Re Guss, Joseph Ex Parte Guss, Jospeh

[1996] FCA 458

IN THE FEDERAL COURT
OF AUSTRALIA

EXERCISING FEDERAL  VN 525 of 1996

JURISDICTION IN BANKRUPTCY

BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA

RE:  JOSEPH GUSS  Judgment Debtor

EX PARTE:  JOSEPH GUSS  Applicant
  and
  RAYMOND MARSHALL JOHNSTONE                  Respondent

COURT:         NORTHROP J
DATE:  5 JUNE 1996
PLACE:          MELBOURNE

REASONS FOR JUDGMENT

The only matter before the Court at the moment is an application undated but filed in the office of the Registrar in  Bankruptcy on 4 June 1996, in VN525 of 1996, in which the debtor named in that matter is applicant, and Raymond Johnstone, the creditor in that matter, is named as respondent. The application is for the following orders:

1. that the bankruptcy notice be set aside;

1. that the time for service of this application be abridged.

   Under the provisions of the Bankruptcy Rules, and in particular rules 102, 103 and 104, applications to the Court exercising jurisdiction in Bankruptcy are made by application in the form prescribed in the Bankruptcy Rules and normally must be served eight days before the return date for the hearing of that application.  This time factor is important because of the provisions of rule 106 of the Bankruptcy Rules provide that if a respondent to an application is to appear and oppose the granting of the orders sought in the application, that person must file documents setting out the grounds of opposition. The eight days are designed to enable that to be done.

In the present case it appears that the application and affidavits in support, namely, as stated in the application, the affidavit of Joseph Guss, the applicant, sworn 31 May 1996 and the affidavit of Jeffrey P. Salinger, the solicitor acting for Joseph Guss, sworn 4 June 1996 were served late yesterday afternoon after 5 pm. It is stated from the bar table that there may be some dispute of fact with regard to the second paragraph of the affidavit by Mr Salinger, but in any event there has been no time for compliance with the rules as far as the respondent is concerned. The respondent is opposing the making of the orders sought including the order for abridgment of time.

In order to determine whether an order should be made abridging the time for service, the Court proposes to consider the nature of the substantive application and if it considers that that application is one which cannot succeed, it will refuse the application for abridgment of time. Otherwise it would be undesirable merely to refuse the abridgment of time and allow matters to proceed in the normal way without at least some expression of opinion on the substantive issue.

In order to understand this matter, some reference must be made to its history.  On 29 May 1996, the Court considered whether subsection 41(7) of the Bankruptcy Act had been complied with.  That subsection provides:

"Where before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has filed with the Registrar an affidavit to the effect that he has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that a debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied."

The reference to paragraph 40(1)(g) is important because that section 40 specifies what constitute acts of bankruptcy. As far as paragraph 40(1)(g) is concerned, the relevant facts, for present purposes, are as follows:

"A debtor commits an act of bankruptcy in each of the following cases: (g) ... "

I will summarise the first part, namely, where a bankruptcy notice has been obtained and has been served and the debtor does not comply with the requirements of the notice or does not (and this is the important apart)

"...satisfy the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained;"

At the hearing on 29 May 1996, the Court declared it was not satisfied, as
required by provisions of that subsection and made a declaration accordingly. As a result, and in conformity with authorities of the Courts, the act of bankruptcy in this case had occurred on 29 April 1996.  The debtor sought a stay of the declaration which was refused.  Thereafter it appears that the debtor issued an application for an order restraining the creditor from presenting a petition.  That application has not come on for hearing yet, though it is listed for hearing for today, and counsel for the debtor contended, and I accepted, that the application for the setting aside of the bankruptcy notice and the abridgment of time for service should be heard first.

In the meantime, the debtor presented a petition to the Registrar in Bankruptcy dated 4 June 1996.  That petition is in matter VP455 of 1996 in which Raymond Johnstone is said to be the judgment creditor and Joseph Guss the judgment debtor.  It alleges an act of bankruptcy against the debtor namely, that he failed to either comply on or before 29 April 1996 with the requirements of the bankruptcy notice served on him on 12 April, or to satisfy the Court of the matters referred to in paragraph 40(1)(g).  That document is stamped as having been presented to the Federal Court of Australia on 4 June 1996.  It has attached to it a notice stating that the petition has been presented to the Court and will be heard at the sitting of the Court on 23 July 1996 at 9.45 in the morning, but that notice has not been signed or stamped by the Registrar.

In these circumstances, and in the light of this history, I turn to consider whether there is any likelihood of the application succeeding. I am told by counsel for the judgment debtor that there is no specific rule or provision in the Act allowing for the making of an application to have a bankruptcy notice set aside although it is accepted, and
I accept that an application to that effect can be made probably under section 30 of the Bankruptcy Act. Any such application would normally need to be in conformity with rules 102 and 103 of the Bankruptcy Rules.  Section 41 of the Bankruptcy Act does contain provisions allowing for the extension of time for compliance with the bankruptcy notice, and in this regard reference is made to subsection 41(6A) and I read the relevant parts of that subsection:

"(6A)    Where before the expiration of the time fixed by the Court or the Registrar for compliance with the requirements of a bankruptcy notice ...

