Krailach, Inngard v Gray, Ronald Ralph

[1977] FCA 25

I N THE FZDERAL - C01;FlT OF AUSTRALIA

- NEW X E T H WOLES D I S W I C T REGISTRY No. G.33 3f 1977

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GENEXL.1, DIVISICN J

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Friday, 13th May, 1977

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i JUDGPIENT

BOWEN, C . J . : Thls i s an apDeal from a seques t ra t lcn o rder

made on k Ha); 1977 by the Federal Court o f Bar?kruptcy,

Bankruptcy D i s t r i c t o f t h e S t a t e of New South Wales mcl

the Aus t ra l ian Capl ta l Ter r i to ry , aga lns t Irmgar? Krallach,

the debtor , on t h e p e t i t i o n of Ronalc? Ralph Gray, t h e Doputy

Comnissioner o f Taxat lon , the pe t i t lon ing cred l tor .

Before making the seques t ra t lon order the learned

t r i a l judge refused an app l i ca t ion fo r an adJournment wh.lhlcl1

was sought on behalf of the debtor.

The debtor sought a short adjournment i n t h e f i r s t

~ . n s t a ~ c e t o e n a b l e h e r t o b r i n g f u r t h e r e v i d e n c e ; t h e n an

adjcurnmmr; t o 31 Nay 1977. There was l i t l z a t i o n i n Eyui ty

tdx?e i l 13%- m d a Mr. and Yes. Jowe t t . v;h.;i?lch had been glvcn

i n expcsc!!.Licc :,rder. and which v a s t u be h z t e d b e f o r e t n e

Nastpr csn 26 X q 197'7 to flx a date €or heer1r.g.

It, was Toreshadowed Ln 'Lie -Irgu%ltnt 0;: rounst-l bcf^3re

t h e trliti Jud(;e. ru:d indecc! n rcquesi. was nd:: 1-2 t h e nff1 davl-i;

f i l z d c!: behalf c?. dr-Ssor -;:hlcl. T:~::, ! x < o z . _ ; IF, t 1 - , 3 ~ upon

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the review of the matter on 31 May 1977 an appllcation would

be made to adjourn the petitlon until after the determination

of the Equity proceedings. It was estimated that these would

be concluded within 6 months.

It was argued for the debtcr on thls appeal that the

trial judge erred in law in refusmg TO adjourn the petition,

that this resulted in the maklng of the sequestration order,

which otherwise would not have been made at that time, and

that this constltuted a serious inJustlce to the debtor whlch

was renewable in this court.

It is not In dispute that the debtor committed an

act of bankruptcy by fallure to comply wlth a bankruptcy notice

in 1976, that a bankruptcy petition vas presented on 7 December

1976, was served on the debtor	on 19 January 1977 and was
returnable on 5 April 1977.

The petition came on for hearing on 5 April '197'7

and was adjourned by consent to 4 May 1977 when the appllcations

for further adJourment to which I have referred werc refused

and a sequestration order made.

The debt claimed in the petition was for $8830.99

for unpaid income tax, additional tax for late payment and

interest. Since the lssue of the petition the sum of $1733.35

due

has been paid by the	debtoi', reduclng the sum/to thc Commissi-oner
t o $71 57.64.

The debtorts position as dlsclosed in m affidavit

sworn by her on 29 March 1977 and In her orai evidence before

the trial judge was that her only substantlal asset war. a llccnsed

restauraqt business known as Uncle Tom's Cabin, sltuated in

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Woodstock Road, Jambzroo, and the land upon whlch t h a t r e s t a u r a n t

busmess was ca r r i ed on. She s t a t e d m h e r a f f i d a v l t t h a t

the 2ro2er ty and business were valued by a qua l i f i ed va lue r

i n t h e sun of $209,000 i n 1975 and tha t she be l l eved tha t

because of improvements she had ca r r l ed ou t t o the p rope r ty and

the bus iness s lnce then they would be valued today a t

approximately $300,000. The name of the qua l i f ied va luer

was not given, nor was any valuat ion put forward at the hear lng.

Apart from the debt owing t o t h e Deputy Commissioner

of Taxat ion, she s ta ted she had the fol lowing substant ia l

h a b i l i t i e s , which a re se t ou t In paragraph 3 o f h e r a l f l d a v l t .

Secured debt to Comerclal Bank

Llmited Australia of $10,000.00

Secured debt to Mr. Stefanovich $ 8,500.00

Monier Bricks $ 2,800.00

Mrs. V a t l k a i t i s $ 1,000.00

Misce l laneous c red i tors re la t ing to

mater la bui ld ing s $30,00@. 00

debts Tota l $52,300.00

She said tha t she	was	i n r e c e i p t	o f a n e t lncomc of	approximately
$200.00 a week.

