Pyramid Building Society (In Liq) v Terry

High Court of Australia|1997-09-25|Before: Kirby JJ, Toohey J, Kirby J, Gummow JJ, Hayne J

High Court of Australia Toohey, Gaudron, McHugh, Gummow and Kirby JJ Pyramid Building Society (In Liq) v Terry [1997] HCA 48

Set aside par 2 of the order made by the Court of Appeal and in place thereof order that the appeal by Mr and Mrs Terry be dismissed with costs.

I would dismiss this appeal for the reasons given by Kirby J. I have nothing to add to those reasons.

The guarantors, who included Mr and Mrs Terry, undertook to Pyramid, upon demand being made on them, to pay all moneys then owing but unpaid by Something Better to Pyramid in respect of financial accommodation provided to Something Better by Pyramid. The litigation has proceeded on the footing that, upon execution of the guarantee, Mr and Mrs Terry undertook a liability to Pyramid which was contingent upon default by the debtor and the making of demand by Pyramid. The guarantee was dated 20 April 1988 and demand on the guarantors was made by Pyramid on 16 November 1993.

In the meantime, in November 1992, Mr and Mrs Terry had entered into a composition under the provisions of Pt X (ss 187-243A) of the Bankruptcy Act 1966 Cth (the Act). Part X provides for three species of arrangement with creditors without sequestration and administration in bankruptcy of the estate of the bankrupt. These are deeds of assignment (whereby all the divisible property of the debtor is assigned for the benefit of creditors), compositions (whereby the creditors accept payment by instalments of debts due to them or accept less than the full amount thereof in full satisfaction) and deeds of arrangement (being deeds which are not deeds of assignment or deeds in respect of a composition, but which provide for the arrangement of the affairs of the debtor with a view to the whole or partial payment of debts) [1] . In contrast to the requirements for a deed of assignment, a composition does not involve any disposition by the debtor of all the divisible property of the debtor. Section 213(3) of the Act provides that a composition is void unless accepted by a special resolution of a meeting of creditors under s 204.

These three terms are defined in s 187(1) of the Act.

On 22 October 1992, Mr and Mrs Terry signed an authority pursuant to s 188(1) of the Act which authorised their solicitor to call a meeting of creditors. The meeting was held on 9 November 1992 and a special resolution was passed under s 204 for the acceptance of a composition under Pt X of the Act which stipulated payment of $10,000 in full satisfaction of all debts and liabilities of Mr and Mrs Terry. At that meeting, the chairman was the solicitor for Mr and Mrs Terry. He ruled that Pyramid was not entitled to vote in respect of the special resolution in reliance upon s 198(2) of the Act [2] . Division 2 of Pt X (ss 188-212B) dealt with meetings of creditors and s 198(2) stated:

A creditor is not entitled to vote in respect of an unliquidated or contingent debt or a debt the value of which is not ascertained. 1. Section 198 of the Act was omitted by the Bankruptcy Legislation Amendment Act 1996 Cth with effect from 16 December 1996.

By its action brought on the guarantee, Pyramid sought to recover a sum greatly in excess of $10,000. However, Mr and Mrs Terry pleaded that, by reason of s 240 of the Act, the composition operated to release them from any liability they may have had under the guarantee. That argument depended for its success on the propositions that s 240 released Mr and Mrs Terry from all provable debts and that the contingent liability under the guarantee was a provable debt. The defence was rejected by the primary judge (Hayne J) but the appeal by Mr and Mrs Terry to the Court of Appeal was successful [3] .

Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352

In this Court, Pyramid submits that s 240 did not operate to effect the discharge of the guarantee and that on the day on which the composition was accepted there was, in respect of the guarantee, no "provable debt" within the meaning of s 240.

(1) Subject to this section, a composition under this Part operates, unless set aside, declared void or terminated under this Part, to release the debtor from all provable debts, other than those (if any) that would not be released by his discharge from bankruptcy if he had become a bankrupt on the day on which the composition was accepted.

(2) Subsection (1) does not affect the right of a secured creditor, or any person claiming through or under him, to realize or otherwise deal with his security:

(a) if the secured creditor has not proved in the composition for any part of the secured debt - for the purposes of obtaining payment of the secured debt; or

(b) if the secured creditor has proved in the composition for part of the secured debt - for the purposes of obtaining payment of the part of the secured debt for which he has not proved in the composition;

and, for the purposes of enabling the secured creditor or a person claiming through or under him so to realize or deal with his security, but not otherwise, the secured debt, or the part of the secured debt, as the case may be, shall be deemed not to have been released.

(3) A composition does not release from any liability a person who, at the date on which the composition was accepted, was a partner or a co-trustee with the debtor or was jointly bound or had made a joint contract with him, or a person who was surety or in the nature of a surety for the debtor.

It will be apparent that s 240(1) uses the phrase "release the debtor from all provable debts" and, in that regard, Mr and Mrs Terry rely strongly upon the definition provision in s 187(2). This stated: In this Part, a reference, in relation to a deed or a composition, to a provable debt shall be read as a reference to a debt or liability that would have been a provable debt in the debtor's bankruptcy if the debtor had become a bankrupt on the day on which he executed the deed or on which the special resolution accepting the composition was passed, as the case may be. Mr and Mrs Terry submit that had they each become a bankrupt on 9 November 1992 there would have been provable "all debts and liabilities, present or future, certain or contingent", to which each of them was subject at that date. That result would have followed from the operation of s 82 of the Act. This section deals with debts provable in bankruptcy. Section 82 is found in Div 1 (headed " Proof of Debts ") of Pt VI (ss 82-147), which is headed " Administration of Property ". Section 82(1) identifies in broad terms those debts and liabilities which may found a proof in a bankruptcy. In particular, it uses the phrases "present or future, certain or contingent".

This appeal turns upon the extent to which, in the light of certain other provisions of Pt X, s 240 effected a release of Mr and Mrs Terry on the footing that the "provable debts" spoken of in s 240(1) are of the same description as those for proof under Pt VI. Our conclusion is that these other provisions of Pt X operate so as to deny to s 240 an operation to effect the release claimed by Mr and Mrs Terry. The result is that the decision on the point by the primary judge was correct and that the appeal from the Court of Appeal should be allowed.

It is appropriate to commence consideration of the matter by reference to further legislative provisions. These include r 84 of the Bankruptcy Rules Cth (the Rules) [4] made in exercise of the power conferred by s 315 of the Act to make rules which are "not inconsistent with this Act" and which prescribe matters by the Act permitted to be prescribed. At the time of the making of r 84, s 243 of the Act provided:

(1) Subject to this section, the provisions of sections 82 to 107 (inclusive) and sections 140 to 148 (inclusive) of this Act apply, subject to such modifications and adaptations (if any) as are prescribed by the rules, to and in relation to a composition under this Part as if -

(a) a sequestration order had been made against the debtor on the day on which the special resolution accepting the composition was passed; and

(b) the trustee of the composition were the trustee in his bankruptcy.

(2) In the application of the provisions of this Act specified in the last preceding sub-section to and in relation to a composition, a reference to a provable debt shall be read as a reference to a provable debt within the meaning of this Part.

(3) The provisions of sections 162 to 169 (inclusive), sub-section (2) of section 170, sections 171 to 174 (inclusive), section 175 (other than paragraph (b) of sub-section (1)) and sections 176 to 184 (inclusive) of this Act apply, subject to such modifications and adaptations (if any) as are prescribed by the rules, to and in relation to a trustee of a composition under this Part as if the debtor by whom the composition was made were a bankrupt and the trustee of the composition were the trustee in his bankruptcy.

(4) If, after taking into account the modifications and adaptations made by the rules and the provisions of sub-section (2) of this section, a provision specified in sub-section (1) or (3) of this section is incapable of application to or in relation to a composition, or the trustee of a composition, as the case requires, or is inconsistent with this Part, that provision does not so have application.

(5) In this section, "modification" includes the addition or omission of a provision or the substitution of a provision for another provision.

Section 243 had been amended by the time of the events giving rise to this appeal, but r 84 remained in the same form [5] . 1. SR No 2 of 1968. 2. The relevant amendments to s 243 were made by ss 4 and 85 of the Bankruptcy Amendment Act 1987 Cth with effect from 13 January 1988. By s 85, s 243(1) of the Act was amended by omitting all the words before "in relation to" and substituting "[s]ections 82 to 107 (inclusive) and 140 to 148 (inclusive) apply, with the prescribed modifications (if any),". Section 85 also omitted s 243(5) of the Act and, by s 4, a definition was inserted into s 5(1) of the Act of "modifications" as including "additions, omissions and substitutions".

At the time of the acceptance of the composition with which this appeal is concerned, s 243(1) read:

Sections 82 to 107 (inclusive) and 140 to 147 (inclusive) apply, with the prescribed modifications (if any), in relation to a composition under this Part as if:

(a) a sequestration order had been made against the debtor on the day on which the special resolution accepting the composition was passed; and

(b) the trustee of the composition were the trustee in his bankruptcy.

Section 243(4) read: If, after taking into account the prescribed modifications and the provisions of subsection (2), a provision specified in subsection (1) or (3) is incapable of application in relation to a composition, or the trustee of a composition, as the case requires, or is inconsistent with this Part, that provision does not so have application.

