Maxim Security Group Pty Ltd (In Liq) v Robertson - [2008] FMCA 66

FEDERAL MAGISTRATES COURT OF AUSTRALIA

MAXIM SECURITY GROUP PTY LTD (IN LIQ) v ROBERTSON

[2008] FMCA 66

BANKRUPTCY – Review of Sequestration Order – extension of time – application almost three years out of time – extension of time refused – whether Rule 16.05(2)(a) of the Federal Magistrates Court Rules 2001 is subject to application of Rule 2.03(1) of the Federal Magistrates Court (Bankruptcy) Rules 2006 – whether leave to proceed against company in voluntary liquidation required in Application for Review – application dismissed.

Federal Magistrates Court (Bankruptcy) Rules 2006, rr.1.03, 2.03
Federal Magistrates Court Rules 2001, rr.16.05, 20.02
Bankruptcy Act 1966, s.153B
Corporations Act 2001, s.500(2)

Wren v Mahony (1972) 126 CLR 212
Grundy v Wattyl Australia Pty Ltd [2002] FCA 1480 (28 November 2002)
Re Daskalovski; The Austral Brick Co Pty Ltd (Emmett J 23 June 1998)

Applicant Creditor:

MAXIM SECURITY GROUP PTY LTD (IN LIQUIDATION) ACN 093 374 737

Respondent Debtor:

DULCIE GAYLE ROBERTSON

File number:

MLG 1296 of 2004

Judgment of:

McInnis FM

Hearing date:

3 December 2007

Delivered at:

Melbourne

Delivered on:

24 January 2008

REPRESENTATION

Counsel for the Applicant:

Ms L Kinda

Solicitors for the Applicant:

Consumer Law Action Centre

Counsel for the Respondent:

Mr M W Sanger

Solicitors for the Respondent:

MSB Lawyers

Counsel for the Trustees:

Mr T Connard

Solicitors for the Trustees:

Charles Fice

ORDERS

The Application for extension of time is refused.
The Application for Review filed 4 October 2007 be dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 1296 of 2004

