Thus a landlord holds the reversion during the term of a lease and a person who grants a life estate has an interest in reversion for the duration of the relevant life. Upon expiration or earlier termination of the lease or the falling in of the life interest, full ownership "reverts" to the lessor or grantor. When s.154(1)(c) speaks of "the remainder (if any) of the property of the former bankrupt", it must be referring to the residue of the property referred to in s.154(1)(b), being "the property of the former bankrupt still vested in the trustee". The reversion effected by s.154(1)(c) must accordingly be a process by which the property in question ceases to be "vested in the trustee" and becomes instead owned by and vested in the former bankrupt.
44 Although s.154 is headed "Effect of annulment", it cannot be regarded as containing an exhaustive statement of the consequences of annulment. The annulment concept, as it applies in bankruptcy, is of long standing. A general statement of its significance is found in the following passage in the judgment of Northrop J in Re Hudson; Ex parte Australia and New Zealand Banking Group Limited (1994) 50 FCR 281:
"The effect of an annulment of bankruptcy is to put the bankrupt back in the position he would have been in as if the bankruptcy had never occurred. In Re Lawson (1939) 11 ABC 137 Clyne J, at 138, said that the effect of an annulment is, subject to the matters to be mentioned later in these reasons, 'to remit the party whose bankruptcy is set aside to his original situation'. An annulment is to be contrasted with a discharge of bankruptcy which confirms the existence of the bankruptcy prior to discharge. The legal consequence of an annulment is discussed at length in Theissbacher v MacGregor Garrick & Co [1993] 2 Qd R 223 by Pincus JA and White J at 228-230. At 226 Fitzgerald P referred to the effect of an annulment order involving 'the retrospective annihilation of the sequestration order'. In the later case of Coyle v Cassimatis (unreported, Supreme Court, Qld, Court of Appeal, 1 November 1993), Fitzgerald P in speaking of annulment under s 74(5) said:
' ... although only annulled "on" the day of the creditors' special resolution, the annulment was retrospectively effective to annihilate the (bankrupts') bankruptcy and its consequences except as otherwise provided by the Act, notably subs 74(6). Prima facie, therefore, the (bankrupts) were, in law, never bankrupt ...'."
45 The species of annulment referred to in the quoted extract from the judgment of Fitzgerald P in Coyle v Cassimatis [1994] 2 QdR 262 is that created by s.75 upon a composition or arrangement with creditors coming into effect. As Fitzgerald P made clear, the annihilation wrought by annulment and the relevant retrospective effect in relation to the bankruptcy "and its consequences" are operative only insofar as the Act does not otherwise provide. The particular provision to which Fitzgerald P referred when stating that qualification is s.74(6). That section is, in general terms, the equivalent of s.154(1) in relation to the particular case of annulment with which s.74 is concerned. It provides that, subject to exceptions, "the property of the bankrupt still vested in the trustee … reverts to the bankrupt for all his or her estate or interest in it …".
46 There is in the cases, it seems to me, an express recognition that while, in general terms, the effect of annulment is "to put the bankrupt back in the position he would have been in if the bankruptcy had never occurred" and "to remit the party whose bankruptcy is set aside to his original situation" so that there is "retrospective annihilation" of the bankruptcy, the effect of annulment does not cause all matters to be viewed after the event as if the bankruptcy had never occurred. The status of the person concerned will be seen in that way, so that he or she cannot, after annulment, be described as someone who "has become a bankrupt": Oates v Deputy Commissioner of Taxation (1990) 27 FCR 289. But title to and ownership of property will not, by virtue of annulment, be as if there had never been a bankruptcy. The advent of bankruptcy causes the bankrupt's property to be vested in the trustee in bankruptcy. The property so vested is then applied by the trustee in the due course of administration. If anything remains at the time of annulment and is not then caught up by other provisions of the Act, it "reverts" to the person concerned. But the reversion is subject to the inroads and effects of the bankruptcy. It is simply impossible to regard the person's property after the annulment as being that which he or she would have had if there had been no bankruptcy.
