FEDERAL COURT OF AUSTRALIA Wenkart v Pantzer (No 7) [2003] FCA 1211 BANKRUPTCY – 'realisations charge' under Bankruptcy (Estate Charges) Act 1997 (Cth) – whether that Act imposes realisations charge on monies received by a former trustee in bankruptcy after annulment of the bankruptcy by the operation of subs 74(5) of the Bankruptcy Act 1966 (Cth) upon passing of special resolution of creditors to accept a proposal by the bankrupt for composition or scheme of arrangement – whether answer differs according to whether circumstances giving rise to former trustee's entitlement occurred before or after the annulment. Bankruptcy (Estate Charges) Act 1997 (Cth) ss 6, 8 THOMAS RICHARD WENKART v WARREN PANTZER & ANOR N 7051 of 2002 LINDGREN J 30 OCTOBER 2003 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7051 of 2002 BETWEEN: THOMAS RICHARD WENKART APPLICANT AND: WARREN PANTZER FIRST RESPONDENT THE COMMONWEALTH OF AUSTRALIA SECOND RESPONDENT JUDGE: LINDGREN J DATE OF ORDER: 30 OCTOBER 2003 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The following questions which the Court, on 12 August 2003, ordered to be decided separately from any other question in the proceeding, be answered as follows: Questions: 'Does s 6(1)(a) of the Bankruptcy (Estate Charges) Act 1997 (Cth) impose a charge in respect of amounts of the remuneration, costs, charges and expenses of Warren Pantzer ("Mr Pantzer") as trustee in bankruptcy of the estate of Thomas Richard Wenkart ("Dr Wenkart"), received by Mr Pantzer after the annulment on 15 March 2002 of Dr Wenkart's bankruptcy by force of subs 74(5) of the Bankruptcy Act 1966 (Cth): (a) being amounts to which Mr Pantzer was or is lawfully entitled by reason of circumstances, all of which occurred prior to the annulment? (b) being amounts to which Mr Pantzer was or is lawfully entitled by reason of circumstances, all or some of which occurred after the annulment?' Answers: (a) No (b) No 2. The second respondent pay the applicant's and the first respondent's costs of the determination of the separate questions. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7051 of 2002 BETWEEN: THOMAS RICHARD WENKART APPLICANT AND: WARREN PANTZER FIRST RESPONDENT THE COMMONWEALTH OF AUSTRALIA SECOND RESPONDENT JUDGE: LINDGREN J DATE: 30 OCTOBER 2003 PLACE: SYDNEY REASONS FOR JUDGMENT (No 7) (Realisations charge under Bankruptcy (Estate Charges) Act 1997) INTRODUCTION 1 On 12 August 2003, by consent, I ordered that the following questions be decided separately from any other question in the proceeding (see O 29 r 2 of the Federal Court Rules): 'Does s 6(1)(a) of the Bankruptcy (Estate Charges) Act 1997 (Cth) impose a charge in respect of amounts of the remuneration, costs, charges and expenses of Warren Pantzer ("Mr Pantzer") as trustee in bankruptcy of the estate of Thomas Richard Wenkart ("Dr Wenkart"), received by Mr Pantzer after the annulment on 15 March 2002 of Dr Wenkart's bankruptcy by force of subs 74(5) of the Bankruptcy Act 1966 (Cth): (a) being amounts to which Mr Pantzer was or is lawfully entitled by reason of circumstances, all of which occurred prior to the annulment? (b) being amounts to which Mr Pantzer was or is lawfully entitled by reason of circumstances, all or some of which occurred after the annulment?' 2 The following are agreed facts for determination of the separate questions: '1. On 28 October 1999, Thomas Richard Wenkart ("Dr Wenkart") became bankrupt upon the making of a sequestration order made in proceeding NG 8467 of 1998 between Gennaro Abignano and Genallco Pty Limited as applicants and Dr Wenkart as respondent. 2. On 28 October 1999, Warren Pantzer ("Mr Pantzer") became the trustee in bankruptcy of the estate of Dr Wenkart. 3. On 11 March 2002, in this proceeding, this Court, by consent made the following orders in relation to the administration of the estate in bankruptcy of Dr Wenkart: "1. Warren Pantzer as Trustee of the estate of Thomas Richard Wenkart may recover his remuneration, costs, charges and expenses to which he is lawfully entitled or may become lawfully entitled from Thomas Richard Wenkart and Thomas Richard Wenkart agrees to pay the same within 28 days of determination of the quantum of the same or at such other time as the parties may agree. 2. Thomas Richard Wenkart forthwith charges the land and improvements in folio identifier G/33817 and known at 47 Union Street, Paddington in favour of Warren Pantzer to secure the amount in paragraph 1. 