Re Henderson, N.B. & Anor Ex parte A Debtors Petition [1985] FCA 251

Federal Court of Australia|1985-06-14

Bankruptcy - debtors' petition presented against partnership by less than a majority of partners - Court's powers under

BANKRUPTCY DISTRICT OF NEW SOUTH WALES AND THE AUSTRALTAN CAPITAL TERRITORY

l.. Direct the Reqgistrar not to accept the petition

Note: Settlement and entry of ordecs is deait with in

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The Reqistcar has rvéelerrea a debtor's petition ts

the Court pursuant to 3.56(6)(a) of the Bankeuptcy Act, 135

Act"). The petition is undated but was eresented by

Nigel Bruce Henderson and Marlene Henderscn, niz wire ("the

a BANKRUPTCY AC" 1966 a es oat ~e - - [Sy PRESENTED (= =ORM 94 HOD. oy tos som on 0 em _ meq (Gi S4Pe nee), DEBTOR'S PETITION URNIOER SE-TION 56 tf, fre mA BANKRUPTCY DISTRICT OF _ ae wee Rez2...... Nig ge a Orne

' Marne (a) Insert full EO te a sstsssesececseceececsesceeeeee oe names and residential address/es of debtor/s é a To - one - and under the style or firm name of ....... Muster 8 sesteastese [one Awad fee a. petition the Registrar m Bankruptcy for the abovementioned Bankruptcy Distnct for the purpose of becoming a bankrupt/s by force of Section 56 of tne Bankruptcy Act (b) If the petition 2. re Bel IN 1s presented by - some, but not all, - _ - _ ,=- . the partner, JENMIFE 2 0 FNVE SS here set out that fact and also set _ _ _ - woo a 44 mal cuttiefilinanes CA SEROAKE > Keaeg KRuescr 5

The other partners named in the petition. John William Henderson and his wife. Jennifer Margaret Henderson

Mr. N.B. Henderson and Mr. J.W. Henderson are brothers. In 1983, the debtors and the opponents entered into partnership carrying on the business of a take-away food bar at Kurri Kurri. New South Wales. By a written agreement dated 31 December 1983 it was provided, inter alia, that the partnership could be determined on one month's notice {(cl.3) and that the capital of the partner- ship should "belong to the partners in equal one-half (sic) Shares" (cl.6). Since there are four partners, this provision should be construed by ignoring as repugnant the reference to "cne-half" (see Fitcaerald v. Masters (1356) 95 C.L.R. 420 at p.437) with the result that sach partner had a

The partnership business was not profitable. In September 1984, the opponents purported to withdraw from the partnership without giving the required notice. On 17 October 1984. they gave the debtors one month's notice of their intention to terminate the partnership pursuant to c1.3 of the partnership agreement and enquired whether the debtors wished to purchase their interest in the business. (Clause 3 also purported to ccnfer on the continuing

partners an ""option" to purchase the interest of the

retiring partners "at a price to be decided upon between the parties".) Thereafter, negotiations took place between the parties with a view to the acquisition by the debtora of the opponents' interest in the business. In the meantime. the debtors continued to operate the business on their own account, incurring a number of liabilities in that behalf.

However, the negotiations did not lead to any agreement at

In about March 1995. fresh negotiations commenced between the parties. On this occasion, it was proposed that the opponents acquire the debtors' interest in the business. On 25 March 1985, agreement was reached and reduced to seating in the form of a deed of confirmation dated 15 May 1985. The deed recited the partnership and 1ts dissolution on 17 November 1984 pursuant to notice given in that behalf. It further recited that after that date the debtors "carried on the ... business on their own behalf retaining for themselves any profits and incurring themselves certain liabilities ...". It further recited that on 25 March 1985 the debtors agreed with the opponents that the debtors would retire from the business and that the opponents would thereupon take over the buiness and its assets subject to the opponents' agreeing to accept responsibility for all the liabilities of the partnership as at 17 Novembsr 1984 together with certain liabilities, viz., liability under a

iease of the premises from Seconda Insurance Brokers Pty.

Limited: under a loan from Beneficial Finance Corporation Limited: and under a lease of plant from National Acceptance Corporation Pty. Limited respectively. The deed in its operative provisions confirmed the assignment to the opponents of the debtors' interest in the assets of the partnership and the indemnity of the debtors given by ths opponents in respect of the partnership debts. Thus, although their respective liabilities to creditocs 13. of course, a different matter, as a matter of private contract. the position as between the partners is as follows: in the periods up to 17 November 1984 and as from 25 March 1985. respectively, .the opponents are liable for the debts incurred in the conduct of the business but the debtors are

liable for the debts incurred between 18 November 1984 and

In his statement of affairs filed with the petition. Mr. N.B. Henderson ("the first debtor") discloses personal assets of $3,895.00 consisting of a small amount of cash. household fucniture and effects and a motor vehicle. He discloses liabilities of $25.601.68. some of which are clearly personal debts. Reference is also made to liabilities incurred by the debtors on their own account in 1985 in connection with the business. for instance. a debt

of $3,086.55 owed to Beneficial Finance Corporation Limited,

$12,500.00 owed to Beneficial Finance Corporation Limited

which is presumably the debt aareed to be taken over by the opponents under the deed of confirmation and if so, a debt of the original partnership. In her statement of affairs,

