FEDERAL COURT OF AUSTRALIA Shephard v Chiquita Brands (South Pacific) Limited [2001] FCA 1394 BANKRUPTCY – motion for extension of time to comply with bankruptcy notice pending resolution of appeal from decision of Federal Magistrate declining to set aside bankruptcy notice – on grounds that act of bankruptcy would make nugatory any outcome of appeal – motion dismissed Bankruptcy Act 1966 (Cth) Byron v Southern Star Group (1997) 73 FCR 263 referred to Warner v Frost [1999] FCA 830 referred to Guss v Johnston (2000) 171 ALR 598 referred to DEREK GEORGE SHEPHARD V CHIQUITA BRANDS (SOUTH PACIFIC) LIMITED N 1335 of 2001 ALLSOP J SYDNEY 26 SEPTEMBER 2001 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N1335 of 2001 BETWEEN: DEREK GEORGE SHEPHARD APPLICANT AND: CHIQUITA BRANDS (SOUTH PACIFIC) LIMITED RESPONDENT JUDGE: ALLSOP J DATE OF ORDER: 26 SEPTEMBER 2001 WHERE MADE: SYDNEY THE COURT: 1. orders that on the condition that the respondent undertakes to the appellant to consent to the adjournment of any final hearing of the petition until the resolutionof any appeal from the decision of Driver FM, such undertaking itself being conditional upon the appellant taking all steps reasonably necessary to prosecute such appeal expeditiously (and noting that such undertakings are given), the notice of motion be dismissed; 2. grants liberty to apply on two days' notice in relation to any question of the compliance by the appellant or the respondent with the undertakings and conditions referred to in order 1. above; 3. orders that costs of the motion be costs in the appeal; and 4. directs that the undertaking by the respondent in no way prevents it from taking all necessary steps to bring any bankruptcy petition to a state of readiness for hearing. 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 N1335 of 2001 BETWEEN: DEREK GEORGE SHEPHARD APPLICANT AND: CHIQUITA BRANDS (SOUTH PACIFIC) LIMITED RESPONDENT JUDGE: ALLSOP J DATE: 26 SEPTEMBER 2001 PLACE: SYDNEY REASONS FOR JUDGMENT ON NOTICE OF MOTION 1 I have before me a notice of motion filed on 21 September 2001 seeking various orders which I do not set out. In essence, the orders sought seek to preserve the position of the appellant, Mr Derek George Shephard, in respect of his rights of appeal from orders of Driver FM refusing to set aside a bankruptcy notice issued by the respondent creditor. 2 The bankruptcy notice was served earlier this year and from time to time during the course of the challenge to it time for compliance with it has been extended, the last occasion being an extension by Driver FM for two weeks until today to enable Mr Shephard to take such steps as he thought appropriate further to protect his position. 3 As a consequence of that, Mr Shephard, with the assistance of the Legal Aid Commission, filed a notice of motion and an affidavit requesting the orders to which I have earlier referred. As I indicated above, the gist of the orders sought is that there be an extension of time for Mr Shephard to comply with the bankruptcy notice until the resolution of his appeal from the orders of Driver FM. 4 The grounds of the application brought by notice of motion are in substance that the position of Mr Shephard, in the absence of an order extending time, will be irremediably prejudiced, making the appeal from Driver FM nugatory. This is because, it is said, the commission of an act of bankruptcy will render the appeal useless. 5 It is undoubted that should time not be extended by me today and should compliance not occur today that an act of bankruptcy will be committed. This is undoubtedly a serious matter, but it is not of the gravity of a change of status brought about by a sequestration order (if one were to occur): see generally Byron v Southern Star Group (1997) 73 FCR 263 per Lehane J and Warner v Frost [1999] FCA 830 per Hely J. Mr Stowe, who appears for the creditor, frankly says that if an act of bankruptcy is committed his client wishes to present a petition for the sequestration of Mr Shephard. Mr Stowe, in opposing the application, points to the importance of the earlier commencement of the bankruptcy as a matter of importance for creditors, should Mr Shephard be made bankrupt. 6 Mr Stowe says that Mr Shephard's position will be protected pending the outcome of the appeal because he, Mr Shephard, can always apply for an adjournment of the hearing of the petition. Mr Stowe also submits that the prospects of the appeal are weak. He took me to the decision of Driver FM. While there appears to be some force in the submissions of Mr Stowe, I am not prepared to proceed on this motion other than on the basis that there is some arguable basis for the appeal. Mr Stowe's submissions cover that eventuality and he says that nevertheless, even if the appeal be arguable, no extension of time should be given. 7 His submissions are in accordance with the approach of Lehane J and Hely J in the cases to which I have referred, an approach which in general terms I agree with: that in a case such as the present something more is required than the existence of an arguable appeal and the consequence of refusing an extension of time being that an act of bankruptcy would be committed. 