a bo ¢@ ' JUDGMENT No. AA QU. steovesscoonteres CATCHWORDS BANKRUPTCY - joint debtors in partnership - petition,against partnership - joint composition - approved by single resolution - no power to effect joint composition under s.73 - limiting case - no separate creditors - no separate assets - joint meeting single resolution ~- indistinguishable from separate concurrent meetings and separate resolutions - composition approved - bankruptcies annulled. Bankruptcy Act 1966 ss. 55, 56, 57 Acts Interpretation Act 1901 s.23(b), ss.73, 74 Re: Pepper (1969) 14 FLR 282 Re: Edwards (1987) 71 ALR 403 RE: RAYMOND KENNETH TYNAN AND KAREN PATRICE TYNAN EX PARTE: RAYMOND KENNETH TYNAN AND KAREN PATRICE TYNAN NO. 408 OF 1985 FRENCH J. 4 SEPTEMBER 1987 PERTH Yor te reer ye rs oN FY in Wwe er ee ere ary ee ' ve, v or IN THE FEDERAL COURT OF WESTERN AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA eae NO. 408 OF 1985 RE: RAYMOND KENNETH TYNAN AND KAREN PATRICE TYNAN Bankrupts EX PARTE: RAYMOND KENNETH TYNAN AND KAREN PATRICE TYNAN Applicants MINUTE OF ORDER JUDGE MAKING ORDER: FRENCH J. DATE OF ORDER: 4 September 1987 WHERE MADE: Perth THE COURT ORDERS THAT: l. The composition proposed by the bankrupts and accepted by a meeting of their creditors held on 10 July 1987 be approved. 2. The bankruptcy of each bankrupt is annulled with effect from 4 September 1987. Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. Lipo - a en on yeseeee we UR eae ne: " y a coger cee nearer apo ts omen " 3 pe ee ee Me a cpeewetner wee tee ao ere Hae Ss eiadeieet et a IN THO FEDERAL COURT OF WESTERN AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THC STATE OF WESTERN AUSTRALIA ee ed NO. 408 OF 1985 RE: RAYMOND KENNETH TYNAN AND KAREN PATRICE TYNAN Bankrupts EX PARTE: RAYMOND KENNETH TYNAN AND KAREN PATRICE TYNAN Applicants CORAM: FRENCH J. 4 SEPTEMBER 1987 REASONS FOR JUDGMENT This application raises a question concerning the power of the Court to approve a joint composition for two bankrupts with no separate creditors and no separate assets. Raymond Kenneth Tynan and Karen Patrice Tynan became bankrupt by their joint petition lodged 29 August 1985 under s.56 of the Bankruptcy Act 1966. They are a young farming couple with 4 dependent children. In December 1980 they bought a 16,000 acre farm at Salmon Gums for $60,000.00. Of that they paid $40,000.00 down with the balance on vendor's terms. pom n 2. Tn 1980-81 they put 1,300 acres of the farm under crop. Unfortunately by reason of drought this yielded only 70 tonnes. The Rural Adjustment and Finance Corporaton of Western Australia advanced them $20,000.00 to assist with planting of crops for the following season. In 1981-82 the yield was again only 70 tonnes, against an expected 800-900 tonnes. In 1982-83 the crop returned only 200 tonnes by reason of late rains in November. In 1983-84 as a result of frosts in October 1983, they recovered only 160 tonnes. Mr and Mrs Tynan walked off their farm in January 1985 as they were unable to meet debts which they had incurred over the previous 5 unsuccessful seasons. Mr Tynan obtained employment as a tyre fitter, then later as a timber feller. He now earns $350.00 per week as a shearer. Mrs Tynan is fully occupied with home duties. Creditors of their farming partnership continued to press for payment, leaving the Tynans with no alternative but to file their petition in bankruptcy. " more a ee ew cree cae pee ne aera eye Ms t 3. Provfs of their joint debts totalling $169,064.00 have been received and a total of $135,426.00 has been admitted to rank for dividend. There are 6 unproved creditors claiming to be entitled to a total of $4,559.00. No proofs of debt were received in either of the separate estates. Realisation of assets in the joint estate has yielded $2,209.00. There are no assets in either of their separate estates. There is a further $903.00 by way of toll credits with Co-Operative Bulk Handling Ltd, which asset is yet to be realised. On 10 July 1987 a meeting of the Tynans' creditors resolved to accept their proposal for a composition. Under this proposal the Tynans would pay $1,500.00, being funds provided by Raymond Tynan's father in full satisfaction of provable debts after fees and expenses. The funds made available under the composition together with money in the joint estate would yield a dividend of 1.67 cents in the dollar to joint creditors already admitted. If all unresolved claims were to be admitted, the divided would be 1.27 cents in the dollar. woneewe eee e mone yr ae Ve eM a earns ee wrest ee There were no separate creditors and the meeting resolved unanimously in the following terms:- "The bankrupts' proposal for a composition dated 23th May 1987, wherein they offered $1,500 being funds provided by Kenneth William Tynan together with all monies in their joint estate, be accepted in full Satisfaction of their provable debts after payment firstly of all the proper costs, charges and expenses of and incidental to the proceedings and all fees payable to the Official Trustee in Bankruptcy and secondly all priority debts directed to be so paid under the Act." The Official Receiver 1s of the opinion that the composition would be for the benefit of the creditors and on the evidence I accept that this is so. The question then arises whether the Court has power to approve the joint composition. Statutory Framework Sections 55 to 57 of the Bankruptcy Act provide for presentation of debtors' petitions in the three cases of:- 1. A sole debtor (s.55). 