McCracken v Phoenix Constructions (Queensland) Pty Ltd [2013] FCAFC 41

The Full Federal Court of Australia has handed down its decision in the case of McCracken v Phoenix Constructions (Queensland) Pty Ltd [2013] FCAFC 41. The Court ultimately ruled in favour of the appellant and quashed the sequestration orders made by the trial judge.

Facts

Proceedings were brought by Phoenix Constructions (Phoenix) against the appellants and judgment was ultimately entered against the appellants. Phoenix subsequently issued a bankruptcy notice directed at the appellant before the appellant sought leave to appeal before the Court of Appeal. The notice required the appellant to pay the judgment debt within 21 days.

When the matter finally appeared before the Court of Appeal, the trial judge’s orders were set aside and thus setting aside the judgment sum and subsequent cost orders. However, these orders had effect on the day it was made and not earlier. On the other hand, resulting from the bankruptcy notice on the appellant, sequestration orders were made against the appellants because of a creditor’s petition.

Issues

The Full Court identified three issues resulting from this appeal. 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.

Judgment

The Court found that Phoenix was not entitled to rely upon the judgment debt that arose when the Court of Appeal made an order for costs, because that judgment debt did not exist when the act of bankruptcy relied upon occurred or when the creditor’s petition was filed.  It came into existence when the Court of Appeal made its order.
The court found that the pre-requisite, that is the judgment debt, was not met for the making of the sequestration order. Consequently, the appeal was allowed and the decision set aside.

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