Bear v Official Receiver
65 CLR 3071941 - 1209A - HCA
(Decision by: Rich J)
Bear
v Official Receiver
Judges:
Rich JStarke J
McTiernan J
Williams J
Subject References:
Bankruptcy
Scheme of arrangement
Summary order for sequestration
Annulment and rejection of scheme
Legislative References:
Bankruptcy Act 1924 - ss 52(1); 161
Acts Interpretation Act 1901 - s 36(1)
Judgment date: 9 December 1941
Sydney
Decision by:
Rich J
The following written judgments were delivered:
RICH J. This is an appeal from an order of the Judge in Bankruptcy rejecting a scheme of arrangement and making a sequestration order against the debtor (the appellant).
On 24th July 1941 - the date of the first meeting of the debtor's creditors-the statement of his affairs showed that his liabilities totalled PD4,951 8s. 4d. and his assets one share in the Australian Wholesale Furniture Distributors Pty Ltd of the nominal value of one pound. The creditors present or represented at the meeting resolved to accept the sum of PD1,000 in full satisfaction and discharge of all the liabilities of the debtor. This was to be paid to C. A. Law as trustee and applied by him in accordance with the scheme. On 31st July the creditors purported to confirm the resolution passed at the first meeting. It does not appear from the evidence whether the debtor attended the meetings (s. 160 (b) of the Bankruptcy Act 1924-1933), and the chairman's certificates are silent on the subject (s. 161 (ca)). The respondent Wilson, a creditor of the debtor, did not assent to the composition, and applied to the court under s. 161 (d) to consider it. It appears from the evidence before us that the practice for obtaining the court's consideration of a composition or scheme was not followed. In the first instance an application should be made to the court to appoint a day to consider the composition. When an appointment has been made notice of it should be given in the Gazette and in such other manner, if any, as the court directs (s. 161 (d), rules 354, 355). Apparently the application to the court in this case was made without a previous appointment and without advertisement or notice. No notice on the part of any creditor was filed in opposition to the composition (s. 161 (e). At the hearing counsel for the trustee under the composition and the solicitor for the respondent Wilson were present. The debtor was neither present nor represented. The respondent's solicitor was willing to consent to the composition, but the learned judge would not accept his consent, and rejected the composition under s. 161 (f). At a later stage his Honour reopened the matter and made a sequestration order against the debtor's estate. Counsel for the trustee was present on this occasion and objected that the court had no jurisdiction to make such order. The debtor was not present and the respondent Wilson was not represented. No notice was given either in the filed application to the court to consider the composition of an intention to apply for a sequestration order or in any other manner, and no oral application was made by the registrar, any creditor, or the debtor, for such an order (s. 161 (h)). But as the second meeting was held at an interval of six instead of seven clear days the confirmatory "resolution was bad"-Cf. In re Railway Sleepers Supply Co [F1] , at p. 208 - and the composition was not binding on the creditors because the resolution was not duly confirmed (s. 161 (a)). At most the proposal was inchoate and did not develop into a potential or operative composition.
The power to make a summary order is expressed in sub-s. h of s. 161, but sub-ss. f, h and i of this section are sufficiently correlated to enable the court to make such an order whether a composition is rejected under sub-s. f or annulled under sub-s. h. For sub-s. i speaks of a composition being rejected, i.e. under sub-s. f, or annulled, i.e. under sub-s. h, and then states that "the order of rejection or annulment shall not take effect unless a sequestration order is made in pursuance of the last preceding paragraph, or is obtained by or against the debtor within seven days from the date of the order or within such further time as the court allows." But in the absence of a real composition the cardinal condition upon which the power is based was wanting in this case. And the act of bankruptcy committed under s. 52 (l) owing to the resolution not having been duly confirmed cannot be called in aid, as it is not one of the constituent elements in sub-ss. f or h of s. 161. In a proper case, however, there is jurisdiction to make a summary order, but the jurisdiction should be invoked on the application of the registrar, creditor or the debtor: Cf. In re Burr; Ex parte Board of Trade [F2] , as reported on this point in Morrell's Bankruptcy Reports [F3] , at p. 146. When the application is not made by the debtor himself notice should, as a rule, be given to him. Even under the English bankruptcy practice, when a bankruptcy petition has been filed and a receiving order made an immediate adjudication will only be made in most exceptional circumstances without any notice to the debtor (In re Flew; Ex parte Flew [F4] ). But it would not be necessary in a case when the debtor had absconded. The power to make a summary order is a discretionary power. It is not based on an act of bankruptcy but on the circumstances of the particular case. The power is conferred on the court in effect to convert the proceedings in the composition into a bankruptcy, and to enforce the rights of the parties to the composition by means of bankruptcy: Cf. Ex parte Charlton; In re Charlton [F5] . In that case s. 126 of the English Bankruptcy Act 1869 was under consideration. The section reads: "If it appear to the court on satisfactory evidence, that a composition under this section cannot, in consequence of legal difficulties, or for any sufficient cause, proceed without injustice or undue delay to the creditors or to the debtor, the court may adjudge the debtor a bankrupt, and proceedings may be had accordingly." And Cotton L.J. draws the distinction between proceedings under s. 6 of that Act which must be founded on petition and proceedings under s. 126, and says:"But the case is entirely different under s. 126. As I read that section, any debtor who takes the benefit of it submits himself at once of necessity to the powers given by it to the Court of Bankruptcy. There are two powers which are material. One is that the court shall be able to enforce by motion in a summary way the carrying out of the composition. But it may not be able to do this effectually, and then the section, without requiring any act of bankruptcy (for it is to be noted that the Act of Parliament itself does not require a petition to be filed admitting that the debtor cannot pay his debts), authorizes the judge, if he thinks it necessary in order to do justice between the parties, the debtor and his creditors, to adjudge him a bankrupt, and then `proceedings may be had accordingly,' that is, all those proceedings which in the ordinary course of a bankruptcy follow an adjudication shall take place, and the man's property shall be dealt with as if he were a bankrupt" [F6] .
No doubt the Court of Bankruptcy is a court to whose procedure the rule that, as far as possible, mere technicalities should be brushed away, is especially applicable. And the Bankruptcy Act ought to be construed as far as possible to give the largest discretion to the Court of Bankruptcy, but where, as in this case, the power of the court is limited by Act of Parliament, the court must, of course, obey the Act (In re Lord Thurlow; Ex parte Official Receiver [F7] , at pp. 728, 729). The limitation in the case is to be found in s. 161, sub-ss. f and h, where the jurisdiction to make a summary order for sequestration is confined to the cases there specified.
For these reasons I am of opinion that the appeal should be allowed.