Macchia v Nilant

REASONS FOR JUDGMENT 1 In this application the applicant, who was made bankrupt by order of this Court on 16 September 1991, seeks an order under s 306 of the Bankruptcy Act 1966 (Cth) ("the Act") that a "proceeding" under the Act, namely the filing of a statement of affairs under s 54 of the Act, was not invalidated by defect or irregularity. The application is opposed by the respondent ("the Trustee"). 2 To explain the applicant's application, it is necessary to set out again the history of this matter. 3 On 16 May 1991 a creditor of the applicant presented a petition to the Court seeking a sequestration order against the estate of the applicant. 4 On 16 July 1991 the applicant, and his brother, signed a joint authority under s 188 of the Act authorising the Trustee to take control of their joint and several property and to convene a meeting of their creditors ("the Pt X proceeding"). The applicant, and his brother, gave the Trustee a statement of their respective affairs and a joint statement of their joint affairs, each statement prepared as at 9 July 1991. The approximate net deficiency in each estate was stated to be as follows: the applicant $89,162; his brother $45,994; applicant and brother jointly $100,000. 5 The meeting of creditors convened pursuant to s 194 of the Act was conducted as a single meeting of the several and joint creditors of the applicant and his brother. The meeting was advised by report from the Trustee that it was proposed by the debtors that there be a composition of all their debts by assignment of all divisible assets and payment by relatives and friends of a sum of $50,000 by instalments. The meeting of creditors convened on 8 August 1991 was adjourned to allow the debtors to reconsider their offer. On 29 August 1991 the meeting was re-convened and the debtors offered a composition by assignment of all divisible assets and payment of a sum of $70,000. At the re‑convened meeting several and joint guarantees given by the debtors to a bank, for debts due to the bank by a company of which they were directors, were included in the joint debts of the debtors, increasing the deficiency of that estate to approximately $390,000. 6 The Trustee's report to creditors recommended that the proposal for composition be accepted. The creditors, however, resolved that the debtors be required to lodge their petitions in bankruptcy within seven days. The creditors were aware that some months earlier a creditor of the applicant had issued a bankruptcy petition against the applicant. 7 On 4 September 1991 the applicant and his brother presented their respective petitions to the Registrar in Bankruptcy ("the Registrar"). Each petition was accompanied by a statement of affairs verified by affidavit sworn on 4 September 1991. 8 The petition lodged by the applicant's brother was accepted and, accordingly, he became bankrupt on 4 September 1991. The Trustee was the trustee appointed to administer that estate. Pursuant to s 55(3A) of the Act, the Registrar was required to refer the applicant's petition to the Court for a direction whether to accept or reject the petition, there being a pending creditor's petition. 9 On 16 September 1991 the referred petition came before me for direction to the Registrar. Counsel for the petitioning creditor, and for the applicant, presented a minute consenting to dismissal of the creditor's petition and an order directing the Registrar to accept the applicant's petition. 10 I declined to make an order in terms of the minute. I formed the view that, on balance, the public interest, and the potential interests of the creditors as a whole, made it appropriate that a sequestration order be made on the creditor's petition. I noted that the act of bankruptcy relied upon by the petitioning creditor occurred in April 1991 and if a sequestration order were made on the creditor's petition the relation-back period would extend four months beyond the period that would apply under a bankruptcy created by the applicant's petition. The Registrar was directed to reject the applicant's petition and a sequestration order was made on the creditor's petition. It was ordered that the Trustee be trustee of the applicant's estate. It was further directed that the estate in bankruptcy of the applicant, and the estate in bankruptcy of his brother, be consolidated for orderly administration of their joint estates. 11 In the administration of the applicant's estate nothing turned on the extent of the relation-back period and hindsight reveals that the creditors of the applicant's estate would have been in the same position and not disadvantaged if the minute tendered to the Court had been given effect and a direction made that the Registrar accept the applicant's petition. 