Section 243 is not a "severance" provision, operating where invalid and valid provisions are found in the one enactment or other legislative instrument. Rather, it authorises the making of delegated legislation to adapt one legislative regime to another. In so doing, s 243(1) leaves to one side certain provisions which apply in a bankruptcy administration. For example, s 109 lists various claims to which a trustee in bankruptcy must give priority but it is not among those provisions carried across by s 243(1) [6] .

Re Jacobs; Ex parte O'Connor (1984) 1 FCR 1 at 6

It was submitted for Mr and Mrs Terry that the definition provision in s 187(2) prevented a restriction upon the class of debts provable in the composition by exercise of the power to make certain modifications conferred by s 243. In particular, it was submitted that the class could not be made narrower than that which otherwise, by full adoption of s 82, would have been allowable if a debtor had become a bankrupt on the day of the passage of the special resolution accepting the composition. It was then said to follow that the rule-making power should not be construed so as to permit an exclusion of the proof of contingent liabilities in a composition. These submissions should be rejected.

Several points should be made as to the construction of s 243. The first concerns the interrelation of sub-ss (1) and (2). Section 82 deals in terms with proof of debts in a bankruptcy administration under Pt VI, whereas Pt X deals with assignments, compositions and arrangements outside bankruptcy. Paragraphs (a) and (b) of s 243(1) seek to adjust in two respects a bankruptcy administration to the regime established by a composition. They do so by treating the passage of a special resolution as if it had been the making of a sequestration order and by treating the trustee of a composition as the trustee in a bankruptcy. A third adjustment is necessary to substitute proof in the composition for proof in bankruptcy. Rather than doing so by the addition of a par (c) of s 243(1), s 243(2) requires references to debts provable in the composition to be read with the meaning given for that concept for the purpose of Pt X by s 187(2). In its application to s 243(2), the definition in s 187(2) requires the phrase "provable debt" in relation to a composition to be read as a reference to a debt or liability that would have been a provable debt in the bankruptcy of the debtor if the debtor had become a bankrupt on the day of the passage of the special resolution accepting the composition.

It is that state of affairs established by the joint operation of sub-ss (1) and (2) which is subjected to the prescription by the Rules of the addition or omission of a provision or the substitution of one provision for another provision. This power of prescription is identified in s 243(1). It includes power to deal, in relation to a composition, with what (by force of s 82, in combination with ss 187(2) and 243(2)) otherwise would be treated as a provable debt. The submission to the contrary should be rejected.

Further, it should be noted that s 243 in its original form spoke of "the provisions of" various sections, commencing with s 82, and at the time of the making of r 84, the power of modification was identified in s 243(5) in terms of the addition or omission "of a provision ", and of the substitution of one " provision for another provision " (emphasis added). It is apparent that r [7] was drawn on the footing that each sub-section of the sections identified in s 243(1) constituted a "provision". The result in par (a) of r 84 was to treat each of sub-ss (1) and (8) of s 82 as a "provision" and to omit each sub-section and substitute another sub-section. Hence the force of the observation by Toohey J in Morris v Maroudas [8] to the effect that [9] , where r 84 is applicable, the proper course is to look at s 82 of the Act as modified thereby and not to seek to construe s 82 by reason of semantic differences that exist between s 82 as modified and as unmodified.

And the corresponding provisions of rr 82 and 83 with respect to modifications authorised by ss 231 and 237 respectively for deeds of assignment and deeds of arrangement. 2. (1986) 12 FCR 346 at 357. 3. Although his Honour was speaking of r 82, r 84 is in the same form and his comments apply with equal force to that rule.

However, the term "provision" does not bear a meaning which is so restricted as to identify only each section or sub-section as a whole and to permit only of the making of additions, omissions and substitutions in respect of each such distinct entity. The structure of a particular sub-section may be such that it contains more than one "provision", being a distinct subject matter susceptible to omission and to the making of an addition or substitution [10] . For the purposes of this appeal it will be unnecessary to determine more closely the necessary constituents of each such distinct subject matter.

The following modifications of the provisions of the Act specified in section 243 of the Act are prescribed for the purposes of that section:

(i) by omitting subsection (1) and substituting the following subsection:

(1) Subject to this Division, all debts and liabilities to which a bankrupt was subject at the date of the bankruptcy are provable in his bankruptcy.; and

(ii) by omitting subsection (8) and substituting the following subsection:

(b) an express or implied engagement, agreement or undertaking to pay, or capable of resulting in the payment of, money or money's worth, whether the payment is:

(i) in respect of amount - fixed or unliquidated; or

(ii) in respect of the manner of valuation - capable of being ascertained by fixed rules or only as matter of opinion.

The text of s 82, so far as is relevant and without the substitute sub-ss (1) and (8), was as follows:

(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he may become subject before his discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his bankruptcy.

(2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.

(4) The trustee shall make an estimate of the value of a debt or liability provable in the bankruptcy which, by reason of its being subject to a contingency, or for any other reason, does not bear a certain value.

(5) A person aggrieved by an estimate so made may appeal to the Court.

(6) If the Court finds that the value of the debt or liability cannot be fairly estimated, the debt or liability shall be deemed not to be provable in the bankruptcy.

(7) If the Court finds that the value of the debt or liability can be fairly estimated, the Court shall assess the value in such manner as it thinks proper.

(b) an obligation or possible obligation to pay money or money's worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt; and

(c) an express or implied engagement, agreement or undertaking, to pay, or capable of resulting in the payment of, money or money's worth, whether the payment is:

(i) in respect of amount - fixed or unliquidated;

(ii) in respect of time - present or future, or certain or dependent on a contingency; or

(iii) in respect of the manner of valuation - capable of being ascertained by fixed rules or only as matter of opinion.

The task of construction should be directed to the text set out above but with the substitution of sub-ss (1) and (8) in terms provided in par (a) of r 84. If that be done, attention first is called to the phrase in the substituted sub-s (1) "all debts and liabilities to which a bankrupt was subject at the date of the bankruptcy". In statutory construction, terms are to be taken in their legal sense unless a contrary intention appears [11] . As Pyramid submits, in ordinary legal usage, the term "debt", when not expanded (as in sub-s (1) in its primary form) by such phrases as "certain or contingent" and "present or future", identifies an obligation actually incurred, rather than one subjected to a contingency yet to be fulfilled. The absence from the substitute sub-s (1) of those words of expansion indicates an intention to use the phrase "all debts and liabilities" in its ordinary legal sense. Further, the legislative development of the English law of bankruptcy was such that, before specific provision was made in 1825 by s 56 of the statute 6 Geo IV c 16 [12] , contingent demands could not be proved under a commission of bankruptcy taken out before the contingencies upon which they were made payable had taken effect [13] .

Vallance v The Queen (1961) 108 CLR 56 at 75 2. Repealed by s 1 of the Bankruptcy Law Consolidation Act 1849 UK (12 & 13 Vict c 106). 3. Hardy v Fothergill (1888) 13 AppCas 351 at 355.

There may be a question of whether a present debt not payable until some time in the future is one of the "debts" identified in the substituted s 82(1) as those "to which a bankrupt was subject at the date of the bankruptcy". Such an obligation is not a "future debt", that is to say a debt only to become payable on the occurrence of an event which has yet to come to pass [14] . In any event, a present engagement to pay a certain sum at some time in the future answers the description of a liability to which the bankrupt was subject at the date of bankruptcy. Such a result is consistent with s 198(3) as it stood at the relevant time. According to that section, for the purpose of enabling a creditor to vote at a meeting called pursuant to s 188, "a debt that is certain but is payable in the future shall be deemed to be payable at the time of the meeting".

Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140 at 159-161 Federal Commissioner of Taxation v Australian Guarantee Corporation Ltd (1984) 2 FCR 483 at 489 Gye v Davies (1995) 37 NSWLR 421 at 429-430

The identification in the substituted s 82(1) of debts and liabilities as those to which the bankrupt was subject at the date of bankruptcy controls the meaning of the phrase in par (b) of the substituted s 82(8), "capable of resulting in the payment of, money or money's worth". The capacity referred to is ascertained at the date of bankruptcy. Moreover, in the substituted s 82(8) there is not to be found the reference to dependence on a contingency which appears in the primary form of that sub-section. Again, the intention to contract the statutory scope of the term "liability" is apparent.

Thus par (b) is apt to apply to a liability in respect to an amount yet to be fixed upon a quantum meruit as compensation for work and labour which has been done. There is a presently effective implied engagement, agreement or undertaking to pass money or money's worth. Further, as we have indicated, an engagement to pay a certain sum at some future time is presently "capable of resulting in the payment of money", within the meaning of par (b). However, par (b) does not identify a liability yet to arise, such as that of Mr and Mrs Terry upon the guarantee before it had been called upon by Pyramid.

There is an apparently unresolved question as to whether moneys due and payable under an assessment of income tax issued after the passage of a special resolution accepting a composition but in respect of income earned before the date thereof, is a debt payable under an implied engagement or agreement within the meaning of par (b) of the substituted definition of "liability" [15] . The resolution of that particular issue will not detract from the conclusion that a contingent liability is not capable of resulting in payment of money at the date of bankruptcy.

Re Cufari; Ex parte Federal Commissioner of Taxation v Huppatz (1992) 34 FCR 544 at 549-550

Accordingly, subject to what follows, the submissions of Pyramid upon construction should be accepted.

