FEDERAL COURT OF AUSTRALIA

Burns v AMP Finance Limited [2004] FCA 1094

BANKRUPTCY – bankruptcy notice – application for extension of time for compliance with bankruptcy notice – bankruptcy notice issued in respect of judgment debt – proceedings to set aside judgment – no application for stay of execution of judgment debt – whether time for compliance should be extended – whether order restraining respondent from presenting a petition should be made

Bankruptcy Act 1966 (Cth) subs 41(6A)

Shephard v Chiquita Brands South Pacific Ltd [2004] FCAFC 76 followed

Jackson v Conway [2000] FCA 1530 cited

Conway v Jackson (2001) 107 FCR 201 cited

Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 applied

Re Geard; Ex parte Reid (unreported, Federal Court, 11 February 1994) cited

JOHN BURNS v AMP FINANCE LIMITED ACN 002 812 704

N 1096 of 2004

BRANSON J

24 AUGUST 2004

SYDNEY

THE COURT ORDERS THAT:

1.                  Time for compliance with the bankruptcy notice be extended until midnight on Tuesday 17 August 2004.

2.                  The application be otherwise dismissed.

3.                  The applicant to pay the respondent’s costs, including reserved costs, on the basis that if a sequestration order is made on a petition that relies on failure to comply with the bankruptcy notice such costs are to be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

REASONS FOR JUDGMENT

introduction

1                     The applicant has applied under subs 41(6A) of the Bankruptcy Act 1966 (Cth) (‘the Act’) to set aside, or alternatively for an extension of time for compliance with, a bankruptcy notice.  I proceed on the basis that the reference on the face of the application to s 41A(6A) is the result of an inadvertent error.

2                     On 10 August 2004 I made the following orders:

1.                  Time for compliance with the bankruptcy notice be extended until midnight on Tuesday 17 August 2004.

2.                  The application be otherwise dismissed.

3.                  The applicant to pay the respondent’s costs, including reserved costs, on the basis that if a sequestration order is made on a petition that relies on failure to comply with the bankruptcy notice such costs are to be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

I indicated at the time that I made the above orders that I would publish at a later date my full reasons for making the orders.  These are my reasons for making the orders.

relevant statutory provision

3                     Subsection 41(6A) provides:

‘Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice:

(a)               proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or

(b)               an application has been made to the Court to set aside the bankruptcy notice;

the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.’

4                     Subsection (6C) has an application where the Court is of the opinion that proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have not been instituted bona fide or have not been prosecuted with due diligence.

5                     I am bound by authority to proceed on the basis that subs 41(6A) is the sole source of the Court’s authority to extend the time for compliance with the requirements of a bankruptcy notice (Shephard v Chiquita Brands South Pacific Ltd [2004] FCAFC 76 per Hill and Marshall JJ at [40]; Sackville J at [48]).

history of the proceeding

6                     The bankruptcy notice in this matter is dated 24 June 2004.  The bankruptcy notice requires payment of a judgment debt in the amount of $5 044 483.39.  The judgment debt was created by an order of the Supreme Court of New South Wales made on 25 March 2004.  The applicant is jointly and severally liable with two proprietary limited companies to pay the judgment debt.

7                     Service of the bankruptcy notice on the applicant was effected on 24 June 2004.  The application by which this proceeding was initiated was filed on 15 July 2004.  On the same day a Registrar made an interim order extending the time for compliance with the requirements of the bankruptcy notice until 27 July 2004.  On 27 July 2004 a Registrar referred this matter to me as duty judge.  By consent I stood the matter over until 10 August 2004 for further consideration and extended the time for compliance with the requirements of the bankruptcy notice until that date.

8                     On 10 August 2004 the applicant, by his counsel, indicated that the application to set aside the bankruptcy notice was not pressed.  He further indicated that, in the alternative to an order extending time to comply with the bankruptcy notice, he sought an injunction restraining the respondent from presenting a petition in reliance on any act of bankruptcy committed by the applicant by failing to comply with the bankruptcy notice.  Counsel for the applicant was unable to identify any source of power in the Court to restrain a creditor from presenting a petition where a debtor has committed an act of bankruptcy.

evidence

9                     The evidence before me reveals that on 18 June 2004 a notice of appeal was filed in the Court of Appeal of New South Wales seeking to have the order of the Supreme Court dated 25 March 2004 set aside.  No stay of execution or of proceedings under the judgment dated 25 March 2004 has been sought.  No evidence has been placed before me concerning the merits of the appeal.  The appeal has been listed for hearing on 5 November 2004.

