Peter Leopold Clyne v Deputy Commissioner of Taxation & ors
(1984) 154 CLR 58958 ALJR 398
(Decision by: Deane)
PETER LEOPOLD CLYNE v DEPUTY COMMISSIONER OF TAXATION AND OTHERS
Court:
Judges:
Gibbs C.J., Murphy, Brennan, Dawson JJ.
Deane
Judgment date: 31 July 1984
Decision by:
Deane
The principal question involved in this appeal is one of general importance in the administration of bankruptcy law. It is whether the Federal Court possesses jurisdiction to make a sequestration order on a creditor's petition in respect of the estate of a bankrupt debtor in circumstances where the subsisting bankruptcy has resulted from acceptance by the Registrar of the debtor's own petition and where the debt, upon which the creditor's petition seeking the sequestration order is based, existed at the time of, and is provable in, the subsisting bankruptcy. I agree, for the reasons which they give, with the conclusion reached by the other members of the Court that the Federal Court lacks jurisdiction to make a sequestration order in these circumstances. I add some additional comments of my own in relation to that question.
It is plainly contemplated by the provisions of the Bankruptcy Act 1966 (Cth) that a person who is already bankrupt may be made bankrupt again upon a petition founded on a debt which was incurred after the date of the first bankruptcy. In such a case, there are two distinct bankrupt estates and there may well be a different trustee of each. The division of assets between the two estates is governed by the provisions of s.59 of the Act which expressly deals with what the heading of the section describes as a "Second or subsequent bankruptcy". Neither s.59 nor any other section of the Act provides however, either expressly or by implication, for a second bankruptcy in pursuance of a petition based on a debt which existed before the first bankruptcy and in respect of which the creditor is entitled to prove in the first bankruptcy. Under s.153(1) of the Act, such a debt would be released by a discharge of the first bankruptcy.
Putting to one side the special case where the subsisting bankruptcy has resulted from the presentation of a debtor's own petition, the concept that a sequestration order can be made in respect of an already bankrupt estate on the petition of a creditor whose debt is provable in the existing bankruptcy and would, in the ordinary course, be released upon discharge of the debtor from that bankruptcy is contrary to both general notions of bankruptcy law and to the general scheme of the Act. It is true that one can find in the reported cases a few instances of the making of a second sequestration order on the petition of a creditor whose debt existed at the commencement of the first bankruptcy and was provable in the first bankruptcy. For the reasons given by the other members of the Court however, those cases should not be followed in respect of proceedings under the Act. When the Act is construed as a whole, the preferable view is that a second sequestration order cannot, as a general rule, be made against a bankrupt based on a debt which is provable in the existing bankruptcy and which will be released upon the debtor's discharge from that bankruptcy. The question arises whether there is an adequate basis for discerning a legislative intent to establish an exception to that general rule in a case where the first bankruptcy was brought about as the result of the administrative procedures involved in the acceptance by the Registrar of a debtor's petition which was lodged by the debtor after the creditor's petition had been presented to the Court. As the judgments in the Federal Court clearly and ably demonstrate, there is considerable force in the arguments favouring an affirmative answer to that question. The strength of those arguments can be conveniently illustrated by reference to the facts of the present case.
In the present case, the presentation of the petition by the Deputy Commissioner ("the creditor") instituted a judicial proceeding in the Federal Court. The creditor was entitled, in that proceeding, to seek a sequestration order against the appellant ("the debtor") based on the act of bankruptcy which the debtor had admittedly committed. Under the relation back provisions of s.115(1) of the Act, the debtor's bankruptcy under such a sequestration order would be deemed to have commenced at the time of the commission of the earliest act of bankruptcy committed by him within the period of six months immediately preceding the date on which the creditor's petition was presented, namely, 4 January 1983 . It would seem that that "time" would be 24 December 1982 since it is common ground that the debtor committed an act of bankruptcy on that day and there is no evidence that he committed any prior act of bankruptcy within that period of six months. It follows that the creditor was seeking, in the judicial proceedings which had already been instituted at the time the debtor presented his petition, a sequestration order which would, pursuant to the provisions of the Act, relate back to 24 December 1982 with the consequence that it would, at least prima facie, avoid transactions by the debtor with his property subsequent to that date.
