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In re Balakau [1989] PGNC 133; [1988-89] PNGLR 210; N796 (1 June 1989)

N796

PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]

IN THE MATTER OF THE INSOLVENCY ACT (CH NO 253) AND IN THE MATTER OF THE APPLICATION OF MALIPU BUS BALAKAU

Waigani
Hinchliffe J

1 June 1989

INSOLVENCY - Discharge - Application for certificate of - Procedure for - No procedures prescribed - Rules of Court specifying proceedings in such cases to be commenced by originating summons - Application on notice deemed sufficient in interests of justice - Insolvency Act (Ch No 253), s 134 - National Court Rules, O 4, r 3(2)(c).

INSOLVENCY - Discharge - Application for certificate of - Grounds for specified - Consent of "majority of creditors" - Means majority in numbers - Full and fair disclosure - Absence of "fraud or collusion" - Requires proof of specific acts - Once statutory requirements established applicant entitled to certificate - Insolvency Act (Ch No 253), s 134.

INSOLVENCY - Discharge - Certificate of - Discretionary conditions - Applicant willing to pay debts - Conditions as to payment of non-consenting creditors in priority - Insolvency Act (Ch No 253), s 135.

The Insolvency Act (Ch No 253) (the Act), s 134, provides:

"Right to Discharge after Three Years

(1) At the expiration of three years from the date of the order of adjudication, an insolvent who has not obtained a certificate of discharge may —

(a) after giving the prescribed notice; and

(b) with the written consent of a majority of the creditors who have proved in the estate and whose debts amount to K20.00 or more each,

apply to the Court for a certificate of discharge.

(2) On an application under Subsection (1), the insolvent shall make oath that —

(a) he has made a full and fair discovery of his estate; and

(b) he has not granted or promised any payment or security for the purpose of obtaining the consent of his creditors; and

(c) he has not entered into any collusive agreement for the purpose of obtaining the consent.

(3) On proof to the satisfaction of the Court that the consent has been obtained without fraud or collusion, the Court shall grant the certificate of discharge."

No rules relating to insolvency have been prescribed either under the Act or the National Court Rules.

The National Court Rules, O 4, r 3(2)(c), provides that where no mode of making an application to the court is prescribed proceedings are "appropriate to be commenced by originating summons unless the plaintiff considers the proceedings more appropriate to be commenced by writ of summons".

On an application for a certificate of discharge under s 134(1) of the Act commenced by way of notice of motion supported by affidavits,

Held

(1) In the absence of a prescribed procedure for an application for discharge under the Act, proceedings should be commenced by originating summons pursuant to O 4, r 3(2)(c) of the National Court Rules.

(2) In the circumstances of this case, the proceedings commenced by way of notice of motion, having been served on all interested parties and having been heard on the merits, should, in the interests of justice, be deemed sufficient.

(3) For the purposes of s 134(1)(b) "a majority of creditors" means a majority in numbers and not in value.
Re Simonsen (1890) 4 QLJ 22, followed.

(4) For the purposes of establishing "fraud or collusion" under s 134(3) of the Act, a general charge of fraud is insufficient; specific acts must be proved.
Re Simonsen (1890) 4 QLJ 22, followed.

(5) Once the matters required by s 134 of the Act have been established the applicant is entitled to a certificate of discharge.
Re Simonsen (1890) 4 QLJ 22 at 23, followed.

(6) In the circumstances, including the stated willingness of the applicant to meet his debts as soon as possible when able to proceed with business undertakings freed from the restraints of insolvency, the certificate of discharge should be made subject to conditions as to repayment of non-consenting creditors in priority to the creditors consenting to the discharge.

Cases Cited

Re Simonsen (1890) 4 QLJ 22.

Notice of Motion

This was an application commenced by way of notice of motion supported by affidavits (but also numbered Originating Summons No 218 of 1988) seeking discharge from insolvency under the Insolvency Act (Ch No 253), s 134.

Counsel

J M Teine, for the applicant.
R Pato, for Paul Torato (creditor).
B Gamogab, for the Official Trustee and the Principal Legal Adviser.
J Shepherd, for Kibi Kara (creditor).

1 June 1989

HINCHLIFFE J: The applicant seeks an order that he be discharged as an insolvent and that a certificate of discharge be granted in his favour.

He makes the application under s 134 of the Insolvency Act (Ch No 253) (the Act) which provides:

"134. Right to Discharge after Three Years

(1) At the expiration of three years from the date of the order of adjudication, an insolvent who has not obtained a certificate of discharge may:

(a) after giving the prescribed notice; and

(b) with the written consent of a majority of the creditors who have proved in the estate and whose debts amount to K20.00 or more each,

apply to the Court for a certificate of discharge.