12 On 2 October 1991 the Trustee handed to the applicant a letter which informed the applicant that he had been made bankrupt on 16 September 1991. In fact the applicant had been present in Court with his counsel on that day and was aware of the orders made. Enclosed with the letter was a "Questionnaire", prepared by the Trustee and, presumably, directed to providing the Trustee with further information in respect of the applicant, and a document headed "Effect Of Being Declared A Bankrupt And Responsibilities Of A Bankrupt Under The Bankruptcy Act 1966". In his letter the Trustee asked the applicant to complete and return to the Trustee a copy of the Questionnaire, and to read the second document, described as a Schedule, and to return it to the Trustee after completing a declaration endorsed thereon that the applicant had read and understood the contents thereof.The letter stated that pursuant to s 77 of the Act the applicant was required to attend to the foregoing within fourteen days. 13 The Schedule consisted of a collection of extracts of relevant provisions from the Act in the following order: ss 58, 54, 77, 78, 80, 264A, 264B 265, 269, 272 and 227. Relevantly, s 54 of the Act, as it then stood, provided as follows: "54(1) Where a sequestration order is made, the person against whose estate it is made shall, within 14 days from the day on which he is notified of the bankruptcy - (a) make out and file in the office of the Registrar for the District in which the sequestration order was made a statement of his affairs; and (b) furnish a copy of the statement to the trustee." 14 The Trustee's letter did not draw the applicant's attention to the particular requirements of s 54 of the Act and the letter concluded as follows: "... Finally, I request you to deliver to me all of your books and records. These may be delivered to me at the same time as your submission of the Statement of Affairs to me. I require you to telephone [the Trustee] immediately after you receive this letter to arrange a time for a meeting." 15 The statement by the Trustee that the applicant was to submit a statement of affairs to the Trustee was inconsistent with the terms of s 54. With regard to the Questionnaire, and Schedule, it appears that both documents were completed and returned to the Trustee as requested and that in early October the applicant met with an employee of the Trustee instructed to assist the Trustee in the administration of the applicant's estate, and delivered the material sought in the letter. 16 Section 54 is directed to a statement of affairs being prepared and filed by a bankrupt as soon as practicable after a sequestration order is made, in circumstances where neither the petitioning creditor who has obtained the sequestration order against the bankrupt's estate, nor the trustee appointed to administer the sequestrated estate, has knowledge of the bankrupt's affairs and where prompt disclosure by the bankrupt of the bankrupt's position is necessary. It operates prospectively. (See: Nilant v Macchia (1997) 78 FCR 419 at 424.) Section 54 is irrelevant to a debtor who becomes bankrupt on a debtor's petition, the filing of which is accompanied by a statement of affairs completed by the debtor. In the present case, the Trustee, when appointed trustee of the applicant's bankrupt estate, had detailed knowledge of the applicant's affairs and of the affairs of the applicant's brother as trustee of the latter's bankrupt estate, being the trustee appointed by the applicant and his brother, under Pt X of the Act, to convene a meeting of their creditors and to prepare reports to the creditors advising upon the affairs of the applicant and his brother. 17 As a result, the Trustee was able to administer the consolidated estates without awaiting a further statement of affairs from the applicant and without receiving a statement of affairs from either bankrupt as to their joint estate. 18 It may be assumed, and it was not contended to be otherwise, that the contents of the statement of affairs prepared by the applicant on 4 September 1991 set out the circumstances as understood by the Trustee and upon which he had advised creditors at the creditors' meeting on 29 August 1991, and that the same position obtained on 16 September 1991. 19 The knowledge the Trustee gained from the individual and joint statements prepared by the applicant and his brother in the Pt X proceeding was sufficient to allow the Trustee to commence due administration of the applicant's estate as one of the consolidated estates, and to direct particular enquiries to the applicant if, and as, necessary. It has not been suggested that any failure of the applicant to prepare and file a further statement of affairs within fourteen days of 16 September 1991 impeded the Trustee's administration of the consolidated estates. There was no material of which the Trustee was unaware that would have been revealed in such a statement of affairs. 