JUDGMENT No. sumer ct Deal sd tie CATCHWORDS BANKRUPTCY - proceedings in convection with sequestiation - whether stay of execution of sequestration order may or should be granted pending appeal. PRACTICE AND PROCEDURE - bankruptcy - stay - appeal - application for stay of sequestration order pending appeal - whether eapress statutory denial of power to rescind, discharge or suspend operation of sequestration otder precludes such stay - Bankruptcy Act provided maximum 21 days stay - power under Federal Court Rules to oder stay - whethe: Comt bound by time hnut under Bankruptcy Act. Bankruptcy Act 1966" 8 37(1)(2), 8 5203) Federal Court Rules Order 52 rule 1/ Federal Court of Australia Act (A976) Ch 8.24 Evans v. Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424 Carver v. Brian Maanell Joyce & Anor (Lockhart J, unreported 12 December 1990 Judgment No. 793 of 1990) Taylor v. Natwest Australia Bank Ltd (Foster J, unreported 14 July 1992 Judgment No. 726 of 1992) Re Wardle (1987) 70 ALR 633 Re Ginnane (Ueerey J, unreported 10 September 1993 Judgment No. 707 of 1993) Re Wheeler & Reynolds (A Firm); ex parte Kerr (1988) 20 FCR 185 Re Loughman (Northrop J, unreported 8 April 1992, Judgment No. 203 of 1992) STEPHEN MICHAEL COLEMAN v. LAZY DAYS INVESTMENTS PTY LTD No. WAG 120 of 1994 RODNEY PAUL COLEMAN v. LAZY DAYS INVESTMENTS PTY LTD No. WAG 121 of 1994 CARR J. 3 OCTOBER 1994 RECEIVED ~2 NOV 1994 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTRY IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY BANKRUPTCY DIVISION No WAG 120 of 1994 wwe a a' BETWEEN: STEPLSIN MICITAEL COLEMAN Appellant - and - LAZY DAYS INVESTMENTS PTY LTp Respondent No WAG 321 of 1991 ROONEY PAUL. COLRY AN Appellant - and - LAZY DAYS INVESTMENTS PTY LYD Respondent JUDGE MAKING ORDERS. = CARR J. PLACE: PERTII DATE: 31 OCTOBER 1994 MINUTE OF ORDERS THE COURT ORDERS THAT: In respect of Appeal No. WAG 120 of 1994: 1. Subject to the appellant fing his statement of affairs with the District Registrar in Bankruptcy within 14 days of the date of this order (and the time in which that should be done 1s hereby extended for that period), proceedings under the sequestration order made by Lee J. on 1) October 1994 against Stephen Michael Coleman be stayed until further order, 2. The hearing of this appeal be expedited, 3. Both parties be granted liberty to apply on two days' notue, 4, The costs of this motion be costs 1m the appeal In respect of Appeal No WAG. 121 of 1994 1, Subject to the appellant filing Ins statement of affairs with the District Registrar in Bankruptcy within 14 days of the date of this order (and the time mn which that should be done is hereby eatended for that period), proceedings under the sequestration order made by Lee J. on 11 October 1994 against Rodney Paul Coleman be stayed until further order, 2. The hearing of this appeal be expedited, 3. Both paitics be granted liberty to apply on two days' notice, 4, The costs of this motion be costs in the appeal NOTE: Settlement and entry of Orders 1s dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAI.COURT ) OF AUSTRALIA ) WESTERN AUSTRALIA ) No. WAG 120 of 1994 DISTRICT REGISTRY ) BANKRUPTCY DIVISION ) BETWEEN: STEPLIEN MICHAEL, COLEMAN Appellant - and - LAZY DAYS INVESTMENTS PTY LTD Respondent No WAG 1? 1 of 1994 RODNEY PAUL COLEMAN Appellant ~ and - LAZY DAYS INVESTMENTS PTY LID Respondent CORAM: = CARR J. PLACE: PERTH DATE: 31 OCTOBER 1994 REASONS FOR JUDGMENT In these matters Lee J made sequestration orders against the estates of the respective appellants on 11 October 1994. The act of bankruptcy upon which the sequestration orders were based was the same in each case, namely that the debtor had given notice to some of his creditors that he had suspended, or that he was about to suspend, payment of his debts - see s 40(1)(h) of the Bankruptcy Act 1966 (Cth) ("the Act"). On 25 October 1994 each appellant lodged a notice of appeal together with a notice of motion that the proceedings under the sequestiation orders be stayed until the determination of the appeals. The order sought was in the following terms: "The proceedings under the sequestration order made by the Honourabic Justice Lee in Bankruptcy Action No P735 [in the case of Mr RP Coleman and No P736 in the case of Mr SM Coleman] on 11 October 1994 and all proceedings pursuant to it be stayed until the determination of this appeal" Notice of these motions was given to the tiustee in bankruptcy but there was no appearance on his behall Consideration should be given to the question whether he should be joined as a party to the appeals. At an early stage of the hearing of the motions last Fuiday Mr M. Benncit, counsel for the appellants, apphed to amend the above paragraph of the motions to read: "The operation of the scquestration order made by the Honourable Justice Lec in Bankruptcy Action No P735 [in the case of Mr RP Coleman and No P736 im the case of Mr SM Coleman] on 11 October 1994 be stayed until the determination of this appeal " That application was granted, by