Roberts v Wayne Roberts Concrete Constructions Pty Ltd

(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent." 7 In contending, in opposition to the winding up application, that the plaintiff is not a creditor and, for that reason, has no standing to bring the application, the defendant is saying, as a general proposition, that no money was owing at any relevant time by the defendant to the plaintiff and, as a particular aspect of that general proposition, that the sum of $419,479.50 the subject of the alleged payment obligation founding the statutory demand dated 18 May 2004 was not owing by the defendant to the plaintiff. 8 An allegation by the defendant that that sum of $419,479.50 referred to in the statutory demand was not at any relevant time owing by it to the plaintiff is, of its very nature, an allegation of "dispute" as to "the existence … of a debt to which the demand relates", as referred to in s.459H(1)(a). That allegation could have founded an application by the plaintiff for an order under s.459G setting aside the statutory demand. Such an application can only be made within the period of 21 days referred to in s.459G(2), which period cannot be extended: David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. There was, in this case, no such application within that period or at all. The defendant's allegation represents, in terms of s.459S(1)(b), a ground that the company could have relied on for the purposes of an application by it for the demand to be set aside but on which it did not so rely. The effect of s.459S(1) is therefore to preclude resort by the defendant to the allegation as a ground for opposing the winding up application, unless the court gives leave consistently with s.459S(2). It follows that, without such leave, the defendant cannot seek to say, in opposition to the winding up application, that the plaintiff lacks the character of "creditor". 9 It is this process of reasoning that led the Court of Appeal to hold in Braams Group Pty Ltd v Miric (2002) 44 ACSR 124, consistently with what had been said in a number of earlier first instance decisions, that, upon the hearing of an application for winding up on the basis of an unsatisfied statutory demand, s.459S precludes a challenge to creditor status, unless the narrow exception dealing with abuse of process can be invoked (a matter to be considered in due course). The decision of Santow J in Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 20 ACSR 108 is distinguishable. The court there entertained upon the hearing of the winding up application a submission that the plaintiff lacked standing because it was not a "creditor". But that was a case where the grounds for winding up did not involve default in complying with a statutory demand and the restriction imposed by s.459S did not operate. Was there a change in circumstances forestalling the s.459S restriction? 10 I return now to the assumption upon which the foregoing analysis is based, namely, that there was no relevant change in circumstances after the expiration of the period of 21 days referred to in s.459G(2). 11 In a case such as the present where a statutory demand is served and there is no application under s.459G for an order setting it aside, the barrier erected by s.459S is one that pays attention to grounds on which the defendant company "could have" relied had it made a s.459G application. It follows that any ground which was not available during the period when such an application could have been instituted but, because of some change in circumstances, has subsequently become available may be relied on in opposition to the winding up application even though it is of a kind or character that s.459H or s.459J makes relevant to an application under s.459G: Biron Capital Ltd v Velowing Pty Ltd [2003] NSWSC 1181. 12 The clearest example of a case involving such a change in circumstances after the expiration of the s.459G(2) period of 21 days is the case where the company pays in full the amount claimed in the statutory demand: Goman v Scope Data Systems Pty Ltd [2004] NSWSC 314. Where there is no indebtedness of the company to the plaintiff except as claimed in the statutory demand and the amount there claimed is paid after the 21 day period has expired, the plaintiff will upon that subsequent payment cease to have the character of creditor. As a result, it will not then be open to the plaintiff to maintain and pursue the winding up application. And the payment (clearly the source of the most cogent challenge possible to the existence of the debt), having occurred after the expiration of the period for challenging the statutory demand pursuant to s.450G, will not represent, for s.459S(1) purposes, a ground that could have been relied upon to challenge the statutory demand. 13 Against that background, I turn to the bankruptcy matters noting, as I do so, that those matters have at least a potential to be, or to be the source of, a change in circumstances having the temporal characteristic to which I have just referred.

