Finlay v Osbourne - [2009] FMCA 1297

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FINLAY v OSBOURNE

[2009] FMCA 1297

BANKRUPTCY – Application to extend time for compliance with bankruptcy notice – appeal against judgment on foot – application for stay of judgment on foot – order extending time made on terms that amount sought in bankruptcy notice be paid into trust account.

Bankruptcy Act 1966, s.41
Federal Magistrates Court (Bankruptcy) Rules 2006, Rule 3.02

Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264
Valassic v Bernard [2001] FCA 477

Applicant:

BRIAN JOHN FINLAY

Respondent:

C J OSBOURNE & THE TRUSTEE FOR THE DUNCAN INVESTMENT TRUST

File Number:

BRG 949 of 2009

Judgment of:

Wilson FM

Hearing date:

18 December 2009

Date of Last Submission:

18 December 2009

Delivered at:

Brisbane

Delivered on:

24 December 2009

REPRESENTATION

Counsel for the Applicant:

N/A

The Applicant in person:

Mr Finlay

Counsel for the Respondent:

N/A

Solicitors for the Respondent:

Forbes Dowling Lawyers

ORDERS

The time for compliance by the applicant with Bankruptcy Notice QN 1403/09 be extended until seven days after the delivery by the District Court at Southport of its judgment in appeal number 650/2009 on condition that:
(a)The applicant pay, within fourteen business days of today’s date, to the trust account of the solicitors for the respondent the amount sought in the bankruptcy notice, such sum to be held pending the final determination of these proceedings; and
(b)The applicant prosecute such appeal diligently and as expeditiously as reasonably practicable.
Each party’s costs of and incidental to the application be reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG 949 of 2009

