Application to set aside Bankruptcy notice Lock, Anthony

[1983] FCA 37

Re: VITTORIA DI GIACOMO
Ex parte: BORAL STEEL LIMITED (1983) 68 FLR 106
No. P892 of 1982
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Evatt J.(1)

CATCHWORDS

Bankruptcy - Creditor's Petition - Bankruptcy Notice - enforcement of judgment debt stayed before service (but not before issue) of Bankruptcy Notice - whether said Notice could found Act of Bankruptcy - rescission of order staying enforcement of judgment debt after service of said Notice - whether Notice thereby "revives".

Bankruptcy Act 1966, ss.40(1)(g) and 41(3)(a) and (b)

District Court Act 1973 (N.S.W.) s.88

Bankruptcy - Creditor's petition - Bankruptcy notice - Bankruptcy notice founded on judgment debt - After issue of notice but before service order made for payment of judgment debt by instalments - Whether notice could found an act of bankruptcy - Subsequent rescission of instalment order - Effect on bankruptcy notice - Bankruptcy Act 1966 (Cth), ss 40(1)(b), 41(3)(a) and 41(3)(b) - District Court Act 1973 (N.S.W.), s. 88.

HEADNOTE

In March 1982, Boral Steel Ltd (the creditor) obtained judgment in the District Court of New South Wales against Giacomo (the debtor) in the sum of $4,242.90. On 16 April 1982 a bankruptcy notice was issued founded upon the unsatisfied judgment. On the same day, the debtor filed an application pursuant to s. 88 of the District Court Act 1973 (N.S.W.) to pay the judgment by instalments. The Registrar of the District Court, on 10 May 1982 made an ex parte order that the debtor pay the judgment by instalments. Three days later, on 13 May 1982 the bankruptcy notice was served on the debtor. On 14 May 1982 the creditor filed a notice of objection to the s. 88 order. This objection was listed for hearing on 15 July 1982. Upon being called on that date, only the creditor appeared, whereupon the Registrar rescinded the order. Later that day, the debtor at the court enquired as to when the creditor's application would be heard. He maintained he had been present throughout the day and had not heard the case called. He immediately made a fresh s. 88 application and on 28 July 1982 the Registrar made an ex parte order for payment by instalments on the debtor's second s. 88 application. On 6 August 1982 the creditor filed an objection to the instalment order made on the ex parte application on 28 July 1982.

On 9 August 1982 the creditor presented the petition herein dated 2 August 1982 to the court. The petition was based on the alleged act of bankruptcy being the failure of the debtor on or before 27 May 1982 to comply with the requirements of the bankruptcy notice served on 13 May 1982. On 2 September 1982 both parties appeared before the District Court and the ex parte order for instalment payments made on 28 July 1982 was varied to increase the required amount of each instalment.

On the hearing of the petition, the debtor submitted that the bankruptcy notice was bad at the date of its service and that the petition should be dismissed.

Held: (1) A bankruptcy notice is bad if, at the date of its service, there is in force an order staying the execution of the judgment upon which it is based. The instalment order made under s. 88 of the District Court Act 1973 on 10 May 1982 operated as a "stay of enforcement of the judgment" in respect of which it was made and such a stay was in force at the date of service of the bankruptcy notice.

Re Moss: Ex parte Tour Finance Ltd (1968) 13 FLR 101 per Gibbs J. at 103-104.

Re Padagas: Ex parte Carrier Air Conditioning Pty Ltd (1976) 30 FLR 170 per Riley J. at 172, both referred to with approval.

(2) A bankruptcy notice served at a time when a stay of enforcement of the judgment on which it is founded pursuant to s. 88 of the District Court Act 1973 is in force, is bad and cannot be revived by the subsequent recission of the s. 88 order.

Bankruptcy notice set aside. Petition dismissed with costs.

HEARING

Sydney, 1982, October 25; 1983, March 18. #DATE 18:3:1983

PETITION.

The creditor, Boral Steel Ltd presented a petition seeking a sequestration order against the debtor.

P.R. Glissan, for the debtor.

G.P. Meakin, for the creditor.

Cur. adv. vult.