20 It appears that the Trustee made no further request to the applicant until 6 October 1992 when the Trustee wrote to the applicant advising that by his letter of 2 October 1991 the Trustee had instructed the applicant to "submit your Statement of Affairs to me" and that the Trustee had not received a copy of the applicant's statement of affairs as required by s 54 of the Act. The Trustee informed the applicant that pursuant to s 149 of the Act, as amended on 1 July 1992, the applicant would not be discharged from bankruptcy until three years from the filing of a statement of affairs. A blank form of statement of affairs was enclosed with the letter for the applicant to complete, file the original with the Registrar and forward a copy to the Trustee. 21 Section 149 of the Act dealt with the manner of discharge of a bankrupt from bankruptcy. On 1 July 1992 s 149 was amended to provide, inter alia, that bankruptcies then on foot, or commencing thereafter, would be discharged at the end of three years from the date on which the bankrupt filed a statement of affairs. Before being so amended, any failure to comply with the terms of s 54 of the Act had no consequence under s 149 upon a discharge from bankruptcy. But for the amendment, the applicant would have been discharged from bankruptcy on 17 September 1994 and the present application would have been unnecessary. 22 On 9 October 1992 the applicant replied to the Trustee that he had provided a statement of affairs on 16 July 1991 (for the Pt X proceeding) and again on 4 September 1991 (in support of the debtor's petition) and asked that the Trustee obtain a copy of these statements from the Registrar as soon as possible. 23 On 15 October 1992 the Trustee wrote to the applicant advising that "the office of the Official Receiver in Bankruptcy has no record of ever having received your Statement of Affairs subsequent to your bankruptcy". The letter instructed the applicant to forward a copy of his statement of affairs to the Trustee's office "upon lodgment at the Official Receiver's Office". Neither the reference to contact with the office of the Official Receiver nor the instruction to "lodge" a statement of affairs at the office of the Official Receiver showed the writer to be conversant with the terms of s 54 of the Act as it then stood. 24 In a letter to the Trustee dated 23 October 1992, the applicant again referred to his debtor's petition and the statement of affairs that he had "lodged" with that petition. The applicant enclosed a copy of a letter to him from the Registrar which referred to the debtor's petition "presented" by the applicant on 4 September 1991. The applicant further informed the Trustee that he was now engaged in employment in a remote part of the State. 25 The Trustee, by letter dated 28 October 1992, informed the applicant that he had contacted the Registrar who confirmed that it was recorded that the Registrar had received the applicant's debtor's petition and statement of affairs on "4 September 1992" (sic) and that the applicant had been made bankrupt by a sequestration order made on a creditor's petition on "9 September 1991" (sic) and not on his own petition. The Trustee asked the applicant to file a statement of affairs as soon as possible. 26 In November 1992 solicitors instructed by the applicant contacted the Trustee and on 25 November 1992 the Trustee wrote to that firm forwarding a form of statement of affairs to be completed by the applicant. The letter enclosed copies of the "Pt X Statements of Affairs" and a copy of the statement of affairs of the applicant's brother. In respect of the latter document, it may be assumed that it was a copy of the document filed by the applicant's brother in support of the debtor's petition filed by him on 4 September 1991. On 30 November 1992 the applicant's solicitors advised the Trustee that the applicant was "in the country" but they would "endeavour to ensure that the Statement of Affairs is provided to [the Trustee] as quickly as possible". 27 The Trustee wrote directly to the applicant on 17 March 1993 advising that the applicant had not yet "filed" a statement of affairs "with my office". 28 It was the applicant's evidence that in response to that letter he had completed a statement of affairs which his solicitor forwarded to the Trustee by covering letter dated 6 April 1993. A copy of the solicitor's letter was exhibited to the affidavit of the applicant. The applicant also exhibited a copy of a statutory declaration sworn by the solicitor handling the applicant's affairs confirming that the solicitor had caused the letter of 6 April 1993 to be sent to the Trustee enclosing the statement of affairs of the applicant. 