Re Udowenko; Ex parte Mitchell

[1996] FCA 879

CATCHWORDS

BANKRUPTCY - application to extend time for compliance with bankruptcy notice - whether jurisdiction to order extension of time where an application to set aside bankruptcy notice was made prior to expiry but dismissed prior to expiry, and further application to set aside is made after expiry.

Bankruptcy Act 1966, s 41

Re Sterling; Ex parte Esanda Ltd (1980)44 FLR 125 (FCA/Lockhart J)
Re Lentini; Ex parte CSR Ltd (1991) 29 FCR 363 (FCA/Neaves J) McLean v Australia and New Zealand Banking Group Ltd (1993) 42 FCR 300 (FCA/Ryan J)
Streimer v Tamas (1981) 37 ALR 211 (FCA/FC)
Re Carter; Ex parte National Mutual Trustees Ltd (1995) 129 ALR 435 (FCA/Gummow J)

Re:MICHAEL UDOWENKO

HELEN UDOWENKO
             WOLODYMYR UDOWENKO

Ex parte:ALAN BERNARD MITCHELL

No NP 856 of 1996

Lindgren J
Sydney
9 October 1996

IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION                 )
BANKRUPTCY DISTRICT OF THE       )        No NP 856 of 1996
STATE OF NEW SOUTH WALES             )

Re:MICHAEL UDOWENKO

HELEN UDOWENKO

WOLODYMYR UDOWENKO

Ex parte:ALAN BERNARD MITCHELL

CORAM:Lindgren J

PLACE:Sydney

DATE:9 October 1996

MINUTE OF ORDERS
THE COURT ORDERS:

1. THAT the Debtors' application filed on 1 October 1996, in so far as it seeks the relief referred to in para (1) thereof, be dismissed.

1. THAT the Debtors pay the costs of Alan Bernard Mitchell of the hearing on 1 October 1996.

1. THAT the Debtors' application otherwise be listed on Monday 14 October 1996 at 9.30 am before Lindgren J.

1. THAT the creditor's petition No NP 856/96 be listed on Monday 14 October 1996 at 9.30 am before Lindgren J.

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       )        No NP 856 of 1996
STATE OF NEW SOUTH WALES             )

Re:MICHAEL UDOWENKO

HELEN UDOWENKO

WOLODYMYR UDOWENKO

Ex parte:ALAN BERNARD MITCHELL

CORAM:Lindgren J

PLACE:Sydney

DATE:9 October 1996

REASONS FOR JUDGMENT

INTRODUCTION
By an application filed on 1 October 1996, the three Debtors apply for the following substantive orders:

"1.Time for compliance with the Bankruptcy Notice herein to be extended to such date as the Court may think fit.

2.The Bankruptcy Notice be set aside."

Only the relief referred to in para (1) was pursued at this stage.

The bankruptcy notice bears date, and was issued on, 19 December 1995.  The total amount referred to in it is $31,270.00.  It was common ground on the hearing that the bankruptcy notice was served on 21 March 1996 and I proceed accordingly.  It allowed 21 days after service, that is to say, until 11 April 1996, for compliance.  The period for compliance was extended several times by Deputy Registrars.  The period of the last extension expired on 4 June 1996.  A creditor's petition No NP 856/96 was presented on 12 July 1996 founded on the Debtors' failure to comply with the bankruptcy notice on or before 4 June 1996.  The creditor's petition is pending.

BRIEF OUTLINE OF BACKGROUND FACTS
Although I conclude below that I lack power to extend time, it is desirable that I give an account of the background facts.

12 March 1992
On this date, Bryson J gave judgment for the plaintiff, Rasevi Pty Ltd ("Rasevi"), in proceeding No 3483/91 in the Equity Division of the Supreme Court of New South Wales against the Debtors and Valentyn Udowenko.  Wolodymyr Udowenko and Valentyn Udowenko are the sons of Michael Udowenko and Helen Udowenko.  For convenience, and without disrespect, I will refer to the Udowenkos by their first names.  The proceeding before Bryson J arose out of a business of agisting horses which was allegedly conducted by all four defendants on a property known as "Windarra", Gresford Road, Vacy in the Hunter Valley.  Alan Bernard Mitchell ("Mr Mitchell") of Borthwick Wilson & Mitchell, Solicitors, acted for the defendants in that proceeding.

