In an unreported decision of the Federal Court in Lamb v Sherman QUD 60 of 2023, NSD 450 of 2022, the Full Federal Court was referred an important question arising in an appeal against the making of a sequestration order.
The question was whether the Court (in which a Registrar made orders extending time for compliance with a bankruptcy notice) was seized of jurisdiction in circumstances where the bankrupt had failed to file an application to extend time for compliance with a bankruptcy notice within the prescribed time.
Background
At 4:37pm on 15 June 2022, seven minutes after the time for a document to be lodged so that it would be deemed to have been filed on that day as prescribed in r 2.25(3)(a) of the Federal Court Rules 2011, the bankrupt, Ms Lamb’s solicitors lodged electronically with the Court an application that purported to apply to set aside the bankruptcy notice under s 41(6A) of the Bankruptcy Act 1966 (Cth).
The Registry accepted Ms Lamb’s application for filing at 2:44pm on 16 June 2022. Shortly afterwards, on the same day, the petitioning creditor, Mr Sherman lodged his creditor’s petition for filing.
Subsequently, a Registrar made orders purporting to extend the time for compliance by Ms Lamb with the requirements of the bankruptcy notice, but ultimately dismissed the application.
On 10 February 2023, the matter came before the primary judge who found that Ms Lamb had committed an act of bankruptcy by failing to comply within the 21 days permitted by the bankruptcy notice and, so, made a sequestration order.
Appeal to Federal Court
Ms Lamb appealed on grounds including that the primary judge erred in finding that, despite her application under s 41(6A), she had committed an act of bankruptcy on 15 June 2022 by not complying with the bankruptcy notice.
Mr Sherman sought, amongst other relief, leave to set aside the extension orders on the basis that they had been made without jurisdiction – because Ms Lamb’s application to set aside the bankruptcy notice had not been filed within the time it fixed for compliance, as required by s 41(6A).
Rares J ordered that the question be referred to this Full Court.
Referral to Full Court
The Full Court, comprised of Rares, Rofe and Downes JJ, stated in a joint judgment that in order to make an application to the Court, its jurisdiction has to be invoked, which, ordinarily, occurs by the Registry or the Court accepting the filing of a document comprising an application to set aside a bankruptcy notice, as r 2.01(1)(a) of the Federal Court (Bankruptcy) Rules provides.
Their honours said it cannot be sufficient for an application to simply be lodged, because thereafter it may or may not be rejected for filing.
The Federal Court Rules prescribe when a document sent electronically will be taken to have been filed. It does so by stipulating that where the Court receives the document prior to 4:30pm on a business day, and, if accepted, it is deemed to have been filed on that day so that the Court’s jurisdiction then will be enlivened, but, in all other cases, the document is deemed to be filed on the next business day.
The Full Court stated that when Ms Lamb lodged her application under s 41(6A) by electronic communication on 15 June 2022 at 4:37pm, she did not at that time “make” an application to the Court to set aside the bankruptcy notice within the meaning of s 41(6A). That was because the Court had nothing before it by which it could have done anything to extend the time for compliance with the bankruptcy notice, since its jurisdiction had not yet been invoked either by the filing of that application under r 2.01(1)(a) of the Federal Court (Bankruptcy) Rules and in accordance with the Federal Court Rules, or by her making an oral application to the Court to permit her to “make” the application at that time.
The act of the Registrar on 16 June 2022 that accepted Ms Lamb’s application for filing at 2:44pm could not have affected her earlier act of bankruptcy by failing to comply with the bankruptcy notice. There is nothing in the Act that permits the Court to cure an act of bankruptcy that has occurred after the time for compliance with a bankruptcy notice has expired, and before any application has been made to the Court under s 41(6A).
Accordingly, the Court determined that Ms Lamb committed an act of bankruptcy on 15 June 2022 and, so, her appeal failed.
Take Aways
This case is a salient reminder of the strict timeframe imposed by the Bankruptcy Act and the need for debtors served with a bankruptcy notice to act diligently.
There is no statutory grant of power to annul an act of bankruptcy. So, if a debtor seeks to challenge a bankruptcy notice, they must lodge an application with the Registry before it closes on the last day for compliance with the notice.
