JUDGMENT No. 2273&. CATCHWORODS BANKRUPTCY - two bankruptcies - second beyond Court's power - whether should be annulled - whether second (annulled) bankruptcy prevents automatic discharge - conflicting decisions. Bankruptcy Act 1966, ss.149, 150, 154 Re: Mark Andrew Fitzgerald Ex parte: The Bankrupt Qld E454 of 1983 Re: Mark Andrew Fitzgerald Ex parte: The Bankrupt Qld E455 of 1983 PINCUS J. BRISBANE 23 February 1988 IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) QLD E454 of 1983 RE: MARK ANDREW FITZGERALD EX PARTE: THE BANKRUPT QLD E455 of 1983 RE: MARK ANDREW FITZGERALD EX PARTE: THE BANKRUPT MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE OF ORDER: 23 FEBRUARY 1988 WHERE MADE: BRISBANE THE COURT: 1. orders that the second bankruptcy founded upon the sequestration order made on 3 October 1983 be annulled under s.154(1) of the Bankruptcy Act 1966; 2. declares that by virtue of s.149(1) of the Bankruptcy Act 1966 the applicant is discharged from the bankruptcy consequent upon the acceptance of his debtor's petition on 3 October 1983; and 3. orders that there be no order as to costs. i Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. | IN THR FEDERAL COURT OF AUSTRALIA GENERAL DIVISION ) BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND QLD E454 of 1983 RE: MARK ANDREW FITZGERALD EX PARTE: JHE BANKRUPT QLD E455 of 1983 RE: MARK ANDREW FITZGERALD EX PARTE: THE BANKRUPT PINCUS J. 23 FEBRUARY 1988 REASONS FOR JUDGMENT I have before me applications for annulment of bankruptcy or alternatively discharge from bankruptcy. On 26 October 1982, there was presented against the applicant a petition for sequestration by a creditor, and a sequestration order was made on it by an order of 3 October 1983. However, on the same date the applicant had presented his own petition and it was accepted before the sequestration order was made. By reason of acceptance of the debtor's petition, the debtor became bankrupt (s.55(3) of the Bankruptcy Act 1966), but that circumstance was not drawn to the attention of the judge who made the sequestration order. Mr. Dutney, for the applicant, argued that the second bankruptcy should be annulled under s.154(1) on the ground that the sequestration order "ought not to have been made". He relied upon the decision of the High Court in Clyne v. Deputy Commissioner of Taxation (1984) 55 A.L.R. 143. The reasoning adopted by their Honours in that case applies here; the debt on which the creditor's petition was founded was one provable in the bankruptcy which began when the debtor's petition was accepted. For the same reasons as the Court there gave, this Court: ",.. had no power to make the order that it did while the bankruptcy which resulted from the acceptance of the debtor's petition continued." In those circumstances, i1t is clear that the order "ought not to have been made" and no sufficient reason appears for declining to exercise the power to annul the bankruptcy; in particular, it ais mot shown that the filing of the debtor's petition constituted an abuse of process. The next step in Mr. Dutney's argument, delivered in anticipation of an order annulling the sequestration order on the ground that there was no power to make it, was that the annulment had such retrospective effect as to make s.149(3)(b) of the Act inapplicable. Section 149(1) provides for automatic discharge three years from the date of bankruptcy and would, but for the second bankruptcy, which I have annulled, have brought about the discharge of the applicant on 3 October 1986. However, s.149(3)(b) says that: "A bankrupt is not discharged from bankruptcy by virtue of this section if - (b) he has, since the date of the bankruptcy, again become a bankrupt". Counsel for a creditor, Mr Nolan, contended that, on annulment of the second bankruptcy, the provisions of s.149(3)(b) continued to apply, with the result that the applicant could obtain a discharge only as a matter of discretion under s.150. Mr Nolan further contended that, for reasons appearing in affidavit material relied on by him, the Court's discretion under s.150 is affected by subs.