2. A number of debtors comprising the majority of members of the partnership (s.56). 3. Two or more joint debtors not in partnership (s.57). The core provisions of these sections for present purposes may be set out as follows:- RF OTED - oe ¢ - ? f, PONY OD we St 5. "55(1) Subject to this section, a debtor may present to the Registrar a petition against himself accompanied by a statement of his affairs, verified by affidavit, and a copy of that statement. (3) Where it appears to the Registrar that a petition presented to him under this section is' in accordance with the prescribed form and that the statement of affairs accompanying the petition is also un accordance with the prescribed form or the Court directs, under sub-section (4), the Registrar to accept the petition - (a) the petition shall be accepted by the Registrar, who shall endorse it accordingly; and (b) thereupon, by force of this sub-section, the debtor becomes a bankrupt by virtue of the presentation of the petition. (8) A person who becomes a bankrupt by force of this section continues to be a bankrupt until - (a) he is discharged by force of section 149; (b) he is discharged by order of the Court; or (c) his bankruptcy 1s annulled under section 74 or 154. 56(1) A debtor's petition against a partnership may be presented to the Registrar by all the members of the partnership or by a majority of the members of the partnership who are resident in Australia at the time of the presentation of the petition. (4) Subject to sub-section (6), where - (a) it appears to the Registrar that a petition presented to him under this section is in accordance with the prescribed form and that each of the statements of affairs accompanying the petition is also in accordance with the prescribed form; or (b) the Court directs, under sub-section (5), the Registrar to accept the petition, vere ee ee ewer © wor ree ee 6. the petition shall be accepted by the Requistrar, who shall endorse it accordingly, and thereupon, by force of this section - (c) except in a case to which paragraph (d) applies - each of the members of the partnership becomes a bankrupt by virtue of the presentation of the petition; or (d) ain a case where the petition is accepted by the Registrar in pursuance of an order of the Court under paragraph (7)(b) -the petitioning partner, or each of the petitioning partners, who gave his consent for the purposes of that paragraph becomes a bankrupt by virtue of the presentation of the petition. (16) A person who becomes a bankrupt by force of this section continues to be a bankrupt until - (a) he is discharged by force of section 149; (b) he is discharged by order of the Court; or (c) has bankruptcy 1s annulled under section 74 or 154. 57(1) Where joint debtors are not in partnership with One another, the debtors, or any 2 or more of the debtors, may present to the Registrar a petition jointly against themselves. (4) Where it appears to the Registrar that a petition presented to him under this section 1s_ in accordance with the prescribed form, and that each of the statements of affairs accompanying the petition is also in accordance with the prescribed form, or the Court directs, under sub-section (5), the Registrar to accept the petition - (a) the petition shall be accepted by the Registrar, who shall endorse it accordingly; and (b) thereupon, by force of this section, each of the petitioning debtors becomes a bankrupt by virtue of the presentation of the petition. os oe ie \s amen Seema py ae mere aes ana Sanaa eeeeeaty aia 7. {10) A person who becomes a bankrupt by force of this section continues to be a bankrupt until - (a) he is discharged by force of section 149; (b) he is discharged by order of the Court; or (c) his bankruptcy 1s annulled under section 74 or 154." Section 57 was evidently enacted as a result of the decision of Gibbs J. in Re: Pepper (1969) 14 FLR 282 in which his Honour held that under the law as it then stood, joint debtors who were not partners could not petition jointly against themselves. The petition filed by the Tynans was filed under s.56 of the Act. Their application for approval of the composition is brought under s.74 of the Act which must be read in conjunction with s.73:- "73(1) Where a bankrupt desires to make a proposal to his creditors for - (a) a