She f u r t h e r s t a t e d I n h e r a f f i d a v l t t h a t she was ab le

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to r a i se cons ide rab le money on the secur i ty of the res taurant

business and f sceho ld to pay h e r c r e d i t o r s b u t was unable t o

r a i s e such moneys a t the present tlmc because of a dispute I n

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t h e Supreme Court of New South Wales in the Equ i ty Dlv l s lon

between he r se l f and NI’.	and Mrs.	Jowett .	She s t a t e d t n a t
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t h e p l a i n t i f f s i n t h o s e p r o c e e d i n g s , which she was defending,

had r eg i s t e red a c o n t r a c t f o r s a l e i n r e s p e c t of t i e f r e e h o l d

property and th i s p rec luded fu r the r dea l lngs with it. She

said that i f she were unsuccessful i n defending the proceedings,

she would neve r the l e s s be en t i t l ed t o a t l e a s t -the sur11 of

$160,000 t o be pald to her in respect of the purchase of t h e

freehold property and business, from whlch proceeds o f s a l e

she would	be able to pay	a l l he r c red l to r s ,	and	r e t a i n a
surplus .

On the other hand, i f she was successfu l in defending

the proceedmgs , the f reehold proper ty m d busmess would

become ava i lab le as secu r i ty f o r an advance which she would

seek to ecable her to pay her credi tors .

She f u r t h e r s t a t e d m he r a f f idav i t t ha t she r eques t ed

an adjournment f o r some period of time and during that tune

she would pay t o t h e p e t l t i o n m g c r e d l t o r t h e sun, of $400 per

month i n r e d u c t i o n of the debt .

I n her oral evidence, she agreed that she would pay

t h i s sum, i f poss ib l e , bu t t ha t she had s o far not pald any

instalment . She f u r t h e r s t a t e d i n h e r a f f l d a v i t t h a t s h e hzd

no o the r c red i to r s who were pressing for payment; i n f a c t , no

s ta tement glving the names of her c red i tors was supphed.

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A t t h e commencement o f t h e h e a r n e o f the appeal, counsel

f o r t he deb to r sough t l eave to t ende r an a f f ldwl t by Nr.

Danny Sankey ( the solicitor for t he deb to r ) , whlch would adrl

to	the	evidence whlch	was	b e f o r e t h e t r i a l	j u d g e .	This	a f f l d a v l t
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referred to the progress of the Equl ty proceedings and gave

d e t a i l s cif varlous sspects of those proceedlngs, mcluding the

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attachment of a n o t l c e t o answer i n t e r roga to r i e s , a

stntement of the varlous matters of defence, and a chronologlcal

statement or' the course whlch the proceedlngs had followed,

Exhibited $0 t h e a f f l d a v l t were reasons f o r Judgment of

Helsham J. (as he then was) when he was accedlng t o an appl icat ion

t o s e t a s i d e a de fau l t judgment which had e a r l i e r been signed.

In addl t lon , there were agreements f o r the lending

of money EO the debtor which, though a t ea r l l e r t unes they

had been available to her, appeared to have rxplred by th l s tlme.

Leave was g i v e n t o f l l e t h i s a f f i d a v i t and j t w a s read by t h e

members of the Court to er,able a dec l s ion to be @veri as t o

whether it should be admitted In evidence.

Under sec t ion 27 of the Federal Court o f Aus t ra l ia

Act, the Court has power to rece ive fur ther ev ldence upon an

appeal.

A s a matter of convenlence, after some argument, lt

was declded tha t the Court would defer making a dec is lon on t h e

admiss ib i l l ty of th l s ev ldence until a f t e r t h e c a s e on the

appeal had been argued. One f a c t o r influencing the Cour t to

take t h i s course was that i n t h e c o u r s e of d i scuss ion , It

became ap2arent that one of t h e maJor conslderat1ons in decidmg

f o r o r aga ins t i t s admission would be t h e vlew whx5 t h e C:gurt

mlght form 8s t o whether, i f admltted, it would oi* night leed

t o any different conclusion.

Turning to the subs tance 01 t i c appeal , the pos i t i c f i

i s that t h e f z c t s I n s u p p o r t of t h e p e t l t l o n , e n t i t l i n g tne

p e t i t i o n n g c r e d i t c r t o a seques t ra t iov o r d w , were n o t j n d l z p l t e ; .

5 .

On the 4th May 1977, the petltionlng credltor was, prlma fncle, entitled to a sequestratlon order. The questlon which arise:;

1s whether the effect of the Equity proceedmgs and the other

natters put to the Court constltuted circumstances whch

were such that, notwithstanding the prima facle right of

the petitioning creditor, they should lead the Court to

adjc,urn the petition either to 31 May 1977 or, as was In

substance the applicztion. untll after the determination

of the Equity proceedings.

Section 52( 1 ) of the Bankruptcy Act, 1966 provides

that at the hearing of a creditor's petltion the Court shdl

require proof of certain matters whlch are set out in h?

section and then, if It is satisfied with the proof of those

matters, the Court may make a sequestratlon order agalnst the

estate of the debtor.