Mrs. M. Henderson ("the second debtor") discloses no assets

but debts of $8,621.18. It would appear that most of the liabilities disclosed were incurred in the conduct of the business by the debtors between November 1934 and March 1985. It also seems that there has been no duplication by the first or the second debtor in his or her statement of affairs of the debts acknowledged to be owed by them respectively. However. no attempt was made in either statement of affairs to reflect the impact of the arrandge- ment evidenced by the terms of the deed of confirmation. In particular. no mention is made in either statement of affairs of the value to the debtors of the indemnity

afforded by the opponents in respect of the debts of the

The first debtor. in oral evidence, said that he and the second debtor had been sued by scveral creditors. Having consulted an accountant. they had decided to petition for their own bankruptcy. Having conceded their insolvency, 1b is clear that they should now become bankrupt but che question arises as to the impact of their bankruptcy upon the position of the opponents who are apparently still

Although it was open to the first and second debtors to present their undividual debtors' petitions pursuant to s.55(1) of the Act, the petition was purportedly

"(1) A debtor'3 petition against a partnership may be presented to the

partnership or bv & majority of the members oi the partnership who ace

resident in Australia at the time of the presentation of the petition. (smphasis supplied)

(a) it appears to the Reqistrar that a petition presented to him under this section 15 in accordance with the prescribed form and that each of the statements of affairs accompanying the petition is aiso in accordance with the prescribed form: or

{b) the Court directs, under sub-section 15), the Registrar to accept the petition,

the petition shall be accepted by the Registrar, who shall endorse it accordingly, and thereupon, by force of this section-

(c) except in a case to which paraaqraph {d) applies--each of the members of Che partnership becomes a bankrupt by virtue of the presentation of the petition; or

(d) in acase where the petition is accepted by the Registrar in pursuance of an order of the Court under paragraph (7) (bd) --the petitioning partner. or each of the petitioning partners, who gave his consent for the purposes of that Paragraph becomes a bankrupt hy virtue of the presentation of the petition.

(5) Where 15 appears to the Registrar that a petition presented to him under this section, or any statement of affairs accompanying such a petition, is not in accordance with the prescribed form. the Registrar shall not accept the petition unless the Court. upon reference by the Registrar, directs him to accept it.

(6) Where a petition is presented under this section against a partnership by some, but not all, of the members of the partnership, the Registrar-

(a) shall not accept the petition. but shall refer it to the Court: and

(b) shall cause notice in accordance with the rules to be given to each of the partners who did not join in presenting the petition.

(7) Upon a reference of a petition under sub-section (6), the Couct-

(a) may direct the Registrar to accept the petition:

(b) may, with the consent of any one or more of the petitioning partners, direct the Registrar-

(1) to amend the petition by deleting from the petition the name of the partner, or of each partner, as the case requires, who did not give his consent for the purpose of this paragraph; and

(il) to accept, under sub-section (4), the petition as so amended: or

{c) may direct the Registrar not to accept the petition."

The opponents oppose the petition on a number of grounds. Their fundamental objection is that the debtors do not constitute a majority of the members of the partnership

In my opinion. the objection should be upheld as fatal to the validity of the petition.

In expressing this view, I have assumed, I think correctly, that because the petition referred to the opponents as the other members of the partnership, it was antended to be dicected against the original partnership, that is. the four members of the partnership constituted under the partnership agreement dated 31 December 19383. (Although that partnership was dissolved on 17 November 1984, the affairs of the partnership remained to be wound up for after a dissolution. the obligations of the partners continue so far as 1s necessary to wind up the affairs of a

partnership (see Chan v. Zacharia (1984) 58 A.L.J.R. 353 per

Gibbs, C.J. at p.354). Thus. but for the jurisdictional requirement of a majority of partners called for by 3.56(1), it would have been open to the debtors to petition for the

partnerships: the original partnership between the debtors and the opponents: Che partnership between the first and second debtors 1n the period from November 1984 to March 1985: and finally, the present partnership between the opponents. Since the petition refers to the opponents, it must have been directed at the original rartnership. {31 though the Act vefers to petiticns aqainst "partnerships", partnerships, of course, have no legal existence apart from the partners, and the proceedings are

really against. the individual partners 30 6that 6 6upen ra

astates of the partners. are administered in bankruptcy tsee

Lewis. Australian Sankruptcy Law, 3th Bd. (Rose) at

ep.36-3)). It 15 still open to the debtors to present a petition aqainst their own partnership, being the seccnd partnership déscribéed earlier. thue proceeding under s.5¢ against themselves only withcut proceeding against the original partnerzhip. Presumably they will now proceed te

It i3 true that 5.56(7) wives the Court various powers, including a power to direct ths Registrar to amend the petition by aeletinyg the name aor any partner whe does

not consent to the mattsr proceeding and that the Recistrar

is bound to accept a oetition presented by a maiori

partners where the Court 30 directs isee ke Bourke, Lockhart. J., unreported, 24 August 1982). But, whatever the zcope cif the Court 2 powers unger 3.56 once all ora

majority of partners have presented a petition, where, as

jurisdictional requirements of 5.56(1) have not been

gatiariad. It must follow tnat 1n such a case the Court cannot entertain the petition with a view to exercising any powers Of amendment or dispensation, In otner words. the powers of the Court under 3.56(7) upon a reference being

made under 24.26{6) are avazrlable only if the eccnditions of jurizdiction stipulated in 3.56(1) have first been

atistied. That the stream cannot rise higher than its

source 15 apparent from the language of s.56 but. in any event, 13 made clear from the season for its antroduction axplained in the Report of the Committee to Review the

Reqistrar to accept or amend a petition where less than a

majority of partners have presented it. ft follows that I must dicect the Reqistrar not to accept the pétition. This direction will be without prejudice to the entitlement of the asbtors to present a petition against their own

artnership under 3.56(1) or ostherwise to proceed under

Order that the debtors pay the costs of John William Hendergon and Jennifer Margaret Henderson of this

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At a glance

Court

Decision date

Source

Judgment (73 paragraphs)

Cited By (1)