Ashwood v Ashwood
[2024] FedCFamC2G 88
•7 February 2024
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 the Court determines the respondent’s application for review referred to in order 1, all proceedings under the sequestration order the Registrar made on 23 December 2023 are stayed.
3.Subject to order 4, pursuant to s 256(2) of the FCFC Act, up to and including the time at which the Court determines the respondent’s application for review referred to in order 1, the operation of s 60(2) and s 60(3) of the Bankruptcy Act 1966 (Cth) are suspended to the extent necessary to permit the respondent to pursue and maintain her interests in Supreme Court of New South Wales proceeding no 2021/00233848.
4.The parties have liberty to apply on such notice as the circumstances warrant, such liberty to include an application to discharge orders 2 and 3 on the ground that the respondent is not prosecuting the application for review with due despatch.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE MANOUSARIDIS
INTRODUCTION
On 21 December 2023 a Registrar of this Court made a sequestration order against the estate of Ms Sheridyn Ashwood (Debtor). The Registrar also ordered, pursuant to s 52(3) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), that all proceedings “under these orders” be stayed for a period of 21 days commencing on 14 January 2024.
At 7:40 pm on 30 January 2024 the Debtor’s lawyer sent to my Associate’s inbox the following email:
We understand his Honour is sitting as the Duty Judge.
We act for Sheridyn Ashwood, the respondent in the above proceedings. We attach the following:
1. Application for Review of the Registrar’s orders made on 21 December 2023 (Orders) including that a sequestration order be made against the estate of Ms Ashwood, the respondent; and
2. Notice to creditors (Form 12).
The respondent’s Application for review is also seeking as an interim order 1 an order that all proceedings under a sequestration order made on 21 December 2023 be stayed pending determination of this Application for review of the Registrar’s decision.
There is a degree of urgency to the stay application. Pursuant to Order 4 of the Orders made on 21 December 2023, all proceedings under this order are stayed for a period of 21 days commencing on 14 January 2024. We have calculated that the stay of the proceedings under the sequestration order will lapse by 5 February 2024.
The stay application is sought on an urgent basis to protect the bankrupt estate of the respondent to avoid any adverse consequences before the decision of the Registrar to make the sequestration order is reviewed.
If appropriate, we would seek that his Honour list the application for a stay before the Duty Judge in the morning on Friday, 5 February 2024.
We note that we undertake to pay the filing fee.
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.
On or shortly before 30 September 2021 the Debtor and APE2 applied to have the caveat extended until the hearing. On 24 November 2021 the Debtor and Creditors gave consent cross-undertakings to provide an interim regime for the Debtor and her partner to continue living in the Property pending the determination of the NSWSC Proceeding. The undertakings were given on the assumption that the proceeding would be expedited; and an order for expedition was made on 3 December 2021.
The Debtor and APE2 filed their statement of claim on 31 January 2022. The Debtor alleged that at the time the Creditors purchased the Property and the Debtor moved into it, the Creditors told her it was to be her “forever home” for herself and for the location of an equestrian business. The Debtor further alleged that, starting in 2018, specific representations or offers had been made under which the Debtor was to have a one-third ownership of the property. The Creditors responded by applying for an order that the extension of caveat be discharged.
The matter came before Sackar J sitting as the Expedition Judge. What occurred next is best described by Parker J:[2]
It had also emerged that three corporate parties needed to be reinstated and joined for the purposes of resolving the restaurant accounting claims. One of these was a former company of [the Debtor called Gibsons at Gosford Pty Limited (“Gibsons”). The other two were companies formerly controlled by [the Debtor’s father].
His Honour made orders reinstating the three companies, joining Gibsons as an additional plaintiff, and joining the other two companies as additional defendants. His Honour also granted the plaintiffs leave to amend their Statement of Claim. The Amended Statement of Claim, filed in May, expressly claimed a constructive trust for [the Debtor] over “the fee simple estate or alternatively such other estate and interest” in the [Property] “to which she has an equity entitled”, and an order for conveyance.
[2] Ashwood v Ashwood [2023] NSWSC 208, at [36], [37]
In early June 2022 the Creditors filed a cross-claim for possession naming the Debtor and APE2 as cross-defendants.