It is true that, even after the operation of r 84, s 82(4), as picked up by s 243, still provides for the estimation of the value of a debt or liability which is provable in the bankruptcy but which does not "bear a certain value". That phrase is used to identify debts and liabilities which require estimation (i) by reason of their being "subject to a contingency" or (ii) "for any other reason". There is no difficulty with the second of these classes. An action on a quantum meruit would be an example within that class. However, it is submitted by Mr and Mrs Terry that the failure in r 84 to omit from s 82(4) the phrase "by reason of its being subject to a contingency" indicates that s 82(4) in its primary form controls content of the phrase "debts and liabilities" in the substituted s 82(1). For several reasons, that submission should not be accepted.

The first reason, as indicated above, is that s 82(4) does not control the interpretation of s 82(1). Section 82(4) empowers, and indeed requires, the trustee to take certain steps in a bankruptcy administration if there be, as may not always be the case, a debt or liability which is provable in the bankruptcy but does not bear a certain value. However, if s 82 be read as a whole after the operation upon it of s 243 and r 84, contingent debts and liabilities will not be allowed in a composition. To that extent, there will be no occasion at all for the exercise of the authority or performance of the duty conferred by s 82(4). That circumstance of itself does not require a re-interpretation of the substituted s 82(1) so that it will, or may, provide occasions for such an exercise to be performed.

Secondly, and in any event, allowance must be made for the operation of s 243(4). The text is set out earlier in these reasons. Section 243 so operated in respect of the composition by Mr and Mrs Terry that, after taking into account the substitutions made by r 84, a provision of s 82 did not apply in relation to the composition if either or both of two conditions outlined in s 243 applied. The first condition was that the provision was "incapable of application in relation to a composition" and the second was that the provision was "inconsistent with" Pt X.

It is the second condition which is presently material. It operated to take a provision such as s 82(4) out of the operation of s 243 in the circumstances described above. It was incapable of application as to so much of s 82(4) as dealt with the estimation and a value of a debt or liability which did not bear a certain value by reason of it being subject to a contingency. Here there was an incapacity in the sense that no occasion could arise for the exercise of the particular function conferred by s 82(4) upon the trustee of the composition. Therefore, the particular circumstances envisaged by s 243(4) arose, with the result that the particular limit of s 82(4) relating to contingencies was of no application.

The result is that there is nothing in the provisions particularly relied upon by Mr and Mrs Terry, namely the definition of provable debt in s 187(2) and the terms of s 82(4), which gainsay the giving to s 82 in its modified form the operation which it otherwise bears on its face.

Some subsidiary submissions remain for consideration.

As indicated earlier in these reasons, s 198(2) operated upon the passing of the special resolution to accept the composition so as to render Pyramid ineligible to vote. Section 238(1) rendered the composition binding "on all the creditors" of Mr and Mrs Terry and s 240(1) provided that the composition operated to release them from "all provable debts" other than those which would not be released upon the discharge of Mr and Mrs Terry from bankruptcy if they had become bankrupt on the day on which the composition was accepted.

However, it is submitted by Mr and Mrs Terry that, although Pyramid was subjected to the disabilities, that subjection would have ceased had Pyramid followed the course open to it under s 239 of the Act. They seek to develop the point as one supporting their construction of the primary provisions of the modified s 82. Section 239 states:

(1) A creditor may, within 21 days from the date on which the special resolution accepting a composition under this Part was passed, apply to the Court for an order setting aside the composition and may also apply for the making of a sequestration order against the estate of the debtor.

(2) If the Court, on such an application, considers that the terms of the composition are unreasonable or are not calculated to benefit the creditors generally or that for any other reason the composition ought to be set aside, it may make an order setting it aside and, if it thinks fit, may forthwith make the sequestration order sought.

(3) The Court may, if it thinks fit, dispense with service on the debtor of notice of an application under this section, either unconditionally or subject to conditions.

(4) The making of an application for a sequestration order against the estate of a debtor under this section shall, for the purposes of this Act, be deemed to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of subsection 43(1), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply in relation to such an application.

Certainly, s 239 provides a remedy to those creditors in the minority upon the successful passage of the special resolution. The section also may be utilised by a creditor who voted in favour but now seeks to have the composition set aside because, for example, there was an undisclosed arrangement between the debtor and one or more of the creditors [16] . However, the submissions for Mr and Mrs Terry go further and contend that a creditor denied by s 198(2) an entitlement to vote upon the special resolution may, within twenty-one days of that special resolution, apply to the court under s 239(1). Such a party is said to be a "creditor" for the purposes of that section. This construction is then said to remove any apparent asperity in a construction of a statute which would release a debtor by virtue of a composition in respect of the adoption of which the creditor had been disenfranchised. The result, the submission concludes, is to confirm that the release was properly pleaded to the action by Pyramid upon the guarantee.

NZI Capital Corporation Ltd v Lancaster (1991) 30 FCR 441 at 450-451

The term "creditor" is used in various senses throughout the Act. It takes its colour from the particular context. An example is s 41(2). This deals with bankruptcy notices and is contained in Div 1 (ss 40-42) of Pt IV. Division 1 is headed " Acts of Bankruptcy ". At the relevant time, s 41(2) provided for the prescribed form of bankruptcy notice, amongst other things, to require the debtor to secure the payment of a judgment debt or sum "to the satisfaction of the Court or the creditor or his agent" (emphasis added). The creditor there referred to is not merely a judgment creditor but the particular species of judgment creditor identified in par (g) of s 40(1). This is a judgment creditor entitled directly to the benefits or fruits of the judgment or order made against the debtor and does not extend to a judgment creditor who is not able to issue execution [17] .

Division 6 (ss 238-243A) of Pt X contains special provisions applicable to compositions. Section 238 takes as the starting point a composition which has been accepted by special resolution at a meeting at which, subject to further provisions of s 198, that section had treated "every creditor" as entitled to vote. No creditor was entitled to vote, otherwise than in respect of the election of chairman, unless particulars of the debt had been made known to the chairman (s 198(4)). A secured creditor might vote in respect of the balance of the secured debt above the estimated value of the security (s 198(6)) or upon surrendering the security (s 198(5)). Creditors who satisfied these requirements no doubt would be creditors entitled to move under s 239 to satisfy the composition. But what of a creditor disentitled under s 198(4) only by reason of accidental and non-culpable failure to have made known to the chairman particulars of the debt? It would be an odd construction of s 239 which foreclosed this remedy to such a party. This suggests that the class of creditors referred to in s 239 is not necessarily co-extensive with those who were entitled to vote at the meeting which passed the special resolution accepting the composition. It is unnecessary to determine these questions.

In the end, whatever be the true construction of s 239, it cannot be determinative of the issue here. This turns upon whether Pyramid had a provable debt within the operation of the modified s 82. If so, the composition effected the release of Mr and Mrs Terry by force of s 240. If there had been no modification of s 82 prescribed as indicated in s 243(1), then contingent debts and liabilities would have been susceptible of proof in the composition. This would have been so even though the contingent creditor had been disentitled by s 198(2) from voting on the special resolution for acceptance of the composition.

One returns to the point that curiosities which may be found in the interrelation between ss 198, 238, 239 and 243 cannot control what otherwise is the operation of the modified s 82 in this case. Even if it be conceded that Pyramid might have moved under s 239, its failure to do so did not render the modified s 82 applicable to it and thereby effect a release under s 240.

There remains for consideration Hardy v Fothergill [18] , a decision of the House of Lords upon which Mr and Mrs Terry strongly relied. In the present case, in the Court of Appeal [19] , Tadgell JA held that the guarantee taken by Pyramid placed the parties to all intents and purposes in the same position as those in Hardy v Fothergill . His Honour continued [20] :

The liability thereunder was accordingly a provable debt within the terms of s 82(1) as modified by r 84, and the omission of the words "present or future, certain or contingent" from the subsection has no bearing on the matter. 1. (1888) 13 App Cas 351. 2. Something Better [1996] 2 VR 352 at 372. 3. Something Better [1996] 2 VR 352 at 372.

In Hardy v Fothergill , the successors in title of the lessor of certain premises brought an action for damages for breach of covenant against the successors in title of the lessee. The defendants joined their assignee as a third party, claiming an indemnity under a covenant in the assignment. The third party pleaded a discharge. Proceedings for a liquidation by arrangement of the affairs of the third party had been taken under the procedures established by s 125 of the Bankruptcy Act 1869 UK (the 1869 Act). Section 125(10) thereof provided that a certificate of discharge of the debtor given by the registrar had the same effect as an order of discharge of a bankrupt [21] .

See the judgment of Fry LJ in the Court of Appeal, Morgan v Hardy (1887) 18 QBD 646 at 657-658

The issue tendered for the House of Lords was whether the liability in question was one which might have been proved in bankruptcy under the 1869 Act. The assignment containing the covenant of indemnity had been made in 1873, the discharge took effect in 1875 and the breach of covenant did not occur until 1883. The House held that the future and contingent liability of the assignee on the covenant to indemnity was a debt which might have been proved under s 31 of the 1869 Act. However, s 31 was in quite different, and broader, terms to those of the modified s 82(1) with which this appeal is concerned. Section 31 deemed as debts provable in bankruptcy "all debts and liabilities, present or future, certain or contingent, to which the bankrupt is subject at the date of the order of adjudication". The term "liability" was the subject of a lengthy definition in s 31, set out in the speech of the Earl of Selborne [22] . That definition was considerably broader than is the definition of "liability" in the modified s 82(8). In particular, the earlier definition included the words:

any obligation or possibility of an obligation to pay money or money's worth as respects time, present or future, certain or dependent on any one contingency or on two or more contingencies. The submission of Pyramid that Hardy v Fothergill does not bear upon the true construction of the modified s 82 should be accepted. 1. Hardy v Fothergill (1888) 13 AppCas 351 at 360.

