FEDERAL COURT OF AUSTRALIA Graham & Linda Huddy Nominees Pty Ltd v Byrne [2017] FCA 1638 File number: QUD 501 of 2017 Judge: LOGAN J Date of judgment: 20 December 2017 Catchwords: BANKRUPTCY AND INSOLVENCY – related Supreme Court proceeding by applicants against first respondent – leave sought pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth) to take fresh steps in related proceeding – whether leave appropriate – purpose of s 58(3) of the Bankruptcy Act 1966 (Cth) – factors relevant to the exercise of the s 58(3)(b) discretion – Bankruptcy Act 1966 (Cth), s 58(3)(b) Legislation: Bankruptcy Act 1966 (Cth) s 58 Australian Consumer Law ss 236, 237 Cases cited: Allanson v Midland Credit Limited (1977) 30 FLR 108 Mango Media Pty Ltd v Velingos (2008) 216 FLR 176 Re Rose; Ex parte Devaban Pty Limited [1994] FCA 1082 Date of hearing: 20 December 2017 Date of last submissions: 20 December 2017 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 11 Counsel for the Applicants: Mr S Williams Solicitor for the Applicants: Wilson Lawyers Counsel for the First Respondent: Mr J Green Solicitor for the First Respondent: James Conomos Lawyers ORDERS QUD 501 of 2017 BETWEEN: GRAHAM & LINDA HUDDY NOMINEES PTY LTD First Applicant PINKENBA NO 1 PTY LTD Second Applicant AND: GERARD LAURENCE BYRNE First Respondent STEPHEN JOHN MICHELL Second Respondent JUDGE: LOGAN J DATE OF ORDER: 20 DECEMBER 2017 THE COURT ORDERS THAT: UPON THE APPLICANTS' UNDERTAKINGS GIVEN BY THEIR COUNSEL: 1. To not take any step to enforce any monetary judgment or monetary order made against the First Respondent in the Supreme Court Proceedings without the further leave of this Court. 2. To not take any step to enforce any final relief against the First Respondent in respect of the declarations sought in the Supreme Court Proceedings against the First Respondent without giving seven days' notice to the First Respondent's trustee in bankruptcy. THE COURT ORDERS THAT: 1. Leave be granted to the Applicants to continue proceedings 2 of 2016 in the Supreme Court of Queensland (Supreme Court Proceedings) against the First Respondent (the First Defendant in the Supreme Court Proceedings) pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth). 2. The grant of leave is nunc pro tunc as from 23 September 2016. 3. Leave is granted without prejudice to any issues of substance which may arise in the Supreme Court Proceedings. 4. Each party bear its or his own costs of this application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. EX TEMPORE REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) LOGAN J: 1 Graham & Linda Huddy Nominees Pty Ltd and Pinkenba No. 1 Pty Ltd, the first and second applicants respectively, seek leave pursuant to s 58(3) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), further to proceed against the bankrupt, Mr Gerard Laurence Byrne (Mr Byrne) in proceedings to which Mr Byrne and others are parties in the Supreme Court of Queensland (No. 2 of 2016 in that court). 2 Prior to his bankruptcy, Mr Byrne was the sole director and secretary of each of the second to fifth corporate defendants in the Supreme Court proceeding. Mr Byrne is the first defendant in those proceedings. The sixth defendant in those proceedings is a solicitor who acted for the other defendants in related Supreme Court proceedings. The applicants are, respectively, the first and second plaintiffs in those Supreme Court proceedings. The Supreme Court proceedings were commenced on 4 January 2016. Mr Byrne became a bankrupt upon the presentation of a debtor's petition by him on 23 September 2016. 3 It is evident from the third further amended statement of claim filed in the Supreme Court proceedings that the claims made as against Mr Byrne are as follows: By Graham & Linda Huddy Nominees: (a) an amount of $8,050,000 in debt; (b) an amount of $5,000,000 by way of damages for misrepresentation; (c) an amount of $5,000,000 as damages pursuant to section 236 of the Australian Consumer Law, together with compensation pursuant to section 237 of the Australian Consumer Law; (d) an amount of $5,000,000 as damages for deceit; (e) exemplary damages; (f) a declaration that Mr Byrne or one of the named corporate defendants, or both, hold certain plant and equipment as constructive trustee for the Graham & Linda Huddy Nominees Proprietary Limited. By Pinkenba No. 1 Pty Ltd: (a) an amount of $2,130,388 in debt; (b) an amount of $1,000,000 as damages for misrepresentation; (c) an amount of $1,000,000 as damages pursuant to section 236 of the Australian Consumer Law and compensation pursuant to section 237 of the Australian Consumer Law; (d) the amount of $1,000,000 as damages for deceit; (e) exemplary damages; (f) a declaration that Mr Byrne or one of the corporate defendants, or both, hold certain plant and equipment as constructive trustee for Pinkenba Nominees Pinkenba No. 1 Proprietary Limited; (g) a declaration that there exists against Mr Byrne or the corporate entities, or both, an equitable lien over certain plant and equipment. 