FEDERAL COURT OF AUSTRALIA O'Mara Constructions Pty Ltd v Avery [2006] FCAFC 55 BANKRUPTCY – creditor's petition; where petition based on a judgment debt; whether bankruptcy proceedings are new proceedings, or proceedings under a previous judgment; whether 'creditor' includes a judgment creditor, whether a creditor who's debt is statute-barred is still a creditor; whether if a debt is statute-barred it will not be provable in bankruptcy proceedings. LIMITATION OF ACTIONS – effect of s 17 Limitation Act 1969 (NSW); whether limitation applies to execution upon a judgment; whether s 17 applies with regard to bankruptcy proceedings; whether a petition seeking a sequestration order is an action for the purposes of s 17. Bankruptcy Act 1966 (Cth) ss 43, 44, 49, 58(1), 58(3), 58(4), 82, 116(1), 118, 118(1), 118(3), 118(5), 118(9), 118(12), 119, 119A Judiciary Act 1903 (Cth) s 79, 80 Limitation Act 1969 (NSW) s 14, 17, 63(1) Judgment Creditors' Remedies Act 1901 (NSW) s 4(a), 43, 44, 118 Solomons v District Court (NSW) (2002) 211 CLR 119 cited Wilson v Alexander (2003) 135 FCR 273 cited John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503 cited In re King & Beesley; Ex parte King & Beesley [1895] 1 QB 189 cited Re Seckold; Ex parte Sargood Gardiner Ltd (1933) 5 ABC 195 cited W T Lamb & Sons v Rider [1948] 2 KB 331 followed In re A Debtor (No 50A-SD-1995) [1997] Ch 310 not followed Lowsley v Forbes [1999] 1 AC 329 cited Motor Terms Co Pty Ltd v Liberty Insurance Ltd (1967) 116 CLR 177 discussed Re Motor Terms Co Pty Ltd and the Companies Act (1966) 66 SR(NSW) 397 cited Tanning Research Laboratories Inc v O'Brien (1989-990) 169 CLR 332 considered Dennehy v Reasonable Endeavours Pty Ltd (2003) 130 FCR 494 cited China v Harrow Urban District Council [1954] 1 QB 178 distinguished Re Karnos Property Co Ltd [1989] BCLC 340 considered In re Lines Bros Ltd [1983] Ch 1 considered In re Dynamics Corporation [1976] 1 WLR 757 cited In re International Tin Council [1987] 1 Ch 419 considered In re A Company [1915] 1 Ch 520 considered In re A Bankruptcy Notice [1907] 1 KB 478 considered 2000 Olympic Games Pty Ltd v Daly [2000] FCA 1286 cited Re Hughes; Ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 217 cited O'MARA CONSTRUCTIONS PTY LTD v LANGER EDWARD AVERY NSD 1221 OF 2005 HEEREY, DOWSETT and CONTI JJ 4 MAY 2006 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1221 OF 2006 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT BETWEEN: O'MARA CONSTRUCTIONS PTY LTD APPELLANT AND: LANGER EDWARD AVERY RESPONDENT JUDGES: HEEREY, DOWSETT and CONTI JJ DATE OF ORDER: 4 MAY 2006 WHERE MADE: HEARD IN SYDNEY THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The orders made by the federal magistrate on 1 September 2005 be set aside. 3. In lieu thereof, there be a sequestration order against the estate of the respondent debtor. 4. The appellant creditor's costs of the proceedings below and of the appeal be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth). 5. Orders 3 and 4 be stayed for a period of seven days from the date of publication of these reasons, during which time the parties be at liberty to make any written submissions concerning the proposed orders, any proposed variations thereto, and otherwise as they may be advised. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1221 OF 2006 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT BETWEEN: O'MARA CONSTRUCTIONS PTY LTD APPELLANT AND: LANGER EDWARD AVERY RESPONDENT JUDGES: HEEREY, DOWSETT and CONTI JJ DATE: 4 MAY 2006 PLACE: HEARD IN SYDNEY REASONS FOR JUDGMENT THE COURT: 1 This is an appeal from an order of a federal magistrate, dismissing a petition in bankruptcy presented by the appellant. The alleged act of bankruptcy was the respondent's failure to comply with a bankruptcy notice issued on 12 November 2003. It claimed the amount of $125 270.79, being the amount remaining due pursuant to a judgment recovered in the Supreme Court of New South Wales on 21 February 1992, which judgment was in the total amount of $147 899.60. Although the bankruptcy notice was issued on 12 November 2003, it was not served immediately. On 26 February 2004 the appellant applied for an order for substituted service, which order was made on 8 March 2004. On 12 March 2004 service was effected pursuant to that order. 2 On 21 April 2004 the respondent applied to set aside the bankruptcy notice. The application was dismissed on 27 July 2004. The respondent appealed against that decision. The petition was presented on 3 September 2004. The appeal was discontinued on 17 February 2005. The petition was heard on 31 May 2005 and dismissed on 5 July 2005, such dismissal being the subject of this appeal. The federal magistrate dismissed the petition on two grounds. The first was that the presentation of a creditor's petition in bankruptcy was an action on a cause of action on a judgment within the meaning of s 17 of the Limitation Act 1969 (NSW) (the "Limitation Act") and was statute-barred. The second was that the appellant's debt was "statute-barred" by virtue of s 17, and that the appellant therefore lacked the necessary capacity to present the petition pursuant to ss 43 and 44 of the Bankruptcy Act 1966 (Cth) (the "Bankruptcy Act"). 3 The matters in issue in this case and their resolution depend upon the interaction of the Bankruptcy Act and the Limitation Act. It is common ground that the Limitation Act has relevant operation. However the mechanism by which it operates in connection with Commonwealth law was not identified at the hearing of the appeal. Passing reference was made to the possibility of inconsistency between state and Commonwealth law, but that was in connection with the possible operation of s 109 of the Constitution and the procedural requirements imposed by s 78B of the Judiciary Act 1903 (Cth) (the "Judiciary Act"). Courts of the Commonwealth apply state law pursuant to ss 79 and 80 Judiciary Act. For present purposes it is not necessary to determine whether s 79 or s 80 is the operative provision. The law so "picked up" applies as "surrogate" federal law. See Solomons v District Court (NSW) (2002) 211 CLR 119 at [21] and Wilson v Alexander (2003) 135 FCR 273 at [19]. Section 79 applies state laws 'except as otherwise provided by the Constitution or the laws of the Commonwealth'. Section 80 applies such laws '(s)o far as the laws of the Commonwealth are not applicable or so far as their provisions are insufficient to carry them into effect, or to provide adequate remedies or punishment', but only to the extent that they are 'not inconsistent with the Constitution and the laws of the Commonwealth'. For present purposes, the Limitation Act is picked up to the extent that it is not inconsistent with the Bankruptcy Act. 4 The Limitation Act is not merely procedural in its effect. In some cases it also operates to extinguish substantive rights. However, since the decision of the High Court in John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503 at [99] – [100], the distinction may be of limited or no significance. We note that neither s 79 or s 80 of the Judiciary Act is limited in its operations to procedural, as opposed to substantive, law. 5 The respondent relied solely upon the effect of s 17 of the Limitation Act, but for the sake of completeness, we should mention two other sections. Section 14 bars actions to enforce most claims in contract, including quasi-contract, but not including causes of action founded on deeds, and causes of action in tort, after the expiration of a limitation period of six years. 