the relevant order was described as "as and by way of property settlement". In my opinion, however conclusive the order of the Family Court may otherwise be, this Court exercising bankruptcy jurisdiction is not bound to accept that statement as establishing a valid exercise of power under s.79 of the Family Law Act, and thus, on the assumption above recorded, that the consent order was, for that reason, a final order for bankruptcy purposes. In my opinion the Family Court consent order was not an order authorized by s.79 of the Family Law Act. It patently does not even require the payments for which it provides to be made out of a particular fund (assuming, without deciding, that that would be an order empowered by s.79) or otherwise relate to specific property. On the contrary, the instalments ordered to be paid were obviously to be paid from any existing or future sources available to the husband." In 1985, after the decision in Jensen, the Act was amended by adding a new para.(f) at the end of s.40(3). The purpose of the amendment was explained in the explanatory ann nd eee gene — ane Lacy + % PR TONSA ee Eee TT 8. memorandum accompanying the Bill as follows: "Cl1.13 : Acts of Bankruptcy 57. This clause is designed to enhance the special protection accorded to maintenance creditors. The proposed amendment has been developed from a recommendation of the Joint Select Committee on the Family Law Act at para.5-83 of its 1980 report. [Family Law in Australia: A report of the Joint Select Committee on the Family Law Act" July 1980]. The proposal will permit a maintenance creditor to issue a Bankruptcy Notice based upon an order enforcing arrears of maintenance. The reason for the 12 month Limitation (in sub-para.40(3)€£)(i)) arises from the well established rule applied by Courts exercising jurisdiction under the Family Law Act. Under this rule, the Court wiil not, in general, exercise its discretion to enforce arrears of maintenance more than 12 months old at the date upon which the application for enforcement is brought: Reid v. Reid (1978) F.L.C.90-529. Therefore it would not be appropriate that arrears more than 12 months old, which may not be enforceable under the Family Law Act, should be used to found a Bankruptcy Notice." The amendment will not assist the applicant here. She accepts, correctly I think, that no order has been made for the payment of arrears of maintenance in the present case. Moreover, the applicant did not seek to argue that, s.40(3)(f£) apart, the orders made by Nygh J., although orders for maintenance, were nonetheless, ""final" for the purposes of s.40(1)(g). The applicant accepted, again I think correctly, that except where s.40(3)(£) operates, an order for maintenance is not within s.40(1)(g). The argument now advanced on behalf of the applicant to support the issue of a bankrutcy notice is that the orders made { vere owner o a NG bal Bete ein on et ere on we ee t ' © 9. by Nygh J. were both in form and in substance made pursuant to s.79(1) because they were orders altering interests in property rather than orders dealing with the applicant's maintenance of the kind contemplated by s.74; and that, since the orders were "final" in the sense explained by the authorities, they fell within s.40(1){g). On their face, the orders are proprietary in their character: order 1 deals with the "settlement" of a significant lump sum and order 2 gives recourse to the assets of a trust fund in the event of a deficiency. It is true that the subject matter of order 1 is cash. _ However, when orders 1, 2 and 6 are read together, it is plain that the orders were intended to achieve a re-allocation of the proprietary interests of the parties. It follows, in my view, that the relevant source of power for the making of the orders was s.79(1) and not s.74 of the Family Law Act. But are the orders "final" for the purposes of s.40(1)(g) of the Act? An order made under s.79 of the Family Law Act is liable to be set aside or varied pursuant to the powers conferred by s.79A. But the circumstances specified in s.79A for this purpose are more limited than those which would justify the variation or even enforcement of a maintenance order. In my opinion, the possibility of a subsequent application pursuant to s.79A to set teens on mee tees qt wwe coe scree te wy - Ro a Jas . se ee ae en ° ae ue en et ete are Seettithenn See 10. aside or vary an order made under s.79 is not, of itself, sufficient to characterise an order made under s.79(1) as not "final" for the purposes of s.40(1)(g). A similar question arose in Pepper v. McNiece (1941) 64 C.L.R. 642. Reliance was there placed upon a provision in moratorium legislation that the Court "may reconsider any matter which has been dealt with by it, or rescind, or vary a decision or order previously made by it". Notwithstanding these powers, it was held that an order of a Court of Petty Sessions under the legislation, while it stood, was a "final" order. Rich A.C.J. said (at pp.646~7): "And in the ordinary case the question whether an order is final or not is to be determined upon a view of it at the time it is made. If it is not final at that time, it cannot be made so by reason of its not being obeyed, or by any circumstances which have arisen since that time (In re Henderson (1)). Accordingly, an order for payment which is subject to revision cannot be regarded as final in any sense, whether for the purposes of bankruptcy or of the enforcement of foreign orders, as to which see Nouvion v. Freeman (2), Dicey's Conflict of Laws, 5th ed. (1932), pp.465-470, and cases there cited. But as the legislature has thought fit to provide expressly in sub-sec. 7 that an order of the character of the order in question shall be final and conclusive and without appeal, sub-sec. 8 must be read so as to give effect to these words. And on this ground I have come to the conclusion that the critical time at which to regard such an order is when the bankruptcy notice is to be issued. At that time there was an existing order which had determined that 120 pounds should be paid to the respondents. The court in making it pronounced the order as a final and definitive command that the appellant should pay the money. No doubt the court could not renouce its power of reconsideration, but it did not mean the order to be provisional or gre poe > vA, % ap coe oe a were ar on ene ve or rind pense ce tee - = et eee Mente ew TT Ee apd eet ete Aa ee exten oe 11. defeasible. No attempt has been made on the part of the respondents to move the court which made the order to reconsider the matter or to rescind or vary the order. If this be the criterion, having regard to the very definite words contained in sub-sec.7, the order in question is a final order within the meaning of sec.52(j), and the other ingredients which this section requires to constitute the statutory act of bankruptcy are present." Similar reasoning was applied in Re Hanby; Ex parte Flemington Central Spares Pty. Ltd. (1967) 10 F.L.R. 378 per Gibbs J. at p.381 and by the Full High Court in Clyne v. Deputy Commissioner of Taxation (1983) 57 A.L.J.R. 673 at p.675. But the circumstance that the availability of the powers conferred by s.79A does not deprive an order made under s.79 of any "final" character which it might otherwise have is not the end of the matter. There remains the question whether order l made by Nygh J. was, in its own terms, final. In my opinion, it was not final. It will be remembered that order 2 provided that in the event of a deficiency, the applicant was to be given recourse to the assets of a trust fund. It is plain that orders 1 and 2 were intended to be read together. When so read, it appears that it was intended that order 1 was not intended to operate as a final order: in the event of a deficiency, order 1 was not to operate. It was defeasible to that extent. It follows that it was not a iv te a, el . Seo naires ew tect be Bene en wee ew 12. final order. I make the following order: That the application to review the refusal of the Registrar to issue a bankruptcy notice be dismissed. I certify that, this and the preceding €&v2/1 (ff) pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Beaumont. Associate Dated: 1. yo ber 28 C Counsel and Solicitors M.A. Paul of Messrs. Gillis for Applicant: Delaney. Date of hearing: - 11 November 1986 Date Judgment Delivered: 12 November 1986 ? v a ae) renee be