! | Not for distribution notice that he suspended payment of his debts - relevant considerations. Bankruptcy Act 1966 Ex parte Oastler. In re Friedlander (1884) 13 Q.B. 471. In re Scott. Ex parte Scott £1896] 1 Q.B. 619. Clough v. Samuel & Grs. £19051 A.C. 442. Cropley's Limited v. Vickery & Ors. (1920) 27 C.L.R. 321. Re Hewson; Ex parte Sydney Stock Exchange Ltd. (1967) 10 F.L.R. 479. Re Carney & Carney; Ex parte Ampol Petroleum (Queensland) Pty.Ltd. (1983) 76 F.L.R. 97. RE PETER THOMAS TANNER; EX PARTE THE ELMS FAMILY IMPORT-EXPORT PROPERTY AND INVESTMENT ENTERPRISES PTY.LTD. No. 948 of 1986 SPENDER J. BRISBANE 24 DECEMBER 1986. Pag IN THE FEDDCRAL COURT OF AUSTRALIA ) ~ GENERAL DIVISION ) QLD. PET. 948 of 1986 BANKRUPTCY DISTRICT OF THE SOUTHERN ) ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: PETER THOMAS TANNER Debtor EX PARTE: THE ELMS FAMILY IMPORT-EXPORT PROPERTY AND INVESTMENT ENTERPRISES PTY.LTD. Petitioning Creditor DATE JUDGMENT DELIVERED: 24 DECEMBER 1986 COUNSEL: for the debtor Mr. Morris instructed by Mr. Underhill of Messrs. McCarthy, Palethorpe & Blanch for the petitioning creditor Mr. D. Murphy instructed by Miss McVeigh of Messrs. J.A. McCullough & Robertson THERESE MACDERMOTT ASSOCIATE TO SPENDER J. IN THE FEDERAL COURT OF AUSTRALIA ) ~ GENERAL DIVISION ) QLD. PET. 948 of 1986 BANKRUPTCY DISTRICT OF THE SOUTHERN ) ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: PETER THOMAS TANNER Debtor Ea PARTE: THE ELMS FAMILY IMPORT-EXPORT PROPERTY AND INVESTMENT ENTERPRISES PTY.LTD. Petitioning Creditor MINUTES OF ORDER JUDGE MAKING ORDER: SPENDER J. DATE ORDER MADE: 24 DECEMBER 1986 WHERE MADE: BRISBANE THE COURT ORDERS THAT: The petition be dismissed. NOTE: Settlement and entry of orders is dealt with in Bankruptcy Rule 124. IN THE FEDERAL COURT OF AUSTRALTA ) GENERAL DIVISION ) QLD. PET. 948 of 1986 BANKRUPTCY DISTRICT OF THE SOUTHERN } DISTRICT OF THE STATE OF QUEENSLAND ) RE: PETER THOMAS TANNER Debtor EX PARTE: THE ELMS FAMILY IMPORT-EXPORT PROPERTY AND INVESTMENT ENTERPRISES PTY.LTD. Petitioning Creditor SPENDER J. BRISBANE 24 DECEMBER, 1986. REASONS FOR JUDGMENT This is an application for a sequestration order against the estate of Peter Thomas Tanner. The act of bankruptcy relied on is that Mr. Tanner, "on or before 2 July 1986, gave notice to his Creditor (sic) that he has suspended payment of his debts." The Creditor's Petition claims that Mr. Tanner is "justly and truly indebted as at 8 August 1986 to the petitioning creditor in the sum of $20,073.47, together with interest compounded at the rate of 15 per cent per annum for moneys lent and not repaid." In fact, it emerges that Mr. Tanner is the guarantor of a loan by the petitioning creditor to a company, Rycourt Pty.Ltd., of which Mr. Tanner was formerly a director. It further appears that Mr. Tanner's involvement with Rycourt Pty.Ltd. was terminated on the basis that Mr. Gallus, the other guarantor and director of Rycourt Pty.Ltd., would indemnify Mr. Tanner in respect of any liability on Tanner's part to the petitioning creditor. The petitioning creditor's case is that at a meeting held on 2 July 1986, Mr. Tanner not only signed an acknowledgment of his indebtedness but also made statements which amount to the commission of the act of bankruptcy specified in paragraph 40(1)(h) of the Bankruptcy Act 1966, which provides:- "A debtor commits an act of bankruptcy in each of the following cases:- (h) if he gives notice to any of his creditors that he has suspended, or that he is about to suspend, payment of his debts;" It will be necessary to turn to that meeting in more detail later but, in the affidavit verifying the petition, Mr. Elms, a director of the petitioning creditor, said that:- "The abovenamed Debtor on the 2nd July 1986 acknowledged that as at the 30th June 1986 the Debtor owed the sum of $19,768.70 to the Petitioning Creditor together with interest compounded at the rate of 15 per centum per annum os and that although the Debtor was most anxious to pay the said debt to the Petitioning Creditor the Debtor was unable to do so." This is the extent of the directed to establishing the act of bankruptcy relied on. evidence in the affidavit of Mr. Elms, An affidavit by Mr. Douglas Beames, solicitor for the petitioning creditor, swore simply that the act of bankruptcy alleged in the petition "is within my own knowledge true" ruled it inadmissible. : I Oral evidence was given by Mr. Elms, Mr. Beames and Mr. Tanner. The Notice of Intention to Oppose Petition asserts these grounds:- "1. That the said Creditor's Petition does not allege an act of bankruptcy of the type referred to in section 40(1)(h) of the Bankruptcy Act, 1966 to have been committed by the Debtor; Alternatively, that