20 August 1992
After Mr Mitchell had unsuccessfully sought payment of his costs from the defendants, he issued on this date summons No 24/92 against them in the Local Court at Dungog ("the Dungog proceeding").  After difficulties associated with service, the summons was served on 5 November 1992.

2 December 1992
Wolodymyr filed grounds of defence and an affidavit in support in the Dungog proceeding.

15 April 1993
In the Equity Division proceeding, Michael and Helen, and one of the sons, Valentyn, applied to set aside the judgment given by Bryson J and on this date Waddell CJ in Eq delivered judgment on that application.  Teakle Ormsby & Associates represented Michael, Helen and Valentyn on the application to set aside.  The basis of the application was that, allegedly, Wolodymyr had not bound Michael, Helen or Valentyn by the instructions which he had given to Mr Mitchell and that Mr Mitchell had, in law, represented Wolodymyr alone in the proceeding before Bryson J.  Waddell CJ in Eq dismissed the application by Michael and Helen but set aside the judgment against Valentyn on the basis that it had not been shown that the proceeding had come to his knowledge.

11 August 1994 to 13 October 1994
On 11 August 1994 Teakle Ormsby & Associates advised Mr
Mitchell that they no longer acted for any of the Udowenkos.  On 9 September 1994 Mr Mitchell filed a notice of motion in the Dungog proceeding for an order striking out Wolodymyr's grounds of defence.  The notice of motion and supporting affidavit were served on 21 September 1994.  On 13 October 1994, a "certificate of readiness" was served on Michael, Helen and Wolodymyr.

3 November 1994
Mr Mitchell recovered judgment against Michael, Helen and Wolodymyr in the Dungog proceeding for $24,621.00 plus costs of $110.00 and professional costs of $632.00, making a total of $25,363.00.  Of course, interest accrued on the amount of the judgment.

6 January 1995
Mr Mitchell caused a writ of execution to be issued in the Dungog proceeding.  This did not produce any money, but the writ was registered against the title to the land of Michael and Helen.

19 December 1995
Mr Mitchell procured the issue of the subject bankruptcy notice No NN 4014/95.

21 March 1996
On the basis noted earlier that the bankruptcy notice was served on this date, it allowed until 11 April 1996 for compliance.

3 April 1996
The Debtors, representing themselves, filed an application to set aside the bankruptcy notice.  On the same date, a Deputy Registrar ordered, pursuant to sub-s 41 (6B) of the Bankruptcy Act 1966 ("the Act"), that the time for compliance with the bankruptcy notice be extended to 22 April 1996.

22 April 1996
A Deputy Registrar ordered by consent that the application to set aside the bankruptcy notice be adjourned until 21 May 1996 and that the time for compliance with it be extended up to and including that day.

21 May 1996
A Deputy Registrar ordered by consent that the application to set aside the bankruptcy notice be adjourned to 4 June 1996 and that the time for compliance with it be extended up to and including that day.

4 June 1996
At about 10.10 am a Deputy Registrar ordered that the Debtors' application to set aside the bankruptcy notice be dismissed and that the Debtors pay the Creditor's costs.  Consistently with that dismissal, there was no further extension of the time for compliance beyond 4 June 1996.

12 July 1996
Mr Mitchell filed a creditor's petition which was returnable on 23 August 1996.  Accordingly to the creditor's petition, the amount of the debt including interest had risen to $32,999.87.  The act of bankruptcy on which the petition was based was the Debtors' failure to comply on or before 4 June 1996 with the bankruptcy notice.

