Buggy v Victorian Securities Corporation Limited - [2010] FMCA 724

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BUGGY v VICTORIAN SECURITIES CORPORATION LIMITED

[2010] FMCA 724

BANKRUPTCY – Application to set aside bankruptcy notice – whether counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt – entitlement of guarantor to raise claim against creditor – merits of claimed counter-claim – whether counter-claim could have been set up in proceedings that gave rise to the judgment on which the bankruptcy notice was based.

Bankruptcy Act 1966 (Cth), ss.40, 41

Capital Finance Australia Limited v Airstar Aviation Pty Ltd & Ors [2003] QSC 151
De Angelis v Cusack [2007] FMCA 1884
Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346; [1960] HCA 50
GE Capital Australia v Davis and Others (2002) 180 FLR 250; [2002] NSWSC 1146
Guss v Johnstone (2000) 74 ALJR 884; [2000] HCA 26
Lambros v First Capital Securities Limited [2007] FMCA 1553
McPhee v Glentham Pty Ltd [2006] FMCA 1508
Melbourne v Relativity Pty Ltd [1999] FCA 160
Patane v Asteron Life Ltd (formerly Royal & Sun Alliance Financial Services Ltd) (ACN 001 698 228) [2004] FCA 232
Permanent Trustee Company Limited v Gulf Import and Export Company & Emirates Trading Agency LLC [2008] VSC 162
Pollnow v Queensboro Pty Ltd (1988) 217 ALR 49; [1988] FCA 365
Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135; [1980] FCA 78
Re Cox (1934) 7 ABC 98
ReGlew; Glew v Harrowell of Hunt & Hunt Lawyers (N7350 of 2002) (2003) 198 ALR 331; [2003] FCA 373
Re Ling; Ex Parte Ling v Commonwealth of Australia (1995) 58 FCR 129; [1995] FCA 1410
Re Sterling; Ex parte Esanda Ltd (1980) 30 ALR 77; [1980] FCA 61
Re Stovkis (1934) 7 ABC 53
Re Willats and Another; Ex parte Nissan Finance Corporation Limited (1991) 31 FCR 206; [1991] FCA 407
Sidhom v Euphoric Pty Ltd (2006) 232 ALR 618; [2006] FMCA 827

Applicant:

MICHAEL FRANCIS BUGGY

Respondent:

VICTORIAN SECURITIES CORPORATION LIMITED

(ACN 004 496 208)

File Number:

SYG 1019 of 2010

Judgment of:

Barnes FM

Hearing date:

27 July 2010

Delivered at:

Sydney

Delivered on:

21 September 2010

REPRESENTATION

Counsel for the Applicant:

Ms J P Muir

Solicitors for the Applicant:

Malcolm Johns & Company

Counsel for the Respondent:

Mr M R Aldridge SC

Solicitors for the Respondent:

Middletons

ORDERS

The application be dismissed.
The applicant pay the costs of the respondent as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 1019 of 2010

MICHAEL FRANCIS BUGGY

Applicant

And

VICTORIAN SECURITIES CORPORATION LIMITED

(ACN 004 496 208)

