Anderson v Stonnington City Council

(a) did not intend to file substantive submissions in opposition to the Interlocutory Application; and

(b) did not oppose a short extension of the time for compliance with the Bankruptcy Notice to 10 April 2026.

1. The matter came before me as duty judge. For the reasons below, I will grant the short extension of time to the Compliance Time to 10 April 2026 to which the respondent consents and will otherwise dismiss the Interlocutory Application with costs.

1. Section 40(1)(g) of the Act provides:

(1) A debtor commits an act of bankruptcy in each of the following cases:

[...]

(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

(i) where the notice was served in Australia - within the time fixed for compliance with the notice; or

(ii) where the notice was served elsewhere - within the time specified by the order giving leave to effect the service;

comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;

1. Section 41 of the Act relevantly provides that:

[...]

(6A) Where, before the expiration of the time fixed for compliance with 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.

(6C) Where:

(a) a debtor applies to the Court for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and

(b) the Court is of the opinion that the proceedings to set aside the judgment or order:

(i) have not been instituted bona fide; or

(ii) are not being prosecuted with due diligence;

the Court shall not extend the time for compliance with the bankruptcy notice.

(7) Where, before the expiration of the time fixed for compliance with a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter‑claim, set‑off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter‑claim, set‑off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.

1. By way of written submissions, the applicants contend that the effect of s 41(7) of the Act is that the time for compliance with the Bankruptcy Notice is deemed to remain extended until all avenues of appeal have been exhausted.
2. The applicants submit that if an application for special leave were ultimately successful and the appeal allowed, the Full Court's determination at present that it is not satisfied that the applicants have a counterclaim, set-off or cross demand under s 40(1)(g) would be set aside. On that basis, the applicants contend that the Court cannot be said to have finally determined the requisite satisfaction under s 41(7) of the Act.
3. The applicants submit that this construction accords with the legislative intention that an act of bankruptcy ought "not be committed" until the High Court has determined the application to set aside the bankruptcy notice. The applicants conceded that on a "technical reading" of s 41(7) Button J's orders at present stand as the final determination of the Court.
4. The applicants rely on the observations of Markovic J in Baker v Punters Show Pty Ltd [2022] FCA 1303 at [105]-[108] to support their construction:

One might expect, given the policy behind s 41(7) of the Bankruptcy Act and the right of a party to seek a review of the delegated exercise of power that until such time as the Court makes its determination on the review, s 41(7) of the Bankruptcy Act would continue to operate. If that is not the case then in some circumstances a review application may be of little utility to a debtor as, notwithstanding the outcome, he or she would be taken to have already committed an act of bankruptcy. The construction urged by Punters Show would result in that outcome and would restrict the operation of s 41(7) of the Bankruptcy Act where a debtor's application to set aside a bankruptcy notice is heard by a registrar of the Court.

[...]

In his application Mr Baker sought an order that the time for compliance with the Bankruptcy Notice be extended until the Court reviews the exercise of power by the registrar, albeit that extension of time was sought pursuant to s 41(7) of the Bankruptcy Act. While Mr Baker did not initially press for that order, it became apparent that whether s 41(7) operated to automatically extend the time for compliance with the Bankruptcy Notice until the resolution of the hearing de novo was an issue between the parties. It is clearly in the interests of all parties that all issues that arise in a proceeding are resolved. Further given the nature of this jurisdiction where, upon the commission of an act of bankruptcy a creditor can proceed to present a creditor's petition seeking a sequestration order of the debtor's estate, the interests of justice require that issues affecting creditors' and debtors' rights be resolved.

(Emphasis added.)

1. In that vein, the applicants contended that the present proceeding engages s 40(1)(g), being the finding of the act of bankruptcy committed empowering the Official Receiver to issue the Bankruptcy Notice under s 41(1), and not s 41(6C), which is "irrelevant because the [a]pplicants are not seeking an extension of time for complying with the bankruptcy notice on the ground that proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been issued by the debtor [...]".
2. In support of their case for the extension of Compliance Time under s 40(1)(g), that is, the relevant power be exercised in respect of the bankruptcy notice, not in respect of the application to set the bankruptcy notice aside, the applicants rely on the passages of Bromwich J in Coshott v Prentice, in the matter of Coshott (No 2) [2016] FCA 1531 at [160]-[167], including:

[...] However, in the later High Court case of Guss v Johnstone, the ability to use s 41(6A) to extend the time for compliance with the bankruptcy notice in the context of proceedings based on ss 40(1)(g) and 41(7) was considered, albeit in the context of exercise by the High Court or by the Full Court of this Court after judgment in the court below and after the automatic extension of time had been exhausted and an act of bankruptcy otherwise committed. In those circumstances the use of the general power was specifically contemplated and endorsed as follows at 610-11 [63]:

We are unable to accept that whenever, in a proceeding under s 40(1)(g) and s 41(7), a judge at first instance has determined that he or she is not satisfied of the matter referred to in s 41(7), and has declined to interfere with the process initiated by a creditor, no appellate reversal of that decision, whether by the Full Court or by this court, can alter the consequences of the decision. In a proper case it would have been within the power of the Full Court to set aside the declaration made by Sundberg J. The consequences for proceedings and events that had occurred in the meantime would vary with the circumstances, but they could include the same consequences as flowed from the order in Streimer v Tamas (1981) 37 ALR 211, where the statutory power to extend time for compliance with a bankruptcy notice, given by s 41(6A), was exercised after an act of bankruptcy had been committed.

