B Pty Ltd v Sutton (No.2)
[2020] FCCA 3156
•24 November 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
B Pty Ltd v Sutton (No.2) [2020] FCCA 3156
File number(s): SYG 73 of 2020 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 24 November 2020 Catchwords: BANKRUPTCY – PRACTICE AND PROCEDURE – Application for an order under s.52(3) of the Bankruptcy Act 1966 (Cth) that proceedings under sequestration order be stayed pending appeal – whether arguable prospects of succeeding in setting aside sequestration order on appeal – whether balance of convenience favours making of order – application dismissed. Legislation: Bankruptcy Act 1966 (Cth), s.52(3)
Federal Circuit Court Rules 2001 (Cth), r.2.08B(1)(b)Cases cited: B Pty Ltd v Sutton [2020] FCCA 3068
Coshott v Prentice [2013] FCA 1085
Endresz v Australian Securities and Investments Commission [2014] FCA 1139
Endresz v Australian Securities and Investments Commission (No 2) [2015] FCAFC 33
Singh v Owners Strata Plan No. 11723 [2012] FCA 538
Number of paragraphs: 15 Date of hearing: 18 November 2020 Place: Sydney Counsel for the Applicant: Mr C Freeman, by telephone Solicitor for the Applicant: Dentons Counsel for the Respondent: Mr G Bigmore QC, by telephone Solicitor for the Respondent: Christopher Dale Supporting Creditor: The Supporting Creditor did not appear ORDERS
SYG 73 of 2020 BETWEEN: B PTY LTD
Applicant
AND: MR SUTTON
RespondentC LTD
Supporting Creditor
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
19 NOVEMBER 2020
THE COURT ORDERS THAT:
1.The respondent’s application for an order under s.52(3) of the Bankruptcy Act 1966 (Cth) that proceedings under the sequestration order made on 13 November 2020 continue to be stayed after 19 November 2020 is dismissed.
2.Subject to order 3, the respondent pay the applicant’s costs of the application for a stay, such costs to be paid out of the respondent’s bankrupt estate.
3.The applicant have liberty to apply for any variation to vary order 2.
4.Pursuant to r.2.08B(1)(b) of the Federal Circuit Court Rules 2001 (Cth) no person other than the parties and their legal representatives, or the trustees in Bankruptcy, Mr J and Mr K, may have access to the documents filed in the proceeding without the prior leave of the Court.
IT IS NOTED that publication of this judgment under the pseudonym B Pty Ltd v Sutton (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
On 13 November 2020 I pronounced orders that included an order that the estate of the respondent be sequestrated.[1]
[1] B Pty Ltd v Sutton [2020] FCCA 3068
Immediately after I pronounced my orders counsel for the respondent applied for an order under s.52(3) of the Bankruptcy Act 1966 (Cth) (Act) that all proceedings under the sequestration order be stayed for 21 days. After some discussion, I granted a stay up to and including 18 November 2020, and set down for hearing at 4.15 pm on 18 November 2020 any application the respondent intended to make on that day for an extension of the stay.
At 4.15 pm on 18 November 2020 I heard the respondent’s application for an extension of the stay. After I heard argument I indicated I would extend the stay I had granted on 13 November 2020 to 19 November 2020, I would pronounce my orders at 9.30 am on 19 November 2020, and that that day I would publish my reasons later on the day. I also indicated that I would make an order I also propose to make an order under r.2.08B(1)(b) of the Federal Circuit Court Rules 2001 (Cth) restricting access to documents filed in the proceeding to the parties and their legal representatives, and to the trustees in bankruptcy and their legal representatives.
At 9.30 am on 19 November 2020 I made orders, including an order dismissing the respondent’s application for an order under s.52(3) of the Act that proceedings under the sequestration order I made on 13 November 2020 continue to be stayed after 19 November 2020, noting that I would publish my reasons in the course of the day. I finalised my reasons for judgment on 19 November 2020, and on that day I instructed that those reasons be sent to the parties by email. Due to an information technology issue that was only brought to my attention on 24 November 2020, the reasons for judgment I had prepared on 19 November 2020 had not been sent. These, then, are my reasons for judgment for dismissing the respondent’s application for a stay I had instructed be sent to the parties on 19 November 2020.
PRINCIPLES
Before I consider the grounds on which the applicant relied it will be necessary to refer to some principles. I begin with s.52(3) of the Act, being the provision on which the respondent relies for a stay. It provides:
The Court may, if it thinks fit, upon such terms and conditions as it thinks proper, stay all proceedings under a sequestration order for a period not exceeding 21 days.
Subsection 52(3) of the Act is an available source of power for ordering a stay in aid of an appeal from the making of a sequestration order; and the parties proceeded on the assumption that the principles that apply to the exercise of a power to stay proceedings on a judgment or order pending an appeal apply to applications for a stay under s.52(3) of the Act. Counsel for the respondent did not refer to any authorities, but he accepted that the respondent must demonstrate that he intends to appeal on grounds that are not frivolous or fatuous, and that he must show that the balance of convenience favours the granting of a stay. Counsel for the applicant, on the other hand, referred me to the principles governing a stay stated by Perry J in Coshott v Prentice.[2] For the purposes of this application, it will be sufficient if I refer to the following passage from the judgment of Beach J in Endresz v Australian Securities and Investments Commission.[3]
More specifically, two questions must be considered.
First, is there an arguable point on the proposed appeal (see Nolten v Groeneveld Australia Pty Ltd [2011] FCA 1494 (Nolten) at [24] per Kenny J) or is there some “rational prospect of success” in relation to any of the grounds of appeal (see Burns v AMP Finance Ltd [2005] FCA 761 (Burns) at [5] per Emmett J)? Second, does the balance of convenience favour the grant of a stay (see Nolten at [24] and [46])?
