The Full Court of the Federal Court has recently confirmed that the “slip rule” can be used to retrospectively extend the life of a creditor’s petition, but has highlighted that the rule only applies if certain conditions are met.
Section 52 of the Bankruptcy Act provides that a creditor’s petition lapses 12 months after the date the petition is filed, unless the Court makes an order extending the life of the petition before expiration of the initial 12 month period. The Court can grant an extension “if it considers it just and equitable to do so, upon such terms and conditions as it thinks fit”.
Rule 39.05 of the Federal Court Rules relevantly provides that the Court may “vary or set aside” a judgment or order after it has been entered if “there is an error arising in a judgment or order from an accidental slip or omission”. This is colloquially known as the “slip rule”.
In Flint v Richard Busuttil & Co Pty Ltd, the appellant was served with a bankruptcy notice by the respondent and failed in her application to the District Registrar of the Federal Magistrate’s Court to extend time for compliance with the notice. She duly filed an application for review of the District Registrar’s decision, but on 24 November 2011, before the application for review could be heard, the respondent creditor filed a creditor’s petition based on the appellant’s failure to comply with the bankruptcy notice.
The Federal Magistrate to whom the proceedings were allocated decided to hear the application for review and the petition together. However, there were several adjournments of the proceedings at the appellant’s request until finally, on 29 August 2012, the Federal Magistrate ordered the parties to file and serve written submissions, and stated that he would determine the matter in chambers, in the absence of the parties.
On 22 October 2012, no judgment having been rendered, the respondent’s solicitors wrote to the Federal Magistrate, alerting him to their concerns that time was running, but did not make any application for an extension of the petition.
On 7 December 2012, the Federal Magistrate made an order dismissing the appellant’s application for review of the District Registrar’s decision, and extended the petition until 23 November 2013. In giving his reasons, the Federal Magistrate referred to rule 39.05 of the Federal Court Rules and the letter from the solicitors for the respondent.
In due course, the petition was heard by the Federal Court. The primary judge considered that the slip rule could be used to extend the life of a petition retrospectively, citing Griffiths v Boral Resources (Qld) Pty Ltd. He said that the failure of the respondent to ensure that “the question of the expiration of the petition” was dealt with on 29 August 2012 was an accidental slip or omission, and that there was no doubt that the Federal Magistrate would have extended the petition if the issue had been brought to his attention at that time.
The primary judge then made a sequestration order based on the petition.
When the matter came before the Full Federal Court on appeal, the Full Court noted that in Griffiths, on which the primary judge had relied, the Full Court had taken the same approach to proceedings under the Bankruptcy Act as it had earlier taken with respect to proceedings under the Corporations Law in Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd. In the Elyard case, the slip rule had been used to extend the time in which a winding-up application could be determined, retrospectively. However, in Griffiths, the Full Court had expressed “some disquiet” about the decision in Elyard.
The Full Court in Flint had no reservations about the correctness of the decisions in Elyard and Griffiths, although it was unnecessary to deal with that issue because the facts did not demonstrate that an accidental slip or omission within the rule was made in the circumstances of the case before it.
Firstly, for the slip rule to apply, there must be an order in need of correction. The only relevant order was that made on 29 August 2012 (when the Federal Magistrate gave directions for the filing of written submissions).
If an application had been made on 29 August 2012 for extension of the petition, the Federal Magistrate would have been required to consider whether it was “just and equitable to do so”. The Full Court disagreed that there was “no doubt” that an order extending the life of the petition would have been made. Rather, the Federal Magistrate may have shortened the time for filing submissions or listed the petition for hearing on a date in early November 2012, subject to the outcome of the application for review. So, it was not clear that an order would have been on 29 August 2012 extending the life of the creditor’s petition.
Moreover said the Full Court, there was insufficient evidence from which an inference could be drawn that there was an error or omission by the respondent’s lawyer or the Federal Magistrate on 29 August 2012. When the directions were made on 29 August 2012, there were still three months before the petition would expire. The Federal Magistrate might reasonably have expected that he would be able to determine the application and the petition, or at least address the question of extension of the life of the petition, within that three month period. Similarly, the lawyer for the appellant may not have forgotten or overlooked the significance of the expiration of the twelve month period from filing the petition at the time of the August directions hearing. Rather, the inference could be drawn that as almost three months remained, he could (as he did), raise the matter with the Court at a later date if necessary. The operative error or omission was in not moving the Court for an order extending the petition between 29 August 2012 and 23 November 2012.
The Full Court therefore held that the slip rule was inapplicable to extend the life of the petition, that the petition had therefore expired and that therefore the sequestration order should be set aside.
The lesson to be drawn from this decision is that creditors (and parties generally) should not rely on the Court to take care of matters that are properly their responsibility. Rather, parties need to take action to look after their own interests and apply for appropriate orders to preserve their rights, in a timely fashion. Otherwise, the slip rule will not always be available to correct an error or omission, thus proving the adage “an ounce of prevention is better than a pound of cure”.