Re Young, P. v. Ex parte Smith W.R. & Anor [1985] FCA 75

IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT OF THE STATE

) ) OF NEW SOUTH WALES AND THE ) No. 1533 of 1983 AUSTRALIAN CAPITAL TERRITORY )

RE: PAUL YOUNG Debtor EX PARTE: WILLIAM RICHARD SMITH

Creditor Bowen C.J., Sweeney and Lockhart JJ. Sydney 4 April 1985

A Judge of this Court reserved for the consideration of a

Full Court pursuant to sub-s. 25(6) of the Federal Court of Australia

Act 1976 a question of importance in bankruptcy law and practice.

The question relates to sub-s. 52(4) and (5) and para. 33(1)(c) of the Bankruptcy Act 1966 ("the Act"). We will later set out these provisions fully, but it is sufficient for the moment for us to summarise them. Sub-section 52(4) provides that a creditor's petition lapses at the expiration of either the period of twelve months commencing on the date of presentation of the petition or the

period fixed by order of the Court which shall not exceed twenty-four

months commencing on the date of presentation of the petition. Sub-section 52(5) provides that the Court may make an order of this kind at any time before the expiration of the first period of twelve months. Paragraph 33(1)(c) relevantly provides that the Court may extend before its expiration or, if the Act does not expressly provide to the contrary, after its expiration, any time limited by the Act for

The question reserved for our consideration is whether this Court has power to extend the period at the expiration of which a creditor's petition will lapse if the period of twelve months commencing on the date of presentation of the petition has expired

before the Court is asked to make an order extending the said period.

The facts are in a narrow compass and may be briefly stated. On 8 November 1983 a petition was presented to this Court by William Richard Smith trading as Cornelius Smith House Movers ("the petitioning creditor") for a sequestration order against the estate of

The petition was first listed for hearing on 14 February 1984. On that day no order was made by the Deputy Registrar in Bankruptcy before whom the matter had been listed in accordance with the Court's practice. The date for the hearing of the petition was subsequently amended to 15 May 1984 and later amended to 18 September 1984. The petitioning creditor subsequently applied for an order for

substituted service of the petition which was made by a Deputy

Registrar in Bankruptcy on 18 February 1985 and the petition was adjourned to 18 March 1985.

On at least one occasion when the date for the hearing of the petition was amended the period of twelve months commencing on the date of presentation of the petition had expired. Under sub-rule 13(2) of the Bankruptcy Rules the Registrar is empowered to alter the date, time and place fixed for the hearing of the petition where: (a) the petition has not been served on any debtor; and (b) the petition has not lapsed under sub-s. 52(4) of the Act. This rule was clearly drawn on the basis that it would be possible for the Registrar, by examining the file, to determine whether the petition had lapsed. Any Registrar who is asked to exercise the power conferred upon him by sub-rule 13(2) should ensure that the two conditions for its exercise

On 18 March 1985 the petition came on for hearing before a Judge of this Court. The petitioning creditor was represented by counsel. There was no appearance by or on behalf of the debtor. Counsel for the petitioning creditor sought a sequestration order against the estate of the debtor. The Judge raised with counsel the question whether an order had been made extending the time at the expiration of which the petition would lapse. Inquiries revealed that

His Honour was referred by counsel to two judgments of single Judges of this Court, each of which held that the Court had power to extend the period at the expiration of which a petition would lapse notwithstanding that the period of twelve months commencing on the date of presentation of the petition had expired before the Court was asked to make an order extending the said period. The two judgments

are Re Draper; ex parte Brosalco Pty. Limited (1982 - 1983) 48 A.L.R.

656 (McGregor J.) and Re Cavanagh; ex parte WEA Records Pty. Limited 14 December 1984 (Wilcox J.).

The Judge reserved the question to which we have referred for

On 19 March 1985 this Full Court was convened to consider the Reference. The petitioning creditor was represented by counsel before

us; there was no appearance by or on behalf of the debtor.

The question arises following the coming into operation of

the Bankruptcy (Amendment) Act 1980 (Act No. 12 of 1980) which made a substantial number of amendments to the Act including amendments to

"(4) Unless, within twelve months from the presentation of a creditor's petition, a sequestration order is made on the petition or the petition is dismissed or withdrawn, the petition lapses at the expiration of that period."

No comparable provision existed in the Bankruptcy Act 1924,

the predecessor of the Act, or the Bankruptcy Act 1914 of the United Kingdom.