MAXIM SECURITY GROUP PTY LTD (IN LIQUIDATION)
ACN 093 374 737

Applicant

And

DULCIE GAYLE ROBERTSON

Respondent

REASONS FOR JUDGMENT

In these proceedings Dulcie Gayle Robertson (the Bankrupt) by an application for review filed 4 October 2007 seeks the following orders:-
“1.An order pursuant to sub-rule 20.02 of the Federal Magistrates’ Court Rules 2001 (‘the Rules’) extending the time fixed under sub-rule20.03 for applying for a review of the sequestration order made 23 November 2004.
2.An order pursuant to subsection 104(2) of the Federal Magistrates’ Court Act 1999 (Cth) and Rule 20.02 of the Rules setting aside the said sequestration order.
3.Alternatively, an order under rule 16.05(2)(a) of the Rules setting aside the sequestration order on the ground that it was made in the Applicant’s absence.
4.Such further or other orders as the Court deems necessary.”
Maxim Security Group Pty Ltd (In Liquidation) (the Creditor) was the petitioning creditor in a petition filed on 11 October 2004. In that petition reliance was placed upon a Bankruptcy Notice dated 1 June 2004 wherein the creditor claimed against the Bankrupt that a debt was due and payable of $2,527.14 arising from a judgment obtained by the Creditor against the Bankrupt in the State Magistrates Court at Melbourne on 1 May 2003. The order was made by default.
A Sequestration Order was made against the Bankrupt on 23 November 2004.
Paul Andrew Burness and Morgan Gerard James Lane (the Trustees) were appointed as Trustees of the Bankrupt Estate of the Bankrupt on 23 November 2004. By order of the Court made on 12 November 2007 the Trustees were granted leave to be heard in these proceedings and an order was made requiring them to file and serve a report.
The Bankrupt, the Creditor and the Trustees have all relied upon an outline of submissions and made brief oral submissions to the Court at a hearing which occurred on 3 December 2007.
It is evident from the brief chronology that the Application for Review is almost three years out of time. It was agreed by the parties that the Court should consider the issue of an extension of time as a discreet preliminary issue which is the subject of this judgment.
The Federal Magistrates Court (Bankruptcy) Rules 2006 (the Bankruptcy Rules) applied to this application given that those Rules commenced on 6 February 2006. The orders sought extending time set out earlier in this judgment in the application would appear to erroneously refer to Rule 20.02 of the Federal Magistrates Court Rules 2001 (the Rules).
In any event it is clear to me that subrule 2.03(1) of the Bankruptcy Rules applies. That rule relevant provides:-
“(1)Subject to any direction by the Court or a Federal Magistrate to the contrary, an application under subsection 104(2) of the Act for review of the exercise of a power of the Court by a Registrar under subsection 102(2), or under a delegation under subsection 103(1), of the Act must be made by application for review within 21 days after the day on which the power was exercised.
(2)An application under paragraph 104(4)(b) of the Act may be made orally to the Registrar at the time that the Registrar is hearing the application for the exercise of a power mentioned in subsection 102(2), or in a delegation under subsection 103(1), of the Act.”
It is clear from that Rule that there is a 21 day period which applies to an application for review in the exercise of the power by the Registrar including the making of a sequestration order. The time limit however according to that subrule is “subject to any direction by the Court or a Federal Magistrate to the contrary”.
The Bankruptcy Rules were introduced in order to provide a degree of harmonisation with the Federal Court Rules. It is noted in passing that previously the time for application for review was governed by Rule 20.01 of the Rules which could be extended pursuant to Rule 20.01(2) of the Rules. However, Rule 1.03 of the Bankruptcy Rules relevantly provides,
“(1)These Rules apply to a proceeding to which the Bankruptcy Act applies.
(2)The other rules of the Court apply, so far as they are not inconsistent with these Rules, to a proceeding to which the Bankruptcy Act applies”
Hence, as stated, the issue before the Court is whether the Bankrupt should now be granted an extension of time within which to make application for review of the Sequestration Order made on 23 November 2004. Although reference was made in the alternative to an order under Rule 16.05(2)(a) of the Rules on the grounds that the Sequestration Order was made in the Applicant’s absence or otherwise, it is my view that that Rule should be read down in the light of the specific rule provided in the Bankruptcy Rules to which reference has already been made. The Bankruptcy Rules provide a clear indication that any application for review of a Sequestration Order must be made by Application for Review within 21 days after the date on which the power is exercised subject to any direction by the Court or a Federal Magistrate to the contrary. Where a specific rule makes a provision of that kind then in my view a general rule in similar form to Rule 16.05(2)(a) of the Rules should not apply. I note in passing that no time limit appears to apply to an application made pursuant to Rule 16.05 which gives the Court power to vary or set aside its judgment or order after it has been entered if the order was made in the absence of the party.
Hence, the crucial issue in my view is whether the Court should make an order of a kind which would permit the Bankrupt to bring this application for review beyond the 21 day period prescribed by subrule 2.03(1) of the Bankruptcy Rules.
It should be noted that in submissions an alternative application was sought to be relied upon seeking annulment of the bankruptcy pursuant to s.153B of the Bankruptcy Act 1966 (the Act). In my view that application is misconceived having regard to the contents of the current application not amended and the material provided in support of the current application. An annulment application if it be deemed appropriate ought to be the subject of a separate application based upon other material. In any event it was agreed that the application should proceed having regard to the normal principles including whether there was a reasonable excuse for delay and/or whether there is an arguable case.