The appeal should be allowed with costs. Paragraph 2 of the order made by the Court of Appeal should be set aside and in place thereof it should be ordered that the appeal by Mr and Mrs Terry be dismissed with costs.

I agree with Gaudron and Gummow JJ that this appeal should be allowed. I also agree with much of the reasoning that leads them to that conclusion. But I am unable to agree with their reasons in so far as they suggest that, read literally, s 82(1) of the Bankruptcy Act 1966 Cth, as modified by r 84 of the Bankruptcy Rules Cth [23] , does not cover a liability under a guarantee of the kind entered into by Mr and Mrs Terry.

Paragraph 82(8)(b) defines "liability" to include "an express or implied engagement, agreement or undertaking to pay, or capable of resulting in the payment of, money or money's worth" (my emphasis). As at the date of bankruptcy, Mr and Mrs Terry had entered into an agreement that was "capable of resulting in the payment of, money or money's worth". That being so, the liability under the agreement was a liability "to which [the] bankrupt was subject at the date of the bankruptcy" and which was "provable in his bankruptcy" (s 82(1)).

It follows in my opinion that, if s 82 is construed literally without regard to the history and purpose of the section and its modifications, Kirby J, with whom Toohey J concurs, is correct in holding that the compositions accepted by the creditors released Mr and Mrs Terry from their contingent liabilities. However, I do not think that s 82, as modified by r 84, can be construed without regard to its history and purpose. When the history of the section and the purpose of the modifications enacted by r 84 are examined, the best conclusion that can be drawn from the statutory scheme is that liabilities of the kind in question in this case remain on foot after a debtor makes a composition with his or her creditors.

In my opinion, one of the purposes of the modifications - perhaps their primary purpose - was to exclude contingent and future debts and liabilities. Thus, r 84(a) modified s 82(1) by omitting the words "present or future, certain or contingent" and the words "or to which he may become subject before his discharge by reason of an obligation incurred before the date of the bankruptcy". The modifications to s 82(8) also indicate that contingent and future debts were to be excluded from the composition. Thus, the original par 82(8)(b) was omitted. It had provided that liability included:

[A]n obligation or possible obligation to pay money or money's worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt. Furthermore, the original par 82(8)(c), which became par 82(8)(b) after the modification, had defined a liability to include: [A]n express or implied engagement, agreement or undertaking, to pay, or capable of resulting in the payment of, money or money's worth, whether the payment is:

(i) in respect of amount - fixed or unliquidated;

(ii) in respect of time - present or future, or certain or dependent on a contingency; or

(iii) in respect of the manner of valuation - capable of being ascertained by fixed rules or only as matter of opinion.

I cannot escape the conclusion that the purpose of these modifications was to exclude contingent and future debts. I find it difficult to accept that, having deleted those provisions in the old s 82 that expressly referred to future or contingent debts and liabilities, the modification nevertheless intended that such debts and liabilities should be caught by the general words of the new s 82(8)(b). When a construction of a legislative provision will promote the purpose of the legislation, a court should prefer that construction to one that is contrary to, or less effective in promoting, that purpose [24] . That being so, the words "engagement capable of resulting in the payment of, money or money's worth" in that paragraph should not be read as including contingent debts or liabilities.

Kingston v Keprose Pty Ltd (1987) 11 NSWLR 404 Tokyo Mart Pty Ltd v Campbell (1988) 15 NSWLR 275 Bermingham v Corrective Services Commission (1988) 15 NSWLR 292 Googoorewon Pty Ltd v Amatek Ltd (1991) 25 NSWLR 330 Director-General Corrective Services v Mitchelson (1992) 26 NSWLR 648 Rico Pty Ltd v Road Traffic Authority (1992) 28 NSWLR 679 Mills v Meeking (1990) 169 CLR 214 Attorney-General's Reference (No 1 of 1988) [1989] AC 971; McMonagle v Westminster City Council [1990] 2 AC 716 BBC Enterprises Ltd v Hi-Tech Xtravision Ltd [1991] 2 AC 327 Pepper v Hart [1993] AC 593 In re K (A Minor) [1995] Fam 38; Acts Interpretation Act 1901 Cth, s 15AA; Interpretation of Legislation Act 1984 Vict, s 35.

Subject to the foregoing comments, I agree with the reasons of Gaudron and Gummow JJ. The appeal should be allowed.

This appeal concerns the question whether s 82(1) of the Bankruptcy Act 1966 Cth (the Act), as modified by r 84 of the Bankruptcy Rules Cth (the Rules), includes within the expression "provable debt" a contingent liability under a guarantee. It also poses the question whether such a contingent liability is "an express engagement, agreement or undertaking to pay or capable of resulting in the payment of, money or money's worth " within s 82(8) of the Act as modified by r 84 of the Rules.

In Gye v McIntyre [25] , this Court found it unnecessary to determine what, if any, practical effect the alteration made by r 84 achieved in the case of s 82 of the Act. However, the question now before the Court arose in subsequent litigation involving those parties [26] . In resolving that case in the New South Wales Court of Appeal, Powell JA, in an understatement, remarked that "s 82 of the Act as amended by r 82 [equally r 84] is hardly a shining example of the draftsman's art" [27] . In the present case, in the Court of Appeal of Victoria, Brooking JA felt driven, out of comity [28] , to follow the New South Wales decision [29] . But he criticised it as falling short of "ideal justice" and as producing a result such which most fair-minded business people would not think well of [30] . It was, his Honour thought, "a public scandal and a reproach to the bankruptcy laws" [31] .

(1991) 171 CLR 609 at 618. 2. Gye v Davies (1995) 37 NSWLR 421 3. Gye v Davies (1995) 37 NSWLR 421 at 430 4. Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 361-362 5. Gye v Davies (1995) 37 NSWLR 421 at 430, per Powell JA; he also referred to Morris v Maroudas (1986) 12 FCR 346 at 357, per Toohey J; Wills v Abram (unreported; Federal Court of Australia (Heerey J); 12 May 1993). 6. Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 362 7. Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 362

The question is, therefore, whether the provisions of the Act, modified by the rule, as understood against the background of the language, history, structure, purposes and of the Act, require the construction considered to be so uncongenial. The primary Judge in the Supreme Court of Victoria (Hayne J) [32] did not think so. His conclusion was reversed by the Court of Appeal [33] . This Court granted special leave to appeal. The appeal permits the Court to respond to the criticism of the authority which was felt to compel the outcome in this case. It also allows the Court to establish the principles which will govern the application of the Act in cases of compositions under Pt X, involving a contingent liability existing at the time of the composition.

Pyramid Building Society (In liq) v Something Better Pty Ltd (unreported; Supreme Court of Vict (Hayne J); 8 September 1994). 2. Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352

Composition of the debts of a real estate developer

In the 1980s Mr Bruce Terry and his wife Mrs Judith Terry (the respondents) were involved in real estate development in Victoria. For that purpose, in the five years before the proceedings, they or their relatives had been associated with, or interested in, no fewer than thirty-seven property trusts [34] . On 20 April 1988, operating through a company optimistically called Something Better Pty Ltd (Something Better) they borrowed a sum of $2.704 million from the Pyramid Building Society (the appellant) which subsequently went into liquidation. The respondents and a Mr Hegarty were the directors of Something Better. The loan was to finance a shop and office complex on land owned by Something Better in Moorabbin in Victoria. Something Better provided security by way of a first mortgage over the subject land. The respondents executed joint and several guarantees on the same day in favour of the appellant. By those instruments they guaranteed Something Better's obligations under the loan and mortgage [35] .

Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 353, per Brooking JA. 2. There were other guarantors but the Court has not been concerned with them: Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 363, per Tadgell JA.

The due date for Something Better to repay the loan was 20 October 1993. It continued to make all interest payments falling due under the loan up to October 1993. However, when on 20 October 1993 the principal fell due for repayment, Something Better did not repay it. It contended that the appellant had agreed to roll-over the loan for a further period of five years. The appellant denied that it had promised anything of the sort. Hayne J found against Something Better on this allegation. The Court of Appeal rejected the appeal against that finding. It has not concerned this Court.

Meanwhile, in late 1992, at a time when the payments of interest were being maintained, the respondents signed authorities under s 188(1) of the Act authorising a meeting of their creditors to be called by their solicitor pursuant to Pt X of the Act (Arrangements With Creditors Without Sequestration) [36] .

The authorisation was made under s 188(1)(f) which permits a "debtor who desires that his affairs be dealt with under [Pt X] without his estate being sequestrated may sign an authority (f) authorizing a solicitor to call a meeting of his creditors".