Respondent

REASONS FOR JUDGMENT

By application filed on 10 May 2010 the applicant, Mr Buggy, sought that Bankruptcy Notice No. NN5419 of 2009 be set aside. The Bankruptcy Notice, which was issued on 24 November 2009, claimed that Mr Buggy owed the respondent creditor, Victorian Securities Corporation Limited (VSCL) a debt of $8,541,214.16 based on a judgment of the Supreme Court of New South Wales dated 26 October 2009.
It is not in dispute that the application to this court was made within the time fixed for compliance with the Bankruptcy Notice. In an accompanying affidavit sworn on 7 May 2010 Mr Buggy claimed that he had an “offsetting (sic) claim” against the creditor within the meaning of s.40(1)(g) of the Bankruptcy Act 1966 (Cth) (the Act) being a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order that he could not have set up in the proceedings in which the judgment was obtained.
Mr Buggy also relied on an affidavit sworn on 26 July 2010 and filed in court as to the status of proceedings commenced in the Supreme Court of the Australian Capital Territory on 19 July 2006 which are part heard and have been adjourned until April 2011. The relevance of these proceedings is discussed below.
The respondent relied on an affidavit of Mark Stuart Buckland sworn on 3 June 2010.
The parties do not agreed on the extent to which factual matters are in dispute. However it is not in dispute that in June 2006 VSCL approved a loan to Icehot Pty Limited (Icehot). By letter dated 7 June 2006 VSCL offered Icehot a loan of $6,950,000 on certain conditions (as set out in that letter) and on 8 June 2006 VSCL and Icehot entered into a loan agreement on terms including a company charge, a mortgage over a property at Tweed Heads owned by Icehot and unlimited joint and several personal guarantees by the directors of Icehot. Mr Buggy was such a director. The letter provided for acceptance of the loan by return of a signed and dated copy of the letter. The offer was accepted.
Relevantly for present purposes, on 16 June 2006 Mr Buggy and VSCL entered into a Deed of Guarantee and Indemnity, a copy of which is annexed to Mr Buckland’s affidavit in relation to Icehot’s loan from VSCL. VSCL advanced funds of $6,603,308.51 to Icehot pursuant to the loan agreement.
On the basis that Icehot had defaulted by failing to repay the advance and that it was a term of the Deed of Guarantee and Indemnity that Mr Buggy would guarantee and indemnify VSCL for monies payable by Icehot to VSCL, VSCL instituted proceedings in the Supreme Court of New South Wales in proceedings 11366 of 2008 (the NSW proceedings) to recover monies said to be owed to it by Icehot pursuant to the loan agreement and the mortgage between VSCL and Icehot and that were said to be owed to it by Mr Buggy as guarantor under the Deed of Guarantee and Indemnity entered into on 16 June 2006.
On 26 October 2009 VSCL obtained summary judgment in the NSW proceedings in the amount of $8,541,214.16 against each of Icehot and Mr Buggy. This judgment is the basis for the Bankruptcy Notice.
Prior to the NSW proceedings, the Supreme Court of the Australian Capital Territory proceedings 548 of 2006 (the ACT proceedings) had been instituted on 19 July 2006 by three companies (Cleary Bros (Parramatta) Pty Limited, Parker Constructions Pty Limited and Icehot Pty Limited (to which receivers and managers have since been appointed)) and Mr Buggy. The defendants to these proceedings are the Commonwealth Bank of Australia (CBA), National Australia Bank Limited (NAB), VSCL and Bendigo and Adelaide Bank Limited (formerly the Bendigo Bank Limited) (BBL). Mr Buggy described these proceedings as proceedings for, “inter alia, damages arising out of the freezing of monies in bank accounts in my name, and also those of my companies”. Mr Buggy’s evidence is that he was the sole director and shareholder of the three corporate plaintiffs in the ACT proceedings.
Mr Buggy claims that the ACT proceedings constitute a bona fide cross demand he has against VSCL, that he has good prospects of success, that such cross demand is for an amount “comparable” to the amount claimed by VSCL in the Bankruptcy Notice and that be could not have set up the cross demand in the NSW proceedings.
It was said to be apparent from the Second Further Amended Statement of Claim filed in the ACT proceedings that Mr Buggy had a cross demand on the basis that his bank accounts and those of his companies were frozen at the request of BBL without any court order being made and that the corporate plaintiffs had suffered loss as a result of lost property sale and mezzanine lending opportunities.
Counsel for the respondent did not accept that the background to the ACT and NSW proceedings was undisputed. Some of these matters were said to reflect assertions in pleadings in the ACT proceedings that are in issue.
In any event, the asserted cross demand is said to arise out of circumstances following the 2006 loan from VSCL to Icehot. Mr Buggy alleges that $2.45 million of the loan from VSCL to Icehot was paid to Elliot Harvey Pty Ltd to discharge a first mortgage over the Tweed Heads property and another cheque was drawn for $3.6 million in favour of Cleary. According to Mr Buggy this was to discharge Cleary’s unregistered second mortgage over the Tweed Heads property and the cheque was deposited into a trading account Cleary held with the NAB. However, Mr Buggy alleges that on 4 July 2006 Mr Sheather of VSCL stated that “they” did not know that Mr Buggy owned Cleary and also took issue with the accuracy of a valuation of the Tweed Heads property that had been carried out prior to settlement of the loan.
Mr Buggy’s evidence is that on 6 July 2006 amounts totalling $3 million were deposited into a bank account held by Parker with the CBA (although the connection between that transaction and the matters discussed above is not clear).
Mr Buggy claimed that on or around 13 July 2006 he became aware that the CBA and NAB had put a “freeze” on his account and those of “his” companies (the other three plaintiffs in the ACT proceedings). Mr Buggy claimed that he learned that the accounts had been frozen at the request of BBL which had provided a banker’s indemnity to CBA and NAB.
On 19 July 2006 Mr Buggy and the three companies commenced the ACT proceedings seeking orders to unfreeze these accounts and for other relief. On 25 July 2006 a statement of claim was filed by the plaintiffs in those proceedings. On or about 31 July 2006 the freeze was lifted from the accounts. The hearing of the ACT proceedings commenced on 19 July 2010. It was adjourned part heard (after five days of the hearing) to 11 April 2011.
Section 40(1)(g) of the Act is as follows:
A debtor commits an act of bankruptcy in each of the following cases:
…
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia--within the time specified in the notice; or
(ii) where the notice was served elsewhere--within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
…
The onus is on the applicant Mr Buggy to satisfy the court that he has such a counter-claim, set-off or cross demand.
According to Mr Buggy the matters raised in the ACT proceedings constitute such a cross demand against VSCL. He claimed that the significant matters in dispute in the ACT proceedings included his allegation that VSCL knew or ought to have known prior to settlement that he was a director of Cleary and that part of the loan funds advanced were to be used to discharge Cleary’s mortgage over the Tweed Heads property; that Cleary held a genuine mortgage over that property executed by Mr Buggy on behalf of both Cleary and Icehot on 16 June 2005; that Mr Buggy had appointed an alternate director of Cleary to execute the discharge of Cleary’s mortgage because the first mortgagee had required settlement to take place in Queensland; that the valuation provided to VSCL prior to settlement was a genuine independent valuation; and that due to the freezing of Mr Buggy’s and his company’s accounts he and the companies had suffered loss.
The damages sought to be recovered in the ACT proceedings were said to be substantial and to have arisen from Icehot’s loss of purchasers of the Tweed Heads property at an initial purchase price of $13 million and later purchase price of $11.7 million, its subsequent inability to obtain a purchaser and/or a substitute mortgagee of the property and the loss of mezzanine lending opportunities. In addition the plaintiffs in the ACT proceedings are seeking aggravated and/or punitive/exemplary damages for loss of sale opportunities which are said to have deprived Icehot and Mr Buggy of the ability to repay the monies advanced to Icehot by VSCL.
Counsel for Mr Buggy submitted that this would constitute an “offsetting (sic) claim” against VSCL under s.40(1)(g) of the Act as a cross demand and that on that basis the Bankruptcy Notice should be set aside.
The causes of action relied on in the ACT proceedings (as appear from the Second Further Amended Statement of Claim annexed to Mr Buggy’s affidavit of 7 May 2010) include actions by Cleary and Mr Buggy for breach of contract by the NAB and by Parker for breach of contract by the CBA. These have no potential relevance under s.40(1)(g) of the Bankruptcy Act. In addition there is a claim of an “[i]ntentional interference with contractual relationships of CBA and Parker, NAB and Cleary, and NAB and Buggy by VSCL and BBL”, as well as claims by each plaintiff against each defendant for breach of unconscionable conduct provisions in the Australian Securities and Investments Commission Act 2001 (Cth) and/or the Trade Practices Act 1974 (Cth).
In addition Mr Buggy and/or Icehot assert breach of express and implied terms of the 2006 loan agreement between VSCL and Icehot. Mr Buggy also asserts that there was a breach of the mortgage and/or the Guarantee and breach of a duty of care owed by BBL and VSCL (which is said to be a subsidiary of BBL) to Icehot and Mr Buggy during the term of the loan agreement. All plaintiffs also allege a breach of a duty of care owed to them by the CBA and NAB.
“Aggravated and/or punitive/exemplary damages” are sought from all defendants by the plaintiffs. As an alternative to the damages claims by the various plaintiffs, Mr Buggy asserts that he was the sole director and shareholder and ultimate beneficiary of every investment or enterprise of the three corporate plaintiffs and that the damage suffered by each of them should be regarded as damage suffered by him.
There are however several reasons why Mr Buggy has not satisfied the court that the Bankruptcy Notice should be set aside on the basis contended for in the application

