McLeod v Falvey
[1995] FCA 775
•20 SEPTEMBER 1995
CATCHWORDS
BANKRUPTCY - Application to extend time for compliance with bankruptcy notice pending appeal against judgment - exercise of discretion under s.41(6C) of the Bankruptcy Act 1966 (Cth) - prospects on appeal a relevant consideration - possibility of prejudice to creditors.
Bankruptcy Act ss. 41(6A), 41(6C)
Bryant v. Commonwealth Bank of Australia (Unreported, Davies, Foster and O'Loughlin JJ, 9 November 1994) - Appl.
William Stephen Ferguson McLEOD and Rosslyn Florence McLEOD, Ex parte William Stephen Ferguson McLeod and Rosslyn Florence McLeod and Lynette Alice Falvey and Peter Gerard Falvey
No. QN1126 of 1995
Cooper J., Brisbane, 20 September 1995
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
No. QN1126 of 1995
RE:
WILLIAM STEPHEN FERGUSON McLEOD
and ROSSLYN FLORENCE McLEOD
EX PARTE:
WILLIAM STEPHEN FERGUSON McLEOD
and ROSSLYN FLORENCE McLEOD
Applicants
AND: LYNETTE ALICE FALVEY and
PETER GERARD FALVEY
Respondents
JUDGE MAKING ORDER: Cooper J.
WHERE MADE: Brisbane
DATE OF ORDER: 20 September 1995
MINUTES OF ORDER
UPON the undertaking of the respondents that they will not in the event that they present a petition based upon non-compliance with the bankruptcy notice filed 31 August 1995, seek to progress the petition to obtain an order for sequestration pending the outcome of an appeal instituted by the applicants in the Court of Appeal of the Supreme Court of Queensland
THE COURT ORDERS THAT:
The application filed 31 August 1995 be dismissed.
The applicant pay the respondent's costs of and incidental to the application including reserved costs to be taxed if not agreed.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
No. QN1126 of 1995
RE:
WILLIAM STEPHEN FERGUSON McLEOD
and ROSSLYN FLORENCE McLEOD
EX PARTE:
WILLIAM STEPHEN FERGUSON McLEOD
and ROSSLYN FLORENCE McLEOD
Applicants
AND: LYNETTE ALICE FALVEY and
PETER GERARD FALVEY
Respondents
CORAM: Cooper J.
PLACE: Brisbane
DATE: 20 September 1995
REASONS FOR JUDGMENT
This is an application by William and Rosslyn McLeod, the judgment debtors, to extend the period of time in which the comply with a bankruptcy notice served upon them by the judgment creditors Lynette and Peter Falvey. The judgment debtors seek to extend the time for compliance with that bankruptcy notice until after the hearing and determination of an appeal lodged in the Queensland Court of Appeal from the judgment and orders of Judge Healey QC in the District Court at Brisbane in respect of which his Honour delivered reasons on 2 June 1995.
The judgment of Healey DCJ was pronounced on 26 June 1995. His Honour gave judgment for the judgment creditors on their counterclaim in the sum of $334,973.00 and for the judgment debtors in the sum of $66,772.00, giving a net debt due to the judgment creditors of $277,201.00.
The judgment debtors lodged an appeal to the Court of Appeal on 20 July 1995. The grounds of that appeal are contained in exhibit "D" to an affidavit of Mr McLeod. The essence of the grounds of appeal appears in paragraphs 2(a),(b) and (c) wherein it is alleged that the learned trial judge erred in finding that the payment of rent was an essential term of the lease between the judgment creditors and the judgment debtors and that in construing the lease his Honour erred in giving any effect to clause 5.2B of the lease in circumstances where his Honour had found that the clause operated as a penalty for the recovery of monies under the lease and was therefore void.
Mr Galloway, on behalf of the judgment debtors, submits that the filing of the appeal was the institution of proceedings to set aside the judgment for the purposes of s.41(6A)(a) of the Bankruptcy Act 1966 (Cth) ("the Act") and in that regard relies upon a decision of a Full Court of this court in Bryant v. Commonwealth Bank of Australia (Unreported, Davies, Foster and O'Loughlin JJ, 9 November 1994). Mr Hack for the judgment creditors did not seek to argue to the contrary.
It is further submitted by Mr Galloway that the circumstances relevant to the exercise of the discretion under s.41(6A) of the Act to extend time are limited to those matters which appear in s.41(6C)(b) and perhaps an obligation on behalf of the applicant to show that the appeal is reasonably arguable.
The question as to the matters relevant to the exercise of a discretion arises in this way. The judgment debtors granted in favour of their daughter and their solicitors separate mortgages to secure indebtedness due to those mortgagees. Those mortgages were granted at a time when proceedings in the District Court were on foot and were perfected by lodgment at the Titles Office at a time when the judgment debtors were aware that judgment in some sum would be awarded against them. It is submitted by Mr Hack that any trustee in bankruptcy would wish to investigate the circumstances surrounding the granting of those securities to determine whether or not there has been the giving of a preference or advantage in terms of s.122 of the Act.
