Official Receiver v Todd

Section 55(8) must be read in the light of the Act as a whole, especially s 153 which provides for the effect of a discharge from bankruptcy in terms which I have already set out. Properly interpreted the subsection means that upon a debtor becoming a bankrupt by force of s 55(3) following presentation of his own petition he becomes subject to bankruptcy "regarded as a series of judicial and administrative acts and rights and powers" to borrow the language of Sir Wilfred Greene MR in Re A Debtor [1939] Ch 489 at 501. After he is discharged from bankruptcy by force of s 149 or by order of the court under s 150, although the bankrupt ceases to be subject to many of the obligations and sanctions which flow from his state of bankruptcy, he nevertheless remains liable to certain of them; a few of which I mentioned earlier. In that sense he no longer continues to be a bankrupt. He is no longer an undischarged bankrupt. He is a discharged bankrupt but he remains a person against whose estate a sequestration order has been made. Section 81 was amended, following Todd, to remove the ambiguity which had given rise to a sharp difference of opinion in that case: the amended section now makes it clear that a discharged bankrupt is amenable to examination. It is unnecessary for the purposes of this case for us to discuss the observations of the members of the Full Court in Todd. It is sufficient to say that Todd is not authority for a proposition that wherever in the Act the word "bankrupt" is used it includes one who has become a bankrupt but has been discharged. Todd, however, does not stand alone. There is authority (Re Oates; Ex p Deputy Commissioner of Taxation (Cth) (1987) 17 FCR 402; Oates v Commissioner of Taxation (1990) 27 FCR 289) to the effect that a discharged bankrupt may apply for an annulment under the previous s 154 (now replaced by ss 153A and 153B). It may be said in passing that those cases also demonstrate, as does Worrell v Westpac Banking Corporation (1994) 51 FCR 304, that a discharged bankrupt may derive substantial practical advantage from an annulment. An annulment under s 154 was available in two circumstances: one was where the Court was satisfied that a sequestration order ought not to have been made or a debtor's petition ought not to have been presented or ought not to have been accepted; the other was where the Court was satisfied that the unsecured debts of the bankrupt, proved in the bankruptcy, had been paid in full or the bankrupt had obtained a "legal acquittance of them". There are obvious reasons of policy justifying a construction which would enable a discharged bankrupt to apply for an annulment in either of those circumstances, just as there were obvious reasons of policy, on which the Full Court explicitly relied, supporting the construction of s 81 adopted in Todd. In construing s 73, it is necessary to remember that, subject to certain exceptions which for present purposes do not matter, subs 153(1) provides that where a bankrupt is discharged from bankruptcy, the discharge operates to release him or her from all debts provable in the bankruptcy. The appellant has been discharged from bankruptcy; accordingly his debts have been released by s 153. Only in an artificial sense can debts which were provable in his bankruptcy still be regarded as "his debts". It is equally artificial to say that those who were entitled to prove in his bankruptcy are still to be regarded as "his creditors". That becomes all the more obvious when it is seen that a discharged bankrupt - that is, a person in the position of the appellant - may have incurred debts since discharge. The construction of s 73 which the appellant urged us to adopt would have it that, for the purposes of the section, those new debts are not to be regarded as "his debts" nor the persons to whom they are owed as "his creditors"; nevertheless debts which before discharge he owed, but now does not owe, are to be regarded as "his debts" and the persons to whom he previously owed them, but now does not, are to be regarded as "his creditors". Similarly, no doubt, in para 73(1)(b) "his affairs" would be taken to be his past affairs and not to include his present affairs. Nor does it end there: for who would vote upon the proposal? Apparently the "creditors": but those whom it was said we should regard as comprising that class are no longer in fact creditors; the appellant's debts previously owed to them have been released. It may be that they are no longer, therefore, eligible to vote: see Re Baines (1902) 86 LT 691, a decision in this respect unaffected by the disapproval of other aspects of it in In re Pilling [1903] 2 KB 50. Before turning to policy considerations on which the appellant relied, it should be noted that there is a significant difference between the language of s 73 and that of the former s 154 and the present s 153A. Only s 73 refers to "his debts" and "his creditors". Paragraph 154(1)(b) dealt with circumstances where the court was satisfied "that the unsecured debts of the bankrupt, being debts that have been proved in the bankruptcy, have been paid in full or the bankrupt has obtained a legal acquittance of them". Section 153A provides for annulment where the trustee is satisfied that all "the bankrupt's debts" have been paid in full; but subs (6) defines "bankrupt's debts" as debts proved in the bankruptcy, interest on those debts and the costs of the administration including the remuneration and expenses of the trustee. As well as relying on the authorities to which we have referred, counsel for the appellant submitted that there were policy reasons, and reasons relating to the purpose of the amendments made by the Bankruptcy Amendment Act 1991, particularly to s 74, which should lead us to adopt the construction for which he contended. He said that an evident and stated purpose of the amendment of s 74 (eliminating the requirement of court approval as a condition of annulment) was to encourage the resolution of bankruptcy administrations by negotiated settlements between bankrupts and creditors; and that purpose was equally applicable after discharge (because discharge does not necessarily mean that the administration is complete) as before. Counsel also submitted that because, under the amended Act, an annulment under s 153A is possible only when debts have been paid in full (there is no longer provision for the alternative of "legal acquittance") it should be inferred that the gap which would otherwise arise was intended to be filled by the continuing operation of s 73. Counsel said that there is no evident reason why, if a composition made one day before discharge can result in annulment, a composition having that effect should be impossible one day after discharge. Attractively as those arguments were put, in our view they are not sufficient to require a construction of s 73 which would read its words in an unnatural sense. Additionally, and for what it is worth, we do not think that the appellant has the better of the policy argument. Counsel conceded that the construction for which he contended would mean, in principle, that a time would never come after which a discharged bankrupt was precluded from taking advantage of s 73, even many years after the administration was complete and relevant records destroyed. Equally, it is not difficult to imagine circumstances in which a discharged bankrupt might convert discharge into unmerited annulment by a very small additional payment. It might also be asked why, if s 73 could be availed of in that way, it was thought necessary to have a separate provision in s 153A conditioned on payment of proved debts in full. Conclusion For these reasons the Court announced, at the conclusion of the appellant's submissions, that the appeal would be dismissed with costs. We so order. I certify that this and the preceding 8 pages are a true copy of the Reasons for Judgment of the Court. Associate: Dated: 7 June 1996 Heard: 27 May 1996 Place: Sydney Decision: 7 June 1996 Appearances:Mr P B Walsh of counsel instructed by S J Rugendyke appeared for the appellant. Mr F Gleeson of counsel instructed by Gordon & Johnstone appeared for the respondent.