47 This conclusion is supported by the decision of the Queensland Court of Appeal in Theissbacher v MacGregor Garrick & Co [1993] 2 QdR 223 where the majority (Pincus JA and White J) approved the statement of Cockburn CJ in Bailey v Johnson (1872) LR 7 Ex 263 that the effect of an order for dissolution under the English Act of 1869 is
"… subject to any bona fide disposition lawfully made by the trustee prior to the annulling of the bankruptcy, and subject to any condition which the court annulling the bankruptcy may by its order impose, to remit the party whose bankruptcy is set aside to his original situation … that effect is to remit the bankrupt, at the moment of the decree annulling his bankruptcy is pronounced, to his original powers and rights in respect of his property."
48 The conclusion I have stated is also consistent with the decision of the English Court of Appeal in Flower v The Mayor etc of the Borough of Lyme Regis [1921] 1 KB 488 where it became necessary to consider the effect of annulment following composition where the relevant statutory provision empowered the court ordering annulment also to order vesting of "the property of the bankrupt" but no vesting order was in fact made. The consequences were described by Younger LJ as follows:
"In this case an order annulling the bankruptcy was made, and it contained no provision at all with regard to the vesting of the property of the bankrupt in himself or in anybody else. It is unnecessary to consider the position of the property before payment of the composition, because in this case the composition was provided for at the date of the order. After the composition was paid, as it has in fact been, the position became clear. The trustee in bankruptcy, or as in this case the Official Receiver, then held the bankrupt's property, all the purposes of the bankruptcy, the only purposes for which the property was by statute vested in him, having been fully discharged. Those purposes did not exhaust the property, which so far as unapplied remains in his hands, free and discharged from them and all of them. The necessary result is that there is a resulting trust for the late bankrupt, certainly in equity and, if the case be put as it has been by my learned brothers, at law also the plaintiff in this case. His remaining property has been restored to him, and he was in a position to make the claim which he did make when he issued the writ in this action."
49 I am satisfied that s.154(1)(c) operates in the case of a s.153A annulment in such a way that, upon and as a result of the annulment, so much of the property then still vested in the trustee in bankruptcy as is not either applied in a way referred to in s.154(1)(a) or s.154(1)(b) or subjected to a court order made under s.154(3) or s.154(6) ceases to be vested in the trustee and becomes vested in the former bankrupt. But that vesting, as I view it, is not made to occur in such a way as to cause the person concerned to be regarded as if he or she had never been divested of the property by operation of the Bankruptcy Act. This is because, first, the word "reverts" (embodying exactly the same concept as Cockburn CJ's "remit" - or send back) connotes the return of something that was once held but was then given up or lost and, second, continued recognition and efficacy of applications of property by the trustee during bankruptcy would not be accommodated by any notion of retrospectively deemed continuity of ownership by the person concerned.
Implications of the bankruptcy for s.459S
50 The conclusions I have stated as to the Bankruptcy Act provisions mean that the plaintiff must now be regarded as having an undivided one half share in the debt owed by the defendant to the plaintiff and W J Roberts. It is that undivided interest that was vested in her, by operation of s.154(1)(c) of the Bankruptcy Act, on 14 July 2004.
51 In discussing s.459S of the Corporations Act, I mentioned the possibility that some change in circumstances after the expiration of the s.459G(2) period might have allowed the defendant to rely on the plaintiff's lack of creditor status in defining the winding up application. It is clear, however, that the only change in circumstances that occurred after the expiration of the s.459G(2) period was that the interest in the debt owed by the defendant which, since 1 May 2001, had been vested in the plaintiff's trustee in bankruptcy came to be vested in the plaintiff. That cannot possibly operate to create a ground of opposition to the winding up application capable of being relied upon consistently with s.459S in the absence of leave under that section.