consent. At the end of the hearing Mr Bennett applied for leave to re-amend that paragraph back to its omginal form. That application was also granted, again by consent. Does the Court have power to make the orders sought? The respondent submitted that there was a doubt whether the Court had power to stay proceedings under the sequestration order in view of the provisions of s37 of the Act Section 37 provides as follows "Power of Court to rescind orders etc 37 qd) Subject to subsection (2), the Court may rescind, vary or discharge an order made by it under this Act or may suspend the operation of such an order (2) The Court does not have power to rescind or discharge, or to suspend the operation of (a) @ sequestration order, or (b) an order for the admimistiation of the estate of a deceased person under Part XT" Section 52(3) of the Act provides. 'The Court may, fit thinks fit, upon such toiniy & ol conditions as it Uinks proper, Stay all proceedings under a sequestecion order fou a penod not exceeding Oyenty-one days!" In the present proceedings the appellants have mvoked the Court's appellate jurisdiction under s.24 of the Federal Court of Austraha Act. Order 52 rule 17 of the Federal Couit Rules provides that a single judge may stay proceedings under "the Judgment appealed from". The reconciling of s.52(3) of the Bankruptcy Act with Order 52 rule 17 ot the Federal Court Rules was considered by Pincus J. in Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424, and at p.425 his Honour held that. "The general power to grant a slay (not limited to a stay pending appeal) given by s52(3) does not nullify the court's jurisdiction to order a stay under Order 52 117 of the Federal Court Rules which relates to appeals " That case was referred to by Lockhart J in Carver v Brian Maxwell Joyce & Anor (unreported 12 December 1990 Judgment No. 793 of 1990) Lockhart J. distinguished the circumstances in Carver from those which apphed in Evans on the basis that in Carver there was no appeal lodged against the making of the sequestration order but rather an appeal against a judge dismissing an application for an order to set aside the sequestration order. lis Hlonour desciibed the position as being entirely ditferent from that which arose in Evans. In Taylor v. Natwest Austaha Bank Lid (Foster J, unrepoited 14 July 1992 Judginent No. 726 of 1992) there was an appeal against a seqnestiation order, Tl Honour made an onder staying proceedings under the sequestration order for a period of two months Mr D. Stone, counsel for the respondent in cach appeal submitted that these three cases were decided before the amendment, in 1992, to s.37(2) which formerly read: "The Court shall not, after a scquestration ordei_ has been signed and sealed as provided by the Rulcs, rescind or suspend the operation of the order" [Emphasis added] {In fact the amendment took effect from 1 July 1992 shortly before the decision in Taylor.| In Evans, Spender J. had at the same time as making the sequestration order Stayed proceedings to enable consideration of an appeal and, so Mr Stone argued, in those circumstances it was to be implied that the sequestration order had not then been signed and sealed Hence there was no reference to s37 in the reasons for judgment of Pincus J., who in that case granted a stay of proceedings under the sequestration order for a period of some two months by which time an appeal could be heard. In Taylor the attention of Foster J did not appear to have been drawn to 8.37. In Carver, Lockhart J. referred to 537 and the fact that if was common giound that the sequestration order had not yet been signed and sealed Ils Honour made the following observation: "ldo not regard s37(1) as a powesy which can operate over and beyond the power conferted by $52(3), although I note that the Court's power under s 37(1) 1s not capresscd in the same language as the power under s 52(3)" Mr Stone submitted that it was mmphert front Tockhart V's observations that if the sequestration order had been signed and sealed at the time the stay apple otion was heard, then his Honou would not have contemplat. d staying the proceedings even in the exercise of the Court's appellate jurisdiction 'The umplication arose, it was submitted, because the narrowness ol the distinction drawn between the situation m that case (an appeal fiom an orde: dismissing an application to set aside the sequestration order) and the facts in Evans (an appeal against the making of a sequestration order) indicated what Mr Stone described as "an anaicty not to follow Evans". I do not accept that submission. In Caner there was no appeal against the sequestration order itself. An appeal against an order dismissing an application to set aside the sequestration order was, as Lockhart J. emphasised, an entirely different matter. I should mention that Mr Stone put these submussions as being subsidiary to his primary subnussion that s 37(2) deprived the Court of any power to suspend the operation of a sequestration order. At that stage of