Australia & New Zealand Banking Group Ltd v. Hickman

Unreported 29 January 1987 FCA
BC8701841

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(Judgment by: Neaves J.)

Re: Margaret Rosemary May and Dennis Lin Heldon
Ex Parte: Australia and New Zealand Banking Group Limited
And: Leslie Morris HickmaN

Court:

Judge:
Neaves J

Judgment date: 29 January 1987

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Judgment by:
Neaves J.

This is an application by Australia and New Zealand Banking Group Limited ("the applicant") for certain declarations and orders against Leslie Morris Hickman ("the trustee") as trustee of the bankrupt estates of Margaret Rosemary May and Dennis Lin Heldon ("the bankrupts"). The principal declaration sought is that the applicant, notwithstanding the events to which it will be necessary to refer, is to be regarded as a secured creditor of the bankrupts and, as such, entitled to retain the net proceeds of sale of a certain property.

Margaret Rosemary May and Dennis Lin Heldon became bankrupt on 4 January 1983 and Leslie Morris Hickman, a registered trustee, became the trustee of their joint and separate estates. It is common ground that, at the date of their bankruptcy, the bankrupts were indebted to the applicant in the sum of $47,183.43 and that this sum was secured by a second mortgage registered under the Real Property Ordinance 1925 (A.C.T.) over a Crown lease, of which the bankrupts were the registered proprietors, of certain land known as 59 Tallara Parkway, Narrabundah in the Australian Capital Territory. The memorandum of mortgage, which was dated 18 April 1979 , was in favour of The Bank of Adelaide and was expressed to be in consideration of advances made or to be made to the bankrupts or to a company known as Denham Transport Pty. Limited. The rights of the mortgagee thereunder became vested in the applicant upon the merger of The Bank of Adelaide and the applicant in November 1980. The Commonwealth Savings Bank of Australia had a first mortgage over the subject lease.

It is also common ground that on 25 January 1980 the bankrupts had executed a guarantee in favour of The Bank of Adelaide in respect of advances made and to be made by the bank to Denham Transport Pty. Limited. At the date of their bankruptcy, the bankrupts were carrying on a business under the business name "Heldon's Carpet Laying and Cleaning Service". The indebtedness of the bankrupts to the applicant arose by reason of moneys advanced by The Bank of Adelaide to Denham Transport Pty. Limited and to the bankrupts in respect of the business carried on by them.

On 18 February 1983 one John Rex Carey, acting under a power of attorney, signed a proof of debt on behalf of the applicant in respect of the debt owed to it by the bankrupts and the same was lodged with the trustee on or about that date. It appears that a pro forma proof of debt was used for the purpose and insufficient care was taken to adapt the form to the circumstances of the particular case. The document, omitting formal parts, was in the following terms:

"I JOHN REX CAREY 15 TENNYSON CIRCUIT, FORREST

A.C.T. lodge the following Proof of Debt:

1.

Rosemary Margaret May Dennis Lin Heldon was, at the date on which he became a bankrupt, namely 4th January 1983 and still is, justly and truly indebted to Australia and New Zealand Banking Group Limited in the sum of $30,183.43 in accordance with the statement of account annexed hereto.

2.

Security is not held by the creditor or by any person on my/his behalf for payment of the whole or any part of the sum specified in Paragraph 1.

3.

The following security is held by the creditor for the payment of part/the whole of the sum specified in Paragraph 1: Guarantee - $15,000 N. Plasier & M.R. May; guarantee $25,000 D.L. Heldon/M.R. May; 2nd RM ACT L'Hold (Narrabundah)

4.

The vouchers by which the debt can be substantiated are specified in the statement of account."

The statement of account referred to in par.1 set out the following particulars:

The date shown as the date of each transaction is clearly incorrect: the date shown is the date of the bankruptcy.

The then manager of the Belconnen Mall branch of the applicant, one Colin Killer, was, according to his affidavit sworn 19 May 1986 and filed herein, responsible for the preparation and lodging of the proof of debt. He has sworn that it was his intention and that of the applicant at that time that the applicant should retain the benefit of the mortgage security held by it and prove as an unsecured creditor for the difference between the debt and the value of the security.