15 August 1996
The creditor's petition was served.

23 August 1996
On this, the first return date of the creditor's petition, the petition was, as against Michael and Helen, adjourned to 13 September 1996 but as against Wolodymyr, it was adjourned to 27 August 1996.  Wolodymyr had sought an adjournment until a date after 3 September 1996 when an appeal by him to the New South Wales Court of Appeal against the judgment of Bryson J was to be heard, in order to allow him to prosecute that appeal, but that application was refused.

27 August 1996
Wolodymyr filed an application for review of the Deputy Registrar's refusal to adjourn the creditor's petition as against him to a date after 3 September 1996 and that application for review of the Deputy Registrar's decision was itself adjourned to 3 September 1996.

3 September 1996
The New South Wales Court of Appeal dismissed Wolodymyr's appeal against the judgment of Bryson J.  The creditor's petition, as against Wolodymyr, was adjourned to 17 September 1996.

10 September 1996
On or about this date the Debtors instructed Antonuccio & Associates, their present solicitors.

12 September 1996
Michael, Helen and Wolodymyr filed in the Dungog Local Court a notice of motion for an order that the judgment of 3 November 1994 be set aside, which was made returnable on 28 November 1996.  The supporting affidavit asserted that Helen and Michael had not been aware of Mr Mitchell's claim against them in the Dungog proceeding as Wolodymyr had not advised them of it because he considered that the debt was not related to them and did not wish to worry them.  The affidavit asserted that Michael and Helen wished to defend Mr Mitchell's claim and that Wolodymyr himself had filed grounds of defence in 1994 "and was not aware of the Court date" and wished to have his defence heard.  Apparently on the filing of the application to set aside, the Local Court granted an urgent stay of execution on the judgment until 26 September 1996 when the application for a further stay was heard and decision reserved until 2 October 1996.

13 September 1996
The creditor's petition as against Michael and Helen was adjourned to 1 October 1996.

17 September 1996
The Debtors filed, through their present solicitors, a notice of intention to appear on the hearing of the creditor's petition.  Wolodymyr's application for review of the Deputy Registrar's decision was dismissed.  The creditor's petition as against Wolodymyr was adjourned to 1 October 1996.

1 October 1996
The Debtors filed before a Deputy Registrar their application to set aside the bankruptcy notice and for an extension of time for compliance which was referred to me on the same day for hearing.

2 October 1996
Pursuant to discussion which took place on the hearing before me, counsel for the Debtors and counsel for Mr Mitchell have both advised my Associate of the orders made in the Dungog proceeding on 2 October 1996, on the basis that I am entitled to take this into account.  That advice is that the hearing of the Debtors' application to set aside the judgment was brought forward from 28 November 1996 and heard on 2 October 1996 together with the Debtors' application for a continuation of the stay of execution of the judgment, and that it was ordered that both applications be dismissed.

REASONING
The Court's power to order such an extension of time is found in sub-s 41 (6A) of the Act which is as follows:

"41(6A)Where, before the expiration of the time fixed by the Court or the Registrar for compliance with the requirements of a bankruptcy notice:

(a)proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or

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

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

The power to extend time for compliance with a bankruptcy notice is statutory and is in aid of an application to set aside the judgment or order in respect of which it was issued or of an application to set aside the bankruptcy notice itself: see, for example, Re Sterling; Ex parte Esanda Ltd (1980) 44 FLR 125 (FCA/Lockhart J) at 129-130, 131-132; Re Lentini; Ex parte CSR Ltd (1991) 29 FCR 363 (FCA/Neaves J) at 372; McLean v Australia and New Zealand Banking Group Ltd (1993) 42 FCR 300 (FCA/Ryan J) at 304-305. Although the application for extension of time may be made after expiry of the time for compliance with the requirements of the bankruptcy notice (Streimer v Tamas (1981) 37 ALR 211 (FCA/FC); Re Carter; Ex parte National Mutual Trustees Ltd (1995) 129 ALR 435 (FCA/Gummow J)), it is clearly a condition of the existence of the Court's power that prior to the expiration of that time, a proceeding to set aside the judgment or order, or an application to set aside the bankruptcy notice, has been instituted or filed.

