Re Gleeson, G. & Anor v Ex parte Richardon, K.J.

[1987] FCA 56

LIMITED DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA

)

EXERCISING FEUERAL JURISDICTION	I
I \.' '

BANKRUPTCY IN )

BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA

Re	:	KENNETH J O H N F.ICX4FDSON xnd
RAELENE CHERYL RICHMUSOU

Judgment Debtors

Ex Farte :	GERALIj GLEESON, LORNA GLEESON
and DAR'LL ~GLEESIXI

Judgment Creditors

m: NORTHRGP J.

DATE: 11 FEBRUARY 1987

W: MELBOURNE

REASONS FOR JUDGMENT

The petltion of the judgment creditors for a

sequestratlon order agalnst the estate of the ludgment

debtors came on for hearlng on 30 October 1986. The ludqment

debtors made appllcation that the hearlnq of the petltlon be

ad~ourned p e n d m g the hearmu and determlnatlon of an appeal

aaalnst the ]udgment whlch formed the basls €or the petltlon.

The ludgment creditors opposed chat appllcatlon. After

hearlng evldence and submlsslons, the Court ordered that the

hearlng of the petitlon be adlourned to 15 June 1987 and made

P

a numoer .af ccnaequenclal orders . The Court announced that

lr. would publish Its reasons for qrantmq the ad~ournment at

a later dar,?. Tho5-e reasons are now puollshrd.

The judgment ilebtors are husband and wlie. The

Iudgment creditors are the father, mother and brother,

respectively, of the ludgment debtor Raelene Cheryl

Rlchardson. The petltlon 1s founded upon the fallure by the

~udqment debtors to comply with a bankruptcy notice In whlch

thz ludgment credltors clalmed that the sum $ 2 8 5 , 0 0 0 was

due by the ~udgment debtors, as defendants. under a final

ludgment obtalned by the ludgment credltors, as plalntlffs,

aqalnsr: them I n	the Supreme	Courr: of V l r t o r l a	on 25	March
1986.

The Iadument In ths hareme Caurt xas qlven at the

conclusion of a trlal extendlnu over aeiren days relatlng to

the sale of a business by the judgment debtors to the

~udqment credltors. The relevant part of the ludgment of the

Supreme Court 1s set out:-

"THIS COURT DOTH DECLARE that -

(1) the agreement for the sale of a business known

'Richardsons' as Country Fare' ( 'the

business') dated the 11th day of November 1983

by the defendants to the plaintiffs, bemg the

buslness of a restaurant and takeaway food

shop carried on from premlses at 176 Campbell

Street Swan H111 and the lease of the

aforesald premises of the same date was

induced by the fraudulent representations as

to the said buslness made by the defendants;

- 3 -

(11) the sald sale of the said business and the

lease thereto have been resclndsd by the

plalntlfr's and are null and vold and	of no
effect.

.VID DOTH ORDER that on the 14th day of Aprll 1986

the defendants pay to the plalntlifs the sum of

$170,000 and that u p n payment of such s u m the

plalntlffs deliver up to the defendants possesslon

of the premlses and the buslness.

AND DOTH DECLARE that he sum of $170.0~0

represents chat falr adJustment of the amount that

ought to be t-epald to the plalntlfls in respect of

the purchase p r l c e paid by them after taklnq lnto

accouni interest on the purchase prlcr. rental for

the use of thz premlses, the proflts made by the

plalntlffs In the ronduct of the buslness and a l l

other necessary and reasonable allowances.

AND DOTH ORDER AND ADJUUCE that:

1. In addition to the sum of $170,000 the

plalntlffs recover aqalnst the defendants the sum of $105,000 together wlth damages by way of interest in the sum of $10,000.

2 . The defendants' counterclaim be dismissed."

The ludgment debtors did not pay the sum of $170,000 referred

to m that judgment, but the ludgment credltors vacated

possesslon of the premlses and the buslness. Shortly

thereafter, the Iudgment debtors trjok possession of the

buslness and thereafter have conducted tne buslness. The

business 1s conducted on premlses owned by the ludgment

debtors but the premlses are sub-~ect to a mortgage. The

ludgment has not been stayed.

The ludgment debtors have appealed from the

~udgment of the Supreme Court. After some lnltlal problems

and a change of solicitors. the appeal is proceedlng. On the

materlal, I am satisfled that the appeal is genuine, is bona

flde and is not a sham. Without formlng any view on the

c

merlt; of the appeal, I am satlsfled Lhat suDstantla1 Issues

are ralaed b.; the appeal. The Judgmenc sredltors have

cross-appealed seeking aggravated damages.

At the present tune. the ludgment debtors do not

have sufilcient assets to pay the ~udgment debt. The appeal challenges the lssues of llabllity and of damages. On the

appllcatlon for the ad~ournment, the ludgment debtors were

cross-examined at length. The cross-examlnation Illustrated

the bitterness which has engulfed thls famllp. I do not flnd

It necessary to make flndlnya	on most of the Issues ralsed by
the Cross-examlnat1on.

