Bankruptcy - whether time for compliance with the requirements of a bankruptcy notice may be extended after time for compliance has expired - whether Court's discretion should be exercised in favour of the creditor

Bankruptcy Act 1966 ss 30(1), 40(1)(g), 44(1)(c), 41(6A),(6C)

Esso Research and Engineering Company v The Commissioner of Patents [1960] HCA 31; (1960) 102 CLR 347

Re Conte ex parte Conte v Commissioner of Taxation (1990) 27 FCR 120

Re Lentini ex parte Lentini v CSR Ltd trading as The Readymix Group (1991) 29 FCR 363

Re Halstead and Anor ex parte Westpac Banking Corporation No. 2 [1991] FCA 548; (1991) 32 FCR 394

Re Hanby (1967) 10 FLR 378

Re Hayes (1970) 18 FLR 216

Thurgood v National Bank of Australia Ltd [1981] FCA 73; (1981) 53 FLR 51

Streimer v Tamas [1981] FCA 123; (1981) 54 FLR 253

Re Vella ex parte Seymour [1983] FCA 115; (1983) 48 ALR 420

Penning v Steel Tube Supplies Pty Limited (1988) 80 ALR 689

Re Grace (1931) 3 ABC 131

Re McDonald (1934) 8 ABC 184

Re Edmunds (1936) 9 ABC 1

King v Henderson (1898) AC 720 at 728

Van Coblyn v Mercantile Credits Ltd Einfeld J unreported 21 September 1992

Re Bleyer ex parte TEN Channel 9 Pty Ltd, Gummow J unreported 2 March 1993

Counsel and solicitor for the debtor: Mr J.K. Chippendall

instructed by Proctor Phair

and Associates

Counsel and solicitor for the creditor: Mr S.L. Walmsley

instructed by Smits

Leslie Barwick

1. Motion dismissed.

2. The parties are to pay their own costs

Note: Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.

EINFELD J By a motion filed on 11 June 1993 the creditor Mortgage Acceptance Nominees Limited (Mortgage Acceptance) sought an order that the time for compliance by the debtor Michael Edward Howarth (Howarth) with the creditor's bankruptcy notice served on him be extended to 28 April 1993.

2. The relevant history of these proceedings is quite tortured. On 7 February 1992 in proceedings No. G690 of 1991, Mortgage Acceptance obtained judgment in this Court against Howarth in the sum of $595,414.20. Subsequently a bankruptcy notice dated 7 June 1992 was issued against and served on Howarth. On 24 July 1992 Howarth gave notice of a motion seeking to have the bankruptcy notice set aside and time for compliance with it extended. On the same day the Court ordered that the time for compliance with the bankruptcy notice be extended to 13 August 1992.

3. On 12 August 1992 an application was made by Howarth in proceedings No. G 568 of 1992 against Mortgage Acceptance claiming damages and certain additional relief which embraced the setting aside of the original judgment obtained against him. Thereafter, time for compliance with the bankruptcy notice was extended by a Registrar, either by consent or by orders, on 13 August 1992 to 3 September, and on 3 September to 15 September.

4. On 15 September the matter was again mentioned before a Registrar, and although the application to set aside the bankruptcy notice was adjourned, the Court was not asked by either party to make an order, and no order was made, extending time for compliance with the notice. The effect of the failure to make an order for such an extension was that Howarth committed an act of bankruptcy on 15 September 1992.

5. Upon this act of bankruptcy, it was then open to any of Howarth's creditors including Mortgage Acceptance to present a creditor's petition for his bankruptcy. Section 44(1)(c) of the Bankruptcy Act 1966 provides that such a petition must be presented within six months of the date of commission of the act of bankruptcy. In the present case the last day for filing of such a petition by any creditor was 15 March 1993. No petition was filed on or before that date.

6. On 25 September 1992 proceedings No. G 568 of 1992 and the application to set aside the bankruptcy notice were set down for hearing, and both matters were heard on 17 and 22 December 1992. In a judgment delivered on 28 April 1993 in action No G568 of 1992, I refused to set aside the original judgment, to grant the other relief sought, or to set the bankruptcy notice aside.