6 Subsection 63(1) extinguishes numerous causes of action. It provides: 'Subject to subsection (2), on the expiration of the limitation period fixed by or under this Act for a cause of action to recover any debt damages or other money, the right and title of a person formerly having the cause of action to the debt damages or other money is, as against the person against whom the cause of action formerly lay, and as against the person's successors, extinguished.' 7 Subsection 63(2) is not presently relevant. 8 Section 17 provides: '(1) An action on a cause of action on a judgment is not maintainable if brought after the expiration of a limitation period of twelve years running from the date on which the judgment first becomes enforceable by the plaintiff or by a person through whom the plaintiff claims. (2) A judgment of a court of a place outside New South Wales becomes enforceable for the purposes of this section on the date on which the judgment becomes enforceable in the place where the judgment is given. (3) Subsection (2) does not apply to a judgment of the court of the Commonwealth, not being a court of a territory of the Commonwealth.' 9 In presenting the petition the appellant relied upon the judgment debt. In general, where a creditor recovers judgment for the amount of a pre-existing debt, that debt is merged in the subsequent judgment. However it seems that for bankruptcy purposes, the pre-existing debt continues to be available as the basis for a bankruptcy petition. See In re King & Beesley; Ex parte King & Beesley [1895] 1 QB 189, per Vaughan Williams J at 191-2 and per Kennedy J at 193. See also Re Seckold; Ex parte Sargood Gardiner Ltd (1933) 5 ABC 195, per Lukin J at 197-199. Those cases indicate that a judgment creditor may rely on either the original debt or the judgment debt, presumably subject to any limitation provision. As at the date of presentation of this petition, the original debt was presumably statute-barred by the operation of s 14 and extinguished by subs 63(1). In any event, as we have observed, the appellant relied upon the judgment debt. 10 The federal magistrate concluded that s 17 operated in two ways: firstly, to deprive the appellant of its status as a creditor; and secondly, to bar it from commencing proceedings in bankruptcy. We have difficulty in imagining circumstances in which a creditor who satisfied the requirements of ss 43 and 44 of the Bankruptcy Act would, nonetheless, be barred by s 17 from obtaining a sequestration order. We suspect that the two conclusions reached by the federal magistrate are really alternative explanations of the way in which the Limitation Act and the Bankruptcy Act inter-relate, rather than independent and parallel bars to the prosecution of a petition in bankruptcy. We suspect, too, that this bifurcated approach to the problem may unduly confuse the issues for determination. Out of deference to the federal magistrate we should point out that he followed recent English authority. It was appropriate that he, sitting at first instance, do so. 11 We consider that the first step is to decide whether the appellant had the capacity to present and prosecute the petition. That question involves an examination of the operation of s 17 of the Limitation Act and various provisions of the Bankruptcy Act. However we should first point out that the cases establish a significant limitation upon the extent of operation of s 17, which limitation may not be immediately obvious from its terms. The section does not bar execution upon a judgment, at least where execution is effectively an extension of the original proceedings in the court in which the judgment was obtained. See W T Lamb & Sons v Rider [1948] 2 KB 331. In that case the relevant statute provided that: 'An action shall not be brought upon any judgment after the expiration of twelve years from the date on which the judgment became enforceable, and no arrears of interest in respect of any judgment debt shall be recovered after the expiration of six years from the date on which the interest became due.' 12 The word "action" was defined to include 'any proceedings in a court'. For the purposes of the Limitation Act, the word is similarly defined in s 11. In Lamb it was argued that given that broad definition, execution was a proceeding in a court of law and, therefore, an action upon the original judgment, barred by the relevant limitation provision. At 337-8 the Court of Appeal observed: 'It follows from the above brief survey that the right to sue on a judgment has always been regarded as a matter quite distinct from the right to issue execution under it and that the two conceptions have been the subject of different treatment. Execution is essentially a matter of procedure – machinery which the Court can, subject to the rules from time to time in force, operate for the purpose of enforcing its judgments or orders. A refusal by the Court, … to place this machinery at a plaintiff's disposal in no way affected his right to sue on the judgment at any time within the statutory limit of time … The relevant provisions of the Real Property Limitation Acts 1833 and 1874 and of the Limitation Act 1939 dealt, in our opinion, with the substantive right to sue for and obtain a judgment, and with that alone. The Common Law Procedure Act 1852 and O 42 of the Rules of the Supreme Court [dealing with execution] were concerned, and concerned alone, with procedural machinery for enforcing a judgment when obtained. The two subjects were formerly quite independent and distinct, the one from the other, and we are quite unable to attribute to the definition of "action" …, the effect of merging the two together.' 13 The Court held that execution was not subject to the statutory bar upon bringing an action upon a judgment, notwithstanding the broad definition of the term "action". 14 In the present case, on 18 August 2003, the Supreme Court of New South Wales gave the appellant leave to enforce its judgment by issue of a writ of execution to be lodged in the registry by 1 September 2003. A further order was made on 10 November 2003, again giving leave to enforce the judgment by issue of a writ of execution. There is no evidence as to the outcome, but these proceedings were conducted on the basis that the appellant was, at the date of presentation of the petition, at liberty to enforce the judgment by issue of a writ of execution. In In re A Debtor (No 50A-SD-1995) [1997] Ch 310, Judge Paul Baker QC, sitting as a Judge of the High Court, held that bankruptcy proceedings were new proceedings, 'not proceedings under the judgment previously obtained' and therefore statute-barred. His Lordship considered that bankruptcy was not execution, and so the decision in Lamb had no application. We will return to that case at a later stage. 