The plaintiff's bankruptcy 14 It is common ground that the plaintiff became a bankrupt upon acceptance of her debtor's petition on 30 April 2001 and that her statement of affairs was filed on the same day. The Official Trustee in Bankruptcy became the trustee of her bankrupt estate. On 9 December 2002, the Official Trustee wrote to the defendant asserting that it was "a book debtor of the bankrupt estate in respect of a joint loan of $583,932 made by W J & L Roberts to the company". L Roberts is the plaintiff. W J Roberts is the former husband of the plaintiff. The letter of 9 December 2002 from the Official Receiver also said: "Pursuant to the provisions of Section 58(1) of the Bankruptcy Act 1966, the bankrupt's entitlement to the loan owed by the company vests in the Official Trustee as an asset in the bankrupt estate. At this stage the Official Trustee claims one half of $583,932 as an asset in the estate." 15 The apparent basis for the claim for one half of $583,932 will be considered in due course, as will the claim in the plaintiff's statutory demand. 16 On 5 May 2004, the Official Trustee wrote again to the defendant saying, among other things, that the plaintiff was discharged from her bankruptcy on 1 May 2004. It is common ground that, having regard to s.149(4), the discharge arose by operation of ss.149(1) of the Bankruptcy Act 1966 following the expiration of a period of three years from the filing of the statement of affairs (see s.149(4)). The letter went on to say that the divisible assets of the plaintiff continued to vest in the Official Trustee even after discharge from bankruptcy. 17 On 15 July 2004, there was issued under the hand of the Deputy Official Receiver, for and on behalf of the Official Trustee in Bankruptcy, a certificate stating that the bankruptcy of the plaintiff "was annulled on 14 July 2004 pursuant to Section 153A of the Bankruptcy Act 1966". 18 It is the contention of the defendant that such right as the plaintiff has in respect of or by reason of the debt owed immediately before 30 April 2001 by the defendant to the plaintiff and W J Roberts remains vested in the Official Trustee, notwithstanding the discharge from bankruptcy on 1 May 2004 and the annulment of 14 July 2004, so that the plaintiff is not now (and has not been since before the commencement of the bankruptcy) a creditor of the defendant. The contention of the plaintiff, on the other hand, is that the annulment of the plaintiff's bankruptcy on 14 July 2004 had the effect of causing her status as a creditor in respect of her interest in the debt to be reinstated in a retrospective fashion requiring the conclusion that she was never divested of that interest, even though it was, as it were, invisible between 1 May 2001 and 14 July 2004. 19 In addressing the Bankruptcy Act provisions, I should mention at once that the plaintiff does not contend that the discharge of 1 May 2004 caused the interest in the debt to re-vest in the plaintiff. It is accepted on both sides that discharge does not operate in that way: see Daemar v Industrial Commission of New South Wales (No 2) (1990) 22 NSWLR 178 approving the decision of Needham J in Pegler v Dale [1975] 1 NSWLR 265. The plaintiff relies wholly on the subsequent s.153A annulment in that regard. 20 The principal submission made by Mr J T Johnson of counsel on behalf of the defendant is that, despite what is said in the certificate dated 15 July 2004, there has been no annulment of the plaintiff's bankruptcy by s.153A. That submission derives from the proposition that the plaintiff was not, on 14 July 2004, a bankrupt. Effect of the bankruptcy on the debt 21 Before addressing those matters, I should say something about the claim of the plaintiff to be owed money by the defendant. Evidence on the subject is scanty. The statutory demand, as I have said, refers to a debt of $419,479.50 described as "Loan Account in the name of the Creditor and Wayne Roberts in the accounts of the Company". In the accompanying affidavit, the plaintiff swore that this "debt of $419,479.50" was due and payable by the defendant and described the source of her knowledge as follows: "I have inspected the business records including the debtor company's Financial Statements which acknowledge the indebtedness." 22 I have already mentioned the letter of 9 October 2002 from the Official Trustee to the defendant. That letter referred to "a joint loan of $583,932 made by W J & L Roberts to the company". There are also in evidence two letters from the solicitors for W J Roberts (one to the Official Trustee and the other to the plaintiff's solicitors) in which the point is made that the relevant debt owed by the defendant "is a joint debt" (letter of 7 July 2003) and that "the loan account is jointly owned by W J and L Roberts" and "is a joint asset" (letter of 7 May 2004). 23 If the proposition that, before the plaintiff's bankruptcy, W J Roberts and the plaintiff were joint creditors of the defendant is accepted at face value, the position is as described in Russell v Scott (1936) 55 CLR 440 where Dixon and Evatt JJ, dealing with the case of an aunt and nephew who were joint holders of a bank account, said: "The contract between the bank and the customers constituted them joint creditors. They had, of course, no right of property in any of the moneys deposited with the bank. The relation between the bank and its customers is that of debtor and creditor. The aunt and the nephew upon opening the joint account became jointly entitled at common law to a chose in action. The chose in action consisted in the contractual right against the bank, i.e., in a debt but a debt fluctuating in amount as moneys might be deposited and withdrawn. At common law this chose in action passed or accrued to the survivor. " 24 At common law, co-obligees are thus treated as having a joint interest in the debt with the incident of survivorship. The joint entitlement is susceptible to severance (at least in equity) by destruction of the unity of title, time and interest, as in a case where one of the co-obligees alienates his or her interest. Vesting in the Official Trustee in Bankruptcy by operation of s.58 of the Bankruptcy Act effects such a severance: Re Francis; Ex parte Official Trustee in Bankruptcy (1988) 19 FCR 149; Sistrom v Uhr (1992) 40 FCR 550 (cases concerning land but equally applicable, in my opinion, to personal property). The effect of severance in a case where two persons hold jointly is to cause the property to be held by them as tenants in common in equal shares. It may be that this is the position in equity only, given the opinion expressed by Joyce J in In re McKerrell; McKerrell v Gowans [1912] 2 Ch 648 that, apart from the Judicature Act, "it is clear that there could not have been a tenancy in common of a legal chose in action". 25 It must follow that, on the bankruptcy of the plaintiff, the Official Trustee came to be regarded in equity as holding an undivided one half share in the debt owed by the defendant to the plaintiff and W J Roberts, assuming the correctness of the proposition that the debt was originally one to which the plaintiff and W J Roberts were jointly entitled. But there was, in no sense, a partition of the jointly owned debt. In the eyes of the common law, such partition is impossible since a purported assignment of part of a debt is ineffective to enable the assignee to sue for the part assigned (In re Steel Wing Co Ltd [1921] 1 Ch 349), although the character of a debt as a chose in action and therefore a chattel personal (Co Litt 118b) may mean that the court can order division of it under s.36A of the Conveyancing Act 1919. After the plaintiff's bankruptcy, the Official Trustee and W J Roberts were, in equity, together entitled to the whole debt as tenants in common in equal shares. The concurrence of both was then necessary to constitute an acquittance: see Steeds v Steeds (1889) 22 QBD 537 where Huddeston B and Wills J observed that joint lenders upon mortgage are, in equity, prima facie regarded as tenants in common. Huddeston B and Wills J continued: "Where a mortgage debt has been paid to one of the mortgagees, accordingly, it was held that the land was not discharged, and that the concurrence of the other mortgagees was necessary to make a good title: Matson v Dennis [(1864) 10 Jur (NS) 461]. This is on the ground that the debt is held by the two in common and not jointly, and the principle seems to us equally applicable whether the debt is secured by a mortgage or is merely the subject of a personal contract."