the proceedings the motions were in the amended form set out above which sought to suspend the operation of the sequestration orders. In Evans, Pincus J. held that as the appeal against the sequestration order was brought under s 24 of the Federal Court of Australia Act 1976 (Cth) and not under any provision of the Bankruptcy Act, the provisions of Order 52, rule 17 of the Federal Court Rules gave a discretion unlinnted as to time Foster J in Yaylor made a stay order principally on the basts that the appeal was a bona fide appeal and that supervision would be eseresed to ensure thet the appeal was prosecuted walt: all due expedition Hs Honour did not consider the mutters raised betore Pincus J in Evans In Re Ginnane (Heercy J, unreported 10 September 1993 Judgment No 707 of 1993), to which Mr Stone drew my attention, it was accepted on the authority of the decision in Evans, that there was Jurisdiction to order a stay under Order 52 rule 17 notwithstanding the terms of s.52(3) Mr Stone, in written submissions filed this morning, submitted that the power to stay proceedings under the judgment appealed from which 1s conferred by Order 52 rule 17 1s "limited to curial activities". Reliance was placed on the definition of proceedings in s.4 of the Federal Court Act: "proceeding" means a proceeding in a court, whcther between partcs or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding, and also includes an appeal This, so it was submitted, was of narrower import than the proceedings referred to in s.52(3) which refers to "all proceedings under a sequestration order." Mr Stone drew attention to the definition of "proceeding" in 5 5(1) of the Act ["proceeding means proceeding under this Act"] as embracing adnunistrative as well as judicial or curtal acts. Reference was made to Re Wheeler & Reynolds (A Firm), ev parte Kerr (1988) 20 FCR 185 at p190 where Spender J. held that the issue by the Registrar of a bankruptcy notice, although administrative and not a step in any proceeding in the court, was a proceeding under the Act. In Re Loughman (Northrop J, unreported 8 April 1992, Judgment No. 203 of 1992) his Honour made the following comments: "She word "proceeding' we defined in the Bankr yey def but not very Ib Ipfully in the sense Ut itis defincd as berry a procesding under the Act 9 Having myerd to the peneial mearimg of the word "proceeding" in sub-section 52(3) the "procecding , m my opinon, must relate to some applicauon or matter, or something of that kind brought under the Bunkruptcy Act For instance, the picsent application before the Court 1s a proceeding in that sense What comes within sub-section 52(3) as being a ploceeding may be uncertain bul, nevertheless, in my opinion, um dves not include the entering of the sequestration order" Both detinitions are, of course, expressed in terms of "unless the contrary intention appears". In my view, the various adnunistrative steps normally taken in accordance with the Act once a sequestration order 1s made would fall within the expression "proceedings under the judgment appealed from". They may also constitute proceedings under the Act. I shall assume, without deciding, that they are proceedings under the Act or at least proceedings of the type referred to in s.52(3). The fact that the admimistrative steps are prescribed by the Act does not, in my view, prevent them from also being proceedings under a judgment, which is a very wide expression. In the context of bankruptcy, the reference to subsequent proceedings under a sequestration order, in my opimon, requires a wider definition of "proceedings" than that contained in s.5(1) of the Federal Court Act. It must extend to administrative proceedings designed to give elfect to the statutory consequences of that judgment On the above assumption, just as "proceedings under a sequestration order" in s.52(3) of the Act would include the administrative steps to which I have referred above, so in my opinion, (where a Judgment takes the form of a sequestration order) do the words "proceedings under the judgment appealed from" mm Order 52 rule 17 include those administrate steps J] do not think that anything m either s.37 1 $.52(3) of the Act precludes the Coutt ordermg a stay in thes, matters In my view, this Court does have powe1 to grant a stay, pending the heaung of an appeal against a sequestration order, of some or all of the procecdings or steps which would otherwise be taken as a consequence of the sequestration order notwithstanding the provisions of ss.37 and 52(3) of the Act. In Re Wardle (1987) 70 ALR 633 Neaves J. pointed out that there was a difference between a stay and a suspension of a sequestration order As his Honour observed at p 635. the sequestration order docs not itself operate to change the debtor's status or to vest his property in the trustee The making of the sequestration order 1s but the fact upon which the statute operates to bring about the consequences upon the debtor's status and property Section 37(1) of the Act may be contrasted with s 