CBS Productions Pty Ltd v O'Neill

REASONS FOR JUDGMENT 1 An application has been made by the Official Trustee as trustee of the bankrupt estate of Ronald Sturt ("the bankrupt"). The Official Trustee seeks an order pursuant to s 146 of the Bankruptcy Act 1966 (Cth) ("Bankruptcy Act"), that a distribution of dividends be made to the creditors of the bankrupt estate who have proved their debts. Section 146 of the Bankruptcy Act provides as follows: "Where a bankrupt has failed to file a statement of his or her affairs as required by this Act, the Court may, on the application of the trustee, upon such terms as it thinks fit, order that distribution of dividends amongst the creditors who have proved their debts shall proceed in accordance with this Division as if the bankrupt had filed a statement of his or her affairs and those creditors had been stated to be creditors in it." 2 The application was made to me as Duty Judge ex parte. At the hearing, I raised some questions with the solicitor representing the Official Trustee, Mr Carter. As a consequence, the Official Trustee filed and read an additional affidavit in the proceedings and Mr Carter filed written submissions dealing with the issues I had raised. 3 The background to the application is as follows. A sequestration order was made against the estate of the bankrupt on 24 November 1999. It appears that the sequestration order was made on the petition of a creditor, Sturdy Components Pty Ltd ("Sturdy"). Sturdy's proof of debt has been admitted to rank for dividend in the estate in the amount of $425,511.00. The Official Trustee has received no other proof of debt and is not aware of any other creditor. 4 Section 54(1) of the Bankruptcy Act provides that, where a sequestration order is made, the person against whose estate it is made must, within fourteen days of being notified of the bankruptcy, file a statement of affairs. A penalty is provided in the event of non-compliance. The bankrupt has never filed a statement of affairs in conformity with s 54(1) of the Bankruptcy Act. On the evidence before me, it cannot be said that the bankrupt wilfully defaulted in meeting, or neglected to meet, his statutory obligations. Rather, I would infer from the evidence that the bankrupt has been unable to comply with those obligations by reason of mental infirmity. (No issue has been raised in this application as to the significance, if any, of the bankrupt's mental infirmity for the making of the sequestration order.) 5 The Official Trustee has received a sum in excess of $60,000 in the course of administering the bankrupt estate. The bulk of these funds has become available as the result of the compromise of an action brought by the Official Trustee against the bankrupt's wife. The Official Trustee now wishes to distribute the available funds to Sturdy, as the only known creditor of the bankrupt. 6 When the matter first came before me as Duty Judge, one question I raised was whether the evidence established that the Trustee had taken adequate steps to ascertain if there were any creditors of the bankrupt estate other than the petitioning creditor. The evidence subsequently read on behalf of the Official Trustee has satisfied me that it has made adequate inquiries to establish whether there are any other creditors of the bankrupt estate other than Sturdy. 7 In these circumstances, it is plainly in the interests of the only creditor that the Official Trustee distribute the available funds from the bankrupt estate. If I have power to make the order under s 146, I am prepared to do so. The only question that remains is whether the bankrupt could be said to have "failed to file a statement of…affairs as required by" the Bankruptcy Act, within the meaning of s 146 of the Act. 8 In his written submissions, Mr Carter pointed out that the Bankruptcy Act contains no definition of the word "fail" or the phrase "failed to file". He contended that s 146 extends to a case where the bankrupt has not filed a statement of affairs by reason of incapacity or other cause beyond the bankrupt's control. 9 There is very little authority on the operation of s 146 of the Bankruptcy Act. In Re Shaw; Ex parte Official Trustee in Bankruptcy [1999] FCA 968, Gyles J observed (at [4]) that the purpose of s 146 is: "[t]o give the Court the means of ensuring that the absence of a statement of affairs does not prejudice those with an interest in the bankrupt's affairs". Though his Honour did not have occasion to consider the application of s 146 to circumstances similar to those of the present case, his view of the object of the section tends to support the Official Trustee's construction. 10 Gyles J's view of the purpose of s 146 is supported by other provisions in Division 5 of Part VI of the Bankruptcy Act. Section 140(1) of the Bankruptcy Act requires the trustee "with all convenient speed" to declare and distribute dividends amongst the creditors who have proved their debts. Section 140(2) provides that, subject to the retention of such sums as are necessary to meet the cost of administration or to give effect to the provisions of the Bankruptcy Act, the trustee shall distribute as dividends all moneys in hand. Section 145 provides that, when the trustee has realized all the property of the bankrupt, or so much of it as can be realized without needlessly protracting the trusteeship, he or she shall declare and distribute the final dividend. These duties are subject to certain conditions, such as the requirement in s 140(3) that, before declaring the first dividend, the trustee must give written notice of the intention to declare a dividend to anyone known to be a creditor, but who has not lodged a proof of debt. Nonetheless, the statutory scheme makes it clear that a principal object of the legislation is to ensure the distribution of dividends to creditors as soon as is feasible. 11 It appears, however, that there is an authority suggesting a contrary interpretation of s 146 to that advanced by the Official Trustee. Re Christie was a decision of Clyne J of the Federal Court of Bankruptcy. The decision is unreported, but is noted at (1948) 22 ALJ 302. According to the note, Clyne J held that s 117A of the Bankruptcy Act 1924 (Cth) ("Bankruptcy Act 1924"), the predecessor to s 146 of the Bankruptcy Act, did not apply to a case where a debtor had died before the making of the sequestration order and thus could not file a statement of affairs. (Despite the debtor's death, the Court had power to make a sequestration order against his estate: see now s 145(1) of the Bankruptcy Act.) The Official Receiver was unable to find anyone either willing or able to file a statement of the deceased's assets and liabilities. 