McKinnon v Commonwealth Bank of Australia ACN 123 123 124

The McKinnons appealed against orders made by a Federal Magistrate on 26 August 2005, which included sequestration orders against their estates. The orders were made on creditor's petitions presented by the Commonwealth Bank of Australia ('the Bank'). The Bank had obtained a judgment against the McKinnons for a sum of $222,985.29 in the Supreme Court of Victoria on 27 June 2001. The Bank issued bankruptcy notices against the McKinnons on 10 October 2003 and 24 February 2004, respectively. As the McKinnons did not comply with these notices, the Bank asserted that they committed acts of bankruptcy and presented creditor's petitions against them. The Federal Magistrates Court dismissed the McKinnons' applications to set aside the bankruptcy notices or for an extension of time to comply with them. The McKinnons appealed to the Federal Court, which dismissed the appeal. The McKinnons then appealed to the High Court, but their application for special leave to appeal was deemed abandoned.

The central legal issues in this case revolved around the validity of the sequestration orders and the process by which the Federal Magistrate arrived at these orders. The McKinnons argued that the Magistrate erred in law by not allowing them to adduce evidence in relation to certain matters, including their attempts to negotiate with the Bank and the Bank's conduct during those negotiations. They also argued that the Magistrate failed to consider their financial position, including the possibility of entering into a deed of company arrangement. The McKinnons further contended that the Magistrate did not properly consider their application for an extension of time to comply with the bankruptcy notice.

The Court considered the arguments put forward by the McKinnons and found them to be without merit. The Court held that the Magistrate had properly exercised his discretion in not allowing the McKinnons to adduce evidence regarding the negotiations with the Bank, as such evidence was irrelevant to the issue of whether an act of bankruptcy had been committed. The Court also held that the Magistrate had properly considered the McKinnons' financial position and that the possibility of entering into a deed of company arrangement was not a sufficient reason to set aside the sequestration orders. Regarding the extension of time to comply with the bankruptcy notice, the Court held that the Magistrate had properly exercised his discretion in refusing to grant an extension, given that the McKinnons had not provided any justification for their delay in responding to the notice.

The Court dismissed the appeal and held that the appeal must be dismissed with costs. The McKinnons were ordered to pay the Bank's costs of the appeal. This decision reinforces the importance of complying with bankruptcy notices and the consequences of failing to do so. It also highlights the limited scope for challenging the decisions of a Federal Magistrate in the context of sequestration orders.