On the other hand, the relation back provisions with respect to a bankruptcy by virtue of the presentation of a debtor's petition (s.115(2)) provide that the bankruptcy shall be deemed to relate back to, and to have commenced at, the commission of the first act of bankruptcy committed within the period of six months immediately preceding the date on which the petition was presented. In practical terms, the debtor's bankruptcy pursuant to the sequestration order which the creditor was seeking would relate back to 24 December 1982 whereas the debtor's bankruptcy pursuant to his own petition would either relate from 6 September 1983 or, if it is subsequently ascertained that he had committed a prior act of bankruptcy within the six months preceding that date, to the date of that prior act of bankruptcy. That means that any transactions by the debtor during the period 24 December 1982 and 6 March 1983 would be within the relation back period of a sequestration order made on the creditor's petition but would not, on any approach, be within any relation back period of a bankruptcy on the debtor's petition. It is common ground that there were, in fact, at least two transactions by the debtor with his property during that period.
There is plainly much to be said for the view that it would not have been the legislative intent to override and possibly frustrate judicial proceedings instituted by a petitioning creditor by an administrative procedure which enabled a debtor to shorten the "relation back" period by becoming bankrupt on his own petition. There is obvious force in the view that the Act should be construed so as to preclude a debtor from so depriving the petitioning creditor and other creditors of the ordinary fruits of bankruptcy proceedings. The difficulty is, however, that it appears to me that the particular problem was simply not adverted to when the administrative procedures enabling a debtor automatically to become bankrupt upon acceptance of a debtor's petition by a Registrar were introduced into the Act and that it is not possible to do more than speculate about the approach which would have been adopted by the Parliament if it had directed its attention to the problem. It is possible that the preferred approach would have been that a debtor should be precluded altogether from presenting a petition to the Registrar pursuant to s.55 of the Act if a bankruptcy petition has been presented to the Court against him and is awaiting hearing.
It may be that the Parliament would have taken the approach that the appropriate course, where a creditor's petition is pending against a debtor, was to provide that any debtor's petition must also be presented to the Court and subsequently be dealt with by judicial proceedings which would, in an appropriate case, enable consolidation of the pending creditor's petition and the debtor's petition. It may be that the approach would have been adopted that special provision should be made introducing some limited exception to the general rule that a sequestration order should not be made on a creditor's petition founded on a debt which existed prior to and was provable in a subsisting bankruptcy either in any case where the first bankruptcy resulted from the acceptance of a debtor's own petit ion or only in those cases where the creditor's petition had been presented before the debtor became bankrupt on his own petition. It may be that some other approach might have been thought more suitable. Moreover, whatever approach might have been thought appropriate, the inclusion of special procedural provisions would have been desirable. In particular, if the view had been taken that a sequestration order should be available against a bankrupt on the petition of a creditor whose debt was due and payable at the time when the debtor had become bankrupt on a debtor's petition, it would have been plainly desirable that special legislative provision be made either to avoid the existence of two distinct bankrupt estates or to deal with the problems involved in the concurrent existence of two such estates.
There remains the question of what order should be made on the appeal. I agree, for the reasons which they give, with the conclusion reached by the other members of the Court that the barrier to the making of a sequestration order would be removed in a case where the bankruptcy resulting from acceptance of a debtor's petition was first annulled. It may be that, if an application to annul the subsisting bankruptcy had been pursued, such an annulment order would have been made in the present case. No such application was however pursued at first instance. More importantly, no question of annulment was raised in the Full Court of the Federal Court, was mentioned in any notice of appeal or was sought to be raised by any party in this Court. To the contrary, when the subject of annulment of the subsisting bankruptcy was mentioned in argument in this Court, senior counsel for the first respondent was at pains to draw attention to "some real problems of fact and evidence and inference from evidence" which would "obviously" exist in relation to an application for annulment and to disclaim any suggestion that annulment was a live issue in this Court. That being so and notwithstanding that bankruptcy proceedings are not merely proceedings inter partes in that questions of status and the rights of third parties are involved (cf. Sarina v. Council of the Shire of Wollondilly (1980) 48 FLR 372 , at p 376), I do not consider that the appellant debtor should be refused the orders to which he is prima facie entitled upon his success on the only matters which any of the parties have raised on the appeal.
I would uphold the appeal and make consequential orders to the effect that the petition be dismissed and that the respondent Deputy Commissioner pay the appellant debtor's costs of the proceedings in the Full Court of the Federal Court and in this Court. I would express the hope that consideration be given to the desirability of legislative action to remove the anomaly disclosed by the decision on the principal question involved in this appeal.