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the bankruptcy. However, Palermo sought to circumvent Foots by seeking that the costs order be made with retrospective operation to the date of bankruptcy pursuant to the broad discretion of the Court under section 79 of the Federal Circuit Court of Australia Act 1999 and section 32 of the Bankruptcy Act 1966. Palermo argued that Foots did not consider retrospective orders but left such matters to the discretion of lower courts as appropriate, and the Court could therefore make such a retrospective costs order. Judge Jarrett rejected Palermo’s argument. It did not grapple with the underlying proposition of Foots; that an obligation which arises after the date of bankruptcy is not provable in the bankruptcy and the obligation to pay costs does not arise until the making of the costs order. His Honour indicated that even if the Court could make an order of the
kind sought by Palermo, it would not be competent for Palermo to seek the order in the present circumstances. This is because such a step would be seen as enforcing a remedy (ie the claim for costs) in respect of a provable debt (ie Palermo’s underlying debt claim against the bankrupt) which is prohibited under section 58(3) without leave of the Court (no such leave having been sought or granted in the present case). Ultimately, the Court was not satisfied that it should make a retrospective costs order and therefore ordered that the bankrupt debtor pay Palermo’s costs rather than it being paid from the bankrupt estate. This essentially left Palermo with a non-provable costs order against an impecunious bankrupt debtor, all of whose assets had vested in the trustee. In order to participate in the
distribution of any assets as a creditor, it would be necessary for Palermo to enforce its costs order against the bankrupt, commence further bankruptcy proceedings and make the bankrupt bankrupt a second time, for no obvious useful benefit.
The takeaway This case highlights the importance of obtaining specialist advice before filing a creditor’s petition or risk expending funds on proceedings without merit, which will not be able to be recovered.
*Ellen Ferris Solicitor Matthews Folbigg Ph: 02 9806 7456 Email: EllenF@matthewsfolbigg.com.au *Stephen Mullette MICM Principal Matthews Follbigg Ph: 02 9806 7459 Email: stephenm@matthewsfolbigg.com.au
May 2020 • CREDIT MANAGEMENT IN AUSTRALIA
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