Chiquita Brands South Pacific Limited v Shephard
[2002] FMCA 116
•25 June 2002
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CHIQUITA BRANDS SOUTH PACIFIC LIMITED v SHEPHARD | [2002] FMCA 116 |
| BANKRUPTCY – Petition – petition issued before act of bankruptcy committed – petition dismissed. BANKRUPTCY – Bankruptcy notice – time for compliance extended by implication where appeal against dismissal successful and matter re-heard. |
Bankruptcy Act 1966 (Cth) ss.40(1)(g), 41(6A), 41(7), s.41(1)(c), 44(1)
Guss v Johnstone (2001) 171 ALR 598
Streimer v Tamas (1981) 37 ALR 211
Re A Debtor (1970) 1 ALL ER 920
Matthews v Collett [2000] FCA 224
Amending a Creditor’s Petition: The Need for Caution William Morgan [Insolvency Law Journal March 2001 19]
| Applicant: | CHIQUITA BRANDS SOUTH PACIFIC LIMITED ACN 002 687 961 |
| Respondent: | DEREK GEORGE SHEPHARD |
| File No: | SZ 678 of 2001 |
| Delivered on: | 25 June 2002 |
| Delivered at: | Sydney |
| Hearing Date: | 17 June 2002 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Counsel for the Applicant: | Mr C Newlinds and Mr H Stowe |
| Solicitors for the Applicant: | Fishburn Watson O’Brien |
| For the Respondent: | Mr Shephard in person |
ORDERS
Time for compliance with the bankruptcy notice extended until the day upon which judgment in matter SZ 233 of 2001 is given.
Petition dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ 678 of 2001
| CHIQUITA BRANDS SOUTH PACIFIC LIMITED ACN 002 687 961 |
Applicant
And
| DEREK GEORGE SHEPHARD |
Respondent
REASONS FOR JUDGMENT
This is a creditor’s petition for a sequestration order brought against DEREK GEORGE SHEPHARD. On 14 May 2002 I made an order that these proceedings be consolidated with proceedings No 233 of 2001 which were proceedings by Mr Shephard to set aside a bankruptcy notice. It is Mr Shephard’s failure to comply with the bankruptcy notice which grounds the petition.
When the matter came before me for hearing together with Matter No. 233 of 2001 on 17 June 2002 I vacated the order consolidating the two proceedings and substituted for it an order whereby this matter would be heard consecutively with SZ 233 of 2001. That is the way the two cases proceeded. First I heard Mr Shephard’s application to set aside the bankruptcy notice and then, and without prejudice to my findings, I heard the petition.
Mr Shephard disputed the validity of the petition. He argued that it could not be based upon an act of bankruptcy that had already been committed because he had not committed an act of bankruptcy. In order to understand this submission it is necessary to set out shortly the history of these proceedings.
On or about 19 April 2000 a bankruptcy notice was issued and numbered NW633/2000 by the current applicant then known as Blueberry Farms of Australia (Curindi) Pty Limited based upon a Local Court Judgment of 1995. Mr Shephard brought proceedings, originally in the Federal Court but later transferred to this court, to set aside that bankruptcy notice. The application was heard by Driver FM and was successful.
On 14 February 2001 a bankruptcy notice numbered NN317/01 was issued by the applicant claiming a debt of $11,793.32 based upon the same Local Court debt together with interest and some costs.
Mr Shephard took proceedings in the Federal Magistrates Court to set aside that bankruptcy notice. Those proceedings were dismissed by Driver FM in a Judgment dated 12 September 2001. The applicant then appealed against the decision of Driver FM and in proceedings N1335 of 2001 Gyles J upheld the appeal in a Judgment dated 15 April 2002. His orders were:
“The appeal thus be allowed, the orders below set aside and a proceeding remitted to the Magistrates Service for hearing according to law.”
The only matter upon which the debtor was successful in his appeal was his argument that the Federal Magistrate was wrong in deciding that certain alleged cross claims could not be raised in the application because of an issue estoppel. It therefore fell to me in those proceedings to decide whether or not the debtor could make out a cross claim, set off or cross demand within s.40(1)(g) of the Bankruptcy Act.
Driver FM’s decision to dismiss the application to set aside was handed down on 12 September 2001 but the time for compliance of the bankruptcy notice was extended until 26 September 2001. On 21 September 2001 the debtor filed a Notice of Motion in the Federal Court under the proceedings number which had been given to him when he filed his appeal against the decision of Driver FM (N1335 of 2001). That application went before Allsop J.
Allsop J said at [5]:
“It is undoubted that should time not be extended by me today and should compliance not occur today that an act of bankruptcy will be committed.”
And he went on to say at [9]:
“Further, it may well be a result of Guss v Johnstone (2001) 71 ALR 598 in particular paragraphs [58] to [62] that should Mr Shephard’s appeal be successful any act of bankruptcy can in effect by nullified.”
His Honour did not extend the time for compliance with the bankruptcy notice instead he accepted inter parties undertakings in the following form:
“The Court:
1. Orders that on the condition that the respondent undertakes to the appellant to consent to the adjournment of any final hearing of the petition until the resolution of any appeal from the decision of Driver FM, such undertaking itself being conditional upon the appellant taking all steps reasonably necessary to prosecute such appeal expeditiously (and noting that such undertakings are given), the notice of motion be dismissed.
2. …
3. …
4. Directs that the undertaking by the respondent in no way prevents it from taking all necessary steps to bring any bankruptcy petition to a state of readiness for hearing.”