[2] Coshott v Prentice [2013] FCA 1085, at [35]-[38]
[3] Endresz v Australian Securities and Investments Commission [2014] FCA 1139, at [15], [16]
ARGUABLE GROUNDS OF APPEAL?
Counsel for the respondent stated from the bar table that he had advised the respondent he had proper grounds for appeal. Counsel, however, did not proffer any draft notice of appeal or any document that outlined the proposed grounds of appeal. Instead, counsel stated from the bar table the grounds that would be included in a notice of appeal. These were that my discretion in not granting the respondent a short adjournment had miscarried; I had erred to the extent I considered that whether a freezing order operated as an implied stay of execution of judgment turned not only on whether the debtor could have paid the judgment debt but also on whether the debtor would have done so; and I failed to refer to the judgment in Endresz v Australian Securities and Investments Commission (No 2).[4]
[4] Endresz v Australian Securities and Investments Commission (No 2) [2015] FCAFC 33
There a number of difficulties with these proposed grounds, but I need only mention two.
First, counsel did not identify matters on which the respondent proposes to rely in support of each of the grounds. Second, and more significantly, counsel did not articulate how success on any of the three grounds could arguably lead to the sequestration order being set aside.
(a)In relation to the first ground, the respondent has not put on any evidence that identifies the evidence he would have adduced had I granted a short adjournment. Counsel for the respondent indicated that the respondent may have considered adducing expert evidence, and that he would have required more than a short adjournment to do that; but if that is the case, it is difficult to see how it could be said that a failure to have given the respondent the short adjournment he sought could arguably result in the setting aside of the sequestration order.
(b)In relation to the second ground, even if it is correct that a court must assess whether a freezing order operated as an implied stay of execution of judgment only by reference to whether the debtor could have paid the judgment debt, I found that the respondent failed to discharge the burden of proving “he could have complied with the requirements of the bankruptcy notice within the time specified in the bankruptcy notice or, if he could have complied, the respondent would have complied”.[5]
(c)As for the third ground, although at the hearing of the creditor’s petition the respondent submitted there were similarities between Endresz v Australian Securities and Investments Commission (No 2) and the case that was before me,[6] counsel has not submitted the respondent proposes to submit to the appeal court that I made an error to the effect of the error the primary judge in that case was found to have. In particular, counsel did not say the respondent proposed to submit to the appeal court that I had conflated or confused the “adjournment question and the s.52(2) question”.[7]
[5] B Pty Ltd v Sutton [2020] FCCA 3068, at [53]
[6] These being the matters identified in Endresz v Australian Securities and Investments Commission (No 2) [2015] FCAFC 33 at [40], [44], and [46]
[7] Outline of Respondent’s Submissions, [9]
I am not satisfied the respondent has articulated any reasonably arguable grounds of appeal sufficient to warrant my ordering a stay. Even if I were satisfied the grounds of appeal as articulated were reasonably arguable, I am not satisfied that, if he were to succeed on any or all of the three of the grounds, the respondent would have any reasonably arguable prospects of the sequestration order being set aside. In other words, I would not be satisfied the respondent would have reasonable prospects of showing that the errors the respondent proposes to pursue on appeal, if established, would have been material to the making of the sequestration order.
BALANCE OF CONVENIENCE
Counsel for the respondent submitted that if a stay is not ordered the respondent would be unable to pursue an application for a stay of the Family Law Proceeding Orders.[8] That is a reference to an application in a case the respondent filed in the Family Law proceeding on 18 November 2020.
[8] That is the orders to which I refer in B Pty Ltd v Sutton [2020] FCCA 3068, at [3]
Counsel did not explain how my not staying proceedings on the sequestration order I made could or would prevent or hinder the respondent from pursuing his application for a stay in the Family Law proceeding. The respondent filed the application in a case after 13 November 2020 when the sequestration order was made. There is no suggestion the trustees in bankruptcy propose to intervene in the Family Law proceeding or otherwise take any step to prevent or inhibit the respondent from proceeding with his application for a stay of the Family Law Proceeding Orders.
More generally, the respondent has “not pointed to any precise actual or anticipated action or proceedings of the” trustees in bankruptcy the respondent wants restrained, but if otherwise were allowed to go ahead would cause him significant prejudice.[9]
[9] Endresz v Australian Securities and Investments Commission [2014] FCA 1139, at [22]
Also relevant, although not determinative, is the respondent’s not having put on any evidence about his financial position. That such evidence may be relevant to applications for a stay of proceedings under a sequestration order is a point Griffiths J made in Singh v Owners Strata Plan No. 11723:[10]
As has been remarked in other similar cases, the Court generally expects that, in an application for interlocutory relief of the type brought by [the applicants for a stay], there should be evidence as to the financial position of the party seeking to stay a sequestration order (see, for example, Burns, supra at [5] per Emmett J and Liprini v Liprini (2010) FCA 1117 at [12] and [22] per Jagot J). Smith FM observed at [23] of his reasons that neither [of the applicants for a stay] adduced any evidence before him showing that they were able to meet their debts and were not insolvent so as to avoid a sequestration order being made in the Court’s discretion.
[10] Singh v Owners Strata Plan No. 11723 [2012] FCA 538, at [57]
Thus, even if I were to have been satisfied the respondent has reasonably arguable grounds of appeal for setting aside the sequestration order, I would not have been satisfied that the balance of convenience would favour my granting the stay the respondent seeks.
I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 24 November 2020
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