Pursuant to the authorisation, a meeting of creditors was called. Notice was given to the appellant [37] . It attended the meeting and sought to vote against the composition which was proposed. However, the respondents' solicitor, presiding at the meeting, ruled that the appellant could not vote. He relied, in that regard, on s 198(2) of the Act. That sub-section reads:

A creditor is not entitled to vote in respect of an unliquidated or contingent debt or a debt the value of which is not ascertained. At the time of the meeting, Something Better was not in default under its obligations based on the loan to the appellant. Furthermore, the appellant had not served on the respondents any demand under the guarantee as was provided in that instrument, and as was a pre-condition to their liability. The respondents' solicitor therefore ruled that the appellant was not, at that time, entitled to enforce the guarantee. At most, it was a contingent creditor. 1. Under s 194(2).

The statements of affairs of the respondents disclosed that Mr Terry had unsecured debts of $101,575 and only $200 in assets. Mrs Terry had unsecured debts of $61,575 and only $150 in assets. Brooking JA commented caustically that "although the debtors dwelt in Moule Avenue, Brighton, the assets of the wife might have been exhausted by filling to the brim a supermarket trolley" [38] . Nonetheless, it was not contested that the compositions approved at the meeting were valid arrangements under Pt X of the Act [39] . The compositions involved the creditors accepting the sum of $10,000, subject to the costs of administration, in full settlement of their claims. The respondents' case was that, although the appellant could not vote against the compositions, their contingent liabilities to the appellant under the guarantee were nonetheless provable debts. By force of s 240(1) of the Act, the compositions released them from those debts. It was common ground that the debts would have been provable in a bankruptcy of the respondents. The question for decision was whether they were provable in relation to the compositions approved in the circumstances described.

Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 353 2. Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 376, per McDonald A-JA.

Following the default of Something Better in its repayment of the principal to the appellant when it fell due on 20 October 1993, the appellant made demand for repayment of the loan. At the same time it made demand under the guarantee upon the respondents. It claimed against them the payment of the principal, interest and other costs in the sum of approximately $2.7 million. This demand was not met by the respondents. Their liability was contested upon the ground that they had been released as a consequence of the earlier compositions. In November 1993, the appellant commenced proceedings in the Supreme Court of Victoria against Something Better seeking possession of the land under the mortgage and the payment of the principal with accrued interest. It also sued the respondents upon the guarantee.

At first instance, Hayne J gave judgment in favour of the appellant against both Something Better and the respondents in the sum of approximately $1.3 million. That sum resulted from the realisation of the security given by Something Better over the property, the subject of the proposed development. Having rejected the alleged promise to roll-over the loan at its original expiry, Hayne J turned to consider the respondents' defence based on ss 238 and 240 of the Act. He posed for himself the question whether, at the time of the composition, the claim of the appellant against the respondents was "a provable debt" within the meaning of Div 6 of Pt X of the Act. If it was, so long as the compositions remained valid, they released the respondents from "all provable debts" (s 240(1)). They rendered it incompetent for the appellant to enforce any remedy against the property or person of the respondents in respect of such "provable debt" (s 238(2)(b)).

As Hayne J explained, when the Parliament enacted the Act it did not provide directly for the debts and liabilities which would be included in those released in the case of a composition under Pt X. Instead, by s 243(1) the Parliament adopted a legislative technique of applying provisions of the Act expressed to deal with bankruptcy, to a composition under Pt X as if "a sequestration order had been made against the debtor on the day on which the special resolution accepting the composition was passed" (s 243(1)(a)) and as if "the trustee of the composition were the trustee in his bankruptcy" (s 243(1)(b)). Amongst the provisions so applied was s 82 of the Act governing debts provable in bankruptcy. Section 243(1) applied s 82 in relation to a composition "with the prescribed modifications (if any)". The phrase "prescribed modifications" is not itself defined by the Act. However, in s 5(1) of the Act there are definitions of "prescribed" and "modifications". "Prescribed" is defined as meaning "prescribed by this Act or by rules under this Act". "Modifications" is defined as including "additions, omissions and substitutions" [40] . There is no relevant modification to s 82 prescribed by the Act as it applies to compositions under Pt X. But rr 82, 83 and 84 prescribe modifications of s 82 for the purposes of ss 231, 237 and 243 of the Act respectively. Much of the debate below, and in this Court, concerned what effect these "modifications", as "prescribed" by the Rules, had on the definition of "provable debt" in the case of a composition under Pt X.

cf Qantas Airways Ltd v Aravco Ltd (1996) 185 CLR 43 at 61-64

Hayne J conceded that the question whether a contingent debt, such as that arising on the guarantee, was a "provable debt" within s 82, as modified, was arguable and supported by authority in the Federal Court of Australia [41] . However, his Honour preferred to give a meaning to the phrase "provable debt" which took into account the modification to s 82(1) of the Act, effected by r 84 of the Rules. By that modification, specific reference to debts as "present or future, certain or contingent" was deleted. Likewise, Hayne J considered that the modification to s 82(8) by r 84, so as to omit reference in the definition of "liability" to payments which "in respect of time" are "present or future, or certain or dependent on a contingency", reinforced the impression that future and contingent debts were not included in the definition of a "provable debt" for the purpose of compositions under Pt X of the Act. Whilst acknowledging that ordinarily he would defer to a decision of the Federal Court on the construction of the Act, Hayne J felt unable to do so in this case as he could not accept the reasoning of that Court [42] :

With respect I consider that it is a chain of reasoning that gives no significance to the fact that s 82 is modified in its application to compositions and leads to a result that gives no effect to the changes that r 84 makes. Thus in my view the contingent obligations owed by the Terrys to Pyramid were not provable debts. It follows that I am of the opinion that the defence which the Terrys sought to maintain based on the operation of Pt X of the Bankruptcy Act fails. 1. Morris v Maroudas (1986) 12 FCR 346 at 357, per Toohey J; Wills v Abram (unreported; Federal Court of Australia (Heerey J); 12 May 1993). 2. Pyramid Building Society (In liq) v Something Better Pty Ltd (unreported; Supreme Court of Vict (Hayne J); 8 September 1994) at 29.

Hayne J's decision was reversed by the Court of Appeal. That Court had before it Gye v Davies [43] , decided after Hayne J's decision and, apparently, without reference to it. The New South Wales Court of Appeal, for reasons both of comity with the Federal Court [44] and persuasion by its reasoning [45] accepted that contingent debts were "provable debts" within a composition under Pt X of the Act. Consequently they could not be enforced against the debtor (s 238(2)). The debtor was released unless and until the composition was set aside, declared void or terminated (s 240(1)).

(1995) 37 NSWLR 421. 2. Gye v Davies (1995) 37 NSWLR 421 at 423, per Kirby P; at 436, per Cole JA. 3. Gye v Davies (1995) 37 NSWLR 421 at 430, per Powell JA; at 435-436, per Cole JA.

In the Court of Appeal of Victoria the Judges divided in their approach. Brooking JA expressed much sympathy for the approach and conclusion of Hayne J. But he held back from expressing a final opinion. In the light of the decision in Gye he felt obliged "in the interests of uniformity" to follow its holding, supported as it was by earlier opinions in the Federal Court [46] . Tadgell JA reached an independent conclusion that, at the time of the approval of the composition, the respondents' liability to the appellant, although contingent, was nevertheless a "provable debt". This was because it was an "express or implied engagement, agreement or undertaking to pay, or capable of resulting in the payment of, money or money's worth" within s 82(8)(b) of the Act, as modified by r 84(a)(ii) of the Rules in its application to Pt X. McDonald A-JA agreed with the conclusion of Tadgell JA and with his reasons. However, his Honour went on to refer to Gye . He expressed agreement in the reasoning of Cole JA in that case. In his view, the survival of ss 82(4)-(7), which refer to a debt, "subject to a contingency" (s 82(4)) and provide a mechanism for ascertaining its amount s 82(5)-(7)), supported the conclusion previously stated. This was so notwithstanding the modification of ss 82(1) and 82(8) to the effect that "provable debts", in the case of a composition, include contingent debts, such as the debt owed by the respondents to the appellant under the guarantee.

Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 362

The result was that the Court of Appeal unanimously set aside the order of Hayne J, although not without the protest by Brooking JA to which reference has been made. This Court must now decide the correctness of that decision and of the earlier authority which helped to produce it.

The technique adopted in the adaptation of the specified provisions of the Act (ss 82-107 (inclusive) and ss 140-147 (inclusive); see s 243), enacted for a case of bankruptcy, so that they might apply, with modifications introduced by Rules, is one which has become common in federal legislation in recent years [47] . Provisions contemplating "prescribed modifications" are scattered throughout the Act [48] . It is a technique of drafting very different from the precision originally adopted in federal legislation [49] . It involves a real risk that a modification, not appearing on the statute books but hidden in statutory rules, may be overlooked by parties and even by courts [50] .

See Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 358, per Brooking JA, referring to the Corporations Law, ss 273, 323, 323A and 446B; Australian Securities Commission Act 1989 Cth, s 251; Navigation Act 1912 Cth, ss 283A and 283D, 283E; and National Health Act 1953 Cth, ss 49AA and 68. 2. eg, ss 50(5), 76(1), 187A and 223A; cf Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24 at 26-27 3. Garran, Prosper the Commonwealth (1958), pp 145-146. 4. Vale v TMH Haulage Pty Ltd (1993) 31 NSWLR 702 at 709-711 Independent Chicken Growers Pty Ltd v Vassallo (1994) 13 ACSR 258 at 259 Pyramid Building Society (In liq) v Something Better Pty Ltd (unreported; Supreme Court of Vict (Hayne J); 8 September 1994) at 22.

