Deputy Commissioner of Taxation v Jaskola [2011] FMCA 67 (11 February 2011)

Last Updated: 14 February 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DEPUTY COMMISSIONER OF TAXATION v JASKOLA

[2011] FMCA 67

BANKRUPTCY – Application for review of Registrar’s decision to make sequestration order – Registrar not made aware of s.188 authorisation by debtor to allow trustee to take control of debtor’s affairs – whether sequestration order should be set aside – effect of statutory stay on creditor’s petition proceedings where sequestration order set aside – whether power to adjourn or dismiss creditor’s petition. BANKRUPTCY – Application to extend time for creditors meetings – power to extend time – exercise of discretion – factors. PRACTICE AND PROCEDURE – Bankruptcy – power to adjourn or dismiss creditor’s petition where creditor’s petition set aside – pre-existing s.188 authorisation for trustee to control debtor’s affairs – effect of statutory stay on creditor’s petition proceedings.

Bankruptcy Act 1966 (Cth), ss.33(1)(c), 52(1) and (2), 188, 189(1A)(f), 189AAA, 194 Federal Magistrates Act 1999 (Cth), s.104(2) and (3) Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), rr.2.03(1), 7.06(1) and (3)

Application by Benjamin Peter Piggott [2009] FMCA 1061 Application of Melvyn Malcolm Posner [2007] FMCA 610 Cervantes Pty Ltd v Moutidis (2004) 212 ALR 619; [2004] FMCA 1023 Commonwealth Bank of Australia v Toma (2009) 7 ABC(NS) 364; [2009] FMCA 846 Council of the New South Wales Bar Association v Eddy (2006) 151 FCR 34; [2006] FCA 254 Hunter Valley Developments Pty Ltd v Cohen [1984] FCA 176; (1984) 3 FCR 344 O’Meara v Hitwise Pty Ltd & Anor (2007) 160 FCR 518; [2007] FCAFC 114 Pascoe v Leite (2005) 218 ALR 585; [2005] FMCA 334 Pattison v Hadjimouratis (2006) 155 FCR 226; [2006] FCAFC 153 Pretorius v Daltons Carpet Tiles Pty Ltd (1984) 1 FCR 346 Re Gowing & Anor; Ex parte Deputy Registrar in Bankruptcy (1985) 11 FCR 111

Applicant:

DEPUTY COMMISSIONER OF TAXATION

Respondent:

HENRYK FRANCISZEK JASKOLA

File Number:

PEG 230 of 2010

Judgment of:

Lucev FM

Hearing date:

10 February 2011

Date of Last Submission:

10 February 2011

Delivered at:

Perth

Delivered on:

11 February 2011

REPRESENTATION

Counsel for the Applicant:

Ms J Ding

Solicitors for the Applicant:

Australian Taxation Office Legal Services Branch

Counsel for the Respondent:

Mr F Carles

Solicitors for the Respondent:

Carles Solicitors

ORDERS

(1) The sequestration order made by Registrar Stanley on 24 January 2011 be set aside.
(2) The time for calling the meeting of creditors of the Respondent under section 194(1)(a) of the Bankruptcy Act 1966 (Cth) (“the Act”) be extended to “not more than 25 working days after the date of this order” pursuant to section 33(1)(c) of the Act.
(3) The requirements of regulation 7.06(3) of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) be dispensed with.
(4) There be no order as to costs.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH

PEG 230 of 2010

DEPUTY COMMISSIONER OF TAXATION

Applicant

And

HENRYK FRANCISZEK JASKOLA

Respondent

REASONS FOR JUDGMENT

Application and minute of proposed consent orders

1. Yesterday afternoon the Court heard an application by the respondent to:
   1. set aside a sequestration order made by a Registrar of this Court on 24 January 2011;
   2. adjourn the hearing of the creditor’s petition;
   100. extend the time for the calling of the meeting of creditors;
   4. dispense with procedural requirements for a review of a decision of a Registrar of this Court.
2. The application is one for a review of a decision of a Registrar of this Court, and for consequential orders arising therefrom.[1]
3. The basis for the application to set aside the sequestration order is that the creditor’s petition was, at the time the sequestration order was made, stayed under s.189AAA of the Bankruptcy Act 1966 (Cth).[2] The other orders sought flow from an order seeking to set aside the sequestration order.
4. A minute of proposed consent orders in the following terms was put before the Court:
   • 1. The sequestration order made by Registrar Stanley on 24 January 2011 be set aside;
   • 2. The creditor’s petition in these proceedings PEG 230/2010 be adjourned to a date to be fixed being not before 25 working days after the date of this order;
   • 3. The time for calling the meeting of creditors of the Respondent under section 194(1)(a) of the Bankruptcy Act 1966 (“the Act”) be extended to “not more than 25 working days after the date of this order” pursuant to section 33(1)(c) of the Act.
   • 4. The requirements of regulation 7.06(3) of the Federal Magistrates Court (Bankruptcy) Rules 2006 be dispensed with.
5. Having heard the parties the Court made orders yesterday afternoon that:

