Ashwood v Ashwood

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FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 2)

Ashwood v Ashwood [2024] FedCFamC2G 88  

File number(s): SYG 924 of 2023
Judgment of: JUDGE MANOUSARIDIS
Date of judgment: 7 February 2024 
Catchwords: BANKRUPTCY – Application for a stay of a sequestration order made by a Registrar pursuant to delegated authority – whether the Court has power to grant stay – what principles apply to determining whether to exercise such power – stay granted together with an order suspending the operation of s 60(2) and s 60(3) of the Bankruptcy Act 1966 (Cth) to the extent necessary to permit the debtor to pursue and maintain her interests in a proceeding in the Supreme Court of New South Wales
Legislation:

Bankruptcy Act 1966 (Cth) ss 52(1), 52(3), 60(2), 60(3)

Constitution of Australia ss 71, 72

Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) rr 2.02, 2.02(3), sch 1 pt 1

Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) rr 1.06(2), 21.04

Federal Circuit and Family Court of Australia Act 2021 (Cth) ss 7, 254(1), 254(2) 256(1), 256(2)

Federal Court Rules 2011 (Cth) rr 1.61(1), 1.61(5), 1.06(2)

r1.61(1) r 1.61(5)
Cases cited:

Bechara v Bates [2021] FCAFC 34

Conlan v Mladenis [2007] FCA 1129

Endresz v Australian Securities and Investments Commission [2014] FCA 1139

Harris v Caladine [1990] HCA 9, at [11]; (1990) 172 CLR 84

In Re Wardle (1987) 70 ALR 633

James v Commonwealth Bank of Australia [2015] FCA 582

Owners of Strata Plan No 203747 v Saha [2021] FCA 961

Ritson v Commissioner of Police (NSW) [2021] FCA 1315

Robson v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143

Stephen Michael Coleman v Lazy Days Investments Pty Ltd [1994] FCA 1442

Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574
Division: Division 2 General Federal Law
Number of paragraphs: 64
Date of hearing: 2 February 2024
Counsel for the Applicants Mr S Baron-Levi
Solicitor for the Applicants Woods & Day
Counsel for the Respondent Mr V Grey
Solicitor for the Respondent Somerset Ryckmans
The Trustee Appeared in person

ORDERS

SYG 924 of 2023

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)

IN THE MATTER OF TERENCE JOHN ASHWOOD
BETWEEN:

TERENCE JOHN ASHWOOD

First Applicant

LESLEY MAY ASHWOOD

Second Applicant
AND:

SHERIDYN ASHWOOD

Respondent

ORDER MADE BY:

JUDGE MANOUSARIDIS

DATE OF ORDER:

5 FEBRUARY 2024

THE COURT ORDERS THAT:

1.Pursuant to r 1.06(2) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021(Cth), r 1.61(5) of the Federal Court Rules 2011 (Cth) applies to the application the respondent filed on 31 January 2024 for review of the sequestration and other orders the Registrar made on 23 December 2023.

2.Subject to orders 3 and 4, pursuant to s 256(2) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (FCFC Act), up to and including the time at which…

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Details
Case
[2024] FedCFamC2G 88
Decision Date

CaseChat Overview and Summary

In the case of Ashwood v Ashwood, the Debtor sought a stay of a sequestration order made by a Registrar of the Federal Circuit and Family Court of Australia. The Debtor's father and stepmother, the Creditors, had filed for the Debtor's bankruptcy. The Debtor had already lodged a caveat over a property at Lambs Valley, New South Wales, claiming a one-third interest in the property, and had commenced a proceeding in the Supreme Court of New South Wales to assert this interest. The primary legal issues before the court were the nature of the application for review of a sequestration order made by a Registrar, the court's power to stay such an order, and the principles that should guide the exercise of that power.

The court examined the statutory framework under which the Registrar had the authority to make the sequestration order, noting that this power was delegated by the Federal Circuit and Family Court of Australia Judges. The court also considered the nature of an application for review of such an order and the implications of the Debtor's delayed application for review. The court concluded that it possessed the power to grant a stay of a sequestration order made by a Registrar, guided by principles such as fairness, the likelihood of success of the Debtor's claims, and the potential prejudice to the Creditors. In light of these considerations, the court determined that a stay of the sequestration order should be granted to allow the Debtor to pursue her interests in the Supreme Court proceeding.

The court granted the stay of the sequestration order made by the Registrar, suspending the operation of sections 60(2) and 60(3) of the Bankruptcy Act 1966 (Cth) to the extent necessary to permit the Debtor to maintain her interests in the proceeding in the Supreme Court of New South Wales. The court's decision was premised on the Debtor's potential to succeed in her claims and the lack of undue prejudice to the Creditors. This ruling enables the Debtor to continue her legal action in the Supreme Court while the stay is in effect.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

