J | JUDGMENT No. A234 LE. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION No. VP 636 of 1996 BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA RE: ORLANDO LUCIANO' Judgment Debtor -EX PARTE: COMMONWEALTH BANK OF AUSTRALIA Judgment Creditor JUDGE: Jenkinson J ' DATE: 17 March 1997 a PLACE: Melbourne J RECEIVED |; 16NOV 1998 REASONS FOR JUDGMENT \. FEDERAL COURT OF k PRENOIPAL PREC TRY Hearing of a bankruptcy petition. The debt alleged to be owing by the debtor to the petitioning creditor, and to satisfy the conditions specified in paragraphs 44(1) (a) and 44(1)(b) of the Bankruptcy Act 1966, is a judgment debt of which $7,169,322.63 is alleged to be due and unpaid. The petitioning creditor has at material times been a "secured creditor" within the meaning of that expression in the Bankruptcy Act 1966 ("the Act"). Section 44 of the Act provides: "44 (1) A creditor's petition shall not be presented against a debtor unless: (a) there is owing by the debtor to the petitioning creditor a debt that amounts to $1,500 or 2 or more debts that amount in the aggregate to $1,500, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $1,500; (b) that debt, or each of those debts, as the case may be: (i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and (ii) is payable either immediately or at a certain future time; and (c) the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition. 44 (2) Subject to subsection (3), a secured creditor shall, for the purposes of paragraph (1) (a), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him exceeds the value of his security. 44(3) A secured creditor may present, or join in presenting, a creditor's petition as if he were an unsecured creditors if he includes in the petition a statement that he is willing to surrender his security for the benefit of creditors generally in the event of a sequestration order being made against the debtor. 44 (4) Where a petitioning creditor is a secured creditor, he ™ shall set out in the petition particulars of his security. 44(5} Where a secured creditor has presented, or joined in presenting, a creditor's petition as if he were an unsecured creditor, he shall, upon request in writing by the trustee within the prescribed time after the making of a sequestration order, surrender his security to the trustee for the benefit of the creditors generally. 44(6) A secured creditor to whom subsection (5) applies who fails to surrender his security when requested to do so by the trustee in accordance with that subsection is guilty of contempt of court." Paragraph 47(1)(b) of the Act requires that a creditor's petition be in accordance with the prescribed form which provides for a petitioning creditor holding security alternative ) paragraphs in these terms: "3. I hold security over the property (or part of the property) of the debtor, being (here specify particulars of security), but the security is valued at $ , Leaving an unsecured balance owing to me of $ or 3. I hold security over the property ( or part of the property) of the debtor for payment of the amount specified in Paragraph 2, being (here specify particulars of the security), but I am willing to surrender the security for the benefit of the creditors generally in the event of a sequestration order being made against the estate of the debtor." But it was the submission of Mr Irlicht for the debtor that sub-section 44(3) imposes on every secured creditor desiring to present a creditor's petition, not just on a secured creditor who 3. desires to be treated as an unsecured creditor to the full extent of the whole amount of the debt owed to him by the debtor, a requirement that he include in the petition a statement that he is willing to surrender his security for the benefit of creditors generally in the event of a sequestration order being made against the debtor. The petition in this case did not satisfy that suggested requirement, but contained only the first of the two paragraphs quoted from the prescribed form. The reasoning of Lockhart J in Re Wiggins; Ex parte Creditor Assistance Pty Ltd (1979) 36 F.L.R. 182; 30 A.L.R. 443 contradicts the submission advanced on behalf of the debtor. I was invited not to follow that decision, in the making of which, it was said, Lockhart J had not adverted to s.90 of the Act, some of the provisions of which were said to confirm the correctness of the submission. In my respectful opinion the reasoning in Re Wiggins is correct. The deeming which sub-section 44(2) effects is, by force of the introductory