FEDERAL COURT OF AUSTRALIA BANKRUPTCY - application for sequestration order - special resolution at creditor's meeting for debtor to file debtor's petition - application brought in reliance on debtor's failure to present petition - effect of amendment to section - absence of affidavit evidence from debtor. Bankruptcy Act 1966 (Cth) s 221(1)(b) Bankruptcy Legislation Amendment Act 1996 (Cth) sch 1 items 368, 369, 482 THE SWAN BREWERY CO LTD (ACN No 009 065 267) v ROBERT FRANCIS ATLEE WAG 7032 of 1997 R D NICHOLSON J PERTH 8 JULY 1998 IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAG 7032 of 1997 BETWEEN: THE SWAN BREWERY CO LTD (ACN No 009 065 267) Applicant AND: ROBERT FRANCIS ATLEE Respondent JUDGE: R D NICHOLSON J DATE OF ORDER: 8 JULY 1998 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Pursuant to Section 221 of the Bankruptcy Act 1966 a sequestration order be made against the estate of the respondent. 2. David Ashley Norman Hurt, a registered trustee, be appointed trustee of the estate of the respondent. 3. The respondent pay the applicant's costs of this application including the costs of the substituted service to be taxed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAG 7032 of 1997 BETWEEN: THE SWAN BREWERY CO LTD (ACN No 009 065 267) Applicant AND: ROBERT FRANCIS ATLEE Respondent JUDGE: R D NICHOLSON J DATE: 8 JULY 1998 PLACE: PERTH EX-TEMPORE REASONS FOR JUDGMENT HIS HONOUR: This is an application brought pursuant to s 221 of the Bankruptcy Act 1966 (Cth) ("the Act") by a creditor of a debtor seeking a sequestration order. On 27 February 1998 I delivered reasons relating to the mode of service of the respondent debtor and made orders accordingly. In a document entitled "Affidavit of Service" and said to be subscribed and sworn before a notary public in the Philippines, there is evidence of service having been duly carried out in accordance with the orders then made. That order was one made pursuant to O 7 r 9 Federal Court Rules ("FCR"). The reasons given on that prior occasion carried with them the clear statement that service in accordance with O 8 r 15 was impractical. That is therefore not applicable to the affidavit. In my opinion the affidavit of service qualifies as such. The application is brought in reliance upon s 221(1)(b) of the Act as it appeared in the Act prior to 16 December 1996. It then read: "A debtor, having been required by a special resolution of a meeting of creditors called in pursuance of such an authority to execute a deed of assignment or a deed of arrangement or to present a debtor's petition, has failed, without sufficient cause, to execute the deed within the time prescribed by this Act or to present the debtor's petition within the time required by the special resolution." With effect from 16 December 1996 the Bankruptcy Legislation Amendment Act 1996 (Cth) ("the amending Act") applied in a way which reconstructed the wording of that paragraph. Schedule 1, items 368 and 369, amended the paragraph (and subsequent words) so it that then read: "A debtor, having been required by a special resolution of a meeting of creditors called in pursuance of such an authority to execute a deed of assignment or a deed of arrangement, has failed without sufficient cause to execute the deed within the time prescribed by the Act." Part 2 of sch 1 to the amending Act provided in item 482: "The amendments made by items 368 and 369 do not apply in relation to a special resolution passed at a meeting: (a) called before this Schedule commences; or (b) held after this section commences as a continuation of a meeting called before this Schedule commences." In my opinion the legislative intent made apparent by item 482 is very clear. It is to continue the operation of s 221(1)(b) in the form in which it existed prior to 16 December 1996 in circumstances referred to in the item. One of those circumstances is the circumstances applicable in this matter, namely, where a special resolution was passed at a meeting called before the schedule in which items 368 and 369 appear commenced. As appears from evidence before the Court, a special resolution was passed at a meeting of creditors of the respondent debtor on 29 November 1996. The special resolution was: "The debtor, Robert Francis Atlee, be required to file a debtors petition within seven days." There is evidence before the Court the respondent debtor is justly and truly indebted to the applicant for the sum of $40,048.82 in respect of certain goods sold and delivered by the applicant to the respondent for and at the respondent's request in or about and between August 1994 and July 1995. The respondent debtor did not file a debtor's petition within the time allowed by the special resolution. Section 221(1)(b) vests the Court in such circumstance with a discretion to make a sequestration order against the estate of the debtor. The debtor is unrepresented on this application. However, he has caused to forward to the District Registrar of the Court three letters dated 28 May 1998, 17 June 1998 and a further letter undated but apparently received by fax on 4 July 1998. It is to be observed firstly that while the letters indicate the respondent debtor will not be represented and ask that the contents of the letters be taken into account, none of them are in a form complying with the Bankruptcy Rules or the FCR. Specifically none of them bring any sworn affidavit material before the Court to take into account in the exercise of its discretion pursuant to s 221(1) of the Act. The issues raised in the three letters are summarised in the conclusion to the last of the letters. The first factor referred to is that the respondent debtor denies any entitlement to any legacy from his deceased mother's estate. Even if established by affidavit material, that factor would be irrelevant at this stage of the application. Next the respondent debtor states he had made a genuine attempt to pay the creditors through a Pt X arrangement but that the controlling trustee denied him natural justice by failing to exercise his duty of care. This is further expanded in the second letter to be an allegation that the controlling trustee had failed to provide to the respondent debtor evidence that he was indebted to one Mr Richard Bennett. He contended that the controlling trustee had not acted in his best interests. In his first letter he said he had been denied natural justice and that the controlling trustee had failed in his duty of care. This related also to the allegation that a creditor who attended the meeting was not entitled to vote. The short answer to these allegations is that they are entirely unsubstantiated. If it is the case that the respondent debtor could dispute the alleged debt on which the special resolution was based, he has not brought forward a case to the Court to support that, likewise to support his contention that there was non‑entitlement in a creditor to vote. The third general allegation is that the making of the order now sought would cause undue hardship to the respondent debtor's brother and prejudice his right to sustain long‑term employment. Reference to prejudice to the brother is referred to in the second letter also where it is said that he is a small business manufacturer who is experiencing extreme difficulty with the cancellation of orders from Asia and within Australia. How the making of the order would be causative of undue hardship to this brother is not spelt out. In any event, and decisively, it is entirely unsupported by any affidavit evidence which could be taken into account by the Court. Generally and finally, in the last letter the respondent debtor requests that the Court invite the applicant to enter into new legal proceedings or negotiations with him. The position is, however, that the applicant comes wishing to assert a legal right and the respondent debtor raises no proper case against the exercise of that right. Coming then to the exercise of the discretion, the factors which must weigh in it are all factors advanced on behalf of the applicant which favour the exercise of the discretion to make the orders sought. In my view there is no option but for a sequestration order to be made against the estate of the respondent debtor and I will so order. I certify that this and the preceding three (3) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice R D NICHOLSON Associate: Dated: 24 July 1998 Counsel for the Applicant: P R Eaton Solicitor for the Applicant: P Lafferty Counsel for the Respondent: No Appearance Solicitor for the Respondent: None on Record Date of Hearing: 8 July 1998 Date of Judgment: 8 July 1998