Bear v Official Receiver [1941] HCA 41

Bear v Official Receiver [1941] HCA 41 - HCA 1941 case summary — Zoe

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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. Ha parte Charlton; In re Charlton (1). In that case sec. 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 suffi- cient 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 sec. 6 of that Act which must be founded on petition and proceedings under sec. 126, and says:

<" But the case is entirely different under sec. 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 Bank- ruptcy. 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 bank- ruptey (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 accord- ingly,' 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 " (2).

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Witutams 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 £1,000 together with any moneys held by Mr. ©. 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 sec. 161 (c) had been filed, James Wilson, a creditor of the appellant, applied to the court by motion pursuant to sec. 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 adver- tized in the Gazette by the registrar in accordance with sec. 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. Sec. 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 com- position, 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 sec. 161 (6), and that the com- position did not provide for the priorities directed by sec. 84. He

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Sec. 161 (z) provides that if the composition or scheme is rejected or annulled, the order of rejection or annulment shall not take effect (.e., as an act of bankruptcy) unless a sequestration order is made in pursuance of sub-sec. 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. Sec. 161 (4) 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-sec. 7 not only to the annul- ment 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. Sec. 52 (1) 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 sec. 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 com- mitted 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

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Judgment (64 paragraphs)