(Where a debt is held jointly, by contrast, payment to one of the joint creditors does constitute discharge: Manzo v 555/255 Pitt Street Pty Ltd (1990) 21 NSWLR 1.) 26 Examination of the impact of Bankruptcy Act provisions following the advent of the plaintiff's bankruptcy on 30 April 2001 must therefore be on the basis that, at that point, W J Roberts and the Official Trustee, as trustee of the plaintiff's bankrupt estate, became entitled to the debt as tenants in common in equal shares, with neither alone capable of suing for recovery of it. Was there an effective annulment of bankruptcy on 14 July 2004? 27 At this point, I should set out relevant provisions of the Bankruptcy Act. I have already mentioned ss.149(1) and 149(4). They are as follows: "(1) Subject to section 149A, a bankrupt is, by force of this subsection, discharged from bankruptcy in accordance with this section. … (4) If the bankrupt becomes a bankrupt after the commencement of section 27 of the Bankruptcy Amendment Act 1991 , the bankrupt is discharged at the end of the period of 3 years from the date on which the bankrupt filed his or her statement of affairs." 28 I refer next to s.55 dealing with debtor's petitions of the kind relevant to this case. Section 55(4A) reads: "Where the Official Receiver accepts a petition presented under this section: (a) he or she shall endorse the petition accordingly; and (b) upon the Official Receiver endorsing the petition, the debtor who presented the petition becomes a bankrupt by force of this section and by virtue of presentation of the petition."