The matter came before Parker J for hearing on 10 June 2023 to fix an expedited hearing. His Honour granted an expedited hearing of the cross-claim for possession of the Property; and the matter was fixed for hearing on 26 September 2022. What occurred at the hearing is again best described by his Honour:[3]
Shortly before the hearing was due to begin on 26 September, the parties filed written submissions in accordance with the Court’s directions. Those submissions exposed issues about the maintainability of the plaintiffs’ claims for a fee simple or leasehold interest in the property. Those questions were debated during the parties’ openings on 26 September.
It was put to counsel for the plaintiffs that [the Debtor’s claim] based on the alleged promise of a one-third interest in the [the Property], even if successful, would only lead to an application for partition of the property under the Conveyancing Act 1919 (NSW) s 66G, and consequently to its sale. Furthermore, the improvements, which represented the major alleged detriment in the proprietary estoppel claim, had been channelled through APE1. Any claim for an interest based on that alleged detriment had to be prosecuted through that company.
After some debate, counsel for the plaintiffs accepted that, to the extent that [the Debtor’s] claim was based on the alleged promise by [the Creditors], realistically she could at best obtain a one-third share of the property. Although [the Debtor] did claim to have made some personal financial and non-financial contributions to the property, most of the contributions had been made by APE1 and it would be necessary to reinstate that company to pursue a claim based on them. For this purpose, the plaintiffs needed an adjournment.
The upshot was an adjournment to 27 September, followed by an adjournment to 28 September, while the parties negotiated a set of orders to reflect these concessions. The resulting draft orders (prepared on behalf of the defendants) were presented to me for consideration on 28 September.
[3] Ashwood v Ashwood [2023] NSWSC 208, at [40]-[43]
The parties agreed on all but two issues. One was costs. On 30 September 2022 his Honour ordered that the debtor and APE2 pay the Creditors’ costs thrown away by reason of the adjournment; and that the Creditors have leave to apply for a lump-sum costs order. The Creditors applied for a lump sum costs order and, in reasons for judgment published on 13 March 2023, Parker J ordered that the Debtor and APE2 pay the Creditors their costs fixed in the amount of $100,000. On 16 March 2023 judgment for $100,000 was entered in favour of the Creditors against the Debtor and APE2.
The NSWSC Proceeding has been set down for hearing on 24 June 2024.
THE BANKRUPTCY PROCEEDING
The Creditors applied for, and there was issued to them a bankruptcy notice demanding that the Debtor, within 21 days, pay to the Creditors $100,000, being the amount of the judgment that was entered on 16 March 2023 pursuant to the orders Parker J made on 13 March 2023. The bankruptcy notice was served on the Debtor on 9 May 2023; and the Debtor failed to comply with the bankruptcy notice by 30 May 2023.
The Creditors filed a creditor’s petition on 21 July 2023 relying on the Debtor’s failure to comply with the bankruptcy notice as the relevant act of bankruptcy. On 27 July 2023 the Debtor filed an amended notice stating grounds of opposition to the creditor’s petition in which she identified the following as the grounds on which she intended to oppose the petition
1.The Respondent has pending before the Supreme Court of NSW, in Proceedings No. 2021/00233848, a genuine and arguable claim against the Applicants which if determined favourably to the Respondent, will result in a judgment for the Respondent in an amount substantially greater than the amount of the Applicants’ debt.
2.The Respondent has a genuine and arguable claim against the Applicants which have sufficient prospects to warrant the Respondent being granted an adjournment of the petition pending determination of the Proceedings referred to above.
3.The Respondent is able to pay her debts within s52(2)(a) of the Bankruptcy Act, 1966 (Cth).
4.The bankruptcy notice relied on was not a valid bankruptcy notice for the purposes of section 41 of the Bankruptcy Act, 1966 (Cth) as the order on which it was based was not a “final judgment or final order” for the purposes of that section.
The Registrar heard the creditor’s petition on 10 October 2020, at the conclusion of which the Registrar directed that the parties file and serve further written submissions. The Registrar made a sequestration order on 21 December 2023, as I have already noted.
On 1 February 2024 the Debtor filed an application for Review in which the Debtor sought the following orders:
Interim orders sought
1.Pursuant to s 37 of the Bankruptcy Act 1966 (Cth) and rule 25.12 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 and/or rule 36.08 of the Federal Court Rules 2011, all proceedings under a sequestration order made on 21 December 2023 be stayed pending determination of this Application for review of the Registrar’s decision.