The Affidavit Evidence

The parties agreed that the Court should rely upon the affidavit evidence and to the extent that leave is required I grant leave to the parties to rely upon all the affidavits referred to in this judgment.
The Bankrupt has relied upon affidavits sworn by her on 1 October 2007 (the first affidavit), 9 November 2007 (the second affidavit), and an affidavit sworn on 19 November 2007 (the third affidavit). In addition the Applicant sought to rely upon a further affidavit sworn by her on 3 December 2007 (the fourth affidavit). Apart from those affidavits the Applicant also relied upon an affidavit of a psychologist namely Annabel Smith sworn 8 November 2007, and affidavits of Gerald Cohen sworn 9 November 2007, 12 November 2007 and 30 November 2007. The Trustee Paul Andrew Burness has relied upon affidavits sworn by him on 9 November 2007 and 26 November 2007. It is relevant to note that the affidavit of the Trustee sworn 26 November 2007 has as annexure A a “Trustees Report” pursuant to the order made by the Registrar (“the Trustees Report”).
In the first affidavit the Applicant refers to the dispute which led to the default judgment obtained by the creditor which related to the installation of a security system. Although details are set out in the first affidavit of disputes between the Bankrupt and the Creditor and the Bankrupt’s dissatisfaction with the service provided by the Creditor, I do not regard that as relevant to the present application and note that a number of the allegations appear to be somewhat vague including reference to the subsequent installation of another system by another provider which occurred according to the Bankrupt “some time later”. Likewise, I note that the Bankrupt in the first affidavit refers to having no recollection of receiving the complaint which led to the default judgment or indeed having any knowledge of the Magistrates Court proceeding.
On the material before me it does not appear that any application was made at a relevant time to set aside the default judgment. It appears to be common ground that an application was made in the State Magistrates Court to set aside the default order and for re-hearing on 4 October 2007 namely the same date the Application for Review was filed in this Court. It is again common ground that that application was withdrawn with the grounds being either a failure to seek leave to proceed against the company in liquidation or that the bankrupt had no standing as a bankrupt to make the application. In any event the application itself on the material before me was clearly made more than 4 years after the default order was made.
It is relevant to note in the first affidavit that the Bankrupt acknowledges receiving the Bankruptcy Notice and the Creditor’s Petition but claims she did not believe she owed the Creditor any money and this appears to be her reason for failure to take any action. The Bankrupt then recites dealings with the Trustees and/or the Trustees representatives where the Bankrupt continued to deny liability to the Creditor. Again, however the Bankrupt appears unable to recall specific dates or details of telephone calls and correspondence. The Bankrupt claims not to understand the Trustees claim for costs or that those costs were accumulating.
In the second affidavit the Bankrupt refers to her past history and makes brief reference to interest held by her in a property at Dohertys Road, Tarneit. The Bankrupt otherwise refers to an injury sustained in 1990 and that she is on a disability pension which apparently applied since that date and that she suffers from “several health problems”. A medical report was provided by her treating medical practitioner setting out what I accept to be sufficient evidence of medical conditions which do not however appear to have prevented the Bankrupt from engaging in dealings with the Trustees and/or instructing solicitors. Whilst reference is made to the Bankrupt’s “reduced intellectual functioning and capacity” and this to some extent is confirmed in the affidavit of Annabel Smith referred to earlier, I do not accept that that material is sufficient to provide any or any reasonable excuse for the delay in the present proceedings.
In any event the third affidavit of the Bankrupt does not appear to take matters any further as it deals with the issue of communications with the Trustees. The fourth affidavit of the Bankrupt sets out her financial circumstances which in my view is not relevant to the application for extension of time.
In my view the affidavits of Gerald Cohen referred to earlier in this judgment do not advance matters any further in circumstances where ultimately it is a matter for the discretion of the Court to consider whether it is appropriate according to law to allow an extension of time for the application for review.
In his affidavit sworn 9 November 2007 Mr Burness refers to the history of the Bankruptcy proceedings and in general terms makes the point that in the event that this Application for Review succeeds and an extension of time is granted and the Sequestration Order set aside, then the Trustees remuneration or expenses incurred over the past would not be recoverable but would be protected in the event that an annulment application was made in proper form pursuant to s.153B of the Act. In his affidavit Mr Burness claims that the Applicant faces two hurdles in this application namely that the Creditor being a company in liquidation requires the Applicant to seek approval of the Supreme Court or the Federal Court pursuant to s.500(2) of the Corporations Act 2001 in order to commence and proceed with this application to set aside the bankruptcy notice. Secondly, Mr Burness in his affidavit of 9 November 2007 asserts the delay of two years and eleven months is another hurdle which must be overcome by the Bankrupt.