the Debtor did not commit the act of bankruptcy alleged in the said Creditor's Petition; That the said debtor is able to pay his debts;..." As to what constitutes the giving by a debtor notice that he intends to suspend payment of his debts, of a it is important to recognize that each case falls for determination on its own facts. Some reference to the cases, however, is useful. Dd In Ex parte Oastler. In re Friedlander (1884) 13 Q.B. 471, the debtor had made an oral statement to his creditor that he was not able to pay his debts in full. In the Court of Appeal, Baggallay, L.J. said at 474:- "In my opinion the conversation which is relied upon did not amount to such a notice of an intention to suspend payment as is contemplated by sub-s.l(h) of s.4." (This is the equivalent of s.40(1)(h) of the Bankruptcy Act 1966). "It is suggested that the debtor in effect said, 'I am unable to pay my debts,' and that this is equivalent to saying, 'I am about to suspend payment of my debts'. I. cannot so view it. Looking at sub-s.i(f) I do not think that a statement by a debtor that he is unable to pay his debts can be regarded as equivalent to a notice that he is about to suspend payment of his debts." Cotton L.J. said at 474:- ",.. all the circumstances must be taken into consideration, as well as the words which were used by the debtor. Even if the words 'suspend payment' had been used in the present case, I think it would be a serious question whether under the circumstances there had been such a notice as ig contemplated by sub-s.1lth). But the debtor did not in fact intimate either that he had suspended payment of his debts, or that he had any intention of stopping paying his creditors. He only said, My assets are insufficient to pay my debts in full." And later, "To my mind, there is a great difference between saying, 'If all my assets are distributed my creditors will not get 20s. inthe pound,' and saying, 'If any creditor comes to me in the ordinary course for payment I shall not pay hin,' or 'I have suspended the payment of my debts'." Lindley L.J. at 475 said:- "The first question is, what is the meaning of a debtor's 'giving notice' that he has suspended, or is about to suspend, payment of his debts? I think it does not mean mere casual talk; it must be something formal and deliberate, something done by the debtor with a consciousness that he is 'giving notice,' and intended to be understood in that sense. An act of bankruptcy 1s a serious matter. I am of opinion that what was done in the present case did not amount to a 'giving notice' within the Act. If it was a notice at all, it was only a notice that the debtor might have to pay his creditors a composition; not a notice that he had suspended, or that he was about to suspend, payment of his debts". In re Scott. Ex parte Scott £18961] 1 Q.B. establishes that the act of bankruptcy presently relied applies to non-traders as well as to traders. In that case, it was held that:- "A statement made by a debtor will amount toa notice that he has suspended, or is about to suspend, payment of his debts, within the meaning of s.4, sub-s.l(h), of the Bankruptcy Act, 1883, so as to constitute an act of bankruptcy, if it is in effect a statement that the debtor is unable to pay his debts, and intends to deal with his creditors collectively." At 624, Vaughan Williams J. said:- "If we look at this case as if there had only been an application for payment, and the creditor had been told to call again, and receive payment for himself and for Mr. Lewis, and when he called again the next day the debtor had said, 'I cannot pay now, but I hope to pay every one soon,' that in itself would not amount to a notice of suspension of payment. I am convinced that s.4, sub-s. lth), is meant to apply to the case of a debtor dealing with his creditors as a hody." He continued:- given by the debtor to Mr. Sear, that at that moment she could not pay him and Mr. Lewis, or any of her creditors. That by itself might not come within the section; but she went on to add that she had taken advice, and that she would not pay : any one. That is not an answer to these two | people only; what she was really saying was, 'I cannot pay you or any one else; TI have taken advice, and I am advised that I must deal with my | creditors collectively.'" | "In the present case the only notice given was that | i In Clough v. Samuel & Ors. [19053 A.C. 442, the Earl of Halsbury L.C. said at 444:- "The statute might have said that an admission of insolvency should be enough, or that a present state of insolvency should be enough, but it is sufficiently clear that neither one nor the other will be sufficient as an act of bankruptcy. In earlier times bankruptcy was aocrime, and in dealing with our law to commit the crime it was necessary to commit an act of bankruptcy. Two most distinguished judges, Lord Selborne and Lord Watson, have pointed out in this House that a declaration of inability by a debtor does not of } itself and without reference to context or circumstances satisfy the statute; and if I look to the circumstances or the words used, I concur with the Court of Appeal here that the debtor neither did nor intended to do any such thing as to give notice to his creditors or to any of them { that he intended to suspend the payment of his debts." ' Lord Macnaghten, who dissented, said at 446:- "The notice need not be in writing. It is enough if notice is given to any one of the creditors. ; No particular form is required. There is nothing L said in the Act about the debtor's intention. The j question is what effect would the communication \ have on the minds of the persons to whom it is addressed. That is the test as laid down in this | House. It is only a matter of common sense, as t 'we A.L. Smith L.J. observed. All that is required is that a communication proceeding from the debtor, made seriously, should give the creditors or any of the creditors to understand from the state of circumstances as disclosed at the time that the debtor has suspended or that he is about to suspend payment." Lord Robertson, at 449, said:- "Tt is, of course, entirely consistent with this view that the question whether notice of suspension has been given must depend on the import of what was said or written and is relied on as notice. Now, the question is, Did Mr. Reis give notice that he had suspended payment of his debts, or was about to suspend it? It seems to me that he did nothing in that direction except to shew (to two of his creditors) his circumstances to be such that suspension of payment was one of the courses open to him. The occasion and object of the interview founded on was to arrange with two brokers about closing the account. It is true that at that interview disclosure was made of a state of affairs which would have justified suspension of payment. But to me it is equally clear that what 1s relied on as having been said did not, in its reasonable sense, import notice of an intention to take that step, and it 1s at least doubtful whether the tenor of the communication did not rather point in the opposite direction." The High Court considered this ground in Cropley's Limited v. Vickery & Ors. (1920) 27 C.L.R. 321. Knox C.d. at 325, in a passage which has frequently been cited, said:- "Without going into the cases at length, it is perfectly clear that to constitute this act of bankruptcy two things are requisite: first, an intention residing in the mind of the debtor that he will, ina sense voluntarily, that is, as his own act, refuse to pay his debts as they become due, and, secondly, a communication of that 10 F.L.R. 479, Sir Harry Gibbs, then sitting in the Federal Court of Bankruptcy, considered this act of bankruptcy. He said at 483-4:- He then In Re Hewson: Ex parte Sydney Stock Exchange Ltd. intention to one of his' creditors. It is not necessary to go through every word of the evidence because the facts of one case will never, or very rarely, be the same as those of any other case." "However, on behalf of Hewson it wag submitted that to constitute an act of bankruptcy within s.52(k) it is necessary that the debtor should intend to refuse of his own free will to pay his debts and to communicate that intention to one of his creditors, and that it is not enough if he merely says that by force of circumstances he is unable to pay. In this argument reliance was placed on the judgments in Clough v. Samuel £1905] A.C.442 and Cropley's Ltd. v. Vickery (1920) 27 C.L.R. 321. These cases show that an admission of insolvency or of inapility to pay debts is not enough in itself to constitute an act of bankruptcy within this subsection, and that the debtor must have an actual intention to suspend payment to his creditors. The passage on which counsel for Hewson most strongly relied is contained in the judgment of Knox C.J. in Cropley's Ltd. v. Vickery (1920) 27 C.L.R. at p.325." cited the passage to which I have earlier referred, and he continued:- "By using the words 'voluntarily' and 'refuse' Knox C.J. did not mean that this act of bankruptcy can only be committed by a debtor who has a free and unconstrained choice, in the sense that he is possessed of sufficient funds to enable him to meet his obligations and is not acting under necessity, and yet refuses to pay. Usually, a man suspends payment of his debts because he is unable to pay them and it has never been held that this act of bankruptcy is limited to the case where the debtor is