CATCHWORDS BANKRUPTCY ~ Sequestration order made against debtor - Operation of sequestration order suspended for 14 days - Whether debtor became a bankrupt only on the expiration of the period of suspension. Re: ANTHONY JAMES WARDLE (A Bankrupt) Ex Parte: WILLIAM JOHN WIDIN (Trustee of the Estate of Anthony James Wardle): AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (Respondent) No. W 1047 of 1983 Neaves J. 30 January 1997 Canberra IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPICY DISTRICT OF THE No. W 1047 of 1983 STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY Re: ANTHONY JAMES WARDLE A Bankrupt Ex parte: WILLIAM JOHN WIDIN, Trustee of the Estate of Anthony James Wardle AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED Respondent MINUTE OF ORDER JUDGE MAKING ORDER : Neaves J. DATE OF ORDER : 30 January 1987 WHERE MADE Canberra THE COURT: 1. Declares that Anthony James Wardle became a bankrupt on 9 November 1983. 2. Orders that the further hearing of the Note: Settlement and entry of orders 1s dealt with in rule 124 application herein dated 10 October 1986 be adjourned to a date to be fixed. of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY ) ) ) ) No. W 1047 of 1983 ) ) ) Re: ANTHONY JAMES WARDLE A Bankrupt Ex parte: WILLTAM JOHN WIDIN, Trustee of the Estate of Anthony James Wardle AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED Respondent CORAM: Neaves J. DATE: 30 January 1987 REASONS FOR JUDGMENT I have been asked to determine a preliminary question which has arisen in an application at present pending before the Court by William John Widin, the trustee of the estate of Anthony James Wardle, a bankrupt, against the Australia and New Zealand Banking Group Limited in which the trustee seeks a number of declarations and orders. The preliminary question, which is whether the day on which Anthony James Wardle became a bankrupt was Wednesday, 26 October 1983 or Wednesday, 9 November 1983, has arisen in the following circumstances. Certain of the declarations sought by the trustee concern a transaction between the bankrupt and the bank which took place on 7 November 1983 and involved a sum of $30,000. The trustee claims that that sum was advanced by 2. the bank to the bankrupt by way of personal loan and immediately thereafter appropriated by the bank in satisfaction of the bankrupt's prior indebtedness to it. He seeks a declaration that the sum in question vested in hin as trustee by virtue of s.58(1)(b) of the Bankruptcy Act 1966 (Cth) ("the Act") as property acquired by Mr Wardle after he became a bankrupt or, in the alternative, a declaration that the transaction had the effect of giving the bank a preference, priority or advantage over other creditors of the bankrupt and was consequently void as against him by virtue of s5.122(1) of the Act. A transaction will, however, not be rendered void as against a trustee in bankruptcy by virtue of that provision unless, in terms of the sub-section, it is a transaction which occurred "before the day on which the debtor becomes a bankrupt". If, therefore, Mr Wardle became a bankrupt before 7 November 1983, s.58(1)(b) may apply but s.122(1) cannot. Conversely, if Mr Wardle became bankrupt after 7 November 1983, s.58(1)(b) can have no application but s.122(1) may. Hence the need to identify the day on which Mr Wardle became a bankrupt. The answer to the question depends on the effect of certain orders made on 26 October 1983 by Beaumont J. upon the hearing of a creditor's petition presented against Mr Wardle by N.R.M.A. Finance Limited. The orders, as entered, were in the following terms: "1. A sequestration order be made against the estate of the debtor. 2. The petitioning creditor's costs of and incidental to the petition in this matter, Including reserved costs, be taxed and paid in accordance with the Act. 3. The operation of each of these orders be suspended for a period of 14 days. 4. A draft of this order be delivered to the Registrar within 21 days Csicl in accordance with rule 124(2). 5. Exhibits shall remain with the Court until further order." The order (that numbered 3) suspending the Operation of the other orders was made, no doubt, in exercise of the power conferred by 3.37 of the Act which provides: "37. (1) Subject to sub-sections (2) and (3), the Court may rescind, vary or discharge an order made by it under this Act or suspend the operation of such an order. (2) The Court shall not, after a sequestration order has been signed and sealed as provided by the rules, rescind or suspend the operation of the order. (3) The Court shall not, after an order for the administration of the estate of a deceased person under Part XI has been signed and sealed as provided by the rules, rescind or suspend the operation of the order." Sub-sections (2) and (3), of course, had no application to the circumstances of the present case. In considering what is the effect of "suspending the operation" of a sequestration order it is necessary to identify what operation a sequestration order has. To 4. determine this one must turn to the provisions of the statute. Thus, sub-s.43(1) of the Act provides that, subject to the Act and provided the requirements of the sub-section are satisfied, the Court may make a sequesteration order against the estate of a debtor. Before making such an order the Court must be satisfied of the proof of the matters mentioned in sub-s.52(1). Upon the making of the sequestration order, the debtor becomes a bankrupt by virtue of sub-s.43(2) and, subject to the Act, the property of the bankrupt vests in the trustee of his estate (sub-s.58(1)). Other consequences also flow from the making of the sequestration order: see, for example, sub-ss.58(3) and 60(2). A study of those provisions reveals that the 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. Sub-section 37(1) of the Act may be contrasted with sub-s.52(3) which enables the Court, if it thinks fit, upon such terms and conditions as it thinks proper, to "stay all proceedings under a sequestration order for a period not exceeding 21 days". It has been held that a stay granted under that sub-section does not have the effect of preventing the change of status and the vesting of property which is effective upon the making of the sequestration order: Re Deriu (1970) 16 F.L.R. 420. It follows from what is said above that the operation which a sequestration order has is to trigger the statutory provisions which bring about the consequences of bankruptcy. 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. That intention will be defeated unless the order of suspension is regarded as having the effect that the sequestration order is not made until the expiration of the period of suspension. So to regard the order made by Beaumont J. in this case presents no difficulty as the order for suspension was made at the same time as the announcement of the sequestration order. Difficulty may have arisen if the order for suspension had been made at a later time, being a time between the announcement of the sequestration order and the signing and sealing of that order, for the statutory consequences of the making of the sequestration order would have already taken effect before the order for suspension was made. But the circumstance that such a situation may give rise to difficulty is not, in my view, sufficient to require a different construction to be placed on sub-s.37(1). In my opinion, the effect of the order made by Beaumont J. on 23 October 1983 is that Mr Wardle became a bankrupt on 9 November 1983 and I so declare. The further hearing of the application will be adjourned to a date to be fixed. Counsel for the applicant trustee Solicitors for the applicant trustee Counsel for the respondent Solicitors for the respondent Date of hearing I certify that this and the preceding 5 pages are a true copy of the Reasons for Judgment herein of the Honourable Mr Justice Neaves. Vek Blower Associate Dated: 30 January 1987 : Mr M.R. Aldridge Abbott Tout Creer & Wilkinson Mr G. Walker : Minter Simpson 18 November 1986