Commonwealth Parliament following an extensive and detailed examination of the Bankruptcy Act 1924 by the Committee appointed in 1956 by the Attorney-General of the day (Senator J.A. Spicer as he then was) under the Chairmanship of Sir Thomas Clyne, Federal Judge in Bankruptcy, to review the bankruptcy law of the Commonwealth. In its comprehensive report, generally known as "the Clyne Committee Report", the Committee concluded that the alterations to the bankruptcy law of the Commonwealth were so many and so various that effect should not be given to them by way of amendment to the 1924 Act, but that it should be replaced by a completely new Act. A draft Bill was prepared by the committee to give effect to its recommendations. The Act was passed by the Commonwealth Parliament in 1966 and came into operation on 4 March 1968. The Act substantially reproduced the draft Bill appended to the Clyne Committee Report. Sub-clause 52(4) of the draft Bill

Paragraph 85 of the Clyne Committee Report described the

mischief to which sub-s. 52(4) was directed in these terms:-

"BS. Many debtors seek adjournments of the hearing of petitions against them with the concurrence of the petitioning creditors. By these adjournments the debtors, having some prospect of being able to pay their debts, hope to escape bankruptcy. The petitioning creditors also have hopes of obtaining payment in whole or in part of the debts due to them and are often willing to consent to indefinite adjournments. The Committee considers that there should be some limit to the right of debtors and petitioning creditors to have indefinite adjournments and recommends that, unless a sequestration order is made on a creditor's petition within twelve months after the presentation of the petition, the petition should cease to have any force."

Section 52 was amended by the Bankruptcy Amendment Act 1980 by omitting sub-s. 4 and substituting sub-ss. 4 and 5 in these terms:

"52(4) A creditor's petition lapses at the expiration of -

{a) subject to paragraph (b), the period of 12 months commencing on the date of presentation of the petition; or

(b) aif the Court makes an order under sub-section (5S) in relation to the petition - the period fixed by the order,

unless, before the expiration of whichever of those periods is applicable, a sequestration order is made on the petition or the petition is dismissed or withdrawn.

52(5) The Court may, at any time before the expiration of the period of 12 months commencing on the date of presentation of a creditor's petition, if it considers it just and equitable to do so, upon such terms and conditions as it thinks fit, order that the period at the expiration of which the petition will lapse be such period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order."

Section 33 of the Act in the form in which it was recommended in the Clyne Committee Report and enacted by the Commonwealth

Parliament in 1966 was, so far as relevant, in these terms:-

"33 (1) The Court may - ... {c) extend before its expiration or, if this Act does not expressly provide to the contrary,

after its expiration, any time limited by this Act for doing an act or thing or abridge any

such time." A similar power was conferred by sub-s. 33(2) upon the Registrar in

Bankruptcy. The Clyne Committee Report made no comment on s. 33 of

Section 33 was also amended by the Bankruptcy Amendment Act

1980 so that it read thereafter, so far as is relevant, as follows:-

(c) extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act, or any time fixed by the Court or the Registrar under this Act (other,than the time fixed for compliance with the requirements of a bankruptcy notice), for doing an act or thing or abridge any such time."

A similar amendment was made to the section in relation to the powers of amendment conferred upon the Registrar. The powers conferred by

para. 33(1)(c) excluded an extension of time for compliance witha

bankruptcy notice as that matter was dealt with elsewhere in the

Bankruptcy Amendment Act 1980 namely, by the insertion of new

Counsel for the petitioning creditor submitted that para. 33(1)(c) of the Act confers upon the Court a general power applicable to all circumstances in which time is limited by the Act or fixed by the Court or the Registrar, other than the time fixed for compliance with the requirements of the bankruptcy notice. She submitted that the paragraph applied to sub-s. 52(4) and (5) of the Act; and she identified the time limited by the Act for doing an act or thing within the meaning of para. 33(1)(c) as the time mentioned in sub-s. 52(5) for the exercise of the Court's power of extension, namely, any time before the expiration of the period of twelve months commencing

Sub-sections 52(4) and (5) cannot be considered independentiy of each other. They are designed to ensure that a petition has no life beyond a maximum of twenty-four months from the date of its presentation. It has an automatic span of tweive months from the date of its presentation, but it cannot survive beyond the initial twelve month period without an order of the Court. The life of a petition may, however, at any time during its life, be brought to an end by the making of a sequestration order on the petition or by the dismissal or

There are sound reasons why there should be no uncertainty surrounding the time during which a petition is pending. The presentation of a petition is an event which determines many rights

duties and liabilities of bankrupts and creditors under bankruptcy law

and from which important consequences flow. For example, before a debtor becomes a bankrupt, the Court may appoint a trustee to take control of his property (s. 50), stay legal proceedings against his person or property (s. 60), or order his arrest in certain circumstances and the siezure of his property (s. 78) - in each case after the presentation of the petition against hin.

After a debtor becomes a bankrupt, the date of commission of an act of bankruptcy and the date of presentation of the petition on which he was made a bankrupt are critical for various purposes including the determination of the period of relation back (s. 115), the ascertainment of the property divisible amongst his creditors (s. 116), the avoidance of preferences (ss. 122 and 123), the avoidance of voluntary settlements (s. 120) and the repayment hy creditors to the trustee of his estate of monies received as a result

of execution by those creditors against his property (s. 118).

