Official Trustee in Bankruptcy v Radin - [1999] FCA 1467

FEDERAL COURT OF AUSTRALIA
Radin, in the matter of; Official Trustee in Bankruptcy v Radin [1999] FCA 1467
BANKRUPTCY – suggested inconsistency between two orders made on same occasion – sequestration order and order staying operation of order terminating deed of arrangement – construction of orders – special nature of sequestration order – lack of power in Court to suspend operation of sequestration order – order made setting aside order suspending operation of order terminating deed of arrangement.
Bankruptcy Act 1966 (Cth) ss 37(2)(a), 43(2), 52(3), 58(1)(a), 233(2).
Federal Court Rules O 35 r 7
IN THE MATTER OF MICHAEL RADIN
MICHAEL RADIN v PETER DAVID RODGERS & ANOR
OFFICIAL TRUSTEE IN BANKRUPTCY v MICHAEL RADIN & ORS
NX 57 OF 1994
N 8072 OF 1999
LINDGREN J
20 OCTOBER 1999
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NX 57 OF 1994

IN THE MATTER OF MICHAEL RADIN

BETWEEN:

MICHAEL RADIN
Applicant

AND:

PETER DAVID RODGERS
First Respondent

COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)
Second Respondent

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 8072 OF 1999

IN THE MATTER OF MICHAEL RADIN

BETWEEN:

OFFICIAL TRUSTEE IN BANKRUPTCY
Applicant

AND

MICHAEL RADIN
First Respondent

COMMONWEALTH BANK OF AUSTRALIA
Second Respondent

MAXWELL WILLIAM PRENTICE
Third Respondent

JUDGE:

LINDGREN J

DATE:

20 OCTOBER 1999

PLACE:

SYDNEY

REASONS FOR JUDGMENT
(ex tempore)

