Supreme Court
Action No. 371 of 1991
11th September, 1992
S. PONNAMBALAM, J.

Mr. Rodwell Williams for the judgment-creditor.
Mr. Hubert Elrington with Mr. Philip Goldson for the judgment-debtor.

Bankruptcy proceedings - Application to amend petition - Whether the petitioning creditor who holds security on the property of a third party and not on the property of the debtor is a "secured creditor" - Section 5(2) Bankruptcy Act Chapter 201 - Paragraph 3 Belize Bankruptcy Rules - Section 2 Bankruptcy Act - Interpretation of "secured creditor" - Court's power to deal with amendments - Section 82(3) - No injustice to be caused to debtor by proposed amendment - Application to amend petition allowed subject to the filing of an affidavit verifying the amendment.

R U L I N G

By letter dated 28th August 1992, the learned counsel for the petitioning creditor gave notice to the Registrar with copy to the learned counsel for the debtor that at the hearing of the Bankruptcy Petition on 2nd September 1992 he would be applying to the court to amend paragraph 3 of the Petition by adding at the end of it the following: "SAVE that we hold a mortgage security on the property of a third party by way of guarantee of the judgment-debtor's debt in the sum of $50,000.00".

At the hearing of the Petition on 2nd September 1992, when counsel for the petitioning creditor made application to the Court to make the noticed amendment, the learned counsel for the debtor objected on several grounds indirectly connected to the subject of the proposed amendment. I, thereupon, requested counsel to make their submissions in writing before 4th September 1992, with which they have complied.

The learned counsel for the debtor, in his written submission states his objection as follows:

"The petition filed by judgment-creditor on 17th March, 1992 was bad in law in that the judgment-creditor is a secured creditor, holding security which he himself valued at $50,000.00 and that he failed to comply with the mandatory provisions of section 5(2) of Chapter 201 is clear and explicit, it makes no distinction as the Bankruptcy Rules does, between a security held on the property of the judgment-debtor, or a security held on the property of a 3rd party, who stood security for the judgment-debtor. It says that once there is a security held by the judgment-creditor, then the judgment-creditor, in his petition, must either state that he is willing to give up his security for the benefit of his creditors, or give an estimate of the value of his security.

The judgment-debtor, (really, it must be judgment-creditor) has not complied with section 5(2). There is no statement in the Petition that he is prepared to give up his security for the benefit of the creditors and there is no estimate of the value of the security he holds.

This is a procedural default, any order made on the basis of such a defective Petition would be bad, but the Petition can be amended.

The amended Petition must be supported by affidavit, verifying the facts contained in the Petition as amended and the affidavit verifying the Petition has got to be served in the prescribed manner i.e. on all parties concerned, at least 2 clear days before the date set for hearing of the Petition. See Bankruptcy Act Chapter 201, Section 6. This, it is submitted governs all Bankruptcy Petition whether amended or not. See also Atkin's Second Edition Volume 7 page 49 paragraph 25."

The contention of the learned counsel for the petitioning creditor as asserted in his written submission is that the petitioning creditor holds no security on the debtor's estate but that he holds a mortgage on property of a third party, who has undertaken to guarantee the debtor's obligation to the petitioning creditor, up to $50,000.00 should the debtor's assets fail to satisfy or discharge the debt.

In his written submission, counsel for the petitioning creditor submitted on this as follows:

"In the instant case the petitioning creditor holds security on the property of a third party and not on the property of the judgment-debtor, therefore it is not within the terms of the above provision. The creditor may only call on the third party security and should the debtor's assets fail to satisfy the debt, therefore it cannot be said that the creditor hold security of the debtor.

The above section talks about a "secured creditor" and this should be confined to security on the debtor's property or estate, because this may be given up for the benefit of the creditors should the debtor be made bankrupt. On the other hand, where the judgment-creditor holds security on the property of a third party as guarantee of the debtor's debt such security need not be given up for the benefit of the creditors. The judgment-creditor in this case is a secured creditor of the third party whose property it holds as security and not of the debtor".

As for authorities, counsel for the debtor relied on ATKIN'S, Second Ed., Vol. 7, page 49, para. 25. And, counsel for the petitioning creditor relied on In Re A Debtor (1922) K.B. 109, ATKIN'S, page 48, Ex P. Vanderlinden. In Re Pogose (1881 - 82) 20 Ch. D. 289, Williams and Muir Hunter on bankruptcy, page 54, Bankruptcy Rules 1902, Rule 332 and 130.

The question for determination that these conflicting submissions raise is whether the petitioning creditor who holds security on the property of a third party and not on the property of the debtor is a "secured creditor" under the provisions of section 5(2) of the Bankruptcy Act (Cap. 201).

Section 5(2) is the corresponding local provision of section 4(2) of the Bankruptcy Act 1914 of England. In Atkin's (at page 48) after stating the section 4(2), in footnote (g) it is stated as follows: "Secured Creditor" means a person holding a mortgage, charge or lien on the debtor's property or any part of it as a security for debt due to him from the debtor: S. 167(3) Halsbury's Statutes (3rd Edn.. 160)".

Section 167 of the English Bankruptcy Act 1914 defines "secured creditor" as "means a person holding a mortgage, charge or lien on the property of the debtor, or any part thereof as a security for a debt due to him from the debtor". Hence, in the corresponding provision in English law, a "secured creditor" is one who holds security on the property of the judgment-debtor only.