(1) The sequestration order made by Registrar Stanley on 24 January 2011 be set aside.

(2) The time for calling the meeting of creditors of the Respondent under section 194(1)(a) of the Bankruptcy Act 1966 (“the Act”) be extended to “not more than 25 working days after the date of this order” pursuant to section 33(1)(c) of the Act.

(3) The requirements of regulation 7.06(3) of the Federal Magistrates Court (Bankruptcy) Rules 2006 be dispensed with.

(4) There be no order as to costs.

6. The Court said at the time the above orders were made that it would provide Reasons for Judgment at a later time. These are those Reasons for Judgment.

Statement of agreed facts and submissions

7. The parties have filed a statement of agreed facts and submissions for the purposes of this application. That statement of agreed facts and submissions is in the following form:
   1. The creditor’s petition is dated 3 December 2010 and was filed on 7 December 2010.
   2. On 18 January 2011 the Respondent signed an authority pursuant to section 188 of the Bankruptcy Act 1966 (“the Act”) appointing Glenn Douglas Trinick and Benjamin Peter Piggott as his controlling trustees. The controlling trustees signed that authority on the same date consenting to act as controlling trustees of the Respondent.
   3. The section 188 authority became effective on 18 January 2011.
   4. The section 188 authority details were entered on the National Personal Insolvency Index (“NPII”) on 19 January 2011. A copy of the NPII extract is attached as “A”.
   5. The middle name of the Respondent on the above NPII extract is shown as “Franciszer” with the last letter being “r”.
   6. On 24 January 2011 a sequestration order was made by the Registrar. A copy of this order is attached as “B”.
   7. Details of the sequestration order were entered on the NPII on 24 January 2011. Attached as “C” is a copy of this NPII extract.
   8. The middle name of the Respondent in the sequestration order and on the NPII extract relating to the sequestration order is shown as “Franciszek” with the last letter being “k”.
   9. The Applicant conducted a search of the NPII prior to obtaining the sequestration order but that search did not reveal details of the section 188 authority relating to the respondent due to the above discrepancy in the spelling of the middle name of the Respondent.
   10. The controlling trustees notified the Applicant (petitioning creditor) of the section 188 authority prior to the making of the sequestration order as the Deputy Commission of Taxation was a creditor of the Respondent. However, this notification was given to a different branch of the Australian Taxation Office and did not, prior to the sequestration order being made, come to the attention of the solicitor who obtained the sequestration order for the Applicant.
   11. By virtue of section 189AAA(1) of the Act, once the section 188 authority became effective on 18 January 2011 then the proceedings relating to the creditor’s petition were stayed until the earlier of the conclusion or adjournment of the Part X meeting. It follows that the sequestration order ought not to have been made on 24 January 2011 as the proceedings relating to the creditor’s petition were stayed as at that date by virtue of section 189AAA(1).
   12. The effect of the sequestration order having been made is that at the present time the controlling trusteeship has ended pursuant to section 189(1A)(f) of the Act. The controlling trustees are not presently able to progress the Part X process any further and have yet to call a meeting of creditors of the Respondent.
   13. The parties are seeking to have this matter dealt with by consent given that the petitioning creditor, Respondent debtor and controlling trustees are all in agreement as to how the matter should progress. The parties further request that the minute of consent orders be considered by the Court on an urgent basis bearing in mind that an application for review would need to be made within 21 days of the date of the sequestration order pursuant to regulation 2.03(1) of the Federal Magistrates Court (Bankruptcy) Rules 2006.
   14. Correspondence is attached from the controlling trustees to confirm that they have no objection to the Proposed Consent Orders.