composition in satisfaction of his debts; or (b) a scheme of arrangement of his affairs, he may lodge with the trustee a proposal in writing signed by him setting out the terms of the proposed composition or scheme of arrangement and particulars of any sureties or securities forming part of the proposal. (2) The trustee shall call a meeting of creditors and shall send to each creditor before the meeting a copy of the proposal accompanied by a report on it. (3) The bankrupt may, at the meeting, amend the terms of his proposal. weet ey > a " Ct ie rea aad 7s . an ~ tee ee per 8. (4) The creditors may, by special resolution, accept the proposal. (5) A creditor who has proved his debt may assent to or dissent from the proposal by written notice to that effect delivered to the trustee before the meeting or sent by post to the trustee and received by him before the meeting, and in that case the creditor shall, for the purposes of this division, be deemed to have been present at the meeting and to have voted according to his assent or dissent. 74(1) If a bankrupt's proposal for a composition or a scheme of arrangement is accepted by his creditors in accordance with section 73, the bankrupt or the trustee may apply to the Court for approval of the composition or scheme of arrangement. (2) The trustee shall give notice of the time appointed for hearing the application to each creditor who did not assent to the proposal. (3) The Court shail, upon the hearing of the application, hear - (a) a report by the trustee as to the terms of the composition or scheme of arrangement, and as to the conduct, trade dealings, property and affairs of the bankrupt; and (b) any objections to the composition or scheme of arrangement made by or on behalf of a creditor. (4) The Court may approve, or refuse to approve, the composition or scheme of arrangement. (5) Where the Court approves a composition or scheme of arrangement under this section, it may make an order annulling the bankruptcy. The term "bankrupt" is defined in sub-s.5(1) of the Act:- 9. ""bankrupt" means a person — Pp (a) against whose estate a sequestration order has been made; or (b) who has become a bankrupt by virtue of the presentation of a debtor's petition." Part X of the Act makes provision for arrangements without sequestration, which arrangements include compositions. Section 187A, which was introduced into Part X by amendment in 1980 and which applies only to that Part, provides:- "187A(1) The provisions of this Part apply, subject to such modifications and adaptations (1f any) as are prescribed by the rules, in relation to joint debtors, whether partners or not. (2) In sub-section (1), "modification" includes the addition or omission of a provision or _ the substitution of a provision for another provision." By virtue of s.187A it 1s possible under Part xX for joint debtors to enter into a joint composition wath their joint creditors. The Bankruptcy Rules address the position of what are termed "joint bankruptcies" in Rules 100A to 100F. Rule 100A(1) defines "joint bankruptcy" to mean, inter alia, "a bankruptcy that occurs by force of section 56 or 57 of the Act". "Joint creditors" means "the creditors of joint debtors made bankrupt in a joint bankruptcy." Be ees ae neg ee, 10. Rule 100C provides that at a meeting of joint and separate creditors, separate creditors shall not vote on a resolution proposed for consideration by joint creditors. Nor shall joint creditors vote on a_ resolution proposed for consideration by separate creditors. The Joint Composition The effect of the presentation of a petition under s.56 of the Act is that each debtor becomes a bankrupt. The status of any one joint debtor as a bankrupt does not depend for its continuance upon the status of any other. The term "joint bankruptcy" as used in Rule 100A defines a kind of bankruptcy by reference to the process that produced it. Although the term can, I think, be misleading in that regard, it cannot affect the construction of the Act 1tself. Sections 73 and 74 do not use words which allow for more than one bankrupt to present a joint proposal to a meeting of creditors. Section 23(b) of the Acts Interpretation Act 1901 provides that in any Act unless the contrary intention appears, words in the singular shall include the plural. wea salami aameaaier sed ll. Tn Re: Pepper (1969) 14 FLR 282, Gecided before the enactment of s.56 1n 1ts present form, Gibbs J. considered whether the provisions of the Acts Interpretation Act would enable joint debtors not in partnership to present a debtors' petition under s.55. At 283 his Honour said:- "If 'the word "debtor" ain s.55 were construed as including the plural, the section would enable any two or more debtors to petition whether they were joint debtors or not. The section so construed would permit two debtors to join in a petition even though they had no joint liabilities or