10                  The appellant has given evidence that he is a director and shareholder of the two companies jointly and severally liable with him to pay the judgment debt and of another company.  He has deposed to being ‘actively involved in attempts to gain refinancing for the companies of which [he is] a Director, for the purpose of paying the debt owed to the Respondent Creditor’.  I am willing to accept that, if the applicant commits an act of bankruptcy, potential financiers might not accept his personal guarantee of obligations assumed by companies of which he is a director and that this may make it more difficult for the debts of the companies to be refinanced.

11                  It appears that one of the companies jointly and severally liable with the applicant for the judgment debt is the register proprietor of certain land (‘the land’) within the municipality of the Port Stephens Shire Council.  It further appears that another company of which the applicant is a director is appealing to the Land and Environment Court of New South Wales against a refusal by the Port Stephens Shire Council on 3 May 2004 of a development application for a tourist facility on the land.

12                  The applicant has placed in evidence a valuation of the land dated 10 March 2003 which values the land in an amount that exceeds the amount of the judgment debt.  I note, however, that the valuation discloses that it was undertaken for the purpose of estimating the current fair market value of the land ‘subject to Council Approval (DA for Stage 1) of the proposed redevelopment’.  I conclude that the valuation assumes the grant of the development application that was refused by the Port Stephens Shire Council on 3 May 2004.  No evidence has been placed before me concerning the merits of the application to the Land and Environment Court of New South Wales in respect of that refusal.

13                  The applicant has also placed in evidence a copy of a contract entered into for the sale of twenty of twenty-six lots in a proposed subdivision of the land.  The contract is conditional on the Port Stephens Shire Council, and other relevant authorities, giving approval to the proposed subdivision.  It seems likely that the success of the application to the Land and Environment Court is critical to the completion of the contract.

14                  Informal valuations have been placed in evidence as annexures to an affidavit sworn by a financial consultant who is attempting to secure refinancing in respect of the land.  These informal valuations assume registration of a plan of subdivision.  As there is no evidence before me that suggests otherwise, I assume that registration of the plan of subdivision is dependent on the application to the Land and Environment Court of New South Wales referred to above.

consideration

15                  The present application was made before the expiration of the time fixed by the bankruptcy notice for compliance with that bankruptcy notice.  As the application is no longer pressed so far as it seeks an order setting aside the bankruptcy notice, the Court’s power to extend the time for compliance with the bankruptcy notice is dependent upon the applicant having instituted a proceeding to set aside the judgment debt (see [3]-[5] above).  In Jackson v Conway [2000] FCA 1530 I expressed the view that an appeal in which an order is sought to set aside the whole of a judgment is a proceeding to set aside that judgment within the meaning of subs 41(6A) of the Act.  The correctness of that view was confirmed by the Full Court in Conway v Jackson (2001) 107 FCR 201 at 207-210.

16                  I am satisfied that an appeal has been instituted in which an order is sought to set aside the whole of the judgment which created the judgment debt.  I am not of the opinion that the appeal has not been instituted bona fide or is not being prosecuted with due diligence.  I therefore proceed on the basis that I may, if I consider it appropriate to do so, extend the time for compliance with the bankruptcy notice.

17                  The approach that I should adopt in determining whether it would be an appropriate exercise of the Court’s discretion in the circumstances of this case to extend the time for compliance with the bankruptcy notice is, in my view, that which commended itself to Lehane J in Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 (‘Byron’).  In that case his Honour cited with approval a passage from an unreported judgment of Shepherd J in Re Geard; Ex parte Reid (unreported, Federal Court, 11 February 1994).  In Re Geard Shepherd J said:

‘… I think it most undesirable that a judge of this Court should in effect undertake some provisional review to determine the correctness or otherwise of the judgment of another court especially when that judgment is under appeal to the Court of Appeal which has jurisdiction to hear appeals in the normal course. I prefer to approach the matter in a different way.