phrase "Subject to subsection (3)" and of the terms of sub-section 44(3), displaced if, but only if, the statement specified in the latter sub-section is included in the petition. The expression "an unsecured creditor" in sub-sections 44(3) and 44(5) is to be understood as a creditor holding no security for the debt. The act of bankruptcy alleged in the petition is the Gebtor's failure on or before 12 July 1996 either to comply with 4. the requirements of a bankruptcy notice served on him on 21 June 1996 or to satisfy this Court that he had a counterclaim, set-off or cross demand of the kind specified in s.40(1)(g). The order on which the bankruptcy notice is based is an order of the Magistrates' Court of Victoria made on 8 February 1995. that order reads: "CHILD SUPPORT (REGISTRATION AND COLLECTION) ACT 1988 ~, MAGISTRATES COURT OF VICTORIA AT _DANDENONG No. 322 of 1994 IN THE MATTER OF: DEPUTY CHILD SUPPORT REGISTRAR (Applicant) -and- ORLANDO LUCIANO (Respondent) BEFORE MAGISTRATE THORNTON THE 8TH DAY OF FEBRUARY 1995 This application coming on before the Court AND UPON HEARING Mr McBurney for the Applicant and the Respondent in person. i) IT IS ORDERED in accordance with the Minutes of Proposed Orders dated 8 February 1995 sealed and attached hereto AND IT IS DIRECTED that such Minutes remain upon the Court File. BY THE COURT REGISTRAR" The following page of the order has the same title, below which is the following: "IT IS DECLARED THAT: The Respondent owes the Commonwealth for arrears of registered maintenance liabilities the sum of $13,134.39, including penalties. IT IS ORDERED THAT: The Child Support (Registration and Collection) Act 1988 (Cth) ("the Collection Act") Child Support Register of a number of legal liabilities to pay periodic amounts for the maintenance of children or of parties to marriages. 5. The Respondent pay the Applicant's costs of today's hearing, and previous hearings of the enforcement summons filed on 2 September 1994, such costs being fixed in the sum of $341.70. The Respondent pay to the Deputy Child Support Registrar at GPO Box 9815, Dandenong the sum of $13,476.09, being a sum comprised of the said arrears and the said costs. If the Respondent defaults after 25 April 1995 in the payment of any monies ordered to be paid by this order, the whole of the monies then outstanding shall thereupon become due and payable. The Applicant have liberty to apply. The Warrant for Arrest issued on 11 October 1994 be discharged." of the Collection Act provides: "(a) amounts payable under the liability in relation to the child support enforcement period are debts due by the payer to the Commonwealth in accordance with the particulars of the liability entered in the Register; and the payee is not entitled to, and may not enforce payment of, those amounts." Section 113 of the Collection Act provides: "113. (a) (b) {c) (2) (1) Debts due to the Commonwealth under this Act: are payable to the Registrar in the manner and at the place prescribed; and may be sued for and recovered by the Registrar or a Deputy Registrar suing in his or her official name; and may be recovered in: (i) a court having jurisdiction for the recovery of Gebts up to the amount of the debt; or (ii) a court having jurisdiction under this Act. The Registrar may take such steps as the Registrar considers appropriate to keep the payee of a registered maintenance liability informed of action taken to recover debts due to the Commonwealth under this Act in relation to the liability." ordains a system of registration in a Once a liability has been registered, section 30 The Magistrates' Court of Victoria answers the description in each of sub-paragraphs (113(1) (c) (i) and (113) (1) (c) (ii). Section 100(1) (a) of the Magistrates Court Act 1989 (Vic) confers on the Magistrates' Court of Victoria jurisdiction to hear and determine any cause of action for debt if the amount claimed is not more than $25,000. By s.39 of the Judiciary Act 1903 (Cth) such a court is invested with federal jurisdiction in matters in which the Commonwealth, or a person suing or being sued on behalf of the Commonwealth, is a party. By s.104(2) of the Collection Act the Magistrates' Court is invested with federal jurisdiction in relation to matters arising under that Act. Although the process by which the proceeding No. 322 of 1994 was instituted was not in evidence before me, the terms in which the order of 8 February 1995 is expressed compel the conclusion that the proceeding was not instituted in pursuance of sub- paragraph 