Review Application

Practice and procedure

8. On an application for a review of a Registrar’s decision the Court:
   1. is engaged in a fresh proceeding;
   2. does not scrutinise the original reasons to ascertain error;
   100. makes its own decision on the merits of the case; and
   4. in applications for review of a sequestration order, where a sequestration order is still sought, the petitioning creditor is required to prove all necessary matters, including those specified in s.52(1) of the Bankruptcy Act.[3]
9. Under s.104(3) of the FM Act the Court “may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised” by the Registrar.

Section 189AAA(1)

10. Section 189AAA(1) of the Bankruptcy Act provides as follows:

(1) If:

(a) an authority signed by a debtor under section 188 has become effective; and

(b) either:

(i) a creditor's petition was presented against the debtor before the authority became effective; or

(ii) a creditor's petition is presented against the debtor after the authority became effective but before the first or only meeting of the debtor's creditors called under the authority;

proceedings relating to that petition are, by force of this subsection, stayed until:

(c) the conclusion of the meeting; or

(d) the adjournment of the meeting;

whichever is the earlier.

11. The effect of a s.188 Bankruptcy Act authority being signed by a debtor has been described by this Court as a “statutory stay which takes automatic effect upon the filing of an authority to call a creditor’s meeting.”[4] No question arises as to the validity or effectiveness of the s.188 Bankruptcy Act authority in this matter so as to preclude reliance upon the s.188 Bankruptcy Act authority giving rise to the statutory stay.[5]
12. As a s.188 Bankruptcy Act authority had been signed by the respondent on 18 January 2011 all proceedings relating to the creditors’ petition filed on 7 December 2010 were thereby stayed, by operation of law, until the conclusion of the first or only meeting of the respondent’s creditors, or the adjournment of that meeting. That meeting had not taken place by the time the sequestration order was made by a Registrar of this Court, and now, by reason of the sequestration order, is not taking place. However, given that proceedings relating to the creditors’ petition were stayed by reason of s.189AAA(1)(b) of the Bankruptcy Act the sequestration order ought not to have been made, and is of no effect. It is null and void. The application for a sequestration order was only made, in any event, because of an error in the name of the respondent which meant that the s.188 Bankruptcy Act authority was not revealed on a search of the National Personal Insolvency Index, and because that part of the Deputy Commissioner of Taxation’s organisation dealing with sequestration orders was not advised of the existence of the s.188 Bankruptcy Act authority by another part of the Deputy Commissioner of Taxation’s organisation which had been advised of the s.188 Bankruptcy Act authority. Further, on the hearing of this review application the Court was not able to be satisfied with proof of any of the matters under s.52(1) of the Bankruptcy Act because those matters were not pressed, and not the subject of any proof, by the Deputy Commissioner of Taxation.
13. In all of the above circumstances it follows that, exercising afresh on review the power under s.52(2) of the Bankruptcy Act:
    1. there is therefore no basis on which this Court can make a sequestration order; and
    2. the Court considers that there is sufficient cause that a sequestration order ought not be made.

It follows that the sequestration order made by a Registrar of this Court on 24 January 2011 ought to be set aside. There will be an order to that effect.

Adjournment or dismissal of the creditor’s petition

14. The question arises whether the Court ought dismiss the petition under s.52(2) of the Bankruptcy Act, or adjourn it to a date to be fixed, being not before 25 working days after the date of any Order in this Court, as sought in the minute of proposed consent orders.
15. With the sequestration order set aside the position with respect to the creditor’s petition remains as it was prior to the making of the order to set aside the sequestration order: the creditor’s petition remains stayed pending a meeting of the respondent’s creditors. In the Court’s view it is therefore unnecessary to make an order adjourning the creditor’s petition to a fixed date. To do so is contrary to the provisions of s.189AAA(1)(b) of the Bankruptcy Act which stay all proceedings relating to the creditor’s petition. The creditor’s petition is stayed by operation of law until the meeting, and there is no necessity for the Court to make any order whatsoever. Likewise, it is not possible to deal with the creditor’s petition by dismissing it, for that course is also contrary to the statutory stay effected by s.189AAA(1) of the Bankruptcy Act. Nor is dismissal of the creditor’s petition sought by the parties. Therefore, the order for adjournment of the creditor’s petition sought in the minute of proposed consent orders will not be made, nor will there be an order for dismissal of the creditor’s petition.

