Re Story, G.L.

Re: GREGORY LAIRD STORY
Ex parte: WILLIAM McLEAN BOULTON
No. Q B685 of 1992
FED No. 433
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
GENERAL DIVISION
Drummond J.(1)

CATCHWORDS

Bankruptcy - unsuccessful application by petitioning creditor to rescind sequestration order - application supported by majority of creditors - bankrupt insolvent - no concrete proposal by bankrupt to benefit creditors.

Bankruptcy - unsuccessful application by petitioning creditor to suspend operation of sequestration order - no power to order suspension where application made subsequent to sequestration order - brief consideration of effect of sequestration order.

Bankruptcy Act 1966 (Cth) - ss. 37, 43(2), 52(3), 58(1) and (3), 64, 73 and 74

In re Carr; Ex parte Carr (1886) 35 WR 150

Re Cavanagh; Ex parte Cavanagh v Bank of New Zealand (1990) 98 ALR 217

In re Hester; Ex parte Hester (1889) 22 QBD 632

Re Wardle; Ex parte Widin v Australia and New Zealand Banking Group Ltd. (1987) 70 ALR 633

HEARING

BRISBANE

#DATE 4:6:1992

Counsel for the applicant: G.J. Koppenol

Solicitors for the applicant: C.A. Sciacca and Associates

ORDER

1. The applications are dismissed.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

A sequestration order was made on 17 March last in respect of Mr Story on a petition presented by the present applicant. That order has not yet been perfected.

The applicant petitioning creditor initially applied to the Court for an order under s. 37 of the Bankruptcy Act 1966 (Cth) suspending the operation of the sequestration order until further order. When the matter came before me on 13 April, I gave leave to the applicant to file a further application seeking orders that the sequestration order be rescinded ab initio, or, alternatively, that the operation of the sequestration order be suspended ab initio or from such date as the Court deemed meet. Neither application was served on any one, although the bankrupt was informed of them.
The reason why the petitioning creditor, Mr Boulton, is now applying for rescission of the sequestration order obtained at his behest appears from the affidavit of his solicitor, Mr Lyons, filed by leave on 13 April, 1992: the solicitor says that he has been informed by the petitioning creditor that he has had discussions with one of Mr Story's major creditors (who is also the financier of a joint venture in which Mr Boulton, Mr Story and another are involved). Mr Lyons says he has been informed by Mr Boulton that:

"(a) It is crucial to Mr Boulton's personal financial state that the refinancing proposal referred to in his said affidavit be effected;

(b) such refinancing will not be achieved if Mr Story is bankrupt;

(c) such refinancing could not be construed as a preference as against other creditors."

It will thus now serve the applicant's own personal interests if Mr Story were not bankrupt.
A trustee has been appointed and he has filed a brief affidavit in which he says he does not oppose Mr Boulton's application. But the order not having been taken out, he says he has not yet commenced to do anything in relation to the administration.
On 13 April, when the applicant filed his further application, I also granted an adjournment so that the applicant could notify each of Mr Story's unsecured creditors of it.
Each of these creditors was then informed by the applicant's solicitor of the making of the applications and was requested to say whether he supported or opposed them, after being advised as follows:

"We understand that at present, given the magnitude of Mr Story's secured and unsecured debts, there is little prospect of sufficient moneys being available in Mr Story's estate to pay any dividend to the unsecured creditors. Our client's view, which he has placed before the court, is that if his bankruptcy is terminated, Mr Story may be able to rectify his financial circumstances in the fullness of time, ..."

The matter came back before me on 24 April, 1992. The material then showed that six unsecured creditors supported the rescission application; one was neutral to the application; three opposed the application (one saying that, if the order was rescinded, it would "serve Mr Story with a bankruptcy notice which is currently filed in the New South Wales Registry"); and one declined to consent until it received sufficient material to enable it to decide what it should do. The attitude of a number of other creditors was unknown. Despite my indicating my concerns at the likely outcome of the application, the applicant sought a further adjournment to 25 May to enable him to obtain the views of those of the creditors who had not then responded to the enquiries made on his behalf.
On 25 May last, the evidence before me showed that on 12 May the applicant's solicitors again wrote to each unsecured creditor, with the following request:

"Would you please advise by letter or fax to us by 4.00 p.m. on Thursday the 21st May 1992 in terms that you support rescission of the order as you believe it to be for your benefit as a creditor of Mr Story."