The technique was adopted in s 243 of the Act. That provision contemplated "prescribed modifications" in the application (relevantly) of s 82 of the Act in relation to a composition. It was availed of by r 84 of the Rules. In order to show the effect of the modification, it is appropriate to set out the terms of s 82, as it then stood, with the deletions indicated as follows:

(1) Subject to this Division, all debts and liabilities present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy or to which he may become subject before his discharge by reason of an obligation incurred before the date of the bankruptcy are provable in his bankruptcy.

(1a) Without limiting the generality of subsection (1), debts and liabilities referred to in that subsection shall be taken to include a debt or liability by way of the whole or a part of:

(a) a periodical sum that became payable by the bankrupt before, but not more than one year before, the date of the bankruptcy under a maintenance agreement or maintenance order (whether entered into or made, as the case may be, before or after the commencement of this subsection); and

(b) a lump sum (whether payable in one amount or by instalments) that became payable by the bankrupt before the date of the bankruptcy under a maintenance agreement or maintenance order (whether entered into or made, as the case may be, before or after the commencement of this subsection).

(2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.

(3) Subject to subsection (3A), penalties or fines imposed by a court in respect of an offence against a law, whether a law of the Commonwealth or not, are not provable in bankruptcy.

(3aa) An amount payable under an order made under paragraph 1317EA(3)(b) of the Corporations Law of a State or Territory is not provable in bankruptcy.

(3a) An amount payable under a pecuniary penalty order or an interstate pecuniary penalty order is provable in bankruptcy.

(3b) A debt is not provable in a bankruptcy in so far as the debt consists of interest accruing, in respect of a period commencing on or after the date of the bankruptcy, on a debt that is provable in the bankruptcy.

(5) A person aggrieved by an estimate so made may appeal to the Court.

(6) If the Court finds that the value of the debt or liability cannot be fairly estimated, the debt or liability shall be deemed not to be provable in the bankruptcy.

(7) If the Court finds that the value of the debt or liability can be fairly estimated, the Court shall assess the value in such manner as it thinks proper.

(c) (b) an express or implied engagement, agreement or undertaking to pay, or capable of resulting in the payment of, money or money's worth, whether the payment is:

(i) in respect of amount - fixed or unliquidated; or

(ii) in respect of time - present or future, or certain or dependent on a contingency; or

(iii) (ii) in respect of the manner of valuation - capable of being ascertained by fixed rules or only as matter of opinion.

As if to acknowledge the dangers involved in this technique of lawmaking, s 243(4) of the Act contains a "remarkable" [51] additional provision [52] to deal with unforeseen cases of discord. The sub-section provides, relevantly:

If, after taking into account the prescribed modifications and the provisions of subsection (2), a provision specified in subsection (1) is incapable of application in relation to a composition or is inconsistent with this Part, that provision does not so have application. 1. Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 358, per Brooking JA. 2. Also found in ss 76(2) and 248(4) of the Act.

The reference in the foregoing sub-section to s 243(2) is a reference to the following provision:

In the application of the provisions of this Act specified in subsection (1) in relation to a composition, a reference to a provable debt shall be read as a reference to a provable debt within the meaning of this Part.

The Part referred to is Pt X. That Part begins with an interpretation section (s 187) which includes, relevantly:

(2) In this Part, a reference, in relation to a composition, to a provable debt shall be read as a reference to a debt or liability that would have been a provable debt in the debtor's bankruptcy if the debtor had become a bankrupt on the day on which the special resolution accepting the composition was passed

The authority of the Governor-General to make rules dealing with prescribed matters is found in s 315(1) of the Act. In the standard way, that sub-section permits the making of rules not inconsistent with the Act "that by this Act are required or permitted to be prescribed "

In order to refine the questions presented by the appeal, it is helpful to note a number of matters which were either not argued or which can safely be put to one side:

No submission was made that the technique of modification of legislation by rules, found in s 243(1) of the Act, was outside the powers of the Parliament. The power to make laws with respect to bankruptcy and insolvency is conferred upon the Parliament by the Constitution [53] . Whether the Parliament may validly delegate to the Executive the modification of a law made by the Parliament, at least in the terms adopted, has not been the subject of any submissions to this Court. I shall therefore assume, without deciding, that what has been done may be done. In a proper case, where the point is raised and argued, it may be appropriate for this Court to return to that question.

In the Court of Appeal, it was argued for the respondents that r 84 of the Rules was ultra vires the rule-making power under s 315(1) of the Act, being limited to the making of rules "not inconsistent with this Act". It was submitted that, to the extent that r 84 introduced substantive changes into s 82, as applied to the case of a composition, it went beyond the authority of "modifications" permitted to the Executive. It was therefore void [54] . This argument was rejected in light of the express contemplation in s 243 itself that certain provisions of the Act might be modified by rules. The scope of what could be done by such a "modification" was reserved in one of the early cases on the effect of s 243 [55] . The mere fact that, by a rule such as r 84, the language of a section, such as s 82, could be modified, may not, of itself, be sufficient to sustain an alteration of the section which would completely change, or even reverse, its operation [56] . However, this argument may also be left to another day. Before this Court, the respondents made it plain that they did not assert that r 84 was ultra vires. They confined their submission to the suggestion that the rule should be given a construction which would ensure that it did not go beyond the power of modification authorised by s 243(1) and thus within s 315(1) of the Act.

One of the many disadvantages of the technique of drafting adopted by s 243(1) is that there is no reliable way of discovering the purpose of the law-maker save from the language of the rule. The Court does not have access, as it does in a change to legislation by the Parliament, to a Second Reading Speech, explanatory memorandum or other background materials to assist in the elucidation of ambiguities and uncertainties [57] . In the case of the Act, the Court was taken to such materials, including the Second Reading Speech [58] and the Clyne Committee Report [59] upon which the Bill, which became the Act, was based. By way of contrast, the purpose of the rule-maker, already unclear because of the partial modification which r 84 of the Rules introduced to the applied provisions of s 82 of the Act, remains an enigma. All that the Court has to go on is the language of the modification, supported, to the extent necessary, by the "remarkable" provisions of s 243(4).

In Morris v Maroudas [60] one of the early decisions on the interpretation of s 82, Toohey J, then a member of the Federal Court of Australia, made a number of remarks, obiter concerning the proper approach to interpretation of such a provision. These observations were criticised by the appellant, and doubted by the primary Judge [61] and in the Court of Appeal [62] . In Morris , the Full Court of the Federal Court was considering what debts were provable under Pt X of the Act for the purposes of a deed of assignment. Because the same technique of statutory modification had been adopted in that case [63] , and as the modifications effected were relevantly the same, the remarks of the Federal Court were pertinent, although stated to be obiter [64] . Northrop J stated that he agreed with the reasoning of Toohey J [65] . Spender J impliedly did so [66] . Because of the Federal Court's general responsibility for interpreting and applying the Act, attention was properly given in the courts below to Toohey J's remarks. The following is the passage which the appellant criticised [67] : The method of permitting a rule to amend a section for certain purposes carries its own dangers. But in my view, where r 82 is applicable, the proper course is to look at s 82 as modified and not seek to construe it by reason of semantic differences that exist between s 82(1) as modified and as unmodified. I do not read this passage to mean more than that the ultimate duty of a court is to have regard to the provision of the Act, as modified by the Rules. This leaves the question of what the modification achieves. Toohey J was clearly right to refer to the dangers of the statutory technique adopted. They were dangers foreseen by the Parliament itself (s 243(4)). What his Honour said does not cast doubt upon the propriety (indeed necessity) to ascertain the effect of the modification from the course which the modification took. Like the long history of bankruptcy legislation to which this Court was taken, a study of the changes effected in legislative provisions over time may help to explain the purpose of the particular change in question. But it is the legislation which must be given effect. The Court's duty is to ascertain the purpose of the Parliament as expressed in the language it has used [68] . No attempt to give effect to an inferred purpose authorises a court to neglect the Act's language.

Attempts were made to calculate the number of judges who had considered the present (or analogous) point, to show the preponderance supporting the construction for which the parties respectively argued. Such submissions may carry more persuasion in a Court of Appeal or a Full Court than before this Court. This is because in the case of federal or uniform legislation the duty of the courts below is to endeavour to accord such legislation a uniform interpretation [69] . Some of the judges who have favoured the view urged by the respondents have done so primarily for the reason of comity in order to achieve a uniform interpretation [70] . Others have acknowledged being affected by this consideration [71] . Now that the appeal is before this Court it should simply construe the Act for itself. Its opinion will achieve the desired uniformity. Obviously, this Court will take into account the opinions previously expressed.