15 In Lowsley v Forbes [1999] 1 AC 329, the House of Lords concluded that Lamb was, in effect, wrongly decided in so far as it held that the section did not bar execution. However their Lordships did not overrule the decision, observing that the relevant legislation had been amended upon the assumption that it was correct. In New South Wales, the Limitation Act, including s 17, was adopted upon the recommendation of the Law Reform Commission in its report dated October 1967. Concerning that section, the Commission said at par 116: 'The present limitation provisions here and in England concerning judgments apply, and s 17 of the Bill would apply, to an action on the judgment, but not to the processes of execution of a judgment: W & T Lamb & Sons v Rider ([1948] 2 KB 331). When exercising discretions concerning the execution of a judgment after a long period, however, a court has regard to the effect which the statutes of limitation would have if an action were brought on the judgment: Jay v Johnstone [1893] 1 KB 189.' 16 In the course of the Second Reading debate in the Legislative Council (at p 5232 of Hansard) it was said that the proposed legislation did not reduce the time for execution on judgments. The actual content of the Law Reform Commission's report concerning s 17 was not discussed. However there is no reason to believe that the Parliament intended to depart from the effect attributed by the Law Reform Commission report to the proposed section. The better view is that s 17 is to be construed in accordance with Lamb. The section accordingly does not limit execution upon a judgment, at least where such execution takes place in the court in which the judgment was obtained and as an extension of the original proceedings. 17 We turn to the Bankruptcy Act. Section 43 provides that where a debtor has committed an act of bankruptcy, the court may, 'on a petition presented by a creditor, make a sequestration order against the estate of the debtor.' Subsection 44(1) provides: 'A creditor's petition shall not be presented against a debtor unless: (a) there is owing by the debtor to the petitioning creditor a debt that amounts to $2,000 or 2 or more debts that amount in the aggregate to $2,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $2,000; (b) that debt, or each of those debts, as the case may be: (i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and (ii) is payable either immediately or at a certain future time; and (c) the act of bankruptcy on which the petition is founded was committed within six months before the presentation of the petition.' 18 In Motor Terms Co Pty Ltd v Liberty Insurance Ltd (1967) 116 CLR 177, the High Court considered the effect of a limitation provision upon the capacity to present a petition for the winding up of a company. The relevant companies legislation provided that a company might be wound up pursuant to an order of the court on the petition of 'any creditor, including a contingent or prospective creditor, of the company'. The terms of the relevant limitation legislation do not appear from the reasons. Reference to the decision under appeal (Re Motor Terms Co Pty Ltd and the Companies Act (1966) 66 SR(NSW) 397) indicates that it was English legislation from the reign of James I, being 21 Jac. 1c.16, s.2. Again, the relevant provision does not appear from the reasons for judgment. In view of the antiquity of the legislation, and the absence of any reference to its terms, it is likely that they were of no particular relevance. 19 The question in that case was whether or not a winding up order could be made on the petition of a creditor whose debt was current at the date of presentation of the petition but statute-barred by the date of hearing. The majority (Barwick CJ, Taylor and Menzies JJ) considered that the relevant date for determining the status of the petitioning creditor's debt was the date of presentation of the petition. Kitto J considered that it was the date of hearing. Owen J expressed no opinion on that issue, being of the opinion that there had been an acknowledgment of the debt sufficient to avoid operation of the limitation provision. Kitto J, although in dissent in the outcome, explained, by analogy to proceedings in bankruptcy, the nature of winding-up proceedings. At 180 et seq his Honour observed: 'It is a question as to whether the word "creditor" in the section excludes a statute-barred creditor, and, if so, as at what date the Court must be satisfied that a petition upon which it is invited to make a winding up order is the petition of a "creditor" in the relevant sense of the word. The application of the word in its most general sense is not affected by the Statute of Limitations, for the operation of the statute in respect of a debt is only to bar the remedy: it does not extinguish the debt. But in construing statutory provisions for the distribution of assets amongst creditors there is a natural presumption that the only creditors in contemplation are those who, by the operation of the relevant statute in the particular case, are denied a right they would otherwise have had to sue for their debts by action or suit under the general law and are given instead a right to participate in the distribution. … Lord Eldon made the general principle clear when he said … that in the consideration of the old Bankruptcy Acts "a Commission of Bankruptcy is nothing more than a substitution of the authority of the Lord Chancellor enabling him to work out the payment of those creditors who could, by legal action or equitable suit, have compelled payment". Under the Bankruptcy Act 1924-1960 (Cth) a creditor's right to recover his debt by ordinary legal proceedings is taken from him at sequestration … and the right of proof which he is given in its place is expressly limited to liabilities to which the bankrupt is subject at the date of the sequestration order … . Under the Companies Act 1961 (NSW) in the case of a compulsory winding up the more important provisions by which a right of participation in distribution under the authority of the court is substituted for a pre-existing right of suit are section 233, placing all the company's property in the custody of the liquidator upon the making of the winding up order; section 244, requiring the assets to be applied in discharge of the company's liability; section 291, giving creditors their right of proof in the winding up; and section 226(3), which operates automatically on the making of a winding up order to prevent any action or proceeding from being proceeded with or commenced against the company, in contrast with section 226(1) which recognizes that prima facie the presentation of a petition is no bar to a creditor's pursuit of his remedies in the ordinary courts. The fundamental notion that special modes of administering assets are for the benefit of those creditors only whose ordinary rights of recovery are withdrawn from them upon the initiation of the special administration was applied by the Court of Chancery in relation not only to bankruptcies and insolvencies but to trusts for creditors and administration decrees in respect of deceased estates. It is a necessary corollary that a person is not a creditor in the relevant sense if, at the time when a right to come in to receive payments under an official administration of the debtor's assets supersedes an existing right of action or suit, his right of enforcement by action or suit is barred by the Statute of Limitations (if the debt is legal), or would be denied by a Court of Equity on the analogy of the Statute (if the debt is equitable). … Accordingly … it was held that all debts not statute-barred at the time of an order for the winding up of a company are provable, notwithstanding that before actual proof the period has elapsed which would have made them irrecoverable by action; and the broad proposition was laid down that the liabilities in discharge of which the assets are to be applied are all those which existed (i.e. the payment of which could be compelled) at the time of the winding up order. This has been accepted as the law ever since, and its consequence, that a debt is not provable if it has become unenforceable by reason of the Statute of Limitations before the time of the winding up order, was held … not only to be settled with respect to a compulsory winding up but to extend in principle to a voluntary winding up. … The general conclusion is justified, I think, that wherever in winding up provisions a creditor is referred to, the references is prima facie to one of those for whose benefit the winding up takes place, so that one whose debt was statute-barred at the time of the order or resolution which set the winding up in motion is excluded.' 