S6 LIMITED DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA ) ) EXERCISING FEDERAL JURISDICTION ) No. P32 of -1986 ) We, IN_BANKRUETCY ) SS BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA Re : KENNETH JOHN RICHARDSON and RAELENE CHERYL RICHARDSON Judgment Debtors Ex parte : GERALD GLEESON, LORNA GLEESON and DARYL GLEESON Judgment Creditors COURT: NORTHROP J. DATE: 11 FEBRUARY 1987 PLACE: MELBOURNE REASONS FOR JUDGMENT The petition of the judgment creditors for a sequestration order against the estate of the judgment debtors came on for hearing on 30 October 1386. The judgment debtors made application that the hearing of the petition be adjourned pending the hearing and determination of an appeal against the judgment which formed the basis for the petition. The judgment creditors opposed chat application. After hearing evidence and submissions, the Court ordered that the hearing of the petition be adjourned to 15 June 1987 and made bal a nmumoer of consequential orders. The Court announced that 1t would publish its reasons ror granting the adjournment at a later date. Those reasons are now published. The judgment debtors are husband and wife. The qudgment creditors are the father, mother and brother, respectively, of the judgment debtor Raelene Cheryl Richardson. The petition is founded upon the failure by the judgment debtors to comply with a bankruptcy notice in which the judgment credators claimed that the sum of $285,000 was due by the judgment debtors, as defendants, under a final judgment chtained by the judgment creditors, as plaintiffs, against them in the Supreme Court of Victoria on 25 March 1986. The judgment in the Suprema Court was given at the conclusion of a trial extending over seven days relating to the sale of a business by the judgment debtors to the judgment creditors. The relevant part of the judgment of the Supreme Court 15 set out:- "THIS COURT DOTH DECLARE that ~ (1) the agreement for the sale of a business known as 'Richardsons' Country Fare' ('the business') dated the llth day of November 1983 by the defendants to the plaintiffs, being the business of a restaurant and takeaway food shop carried on from premises at 176 Campbell Street Swan Hill and the lease of the aforesaid premises of the same date was induced by the fraudulent representations as to the said business made by the defendants; (11) the said sale of the said business and the lease thereto have been rescinded by the plaintiffs and are null and void and of no effect. AND DOTH ORDER that on the 14th day of April 1586 the defendants pay to the plaintiffs the sum of $170,000 and that upon payment of such sum the Plaintiffs deliver up to the defendants possession of the premises and the business. AND DOTH DECLARE that the sum of $170,0v00 eepresents that fair adjustment of the amount that cught to be repaid to the plaintiffs in respect af the purchase price paid by them after taking into account interest on the purchase price, rental for the use of tha premises, the profits made by the plaintiffs in the conduct of the business and all other necessary and reasonable allowances, AND DOTH ORDER AND ADJUDGE that: 1. In addition to the sum of $170,000 the plaintiffs recover against the defendants the sum of $105,000 together with damages by way of interest in the sum of 310,000. z. The defendants' counterclaim be dismissed." The judgment debtors did not pay the sum of $170,000 referred to in that judgment, but the judgment creditors vacated possession of the premises and the business. Shortly thereatter, the judgment debtors took possession of the business and thereafter hav conducted the business. The business 1s conducted on premises owned by the judgment debtors but the premises are subject toa mortgage. The yudgment has not been stayed. The judgment debtors have appealed from the judgment of the Supreme Court. After some 1nitial problems and a change of solicitors, the appeal is proceeding. On the Material, I am satisfied that the appeal is genuine, 15 bona fade and is not a sham. Without forming any view on the merits of the appeal, I am satisfied that supstantial issues are raised by the appeal. The judgment creditors have cross-appealed seeking aggravated damages. At the present time, the judgment debtors do not have sufficient assets to pay the judgment debt. The appeal challenges the issues of liability and of damages. On the application for the adjournment, the judgment debtors were cross-examined at length. The cross-examination illustrated the bitterness which has engulfed this family. I do not find 1t necessary to make findings on most of the issues raised by the cross-examination, An express power of the Court to adjourn the hearing of the appeal is contained in