52 There is no application by the defendant for leave under s.459S. Nor is there any apparent basis for the granting of such leave, given that the characteristic that s.459S(2) requires the ground of opposition to winding up to have if leave is to be granted. Section 459S says that that the ground must be "material to proving that the company is solvent" - a requirement that would not appear to be satisfied here, even on the best view of matters from the plaintiff's perspective: whether the debt is, or was at any particular time, owed to WJ Roberts and the plaintiff or to WJ Roberts and the plaintiff's trustee in bankruptcy is entirely neutral in any assessment of solvency. There is also the point that, in the normal course, any application for such leave should be made and disposed of before the winding up application itself comes on for hearing: Switz Pty Ltd v Glowbind Pty Ltd (2000) 48 NSWLR 661.
53 In the result, therefore, s.459S precludes the defendant from opposing the winding up application on the ground that the plaintiff was not, at some time material to the proceedings, a creditor of the defendant.
Abuse of process
54 This conclusion makes it necessary to deal with the possibility that pursuit of the winding up application by the plaintiff may constitute an abuse of process, that being ground of resistance that the High Court left open in the David Grant case (above) despite the strictures of Part 5.4 and the general rule that disputes about the founding debt and the plaintiff's creditor status in a case where non-compliance with a statutory demand is relied upon should be fully played out within the confines of the system for challenging statutory demands. When referring to the exception, Gummow J spoke, at p.279, of winding up proceedings initiated or pursued "for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz".
55 In Williams v Spautz (1992) 174 CLR 509, Mason CJ, Dawson, Toohey and McHugh JJ emphasised that, unless the interests of the justice demand otherwise, it is the duty of courts to exercise jurisdiction rather that refusing to do so. But, at the same time, a court must preserve its process from being employed for ulterior purposes - that is, purposes beyond those that the process itself offers. The focus is upon the purposes of the party initiating the proceeding. One relevant description is to be found in the judgment of Isaacs J in Varawa v Howard Smith Co Ltd (1911) 13 CLR 35:
"If the proceedings are merely a stalking-horse to coerce the defendant in some way entirely outside the ambit of the legal claim upon which the court is asked to adjudicate they are regarded as an abuse of process for this purpose."
56 The existence of an unworthy motive is not enough. It is the purpose sought to be effected by the initiating party that is to be considered. The purpose will be improper if it is a purpose of achieving ends other than to which the process is directed.
57 In the kind of company law context with which I am here concerned, it was, before the advent of Part 5.4, an abuse of process to initiate winding up proceedings as a means of attempting to enforce payment of a disputed debt. An early decision to that effect was Cercle Restaurant Castiglione Co v Lavery (1881) 18 ChD 555 the report of which contains, as a footnote, the judgment of Jessel MR in Niger Merchants Company v Capper (1877) 18 ChD 557n where reference was made to an earlier decision of Malins V-C in Cadiz Waterworks Co v Barnett (1874) LR 19 Eq 182 in which the pursuit of winding up proceedings was enjoined "on the ground that it is the object of the Court to restrain the assertion of doubtful rights in a manner productive of irreparable damage". The principle was stated in these terms by Vaughan Williams J in In re a Company [1894] 2 Ch 349:
"In my judgment, if I am satisfied that a petition is not presented in good faith and for the legitimate purposes of obtaining a winding up order, but for other purposes, such as putting pressure on the company, I ought to stop it if its continuance is likely to cause damage to the company."
58 To assess the present case against the relevant abuse of process criteria, it becomes necessary to look at the context as a whole. I have already mentioned that the plaintiff and W J Roberts were formerly married. Their marriage was dissolved on 23 October 2001 by an order of the Family Court of Australia. On 27 December 2001, the plaintiff filed an application in the Family Court seeking certain orders with respect to property. Those proceedings are pending. Briefly stated, the orders sought are an order that W J Roberts pay $500,000 to the plaintiff, that W J Roberts "be declared to be the sole legal and beneficial owner of all shareholders or other interests held within" three named companies, and of which is the defendant, and an order declaring W J Roberts to be the sole legal and beneficial owner of certain real property.