It is common ground in this case that s.55(4A)(b) operated on 30 April 2001. Section 55(8) provides: "A person who becomes a bankrupt by force of this section continues to be a bankrupt until: (a) he or she is discharged by force of subsection 149(1); or (b) his or her bankruptcy is annulled by force of subsection 74(5) or 153A(1) or under section 153B." 29 The next relevant provision is s.153A:

"(1) If the trustee is satisfied that all the bankrupt's debts have been paid in full, the bankruptcy is annulled, by force of this subsection, on the date on which the last such payment was made.

(1A) In determining whether there has been full payment of a debt that bears interest, the interest must be reckoned up to and including the date on which the debt (including interest) is paid. (2) The trustee must, as soon as practicable after that date, give to the Official Receiver a written certificate setting out the former bankrupt's name and bankruptcy number and the date of the annulment.

(4) For the purposes of this section, if a debt has been proved by a creditor but the creditor cannot be found or cannot be identified, the debt may be paid to the Official Receiver and, if so paid, is taken for the purposes of this section to have been paid in full to the creditor.

(5) If money is paid to the Official Receiver under subsection (4), the Official Receiver must pay that money into the Consolidated Revenue Fund and the provisions of subsections 254(3) and (4) apply in relation to that money as if it had been paid into the Consolidated Revenue Fund by a trustee under subsection 254(2).

(6) In this section: bankrupt's debts means all debts that have been proved in the bankruptcy and includes interest payable on such of those debts as bear interest, and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee." 30 The consequences of discharge are stated in s.153: "(1) Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his or her security for the benefit of creditors generally. Note: The operation of this section in relation to accumulated HEC debts and semester debts under the Higher Education Funding Act 1988 is affected by section 106YA of that Act.

(2) The discharge of a bankrupt from a bankruptcy does not: (a) release the bankrupt from: (i) a debt on a recognizance; or (ii) a debt with which the bankrupt is chargeable at the suit of the sheriff or other public officer on a bail bond entered into for the appearance of a person prosecuted for an offence against a law of the Commonwealth or of a State or Territory of the Commonwealth; or (aa) release the bankrupt from liability to pay an amount to the trustee under subsection 139ZG(1); or (b) release the bankrupt from a debt incurred by means of fraud or a fraudulent breach of trust to which he or she was a party or a debt of which he or she has obtained forbearance by fraud; or (c) subject to any order of the Court made under subsection (2A), release the bankrupt from any liability under a maintenance agreement or maintenance order; Note: A discharged bankrupt remains liable under any pecuniary penalty order because such liabilities are not provable in bankruptcy, see subsection 82(3A).

(2A) The Court may order that the discharge of a bankrupt from bankruptcy shall operate to release the bankrupt, to such extent and subject to such conditions as the Court thinks fit, from liability to pay arrears due under a maintenance agreement or maintenance order.

(3) The discharge of a bankrupt from a bankruptcy does not affect the right of a secured creditor, or any person claiming through or under him or her, to realize or otherwise deal with his or her security: (a) if the secured creditor has not proved in the bankruptcy for any part of the secured debt - for the purpose of obtaining payment of the secured debt; or (b) if the secured creditor has proved in the bankruptcy for part of the secured debt - for the purpose of obtaining payment of the part of the secured debt for which he or she has not proved in the bankruptcy; and, for the purposes of enabling the secured creditor or a person claiming through or under him or her so to realize or deal with his or her 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 by the discharge of the bankrupt.

(4) The discharge of a bankrupt from a bankruptcy does not release from any liability a person who, at the date on which the bankrupt became a bankrupt: (a) was a partner or a co-trustee with the bankrupt or was jointly bound or had made a joint contract with the bankrupt; or (b) was surety or in the nature of a surety for the bankrupt.