Final orders sought
2.The Sequestration Order made on 21 December 2023 against the estate of Sheridyn Ashwood be set aside.
3.The hearing of the Creditor’s petition filed on 7 June 2023 be adjourned to a date to be fixed following determination of the Supreme Court of New South Wales Proceedings No. 2021/00233848.
4.Liberty to apply to three days’ notice.
5.The costs of Sheridyn Ashwood (including reserved costs) be fixed in the amount determined by the Court and paid by the Respondents to this Application for review.
PARTIES’ SUBMISSIONS ON APPLICATION FOR STAY
The Debtor applies for a stay, not in aid of an appeal, but in aid of an application for review of a sequestration order made by a Registrar. That is significant, the Debtor submits, because she has a constitutional right to apply to a Judge of this Court to consider de novo whether a sequestration order should be made against her estate; and the Debtor has exercised her right by filing, within time, an application for review of the Registrar’s orders. The Debtor submits that in these circumstances it is unnecessary for her to show she has a reasonably arguable case that, on review, a Judge will be satisfied that a sequestration order ought not be made. The Debtor in any event submits she does have reasonable grounds for expecting that on an application for review, a Judge of this Court will set aside the sequestration order, and grant an adjournment pending the determination of the Debtor’s claims in the NSWSC Proceeding.
The Debtor further submits that if a stay is not granted she will be prejudiced. First, the trustee in bankruptcy will commence to take steps to realise the Debtor’s assets, including assets the Debtor employs in conducting her equestrian business; and that these steps will destroy the business which will not be capable of being resuscitated if, on review, a Judge of this Court concludes sequestration order ought not be made. Second, the Debtor will lose her ability to procedure the claims she makes in the NSWSC Proceeding.
The Creditors, on the other hand, submit as follows:
(a)The Debtor filed her application for review outside the 21 day period prescribed by the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) (Bankruptcy Rules).
(b)The stay, in the form in which it is sought, if granted, would not prevent the prejudice the Debtor claims she will suffer if a stay is not granted.
(c)The Debtor has no reasonable prospects of a Judge of this Court ordering that a sequestration order should not be made.
(d)The Creditors will suffer prejudice if a stay is granted in that they will remain unable to exercise rights they may otherwise have to enforce the judgment by execution or some other process
(e)The Debtor has failed to put before the Court evidence that she is solvent; and there is evidence that she is insolvent. In those circumstances it will be against the public interest to permit the Debtor to continue to trade.
QUESTIONS ARISING
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.
When making a sequestration order, the Registrar exercises power the Bankruptcy Act confers on the Court to make. That is part of the judicial power of the Commonwealth that has been vested in the Court pursuant to s 71 of the Constitution; and it is only a Judge of the Court that can exercise the judicial power of the Commonwealth. It is open, however, to Parliament, or the Judges pursuant to their rule making powers, to delegate to a Registrar the power to make a sequestration order; but this may be done only where:[4]
the power of delegation cannot be exercised in a manner that is inconsistent with the continued existence of [the Court] as a federal court constituted under Ch. III. In other words, both the legislative power and the powers of delegation must be exercised in conformity with the requirement that the Court’s federal jurisdiction, powers and functions are to be exercised by a court whose members are judges appointed pursuant to s. 72 of the Constitution.
[4] Harris v Caladine [1990] HCA 9, at [10]; (1990) 172 CLR 84, at page 94 (Mason CJ and Deane J)
In Harris v Caladine the justices of the High Court identified the circumstances in which the delegation of judicial power to a person who is not a judge appointed pursuant to s 72 of the Constitution will be consistent with the requirement that the Court’s federal jurisdiction, powers and functions are to be exercised by a court whose members are judges appointed pursuant to s 72 of the Constitution. Mason CJ and Deane J said:[5]
For present purposes it is sufficient for us to say that, if the exercise of delegated jurisdiction, powers and functions by a court officer is subject to review or appeal by a judge or judges of the court on questions of both fact and law, we consider that the delegation will be valid. Certainly, if the review is by way of hearing de novo, the delegation will be valid. The importance of insisting on the existence of review by a judge or an appeal to a judge is that this procedure guarantees that a litigant may have recourse to a hearing and a determination by a judge. In other words, a litigant can avail him or herself of the judicial independence which is the hallmark of the class of court presently under consideration.
