Bankruptcy prevents enforcement – Wilkinson & Kemp [2015] FCCA 3308 (7 December 2015)

Bankruptcy prevents enforcement – Wilkinson & Kemp [2015] FCCA 3308 (7 December 2015)

Last Updated: 23 December 2015

FEDERAL CIRCUIT COURT OF AUSTRALIA

Legislation: Bankruptcy Act 1966 (Cth), ss.58, 60  Family Law Act 1975  (Cth), s.79

REPRESENTATION

ORDERS

(1) The Application in a Case filed on 2 October 2015 is dismissed as incompetent.
(2) The subpoenas filed on 29 October 2015 addressed to:

<li “=””>(a) The proper officer, (omitted);<li “=””>(b) The proper officer, (omitted);<li “=””>(c) The proper officer, (omitted); and<li “=””>(d) The proper officer, (omitted)

are set aside.

(3) No order for costs.

IT IS NOTED that publication of this judgment under the pseudonym Wilkinson & Kemp is approved pursuant to s.121(9)(g) of the  Family Law Act 1975  (Cth).

SYC 7637 of 2012

Applicant

And

Respondent

REASONS FOR JUDGMENT

Application in a Case

1. This is an Application to enforce the payment of the amount of $45,352.42 which the Respondent was ordered to pay by way of settlement of property (Kemp & Wilkinson^[1]). I note that there was also an order for costs made against the Respondent on 24^th August 2015 in the sum of $2,560.00 (Kemp & Wilkinson (No.2)^[2] but the Application does not seek to enforce that payment.
2. The Applicant has also issued four subpoenas against various financial institutions.
3. On 27^th August 2015 the Respondent became bankrupt after having presented a Debtor’s Petition. He remains an undischarged bankrupt.

Background

4. The Applicant was aware of the Respondent’s bankruptcy, as she annexed to her affidavit a copy of a Notification of Bankruptcy – Debtor’s Petition advising of that fact. The notice says, relevantly:
   <li “=””>

   The above named became bankrupt after presenting a Debtor’s Petition. If you are an unsecured creditor please stop all recovery action.

5. The Applicant did not stop her recovery action, rather, she filed her Application and an affidavit in support, in which she cast doubt on the validity of the Respondent’s bankruptcy, saying:
   <li “=””>

   I believe that Mr Kemp has been abusing the bankruptcy system by using it as a means to avoid paying the sum of $45,352.42 as the Court ordered on 17 June 2015 that he has the capacity to pay over a reasonable period of time.^[3]

Consideration

6. The fact that the Respondent has become bankrupt changes the position significantly. The property of the bankrupt vests in the trustee in bankruptcy. Subsection (58)(1) of the Bankruptcy Act 1966 (Cth) provides:
   <li “=””>

   Subject to this Act, where a debtor becomes a bankrupt:

   <li “=””>

   (a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if at the time when the debtor becomes bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and

<li “=””>

(b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the state of the bankrupt, in that registered trustee.

7. Bankruptcy affects the rights of creditors to enforce the payment of certain debts. Subsection 58(3) provides:
   <li “=””>

   Except as provided by this Act, after a debtor has become bankrupt, it is not competent for a creditor:

   <li “=””>

   (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or

<li “=””>

(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceedings in respect of a provable debt or take any fresh step in such a proceeding.

8. Subsection 60(1) of the Act gives the Court power to discharge an order or stay any legal process in respect of the non-payment of a provable debt.
9. It is quite clear that the amount ordered to be paid by the Court in the property proceedings is a provable debt, although the Applicant told the Court that she had not filed a proof of debt.
10. The law is quite clear that where a party becomes bankrupt it is not competent for the other party to commence proceedings to recover a provable debt other than by filing a proof of debt. Where the debt arises from an order made under the  Family Law Act 1975  (Cth), it does not matter whether the enforcement action sought to be taken is by way of an Application in a Case for enforcement or by way of contravention proceedings. The action will be incompetent (Melnik v Melnik^[4]; Langer & Griffin^[5]).
11. As the Respondent is bankrupt, and was bankrupt at the time the Application was commenced, the only course open to the Court is to dismiss the Application on the basis that it is incompetent (Langer & Griffin^[6] at [39]).

Conclusions

12. The Application will be dismissed. The subpoenas issued by the Applicant will be set aside. As neither party is legally represented there will be no order for costs.