After I was notified of this email I listed the matter for interlocutory hearing at 10:15 am on Friday 2 February 2024, which, at the request of the Debtor’s lawyer, was changed to 2:15 pm on the same day. At that time I heard the application for a stay, at the end of which I reserved my judgment and listed the matter for judgment and directions at 2.15 pm on 5 February 2024. At 2.15 pm I pronounced orders on the application for a stay, noting that I would publish my reasons later. These are my reasons.BACKGROUND[1][1] I have relied on the narrative contained in the reasons for judgment of Parker J in Ashwood v Ashwood [2023] NSWSC 208. By setting out this narrative, I am not to be taken to have made any findings of the facts stated. In 2014 the Creditors purchased in their joint names a property at Lambs Valley, New South Wales (Property). The Debtor, the Creditor’s only daughter, moved into the Property shortly after the Creditors purchased it; and, over the following two years, equestrian training facilities and a residential cottage were constructed on the Property. The Debtor conducted an equestrian business on the Property; and she did so through a company named Ashwood Park Equestrian Pty Ltd (APE1). APE1 was a trustee of the Ashwood Park Equestrian Trust (Trust). Improvements made to the Property, and other assets of the business, were recorded as assets in the balance sheet of APE1 as trustee for the Trust; and money the Creditors contributed towards the improvements were recorded as a liability. According to the Debtor, the incorporation of APE1 and the establishment of the Trust were carried out by accountants the Debtor’s father retained, and on directions given by him. The Debtor says she has no experience in accounting, and was unaware of the details. In October 2019 APE1 was deregistered because it failed to lodge the necessary returns with the Australian Securities and Investment Commission. In April 2020 a replacement company with the same name was incorporated (APE2). The Debtor and her accountants treated APE2 as a continuation of APE1; assets recorded in APE1’s balance sheet were carried forward to APE2’s balance sheet; APE2 continued to employ those whom APE1 had employed; and APE2 was treated as the continuing trustee of the Trust, although it seems that no formal step was taken to appoint APE2 as APE1’s successor. On 11 March 2021 the Creditors gave the Debtor formal notice that they intended to sell the Property, and that the Debtor vacate the Property. On 7 May 2021, through her lawyer’s letter to the Creditors, the Debtor claimed she held a one third interest in the Property by operation of the principles of propriety or promissory estoppel. The Debtor lodged a caveat over the Property to protect that asserted interest. In August 2021 the Debtor and APE2 commended a proceeding in the Supreme Court of New South Wales (NSWSC Proceeding) in which they claimed a declaration that the Creditors held the Property on constructive trust for themselves and the Debtor as joint tenants in one-third shares, or in such other proportions as the Court might declare. The Debtor and APE2 also claimed they held a lease for the Debtor’s lifetime at a rent of $400 per week. The Debtor and APE2 made a number of other claims concerning a restaurant business in which the Debtor and Creditors were involved.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The qualification to which I refer relates to the Debtor’s claims in the NSWSC Proceeding. I am satisfied that, up to and including the time a Judge determines the Debtor’s application for review of the Registrar’s sequestration order, the operation of s 60(2) and s 60(3) of the Bankruptcy Act should be suspended to the extent necessary to permit the Debtor to pursue and maintain her interests in the NSWSC Proceeding.CONCLUSION It was for these reasons that I made the orders I did at 2.15 pm on 5 February 2024.

Ratio Decidendi

Legal Principle Established

The following questions arise:(a)What is the nature of an application for review of a sequestration order made by a Registrar (Registrar’s sequestration order)?(b)What power, if any, does this Court have to stay (or suspend) a Registrar’s sequestration order; and, assuming the Court has such power, what principles should guide the exercise of that power?(c)What, if any, relevance does a debtor’s having applied for a review of a Registrar’s sequestration order outside the prescribed 21 day period have to the exercise of any power to order a stay of (or suspend) a Registrar’s sequestration order?(d)Assuming the Court has power to order a stay of a Registrar’s sequestration order, should a stay be granted of the sequestration order the Registrar made on 23 December 2023 and, if so, in what form and on what terms?NATURE OF APPLICATION FOR REVIEW To be in a position to identify the nature of an application for review of a Registrar’s sequestration order, it is necessary first to say something about the power pursuant to which a Registrar may make such order. The starting point is s 254(1) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (FCFC Act), which provides:Judges, or a majority of them, may make Rules of Court delegating any of the powers of the Federal Circuit and Family Court of Australia (Division 2) to a delegate or a prescribed class of delegate. “Delegate” is defined in s 7 of the FCFC Act to mean the Chief Executive Officer, or a Senior Registrar or Registrar of the Federal Circuit and Family Court of Australia (Division 2) (Court); and s 254(2) of the FCFC Act identifies the kinds of powers the Judges may delegate. The Judges or a majority of the Judges have made rules of court delegating powers that have been conferred on the Court by the Bankruptcy Act. These are contained in r 2.02 of the Bankruptcy Rules, which provides:1)For the purposes of paragraph 254(2)(l) of the Act, the following powers of the Court are prescribed: (a) a power of the Court under a provision of the Bankruptcy Act referred to in Part 1 of Schedule 1;(b) a power of the Court under a provision of these Rules referred to in Part 2 of Schedule 1.(2) For the purposes of subsection 254(1) of the Act, a power of the Court specified in Part 1 or Part 2 of Schedule 1 is delegated to a Registrar who is approved, or is in a class of Registrars who are approved, by the Chief Judge for the exercise of the power.(3) Subject to any direction by the Court or a Judge to the contrary, an application under subsection 256(1) of the Act for review of the exercise of a power of the Court by a Registrar must be made by filing an application in accordance with Form B3A within 21 days after the day on which the power was exercised. The powers identified in Part 1 of Schedule 1 to the Bankruptcy Rules include the power under s 52(1) of the Bankruptcy Act to make a sequestration order; the power under s 52(2) to dismiss a creditor’s petition; and the power under s 52(3) of the Bankruptcy Act to stay all proceedings under a sequestration order for a period not exceeding 21 days.