7. The principal question in the present case is whether it is competent for the Court to extend time for compliance with a bankruptcy notice at a time when the period for compliance has long expired. The debtor submitted that the Court does not have power to make the order sought or if there is power and the decision is discretionary, that no sufficient reason is shown for the exercise of the discretion. The creditor submitted that section 30(1) of the Bankruptcy Act gives the Court power to grant its application. This subsection provides, in part, as follows:

The Court--

(b) may make such orders (including declaratory

orders and orders granting injunctions or other

equitable remedies) as the Court considers

necessary for the purposes of carrying out or

giving effect to this Act in any such case or

matter.

8. In relation to the specific power to extend time for compliance with a bankruptcy notice, subsections (6A) and (6C) of section 41 of the Bankruptcy Act provide:

(6A) Where, before the expiration of the time fixed by the

Court or the Registrar for compliance with the

requirements of a bankruptcy notice --

(a) proceedings to set aside the judgment or

order in respect of which the bankruptcy

notice was issued have been instituted by

the debtor; or

(b) an application to set aside the bankruptcy

notice has been filed with the

Registrar,the Court may, subject to

sub-section (6C), extend the time for

compliance with the bankruptcy notice.

(6C) Where --

(a) a debtor applies to the Court or the

Registrar for an extension of the time for

complying with a bankruptcy notice on the

ground that proceedings to set aside the

judgment or order in respect of which the

bankruptcy notice was issued have been

instituted by the debtor; and

(b) the Court or the Registrar, as the case

may be, if 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 or the Registrar,

as the case may be,

shall not extend the

time for compliance with

the bankruptcy notice.

9. The debtor first submitted that these subsections are concerned with the entitlement of a debtor to apply for an extension of time for compliance and that the expressio unius rule requires that the references to "the debtor" should be construed as excluding creditors.

10. Subsection (6A) does not specifically limit who is to be the originator of applications to set aside bankruptcy notices although it is hardly likely to be a creditor; it certainly leaves open who can apply to extend time for compliance pending the application to set aside. It is obvious that both will normally be sought by debtors and most of the authorities in this area involve such applications. However, Re Halstead and Anor ex parte Westpac Banking Corporation No. 2 [1991] FCA 548; (1991) 32 FCR 394 was an application by a creditor to extend the time for compliance. Justice Heerey stated at 394-395:

It is accepted that the time for presentation of a petition

cannot be extended. However, the applicant points to the

decision of the Full Court in Streimer v Tamas (1981) 54 FLR

253 as establishing that the power conferred by s 41(6A) can

be exercised notwithstanding the fact that the period fixed

by the notice has already expired. Streimer v Tamas (supra)

was a case of a debtor seeking to extend the time, and one

might think that this would be the more usual circumstance

to which s 41(6A) was intended to apply. However, there is

nothing in the language of the statute which precludes the

power being exercised when application is made by a creditor.

Indeed, where, as in the present case, a debtor has brought

an application to set aside a bankruptcy notice, there may

be circumstances which prevent a decision on that

application being made until well after the expiration of

the period fixed by the notice, despite the fact that the

application has been instituted bona fide and has been

prosecuted with due diligence, with the consequence that s

41(6A) has no application.

The pressure of other court business, the need to reserve a

decision, and the possibility of appeal are all matters

which may drag out time long beyond the period fixed by the

notice. I think, therefore, that reading s 41(6A) as being

available to a creditor so he can preserve the efficacy of

his notice if it survives the debtor's challenge is

consistent with a workable operation of the statute.

His Honour extended the notice on discretionary grounds.

11. In my opinion there is no reason why Halstead does not represent the law, and every reason why it should be applied here. I respectfully agree with Justice Heerey that there is nothing in the language of the statute to preclude the power being exercised when an application is made by a creditor.

12. The principal legal question in this case is whether an extension may be granted after the time has expired. Thurgood v National Bank of Australia Ltd [1981] FCA 73; (1981) 53 FLR 51 involved an application by a debtor to extend time for compliance in a circumstance where, on one occasion when the application to set aside the notice was before the Court and was adjourned for some time, no application was made to extend the time for compliance with the notice. Justice Lockhart held that an act of bankruptcy had been committed and there was nothing to be gained from proceeding with the application to set aside the bankruptcy notice.