Allsop J’s decision was made on the basis of the creditor’s submissions that there was little merit in the appeal and that it was to the benefit of creditors generally if a petition could issue as soon as possible after the decision of the Full Federal Court (in this case represented by Gyles J).
Today, the applicant creditor relies on that judgment as indicating that no extension of time for compliance with the bankruptcy notice has occurred and that it was entitled to issue the petition immediately after Allsop J’s decision although it would not seek a hearing of that petition until the time when Mr Shephard’s challenge to the bankruptcy notice was heard.
The petition itself was issued on 25 October 2001 i.e. before Justice Gyles handed down his decision and relied upon an act of bankruptcy being the failure of the debtor to comply with the requirements of the bankruptcy notice on or before 26 September 2001.
It is my view that if matters had proceeded as the creditors had expected and the appeal to Gyles J had been dismissed then their actions in issuing the petition when they did based upon the act of bankruptcy referred to would have been unchallengeable by Mr Shephard.
But that is not what occurred. Mr Shephard won his appeal and Justice Gyles made an order setting aside the decision of Driver FM and referring the matter back to the Federal Magistrates Court to be decided in accordance with law. The creditors argue that even though this occurred the act of bankruptcy has still been committed. The creditor says that Guss v Johnstone is authority for that proposition and that nothing which Justice Gyles did brings the case within para [63] of that decision.
“[63] We are unable to accept that whenever, in a proceeding under s.40(1)(g) and 41(7), a Judge at first instance has determined that he or she is not satisfied of the matter referred to in s.41(7), and has declined to interfere with the process initiated by a creditor, no appellate reversal of that decision, whether by the Full Court or by this Court, can alter the consequences of the decision. In a proper case it would have been within the power of the Full Court to set aside the declaration made by Sunberg J. The consequences for proceedings and events that had occurred in the meantime would vary with circumstances, that they could include the same consequences as flowed from the order in Streimer v Tamas (1981) 37 ALR 211 where the statutory power to extend time for compliance with the bankruptcy notice, given by s.41(6A), was exercised after an act of bankruptcy had been committed.”
I read this dicta as indicating that an extension of time for compliance with the bankruptcy notice could, and indeed should, be given, if it is necessary so to do, in a case where the decision not to set aside a bankruptcy notice under s.41(7) is reversed on appeal. I would go further, I would respectfully suggest that even if no formal order of the type made in Streimer was made because none was applied for, (the applicant debtor being self represented and not fully conversant with the complexities of the Bankruptcy Act and the cases upon it) such an order would be implied (Streimer 223 at 25). In so far as an order is required here, I make it and extend time for compliance until completion of the day on which judgment on the application to set aside the bankruptcy notice is given.
It would not be necessary to resort to this formulation if the court could hold that the very act of setting aside the Federal Magistrate’s original order had the effect of keeping the application within s.41(7) because the matter had not yet been determined. This was raised in Guss v Johnstone at [59] but no answer was given.
The creditor argues that by making the application to Allsop J and his dismissing it, the debtor is precluded from arguing that the act of bankruptcy has not been committed. I do not accept that either. Allsop J specifically reserved the position in the event of a successful appeal and made direct reference to Guss v Johnstone in the paragraph quoted at 9 above.
I am satisfied that no act of bankruptcy was committed on 26 September 2001. The earliest an act of bankruptcy will have been committed is at one minute past midnight in the day following the handing down of the decision on the setting aside application.
These matters were discussed in the proceedings and the creditor asked that if I should come to the view that the act of bankruptcy relied upon was not an act of bankruptcy, that it be allowed to amend the petition to plead the actual act of bankruptcy. It was assumed that this application for amendment would be made immediately following my decision in the debtor’s application to set aside the bankruptcy notice.
I think that the creditor’s understanding of its position is mistaken. Section 44(1)(c) of the Bankruptcy Act states:
“44(1) A creditor’s petition shall not be presented against a debtor unless:
(c)The act of bankruptcy on which the petition is founded was committed within six months before the presentation of the petition.” (emphasis added).
As I have found that the act of bankruptcy has not yet been committed and as the petition has already been presented it would appear that this petition is void unless it could be amended. (Re A Debtor (1970) 1 All ER 920).
In Matthews v Collett [2000] FCA 224 Spender J decided that an amendment could be made substituting another act of bankruptcy provided that the act of bankruptcy then proposed was within six months of the date of the application for amendment. The date of the application for amendment was taken to be the date of presentation of the petition for the purposes of s.41(1)(c). See also “Amending a Creditor’s Petition: The Need for Caution” William Morgan [Insolvency Law Journal March 2001.19].
The creditor has not made any application to amend the petition and could not do so because no act of bankruptcy has yet been committed. It did, however, ask me to hear the petition on the basis that the act of bankruptcy had taken place on 26 September. It did not have to do that. It could have waited until I made my decision upon the challenge to the bankruptcy notice and then sought to amend to base the petition on a subsequent act of bankruptcy. The application which the debtor made has failed. But the act of bankruptcy has not yet occurred. Having heard the petition I think the appropriate course to take is to dismiss it. I do not see why the petition should be hanging over the head of the debtor before the act of bankruptcy has been committed.
In the course of argument in relation to these matters Mr Shephard told me that he was not in a position to make payment of the amount claimed in the bankruptcy notice. There would therefore be no utility in extending the time for compliance any further than today.
I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Raphael FM
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