Scott v IPG Finance Australia Pty Ltd
[2013] FCCA 2327
•27 November 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SCOTT v IPG FINANCE AUSTRALIA PTY LTD & ANOR | [2013] FCCA 2327 |
| Catchwords: BANKRUPTCY – Application to extend time within which to comply with bankruptcy notice – application sought pending application for stay of execution of judgment upon which bankruptcy notice was based – application refused on the basis that the extension would be of no utility. |
| Legislation: Bankruptcy Act 1966, s.41(6A) |
| Obeid v The Council of the City of Sydney [2012] FMCA 450. Porter v OAMPS Limited (2004) 207 ALR 635. Re Baker; Ex parte Baker v Staples [1995] FCA 703. |
| Applicant: | PHILIP BRUCE SCOTT |
| First Respondent: | IPG FINANCE AUSTRALIA PTY LTD ACN 124 131 102 |
| Second Respondent: | IPG INVESTMENTS AUSTRALIA PTY LTD ACN 154 924 820 ATF THE IPG INVESTMENT DISCRETIONARY TRUST |
| File Number: | BRG 995 of 2013 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 26 November 2013 |
| Date of Last Submission: | 26 November 2013 |
| Delivered at: | Brisbane |
| Delivered on: | 27 November 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr Ashton |
| Solicitors for the Applicant: | Mullins Lawyers |
| Counsel for the Respondents: | Mr Coulson |
| Solicitors for the Respondents: | Reardon & Associates |
ORDERS
The application filed on 1 November 2013 be dismissed.
The applicant pay the respondent’s costs of and incidental to the application to be assessed and paid in accordance with the Federal Circuit Court (Bankruptcy) Rules 2006.
The time for complying with Bankruptcy Notice BN 164692 issued on 22 October 2013 be extended to 4.00pm on 4 December, 2013.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 995 of 2013
| PHILIP BRUCE SCOTT |
Applicant
And
| IPG FINANCE AUSTRALIA PTY LTD ACN 124 131 102 |
First Respondent
| IPG INVESTMENTS AUSTRALIA PTY LTD ACN 154 924 820 ATF THE IPG INVESTMENT DISCRETIONARY TRUST |
Second Respondent
REASONS FOR JUDGMENT
Revised from transcript
This is an application filed on 1 November, 2013 wherein the applicant seeks, pursuant to s.41(6A) of the Bankruptcy Act1966, an extension of time for compliance with a bankruptcy notice that was issued on 22 October, 2013. The application also seeks that the bankruptcy notice be set aside.
When the application came before me on 26 November, 2013 for hearing, Counsel for the applicant indicated that all that was now sought was an order that extended the time for compliance with the bankruptcy notice for a further 21 days.
It became apparent, particularly at the conclusion of the hearing, that the principal relief sought in the application, that is, the setting aside of the bankruptcy notice, was no longer pursued. It seems that there is no basis to set aside the bankruptcy notice in any event.
The extension of time within which to comply with the bankruptcy notice that is now sought is said to be necessary so as to allow the applicant to pursue applications for a stay of enforcement of the judgment upon which the bankruptcy notice is based, pending the outcome of a special leave application in the High Court of Australia.
The material before me reveals that the background to the issue of the bankruptcy notice is long and complex. There has been a trial in the Supreme Court of Queensland which lasted for a number of days, in which the issuers of the bankruptcy notice pursued the applicant for judgment in respect of sums said to have been misappropriated by the applicant’s partner in their law firm. Judgments went against the applicant for sums which totalled more than $5 million. The applicant pursued an appeal against the judgments in the Court of Appeal. Those appeals were unsuccessful and, in the middle of this year, the Court of Appeal delivered its orders dismissing the appeals.
The applicant, as I have indicated, has applied for special leave. The respondents, for their part, do not suggest that the application for special leave is frivolous or vexatious. It was conceded, quite properly in my view, by Counsel for the respondents that I should approach the matter on the basis that the application for special leave is one which is made in a bona fide way and that the grounds raised in it are arguable. Indeed, that is the conclusion that I would have come to, had I been required to reach my own conclusion about that matter. The argument made in support of the application for special leave is short, but identifies a point which may or may not, attract the attention of the High Court. It is not, with respect, without some merit.
The respondents argue that this application for an extension of time ought to fail because, first, there is a general principle that the Court will not extend the time for compliance with the bankruptcy notice in circumstances such as those that exist in this case. In support of that proposition, my attention was drawn to Porter v OAMPS Limited (2004) 207 ALR 635 and Obeid v The Council of the City of Sydney [2012] FMCA 450.
In each of those cases (decisions of Raphael FM as his Honour then was) his Honour considered the law that applied to the circumstances that existed before him, reviewed the relevant authorities and concluded that, generally speaking, an application for an extension of time ought to be refused notwithstanding that there is, pending before another Court, an appeal proceeding which is genuine and arguable. After referring to the approach taken in Re Baker; Ex parte Baker v Staples [1995] FCA 703, at paragraph 22 of his Honour’s judgment (in Porter v OAMPS) he said:
[22] With respect, this approach appears to overlook the fact that the service of a bankruptcy notice simply marks the start of a process and that the commission of an act of bankruptcy, while undoubtedly of significance to the debtor, does not affect the actual status of the debtor: Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264; Shephard v Chiquita Brands (South Pacific) Ltd [2001] FCA 1394; Re Geard; Ex parte Reid (unreported, Fed C of A, Sheppard J, 11 February 1994); Liew v JNS Technologies [1999] FCA 1428; Jenkins v National Australia Bank Ltd [1999] FCA 1758; Warner v Frost [1999] FCA 830. The court in these cases when considering whether to grant an extension of time for compliance with a bankruptcy notice has been mindful of balancing the interests of creditors, noting the potential impact of a later act of bankruptcy in the event that the appeal is unsuccessful and proceedings continue. In Liew v JNS Technologies, above, Kenny J referred to the comments of Heerey J in Re Nguyen; Ex parte Cmr of Taxation (1995) 54 FCR 403 at 407:
Extension of time for compliance with the bankruptcy notice may have important adverse consequences for the judgment creditor. For example, if a sequestration order is subsequently made the commencement of the bankruptcy may be later than would otherwise have been the case, which in turn may affect rights of recovery by the trustee in relation to property.
An appropriate safeguard for debtors was seen to exist as the court is always able to exercise its discretion and adjourn any petition for sequestration until after the appeal has been heard.
In paragraph 23, his Honour then sets out the factors that were relevant in the case before him and which weighed in the exercise of the relevant discretion. And there is the point. Whether an extension of time is granted as sought, is an exercise of the Court’s discretion. It is a discretion which, according to s.41(6A) of the Bankruptcy Act, is at large and unfettered but which nonetheless, needs to be exercised judicially. With respect, I do not think it correct to say that there is a “principle” that operates to inform the exercise of the discretion as Counsel for the respondents’ contended. The discretion is to be exercised according to all of the factors that are relevant in any particular case.
Having regard to Porter v OAMPS and the comments in that case which assist to inform the exercise of the discretion, it seems to me that this is not a case where, ordinarily, one would grant an extension. The comments in Porter v OAMPS to which I have referred make it clear that the failure to grant the extension will not affect the status of the debtor and simply marks the commencement of a process that might lead to sequestration.
The respondents argued that they were entitled to pursue the bankruptcy notice. If an act of bankruptcy was committed by non-compliance with the bankruptcy notice, there might be discretionary reasons to either adjourn or refuse to deal with a petition for sequestration. Such matters should be dealt with, if and when, a sequestration petition was presented.
The applicant argued that there may be consequences for him if the extension of time was not permitted and an act of bankruptcy was committed. I raised, in the course of submissions, the notion that if an act of bankruptcy was committed, that another creditor might seek to bring a petition based on that act of bankruptcy or seek to be substituted in any petition that the creditors in this case might present. The same considerations that might, as a matter of discretion, mean that the respondents to this application should be delayed in pressing a petition for sequestration, might not apply to another creditor who either brings a separate petition or seeks to be substituted in the present creditors’ petition.