(5) Where a bankrupt has been discharged from a bankruptcy, all proceedings taken in or in respect of the bankruptcy shall be deemed to have been validly taken." 31 The consequences of annulment under s.153A are stated in s.154: "(1) If the bankruptcy of a person (in this section called the former bankrupt ) is annulled under this Division: (a) all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment are taken to have been validly made or done; and (b) the trustee may apply the property of the former bankrupt still vested in the trustee in payment of the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee; and (c) subject to subsections (3), (6) and (7), the remainder (if any) of the property of the former bankrupt still vested in the trustee reverts to the bankrupt.

(2) If the property of the former bankrupt referred to in paragraph (1)(b) is insufficient to meet the costs, charges and expenses referred to in that paragraph, the amount of the deficiency is a debt due by the former bankrupt to the trustee and is recoverable by the trustee by action against the former bankrupt in a court of competent jurisdiction.

(3) If an application is made to the Court by a person claiming an interest in property referred to in paragraph (1)(c), the Court, after hearing such persons as it thinks fit, may make an order, either unconditionally or on such conditions as the Court considers just and equitable, for the vesting of the property in, or delivery of the property to, a person in whom, or to whom, it seems to the Court to be just and equitable that it should be vested or delivered, or to a trustee for that person.

(4) Subject to subsection (5), if an order vesting property in a person is made under subsection (3), the property vests immediately in the person without any conveyance, transfer or assignment.

(5) If: (a) the property to which such an order relates is property the transfer of which is required by a law of the Commonwealth, of a State or of a Territory to be registered; and (b) that law enables the registration of such an order; the property, even though it vests in equity in the person named in the order, does not vest in that person at law until the requirements of that law have been complied with.

(6) The Court may make an order directing the trustee not to pay or transfer the property, or a specified part of the property, referred to in paragraph (1)(c) to the former bankrupt if: (a) the Director of Public Prosecutions, or a person who is entitled to apply for an interstate confiscation order under a corresponding law, applies to the Court for an order under this subsection; and (b) the Court is satisfied that: (i) proceedings are pending under the a proceeds of crime law; and (ii) property of the former bankrupt may: (A) become subject to a forfeiture order or interstate forfeiture order made in the proceedings; or (B) be required to satisfy a pecuniary penalty order or interstate pecuniary penalty order made in the proceedings.

(7) The Court, on application made to it, may vary or revoke an order made under subsection (6)." 32 The argument advanced by Mr Johnson on behalf of the defendant proceeds by several steps. First, the plaintiff became "a bankrupt" by operation of s.55(4A)(b) on 30 April 2001 and thereby came to be within the definition of "bankrupt" in s.5, being "a person … who has become a bankrupt by virtue of the presentation of a debtor's petition". Second, the plaintiff's status as "a bankrupt" was governed by s.55(8), so that the status continued only until discharge as referred to in s.55(8)(a) or annulment of her bankruptcy as referred to in s.55(8)(b). Third, s.55(8) must be construed in such a way that it is the earlier of discharge and annulment that marks the end of the relevant person's status as "a bankrupt", with the result that the plaintiff ceased to be "a bankrupt" by reason of her discharge on 1 May 2004 by operation of ss.149(1). Fourth, there was accordingly no longer any "bankruptcy" of or in relation to the plaintiff after 1 May 2004 and nothing which s.153A could cause to be annulled. 33 The first point to be made in considering these submissions is that discharge by force of s.149(1), while it puts an end to a person's status as "a bankrupt" (s.55(8)), leaves the process which produced bankruptcy undisturbed. In a case involving a creditor's petition, Lockhart J (with whom Fisher J agreed) said of such a person in Official Receiver v Todd (1986) 14 FCR 177: "He is no longer an undischarged bankrupt. He is a discharged bankrupt but he remains a person against whose estate a sequestration order has been made."

(The Act itself uses the term "discharged bankrupt": see, for example, s.152.) 34 The capacity of a person who has been discharged from bankruptcy to seek an order of the court annulling the person's bankruptcy was considered by Sheppard J in Re Oates; Ex parte Deputy Commissioner of Taxation (1987) 17 FCR 402. The provision then in force with respect to annulment was s.154(1): "(1) Where the Court is satisfied - (a) that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Registrar; or (b) that the unsecured debts of the bankrupt, being debts that have been proved in the bankruptcy, have been paid in full or the bankrupt has obtained a legal acquittance of them, the Court may make an order annulling the bankruptcy.