Paragraph 7 of the Deed of Guarantee and Indemnity

First, as the respondent submitted, paragraph seven of the Deed of Guarantee and Indemnity executed by Mr Buggy restricts the rights available to him. Until the debt the subject of the judgment is paid, discharged or performed in full, Mr Buggy cannot (without the consent of VSCL) “exercise any right of set-off or make a counterclaim against the Beneficiary [that is, VSCL], in reduction of his liability under this Deed or another Transaction Document”.
As set out above, Mr Buggy executed a Deed of Guarantee and Indemnity with VSCL on 16 June 2006 in relation to Icehot’s liability to VSCL for the June 2006 loan. Under that Deed, Mr Buggy (the Guarantor) unconditionally and unequivocally guaranteed to VSCL the payment and satisfaction by Icehot (the Debtor) of the “Guaranteed Liabilities” (cl.3.2) which are broadly defined. In addition, by a separate and independent primary obligation, Mr Buggy also unconditionally and irrevocably provided an indemnity to VSCL (cl.4).
The Deed is expressed to be a continuing guarantee and indemnity in favour of VSCL until all the “Guaranteed Liabilities” are paid, discharged or performed in full (cl.5.5). There are provisions that preserve Mr Buggy’s obligations notwithstanding the occurrence of specified events (such as a judgment or right VSCL may have against Icehot or Mr Buggy) (cl.6). Under the Deed VSCL is not to be liable for any loss or damage suffered by Mr Buggy as a result of various matters, including negligence on the part of VSCL (cl.6.3).
Importantly, cl.7 of the Deed imposes “[r]estrictions on rights” of Mr Buggy as guarantor. Thus, under cl.7.1 Mr Buggy waived “all of his rights against” VSCL and “must not exercise those rights” as well as any rights as against Icehot or any security provider or any other person or property to the extent necessary to give effect to the Deed.
Critically, cl.7.2 provides:
Until the Guaranteed liabilities have been paid, discharged or performed in full, [Mr Buggy] must not, without the consent of [VSCL]:
(a) raise a defence available to the Guarantor, the Debtor, a Security Provider or any other person against [VSCL], or exercise any right of set-off or make a counterclaim against [VSCL], in reduction of his liability under this Deed or another Transactional Document;
…
Clause 1.1 of the Deed defines “Transactional Documents” to mean the Deed, the Letter of Offer of 7 June 2006 between Icehot and VSCL and any other document containing terms on which the Guarantee Liabilities remain outstanding; the Mortgage between Icehot and VSCL over the Tweed Heads property; the fixed and floating charge between Icehot as Chargor and VSCL as Chargee; and each document entered into or provided for under any of those documents or for the purposes of amending or novating any of those documents. When the expression “Transactional Document” is used in the Deed in relation to Mr Buggy it means any of those documents to which he is a party.
Further, cl.10.4 made provision for all monies payable by the Guarantor under a Transaction Document to be paid unconditionally and in full “without…set-off or counter claim or any kind” and without “deduction or withholding for Tax or any other reason unless the deduction or withholding is required by applicable law.”
VSCL relied on the Deed of Guarantee and Indemnity in the NSW proceedings insofar as it sought to recover from Mr Buggy monies payable to it by Icehot. It obtained summary judgment for $8,541,214.16 against each of Icehot and Mr Buggy.
According to Mr Buckland, VSCL General Manager, as at 3 June 2010 no payments had been received by VSCL from Icehot or Mr Buggy and the judgment debt remained outstanding. There is no suggestion that the debt has been paid since that time.
Mr Buggy submitted that cl.7.2 did not preclude the bringing of a cross-claim against VSCL because its operation was confined by its terms only to such counter-claim, set-off or cross demand as was “in reduction of [the Applicant’s] liability under [the Guarantee] or another transaction document”. It was submitted that in the ACT proceedings Mr Buggy was not seeking to reduce his liability under the Guarantee, that his claim was independent of claims litigated in New South Wales in relation to the Guarantee and that it pre-dated the NSW proceedings brought by VSCL.
However I am satisfied that it is clear from the language of the Deed that, as VSCL submitted, cl.7 of the Deed prevented Mr Buggy from asserting a counter-claim, set-off or cross demand against it in reduction of his liability to it under the Deed which was the basis for the New South Wales Supreme Court judgment on which the Bankruptcy Notice was based.
A number of cases were referred to by counsel for VSCL in support of the proposition that cl.7.2 of the Deed prevented Mr Buggy from raising a counter-claim, set-off or cross demand against his liability under the Deed. Such an approach is consistent with the approach taken to such clauses in GE Capital Australia v Davis and Others (2002) 180 FLR 250; [2002] NSWSC 1146 at [17] and [93] – [110] per Bryson J and Permanent Trustee Company Limited v Gulf Import and Export Company & Emirates Trading Agency LLC [2008] VSC 162 at [86] – [88] per Hansen J.
In GE Capital v Davis a lender sought to recover from guarantors under a Guarantee and Indemnity a loan made to a corporate borrower. The guarantors sought to rely on cross-claims on several grounds. Bryson J of the Supreme Court of New South Wales considered the effect of provisions in the Guarantee and Indemnity, in particular a clause headed “Suspension of Guarantor’s Rights” which provided, inter alia, that:
8.1 As long as the Guaranteed Money or other money payable under this guarantee or indemnity remains unpaid, the Guarantor may not without the consent of GE Capital:
(a) in reduction of its liability under this guarantee and indemnity, raise a defence, set-off or counterclaim available to itself, the Debtor or a co-surety or co-indemnifier against GE Capital or claim a set-off or make a counterclaim against GE Capital.