4 As will be apparent from the recitation of the relief sought in the Supreme Court proceedings, it is likely that some, although not necessarily all, of the relief claimed against Mr Byrne falls within the meaning of the term "provable debt" as used in s 58(3) of the Bankruptcy Act. As to s 58(3), an observation made by Hill J in an unreported case Re Rose; Ex parte Devaban Pty Limited [1994] FCA 1082 is frequently cited with approval: The obvious policy behind s. 58(3) of the Act was that any proceedings in force at the time of bankruptcy should be stayed and no further proceedings should be commenced so far as they relate to the period prior to bankruptcy unless the Court gives leave. In this way the bankrupt is freed from any claims that might be made in respect to the period prior to bankruptcy and the Trustee in bankruptcy can, if the Trustee accepts the proof of debt, treat a claim against the estate like the claim of all other creditors, so that the assets of the estate are, in due course, divided pro rata among the creditors. Another reason for staying proceedings or preventing new proceedings from being commenced is to ensure that the Trustee of a bankrupt estate is not put to expense in defending proceedings which the Trustee has no money to defend. On the other hand, the Act does contemplate that the Court will, in an appropriate case, grant leave. In that respect a case would be an appropriate case where the proceedings proposed against the bankrupt are proceedings to which other parties are involved and for the proper conduct of which it may be necessary for the bankrupt to become a party. 5 Another insight in relation to s 58(3) is, as is, with respect, so often the case in matters of insolvency, helpfully offered by Barrett J in his Honour's judgment in Mango Media Pty Ltd v Velingos (2008) 216 FLR 176 at [13], (2008) NSWSC 202: The objective of s 58(3)(b) is clearly enough, to ensure that the bankrupt estate and the provable claims upon it remain under the control and supervision of the courts having jurisdiction in bankruptcy. The legislation as a whole is aimed at marshalling assets, as attaining debts and claims and applying the former towards satisfaction of the latter. The procedures by which the process is to be conducted and the objective is to be achieved are set out in the Bankruptcy Act and administered by those courts to which exclusive jurisdiction in bankruptcy is given by Parliament. To the extent that an attempt is made to any other process of dealing with debts and claims, particularly if resort is to be had to courts other than bankruptcy courts, there must first be screening by a bankruptcy court. 6 In respect of the present "screening" it is unnecessary to make a final determination of the question whether leave is indeed required. It suffices that the Court considers the application and grants leave if so minded to the extent that leave may be necessary: Allanson v Midland Credit Limited (1977) 30 FLR 108 at 114. I have no doubt that in respect of at least some of the claims made in the Supreme Court proceeding leave is necessary. The material filed discloses that the Supreme Court proceeding has reached a relatively advanced stage, concerns complex questions of fact and law, and involves as defendants parties other than the bankrupt. 7 The claims made against the bankrupt in the Supreme Court's proceeding more conveniently lend themselves to judicial resolution in that proceeding, rather than, insofar as they may be provable debts, by the trustee in bankruptcy in the first instance. Further, resolution of all of those claims in the Supreme Court presents the advantage of not just an absence of bifurcation, but also an absence, in the first instance at least, of any need to try and differentiate those which are indeed provable in bankruptcy from those which are not. At least one which would seem as a matter of first impression to fall within the latter category is the claim as against the bankrupt in the Supreme Court proceeding for declaratory relief. 8 The bankrupt's trustee in bankruptcy, the second respondent, has not just been served with the present application, but also expressly consulted as to the orders which have come to be promoted jointly, both by the applicants and the bankrupt as first respondent. Though the trustee in bankruptcy has chosen not to appear, and that is not a criticism given the response that he has made, and the need to be conservative in respect of estate funds expenditure, the result is that subject to the proffering of particular undertakings, which I shall shortly describe, the trustee does not oppose the relief sought. 9 It might be thought that there has been some delay in the bringing of this application but I'm quite satisfied from the material filed that there has been good reason for that. That there has been some delay makes it prudent in my view, as is possible, to grant leave nunc pro tunc, if only out of an abundance of caution, on and from the date upon which Mr Byrne became a bankrupt. That is because there was some delay as between the occurrence of the bankruptcy and the applicant's solicitors becoming aware of the bankruptcy. 10 Another factor which is relevant is that the claims in the Supreme Court are not just factually complex but also entail allegations of at least grave departures from appropriate commercial conduct, if not worse, as against the bankrupt. He is on any view a necessary party in those proceedings individually. It can also be seen from the latest version of the statement of claim that his presence as a witness is desirable in respect of the corporate defendants. 11 The undertakings which have been offered in open court on behalf of the applicants are these: (a) to not take any step to enforce any monetary judgment or monetary order made against the First Respondent in the Supreme Court proceedings without the further leave of this Court; and (b) to not take any step to enforce any final relief against the First Respondent in respect of the declarations sought in the Supreme Court proceedings against the First Respondent without giving seven days' notice to the First Respondent's trustee in bankruptcy. Undertakings of that kind have been required by the court in earlier cases as a condition in respect of the granting of leave under s 58(3). They are apt in respect of this case also. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate: Dated: 20 December 2017