FEDERAL COURT OF AUSTRALIA

Makucha v Fairbrook PMA Pty Ltd [2009] FCA 985

BANKRUPTCY – application for extension of time to appeal from decision to refuse to set aside a Bankruptcy Notice – company deregistered and subsequently re-registered – whether interest on debt accrues during period of deregistration

Corporations Act 2001 (Cth), ss 601AA, 601AH

Civil Procedure Act 2005 (NSW), s 101

Jess v Scott (1986) 12 FCR 187

Makucha v Fairbrook PMA Pty Ltd [2009] FMCA 577

Susaki v Minister for Immigration & Multicultural Affairs [2002] FCA 1229

PAUL MAKUCHA v FAIRBROOK PMA PTY LTD

NSD 861 of 2009

STONE  J

3 SEPTEMBER 2009

SYDNEY

THE COURT ORDERS THAT:

1.                  The application for an extension of time to file a notice of appeal be dismissed with costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     This is an application for an extension of time within which to file and serve a notice of appeal from the judgment of the Federal Magistrates Court delivered on 23 June 2009.  His Honour dismissed the applicant's application to set aside a bankruptcy notice issued against him by the respondent; Makucha v Fairbrook PMA Pty Ltd [2009] FMCA 577.

2                     The factual background of this matter is summarised at [5]-[6] of his Honour's reasons and was not challenged by either party in the submissions made before me.  His Honour said:

The Notice to Admit Facts and Authenticity states that Fairbrook sued on a deed entered into between Mr Makucha and Porter Models (Australia) Pty Ltd (ACN 003 292 895) on 18 June 2004.  The company changed its name on 28 January 2005 to Fairbrook PMA Pty Ltd (ACN 003 292 895).  Proceedings were commenced by Fairbrook in the Parramatta Local Court on 22 August 2005 and judgment was made in favour of Fairbrook against Mr Makucha by default on 18 June 2007.  This judgment was subsequently entered on 23 June 2007.

On 8 May 2006, Fairbrook was deregistered voluntarily under sub-ss.601AA(1) and (2) of the Corporations Act 2001 (Cth).  Fairbrook Pty Ltd commenced proceedings on 30 March 2007 in the Supreme Court of New South Wales seeking reinstatement.  On 3 May 2007 orders were made by a Registrar of the Supreme Court under sub-ss.601AH(3) and 601AH(5) of the Corporations Act.

3                     The bankruptcy notice served on the applicant on 5 March 2008 claimed a debt of $65,991.95 arising from the judgment made by the Local Court.  That amount included an amount of interest referrable to the period during which the company was deregistered. The applicant claimed before the Federal Magistrate that this interest should not have been included.  Consequently, he submitted, the amount of the debt stated in the bankruptcy notice was incorrect and for that reason the bankruptcy notice should be set aside.  The Federal Magistrate rejected this submission.  His Honour held that:

·                    the right to interest on a judgment debt arises under s 101 of the  Civil Procedure Act 2005 (NSW);

·                    the judgment debt and the interest payable on the debt are choses in action that are susceptible to enforcement by action in law or equity;

·                    the interest on the judgment debt can only be recovered under the judgment as the judgment operates as a bar to a separate claim;

·                    when a company is deregistered its assets [subject to some exceptions that are not presently relevant] vest in ASIC;

·                    all of those assets are returned to the company when it is re-registered. 

4                     On re-registration a previously deregistered company “is taken to have continued in existence as if it had not been deregistered”; Corporations Act 2001 s 601AH(5).  His Honour observed that the argument that the right to interest ceases on de-registration and only recommences with the Court’s approval of re-registration involves a claim that the statutory right to interest is suspended during the period that the assets are held by ASIC.  