The trustee wrote to the applicant by letter dated 6 July 1983 as follows:

"BANKRUPT ESTATE OF M R MAY & D L HELDON

I have an offer of $49000 for the Narrabundah property. This amount includes $500 in respect of the vendor's legal costs and would be subject to deduction of any amounts due in respect of rates etc. currently unpaid. This offer is for a limited period and I should be glad to have your views on whether it should be accepted. I believe that the first mortgage debt currently stands at about $24000, and in the end result such a sale would make about $24000 available in respect of your Bank's second mortgage.

2. I have given notice of my intention to disclaim the lease under the provisions of the Bankruptcy Act, but I have not yet disclaimed. Although the position is far from clear, it has been suggested that if I do disclaim the lease would revert to the lessor and become merged in the Crown's proprietorship of what I can only refer to as its 'freehold', and the lease would so cease to exist. Your Bank's mortgage is over the Crown lease, so that it might be lost in the result. I would have no desire to create difficulties by disclaimer nor, for that matter, become involved in the creation of legal precedent: perhaps the Bank has some views that it may care to communicate to me."

On or about 25 July 1983 the trustee telephoned Mr Killer. According to Mr Killer's affidavit, a conversation then took place over the telephone. According to the trustee, the telephone call was for the purpose of arranging a meeting and that meeting took place later on the same day. I was informed that Mr Killer, having read the trustee's affidavit, agreed that the trustee went to the bank to see him. Mr Killer said that the trustee informed him that the proof of debt should be amended. Mr Killer made a note of the conversation as follows:

"The trustee of Bankrupt Estate of M.R. May and D.L. Heldon, Mr Les Hickman, has advised that proof of debt dated 18/2/83 should be amended and again executed by the Bank's Attorney. He advised that when proceeds of the Narrabundah house are to hand he will call for an amended Proof of Debt."

According to the trustee, who gave a somewhat fuller account of the conversation, he informed Mr Killer that the security had been undervalued; that, as trustee, he had a right to buy out the security at the value the applicant had placed upon it; that he had given serious consideration to raising the money himself but decided not to do so as it would have involved him giving a personal guarantee and he was not prepared to do so at the time. The trustee said that he also informed Mr Killer that the proof of debt incorrectly referred to the guarantees as being security for the debt and stated that the applicant did not have to lodge a proof of debt immediately - that it could do so at any time - and that he would be obliged to notify the applicant just before payment of a dividend if it had not lodged a proof of debt. He further said that, at Mr Killer's request, he returned the proof of debt to him.

A second proof of debt was then prepared and signed by Mr Carey. It bears the date 18 February 1983 (presumably because it was in substitution for the proof of debt of that date previously lodged with the trustee) but was lodged with the trustee on or about 28 July 1983 . Omitting formal parts, the document was in the following terms:

"I JOHN REX CAREY 15 TENNYSON CIRCUIT FORREST ACT lodge the following Proof of Debt:

1.

ROSEMARY MARGARET MAY DENNIS LIN HELDON was, at the date on which he became a bankrupt, namely 4th Jan 1983 and still is, justly and truly indebted to Australia and New Zealand Banking Group Limited in the sum of $47,183.43 in accordance with the statement of account annexed hereto.

2.

(Deleted)

3.

The following security is held by me/the creditor for the payment of part of the sum specified in Paragraph 1: 2nd registered mortgage over property situated at 59 Tallara Parkway, Narrabundah ACT.

4.

The vouchers by which the debt can be substantiated are specified in the statement of account."

The particulars shown on the attached statement of account were in substantially similar terms to that attached to the earlier proof of debt save that the words and figures "Estimated value of security $17,000.00" were omitted.

Mr Killer has also sworn that, at the time the above proof of debt was prepared and lodged, it was his intention and that of the applicant that the applicant should continue to retain the benefit of the mortgage security and prove as an unsecured creditor only for any deficit.

The applicant replied to the trustee's letter dated 6 July 1983 by letter dated 24 August 1983 reading as follows:

"BANKRUPT ESTATE OF M.R. MAY AND D.L. HELDON

Further to your letter of 6/7/83 regarding the offer you have received on the Narrabundah property owned by the abovenamed we advise that this matter has been referred to our Administration. They have agreed in principal to accepting the offer of $49,000 but prior to formal acceptance of the offer clarification of the vendor's costs and your costs are required. Accordingly we seek your advices in this regard and also whether the offer still stands."