The debtor has not made any application for a stay of proceedings pending the outcome of the appeal. Why he has not done so is not clear to me but the judgment which has been recovered against him is a final judgment and execution upon it has not been stayed it would seem to me to require quite special circumstances before a court exercising jurisdiction in bankruptcy would, in effect, do what has not been done in the court in which the judgment has been obtained by extending the time for compliance with the bankruptcy notice when no application to stay the judgment has been made. If one were to contemplate the taking of such a course, one would usually require evidence of the means of the debtor and would wish to consider whether or not it were appropriate to order that security for the amount of the judgment should be provided. Those are matters which a court exercising jurisdiction to stay the execution of a judgment would wish to consider.

A further factor is that this is an application to extend time for compliance with a bankruptcy notice; it is not the hearing of a bankruptcy petition. The refusal of the application will not affect the status of the debtor but it will mean that he, in all probability, will commit an act of bankruptcy. That act of bankruptcy will be available to the petitioning creditors or to any other creditor upon which to base a bankruptcy petition at any time in the period of six months after the act of bankruptcy has been committed. Otherwise the debtor’s position will remain unaffected by what the Court does.

If the appeal is ultimately dismissed and the judgment stands with the consequence that the bankruptcy proceedings go on, it may be quite important to the petitioning creditor, whoever he or she may be, to the general body of creditors and to the trustee in bankruptcy, that there be, for the purposes of the administration of the bankrupt estate, an act of bankruptcy committed at an earlier time than would be the case if this application were acceded to.’

18                  As Byron illustrates, the Court is always reluctant to extend time for compliance with a bankruptcy notice where the notice requires payment of a judgment debt and no stay of the judgment has been obtained.  The position may be different where the adjournment of a petition is sought.  As Lehane J observed in Byron at 270:

‘… the principles to be applied where the question is whether a petition should be adjourned or dismissed are not necessarily those which should guide the exercise of the discretion to set aside, or extend time for compliance with, a bankruptcy notice. The commission of an act of bankruptcy is, undoubtedly, a serious matter; it is, however, of a different order of gravity from the change of status brought about by the making of a sequestration order; and there is also to be taken into account the interest of both the judgment creditor and other creditors of the judgment debtor in ensuring that, if ultimately a sequestration order is made, the relevant act of bankruptcy occurs earlier rather than later.’

19                  In this case, as is mentioned above, no application has been made in the Supreme Court of New South Wales for a stay of the judgment giving rise to the judgment debt.  There is no evidence before me touching on the merits of the appeal from that judgment.  The applicant has conceded that he is unable to pay the judgment debt and that no extension of time will put him in the position of being able to pay the judgment debt.  He is hopeful that an extension of time will result in the judgment debt being paid by the other judgment debtors thus relieving him of any obligation to pay the judgment debt.  The applicant seeks an extension of time within which to comply with the bankruptcy notice to allow attempts to be made to secure refinancing in respect of the land from which the judgment debt can be paid.  There is no evidence before me as to the value of the land without the development approval that was refused by the Port Stephens Shire Council on 3 May 2004.  It is therefore unclear whether the success of these attempts depends on the success of the application to the Land and Environment Court.  In short, the evidence before me is insufficient to satisfy me that the applicant or the other judgment debtors will be able to pay the judgment debt in the near future or, indeed, at all. 

20                  In any event, there is nothing in the circumstances of this case which, in my view, is sufficient to justify an extension of time within which the applicant is required to comply with the bankruptcy notice beyond a nominal period to allow the applicant to make the payment required or to make an arrangement to the respondent’s satisfaction for settlement of the judgment debt.

21                  I turn to consider the applicant’s alternative claim for an order restraining the respondent from presenting a petition in reliance on any act of bankruptcy committed by the applicant by failing to comply with the bankruptcy notice.  I am not satisfied that I have the power to make an order restraining the respondent from exercising what would be, were the applicant to commit an act of bankruptcy, its statutory right to present a petition against the respondent.  For that reason, I am not satisfied that the applicant should be granted leave to amend his application to seek such an order.  In any event, I would not consider it appropriate to make an order of the kind that the applicant seeks.  If the applicant commits an act of bankruptcy by failing to comply with the bankruptcy order and the respondent presents a petition seeking the making of a sequestration order in respect of his estate, the applicant may make an application at that time for the hearing of the petition to be adjourned.  Should he make such an application its merit can be considered having regard to the circumstances that then prevail.

22                  For the above reasons on 10 August 2004 I made the orders recorded in [2] above.

Associate:

Dated:              24 August 2004