Solicitors for the debtor: Pelosi, Marshan & Co.

Solicitors for the creditor: O'Connor, Bellamy.

D.L.

ORDER

1. Bankruptcy Notice herein No. B1734 of 1982 be set aside.

2. Petition No. P892 of 1982 be dismissed.

3. The Petitioning Creditor pay the debtor's costs of and incidental to the issuing of the bankruptcy notice herein No. B1734 of 1982 and of the Petition No. P.892 of 1982. Orders accordingly.

JUDGE1

The petition herein dated 2 August 1982 having been presented to the Court on 9 August 1982 was listed for hearing on 27 September 1982. On 24 September 1982 the debtor Vittoria Di Giacomo (incorrectly referred to in the bankruptcy notice and the petition as Victor Di Giacomo) filed a notice of intention to oppose the petition together with an application seeking orders that the bankruptcy notice dated 16 April 1982 on which the said petition was based be set aside or alternatively that service of the said bankruptcy notice be set aside. When the petition came on for hearing on 27 September 1982 the matter was stood over until 25 October 1982 on which date evidence was led and submissions made by legal representatives for both the debtor and the petitioning creditor in regard to the application opposing the petition herein.

The debt alleged to be owing by the debtor to the judgment creditor is a District Court judgment debt of $4242.90 entered on 11 March 1982. The bankruptcy notice is dated 16 April 1982. The petition is founded upon an alleged act of bankruptcy consisting of the failure on or before 27 May 1982 to comply with the requirements of the bankruptcy notice served on 13 May 1982 or to satisfy the Court of a counter-claim, set-off or cross-demand equal to or exceeding the sum specified in the notice.

The following facts are not disputed :-

(i) the debtor, on 16 April 1982, filed in the District Court Sydney a statement of confession to the amount of the judgment creditor's statement of liquidated claim together with an application under s.88 of the District Court Act 1973 to pay the judgment debt by instalments.

(ii) the Registar of the District Court on 10 May 1982 made an ex parte order that the amount of the judgment be paid by instalments.

(iii) the bankruptcy notice herein (a 14 day notice) was served on 13 May 1982.

(iv) On 14 May 1982 the judgment creditor filed a notice of objection to the payment of the debt by instalments and consequently the District Court Registrar set down the debtor's application for leave to pay the debt by instalments for hearing on 15 July 1982.

(v) On 15 July 1982 the solicitor for the judgment creditor appeared before the District Court. As there was no response by the debtor when the matter was called on the order of the District Court Registrar of 10 May 1982 was rescinded.
(vi) Later on the 15 July 1982, after the judgment creditor's solicitor had left the District Court, the debtor inquired of the Registrar as to when his application was to be dealt with. The debtor has sworn that he was present at the District Court at all relevant times that day and had not heard his name called. As the order of the 10 May 1982 had then been rescinded and as the creditor's solicitor had left the Court, the debtor who was appearing in person was advised to make a fresh application that day to pay the judgment debt by instalments.

This he did.

(vii) The second application under s.88 of the District Court Act dated 15 July 1982 was dealt with ex parte by the District Court Registrar on 28 July 1982 on which date an order that the debt be paid by certain nominated instalments was made.

(viii) On 6 August 1982 the judgment creditor filed an objection to the order of the District Court Registrar that the debt be paid by instalments. The second application came on for hearing on 2 September 1982 when both parties appeared and the order of 15 July 1982 was varied so that instalments were increased to the rate of $200.00 per month, the first payment being due on or before 10 September 1982.

Section 88 of the District Court Act (N.S.W.) 1973 reads:
"(8) Where the Court or the registrar makes an order under this section, the order shall, while it remains in force, operate as a stay of enforcement of the judgment in respect of which the order was made, except enforcement by way of a garnishee order to which section 98 applies made before the order under this section was made."

It will be seen that on 13 May 1982 when the bankruptcy notice herein was served there was in force an order of the District Court Registrar made on 10 May 1982 pursuant to s.88 of the District Court Act.