Section 33(l)(a) of the Bankruptcy Act, 1966 provides

that the Cmrt may, upon such terms as It thinks fit, at any

time adjourn any proceedlng before	it, either to a fixed date
or generally.

It seems clear that the Court has power, even In the

case of a petition for a sequestratlon order, to adjcurn the

proceedmgs.

A lnrge number of cases as to the way in which the

Court should exercise its dlscretlon has been cited to us In

argument. I think for present purposes It is suificlent to

refer to the general statement by L & l n J. m RC Grahme; E

parte Write (1940) I1 A.B.C. 141 at p.143, where he says:

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"The d l sc re t lon of the court t o g r a n t ad,jourr?ments

of p e t l t l o n s 1s r e f e r r e d t o by Lord Esher M.R. I n

Re Thurlow; Ex par tc Off ic la l Kccclver (1895)l B.B.

724 a t p.735 where, r e f ep - l cg t o t he case In r e Reed,

- Bowen & Co. (1887) 19 Q.B.D. 244 he sald: 'The

r e s u i t h a t case is that lt 1s obligLtory t o make

an adjudication of bankruptcy, un less somethlng

e x i s t s which cons t i t u t e s a good reason f o r an

adjournment. See 2150 RE Eey1: EX pa r t c D.P. rd1or2zn

- Ltd. (1918)l K.E. 452 a t p.456 where Swmfen Eady .L.T.

says: $Speaking generally _ _ I have formed the oplniol-1

these bankruptcy pet l t lons are adjourned from % n e t o

time much more frequently than they should be. It IS

i n t h e d l s c r e t l o n o f t h e c o u r t ... whether an

adJcurnment shall be granted o r no t . f n

Reference may a l so be made to the s t a t emen t by Cohen L.J

Svrinfen Eady L.J . was probably referring t o t h e s h o r t

adjournments taken almost as a matter of course whlls t negot le t lons

take p lace be tween the pe t l t ion ing cred i tor and debtor , bu t tne

reason which under l ies the a t t i tude taken in respec t of the

adjournment of a b a n k r u p t c y p e t i t i o n r e s t s t o some degree on t h e

f a c t t h a t i t i s no t on t h e same foot lng as litigation which

i s purely between two p a r t i e s . A p e t i t i o n In bankruptcy f o r 3

seques t ra t ion order i s concerned wlth a change i n s t a t u s , ~t

a f fec t s o the r c red i to r s bes ldes the pe t l t l on lng c red i to r , a d

wherz the debtor i s carrying on busmess , may a f f e c t o t h e r

persons with whom the debtcr i s dezlicg. Consequently,

adjournments involve other circumstances than those whch

normally apply i n l i t i g a t l o n p u r e l y between two p a r t i e s .

The quest ion i s whether the circumstances proved .In t h e

present cace a re such tha t the pr ima fac le r igh t of t h e

p e t i t i o n i n g c r e d i t o r t o a sequestration order should be posiponed.

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So f a r a s t h e d e b t o r is concerned, i f the seques t ra t ion

order s tands, she becomes a bankrupt, she becolnes l l a b l e

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t o a l l the provisions of the Bankruptcy Act and she loses

cont ro l o f the Equlty proceedings and o f the conduct of

her buslness . On the o the r hand, t h e p e t l t i o n i n g c r e d i t o r ,

who has been f o r some tlme without payment, and tine o ther

c red l to r s , 2 re p l aced in i! Fosi t lon i f the seques t ra t lon

order s tands where the debtor t s asse ts , inc ludlng those

assets involved in the Equi ty proceedings. are brought under

the cont ro l of one who has a d u t y t o t h e c r e d i t o r s as wel l

as t o t h a d e b t o r - under the control of one who i s an o f f l ce r

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s u b j e c t t o t h e c o n t r o l of the Court .

In the circumstances I have come t o t h e conclusion

t h a t t h e trial Judge has n3t been shown t o be i n e r r c r I n r e f u s i n g

to g ran t an adJournment to enable a f u r t h e r a p p l l c a t l o n t o

be made f o r adjournment until af te r the conclus ion of t h e

Equity proceedings,	and m proceeding to make a sequestratlorr
order .

So fa r as the addi t ional evidence 1s concerned, t3ls

f	could not , In	my	view, even taken	wlth	the other evidence
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which was before the t r i a l judge, have just i f led an adJcurrffllent

un t i l t he de t e rmmat ion of the Equity proceedings, which i s

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the subs t an t i a l i s sue a r i s ing on ths appeal .

For t h l s reason I think It should be reJec ted . The

order of	the Court whlch	I would propose 1s t h a t t h e	fippeal-
a.

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be dismisszd anC the appellant pay the respondentP.? c o s t s .

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FRANKI, J: I agree w l t h t h e judgplent of t he Chlef Judge

I and with his reasons, and I have nothlng to add.

DEANE, J: I agree.

BOWEN, C.J.: The order of the Court ~ 1 1 1 be as I proposed

i n my reasons for judgment.

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