Some features of the litigation had fallen away by the time the appeal was heard. In particular, although the appellant continued to press hints (especially in the opinion of Brooking JA) that there were, or might have been, suspicious features in the compositions agreed by the respondents' creditors, no reliance was placed upon this consideration, save as it might affect the question of interpretation. Thus, the appellant urged that if the respondents' construction of the Act were correct, it would provide a simple means by which debtors could effectively escape substantial contingent liabilities (as under guarantees not yet called up) by the simple expedient of a composition (or arrangement or assignment) under Pt X agreed to by present creditors. The contingent creditor could not vote in respect of the contingent debt (s 198(2)). But upon the authority now challenged, that creditor would be bound by the decision made (s 237). The debtor would be released from the debt, leaving the contingent creditor to prove in the composition over the acceptance of which it had no control.

s 51(xvii) of the Constitution. 2. Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 357-358, per Brooking JA. 3. Morris v Maroudas (1986) 12 FCR 346 at 357, per Toohey J; cf Qantas Airways Ltd v Aravco Ltd (1996) 185 CLR 43 at 61-64 4. Acts Interpretation Act 1901 Cth, s 15AC. 5. Acts Interpretation Act, s 15AB; Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 319-321 Kingston v Keprose Pty Ltd (1987) 11 NSWLR 404 at 423 6. House of Representatives, Parliamentary Debates (Hansard), 20 May 1965, p 1713. 7. Report of Committee Appointed to Review the Bankruptcy Law of the Commonwealth (1962), pars 35, 283, 295, 337-340. 8. (1986) 12 FCR 346. 9. Pyramid Building Society (In liq) v Something Better Pty Ltd (unreported; Supreme Court of Vict (Hayne J); 8 September 1994) at 23-24. 10. Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 361, per Brooking JA; at 369-370, per Tadgell JA. 11. By r 82 addressed to s 231 of the Act. 12. Morris v Maroudas (1986) 12 FCR 346 at 357-360 13. Morris v Maroudas (1986) 12 FCR 346 at 354 14. Morris v Maroudas (1986) 12 FCR 346 at 367 15. Morris v Maroudas (1986) 12 FCR 346 at 357 16. Re Bolton; Ex parte Beane (1987) 162 CLR 514 at 517-518 17. Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492 R v Hookham (1993) 31 NSWLR 381 at 390-391 Fernando v Commissioner of Police (1995) 36 NSWLR 567 at 587-590 R v Parsons [1983] 2 VR 499 at 506 Prott, Refusing to Follow Precedents: Rebellious Lower Courts and the Fading Comity Doctrine, Australian Law Journal, vol 51 (1977) 288 at 294-296. 18. eg, Gye v Davies (1995) 37 NSWLR 421 at 423, per Kirby P; Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 362, per Brooking JA. 19. eg, Gye v Davies (1995) 37 NSWLR 421 at 436, per Cole JA; Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 375, per McDonald A-JA.

Arguments against the inclusion of contingent debts

The appellant advanced a number of arguments against the construction of the Act which has so far found favour in the Federal Court, the New South Wales Court of Appeal and, in this case, in the Court of Appeal of Victoria. Its chief arguments should be identified so that the point of construction may be clearly presented for decision:

Meaning must be given to the modification effected by r 84 as it applies to the definition of "provable debt" in the case of a composition under Pt X. The deletion from the s 82 definition of future and contingent debts and liabilities in sub-s (1), and the modification of the definition of liability in sub-s (8), clarify the relevant purpose. This was to delete from debts provable in a composition "contingent" and "future" liabilities or debts. Unless this consequence were attributed to the modification, it would leave the changes with little work to do. This was a result which would not lightly be attributed to the rule-maker. The suggestion that the rule-maker was simply attempting, in an inept way, to modernise the verbiage of s 82(1) by the deletions effected had a number of defects. First, it would arguably amount to an inappropriate or incompetent use of the power to make "modifications" conferred for a substantive purpose. Secondly, such incompetence would not readily be ascribed to the rule-maker exercising the large powers afforded by the Parliament. Rather, a substantive purpose would be attributed to the modification. The only substantive purpose ascertainable from the amendments effected was that of deleting future and contingent debts and liabilities. No alternative rational and coherent explanation could be afforded for the modifications which had deliberately distinguished the case of "provable debts" in a composition from those provable in bankruptcy.

The suggestion that the deletion of the words in question still left the generality of the expression "all debts and liabilities" in s 82, as applied to compositions under Pt X, ignored "the gradual steps taken by the legislature to extend the application of the bankruptcy law to future and contingent debts" [72] . That history is surveyed in the Court of Appeal and I will not repeat it. It is enough to say that, in the context of a bankruptcy statute, the words "debts" and "liabilities", in their generality, would not easily attract future and contingent debts and liabilities [73] . Section 82 of the Act is itself a product of this long history. Only a person who was wholly ignorant of that history and of the long struggle to achieve the scope of the application appearing in s 82 of the Act could assume that the deletion in s 82(1) of the specific reference to future and contingent debts and liabilities would revive, by the generality of those words, an application to contingent debts or liabilities which the addition of the deleted words had originally been enacted to secure [74] . Such fundamental ignorance of the course of bankruptcy legislation ought not be attributed to the rule-maker who prescribed r 84 of the Rules.

So far as the respondents' argument rested on the survival, in the modified s 82, of sub-ss (4)-(7), with their express reference to contingent debts and the calculation, in case of dispute, of their value, the appellant invoked s 243(4) of the Act. After the prescribed modifications have been taken into account and it is found that a provision specified is "incapable of application" (or is inconsistent with Pt X) such provision "does not so have application". Despite their apparent survival in the modified s 82, sub-ss (4)-(7), in terms of s 243(4) of the Act, had no application. Hayne J acknowledged the problem presented by the failure of the rule-maker to modify sub-ss (4)-(7). He preferred to explain this as presenting one of the factors to be taken into account in deciding the preferable construction of the modified section [75] . No construction was wholly satisfactory. But in his Honour's view the better construction involved giving effect to the modification rather than ignoring it.

Much reliance was placed in the Court of Appeal [76] upon the fact that it was open to the appellant, if dissatisfied by the composition forced upon it in a meeting in which it could not vote, to apply to the Federal Court to set aside the composition pursuant to s 239 of the Act. The appellant disputed that this facility was available to it. Whilst the power of the Federal Court to set aside a composition was large (s 239(1)) and the considerations which it could take into account broadly expressed in the section [77] , the only person with standing to initiate such an application was a "creditor". Taken in its context (including s 238), it was argued that this would not include a contingent creditor such as the appellant. If this interpretation were correct, the appellant would be excluded from voting in respect of a contingent debt (s 198(2)) which affected its interests. It would be bound by the outcome of the vote at the meeting. And it would not be entitled to apply to the Court to set the composition aside. Such an unjust operation of the Act would not be attributed to the Parliament. The Act would not be construed to have such an oppressive operation, effectively modifying property rights without a chance to be heard before, or after, such rights were lost.

If, contrary to 4, it was open to a contingent creditor to make an application to set aside a composition pursuant to s 239 of the Act, this was a most burdensome procedure fraught with difficulty because of the disinclination of a court to disturb valid compositions made under Pt X [78] . The cost and inconvenience of having to make such an application, and its doubtful success, suggested the alternative construction of the Act favoured by the primary Judge. This was that compositions could be made under Pt X with the concurrence of the creditors in respect of present and certain provable debts. But as to future or contingent debts, these would remain outside the composition to await future or contingent events. That construction would be consistent with the exclusion from entitlement to vote of a creditor with a contingent debt (s 198(2)). The deletion of the reference to "present" and "certain" from s 82(1) of the Act, by the modification introduced by r 84, was simply explained by the fact that those words were not then required. They were sufficiently implied in the reference to "debts and liabilities" expressed in their generality [79] .

This construction would also have the advantage of removing the risk that a debtor could "engineer" a position whereby, through the vote of creditors having present and certain liabilities and debts, it could effectively secure release of substantial contingent debts, affording an undesirable potential loophole in the operation of Pt X. The possibility that this could occur reinforced the argument that the modification introduced to s 82 of the Act by r 84 of the Rules in the case of a composition, should be given real and substantial effect.

Hardy v Fothergill (1888) 13 AppCas 351 at 355. 2. Christian, Bankrupt Law, 2nd ed (1818), pp 285-290; Ex parte Adney (1776) 2 Cowp 460 [98 ER 1187]; Alsop v Price (1779) 1 Dougl 160[99 ER 104]; Ex parte Minet (1807) 14 Ves Jun 189 [33 ER 493]; Ex parte Gardom (1808) 15 Ves Jun 286 [33 ER 762]; see also 19 Geo II c 32; Bankrupt Law Consolidation Act 1849 UK (12 & 13 Vict c 106); Bankruptcy Act 1861 UK (24 & 25 Vict c 134); Bankruptcy Act 1869 UK (32 & 33 Vict c 71), s 31. 3. cf Hawkins v Bank of China (1992) 26 NSWLR 562 at 568 4. Pyramid Building Society (In liq) v Something Better Pty Ltd (unreported; Supreme Court of Vict (Hayne J); 8 September 1994) at 28. 5. Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 362, per Brooking JA; at 373, per Tadgell JA. 6. "If the Court considers that the terms of the composition are unreasonable or are not calculated to benefit the creditors generally or that for any other reason the composition ought to be set aside " s 239(2). 7. See Re Caruana; Ex parte Federal Commissioner of Taxation (1987) 17 FCR 223 at 233-234 Re Burns; Ex parte National Mutual Life Association of Australasia Ltd v Burns (1992) 39 FCR 477 at 494 8. Pyramid Building Society (In liq) v Something Better Pty Ltd (unreported; Supreme Court of Vict (Hayne J); 8 September 1994) at 25, commenting on Morris v Maroudas (1986) 12 FCR 346

Contingent debts are provable debts in a composition

I acknowledge the arguability of the appellant's case. Support for it, deriving from the language of the Act is persuasively stated by Hayne J. Strong reasons of policy for favouring that construction, if it be open, were expressed in the opinion of Brooking JA in the Court of Appeal. If, conformably with the language of the Act (as modified by the Rules), and its apparent purpose I could come to the conclusion favoured by Hayne J, I would gladly do so in this case. I share Brooking JA's opinion that the contrary interpretation of the Act appears to defeat, at least in this case, justice and business efficacy.

