Wharton, Stephen Lynne & Household Financial Services Ltd

[1995] FCA 1023

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION  No VG 438 of 1994

STEPHEN LYNNE WHARTON

Applicant

-and-

HOUSEHOLD FINANCIAL SERVICES LIMITED

Respondent

Coram:    Olney J

Place:    Melbourne

Date:     14 December 1995

MINUTE OF ORDER

THE COURT ORDERS THAT the applicant's motion of which notice was filed on 24 November 1995 be dismissed with costs.

NOTE:Settlement and entry of orders is dealt with in

Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION  No VG 438 of 1994

STEPHEN LYNNE WHARTON

Applicant

-and-

HOUSEHOLD FINANCIAL SERVICES LIMITED

Respondent

Coram:    Olney J

Place:    Melbourne

Date:     14 December 1995

REASONS FOR JUDGMENT

This is an application to stay proceedings under a sequestration order pending the hearing and determination of an application for special leave to appeal to the High Court of Australia from a decision of the Full Court of the Federal Court dismissing an appeal by the applicant against the making of the sequestration order.

On 16 November 1994 Northrop J made an order for the sequestration of the estate of the applicant based upon an act of bankruptcy arising from the applicant's non-compliance with a bankruptcy notice.   The bankruptcy notice relied upon a judgment debt arising from a default judgment obtained by the respondent in the Magistrates' Court on 10 December 1993.

The applicant appealed against the sequestration order and on 3 November 1995 the Full Court (Jenkinson, Ryan and Lee JJ) dismissed the appeal.   On 24 November 1995 the applicant filed an application for special leave to appeal to the High Court from the decision of the Full Court.

On 16 November 1994, at the time of making the sequestration order, Northrop J granted a stay of proceedings pursuant to s 52(3) of the Bankruptcy Act upon the applicant's undertaking not to dispose of any assets or pay any creditors except in the ordinary course of his profession as an accountant.   Subsequently, a similar stay upon the same undertaking was granted pending the hearing and determination of the appeal to the Full Court.   On 3 November 1994, upon the appeal being dismissed, the Full Court granted leave to the applicant to apply to a single judge for a further stay pending an application for special leave to appeal to the High Court.

The applicant is an accountant and is employed in the accountancy practice of Wharton Partners Pty Ltd of which he is a director.   He describes the nature of the accountancy work which he undertakes as taxation, superannuation and corporate compliance work, business consultancy and financial advisory services.   He is a registered tax agent.   In his affidavit in support of the present application sworn on 23 November 1995 the applicant says at paragraphs 17 to 19 (inclusive):

1. In the event that the stay of all proceedings under the sequestration order is not granted I believe that I will suffer irreparable harm both in business and personal life.   My credibility as an accountant will, in my view, suffer by reason of me being a bankrupt, which will affect the work that I am undertaking on behalf of the company and the clients it represents.   The company is currently in the final stages of assisting and advising two large corporate clients in a finance raising utilising the financing structure known as research and development syndication.   This is a highly sophisticated structured finance arrangement between the client and two banking and financial services institutions requiring government departmental approval and involving separate legal representatives for the parties.   Personal credibility, perceptions of good financial standing and professional competence in financial matters are extremely important in dealing with these parties and my being bankrupt is likely to affect my dealings with these parties and also those of the company's clients.   During the course of this proceeding some of the parties which the company has acted for and their legal advisers have become aware of the proceedings and have questioned me in respect of this.   In explaining the matter I have been able to advise them that I am defending the matter and that a stay of the proceedings under the sequestration order has been granted.

1. The financial institutions and most of the lawyers are subscribers to the Credit Reference Association and regularly receive information about court proceedings.   I have been advised by one financial institution that when they become aware of this type of information they are obliged to advise all other parties with whom I am dealing.   These parties are all extremely sensitive to this type of information and it could easily undermine my personal credibility.

1. Any failure to finalise these matters for our clients by reason of my changed circumstances could possibly give rise to a professional claim against me and the company and loss of revenue to the company and my remuneration.   We are also at the initial stages of discussing a similar financial arrangement with a potential new client of the company.  These arrangements could also face discontinuance as a result of my bankruptcy.

In addition, the applicant makes reference to the possibility that his registration as a tax agent may be placed in jeopardy. As to this last matter it would appear that the provisions of s 251K (3C) of the Income Tax Assessment Act1936 are conclusive.   That section provides:

251K(3C)A Board shall cancel the registration of a tax agent who is a natural person if:

(a)the person becomes an undischarged bankrupt;  or

(b)the person permanently ceases to carry on business as a tax agent.

To the extent that the applicant seeks to base his case on the proposition that an order further staying the operation of the sequestration order will in some way affect his status, his reasoning is misconceived.

An order under s 52(3) of the Bankruptcy Act does not have the effect of preventing the change in status and vesting of property which arises upon the making of a sequestration order (See Re Wardle, Ex parte Widin 70 ALR 633 at 635). It must necessarily follow that an order in similar terms to those contained in s 52(3) will have the same effect as an order made pursuant to that section. To put the matter beyond question, s 37(2) of the Bankruptcy Act which was inserted in 1992, provides that the Court does not have power to suspend the operation of a sequestration order.  In these circumstances, the applicant has been a bankrupt since 16 November 1994 and he has since that date suffered all of the restraints and disqualifications associated with the status of a bankrupt.   No order heretofore made, nor any order sought on the present application can change that position.   As the order sought will not achieve the object intended by the applicant no purpose would be served by making the order.   The application is dismissed with costs.

I certify that this and the preceding 3 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney

Associate:

Dated:  14 December 1995.

Heard:        30 November 1995

Place:        Melbourne

Judgment:     14 December 1995

Appearances:

Mr A.K. Panna (instructed by Oakley Thompson & Co) appeared for the applicant.

Ms S. Burchall (instructed by Home Wilkinson & Lowry) appeared for the respondent.