The Guarantee also provided for payments by the guarantor to be without set-off or counter-claim.
Bryson J found that the provisions in the Guarantee and Indemnity relating to suspension of the guarantor’s right did not “bar” the guarantors from making any claims or enforcing any rights against either the lender or the debtor but rather “suspends those rights so long as the guaranteed money remain[ed] unpaid” (at [93]). The suspension could be ended at once if the guarantors met their contractual obligations and paid the amount of guaranteed money, at which point they could bring any proceedings they wished against GE Capital. However his Honour stated that the effect of these provisions was that until the guarantors made such payment they were “contractually bound to the proposition that they are not entitled to bring any claims or proceedings or to act in any of the manners referred to” (at [93]).
His Honour acknowledged that the fact that provisions of this kind ought to be construed strictly against the interests of the lender may be significant if the language was ambiguous, but pointed out that contractual provisions which limited the rights of guarantors and ensured the primacy of recovery by the creditor had a long history in guarantee documents (at [94]) and found that claims that postponed litigation by guarantors raising any cross-claim or set-off until the guaranteed sum was paid was not contrary to public policy (at [97]).
In this case, as in GE Capital v Davis, the guarantor, Mr Buggy, has unconditionally and unequivocally guaranteed payment by the debtor, Icehot, and agreed to an indemnity in favour of VSCL continuing until all the Guaranteed Liabilities are paid, discharged or performed in full. While not expressed as a “suspension”, the restriction on litigation by the guarantor Mr Buggy against VSCL under the Deed operates as a contractual restriction of the same kind considered in GE Capital v Davis. As in that case, Mr Buggy has “unequivocally agreed to the effect” that he will not make any counter-claim or exercise any right of set-off against VSCL until he has paid and satisfied all the Guaranteed Liabilities. He has not done this (see GE Capital v Davis at [94]).
In Permanent Trustee v Gulf Import Hansen J applied such reasoning to preclude guarantors from raising a defence to an action by a lender for recovery under a guarantee. The Guarantee contained clauses in all relevant respects identical to those considered in GE Capital v Davis (at [86]). Hansen J was of the view that such clauses were “clear in their terms” (at [87]) and that as long as the guaranteed monies remained unpaid the guarantors “may not, without the plaintiff’s consent, raise a defence, set-off or counter claim … in reduction of their liability under the guarantees” (ibid). The clauses in the Deed between Mr Buggy and VSCL are also clear in their terms.
Both GE Capital v Davis and Permanent Trustee v Gulf Import considered the effect of restrictions in a guarantee in the context of proceedings against guarantors by lenders. In this case the issue is whether the restrictions in the Deed of Guarantee and Indemnity between Mr Buggy and VSCL mean that he is not able to satisfy the court that he has a counter-claim, set-off or cross demand within s.40(1)(g) of the Act against the creditor, VSCL.
Critically, it is important that for a counter-claim, set-off or cross demand to come within s.40(1)(g) of the Act it must be one that is effective against the creditor at the time of the hearing of the application to set aside the Bankruptcy Notice (see Guss v Johnstone (2000) 74 ALJR 884 at 891; [2000] HCA 26 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ). In that case their Honours agreed with the reasoning of the Full Court of the Federal Court to the effect that the requirement that any counter-claim, set-off or cross demand within s.40(1)(g) of the Act must exist at the time of the application to set aside the bankruptcy notice, and must not merely be inchoate.
In Lambros v First Capital Securities Limited [2007] FMCA 1553 Wilson FM considered the effect of a restriction akin to the restriction in the Deed of Guarantee and Indemnity in the context of considering an application to set aside a Bankruptcy Notice on the ground that the debtor had a counter-claim, set-off or cross demand. In Lambros, as in this case, a creditor had commenced proceedings against a guarantor of the obligations of a principal borrower and judgment had been obtained which formed the basis for a bankruptcy notice. The debtor claimed that the creditor had sold a secured property at an undervalue and that as a result he had a claim against the creditor for an amount exceeding the amount claimed in the Bankruptcy Notice that could not have been set up in the proceedings in which judgment was obtained.
The creditor in Lambros relevantly contended that the debtor (as guarantor) had contracted out of any right he may have against the creditor under the guarantee on which the judgment was founded. Clause 7 of the Deed of Guarantee and Indemnity in issue in Lambros provided, among other things, that until the guaranteed amount had been paid in full the guarantor “unconditionally and irrevocably… waives all rights as to contribution, indemnity, participation, marshalling, consolidation and subrogation or any other claim to be entitled to the benefit of a Security Interest or any other right, power or remedy relating to the Guaranteed Amount or any other moneys, which the Guarantor might otherwise be entitled to claim and enforce” and “waives in favour of the Lender all rights, powers and remedies whatever which the Guarantor may at any time have against the Lender, any other Relevant Person, or any other person, estate or assets as far as necessary to give effect to this clause …” (see Lambros at [23]).
Wilson FM accepted the argument of the creditor in Lambros that until the guaranteed monies had been paid by the debtor he was precluded from bringing any action against it and that this meant that he did not have a counter-claim, set-off or cross demand within s.40(1)(g) of the Act (at [25] – [31]).
Reliance was placed on Capital Finance Australia Limited v Airstar Aviation Pty Ltd & Ors [2003] QSC 151 as well as on GE Capital v Davis. In Capital Finance v Airstar Aviation Holmes J found that a clause in a guarantee that provided that the guarantor “must not exercise any right of set-off, withholding, deduction or counterclaim which reduces or extinguishes the obligation of Customer or Guarantor to pay the money” ousted any right to bring a counter-claim or set-off (at [9] – [10]).
In Lambros Wilson FM acknowledged that the terms of the deed of guarantee were not as clear as those considered in GE Capital v Davis and Permanent Trustee v Gulf Import, but concluded nonetheless that the “plain intent” of the clause in question was to “defer any claim by the applicant until such time as the amount owing [was] paid to the respondent” (at [29]). In my view the same may be said about cl.7 in the Deed of Guarantee and Indemnity in issue in this case. As Wilson FM stated at [29]:
… The clause does not deprive the applicant of any right of action he may have against the respondent for sale at an undervalue, but suspends or defers that right of action until after payment has been made. The applicant has contracted out of his rights at law and in equity to raise claims prior to satisfaction of the claimed debt. …
Cases such as Capital Finance v Airstar and GE Capital v Davis make it clear that such a course was both “permissive and effective” (at [29]). Importantly, Wilson FM stated at [30] – [31] in Lambros:
Superficially, the conclusion that the applicant cannot bring a claim against the respondent for breach of its duties as mortgagee supports the applicant’s argument that the claim he now seeks to make could not have been raised in the proceedings brought against him, thereby satisfying one of the elements required to be demonstrated by s.40(1)(g) of the Act. However, the applicant’s submissions do not recognize that s.40(1)(g) of the Act also requires that the counterclaim, set off or cross demand must be one that is effective against the creditor at the time of the hearing of the application to set aside the bankruptcy notice: McDonald Henry & Meek, Australian Bankruptcy Law & Practice, at [40.1.345] and the cases there cited. As the applicant’s right to claim against the respondent is suspended until payment is made, this requirement cannot be satisfied in the present case.
I therefore conclude that the applicant had contractually waived any entitlement to bring proceedings against the respondent at the time the application to set aside the bankruptcy notice was heard.
Similarly, in this case Mr Buggy had contractually waived any entitlement to bring proceedings against VSCL at the time the application to set aside the Bankruptcy Notice was heard.
I have reached that view notwithstanding Mr Buggy’s contention that cl.7 did not preclude the bringing of a claim such as that brought in the ACT Proceedings against VSCL because those proceedings were not “in reduction of [Mr Buggy’s] liability under” the Deed of Guarantee and Indemnity or another Transaction Document within cl.7.2 of the Deed of Guarantee and Indemnity. It was submitted that in the ACT proceedings Mr Buggy was not seeking to reduce his liability under the Guarantee, but that he was bringing a claim independent of claims litigated in New South Wales in relation to the Guarantee and that the ACT proceedings pre-dated the NSW proceedings. However, the ACT proceedings did not pre-date the Deed of Guarantee. It is apparent from the Second Further Amended Statement of Claim filed in the ACT proceedings that Mr Buggy seeks to assert that there are to be implied into the Deed of Guarantee and Indemnity certain terms which are said to have been breached by VSCL. He also asserts that a duty of care arises from his relationship with VSCL from which damages flow. It is clear that if Mr Buggy were to succeed in his claim against VSCL as pleaded in the ACT proceedings, it would be in reduction of his liability under the Deed of Guarantee and Indemnity.
Counsel for Mr Buggy also contended that VSCL was estopped from raising this contention in relation to the ACT proceedings and in respect of the Bankruptcy Notice on the basis that at no time during the course of the ACT proceedings had it sought to challenge Mr Buggy’s entitlement to bring the ACT proceedings based on the effect of cl.7.2 of the Deed of Guarantee and Indemnity and that Lambros could be distinguished on the basis that in that case no cross-claim proceedings had been instituted.
I do not consider that the question of whether or not proceedings had actually been instituted is a basis on which to distinguish the principles in Lambros in relation to the effect of a contractual suspension of a right to claim against a lender under a Deed of Guarantee and Indemnity. Nor am I persuaded that the creditor is estopped from raising such a contention in these proceedings. The ACT proceedings are part heard, but the fact that VSCL has not sought summary judgment in relation to Mr Buggy on the basis of the Deed of Guarantee is not such as to give rise to some estoppel or waiver. I note that for the most part the ACT proceedings involve a number of other parties and claims.
It is not, in any event, necessary in these proceedings to determine whether cl.7.2 of the Deed of Guarantee and Indemnity would prohibit the ACT proceedings. What is in issue is whether the clause prevents the applicant from asserting that he has a counter-claim, set-off or cross demand in reduction of his liability to VSCL under the Deed of Guarantee and Indemnity (which was the basis on which VSCL obtained the judgment against Mr Buggy (as guarantor) that forms the basis for the Bankruptcy Notice).
In the interests of judicial comity I consider that I should follow the approach taken by Wilson FM in Lambros in relation to the need for any asserted claim to be effective against the creditor at the time of the hearing of the application to set aside the Bankruptcy Notice. It has not been established that he is clearly wrong.
The wording of the cl.7.2(a) is in my view clear. It is wide enough to encompass a cross demand of the nature asserted by Mr Buggy. It is the case that cross demand is not a technical term (Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 at 139; [1980] FCA 78; Pollnow v Queensboro Pty Ltd (1988) 217 ALR 49; [1988] FCA 365 at [9]), but, relevantly, even if some aspects of the claim asserted by Mr Buggy against VSCL in the ACT proceedings are outside those restricted by cl.7.2 I am satisfied that his claim based on alleged breaches of express terms of the Loan Agreement between VSCL and Icehot and implied terms in the mortgage between VSCL and Icehot (which are Transaction Documents for the purposes of cl.7.2 under cl.1.1 of the Deed) or, in the alternative, implied terms in the Guarantee (paragraphs 54 – 63 of the Second Further Amended Statement of Claim in the ACT proceedings) are within cl.7.2(a) of the Deed which prohibits the exercise of any right of set-off or making of a counter-claim against VSCL in reduction of Mr Buggy’s liability under the Deed of Guarantee or another Transaction Document.
I am not satisfied that the fact that Mr Buggy has already instituted the proceedings which are said to constitute a cross demand against VSCL consisting of the ACT proceedings (and in which the effect of cl.7 of the Deed of Guarantee is yet to be considered) means that the approach in Lambros should be distinguished. In my view Mr Buggy has contractually waived any entitlement to bring proceedings of the nature referred to against the respondent at the time of the hearing of the application to set aside the Bankruptcy Notice. Hence he has not established that his claimed counter-claim, set-off or cross demand is one that would be effective against the creditor at the time of the hearing of the application to set aside the Bankruptcy Notice.
Moreover, even if it could be argued that, at least in some respects, the ACT proceedings did not constitute a “set-off” or “cross-claim” to which cl.7.2 of the Deed of Guarantee would apply so that the debtor’s right to exercise such rights were suspended until the guaranteed liabilities were paid, there were a number of other reasons why Mr Buggy (who bears the onus) has not satisfied me that the Bankruptcy Notice should be set aside.