29 In July 1993 the Trustee wrote to the applicant offering assistance to the applicant to complete a statement of affairs advising that there would be no alternative but to take contempt proceedings if the applicant did not comply with the provisions of s 54 of the Act. 30 On 3 December 1993 the Trustee applied to the Court for an order that the applicant be committed for contempt pursuant to s 54(3) of the Act for failing to file a statement of affairs as required by the Act. The application was made returnable on 24 January 1994. On 21 January 1994 a statement of affairs, completed by the applicant and bearing the date 6 April 1993, was filed with the Registrar. The document forwarded to the Registrar had a "With Compliments" slip of the Trustee's firm attached which was endorsed as follows: "Please find attached Statement of Affairs of [the applicant] for lodgement." 31 Pursuant to s 149 of the Act, discharge of the applicant from bankruptcy would not occur until 22 January 1997. 32 The applicant deposed that he was not aware that contempt proceedings had been commenced against him and it was not until some time later that he discovered that such a proceeding had been brought against him and withdrawn by a minute of consent endorsed by solicitors for the Trustee, and by his solicitors in March 1994. He deposed that he was employed at a remote location in the State between October 1992 and June 1994 returning to Perth only for a short period in December 92 and April 1993. 33 The Trustee in an answering affidavit stated that the applicant's statement of affairs dated 6 April 1993 was not received by him until January 1994 and further deposed that the applicant "did not file his statement of affairs with the Registrar in Bankruptcy until 21 January 1994". The Trustee did not provide particulars of the date or of the manner in which the statement of affairs was received by him nor did he answer the assertion that the applicant's solicitors sent the statement of affairs to the Trustee by letter dated 6 April 1993. Although the Trustee stated that the applicant "did not file his statement of affairs with the Registrar until 21 January 1994" it was, of course, the Trustee who attended to the filing of that document on that day. 34 In light of the conclusions I reach later in these reasons and the orders made on this application, it is unnecessary to resolve the conflict recited above but it is as likely as not that the applicant's statement of affairs did reach the Trustee's office in about April 1993 and that division of responsibility for administration of the applicant's estate between the Trustee and members of the Trustee's staff, albeit staff under the Trustee's supervision, may have been the cause of the document being overlooked for some months. 35 Pursuant to s 149 of the Act, the applicant's brother was discharged from bankruptcy on 5 September 1994. On 26 September 1994 the applicant wrote to the Registrar requesting a certificate that he had been discharged from bankruptcy. The Registrar responded on 28 September 1994 that the applicant was not eligible for discharge until 22 January 1997. 36 By letter dated 26 October 1994, the Trustee delivered to the applicant an Income Assessment Questionnaire in respect of the year ending 30 June 1994 and asked the applicant to complete and return the form. In his letter to the Trustee of 23 October 1992, the applicant had informed the Trustee that he was to be employed for a trial period of three months at a remote aboriginal community at a salary of $27,245 per annum. On 4 November 1994 the applicant returned the form duly completed in which the gross income for the year ended 30 June 1994 was shown as $59,498 and the anticipated income for the year ended 30 June 1995 was $9,000. 37 By letter dated 15 February 1995, the Trustee purported to make an assessment under s 139W of the Act that the applicant was liable to contribute a sum of $10,677 as a result of income the applicant had earned in the years ending 30 June 1993 and 30 June 1994. The Trustee purported to demand payments of $890 per month from the applicant from 28 February 1995. 38 It is plain that the Trustee's purported "assessment" of contributions to be made by the applicant by monthly payments did not comply with the terms of the Act under which it was made (s 139W) and was of no effect. (See: Challen v Bendeich [1999] FCA 845.) 39 In August 1995 the applicant's solicitors wrote to the Registrar referring to the Registrar's advice to the applicant of 28 September 1994 and stated that as the creditor's petition and debtor's petition had been dealt with by the Court at the same time on 16 September 1991 the applicant was eligible for a discharge on "15 September 1994" (sic). On 4 September 1995 the Registrar responded that the statement of affairs filed with the applicant's debtor's petition "remains on the debtor's petition file" and "is not transferred to the bankruptcy administration file". 