The extended time for compliance with the requirements of the bankruptcy notice in the present case expired on 4 June 1996. There is no evidence that a proceeding to set aside the judgment in the Dungog proceeding had been instituted by the Debtors before that date for the purposes of para 41 (6A) (a) of the Act. On 3 April 1996 the Debtors filed an application to set aside the bankruptcy notice. But this was dismissed at about 10.10 am on 4 June 1996 and so had ceased to be a current application when the extended time for compliance expired.

In my view, it is clear on the proper construction of sub-s 41 (6A) that the condition of the existence of the power to extend time is not satisfied by the mere institution of a proceeding or making of an application to set aside, which has been dismissed or otherwise ceased to subsist as a current proceeding or application before the time for compliance with a bankruptcy notice has expired: cf McLean v ANZ Banking Group Ltd (1993) 42 FCR 300 (Ryan J). The reason is that the purpose of an extension of time under sub-s 41 (6A) is limited to that of supporting a proceeding or application, that is to say, one which was instituted or filed before expiration of the time for compliance with the bankruptcy notice. Further, some support for this view of the provision is found in the use of the perfect form of the verb ("have been instituted" and "has been filed") in paras 41 (6A) (a) and (b) which suggests a proceeding which has been instituted, or an application which has been made, before the expiration of the time for compliance with the bankruptcy notice, and which still subsists at the time when the occasion for exercise of the power to extend time arises.

In the present case, by the expiration of the time for compliance on 4 June 1996, the application to set aside the bankruptcy notice which had been filed before that expiration, had ceased to be on foot.  Accordingly, there is no proceeding or application satisfying the description in sub-s 41 (6A) to which an extension of time ordered by me could be ancillary.  I conclude therefore that I lack power to extend time.

Counsel for the Debtors refer to Streimer v Tamas (1981) 37 ALR 211 (FCA/FC). Although that case establishes that sub-s 41 (6A) does not require that an application for extension of time be made before the expiration of the time for compliance with the bankruptcy notice, it has little if any further relevance to the present case. However, a passage in the joint judgment of Deane and Elliott JJ (at 215) in that case assumes that the proceeding or application to set aside to which sub-s 41 (6A) refers will be continuing at the time of expiration of the bankruptcy notice.

If I had power to extend time in the present case, as an exercise of discretion I would not do so.  The Debtors committed an act of bankruptcy on 4 June 1996 when the extended time for compliance with the bankruptcy notice expired subsequently to the dismissal earlier on that day of their application to set aside the notice.  The creditor's petition was founded on that act of bankruptcy.  There has been no appeal from the Deputy Registrar's dismissal of the Debtors' application to set aside. 

The substantive grounds relied on appear to be that Michael and Helen had nothing to do with the defence before Bryson J of the proceeding brought by Rasevi against them and their two sons.  But Michael and Helen failed in their application to Waddell CJ in Eq to set aside the judgment given by Bryson J.  As well, the Debtors' application to set aside the judgment in the Dungog proceeding was dismissed on 2 October 1996.  Any challenge to the validity of the bankruptcy notice can be explored on the hearing of the creditor's petition.  I will, however, hear the Debtors on this matter (see below).

CONCLUSION
The Debtors' application, in so far as it seeks an extension of time for compliance with the bankruptcy notice, will be dismissed and the Debtors will be ordered to pay the Creditor's costs of the hearing on 1 October 1996.  Their application, in so far as it seeks a setting aside of the bankruptcy notice, and the creditor's petition will both be listed before me on a date when directions will be made.

I certify that this and the preceding 12 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

Associate:

Dated:9 October 1996

Heard:           1 October 1996

Place:           Sydney

Decision:        9 October 1996

Appearances:     Mr E Petersen of counsel instructed by Antonuccio & Associates appeared for the applicants.

Ms L Steer, solicitor, agent for Borthwick Wilson & Mitchell, appeared for the respondent.