The applicant's solicitors wrote to the trustee a letter dated 2 November 1983 as follows:

"HELDON & MAY (IN BANKRUPTCY)

We act for the ANZ Bank the second mortgagee of a property situated at 59 Tallara Parkway, Narrabundah which is part of the above bankrupts' estate. We are instructed by our client to advise that it is prepared to agree to the sale of the property based on the offer of $49,000.00. Our client further consents to your accepting the refund of $1,000.00 from the Commonwealth Bank, this sum to be added to the Bank's mortgage debt. Accordingly, we would appreciate it if you would advise us as to when the sale of this property can be arranged. We enclose herewith a settlement authority from the Bank to be signed and returned to us."

A further letter dated 2 December 1983 , was addressed to the trustee by the applicant's solicitors in the following terms:

"We refer to our letter of 2 November 1983. Would you please advise when it is anticipated that the property will be sold. Would you then please return the settlement authority forwarded with our letter of 2 November 1983."

A telephone conversation took place on 7 December 1983 between the trustee and the applicant's solicitor in which the trustee referred to the receipt by him of a proof of debt from the Commissioner of Taxation in the sum of $25,000 including a claim for preferential payment in accordance with s.221P of the Income Tax Assessment Act 1936 (Cth). A note of the conversation made by the applicant's solicitor records the trustee as saying that, in consequence of the Commissioner's claim, it was unlikely that the applicant "will get anything from (its) second mortgage".

14. On 16 December 1983 a letter was addressed to the trustee by the applicant's solicitors in the following terms:

"We refer to our letter of 2 December 1983 and to our subsequent telephone conversation on 7 December 1983. We note that you have received a Proof of Debt from the Commissioner of Taxation which alleges a preferential claim to that of our client, the ANZ Bank. We would appreciate it if you would advise us of details of the claim by the Taxation Commissioner and as to how the Commissioner could have preference over our client's security of a second mortgage. We look forward to your early reply."

A further letter, dated 10 January 1984 , was sent by the applicant's solicitors to the trustee. It was in the following terms:

"We refer to our previous correspondence and in particular to our letters of 2 November 1983 and 16 December 1983.

We have been advised by Messrs Vandenberg Reid Pappas & Macdonald, the solicitors for the Commonwealth Bank, that you now propose to sell the mortgaged premises by way of tender. We join with the solicitors for the Commonwealth Bank in objecting to this course of action. Both the Commonwealth Bank and our client are entitled as mortgagees under our respective mortgages, to seek possession of the premises for the failure by the mortgagors to meet their mortgage instalments. Our client and the Commonwealth Bank are then entitled to rely on their security to sell the premises and to recover their secured debts. It was on this basis that we advised you on 2 November 1983 that our client was prepared to agree to the sale of the property based on the offer of $49,000.00. In the circumstances, we fail to see how the Commissioner for Taxation can claim a preference over our client's security over the mortgaged premises. We do not appreciate your failure to advise our client that you would not proceed with the arranged sale and that you propose now to sell by tender. We would request that you keep us fully advised of your proposals in respect to the mortgaged premises so that we can take appropriate instructions from our client to obtain possession of the mortgaged premises and to arrange for the sale of the premises under the power contained in the Memorandum of Mortgage. In the circumstances, would you please advise whether you are prepared to hand over possession to the mortgagees to allow them to sell the mortgaged premises. We request your urgent reply."

16. The trustee replied by letter dated 12 January 1984 as follows:

"I have your letter of 10 January 1984. Firstly, let me say that the Solicitors for the Commonwealth Bank were made aware that, to enable the proposed sale at $49,000 to take place, it was necessary for me to have title in my name as proprietor. Production of the Certificate of Title to enable registration of transmission from the bankrupts to myself was delayed for a considerable time until Waight & Co., acting on my behalf, made it quite clear that the necessary action to enforce production would be taken, and in fact the necessary documents (including affidavits) had been prepared. My present proposition to sell by tender was in part the result of that delay and its effect on the proposals for finance by the intending purchaser, and in part by the effect of the claim to priority payment by the Commissioner for Taxation.