BRIAN JOHN FINLAY

Applicant

And

C J OSBOURNE & THE TRUSTEE FOR THE DUNCAN INVESTMENT TRUST

Respondent

REASONS FOR JUDGMENT

The applicant seeks to set aside a Bankruptcy Notice served upon him on 25 November 2009. In his application the applicant seeks interim orders extending the time for compliance with the bankruptcy notice, and for a stay of execution of the judgment that has been obtained against him.
It is clear that this Court does not have the power to stay the enforcement of the judgment that was obtained against the applicant on 30 October 2009. In recognition of this the applicant has filed an application for a stay in the Southport Magistrates Court, which is to be heard on 28 January 2010.
This Court is therefore concerned with the application to extend the time for compliance with the bankruptcy notice. Section 41(6A) Bankruptcy Act 1966 (“the Act”) provides:
(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, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.
Judgment was entered against the respondent on 30 October 2009, after a contested trial. On 27 November 2009, within the time permitted for him to do so, the applicant filed a Notice of Appeal to the District Court at Southport against the decision of the Southport Magistrates Court. The application in this court was filed on 11 December 2009, before the expiration of the time fixed for compliance with the requirements of the Bankruptcy Notice. Although the application brought by the applicant, who appears for himself, does not state the section of the Bankruptcy Act under which the proceeding is brought, in my view the application is clear on its face as to the relief sought by the applicant.
The requirements of s.41(6A) are satisfied in this case in that the applicant has brought proceedings to set aside the judgment in respect of which the Bankruptcy Notice was issued (by filing the Notice of Appeal seeking the setting aside of the order at first instance) and an application has been made to this court to set aside the Bankruptcy Notice. I am not persuaded that the appeal was not instituted bona fide. There is no suggestion that it is not being prosecuted with due diligence, the Notice of Appeal having only recently been filed. Therefore I am not precluded from exercising my discretion to extend the time for compliance with the Bankruptcy Notice by reason of the matters set out in s.41(6C) of the Act.
If one of the prerequisites in s.41(6A)(a) or (b) is fulfilled, the discretion conferred on the court to extend time for compliance is ‘at large’ subject only to the fact that the court may not extend time if it makes one of the findings of fact provided for by s.41(6C): Australian Bankruptcy Law and Practice, McQuade and Gronow at [41.6A.20] citing Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 at 270-272.
In the present case, the following factors weigh in favour of granting the extension sought. An appeal has been brought against the judgment, a stay of the judgment has been applied for but not yet granted, and no prejudice is asserted on behalf of either the respondent or other creditors if the time for compliance for the bankruptcy notice is extended. On the other hand the factors that weigh in favour of refusing an extension of time are the absence of any asserted prejudice to the applicant, the fact that the judgment was delivered following a contested trial in which a number of witnesses gave evidence and findings of credit were made against the applicant, and the fact that the application is made to extend time to comply with a bankruptcy notice rather than to adjourn or dismiss a creditors petition.
In respect of the first adverse matter, the applicant does not point to any matters as a result of which he will be prejudiced due to his commission of an act of bankruptcy. For example, he does not depose to being a director of a company, or in breach of any lease or security documents by reason of such an act. As Lehane J. recognised in Byron v Southern Star Group Pty Ltd, the commission of an act of bankruptcy is of a different order of gravity from the change of status brought about by the making of a sequestration order. By failing to comply with the bankruptcy notice, the applicant would commit an act of bankruptcy but is not simply by that fact made bankrupt. The creditor still needs to present a Creditor’s Petition and persuade the court that it is in the interests of all creditors that a sequestration order be made. In Byron Lehane J thought it was important that a stay of judgment was applied for or obtained. Here such an application has been made. It must also be borne in mind that in Byron and initial extension of time was given pending an appeal to the intermediate court of Appeal and a stay was refused when an application was made for special leave to appeal to the High Court of Australia.
Although the merits of the applicant’s appeal are relevant to the exercise of the discretion this court should be reluctant to enter into a detailed examination of such merits, that being the function of the appellate court. It is sufficient to observe that the applicant will face the usual difficulties in persuading an appellate court to overturn findings of credit made after hearing the competing evidence of the key witnesses.
In this case there is also the assertion by the applicant that he has a counter claim, set off, or cross demand that could not have been set up in the original proceedings brought against him. Section 41(7) Bankruptcy Act 1966 provides:
(7) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter‑claim, set‑off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter‑claim, set‑off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.
As the solicitor for the respondent points out Rule 3.02(2) Federal Magistrates Court (Bankruptcy) Rules 2006 provides:
(2)   If the application is based on the ground that the debtor has a counter‑claim, set‑off or cross demand mentioned in paragraph 40 (1) (g) of the Bankruptcy Act, the affidavit must also state:
(a)    the full details of the counter‑claim, set‑off or cross demand; and
(b)    the amount of the counter‑claim, set‑off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
(c)    why the counter‑claim, set‑off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued.
The detail provided by the applicant of his purported counter claim, set off or cross demand is scant and does not comply with Rule 3.02. A bold claim for damages for detinue is advanced. The elements of that cause of action are not sworn to. Indeed, at cause of action is directly contradictory of the applicant’s primary position which is that he was not the owner of the horse in respect of which agistment charges were raised by the respondent. In my view, the applicant has no reasonable prospects of success in prosecuting a counter claim, set off or cross demand against the respondent on the evidence currently before this Court. That aspect of his claim to set aside the bankruptcy notice has no merit. Accordingly, s.41(7) does not assist the applicant.
The matter then falls for determination according to whether the discretion should be exercised in favour of extending the time for compliance with the Bankruptcy Notice to allow the appeal to be first heard and determined or whether the application should be refused. Given the alacrity with which the respondent has presented a Bankruptcy Notice it is likely that, if an extension of time is not granted for compliance with the Bankruptcy Notice, that the same issue now before the court will be argued again on the hearing of the Creditor’s Petition. It is unlikely that the appeal will be disposed of in the District Court before a Creditor’s Petition comes before this court.
In my view, given the absence of prejudice demonstrated by either party, the appropriate cause is to extend time for compliance with the Bankruptcy Notice until the disposition of the applicant’s appeal. However the extension of time should be made on terms; first, that the appeal be prosecuted diligently; and, secondly, that the amount claimed by the debtor be paid to the trust account of the respondent’s solicitors. The court has power to order the extension of time for compliance with the Bankruptcy Notice on terms: see Valassic v Bernard [2001] FCA 477.
If the monies are paid to the solicitors for the respondents trust account and held pending the determination of the appeal, subject to any costs orders made in the intervening period, the creditor’s position is protected in that the Bankruptcy Notice will be able to be complied with if the appeal is dismissed, and the applicant’s position will be protected in that the monies will be returned to him if the appeal is successful. In my view, given the difficulty facing the applicant in overturning the judgment against him on appeal, the imposition of terms is appropriate.

I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Wilson FM

Associate: Lynnette Chin

Date: 24 December 2009