20 For present purposes his Honour's observations should be understood as being subject to three qualifications. Firstly, the Limitation Act operates as both a procedural and substantive bar so that the reference by Kitto J to the procedural nature of limitation provisions is not presently appropriate. Secondly, to the extent that his Honour determined that the right to participate in the winding up depended upon the status of the debt as at the date of making the winding up order, the decision is inconsistent with the view of the majority that the relevant date was the date of presentation of the petition. However that does not undermine the validity of the other observations made by Kitto J. Thirdly, as appears at pp 183-184, if a petitioner obtains a winding up order notwithstanding the fact that his or her debt is statute-barred, it will be provable in the winding up. That special case is not presently relevant. 21 It is of some interest that Menzies J observed at 195: 'The Statute of Limitations does not itself bar the taking or the prosecuting of proceedings for the winding up of a debtor company and, if the Statute were to be applied by analogy, the presentation of the petition would clearly enough correspond with the commencement of an action to recover the debt.' 22 Of course that view concerned the effect of the earlier legislation to which we have referred. It suggests, however, that winding up proceedings (and, presumably, bankruptcy proceedings) were not, prior to the enactment of the Limitation Act, thought to be barred by limitation provisions, such provisions taking effect in that context only in so far as they affected the creditor's capacity to petition. We will return to that question at a later stage. 23 In Tanning Research Laboratories Inc v O'Brien (1989-990) 169 CLR 332, the High Court applied Motor Terms Co. At 339 Brennan and Dawson JJ said (Toohey J concurring): 'The principles which determine enforceability of the liability to which a proof of debt relates are, in the main, the same as the principles which would be applied in an action brought directly against the company to enforce that liability. Those principles include the law relating to the barring of actions by time: see, e.g., Motor Terms Co. Pty. Ltd. v. Liberty Insurance Ltd. … . But this general rule is qualified. As the parties whose interests are affected by admission of a proof of debt are the general body of creditors and the contributories rather than the company in liquidation, there are some liabilities which would be enforceable against the company but which a liquidator is not bound to admit to proof of debt lest the interests of creditors and contributories may be unjustly affected. A liquidator may properly reject a proof of debt if the liability, though enforceable against the company, is not a true liability of the company but is founded merely on some act or omission on the part of the company which unjustly prejudices the interests of the creditors or contributories in the assets available for distribution. In this respect, there is no reason to distinguish between the position of a liquidator and that of a trustee in bankruptcy: … .' 24 In summary, if a debt is statute-barred it will not be provable in the winding up of a company and cannot ground the presentation of a petition. The same approach applies in bankruptcy. To the extent that s 17 barred recovery by the appellant of the debt as against the respondent, it was unenforceable against any trustee in bankruptcy. To the extent that the debt was unenforceable, it could not be relied upon by the appellant in presenting and prosecuting the petition. 25 It is therefore necessary to determine the extent to which the appellant could have enforced its judgment debt as at the date of the petition. Clearly, s 17 has some operation in this regard but it is its operation in conjunction with the Bankruptcy Act which is relevant for present purposes, keeping in mind the fact that the Limitation Act is only picked up for present purposes to the extent that it is not inconsistent with the Bankruptcy Act. To identify that joint operation, it is necessary to follow the course adopted by Kitto J in Motor Terms Co, namely to identify the scheme of the relevant legislation, in this case the Bankruptcy Act. The aim of the exercise is to identify the meaning of the word 'creditor' and associated words in ss 43 and 44 of that Act. 26 We have already identified the procedure prescribed in ss 43 and 44 for the making of a sequestration order. Upon the making of such an order the property of the bankrupt vests in the trustee of the estate pursuant to subs 58(1). Pursuant to subs 58(3) upon the making of the sequestration order it is: 'Not competent for a creditor: (a) to enforce any remedy against the person or the property of the bankrupt in respect of a proveable debt; or (b) except with the leave of the court and on such terms as the court thinks fit, to commence any legal proceedings in respect of a proveable debt or take any fresh step in such a proceeding.' 27 The bar is upon the enforcement of 'proveable debts'. The meaning of that term appears from s 82. We note in passing that pursuant to subs 58(4), the sequestration order also bars levy of distress for rent against the property of the bankrupt. 28 Section 82 identifies the debts which are proveable in bankruptcy. In general, 'all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.' Motor Terms Co and Tanning Research demonstrate that a statute-barred debt is not proveable. 29 Division 3 of Part VI of the Bankruptcy Act identifies property available for the payment of debts. It provides that the bankruptcy is taken to have commenced at the time of commission of the earliest act of bankruptcy within the period of six months immediately before the date on which the petition was presented. Subsection 116(1) provides: 'Subject to this Act: (a) all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge; (b) the capacity to exercise, and to take proceedings for exercising, all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge; (c) property that is vested in the trustee of the bankrupt's estate by or under an order under section 139D; and (d) money that is paid to the trustee of the bankrupt's estate under an order under section 139E; is property divisible amongst the creditors of the bankrupt.' 