Case: Nette v Howarth [1935] HCA 22 ; (1935) 53 CLR 55
Outcome: referred to
A bankrupt's personal earnings after bankruptcy or income do not vest in the bankrupt's trustee. They are not property of the bankrupt. In Nette v Howarth [1935] HCA 22 ; (1935) 53 CLR 55 at 65, Dixon J said, after referring to authorities in England and Australia: ... the rule long established in bankruptcy, [is] that the personal earnings of a bankrupt do not pass to his trustee except to the extent that they are not required for the support of himself and his family. 51 Prior to the enactment, the Bankruptcy Amendment Act 1991 (Cth) (which was assented to on 17 January 1992), s 131(1) and (2) of the Bankruptcy Act provided: 131. (1) Subject to this section, a bankrupt who is in receipt of income is entitled to retain it for his own benefit. (2) The Court may, upon the application of the trustee, order that all, or such part as the Court thinks fit, of the income of the bankrupt shall be paid to the trustee for the benefit of the bankrupt's creditors. 52 The scheme of the Act was to allow bankrupts to retain their income, after bankruptcy, for their own benefit unless the Court in the exercise of its discretion ordered that all or part be paid to the bankrupt's trustee. In those circumstances, unless an order were made under s 131(2) the bankrupt's income was not property of the bankrupt and not divisible among the bankrupt's creditors. 57 What is important for the purpose of this application is that the Act continues to recognise, as s 131 previously did, that the bankrupt's income is not part of the bankrupt's property except to the extent that a contribution is made. If it were otherwise, there would be no need for the Division 4B machinery because the trustee would be entitled to the bankrupt's income and wages. The Act continues to recognise the principle enunciated by Dixon J in Nette v Howarth [1935] HCA 22 ; 53 CLR 55 and recognises, as the law has since 1785, that income and earnings do not form part of the bankrupt's estate: Chippendall v Tomlinson (1785) L Co Bank L 428 per Lord Mansfield at 432; and 99 ER 900 at 902. 67 Williams J then referred to Dixon J's dicta in Nette v Howarth [1935] HCA 22 ; 53 CLR 55 cited above and said (at 315): These and other cases cited to us establish that the question whether any part and if so what part of the personal earnings of a bankrupt vests in the official receiver as after-acquired property is really academic. If the official receiver claims any part of these earnings, he must apply to the Bankruptcy Court for an order. He must intervene in this specific manner. In the absence of such an order the bankrupt is free to dispose of the whole of these earnings. 68 Fullagar J said (at 320): In the case of personal earnings after bankruptcy, I am of opinion that, whatever may be the position under the English Act, under the Australian Act the only way in which the trustee can effectively "intervene" is by making an application for an order under s. 101. 69 He then discussed the manner in which the Commissioner of Taxation received the sum and how the Commission became obliged to pay that sum to the bankrupt. He said (at 322): The right to receive this sum of &#8356;44 6s. 3d. really is a right to receive money which the bankrupt earned. How else did he acquire the right to payment of that sum? It is not the price of an article sold by him, or an instalment of the rent of a house let by him, or a dividend on shares owned by him. His right to payment arises because, and only because, he worked for a remuneration which is found, on a contingency which was contemplated throughout, not to have been paid to him in full. For these reasons I am of opinion that the sum in question does represent personal earnings of the bankrupt, and that the respondent has no right in respect of that sum unless he can obtain an order under s. 101 of the Bankruptcy Act .