Involved in the argument of counsel for the petitioning creditor is the assumption that, if a petition is more than twelve months old and its life has not been extended during that time, it is inherently capable of being extended at any time thereafter, though for a maximum life of 24 months from the date of presentation of the petition. The period of twenty-four months referred to in s. 52 is the maximum life of the petition. If the submission is correct the Court could exercise its power to extend the life of the petition at any time before or after the expiration of the twenty-four months, say

three years after that date. If the Court may extend the petition's

life outside the first twelve month period there would be no certainty in dealings by a debtor with his creditors or with others, in respect

of the debtor's property, that he may not be made a bankrupt, on the petition still pending, within the expiration of the second period of twelve months. The consequences could be serious and may create

For example, if the petition is extended by order of the Court at the end of say twenty months from the date of presentation and the debtor is subsequently made bankrupt, the intermediate transactions of the debtor (that is during the eight months following the expiration of the initial twelve months) may be in jeopardy

because the petition had not lapsed in the meantime.

Also, creditors could take advantage of the fact that a petition would not lapse (in the absence of a sequestration order or dismissal or withdrawal of the petition) until the expiration of the period of twenty-four months. They could bring unfair pressure to bear upon debtors. The policy of the Act to avoid this resulting from stale proceedings is illustrated by para. 44(1)(c) which provides that a creditor's petition shall not be presented against a debtor unless the act of bankruptcy on which the petition is founded was committed

within six months before the presentation of the petition.

These considerations support the conclusion that sub-ss. 52(4) and (5) ensure, first, that petitions lapse upon the expiration

of twelve months from the date of presentation of the petition unless,

within that period, the Court extends the duration of the petition to & maximum of a further twelve months; and second, that the Court's

power cannot be exercised outside the initial twelve months period.

No problems of uncertainty arise during the first twelve months because the events that bring an endto the petition are clearly ascertainable. Indeed, they are matters of public record: the making of a sequestration order or the dismissal or withdrawal of a petition. Also, if the duration of the petition is extended by order of the Court made during the first twelve months then certainty will

The language of para. 33(1)(c) does not sit comfortably with the language of sub-ss. 52(4) and (5) or with the role which they perform in the Act. Sub-ss. 52(4) and (5) define the power of the Court to extend the life of a creditor's petition at any time before the expiration of the period of twelve months from the date of presentation of the petition. The sub-sections do not limit a time for doing an act or thing within para. 33(1)(c). Aithough the English language is not intractable, so to construe the language of those sub-sections is to stretch their meaning too far and further, it is not consonant with their evident purpose. Paragraph 33(1)(c) is directed essentially to provisions in the Act requiring the doing of certain acts or things within specific times. Many examples may be found in the Act, but we refer to the following as sufficient examples for present purposes: sub-ss. 54(1) and (2), 56(13), 102(1), 104(3),

Sub-~sections 52(4) and (5) do not fall within para. 33(1)(c) because the reference to time in those sub-sections is in the context of the time within which the Court may exercise a specific power conferred upon it by the same provision. The reference to time is a necessary ingredient in the Court's power to extend the duration of the petition. The time limit of twelve months is expressly tied to

the Court's power to extend the duration of the petition.

Re Draper (supra) turned upon its special facts. The twelve month period expired at a time when a defended creditor's petition was part heard by the Court. No submission was made to McGregor J. until the end of the hearing before him that, as the period of twelve months had passed since the presentation of the petition, it had lapsed. His Honour said that it would be entirely fortuitous if the petition should lapse because of the passage of time during the hearing of the petition. His Honour did hold that para. 33(1)(c) applied and, accordingly, he extended the life of the petition notwithstanding the expiration of twelve months; but he also referred to the "siip rule" as a possible basis for the Court's power to extend the petition's life pursuant to sub-ss. 52(5). We make no comment on the applicability of the slip rule in the context of orders made under sub-ss. 52(4) and (5) as plainly there could be no question of the

In Re Cavanagh Wilcox J. followed the view taken by McGregor J. in Re Draper and held that the power conferred by para. 33(1)(c)

applied. His Honour extended the life of the petition pursuant to

We respectfully disagree with those judgments in so far as they are based upon para. 33(1)(c) as a source of the Court's power to extend the duration of the petition if the period of twelve months since the presentation of the petition has expired before the Court is

We answer the question referred to us as follows:- Paragraph 33(1)(c) of the Bankruptcy Act 1966 does not empower the Court to extend the period at the expiration of which a creditor's petition will lapse if the period of twelve months commencing on the date of presentation of the petition has expired before the Court is asked to

The costs of the hearing before this Full Court' shall be

1 certify that this and the !2~ preceding pages are a true copy of the reasons for