Bona fides of the claim

The principles in relation to the degree to which the applicant needs to satisfy the court under s.40(1)(g) of the Act are conveniently summarised by Lindgren J in ReGlew; Glew v Harrowell of Hunt & Hunt Lawyers (N7350 of 2002) (2003) 198 ALR 331; [2003] FCA 373 at [8] – [12]. His Honour observed that the authorities suggest that the debtor must satisfy the court of the following “interrelated and sometimes overlapping matters” (at [9]):
* that they have a ‘‘prima facie case”, even if they do not adduce evidence which would be admissible on a final hearing making out that case: Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 (Ebert) at 350; Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 at 438–9; 44 FLR 135 at 141 (Brink); Gomez v State Bank of New South Wales Ltd [2002] FCAFC 101; at [17], [18];
* that they have ‘‘a fair chance of success” or are ‘‘fairly entitled to litigate” the claim: Brink at ALR 438–9; FLR 141; Gould v Day [1999] FCA 1650; BC9907767 at [27], [28]; Re Capsanis; Capsanis v Owners — Strata Plan 11727 [2000] FCA 1262; at [11]; and
* that they are advancing a ‘‘genuine” or ‘‘bona fide” claim: Re Capsanis; Capsanis v Owners — Strata Plan 11727 [2000] FCA 1262;at [11].
It may be that the first and second formulations are intended to cover the same ground. In Brink Lockhart J treated (at ALR 438-9; FLR 141) the reference to a "prima facie case" in Ebert as a reference to "a fair chance of success".
As Lockhart J stated in Re Brink (at 141), the court is not required to “undertake a preliminary trial of the counterclaim, set-off or cross demand”, although it must make some kind of preliminary assessment weighing up considerations as to the legal and factual merit of the debtor’s claim and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to wait determination of the claim (and see Guss v Johnstone).
In Re Glew Lindgren J continued at [11] – [12]:
Plainly, in order to "satisfy" the court for the purposes of s 40(1)(g), the debtor is not required to prove, as on a final hearing, the asserted entitlement to recover from the creditor. Accordingly, evidence tendered on an application to set aside is to be tested for admissibility, not as if the proceeding were one in which the debtor's claim was being finally determined, but by reference to the question whether the Court should be satisfied that the debtor has a claim deserving to be finally determined.
Perhaps little more can usefully be said than that a debtor must satisfy the court that there is sufficient substance to the counter-claim, set-off or cross-demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.
In this case the evidence of the applicant consists to a large extent of assertions made in pleadings in the ACT proceedings. It has been said that the mere production of a statement of claim alleging facts which if true might give rise to a counter-claim, set-off or cross demand will be insufficient to satisfy the court as required by s.40(1)(g) of the Act (Re Cox (1934) 7 ABC 98).
Insofar as the applicant relies on the Second Further Amended Statement of Claim filed in the ACT proceedings to establish that he has a prima face case, as counsel for the respondent submitted, it is very generally expressed and cannot be said to identify with precision the acts or omissions VSCL is said to have committed that caused the claimed loss to Mr Buggy or how any obligations were breached by VSCL. The fact that the ACT proceedings are on foot and are being pursued does not of itself mean that the court should be satisfied that there is sufficient substance to the asserted counter-claim, set-off or cross demand by Mr Buggy, particularly in circumstances where the ACT proceedings are not simply proceedings between Mr Buggy and VSCL. There are three other plaintiffs and three other defendants and a number of issues raised in relation to the alleged freezing of the bank accounts of two corporate plaintiffs (and of Mr Buggy). Many of the issues raised are relevant primarily to the claims brought against the three defendants other than VSCL. Even if the corporate entities had prima facie claims or Mr Buggy had such claims against defendants other than VSCL this is not such as to establish that Mr Buggy has a prima facie claim against VSCL.
In the Second Further Amended Statement of Claim there is an assertion that VSCL knew certain things or ought to have known certain things prior to settlement of the loan to Icehot and the Guarantee. The pleadings also assert that two cheques were made available after the settlement of the loan, either by VSCL or BBL, that money was paid into the Cleary bank account, that Mr Buggy received a phone call from an employee of VSCL suggesting fraud, that $3 million dollars was placed in a company bank account for mezzanine lending purposes and then, critically, that without notice to Mr Buggy or to the companies, an employee of BBL did certain things which were said to have led to the CBA and NAB freezing bank accounts. Nothing of substance was said about VSCL in the pleadings in relation to these particular events, beyond a reference to it being 100 per cent owned and controlled by BBL. While there is a reference to a resolution of the board of directors of VSCL dated 13 July 2006, the pleadings assert that the accounts were frozen on 12 July 2006.