An express power of the Csurt to ad~ourn the

hearlng of the appeal is contamed In paraqraph 33(11 of the

Bankruptcv Act 1966. Counsel for the ludgment debtors relled

upon oplnions expressed I n Bavne V. Balllleu (1907) 5 C.L.H.

64. In L i p o v v. Alexander Fraser & Son Ltd. (1978) 24 B.L.R. 616, the Federal Court, constituted by Sweeney J. extended

.	the time for compliance with a bankruptcy notlce to enable
the ludgment debtor to prosecute an appeal agalnst the
judgment upon which the notice was based. HIS Honour applied
the princlple that the lnstltution of an appeal, whlch
appears to be bona flde, is a good reason for ad~ournlng the

A. hearlng of a bankruptcy petltlon based upon the 3udgment

sub~ect to the appeal; see p.620.

c

Counsel for the ]udgment credltors made reference

to a num.oer of matters whlrh, he contended, shuuld lead the

Cour-t trJ exet-clse its dlscr-etlon aqalnst qrantznu the

ad~ournment. H2 attempted tu dlsclngulsh L-lpov S Case on the basls that the extension of t m e there granted prevented the act of bankruptcy comlng I n t o znstence whlle In the przsent case the act of bankruptc:r had been commltted, the ludgment

1 debtors had not applied for a stay of the ludgment of the

Supreme Court and were expending large sums of money to

prosecute the appeal and that could pre~udlce the amounts of money avallable to be dlstrlbuted under a sequestration order. In my opinion, the principle executed In Llpov's Case

1s unequivocal and applies with respect to an application for

an adjournment of the hearing of the petltion. Welght is

given to the other facts mentloned.

Counssl for the Judument credltors referred to

Scarbornuqh v . Lew s Junction Stores Pt-;. Llmlted C19633 V.H. 129. In that case, Adam J. granted a stay of execution of a

ludgment pendlng an appeal. His Honour, in applylnq 0.63

r.17 of the Rules of the Supreme Court, held that a stay

should not be granted unless there were special circumstances

~ustlfylng the stay, for example where there was a real rlsk

that the appeal, if successful, would prove abortlve if the

appllcant were not granted a stay. Counsel contended that in

exerclslng Its discretion to grant an adlournment of the

hearlng of a bankruptcy petltion on the ground that the

~udgment debtor has a bona flde appeal pending against the

ludqment whlch forms the basls for the petltlon, the Court

should be satlsfled ttLac speclal clrcumstances exlst before granting the adlournment. In my oplnlon, no such fetter

should be Imposed upon the exerclse of the dlscretlon

conferred by paragraph 33(11(a) of the Bankruptcy Act. In

the present case, I take Into account the existence of the

ludgment debt and the fact that the ludgment debtors have

each commltted an act of bankruptcy. I take Into account

that ~f a sequestratlon order 1 s made, the judgment debtors

v111 seek an order under sub-section 5 2 ( 3 ) of the Eankruptcv

Act staylnq all proceedmgs under that order for a perlod not

exceedlna L 1 days to enable them CO apply to the Supreme

Court for a stay of exscutlon of the ludqment pendlnq the

appeal. I take Into account the dlfficultles that would

arise If a sequestratlon order was made and In due course the

appeal agalnst the ludgment was allowed. It is posslble that

on any application for a stay of the ]udgment pending the

hearing and determlnation of the appeal, the threat of the

sequestratlon order could be held to constltute special

circumstances.

Counsel for the ]udgment creditors argued further

that on the evldence glven on the hearlng of the application,

the ludgment debtors are, in fact, msolvent and in those

clrcumstances the adlournment should not be granted. In my

oplnlon, apart from the ludgment debt, the evldence does not

show that the ludgment debtors are Insolvent. Any rellance

on the ludgment debt to support an argument that the ludgment

debtors are Insolvent. on the facts of the appllcation for an

- 7 -

adlournment, begs the question. The appeal 1s. on the

materla1 before the court. m n a f l d e . It 1s bems prosecuted

wlth dlllrrence. These are all fxtors xhlch must be

conzldered. It 1s noted that subject to the flllnq of

notices under Rule 21, the Unurt 1s satlsfled that a

sequestration order should be made.

Welqhing all these factors, I formed the view that

on balancs che ad~ournment should be granted and made the

following orders:-

1.	The hearlng of the petltion	be ad~ourned	to 15
June 1937 at 9.45 a.m.

2 . The ludqment debtors do not dlspose of or

further encumber any caplcal ass& owned by them or elther of them except In the ordinary course of business.

3 . General liberty to apply on 48 hours notice

4. The petitioning creditors'costs of the day be reserved.