Mr Burness foreshadows the filing of a Trustees Report referred to earlier in this judgment.
In his affidavit sworn 26 November 2007 Mr Burness annexes the Trustees Report. In the Trustees Report he relevantly states,
“The following is a summary of our administration to date, including our attempts to obtain cooperation from the bankrupt, her general conduct since our appointment, and her repeated failure to provide us with assistance, to the point of being downright obstructive.”
Thereafter he sets out in considerable detail what I accept to be the factual basis for that conclusion. Relevantly he specifically states that the Bankrupt “did not understand what a sequestration order was, notwithstanding attempts by Ms Clifford to explain same during the conversation”. He refers to reminders by Ms Clifford to the Bankrupt to fulfil her obligations to complete her statement of affairs and the report relevantly recites the following,
“Ms Clifford tried to explain to the bankrupt that she represented her trustees in bankruptcy and did not act for Maxim. However the bankrupt hung up on her.”
I conclude from that comment that the Bankrupt has not had at any relevant time a clear understanding of the role of the Trustees though I further conclude that in the past few years the Bankrupt has had access to legal advice which ought properly have brought to her attention the role of the Trustees as distinct from the role and obligations of the Bankrupt towards the Creditor.
In the detailed chronology of events leading to the adverse conclusion by the Trustees against the Bankrupt, it is also relevant to note the following appears:-
“On 18 November 2005 Matthew, Jess and Rebecca Clifford of our office travelled to the Tarneit property to attempt to assist the Bankrupt in discharging her duties as a bankrupt. At the property Jess and Clifford were able to drive up the driveway to the building as the front gate was open. At the building Jess and Clifford were met by a male of approximately teenage age and an older adult male who advised that the Bankrupt was not at home at that time. Jess and Clifford advised us that the building had a separate fence which was not open and an aggressive dog was behind the fence. Accordingly Jess and Clifford left the Tarneit property;
On 1 December 2005 at around 2.00 PM, Matthew, Jess and Michael Palaghia travelled to the Tarneit property in accordance with our notice dated 15 November 2005. At the Tarneit property, Jess and Palaghia were met by the Bankrupts niece, Lynette Fenton and an unidentified male. Jess and Palaghia handed Ms Fenton our initial advice to the bankrupt and attempted to explain the bankruptcy to them. However, Ms Fenton and the male became aggressive and threatening. Their threats included to “throw … (Jess and Palaghia) … from the property” and “will blow (Jess and Palaghia’s) … head(s) off”. Given the threats of violence Jess and Palaghia left the property”.
In considering the chronology of events it is also relevant to note the following from the Trustees chronology set out in the report,
“On 7 December 2006 Vuong received a call from Celia Tikotin of Consumer Action Law Centre who advised that she was assisting the bankrupt in understanding her obligations under the bankruptcy. She enquired about the outstanding costs to annul the bankruptcy and was provided with details of what would need to be paid and rough estimates of same highlighting that these amounts would need to be confirmed. Vuong advised that we were intending to submit a further offence referral for the bankrupt’s failure to deliver the DCOT pursuant to our section 77 direction. Tikotin advised that she would assist in arranging for the bankrupt to comply with her obligations however she advised that the bankrupt was fragile and did not fully comprehend her situation and accordingly, she would discuss the bankruptcy in small parts over a period of time as it would be easier for her to comprehend;”
It is not necessary for the Court to refer in detail to the procedures followed by the Trustees set out in the detailed chronology save to note and accept that over a significant period of time due allowance was made for the difficulties of the Bankrupt but likewise due allowance should be made for the difficulties encountered by the Trustees in seeking to discharge the Trustees duties pursuant to the Act. The person referred to as “Vuong” at all material times is taken to be a representative of the Trustees. It is noteworthy that the chronology reveals that on 26 February 2007 Vuong received a telephone call from a financial advisor from Anglicare Werribee who is recorded was “assisting the bankrupt with the completion of her SOA and ICQ”. A statement of affairs was subsequently received. Again, however it is not necessary to refer in detail to those documents. I conclude from the material before me however that the material reveals at the very least prime facie breaches of the provision of the Act in relation to failure to complete and file a statement of affairs and/or statement of income together with failure to attend an interview, failure to deliver books and records as requested by the Trustees and otherwise failure to aid the Trustees in the administration of the bankrupt estate.

