Featherstone v Hambleton as Liquidator of Ashala Pty Ltd (in Liquidation)
[2014] FCCA 1149
•23 April 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FEATHERSTONE v HAMBLETON AS LIQUIDATOR OF ASHALA PTY LTD (IN LIQUIDATION) | [2014] FCCA 1149 |
| Catchwords: BANKRUPTCY – Proceedings in connection with bankruptcy – bankruptcy notice – extension of time for compliance with notice – power and discretion of Court. |
| Legislation: Bankruptcy Act1966, ss.41, 41(6A)(a), 41(6A)(b), 41(6C) |
| Re Nguyen Ex Parte Commissioner of Taxation (1994) 54 FCR 403 Re Sterling; Ex parte Esanda Ltd (1980) 44 FLR 125 |
| Applicant: | DARRELL MORGAN FEATHERSTONE |
| Respondent: | DAVID JAMES HAMBLETON AS LIQUIDATOR OF ASHALA PTY LTD (IN LIQUIDATION) |
| File Number: | BRG 324 of 2014 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 23 April 2014 |
| Date of Last Submission: | 23 April 2014 |
| Delivered at: | Brisbane |
| Delivered on: | 23 April 2014 |
REPRESENTATION
| There being no appearance for the Applicant |
| Solicitor for the Respondent: | Ms Thornborough |
| Solicitors for the Respondent: | Irish Bentley Lawyers |
ORDERS
Time for compliance with the bankruptcy notice BN170440 be extended to either 4:00pm 9 July 2014 or 4:00pm on the day on which the appeal to the Court of Appeal has been determined by that Court, whichever is sooner.
The application filed 11 April 2014 be dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 324 of 2014
| DARRELL MORGAN FEATHERSTONE |
Applicant
And
| DAVID JAMES HAMBLETON AS LIQUIDATOR OF ASHALA PTY LTD (IN LIQUIDATION) |
Respondent
REASONS FOR JUDGMENT
ex tempore
By his application filed on 11 April 2014, Darrell Featherstone seeks an order that a bankruptcy notice, BN170440, issued on 24 March 2014 and which was served on him on 26 March 2014 be set aside pursuant to s.41 of the Bankruptcy Act1966. He seeks an interim order that the time for compliance with the bankruptcy notice be extended up to and including a date which he does not specify in the application.
The application to set aside the bankruptcy notice is opposed by David James Hambleton who is the liquidator of Ashala Pty Ltd (in liquidation). Mr Hambleton caused the bankruptcy notice to be issued to Mr Featherstone.
Mr Hambleton has secured a judgment of the District Court of Queensland against Mr Featherstone and it is that judgment which forms the basis of the bankruptcy notice that Mr Featherstone now wishes to set aside.
The application, as I have said, is opposed. It is difficult to discern from the written and oral submissions made by the applicant the basis upon which he says the bankruptcy notice ought to be set aside. There is reference in his material to a number of authorities – the well-known authorities which deal with the circumstances in which a court might set aside a bankruptcy notice, and the circumstances in which a court might go behind a judgment upon which a bankruptcy notice is based to ascertain if in truth there is a debt owed by the debtor to the creditor.
But, on the facts as set out in Mr Featherstone’s supporting material, none of those principles appear to be engaged in this case. In truth, it seems that his application is based on the notion that he has filed an appeal against the order of the District Court, which appeal is not yet heard. He argues that because there is an appeal outstanding, the bankruptcy notice ought to be set aside or, alternatively, its issue was an abuse of process. Neither of those applications can succeed because it is clear enough that the judgment creditor was entitled to issue the bankruptcy notice based on the judgment. Execution of the judgment has not been stayed.
The bankruptcy notice is, in all other respects, valid. There does not seem to be any defect in the notice, to which my attention was drawn at least, and the creditor, as I have said, was entitled to have it issued.
The submissions made on behalf of the creditor seem to misconceive the application which is before this Court. It is argued in the written submissions for the respondent that there is no application before this Court to extend the time within which Mr Featherstone might comply with the bankruptcy notice.
In truth, there is an application to that effect. Whilst Mr Featherstone does not specify in his application the date to which time for compliance with the bankruptcy notice ought to be extended, he clearly enough seeks an order that the time be extended. There is clearly a claim, on an interlocutory basis, for an order that time for compliance with the bankruptcy notice be extended.
However, Mr Featherstone appears to confuse the power the Court has to extend time for compliance with a bankruptcy notice pending the determination of an application to set aside the bankruptcy notice (s.41(6A)(b)) and the power that the Court has to extend the time for compliance pending the determination of proceedings to set aside a judgment or order upon which a bankruptcy notice is based (s.41(6A)(a)).
The Court has power to extend the time within which to comply with the bankruptcy notice in either case. The source of the Court’s power is s.41(6A). That subsection provides that:
(6A) 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, subjection to subsection (6C), extend the time for compliance with the bankruptcy notice.
The authorities make it clear that where one of the two limbs of s.41(6A) has been fulfilled within the time proscribed by that subsection, the Court has power to extend the time for compliance with the bankruptcy notice, notwithstanding that at the time of making of the order for extension, the time for compliance with the bankruptcy notice has expired and an act of bankruptcy has been committed.
