McPhee v Glentham Pty Ltd
[2006] FMCA 1508
•29 September 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| McPHEE v GLENTHAM PTY LTD | [2006] FMCA 1508 |
| BANKRUPTCY – Application to extend time for compliance with bankruptcy notice – appeal from and application for stay of decision on which bankruptcy notice based – application for stay not yet heard – relevant principles. |
| Bankruptcy Act 1966, ss.41(6A), (6C) |
| Glentham Pty Ltd v Luxer Holdings Pty Ltd & Anor [2006] WASC 132 Conway v Jackson (2001) 107 FCR 201 Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 Re Horwarth; ex parte Mortgage Acceptance Nominees Ltd (1993) 43 FCR 587 Valassis v Bernard [2001] FCA 477 O’Loughlin v Glenmont Investments Pty Ltd [2001] FCA 925 Elliott v Water Wheel Holdings Ltd [2004] FMCA 37 Sidhom v Euphoric Pty Ltd [2006] FMCA 827 Jackson v Conway [2000] FCA 1530 Hovan v Goycolea-Silva [2003] FCA 234 Warner v Frost [1999] FCA 830 Shepherd v Chiquita Brands (South Pacific) Ltd [2001] FCA 1394 |
| Applicant: | MICHAEL JOHN McPHEE |
| Respondent: | GLENTHAM PTY LTD |
| File Number: | PEG239 of 2006 |
| Judgment of: | Lucev FM |
| Hearing date: | 28 September 2006 |
| Date of Last Submission: | 29 September 2006 |
| Delivered at: | Perth |
| Delivered on: | 29 September 2006 |
REPRESENTATION
| Counsel for the Applicant: | Mr A Timoney |
| Solicitors for the Applicant: | Stables Scott |
| Counsel for the Respondent: | Ms M Clarke |
| Solicitors for the Respondent: | Hotchkin Hanly |
ORDERS
That the application for interim orders extending time for compliance with the Bankruptcy Notice be dismissed.
Subject to hearing counsel, that the applicant debtor pay the respondent creditor’s costs to be agreed, or if not agreed, taxed according to the Federal Court scale.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG239 of 2006
| MICHAEL JOHN McPHEE |
Applicant
And
| GLENTHAM PTY LTD |
Respondent
REASONS FOR JUDGMENT
(revised from the transcript)
The application
The substantive application in this matter is an application to set aside a bankruptcy notice.
The sole ground of the application to set aside the Bankruptcy Notice is that it is the “subject of an appeal to the Supreme Court of Western Australia, Court of Appeal”.
There is also an application for interim orders for extension of time in which to comply with Bankruptcy Notice. It is that application which is the subject of this judgment.
The applicant’s affidavits
There are affidavits in support of the application from Mr McPhee (the applicant and judgment debtor) dated 18 September 2006 (“applicant’s first affidavit”) and 26 September 2006 (“applicant’s second affidavit”).
Annexure “A” to the applicant’s first affidavit is the Bankruptcy Notice dated 6 September 2006.
The Bankruptcy Notice was served on the applicant on 7 September 2006: applicant’s first affidavit paragraph 2.
Annexure “B” to the applicant’s first affidavit is the judgment and final orders in Glentham Pty Ltd v Luxer Holdings Pty Ltd & Anor [2006] WASC 132 (“Glentham”) being the judgment and final orders the basis for the judgment debt.
The appeal
An appeal has been filed with the Western Australian Court of Appeal (“Court of Appeal”) by the applicant against the judgment and final orders in Glentham: Annexure “C” to applicant’s first affidavit.
Draft appeal grounds have been formulated but have not yet been filed: annexure “D” to the applicant’s first affidavit. Final appeal grounds are not due to be filed until 9 October 2006: applicant’s first affidavit, par 5.
Counsel has apparently told the applicant there are “good prospects for the Grounds of Appeal to be successful”: applicant’s first affidavit par 6.
The respondent’s counsel, Ms Clarke, tells me that the respondent does not concede that there is an arguable case on appeal.
The timetable envisages the appeal being entered for hearing by December 2006, and the hearing of the appeal is therefore not likely to take place before May 2007: applicant’s first affidavit par 7.
On that basis there is unlikely to be a decision in the appeal until after June 2007, and possibly well into the latter half of 2007, a point agreed by the applicant’s counsel, Mr Timoney, in the course of argument.
The application for a stay
An application for a stay of execution on the judgment and final orders until after the determination of the appeal was made on 26 September 2006: applicant’s second affidavit par 3.
It is said that enquiries reveal that the stay application “may be heard on or after 13 October 2006”: applicant’s second affidavit par 4. However, there is no certain date for determination of the stay application. Indeed, counsel for the applicant, Mr Timoney, told me yesterday that there was a directions hearing day in the Court of Appeal on 13 October 2006, and the matter may be dealt with on that day, or at least listed for hearing at a future date. Alternatively, he indicated that the matter may be dealt with, on the papers, prior to 13 October 2006 (but I note in that respect that the appeal grounds are only due to be filed on 9 October 2006).
Injustice to the applicant
The applicant also says that if a sequestration order was to be made against him he would not be entitled to continue to prosecute the appeal, which he asserts (without more) “would cause grave injustice to me”: applicant’s first affidavit par 8.
Jurisdictional pre-requisite
The appeal is a proceeding to set aside the judgment and order of a single judge of the Supreme Court of Western Australia in Glentham: Conway v Jackson (2001) 107 FCR 201 at pp.207-210 per Moore, Matthews and Mansfield JJ (“Conway”). The jurisdictional pre-requisite in s.41(6A) of the Bankruptcy Act 1966 (Cth) has therefore been met.
Extension of time for compliance – principles
Essentially, this matter is to be resolved by an exercise of discretion as to whether there ought to be an extension of time for compliance with the Bankruptcy Notice.
The discretion conferred is “at large”, subject to s.41(6C) of the Bankruptcy Act: Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 at pp.270-271 per Lehane J (“Byron”). However, grounds must be shown: Conway at pp.206 and 210 per Moore, Matthews and Mansfield JJ.
Where proceedings to set aside a judgment debt and order have been instituted by way of an appeal factors to be taken into account when determining whether to exercise the discretion include:
a)whether there is an arguable case on appeal;
b)whether a stay of execution has been sought or obtained;
c)prejudice to the debtor;
d)prejudice to the creditor and other creditors;
e)the impact on the date of bankruptcy;
f)the impact on any related legal proceedings;
g)delay; and
h)whether or not undertakings have been given, or conditions can be imposed, in relation to, for example:
i)payment of monies on trust by the debtor;
ii)non-disposal of assets by the debtor;
iii)notification of significant expenditure by the debtor; and
iv)further borrowings on real property owned by the debtor,
and the debtor’s ability to fulfil or comply therewith.
See Re Horwarth; ex parte Mortgage Acceptance Nominees Ltd (1993) 43 FCR 587 at pp.592-593 per Einfeld J; Valassis v Bernard [2001] FCA 477 per Beaumont J; O’Loughlin v Glenmont Investments Pty Ltd [2001] FCA 925 at par [17] and [19], per Mansfield J.
Arguable case on appeal
The existence of an appeal, and the fact that there is or is not an arguable case, are factors to be considered on an extension of time application: Byron at pp.270-271 per Lehane J.
The applicant asserts, seemingly because of a view expressed by counsel preparing the appeal grounds, that there is an arguable case on appeal. The respondent does not concede this to be the case.
It is not appropriate for me to make a preliminary assessment of the merits of the appeal but rather to simply form a view as to whether the appeal may be arguable or not: Elliott v Water Wheel Holdings Ltd [2004] FMCA 37 at par [49] per McInnis FM (“Water Wheel”).
On the basis of the limited material before me (a bare appeal and unfinished grounds of appeal) it is difficult to form a view. On balance I consider that there may be, at best, an arguable case for the applicant.
An arguable case is but one factor in the overall assessment: Sidhom v Euphoric Pty Ltd [2006] FMCA 827 at par [16] per Barnes FM (“Sidhom”).
I note that any appeal is unlikely to be determined before the second half of 2007. The date of hearing of the appeal is also a factor to be weighed at this stage: Water Wheel at par [61] per McInnis FM.
Stay of execution
Where a stay has not been applied for that is a factor against extension of time: Byron at p.270 Lehane J.
In the absence of other relevant factors it requires an exceptional case or, at least, quite special circumstances, for time to be extended where no stay has been obtained: Sidhom at par [35] per Barnes FM.
Where a stay has been applied for and granted that is a factor for extension of time: Jackson v Conway [2000] FCA 1530 at par [24]-[26].
In this case a stay has been applied for, but not yet obtained. It is but a bare application for a stay that is in the materials before me.
No material has been tendered which might otherwise assist me in determining, for example, whether there is an arguable case on the stay application.
Additionally, there is no positive indication of when the stay application might be determined. It seems unlikely that it will be determined on the papers, given that the grounds of appeal are not due to be filed until 9 October 2006, just four days before a directions hearing day at which the applicant otherwise thinks the matter might be listed. There might be a determination at the directions hearing on
13 October 2006 (if it is listed on that day for directions, which is not certain). Equally, there might not be. If there is not, a hearing and decision on the stay might be many weeks or even months away.
The seeking or obtaining of a stay is again but one factor in the determination of an application for extension of time for compliance; Sidhom at pars [33] and [35] per Barnes FM. However:
a)a stay has not been obtained;
b)no material has been tendered (other than the unfinished appeal grounds) which might assist me in determining whether there is an arguable case for a stay;
c)
the stay was not applied for before this application (including the application for interim orders) was made, and indeed not until 5 days after the matter had been before Registrar Stanley, on
21 September 2006; and
d)the hearing of the stay application is at some indeterminate future time.
All of the above precedes the question of whether a stay is even granted. It may not be.
Prejudice to debtor
Apart from the usual and obvious difficulties attendant upon an act of bankruptcy having been committed there is an absence of evidence of prejudice to the debtor. The most the debtor says is that a sequestration order “would cause grave injustice” to him: applicant’s first affidavit par 8. However, this is not, and there may never be, a sequestration order matter.
Where there is an absence of evidence of irreparable damage to the debtor that is a factor against extension of time: Hovan v Goycolea-Silva [2003] FCA 234 at par [9] per Emmett J.
The gravity of the commission of an act of bankruptcy is of a different, and lesser, order than that which flows from the making of a sequestration order: Byron at p.270 per Lehane J; Warner v Frost [1999] FCA 830 at par [8] per Hely J (“Warner”); Sidhom v Euphoric Pty Ltd [2006] FMCA 827 at par [34] per Barnes FM. The point is neatly encapsulated by Barnes FM in Sidhom at par [36]:
However, as discussed, there is a clear distinction between the exercise of the discretion to extend the time for compliance with the bankruptcy notice and the question of whether to proceed with the hearing of a creditor’s petition. This is not the hearing of a creditor’s petition. The debtor’s status would remain unaffected by a refusal to extend the time for compliance except that an act of bankruptcy would be committed at an earlier time than would be the case if the application for an extension of time were granted.
Further, I note that in the event that a creditor’s petition is presented, the act of bankruptcy being its basis, the issuance of a sequestration order is not guaranteed. Adjournment of the petition pending hearing and determination is a possibility: Warner at par [9] per Hely J.
An adjournment of the petition might also be granted on the basis of undertakings given or conditions imposed: Sidhom at pars [2] and [30]-[31] citing the approach adopted by Allsop J in Shepherd v Chiquita Brands (South Pacific) Ltd [2001] FCA 1394.
In any event, and even if it were relevant to consider a possible sequestration order at this stage, which it is not, the applicant has provided no evidence of “grave injustice” on which to base a finding.
Beyond that which is usual with the issuance of a bankruptcy notice, the applicant has not demonstrated any sufficient prejudice to him as debtor to warrant an extension of time on which to comply with bankruptcy notice.
Prejudice to creditor or other creditors
There is no particular evidence of prejudice to the respondent, as creditor of the applicant. There is no evidence as to other creditors of the applicant. The most that can be said, in general terms, is that to grant an extension of time would delay the time at which the act of bankruptcy occurs, and that it is in the interests of creditors generally, where a sequestration order ultimately follows, that the act of bankruptcy be earlier not later: Warner, at par [8] per Hely J, because there are “potential adverse consequences” if the act of bankruptcy is delayed: Water Wheel at par [59] per McInnis FM.
Impact on date of bankruptcy
The issue of impact on the date of bankruptcy is sufficiently dealt with above. It provides no sufficient reason to extend time.
Impact on related legal proceedings
In so far as sequestration order proceedings might be considered related proceedings they are dealt with above.
In relation to the appeal and the stay in the Court of Appeal the extension or non-extension of time for compliance will have no impact. Those proceedings will continue to be dealt with in the normal way even if an act of bankruptcy is committed. There is no effect on the applicant until a sequestration order issues (if one ever does).
Impact on related legal proceedings is no sufficient reason to extend time for compliance with the bankruptcy notice.
Delay
The appeal against the judgment and final order was instituted within a reasonable time.
The application for a stay, whilst not delayed in its institution, seems to have been more of an afterthought. Indeed, the stay only seems to have been lodged as a result of this application: annexure A to the applicant’s second affidavit.
On balance, I do not consider that the issue of delay tells either for or against extending time for compliance with the bankruptcy notice.
Undertakings and conditions
There is no evidence of undertakings or conditions either at all, or which provide sufficient reason to extend time for compliance with the bankruptcy notice.
Conclusion
There is in this interim application for an order for extension of time to comply with the bankruptcy notice:
a)a bare appeal;
b)probably an arguable case, although it is difficult to determine on the paucity of available material;
c)an application for a stay but no stay granted and no material tendered to support an argument that there is an arguable case for a stay;
d)no evidence of particular prejudice to the applicant debtor beyond that ordinarily associated with an act of bankruptcy;
e)no evidence of particular prejudice to the respondent creditor, or other creditors, apart from the usual interests of creditors in the act of bankruptcy being earlier not later;
f)no evidence of impact on any related legal proceedings;
g)no evidence of delay which would tell either for or against the applicant; and
h)no relevant undertakings or conditions.
I have concluded that there is no sufficient evidence to warrant an extension of time for compliance with the Bankruptcy Notice. To grant the application on the basis of the material presently before me would, as counsel for the respondent, Ms Clarke suggested, be an invitation to every person served with a bankruptcy notice, to appeal, apply for a stay, and then apply to set aside the bankruptcy notice, on grounds lacking substance.
Orders
I propose to issue the following orders:
1.That the application for interim orders extending time for compliance with the Bankruptcy Notice be dismissed.
2.Subject to hearing counsel, that the applicant debtor pay the respondent creditor’s costs to be agreed, or if not agreed, taxed according to the Federal Court scale: see FCR Order 62.
I certify that the preceding fifty-one (51) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate:
Date: 11 October 2006
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