Submissions and Reasoning

On behalf of the Bankrupt it was submitted that although there is a significant delay in the filing of this Application for Review of the Sequestration Order the Court should acknowledge that the review of a sequestration order is a statutory right. Inability on the part of the Bankrupt to set aside the default judgment in the Magistrates Court it is submitted was not fatal to this application (See Wren v Mahony (1972) 126 CLR 212). In the present case it is argued that there are strong reasons to go behind the default judgment.
It was further argued that leave is not required to proceed with this application despite the fact that the Creditor is in liquidation as that occurred by way of voluntary liquidation shortly after the default judgment had been entered against the Bankrupt. For reasons which will become apparent I do not propose dealing in any further detail with that issue though I am concerned to address the crucial issue namely whether the Court after this considerable delay should allow the application to proceed out of time by effectively granting an extension of time.

The Bankrupt submits that the Trustee has not “identified any prejudice caused to any person except to himself by the delay”. Reference is then made to the chronology of events and history set out briefly in this judgment and in the affidavits. Particular reliance was placed upon the Bankrupt’s capacity. The Creditor submits that the application ought to be dismissed as incompetent. It is argued the bankruptcy process has been hampered and delayed to such an extent by the Applicant who advises as to cause what is described as an “insurmountable prejudice to the Respondent”. The delay it is argued is “inexcusable”. It is submitted that there is no proper explanation for the delay and that despite disputing the judgment debt within six days of the Sequestration Order being made the Bankrupt and her advisors have done nothing about the debt for a period of up to almost three years.
It was submitted that the facts in the present case are similar to the facts in Grundy v Wattyl Australia Pty Ltd [2002] FCA 1480 (28 November 2002) (Grundy). In that case it was noted that the Applicant was aware within weeks of the Sequestration Order being made and the delay was five months. Reference was made to the following extracts from the decision of Downes J in Grundy where the Court relevantly stated in dismissing an appeal from the Federal Magistrates Court the following,
“13. In his reasons for decision, Federal Magistrate Raphael primarily dealt with the application as an application for review rather than as an application for annulment. He noted that the application was out of time and that an extension of time would be necessary. He noted that the applicant's explanations for delay were the applicant's ignorance as to the original debt, the responses given to him by the trustee to his suggestion that he make an application to set aside the sequestration order, unsatisfactory legal advice which he received, and hospitalisation. The Federal magistrate said he would require much more to persuade him to grant an extension of time.”
The Court relevantly stated,
“24. In proceeding in this way I do not think that the Federal Magistrate erred. The delay in making the application for review was very substantial. There was little explanation for it other than the ignorance of the appellant and advice he was being given, including advice from his own legal advisor, that the application would be likely to fail. …”
Whilst in the present case the facts are not identical in that respect I accept that the delay in the present application is considerable and whereas the Court was dealing with a five month delay in Grundy this Court is faced with the delay of almost three years.
I note further that in Grundy the Court states:-
“25. In determining whether a court should exercise a discretion in favour of granting an extension of time, explaining the delay is not the only issue. Where there is no prejudice to other parties delay will more readily be excused. In the present case, however, there is real prejudice. This is because the trustee has incurred substantial administration costs which must be provided for. It is not easy to see how they could be charged to the petitioning creditors by an order for costs in the application for review even if that was thought to be an appropriate order. In any event, if it is accepted that a prompt application for review, if upheld, would have meant that little expense would have been incurred in carrying out the administration, then it can be said that it was the delay which caused the incurring of expense in administration as much as the making of a sequestration order which should not have been made.”
In Grundy the Court discussed pending annulment proceedings in that case and the discrepancy between the original amount of the debt and the costs orders incurred but then relevantly goes on to state:-
“31. … A system of bankruptcy administration which can lead to costs significantly more than the total debts of the bankrupt, particularly where the bankrupt has assets worth more than his debts, does not appear to be serving the ends of justice. I can only say that if any of the charges levied in connection with the administration are unreasonable there are no doubt bases upon which they can be challenged. However, these are not matters for me.”
