In Sharpe v WH Bailey & Sons Pty Ltd [2014] FCA 921, Justice Gleeson found that the Farm Debt Mediation Act 1994 (NSW) (FDM Act) did not operate to prevent an individual from pursuing their rights under the Bankruptcy Act1966 (Cth), even though those rights may have been related to a farm mortgage.  In doing so, Justice Gleeson confirmed that the Bankruptcy Act1966 (Cth) will have priority over the FDM Act where the requirements of section 5 of the FDM Act are met.

FACTS

Mr Sharpe ran a farming business from a property at Bellingen, New South Wales. WH Bailey supplied Mr Sharpe with goods on a running account basis. When Mr Sharpe accumulated debts in excess of $57,000, WH Bailey commenced debt recovery proceedings. Pursuant to a settlement agreement, repayment of these debts was secured by a second mortgage over his property.

WH Bailey obtained judgment against Mr Sharpe and issued a bankruptcy notice against him. Mr Sharpe unsuccessfully applied to the Federal Magistrates Court to have the bankruptcy notice set aside. On appeal, the Federal Circuit Court then refused to extend the time to comply with the bankruptcy notice. Another creditor also issued a bankruptcy notice and subsequent creditor’s petition against Mr Sharpe.

Mr Sharpe then appealed to the Federal Court on a number of grounds, which included an argument that the debts he owed WH Bailey were “farm debts” within the meaning of the Farm Debt Mediation Act 1994 (NSW) (FDM Act), and as a result no enforcement action could be taken in respect of them.

DECISION

Justice Gleeson considered the provisions of the FDM Act, which provided that:

  • A creditor to whom money under a farm mortgage is owed by a farmer must not take enforcement action against the farmer in respect of the farm mortgage unless proper notice has been given;
  • Enforcement action is defined to include taking possession of property under the mortgage and the giving of any statutory enforcement notice;
  • Farm mortgage is defined to include any interest in, or power over, any farm property securing obligations of the farmer (subject to some exceptions).

However, Justice Gleeson found that the FDM Act was not applicable. This was because section 5 of the FDM Act states that the Act does not apply in respect of a farmer “whose property is the subject of a bankruptcy petition presented by any person.” 

Further, the Court did not accept Mr Sharpe’s contention that the issue of the bankruptcy notice was an enforcement action prohibited by the FDM Act. The power to issue a bankruptcy notice is conferred by the Bankruptcy Act where a creditor has obtained an appropriate judgment.

The Court held that “enforcement action” under the FDM Act is referrable to a farm mortgage. Here the bankruptcy notice was issued by the Officer Receiver on the basis of a Local Court judgment, which was not stayed. Accordingly, the issue of the bankruptcy notice was not action to enforce any mortgage. Accordingly, the Court found there were no grounds to set aside the bankruptcy notice.