MacDonald, in the matter of MacDonald v Official Trustee in Bankruptcy [1999] FCA 1303

FEDERAL COURT OF AUSTRALIA MacDonald, in the matter of MacDonald v Official Trustee in Bankruptcy [1999] FCA 1303 BANKRUPTCY - competency of application by discharged bankrupt for annulment - petition may be amended so as completely to state act of bankruptcy - petition so amended later than six months after act of bankruptcy not presented out of time - discretionary factors - relevance of criminal prosecution for breach by bankrupt of post-bankruptcy obligations

Bankruptcy Act 1966 (Cth), ss 33, 40(1)(g), 44(1)(c), 47(1)(a), 52(1)(a), 153A, 153B, 154, 188, 306 Bankruptcy Amendment Act 1991 (Cth) Re Oates; Ex parte Deputy Commissioner of Taxation (1987) 17 FCR 402, applied Quinn v Official Trustee (1996) 63 FCR 136, applied IN THE MATTER OF NEIL ALLAN MACDONALD NEIL ALLAN MACDONALD v OFFICIAL TRUSTEE IN BANKRUPTCY NG 7961 of 1998

MADGWICK J 15 SEPTEMBER 1999 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 7961 of 1998

BETWEEN: NEIL ALLAN MACDONALD

Applicant

AND: OFFICIAL TRUSTEE IN BANKRUPTCY

Respondent

JUDGE: MADGWICK J

DATE OF ORDER: 15 SEPTEMBER 1999

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. The application is refused. 2. The applicant is to pay the respondent's costs.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 7961 OF 1998

BETWEEN: NEIL ALLAN MACDONALD

Applicant

AND: OFFICIAL TRUSTEE IN BANKRUPTCY

Respondent

JUDGE: MADGWICK J

DATE: 15 SEPTEMBER 1999

PLACE: SYDNEY

REASONS FOR JUDGMENT HIS HONOUR 1 This is an application by a discharged bankrupt for the annulment of his bankruptcy pursuant to s 153B of the Bankruptcy Act 1966 (Cth) ("the Act") on the ground that the sequestration order ought not to have been made. The case raises questions of whether it is competent for a discharged bankrupt to make such an application, whether there were legally insuperable barriers to the making of the sequestration order and whether, if there were, the Court should exercise its discretion to undo the bankruptcy. Competence of the proceedings 2 The Bankruptcy Amendment Act 1991 (Cth) repealed the former s 154 and substituted the present s 153A and s 153B which read: "153AAnnulment on payment of debts (1) If the trustee is satisfied that all the bankrupt's debts have been paid in full, the bankruptcy is annulled, by force of this subsection, on the date on which the last such payment was made. (2) The trustee must, as soon as practicable after that date, give to the Official Receiver a written certificate setting out the former bankrupt's name and bankruptcy number and the date of the annulment. (3) The Registrar must enter in his or her records the fact that the bankruptcy has been annulled and the date of the annulment. (4) For the purposes of this section, if a debt has been proved by a creditor but the creditor cannot be found or cannot be identified, the debt may be paid to the Official Receiver and, if so paid, is taken for the purposes of this section to have been paid in full to the creditor . (5) If money is paid to the Official Receiver under subsection (4), the Official Receiver must pay that money into the Consolidated Revenue Fund and the provisions of subsections 254 (3) and (4) apply in relation to that money as if it had been paid into the Consolidated Revenue Fund by a trustee under subsection 254 (2). (6) In this section: "bankrupt's debts" means all debts that have been proved in the bankruptcy and includes interest payable on such of those debts as bear interest, and the costs, charges and expenses of the administration of the bankruptcy , including the remuneration and expenses of the trustee. 153B Annulment by Court If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition , that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver , the Court may make an order annulling the bankruptcy." 3 The former s 154 gave the Court a like power to that now given by s 153B of the Act. In Re Oates; Ex parte Deputy Commissioner of Taxation (1987) 17 FCR 402 Sheppard J decided that a discharged bankrupt could apply for an annulment. As counsel for the applicant points out, the correctness of that decision has never been questioned and it was referred to with apparent approval in Quinn v Official Trustee (1996) 63 FCR 136 at 139 by a Full Court of this Court. The Full Court said: "There are obvious reasons of policy justifying a construction which would enable a discharged bankrupt to apply for an annulment". In my opinion the application is competent. An insolvent debtor bows to the inevitable 4 On 26 February 1991 a bankruptcy notice, founded on a judgment debt of $11,470 plus interest in favour of the petitioning creditor, was served on the applicant. On 30 July 1991 a creditor's petition was presented and on 16 September 1991 it was served on the applicant. The petition was fixed for hearing on 14 October 1991. On that date both the petitioning creditor and the applicant were legally represented before the registrar dealing with the matter. On the applicant's application, by consent, the petition was adjourned to 22 October and the applicant was ordered to file and serve before that date an affidavit as to his assets and liabilities and the reasons to support any further adjournment application. The applicant's legal representative, according to the Registrar's note, "made reference to a Part X arrangement, however it is unclear whether s 188 has been signed". Section 188 of the Act provides for a debtor, desirous of having his or her affairs dealt with under that Part, to sign an authority enabling a registered trustee or the debtor's solicitor to call a meeting of the creditors. On 22 October the proceedings were again adjourned to 19 November 1991, the applicant being required then to attend "to be examined", in context it is clear enough, as to his claims to have the matter adjourned. Those claims included an assertion that the applicant had the means to pay the debt alleged against him. On 19 November 1991 the Registrar made the sequestration order. Again, the applicant was legally represented. The Registrar was satisfied with those matters required by s 52 of the Act including that the debt was still owing. 5 The inference is that the debtor was insolvent to a degree that could not be overcome within a reasonable period. No suggestion was made before me that the debtor was not then insolvent. The attacks on the sequestration order 6 It was argued that (1) The petition was invalid because, as served on the applicant, it did not allege an act of bankruptcy: there was no allegation in it that the applicant had failed to satisfy the Court that he had a counterclaim, set-off or cross-demand of the kind described in s 40(1)(g) of the Act; (2) Although the Registrar had purported to amend the petition, it was "grossly misleading" and was not a petition within the meaning of the Act; (3) There was no verification of the amended petition as required by s 47 of the Act and the absence of such verification was fatal to the creditor's petition and such omission could not be cured; (4) Given the amendment to the petition, the petition was presented out of time: an act of bankruptcy was first alleged in the amended petition; the amendment made on 19 November 1991, more than the permissible 6 months (s 44(1)(c)) after the