I have already set out in a letter to you that I am required by Section 221P of the Income Tax (Assessment) Act 1936, as amended, to apply the assets of the bankrupt that have vested in me or are under my control, in priority payment of the Commissioner of Taxation, in so far as his claim relates to unremitted group tax deductions. Section 221P specifically provides for priority to the Commissioner over secured creditors, and I cannot see that your client's mortgage makes it more than a secured creditor. Without prejudice, I think that I can say that had the mortgage been given to your client in satisfaction or part satisfaction of its debt, then the position would have been different in view of the mortgage then being something other than a security. I take it from your letter that my possession of the mortgaged property is admitted. Even if there had been circumstances which would have led me to a decision to comply with your request in the ultimate paragraph of your letter, it is my view that it would be in clear breach of Section 221P of the Income Tax (Assessment) Act 1936 as amended to give possession to the mortgagee to allow the sale of the premises. I do think that my proposal to sell by tender would give a period, during the time taken in the sale, to determine the rights of the parties in distribution of the proceeds of sale."

On 25 January 1984 a letter was addressed by the solicitors for the trustee to the solicitors for the Commonwealth Savings Bank of Australia. It was as follows:

"We refer to our letter dated the 5th January 1984 and to telephone conversations between the writer and your Mr Pappas about that time. In a spirit of compromise our client suggests a further proposal. That is that your client may conduct a sale by whatever method they deem appropriate and following completion of the sale funds are held 'in Trust' pending the Order or Directions from the Federal Court. Our client's only other requirement would be that Kelly and Co. Real Estate Agents of Mawson be agents in conjunction with any sale process. Our client makes this proposal on the basis that each of our clients should be prepared to receive funds from the property according to the requirements of the Law as we submit there is a proper dispute as to the requirements of the Law in this case, then the Court will have to determine the correct disposition of proceeds. We would be pleased if you would advise by telephone your client's instructions in this regard."

On the same date, 25 January 1984 , the solicitors for the trustee wrote to the applicant as follows:

"We act for Mr Les Hickman who has been appointed Trustee of the Estate of the abovementioned bankrupts and is now registered proprietor by Transmission of the abovementioned property. We understand that the Commonwealth Savings Bank is registered as First Mortgagee and your bank as Second Mortgagee over the property. Our client has had a Proof of Debt submitted by the Australian Taxation Office seeking that part of their indebtedness receive priority pursuant to Section 221P of the Income Tax Assessment Act. Our firm has had correspondence with the solicitors for the Commonwealth Savings Bank and the position from that correspondence is that there is a dispute as to whether the provisions of section 221P in the circumstances of this case override the right of secured creditors to sell the property upon the default of the mortgagors pursuant to the terms of the relevant mortgage. The Commonwealth Bank wishes to arrange for the sale by public auction and the Trustee, our client, wishes to arrange for the sale by private tender. We enclose a copy of our most recent letter to the first mortgagee's solicitors and would be pleased if you would similarly indicate whether so far as you are concerned the sale might be conducted under the procedure outlined therein and secondly, and most importantly, that the sale proceeds be held pending the determination of the legal argument by the Federal Court. We would be pleased if you could indicate your attitude to the matter as soon as possible,"

The solicitors for the Commonwealth Savings Bank of Australia replied to the letter dated 25 January 1984 from the solicitors for the trustee by letter dated 31 January 1984 reading as follows:

"We acknowledge receipt of your 'Without Prejudice' letter of 25 January 1984. As already advised, we are already instructed by the First Mortgagee to arrange sale of the subject property by public auction at the earliest possible date. Our client will not agree to hold the sale funds in trust. You are already aware of our client's views concerning those funds and are aware that our client claims absolute entitlement to the funds subject to the interest of the Second Mortgagee and the bankrupts. Should your client wish to seek certain orders or directions in the Federal Court then of course he is entitled to do so. Our client will select its own Agent to conduct the sale. We note that we are still awaiting your advice whether or not Messrs Heldon & May are prepared to deliver up vacant possession of the property following its sale. We understood that you would advise us concerning that matter without delay and would be most grateful to receive that advice. You of course will appreciate that if Messrs Heldon & May fail to vacate the property and it becomes necessary to take legal action to obtain possession, then the surplus of funds which might otherwise become available to your client in payment of his fees, or indeed to the Commissioner of Taxation, will be depleted."