Importantly, it also does not appear that the High Court in Guss v Johnstone was of the view that the power in s 41(6A) should be read down to exclude the application to offsetting claim cases by reason of that being exclusively dealt with by the automatic statutory extension of time in s 41(7). Thus the power in s 41(6A) to extend time for compliance of the bankruptcy notice has a wider application for deployment whenever properly required in the interests of justice, including in a case when an application under ss 40(1)(g) and 41(7) has not been successful.

The general power to extend time for compliance with a bankruptcy notice is not constrained by any need for a valid application to set aside such a bankruptcy notice. There are several reasons for that conclusion. The first is that the text does not require and interpretation does not demand that the application be valid. It is not an automatic benefit. Judicial power must be engaged to have that effect. Secondly, the power is being exercised in respect of the bankruptcy notice, not in respect of the application to set the bankruptcy notice aside. Thirdly, the practical implications that would flow from the power not existing in those circumstances support the text and nature of the power being exercised. If an application is made for a s 41(6A)(b) extension of time, and is granted by a court (including by the exercise of delegated judicial power by a registrar), a debtor would be entitled to proceed upon the basis that the court's order means that he or she will not commit an act of bankruptcy because the time for compliance had been deferred. That is quite different from a step taken by a debtor alone of doing no more than filing the application to set aside, and, by reason of the invalidity of the application, failing to activate an automatic statutory extension time. That is because there has been no intervention by or on behalf of a judicial officer and no exercise of judicial power. However, there is no corresponding basis for finding that a s 41(6A)(b) extension of time for compliance with the bankruptcy notice also bestows any power or foundation for the retroactive validation of an invalid application to set aside the bankruptcy notice, having regard to the language and terms of s 41(7).

[...]

(Emphasis added.)

1. I make the following preliminary observations in relation to the present Interlocutory Application:

(a) contrary to Baker, the strength (or lack thereof) of the applicants' offsetting claim under s 40(1)(g) has been determined in three instances, by a Judicial Registrar, a single Judge and the Full Court of the Federal Court;

(b) both the primary judge and the Full Court provided extensive reasons why they were not satisfied that the applicants' asserted offsetting claim met the criteria set out in s 40(1)(g) of the Act: see PJ [65]; Anderson FC [63], [73], [79], [80], and [101];

(c) the applicants have not provided sufficient, or any, basis for the April Extension sought; and

(d) the applicants have not yet filed an application for special leave to appeal the Full Court's decision in Anderson FC. In other words, the applicants have not made the requisite application to the High Court for an order setting aside the bankruptcy notice on the ground that it has such a counter‑claim, set-off or cross demand.

4.1 Section 41(6A)

1. Having regard to the applicants' contention, it is apparent that while a distinction exists between extensions arising from the bankruptcy notice and those arising from an application to set aside a bankruptcy notice, the applicants misapprehend the principles set out in Coshott.
2. Contrary to the applicants' submissions, Coshott elucidates the principle that s 41(6A) confers a broad, discretionary judicial power to extend the time for compliance with a bankruptcy notice, when and as required by the interests of justice. That power is separate from and not confined or displaced by the automatic extension regime in 41(7) of the Act.
3. Section 41(7) does not apply in the present circumstances. It applied at the time the applicants sought at an order from this Court to set aside the Bankruptcy Notice on the basis that it had a counter‑claim, set‑off or cross demand as referred to in s 40(1)(g). Its operation is reflected in Order 2.
4. Section 41(6A) is the only available source of the court's power to extend time for compliance with a bankruptcy notice: Re Dalco; Ex parte Dalco v Deputy Commissioner of Taxation (1986) 67 ALR 605 at 613 (Neaves J); see also James v Abrahams [1981] FCA 46; (1981) 51 FLR 16 at 22 (Deane and Lockhart JJ). A party seeking to trigger the discretion under s 41(6A) must fall within either paragraphs (a) and (b) prior to consideration of the discretion and must also satisfy the requirements under s 41(6C). The applicants' submission that s 41(6C) is "irrelevant" is therefore incorrect.
5. As to s 41(6A), the power to extend time for compliance is in aid of the power to set aside the judgment or the bankruptcy notice itself. It follows that once the application to set aside the judgment upon which the notice is based, or the notice itself, (the Set Aside Application) has been determined, "[...] there is no aid which the power to extend time for compliance can give to the determined application [...]": Shephard v Chiquita Brands (South Pacific) Ltd [2004] FCAFC 76 at [40] (Hill and Marshall JJ); cited with approval in Guss v Larkfield Industrial Estates Pty Ltd [2025] FCA 313 at [82] (Button J).
6. In the present circumstances where the Set Aside Application has been determined in the PJ and the FC, I consider that the power of this Court under s 41(6A) to extend time for compliance has been spent. It remains open to the applicants to seek special leave to appeal to the High Court to give rise to a requisite "proceeding" on which the power under s 41(6A) can be enlivened: O'Loughlin v Glenmont Investments Pty Ltd [2001] FCA 925; (2001) 191 ALR 336 at 337 (Mansfield J).

1. Further, even if the power under s 41(6A) has not been spent, the following discretionary matters listed by Smith J in Fox v Big Country Developments Pty Ltd [2016] FCCA 2447 at [12(d)] weigh significantly against granting the extension sought:

(a) there has been no stay of the judgments supporting the Bankruptcy Notice:

(b) the appeal has already been dismissed, and the application relates to the consideration of whether to file an application for special leave in respect of a further appeal; and

(c) the very limited prospects of success of any application for special leave in light of the PJ and Anderson FC.

1. Accordingly, I dismiss the Interlocutory Application.

I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rofe.