paragraph 33(1) of the Bankruptcy Act 1566. Counsel for the judgment debtors relied upon opinions expressed in Bayne v. Baillieu (1907) 5 C.L.R. 64. In Lipov v. Alexander Fraser & Son Ltd. (1978) 24 A.L.R. 616, the Federal Court, constituted by Sweeney J. extended the time for compliance with a bankruptcy notice ta enable the judgment debtor to prosecute an appeal against the judgment upon which the notice was based. His Honour applied the principle that the anstitution of an appeal, which appears to be bona fide, is a good reason for adjourning the hearing of a bankruptcy petition based upon the judgment subject to the appeal; see p.620. Counsel for the judgment creditors made reference to a numper of matters which, he contended, should lead the Court to exercise ats discretion against granting the adjournment. He attempted to distinguish Lipovy s Case on the basis that the extension of time there granted prevented the act otf bankruptcy coming into existence while in the present case the act or bankruptcy had been committed, the judgment debtors had not applied for a stay of the judgment of the Supreme Court and were expending large sums of money to prosecute the appeal and that could prejudice the amounts of money available to be distributed under a sequestration order. In my opinion, the principle executed in Lipov's Case is unequivocal and applies with respect to an application for an adjournment of the hearing of the petition. Weight 15 given to the other facts mentioned. Counsel for the judgment creditors referred to Scarborough v. Lew s Junction Stores Pty. Limited £1963] V.R. 129. In that case, Adam J. granted a stay of execution of a judgment pending an appeal. His Honour, in applying 0.63 y.17 of the Rules of the Supreme Court, held that a stay should not be granted unless there were special circumstances Justifying the stay, for example where there was a real risk that the appeal, if successful, would prove abortive if the applicant were not granted a stay. Counsel contended that in exercising its discretion to grant an adjournment of the hearing of a bankruptcy petition on the ground that the judgment debtor has a bona fide appeal pending against the judgment which forms the basis for the petition, the Court should be satisfied that special circumstances exist before granting the adjournment. In my opinion, no such fetter should be imposed upon the exercise of the dascretion conferred by paragraph 33(1)(a) of the Bankruptcy Act. In the present case, I take into account the existence of the judgment debt and the fact that the judgment debtors have @ach committed an act of bankruptcy. I take into account that 1f a sequestration order is made, the judgment debtors will seek an order under sub-section 52(3) of the Bankruptcy Act staying all proceedings under that order for a period not exceeding 21 days to enable them to apply to the Supreme Court for a stay of execution of the judgment pending the appeal. I take aunto account the difficulties that would arise if a sequestration order was made and in due course the appeal against the judgment was allowed. It is possible that on any application for a stay of the judgment pending the hearing and determination of the appeal, the threat of the sequestration order could be held to constitute special circumstances. Counsel for the judgment creditors argued further that on the evidence given on the hearing of the application, the judgment debtors are, in fact, insolvent and in those circumstances the adjournment should not be granted. In my Opinion, apart from the judqment debt, the evidence does not show that the judgment debtors are insolvent. Any reliance on the judgment debt to support an argument that the judgment debtors are insolvent, on the facts of the application for an adjournment, beqs the question. The appeal 15, on the material before the Court, pona fide. It 15 being prosecuted with diligence. These are all factors which must be considered. It a5 noted that subject to the failing of notices under Rule 21, the Court 15 sabisfied that a sequestration order should be made, Weighing all these factors, I formed the view that on balance the adjournment should be granted and made the following orders:- 1. The hearing of the petition he adjourned to 15 June 1387 at 9.45 a.m. ba The judgment debtors do not dispose of or further encumber any capital asset owned by them of either of them except in the ordinary course of business. 3. General liberty to apply on 48 hours notice. 4. The petitioning creditors' costs of the day be reserved. ee PE i RS 'osacuty that this earl the Slx (6) Qictcding pages are a true copy of the Feason ior judgme.ut herein of the Tionousable Bh. Fuctic2 hhoorthyro Asseciate ' Dated: It [| 57