Extension of time for calling of creditor’s meeting

16. The power to extend time is vested in this Court under s.33(1)(c) of the Bankruptcy Act, and includes generally the power to extend time for the required meeting of creditors under s.194 of the Bankruptcy Act.[6] And, it is only under s.33(1)(c) of the Bankruptcy Act that time for a meeting of creditors under s.194 of the Bankruptcy Act can be validly extended.[7]
17. In exercising the discretion to extend time, no criteria for extending the time for a meeting of creditors under s.194 of the Bankruptcy Act is set out in the Bankruptcy Act.
18. In the Court’s view, it is appropriate to apply principles similar to those ordinarily applied by courts in determining whether to extend time, namely to have regard to:
    1. the fact that relevant time limits ought not be lightly ignored;
    2. the length of the delay and whether there is an acceptable reason for the delay;
    100. the merit of the substantive matter; and
    4. whether there is prejudice suffered by an affected party.[8]
19. The relevant time limits have not been ignored at all in this case. The making of the sequestration order by a Registrar of this Court, which the Court has now determined ought to be set aside, precluded the joint controlling trustees from being able to comply with the requirement to have a creditor’s meeting. In any event, the respondent, through the joint controlling trustees, has acted promptly in circumstances where there is an acceptable reason for the delay. Because of the making of the sequestration order in circumstances where, as a matter of law, it ought not to have been made, the application to extend time has merit. There is no suggestion by any party that any other party suffers prejudice by the extension of time. No party affected opposes the application for an extension of time.
20. The Court therefore considers that it is appropriate to extend time in accordance with the terms of the relevant proposed consent order.

Dispensation from rules

21. Rule 7.06(3) of the FMCA (Bankruptcy) Rules provides as follows:

(3) The applicant must give notice of the application to each person known to the applicant to be a creditor of the bankrupt.

22. In the circumstances of this case where a sequestration order ought not to have been made, and there is consent to waiving compliance with the sub-rule by the party which originally applied for the sequestration order, the Court considers it appropriate that there be an order dispensing with compliance with the requirements of r.7.06(3) of the FMCA (Bankruptcy) Rules in accordance with the terms of the relevant proposed consent order.

Conclusion

23. The Court has concluded that:
    1. the sequestration order made by a Registrar of this Court on 24 January 2011 must be set aside;
    2. there will be no order for adjournment, or dismissal, of the creditor’s petition;
    100. there will be an order for extension of time in which to hold the creditor’s meeting;
    4. there will be an order dispensing with the requirement to comply with r.7.06(3) of the FMC (Bankruptcy) Rules; and
    5. as agreed to by parties at the hearing, there will be an order that there be no order as to costs.

I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Lucev FM

Date: 11 February 2011

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[1] Federal Magistrates Act 1999 (Cth), s.104(2) (“FM Act”); Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.7.06(1) (“FMC (Bankruptcy) Rules”).
[2] “Bankruptcy Act”.
[3] Pattison v Hadjimouratis (2006) 155 FCR 226 at 235 per Jacobson J and 251-252 per Lander J; [2006] FCAFC 153 at para.43 per Jacobson J and para.156 per Lander J (“Pattison”); O’Meara v Hitwise Pty Ltd & Anor [2007] FCAFC 114; (2007) 160 FCR 518 at 521 per Kiefel J, Sundberg and Gyles JJ; [2007] FCAFC 114 at para.9 per Kiefel J, Sundberg and Gyles JJ.
[4] Commonwealth Bank of Australia v Toma (2009) 7 ABC(NS) 364 at 369 per Smith FM; [2009] FMCA 846 at para.29 per Smith FM.
[5] Cervantes Pty Ltd v Moutidis (2004) 212 ALR 619; [2004] FMCA 1023; Pascoe v Leite (2005) 218 ALR 585; [2005] FMCA 334.
[6] Re Gowing & Anor; Ex parte Deputy Registrar in Bankruptcy (1985) 11 FCR 111 at 112 and 113 per Beaumont J; Application of Melvyn Malcolm Posner [2007] FMCA 610 at paras.5-8 per Lucev FM; Application by Benjamin Peter Piggott [2009] FMCA 1061 at paras.6-10 (“Piggott”).
[7] Pretorius v Daltons Carpet Tiles Pty Ltd (1984) 1 FCR 346 at 352 and 353 per Smithers, Northrop and Beaumont JJ; Council of the New South Wales Bar Association v Eddy [2006] FCA 254; (2006) 151 FCR 34 at 39-40 per Edmonds J; [2006] FCA 254 at para.30 per Edmonds J; Piggott.
[8] Hunter Valley Developments Pty Ltd v Cohen [1984] FCA 176; (1984) 3 FCR 344 at 348-349 per Wilcox J.