Putting to one side causes of action pleaded against the CBA and NAB, it is contended in the ACT proceedings that there was intentional interference with contractual relationships between the CBA and Parker, NAB and Cleary and, relevantly, NAB and Buggy by VSCL and BBL. It is asserted that on 12 July 2006 BBL and VSCL intentionally caused the CBA and NAB to freeze the accounts of Parker, Cleary and Buggy. Again no reference is made to particular conduct of VSCL to disclose evidence of any cause of action against VSCL. The same may be said in relation to the allegations of breach of duty of care which, having regard to the affidavit of Mr Buggy filed in these proceeding, appear to rely on allegations of wrongdoing on the part of BBL and NAB or the CBA.
However there are also, as mentioned above, allegations of breaches of express and implied terms in the Loan Agreement, Mortgage and the Deed of Guarantee and Indemnity. These allegations do relate specifically to VSCL. Mr Buggy swore an affidavit in these proceedings on 7 May 2010 which is intended to establish that there is a real, effective, bona fide claim, although that does not address the possible impact of cl.7.2 of the Deed of Guarantee and Indemnity. There is also evidence before the court that the ACT proceedings are part heard after five days.
As counsel for the respondent conceded and Lindgren J stated in Re Glew at [64], it is a “relevantly low threshold” for an applicant to satisfy the court of this requirement.
However, it is not sufficient to determine whether Mr Buggy has established that he has a prima facie case or a bona fide claim in any of his claims against VSCL, he must also satisfy the court in relation to any bona fide claim that prima facie he has a reasonable prospect of securing damages in “an amount … equal to or exceeding the amount claimed in the bankruptcy notice” as specified in s.40(1)(g) of the Act (Melbourne v Relativity Pty Ltd [1999] FCA 160 at [27] – [47] per Moore J (and see Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346 at 350; [1960] HCA 50 per Dixon, McTiernan and Windeyer JJ).
Mr Buggy has not so satisfied the court. The Second Further Amended Statement of Claim does not draw a clear distinction between damages claimed by Mr Buggy and Icehot (and, at times, also by Parker and Cleary). More importantly, there is no evidence of any quantification of the damages sought. In his affidavit of 7 May 2010 Mr Buggy refers to possible lost purchase opportunities for Cleary and a lost sale of the Tweed Head property by Icehot and lost mezzanine lending opportunities. In written submissions it was claimed generally that the claim by “Buggy and the other plaintiffs” in the ACT proceedings (against four defendants) would more than offset the amount claimed in the Bankruptcy Notice. It was claimed that damages would arise from Icehot’s loss of purchasers of the Tweed Heads property at $13 million and later $11.7 million, the inability to obtain a purchaser and/or a substitute mortgagee of the property owned by Icehot and loss of mezzanine lending opportunities and aggravated and/or punitive/exemplary damages for loss of sale opportunities that were said to have deprived Icehot and Buggy of the ability to repay the monies advanced by VSCL. However the claim must be a claim on the part of the debtor in relation to the creditor.
Moreover, apart from issues about whether the asserted cross demand against VSCL was mutual with the debt claimed in the Bankruptcy Notice (which is not clear), in oral submissions counsel for Mr Buggy told the court that the ACT proceedings involved a claim for $7.9 million, together with punitive or exemplary damages. On this basis alone the cross demand which Mr Buggy seeks to rely on is not one which satisfies the requirements of s.40(1)(g) of the Act. There is no evidence before the court to quantify damages by Mr Buggy, and even the amount now said to be claimed by all the plaintiffs in the ACT proceedings (not just Mr Buggy) is not equal to and nor does it exceed the amount in the judgment relied on that forms the basis of the Bankruptcy Notice. In the absence of proper evidence quantifying the claimed damages in question, the court cannot be satisfied of this requirement. The amount referred to ($7.9 million) is less than the amount of the debt relied on in the Bankruptcy Notice.
I have had regard to the fact that aggravated and/or punitive or exemplary damages are sought. Even if such discretionary damages could be taken into account (see Patane v Asteron Life Ltd (formerly Royal & Sun Alliance Financial Services Ltd) (ACN 001 698 228) [2004] FCA 232), such claims have not yet been quantified and the evidence in this respect is not such as to satisfy me that Mr Buggy has a reasonable prospect of securing damages from VSCL (as distinct from the other defendants in the ACT proceedings) equal to or exceeding the amount claimed in the Bankruptcy Notice, that is, $8,541,214.16.
Mr Buggy’s failure to satisfy the court in this respect is fatal to his application (see Melbourne v Relativity Pty Ltd at [27] – [47]).
Hence, I am not satisfied that Mr Buggy has satisfied the court that his claim against VSCL should be heard and determined without Mr Buggy being forced to comply with the Bankruptcy Notice or otherwise to commit an act of bankruptcy.

Whether the cross demand could not have been set up in the NSW proceedings

Furthermore, Mr Buggy must satisfy the court that he was unable to set up the claimed cross demand in the proceedings that gave rise to the judgment, that is the NSW proceedings.
In submissions for Mr Buggy it was claimed that he was unable to set up the cross demand in the NSW proceedings for a number of procedural reasons. Reference was made to the facts that on VSCL’s motion parts of Mr Buggy’s defence in the NSW proceedings were struck out on the basis that the allegations had been advanced in the ACT proceedings, his application to transfer the NSW proceedings to the Supreme Court of the Australia Capital Territory to be heard in conjunction with the ACT proceedings was refused on 20 August 2009 and his motion to amend his defence and file a cross-claim so that the claims in the ACT proceedings could be raised in the NSW proceedings was dismissed. Mr Buggy was also unsuccessful in his application to join Parker and Cleary to the NSW proceedings. Einstein J refused leave to file the cross-claim on 26 October 2009. According to Mr Buggy this was on the basis that it would be an abuse of process to file a cross-claim which advanced the same allegations as those advanced in the ACT proceedings. On the same day Einstein J gave summary judgment against each of Mr Buggy and Icehot.
As stated in Re Ling; Ex Parte Ling v Commonwealth of Australia (1995) 58 FCR 129 at 132 and 137; [1995] FCA 1410 per Hill J, the question of whether a cross demand could not have been set up in the proceedings is a question “to be answered by reference to legal considerations” not practicalities. It does not depend on whether or not the claim could have been set up successfully, but whether it could be set up as a matter of law (Re Brink). The fact that a debtor needed leave of a court or the exercise of the discretion of a court in order to set up a counter-claim, even if his application for such leave was refused, does not mean that the debtor was unable to set up a counter-claim in those proceedings. In Re Willats and Another; Ex parte Nissan Finance Corporation Limited (1991) 31 FCR 206; [1991 FCA 407 O'Loughlin J stated (at 212):
… If, on the other hand, he either fails to seek leave or, having sought leave, fails to obtain it, it cannot be said that the counterclaim thereby becomes one which he could not have set up. His failure to act or his failure to obtain leave can never be the exclusive test. One must look at the substance of the counterclaim and determine whether it comes within the definition of Lukin J in Stokvis' case.
In Re Stovkis (1934) 7 ABC 53 (as in this case) the debtor had instituted prior proceedings against the creditor. He had issued a writ in a civil court, but at the relevant time he had taken no further action. The judgment creditor instituted separate proceedings against the debtor and obtained a judgment. The applicable rules of court prevented the debtor from pleading by way of cross action a matter that remained the subject of a pending action by him against the judgment creditor (and see Re Willats at [14]). To file such a counter-claim in the later proceedings it would have been necessary for the debtor to have first discontinued his own action. However Lukin J concluded in Re Stovkis that the debtor could have made such an election, withdrawn his own writ and obtained leave from the court to set up a counter-claim by way of cross action (at 56). His Honour explained that a counter-claim which could not be set up was one “... which, from point of time, or from its nature, or from absence of empowering provisions, or from positive inhibition so to do, could not be set up in the particular case in which judgment was obtained” (at 57) and found that the debtor could have set up a counter-claim if he wished to do so and that his failure to take advantage of that opportunity was not an inability to do so. Importantly, as O'Loughlin J stated in Re Willats at [21], a debtor’s “failure to act or his failure to obtain leave can never be the exclusive test”.
In this instance Einstein J refused Mr Buggy’s application for leave to file a cross-claim in the NSW proceedings on the basis that it would amount to an abuse of process to advance the same allegations as advanced in the concurrent ACT proceedings because the respondent would be forced to defend the same case twice. This does not mean that it was not open to Mr Buggy as a matter of law to have discontinued his action against VSCL in the Australian Capital Territory and to have brought such proceedings as a cross-claim in the NSW proceedings. As counsel for VSCL contended, it was Mr Buggy’s insistence that he maintain the ACT proceedings against VSCL that led to the cross-claim not proceeding in the NSW proceedings and not any legal bar. It has not been established that Mr Buggy was unable to set up his claimed cross demand against VSCL in the NSW proceedings.
For each of these reasons the debtor has not established to the requisite level of satisfaction that he has a counter-claim, set-off or cross demand that meets all of the requirements of s.40(1)(g) of the Act. Hence the Bankruptcy Notice should not be set aside and his application should be dismissed.