30 Sections 139D and 139E are not presently relevant. However s 118, also part of Division 3 of Part VI, deals expressly with execution by creditors. Broadly speaking subs 118(1) provides that a creditor who has, within six months before the presentation of the petition or after such presentation, received moneys as a result of execution against property of the debtor must, if the debtor subsequently becomes bankruptcy, pay to the trustee such money, less the costs of execution. Pursuant to subs 118(3) the creditor may then prove in the bankruptcy. Subsection 118(5) provides that a creditor who has received written notice of the presentation of a petition may not take any further action to attach a debt due to the debtor until the petition has been dealt with. Pursuant to subs 118(9), any charge or charging order obtained within six months before the presentation of the petition or after its presentation is void as against the trustee. Subsection 118(12) defines the term 'charge' to mean 'a charge created by a law of the Commonwealth or of a State or Territory of the Commonwealth upon registration of a judgment in any registry …'. The term 'charging order' means 'a charging order made by a court in respect of a judgment'. 31 The operation of s 118 is not, in terms, limited to the proceeds of execution recovered in connection with a proveable debt, probably because, to the extent that execution has been successful, the debt will have been discharged. However, when a creditor disgorges the proceeds of execution, his or her debt becomes proveable pursuant to subs 118(3). 32 Section 119 identifies the duties of a sheriff in connection with execution proceedings where he or she has notice of the presentation of a petition. Section 119A deals with the duties of a sheriff who has notice of a sequestration order. 33 In summary, upon presentation of a petition, the Bankruptcy Act prevents further execution upon a judgment and compels the disgorgement of moneys derived from any execution in the previous six months. If, as Kitto J observed, administration in bankruptcy is for the benefit of the creditors whose rights are withdrawn by the sequestration order, then it follows that the appellant should be able to participate in such benefit. In other words, to the extent that a creditor is able to execute on his or her judgment, he or she remains a creditor, able to prove in the bankruptcy and able to petition for a sequestration order. 34 We have referred to the 'extent' to which a judgment creditor may be able to enforce his or her judgment. In argument, there was no examination of the extent of the appellant's right to execute. The parties appear to have proceeded on the basis that the appellant was at liberty to execute on the judgment without any relevant limitation. We will dispose of the case on that basis. However we should make some general observations. The Supreme Court of New South Wales granted the appellant leave to enforce its judgment by way of issue of a writ of execution. The meaning of that order is demonstrated by reference to the rules of that Court as they were at the date of the petition. They have been subsequently amended. 35 Part 44 rule 1 provided that the term 'writ of execution' meant 'a writ for levy of property, a writ of possession, a writ of delivery, a writ of sequestration, or a writ in aid of any such writ.' Pursuant to Part 42 rule 2, a judgment for the payment of money might be enforced by, amongst other means, levy of property. A writ for levy of property and a writ in aid thereof appear to have been the only writs of execution mentioned in Part 44 rule 1 which are relevant for present purposes. Part 45 deals with levy of property and provides that in that context a writ is a writ of the kind formerly called a writ of fieri facias. According to Halsbury's Laws of Australia, vol 20, par [325-9940], that is a writ for sale of the real and personal property of the judgment debtor. The authors state: 'Although seizure by the Sheriff does not give the execution creditor any property in the goods seized, it places those goods in custodia legis, meaning that by the seizure the creditor acquires a legal right to have them sold and to be paid the amount of the judgment debt out of the proceeds of sale.' 36 At par [325-9945] the authors state that in all Australian jurisdictions the writ authorizes the seizure of money. The relevant New South Wales legislation is the Judgment Creditors' Remedies Act 1901 (NSW) at subs 4(a). That Act also authorizes the seizure of negotiable instruments and documents evidencing choses in action. Garnishee proceedings are, it seems, not within the definition of 'writ of execution'. It is not necessary that we take this matter further. The rights of any creditor are of value only to the extent that they facilitate recovery of the debt. Execution is a substantial aspect of a judgment creditor's rights. Orderly administration of a bankrupt estate would be severely impeded if such right were not terminated by a sequestration order. A judgment creditor who is able to execute on his or her judgment may accurately be described as a 'creditor' in the sense in which that term is used in ss 43 and 44. 37 Section 44 also requires that the creditor's debt be payable, either immediately or at a certain future time. It may be argued that a creditor whose debt is not enforceable other than by way of execution on a judgment is not a creditor whose debt is so payable. However we consider that to be little more than a semantic quibble. In a practical sense, there is no way in which a judgment debt is payable other than by the voluntary act of the debtor or by some form of execution. A creditor who enforces his or her rights pursuant to a judgment by execution is, in effect, extracting payment. Given the clear intention to include such judgment creditors in the class of persons who are subject to the constraints of the Bankruptcy Act, and our conclusion that they are creditors, we have little difficulty in concluding that debts owing to them are also payable in the relevant sense. It follows that the appellant was a creditor for the purposes of s 43. It also follows that its debt was proveable in the bankruptcy to the extent that it had not been recovered by execution or otherwise. To the extent that it had been recovered as a result of execution within the prescribed period, s 118 operated to compel disgorgement and to make the debt proveable in the bankruptcy. 38 We turn to the alternative argument that the appellant is directly barred from presenting a petition by the operation of s 17. Given the wide definition of 'action' prescribed in s 11 of the Limitation Act, we accept that proceedings commenced by a petition, seeking a sequestration order, comprise an action for the purposes of s 17. The question is whether, in this case, such action was 'on a cause of action on a judgment'. Historically, statutory provisions such as s 17 were designed to avoid fresh proceedings to recover a second judgment for a debt in respect of which a judgment had already been recovered. In Dennehy v Reasonable Endeavours Pty Ltd (2003) 130 FCR 494 at 498, Finkelstein J identified the circumstances in which such a course was adopted. In In re A Debtor (supra) it was held that the equivalent English section barred proceedings in bankruptcy. The relevant English provision was: 'An action shall not be brought upon any judgment after the expiration of twelve years from the date on which the judgment became enforceable …'. 