BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES

Bankruptcy - creditor's petition for sequestration orders - s.40(1)(g) of Bankruptcy Act 1966 - Local Court ordered judgment debt be paid by instalments - whether judgment was one "the execution of which had not been stayed".

Counsel and Solicitors Mr J. Johnson instructed by

Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124.

On the hearing of a creditor's petition for sequestration orders, the debtors oppose the petition on the ground that they had not committed any act of bankruptcy. The point arises in the following circumstances.

2. On 1 May, 1991, the judgment creditor recovered judgment against the debtors in the local court for $4897.13. On 4 September, 1991, pursuant to part 27 of the Local Courts (Civil Claim) Rules, N.S.W. ("the Rules"), the Local Court ordered that the judgment debt be paid by instalments at $200 per month commencing on 23 September. The creditor now claims that the first instalment was not paid on the due date.

On 8 October, 1991, the debtors were served with a 14 day bankruptcy notice which had been issued on 11 September, 1991, pursuant to a request filed with the court by the petitioning creditor on 13 August 1991.

3. On behalf of the debtors reliance is placed upon the words "the execution of which has not been stayed" in section 40(1)(g) of the Bankruptcy Act 1966, ("the Act"). The debtors also rely in this connection on the provisions of rule 2(13) of the rules, that an order for the payment of a judgment debt by instalments "shall while it remains in force, operate as a stay of the enforcement of the judgment."

4. For the sake of completeness reference should also be made to rule 3(2) to the effect that an order made under, inter alia, rule 2 "shall cease to be in force if the debtor fails to make any payment in accordance with the order, and thereafter the judgment may be enforced for the balance."

5. By rule 3(3) where an order under inter alia rule 2 has ceased to be enforced through the operation of 3(2), process for the enforcement of the judgment shall not be issued except on affidavit evidence as to how the order came to cease to be in force. There is no evidence that such an affidavit was filed in the present case.

In Re Moss Ex parte Tour Finance Limited (1968) 13 FLR 101, Gibbs J explained the meaning of the relevant words in section 40(1)(g) as follows:

"Secondly, the words "the execution of which has not

been stayed", which appear not only in the prescribed

form of bankruptcy notice but also in the words of

section 40(1)(g) of the Bankruptcy Act 1966, do not

mean that execution has never been stayed.

If that were their meaning they would have the

inconvenient result that if execution on a judgment

had once been stayed a bankruptcy notice could never

afterwards be issued on such judgment, notwithstanding

that the period of the stay had long since elapsed and

the judgment debt had never been paid. However, the

words of the notice and of the section speak as at the

time when the notice is served and refer to a stay of

execution which has continued in force up to the time

of the service of the notice.

Similarly, section 41(3)(b), which provides that a

bankruptcy notice shall not be issued if at the time

of the application for its issue execution of the

judgment or order to which it relates has been stayed,

refers to a stay in force at the time of the

application.

The effect of these provisions is that if at the time

of the issue or the service of the notice the

execution of the judgment on which the notice is

founded has been stayed, and the stay is still in

force, so that at that time the creditor is not

entitled immediately to issue execution on the

judgment, the notice will be bad. However, the fact

that there has previously been a stay of execution,

which has ceased to operate before the time of the

application for the issue of the notice, will not

prevent the notice from being a good one."

6. The authorities in this area were analysed recently by Burchett J in Schekeloff, Ex parte Schekeloff v. The Hopkins Group Proprietary Limited [1989] FCA 91; (1989) 22 FCR 407. It was there held that for the purpose of section 40(1)(g) the time for considering whether a judgment on which a bankruptcy notice is founded has not been stayed is the time of its issue or at the latest, the time of service of the notice. In the present case if the matter is tested as at the time of issue of the notice, i.e. 11 September, there was a stay in force. If on the other hand the matter is tested at the time of service of the notice, the position is rather more complicated.

7. If it be assumed in favour of the petitioning creditor that the instalment due on 23 September was not then paid, the stay will cease by virtue of rule 3(2). However, by rule 3(3) process for the enforcement of the judgment shall not be issued except on affidavit evidence as to how the order came to cease to be in force. As has been said, there is no evidence of such an affidavit here.

8. In Re Pantelich Ex parte Cekic (1989) 25 FCR 603, von Doussa J said at 607:

"For the purpose of section 40(1)(g) a judgment may be

effectively stayed in circumstances where there is no

express order of a court granting a stay of execution. Thus

a bankruptcy notice founded on a final judgement or final

order was held not to be validly issued where the judgment

creditor of a firm had not obtained the requisite leave to

issue execution against the separate property of a partner

to whom the bankruptcy notice was addressed: Ex parte Ide;

Re Ide...where a receiver of the property of the debtor had

been appointed under section 573(1) of the Companies (NSW)

Code: Re Solomon; Ex parte Reid...; where an interim

receiver of the property of the debtor had been appointed

under section 50 of the Bankruptcy Act: Penning v Steel

Tube Supplies Pty Limited...; and where on an

unsatisfied judgment summons and order for commitment to

prison suspended on terms as to payment had been made

against the debtor: Re Ramsey; Ex parte Taylor....

In these cases the circumstance which had the effect of

preventing immediate execution was an order of a court,

although not one which by its terms expressly stayed

execution. However it has been held that there is no right

of immediate execution where a judgment creditor fails to

take a step, which lies entirely in his power, which is a a

prerequisite to execution: see Re Williams; Ex parte

Alberton Electrical Serivce Pty Limited... where

non-compliance with section 153(2) of the Local and District

Criminal Courts Act 1926 (SA) which required a judgment

creditor to give notice of the amount of taxed costs to the

defendant before enforcement of the judgment was held to

render a bankruptcy notice founded on the judgment for costs

invalid. Fisher J (at 554-5) considered that the judgment

creditor's non-compliance with the statutory requirement had

the effect of staying the judgment for costs.

9. I agree. See also Paterson v. Commonwealth of Australia (1990) 23 FCR, 412 per von Doussa J at 413; Perkes v. McIntyre, Full Federal Court, 31 July 1991, unreported, per Burchett J.

10. In my opinion, this reasoning is applicable here. In the absence of evidence that the judgment creditor had filed an affidavit of the kind required by rule 3(3), at the time of service of the bankruptcy notice the judgment creditor was, in the words of Gibbs J, "not entitled immediately to issue execution".

11. It follows, in my view, that the bankruptcy notice was bad. The petition is dismissed with costs.