3. Hapday Holdings Pty Ltd ACN 001 185 253 hereby postpones mortgage 3965299 over the land in paragraph 2 in favour of the interest of Warren Pantzer pursuant to the charge in paragraph 2. 4. The orders and agreement in paragraphs 1, 2 and 3 are only to have effect if the bankruptcy of Thomas Richard Wenkart is annulled pursuant to s 74 of the Bankruptcy Act on 15 March 2002. 5. Thomas Richard 'Wenkart consents to Warren Pantzer lodging a Caveat over the property in paragraph 2 for the purpose of securing the charge in paragraph 2 and Warren Pantzer will upon payment of the remuneration, costs, charges and expenses in paragraph 1 provide a Withdrawal of Caveat forthwith." 4. On 15 March 2002 the creditors of Dr Wenkart by special resolution accepted a proposal put by him to them for a composition of his debts within the terms and for the purposes of s 73 of the Bankruptcy Act 1966 (Cth) ("the Act"), so that by force of subs 74(5) of the Act his bankruptcy was annulled on that date. 5. By reason of the facts referred to in par 4, the condition referred to in paragraph 4 of the orders made on 11 March 2002 was satisfied. 6. Mr Pantzer claims that as at the date of annulment of the bankruptcy of Dr Wenkart, there were amounts satisfying the description of "remuneration, costs, charges and expenses to which he is lawfully entitled or may become lawfully entitled from Thomas Richard Wenkart" within the terms of paragraph 1 of the orders made on 11 March 2002. 7. On 31 October 2002, Mr Pantzer applied to the Court in this proceeding for relief which included a determination of amounts to which he was lawfully entitled or might become lawfully entitled from within the terms of paragraph 1 of the orders made on 11 March 2002. 8. The Inspector-General in Bankruptcy has asserted that a charge is imposed by s 6(1)(c) of the Bankruptcy (Estate Charges) Act 1997 (Cth) in respect of amounts falling within paragraph 1 of the orders made on 11 March 2002, which had not been received by Mr Pantzer prior to 15 March 2002 (being the date of the annulment of Dr Wenkart's bankruptcy) but which were received, or were to be, received, by him after that date.' 3 On 6 September 2003 I ordered that the Commonwealth of Australia (rather than the Inspector-General in Bankruptcy) be added as a party, and be, and remain second respondent until further order. 4 The Commonwealth submits that both separate questions should be answered 'Yes' while the applicant ('Dr Wenkart') and the first respondent ('Mr Pantzer') both submit that they should both be answered 'No'. REASONING 5 The separate questions are expressed in the present tense and refer to the Bankruptcy (Estate Charges) Act 1997 (Cth) ('BECA') in the form in which it exists at the present time. The BECA has been amended twice since the annulment of Dr Wenkart's bankruptcy on 15 March 2002; first, by the Bankruptcy (Estate Charges) Amendment Act 2001 (Cth) (No 158, 2001) ('the 2001 amending Act'), and later by the Bankruptcy (Estate Charges) Amendment Act 2002 (Cth) (No 61, 2002) ('the 2002 amending Act'). 6 The dispute between Dr Wenkart and Mr Pantzer relates to the latter's entitlement to 'remuneration, costs, charges and expenses' referred to in par 1 of the orders of 11 March 2002. Since the annulment, no amount has been paid to Mr Pantzer on account of that entitlement: whatever amount is payable on that account is yet to be paid. Accordingly, it is the BECA in its present amended form which is relevant. 7 Reference was, however, made to the amendments in submissions and I will have occasion to refer to them below. I will give a brief account of the amendments. 8 The 2001 amending Act commenced immediately after the commencement of s 1 of the Bankruptcy (Estate Charges) Amendment Act 2002. The 2001 amending Act therefore also commenced on 3 July 2002, immediately after the commencement of the 2002 amending Act. 9 The 2002 amending Act made only one amendment, although it made it in many places. The amendment was to omit 'trustee' and to substitute 'person'. The purpose was to extend the application of the BECA's provisions to solicitors who are controlling trustees but who do not fall within the definition of 'the trustee' in subs 5(1) of the Bankruptcy Act 1966 (Cth). 10 The 2001 amending Act amended the BECA in the respects which I will mention after setting out in [12] and [13] below the relevant provisions of the BECA in its present form. 11 The BECA imposes two forms of charge: an 'interest charge' (imposed by Part 2 of the BECA, consisting of s 5 alone) and a 'realisations charge' (imposed by Part 3 of the BECA, consisting of ss 6–8). The separate questions concern the realisations charge. 12 Sections 6 to 8 of the BECA are as follows: '6 Realisations charge (1) A charge, calculated in accordance with sections 7 and 8, is imposed in respect of amounts received by a person (including the Official Trustee) who, during a charge period: (a) is the trustee of the estate of a bankrupt under the Bankruptcy Act 1966; or (aa) is the trustee of a composition or scheme of arrangement under Division 6 of Part IV of the Bankruptcy Act 1966; or (b) is controlling trustee in relation to a debtor whose property has become subject to control under Division 2 of Part X of the Bankruptcy Act 1966; or (c) is the trustee of a deed of assignment or deed of arrangement executed, or a composition accepted, in relation to a debtor under Part X of the Bankruptcy Act 1966; or (d) is the trustee of the estate of a deceased person under Part XI of the Bankruptcy Act 1966. (1A) No charge is payable by a person for a charge period in respect of a particular estate, deed, composition or debtor (as the case requires) if the amount of that charge would be less than $10, or a higher amount prescribed by the regulations. (2) The charge is payable by the person to the Commonwealth. (3) The charge is payable within 35 days after the end of the charge period. 6A Charge not payable on estate surplus (1) If: (a) the person receives an amount in respect of a bankrupt's estate; and (b) as a result of receiving the amount, the person becomes able to pay off all the bankrupt's debts; then the following amounts are not taken into account in determining the amount on which charge is payable: (c) any excess of the received amount over the amount needed to pay off all the bankrupt's debts; (d) any amount later received by the person in respect of the estate. (2) In this section: bankrupt's debts has the same meaning as in subsection 153A(6) of the Bankruptcy Act 1966. 7 Amount of charge payable (1) The amount of charge payable for a charge period is an amount equal to: (a) 8% of the amount on which charge is payable for the period; or (b) if a different percentage is prescribed by the regulations—the prescribed percentage of the amount on which charge is payable for the period. (2) The Governor‑General may make regulations prescribing a rate for the purposes of paragraph (1)(b). The rate prescribed must not be higher than 15%. 7A Certain amounts treated as being received by person For the purposes of this Part, an amount is treated as received by the person if it is applied or dealt with on behalf of the person, or in accordance with the person's directions. 8 Working out the amount on which charge is payable (1) The amount on which charge is payable for a charge period is the amount realised less the permitted deductions. (2) The amount realised is the total amount received by the person in the capacity referred to in subsection 6(1) during the charge period, but not including: (a) amounts paid to the person by creditors under an indemnity in respect of costs; or (b) amounts paid to the person under section 305 of the Bankruptcy Act 1966. (3) The permitted deductions are all amounts paid by the person in the capacity referred to in subsection 6(1) during the charge period that are: (a) amounts paid by the person in carrying on the business of the bankrupt, deceased person or debtor; or (b) amounts paid to secured creditors. (4) Once an amount has been taken into account for the purposes of subsection (2) as an amount received, the whole or part of the amount is not to be taken into account again as an amount received for the purposes of another application of that subsection.' 13 The expression 'charge period' is defined in subs 4(1) of the Act to mean 'a period of six months commencing on 1 January or 1 July'. 14 Among other amendments, the 2001 amending Act repealed and replaced the definition of 'charge period' in subs 4(1); inserted subs (1A) in s 5; omitted '21 days' and substituted '35 days' in subs 6(3); inserted par (aa) in subs 6(1); inserted ss 6A and 7A after s 7; and added a new s 9 giving the Governor-General power to make regulations. As well, the 2001 amending Act contained transitional provisions. 