39 Applying the decision in Lamb Judge Baker concluded that the section barred 'new' actions, and not execution on a judgment which was, in effect, a continuation of the proceedings in which judgment had been obtained. He observed at 314: 'It seems to me that bankruptcy proceedings are, first of all, a new proceeding so that it can be properly said that the proceedings are newly brought and are not in any way continuing some previous proceedings pursuant to the judgment or anything of that nature. But while they are not part of the proceedings which led to the judgment - they are not some continuation in any way of those proceedings – they are based on or related to the judgment.' 40 We agree that insolvency proceedings are new proceedings, separate from those in which the relevant judgment was recovered. However that view does not lead to the conclusion that proceedings in insolvency based upon a judgment debt comprise an action 'brought upon any judgment' as required by the English provision, or an action 'on a cause of action on a judgment' as required by the Limitation Act. Judge Baker appears to have avoided that issue by using the words 'based on or related to the judgment'. We doubt whether the expression 'an action upon any judgment' has the same meaning as the expression 'proceedings … based on or related to the judgment'. The expression 'related to' has traditionally been treated as being of very wide import. It is even more difficult to see how the words 'action on a cause of action on a judgment' can mean 'action … related to a judgment'. 41 Judge Baker referred to the decision of the Divisional Court in China v Harrow Urban District Council [1954] 1 QB 178. In that case a local authority applied to justices for the issue of distress warrants to recover unpaid rates. No action lay for the recovery of such rates. The relevant limitation provision provided that action not be brought to recover any sum after the expiration of six years from the accrual of the cause of action. The court considered that the term "action" included an application for distress warrants, and that the expression 'cause of action' meant, in that context, 'cause of proceeding', relevantly the failure to pay the rates on demand. The case says nothing about insolvency proceedings, whether for winding up of a company or bankruptcy of a natural person. 42 Judge Baker also relied upon the decision of Mervyn Davies J in Re Karnos Property Co Ltd [1989] BCLC 340. That was a petition to wind up a company for non-payment of rates which had fallen due more than six years prior to the date of the petition. His Lordship observed: 'Looking at [the limitation provisions] it is plain that a petition in the Companies Court is an "action" within section 2(1). One then asks whether it is an action "to recover any sum". One may say that a petition is an "action" seeking not to recover a sum but to secure the winding up of a company. Certainly the petition seeks a winding up order; but as well the petitioner (who is a creditor …) also seeks recovery of his money or such part of it as may become his by virtue of a dividend. A creditor petitioner does not petition for the satisfaction of seeing the demise of his company debtor but rather in the hope of recovering part at any rate of his debt by way of dividend. A petition therefore, in my view, seeks to recover a sum. I am fortified in this view in that the China case … regarded proceedings for a distress warrant as being proceedings for the recovery of a sum; despite the fact that the issue of a warrant does not result in a judgment for a sum of money.' 43 The local authority had conceded that rates accruing more than six years prior to the petition, in respect of which no distress warrant had issued, were irrecoverable, and that it had ceased to be a creditor in connection with those amounts. However it submitted that once a distress warrant was obtained, it remained available for execution, preserving the local authority's character as a creditor, capable of petitioning. That argument has something in common with the view concerning execution which we have expressed above. His Lordship rejected the submission, saying that he saw no reason to qualify the clear words of the limitation provision. His Lordship concluded: 'A petition lies not because a distress warrant has been or may be issued but because a local authority is a "creditor as that word is and has been used in the Companies Acts …".' 44 His Lordship seems not to have considered whether a creditor with an enforceable right of execution might be a creditor for the purposes of presenting a winding up petition. We need not express an opinion as to the correctness of this approach to the English statutory position. However we make two observations concerning the case. Firstly, China clearlyinvolved an attempt to recover a debt. In particular, there was no question of bankruptcy proceedings. Thus the case could readily be characterized as being for recovery of the debt and nothing more. Secondly, we doubt whether the motive of a petitioner, namely to recover a debt, should characterize the proceedings for the purpose of determining whether they are barred by the relevant limitation provision. In any event, in this case, the Limitation Act has effect only to the extent that it is not inconsistent with the Bankruptcy Act. We should not assume that the Limitation Act operates according to its terms to bar bankruptcy proceedings which prima facie fall within the description 'action on a cause of action on a judgment'. We must first ensure that there is no inconsistency with the Bankruptcy Act. 45 In In re A Debtor Judge Baker was also referred to the decision in In re Lines Bros Ltd [1983] Ch 1. That case concerned the appropriate date for conversion into pounds sterling of a debt owed in Swiss francs, which debt was provable in a liquidation. At 20 Brightman LJ said: 'If the creditor petitions to wind up a company, or claims in a liquidation initiated by others, he is not engaged in proceedings to establish the company's liability or the quantum of the liability (although liability and quantum may be put in issue) but to enforce the liability. Indeed, he is precluded from initiating or supporting a winding up petition if his status as a creditor is bona fide disputed by the company. The liquidation of an insolvent company is a process of collective enforcement of debts for the benefit of the general body of creditors. Although it is not a process of execution, because it is not for the benefit of a particular creditor, it is nevertheless akin to execution because its purpose is to enforce, on a pari pasu basis, the payment of the admitted or proved debts of the company. When, therefore, a company goes into liquidation a process is initiated which, for all creditors, is similar to the process which is initiated, for one creditor, by execution.' 