joint assets." His Honour was of the opinion that this would be an obviously inconvenient result. After comparing the provisions of s. 55 with the express provisions for presentation of a creditor's petition against two or more joint debtors, whether in partnership or not (s.46), he concluded:- "...a comparison of ss.45 and 46 on the one hand with ss. 55 and 56 on the other strengthens the view that the intention of the legislature was that although a creditor's petition may be presented against two or more joint debtors who are not partners, such debtors may not present a joint petition against themselves." By analogous reasoning, the application of the Acts Interpretation Act to ss.73 and 74 would enable compositions by debtors who are not joint debtors. That 1s not, in my opinion, consistent with the intention of the legislature. "— ne 12. The language of s.1874 embodies a legislative recognition of the need for a special provision to deal with composition by joint debtors. But s.187A applies only to Part X of the Act and there 1S no corresponding provision operating upon compositions entered into under s.73. In my opinion, bankrupts who are joint debtors cannot, under the Act, enter into joint compositions. The inconvenience of this limitation may be mitigated in particular cases by causing concurrent meetings of creditors to be convened and separate resolutions put in respect of each bankrupt. Where the bankrupts have separate estates, such a procedure may have the virtue of permitting creditors to consider the composition proposals in relation to the circumstances of each separate estate. Whether that be right or not, I do not consider that the language of ss.73 and 74 will accommodate a joint composition - see Re: Edwards (1987) 71 ALR 403. The circumstances of the composition presently before me however, stamp it as a limiting case. wwe Ot en en eee wee 13. There are neither separate creditors nor separate assets. It does not appear that the joint creditors voting on the proposal could have had any relevant basis upon which to distinguish one debtor from the other in determining wkether to vote for the composition resolution. They were, in my opinion, in the same position in which they would have been if voting at two meetings of creditors held concurrently and considering two resolutions embodying the composition in question. To require the bankrupts and the creditors to go through the procedure of attending at two concurrent meetings to consider in the form of separate resolutions the same composition they had already approved, would be absurd. That absurdity arises not merely from the inconvenience of such a procedure. It also reflects the absence of any distinction of substance in a case such as the present between a joint composition approved in one resolution at one meeting and two compositions to the same effect approved by two resolutions of the same creditors passed at two meetings held concurrently. In the limiting case of joint debtors with no separate creditors and no separate assets a semantically flawless adherence to the terms of the statute might require separate resolutions at concurrent meetings. There being in this case no discernible difference in substance between that procedure and the passage of a single resolution at a joint meeting, common sense requires the acceptance of the latter procedure as within the statute. ot ore ne ee nt a on TF 14. In my opinion therefore, on the facts of the case the composition resolution may be approved. Having accepted that it is for the benefit of the creditors, and there being no reason to disallow it, I will give that approval. The bankrupts also seek orders that their bankruptcies be annulled. The evidence indicates that there 1s no reason of public interest or commercial morality standing in the way of annulment. The bankruptcies arise from events beyond the control of the Tynans, namely poor seasonal conditions affecting the Salmon Gums farming properties from 1980 to 1985. There is no suggestion of any misconduct on their part which might stand as an objection to the annulment. In the circumstances I propose to make orders accordingly:- 1. The composition proposed by the bankrupts 9 and accepted by a meeting of their creditors held on 10 July 1987 be approved. 2. The bankruptcy of each bankrupt 1s annulled with effect from 4 September 1987. I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment of His Honour Mr Justice French. Associate: De Nero ee Date: 4 Seipseuwhe« oy et es TO eres re . aad "1 neers I re ener ar ad TET re r TELE MATT Bat rd — 7 opetng, Shere 15. Counsel for the Applicants: Mr R.G.S. Harrison Solicitors for the Applicants: Messrs. Warren McDonald French & Harrison Mr L. Christensen appeared for the Official Trustee. Date of Hearing: 24 August 1987 Date of Judgment: 4 September 1987 po repre een onthe ap nee ee me costae wip metre ee = wm reer