(5) which says that, on proof of certain matters, either an order of discharge must be refused or a conditional or suspended order of discharge must be made. Mr. Dutney contended that, logically, i1t is necessary first to determine which of the two provisions - s.149 or s.150 applies. If the former applies, that is so because from the time of annulment the applicant must be "treated as if he were never bankrupt" - per Sheppard J. in Re Oates; Ex parte Deputy Federal Commissioner of Taxation 88 A.T.C. 4038 at 4040. In that case, Sheppard J. expressed the view that an order annulling a bankruptcy has a very different operation from an order of discharge in that the former, subject to the operation of s.154(2), "places the bankrupt in the same position as he was prior to the making of the sequestration order". If the applicant is now to be "treated as if he were never bankrupt", then he cannot he prevented from relying upon s.149 by the sequestration order; that must be treated as completely inoperative, but with what result? One possibility is that on annulment of the second bankruptcy the applicant is deemed to have been discharged three years after the first - i.e. on 3 October 1986. That must surely have been the result if the annulment had been ordered before that date. Another possibility is that he is now discharged. Still a third is the conclusion at which Spender J. arrived 1n Re Hayes; Ex parte Hayes (1984) 59 A.L.R. 219. His Honour expressed the view (p.224) that the applicant there continued to be a bankrupt until the date of annulment and was not entitled to a discharge under s.149. In my opinion, Spender J.'s reasons regard an annulment under s.154 not as requiring that the person in question be treated as if he were never bankrupt but merely as putting an end to his bankruptcy as from the date of annulment. Numerous editions of the standard English work on bankruptcy (currently called "Williams and Muir Hunter The Law and Practice in Bankruptcy", 19th ed.) have contained statements to the effect that: »»»- where the annulment is on the ground that the adjudication ought never to have been made, the court will in ail respects try to remit the bankrupt to his original position ..." (p.149 of current edition). The technique of "trying" to remit the bankrupt to his original position is illustrated by the case referred to in the work, Bailey v. Johnson (1872) L.R. 7 Ex. 263, an appeal from a decision reported in (1871) L.R. 6 Ex. 279. Referring to s.81 of the English Bankruptcy Act 1869, Cockburn C.d. at p.265 of the report on appeal referred to the effect of that section, dealing with annulment, as being "to remit the party whose bankruptcy is set aside to his original situation". In Bailey's case, because of the annulment of a bankruptcy, money paid by the trustee was, so the Court said, to be looked at "as though it were money paid in his name instead of in the name of Bullard, for having become his by virtue of the annulling of his bankruptcy, it 1s to be considered as his at the moment when 1t was paid in..." (Bullard was the trustee). To give effect to the theory that the bankrupt is restored to his original situation, the facts were reconstructed. Blackburn J. agreed with Cockburn C.J., but abstained from expressing an opinion as to "whether the effect of s.81 is in every case to go back to the beginning ..." A quite different view of these provisions was taken in a criminal case to which Spender J. referred in his reasons in Re Hayes; that was Director of Public Prosecutions v. Ashley [1955] Crim.L.R. 565 which is authority for the view that bankruptcy offences may be prosecuted after annulment; that is hardly treating the erstwhile bankrupt as if he had never been one. It is necessary to decide between these competing approaches. In my respectful opinion, the explanation of the effect of annulment given by Sheppard J. is in general agreement with the old case of Bailey v. Johnson and the explanation of that case made in successive editions of Williams. Without going further than 1s necessary to determine the point before me, I propose to apply the doctrine espoused in Re Oates. It did not appear to be suggested at the hearing before me that the applicant here should have a retrospective declaration of discharge from the earlier bankruptcy, if that is possible; I propose simply to declare that by virtue of s.149(1) of the Act the applicant is discharged from the bankruptcy consequent upon the acceptance of his debtor's petition on 3 October 1983. That conclusion makes it irrelevant to consider whether, as Mr Nolan contended, matters falling within s.150(6) have been established. However, because of those circumstances, there will 1 certify that this and the 5S preceding pages are a true copy of the reasons Tor be no order as to costs. Judgment herein of His Honour Mr. Justice Pincus A Sui Associate Dated 23 February (99% Counsel for the debtor: Mr P.R. Dutney Solicitors for the debtor: Messrs M.J. Kitchen & Co. Counsel for the creditor: Mr P.E. Nolan Solicitors for the creditor: Messrs W.T. Purcell, Chadwick & Skelly Date of Hearing: 5 February 1988