Wiggins; ex parte Credit Assistance Pty Limited [1979] FCA 182

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« CATCIVORDS JUDGRIENT No. scvesuncesoneol sedensoous

Bankruptey - application to be substituted as petitioning creditor ~ applicant holding security over debtor's property - whether applicant obliged to both value security and include in the petition the statement as to willingness to surrender

"security - requirements not cumulative.

RE: D. WITGGINS (male) EX PARTE: CREDIT ASSISTANCE PTY, LIMITED

LOCKHART J.

2% SEPTEMBER 1979 P 263 )%

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION BANKRUPTCY DISTRICT

No. P 368 of 1979 OF THE STATE OF NEW SOUTH WALES' AND

THE AUSTRALIAN CAPITAL TERRITORY

RE: D. WIGGINS (male) EX PARTE: CREDIT ASSISTANCE PTY. LINT?S: ORDER JUDGE MAKING ORDER: LOCKHART J. WHERE MADE: SYDNEY DATE OF ORDER: 26 SEPTEMBER 1979

THE COURT ORDERS THAT:

1. Credit Assistance Pty. Limited be substituted as

petitioning creditor.

2. The hearing of the petition be adjourned to 5 November 1979. 3. Should Credit Assistance Pty. Limited obtain a

sequestration order, the original petitioning creditor's costs are to take priority to the costs of Credit Assistance Pty. Limited. Should Credit Assistance Pty, Limited not obtain a sequestration order, then the debtor is to nay the original petitioning creditor's costs including reserved

costs.

4. Costs of both parties of this application be reserved.

IN THE FEDERAL COURT OF AUSTRALIA )

GENERAL DIVISION BANKRUPTCY DISTRICT No. P368 of 1979 OF THE STATE OF NEW SOUTH WALES AND

THE AUSTRALIAN CAPITAL TERRITORY

D. WIGGINS (male)

EX PARTE: CREDIT ASSISTANCE PTY. LIMITED

REASONS FOR JUDGMENT

CORAM: LOCKHART J. 26 September 1979.

This is an application by a creditor of the debtor for an order that it be substituted as petitioning creditor. The petitioning creditor is Tooheys Limited. The petition was presented on 13 March 1979 and listed for hearing on 8 May 1979. The petition has since been adjourned on a number of occasions.

On 20 August 1979 the petitioning creditor informe the court that he did not seek to prosecute the petition further, and was excused from further attendance. The debtor consented to an order that he pay the petitioning creditor's costs including reserved costs. Credit Assistance Pty. Limite: ("the applicant") appeared on that occasion and was given leav to file an application for substitution returnable on 4 September 1979. The petition and the application were adjourned on 4 September to 24 September when I commenced the hearing of the application for substitution, The application

is opposed by the debtor.

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On 30 June 1978 the applicant lent $3,000.00 to the debtor and his wife, Helen Mavis Wiggins. Repayment of the loan was secured by a memorandum of mortgage dated 30 June 1978 granted by the debtor and his wife to the applicant over the security of land in New South Wales.

The mortgage provides for repayment of the principal sum

on 30 June 1979 and for payment of interest in the meantime

at the rate of 18 percentum per mnum reducible to 14 percentum per annum on prompt payment. Only two small payments of interest were made by the debtor and his wife under the mortgage. They are in default thereunder both as to the payment of principal and interest.

It is not disputed that on 5 February 1979 the sum of $3,169.30 was payable by the debtor and his wife to the applicant under the mortgage, the principal having become payable before 30 June 1979 pursuant to clause 7 of the memorandum of mortgage. The significance of 5 February 1979 is that it is the date on which the debtor committed the act of bankruptcy alleged in the petition. As to that being the relevant date, see McNamara v. Langford(1931) 45 C.L.R. 267; Hyams v. Elder-Smith G. M. Limited (1974-1975) 133 C.L.R. 637.