13. The decision of a Full Court of this Court (Deane, Sheppard and Ellicott JJ) in Streimer v Tamas [1981] FCA 123; (1981) 54 FLR 253 has caused some controversy. The Full Court held that an extension of time for compliance with the requirements of a bankruptcy notice could be granted where the time for compliance or later extensions had expired. The facts were that the time for compliance with a bankruptcy notice had been successively extended until the hearing date of the application to set it aside, when, because of the volume of work before the Court, the matter was not reached and was adjourned to the following day. The trial judge was not requested to, and did not, extend the time for compliance until the following day. These facts have been stated to be "quite special": Re Vella ex parte Seymour [1983] FCA 115; (1983) 48 ALR 420 at 424 per Morling J.

14. Deane and Ellicott JJ said in Streimer at 257:

It was argued on behalf of the appellant that a long line of

authority makes it apparent that s 41(6A) should not be

construed as conferring jurisdiction to make an order

extending time for compliance with the requirements of a

bankruptcy notice in circumstances where, at the time of the

proposed order, the time originally fixed and any previously

granted extension or extensions thereof have expired. The

reason for this, it was said, is that the Act confers no

authority upon the court to annul an act of bankruptcy which

has been committed. Upon the expiry of the time originally

fixed and any extension or extensions thereof without

compliance with the terms of the bankruptcy notice, an act

of bankruptcy is complete. Any subsequent extension of time

would, so the argument proceeds, be futile since it could

not annul the act of bankruptcy which had already been

committee and which would remain. In particular, reliance

was placed upon King v Henderson (1898) AC 720 at 728; Re

Grace (1931) 3 ABC 131; Re McDonald (1934) 8 ABC 184 at 193;

Re Edmunds (1936) 9 ABC 1; Re Hanby (1967) 10 FLR 378 at

381; Re Hayes (1970) 18 FLR 216.

15. Deane and Ellicott JJ concluded that this view should not be accepted and held at 258:

It would, in our view, be contrary to the plain import of

the words used by the Parliament to construe s. 41(6A) as

requiring not only that one or other of the alternative

express conditions precedent to jurisdiction be fulfilled

within the time originally fixed for compliance, but as also

requiring that both the application for an order and any

initial order be made within that time.

16. A number of judgments have expressed difficulties with this decision of the Full Court. I considered it at some length, together with a number of other cases including Thurgood, in Van Coblyn v Mercantile Credits Ltd unreported 21 September 1992.

17. In discussing Justice Sheppard's separate but wrongly labelled "dissenting" judgment in Streimer, I drew attention to his Honour's reliance on the views of Fullagar J in Esso Research and Engineering Company v The Commissioner of Patents [1960] HCA 31; (1960) 102 CLR 347 at 351 that a time may be "extended" even though the time has expired. However, in Vella Morling J said of Streimer at 425:

Whilst the effect of the decision in Streimer's case was to

relieve retrospectively the debtor in that case from the

consequences of his brief non-compliance with the

requirements of the bankruptcy notice served upon him, the

decision cannot be taken as authority for the proposition

that the setting aside of a bankruptcy notice after the time

for compliance with it has expired has the effect of

annulling the act of bankruptcy already committed.

18. Similarly Justice Spender in Re Conte ex parte Conte v Commissioner of Taxation (1990) 27 FCR 120 said at 125:

Thurgood's case (supra) was not referred to by any member of

the Full Court in Streimer v Tamas and, with respect, I have

some difficulty with the view that Streimer is not authority

for the conclusion that what is in truth an act of

bankruptcy might be annulled as the effect of a later court order.

The act of bankruptcy constituted by s 40(1)(g) of the

Bankruptcy Act directs attention to the time fixed by the

Registrar to comply with the requirements of the notice.

If, at that time, there has been no release or relief from

the obligation to comply with the requirements of the notice

by that time, it is difficult to conclude, in the event of

non-compliance with the requirements of the notice at that

time, that an act of bankruptcy does not then occur.

The judgment of the Full Court in Streimer's case is binding

on me and is clear authority that an extension of time for

compliance with the requirements of a bankruptcy notice can

be granted after the time for compliance has expired.

20. The debtor submitted that the Full Court decision in Penning v Steel Tube Supplies Pty Limited (1988) 80 ALR 689 represents authority that once an act of bankruptcy is committed, it cannot be undone. This is not correct. In Penning the application to set aside either the judgment or the bankruptcy notice was not made before the expiration of the time for compliance with the notice. Hence at 695 the Full Court distinguished Streimer where, as in the present case, the initial application to set aside the bankruptcy notice was made within time.