40 In the course of administration of the applicant's estate, the Trustee asserted that the applicant had succeeded to a one-third share in the estate of his mother who, it was said, died intestate on 21 March 1995. The principal item of property in the estate was real estate ("the North Perth Property"), the value of which was said to be approximately $220,000. Before the death of the applicant's mother, a caveat had been lodged against the title to the North Perth Property by the applicant's sister in which the sister gave notice of a claim to the whole of the beneficial interest therein. Subsequently, the Trustee became aware that the applicant's brother also claimed the whole of the beneficial interest in the property. Either claim, if made out, would leave little or no value in the interest the applicant may have as a prospective beneficiary in the residuary estate of the deceased. The Public Trustee had been appointed administrator of the estate of the deceased and the claims to beneficial interests in the North Perth Property remain unresolved. 41 On 12 October 1995 the applicant applied to the Court for a declaration that "the Statement of Affairs of the Applicant was filed as at the 16 September 1991" and that pursuant to s 149 of the Act he had been discharged from bankruptcy on 17 September 1994. 42 On 21 February 1996 the application was amended to seek further orders as follows: "1. That the time provided by S149(3) of 3 years from the date of filing of the statement of affairs should be abridged under S33(1)(c) to a period of 2 years and 1 month. 2. That the applicant be discharged from bankruptcy pursuant to S149 and S33 of the Act on 21 February 1996. …" 43 The application was opposed by the Trustee. It was listed for hearing on 20 May 1996. On 17 May 1996 the Trustee, pursuant to s 149B of the Act, filed an objection to the discharge of the applicant from bankruptcy. The ground of objection relied upon was s 149D(1)(f) of the Act, namely that the applicant had failed to pay to the Trustee an amount that he was liable to pay under s 139ZG of the Act. Under ss 149A(1) and 149A(2)(a)(i) of the Act, upon an objection being filed by the Trustee the period of bankruptcy was extended from three years to eight years, namely until 22 January 2002. 44 The hearing was adjourned to allow the applicant to seek a review of the Trustee's objection. On 12 June 1996, pursuant to s 149K(1) of the Act, the applicant requested the Inspector General to review the decision of the Trustee to file the notice of objection. On 21 June 1996, pursuant to s 149J(1) of the Act, the Trustee filed a withdrawal of the objection. By letter dated 20 June 1996 the Trustee advised the applicant that the Trustee had "decided to reassess" "income contributions" for the "Contribution Assessment Periods" ending 30 June 1993 and 30 June 1994. The effect of the "reassessment" was that the Trustee demanded payment of a sum of $8985 by 28 June 1996. Apart from bearing the deficiencies of the prior assessment already referred to, the notice appeared to fail to comply with s 139ZI(3) of the Act in that it did not stipulate a sufficient period for payment of the sum demanded as required by the Act. 45 On 8 July 1996the Trustee filed with the Registrar another notice of objection to the applicant's discharge from bankruptcy based on non-payment of the sum claimed in the "assessment notice" dated 20 June 1996. It is apparent that this notice of objection had less validity than the one it replaced. 46 On 19 March 1997 the Trustee filed with the Office of the Official Receiver two further objections to discharge from bankruptcy, said to be based on grounds set out in ss 149D(1)(d) and 149D(1)(n) of the Act. In an affidavit sworn by the Trustee on 21 March 1997, the Trustee stated that he had become aware that the objection filed on 8 July 1996 may have been invalid and he "had to consider" whether any other grounds for objection might "ensure" that "the after-acquired asset (being the interest in the North Perth Property) is preserved for the benefit of the bankrupt estate". It is to be noted, of course, that if the notice of objection filed on 8 July 1996 lacked validity and the bankruptcy terminated on 22 January 1997 pursuant to s 149, the notices filed on 19 March 1997 would have been of no effect. 47 The application, as amended, came on for hearing on 8 April 1997. The proposed relief sought was an abridgment of the period of time before discharge from bankruptcy provided in s 149 of the Act. On 11 April 1997, being satisfied that such an order may be made consonant with previous decisions of this Court, in particular Re Rohde (1993) 42 FCR 149 and that it was appropriate in all the circumstances to do so, I ordered that "the time limited by s 149(3) of the Bankruptcy Act 1966 (Cth) for the period of bankruptcy in this matter be abridged to 13 months from the date on which the bankrupt filed his statement of affairs", the period fixed preserving any claim the Trustee may consider he was able to pursue by reason of the "assessment" issued on 15 February 1995.