JUDGMENT No. 24 71 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE ) ) ) ) ) ) No. P. 1263 of 1979 ) ) AUSTRALIAN CAPITAL TERRITORY ) RE: MAURICE RAYMOND BROOMHAM Debtor EX PARTE: LYNETTE ROSLYN BROWN, PATRICIA ANNE HUDSON, JOHN PEARY BINGLE and KERRY FRANCERS BINGLE Creditors CORAM: Deane J. Thursday 22 November, 1979. REASONS FOR JUDGMENT This is a contested bankruptcy petition. It is not disputed by the debtor that, if the commission of an act of bankruptcy by the debtor is established, and subject to any question of an adjournment, a sequestration order should be made. The only issue between the parties is whether on the evidence the commission of an act of bankruptcy has been established. The resolution of that issue is far from being free of difficulty. I have, however, come to a firm conclusion in relation to it and think it preferable that I give my decision forthwith. The essential facts in the matter may be briefly stated. On 11 January, 1979 the petitioning creditors obtained a default judgment against the debtor in the District Court of New South Wales at Quirindi in the amount of $4775.79, together with costs in the amount of $178, making in all $4953.79. On 26 March, 1979 the petitioning creditors caused the issue of a bankruptcy notice directed to the debtor requiring either payment of $4995.07, being the amount due under the judgment and interest to the date of the notice, or that the payment of that amount be secured or compounded. The bankruptcy notice was a 21-day notice. It was served upon the debtor on 26 May, 1979. Shortly after service of the bankruptcy notice upon him, the debtor telephoned the office of the petitioning creditors' solicitors and had a telephone conversation with an unidentified female. The debtor's account of that telephone conversation was: "T asked the young lady I spoke to ity I could ray vt off and she satd to get a form from Mena House asking is they would accept tt". The reference to Mena House, was plainly a reference to the District Court office which 1s situated in that Sydney building. In accordance with that advice, the debtor made application to the District Court of New South Wales for an order that the judgment debt be paid by instalments. On 31 May, 1979, an order was made by a Registrar of the New South Wales District Court, pursuant to s.88 of the New South Wales District Court Act 1973, that the unpaid amount of the judgment debt be paid by instalments of $60 per month, the first payment to be made on or before 22 June, 1979. It is to be presumed that a copy of this order was duly forwarded to the judgment creditors. Under s.88(5) of that Act, the judgment creditors were entitled to file, within 14 days after notice of the order was given or sent to them, a notice of objection to payment by those instalments. In the event that such notice of objection had been given, the debtor's applicat- ion for payment by instalments would have been required to be set down for determination by a judge of the District Court (s.88(6)). The judgment creditors failed to file any notice object- ing to the Registrar's order for payment by instalments. In the result, the Registrar's order remained in force and, by virtue of the provisions of s.88(8) of the District Court Act, operated, subject to an irrelevant exception, as a stay of enforcement of the petitioning creditors' judgment against the debtor. On 13 June, 1979, the first payment of $60 was received from the debtor in the District Court at Quirindi in accordance with the order for payment by instalments. The evidence does not disclose whether this amount had been passed on to the judgment creditors by 16 June which was the last of the 21 days limited by the bankruptcy notice for compliance with its terms. The debtor duly complied with the terms of the order for payment by instalments 1n respect of the July and August payments. A petition seeking a sequestration order in respect of the estate of the debtor issued on 12 September, 1979. The petition plainly credits the debtor with the payment of the first and second instalments in that the amount of the alleged indebtedness is $120 less than the amount which had been specified in the bankruptcy notice. It was served on the debtor on 20 August, 1979. By that date, the debtor had made five payments of $60 to the District Court at Quirindi. One of those payments, that due on or before 22 September, 1979, was not received in the District Court until 26 September, 1979, that 1s, some four days after the due date. It is not suggested on behalf of the petitioning creditors that they were unaware of the terms of the order for payment by instalments or that the payments made by the debtor to the District Court at Quirindi were not duly passed on to them or that, prior to the service of the petition, they did anything to inform the debtor of their unwillingness to accept payment of the judgment debt by the instalments ordered by the New South Wales District Court. Section 40(1)(g) of the Bankruptcy Act 1966 provides that a debtor commits an act of bankruptcy: "tf a ereditor who has obtatned against the debtor a final judgment or final order, being a judgment or order the executton of which has not been stayed, has served on the debtor ... a bankruptcy notice under this Aet" and the debtor does not within the relevant time, comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross demand of a specified kind. In my view that requirement that the execution of the judgment or order had not been stayed falls to be satisfied as at the time of service of the bankruptcy notice (see re Dennis ex parte Dennis (1888) 60 L.T. 348; re Bennett (1932) 5 A.B.C. 111 at p. 113; and re Moss; ex parte Tour Finance Limited (1938) 13 F.L.R. 101 at pp. 103-104). Section 41(3) (b) of the Bankruptcy Act precludes the issue of a bankruptcy notice: "tf, at the time of the appltecation for its tssue, executton of the judgment or order to whitch tt relates has been stayed." There is, however, nothing in the provisions of the Bankruptcy Act requiring that there be no stay of the judgment upon which a bankruptcy notice is based during the period between service of the notice and expiry of the time which is limited for compliance with 1ts requirements. A stay of execution of a judgment after the issue of a bankruptcy notice based upon it does not in itself either invalidate the bankruptcy notice or excuse compliance with the terms of the notice. Indeed, it was not submitted on behalf of the debtor that the stay of execution resulting from the order for payment by instalments had the effect by itself of either excusing compliance with the terms of the bankruptcy notice/of preventing the commission ef an act of bankruptcy. The argument advanced on behalf of the debtor was that agreement between the petitioning creditors and the debtor for compounding of the debt and acceptance of payment by way of instalments was established by, or should be inferred from, the evidence, and that, in all the circum- stances, the making of this agreement prevented any