(2) Where a bankruptcy is annulled under this section, all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment, shall be deemed to have been validly made or done but, subject to sub-section (3), the property of the bankrupt still vested in the trustee vests in such person as the Court appoints or, in default of such an appointment, reverts to the bankrupt for all his estate or interest in it, on such terms and subject to such conditions, if any, as the Court orders." 35 Sheppard J began by noting the separateness of the concepts of discharge and annulment: "The court's power to annul a bankruptcy is contained in a provision which is independent of the sections dealing with discharge. Section 153 provides for the effect of an order of discharge. It operates to release the bankrupt from all debts (including secured debts) in the bankruptcy. However the discharge does not release a bankrupt from certain classes of debt including debts incurred by means of fraud or a fraudulent breach of trust to which he was a party. The discharge does not affect the right of a secured creditor to realise or otherwise deal with his security.

Of relevance also are the provisions of s 58 of the Bankruptcy Act 1966 dealing with the vesting of property upon bankruptcy. The property of the bankrupt, except for after-acquired property, vests forthwith in the Official Trustee. After-acquired property vests in the Official Trustee as soon as it is acquired by or devolves upon the bankrupt. In the event of a bankrupt being discharged the discharge does not affect the Official Trustee's title to property which has already vested in it.

An order annulling a bankruptcy has a very different operation. Subject to the operation of s 154(2), the order places the bankrupt in the same position as he was prior to the making of the sequestration order. Thus property which has vested in the Trustee pursuant to s 58, subject to s 154(2) and (3), revests in the bankrupt. He is not released from any of his debts and, at least in legal theory, he is treated as if he were never bankrupt."

Sheppard J continued: "The purpose of the foregoing analysis is to demonstrate that the effects of a discharge and the effects of an order annulling a bankruptcy are not the same. That alone would suggest that the court has power to make an order annulling a bankruptcy notwithstanding that the bankrupt has been discharged. What the Deputy Commissioner relies upon, however, is the use of the word 'bankrupt' twice in s 154(1)(b) and the operative words of the section which empower the court to make an order annulling 'the bankruptcy'. In the submission of the solicitor for the Deputy Commissioner the bankrupt, having been discharged, is no longer a bankrupt to whom the section can apply and there is no bankruptcy to annul. The question is whether the words of the paragraph should be construed in this way."