(2) On an application under Subsection (1), the insolvent shall make oath that:

(a) he has made a full and fair discovery of his estate; and

(b) he has not granted or promised any payment or security for the purpose of obtaining the consent of his creditors; and

(c) he has not entered into any collusive agreement for the purpose of obtaining the consent.

(3) On proof to the satisfaction of the Court that the consent has been obtained without fraud or collusion, the Court shall grant the certificate of discharge."

The applicant was declared insolvent by the National Court on 14 December 1984. His present application was dated 1 November 1988 and subsequently filed on 4 November 1988. Therefore the three-year period had well and truly expired.

A number of creditors raised objections to a certificate of discharge being granted. Of those objectors Paul Torato appeared at the hearing of this application as did the Official Trustee of the insolvent estate, who also objected.

It was argued that the applicant had not complied with s 134(1)(a) of the Act in that he had not given the "prescribed notice". Unfortunately there is no form of "prescribed notice" set out in the Act and I suspect that it had been intended that there would be Rules drafted in due course to cover that. Those Rules were never made.

Section 1 of the Act provides, inter alia:

"1. Interpretation

In this Act, unless the contrary intention appears:

"prescribed" means prescribed by this Act or the Rules of the National Court applicable to insolvency."

The National Court Rules do not specifically refer to insolvency but O 4, r 3(2)(c), provides:

"(2) Proceedings

(c) in which a person is authorised by an Act, regulation or by these Rules to make an application to the Court or a Judge with respect to a matter that is not already the subject matter of a pending cause or matter, and no other mode of making the application is prescribed by that Act, or regulation or by these Rules,

[are] amongst those which are appropriate to be commenced by originating summons unless the plaintiff considers the proceedings more appropriate to be commenced by writ of summons."

This application was commenced by way of notice of motion supported by affidavits but the matter also was numbered OS No 218 of 1988. Mr Teine, who appeared for the applicant, submitted that he considered that it was the proper way to commence the proceedings because the Act did not help him and that the procedure chosen covered giving notice and filing the application.

Mr Pato, who appeared for Mr Torato, submitted that s 199 of the Act should have been followed in regard to "prescribed notice". It provides:

"199. Form of Gazette Notice

All proceedings and notices directed or authorised by this Act or the Rules of Court of the National Court applicable to insolvency (other than notices by the trustee) to be inserted in the National Gazette shall be marked with the seal of the Court and certified by the Registrar."

I am unable to agree with Mr Pato on that submission.

There is nothing in the Act or the Rules directing or authorising the notice to be inserted in the National Gazette. Section 199 of the Act does not apply.

But I am also of the view that the applicant has not followed the correct procedure. He should have commenced proceedings by issuing an originating summons.

Order 4, r 4 reads:

"4. Proceedings may be instituted by motion, only if they relate to an interlocutory application."

Again at O 4, r 37:

"An interlocutory or other application, in or for the purpose of or in relation to proceedings commenced or to be commenced by writ of summons or originating summons, shall be made by motion."

Clearly in this matter no originating summons was ever issued, even though it has an OS number. Needless to say, I have heard this application on its merits and I would have thought, that if I was now to dismiss the application because of its faulty commencement, I would not be assisting the function of justice. I have no doubt that a large amount of money has already been incurred for legal fees and also that this matter has taken up a number of days in court. If I were to dismiss the application now, the applicant would need to start again and that, to my mind, would be unfortunate for everyone. It also seems to me that the Official Trustee and Mr Torato have not suffered in any way, even though the procedure was incorrect. In the interests of justice and common sense, I am prepared to say on this occasion only that the prescribed notice and application are acceptable.

In accordance with s 134(1)(b), the applicant provided five names of people who consented in writing to the discharge. He submitted that as there were originally nine creditors he therefore had the written consent of the "majority of the creditors".

The objectors argued that "a majority of the creditors" in fact was a majority in value and not in numbers. If that was correct then the application would fail because Mr Torato alone was the majority in value. I am assisted here by the case of Re Simonsen (1890) 4 QLJ 22. That case considered a similar section (s 169) to our s 134. Our Insolvency Act is a direct relative of Queensland’s Insolvency Act of 1874 and its s 169 is similar to our s 134.

I agree with what Lilley CJ said in Re Simonsen in that "majority of creditors" means a majority in number and not in value. I am of the view that the normal reading of "majority of creditors" means majority in numbers and if it was intended to mean majority of creditors in value then I would have thought the legislature would have inserted the appropriate words in the legislation. Needless to say, the Act is confusing at times as to whether it is referring to a majority in numbers or value and quite frankly I believe it needs some urgent amendments.