8 There is no evidence before me as to the financial position of the debtor. Mr Shephard informs me from the bar table that he has no other pressing creditors. Mr Stowe's client's concern, as I have indicated above, in what is evidently a long-running dispute, is to ensure the commencement of the bankruptcy at the earliest point of time should a petition be heard and determined in its favour. Not knowing of the debtor's financial circumstances there is significant force in the proposition that, should a sequestration order be made, protection of creditors will be enhanced by an earlier rather than later commencement of a bankruptcy. 9 Further, it may well be a result of Guss v Johnston (2000) 171 ALR 598 in particular paragraphs [58] to [62] that should Mr Shephard's appeal be successful any act of bankruptcy can in effect be nullified. Whether or not that is the effect of Guss v Johnston I need not decide, but it is a consideration to be weighed in the balance. 10 Turning from the protection of the creditors to Mr Shephard's position, to which regard should be paid, on the material before me I consider that it would be inappropriate to see Mr Shephard made a bankrupt prior to the outcome of the appeal, on the assumption that his appeal is prosecuted with reasonable despatch. 11 If this were to occur prior to his appeal being determined a far stronger case is made for the proposition that the appeal in those circumstances would be rendered nugatory. However, an act of bankruptcy is but a step along that way. 12 Balancing the considerations to which I have adverted, and seeking to protect the creditor and other creditors and in seeking to ensure that, at least on the present state of circumstances, Mr Shephard has some protection against a sequestration order pending the appeal, I propose not to accede to any request for a stay of Driver FM's orders, nor to accede to the request for an extension of time for compliance with the bankruptcy notice, but only on condition that the respondent to the appeal, the creditor, agree that subject to the expeditious prosecution of the appeal by Mr Shephard, it will consent to the adjournment of any hearing of the petition until the outcome of the appeal from Driver FM. 13 This agreement would then protect Mr Shephard from a change of status before the determination of the appeal: that is, from any sequestration before the appeal. It would also protect the creditors in relation to the date of the commencement of the bankruptcy should Mr Shephard's appeal ultimately fail. My intention is that the Court would have overriding supervision of any further conduct of the petition, as in the ordinary circumstances it naturally would in any event, and that the creditor is not to be prevented from taking all necessary steps and from seeking all necessary orders and directions to have any petition which it might file brought to a stage of readiness for hearing. 14 It perhaps goes without saying, but nevertheless I should add, that nothing I have said or propose to do is intended in any way to affect any discretion of a judge of this court in relation to the hearing of any further aspect of either this appeal or any bankruptcy petition should it be filed. In that light, and in that context, and having ascertained from Mr Stowe that his client, through his solicitors, has instructed him to make the relevant undertakings to which I refer, I make the following orders. 1. On the condition that the respondent undertakes, as I am told it does, to the appellant to consent to the adjournment of any final hearing of the petition until the resolutionof any appeal from the decision of Driver FM, such undertaking itself being conditional upon the appellant taking all steps reasonably necessary to prosecute such appeal expeditiously, I dismiss the notice of motion. 2. I grant liberty to apply on two day's notice in relation to any question of the compliance by the appellant or the respondent with the undertakings and conditions referred to above. 3. I order that costs of the motion be costs in the appeal. 4. For the avoidance of doubt I direct that the undertaking by the respondent in no way prevents it from taking all necessary steps to bring any creditor's petition to a state of readiness for hearing. 15 Finally, by way of comment, as I think is clear from the above that liberty to apply is available should the parties be of the view that the undertakings and conditions to which I refer in order 1. are not being appropriately complied with or that circumstances have arisen as to warrant variation thereof. 16 I dismiss the motion and make the order in respect of costs that I have indicated. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop . Associate: Dated: 11 October 2001 The Applicant appeared in person Solicitor for the Applicant: Legal Aid Commission of NSW Counsel for the Respondent: Mr Stowe Solicitor for the Respondent: Fishburn Watson O'Brien, Coffs Harbour Date of Hearing: 26 September 2001 Date of Judgment: 26 September 2001