46 Brightman LJ referred to the decision of Oliver J in In re Dynamics Corporation [1976] 1 WLR 757. In that case, at 761, Oliver J said: 'I take it to be well-established that the purpose of both the Bankruptcy Act 1914 and its predecessors, and of the winding up provisions of the Companies Act 1948 and its predecessors, was to ascertain the liabilities of the bankrupt or of the company, as the case may be, as at the date of the bankruptcy or liquidation, and to secure the division of the debtor's property among the claimants pro rata according to the value of their claims at that date.' 47 The approach taken in both cases is similar to that adopted by Kitto J in Motor Terms Co. Judge Baker considered that Lines was of no assistance, referring also to the decision of Millett J, as his Lordship then was, in In re International Tin Council [1987] 1 Ch 419. That case concerned a petition to wind up the International Tin Council. The Council had been established pursuant to an international agreement, with its headquarters in London. Its main function was to adjust world production and consumption of tin and to prevent excessive fluctuation in the price of that metal. In so doing it traded in tin. In attempting to support the world price, it ran out of money and was unable to meet its financial commitments. Dealings in tin on the London Metal Exchange were suspended. The international agreement establishing the Council was incorporated into United Kingdom law by legislation and an order in council. The international agreement provided that the Council have '… immunity from jurisdiction and execution' with certain exceptions. The order in council conferred immunity from 'suit and legal process' with the following exceptions: (a) to the extent that the [Council] shall have expressly waived such immunity in a particular case; (b) in respect of a civil action by a third party for damage arising from an accident caused by a motor vehicle belonging to or operated on behalf of the [Council], or in respect of a motor traffic offence involving such a vehicle; and (c) in respect of the enforcement of an arbitration award made under Article 23 or Article 24 of the [the international agreement]. 48 The exceptions reflected those specified in the international agreement. Article 23 required that any formal contract entered into by the Council with a person in the United Kingdom include an arbitration clause. Article 24 provided for the submission of certain other disputes to an international arbitration tribunal. 49 A creditor commenced winding up proceedings upon the basis that the Council was an unregistered company within the meaning of the relevant legislation, and so was amenable to a winding up order on the petition of an unpaid creditor. The Council sought to strike out the proceedings upon the basis that it was immune from suit and legal process. Millett J concluded that the phrase 'suit and legal process' in the order in council corresponded with the phrase 'jurisdiction and execution' in the international agreement and embraced 'all forms of adjudicative and enforcement jurisdiction, and clearly includes the winding up process'. This meant that the only question for determination was whether or not the presentation of the petition on the ground of insolvency, by a creditor pursuant to an arbitration award, commenced proceedings in respect of the enforcement of an arbitration award, and therefore within the third exception to the grant of immunity. At 454 Millett J referred to the passage from Lines cited above and continued: 'It is to be observed that Brightman LJ was careful to refer to enforcing the payment of the debts, not to enforcing a judgment or award. In the ordinary case a winding up petition is a means of recovering a debt, not of enforcing a judgment or award, which merely establishes the existence of the debt and is not a procedural requirement: see In re a Company [1915] 1 Ch 520, 528, per Phillimore LJ.' 50 At 455, His Lordship continued: 'In the context of sovereign diplomatic and other immunity a crucial distinction is made between the adjudicative and enforcement jurisdictions. Waiver of immunity from the one does not waive immunity from the other, even in respect of the same claim. In the case of the [Council], there is no waiver of or exception to its immunity from the adjudicative jurisdiction of the court in respect of claims arising from its commercial activities. Instead, such claims are required to be referred to arbitration. Article 6(1)(c) of the Order of 1972 is concerned exclusively with the enforcement of any award resulting from such arbitration. In respect of its commercial activities, therefore, the ITC enjoys complete immunity from the court's adjudicative jurisdiction, and has only a limited exposure to its enforcement jurisdictions. I am not satisfied that, in this context, the presentation and hearing of a winding up petition, as distinct from the proof of debt in the winding up, are properly to be classified as falling within the enforcement jurisdiction at all. It is fallacious to suppose that, because the petitioner is not seeking to establish his debt, the court is exercising its enforcement jurisdiction. Even if the petitioner has previously resorted to litigation to establish his debt, the presentation of a petition marks the commencement of an entirely new lis. The issue at the hearing is not whether the petitioning and other creditors, some of whom will not yet have established their claims, should be paid, but whether the company is insolvent and, if so, whether it should be wound up or allowed to try to trade out of its difficulties. There is much to be said for the view that, in deciding whether or not the company should be wound up, the court is engaged in a new process of adjudication, separate and different from any that may previously have been involved in establishing the petitioning creditor's debt. But it is not necessary to decide this, for in my judgment the winding up process is plainly not a method of enforcing a judgment or arbitration award, and there is nothing in the language of Brightman LJ. … which in any case is descriptive and not intended to be by way of classification, to suggest the contrary. Far from enabling any judgment or award to be enforced, the making of a winding up order prevents it. The great object of insolvency law, whether individual or corporate, is to protect the debtor from harassment by the creditors, and the assets from piecemeal realization and unequal distribution as the creditors scramble for them. Whether the petition is presented by a creditor or by the debtor, its purpose is to obtain an order which will preclude the creditors from enforcing any judgments or awards which they may have obtained, and substitute the right to participate in a pari pasu distribution out of an insufficient fund in full satisfaction of their claim. That is not the enforcement of their judgments or awards, but the opposite. In any case, whatever else it may be, the presentation of a winding up petition is not simply a means of enforcing a judgment or award; as Fletcher Moulton LJ said of an application for a bankruptcy notice in In re a Bankruptcy Notice [1907] 1 KB 478, 482: "[It] is not a method of enforcing a judgment. It is the commencement of proceedings of far wider effect." ' 51 Millett J referred to the decision of Phillimore LJ in In re A Company [1915] 1 Ch 520. That case arose in the context of war-time legislation which provided that no person should proceed to execution on, or otherwise to the enforcement of any judgment or order for the payment or recovery of a sum of money, except after application to the court. Phillimore LJ said at 528: 'In some general loose sense an unsatisfied creditor may be said to be enforcing his judgment by presenting a petition for a winding-up. But, except that his judgment is evidence of his debt, a judgment creditor is in no better position for