59 The plaintiff, in her affidavit, describes the Family Court proceedings as "in relation to the whole of the financial issues arising from the marriage of Mr Roberts and me", adding that the present defendant is not a party to those proceedings. In an affidavit sworn on 9 July 2004, W J Roberts deposes that he has filed a response in the Family Court proceedings. He also says that the matter is to be before the court on 4 August 2004 for a pre-trial conference and that he has been informed by his solicitor that the hearing of the application will most likely take place before the end of 2004. W J Roberts also deposes:
"13. The financial history of the Company Wayne Roberts Concrete Constructions Pty Limited will form part of the evidence to be dealt with by the Family Court of Australia in those proceedings between the Plaintiff and myself.
14. Evidence in the Family Court proceedings will be directed to the dispute as to amounts due to the Plaintiff as alleged by the Plaintiff."
60 According to search material in evidence, the defendant was incorporated in 1990. W J Roberts is its sole director. He has been in office since incorporation. Whether there was ever any other director (and, in particular, whether the plaintiff was ever a director) does not appear, but the fact that the Companies (New South Wales) Code, as in force at the time of incorporation, required a minimum of two directors for a proprietary company must mean that there was, at some stage, one or more additional directors. The search also shows that there are 90,200 shares on issue. Of these, 75,000 B class shares and 200 A class shares are recorded as held by W J Roberts and 15,000 B class shares are recorded as held by the plaintiff.
61 The nature of the loan account in the defendant's books evidencing indebtedness to the plaintiff and W J Roberts has already been mentioned. Information about its origins and provenance comes from a letter from the plaintiff's solicitors to the defendant's solicitors dated 11 May 2004:
"The loan account is the proceeds of the sale of the former matrimonial home at Harrison Street, Belmont North which was injected into the company of which your client now has the total control. It is money which is deemed (by Centrelink) to be in the hands of our client and to which, according to the company's Financial Statements, the beneficiaries are entitled to immediate payment."
62 The picture emerging from the evidence is that the plaintiff and W J Roberts were, during their marriage (and afterwards), the only members of the defendant and that, by some process so far unexplained, the proceeds of the sale of their former matrimonial home were lent by them to, or otherwise "injected into", the defendant, in circumstances where the debt was initially a joint debt but, by reason of the operation of the Bankruptcy Act, it is now a debt owned in equity by the plaintiff and W J Roberts as tenants in common in equal shares in such a way that an acquittance can be given to the debtor only by both of them. At shareholder level, no other person has an interest in the company. Whether or not there are other creditors does not appear from the evidence. If there are, none has come forward in support of the winding up application which has been duly advertised. So far as the court is aware, the plaintiff is the only person pressing for winding up
63 The debt on which the plaintiff relies and the shares making up the whole of the issued share capital of the defendant form part of "the property of the parties to a marriage" as referred to in s.79 of the Family Law Act 1975 (Cth). In the sense relevant to the application of that section, the defendant is to be regarded as the alter ego of the parties. This is so not only because they are the only owners of shares in the defendant but also because it appears that what are undoubtedly personal assets of the parties to the marriage, being the proceeds of the sale of the former matrimonial home, have been "injected into" the company. The affairs of the company may therefore properly become the subject of orders with respect to matrimonial property under the Family Law Act, subject to due regard being maintained for the legitimate claims and interests of persons other than the parties to the marriage. Once those claims and interests are seen to be appropriately insulated, moneys owing by a party to the marriage to the relevant company, moneys owing to a party to the marriage by the relevant company and the shareholdings of those parties in the company must all be recognised as relevant to the overall determination of the questions concerning division of matrimonial property that the parties are in the process of litigating in the Family Court. In In the Marriage of Foda (1997) 21 Fam LR 653, the Full Court of the Family Court held that the correct approach under s.79 to property issues arising in relation to a company wholly owned by a party or the parties to the marriage was to treat the net assets of the company as being property of those parties and to deduct from that net asset base moneys owing to outside creditors. The Full Court approved the approach taken at first instance in that respect:
"… I should proceed to consider how the net assets, by which I mean the assets held by the parties and the company less the debts owed to creditors, should be divided. There are cases in which it is appropriate to depart from what seems to be the ordinary course of basing orders on the assets of the parties after taking into account debts to third parties. So far as the evidence goes, the liabilities of the company are commercial liabilities arising out of a business in which both the husband and wife were involved. In the circumstances of the present case, I think it is appropriate to follow the ordinary course."
