Bond, A v HongKong Bank of Australia

[1991] FCA 648

Re: ALAN BOND
And: HONGKONG BANK OF AUSTRALIA
No. B N3567 of 1991
FED No. 648
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Foster J.(1)

CATCHWORDS

Bankruptcy - bankruptcy notice - extension of time for compliance - appeal lodged against judgment upon which notice based - s 41(6A) Bankruptcy Act 1966 - Court's discretion - prejudice to creditors - postponement of date of commission of act of bankruptcy - general prejudice and specific prejudice.

Bankruptcy Act 1966 - ss 41 (6A) and (6C).

Re Sterling; Ex parte Esanda Limited (1980) 44 FLR 125

Re Taylor; Ex parte Deputy Commissioner of Taxation (1983) 74 FLR 377

Clyne v The Deputy Commissioner of Taxation (1982) 56 ALJR 857

Streimer v Tamas (1981) 37 ALR 211

Re Vella; Ex parte Seymour (1983) 48 ALR 420

Re Conte; Ex parte Conte v Deputy Federal Commissioner of Taxation (1990) 91 ATC 4043

Adamopoulos and Anor v Olympic Airways SA and Anor (1990) 95 ALR 525.

HEARING

SYDNEY

#DATE 24:10:1991

Counsel for the applicant: D.P. Robinson

Instructed by: Neil Lawson and Co

Counsel for the respondent: S.M.P Reeves

Instructed by: Mallesons Stephen Jaques

ORDER

The time limited for compliance by the applicant with Bankruptcy Notice No B3567 of 1991 be extended until the further order of the Court.

The respondent to have liberty to apply on two days' notice.

The costs of this application to be costs in the cause.
NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

On 23 September 1991 the respondent creditor Hong Kong Bank of Australia Limited obtained judgment against the applicant debtor Alan Bond for the sum of US$194,664,443.97. This judgment was given by Rogers J in the Commercial Division of the Supreme Court of New South Wales, after a lengthy contested hearing.

1. Application to stay the judgment pending an appeal from it was made on the same day. Mr Bond gave evidence in the application and was cross-examined. The application was refused by Rogers J. His Honour's reasons for a refusal have been placed before me and reference has been made to certain aspects of those reasons in argument before me.

2. Thereafter bankruptcy notice number B3567 of 1991 was issued from this court on 24 September 1991 at the instance of the bank and was served on Mr Bond on 26 September 1991. The time for compliance with the requirements of this bankruptcy notice expires at midnight tonight.

3. On 17 October 1991 the debtor filed a notice of appeal in the Court of Appeal in New South Wales Supreme Court against the whole of the judgment. The debtor then brought an application for a stay of the judgment by the Court of Appeal and also for an expedited hearing of the appeal. This application was heard by Mahoney JA of the Supreme Court of New South Wales Court of Appeal Division on 21 October 1991. I am advised that the same material was placed before his Honour as had been placed before Rogers J together with some additional material.

4. Mahoney J.A. allowed the application and granted a stay of proceedings on the judgment until the hearing of the appeal. He also expedited the hearing of the appeal which is now to be heard on 18 and 19 November 1991 in the Court of Appeal Division of the Supreme Court of New South Wales. Mahoney JA gave a preliminary judgment in which he made reference to the service of the bankruptcy notice. In reference to the application for stay of proceedings on the judgment, his Honour said:
   

"In circumstances such as these a defendant who has appealed against a judgment and who will pursue the appeal with expedition will, in the ordinary course, be able to establish grounds for such a stay. However, it is submitted that, in the present case, there are circumstances which indicate that such a stay should not be granted:

(i) it is suggested that Mr Bond's past dealings are such that

in the public interest they should be investigated;

(ii) if the judgment be stayed that investigation and what may

follow from it may be prejudiced; and

(iii) if the proceedings on the judgment be stayed, the creditors

of Mr Bond will or may be prejudiced. It is proper that the appeals be determined as soon as may be and that an order for expedition of the hearing of it be made. It has not been established by the opponents nor does it appear that, if the appeals are determined with expedition, the suggested prejudice will result or that the creditors will probably be affected."