able to pay but for some reason decides (1967) not to do sa, A debtor commits this act of bankruptcy when he decides not to meet his engagements as they fall due, and gives notice of that decision to his creditors, although the reason for his decision 1s that any other course would be futile. As Lord Robertson pointed out in Clough v. Samuel £1905] A.C., at p.448, a man who is insolvent has a number of choices open to him. He 'may try to arrange wih his more pressing creditors, or he may put off the evil day and stagger on, leaving the stoppage of his career to be brought about by the action of others'. If he chooses either of these courses he does not intend to suspend payment of his debts. Another course open however is to give up the struggle and make no attempt to pay his debts, and if he chooses that course, even if it is the only sensible course, he does not intend to pay his creditors in the course of his trade (to use the words of Rich J. in Cropley's Ltd. v. Vickery (1920) 27 C.L.R., at p.327 and does intend to suspend payment. If a debtor says that he 1s unable to pay, and means no more than that, it is not enough, but if in the circumstances his words mean that he has not the intention of paying his debts as they become due, that will be notice that he is about to suspend payment (see Crook v. Morley £1891] A.C. 316, at pp. 320-324; In re a Debtor [19293 1 Ch. 362, at pp 369, 371-372 and Re Francis (1941) 12 A.B.C. lll; aff'd 65 C.L.R. 662(n). , As I have indicated, 1n the circumstances of the present case Hewson's statements went beyond a mere declaration of his inability to pay his debts. They made it clear that of necessity he had given up the struggle and intended to do nothing towards paying his debts as they became due inthe ordinary course of his trade as a stockbroker." In Re Carney & Carney; Ex parte Ampol Petroleum (Queensland) Pty.Ltd. (1983) 76 F.L.R. 97, Fitzgerald J. said:- "As the debtor's intentions appear from the statements which were made, the debtors intended to continue to trade and to pay creditors in the course of their business as they could, and they said nothing, in fact, to the contrary. They did continue to trade and to pay creditors. They did not indicate an intention to suspend payment to their trade creditors generally. They did not have that intention, and they did not do so. at 99 tw de 10. Accordingly, the petition based solely upon s.40(1)(h) of the Act must be dismissed. It is, of course, open to the petitioning creditor to give a bankruptcy notice based on the Supreme Court judgment which it obtained prior to the presentation of the present petition." In this particular case there is no judgment debt. Turning to the circumstances of the meeting of 2 July 1986, there are significant inconsistencies between the accounts of the various participants, each with the other, and there are also anconsistencies between what is said by Mr. Elms in his affidavit and with his oral evidence concerning the circumstances of that meeting. I think that, at the highest for the petitioning creditor, Mr. Tanner indicated that he was in an embarrassing financial position and that he was in no position to pay his debts. Mr. Beames seciously contradicted himself in his evidence as to whether Mr. Tanner had other debts. He said in his evidence:- "T asked him whether he had any other debts. I do not recall getting a direct reply to the question." And only a short time later in his evidence he said:- "IT asked him if he had any debts, and he responded, 'yes', and then the conversation changed. It was as though it was not a matter to be pursued." As to the context of the conversations, Mr. Elms said:- . ad ll. "It was just a discussion there to confirm a debt and find out when the debt would be paid. That was the purpose of the meeting." Given the inconsistences in the oral evidence of Mr. Beames and Mr. Elms and the affidavit material for the petitioning creditor, and the circumstances and nature of the meeting, I prefer the account given by Mr. Tanner. On any view of the matter, however, I am quite satisfied that there was never any communication by Mr. Tanner as contemplated by 3.40(1)(h). That act of bankruptcy is not made out and, for that reason, I dismiss the petition. Purther, Mc. Tanner filed an affidavit deposing to his solvency. This shows assets of some $377,000.00 and liabilities $76,500.00. No serious challenge was made to Mr. Tanner's evidence that he 1s solvent and on that basis also I refuse to make the order sought in the petition. I order that the petition be dismissed. ity that this and the 1 cartify we reasons for nages are 4 true copy ct? '7 of {gnour udgment here'a of His Ho Mr Justice Spender : Dated 24-/i2/"G. vO preceding