failure to comply with the terms of the bankruptcy notice or the commission of any act of bankruptcy. Putting to one side for the moment any question of estoppel by conduct, the critical temporal reference point for consideration of the debtor's argument is 16 June, 1979 which was the last day limited by the bankruptcy notice for compliance with its terms. If by the end of that day there was no agree- ment between the debtor and the petitioning creditors as to terms of repayment, 1t 1s conceded by the debtor that the debtor, subject to any question of estoppel, committed an act of bankruptcy. In support of the argument there was such an agreement concluded on or before that day, the debtor pointed to: (1) the suggestion by the unidentified female at the office of the petitioning creditors' solicitors that the debtor apply to the District Court for an order to pay by instalments; (iz) the application which the debtor made to the District Court; (111) the order for payment by instalments which was made; (iv) the failure by the petitioning creditors to file notice of objection to payment by those instalments; (v) the failure by the petitioning creditors to indicate to the debtor their unwillingness to accept payment by these instalments; and (vi) the payment by the debtor in accordance with the order of the first instalment of $60 and the acceptance by the petitioning creditors of that instalment. The evidence does not establish that the petitioning creditors were, on 16 June, 1979, aware that the first instal- ment had been paid to the Dastrict Court on 13 June, 1979 or that, on or before 16 June, 1979, the moneys paid had been passed on to them. Even if it be assumed against the petitioning creditors that they had, on or before 16 June, 1979, accepted the benefit of the first instalment, I am unable to find in the evidence any proper basis for concluding that there was an actual agreement between the petitioning creditors and the debtor that the debt should be compounded or the payment of the debt should be accepted by way of instalments. The statement made by the unidentified female in the office of the petitioning creditors' solicitors was in my view no more than a piece of gratuitous advice which could not properly be regarded as constituting an offer or representation on behalf of the petition- ing creditors that would add to the effect of any order for payment by instalments which the debtor might obtain from the District Court, a promise binding upon them to take no further step against the debtor if the terms of the bankruptcy notice which they had caused to be served upon him were not complied with. The failure of the petitioning creditors to file notice of objection to the order for payment by instalments did not amount to any offer or representation by them that they would refrain from exercising rights which remained unaffected by the order for payment by instalments. The acceptance of the $60, being part of the debt owing to them, did not involve any offer or representation they would refrain from exercising their rights under the bankruptcy legislation in respect of the outstanding balance of the debt. Nor, in my view, is there a proper basis in the evidence for holding that the petitioning creditors are estopped by their conduct, before and subsequent to the time of expiry of the bankruptcy notice, from denying that there was an agreement between themselves and the debtor for the compounding of the debt and acceptance of payment by instalments of $60 per month. The petitioning creditors' delay in taking out the petition may well have lulled the debtor into a false sense of security. Once the conclusion is reached however, that whatever was said to the debtor in the conversation with the unidentified female in the petitioning creditors' solicitors office could not properly be regarded as an offer or representation made on behalf of the petitioning creditors. I am unable to see, in the delay in taking out the petition or in the acceptance of the payments that were made or in any other conduct of the petitioning creditors, any representation which could serve as the basis for an estoppel against the petitioning creditors precluding them from denying they had reached any agreement with the debtor which would give to the order for payment by instalments any greater operation or resuit than 1t would otherwise have. In those circumstances it is unnecess- ary to consider whether an estoppel by conduct which operates inter parties can 1n any event be relied upon to preclude on the hearing of a bankruptcy petition between those parties the commission of an act of bankruptcy being established. In the result, I am satisfied that the debtor committed the act of bankruptcy alleged in the petition. The question now arises whether in those circumstances I should proceed to make a sequestration order in respect of the debtor's estate or accede to the debtor's submission that, in the event I should find against him on the issue of whether there was an available act of bankruptcy, I should grant an adjournment to enable the debtor to attempt to extricate himself from his present financial predicament without being subjected to the effect of a sequestration order. It is suggested on behalf of the debtor that I grant an initial adjournment of two or three weeks. Prima facie, the petitioning creditors are entitled to the sequestration order which they seek. On the other hand, there have to date been no adjournments of the petition and neither the public interest nor the interests of the parties are served by the making of a sequestration order in respect of the estate of a debtor who may, given some indulgences of time, be able to discharge or compound his liabilities without the expense, inconvenience and, indeed, the ordeal of bankruptcy. Moreover, one cannot but be conscious of the combination of circumstances which may well have been responsible for the present imminence of a sequestration order in respect of the debtor's estate. He applied for an order to pay by instalments in accordance with gratuitous and, no doubt, well-intentioned advice given to him by someone in the office of the solicitors for the petitioning creditors. He no doubt believed that the order for payment by instalments removed the threat of bankruptcy proceedings for so long as he complied with the terms of the order. The petitioning creditors, by accepting the instalments -10- which he had made and permitting some three months to elapse before presentation of the petition, helped confirm him in that mistaken belief. In all the circumstances I consider the debtor should be granted a reasonable adjournment of the petition to permit him to exhaust the possibilities of discharging the debt other than through bankruptcy. I propose, initially, to adjourn the further hearing of the petition for a period of some three weeks. On the adjourned date, 1f the debtor wishes to apply for a further adjournment, 1t will be necessary for him to place some evidence as to his assets and liabilities before the Court.