I accept as submitted by the Creditor that the present case is similar to the facts and circumstances in Grundy and that I should apply the law set out in the extracts from the judgment of the Court in that case. I accept as submitted by the Creditor that the delay in the present case is substantial and whilst I accept that there is some further material constituting the explanation I am not satisfied that it provides a sufficient and/or reasonable explanation for the delay part of which appears to have occurred during the time when solicitors were instructed and/or retained on behalf of the Bankrupt. The prejudice to the Trustees has been amply set out in the present proceedings in the affidavits of Mr Burness to which reference has already been made. Whilst I am prepared to make some allowance for the Applicant’s capacity and medical condition that of itself does not provide a complete explanation and/or excuse for the considerable and substantial delay in this matter. It is clear to me that the Bankrupt does not require a litigation guardian, has been able to give instructions and there does not appear to be any suggestion that she has an inability to understand the affidavits relied upon in these proceedings. The overriding public interest in the administration of a Bankrupt Estate and performance of the duties of the Trustee clearly outweigh the circumstance of considerable delay the entitlement which a Bankrupt might otherwise have in seeking a review of a sequestration order.
In reaching my conclusion I have made due allowance to the Bankrupt and indeed permitted reliance upon evidence which otherwise might not be permitted including untested evidence of medical practitioners. I have done that out of an abundance of caution as a matter of fairness but nevertheless am not persuaded on the evidence that there was any or any sufficient basis upon which the Court should grant an extension of time.
I otherwise accept as submitted by the Trustees that an application in these circumstances is not appropriate where the estate has been administered in bankruptcy (See Re Daskalovski; The Austral Brick Co Pty Ltd (Emmett J 23 June 1998). I otherwise accept the Trustees submission that the delay in the present application is inordinate and note reliance upon the decision of the Court in Grundy to which reference has already been made. I further do not accept that there is any basis upon which the Court should go behind the default judgment entered more than 4 years ago in circumstances where the nature of the dispute had been agitated at an early stage but not pursued by the Bankrupt and where in any event no application to set aside the default order had been made in a timely fashion. At the very least that may have involved some action on the part of the Bankrupt before the Sequestration Order was made.
Whilst reference was made to the possibility of seeking an annulment, in my view the present application is not an application for an annulment even though submissions were made concerning an annulment application. That application needs to be properly made with appropriate notice to Creditors and the current Application for Review simply seeks review of the Sequestration Order and does so out of time.
During the course of submissions the Creditor submitted that this Application for Review in any event is incompetent as the Bankrupt has not sought leave to proceed against the Creditor which is a company in liquidation. That application should be made, it was submitted in the Supreme Court pursuant to s.500 of the Corporations Act 2001. Although it is probably unnecessary for the Court to do so having regard to my findings in this matter and refusal to grant an extension of time, I do observe that the application in this instance is an Application for Review. It follows a Creditor Petition filed by the Creditor which was then in liquidation and accordingly in my view a Court of Bankruptcy is entitled to entertain an Application for Review of a Sequestration Order following a Creditor’s Petition by a company in liquidation without requiring the Bankrupt to seek leave to proceed with the review. I do not regard a review of a Sequestration Order made on application by a company in liquidation, which I note in this instance was a voluntary liquidation, as being an action or other civil proceeding of a kind contemplated by s.500 of the Corporations Act 2001. The proceeding has already been commenced by the company in liquidation and determined a Registrar and the review procedure is a procedure as a right under the Court Rules and not in those circumstances in my view an action or other civil proceeding proceeded with or commenced against the company in liquidation as contemplated by s.500 of the Corporations Act 2001. Accordingly I am satisfied in any event that the Application for Review is competent to the extent that in my view leave is not required pursuant to the Corporations Act 2001. That conclusion does alter the ultimate findings of the Court and the orders which will be made following those findings.

Conclusion

In my view there is insufficient material before the Court to persuade me that an extension of time should be granted having regard to legal principles set out in the authorities to which reference has been made and having regard to the intent and purpose of the Bankruptcy Act and the administration of the Bankrupt Estate even though as in Grundy case I have no doubt that the costs now incurred far exceed the original default judgment.
Accordingly it is appropriate that the Application for an extension of time be refused and the Application for Review be dismissed with an appropriate order for costs.

I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 24 January 2008