[5] Harris v Caladine [1990] HCA 9, at [11]; (1990) 172 CLR 84, at page 95
McHugh J said:[6]
It follows, in my opinion, that this Court or a federal court created under s.71 of the Constitution may be authorised to delegate the exercise of its judicial powers to an officer of that court provided that the exercise of the power is subject to review by way of a de novo hearing by a Justice or judge of that court who has been appointed in accordance with s.72 of the Constitution. It goes without saying that the Parliament cannot require the court to delegate any of its powers. Nor, in my opinion, will anything less than a hearing de novo to review the exercise of the power by the officer be sufficient. That is to say, appellate review is an insufficient condition of the delegation of the exercise of the power; there must be a complete rehearing of the facts and the law as they exist when the Justice or judge reviews the order made by the officer. Otherwise, the officer and not the Justices or judges of the court would be exercising the original jurisdiction of the court.
[6] Harris v Caladine [1990] HCA 9, at [21]; (1990) 172 CLR 84, at page 164
Consistently with these requirements, the FCFC Act provides for a person against whom a Registrar has made a sequestration order to apply for a hearing de novo of the Registrar’s exercise of the power to make a sequestration order. The provision is 256(1) of the FCFC Act which, together with s 256(2), provides:
(1)A party to proceedings in which a delegate has exercised any of the powers of the Federal Circuit and Family Court of Australia (Division 2) under section 254 may:
(a) within the time prescribed by the Rules of Court; or
(b) within any further time allowed in accordance with the Rules of Court;
apply to the Court for review of that exercise of power.
(2)The Federal Circuit and Family Court of Australia (Division 2) may, on application under subsection (1) or on its own initiative, review an exercise of power by a delegate under section 254, and may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised.
The time for applying for review of the order a Registrar has made has been prescribed by r 2.02(3) of the Bankruptcy Rules; and the time is within 21 days after the day on which the power pursuant to which the Registrar made the order was exercised.
Also relevant is r 21.04 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) (GFL Rules), which provides:
(1) The review of an exercise of power by a Registrar must proceed by way of a hearing de novo.
(2)In the review, the Court:
(a) may receive as evidence any affidavit or exhibit tendered before the Registrar; and
(b) may with leave receive further evidence; and
(c) may receive as evidence:
(i) any transcript of the proceeding before the Registrar; or
(ii) if there is no transcript--an affidavit sworn by a person who was present at the proceeding before the Registrar as a record of the proceeding.
The nature of a “hearing de novo” has been explained by a number of judges. In Caladine Dawson J said:[7]
An order made by a Registrar is reviewable by way of a hearing de novo. That means that the court reviewing the order begins afresh and exercises for itself any discretion exercised below by the Registrar. The parties commence the application again, subject to any restrictions in the rules upon the calling of evidence or provisions relating to the use before the court of evidence called before the Registrar. A hearing de novo involves the exercise of the original jurisdiction and “the informant or complainant starts again and has to make out his case and call his witnesses”.
[7] Harris v Caladine [1990] HCA 9, at [27]; (1990) 172 CLR 84, at page 124
In Conlan v Mladenis, Sundberg J said: [8]
An applicant for review under [s 256(2)] is under no obligation to demonstrate error on the part of the Registrar, and does not need to establish that the Registrar’s exercise of discretion miscarried in the sense described in House v The King [1936] HCA 40; (1936) 55 CLR 499 at 505: Pattison v Hadjimouratis [2006] FCAFC 153 at [153]- [154]. The [judge to whom an application for review is made] must exercise any discretion on the material before him or her unaffected by how the Registrar may have exercised the discretion.
[8] Conlan v Mladenis [2007] FCA 1129, at [5]
And in Bechara v Bates the Full Federal Court said:[9]
(a)The application for review leads to a hearing de novo of the creditor’s petition.
(b)The hearing (or rehearing) of the creditor’s petition is not prosecuted by the debtor (applicant for review) but by the creditor in the proceeding in which the registrar’s order was made.
(c)The application for review is a demand that the claim for relief (the sequestration order) be heard by a judge.
(d)The onus is upon the creditor to prosecute its petition. The only onus of the debtor/bankrupt against whose estate a sequestration order has been made is to prove either solvency or any other sufficient cause under s 52(2) of the Bankruptcy Act 1966 (Cth).