It was submitted by the applicant’s Counsel that in that respect there are no other creditors and so those considerations did not arise. The respondents took up that concession, partly in answer to the suggestion that I made during the course of submissions and to which I have just referred. However, the respondent’s own evidence reveals that the applicant does have other creditors. The affidavit filed on 12 November, 2013 and deposed by Hani Salameh, at paragraphs 27 and 28, makes it clear that the applicant must have other creditors, because part of the respondent’s case against the extension of time is that there is real reason to be concerned about the movement and encumbrance of assets during the proceedings.
Paragraph 27 of the affidavit talks about the applicant mortgaging two unencumbered commercial properties in Cairns. The mortgages are in evidence – annexure HNS20 to Mr Salameh’s affidavit. Further, there is evidence in the Mr Salameh’s affidavit that the applicant had arranged a borrowing facility of $200,000 from the National Australia Bank. The mortgages referred to in paragraph 27 of that affidavit appear to be mortgages which secure that borrowing.
It seems clear enough then, that there may be other creditors. If there are other creditors, and given the mortgages it seems that there is, then one wonders whether the commission of an act of bankruptcy is, or is likely to be, an event of default under the borrowing facilities or the mortgages. The mortgages in evidence refer to the terms of the mortgage and the amount secured by the mortgage “as defined in standard terms document number 713941669”. That instrument is not in evidence before me.
It seems to me though that there is some possibility that the commission of an act of bankruptcy might be of some significance and consequence to the applicant. The applicant is a solicitor, but he does not put his case on the basis that the commission of an act of bankruptcy by him will endanger his practising certificate. Rather, he will be obliged by the relevant rules and regulations, to notify the Queensland Law Society, if a petition for his bankruptcy is presented against him. That may have consequences for him in his professional guise, but the case was not put on the basis that the mere commission of an act of bankruptcy will have that consequence.
The extension that is sought is for 21 days and it is said that the 21 days will allow the Court of Appeal to deal with the application for a stay which, I understand, is presently before it and if that is refused, then for an application for a stay of the judgment sought to be enforced, to be made to the High Court. If the stay of the judgment is granted by either the Court of Appeal or the High Court, it seemed to be common ground between the parties that, although I may have misunderstood the position, a petition for the sequestration of the applicants was unlikely to be presented until at least the conclusion of the proceedings in the High Court. Alternatively, if the applications for a stay were refused, then, as Counsel for the applicant put it, “it was all over, red rover”.
RECORDED : NOT TRANSCRIBED
In those circumstances, it is difficult to understand what utility there is in granting the extension, because whether the extension is granted or not, it seems that an act of bankruptcy is inevitable. If the extension is granted as requested, that is for 21 days, and the application for stay is successful, nonetheless, after the expiry of 21 days, there will be the commission of an act of bankruptcy.
It is not suggested in the material that if the extension is granted the bankruptcy notice can be complied with. And as the submissions for the respondent point out, when the bankruptcy notice was issued, there was no stay of the judgment, and so there is no basis for suggesting that the bankruptcy notice was improperly issued.
In those circumstances and given that there seems to be no utility in granting the extension, the application is refused.
RECORDED : NOT TRANSCRIBED
The application has been dismissed. It is appropriate that the applicant pay the respondent’s costs of and incidental to the application to be assessed and paid in accordance with the Federal Circuit Court (Bankruptcy Rules) 2006.
In terms of the oral application for a further extension of seven day on the basis that:
a)time might be required to consider whether an application for leave to appeal this decision should be made;
b)investigation and prospects of complying with the notice might take some time; and
c)on the basis that the creditor was, in any event, keen to give an undertaking not to present a petition during the course of this hearing
it seems to me appropriate to grant the extension for a further seven days.
It was said that there is nothing special about this case which would warrant the grant of such an extension. That may be so, but nonetheless, it seems to me appropriate to grant the extension for these reasons. First: compliance with bankruptcy notice can be achieved, not just by paying money, but by reaching an accommodation with the creditors satisfactory to them. So much appears from the terms of the bankruptcy notice itself and that might be achieved in the next seven days.
Second: it is appropriate, given the potential consequences for the applicant, for him to have some time to consider whether my decision to refuse his application warrants an application for leave to appeal. It seems to be an appropriate course.
For those reasons, I will extend the time for compliance with the bankruptcy notice for a further seven days from today. Otherwise, the orders will be as I have pronounced.
I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered 27 November 2013.
Associate:
Date: 21 January 2014
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