(b)In application to set aside the bankruptcy notice has been filed with the Registrar;

the Court may, subject to subsection 6(C), extend the time for compliance with the bankruptcy notice."

The power to extend the time is subject to the satisfaction of the condition precedent referred to in paragraph (b) of subsection 6(A) which provides that where before the expiration of the time fixed for compliance with the bankruptcy notice, an application to set aside the bankruptcy notice has been filed with the Registrar, then the Court may extend the time for compliance.

The logic of that provision is obvious.  Once there has been a non-compliance with the requirements of the bankruptcy notice and the debtor has failed to satisfy the Court, in accordance with the provisions of subsection 41(7), an act of bankruptcy has occurred. Once the act of bankruptcy has occurred, the time for compliance with the bankruptcy notice cannot be extended.

It was urged upon the Court that in the present case the debtor is not seeking an extension of time for compliance with the bankruptcy notice, but for various reasons desires to have the question of the validity of the bankruptcy notice determined before a petition has been presented to the Court, and if the petition has been presented, before that petition has been heard. It was argued that the judgment debt upon which the petition is based is irregular, and therefore the bankruptcy notice is invalid or void.  This is of vital importance to the debtor, so it was said, since the mere presentation of the petition can have adverse effects, including financial effects, on the standing of the debtor.

In my opinion the argument put on behalf of the debtor on this respect should not be accepted.  At the hearing of a petition a debtor is able to raise as a ground of opposition the fact that the bankruptcy notice is invalid. In some cases it is permitted to go behind the judgment debt on which the bankruptcy notice is based.  There is much learning on that subject. All these, however, are grounds of opposition which a debtor may raise at the hearing of the petition.  If those grounds of opposition are accepted, no sequestration order will be made.  It is the sequestration order which has the effect of changing the status of the debtor.  At the present time, prima facie, an act of bankruptcy has been committed by the debtor.  That fact can be challenged in conformity with the normal procedures of the Court having regard to the provisions of subsections 41(6A) and 41(7) of the Bankruptcy Act. In my opinion, as a matter of practice and procedure, it is inappropriate for an application to be made to set aside the bankruptcy notice after time for compliance with the bankruptcy notice has expired, and before the hearing of the petition.  It may well be a proper course to adopt at the hearing of the petition, in an appropriate case, to have the question of the validity of the bankruptcy notice determined.
If that issue is determined against a debtor, a sequestration order should be made unless some other ground of opposition can be relied upon as specified in the relevant section of the Bankruptcy Act. I have in mind the provisions of section 52(2) of the Bankruptcy Act.

Accordingly, in my opinion, it would be futile to allow the application to have the bankruptcy notice set aside to proceed in the way proposed by the judgment debtor as applicant. In those circumstances the Court refuses to abridge the time for service of the application.

Having refused to abridge the time for service of the application filed on 4 June 1996, there remains before the Court the application that the bankruptcy notice be set aside,  the other order sought in the motion filed on 4 June 1996. There is another application dated and filed on 30 May 1996 also in VN525 of 1996 in which the debtor is seeking orders that the judgment and creditor be restrained until 4 pm Friday, 6 June, from presenting a creditor's petition relying upon the bankruptcy notice dated 14 March 1996. Counsel for the debtor has sought an order that each of those applications be adjourned to a date to be fixed.  The basis for that is twofold.  First, insofar as the application dated 30 May 1996, it is suggested that it may be possible to seek leave to amend the term of the orders being sought to make them more appropriate in view of the fact that it now appears on the material before the court that a creditors petition, based upon the bankruptcy notice and failure to comply with it, has in fact been presented to the court in matter VP455 of 1996, but that petition has not yet been served because of the fact it has not been signed and stamped by the Registrar.

The other matter relating to the bankruptcy notice being set aside is a  matter which can be raised by way of opposition at the hearing of the petition.  I see no real reason why the application should not be struck out, except at this stage the Court has not before it all the material which is sought to be relied upon by the creditor.  In any event, it might be said on behalf of the debtor that they might want to keep this alive pending the hearing of the petition in which this ground of opposition could be raised.  In all the circumstances I propose to order in each application that the hearing be adjourned to a date to be fixed being no later than the date of the hearing of the petition in VP455 of 1996.

The effect of that order is that if nothing is done to bring the matters on earlier, they will be listed for hearing at the same time as the petition.  Having regard to the fact that these matters have been adjourned in circumstances where the debtor has requested the adjournment, and having regard to the fact that the Court has refused to make the order abridging time for service, I will order in each of these applications that the debtor pay the creditor's costs of the day.

I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Northrop.

Associate:

Date:

Counsel for the applicant  Ms J Davies

Solicitors for the applicant  Jeffrey P. Salinger & Associates

Counsel for the respondent  Mr Corrigan

Solicitors for the respondent  Hawthorne, Black & Tait