15 Of these amendments, the only one calling for more specific mention is the introduction of par (aa) in subs 6(1). But that amendment applied only to catch the trustee of a composition or scheme of arrangement accepted by creditors after 3 July 2002: see the 2001 amending Act s 3, Schedule 1, Item 14 (relating to Item 4 in Schedule 1). Accordingly, it has no role to play in the present case. 16 In my opinion, the effect of subs 6(1) and s 8 is that a realisations charge arises only if there is an amount received by a person in the capacity of, relevantly, 'the trustee of the estate of a bankrupt'. On the annulment of Dr Wenkart's bankruptcy on 15 March 2002, Mr Pantzer ceased to be trustee of the estate in bankruptcy of Dr Wenkart. Where a bankruptcy is annulled under s 74 of the Bankruptcy Act 1966 (Cth) ('the Act') the property of the bankrupt still vested in the trustee vests in such person as the court appoints, or, in default of such an appointment, reverts to the bankrupt for all his or her estate or interest in it on such terms and subject to such conditions (if any) as the court orders: subs 74(6) of the Act. 17 It follows that amounts received by a former trustee in bankruptcy after annulment of the bankruptcy are not received by that former trustee in the capacity of trustee of the estate of a bankrupt (as required by subs 6(1) and s 8 of the BECA), but would ordinarily be received by him or her on a constructive trust for the former bankrupt. 18 In the present case this will not be so because par 1 of the orders of 11 March 2002 provides for payment to be made by Dr Wenkart to Mr Pantzer for the latter's benefit. Accordingly, the case is not even one in which Mr Pantzer will receive an amount as constructive trustee for Dr Wenkart subject to a lien to secure payment of remuneration. 19 The helpful submissions made by Mr Murray, the solicitor who appeared for the Commonwealth, point to suggestions that Parliament intended that the realisations charge should apply to a wide range of receipts. He submits that the charge applies to amounts received by a person for work done in that person's capacity as 'trustee of the estate', whether the work was done before or after annulment, and states of such a construction: 'i. it furthers the purpose and simple and comprehensive operation of the BECA, namely that the charge is imposed on amounts received by persons in nominated capacities; ii. it avoids an untenable outcome, namely that trustees in bankruptcy could avoid payment of the realisations charge in all cases involving an annulment and composition under section 74. In such cases, trustees will invariably only receive payment after the approval by creditors of the composition and after the annulment, even if immediately thereafter. iii. such an interpretation is available on a fair reading of the section.' 20 Mr Murray also makes the points that the amendments of the BECA by the 2001 and 2002 amending Acts widened the coverage of the BECA, and, in particular, were directed to 'closing loopholes'. But amendments designed to close loopholes are a two-edged sword in a contest such as the present one: they constitute a recognition by the legislature that loopholes can exist and need to be closed by legislation. 21 The considerations relied on by Mr Murray do not, in my view, overcome what I consider to be the plain meaning of subs 6(1) and s 8 of the BECA, that, in order for the realisations charge to be attracted, there must be an amount received by a person who, at the time of receipt, bears the capacity of, relevantly, the trustee of the estate of a bankrupt, and that the amount must be received by that person in that capacity. 22 The suggested avoidance device of postponing the receipt of amounts until after annulment can be overemphasised. Annulment brings about the divesture for which subs 74(6) of the Act provides. In these circumstances a trustee in bankruptcy would be unlikely to acquiesce in an annulment without first being paid the amount of his or her remuneration, or (as in the present case) ensuring that suitable provision is made for payment following the annulment. CONCLUSION 23 For the above reasons, the questions ordered to be separately will both be answered 'No'. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate: Dated: 30 October 2003 Counsel for the Applicant: M Green Solicitor for the Applicant: Bruce & Stewart Commercial Counsel for the First Respondent J T Johnson (Warren Pantzer): Solicitor for the First Respondent Sally Nash & Co (Warren Pantzer): Solicitor for the Second Respondent M Murray of the Australian Government (Commonwealth of Australia): Solicitor Date of Hearing: 21 October 2003 Date of Judgment: 30 October 2003