By letter dated 2 February 1984 the solicitors for the applicant informed the solicitors for the trustee that the applicant was not agreeable to the trustee selling the property by private tender and that it was the applicant's wish that the property be sold by the first mortgagee by public auction.

A letter dated 13 February 1984 was then addressed by the solicitors for the trustee to the solicitors for the applicant. It read:

"Thank you for your letter of 2 February 1984. Our client has instructed us to reply further that in view of the provisions of Section 221P of the Income Tax Assessment Act and Section 58 of the Bankruptcy Act our client has decided to reject your client's proof of debt insofar as it claims to be a secured creditor but to admit it as to quantum. We have advised the first mortgagee on our client's behalf that if the Narrabundah property is sold and the proceeds disbursed in a way which interferes with the operation of the Bankruptcy Act and the Income Tax Assessment Act then our client will institute proceedings as may be necessary against such person or company, its agents and advisers who have held money contrary to the provisions of those Acts. Naturally if your client wishes to dispute our client's rejection of its proof of debt then appeal avenues are available."

The solicitors for the applicant replied by letter dated 15 February 1984 , the letter containing the following paragraph:

"We deny the right of the Trustee to reject our client's claim to be a secured creditor. We do not believe it is necessary for us to appeal on behalf of our client on the Trustee's attitude. We simply advise that our client proposes to join with the Commonwealth Bank in realising their securities on the Narrabundah property."

The property was sold at auction by the Commonwealth Savings Bank of Australia as first mortgagee on 7 April 1984 for $56,500. Settlement took place on 30 May 1984 and on or about 11 July 1984 the applicant received from the solicitors for the first mortgagee the sum of $20,084.17 representing the balance of the proceeds of sale after payment to the first mortgagee of all monies due and owing to it and the payment of outstanding rates and solicitor's costs and disbursements.

Nothing further happened until 1 November 1984 when the trustee himself wrote to the solicitors for the applicant a letter of that date which included the following paragraph:

"Under cover of a letter dated 28 July 1983, your client submitted a proof of debt in the sum of $47183.43. That Proof of Debt is in such a form as to indicate that the Bank had surrendered its security for the benefit of creditors generally, a view which in my opinion is supported by the failure to give, at the proper time, the notice required by the Bankruptcy Act at Section 91(4)."

The letter requested comment.

On 24 November 1984 the trustee wrote directly to the applicant in the following terms:

"I refer to your Proof of Debt in this matter, which is now noted as admitted in the amount of $47183.43; but that amount will be subject to deferment in payment of any dividend to the extent to which interest is included in the 'Heldon Carpet Laying and Cleaning Service and Partners' item at a rate greater than 12% per annum, as provided by the Bankruptcy Act. It is noted that your Proof of Debt was in such form as to show a surrender of your security for the benefit of creditors generally i.e., it was made as prescribed by Section 90(2) rather than in the manner prescribed by Section 90(4) and (5) of the Bankruptcy Act. Some 4 weeks ago, I wrote to the Solicitors who acted for your Bank in the sale of the mortgaged property and I would have expected some reply if the position were not as set out above. I have now had to assume that the position in regard to the Proof of Debt, as I see it, was intended."

26. The applicant's solicitors replied by letter dated 4 December 1984:

"We refer to your letters dated 1 & 24 November, 1984. After receipt of your first letter, Counsel was briefed to consider our client's position. We expect to be in a position to supply details once Counsel's advice is obtained in the near future. Regarding your second letter, under no circumstances are you entitled to assume that our client has surrendered its security for the benefit of the creditors generally. Our client strongly denies it had, by any statement, in any proof of debt or in any other way, surrendered its security. Our client has at all times maintained that it was, and is, a secured creditor of D.L. Heldon and M.R. May standing as an unsecured creditor only as to the balance of the debt after the security has been realised."

The trustee addressed a further letter to the solicitors for the applicant on 12 December 1984 but it is, I think, unnecessary to set out its contents.

By letter dated 12 March 1985 the solicitors for the applicant sought the trustee's consent to the proof of debt being amended so as to state the bankrupts' indebtedness to the applicant at $27,099.26, being the balance remaining after accounting for the amount realised on its second mortgage over the property.