1. Against this background the debtor has now brought an application in this court for the following order:
   

"(that) the time limited for compliance by Alan Bond with Bankruptcy Notice No. B3567 of 1991, be extended until 7 days after the determination of the appeal to the Court of Appeal of the New South Wales Supreme Court by Alan Bond from the judgment of his Honour Rogers J of the Commercial Division of the Supreme Court of New South Wales delivered on 23 September, 1991..."

This present application is based on ss 41(6A) and (6C) of the Bankruptcy Act 1966 which so far as relevant provide as follows:

"(6A) Where, before the expiration of the time fixed by 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; ... the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.

...

(6C) Where -

(a) a debtor applies to the Court ... 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 ... is 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 ... shall not extend the time for compliance with a bankruptcy notice."

1. There is no suggestion in the current proceedings before me that the applicant's appeal to the Court of Appeal has not been instituted bona fide or is not being prosecuted with due diligence. In fact, he has sought and obtained a significantly expedited hearing in that court. It may therefore, be said broadly that the applicant has brought himself within s 41 and established prima facie grounds for the extension of time for compliance with a bankruptcy notice.

2. It is submitted by the respondent, however, that the application should be refused on discretionary grounds. In this regard, it is clear that the Court has a discretion to refuse the application even though the bars to it in subparagraphs (b)(i) and (b)(ii) of subsection 41(6C) have not been established: Re Sterling; Ex parte Esanda Limited (1980) 44 FLR 125 per Lockhart J at 131; Re Taylor; Ex parte Deputy Commissioner of Taxation (1983) 74 FLR 377 per Sheppard J at 379; Clyne v The Deputy Commissioner of Taxation (1982) 56 ALJR 857.

3. The respondent creditor's first submission is that the appeal has little chance of success. I am not able to so find on the material before me. The appeal has been accepted as bona fide which necessarily implies that it is both arguable and intended to be argued. I also note that this argument was rejected by Mahoney J.A. when it was put to him at his hearing of the stay application. I would not refuse the extension sought on this ground.

4. The main argument advanced by the respondent creditor is that there was a potential for serious prejudice to it, and "to the whole body of creditors", if the application was granted. The effect of granting it would necessarily be to advance the commission of the act of bankruptcy to a future date should the appeal be dismissed, a date subsequent to the decision of the appeal. It was submitted that an advancement of the date to such a time would constitute such prejudice, as it would necessarily affect periods of relation back under the Bankruptcy Act 1966 to the detriment of the respondent in that it would adversely affect the property available to the trustee for distribution to the applicant's creditors.

5. The relevant categories of property available to the trustee for distribution to creditors and the temporal relationship between these categories and the bankruptcy of a debtor are as follows:
   - property belonging to or vested in the bankrupt at the
   

commencement of the bankruptcy, which, under the doctrine of relation back is, from the first available act of bankruptcy within six months of the presentation of the creditors petition (ss 115, 116),

- proceeds of executions against the bankrupt, from six months prior

to the presentation of the creditors petition (s 118),

- voidable settlements made by the bankrupt, from two years or five

years prior to the first available act of bankruptcy (s 120),

- fraudulent dispositions made by the bankrupt, from any time (s 121),

- voidable preferences to creditors made by the bankrupt, from six

months prior to the presentation of the creditors petition (s 122), and

- property of controlled entities to which the bankrupt rendered

personal services, from two and four years prior to the first available act of bankruptcy (s 5 and Division 4A).

1. In general terms, it is obvious that whenever an extension of time for compliance with a bankruptcy notice is granted under s 41(6A), in circumstances where the appeal in question is later dismissed, there will necessarily be an alteration in the date of the relevant act of bankruptcy. As this must be so in every case, I cannot attribute any real significance to it as a ground of prejudice influencing the court's discretion in the present case.

2. The question is whether any particular grounds of prejudice in the instant case are demonstrated. In this regard reliance has been placed upon three matters that were considered by Rogers J in refusing a stay of his judgment. First, it appears that on 2 April 1991 the applicant sold his half share of the household furniture to his wife at a price established by valuation. He later used the moneys thereby obtained to make various payments. Now, clearly, this matter will not fall under ss 115 and 116 even if the act of bankruptcy occurred today. If these transactions were to be subsequently regarded as voidable settlements the relevant periods of relation back are not at all likely, in my opinion, to be affected by the postponement of the commission of the relevant act of bankruptcy for a relatively short period . Other periods do not relate to an act of bankruptcy and accordingly have no present relevance.