The responses show that a number of the creditors who previously had not been prepared to support the application now did so. It is understandable that many unsecured creditors would support the application: as one of them, Crystal Pools Pty. Ltd., says, "at the present time if Mr Story were to be made bankrupt there is virtually no prospect of (us) recovering anything and consequently (we) have nothing to lose in allowing Mr Story to attempt to trade out of his present position and be in a position to return something to creditors."
However, apart from this short letter of 12 May, 1992, the evidence does not throw any light upon what caused all save one of the creditors who had initially not been prepared to support the application to change their mind.
The one creditor who changed from opposing to supporting the application and in respect of whom there is an explanation for the change is the Child Support Agency. On 20 May last, Mr Story gave it a bank cheque in payment of the balance of $22,000.00 owing to it under a Family Court order. A letter from the Agency's solicitors, dated 21 May, 1992, confirms that it is "now supportive of the application to rescind the operation of the sequestration order". However, the evidence does not explain how Mr Story was able to procure a bank cheque for such a sum a few days ago. Nor does the evidence reveal whether his other creditors have been told that he has just now paid out this particular creditor.
Not all Mr Story's creditors took the view that they had nothing to lose by supporting the application. Apart from the Child Support Agency, who had to be paid the money owing by Mr Story before it would support the application, Bill Acceptance Corporation Limited, who on Mr Story's own estimate is owed approximately $5,000,000.00 more than the value of the securities held by it, is not prepared to support the application "unless Mr Story agrees to enter into a formal ... arrangement in terms reflecting that proposed by Mr Story prior to the making of the sequestration order", i.e., an arrangement under Part X of the Bankruptcy Act.
This is not the common case in which the person adjudicated bankrupt has paid the petitioning creditor's debt and there is no objection raised by any of his other creditors to his discharge or to the decree being revoked. The reason why, in such circumstances, sequestration orders are commonly rescinded under s. 37, if timely action is taken, or annulled under s. 154(1), is that the inference can be drawn from the facts of payment and non-objection by any other creditor that the debtor is solvent and that therefore bankruptcy will not be of advantage to any creditor.
The evidence before me shows that Mr Story is hopelessly insolvent. On the date the sequestration order was made, Mr Story unsuccessfully applied for an adjournment of the hearing of the petition so that he could put a proposal to a meeting of creditors which his trustee intended to call for the purpose of approving a composition under Part X of the Bankruptcy Act. This proposal was that the sum of $50,000.00 be paid to his trustee for the benefit of all his creditors within seven days of its acceptance by the creditors, with this sum being accepted by the creditors in full satisfaction of their claims on him. There is a very large excess of liabilities over assets. According to a form of statement of affairs completed by Mr Story and exhibited to his affidavit read in support of his unsuccessful application for the adjournment of the hearing of the petition, which affidavit was also read before me, he has unsecured debts totalling $771,087.00 and a total deficiency, after allowing for the value of securities, of approximately $12,000,000.00. In the letter which the trustee appointed by Mr Story sent to the petitioning creditor's solicitor on the morning of the hearing at which the sequestration order was made, the trustee said:

"The debtor cannot see any way of paying this debt (i.e., the sum of about $150,000.00 owing to the petitioning creditor) as he is subject to other insolvency problems amounting to approximately $12 million. ... It is proposed that the debtor will propose to his creditors, a composition under Part X of the Bankruptcy Act providing for a lump sum payment on the adoption of a special resolution pursuant to Part X of the said Act. These funds are available from a third party source not connected with either the activities of Mr Story's companies nor him personally."

