Warner v Frost

EXTEMPORE REASONS FOR JUDGMENT 1 This application commenced as an application filed on 31 March 1999 under s 41(7) of the Bankruptcy Act 1966 ("the Act") seeking an order that a bankruptcy notice number NN403/99, which was served on 10 March 1999, be set aside. It is now accepted that that application was misconceived and the application has been amended so as to convert it into an application made under s 41(6A) of the Act for an extension of the time for compliance with the bankruptcy notice until after the resolution of an appeal which the applicant has lodged in the New South Wales Court of Appeal. 2 The matter arises in this way: on 21 December 1998 Judge Garling in the District Court entered judgment against, amongst others, Mrs Warner in three sets of proceedings in sums of $69,412, $28,820 and $55,264 respectively. The bankruptcy notice which was issued and served on 10 March 1999 was based upon the judgment in proceedings number 1145 of 1998 in the sum of $55,264. On 5 February 1999, a Notice of Appeal without appointment was lodged in the Supreme Court against that judgment, and on 5 May 1999 once the District Court judge's reasons for decision had become available, a Notice of Appeal with an appointment was lodged in the Supreme Court. 3 On 19 April 1999, an application was made to the Supreme Court for a stay of the District Court judgment. That application was determined by Fitzgerald JA in a manner adversely to the present applicant. His Honour said this: "In my view, the appeal is arguable, but it is not one about which it could be said that the prospects of success are so great that the ordinary principles relating to the grant or refusal of a stay of execution pending appeal should not be given effect." 4 There is a Court of Appeal callover scheduled to be held on 22 July 1999. The probabilities are that the appeal will be fixed for hearing either towards the end of this year or early next year. The evidence before me establishes that the applicant is not able to pay the sum claimed in the bankruptcy notice let alone meet the other two judgments which are outstanding against her. The only asset which she has is a quarter share in a property at 171 Soldiers Point Road, Salamander Bay which is said to be worth about $600,000 and is subject to a mortgage of $220,000. Her one quarter share is in turn said to be subject to a mortgage in favour of her children in a sum which approximates the value of that quarter share. 5 I infer that the mortgage to the children was granted to enable the applicant to finance the litigation in the District Court. It has not been suggested that it has any sinister overtones. I have been referred to a number of decisions of judges of this Court in which the principles governing whether an extension of time should be granted are discussed. The first was a judgment of Kiefel J in Re Baker; ex parte Baker v Staples (unreported, Federal Court, 4 September 1995), where her Honour concluded that the subsistence of an arguable outstanding appeal against the judgment on which the bankruptcy notice was based, was of itself a sufficient ground on which to extend time for compliance with the bankruptcy notice. 6 That view has not prevailed in the general run of judgments in this court: Bryett v Deputy Commissioner of Taxation (1997) 37 ATR 141, Wenkart v Abignano (unreported, Federal Court,28 August 1998) and Byron v Southern Star Group Pty Limited (1997) 73 FCR 264 are cases which have proceeded in a different direction. It is possible, I suppose, to synthesise from this group of decisions three views. The first is the view of Kiefel J which I have just indicated; the second is the view of Sheppard J referred to in Re Geard; ex parte Reid (unreported, Federal Court, 11 February 1994) that quite special circumstances are required before the Court will extend the time for compliance with a bankruptcy notice when an application has not been made to the court in which judgment was given for a stay of proceedings, and the third is the view of Lehane J in Byron that whilst weight should be given to that matter it is not necessarily conclusive. 7 For myself, I think with respect, that the view of Lehane J is to be preferred and I propose to follow it but the problem is that really the only matters which were relied upon in support of a stay were these: first, the existence of an arguable appeal. Second, the application for a stay was made but at least inferentially a reason for its refusal was the inability on the part of the applicant to put up security in sufficient sums. Thirdly, the impact of a change in status consequential upon the refusal of a stay. Fourthly, no showing of any prejudice to the respondent should an extension be granted and, finally, the appeal is likely to be heard and decided in a period of eight months or less. 8 In my view, these factors are insufficient to outweigh the proposition that the Court in which this judgment was obtained has declined to stay its execution and something more than an arguable appeal needs to be shown before the Bankruptcy Court would grant an extension of time for compliance with the bankruptcy notice, which would produce a similar effect to the granting of a stay. Really nothing more has been shown in this case other than that there is an arguable appeal and that the consequence of refusing an extension will be the commission of an act of bankruptcy but, as Lehane J said in Byron at 270: "The commission of an act of bankruptcy is, undoubtedly, a serious matter; it is, however, of a different order of gravity from the change of status brought about by the making of a sequestration order; and there is also to be taken into account the interest of both the judgment creditor and other creditors of the judgment debtor in ensuring that, if ultimately a sequestration order is made, the relevant act of bankruptcy occurs earlier rather than later." 9 In the present case, the applicant does have other creditors. She is not in a position to meet the bankruptcy notice and it seems to me that it is in the interests of creditors generally, that if ultimately a sequestration order is to be made, the relevant act of bankruptcy should occur earlier rather than later. Of course, it does not automatically follow that if a petition is presented based upon the act of bankruptcy constituted by the failure to comply with the bankruptcy notice, that a sequestration order would be made on that petition if the appeal to the Court of Appeal was still pending. 10 It would be open to the Court on the hearing of the petition to adjourn it pending the resolution of that appeal and the existence of an arguable case in that respect is obviously a factor that the Court would take into consideration, but in my view, it provides insufficient reason in the circumstances of the present case for granting an extension of time within which to comply with the bankruptcy notice. Accordingly, the application is dismissed with costs. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.