a winding up than any other creditor. An execution creditor is. Almost the same thing happens in bankruptcy. A bankruptcy notice under s 1 of the Bankruptcy Act, 1914, can only be served by a creditor who has obtained a judgment on which execution has not been stayed. There is just this difference, that he need not have issued execution; but he must have been in a position to issue it. Returning to the case of a winding up petition, any creditor whose debt is sufficiently large can present a petition and procure an order if he satisfies the Court that the company is unable to pay its debts; and s 130 … provides four tests of inability. The second is "if … execution or other process issued on a judgment decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part." The petitioner cannot avail herself of this provision because she has not got execution and if she had sought to get execution she might have had to get leave under the section already quoted of the Courts (Emergency Powers) Act 1914. … But she can avail herself of test number 4 not as a judgment creditor but as a creditor. In the particular case she is a creditor because her damages have been liquidated by a judgment. But it would be the same if she were a simple contract creditor whose debt was merged in a judgment. She is not therefore seeking to enforce her judgment. She is proceeding to a new alternative mode of recovering her debt, a mode by which she no longer seeks to recover for herself alone but for the benefit of all the creditors, as in a creditor's suit for the administration of the estate of a deceased debtor or in a bankruptcy.' 52 The other case referred to by Millett J is also relevant, namely In re A Bankruptcy Notice [1907] 1 KB 478. In that case a creditor obtained an order that an arbitration award be enforced as a judgment and applied for the issue of a bankruptcy notice upon the basis of such order. At 482, Fletcher Moulton LJ said: 'In my judgment an application for a bankruptcy notice is not a method of enforcing a judgment. It is the commencement of proceedings of far wider effect, and is not intended to be included in the words of s 12 of the Arbitration Act.' 53 These cases certainly establish that proceedings in bankruptcy or for a winding up order are "new" and not a continuation of any previous proceedings to recover a relevant debt. They also establish that insolvency proceedings are not by way of enforcement of any earlier judgment. They recognize that a creditor may proceed in insolvency for the purpose of recovering his or her debt. In In re A Debtor Judge Baker seems to have concluded that the cases also demonstrate that winding up proceedings and bankruptcy proceedings are proceedings to recover the petitioning creditor's debt and therefore proceedings 'based on or related to' that debt and, when it is a judgment debt, the judgment. Although Karnos may support that view, we do not agree that the other cases have that effect. 54 China does not address the nature of insolvency proceedings. Phillimore LJ, in In re A Company, and Millett J in International Tin both conclude that a winding up petition is not a means of enforcing a judgment. It may follow that such proceedings, if barred by s 17, are not exempted from such bar by the decision in Lamb. However it is still necessary to determine whether they are barred by s 17. Similar comments apply to proceedings in bankruptcy. 55 The observation made by Millett J, that a winding up petition is, in the ordinary case, a means of recovering a debt, should not be taken in isolation. At 435, his Lordship observed that in winding up proceedings, the issue is the alleged insolvency of the company which is 'separate and different from any (process) that may previously have been involved in establishing the petitioning creditor's debt'. We do not accept that, when, at 456, Millett J spoke of the 'great object of insolvency law' and observed that winding up proceedings are 'of far wider effect' than mere enforcement of a judgment, his Lordship was suggesting that such proceedings were proceedings to recover a debt. We conclude that both his Lordship and Fletcher Moulton LJ in In re A Bankruptcy Notice were referring to the much wider consequences for the debtor and all creditors which result from proceedings in insolvency. 56 It must also be kept in mind that insolvency proceedings are generally thought to be for the benefit of all creditors. Thus, pursuant to s 49 of the Bankruptcy Act, if a petitioner does not prosecute the petition with due diligence or if, for any other reason, the court considers it proper to do so, it may order substitution of another creditor for the petitioner. This strongly suggests that the issue at the heart of the petition is the debtor's insolvency and not any individual debt. The debt is relevant only to the petitioner's standing. This view is re-inforced by those cases which suggest that substitution may be permitted even where the original petitioner's debt is disputed. See 2000 Olympic Games Pty Ltd v Daly [2000] FCA 1286 at [3] (per Burchett J) and Re Hughes; Ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 217 (per Street J). 57 In our view the cases cited in In re A Debtor (other than Karnos) lead to the conclusion that insolvency proceedings do not comprise an action upon a judgment or an action on a cause of action on a judgment. 58 However, even if we are wrong in that view, it is still necessary to determine whether it is consistent with the scheme of the Bankruptcy Act that s 17 so apply. For reasons already given in connection with the meaning of the word 'creditor' in ss 43 and 44 of the Bankruptcy Act, we conclude that it is not. However one approaches the matter, the Bankruptcy Act will, in the event of a sequestration order, override the appellant's right to execute. The underlying purpose of an administration in insolvency, as identified by Kitto J, can only be satisfied if a judgment creditor who retains the right to execute on his or her judgment also remains a creditor for the purposes of ss 43 and 44 of the Bankruptcy Act. In our view, the word 'creditor' is generally used to describe such a person. The intention of the Bankruptcy Act, that in the event of insolvency, a judgment creditor's right to execute be subjugated to the rights of creditors generally, and that the former participate in the administration as an unsecured creditor, is inconsistent with any application of s 17 which limits the right of such a creditor to petition. 59 The appeal should be allowed and the orders of the federal magistrate be set aside. In lieu thereof, we order that there be a sequestration order against the estate of the respondent debtor, and that the appellant creditor's costs of the proceedings below and of the appeal be taxed and paid from the estate in accordance with the Bankruptcy Act 1966 (Cth). 60 We will stay those orders for a period of seven days from the date of publication of these reasons to enable the parties to make submissions as the proposed orders and otherwise. I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Heerey, Dowsett and Conti. Associate: Dated: 4 May 2006 Counsel for the Appellant: Mr M Aldridge SC Solicitor for the Appellant: Colin Biggers & Paisley Counsel for the Respondent: Mr Cotman SC Mr J T Johnson Solicitor for the Respondent: Raj Lawyers Date of Hearing: 15 February 2006 Date of Judgment: 4 May 2006