[9] Bechara v Bates [2021] FCAFC 34, at [27]
Although an application for review of a Registrar’s sequestration order is, in the words of the Full Federal Court, “a demand that the claim for relief (the sequestration order) be heard by a judge”, the Registrar’s sequestration order has legal effect unless, and until, a judge, on an application for review, concludes that a sequestration order should not be made. Until that time, the position is that an “otherwise valid order of the Court burdened by an inhering right of the party to seek review and a rehearing” will have “engaged the operation of the Bankruptcy Act, including the change of status of the debtor to bankrupt”, the change under s 58(1) of the Bankruptcy Act of “[r]ights in and to property”, and a trustee in bankruptcy’s taking up office and beginning to act.[10] If a Judge determines that a sequestration order should not be made, it will be necessary “to untangle and unravel as far as possible, and to the extent it is just, the rights and positions of the parties involved”.[11]
[10] Robson v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143, at [22] (Allsop CJ)
[11] Robson v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143, at [23] (Allsop CJ)
Thus, an application for review of a Registrar’s sequestration order differs from an appeal against a sequestration order made by a Judge (Judge’s sequestration order). That suggests that to the extent the Court has power to order a stay of a Registrar’s sequestration order, the discretionary factors that are or may be relevant to the exercise of such power in relation to a Registrar’s sequestration order may be different from, or attract different weight than, the discretionary factors that are or may be relevant to determining whether to order a stay of a Judge’s sequestration order.
POWER TO GRANT STAY
The Registrar has made an order under s 52(3) of the Bankruptcy Act that all proceedings under the orders the Registrar made on 23 December 2023, including the sequestration order, be stayed for a period of 21 days commencing on 14 January 2024. It appears that the Registrar provided for the 21 days to commence on 14 January 2024 because of r 1.61 of the Federal Court Rules 2011 (Cth) (Federal Court Rules).
Power to grant stay under s 52(3) of the Bankruptcy Act
It is convenient at this point to say something about s 52(3) of the Bankruptcy Act. It confers a power to stay all “proceedings under a sequestration order”. That merits a number of observations. First, as Neaves J concluded in In Re Wardle:[12]
[A] sequestration order does not itself operate to change the debtor’s status or to vest his property in the trustee. The making of the sequestration order is but the factum upon which the statute operates to bring about the consequences upon the debtor's status and property. . . . [T]he operation which a sequestration order has is to trigger the statutory provisions which bring about the consequences of bankruptcy.
[12] In Re Wardle (1987) 70 ALR 633, at page 635
Beach J made the same point in Endresz v Australian Securities and Investments Commission:[13]
It is apparent from the provisions and operation of the Bankruptcy Act 1966 (Cth) (the Act) that it is inapposite to talk of a stay of a sequestration order as such. When a sequestration order is made, it takes immediate and automatic effect by force of the Act. There is an immediate vesting of property in the trustee in bankruptcy. Moreover, after-acquired property of the bankrupt vests as soon as it is acquired. See, generally, Nand v Fuji Xerox Australia Pty Ltd [2014] FCA 757 at [3] per Yates J. It is conceptually incoherent to contemplate a judicial stay order as being available to countermand automatic legislative operation where no question of invalidity is involved.
[13] Endresz v Australian Securities and Investments Commission [2014] FCA 1139, at [8]
The second observation concerns the meaning of “proceedings under” a sequestration order. In Stephen Michael Coleman v Lazy Days Investments Pty Ltd, Carr J was prepared to assume, without deciding, that “proceedings under a sequestration order” included both the administrative tasks prescribed by the Bankruptcy Act, and curial proceedings in relation to the sequestration order itself: [14]
In my view, the various administrative steps normally taken in accordance with the Act once a sequestration order is made would fall within the expression "proceedings under the judgment appealed from". They may also constitute proceedings under the Act. I shall assume, without deciding, that they are proceedings under the Act or at least proceedings of the type referred to in s.52(3). The fact that the administrative steps are prescribed by the Act does not, in my view, prevent them from also being proceedings under a judgment, which is a very wide expression. In the context of bankruptcy, the reference to subsequent proceedings under a sequestration order, in my opinion, requires a wider definition of "proceedings" than that contained in s.5(1) of the Federal Court Act. It must extend to administrative proceedings designed to give effect to the statutory consequences of that judgment.