There is a difficulty, it is submitted by Mr Hack, with the extension of time for compliance in the present circumstances. Section 122 of the Act only entitles a trustee to seek to set aside transactions which occur within a period of six months prior to the presentation of the petition which leads to the making of a sequestration order. If, as is sought, the time for compliance with the bankruptcy notice is extended for any considerable period of time, it would not be possible to present a petition within six months of the mortgage transactions referred to above. That is, any delay will see those transactions placed outside the time limit relevant to the operation of s.122 and therefore beyond the reach, or possible reach, of any trustee in bankruptcy. The mortgages in total secure about $53,000.00 and the property against which they are secured is a house property of the judgment debtors in Brisbane. It is therefore submitted that to extend time for compliance with the bankruptcy notice carries with it a very real possibility of prejudice to the creditors in the event that a sequestration order is ultimately made.
Mr Galloway submits that what is sought by the judgment creditors is essentially an order in the nature of security. That is, an order that ensures that there is some security available in the event that the appeal fails. Mr Galloway further submits that questions of possible preference are not relevant having regard to the terms of s.41(6C)(b) which limit the relevant considerations as to whether or not the appeal was instituted bona fide and whether or not it is being prosecuted with due diligence.
In my view the matters contained in s.41(6C)(b)(i) and (ii) are jurisdictional facts which, if established, require that the court not extend the time. That is, if the court is satisfied that the proceedings to set aside the judgment have not been instituted bona fide and are not being prosecuted with due diligence, there is no room for the operation of a discretion. Rather, the balance of the section requires that the time shall not be extended.
In the instant case there is no suggestion that the appeal is other than bona fide nor is there any suggestion that it has not been prosecuted with due diligence. However a perusal of the reasons of the Full Court in Bryant v. Commonwealth Bank of Australia shows that the discretion involves other relevant matters. One of those matters is the prospect of the appeal insofar as it is discernible from the material before the court. In saying that, I accept the force of the other authorities Mr Galloway referred me to, that it is not the function of the court on an application such as this to sit and try the appeal. However, it seems to me that where, as in the present case, the question is one of law and construction of a document, it is not inappropriate for the court to seek to form a view as to whether or not there is prima facie any reasonable prospect of success having
regard to the arguments contended for by the appellant or which will be contended for by the appellant on the appeal.
In my opinion the prospects of the appellant are not good. In my opinion it does not follow that simply because a clause is construed as operating as a penalty it cannot, for any other relevant purpose, be used as a source to identify the underlying intention of the parties at the time they made the lease. Further, rent or the payment of rent is the consideration underlying the right to possession and by its nature the timely payment of it is or ought to be regarded as essential to the performance of the lessor's obligations under the lease. The view of the learned District Court judge as to the construction of the lease is not, in my view, obviously wrong and I take that matter into account.
Having formed a view as to the prospects of the appellant on the appeal, it is appropriate to take into account any other relevant circumstances going to the exercise of the discretion. In my view, it is relevant that the granting of an extension of time would have the effect or possible effect of placing beyond the reach of creditors assets which may, if an order is made or if a petition is a presented on a timely basis, be brought into the estate by a successful application under s.122 of the Act.
In order to overcome the suggestion that the judgment debtors may be prejudiced, the judgment creditors have offered to undertake to the court not to proceed to bankruptcy on any petition filed by them pending the hearing and determination of the appeal in the Court of Appeal.
It is put that there may be other creditors who would seek to take advantage of the act of bankruptcy and proceed notwithstanding that the present petitioners had given this undertaking. This is a matter which is relevant to the exercise of the discretion. However, the prospects of the appeal are not good and there is a concern that assets which ought properly to be brought into the estate in the event of a sequestration order may be placed out of reach of creditors by the expiration of six months from the date of the relevant transaction. Further, I am satisfied that some limited protection can be given by way of the undertaking proposed and I am not aware on the material of there being any other pressing creditors who might seek to take advantage of the act of bankruptcy. On balance, the application to extend time for compliance with the bankruptcy notice ought to be refused and, upon the foreshadowed undertaking being given, I so order.
UPON the undertaking of the respondents that they will not in the event that they present a petition based upon non-compliance with the bankruptcy notice filed 31 August 1995, seek to progress the petition to obtain an order for sequestration pending the outcome of an appeal instituted by the applicants in the Court of Appeal of the Supreme Court of Queensland
THE COURT ORDERS THAT:
The application filed 31 August 1995 be dismissed.
The applicant pay the respondent's costs of and incidental to the application including reserved costs to be taxed if not agreed.
I certify that this and the preceding five (5) pages are a true copy of the reasons for judgment herein of his Honour Justice Cooper.
Date:20 September 1995 Associate
Counsel for the Applicant: Mr P. Hack
Solicitors for the Applicant: Flower & Hart
Counsel for the Respondent: Mr R. Galloway
Solicitors for the Respondent: Thomson Redhead & Boyd
Date of Hearing: 20 September 1995
Place of Hearing; Brisbane
Date of Judgment: 20 September 1995
0
0
0