The trustee replied by letter dated 3 April 1985 . It is not necessary to set out the text in full. Its effect was to decline to consent to the amendment proposed. Further correspondence passed between the trustee and the solicitors for the applicant but it is, I think, unnecessary to refer to it except to note that, by letter dated 19 July 1985 (received by the trustee on 26 August 1985 ), the solicitors for the applicant purported to withdraw the proof of debt lodged on 28 July 1983 and to substitute for it a further proof of debt enclosed with that letter and that by letter dated 11 September 1985 to the applicant's solicitors the trustee declined to accept that the proof of debt could be withdrawn or to act upon the substituted document. The proof of debt enclosed with the letter dated 19 July 1985 was for the amount of $27,099.26 and was undated. It should also be noted that the trustee, by notice addressed to the applicant and dated 8 October 1985 , demanded payment of the monies held by the applicant and representing the balance of the proceeds of sale of the property.

On 2 June 1986 the applicant commenced the present proceedings in this Court.

By virtue of s.58 of the Bankruptcy Act 1966 (Cth) ("the Act"), upon bankruptcy, the property of a bankrupt vests in the trustee of his estate and, except as provided by the Act, it is not thereafter competent for a creditor to enforce any remedy against the person or property of the bankrupt in respect of a provable debt. Nothing in that section, however, affects the right of a secured creditor to realize or otherwise deal with his security. Division 1 of Part VI of the Act (ss.82-107) makes provision for the proof of debts in a bankruptcy administration. For the purposes of the Act, a creditor is to be taken not to have proved a debt until a proof of debt lodged by him in respect of that debt has been admitted (s.83). A creditor who desires to prove a debt in a bankruptcy must lodge, or cause to be lodged, with the trustee a proof of debt in accordance with s.84. A proof of debt is to set out particulars of the debt, is to be in the accordance with the prescribed form, is to specify the vouchers, if any, by which the debt can be substantiated and is to state whether or not the creditor is a secured creditor (sub-s.84(2)).

32. Sections 90 and 91 of the Act provide:

"90. (1) A secured creditor is entitled to prove the whole or a part of his secured debt in the debtor's bankruptcy in accordance with the succeeding provisions of this Division, and not otherwise.

(2) A secured creditor who surrenders his security to the trustee for the benefit of creditors generally may prove for the whole of his debt.

(3) A secured creditor who realizes his security may prove for any balance due to him after deducting the net amount realized, unless the trustee is not satisfied that the realization has been effected in good faith and in a proper manner.

(4) A secured creditor who has not realized or surrendered his security may -

(a)

estimate its value; and

(b)

prove for the balance due to him after deducting the value so estimated.

(5) A secured creditor to whom sub-section (4) applies shall state particulars of his security, and the value at which he estimates it, in his proof of debt.

91. (1) Where a secured creditor has lodged a proof of debt in respect of the balance after deducting the estimated value of his security, the trustee may at any time redeem the security on payment to the creditor of the value at which it has been estimated by the creditor.

(2) If the trustee is dissatisfied with the value at which a security has been estimated by a creditor, he may require the property comprised in the security to be offered for sale at such times and on such terms and conditions as are agreed on by the creditor and the trustee or in default of agreement, as the Registrar directs.

(3) If any such property is offered for sale by public auction, the creditor, or the trustee on behalf of the estate, is entitled to bid for, and purchase, the property.

(4) The creditor may at any time, by notice in writing, require the trustee to elect whether he will, or will not, exercise his power of redeeming the security or of requiring it to be realized and if the trustee does not, within 3 months after receiving the notice, notify the creditor, in writing, that he elects to exercise the power -

(a)

he is not entitled to exercise it;

(b)

subject to sub-section (5), any equity of redemption or other interest in the property comprised in the security that is vested in the trustee vests in the creditor; and

(c)

the amount of the creditor's debt shall, for the purposes of this Division, be deemed to be reduced by the amount at which the creditor has estimated the value of the security.

(5) The vesting of an equity of redemption or other interest in property by virtue of paragraph (4)(b) is subject to compliance with any law of the Commonwealth or of a State or Territory of the Commonwealth requiring the transmission of such interests in property to be registered."

