McCracken v Phoenix Constructions (Queensland) Pty Ltd  FCAFC 41 (18 April 2013): Bankruptcy, whether debt owing at time of bankruptcy, sections 44(1) and 52(1) of Bankruptcy Act
April 21, 2013
The Full bench of the Federal court in McCracken v Phoenix Constructions (Queensland) Pty Ltd  FCAFC 41 by unanimous decision and per Lander J’s reasons, upheld an appeal against a sequestration order made by the Federal Magistrate’s Court. The issue on appeal, at , is succinctly described as:
“..first, whether if a debt is relied upon for the issue of the bankruptcy notice and as an act of bankruptcy, that debt must continue to be owing at the time when the creditor’s petition is heard for the Court to make a sequestration order; secondly, if the debt is no longer owing at that time, whether the petitioning creditor can rely upon a later debt which first arose after the act of bankruptcy and after the filing of a creditor’s petition; and thirdly, if that debt can be relied upon at the hearing of the creditor’s petition and at the time of the making of the sequestration order, must that debt be for a liquidated sum.”
The Appellant (“McCracken”) and the Respondent (“Phoenix”) were involved in a proceeding which culminated in judgement being entered for Phoenix in the sum of $2,025,212.17 on 15 June 2011. On 7 July 2011 the official receiver issued a bankruptcy notice directed to McCracken . On 12 July 2011 McCracken filed a notice of appeal  and on 13 July the trial judge ordered McCracken to pay Phoenix’s cost of the proceedings . Those costs were never assessed. On 10 August 2011 a bankruptcy notice was served on McCracken  with Phoenix filing a creditor’s petition on 11 August 2011. The creditors petition relied on a number of acts of bankruptcy including McCracken absenting himself from Australia and his dwelling house to avoid service. It did not rely upon the appellants failure to pay the judgement sum . On 27 September 2011 in the Court of Appeal refused McCracken’s application for a stay of the judgement  and the Federal Magistrates Court refused his application for a stay of the bankruptcy proceeding . On 18 October 2011 Phoenix filed an amended creditors petition relying upon McCracken’s failure to comply with the bankruptcy notice .
On 18 May 2012 the Court of Appeal allowed McCracken’s appeal and set aside the orders made by the trial judge . On 19 July 2012 the Federal Magistrates Court heard the petition and made a sequestration order against McCracken on 14 September 2012 . Their Honours’ noted that at the time the Federal Magistrates Court heard the creditor’s petition the debt which was relied on in both the bankruptcy notice and the creditor’s petition no longer existed, having been discharged by the Court of Appeal . The Federal Magistrate concluded that even though the amount may have changed there was an ongoing debt that which was still doing due and owing  and that once an act of bankruptcy had been committed it remained available for the purposes of a sequestration order and did not rely on other acts of bankruptcy relied upon by Phoenix, such as the conduct of the appellants to avoid service .
Where the debtor who has committed an act of bankruptcy is ordinarily resident in Australia the court may make a sequestration order against the estate of the debtor . The first requirement to found that jurisdiction is that the debtor has committed an act of bankruptcy . The second necessary fact is that the debtor comes within one of the descriptions and section 43(1) (b) of the Bankruptcy Act 1966 (the “Act”).
The Court found that whilst the debt need not be the same debt as was relied upon to the act of bankruptcy it must be a debt which existed at the time of the act of bankruptcy . The debt must Read the rest of this entry »