The sequestration order, upon being pronounced on 17 March, 1992, was effective to make the debtor bankrupt, with all the consequences that entails, even though that order remains provisional in the sense that it may be reviewed and reconsidered until perfected. Re Cavanagh; Ex parte Cavanagh v Bank of New Zealand (1990) 98 ALR 217 at 222.
It is trite law that a sequestration order is made not just for the benefit of the petitioning creditor, but for all the bankrupt's creditors. When a debtor becomes bankrupt, his property thereupon vests in his trustee and, subject to statutory exceptions, it becomes divisible for the benefit of all his creditors to the intent that none will be preferred but that each will share equally with all the other creditors in the division of the bankrupt's property. All claims, including the claims of the petitioning creditor, are converted upon the making of the sequestration order into rights to prove in the bankruptcy. The bankruptcy is deemed to commence from the commission of the first act of bankruptcy within the period of six months preceding the date of presentation of the petition on which the order is made and the bankrupt's property includes that which can be recovered by the trustee in reliance upon the relation back and avoidance provisions.
I have already referred to the detailed proposal for a composition under Part X of the Act upon which Mr Story unsuccessfully relied in seeking to stave off the making of the sequestration order. In contrast to that, when the matter first came before me, no attempt was made by the applicant to indicate what Mr Story would do for his creditors if the sequestration order were rescinded, apart from exhibiting a brief note written by the bankrupt. This note records the bankrupt's belief that his creditors will get nothing if the bankruptcy proceeds while "the prospects of creditors could improve if I am given the opportunity to attempt to rectify my financial circumstances so that a dividend may be paid."
Later, on 24 April, the applicant read an affidavit by Mr Story in which he said:

"I confirm that the setting aside of the sequestration order would give me the opportunity of putting my financial affairs in order. By way of example, the property the subject of the largest secured debt is a shopping centre at Military Road, Mosman. It is tenanted but at rents presently below market value. In about two years time, these rents are subject to review to market. In consequence, the value of the property will be substantially increased. In respect of the debts secured to Mercantile Credits Limited, over a residential property at Mosman, the value of this property has been adversely affected by the downturn in the Sydney property market. Its value will substantially increase when the next upturn in this market occurs.

If I remain bankrupt, I do not have any means of generating sufficient income, or creating sufficient capital to pay my creditors. I intend to pay all debts which are not disputed by me. At present, my creditors will get next to nothing."

After argument concluded on 25 May, the applicant sought a further opportunity to put another affidavit by Mr Story before me. Insofar as it has anything to say about what he proposes to do for his creditors, if the sequestration order is rescinded, it contains the following statements:

"I am currently reviewing proposals relating to property developments which require me to raise the necessary finance for the purchase of the land and the construction costs and to be in charge of the development company. Some creditors have expressed their desire to support me in these endeavours. ...

I expect creditors to require me to formulate a repayment plan as soon as possible after my business is re-established. After I have commenced new developments I will be able to allocate an appropriate portion of the profit to pay creditors."

According to this latest affidavit, the creditor's prospects of being paid depend upon the success of these property development proposals: there is no longer any mention of Mr Story's hopes that increases in the value of the shopping centre and the property at Mosman might put him in a position to pay his debts. Plainly, nothing is advanced in any event which amounts to a concrete proposal by Mr Story to benefit his creditors. All that is put forward is an expression of optimism that Mr Story's fortunes may improve in the future if his bankruptcy is set aside and a statement that should things turn out as he hopes, he will share "an appropriate portion" of the profits with his creditors.
Although I have previously expressed my concerns at the absence of any firm proposal by Mr Story as to the benefits he will confer on his creditors if the sequestration order is rescinded and at the absence of any suggestion from the applicant as to how Mr Story could be bound to honour any proposal he might advance, Mr Story still has not put forward any concrete promise or offer, even of a non-binding nature, as to what he will do for his creditors if the joint venture could be refinanced or if the shopping centre increases in value in two years' time or if the Sydney property market picks up and the Mosman property increases in value or if he can procure finance for his proposed property development and that development turns out to be a success. Mr Story cannot or will not commit himself to any firm proposal.
In re Cavanagh von Doussa J said at pp 222-3:

"Because of the consequences which flow from a sequestration order, it is a serious step to rescind such an order in the exercise of the power under s. 37. Where the power is exercised, the sequestration order is rescinded ab initio. The debtor will cease to be a person against whose estate a sequestration order has been made, and will cease to be a bankrupt for all purposes: Re Baker; Ex parte TLE Electrical Pty Ltd (1988) 79 ALR 445. Although the power under s 37 confers a general and unfettered discretion (Balhorn v Colby (1982) 45 ALR 174 at 180) it is a discretion which ordinarily will only be exercised in favour of rescinding a sequestration order, in cases like the present one where the application is based on the fact that payment has been made to the petitioning creditor after the making of the order, where it is clear that the debtor had no other creditors at the date of the sequestration order who could be prejudiced by the rescission."

It is true, as I have said, that most of Mr Story's remaining creditors now support the application. However, in my view, it should be refused for a number of reasons:

(a) I am being asked to set aside a sequestration order which it is quite clear was properly made: the evidence shows that the bankrupt was at the time of the order and still is wholly insolvent;

(b) the applicant has been unable to procure from the bankrupt a concrete offer to bind himself to benefit his creditors, if the sequestration order is rescinded;

(c) the only suggestions that have come from the bankrupt as to how the creditors will benefit if the order is rescinded involve nothing more substantial than the proposition that the creditors are likely to get nothing if the bankruptcy administration continues while, if the order is rescinded and everything turns out for the best, there might be something for the creditors at the end of a long day;

(d) one creditor, who was owed a substantial sum and who was apparently an obdurate opponent of the proposal by the applicant that the sequestration order be rescinded, has recently been paid out by the bankrupt in return for that creditor's support for the present application;

(e) there is no explanation for how the bankrupt could properly be in a position to have paid out or to have arranged for the pay out of this particular creditor. There is no evidence as to the source of the funds in question. Nor is there any evidence that the other creditors, including those owed substantially less than this particular creditor and no doubt as keen as it to get their money from Mr Story, have been informed of this payment, but nevertheless still support the rescission of the sequestration order;

(f) there has been no attempt to disclose fully to the court the negotiations that have taken place with the various creditors to procure their support, some of whom have been persuaded to change their minds in that regard;

(g) there is a substantial creditor, Bill Acceptance Corporation Limited, who is opposed to terminating the administration in bankruptcy of Mr Story's estate unless his property comes under the formal control of a scheme trustee: rescinding the sequestration order in these circumstances may thus only lead to a new petition by a creditor whose claims Mr Story does not suggest he disputes. If the application were granted on the basis that most of Mr Story's creditors were prepared to share his optimism on the basis they had nothing to lose, it would not be possible to bind this creditor not to petition anew.

That the debtor's bankruptcy may have created substantial difficulties for the petitioning creditor in his own personal affairs, does not, I think, provide any reason for granting the application. It is not his interests alone that have to be considered, but primarily the interests of all the bankrupt's creditors as a class.
Counsel for the applicant referred me to In re Carr; Ex parte Carr (1886) 35 WR 150 and submitted that I could, as a matter of discretion, rescind the sequestration order here even though all the creditors (insofar as it can be accepted that they have been accurately identified by the bankrupt) do not support the rescission application. In that case, application was made under s. 104 of the Bankruptcy Act 1883 (U.K.) to review the refusal by the Registrar of an application by the debtor for the rescission of a receiving order, no adjudication in bankruptcy having been made before application was brought.
The decision is of little assistance to the applicant: although it recognised that under the English procedure then in force, rescission could be ordered in a proper case even though the consent of all the creditors had not been obtained, the Court held that it could only decree rescission after having considered, among other things, "whether the position of the general body of creditors is such that the interests of all would be best secured by such an arrangement, ..." It was, moreover, a case unlike the present in that there, the debtor was prepared to bind himself to provide real benefits to all of his creditors.
The English procedure under the 1883 Act involved first, the making of a receiving order (which operated only to constitute the Official Receiver the receiver of the debtor's property, with protective and investigative powers, but with no title to that property) and second, following upon steps subsequent to the making of a receiving order including the public examination of the debtor at the behest of the Official Receiver, the making of an order adjudging the debtor to be bankrupt which order operated to vest the now bankrupt debtor's property in his trustee.
By s. 13 of the 1883 Act, notice of the making of every receiving order was required to be published. By s. 15, immediately after the making of a receiving order, a general meeting of the debtor's creditors was required to be held for the purpose of considering whether a proposal for a composition or scheme of arrangement should be entertained or whether it was expedient that the debtor should be adjudged bankrupt. By s. 18, the creditors at that first meeting could resolve to entertain a proposal for a composition in satisfaction of the debts due to them from the debtor or a proposal for a scheme of arrangement of the debtor's affairs; such a composition or scheme would become binding on all creditors if it was confirmed at a subsequent meeting of creditors by a majority in number representing three-fourths in value of all proving creditors, but only if it was then approved by the Court. Section 20 provided for an adjudication in bankruptcy if no composition or scheme had been accepted by the creditors and approved by the Court within 14 days after the debtor's examination.
The circumstances in which, under the English practice in force prior to the enactment of the Insolvency Act 1986 (U.K.), a receiving order would be rescinded if the debts were not paid in full are discussed in the original 1973 issue of Volume 3, Halsbury's Laws of England, 4th Ed., at para 418, where it is said:

"The court has an overriding discretion whether to rescind a receiving order; even if the creditors all concur in the application to rescind, the application will not be granted unless it appears that the proposed rescission is, in the court's opinion, for the creditors' benefit, and is not detrimental to commercial morality and the public at large, or to the interests of the debtor's future creditors. If the debts are paid in full, the receiving order may be and usually is rescinded."

In re Hester; Ex parte Hester (1889) 22 QBD 632 is one of the cases there cited. That was an appeal against the refusal of the Registrar to rescind a receiving order, notwithstanding the fact that every one of the debtor's creditors had consented to the rescission. The appeal failed.
What was said in In re Hester illuminates why a rescission application analogous to that which is before me will usually be an inappropriate means of wiping away a bankruptcy adjudication: it will generally amount to no more than an attempt to avoid complying with other procedures contained in the bankruptcy legislation which afford the bankrupt the same opportunity of having his bankruptcy lifted, but only if he follows a prescribed course designed to protect all his creditors. Lord Esher M.R. said, at p 638:

"... when a receiving order has been made, and the creditors have not been paid in full, ... any proposition for something less than a payment of the creditors in full must be a scheme or arrangement, and, if that arrangement is not in substance an arrangement which would satisfy the requirements of s. 18, the fact that it is possible for the debtor to propose a scheme with all the formalities of s. 18, but that instead of proceeding under s. 18, he asks the court to rescind the receiving order on the footing of a different scheme, and so to remove the control of the court, is a very material matter to be considered. But ... if the proposed arrangement is equivalent to a scheme under s. 18, and the court can see that it may with perfect safety be sanctioned, they would not decide that such a proposition must be at once rejected, merely because the formalities imposed by s. 18 have not been complied with." Bowen L.J. said, at pp 640-1:

"... the existence of s. 18 was a matter which the court could not put aside. That section has provided machinery for dealing with arrangements between debtors and their creditors, and, if a debtor has abstained from taking the benefit of that machinery, the court would watch narrowly what he was doing, and see whether there was any good reason for his abstaining from taking the benefit of that machinery; and, unless they were satisfied that the plan which he was putting forward was one which, though not exactly based upon the formalities of s. 18, was in substance certain to result in success, they would not interfere with the discretion of the court below in refusing to act upon it."