The memorandum of mortgage granted to the applicant is a second mortgage. A first mortgage over the same land was granted by the debtor and his wife in favour of General Credits Limited on 7 January 1977 to secure a loan of $23,800.00. On 6 April 1979 General Credits Limited assigned to the applicant all its interest in the moneys

secured by the mortgage of 7 January 1977 and all its interest

in the land. The sum owing under the first mortgage is

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$28,756.96.

The applicant is taking steps to sell the property comprising the security under the two mortgages.

The applicant estimates that the proceeds of sale of that property will be insufficient to pay the amount secured

by the first mortgage. Accordingly, the applicant values the security of the second mortgage at nil and is willing to surrender it for the benefit of creditors generally in the event of a sequestration order being made against the debtor. It is not disputed that this value and willingness to surrender the security of the second mortgage existed on 5 February 1979.

In these circumstances the applicant seeks to be substituted. The basis of the application, which is not disputed, is that the petition has not been prosecuted with due diligence by the petitioning creditor within the meaning of s. 49 of the Bankruptcy Act 1966 ("the Act"). It is agreed by the parties that the provisions of s. 44 of the Act relating to the conditions governing the presentation of petitions by secured creditors apply, mutatis mutandis, to the substitution of creditors as petitioning creditors.

Mr. Ireland, who appeared for the applicant, sub- mitted that if it is permitted to be substituted as petitioning creditor, it has the option of either valuing its security and claiming to prosecute the petition as if it were an unsecured creditor to the extent by which the amount of the debt owing to it exceeds that value (s. 44 (2) ), or of

including in the petition a statement that it is willing to

surrender its security for the benefit of creditors

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-4~ generally in the event of a sequestration order being made against the debtor (s. 44 (3) ).

It is agreed that the questions raised in this application should be determined by me now and not cn the hearing of the petition if the applicant is permitted to be substituted.

The debtor submits that ss. (2) and (3) of s. 44 are cumulative so that a petitioning creditor must both value his security and include in the petition the statement as to willingness to surrender it. The debtor relies on the language of s. 44, in particular the fact that ss. (2) and (3) are not expressed as alternatives. Under s. 55 of the Bankruptcy Act 1924, which is the predecessor of s. 44 of the Act, if the petitioning creditor was a secured creditor, he was required in his petition to state either that he was willing to give up his security for the benefit of the ereditors in the event of a sequestration order being made against the debtor or to give an estimate of the value of his security, in which case he could be admitted as a petitioning ereditor to the extent of the balance of the debt due to him after deducting the value so estimated in the same manner as if

_ he was an unsecured creditor.

The same section required the petitioning creditor, upon application being made by the trustee or the Official Receiver within the prescribed time after the making of a sequestration order and upon payment of the estimated value stated in the petition, to give up his security for the benefit of the creditor

The Enelish Benkruptcy Act 1914, 5. 4 (2), also

gave the petitioning creditor the alternative in his

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petition of stating his willingness to give up his security or of giving an estimate of the value of his security. The consequences are not the same as in the Australian Act of 1924 or the Act, but the existence of the alternative is common to the English Act and the Australian Act of 1924, The language of the present Act is not so clear; but ,.I see nothing inconsistent between the three Acts in this respect. Indeed, the language of s. 44 of the Act, when viewed in the light of its history including its predecessor section in the 1924 Act, suggests to me that the Act has removed a restriction in relation to a petitioning secured creditor in that he is no longer bound by the estimate he has given, if any, in his petition when he seeks to prove his debt and in this respect is in the same position as other secured creditors: see section: 90, 91 and 92,

The construction of s. 44 contended for by the debtor would impose more restrictions on a petitioning secured creditor than applied under the earlier Act. If the language of section 44 leads to this result, so be it; but I do not think it does. In my opinion s. 44 means that a petitioning secured creditor may in his petition estimate the value of his security or state that he is willing to surrender his securityfor the benefit of creditors generally in the event of a sequestration order being made against the debtor.