Where a secured creditor has lodged a proof of debt in respect of the balance due after deducting the estimated amount of his security, he may, at any time, apply to the trustee or the Court for permission to amend the proof of debt by altering the estimated value (s.92) and permission may be granted in the circumstances there set out. A creditor may, with the consent of the trustee, amend a proof of debt lodged by him (sub-s.98(1)) but that provision does not authorise the amendment of the proof of debt of a secured creditor by altering the estimated value of his security (sub-s.98(2)). Section 94 provides:

"94. Where a secured creditor who has lodged a proof of debt in respect of the balance due after deducting the estimated value of his security subsequently realizes his security, or it is realized under section 91, the net amount realized shall be substituted for the estimated value of the security and section 93 applies as if the proof of debt had been amended accordingly by the creditor under section 92."

The submission that there was a surrender by the applicant of its security to the trustee for the benefit of creditors generally depends solely upon the form of the proof of debt lodged with the trustee on 28 July 1983 . There is no evidence of any other action on the part of the applicant which is inconsistent with it maintaining the position of a secured creditor seeking to take advantage of whatever benefit its security might confer upon it. There is, for example, no evidence that the applicant voted as an unsecured creditor at any meeting and it certainly received no dividend in the estate on the basis that it was an unsecured creditor in the sum of $47,183.43. Whether, if any such event had occurred, it would necessarily have been decisive of the question I need not stay to consider.

The proof of debt lodged on 28 July 1983 stated that the bankrupts were indebted to the applicant in the sum of $47,183.43, the full amount of the indebtedness, and asserted that security by way of a second mortgage was held for payment of part of the debt. No estimate was made of the value of the security but the absence of such a valuation can, in the circumstances, hardly, of itself, amount to an unequivocal statement that the security was being surrendered. Indeed, the statement that security was held for the payment of part of the debt is inconsistent with such a surrender.

There is, on the evidence, no doubt as to the position taken by the applicant prior to the lodging of the proof of debt on 28 July 1983 . That position is made clear if one has regard to the form of the proof of debt which was lodged on 18 February 1983 and to the conversation between Mr Killer and the trustee on or about 25 July 1983 which led to its being withdrawn. That form of proof of debt has its own textual difficulties but both the proof of debt and the conversation are inconsistent with the applicant's position being that it was surrendering its security and proving as an unsecured creditor for the whole of its debt. The conversation proceeded on the basis not that the applicant was surrendering its security but on the basis that it had undervalued the security with the consequence that the amount for which it should have been proving in the bankrupt estate was less than the amount shown on the form. That it was the applicant's intention in February 1983 to prove for the balance after deducting the value of the security is also supported by Mr Killer's statement to that effect in his affidavit sworn 19 May 1986 , a statement upon which he was not cross-examined.

Regard may also be had to the correspondence which passed between the trustee and the applicant and its solicitors concerning the proposed sale of the property. The correspondence written on the applicant's behalf is consistent only with the applicant being a creditor having a security over the property and being entitled to whatever benefits that security might confer. The correspondence written by the trustee or on his behalf prior to the letter dated 13 February 1984 is also consistent only with an acknowledgment by the trustee that that was the position. The same can be said of the telephone conversation between the trustee and the applicant's solicitor on 7 December 1983 . It may be acknowledged that, if the lodging of the proof of debt on 28 July 1983 amounted to an unequivocal act of surrender of the security, subsequent assertions in correspondence that the applicant was still a secured creditor would be of little avail. However, as the lodging of the proof of debt was not, in my view, such an unequivocal act, the subsequent correspondence may, I think, properly be taken into account as illustrative of the applicant's intention. In this latter regard it may also be noted that Mr Killer has sworn that it was the applicant's intention when lodging the proof of debt on 28 July 1983 not to surrender its security and his statement to that effect was not challenged by the trustee.

Inept as the drafting of the form was, I do not think it can be said, in truth, that it amounted to a surrender of the applicant's security to the trustee for the benefit of creditors generally. Apart from the textual difficulty with the form itself, the other matters to which I have referred all point in the opposite direction. I am, therefore, of opinion that the applicant remained a secured creditor of the bankrupts and that it is entitled to retain, as against the trustee, the proceeds of the realization of its security.