On 9 June 1999 I made orders in proceeding NX 57 of 1994 (“the bankruptcy proceeding”) as follows:
“(1)The Deed of Arrangement dated 15 July 1994 between Michael Radin and Peter David Rodgers be and is hereby terminated.
(2) The estate of Michael Radin be sequestrated.
(3)The operation of order 1 be suspended for 21 days from 9 June 1999.
(4)All proceedings under order 2 be stayed for 21 days from 9 June 1999.”
The Commonwealth Bank of Australia (“the Bank”) was the creditor which sought termination of the deed of arrangement and sequestration of Mr Radin’s estate in proceeding NX 57 of 1994. The period of twenty-one days expired at midnight on 30 June 1999. According to the literal terms of the orders, the termination of the deed of arrangement operated on 1 July 1999 and proceedings under the sequestration order were free to take place on and from that date.
The Official Trustee in Bankruptcy commenced proceeding N 8072 of 1999 (“the new proceeding”) on 23 September 1999 seeking, in effect, only the following relief:
“(1)A declaration that the Official Trustee in Bankruptcy has been since 9 June 1999, and remains, the trustee of the bankrupt estate of Michael Radin.”
The Official Trustee sought the declaration because a question had arisen whether he or Maxwell William Prentice was the trustee in bankruptcy of Mr Radin’s estate. Mr Prentice had filed with the Official Receiver a consent to act as trustee dated 30 June 1999 under s 156A(1) of the Bankruptcy Act 1966 (Cth) (“the Act”) and the Official Receiver had issued to Mr Prentice a certificate of his appointment dated 6 July 1999. Underlying the filing of the consent and the issue of the certificate was an assumption: that the date on which Mr Radin became a bankrupt was 1 July 1999. This is made clear by subss 156A(1)(a) and (3) of the Act which provide, relevantly, as follows:
“156A
(1)A registered trustee may, by instrument signed by him or her and filed with the Official Receiver, consent to act:
(a)as the trustee of the estate of the debtor specified in the instrument in the event that the debtor becomes a bankrupt;
(3) Where:
(a)at the time when a debtor becomes a bankrupt, a registered trustee has, under subsection (1), consented to act as the trustee of the estate of the debtor and the consent has not been revoked, the registered trustee becomes, at that time, by force of this subsection, the trustee of the estate of the bankrupt; ...”
The new proceeding came before Branson J as Duty Judge on 5 October 1999. Apparently, the matter had at first appeared uncontentious, that is, it appeared to be uncontentious that the order sought by the Official Trustee should be made. However, her Honour raised a question whether it had been my intention that the sequestration order should come into effect on 9 June or twenty-one days later on 1 July. Her Honour pointed out to the parties that according to the former construction, the Official Trustee would be the trustee of Mr Radin’s estate (Mr Prentice’s consent to act as trustee had not been filed by 9 June), while according to the latter, Mr Prentice would be the trustee. Her Honour stood over the proceeding into my list. The Bank has since filed a notice of motion in proceeding NX 57 of 1994 seeking an order that order 3 of 9 June 1999 be set aside. That motion is being heard with proceeding N 8072 of 1999.
With respect, unfortunately the intended effect of my orders was, indeed, unclear on the face of the orders.
As appears from page forty-five of the Reasons for Judgment in the bankruptcy proceeding which I published on 7 June 1999, I was conscious of the fact that a sequestration order has special features in relation to the Court’s general power to suspend the operation of orders made under the Act. It was my intention, which I think page 45, but not the terms of the orders themselves makes clear, that the sequestration order operate upon the making of it on 9 June, that the various statutory effects of the making of a sequestration order then be enlivened, and that only proceedings under the order be stayed.
I will now elaborate. Section 37(2)(a) of the Act provides that the Court does not have power to “suspend the operation of” a sequestration order, but s 52(3) provides that the Court may, if it thinks fit, “stay all proceedings under a sequestration order for a period not exceeding 21 days”. I referred to these provisions, to O 52 r 17 of the Federal Court Rules, and to the decision of Carr J in Coleman v Lazy Days Investments Pty Ltd (1994) 55 FCR 297 at page forty-five of the Reasons for Judgment mentioned earlier.
The Act provides for certain effects of the making of a sequestration order. In particular, it provides that “upon the making of a sequestration order” the debtor “becomes a bankrupt” (s 43(2)) and that “where a debtor becomes a bankrupt” the property of the bankrupt, not being after acquired property, vests forthwith in the Official Trustee, unless at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate by virtue of s 156A of the Act (58(1)(a)). Since Mr Prentice had not signed the consent to act as trustee at the time when the sequestration order was made on 9 June, (he did not sign it until 30 June, the last day of the stay of proceedings under the sequestration order) s 156A did not operate.
The difficulty attending the terms of the orders of 9 June is that by reason of order 3, the deed of arrangement was terminated, not upon the making of that order but on 1 July, and s 233(2) of the Act provides that where a deed of arrangement has become binding on a debtor’s creditors, it is not competent for a creditor, so long as the deed remains in force, to proceed with a creditor’s petition. Put simply, until the order terminating the deed of arrangement became operative on 1 July 1999, it was not open for a creditor such as the Bank, to seek a sequestration order.
What I intended was that order 3 be read subject to orders 2 and 4, that is, be read so as to permit the sequestration order to operate immediately, though not so as to permit proceedings to be taken under it inconsistently with order 4. Putting the matter differently, a reading of page forty-five shows, I think, and it was in fact my intention, that order 3 should read as though it said: “The operation of order 1 be suspended for 21 days from today’s date, except to the extent necessary to permit the making and operation of order 2”.
What should now be done? I have re-read the deed of arrangement and have asked myself the question whether there are any provisions in it which could have sensibly continued to operate beyond 9 June and I think the answer is no. For this reason the sensible course is not to qualify order 3 of 9 June in the manner indicated, but to set it aside.
I note, in passing, that in my opinion it is not within power to make a sequestration order to operate only at a future date, and it was not my intention to do so. If it were possible to make such an order, a way would be opened up of circumventing s 37(2)(a)’s denial to the Court of power to suspend the operation of a sequestration order.
Order 35 r 7 of the Federal Court Rules empowers the Court to vary or set aside judgments or orders. Where a judgment or order has been entered (the four orders made on 9 June 1999 have been entered), the relevant provision is found in subr 7(2) of O 35 which provides, inter alia, that the Court may, if it thinks fit, set aside the judgment or order where:
“(e) the order does not reflect the intention of the Court; or
(f) the party in whose favour the order was made consents.”
Both of these grounds are available in the present case. Ground (e) applies for the reasons mentioned above. In relation to ground (f), the parties appearing have consented to the making of the orders which I set out below. Although Mr Radin has not appeared, there is in evidence a written consent by him to the making of such orders as the Court thinks fit.
In the bankruptcy proceeding I order that:
(1) order 3 made on 9 June 1999 be set aside; and
(2) the parties have leave to apply on twenty-four hours’ notice.
In the new proceeding I:
(1)declare that the Official Trustee in Bankruptcy has been, since 9 June 1999, and remains, the trustee of the bankrupt estate of Michael Radin.
(2) order that the parties have leave to apply on twenty-four hours’ notice.

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.
Associate:
Dated: 25 October 1999

Proceeding NX 57 of 1994

The Applicant did not appear

The First Respondent did not appear

Counsel for the Second Respondent: Mr R G Forster SC

Solicitors for the Second Respondent: Abbott Tout

Proceeding N 8072 of 1999

Solicitor for the Applicant: Mr M Murray of the Australian Government Solicitor’s Office

The First Respondent did not appear

Counsel for the Second Respondent: Mr R G Forster SC

Solicitors for the Second Respondent: Abbott Tout

Agent for the Third Respondent who appeared with the leave of the Court: Mr D Moore

Date of Hearing: 20 October 1999

Date of Judgment: 20 October 1999

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NX 57 OF 1994

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 8072 OF 1999

JUDGE:	LINDGREN J
DATE:	20 OCTOBER 1999
PLACE:	SYDNEY

Proceeding NX 57 of 1994
The Applicant did not appear
The First Respondent did not appear
Counsel for the Second Respondent:	Mr R G Forster SC
Solicitors for the Second Respondent:	Abbott Tout
Proceeding N 8072 of 1999
Solicitor for the Applicant:	Mr M Murray of the Australian Government Solicitor’s Office
The First Respondent did not appear
Counsel for the Second Respondent:	Mr R G Forster SC
Solicitors for the Second Respondent:	Abbott Tout
Agent for the Third Respondent who appeared with the leave of the Court:	Mr D Moore
Date of Hearing:	20 October 1999
Date of Judgment:	20 October 1999