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Spottiswood v Equititrust Limited [2010] FMCA 819 (27 October 2010)

Last Updated: 3 May 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SPOTTISWOOD v EQUITITRUST LIMITED

BANKRUPTCY – Review of Registrar’s decision – application to amend application to set aside bankruptcy – failure of initiating application to address s.41(7) requirements – application to amend sought to rely upon s.41(6A) – failed application to set aside judgment – abuse of process – s.41(5) defective bankruptcy notice – interaction of s.33, s.41(6A) and s.41(7).

Bankruptcy Act 1966
Federal Magistrates Court (Bankruptcy) Rules

Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia [1932] HCA 9; (1932) 47 CLR 1
Max Bernard Jules Brunninghausen v Michael Glavanics [1998] FCA 230
Guss v Johnstone (2000) 171 ALR 598
In The Matter of Shaddock; Shaddock v Commonwealth Bank of Australia (1998) FCA 355 BC9801209
James v Abrahams [1981] FCA 46; (1981) 51 FLR 16
Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672
Lindholdt v Meritt Madden Printing Pty Ltd [2002] FCA 260
Maxwell-Smith v S & E Hall Pty Limited, in the matter of Maxwell-Smith [2006] FCA 825
Re Bryant; Ex parte Bryant v Commonwealth Bank of Australia BC9405749
Re Brink; Ex Parte Commercial Banking Co of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135
Re James & Another: Ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd (1993) 46 FCR 183
Re Sterling; Ex Parte Esanda Ltd [1980] FCA 61; (1980) 44 FLR 125
Re Vella; Ex Parte Seymour [1983] FCA 115; (1983) 67 FLR 287 at 288-289
Re Wilhelmsen; Ex parte Gould & Others (1986) 11 FCR 107
Thorpe v Bristile Ltd [1997] FCA 720; (1997) 80 FCR 330

Applicant:
GRAHAM LINTON CLEMENT SPOTTISWOOD

Respondent:
EQUITITRUST LIMITED

File Number:
BRG 596 of 2010

Judgment of:
Burnett FM

Hearing date:
6 September 2010

Date of Last Submission:
6 September 2010

Delivered at:
Brisbane

Delivered on:
27 October 2010

REPRESENTATION

Counsel for the Applicant:
Mr Peden

Solicitors for the Applicant:
Nyst Lawyers

Counsel for the Respondent:
Mr Handran

Solicitors for the Respondent:
Tucker & Cowen Solicitors

ORDERS

(1) Application by applicant for review of Order 1 of Orders made by Registrar Hetyey on 30 June 2010 be dismissed.
(2) Application by respondents for review of Orders 2 and 3 of Orders made by Registrar Hetyey on 30 June 2010 be allowed.
(3) Application filed 21 June 2010 be dismissed.
(4) Application filed 27 July 2010 be dismissed.
(5) That the Applicant pay the Respondent’s costs of and incidental to the application filed 21 June 2010, 27 July 2010 and for review of Order of Registrar Hetyey made 30 June 2010, including reserved costs, if any, to be assessed and that these obligations be subject to the sequestration.
FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT BRISBANE

BRG 596 of 2010

GRAHAM LINTON CLEMENT SPOTTISWOOD

Applicant


And


EQUITITRUST LIMITED

Respondent


REASONS FOR JUDGMENT

Introduction

  1. To understand this application it is necessary to appreciate events before today. The creditor, Equititrust Ltd, successfully obtained a default judgment in the Supreme Court of Queensland against the debtor, Spottiswood for an amount of $5,428,226.61 on 7 August 2009. Despite the judgment, the debtor sat on his rights and did nothing for a considerable period. Ultimately the creditor caused a bankruptcy notice to issue. It was issued on 26 May 2010 and served upon the debtor on 21 June 2010. The debtor continued to sit on his rights until the very “death” before he made application to set aside the bankruptcy notice.
  2. The initiating application to set aside the bankruptcy notice was advanced on two grounds, they being:

“a) That Bankruptcy Notice No. QN743 of 2010 be set aside on the basis that service has not been effected properly;

  1. Further that the abovementioned Bankruptcy Notice No. QN743 of 2010 be set aside, alternatively stayed on the grounds that the applicant may have an counterclaim, set off or cross-demand as against the respondent.”
  1. When the matter came on before the Registrar on 30 June 2010 the debtor applied for orders as follows[1]:

“a) Leave be granted pursuant to section 33 of the Bankruptcy Act (Cth) 1966 to amend his application to rely on:

  1. his punitive appeal to the Queensland Court of Appeal against the judgment of the Supreme Court of Queensland upon which the bankruptcy notice is based;
  2. the bankruptcy notice being an abuse of process; and
  3. defects in the bankruptcy notice.
  1. An order extending time for compliance with the bankruptcy notice pursuant to section 41(6)A of the Bankruptcy Act (Cth) 1966;
  1. An order extending time for him to give notice of overstatement pursuant to section 41(5) of the Bankruptcy Act (Cth) 1966.”

An application in these terms was formally made by application dated 27 July 2010.

  1. The registrar refused that application and made orders dealing only with the initiating application. It is against the registrar’s refusal to permit the debtor leave to amend the initiating application in terms expressed above that review is sought. The creditor in turn seeks review of orders made dealing with the initiating application.

The Material

  1. The material before the registrar requires some comment. The initiating application principally sought for the bankruptcy notice to be set aside “on the grounds that the (debtor) may have a counterclaim, set off or cross-demand against the (creditor)”. The affidavit filed in support of the debtor’s application simply noted that the debtor’s “lawyers had recently received instructions to act and that the matters that are the subject of the judgment debt and the wider financial arrangements between the (debtor) and (creditor) are complex and require further consideration and detailed instructions from the (debtor). Pending receipt of those instructions and the further consideration, the (debtor) applies to set aside, or alternatively stay the bankruptcy notice.”[2]
  2. In material filed by the creditor in response to the application, it complained that the debtor’s affidavit material did not comply with Federal Magistrates Court (Bankruptcy) Rules 3.021 and 3.02(2) in any material way.
  3. Subsequently in affidavits filed by the debtor on 29 June 2010, the debtor’s circumstances were expanded upon, but still no basis to challenge the judgment or foundation for a prospective counterclaim was advanced. In an affidavit filed by the debtor’s solicitor, he noted that the debtor may have had a number of defences to the creditor’s claim which he was instructed to investigate and prosecute. No prospective counterclaim, set off or cross-demand was suggested.
  4. When the matter came on before the Registrar, application was made for orders earlier noted. From an examination of the submissions made by counsel who appeared for the debtor on that occasion, it appears an extension was sought to comply with the bankruptcy notice based upon the debtor’s wish to prosecute a claim to defeat the judgment upon which the bankruptcy notice was premised and/or because the creditor had allegedly engaged in an abuse of process in the issue of the bankruptcy notice and/or because of an overstatement in the bankruptcy notice. Curiously, the debtor’s initial basis for application, that is counterclaim, set off or cross-demand, was not addressed in his counsel’s outline.
  5. Those submissions were rejected and the debtor’s application was refused, thus the present review application. In addition, the Registrar issued directions in respect of the filing of further material in support of the debtor’s application for relief, presumably under section 41(7).

Scope of the Review Application

  1. Orders sought by the applicant debtor are that the review application be allowed and that orders be made in terms of his application filed 27 July. The debtor’s application for review was opposed by the creditor. The application proceeds de novo.
  2. Counsel for the creditor concluded his oral submissions before me, contending that the relevant order directing the debtor to file further material in respect of his section 41(7) claim should be set aside. That was because those orders were otiose given the events that preceded them and which further material cannot cure. In the circumstances of this application I consider it appropriate to also dispose of that issue.
  3. It should also be noted that while initially there was some issue concerning service as contended in the application filed 21 June, that point was abandoned. It was conceded that service was effected at the earliest on 31 May 2010 but certainly no later than 4 June 2010. Consequently the point is of no moment as on 21 June 2010 (that is within 21 days after the earliest possible date of service of the bankruptcy notice) the debtor made his application to set aside the bankruptcy notice.
  4. There are difficulties with the debtors initial application because the debtor is not entitled to an automatic extension as provided for by s.41(7) unless there has been compliance with its terms: James v Abrahams (1981) 51 FLR 15 at 21; Thorpe v Bristile Ltd [1997] FCA 720; (1997) 80 FCR 330 at 339. While the application identified it as being in respect of a counterclaim set-off or cross-demand it was not plain that it was in respect of a counterclaim set-off or cross-demand in the s.40(1)(g) context. A permissive approach may be taken to the application particularly if it is informed by compliance with the requirements of Federal Magistrates Court (Bankruptcy) Rules 3.02 and 3.03 which require an affidavit to detail those matters. That approach was adopted in Re Brink ;Ex Parte Commercial Banking Co of Sydney Ltd [1980] FCA 78; [1980] 44 FLR 135 although s.41(7) at that time provided for the debtor to file an affidavit deposing to a counterclaim, set-off or cross-demand and not apply to the court as is now required.
  5. Affidavits filed in compliance with the rules should contain sufficient evidence to demonstrate that there is an effective and bona fide claim which is real. It is not sufficient to merely assert the existence of a counterclaim, set-off or cross-demand without more, although in some circumstances a debtor may be permitted to file an affidavit setting out facts upon which he may rely to show a relevant counter claim set-off or cross-demand. That affidavit, while it might be used to expand matters in a affidavit filed in time and otherwise complying with s.41(7), cannot be used to supplement any deficiency where no sufficient affidavit has been filed within the terms of s.41(7). In Re James and another: Ex Parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR at 188-189 Hill J stated in the context of a similar application then before him,
  6. To enliven any entitlement for a deemed extension under section 41(7), the statutory injunction must be addressed. That is, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice the debtor has to have applied to the court for an order setting aside the notice on the grounds of section 40(1)(g) which application has not been determined. In James v Abrahams [1981] FCA 46; (1981) 51 FLR 16 Deane and Lockhart JJ held (at 21) a failure to comply with the requirements of section 41(7) was fatal. Although section 41(7) was amended in 1996 the amendments were directed only to the form by which a section 40(1)(g) challenge would be mounted rather than the substance of the challenge itself. As Re James and another; Ex parte Carter Holt Harvey illustrates the principle in Abrahams holds good to section 41(7) as it presently stands.
  7. The relevant Federal Magistrates Court (Bankruptcy) Rules specify that in respect of an application under section 41(7) to set aside the bankruptcy notice the application must be accompanied by, inter alia, an affidavit stating the grounds in support of the application and if it is an application in respect of section 40(1)(g) of the Act it must also state “the full details of the counterclaim, set-off or cross-demand” and the amount of the counterclaim, set-off or cross-demand and the amount by which it exceeds the amount claimed in the bankruptcy notice. In addition the affidavit also requires an explanation for why the demand was not raised and the proceeding resulted in a judgment although that matter probably has less significance in the context of the current dispute. When considering the application made to the court pursuant to section 41(7) the only material which can be considered is that which was filed within the time fixed for compliance under that subsection.
  8. Likewise there is a statutory injunction restraining the courts power to extend time pursuant to s.41(6A) unless there has been strict compliance with that provision as courts do not have any implied or inherent power to extend such time: James v Abrahams (1981) 51 FLR 15 at 22; Guss v Johnstone (2000) 171 ALR 598 at 609. In Re Shaddock: Ex parte Shaddock v Commonwealth Bank of Australia BC 9801209 (unrpt FCA per Goldberg J. 9 April 98) at page 10 his Honour concluded that because of the express disallowance of the power to extend time for compliance with a bankruptcy notice under s.33(1)(c) failure to fulfil either of the two limbs of s.41(6A) before the expiration of time fixed for compliance with the bankruptcy notice is not a “procedural irregularity capable of cure” but “fatal to jurisdiction”.
  9. The nature of the debtors initiating application was unclear. It did not on its face expressly invoke s.41(6A)(b). It made alternative references to setting aside the bankruptcy notice and alternatively a stay, presumably under s.41(7). In either case the ambiguity was not addressed by filing of sufficient affidavit material compliant with the rules to assist in the characterisation of the debtor’s claim.
  10. It appears that it was because of the deficiencies in the debtor’s initiating application and non compliance with the relevant rules that application was made before the Registrar for leave to amend the initiating application pursuant to s.33 to introduce the proposed amendments particularised in the application of 27 July 2010 to challenge the bankruptcy notice:
    1. on the basis of the putative appeal to the Queensland Supreme Court against its judgment in respect of which the bankruptcy notice was founded;
    2. as an abuse of process as evidenced by various emails preceding its issue; and
    1. because of defects in the notice, presumably being the alleged overstatement of the sum demanded in the bankruptcy notice;

and by implication, extend time for compliance with the bankruptcy notice.

  1. The application also sought an order extending time for compliance with the bankruptcy notice pursuant to s.41(6A) and for an order extending time for the debtor to give notice of an overstatement pursuant to s.41(5). These orders were sought on the basis that there would be a limited adjournment pending the reference of the application back to the Registrar. For reasons that follow I do not think this is the appropriate course and I consider I ought also dispose of this application generally although in doing so I note the debtor’s counsel’s objections to that course.

Approach to construction of the legislative scheme

  1. The essence of the debtor’s submissions requires a close consideration of the interaction between ss.33, 41(6A) and s. 41(7).
  2. So far as is relevant ss.33 and 41 provide:
  3. In the context of this debate it is also important to bear in mind the provisions of section 40(1)(g) dealing with the relevant act of bankruptcy in this instance. It provides:
  4. The creditor contended that subsections 6A and 7 in section 41 operate as a code for extending time. It was submitted that the presence of those subsections told strongly against a general or implied power to extend time to make application to set aside a bankruptcy notice being vested in the court. It was contended the implication of that matter was that any such general power would deprive subsections 6A and 7 of any sensible meaning, destroy their function and override the plain language of the parliament.
  5. This approach is consistent with the principle of statutory construction, generalia specialibus non derogant (where there is a conflict between general and specific provisions the specific provisions prevail). The application of the principle was explained by Gavan Duffy CJ and Dixon J in Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia [1932] HCA 9; (1932) 47 CLR 1 where their Honours stated:

and later:

“An affirmative grant of such a power, so qualified, appears necessarily to imply a negative. It involves a denial of a power to do the same thing in the same case free from the conditions and qualifications prescribed by the provision.”[4]
  1. To like effect in Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672 Mason J said at pg 678:
  2. Plainly subsections 6A and 7 are directed towards separate and distinct functions. Subsection 6A is the sole source of the court’s power to extend time for compliance. It is limited to those instances where before the expiration of the time fixed for compliance “proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted” or “an application has been made to the court”. That provision invites a broad range of instances and in this particular context instances involving a review of the original judgment under section 40(1)(g) but not any counterclaim, set-off or cross-demand under that section, an application having its basis in abuse of process, or a timely notice pursuant to s.41(5).
  3. Subsection 7 however applies automatically where a timely application is made by a debtor to set aside the bankruptcy notice “on the ground that the debtor has such a counterclaim, set-off or cross-demand as is referred to in paragraph 40(1)(g)”. That is a counterclaim, set-off or cross-demand that could not have been set up in the original action in respect of which the final judgment was obtained. It does not involve an examination of the final judgment.
  4. Further it was contended that properly construed, a failure to engage subsection 7 does not entitle the applicant to fall back on subsection 6A after the time fixed for compliance has expired to permit a debtor to mount a counterclaim, set-off or cross-demand which has not been raised within time under subsection 7. That is to say the operation of subsection 6A and subsection 7 address mutually exclusive circumstances. Subsection 6A is directed towards a different mischief and construing it in its context it operates in relation to grounds other than section 40(1)(g) except insofar as it concerns the final judgment.
  5. Otherwise as was submitted by the creditor, with which submission I agree, subsection 7 would have no work to do. Clearly the specific provision in subsection 7 must as a matter of proper construction override the more general provision contained in subsection 6A. That approach is implicit in the reasoning of Goldberg J in In The Matter of Shaddock; Shaddock v Commonwealth Bank of Australia BC9801209 919980 FCA 355 at page 6.
  6. Accepting that approach, the effect of section 41(7) is that once a bankruptcy notice is served there is a specific and immutable outer limit of time for raising any counterclaim, set-off or cross-demand which could not have been raised in the original proceeding and upon which reliance is placed. It was submitted that it follows that once there is a failure to engage subsection (7) that failing does not entitle a debtor to fall back on subsection (6A). To do so would have the effect of giving subsection (7) no work to do.
  7. I accept the specific provision of subsection (7) must override the general provision of subsection (6A). Once engaged, subsection (7) invokes a statutory injunction to preserve the status quo until the court determines the matter: Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd at 142. Subsection (6) enlivens a right to apply for relief in the other circumstances provided for by it but which do not include the circumstances of counter-claim, set-off or cross-demand in the s.41(1)(g) context as provided for by s.41(7).

The Counterclaim, Set-Off or Cross-demand

  1. In this case an application was filed on 21 June 2010 and was accompanied by an affidavit of Mr Ronald Behlau. The affidavit of Mr Behlau does not comply with even the most basic requirements of Federal Magistrates Court (Bankruptcy) Rule 3.02(2). It does not state:
    1. the full details of the counterclaim, set-off or cross-demand;
    2. nor does it state the amount of the counterclaim , set-off or cross-demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
    1. it does not address the reasons why the counterclaim, set-off or cross-demand were not raised in the proceeding that resulted in the judgment, that is it does not explain why it was a counterclaim, set-off or cross-demand that could not have been raised in the proceeding resulting in the judgment.
  2. Indeed, the affidavit says nothing at all about any counterclaim, set-off or cross-demand. It merely addresses difficulties that the debtor’s solicitor had given his late retention.
  3. To satisfy the provision, the affidavit must do more than merely assert the existence of a counterclaim, set-off or cross-demand of the relevant value. It must contain evidence which establishes that there is an effective and bona fide claim which is real. See Re James: ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd supra noted with approval in Re James: ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd (No 2) (1994) 51 FCR 14 at 16. It follows that at the time of filing, there must be, at the very least, a bona fide assertion of a genuine counterclaim, set-off or cross-demand. There was none.
  4. Adopting even the most benevolent construction of Mr Behlau’s affidavit, it fails to address the statutory requirements set out for relief under s. 41(7). On that basis, there was no material filed within the time set out for the compliance that addressed the matter of a counterclaim, set-off or cross-demand, as required by s.41(7). Accordingly, no automatic extension of the time for expiration of the bankruptcy notice came into being. It follows that, prima facie, Spottiswood committed an act of bankruptcy on 21 June 2010 or, at the very latest, on 24 June 2010.
  5. In any event, the allegations addressed in the later affidavit material concerning the counterclaim, set-off or cross-demand raised by the debtor in his solicitor’s affidavit do not appear to allege a set-off which could not have been alleged in the original action and, on that ground alone, would not enliven an automatic right to extension despite the debtor’s failings to address the matters required by Federal Magistrates Court (Bankruptcy) Rule 3.02.
  6. Given my earlier views concerning the interaction of section 6A and subsection 7 there is no basis on this ground to extend time pursuant to subsection 6A.

Challenge to the Judgment

  1. The debtor also sought to amend his original application to enable him to apply for an extension pursuant to section 41(6A)(a). As I have observed earlier the initiating application was ambiguously expressed. Despite that matter the application was not accompanied by affidavits in compliance with the rules setting out particulars of the claim.
  2. The debtor failed to make application to set aside the judgment in respect of which the bankruptcy notice issued before expiration of the time fixed for compliance with the bankruptcy notice. For reasons I have earlier outlined that omission was fatal and on that basis the application must fail.
  3. In any event even if I were wrong on that matter that application was premised upon an application made by the debtor to set aside the original judgment entered against him in the Supreme Court on 7 August 2009. However on 3 September 2010 the debtor’s challenge to the judgment was dismissed by Applegarth J and His Honour refused to grant a stay in respect of the enforcement of the judgment. Given the orders of Applegarth J on 3 September there is now no basis to extend time for compliance pursuant to section 41(6A)(a) even were such application regular.

Abuse of Process

  1. An alternative ground advanced on behalf of the debtor is that an amendment of the application should be allowed to permit the applicant an opportunity to apply to set aside the bankruptcy notice on the basis that it constitutes an abuse of process. It is now settled that a bankruptcy notice is regarded as a ‘proceeding’ under the Act. Further that while there is no express power under the Act to set aside a bankruptcy notice such a power exists by necessary implication and is within the general powers of the court conferred by s.301 of the Act; Re Bryant; Ex parte Bryant v Commonwealth Bank of Australia BC9405749; Lindholdt v Meritt Madden Printing Pty Ltd [2002] FCA 260.
  2. The abuse of process relied upon by the debtor emerges from email correspondence between he and the respondent’s Chief Operating Officer Mr David Kennedy and the Chief Executive Officer Mr Mark McIver. For instance the following exchanges are found in email correspondence:

and

“The process to bankrupt you has now commenced. Whilst no (sic) unstoppable, the momentum gathering to have you declared bankrupt is building and the situation will shortly be irretrievable.
I trust that you will now take seriously my advices that I will bankrupt you if you do not start addressing the issues at hand.
I also trust that you have advised your wife that your matrimonial house currently in her name is at real risk of being taken and sold by your Trustee in Bankruptcy (although of course she would be entitled to retain 50% of the net proceeds). I assume you have told her that I promised to fund a Trustee in Bankruptcy to pursue such house based on the clear principles established by the High Court of Australia in the 2006 case of Trustees of the Property of John Daniel Cummins v Cummins. If you are in any doubt as to the ability of a Bankruptcy Trustee to do this you should seek urgent legal advice.”

and

“You’re assured your bankruptcy and commercial ‘wilderness’ for years to come. The havoc that David Kennedy shall wreak will be well deserved. You are a fool to treat my overtures in such an unintelligent fashion.”
  1. It was contended that the email suggested that within the context of the negotiations that had been going on between the parties for some months the purpose of the creditor’s bankruptcy notice was to put pressure on the debtor to pay a debt and to “hand over his head” rather than to genuinely invoke the court’s jurisdiction in relation to insolvency, that being merely the creditor’s secondary purpose; Maxwell-Smith v S & E Hall Pty Limited [2006] FCA 825 at [45] – [52]. To like effect the observations of Emmett J in Max Bernard Jules Brunninghausen v Michael Glavanics [1998] FCA 230 where His Honour noted:
  2. The principles are well settled. Each of the cases referred to above provide helpful illustrations of those principles. For instance in Maxwell-Smith it was plain from the evidence before the court that the court considered the creditor was misusing the Bankruptcy Act by claiming a relatively small amount of money from a solvent party. The relevant principles were set out by Jacobsen J commencing at paragraph 41 where His Honour observed:
  3. Likewise in Brunninghausen the factual matrix under consideration supported the conclusion that invoking the Act did not constitute an abuse of process.
  4. In this case the bankruptcy notice was served after a relatively short delay following negotiations intended to afford the debtor an opportunity to make satisfactory arrangements. Furthermore the judgment sum the subject of the bankruptcy notice is for a sum well in excess of $3M and there has been no evidence from the debtor of solvency. In Maxwell the relevant sum was relatively insignificant; that is not the situation here. Irrespective of the intemperate remarks evidenced in the emails the essential facts of this case clearly demonstrate a prima facie right to invoke the Act as the circumstances clearly bring into question the applicant’s solvency.
  5. I consider the circumstances of this case to not demonstrate any basis to set aside the bankruptcy notice. Accordingly as a matter of discretion there is no utility in granting leave to amend the application in the terms sought in paragraph 2 of the application dated 27 July 2010.
  6. In any event for reasons which have been addressed this application too is out of time being an application made after the expiration for time fixed for compliance with the bankruptcy notice and not one made compliant with the rules applicable to applications pursuant to s41(6A). It would fail on that basis alone.

Order extending time for overstatement

  1. Finally the debtor sought relief pursuant to section 41(5). He wishes to obtain a declaration of invalidity of the bankruptcy notice and have it set aside on the basis that he has given notice that he disputes its validity on the ground of overstatement. The debtor submitted the Court ought grant him leave to amend the application to apply for an order to extend time for him to give a notice of overstatement pursuant to s.41(5) by operation of s.33(1)(c).
  2. The principal ground advanced by the debtor’s counsel was to distinguish the case from s.33(1)(c) as that section focuses on and restricts a court from granting an extension of time for compliance with the bankruptcy notice and not payment which is the purpose of a bankruptcy notice. He submitted it did not restrict in any way the power under s.33(1)(b) to amend the application.
  3. The debtor sought to rely upon the decision in Re Wilhelmsen: Ex parte Gould & Ors (1986) 11 FCR 107 in support of a submission that the court could by operation of section 33(1)(c) extend the time for giving notice under section 41(5). The decision in Re Wilhelmsen is clear authority for that proposition. In expressing his view Pincus J (as his Honour then was) stated the time of giving a s.41(5) notice may be extended under s.33(1)(c) his Honour reasoned:
  4. However as was explained by Goldberg J In The Matter of Shaddock; Shaddock v Commonwealth Bank of Australia BC9801209 919980 FCA 355 at page 9 it seemed implicit in the remarks of Pincus J that the application pursuant to s.41(5) was one that otherwise had to be made within the time permitted by s.41(6A), that is before the time had expired for compliance with the bankruptcy notice.
  5. It is upon that basis that this case is clearly distinguishable on its facts from those in Wilhelmsen. There Pincus J took some care to note the efforts the self represented debtor went to, to bring his complaints of overstatement of the bankruptcy notice to the attention of both the creditor and the court before the due date for compliance. His Honour afforded the debtor significant latitude in that instance because he was self represented and was not familiar with matters of form although his intent to make application was plain.
  6. In this case the debtor first gave notice of the alleged overstatement in the bankruptcy notice in the course of the debtor’s counsels submissions before the Registrar on 30 June 2010. That date was well after the date for compliance with the bankruptcy notice being 21 June 2010. It is plain from the authorities referred to below that amendment of the notice under s.41(5) pursuant to s.33 will not be efficacious unless given before the time permitted by s.41(6A). That is not the case here and on that basis the application must fail.

The significance of the act of bankruptcy

  1. To enliven the court’s jurisdiction under s.41(6A) or s.41(7), as is appropriate, the application must be made before the time fixed for compliance with the requirements of the bankruptcy notice. The significance is that it is well settled by authority that the setting aside of a bankruptcy notice after the time for compliance has expired does not have the effect of annulling the act of bankruptcy already committed.: Re Vella; Ex Parte Seymour [1983] FCA 115; (1983) 67 FLR 287 at 288-289; Re Sterling; Ex Parte Esanda Ltd [1980] FCA 61; (1980) 44 FLR 125 at 130; Re Shaddock; Ex parte Shaddock v Commonwealth Banking of Australia (supra) at p7.
  2. The debtors initiating application must fail because it failed to address the essential matters necessary to engage the court’s jurisdiction and entitle it to be supplemented at a later time. The debtor is not entitled to amend his initiating application for the reasons addressed above. Nor can he seek to raise fresh claims now because of the failings evident in the initiating application. Given those matters there is no utility in permitting the initiating application to proceed further. The court is empowered to summarily dismiss a proceeding before it if it is satisfied that the party prosecuting the claim for relief has no reasonable prospects of successfully prosecuting the proceeding. In the course of my reasons I have been required to consider the substance of the debtor’s initiating application in the course of considering the review application. I have concluded for the reasons detailed above that the debtor in this case has no reasonable prospects of successfully prosecuting his claim. In the circumstances I consider the most appropriate course is to dismiss the initiating application and not remit it to the Registrar for further action.

Conclusion

  1. For the reasons outlined above the applicant committed an act of bankruptcy on 21 or at the very latest 24 June 2010 in failing to properly bring its application entitling a deemed extension pursuant to section 41(7).
  2. There was no application made pursuant to s.41 (6A) within time to seek an extension of time for compliance with the bankruptcy notice. Notwithstanding that fact the judgment upon which the bankruptcy notice has been founded has not been set aside. There is no basis to set aside the bankruptcy notice as an abuse of process. Nor did the debtor make a timely application to set the notice aside on the basis of any defect in it. In the circumstances there is no basis for any order to extend time for the making of an application under s. 41(6A)(a).
  3. The debtor’s failure to make application within time for an extension of time pursuant to s.41(6A) in respect of his application to set aside the final judgment relied upon an abuse of process; or , defects in the notice which were fatal to the application and could not be corrected.
  4. The court has no power to extend time in respect of either an application under s.41 (6A) or s.41 (7).
  5. The debtor’s application to review the Registrar’s decision is dismissed.
  6. Insofar as the debtor sought to adjourn part of the application back to the Registrar for determination such a course is otiose in my view. An act of bankruptcy has been committed and now the Registrar can afford the debtor no relief from the debtor’s immediate status following the commission of an act of bankruptcy. Likewise there is no utility in the Registrar’s orders permitting the debtor an opportunity to file further material in the s.41 (7) application. The initiating material filed simply failed to enliven the statutory injunction and no further material will advance that position. It follows the Registrar’s order permitting the debtor to file further material also should be set aside.

Orders

  1. Application by applicant for review of Order 1 of Orders made by Registrar Hetyey on 30 June 2010 be dismissed.
  2. Application by respondents for review of Orders 2 and 3 of Orders made by Registrar Hetyey on 30 June 2010 be allowed.
  3. Application filed 21 June 2010 be dismissed.
  4. Application filed 27 July 2010 be dismissed.
  5. Subject to either party making application within seven (7) days of these Orders, direct the applicant pay the respondent’s costs of and incidental to the application filed 21 June 2010, 27 July 2010 and for review of Order of Registrar Hetyey made 30 June 2010, including reserved costs, if any, to be assessed.

I certify that the preceding 68Error! Style not defined.!Syntax Error, !Error! Style not defined.Error! Style not defined.!Syntax Error, !sixty-eightsixty-eight (68) paragraphs are a true copy of the reasons for judgment of Burnett FM


Date: 26 October 2010

[1] The debtor specified orders in these terms in paragraph 3 of his counsel’s written submissions handed to the Court on that occasion. I assume the application was made instanta.
[2] It is noteworthy that notwithstanding the initiating application sought to set aside the bankruptcy notice on the basis of “a counterclaim, set off or cross-demand”, that is presumably seeking to invoke section 41(7), the affidavit in support was even more ambiguous.
[3] Supra at pg 7.
[4] Supra at pg 8.

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