113(1) (c) (i). A proceeding for recovery of a debt in the Magistrates' Court is instituted by a "complaint", not an "application". The parties to such a proceeding are "plaintiff" and "defendant", not "applicant" nor "respondent". While the power to grant a declaration is conferred on the Magistrates' Court by s.31 of the Supreme Court Act 1986, the exercise of the power in a proceeding the jurisdictional basis of which is S.100(1) (a) of the Magistrates' Court Act 1989 and s.39 of the Judiciary Act 1903 is almost inconceivable. Nor is it easy to imagine circumstances in which a warrant for arrest might have issued in such a proceeding. Section 105 of the Collection Act provides: "105 (1) The Family Law Act 1975 (other than Part X of that Act) and the regulations and Rules of Court made under that Act apply, subject to this Act and with such modifications as are prescribed by the Rules of Court, to proceedings under this Act (other than proceedings under subparagraph 113(c)(i)) as if: (a) the proceedings were proceedings under that Act; (b) the proceedings were proceedings instituted under that Act; (c) a court having or exercising jurisdiction in the proceedings were a court having or exercising jurisdiction under that Act; (a) a decree made in the proceedings were a decree made under that Act; (ea) Matters arising in the proceedings were matters avising under that Act; and (£) any other necessary changes were made. (1A) In the application of subsection (1) to proceedings under this Act in relation to a child, references in paragraphs (1) (a) to (e) (inclusive) to the Family Law Act 1975 are to be taken to be references to Part VII of that Act. (2) Where any difficulty arises in the application of subsection (1) in or in relation to a particular proceeding, the court exercising jurisdiction in the proceeding may, on the application of a party to the proceeding or of its own motion, give such directions, and make such orders, as it considers appropriate to resolve the difficulty." (The reference to "subparagraph 113(c) (i)" in sub-section 105 (1) must now, after the addition of further sub-sections by amendment, be understood as a reference to sub-paragraphs 113(1) (c) (i). Order 33 of the Rules of Court made under the Family Law Act 1975 ("the Family Law Rules") is concerned with the enforcement of orders and agreements. Rule 2(1) provides, inter alia, that Rule 2 applies to: " (aa) the recovery of a debt due to the Commonwealth under section 30 or 67 of the Child Support (Registration and Collection) Act 1988; (a) an order that a party pay maintenance or other money for the benefit of the other party, or of a child, made under: (i) The Act; or (ii) the Child Support (Registration and Collection) Act 1988." Order 33 Rule 3(3A) provides: "(3A) Where a person is alleged to have refused or failed to pay a debt due to the Commonwealth, the Registrar may: (a) issue a notice in accordance with form 45A; or (b) if the debt or part of a debt is outstanding for a period of not less than 14 days - issue a summons in accordance with form 45B." Form 45B, which is in Schedule 1 to the Family Law Rules, reads: " FORM 453 ENFORCEMENT SUMMONS - CHILD SUPPORT TO: (Full name and address) i) 1. Under section 113 of the Child Support (Registration and Collection) Act 1988 the Child Support Registrar may recover debts due to the Commonwealth under the Act. 2. You are indebted to the Commonwealth under section 30 of the Child Support (Registration and Collection) Act 1988 for {amount) . 3. It is alleged that you have refused or failed to pay the debt. 4. You are hereby summoned to attend at this court at on 19 at *a.m./*p.m. to be orally examined on all matters relating to your refusal or failure to pay the debt and to produce any book, document or thing in your possession, custody or control described in the Schedule to this summons. 5. The court may, on the hearing of this summons and on being satisfied that you have refused or failed to pay the debt or to make arrangements to pay the debt, make such of the following orders as it thinks fit: (a) an order for the payment of the debt; {b) a garnishment order in respect of moneys owing to you, including any wages or salary; (c) an order for the seizure and sale of personal ; property belonging to you; Fe] (a) an order that your estate be sequestrated; ~ (e) an order for seizure and sale of any interest in land belonging to you; {£) such other orders as it thinks necessary to ensure payment of the debt or to prevent the dissipation of property or the wasting of assets. Dated 19 Registrar SCHEDULE *Omit if not applicable. NOTES: 1. Subrule 3(6) of Order 33 of the Family Law Rules provides that a person, who without reasonable excuse, fails to attend before the court as required by a summons commits an offence punishable by a fine not exceeding $500. 