64 The Family Court decisions seem to me to bear out the statement of W J Roberts in his affidavit of 9 July 2004 that the financial history of the defendant and the dispute over amounts due by the defendant to the plaintiff will become the subject of evidence in the proceedings in that court between the plaintiff and W J Roberts.
65 When the totality of the circumstances in which the present winding up application is pursued is viewed in that way, the conclusion that that application involves an abuse of process seems to me to become inescapable. On my assessment, the plaintiff and W J Roberts are together capable of giving a discharge for the debt owing to them as tenants in common; and neither alone may do so. The plaintiff has acted unilaterally in an attempt to enforce what is the claim of both. She has achieved a position in which, apart from the abuse of process possibility, ss.459C and 459S of the Corporations Act work to her advantage in a way which will see the winding up application determined without reference to the fact that the debt does not belong to her alone and is an asset of her former husband and herself. The assets of the defendant are, in the eyes of the system of justice administered in the Family Court with respect to matrimonial property, assets of the plaintiff and W J Roberts, subject only to the claims of outside creditors. Both those assets and the debt owed by the defendant and W J Roberts in common upon which the plaintiff seeks to rely unilaterally in pursuing her winding up claim are elements that the Family Court will take into account in determining the pending proceeding under s.79. The winding up application must be seen as the product of a purpose of pre-empting or changing the complexion of the Family Court proceedings rather than allowing them to take their course according to the true nature of the property rights of the parties to the marriage.
66 This case is, in my opinion, distinguishable from Vucic v Belosevic [2003] SASC 296 where an attempt to have a debt recovery action stayed as an abuse of process because of pending proceedings for a division of property in the Family Court was unsuccessful. The plaintiffs claimed to be creditors of the first defendant because of advances made in connection with an alleged partnership business. They also sued, as second defendant, the wife of the first defendant, on the basis that she had allegedly converted partnership property to her own use and "was knowingly concerned in the affairs of the partnership business and knowingly benefited from the failure of the first defendant to account to the plaintiffs and repay the monies lent by them to the business". The first and second defendants were the parties to the Family Court property proceedings.
67 The decision of Debelle J was that there should be no stay of the proceedings and no cross-vesting of them to the Family Court. His Honour saw the proceedings as, in effect, a catalyst in the process of defining the property of the parties to the marriage and therefore as involving something distinct from a determination of how that property should be divided. The fact that the claims were claims of unrelated parties who considered themselves creditors of the parties to the marriage played a significant part in that decision. Here, by contrast, no party extraneous to the marriage parties and the company that is their alter ego makes any claim. With the company viewed as alter ego, the winding up proceedings involve no one but the plaintiff and her former husband and are no more than a vehicle by which she seeks a particular outcome in respect of matrimonial property of the kind that is the proper concern of the Family Court in the proceedings pending there.
Disposition
68 The defendant's primary contention is that the winding up application should be dismissed as an abuse of process. A subsidiary contention is that it should be transferred to the Family Court. I see no utility in that course. The Family Court already possesses ample jurisdiction to deal with the plaintiff's debt claim against the defendant.
69 The defendant's abuse of process claim is upheld. The winding up application is dismissed with costs.
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