Nevertheless, for reasons grounded in the language of the Act, as well as in its history and apparent policy, I do not consider that the apparent injustice in this case is one which this Court can cure. To do so would not be to adopt a purposive approach which I would always be foremost to favour. It would be to strain the language of the Act, already modified by the operation of a rule whose purpose is obscure and whose effect is limited. My reasons for coming to this conclusion are these:

Allowing for the modification of s 82 by r 84, the remaining references in s 82 to debts or liabilities "subject to a contingency" (s 82(4)) and the provision of a means of valuing them (s 82(5) and (6)) must be given effect according to their terms. This is so even if, for reasons of history or because the rule-maker has troubled to modify s 82(1), the words "debts and liabilities" in that sub-section were confined to present and certain debts and liabilities. Nor can s 243(4) be invoked, in effect, to expunge the provisions of sub-ss (4) to (7) where the rule-maker has held back from doing so. Not only would this involve ignoring (rather than to "take into account") the prescribed modifications. It would also involve distorting the pre-condition for the operation of that "remarkable" sub-section. This is that the provision should be incapable of application in relation to a composition. I read this as meaning to a particular composition and for particular reasons. The argument advanced, in effect, suggests that the rule-maker incompetently failed to carry throughout the modified s 82 the theory partly effected in sub-ss (1) and (8). This is not a course of additional surgery upon s 82 which s 243(4) authorises. The section therefore retains its references to contingent debts and liabilities and to the valuation of them. Such references are completely inconsistent with the hypothesis that contingent debts and liabilities are not included amongst "provable debts" in the case of a composition. Whatever else the modifications to sub-ss (1) and (8) achieved, they cannot be read to contradict the survival of the express references to contingent debts and liabilities.

As modified, s 82(8) includes an express definition of "liability". To that extent, it provides a dictionary for the word, used in its generality, in s 82(1). Relevantly, liability in sub-s (8) is defined to include "an express agreement capable of resulting in the payment of, money". The rule-maker's removal from the section of the reference to the case whether the payment is "certain or dependent on a contingency" left the generality of the definition undisturbed. The elaboration in the closing sub-paragraphs, and their modification in the case of contingencies, does not limit the very general language used in the definition. Whilst a court will certainly take into account the course of legislative history, it must be careful not to allow that technique of ascertaining the legislative purpose to distort the meaning to be ascribed to the plain words. Most readers of legislation have no ready access to the detail of legislative history. Few have recourse to the Parliamentary debates and background material. That is why this Court has emphasised that the ultimate fidelity must be to the purpose of Parliament as ascertained from the language it has used to express that purpose [80] . Particularly in the context of the survival of express provisions for the valuation of a debt subject to a contingency, the broad definition of "liability" which remains in s 82(8) as modified, should be given the meaning which the words used would ordinarily bear. Approaching the matter in that way, "an express agreement capable of resulting in the payment of, money" includes a guarantee subject to a contingency. Indeed, the phrase "capable of" implies the existence of a contingency or future event which must happen to convert the capability into an obligation [81] .

Whilst it is true that the explanations offered by the respondents for the modifications introduced into s 82(1) by r 84 of the Rules are less than wholly convincing, the attempts by the appellant to explain away the survival of the references to contingencies in sub-ss (4)-(7) are even more unsatisfactory. It does less offence to the construction of s 82, as applied to a composition under Pt X of the Act, to read debts and liabilities in s 82(1) broadly, notwithstanding the modification, than to ignore completely sub-sections which survive the modification and which must be given meaning.

The power of modification afforded by s 243 of the Act is confined to particular sections, including s 82. Not included in the sections which might be modified is s 187. That section, in s 187(2), lays down the general principle adopted by the Parliament that "in relation to a composition" a provable debt is to be "read as a reference to a debt that would have been a provable debt in the debtor's bankruptcy". That general provision must be read with s 243, including the power to modify s 82. At least in the case of doubt, s 187(2) indicates the general approach which has the endorsement of the Parliament. That general approach may, by the modification of s 82, be altered. But any alteration by rule would surely need to be clear to override the general principle reflected in s 187(2) of the Act. That general principle is itself understandable when the history of bankruptcy law is remembered. Two features of that history are relevant. The first is the gradual way by which all debts and liabilities came to be included in the bankruptcy. The objective of legislation of this kind was, generally speaking, "that all creditors should be entitled to come in and prove, and that the bankrupt should emerge from the bankruptcy freed from all his liabilities" [82] . The same general objectives apply to a composition under Pt X [83] . Secondly, to the complaint that contingent creditors are included in the release yet excluded from voting, the answer may be given that this has been the case in bankruptcy for more than a century. By s 82 it is still so in the case of bankruptcy. To vary this established position in the case of a composition under Pt X it is not unreasonable that the modification should have been made abundantly clear [84] .

The denial to a contingent creditor of the right to vote does not negative the right of that creditor to prove (ss 187(2), 238). For whatever reason [85] , that right was not exercised by the appellant in this case. I do not accept the argument that the appellant had no standing to apply to the Federal Court to set aside a composition. It is clear from the language, structure and purpose of the Act that this facility is available to a contingent creditor. The mere fact that s 239 uses the word "creditor" does not confine that section to creditors with present and certain debts. The word is used throughout Pt X to extend to creditors with future and contingent debts. No clearer illustration of this could be found than in s 198(2). That sub-section excludes a "creditor" from voting "in respect of an unliquidated or contingent debt or a debt the value of which is not ascertained". The Act thus draws a distinction between creditors and the qualities of their debts and liabilities. Section 239 should not be read down. Whilst it is true that such an application is inconvenient, the grounds for the Court's intervention are very broadly stated. Arguably, they would have been applicable to the facts of this case. The appellant failed to invoke that remedy.

To exclude contingent debts from the category of provable debts in the case of s 82 would also be inconsistent with other provisions of the Act and the apparently intended operation of the Act, viewed as a whole. It would be inconsistent with the terms of s 238 which provide that: A composition is binding on all the creditors of the debtor. It would be inconsistent with s 198(2), the terms of which support the conclusion that a contingent debt is provable. It would be inconsistent with the law relating to compositions made by bankrupts pursuant to s 73 of the Act. Furthermore, the identical amendment, made by r 82 of the Rules in respect of deeds of assignment, would have the effect that, although the debtor had, in accordance with s 214 of the Act assigned all of its divisible property for the benefit of its creditors, it would not be released from any future or contingent debts. Future and contingent creditors would have only a man of straw against whom to execute.

In addition to the foregoing reasons resting on the language and structure of the Act and the policy derived from the history and general purpose of compositions, one final reason of legal policy may be mentioned. Given the long history of bankruptcy legislation, and the provisions for compositions and schemes of arrangement which have existed since 1869, parallel to those in bankruptcy, it is not surprising that creditors with contingent debts have been treated in ways similar to bankruptcy. Differentiation in the case of compositions (and presumably deeds of arrangement and deeds of assignment) would introduce a significant element of instability in the operation of the Act. It would undermine the certainty and finality of compositions (and deeds of arrangement and deeds of assignment) already concluded. Creditors with contingent debts would emerge to make their claims. At the very least, if this were to be allowed by the legislative technique of modification by rule, permitted by s 243 of the Act, it could be expected that the voice of the law-maker would be clear in the land as, by r 84, it is not.

Re Bolton; Ex parte Beane (1987) 162 CLR 514 at 517-518 2. cf Hardy v Fothergill (1888) 13 AppCas 351 at 364; Trustees Executors & Agency Co Ltd v Cowan [1906] SALR 155 at 175 Ex parte Neal; In re Batey (1880) 14 Ch D 579 at 584. 3. Hardy v Fothergill (1888) 13 AppCas 351 at 364; see also In Re Hide; Ex parte Llynvi Coal & Iron Co (1871) LR 7 Ch 28 at 31-32. 4. Flint v Barnard (1888) 22 QBD 90 at 92-94Report of the Committee Appointed to Review the Bankruptcy Law of the Commonwealth (1962), pars 291-295, 337. 5. cf Hardy v Fothergill (1888) 13 AppCas 351 at 358. 6. Tadgell JA suggested that it would not have been financially worthwhile "having regard to the comparatively trifling amount made available by the debtors": Something Better Pty Ltd v Pyramid Building Society (In liq) [1996] 2 VR 352 at 373

The proper answer to the appellant's complaint about injustice lies not in a distortion of more than a century of bankruptcy law. Still less does it reside in the performance of major surgery on the language of the Act which the rule-maker, with explicit power to modify it, held back from attempting. If there was an injustice in the composition agreed by the respondents' creditors with present and certain debts and liabilities, the remedy for a contingent creditor such as the appellant, was to apply to the Federal Court to set the composition aside (s 239). It was not to press this Court to adopt an interpretation which the statutory language, properly analysed, will not bear.

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