2. Further subrule 3(7) of Order 33 of the Family Law Rules provides that, where a person fails to attend before a court as required by a summons, the court may issue a warrant directing that the person be taken into custody and brought before the court. 3. If you intend to apply to vary the order or assessment on which the debt is based, you should do so before the date specified in paragraph 4 above." The inference is in my opinion strong that the "enforcement summons" to which reference is made in the order of 8 February 1995 was a summons in the terms of Form 45B, and that the "Warrant for Arrest" to which reference is made in that order was a warrant issued under Order 33 Rule 3(7), to which Note 1 in form 45B refers. Order 33 Rule 3(9) provides: "Where a person attends before, or is brought before, a court, the court may, on being satisfied that the person has refused or failed to comply with an order or agreement to which rule 2 applies, make such of the following orders as it thinks fit: {a) an order for the payment of the arrears and any other unpaid portion of the moneys payable under the first- mentioned order or agreement; (b) a garnishment order under rule 4; (¢) an order under rule 5 for the seizure and sale of personal property belonging to the person; (a) an order under rule 6 that the estate of the person be sequestrated; (e) an order under rule 7 for the sale of an interest in real property belong to the person; (£) such orders as it thinks necessary to enable enforcement of its orders or to prevent the dissipation of property or the wasting of assets." Mr Irlicht submitted that, when the bankruptcy notice issued and thereafter until 12 July 1996, the order of 8 February 1995 was one of which execution was stayed, because only by the exercise of the discretionary powers conferred by Order 33 Rule 3(9) could the judgment creditor have had any execution of it. The creditor was not in a position to procure the issue of immediate execution: see Re Excell; Ex parte Martin (1995) 134 A.L.R. 623 at 627 and cases there cited. Section 40(1) (g) of the Bankruptcy Act 1966 contemplates only a bankruptcy notice which 10. is founded on a "final order, being ... [an] order the execution of which has not been stayed." And s.41(3) provides that a bankruptcy notice shall not be issued in relation to a debtor "if, at the time of the application for its issue, execution of the ... order to which it relates has been stayed." Mr Nolan of counsel for the petitioning creditor controverted Mr Irlicht's submission upon the basis that the proceeding No. 322 of 1994 in the Magistrates' Court was instituted under sub-paragraph 113(1) (¢c)(i) of the Collection Act. There is no evidence to support that assumption and, for the reasons I have stated, my conclusion is that the proceeding was instituted under sub-paragraph 113 (1) (c) (ii). In my opinion s.105 of the Collection Act evinces, inter alia, an intention that an order for the payment of money made in a proceeding under sub-paragraph 113 (1) (c) (ii) be enforced as if the order were a "decree" (which by definition includes order) made under the Family Law Act 1975, and not otherwise. I do not find anything in Deputy Child Support Registrar v Harrison (1996) F.L.C. 82744, upon which Mr Nolan relied, which requires me to modify that opinion. If that be right, Order 33 Rule 3(9) in my opinion produces the result that the judgment creditor was not in a position to procure the issue of immediate execution of -the order of 8 February 1995 and that order was one the execution of which was stayed at the time the bankruptcy notice issued. The petition will be dismissed and the petitioning creditor 11. ordered to pay the debtor's taxed costs. It is unnecessary to consider other grounds of opposition to the petition. I certify that this and the preceding ten (10) pages are a true copy of the reasons for judgment of the Honourable Justice Jenkinson Dated: /7? Merk (997 Counsel for the petitioning creditor: Mr J A Nolan Appearances Solicitors for the petitioning creditor: Australian Government Solicitor Counsel for the judgment debtor: Mr T Irlicht Solicitors for the judgment debtor: Irlicht & Broberg Date of hearing: 23 October 1996