His Honour then proceeded to answer that question: "Guidance as to the way in which the section should be construed is, I think, to be found in a consideration of subs (1)(a) thereof. That empowers the court to make an order annulling a bankruptcy where the court is satisfied that a sequestration order ought not to have been made. That is a very wide provision empowering the court to act in all sorts of circumstances including cases where sequestration orders have been obtained improperly. Such cases would include not only cases where there has been fraudulent conduct on the part of the petitioning creditor, but also cases of mistake such as cases where service of the petition has not been effected on the debtor or where it has been wrongly concluded that an act of bankruptcy has been committed. "There seems to me to be no reason why one would restrict the operation of subs (1)(a) of the section to cases where the bankrupt was still an undischarged bankrupt. It would seem to me that the legislature could not have intended the paragraph to be limited in this way. There may be more reason for reading such a limitation into subs (1)(b) if it stood alone, but it does not." 36 As Mr Johnson observed, the subject matter with which the former s.154(1) was concerned is now divided between ss.153A and 153B and treated in a somewhat different way. The case formerly covered by s.154(1)(b) (where it is shown that proved debts have been paid in full) is now dealt with in s.153A where the court no longer plays a part and the annulment occurs by force of s.153A(1) without any court order. What was s.154(1)(b) therefore now stands alone, in modified form, as s.153A. Mr Johnson therefore points to the concluding sentence in the last of the above extracts from Sheppard J's judgment as a basis for contending that the legislature should now be taken to have shown an intention of confining s.153A to cases where the person concerned is still an undischarged bankrupt. 37 The decision in Oates was the subject of comment by the Full Federal Court in Quinn v Official Trustee in Bankruptcy (1996) 63 FCR 136: "An annulment under s 154 was available in two circumstances: one was where the court was satisfied that a sequestration order ought not to have been made or a debtor's petition ought not to have been presented or ought not to have been accepted; the other was where the court was satisfied that the unsecured debts of the bankrupt, proved in the bankruptcy, had been paid in full or the bankrupt had obtained a 'legal acquittance of them'. There are obvious reasons of policy justifying a construction which would enable a discharged bankrupt to apply for an annulment in either of those circumstances …" 38 Having regard to the case law and, more particularly, to the statutory language, I am of the opinion that annulment by force of s.153A is possible despite earlier discharge by force of s.149(1). It is true that s.55(8) has the effect that the continuity of the relevant person's status as "a bankrupt" ends upon the s.149(1) discharge. The person is then properly described as a discharged bankrupt or a former bankrupt, expressions the Act employs but does not define. But s.153A does not, in terms, operate upon or in respect of "a bankrupt". It contains three references to the word "bankrupt's" in the possessive case. The first is in s.153A(1): "… all the bankrupt's debts". The second is in s.153A(2): "… the former bankrupt's name". The third is in s.153A(6) which, for the purposes of s.153A as a whole, defines "bankrupt's debts". 39 The second of these references ("former bankrupt's") cannot, because of the adjective "former", support an argument that s.153A is intended to operate only in relation to a person who is presently "a bankrupt". The first reference (the reference in s.153A(1)) employs the s.153A(6) definition of "bankrupt's debts". Neither the first nor the third reference can therefore be taken to indicate any intention that the section is limited in its operation to a person who has not attained discharge under s.149(1). Section 153A(6) defines "bankrupt's debts" as meaning "all debts that have been proved in the bankruptcy" (including certain expressly identified items, one of which is described in a way referring to "the bankruptcy"). The "bankruptcy" concerned is, clearly enough, the "bankruptcy" contemplated by s.153A(1). The section as a whole is therefore concerned with the particular bankruptcy, in the sense of the process or regime to which the person concerned was subjected upon and by reason of becoming "a bankrupt". The section does not purport to deal with only with a person who is and remains "a bankrupt". Use of the word "bankrupt's" in the expression "bankrupt's debts" does not indicate an intention to confine the section in that way. The label "bankrupt's debts" is merely used to refer to debts referable in the stated way to the bankruptcy of a particular person, regardless altogether of that person's status for the time being. 40 Annulment of bankruptcy has more radical and far reaching statutory consequences then discharge of a bankrupt, so far as the individual's rights are concerned. A person whose bankruptcy has been annulled occupies a more favoured position than someone who has been discharged from bankruptcy. There is therefore no reason of logic or policy why annulment should be confined to cases where discharge has not occurred. I must therefore approach the case before me on the footing that the annulment of 14 July 2004 evidenced by the certificate of the Deputy Official Receiver dated 15 July 2004 was an effective and operative annulment. It is accordingly necessary to consider the effect of the annulment. The consequences of annulment of the bankruptcy 41 The starting point in determining the consequences of the annulment is s.154. For present purposes, attention must first be directed to s.154(1)(c) which says that, subject to other provisions, the "remainder" of the property of the former bankrupt "still vested in the trustee reverts to the bankrupt" (which I am satisfied is a shorthand reference to the "former bankrupt" already mentioned). That "remainder" will be ascertained after allowing for dispositions of property made by or on behalf of the trustee as mentioned in s.154(1)(a) and applications of property by the trustee under s.154(1)(b). 42 Later provisions within s.154 qualify s.154(1)(c). They do so, first, by providing for adjudication of any third party claim in respect of the remainder of the property still vested in the trustee and satisfaction of any resultant court order (ss.154(3), (4) and (5)); and, second, by creating jurisdiction to prevent payment or transfer to the former bankrupt in order to underwrite the operation of the Proceeds of Crime Act 1987 or a corresponding law. It follows that the "reversion" pursuant to s.154(1)(c) operates upon only so much of the remainder referred to in that provision as is not intercepted by a court order made under s.154(3) or s.154(6). 43 I have not been referred to any case in which this "revert" concept has been elucidated. Speaking of the word "reverts" in a general sense, Young J said in Motum v Motum [1999] NSWSC 761: "That word usually means turns back or vests back again: cf Re Norman's Trusts [1879] WN (Eng) 175."

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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