In Williams and Muir Hunter on BANKRUPTCY (19th Edn.) at page 525, the following statement appears in regard to the s. 267 definition of "secured creditor":

"Section 167 defines a "secured creditor" as a person holding security over the property of the debtor; accordingly this rule would appear only to apply to such creditors, and not to creditors holding security over the property of third parties. However, the form of proof (FF. 60, 60A, post, p. 692, see note (i) thereto) requires the disclosure of any security, although it is only securities over the property of the debtor which must be valued."

Further, the prescribed Form No. 9 for Creditor's Petition in the Belize Bankruptcy Rules 1902, in paragraph 3 states: "That I (or we) do not, nor does any person on my (or our) behalf hold any security on the said debtor's estate, or any part thereof for the payment of the said sum".

But according to the Interpretation section 2 of the Bankruptcy Act (cap. 201) (not referred by both counsel), the term "secured creditor" is defined to include a judgment-creditor, as follows:

"secured creditor" means a person holding a mortgage, charge or lien on the property of the debtor, or any part thereof, which by the law of this territory is valid against creditors as security for a debt due to him from the debtor, and includes a judgment-creditor".

This definition applies to Section 5(2) and, therefore, as argued by the learned counsel for the debtor there must be a statement in the petition that the creditor is willing to give up his security for the benefit of the creditors or give an estimate of the value of the security.

These need not, always have to be stated in the petition. These are informations that need to be communicated by the creditor. The estimate of the value of the security can be communicated by the creditor by a letter subsequent to the filing of the petition. The head-note to In re Debtor (1922) K.B. 109, reads as follows:

"Where a petitioning creditor has inadvertently omitted to mention in the petition a security which he in fact held, but which had been given many years ago in respect of another matter, and was admittedly valueless...

Held, that a receiving order made upon the petition was not invalidated by the omission, in as much the court had power to amend the petition, even after the making of the receiving order."

And, in Ex parte VANDERLINDEN, IN RE POGOSE (1882) Ch. D. 289 the headnote reads:

"If a petitioning creditor who holds security for his debt is willing to give an estimate of the value of his security, section 6 of the Bankruptcy Act, 1889, does not require this fact to be stated in the petition, but it is sufficient for the Petitioner to give notice of it to the respondent, before the hearing of the petition.

A petitioning creditor stated in his petition that he had no security for his debt. But in fact held a charge on some property of the debtor, and before the hearing of the petition his solicitor, in a letter to the debtor's solicitors, said that the security was not valued anything, and at the hearing it was stated that the Petitioner was ready to give up his security for the benefit of the creditors. The Registrar dismissed the petition, on the ground that the Petitioner's readiness to give up his security ought in conformity with section 6 to have been stated in the petition.

Held, that the defect was a merely formal one, and the Registrar ought to have amended the petition by adding the statement of the security and that the Petitioner was ready to give it up, and then to have made an adjudication".

In my view, in this case, although there is an omission by the creditor to state in the petition the value of his security which he holds from a third party, by the terms of his proposed amendment, which I have considered and am willing to allow upon terms, that amended statement would be adequate information for the purposes required of by section 5(2), i.e. specifying the value of the security.

Now as to the amendment to the Petition that the counsel for petitioning creditor seeks to make. To the existing position that the petitioning creditor holds no security on the debtor's estate, the amendment seeks to add "SAVE that we hold a mortgage security on the property of a third party by way of guarantee of the judgment-debtor's debt in the sum of $50,000.00".

The Court's power to deal with amendments is contained in section 82(3) which reads as follows:

"The court may at any time amend any written process or proceeding under this Ordinance upon such terms, if any, as it may think fit to impose".

The guiding principle in giving effect to the Court's power of amendment is that "The court will not permit an amendment, or validate invalid proceedings, unless satisfied that no injustice will be done to the other parties" -- Williams & Muir Hunter On BANKRUPTCY. These authors proceed immediately on to state: "The omission to disclose in the petition a security which the bankruptcy proceedings had already invalidated was held to be curable by amendment" (page 446). In regard to amendment, Halsbury's Laws of England (Vol. 2, Third Edn. page 303, paragraph 576) states: The court may amend a petition upon such terms, if any, as it may think fit to impose. A petition may be amended even after receiving order has been made, but the court will not after adjudication amend a petition from which an essential of the description of the act of bankruptcy relied on has been omitted".

I, would, in the circumstances, allow the amendment to be made to the petition, with the condition that an affidavit verifying the amendment be also filed. I consider this not to cause any injustice to the debtor, because the learned counsel for the debtor acknowledges in his submission the mortgage security of $50,000.00 when he states: "The petition filed by judgment creditor on 17th March 1992 was bad in law in that the judgment creditor is a secured creditor, holding a security which he himself valued at $50,000.00".

I allow the application of the petitioning creditor to amend the petition, subject to this condition.

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Action No. 371 of 1991

Belize Bank Limited v Derek Aikman
(For Ruling on Application to amend Petition)

Mr. Rodwell Williams for Belize Bank Limited.
Mr. Hubert Elrington with Mr. Philip Goldson appearing for Derek Aikman

(Ruling read)

Court: Mr. Williams you undertake to file the affidavit today?

Mr. Williams: Yes, as soon as Court is adjourned.

Court: So on the basis of that I proceed to make the final Receiving Order.

Court: I proceed to make the Receiving Order that upon the Bankruptcy Notice there is an act of bankruptcy committed after the 15th of January, 1992, and I am satisfied that the Judgment Debtor owes to Judgment Creditor the amount of the debt and I am also satisfied of the service upon the Judgment Debtor of the petition.

In the circumstances of the Judgment Debtor not taking any objections by notice I am satisfied beyond doubt that the Bankruptcy Petition should be allowed.

I am Order accordingly.

Court adjourned.

S. Ponnambalam
11/9/1992.