This approach remained the accepted one in England until the 1986 Act came into force: see In re a Debtor (1971) 1 WLR 261, affirmed (1971) 1 WLR 1212, a case factually similar to the present.
What was said in In re Hester also explains why, when rescission of a sequestration order is sought in a s. 37 application and the bankrupt has not paid out his debts in full, it can never be decisive that the consent of most or even all his creditors has been obtained. Fry L.J. said, at p 641:

"This appeal is based on the idle notion that the court is bound by the consents of the creditors obtained, not at a meeting of the creditors, not after a full and open discussion of the rights and interests of the parties and the general position of things, but obtained by the debtor going round to his various creditors, and procuring from them ... consents to the rescission of the receiving order, upon what representation and in what manner we do not know. ... I conceive that one of the objects of this statute was, if not to put an end to, yet at least to discourage, private arrangements between a debtor and his creditors. Any one who knows the history of the law of debtor and creditor of this country, knows that private arrangements between debtors and their creditors have often been scandalous, and that they have given opportunities for misrepresentation, for private bargains, and for undue preferences. I for one should pause long before I allowed the evils of private arrangements between a debtor and his creditors to creep into the administration of this Act."

On this aspect, Lord Esher M.R. said at pp 638-9:

"The debtor says that he has obtained the consent of practically all his creditors to the rescission of the receiving order. But he has not obtained that consent in the way pointed out by s. 18, viz. at a meeting of all the creditors, and after a full discussion. He does not propose to carry out the arrangement under s. 18. That is a strong point against him prima facie. It is urged that he has obtained the consent of all his creditors. ... It is not pretended that he has paid them in full. ... The cases are clear that the court is not bound by the consent of all the creditors. Although the consent of all the creditors has been obtained, the court will still consider whether what they have agreed to is for the benefit of the creditors as a whole. The court has gone still further, and I think rightly so, and has said that under the present Bankruptcy Act it will consider not only whether what is proposed is for the benefit of the creditors, but also whether it is conducive or detrimental to commercial morality and to the interests of the public at large; ...

I am not satisfied that what was done in the present case is for the benefit of the debtor's existing creditors. Neither am I satisfied that there will not - on the contrary, I am satisfied that there will be - imminent and immediate danger to his future creditors, who must at once come into existence if this order is annulled."

