Collett v Deputy Commissioner of Taxation

"It seems to me that the petitioning creditors have attempted to avoid this possibility by having a Warrant of execution issued under s 40(1)(d) of the Act …. The effect of that process would be that if the respondent had committed an act of bankruptcy under that subsection, his claim - constituted by his claim in the District Court - would be effectively defeated without a trial in the District Court, unless the Court were to exercise its discretion to dismiss the petition, pursuant to s 52(3)(b) of the Act. However, I would have found against the petition on the basis that the act of bankruptcy relied on therein was not made out on the evidence, in that on 5 October 1998 the warrant was not returned unsatisfied."

6 For those reasons, His Honour dismissed the Matthews' petition. However, the difficulties that Mr Collett has had continued because a petition was subsequently issued by the Commissioner of Taxation based on a bankruptcy notice founded on a final judgment obtained by the Commissioner against Mr Collett in the sum of $37,724 on 19 May 1998, and it was on that separate petition that the Federal Magistrate bankrupted Mr Collett. 7 At the time the sequestration order was made, the Federal Magistrate noted that the District Court proceedings in which Mr Collett's counter-claim had been brought had been on foot for a considerable period of time, during which there was apparent inaction. Mr Collett has explained from the bar table this morning that the reason why his counter-claim was not prosecuted promptly was that he was having difficulties getting his solicitor to do the work. 8 But the fact remains that at the time the sequestration order was made, although Mr Collett had on foot a counter-claim for a substantial amount, that had not been determined and even if the reason be that offered by Mr Collett today, the action has nevertheless not been prosecuted promptly. Moreover, there was, as noted by the Federal Magistrate, no dispute but that the judgment debt upon which the Commissioner of Taxation's petition was founded was owing and there was no answer by Mr Collett to that. 9 Mr Collett has, from the bar table, said that a separate reason for his inability to pay his debts and in particular, the debt due to the Commissioner of Taxation on which the petition was founded, was his ill-health. It has interrupted his capacity to carry on his agricultural machinery manufacturing business. There is plant, partly completed, upon which he has not been able to do any work for some considerable period of time; perhaps some years. He says he has been recently diagnosed as diabetic and can expect that treatment available for his now diagnosed illness will enable him to get back to work and into his manufacturing business promptly. 10 But all that has been said today only serves to underline the fact that, at the time the sequestration order was made, Mr Collett was unable to pay undisputed debts - in particular the debt due to the Commissioner of Taxation, substantial in amount - and his only prospect of being able to pay those debts was either achieving success in the District Court proceedings within some indeterminate time period subsequent to the making of a sequestration order or by resurrection of his agricultural machinery business. 11 It seems to me that the Federal Magistrate was faced with a clear case of an insolvent debtor. I can see no error on the part of the Federal Magistrate in making a sequestration order at the time and no grounds for this Court now to set aside the sequestration order. On the evidence, Mr Collett is today in the same insolvent state as he was when that order was made. 12 Under s 52(3) the Bankruptcy Act 1966 (Cth), the Court is given express power to stay the operation of a sequestration order, but only for twenty-one days. That, of course, would not be of any assistance to Mr Collett. In the Full Court decision of Guss v Johnstone [2000] FCA 1455 in par [8], the Full Court in a case in which an earlier Full Court had ordered the stay of a sequestration for an indeterminate period pending an appeal, said this:

"Special leave to appeal from the Full Court's dismissal of the appellant's challenge to the bankruptcy notice was granted on 14 May 1999. On 20 May 1999, a Full Court ordered a stay of the orders of Kenny J of 21 December 1998 until the hearing and determination of the present appeal or further order. In Coleman v Lazy Days Investments Pty Limited (1994) 55 FCR 297, Carr J held that, notwithstanding ss 37 and 52(3) of the Bankruptcy Act, the Court had power under Federal Court Rules O 52 r 17 to stay proceedings under a sequestration order until determination of the appeal against the order. But even if these two provisions of the Bankruptcy Act prevent this Court from staying proceedings under the sequestration order for longer than twenty-one days from the making of the order, the stay of 20 May 1999, as the order of a superior court, was operative according to its terms."

13 The Full Court did not determine that there was, in fact, any power under the appeal order of the Federal Court Rules to grant a stay of the operation of a sequestration order beyond the twenty-one days permitted by s 52(3) of the Bankruptcy Act. It is unnecessary for me to determine that question in view of the conclusion I have come to on the absence of any real prospects of an appeal being successful. I have said sufficient in explaining why I decline to set aside the sequestration order to explain why I do not consider that a stay of the sequestration order should be ordered, even if this Court has power to do so. 14 The notice of motion is therefore dismissed.

I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond.

Counsel for the Appellant: The appellant appeared in person.

Solicitor for the Respondent: Australian Government Solicitor