Bear v Official Receiver

65 CLR 307
1941 - 1209A - HCA

---

(Decision by: Williams J)

Bear
v Official Receiver

Court:

Judges: Rich J
Starke 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)

Hearing date: 26 November 1941; 9 December 1941;
Judgment date: 9 December 1941

Sydney

---

Decision by:
Williams J

A meeting of creditors of the appellant, Benjamin David Bear, called pursuant to Part XI. of the Bankruptcy Act 1924-1933, was held at Sydney on 24th July 1941, at which an extraordinary resolution was duly passed that the creditors agree to accept the sum of PD1,000 together with any moneys held by Mr. C. A. Law as trustee in full satisfaction and discharge of all liabilities of the appellant as at 24th July 1941, such sum, after payment of the trustee's proper costs, charges, expenses and commission, to be divided between the creditors pro rata according to the amount of their proved debts. A subsequent meeting of the creditors held on 31st July 1941 purported to confirm this extraordinary resolution. On the last-mentioned date, before the certificates required by s. 161 (c) had been filed, James Wilson, a creditor of the appellant, applied to the court by motion pursuant to s. 161 (d) to appoint a day to consider the composition accepted at the meeting of creditors on 24th July and proposed to be confirmed at a further meeting to be held on 31st July. The application was therefore premature, but the court fixed 21st August 1941 at 10.30 a.m. to consider the composition. Notice of the appointment was presumably advertized in the Gazette by the registrar in accordance with s. 161 (d). After the applicant's solicitor Mr. Edgley, Law the proposed trustee, and the appellant had filed affidavits, the motion came on for hearing before the learned judge in bankruptcy at 10.35 a.m. on 21st August. The applicant appeared by his solicitor, and Mr. Law by his counsel Mr. Taylor. Section 161 (e) provides that any creditor may, on filing in court, three days at least before the day appointed, a notice of his intention to oppose the composition or scheme, be heard against it; but the debtor and any creditor may, without notice, be heard in favour of it. The applicant's solicitor at first opposed the composition, although there is no evidence that he filed the necessary notice of opposition. He submitted that the subsequent meeting had not been held at an interval of "not less than seven days" after the first meeting, in breach of s. 161 (b), and that the composition did not provide for the priorities directed by s. 84. He subsequently desired to consent to the composition, but the court refused to accept his consent. The court rejected the composition under s. 161 (f) on the ground that it was not reasonable and not calculated to benefit the general body of creditors. At 2.30 p.m. the notice of motion was brought on again by the court, Mr. Taylor being present, and an order was made for the sequestration of the appellant's estate.

Section 161 (i) provides that if the composition or scheme is rejected or annulled, the order of rejection or annulment shall not take effect (i.e., as an act of bankruptcy) unless a sequestration order is made in pursuance of sub-s. h 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. Section 161 (h) provides that if default is made in payment of any instalment due in pursuance of a composition or scheme, or if it appears to the court that the composition or scheme cannot, in consequence of legal difficulties or for any sufficient cause, proceed without injustice or undue delay to the creditors or to the debtor, or that the approval of the court was obtained by fraud, the court may, on the application of the registrar, any creditor or of the debtor, annul the composition or scheme, and may, if it thinks fit, forthwith make a sequestration order in regard to the estate of the debtor, and proceedings may be had accordingly. Although the power to make a sequestration order forthwith is only specifically conferred upon the court where it annuls a composition or scheme of which it has previously approved and which is being carried out, the express reference in sub-s. i not only to the annulment but also to the rejection of a composition or scheme appears to me to be a sufficient indication of the intention of the legislature to confer upon the court the right also to make a sequestration order without a petition being filed where a composition or scheme is rejected prior to its coming into operation. Section 52 (l) provides that a debtor commits an act of bankruptcy under Part XI. of the Act if at a meeting of creditors under this Part or some adjournment thereof, a resolution accepting a proposal for a composition or scheme be not duly passed or if a resolution accepting a proposal for a composition be not duly confirmed in accordance with s. 161, or if the composition or scheme be rejected in pursuance of that section; and that an act of bankruptcy shall be deemed to have been committed by the debtor on the day of the first meeting of creditors, and also where the composition or scheme has been rejected on the day of the making of the order of rejection provided-(i) that except where the composition or scheme has been rejected a petition for sequestration is presented against the debtor within two months after the date of the first meeting of creditors; and (ii) that where the composition or scheme has been rejected a sequestration order is made against the debtor within seven days after the date of the order of rejection. In the present case, therefore, the appellant committed an act of bankruptcy on 24th July 1941, and also, if there was any valid composition, when it was rejected by the court on 21st August 1941. The only statutory requirement as to notice of the application to the court to consider the composition or scheme is that notice shall be given by advertisement in the Gazette, so that where the registrar or any creditor or the debtor applies for a sequestration order under s. 161 (i) the court would have jurisdiction forthwith to make it, but where the applicant is not the debtor the court should only do so, without notice to the debtor, in very exceptional circumstances (In re Ponsford; Ex parte Ponsford ^[F13] ; In re Flew; Ex parte Flew ^[F14] )-see also R. v North; Ex parte Oakey ^[F15] .

In the present case it does not appear from the notes of the learned judge or from the sequestration order itself that any application was made to the court by any of the persons mentioned in s. 161 (h), so that the order appears to have been made by the court of its own motion, and I agree, for the reasons given by my brother Starke, that a sequestration order so made should be set aside. Even if it was made on the application of the registrar, as the notice of motion did not give notice that such an order would be made if the composition was rejected and there were no special circumstances requiring the making of the order without notice to the appellant, I think the court exercised its discretion wrongly and the order should not be allowed to stand.

I am also of opinion that there was no valid composition for the court to consider and approve or reject, because the requisite period had not elapsed between the two meetings. Where an interval of "not less than" seven days must elapse, there is a sufficient indication of intention to the contrary to exclude s. 36 (1) of the Acts Interpretation Act 1901-1941, so that the period which must elapse between the two meetings under s. 161 (b) must be seven clear days exclusive of the respective days of the meetings (In re Railway Sleepers Supply Co ^[F16] ; Ex parte McCance; Re Hobbs ^[F17] ; Halsbury's Laws of England, 2nd ed., vol. 32, pp. 141, 142). The only act of bankruptcy which the appellant had committed, therefore, was the failure to obtain a resolution duly confirming the extraordinary resolution passed on 24th July 1941 which would, under s. 52 (l), be deemed to have been committed by the debtor on that date. This was not an act of bankruptcy which entitled the court to make a summary order for sequestration under s. 161 (i). The sequestration order of 21st August 1941 should therefore be set aside on this ground also.

The appeal should be allowed.

Moverley, for the appellant.

Lloyd, for the respondents.

Solicitors for the appellant, Owen Jones, McHutchison & Co

Solicitors for the respondents, H. F. E. Whitlam, Crown Solicitor for the Commonwealth; Edgley, Son & Williams.