FEDERAL COURT OF AUSTRALIA Layton v Westpac [2000] FCA 1752 BANKRUPTCY - Application to annul bankruptcy - whether the sequestration order ought to have been made - consideration of the extended time for compliance with a bankruptcy notice. Bankruptcy Act 1966 (Cth) ss 41(6A), 153B Streimer v Tamas (1981) 54 FLR 253 Foll Re Udowenko; Ex parte Mitchell (1995) 69 FCR 299 Appr Re Williams (1968) 13 FLR 10 Foll Stankiewicz v Plata [2000] FCA 1185 Foll Re Coyle (1993) 42 FCR 72 Foll Official Trustee: In the matter of the Estate of Smith [1999] FCA 1755 Cited Re Dennehy; ex parte Dennehy [1895] NSWLR (Bank & Pro) 40 Foll Re Finn; Ex parte Amoco Australia Ltd (1982) 41 ALR 487 Cited Miller v Bondi Securities [1994] FCA 654 Cited Field v Commonwealth Banking Company of Sydney Ltd (1978) 37 FLR 341 Cited Prowse v McIntyre (1961) 111 CLR 264 Refd GORDON LEITH LAYTON v WESTPAC BANKING CORPORATION Q7138 OF 2000 COOPER J BRISBANE 4 DECEMBER 2000 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q7138 OF 2000 IN THE MATTER OF: GORDON LEITH LAYTON BETWEEN: GORDON LEITH LAYTON APPLICANT AND: WESTPAC BANKING CORPORATION RESPONDENT JUDGE: COOPER J DATE OF ORDER: 4 DECEMBER 2000 WHERE MADE: BRISBANE THE COURT DECLARES THAT: The bankruptcy of Gordon Leith Layton commenced on 10 March 2000. THE COURT ORDERS THAT: 1. Save for the declaration made, the application of the bankrupt filed 5 April 2000 be dismissed. 2. Gordon Leith Layton pay the costs of Westpac Banking Corporation, including its reserved costs, if any, of and incidental to the application to be taxed if not agreed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q7138 OF 2000 IN THE MATTER OF: GORDON LEITH LAYTON BETWEEN: GORDON LEITH LAYTON APPLICANT AND: WESTPAC BANKING CORPORATION RESPONDENT JUDGE: COOPER J DATE OF ORDER: 4 DECEMBER 2000 WHERE MADE: BRISBANE REASONS FOR JUDGMENT 1 The applicant is a bankrupt. He was made bankrupt on 10 March 2000. He applies under s 153B of the Bankruptcy Act 1966 (Cth) ("the Act") to have his bankruptcy annulled on the ground that the sequestration order ought not to have been made because there was at the time of the order no available act of bankruptcy. 2 The application is opposed by the petitioning creditor, Westpac Banking Corporation ("Westpac"). 3 On 16 January 2000 a bankruptcy notice (13/2000) was served on the bankrupt. It was based on a Magistrates Court judgment of $30,467.64 given in favour of Westpac on 5 January 2000. The period for compliance with the notice expired on 6 February 2000. On 2 February 2000 the bankrupt applied in the Magistrates Court to set aside the judgment. 4 Westpac filed a creditor's petition on 15 February 2000, relying on a failure of the bankrupt to comply with the requirements of the bankruptcy notice on or before 6 February 2000 as the relevant act of bankruptcy. Prior to service of the petition, the bankrupt applied to this Court for an order setting aside the bankruptcy notice, or alternatively for an order extending the time for compliance with it. 5 On 18 February 2000, an order was made by a Deputy District Registrar extending the time for compliance with the requirements of the bankruptcy notice 13/2000, to be extended up to and including 25 February 2000, being the date set for the first directions hearing of the application. On 25 February 2000 the District Registrar extended the time for compliance with the bankruptcy notice until 4.00 pm on Friday 10 March 2000 and adjourned the application for the extension of time to 9.30 am on that date. He dismissed so much of the application as sought to set aside the bankruptcy notice. 6 The petition filed by Westpac came on for hearing on 25 February 2000 and it also was adjourned to 9.30 am on 10 March 2000. 7 The bankrupt's application to set aside the Magistrates Court judgment was dismissed on 3 March 2000. 8 On 10 March 2000 at 8.00 am, the bankrupt executed an authority under s 188 of the Act authorising Nicholas Charles Luke Radich, a solicitor, to call a meeting of creditors for the purposes of Part X of the Act and to take control of his property. Mr Radich consented to act and signed the authority. 9 The petition and application to extend the time for compliance with the bankruptcy notice came on for hearing at 9.30 am on 10 March 2000. The bankrupt did not appear on either proceeding. The application to extend time was dismissed and a sequestration order was made. The act of bankruptcy found by the Deputy District Registrar was a failure to comply with the bankruptcy notice on or before 6 February 2000. 10 The bankrupt submits that there was no available act of bankruptcy until 4.00 pm on 10 March 2000 and that in consequence, the sequestration order ought not to have been made. Westpac submits that the dismissal of the application to extend time had the effect of rescinding, varying or discharging the earlier order, at least insofar as it extends past the time at which the application for extension was dismissed. 11 The orders extending time for compliance with the requirements of the bankruptcy notice were made under s 41(6A) of the Act. That section required that before the bankruptcy notice had expired, proceedings to set aside the judgment on which it was based, or, to set aside the bankruptcy notice itself, had been instituted. The application filed in the Magistrates Court on 2 February 2000 satisfied the precondition necessary for an exercise of the power to extend time under s 41(6A). 12 The effect of an order under s 41(6A) of the Act was considered by a Full Court of this Court (Deane, Sheppard and Ellicott JJ) in Streimer v Tamas (1981) 54 FLR 253. Deane and Ellicott JJ, in a joint judgment, said (at 258) : "... The power conferred by s 41(6A) is a power to 'extend' the previous period of time. It is not a power to establish a new, distinct and independent period of time for compliance. The effect of an order extending the time for compliance, which is made after the expiry of the time originally fixed and any previous extension thereof, will be to enlarge the overall time allowed for compliance with the result that what would otherwise have constituted an act of bankruptcy no longer does (cf Esso Research & Engineering Co v Commissioner of Patents (1960) 102 CLR 347, at p351. Ignoring any transitional problems where special considerations may be applicable, this does not mean that s 41(6A) operates so as retrospectively to divest rights to rely upon an act of bankruptcy which would otherwise exist. What s 41(6A) does is to modify, by the introduction of a contingency, the actual and potential rights and liabilities resulting from failure to comply with the requirements of a bankruptcy notice within the time allowed by the notice in a case where, within that time, one of the two conditions specified in the subsection has been fulfilled." 13 In the present case, the orders extending time operated to extend the time for compliance until 4.00 pm on 10 March 2000. The dismissal of the application to extend time at 9.30 am on 10 March 2000 did not have the effect of setting aside the previous orders extending time so that the act of bankruptcy which would have existed on 6 February 2000 but for the orders extending time was made out. The effect of the order dismissing the application to extend time under s 41(6A) at 9.30 am on 10 March 2000 was that there was no order which would extend time for compliance beyond 4.00 pm on that day. 14 The order made on 25 February 2000 extended the period for compliance until 4.00 pm on 10 March 2000, and that order took effect on and from 25 February 2000. That order, together with the order made on 18 February 2000, had the effect of extending the period of twenty-one days specified in the bankruptcy notice until 4.00 pm on 10 March 2000. The effect of the order made on 18 February 2000 was that the failure to comply by 6 February 2000 no longer had the consequence that it constituted an act of bankruptcy on the part of the bankrupt. The combined effect of the orders on 18 and 25 February 2000 was to extend forward the time within which the bankrupt could comply with the requirements of the notice served on him on 16 January 2000. Until the application for an extension of time was dismissed by the Deputy District Registrar at about 9.30 am on 10 March 2000, the bankrupt had until 4.00 pm on that day to comply with the bankruptcy notice or to seek an extension of it by instituting new proceedings in a court of competent jurisdiction, as for example by way of appeal from the Magistrates Court, to set aside the judgment before the period to comply with the bankruptcy notice expired at 4.00 pm on 10 March 2000. That position did not change when the application was dismissed at 9.30 am. Such a conclusion is the same as that arrived at by Lindgren J in similar circumstances in Re Udowenko; Ex parte Mitchell (1995) 69 FCR 299 at 301, 303 - 304. 15 At the time the Deputy District Registrar made the sequestration order, there was no act of bankruptcy available to Westpac under s 40(1)(g) for failing to comply with the requirements of Bankruptcy Notice 13/2000 served on the bankrupt on 16 January 2000. If the petition had been stood down until after 4.00 pm on 10 March 2000 the act of bankruptcy would have been committed by the bankrupt with the expiration of the extended period to comply with the requirements of the notice. A sequestration order could then have been properly made on the basis of the act of bankruptcy pleaded in the petition and relied upon by Westpac to obtain the sequestration order. 16 The power to make a sequestration order requires proof of the matters stated in the petition (s 52(1)(a)) and proof of the other matters required in s 52(1). Absent proof of the act of bankruptcy stated in the petition, I am satisfied that a sequestration order ought not to have been made by the Deputy District Registrar. 