If he takes the former course he is not bound by the estimate when he seeks to prove his debt. If he takes

the latter course he is obliged, upon request by the trustee,

to surrender his security after the making of a seqeustration

order, the sanction for non-compliance being contempt of court:

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ee eA tat MOR aN ANON A tbl lt ah

RAI TER

cera sii ot

see tt Ren Ant ANCE ANE AOR a 1 MEENA NRA nr NeW AMS A NE NS HAN He

see s. 44 (6).

I do not think that this construction of s. 44 would enable an unscrupulous petitioning creditor to value his security at a deliberately low figure for the purpose of obtaining a sequestration order against the debtor and later either rely solely on his security or prove in the bankruptcy with a higher estimate of the value of his security. In those circumstances the sequestration order may be rescinded, unless the order has been taken out, in which case the appropriate remedy is the annulment of the bankruptcy under s. 154 (1) (a); see Re Deriu (1970) 16 F.L.R. 420.

It was submitted by Mr. Ireland that, whichever alternative the applicant adopts, it is not required to take into account the first mortgage, the benefit of which was assigned to it by Geeral Credits Limited; and that the relevant security is the second mortgage only. The first mortgage, the benefit of which was assigned by General Credits Limited to the applicant, is to secure a loan of $23,800.00 by General Credits Limited to the debtor and his wife. It was not submitte that, by its terms or otherwise, it operated to include the debt due by the debtor and his wife to the applicant under the second mortgage. The position may be different as to the second mortgage itself, the terms of which may include the debt

assigned by General Credits Limited to the applicant: see clause

6 of the second mortgage.

In my opinion the security held by the applicant

pursuant to the assignment to it of the interest of General

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occa tars dn as el

Credits Limited in the first mortgage is, so far as is relevant to this application, separate from and independent of the security afforded by the second mortgage. The relevant security is the second mortgage. It secures the debt of $3,169.30.

The first mortgage does not.

I was referred to the decision of the English Court of Appeal in In Re a Debtor (1922) 2 K.B. 109, as possibly supporting the argument that the first mortgage was security for the indebtedness of the debtor, In that case the petitioning creditor inadvertently omitted to state in his petition that he held a security on the debtor's property, which he in fact held, but which had been given many years befo: he presented his petition and was admittedly valueless. Howeve the security did in fact cover the particular debt. That is the vital difference between that and the present case,

It was submitted also by Mr. Ireland that, as the assignment of General Credits Limited's interest in the debt due to it by the debtor and his wife was made after the act of bankruptcy, namely 5 February 1979, this provides another and separate reason why' that debt and the first mortgage which secures its repayment are not to be taken into account for the purposes of s. 44, In view of my earlier findings and 'the fact that this question was not fully argued it is not necessary for

me to decide it.

Mr. Perry, who appeared for the debtor, submitted

that a petitioning creditor is required to state in his petitio

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not his estimate of the value of his security, but the actual value thereof. He relied on the language of s. 4h (2) which is different from the clear terms of its predecessor section in the 1925 Act: s. 55 (2) (b). The language of s. 44 (2) is not as clear as it might be; but in my opinion its intention is the same as was achieved by its predecessor and by s. 4 (2) of the English Act of 1914.

For these reasons, in my opinion the applicant is entitled to be substituted as petitioning creditor. It may value its security afforded by the second mortgage and be deemed to be an unsecured creditor of the debtor only to the extent by which the amount of the debt exceeds the value of that security; or it may state that it is willing to surrende: its security for the benefit of the creditors generally in the event of a sequestration order being made against the debtor. The first mortgage "is irrelevant for either purpose.

I order that Credit Assistance Pty. Limited be substituted as petitioning creditor. I adjourn the hearing of the petition to 5 November 1979. Should Credit Assistance Pty. Limited obtain a sequestration order, the original petitioning creditor's costs are to take priority to the costs of Credit Assistance Pty. Limited. Should Credit Assistance Pty. Limited not obtain a sequestration order, then the debto: is to pay the original petitioning creditor's costs including reserved costs. I reserve the costs of both parties of this application.

This is to certify that this end the precedi seven (7) nages

herein are a true copy of the reasous for judgment of his Honour

Mr, Justice Lockhart,

A hye} AG, ME

ssoetiate

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