3. Secondly, it was submitted that a recently established superannuation fund of which the applicant is apparently a beneficiary, was a matter warranting investigation. It appears that there was more evidence before Mahoney J.A. in relation to this matter than there was before Rogers J. It maybe that in the event of the applicant's becoming bankrupt the trustee would wish to examine this fund and its ramifications with some care. However, the postponement of an act of bankruptcy pending the disposal of this appeal cannot, in my opinion, in view of the relevant periods of relation back have any significant effect on the trustee's ability to investigate this matter.

4. Thirdly, references made to Mr Bond's rent free occupation of a residence in Dalkeith, Western Australia. Again, I cannot see that the postponement of the act of bankruptcy can have any significant effect on a trustee's investigations of the arrangements in relation to this property.

5. Additionally, I was referred as a matter for judicial notice to the "stock market crash" of 1987. It was submitted that the crash, and the period of vigorous financial activity that immediately followed it, was approximately four years prior to the current expiry date of the bankruptcy notice and that postponement of the commission of the applicant's act of bankruptcy reduced the scope for subjecting that period of time to examination by a trustee in bankruptcy under Division 4A. The submissions made by the respondent creditor in this regard, however, were vague. No particular allegations were made with the degree of specificity that I consider necessary to show prejudice such as to require an exercise of the Court's discretion under s 41(6A) in the creditor's favour. Accordingly, I do not find the stock market crash of 1987 relevant to the issue currently before the Court.

6. Accordingly, I would not, on discretionary grounds, refuse to make the orders sought by reason of these matters which I have now discussed.

7. Finally, it was put on behalf of the respondent that there was no real prejudice to the applicant if instead of making the orders sought I was to take the course of adjourning this application to a date after completion of the appeal. If the appeal be successful the matter could then be decided in light of that fact. The respondent offered an undertaking that in those circumstances it would consent to an extension of time for compliance being then granted. It was submitted that such an extension then granted would have the effect of nullifying the act of bankruptcy which would in the interim have been committed at midnight tonight.

8. Undoubtedly, support for this proposition is to be found in the majority judgment in Streimer v Tamas (1981) 37 ALR 211, per Deane and Ellicott JJ. See particularly pages 214-215. See also Re Vella; Ex parte Seymour (1983) 48 ALR 420 and Re Conte; Ex parte Conte v Deputy Federal Commissioner of Taxation (1990) 91 ATC 4043. It is also strongly arguable that an act of bankruptcy occurring during the pendency of an appeal against the judgment on which the relevant bankruptcy notice was founded cannot, in any practical way, be relied on by another creditor. The Court would not proceed to make a sequestration order in such circumstances, Adamopoulos and Anor v Olympic Airways SA and Anor (1990) 95 ALR 525.

9. It is therefore submitted that Mr Bond would have nothing to fear from the commission of the act of bankruptcy today, either from the respondent creditor or any other creditor, provided he is successful in the appeal and this application is adjourned to a date after the hearing of that appeal.

10. It must be said of these submissions that, assuming their total accuracy and the invulnerability of the majority decision in Streimer v Tamas, they would be available in respect of any application to extend the time for compliance with a bankruptcy notice under s 41(6A) with the result that the considerations of bona fides of the appeal and its prompt prosecution would appear to be of little importance.

11. The short answer is, in my opinion, that it is entirely reasonable for any person to seek to avoid the commission of an act of bankruptcy related to a judgment debt against which he is bona fide appealing. The section relied upon exists for the purpose of enabling him to do this. Although the adoption of the procedure suggested by the respondent may well result in the practical annulment of an act of bankruptcy already committed, it is not reasonable, in my opinion, to impose this procedure on an unwilling applicant as an alternative to making an order extending the time for compliance with the relevant bankruptcy notice.

12. For these reasons I propose to make an order. The order I make is not in the form sought but in a form discussed with counsel during argument and which met with their approval. I make the following orders:
    

1. the time limited for compliance by the applicant with Bankruptcy Notice No B3567 of 1991 be extended until the further order of the Court.

2. the respondent to have liberty to apply on two days' notice, and

3. the costs of this application to be costs in the cause.

1. I make the orders in this form partly in deference to the earnest arguments put on behalf of the respondent creditor against the making of any order at all, and to enable prompt action to be taken by the respondent creditor should it consider that in the light of any changed circumstances that such action be warranted.