[14] Stephen Michael Coleman v Lazy Days Investments Pty Ltd [1994] FCA 1442, at [15]
A third observation relates to the distinction between staying proceedings under a sequestration order and suspending the operation of a sequestration order. Neaves J considered that distinction in In Re Wardle:[15]
The legislature, in conferring power on the Court to suspend the operation of a sequestration order, must, in my opinion, have intended to enable the Court to prevent those statutory consequences ensuing during the period of suspension. Otherwise, suspension of the sequestration order would have no practical effect.
[15] In Re Wardle (1987) 70 ALR 633, at page 635
This passage must be read subject to the s 37 of the Bankruptcy Act, which provides:
(1)Subject to subsection (2), the Court may rescind, vary or discharge an order made by it under this Act or may suspend the operation of such an order.
(2)The Court does not have power to rescind or discharge, or to suspend the operation of:
(a) a sequestration order; or
(b) order for the administration of the estate of a deceased person under Part XI.
There are cases where judges of the Federal Court have granted a suspension of the operation of a sequestration order to the extent necessary to permit the debtor to prosecute a proceeding.[16]
[16] James v Commonwealth Bank of Australia [2015] FCA 582 (Katzmann J); Ritson v Commissioner of Police (NSW) [2021] FCA 1315 (Halley J)
Power to grant stay under s 256(2) of the FCFC Act
There is another source of power to stay a Registrar’s sequestration order; and that is s 256(2) of the FCFC Act. In Trustees of the Franciscan Missionaries of Mary v Weir,[17] the Full Federal Court held that s 35A(6) of the Federal Court of Australia Act 1976 (Cth), being the equivalent of s 256(2) of the FCFC Act, is a source of power to stay all proceedings on a sequestration order, and also to suspend the operation of a sequestration order. The Full Federal Court said:[18]
In our opinion, ss 37 and 52(3) of the Bankruptcy Act are provisions having general application to the exercise of jurisdiction in bankruptcy by the Court; but the exercise of that jurisdiction through a delegation satisfying the strict requirements of Harris v Caladine and the other authorities to which we have referred is a special case, and it is governed by its own rules. Indeed, it must be in order to be constitutionally valid. S 35A(6) of the Federal Court of Australia Act provides:
“The Court may, on application under subs (5) [the subsection enabling a party to apply to the Court to review the Registrar's exercise of power] or of its own motion, review an exercise of power by a Registrar pursuant to this section and may make such order or orders as it thinks fit with respect to the matter with respect to which the power was exercised.”
The last portion of this subsection is in unqualified terms, and we construe it as authorising the Court, if it thinks fit, to grant a stay order, in a bankruptcy case as in other cases, pending the completion of its review, as an appropriate order "with respect to the matter with respect to which the power was exercised". When the power is exercised in a bankruptcy case, it is not limited to an order for a period of twenty-one days. We do not think s 35A(6) should be construed as failing in any respect to empower the Court to make such an order, but if the section requires any supplementation, we agree with what we understand to have been the view of Tamberlin J in Australian Guarantee Corporation Limited v Collard that s 23 of the Federal Court of Australia Act is adequate for the purpose: cf Minister for Immigration, Local Government and Ethnic Affairs v Msilanga [1992] FCA 41; (1992) 34 FCR 169.
[17] Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574 (Beaumont, Burchett, and Hely JJ)
[18] Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574, at [23]
The Full Federal Court concluded:[19]
Question (a) stated in the Special Case should be answered in the affirmative, and the further question whether there is power to suspend the operation of the Registrar's order or stay it pending completion of the review proceedings should also be answered in the affirmative.
[19] Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574, at [24]
In Owners of Strata Plan No 203747 v Saha, Stewart J doubted that Weir is correct “and whether as a matter of legal power or practicality a sequestration order made by a registrar can or should be stayed by a court in the exercise of its review power”.[20] His Honour, however, acknowledged that “[t]hat is . . . the law on current authority, and I applied it”. The Full Federal Court in Ritson v Commissioner of Police (NSW), after referring to Saha, said:[21]
This Court has not heard argument on the issue of whether, in the context of a review of a Registrar's sequestration order, the Court has power to grant a stay of a sequestration order. The question whether the Full Court in Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574; 98 FCR 447 is correct would or may involve an important constitutional question as to the scope of the necessary requirements attending a review by a judge of a Registrar's decision made necessary by Harris v Caladine [1991] HCA 9; 172 CLR 84.