12 Section 117A of the Bankruptcy Act 1924 was in substantially the same terms as the present s 146, except that it was expressed to apply where a bankrupt had "refused or failed to file a statement of his affairs" in accordance with s 66 (the predecessor to s 54). The note in the ALJ reports that Clyne J held, in the circumstances of the case, that there had been no "refusal or failure" by the bankrupt to file a statement of his affairs. Accordingly, the power in s 117A had not been enlivened. The note does not record Clyne J's reasoning in support of this conclusion. Unfortunately it has not been possible to retrieve a copy of the unreported judgment. 13 The expression "failed to file", used in s 146, is capable of applying to a mere omission to file, as distinct from a wilful refusal or neglect to file. In CBS Productions Pty Ltd v O'Neill (1995) 1 NSWLR 601, Kirby P said this (at 609): "Scrutiny of judicial observations on the word 'fails' (or relevant variants of the verb 'to fail') discloses, as one would expect, different meanings attributed to the word in differing contexts. In some contexts, the courts have been at pains to confine the word to circumstances evincing default or moral blame on the part of the person alleged to have failed…. On the other hand, an equally lengthy catalogue of cases can be assembled to illustrate the applicability of the words to circumstances where there is absolutely no suggestion of delinquency on the part of the person alleged to have failed, but simply an omission on that person's part to do something required or expected." These observations were cited with approval by Goldberg J in Hill v Holmes (1999) 92 FCR 120, at 132-133. 14 In my view, s 146 should be construed to apply to a case where the bankrupt has not filed a statement of affairs, albeit through circumstances beyond his or her control. As I have explained, s 146 is intended to facilitate the distribution of dividends among the creditors of the bankrupt in circumstances where the trustee has not had the benefit of a statement of affairs prepared by the bankrupt. It would not be consistent with the statutory object to confine s 146 to a case where the bankrupt's omission to file a statement of affairs is the result of a wilful refusal to do so or neglect of his or her statutory obligations. 15 This view is consistent with the legislative history of s 146 of the Bankruptcy Act. Section 117A, the predecessor to s 146, was introduced into the Bankruptcy Act 1924 by s 3 of the Bankruptcy Amendment Act 1946 (Cth). The Minister's second reading speech identified the object of the Bill as follows (Cth Parl Deb, S, 9 August 1946, at 4146): "The object of the bill is to meet certain difficulties which have arisen by reason of the recent disclosure that the Bankruptcy Act 1924-1945 does not make adequate provision in two important matters. In the first place, distribution of dividends and eventual winding-up of a bankrupt's estate cannot proceed to completion until the bankrupt has filed a statement of his affairs. In a recent case, however, a bankrupt failed to file such a statement and has disappeared, and cannot now be traced. Clause 3 provides for the insertion of a new section in the act empowering the court, where a bankrupt refuses or fails to file a statement, to order distribution to proceed on such terms as the court thinks fit." While this extract does not expressly address the question of a bankrupt who is unable to complete a statement of affairs, it can be seen that the principal object of the legislation was to overcome difficulties that had been encountered in the winding up of an estate where the bankrupt had not filed a statement of affairs. 16 Section 146 in its present form, like much of the Bankruptcy Act, follows precisely the language suggested by the Clyne Committee (except for the later introduction of gender neutral language): Report of the Committee to Review the Bankruptcy Law of the Commonwealth (1962), at 164. The Committee did not give any reasons for its proposal to amend s 117A, by removing the reference to a bankrupt's having "refused" to file a statement of affairs. The Committee's report therefore does not assist on the question of construction. 17 As I have said, I do not have the benefit of the full reasons for judgment of Clyne J in Re Christie. In my view, however, his Honour's decision is distinguishable from the present case. Section 117A of the Bankruptcy Act 1924, with which his Honour was concerned, used the expression "refused or failed to file a statement of affairs". The presence of the word "refused" may have provided a textual basis for reading s 117A more narrowly than the meaning which, in my view, should be attributed to its successor. 18 I should add that the view that s 146 of the Bankruptcy Act applies to a case such as the present does not necessarily mean that s 54(1) of the Bankruptcy Act creates a "strict liability" offence, in the sense that a bankrupt physically or mentally incapable of filing a statement of affairs commits an offence by not filing such a statement. Section 54(3), as originally enacted in 1966, provided that a bankrupt who "fails to file a statement of his affairs in accordance with this section" was guilty of a contempt of court. Section 54(3) was repealed by the Bankruptcy Legislation Amendment Act 1996 (Cth) and s 54(1) now does not use the expression "fails to file". Nor does s 146 of the Bankruptcy Act refer specifically to s 54: s 146 speaks of the bankrupt's failure to file a statement of affairs "as required by this Act". It may be that the scope of s 146 of the Bankruptcy Act, having regard to its object, is not co-extensive with the scope of s 54(1), insofar as the latter imposes criminal sanctions on a bankrupt who does not file a statement of affairs. 19 Of course, on any application under s 146 of the Bankruptcy Act the Court must be satisfied that it is appropriate to make an order. The Court may need to be satisfied, for example, that creditors have been notified of the application and have had an opportunity to be heard (although ordinarily the application would be made in the interests of creditors). As in this case, the Court might require evidence that the trustee has taken appropriate steps to ascertain whether there are creditors, other than those who have come to its attention by filing a proof of debt or otherwise. 20 In the circumstances of the present case, I am satisfied that an order should be made pursuant to s 146 of the Bankruptcy Act. The form of the order should follow the language of s 146. Accordingly, I order that the distribution of dividends from the estate of the bankrupt, to the creditor which has proved its debts, proceed in accordance with Part VI, Division 5 of the Bankruptcy Act as if the bankrupt had filed a statement of his affairs and the creditor had been stated to be a creditor therein. The costs of the application should be paid out of the bankrupt estate. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville.