Perovich v Tesla Nominees Pty Ltd - [2006] FMCA 1342

FEDERAL MAGISTRATES COURT OF AUSTRALIA

PEROVICH v TESLA NOMINEES PTY LTD

[2006] FMCA 1342

BANKRUPTCY – Bankruptcy notice – extension of time to comply – review of Registrar’s decision.

Bankruptcy Act 1966, ss.30(1), 41(6A), 41(6C), 44, 52
Federal Magistrates Court (Bankruptcy) Rules 2006, r.2.03
Federal Magistrates Court (Bankruptcy) Rules 2006, r.20.03

Allesch v Maunz (2000) 203 CLR 172
ASIC v Forge (2003) 133 FCR 487
Brookfield v Yevad [2002] FMCA82
Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264
In re Vitoria [1894] 2 QB 387
King v Henderson [1898] AC 720
Olivieri v Stafford (1989) 24 FCR 413
Re Athans (1991) 29 FCR 302
Re Hanby; ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378
Re Lentini (1991) 24 FCR 363
Re Macks; ex parte Saint (2000) 204 CLR 158
Re Sterling; ex parte Esanda Ltd (1979) 44 FLR 125
Re Vella; ex parte Seymour (1983) 67FLR 287
Shephard v Chiquita Brands South Pacific Limited [2004] FCA FC 76
Shortall v Keily [2005] FCA 1930
The Commissioner for Railways (NSW) v Cavanough (1935) 53 CLR 220

Applicant:

SILVANA PEROVICH

Respondent:

TESLA NOMINEES PTY LTD

File number:

BRG 421 of 2006

Judgment of:

Wilson FM

Hearing date:

18 August 2006

Date of last submission:

18 August 2006

Delivered at:

Brisbane

Delivered on:

11 September 2006

REPRESENTATION

Counsel for the Applicant:

Mr P Bickford

Solicitors for the Applicant:

Marler & Darvall

Counsel for the Respondent:

Mr Miller

Solicitors for the Respondent:

Swaab Lawyers

ORDERS

That the time within which the applicant can apply to review the decision of Registrar Baldwin be extended to 17 August 2006.
That the decision of Registrar Baldwin made on 7 July 2006 whereby it was ordered that the application for an extension of time within which to comply with bankruptcy notice NN1783/06 be refused, be set aside.
In lieu thereof, that the time for compliance with bankruptcy notice NN1783/06 be extended to the date hereof.
That bankruptcy notice NN1783/06 be set aside.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG 421 of 2006

SILVANA PEROVICH

Applicant

And

TESLA NOMINEES PTY LTD

Respondent

REASONS FOR JUDGMENT

There are four applications before the court:
a)An application by the applicant for an extension of the time within which to bring an application to review a decision of the Registrar;
b)
If such extension of time is granted, an application by the applicant for review of the decision of Registrar Baldwin made

7 July 2006;
c)In any event, an application by the applicant to set aside a bankruptcy notice served on her by the respondent creditor;
d)An application in a related matter (BRG 507/06) by the respondent creditor for a sequestration order against the estate of the applicant.
On the hearing of the first three applications, it was sensibly agreed that the fourth matter should be adjourned pending the outcome of the application to set aside the bankruptcy notice.
In order to put the applications in context it is necessary to understand the history of the litigation between the parties (in so far as it is recounted in the affidavit material). The applicant and Richard Spencer are directors of Ecomonitors Pty Limited, a property development company. On 21 July 2005 the respondent creditor filed proceedings in the District Court of New South Wales against Ecomonitors Pty Limited, Richard Spencer and the applicant. That action was for the recovery of monies allegedly owing by Ecomonitors Pty Limited to the respondent, and against the applicant and Spencer as guarantors of the obligations of Ecomonitors Pty Limited. In fact, as the Facility Agreement dated 1 July 2004 discloses (in clause 14 thereof), the applicant not only guaranteed the obligations of Ecomonitors Pty Limited, but also was made liable as principal debtor and agreed to indemnify the lender against any loss suffered by reason of the default of Ecomonitors Pty Limited.
On 14 December 2005, the respondent obtained a default judgment against the applicant in the District Court of New South Wales, in the total amount of $273,736.31. In reliance on that judgment, on 2 May 2006 the respondent filed bankruptcy notice NN 1783/06. The applicant has deposed to the fact that she was not aware of the default judgment until she was served with the bankruptcy notice.
The bankruptcy notice was served on the applicant on 8 June 2006. Although the applicant has previously contended that the bankruptcy notice was not served upon her, it clearly was, and the applicant has now conceded as much (in her oral evidence). On the hearing of this application, the respondent relied on the affidavit of Jessica Leigh Gilmore filed 7 July 2006, deposing to proper service of the bankruptcy notice. Ms Gilmore was not required for cross examination. I find that the bankruptcy notice was properly served on the applicant on 8 June 2006.
As was made clear from the bankruptcy notice served on the applicant, unless there was compliance with the bankruptcy notice, or an extension of time was obtained for such compliance, an act of bankruptcy would occur after 21 days of the service of the bankruptcy notice (in this case on 29 June 2006).
On the last day for compliance with the bankruptcy notice, the applicant (who was then purportedly self represented, although a solicitor signed the application) filed an application seeking:
a)a declaration that the bankruptcy notice was not and had not been served upon her as required by the Bankruptcy Act1966;
b)an order that the bankruptcy notice be set aside;
c)alternatively, an order that time for compliance with the bankruptcy notice be extended until the hearing and determination of the application to set it aside.
The applicant also sought an interim order that the time for compliance with the bankruptcy notice be extended until the hearing and determination of her substantive applications. In support of that application, the applicant relied on a brief affidavit of herself filed

29 June 2006. In the affidavit the applicant deposed that she had engaged lawyers to apply to set aside the default judgment (at paragraph 14). As it turns out, that assertion was incorrect. In her affidavit filed on 21 July 2006, the applicant deposes that it was not until 14 July 2006 that she retained a Sydney solicitor to apply to set aside the default judgment. Mr Petrucco, her solicitor, says this occurred on 19 July 2006.
The applicant’s affidavit did not depose to the facts giving rise to the claim against her, nor what her defence to that claim may be. The matter came before Registrar Baldwin on 7 July 2006. In the circumstances, given the paucity of material before the court, it is not surprising that the Registrar refused the application for an extension of time to comply with the bankruptcy notice. Somewhat surprisingly, however, the Registrar adjourned the application to set aside the bankruptcy notice to 21 July 2006 and made directions for the service of further affidavit material. Given the interrelationship between an application to extend time for compliance, and an application to set aside a bankruptcy notice, one would not normally expect the latter application to be allowed to remain on foot if the Court was persuaded that the former application should be dismissed. Thereafter, the matter was further adjourned. Prior to the hearing before me, the default judgment was set aside on 11 August 2006. The respondent creditor ultimately did not oppose the judgment being set aside. It does, however, oppose the setting aside of the bankruptcy notice.
The applicant filed her application to set aside the bankruptcy notice on the last day available to do so. In those circumstances, she enlivened the jurisdiction of the court to make an order extending the time for compliance: s.41(6A)(b) Bankruptcy Act. The Court had a discretion whether or not to extend the time. That discretion was at large, subject only to the fact that the court may not extend time if it makes one of the findings of fact provided for by s.41(6C): Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 at 270-1.
The existence of the power to extend the time for compliance is ordinarily in aid of the setting aside of the notice itself: Re Sterling (1980) 44 FLR 125 at 130. The power to set aside the notice and the power to extend time for compliance are necessarily related: Re Lentini (1991) 24 FCR 363. One queries therefore the rationale, on the part of the Registrar to dismiss the application for an extension of time, but to allow the application to set aside the bankruptcy notice to proceed, against the background that, by reason of the refusal of the application to extend time, an act of bankruptcy would inevitably occur.
The applicant seeks a review of the decision of the Registrar of 7 July 2006 whereby she refused to extend time for compliance with the bankruptcy notice. The first difficulty confronting the applicant is Rule 2.03(1) Federal Magistrates Court (Bankruptcy) Rules 2006 which 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.
The application for review was not filed until 17 August 2006, some twenty days out of time. As is made apparent by the opening words of Rule 2.03(1) this court has power to enlarge the time allowed for seeking review of a Registrar’s decision. In deciding whether or not to extend time, in my view the relevant factors guiding the court include:
a)The length of delay;
b)The reason for the delay;
c)Whether the delay was that of the applicant herself or of some other person acting on her behalf;
d)Whether the Applicant has an arguable case for relief, or, to put the matter conversely, whether it would be futile to extend time, as the application for review has no reasonable prospects of success; and
e)The prejudice to be suffered by either party if an order extending time is made.
In the present case, the length of delay is relatively short. In the intervening period it is not as if nothing has happened. The matter has been back before this court on two occasions. Steps were also taken in the District Court of New South Wales to set aside the default judgment. The application to set aside the default judgment, originally listed for hearing on 28 July, 2006 was adjourned until 11 August 2006. In my view, the delay in filing the application is not so great as to persuade me not to extend time.
The affidavit material filed on behalf of the applicant is deficient in addressing the second and third factors referred to above. The applicant herself has not deposed to any reason for the delay. As I have observed, she seems to have had a solicitor at least advising her from the time the application to set aside the bankruptcy notice was filed. The involvement of Mr Conomos is not further explained. There is no explanation by the applicant as to whether or not she was aware of the time limit for seeking a review of the Registrar’s decision. Nor is there any evidence from her as to why she left it until 20 July to consult Mr Duncan.
The applicant’s present Brisbane solicitor, John Arthur Duncan, has sworn an affidavit. Mr Duncan says that he first became involved in the matter on the eve of the application on 21 July. The matter was then adjourned to 2 August and subsequently to 18 August. Mr Duncan deposes that he was “under the impression” that the applicant still had on foot not only an application to set aside the bankruptcy notice but also an application to have the period of time for compliance with the bankruptcy notice extended. He does not say how that impression was formed. He says that on 2 August he believed he sought the further adjournment of both parts of the application. He says that during a telephone conversation with the respondent’s solicitor on 15 August the respondent’s solicitor asserted that the order of Registrar Baldwin on

7 July had finalized the application for an extension of time to comply with the bankruptcy notice. Mr Duncan states:
“This was the first time that I had become aware of the Respondent’s attitude as to the effect of (sic) nature of Registrar Baldwin’s Order of 7 July 2006. I had not considered that the registrar’s order had finally dealt with this aspect of the Application and, prior to the aforementioned telephone call, was not aware that the respondent contended that the order had that effect.”
Two things can be said about this passage. The first is that, at least inferentially, Mr Duncan concedes that he knew about the existence of Registrar Baldwin’s order before 15 August. He says he did not appreciate its effect. However, and this is the second matter of observation, the effect of the order is plain. Although no reasons were given for the order, or none that have found there way into the affidavit material, the order on its face is clear.
This leads me to conclude that Mr Duncan must have known of the terms of Registrar Baldwin’s order before 28 July 2006 (the last day of the 21 day period for seeking review). By that stage he had been involved in the matter for a week, and had been to court once. He ought to have read the file. If Mr Duncan knew of the terms of Registrar Baldwin’s order, he ought to have appreciated its effect, and of the need for an application for review to be filed expeditiously if it was to be challenged.
The current trend of authority is not to attribute the default of a legal adviser to the client in cases where the reason why a step has not been taken in accordance with a statute or rules of court is because the lawyer failed to do so, or failed to advise the client that such a step was necessary. No doubt this trend is influenced by the fact that to find otherwise would give rise to further legal proceedings between the client and legal adviser, and in assessing the client’s loss in such proceedings, the court would necessarily have to determine the chance that, had the lawyer acted appropriately, the client would not have lost the right suffered as a result of the lawyer’s conduct. This difficult assessment might have to be made without the participation of the other party to the original application. No doubt it could also be argued that although the client as principal is bound by the conduct of her solicitor as agent, the solicitor is not ordinarily authorized to act in such a manner as to cause the client loss.
Therefore, although the applicant has not given any reason for the delay between 7 July and 20 July, she did instruct Mr Duncan within the 21 day period. Mr Duncan, in my view, ought to have appreciated the effect of the orders of Registrar Baldwin prior to 28 July, and either filed an application for a review of the Registrar’s orders, or at least sought his client’s instructions to do so. In those circumstances, the second and third factors referred to above do not point toward exercising the discretion to extend time adversely to the applicant.
The fourth factor is one which attracted most attention during submissions, although for different reasons. Counsel for the applicant put the matter succinctly – the bankruptcy notice was founded on a default judgment, that judgment has now been set aside, a fortiori the bankruptcy notice should be set aside. In aid of that result, although strictly not essential, the applicant argued that time should be extended for compliance with the bankruptcy notice. The jurisdictional prerequisite to the operation of s.41(6A) having been satisfied, it followed, in the applicant’s argument, that as a matter of course, time should be extended so as to enable the court to come to the conclusion that the bankruptcy notice should be set aside. The matter is not quite that simple. Where grounds on which a bankruptcy notice might be set aside have been established, the court retains a discretion in the matter. As between the parties, the default judgment stood unimpeached until it was set aside: In re Vitoria [1894] 2 QB 387; King v Henderson [1898] AC 720. The bankruptcy notice, at the time it was issued was valid. Once an act of bankruptcy has been committed by reason of non compliance with a bankruptcy notice, the act of bankruptcy is available to found a creditor’s petition issued by any creditor who can establish a debt complying with ss 44 and 52 Bankruptcy Act notwithstanding that the judgment is subsequently set aside. The importance of the commission of an act of bankruptcy in the legislative scheme of the Bankruptcy Act was examined by the Full Federal Court in ASIC v Forge (2003) 133 FCR 487. However, there is no evidence before the court in the present case of any other creditors who may seek to rely on the act of bankruptcy which occurred by reason of the applicant’s non-compliance with the bankruptcy notice.
Because the issues of whether the court has the power to extend time for compliance with a bankruptcy notice outside of s.41(6A), and to set aside a bankruptcy notice, valid in form, after the time for compliance has expired are somewhat controversial (see, for example, Olivieri v Stafford (1989) 24 FCR 413 per Gummow J at 429-30; Re Athans (1991) 29 FCR 302 at 310) in my view the preferable approach is to deal with the matter, if possible, as an application to set aside the bankruptcy notice brought within time. Because the judgment on which the bankruptcy notice was based has in fact been set aside, the applicant must be regarded as having an arguable case for the setting aside of the bankruptcy notice. To enable her to make an application to set aside the bankruptcy notice, the applicant must also be regarded as having an arguable case for the extension of time. In those circumstances, the applicant has persuaded me that the fourth factor should be resolved in her favour, on the application to extend time for reviewing the Registrar’s decision.
In my view, the issue of prejudice favours the applicant. If an order is not made in her favour extending time to review the decision of the Registrar, it is arguable that she will lose her right to apply to set aside the bankruptcy notice. On the other hand, the respondent creditor will retain the right to argue that the decision of the Registrar should not be set aside, an order extending time should not be made, and the bankruptcy notice should not be set aside. In my view, the issue of prejudice favours granting an extension of time. I reject the applicant’s argument that the respondent would suffer no prejudice because the default judgment has been set aside. The respondent presently has an act of bankruptcy available to it. If time is extended to challenge the decision of the Registrar, that act of bankruptcy is opened up for challenge. It is beside the point, on this issue, that the default judgment has, in fact been set aside.
In conclusion, therefore, I am persuaded that the applicant should be granted an extension of time so as to enable her to seek a review of the order of Registrar Baldwin made on 7 July 2006.
The respondent creditor argued that on the hearing of the application for review, I should consider the matter only on the material before the Registrar, and on that material there was no reviewable error. Counsel for the creditor, as I understood his argument, submitted that in reviewing the decision of the Registrar, it was impermissible for me to look at material filed subsequent to the date on which the Registrar made her order.
In my view, these submissions are misconceived. Rule 20.03 of the Federal Magistrates Rules provides:
The review of an exercise of power by a Registrar:
(a)     must proceed by way of a hearing de novo; and
(b)may receive as evidence any affidavit or exhibit tendered before the Registrar; and
(c) may with leave receive further evidence; and
(d)     may receive as evidence:
(i)          any transcript of the proceeding before the Registrar; or
(ii)     if there is no transcript, an affidavit sworn by a person who was present at the proceedings before the Registrar as a record of the proceeding.

The respondent did not object to my receiving the further affidavit evidence relied on by the applicant. On a hearing de novo, I am required to consider the matter afresh, regardless of whether there was error at first instance: Allesch v Maunz (2000) 203 CLR 172 at 180. In those circumstances, I will proceed to look at the issue of whether there should be an extension of the time for compliance with the bankruptcy notice in light of all of the evidence now available, and despite my conclusion, expressed above that, on the material then before her, the Registrar was undoubtedly correct in refusing the extension of time on 7 July (Shortall v Keily [2005] FCA 1930).
In the present case, an application to set aside the bankruptcy notice was filed before the time for compliance with the bankruptcy notice had expired. Therefore, under s.41(6A)(b) Bankruptcy Act the court has the discretion to extend time for compliance. In my view, by reason of what has in fact occurred, namely the setting aside of the default judgment, it cannot be said that s.41(6C) precludes the making of such an order. In any event, I doubt whether that subsection applies in any event, because on the facts of the present case, s.41(6C)(a) is not satisfied.
Because the discretion to extend time for compliance with a bankruptcy notice is in aid of the application to set aside the notice, it is to that issue that I now turn.
The source of power to set aside the bankruptcy notice is s.30(1) Bankruptcy Act. In considering how to exercise my discretion as to whether or not to set aside the notice, I have been referred to a number of cases.
In Re Sterling; ex parte Esanda Ltd (1979) 44 FLR 125 Lockhart J. said, at page 129ff:
“Notwithstanding that the filing of the application to set aside the bankruptcy notice within the specified time is a condition precedent to the exercise of the Court’s power to extend time, and is perhaps a ground for granting the extension, in truth the power to extend time is in aid of the setting aside of the notice itself. Unless the Court is to hear the application to set aside the notice, there is no purpose to be served in having power to extend time for compliance with the requirements of the notice.
…
It is not clear why Parliament did not expressly confer power on the Court to set aside a bankruptcy notice; but plainly it assumed the existence of the power when enacting section 41(6A).
It is necessary for the purpose of carrying out or giving effect to the express power vested in the Court to extend time for compliance with the requirements of bankruptcy notices but the Court may set aside such notices. Hence, section 30(1) is a source of the Court’s power to set aside bankruptcy notices.
…
Plainly the power to extend time for compliance is in aid of the power to set aside the notice itself. What is the point in extending time for compliance otherwise than for the purpose of enabling the Court to hear the application to set aside the notice without the occurrence of the act of bankruptcy in the meantime? If it did occur this would be destructive of the very power itself
…
It is neither necessary nor desirable for me to state exhaustively the matters which an applicant for extension of time must show to obtain an order for extension. This would depend on the facts of each case. Grounds must be established. It is as well to remember that the power to set aside the notice and the power to extend time for compliance are necessarily related. For instance, if the application to set aside is made on the basis that no debt lies behind the judgment, the Court may conduct a preliminary enquiry as to whether it should go behind the judgment. This approach is taken sometime on the hearing of petitions for sequestration where the debtor alleges that he is not indebted to the petitioning creditor notwithstanding the judgment…
There are sound reasons why substantially the same consideration should apply in dealing with applications to set aside bankruptcy notices. There may be cases where the application to set aside should be adjourned pending the outcome of an application by the debtor to a Court of competent jurisdiction to set aside the judgment on which the bankruptcy notice is founded.
…
As the power to extend time for compliance with the requirements of the bankruptcy notice is in aid of the power to set aside the notice itself, generally the two will go hand in hand. For instance if the application to set aside is made on the basis that no debt lies behind the judgment and the Court decides to hear the dispute as to the existence of the debt it may give directions as to interlocutory matters and fix the hearing of the application to set aside at some future date; but in the meantime extend time for compliance with the notice.
…
In my opinion paras. (a) and (b) of section 41(6A) are not mutually exclusive. The fact that the Court may extend time for compliance where the applicant has applied to the Court where judgment was signed against him to set the judgment aside (par. (a)) does not restrict the ambit of the Court’s power to extend time for compliance where the applicant seeks to set aside the notice (par. (b)). In the appropriate case the fact that application has been made to set aside the judgment on which the bankruptcy notice is based maybe a relevant circumstance for the Court to consider when hearing an application to extend time in aid of an application to set aside the notice. Put another way, the fact that it is a condition precedent to the exercise of the power to extend time for compliance, and a ground of the application for the exercise of that power, that the applicant has applied to the Court where judgment was signed against him to set aside the judgment (section 41(6A)(a) and section 41(6C)) does not mean that this Court cannot treat that same matter as a relevant consideration when exercising the power to extend time where application is made to set aside the Bankruptcy Notice (section 41(6A)(b)).”
It follows from his Honour’s consideration of the relevant legislation provisions, in my view, that if the applicant debtor has an arguable case to set aside the bankruptcy notice ordinarily the Court ought to extend time for compliance so as to enable that application to be made and heard without an act of bankruptcy occurring during the time between the application is filed and when it is heard and determined.
The respondent creditor relied on the decision of Morling J. in Re Vella; ex parte Seymour (1983) 67FLR 287. That case is distinguishable from the present because in it the debtor did not apply to set aside the bankruptcy notice within time or seek an order under s.41(6A). Rather the debtor applied to the District Court of New South Wales to have the judgment set aside, and applied to the Federal Court to have the bankruptcy notice set aside. The District Court judgment was set aside but the bankruptcy notice was not, because an act of bankruptcy was committed when the debtor failed to comply with the bankruptcy notice. The subsequent setting aside of the judgment on which the bankruptcy notice was based did not alter the fact that an act of bankruptcy had occurred. It is apparent from the reasons for judgment, at page 288, that no reliance in that case was placed on section 41(6A) of the Bankruptcy Act. However, reliance is placed on that section in the present case. In my view, the reasoning in Re Vella, whilst undoubtedly correct on the facts of that case, does not apply to the present case. I am reviewing a decision of the Registrar made on

7 July 2006. If I come to the conclusion that the decision of the Registrar was wrong, my decision is substituted for that of the Registrar. This is the effect of first instance decisions being overturned. If I conclude that time should be extended for complying with the Bankruptcy Notice then that order will take effect from 7 July 2006 and no act of bankruptcy will have been committed in the present case. In Re Macks; ex parte Saint (2000) 204 CLR 158 at 177 Gleeson CJ observed that the decision of a superior court is valid unless and until it is set aside. Once it is set aside the decision is treated as not having been made. (see also The Commissioner for Railways (NSW) v Cavanough (1935) 53 CLR 220) In my opinion the same reasoning applies to the decision of the Registrar in the present case (see D.M. Gordon, “Effect of Reversal of Judgment on Acts Done Between Pronouncement and Reversal” (1958) 74 LQR 517).
It is plain from the decision of the Full Federal Court in Streimer v Tamas that provided jurisdiction is enlivened by compliance with section 41(6A) Bankruptcy Act, the Court has power to extend the time for compliance with the bankruptcy notice notwithstanding the fact that at the time of making the order the time for compliance with the bankruptcy notice has already expired. Where one of the two limbs of section 41(6A) Bankruptcy Act has been fulfilled within time, as occurred in the present case, the court has power to extend the time for compliance, notwithstanding that at the time of making the order the time for compliance with the bankruptcy notice has already expired and an act of bankruptcy has been committed. (See the discussion in Shephard v Chiquita Brands South Pacific Limited [2004] FCA FC 76 at [32] – [40]).
Thus, in the present case, time for compliance with the bankruptcy notice had expired by 7 July 2006 but an application had been made to set aside the bankruptcy notice within the 21 day period thereby enlivening the jurisdiction of the Court to extend time.
In Re Lentini (1991) 29 FCR 363 Neaves J. held that any affidavit in support of an application to set aside the bankruptcy notice need not be filed within the time prescribed by section 41(6A)(b) Bankruptcy Act. His Honour said, at page 372:
“It must be accepted that the Court has a wide discretion to set aside a bankruptcy notice where it is satisfied that the interests of justice require it to do so: see Re Taylor ex parte Deputy Commissioner of Taxation (Cth) (1983) 74 FLR 377 at 379. The discretion may be exercised so as to set a notice aside where it is shown that judgment upon which the notice is based has itself been set aside in proceedings of the kind to which section 41(6A)(a) refers. It may also be so exercised where the judgment on which the notice is based has been shown, on appeal, not to be correct. Another situation in which an notice may be set aside is where, notwithstanding the existence of the judgment on which the notice is based, the Court is satisfied that there was a dispute genuinely based on substantial grounds as to the correctness of that judgment.
It must also be accepted that, pending the hearing and determination of an application to set aside a bankruptcy notice, the Court may, provided the requirements of section 41(6A) have been satisfied, extend the time for compliance with the requirements of the notice. As has been said on a number of occasions in the Court, the power to extend the time for compliance with the requirements of a bankruptcy notice is a power conferred in aid of the power to set aside the notice itself…Unless the time has been extended, the setting aside of the notice will not effect an act of bankruptcy already committed by reason of the non compliance with its requirements…the time for compliance with the requirements of a bankruptcy notice may be extended after the expiration of the time limited by the notice for compliance provide an application to set aside the notice is made within the time so limited”
I should add, for completeness, that counsel for the applicant also referred me to the decision of Raphael FM in Brookfield v Yevad [2002] FMCA82. That case was factually different from the present because there was no application was made under section 41(6A), and an application was made to set aside the bankruptcy notice after the time limit for compliance had expired. His Honour concluded that the Court still retained a discretion in such circumstances to set aside the bankruptcy notice. It is not necessary for me to decide this point.
The respondent creditor argued that rather than determine the present issues on an application to set aside the bankruptcy notice, the matter should be left to the hearing of the creditors’ petition, when the applicant debtor could still argue that she is not indebted to the respondent because the judgment has been set aside. In Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 Lehane J. discussed the principles to be applied and concluded that whether or not a petition should be adjourned or dismissed gives rise to different arguments to those which guide the exercise of the discretion to set aside or extend time for compliance with a bankruptcy notice. The commission of an act of bankruptcy is of a different order of gravity from the change of status brought about by the making of a sequestration order. In my view, it is appropriate to look at the matter at the stage of the application to set aside the bankruptcy notice. This is because of the effect that an act of bankruptcy will have on the applicant. Once an act of bankruptcy has been committed by non compliance with a bankruptcy notice, the act of bankruptcy is available to found a creditors petition issued by any creditor who can establish a debt complying with section 44 and 52 Bankruptcy Act notwithstanding that the judgment may subsequently be set aside: Re Hanby ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378. Although she may subsequently persuade a Court that a sequestration order should not issue at the request of the present respondent creditor, the act of bankruptcy remains available to any other creditors who may be in less vulnerable circumstances than the present creditor, which has had its judgment set aside.
Before me, the applicant was cross examined. As I understood it, the cross examination was designed to show, or to obtain an admission from the applicant debtor, that the judgment debt was in fact owing and the applicant had no defence to the claim made by the respondent. In my consideration of the applicant’s evidence no such admission was made. In any event, it is, in my view, inappropriate for this Court to examine the merits of the respondent creditors’ claim where the District Court of New South Wales has held that there is a triable issue. For this Court to revisit that matter is in effect challenging the correctness of the decision of the District Court of New South Wales, which order was made without opposition by the respondent creditor.
Counsel for the applicant contended that there was no need for the court to look behind the fact that the default judgment had been set aside. In my view, that is the conclusion which ought be reached in the present case, but the submission should not be accepted as an inviolable general principle. There may be circumstances where a creditor is able to show that, despite persuading another court to set aside a judgment, evidence not put before that court, or admissions by the debtor, support a conclusion that the judgment debt is unarguably owing. As I have said, in the present case there was no such admission. The applicant’s defence to the respondent creditor’s action in the District Court of New South Wales is admittedly thin, but once that court has concluded that the default judgment should be set aside because there is a triable issue, in the absence of an admission or of fresh evidence (in which in this case there was none) this court should not look into the merits of such defence. It is sufficient for my purposes to know that the default judgment on which the bankruptcy notice was based has been set aside.
Because this is a hearing de novo, I am entitled to take that fact into account.
The learned authors of Australian Bankruptcy Law and Practice, Darvall and Fernon, at para [40.1.356] observe that a bankruptcy notice could also be set aside if it would be an abuse of process for the creditor to rely on it due to events occurring after the issue of the notice. In the present case, I do not express a view on the correctness of this proposition, but it seems to me, as a matter of logic, improper for the respondent creditor to seek an sequestration order consequent upon an act of bankruptcy, for failing to comply with a bankruptcy notice based on a judgment that has been set aside, particularly where this Court retains the power to extend time to comply with the bankruptcy notice and to set it aside.
The respondent’s counsel advanced a number of arguments as to why the bankruptcy notice should not be set aside. First, he pointed to the delay of the applicant before judgment was initially entered against her. In my view, this is not a proper basis for refusing to set aside the bankruptcy notice. Secondly, he pointed out that no application for a stay had been made to the District Court of New South Wales. This is undoubtedly correct. However, where the judgment upon which the bankruptcy notice is based has in fact been set aside, whether or not a stay was granted, or applied for, is irrelevant. The court may conclude that it was entirely reasonable for the respondent creditor to issue the bankruptcy notice in the absence of any application for a stay, and such a conclusion would be relevant to the court’s decision on costs, but I do not see how it could constitute a ground for refusing to set aside the bankruptcy notice. Thirdly, counsel for the respondent submitted that in the present case the application to set aside the bankruptcy notice was made too late. It was not. The application was filed on the last day for compliance. If I conclude that the time for compliance should be extended, then it is appropriate for this court to deal with the application to set aside the bankruptcy notice. If time is not extended then I agree that the fact that the application to set aside the bankruptcy notice is heard after the commission of the act of bankruptcy would be a relevant consideration.
In my view, the most powerful factor in the applicant’s favour is that the default judgment has in fact been set aside. In my view, that is sufficient to enable me to conclude that the bankruptcy notice should be set aside.
The cases to which I have referred above make it clear that there is a symbiotic relationship between the application to extend time for compliance with the bankruptcy notice and an application for an order to set aside the bankruptcy notice. In my view, this reasoning leads to the inevitable conclusion that, having determined that the bankruptcy notice should be set aside, I should also extend the time for compliance with the bankruptcy notice to the present date. It necessarily follows that in my opinion, bearing in mind the nature of this hearing, the decision of the Registrar made on 7 July 2006 wherein she refused to extend the time for compliance with bankruptcy notice NN1783/06 should be set aside.
I shall hear the parties as to costs.

I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of Wilson FM

Associate: Lynnette Chin

Date: 11 September 2006