[20] Owners of Strata Plan No 203747 v Saha [2021] FCA 961, at [24]
[21] Ritson v Commissioner of Police (NSW) [2021] FCAFC 208, at [66]
PRINCIPLES GOVERNING EXERCISE OF POWER TO STAY
The usual principles that apply when considering whether a stay should be granted pending the determination of an appeal, including an appeal from a Judge’s sequestration order, usually require the court to consider “whether there is an arguable point raised by the proposed appeal and whether the balance of convenience favours granting a stay”.[22]
[22] Singh v Owners Strata Plan No 11723 [2012] FCA 538, at [29] (Griffiths J)
It may be accepted that the balance of convenience is relevant to determining whether to grant a stay or suspend the operation of a Registrar’s sequestration order; but it is doubtful that on an application for a stay of a Registrar’s sequestration order the debtor must show that there would be an arguable point he or she would raise on the hearing of the application for review. That follows from a Registrar’s sequestration order being of no legal relevance to a Judge’s considering de novo whether a sequestration order should be made, assuming that the debtor has applied within the prescribed time for a review of the Registrar’s sequestration order. As I have already noted, the hearing of the creditor’s petition on an application for review is prosecuted by the creditor, not the debtor. To the extent there is any onus on an application for a stay of a Registrar’s sequestration order, it may be that it would rest on the creditor to show that the balance of convenience favours a stay of the sequestration order not being granted. In any event, I do not decide this application for a stay on the basis that the apparent merits of a debtor’s prospects of a Judge not making a sequestration order is irrelevant.
RELEVANCE OF NOT APPLYING FOR REVIEW WITHIN PRESRIBED TIME
A debtor’s right, on an application for review of a Registrar’s sequestration order, to a de novo hearing of the creditor’s application for a sequestration order depends on the debtor having made an application for review within the 21 day period prescribed by r 2.02(3) of the Bankruptcy Rules. Where, however, a debtor has not applied for the review of the Registrar’s sequestration order within the 21 day period, the debtor must seek an order from the Court that the 21 day period be extended. That would require the exercise of discretion, and would bring into play factors that would not be relevant if an application for review were made within the 21 day period. The Court would have to consider whether there is a reasonable explanation for the delay; the length of the delay, what actions persons have taken on the faith of the sequestration order and whether, having taken such actions, extending the time for making an application for review will cause prejudice to such persons; and also whether there would be any arguable point in the Judge’s hearing of the creditor’s petition, such as would merit extending the time for the making of an application for review of the sequestration order.
WHETHER DEBTOR APPLIED WITHIN 21 DAY PERIOD
The Debtor filed her application for review on 31 January 2024; and she submits this occurred within the 21 period after the Registrar made the sequestration order. The Debtor relies on r1.61(1) and r 1.61(5) of the Federal Court Rules, which provides:
(1)A period of time for doing an act or thing fixed by these Rules or by an order of the Court is to be calculated in accordance with this rule.
. . . .
(5)If the time fixed includes a day in the period starting on 24 December in a year and ending on 14 January in the next year, the day is not to be counted.
The GFL Rules do not contain an equivalent provision. Sub rule 1.06(2) of the GFL Rules, however, provides that,
if in a particular case the Rules are insufficient or inappropriate, the Court may apply the Federal Court Rules or the Federal Court (Criminal Proceedings) Rules 2016 in whole or in part and modified or dispensed with, as necessary.
Counsel for the Creditors submitted that r 1.06(2) of the GFL Rules is not available to be applied to the circumstances of this case because, although the GFL Rules contain provisions relating to time, they do not contain an equivalent provision to r 1.61(5) of the Federal Court Rules. That, by itself, is not a sufficient reason for concluding that r 1.61 cannot be applied; r 1.06(2) of the GFL Rules contemplates there will be rules contained in the Federal Court Rules that are not contained in the GFL Rules, but which the Court may nevertheless apply to a proceeding before the Court.