In this case the appeal which, for the purposes of s.41(6A), can be seen to be an application to set aside the judgment or order in respect of which the bankruptcy notice was issued, was instituted well before the time for complying with the bankruptcy notice passed. In fact, the appeal was instituted before the bankruptcy notice was issued. So the first limb of s.41(6A) is made out.
Subsection 41(6C) provides that:
(6C) Where:
(a) a debtor applies to the court for an extension of time for complying with the bankruptcy notice on the ground that proceedings to set aside a 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:
(1) have not been instituted bona fide; or
(2) are not being prosecuted with due diligence
the Court shall not extend the time for compliance with the bankruptcy notice.
The notice of appeal that Mr Featherstone has filed is annexed to his affidavit filed in support of this application. He prepared the notice of appeal. He represented himself, as I understand it, before the District Court in a three day trial and now represents himself on the appeal. Some allowance must be made, it seems to me, to take account of the fact that Mr Featherstone has drawn the notice of appeal and he is not a lawyer. Having said that, the notice of appeal does not on its face appear to be attempting to agitate issues which are not capable of agitation.
There are two main groups of grounds of appeal. The first relate to errors of fact said to have been made by the trial judge. There are 11 of those. The second are errors of law said to have been made by the trial judge, and there are seven of those. Whilst some of the language used to describe the grounds of appeal is less than helpful, the intent of the notice of appeal is, in my view, reasonably clear. There are complaints made by Mr Featherstone about the way in which the trial judge dealt with the evidence of certain witnesses, and he complains that findings of fact made by the trial judge ought not to have been made. It is, of course, notoriously difficult to challenge findings of fact on an appeal, but not impossible. There are issues of law raised by the notice of appeal.
The notice of appeal was filed within the time limited for the bringing of an appeal, although at the very end of it, and it seems that the appeal is brought for a proper purpose. I do not form the view, therefore, that the appeal has not been instituted bona fide.
Once the appeal was instituted, directions were issued by the Court of Appeal for the preparation of the appeal for hearing. That required the preparation of outlines of argument and a draft index to the appeal book. There is evidence before me that Mr Featherstone has not complied with those directions and has requested an extension of one month within which to comply with those directions. The respondent argues that that is evidence that the appeal is not being prosecuted with due diligence, but I disagree. Certainly, it is unfortunate, perhaps, that Mr Featherstone has asked for an extension, but that does not of itself suggest that the appeal is not being prosecuted with due diligence. In any event, compliance with the directions issued by the Court of Appeal has been suspended because the respondent has filed an application for security for costs of the appeal to be heard, as I understand the material, on 29 April. The registry of the Court of Appeal has indicated that compliance with the directions has been suspended until that application has been dealt with.
The creditor suggests that one of the relevant considerations is the insolvency of the applicant. Indeed, it is the case that, ordinarily on an application to extend time within which to comply with a bankruptcy notice, which is of itself coupled with an application to set aside the notice, the solvency of the debtor is of some importance. The respondent directed my attention to the decision of Heerey J in Re Nguyen Ex Parte Commissioner of Taxation (1994) 54 FCR 403. But that case is not of any particular assistance, notwithstanding that the respondent asserts that it is a case “not dissimilar to this”.
In that case, Heerey J relied upon the decision in Re Sterling; Ex parte Esanda Ltd (1980) 44 FLR 125 and cited in his judgment a large portion of the judgment in that case. The first paragraph of that cited by Heerey J from Re Sterling makes it clear that the comments that are set out from that case do not apply to applications to extend time to comply with a bankruptcy notice under s.41(6A)(a). That power was expressly left to one side. His Honour, in Re Nguyen pointed out that an application to extend the time within which to comply with a bankruptcy notice is generally an application which is made in aid of another application to set aside the bankruptcy notice.
But the power under s.41(6A)(a) is not of the same nature. It is not a power which is, generally speaking, only used in aid of an application to set aside a bankruptcy notice. Rather, as the section itself says, it is a power to extend time so as to aid the determination of any applications to set aside the judgment or order upon which the bankruptcy notice is based.
Extending the time for compliance with the bankruptcy notice has consequences, at least potentially, for creditors. It will extend out the time from which the bankruptcy commences and that may have consequences for the relation-back period and the ability of any trustee to retrieve assets under the relevant provisions of the Act.
The consequences for the debtor are less severe. It has been pointed out in a number of authorities that the commission of an act of bankruptcy is of itself not particularly significant. It is not something, generally speaking, of public record and of itself does not affect the status of the debtor. It is only the making of a sequestration order which affects the status of the debtor.
Nonetheless, it is important, in my view, to recognise that in this case Mr Featherstone has acted efficiently and quickly to challenge the judgment of the District Court and to recognise that his challenge to that judgment is not one which, to use the words of the Bankruptcy Act, has not been instituted bona fide.
Mr Featherstone argued that the time for compliance with the bankruptcy notice should be extended to 9 July, and he suggested in argument – although there is no evidence to support his argument – that he will be in a position to discharge his liability to the respondent by that date. There is nothing before me to suggest that that is so, but in any event, having regard to the matters that I have already referred to, it seems to me appropriate to extend the time within which to comply with the bankruptcy notice to either 4:00pm on 9 July or 4:00pm on the day on which the appeal to the Court of Appeal has been determined by that court, whichever date is the sooner.
For those reasons, I make the orders that I have just pronounced. Otherwise, the application filed on 11 April 2014 is dismissed.
I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered 23 April 2014.
Associate:
Date: 3 June 2014
0
2
2