17 My view that the sequestration order ought not to have been made does not necessarily lead to the making of an order annulling the bankruptcy; there remains a residual discretion as to whether in all the circumstances of the case the order ought to be annulled: Re Williams (1968) 13 FLR 10 at 23; Stankiewicz v Plata [2000] FCA 1185 at para 19. 18 The following circumstances in my view weigh heavily against making an order annulling the bankruptcy : (a) on 10 March 2000 the bankrupt was indebted to Westpac in the sum of $30,509.37 and was, I find, insolvent on that date. The fact of insolvency, if not excluding an exercise of the discretion (as to which see: Re Coyle (1993) 42 FCR 72 at 77 and Official Trustee: In the matter of the Estate of Smith [1999] FCA 1755) weighs heavily against an exercise of discretion: Re Dennehy; ex parte Dennehy [1895] NSWLR (Bank & Pro) 40 at 47; Re Finn; Ex parte Amoco Australia Ltd (1982) 41 ALR 487; Miller v Bondi Securities [1994] FCA 654. (b) By the execution of an authority under s 188 of the Act authorising his solicitor to convene a meeting of creditors, the bankrupt committed an act of bankruptcy (s 40(1)(i)) on 10 March 2000, irrespective of whether or not Westpac could have relied upon that act of bankruptcy for the purposes of the petition before the Court on that date; (c) On 10 March 2000, the bankrupt had no intention of paying the judgment debt or complying with the requirements of the bankruptcy notice within the extension period. (d) The failure to comply with the requirements of the bankruptcy notice at or before 4.00 pm on 10 March 2000 was an act of bankruptcy: s 40(1)(g); (e) The business and affairs of the bankrupt in relation to the disposition of his property in the relation-back period, and as to what in truth and reality constitute his property and his liabilities at the date of his bankruptcy, requires investigation and for that purpose the coercive powers of the Act should be available to the trustee. Further I am satisfied that the bankrupt has not made a full and frank disclosure to the trustee of his property and dealings and has failed to disclose assets which he owns or in which he has a beneficial interest, notwithstanding that the legal title may be vested in a third party; his interest in the house property at Eagle Heights at Mount Tamborine Queensland in which he lives falls within this category. 19 The bankrupt submits that the annulment order should be made because he executed an authority under s 188 of the Act and has, and then had, a proposal to put to his creditors which would be more advantageous to them than administration of his estate in bankruptcy. He states in evidence that he did not attend the Court on the adjourned hearing of his application for an extension of time and the petition at 9.30 am on 10 May 2000, because he believed the matters would be adjourned over to a later date in consequence of the s 188 authority. There is no credible basis upon which the bankrupt could hold such a belief when the execution of the authority was unknown to the Court or Westpac on the morning of 10 March 2000. In any event, it does not follow that the mere signing of an authority under s 188 will lead to an adjournment of the petition: see Field v Commonwealth Banking Company of Sydney Ltd (1978) 37 FLR 341 at 349. 20 The fact that the bankrupt remains bankrupt will not prevent him putting a proposal to his creditors which, if accepted, will lead to an annulment of his bankruptcy on the date of passage of a special resolution to accept the proposal: ss 73 and 74 of the Act. 21 In the circumstances of the present case, and for the above reasons, I refuse to order that the bankrupt's bankruptcy be annulled. 22 In the present case there is no act of bankruptcy falling within the period of six months prior to the filing of the creditor's petition on 15 February 2000. The act of bankruptcy was complete at 4.00 pm on 10 March 2000. Once committed, reckoning of time from the act of bankruptcy would be computed from that day; the law ordinarily taking no account of fractions of a day: Prowse v McIntyre (1961) 111 CLR 264, especially the judgment of Windeyer J at 277 - 280. The sequestration order was also made on 10 March 2000 and took effect from that date. In the circumstances, I propose to follow the course taken by Manning J in Dennehey to avoid any doubts as to the date of commencement of the bankruptcy and declare that the bankruptcy commenced on 10 March 2000, the day on which the act of bankruptcy occurred and the day on which the sequestration order was made. 23 Costs of the application, including reserved costs, will follow the event. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper. Associate: Dated: 4 December 2000 Counsel for the Applicant: L Bowden Solicitor for the Applicant: Broadbent, Radich, Sampson Counsel for the Respondent: FG Forde Solicitor for the Respondent: Gregg Lawyers Date of Hearing: 19 July 2000 Date of Judgment: 4 December 2000