5                     The Federal Magistrate noted that there was no dispute between the parties that a company ceases to exist on deregistration.  His Honour held that deregistration did not affect the liabilities of individuals or entities associated with the company before it was deregistered.  There was no evidence before the Federal Magistrates Court, and no submissions had been made, that the judgment had become unenforceable.   Neither the Court nor the parties had located any authority that addresses the question of whether interest accrues on a judgment debt while a company is deregistered.  I interpolate, that this was also the case in relation to the present application.   His Honour observed, at [37]:

The status of property rights transferred to ASIC is specifically addressed in s 601AD(3) and again there is no reference to the issue of suspension of the right of interest on an unpaid judgment debt.  In the absence of any authority to the contrary, interest is a statutory cause of action and the effect of s 601AH(3) enables a party to continue with a claim for interest on an unpaid judgment debt as if deregistration had not occurred.  In support of that view, s 601AH(2) and s601AH(5) of the Corporations Act when read together establish no absence of a title holder or owner of the chose in action. 

6                     In those circumstances his Honour concluded that while ownership of the chose in action created by the statutory right to interest was, on deregistration, transferred to ASIC and back to the company on re-registration, there was “no absence of a title holder at any time and no hiatus in ownership”.   The Federal Magistrate therefore held that the Bankruptcy Notice did not exceed the amount due by the inclusion of interest referable to the period of deregistration and that the application to set it aside should be dismissed.

7                     The date of the Federal Magistrate’s judgment was 23 June 2009.  The time for filing a notice of appeal from that decision expired on 14 July 2009; O52 r 15(1) Federal Court Rules.  Notwithstanding that requirement, O 52 r 15(2) states that the Court may give leave to file and serve a notice of appeal out of time “for special reasons”.  An application for an extension of time was filed on 12 August 2009.  The application was supported by an affidavit sworn by the applicant and was accompanied by a draft notice of appeal. 

8                     In his affidavit sworn on 12 August 2009, the applicant attributed his delay in seeking to appeal the Federal Magistrate’s decision to ill health.  The applicant deposed that as a result of his illness and mobility problems he was required to move his residence to gain better access to medical assistance and to recuperate.  He annexed a medical certificate dated 11 August 2009 on the letterhead of Dr Stewart Summers that stated:

Re: Paul Makucha.

The above patient of mine was suffering from flu, diabetes, rotator cuff injury of the (R) shoulder, ear problems and gout during the period17/6/09 to 24/7/09 & was unable to attend court.

9                     It is accepted that “special reasons” is a flexible requirement that depends on the circumstances of the case however the courts have emphasised that the term does not refer to any reason.  In Jess v Scott (1986) 12 FCR 187 at 195 a Full Federal Court observed:

It is an expression describing a flexible discretionary power, but one requiring a case to be made upon grounds sufficient to justify a departure, in the particular circumstances, from the ordinary rule prescribing a period within which an appeal must be filed and served.

10                  In this case I do not accept that there were special reasons within the meaning of O 52 r 15(2). The applicant was represented in the Federal Magistrates Court by the same solicitors as represent him in this application.  He has, therefore, had continuity of representation.   Although he was undoubtedly unwell during the relevant period, I do not accept that the severity was such that he could not instruct his solicitors to proceed with an appeal.

11                  Were I to be satisfied that the applicant had special reason for his delay I would also have to consider whether any appeal would be a futility.  As I said in Susaki v Minister for Immigration & Multicultural Affairs [2002] FCA 1229 at [9], “It is not a proper exercise of the Court’s discretion to expose the respondents to an appeal when it can be anticipated that the appeal will not succeed”.  In assessing the prospects of an appeal succeeding, however,  the Court should refrain from holding a preliminary hearing on the merits of the appeal.     

12                  The applicant’s draft notice of appeal listed five grounds of appeal which together raised only one issue.  The applicant contends that his Honour erred in finding that interest on the judgment debt referable to the period during which the company was deregistered could be included in the amount stated in the bankruptcy notice.   I have summarised above the Federal Magistrate’s reasons for decision; they are comprehensive and cogent.  I am not satisfied that an appeal from his Honour’s decision would have any realistic prospect of success.  In the circumstances I decline to exercise my discretion to extend the time for filing and serving a notice of appeal.

13                  For these reasons the application must be dismissed with costs.

Associate:

Dated:         3 September 2009