The debtor has submitted that in view of the facts set out in para.(1) to (iii) above the bankruptcy notice herein was bad as at the date of its service on the debtor. That is to say that the said notice could not on 13 May 1982 have founded the alleged act of bankruptcy as set out in the petition. In this regard he relied upon the dicta of Gibbs J. (as he then was) in Re Moss;Ex parte Tour Finance Limited, 13 F.L.R. 101 @ 103-4 and of Riley J. in Re Padagas Ex parte Carrier Air Conditioning Pty. Limited, 30 F.L.R. 170 @ 172.

Gibbs J. @ 103-4 of 13 F.L.R. said:
"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 s.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, s.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."

Riley J. @ 172 of 30 F.L.R. said:
"It was submitted by counsel for the debtor that the order for payment by instalments had two effects, each of which was fatal to the petition: it stayed execution of the judgment, and it removed the debt from the class of debts "payable either immediately or at a certain future time" referred to in s.44(1)(b) of the Bankruptcy Act 1966.
By reason of s.88(8) of the District Court Act an instalment order, while it remains in force, operates "as a stay of enforcement of the judgment" in respect of which it was made. (There is an exception which is not material to this case.) Had this order so operated before the time of the issue or the service of the bankruptcy notice the notice would have been bad: ss.40(1) (g), 41(3)(b) of the Bankruptcy Act; Re Moss; Ex parte Tour Finance Ltd. (1968) 13 F.L.R. 101 @ 103-104."

The judgment creditor has submitted that the observations of both Gibbs J. and Riley J. that a bankruptcy notice is bad if at the time of its service upon the debtor there is in force an order made under s.88 of the District Court Act were obiter and should not be followed. He submitted that the proper meaning of s.40(1)(g) when read with s.41(3)(a) and (b) was that the proviso provided for in s.40(1)(g) was speaking only as at the date of the issuing of the bankruptcy notice and not the date of service thereof.

It is clear that the observations of both Gibbs J. and Riley J. in respect of s.40(1)(g) of the Bankruptcy Act set out above are obiter and as such are not binding. But with respect I agree with those observations. The instalment order made under s.88 of the District Court Act on 10 May 1982 operated "as a stay of enforcement of the judgment" in respect of which it was made and such order so operated on 13 May 1982, the date of the service of the bankruptcy notice. Accordingly I am of the view that the bankruptcy notice could not then have founded the act of bankruptcy alleged in the petition.

But the judgment creditor further submits that as the order of the District Court dated 10 May 1982 to pay by instalments was rescinded on 15 July 1982 (see fact (v) above) and as there was no further order under s.88 of the District Court Act until 28 July 1982 (see fact (vii) above), therefore on and after 15 July 1982 the efficacy of the bankruptcy notice, which had been suspended whilst the first instalment order was in force, was revived without further service thereof. Thereafter on the expiration of the 14 days provided for in such notice (that is after 29 July 1982) if the judgment debt had not then been paid or otherwise satisfied, the debtor would have then committed an act of bankruptcy within the meaning of s.40 of the Bankruptcy Act. Accordingly, it was submitted that the petition herein, having been dated and presented after 29 July 1982 was valid subject to the Court granting leave to amend the amount claimed therein to reflect any instalment payments that may have been made by the debtor. This submission was of course made on the basis that the further order of the District Court under s.88 made on 28 July 1982 (fact (vii) above) had no effect upon the bankruptcy notice herein as de facto service of that notice had been made prior to that date, namely on 13 May 1982 and such service had become "effective" after 15 July 1982 and before 28 July 1982. This submission is rejected.

If as I have found the bankruptcy notice herein was bad at the date of service then that is the end of that notice. The position, in my view, is not simply that the service of a bankruptcy notice concerning a judgment debt in respect of which an order under s.88 had been made is bad. Clearly the words of para. (g) of sub-s.40(1) of the Bankruptcy Act 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.

Accordingly, the bankruptcy notice herein dated 16 April 1982 should be set aside. Consequently the petition herein dated 2 August 1982 and presented on 9 August 1982 is dismissed. The petitioning creditor is to pay the debtor's costs as agreed or in default of agreement in accordance with the Act. The District Court file No.525 of 1982 is to be returned to the Registrar of that Court in Sydney.