The statutory power of rescission under s. 104 of the United Kingdom Act of 1883 was significantly wider than that conferred by s. 37 of the Bankruptcy Act 1966: under the United Kingdom provision, the court was empowered to review, rescind, or vary any order made in bankruptcy jurisdiction at any time whereas under the Australian Act, s. 37 authorises rescission or suspension of a sequestration order only prior to its being perfected and the scheme of the section, when read with rule 124, is that a sequestration order should be perfected within a few days of it being made. See Re Cavanagh at p 223. Like Von Doussa J in Re Cavanagh, I would not be prepared to hold that, in a case in which a bankrupt has not paid all his debts in full, he can never obtain rescission of the sequestration order prior to its perfection under s. 37. But given the limitations on s. 37, it will be a rare case indeed in which rescission of a sequestration order under s. 37 will be obtainable in respect of a bankrupt who has not paid out the petitioning creditor and who is insolvent.
The power which exists to grant rescission in such a case must, for even stronger reasons than those that apply in the case where rescission is sought after payment of the petitioning creditor's debt, be exercised with great care. Where rescission is sought in respect of a debtor who has not paid out the petitioning creditor and who can be inferred to be insolvent, I think that in general the only circumstances in which relief will be granted are those in which it can be shown that the debtor has bound himself to a proposal which, if dealt with under the procedure contained in ss. 73 and 74 of the Bankruptcy Act 1966 "was in substance certain to result in success" in obtaining the annulment of the bankruptcy: cf. In re Hester at p 641.
Sections 73 and 74 are, I think, analogous to s. 18 of the Act of 1883 and s. 16 of the Act of 1914 of the United Kingdom: under ss. 73 and 74, a bankrupt can propose to his creditors a composition in satisfaction of his debts or a scheme of arrangement of his affairs; if the creditors, by special resolution, accept the proposal and if the court, after the inquiry provided for by s. 74(3), which includes inquiry into any objections to the composition or scheme made by or on behalf of any creditor, approves the composition or scheme, then under s. 74(5) the court can make an order annulling the bankruptcy as distinct from rescinding the sequestration order, a distinction explicated by s. 74(6). A scheme under s. 73, to be acceptable to the court, must show that there is an appreciable possibility of the creditors obtaining from the scheme a result more beneficial than that to be expected from the administration under the bankruptcy: Re Fryda (1964) 6 FLR 144; Re Lewis; Ex parte Lewis (1987) 77 ALR 165.
For the reasons I have already given, it is not appropriate to terminate this bankrupt's well-justified bankruptcy outside the careful system of controls contained in ss. 73 and 74 of the Act, which are designed to ensure that all creditors are fully informed, that their interests are protected and that termination of an administration in bankruptcy will only be obtainable if in its place, there is a scheme which will be more beneficial to all the bankrupt's creditors than a continuation of the bankruptcy administration.
So far as the applicant's alternative application for an order suspending the operation of the sequestration order for either two or one years is concerned, it is difficult to see how such relief can be granted where the application is not made at the same time as the sequestration order, but at some subsequent time.
In Re Wardle; Ex parte Widin v Australia and New Zealand Banking Group Ltd (1987) 70 ALR 633, Neaves J, in a case involving the effect of an order suspending the operation of a sequestration order made at the same time as the order itself was made, said that a sequestration order does not itself operate to change the debtor's status or to vest his property in the trustee; it operates, instead, to trigger the statutory provisions which themselves operate to bring about the consequences of bankruptcy.
Immediately a sequestration order is pronounced, unless at the same time its operation is suspended by further order under s. 37, it will trigger the provisions of the Bankruptcy Act that make the debtor a bankrupt and which vest the bankrupt's property in his trustee.
Suspension of a sequestration order under s. 37 ordered only at some time subsequent to the making of the sequestration order thus cannot have the effect of changing the debtor's status from that of bankrupt, which he acquired on the pronouncement of the sequestration order, to that of a person who is not bankrupt while the suspension lasts. Nor do I think a suspension order pronounced subsequent to the making of a sequestration order operates to divest, during the period of the suspension, the trustee of the bankrupt's property which vested in him immediately upon the pronouncement of a sequestration order. Those events occur once and for all immediately upon the making of a sequestration order.
Other consequences flow from the fact that a person has become bankrupt, an event which I have said occurs immediately the sequestration order is pronounced: for example, s. 58(3) provides that "after a debtor has become a bankrupt, it is not competent for a creditor - (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or (b) except with the leave of the Court ... to commence any legal proceeding in respect of a provable debt or take any fresh step in such proceeding." Section 64, which provides for the calling by the trustee of a meeting of creditors, requires the trustee to convene such a meeting upon receipt of an appropriate direction or requisition by "the creditors of a bankrupt". An order suspending the operation of a sequestration order made only after pronouncement of the sequestration order could not, I think, operate to prevent provisions such as these taking effect.
It is difficult to see what effect suspension of the operation of a sequestration order under s. 37 could have, where suspension is not sought and ordered at the same time as the sequestration order itself is made. Counsel for the applicant, while relying on a statement made by Neaves J in Re Wardle as support for the proposition that s. 37 authorises a suspension order on application made only after the making of the sequestration order, could not point to any provisions of the Bankruptcy Act that are capable of being affected in their operation in a particular case by the making of such a suspension order.
In the 5th Edition of McDonald, Henry and Meek's Australian Bankruptcy Law and Practice at paragraph 276, it is suggested that if the petitioning creditor, the debtor or some other interested party does not obtain a stay of proceedings under a sequestration order pursuant to s. 52(3), it is not possible at a later time to obtain a suspension of the operation of a sequestration order under s. 37 because of provisions such as ss. 43(2) and 58(1). This supports the view that s. 37 does not confer power to suspend a sequestration order when the application is made at a time subsequent to the time the sequestration order itself is made.
Even if I am wrong, and an order can be made under s. 37 after the making of a sequestration order that has not been perfected which suspends the operation of the sequestration order, I would not make a suspension order in this case: there is no acceptable evidence that suspension for a fixed limited period of either one or two years as suggested would be of any benefit to the general mass of creditors of this hopelessly insolvent bankrupt.

[1992] FCA 433

04 JUNE 1992