A submission was made on behalf of the trustee that the application is properly to be regarded as brought under sub-s.104(1) of the Act which provides that a creditor who is dissatisfied with a decision of the trustee under sub-s.102(1), (3) or (4) in respect of a proof of debt may apply to the Court to review the decision. Section 102 relates to the admission or rejection, in whole or in part, of proofs of debt by the trustee of a bankrupt estate. Sub-section 104(3) provides that, subject to the power of the Court to extend the time, an application under the section to review a decision shall not be heard by the Court unless it was made within 21 days from the date on which the decision was made. It was submitted that, as the proceedings were not instituted until 2 June 1986 , an extension of time was necessary and, in view of the very long delay in bringing the proceedings, the Court should exercise its discretion by refusing the necessary extension.

The applicant asserted that the proceedings were brought pursuant to s.178 of the Act which provides that a creditor who is affected by any act, omission or decision of the trustee may apply to the Court and the Court may make such order in the matter as it thinks just and equitable. No time limit is prescribed in respect of such an application though, no doubt, delay might be a relevant factor for the Court to consider in determining whether or not to grant relief.

The present application will answer the description in sub-s.104(1) only if it is treated as an application to review the decision of the trustee conveyed to the applicant by the letter dated 13 February 1984 purporting to reject the applicant's proof of debt lodged on 28 July 1973 in so far as it claimed to be a secured creditor but to admit it as to quantum. If the relevant decision is the decision of the trustee set out in his letter dated 3 April 1985 declining to consent to the proof of debt being amended, such decision does not appear to be a decision made under sub-s.102(1), (3) or (4). A further possibility is to regard the application as one to review the decision of the trustee made on or about 8 October 1985 to demand payment from the applicant of the monies held by it and representing the balance of the proceeds of sale of the property. That decision was clearly not a decision to which sub-s.104(1) applies.

I do not find it necessary to resolve the question under which provision of the Act the application is made though I incline to the view that it is proper to regard it as an application made under s.178. The Court's power to deal with the matters in dispute in undoubted: see s.30 of the Act. But, if the application is properly to be regarded as an application under sub-s.104(1), I would be prepared to grant whatever extension of the time prescribed by sub-s.104(3) is necessary to enable the issue to be resolved. It is clearly necessary for the due administration of the bankrupts' estates that the issue be settled, the trustee having asserted a right to receive payment from the applicant of the net proceeds of the realization of the security. That circumstance is, I think, sufficient to warrant the Court excusing the delay, lengthy though it may be. It is also of some significance in this regard that it would have been open to the trustee to have commenced proceedings at an earlier date to resolve the dispute had the delay been a significant factor in the due administration of the estate but he did not do so.

Reference was made in the correspondence and in the submissions put to the Court on behalf of the trustee to the operation of s.221P of the Income Tax Assessment Act 1936 (Cth). In my opinion, no question arises under that section. It imposes no obligation on the applicant as it does not answer the description of a trustee in which the property of the bankrupts vested or to which control of that property passed within the meaning of the provision. It imposes no duty on the trustee of the bankrupts' estates in relation to the net proceeds of the realization of the second mortgage over the bankrupts' property at Narrabundah as the proceeds of that realization have not vested in the trustee or come under his control and, in the light of the declarations which I propose to make, he has no entitlement thereto.

43. For the reasons set out above, I make the following declarations:

1.

Declare that the applicant did not surrender to the trustee for the benefit of creditors generally the security which it held by way of second mortgage registered under the Real Property Ordinance 1925 (A.C.T.) over the Crown lease of the land known as 59 Tallara Parkway, Narrabundah in the Australian Capital Territory, being the land described in Certificate of Title Volume 193, folio 34.

2.

Declare that the applicant is entitled, as against the trustee, to retain the net proceeds of the realization of the said security.

3.

Declare that the applicant is under no legal obligation to pay any monies to the trustee pursuant to the notice of demand dated 8 October 1985.

4.

Declare that the applicant is at liberty to withdraw the proof of debt lodged with the trustee on or about 28 July 1983 and to substitute therefor a proof of debt in proper form proving for the balance of its debt after deducting the net amount realized upon its said security.

As the applicant was largely, if not wholly, the author of the situation which has given rise to the necessity for the present proceedings, it should, in my opinion, pay the trustee's costs of the application as between solicitor and client and any costs of or associated with the withdrawal and substitution of its proof of debt and I so order. It was submitted that the applicant should also be ordered to pay any additional costs of administration of the bankrupts' estates arising from the delay in bringing this matter before the Court. In the light of what I have said above in relation to delay in bringing the proceedings, I do not think it appropriate to make the order sought and I decline to do so.