21. Similarly the debtor relied on the comments of Justice Neaves in Re Lentini ex parte Lentini v CSR Ltd trading as The Readymix Group (1991) 29 FCR 363, where his Honour stated at 372:

Unless the time has been extended, the setting aside of a

notice will not affect an act of bankruptcy he committed by

reason of a non-compliance with its requirements.

22. But further on on that same page his Honour stated:

... the time for compliance with the requirements of a

bankruptcy notice may be extended after the expiration of

the time limited by the notice for compliance provided an

application to set aside the notice is made within the time

so limited: see Streimer v Tamas [1981] FCA 123; (1981) 54 FLR 253;

Thurgood v National Bank of Australia Ltd [1981] FCA 73; (1981) 53 FLR 51.

See also Re Bleyer ex parte TEN Channel 9 Pty Ltd Gummow J unreported 2 March 1993.

23. I am not sure that I agree with the doubts expressed about Streimer, although it is certainly the case that the consequence of Streimer in this case is at least anomalous. But it is not necessary for me to decide the point because, like Justices Spender and Neaves, I am bound to apply the decision on its face despite the much longer period of default involved here. I hold that the Court has power to extend time for compliance with a bankruptcy notice after time for compliance has expired.

24. That conclusion raises the final question whether the Court's discretion should be exercised in favour of the creditor. The creditor's submissions in favour of its exercise included:

1. the history of the matter

2. the lack of fault on the creditor's part for the time between the

failure to seek extension prior to 15 September 1992 and the

judgment on 28 April 1993

3. the delay being in the main the result of proceedings brought by

the debtor which failed and have not been appealed from

4. the fact that it was the debtor who originally wanted an extension

and had sought several extensions

5. the lack of any prejudice to the debtor

6. the additional cost to the creditor of the issue and service of a

fresh notice

25. The debtor submitted that a number of factors should weigh against the affirmative exercise of the discretion:

1. An act of bankruptcy was committed on 15 September 1992 and the

application for extension of time was not made until 11 June 1993.

The creditor was at all times represented and there has been no

sufficient explanation for the delay in seeking this application.

2. The administration of bankruptcy law depends on certainty as to

the date of commission of acts of bankruptcy and this principle

should not be readily interfered with.

3. The affidavit of Russell Grant Phair, the solicitor for the

debtor, sworn on 7 July 1993 in essence stated that he had

informed his client that he committed an act of bankruptcy on 15

September 1992 and that a creditor's petition could be presented

up to 15 March 1993.

26. Mr Phair said on oath that he informed the debtor that any acquisition by him of property after his act of bankruptcy might be void if a sequestration order was made on his estate, and that until the right to present a creditor's petition had expired, it would be imprudent for him to acquire property or to become a director or shareholder in any corporation. Mr Phair said further that he knows of his own knowledge that since 15 March 1993 Mr Howarth has become a director of a finance broking company and continues to act as such a director. This evidence was not disputed or challenged.

27. I agree that the time between the act of bankruptcy on 15 September 1992 and the judgment on 28 April 1993 ought not to be held against the creditor per se. But what has not been answered or explained is why Mortgage Acceptance did not apply for an extension of time after the filing of the debtor's abortive application G 568 of 1992, including at the hearing in December 1992 or at any time prior to the expiry of the six months period on 15 March 1993. There is no explanation even of the seven week delay between the judgment on 28 April and the present application.

28. As that judgment reveals, there is little merit in Howarth's conduct of his relationship with Mortgage Acceptance or in the litigation he has pursued. However, in my opinion the reliance of the debtor on the expiration of the time for presenting a creditor's petition provides sufficient evidence to support the conclusion that, even though his freedom to act might be shortlived, there would be relevant prejudice to the debtor if this Court exercised its discretion to extend the bankruptcy notice at this time. The blame for this situation lies entirely on the creditor. Its penalty is extra cost and delay, but the absence of any true and reasonable explanation for its lengthy delay in making the present application persuade me that the discretion should be exercised in the debtor's favour.

29. I dismiss the motion, and order that the parties pay their own costs of the motion.