Three of the consenting creditors were cross-examined, obviously because there was a suggestion of fraud and/or collusion. After hearing from them, I am satisfied there has been no fraud or collusion. Their expectations were high that they would get their money back and it seems to me that they know if the applicant obtains a discharge he is not obliged to repay. On the evidence before me I could not be satisfied of any wrongdoing. Affidavits were filed by one of the objectors suggesting the consenting creditors had close political ties with the applicant. But that, by itself, does not prove anything. Just because people are political allies does not mean that fraud and collusion also are present. Again in Re Simonsen, Lilley CJ said (at 22):

"A general charge of fraud is not sufficient; specific acts must be proved."

In this matter some allegations were made but certainly not proved.

I am also satisfied that the applicant has made a full and fair discovery of his estate. It seems that there was some dispute as to who owned the trade store at Wabag. The applicant says that it is owned by his wife although it seems that at the time he became insolvent it was owned by him. I think it is reasonable to infer that during the insolvency the applicant’s wife had control but I also would have thought that, if the applicant is granted a discharge, then it will once again be in the control of the applicant and no doubt it (the trade store) will be a healthy money-earner. I would also have thought that the talk of closure of the trade store was purely on a temporary basis. It appears to be a well-established trade store in the area.

Therefore I must consider whether a certificate of discharge should be granted. Again I refer to Re Simonsen because Lilley CJ assessed the situation very clearly (at 23) when he said:

"If this is an absolute injunction on the Court to grant a certificate, with the consent of creditors, after three years, I of course have no option, and must obey the Act of Parliament ... . Section 169 seems imperative on the judge; after three years, it seems, the creditors cannot interfere, unless fraud or collusion is proved. In one sense all consent may be said to be collusion. I cannot quite understand the meaning of that part of the proviso, but I see nothing in it to prevent the Court granting the certificate after the majority of the creditors have consented ... . Here I think I am constrained by the Statute, and I see nothing to prevent him having his certificate, unless you can prove some particular act of collusion. I am bound by the letter of the Statute. The certificate is granted."

I agree completely with Lilley CJ. Therefore I am satisfied in this application, subject to certain conditions, that a certificate of discharge should be granted.

Hence I now refer to s 135 of the Act which provides:

"135. Conditional Grant of Certificate

If on an application for a certificate of discharge, the Court is of opinion that the certificate ought not to be granted unconditionally, it may grant the certificate subject to any condition concerning any salary, pension, emolument, profit, wages, earnings or income that may afterwards become due to, or be earned by, the insolvent, and generally concerning property acquired at a later date."

It was made clear to me by the applicant, through his lawyer, that he is very anxious to meet his debts as soon as possible. He has plans to expand into profitable business ventures and it seems to me that now he has the certificate he can proceed. Already the Wabag Vegetable Depot Pty Ltd has shown its interest in the applicant’s business future. Also, the applicant receives a handsome salary as a Minister in the present National Government. No-one would argue that the applicant must now pay his debts. Five of the creditors have released the applicant from his obligations to them and I therefore do not propose to mention them again except to say that the applicant is not to pay them any money whatsoever in reduction of his indebtedness to them until he has paid the four other creditors in full.

I therefore make the following order:

Pursuant to s 135 of the Insolvency Act I grant a certificate of discharge to the applicant on the following conditions:

1. To reduce his indebtedness to Paul Torato, the Electoral Commission, PNG Agricultural Bank and Kibi Kara in the sum of K450 per month made up as follows:

Paul Torato K300 per month

Electoral Commission 50 per month

PNG Agricultural Bank 50 per month

Kibi Kara 50 per month

The first payment is to be made on the first week day in July 1989 and on the first week day of each month thereafter. As each debt is finally paid out the monthly payment is to be distributed proportionally to each of the remaining creditors mentioned in this order. Therefore in due course Paul Torato should be receiving K450 per month.

2. All of the four creditors mentioned above must be paid in full before any other creditors receive any payments from the applicant in reduction of his indebtedness to them.

3. In the event that the applicant fails to comply with the above conditions then he is to return to the National Court within seven days of failure to comply.

I further order that all moneys being held in this matter by the Official Trustee be transferred to Paul Torato, through his lawyers, within seven days.

Finally I should make it clear that if the applicant desires to make larger monthly payments to each of the four abovementioned creditors then he is free to do so.

Orders accordingly

____________________

Lawyers for the applicant: Joseph Mek Teine & Co.
Lawyers for the first respondent: Steeles.
Lawyer for the Official Trustee: B M Narokobi, Principal Legal Adviser.
Lawyer for the third respondent: Kibi Kara.