Extension of Time

In the alternative, in supplementary submissions filed on 27 July 2010 Mr Buggy sought an order under s.41(6A)(b) of the Act extending the time for compliance with the Bankruptcy Notice until after the ACT proceedings had been heard and determined. Such an order was sought as an interim order in the initial application filed on 10 May 2010. When this matter first came before a registrar of the court, no order was made extending the time for compliance with the Bankruptcy Notice under s.41(6A) of the Act, presumably on the basis that there was a deemed extension of time under s.41(7) of the Act because the application was to set aside the Bankruptcy Notice on the ground that the debtor had a counter-claim, set-off or cross demand as referred to in s.40(1)(g) and was filed before the expiration of the time for compliance with the Bankruptcy Notice.
However it emerged in submissions that the applicant did not seek an order extending the time for compliance with the Bankruptcy Notice up to and including the date on which this court determined whether or not the Bankruptcy Notice should be set aside. Rather it was contended that even if the debtor did not succeed in his application to set aside the Bankruptcy Notice on the basis of a counter-claim, set-off or cross demand, the court nonetheless could and should extend the time for compliance with the Bankruptcy Notice (so that no act of bankruptcy would occur) pursuant to s.41(6A)(b) of the Act.
Section 41(6A)(b) is as follows:
Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice:
(a) proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
(b) an application has been made to the Court to set aside the bankruptcy notice;
the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.
The applicant submitted that the filing of an application to set aside the Bankruptcy Notice within the time for compliance was sufficient to invoke the court’s jurisdiction under s.41(6A)(b) even if the debtor did not apply to set aside the judgment on which the Bankruptcy Notice was based and that whether or not there ought to be such an extension of time was a matter within the court’s discretion. It was submitted that it was not necessary for exceptional circumstances to be shown, as the discretion conferred under s.41(6A) was at large (subject to s.41(6C) which is not applicable in the present circumstances).
Counsel for Mr Buggy acknowledged that the court would be reluctant to extend the time for compliance with a bankruptcy notice where all that was established was the existence of an arguable appeal in the absence of a stay having been granted or sought (see Sidhom v Euphoric Pty Ltd (2006) 232 ALR 618; [2006] FMCA 827), but submitted that in this case the fact that the ACT proceedings were part heard was an exceptional circumstance warranting an order extending the time for compliance with the Bankruptcy Notice.
However, this is not a case in which there is any issue of an appeal from the judgment on which the Bankruptcy Notice was based. In De Angelis v Cusack [2007] FMCA 1884, (which was relied on by the applicant), while Wilson FM took the view that the discretion to extend the time for compliance with a bankruptcy notice was at large, in that case what was in question was an appeal in relation to the judgment upon which the bankruptcy notice was based. In this case the purpose of the application for an extension of time is not to allow a challenge to the Bankruptcy Notice itself or to the judgment upon which it is based. As Wilson FM pointed out at [9]: “It is of course one thing to conclude that the court has jurisdiction, but quite another to accede to the application to extend time.”
Similarly, Sidhom v Euphoric Pty Ltd involved an application for an extension of time for compliance with a bankruptcy notice where there had been an appeal from the decision on which the bankruptcy notice was based. It was not disputed that the court had power to exercise its discretion to extend the time for compliance with the bankruptcy notice. In fact no extension of time was ordered. Again, in McPhee v Glentham Pty Ltd [2006] FMCA 1508, although there was an appeal from the decision on which the bankruptcy notice was based, the applicant was unsuccessful in obtaining an extension of time for compliance with the bankruptcy notice.
These authorities do not assist the applicant in circumstances where there is no proceeding on foot challenging the judgment on which the Bankruptcy Notice was based.
Where the only ground on which the debtor relies to set aside the bankruptcy notice is that he or she has a counter-claim, set-off or cross demand within s.40(1)(g) of the Act, then the extension of time applicable is the deemed extension of time under s.41(7) of the Act. Such an extension of time continues until and including the day on which the court determines whether it is so satisfied. In this case there was no other basis for the application to set aside the Bankruptcy Notice in the original application and affidavit.
Further, even if the jurisdictional requirement of an application to set aside the bankruptcy notice is met under s.41(6A)(b) notwithstanding that the ground relied on is not made out, in my view that is not sufficient to warrant the exercise of the court’s discretion. The purpose of an extension of time is to enable the court to determine the challenge to the bankruptcy notice. The existence of “the power to extend time is in aid of the setting aside of the notice itself” as stated in Re Sterling; Ex parte Esanda Ltd (1980) 30 ALR 77 at 83; [1980] FCA 61. While matters relevant to the judgment on which the bankruptcy notice was based, which would include the existence of an appeal, may be matters to be taken into account in relation to an application for an extension of time under s.41(6A) of the Act, these are not the circumstances of this case.
If the court does have a discretion, in the particular circumstances of this case I am not persuaded that the time for compliance with the Bankruptcy Notice should be extended until after the finalisation of proceedings instituted by Mr Buggy and three other corporate plaintiffs against the creditor and three other defendants in the ACT Supreme Court. Those proceedings do not involve any challenge to the judgment on which the Bankruptcy Notice itself was based. I have borne in mind that the commission of an act of bankruptcy is not of the same order of gravity as the change in status brought about by the making of a sequestration order.
Accordingly, the application should be dismissed with costs.

I certify that the preceding ninety-three (93) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate:

Date: 21 September 2010