The question is whether the GFL Rules are insufficient or inappropriate to cover the subject matter which r 1.61(5) of the Federal Court Rules covers. The subject is time that runs during what is regarded as a Christmas and new year holiday season in Australia. Subrule r 1.61(5) of the Federal Court Rules recognises that in the period from 24 December to 14 January 2021 many, perhaps most, legal practitioners and their clients, as well as unrepresented parties, will be on holiday or will otherwise be on leave. There is every reason to suppose that legal practitioners and their clients and litigants who are not represented who have business with the Court are equally likely to be on holidays or on leave in the same period as lawyers and litigants who have business with the Federal Court. To the extent the GFL Rules do not address the subject of time running during the holiday period, therefore, they are insufficient; and r 1.06(2) of the Federal Court Rules is available to be applied by the Court to address that insufficiency. I am satisfied that it is appropriate to apply to the circumstances of this case r 1.61(5) of the Federal Court Rules.
On the basis that r 1.61(5) of the Federal Court Rules applies to the circumstances of this case, the Debtor has applied for the review of the Registrar’s sequestration order made on 23 December 2023 within the 21 day period after the making of that order, as prescribed by r 2.02 of the Bankruptcy Rules.
SHOULD STAY OR SUSPENSION BE GRANTED?
The sequestration order the Registrar made against the Debtor’s estate on 23 December 2023 has triggered the operation a number of provisions of the Bankruptcy Act. Most significantly, it triggered s 58(1) of the Bankruptcy Act which, on the Registrar making the sequestration order on 23 December 2023, applied to vest in the Debtor’s trustee in bankruptcy all of the Debtor’s “property” (subject to a number of exceptions it is unnecessary to state). Further, it appears (although there is little evidence about this) that the Debtor conducts a business; and the effect of the Registrar’s sequestration order is that the Debtor cannot conduct her business. These matters by themselves constitute a serious prejudice to the Debtor.
The sequestration order also triggered s 60(2) and s 60(3) of the Bankruptcy Act in relation to the claims the Debtor makes in the NSWSC Proceeding. Those subsections provide as follows:
(2)An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
(3)If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.
There is no evidence that a notice has been given to the Debtor’s trustee in bankruptcy. That means that the claims the Debtor makes in the NSWSC Proceeding are stayed; and there is no evidence that, on the Debtor’s trustee being given any notice, the trustee has the funds, or the trustee will make an election to continue with the Debtor’s claims. These are matters that are prejudicial to the Debtor because they prevent her from pursuing and maintaining her interests in the NSWSC Proceeding.
I next turn to the matters on which the Creditors rely for not granting a stay.
(a)It is true, as the Creditors submit, that granting an order staying all proceedings under the sequestration order will not remove the operation of s 60(2) and s 60(3) of the Bankruptcy Act on the claims the Debtor makes in the NSWSC Proceeding. I am satisfied, however, that s 256(2) of the FCFC Act confers on the Court power to suspend the operation of s 60(2) and s 60(3) of the Bankruptcy Act to the extent those provisions apply to the claims the Debtor makes in the NSWSC Proceeding.
(b)I am satisfied, for the purposes of this application for a stay, that the Debtor has sufficient prospects of succeeding on her application for review that a sequestration order should not be made on the grounds that the Debtor has claims that are being litigated in another court which, if successful, will lead to the Creditors being indebted to the Debtor in an amount greater than the amount for which the Debtor is indebted to the Creditors. I certainly cannot conclude the Debtor has no reasonable prospects of so succeeding.
(c)The Creditors have not identified what process or processes for the enforcement of the judgment in respect of which the bankruptcy notice has been issued would not be available to them if a stay were granted.
(d)The granting of a stay will not imperil the public interest by permitting a potentially insolvent Debtor to trade pending the determination of her application for review. As I have already noted, a stay of a sequestration order does to suspend the consequences provided for by Bankruptcy Act when a sequestration order is made. Unless I make an order suspending the operation of a particular provision or provisions of the Bankruptcy Act, the Debtor’s property that vested in the Debtor’s trustee in bankruptcy on 23 December 2023 when the Registrar made the sequestration order will remain vested in the trustee.
I am satisfied that, subject to one qualification, it would be appropriate to make an order staying all proceedings on the sequestration order up to and including the time at which the Debtor’s application for review of the sequestration order is determined by a Judge of the Court. A stay would minimise the prejudice the Debtor will suffer if the trustee undertakes the duties he is required to undertake under the Bankruptcy Act, but a Judge concludes a sequestration order should not be made; but the stay will sufficiently protect the interests of the Debtor’ creditors, because the Debtor’s property that was vested in the Debtor’s trustee on the making of the sequestration order will remain vested in the trustee.
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.
I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 7 February 2024
4
18
7