52(3) which enables the court, if it thinks fit, upon such terms and conditions as it thinks proper, to "stay all procecdings under a sequestration order for a period not exceeding 21 days" It has been held that a stay granted under that sub-section docs not have the effect of preventing the change of status and vesting of property which 1s effective upon the making of the scquestration order Re Deru (1970) 16 FLR 420 It follows from what 1s said above that the operation which a sequestration order has is lo trigger the statutory provisions which bring about the consequences of bankruptcy The legislature, in conferiing power on the Court to suspend the operation of a sequestration order, must in my Opmmon, have mtended to enable the Court to prevent those statulory 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 1s regarded as having the effect that the sequestrauon order is not made unul the expiration of the period of suspension " Accordingly, in my opinion, s 37 of the Act docs not stand in the way of the Court making the order sought mm the appellant's motion in its 1e-amended (original) form Section 37 1s concerned with rescission, disehaige or suspension of a sequestration ordel not a stay of proceedings, as is sought in these matters y 8 I agree, respectfully, with the decision in Lians that s 52(3) does not have that effect either. I see that sub-section as facilitative, particularly in the ongmal jurisdiction of this Court. If the sequestration order has not been suspended under s.37(1) and there 1s no appeal against that order, the time lumit of 21 days in s.52(3) fits neatly into the scheme of things. The time for filmg a notice ot appeal against a sequestration order 1s 21 days - see Order 52, rule 15 The next question 1s whether it 1s proper for a stay to be ordered in these matters pending the hearing of the appeals Whether a stay should be ordered The act of bankruptcy upon which the sequestration orders were based - the debtor giving notice to some of his creditors that he had suspended, or that he was about to suspend his debts - arose out ot a Jette: sent to one class of the debtors' creditors. The appellants had jointly sent a Jette: dated 1 February 1994 to those of their creditors who held guarantees from them im respect of trade debts incurred by a company called Jarra Pty Lid ("Jarra") which conducted busimess under the style "Lhe Surf Factory". The appellants stated in the letter that their purpose in writing to those creditors was to: "(a) explain the reasons why Jarra was forced to cease trading and (b) propose a means for dealing with our personal latulity that will avoid the necessity (On your part) Of incuniing any additional expenses un legal fees or other recovery acuons ' The letter enclosed summaries of the appellants' respective financial positions 'Those summaries showed an eacess of Nabilities over assets in the case of Mr Rodney Coleman of $407,049.00 and in respect of Mr Stephen Coleman $386,17700 In the letter the appellants proposed an agreement between them and the creditors to whom the letter was addressed that the appellants would borrow the sum of $10,000 to establish a fund to be distributed amongst those of their creditors who held guarantees. The letter stated that the appellants estimated that the amount due to creditors who held personal guarantees was $190,000 and that the approximate return to those creditors, if the proposal were accepted, would be about five cents in the dollar. The letter also contained these paragraphs: "As will be obvious from the attached summary of our own financial positions the mevitable result, if this proposal is not acceptable and we are pursued, will be that it will be necessary for us to consider entering into a Part X arrangement pursuant to the Bankruptcy Act or filing our own petitions for bankruptcy This proposal will ensure some return to those creditors holding personal guarantees If the proposal 1s not acceptable and we ale forced to enter a Part X arrangement or bankruptcy then the claims of ali our creditors (which exceed $400,000 for each of us) well mean vutually no return to any creditors Three creditors have already 1k commenced personal actions against us (and one has threatened legal action) and it 1s urgent that we resolve our position with all personal creditors - 2f we were to deal with each creditor individually there is a risk that any such dealing could constitute a vuidable preference " There were several grounds of opposition to the petition but the principal ground would appear to have been that the Jetter of 1 February 1994 did not constitute notice that the debtors had suspended or were about to suspend payment of their debts because the letter did not extubit the requaite intention that they would refuse to pay their debts as they becaine duc The letter, so it was put, was addressed only to one particular categoly of creditors (those who held guatautees) and there was no intention to deal with creditors as a body I have examined the grounds of opposition to the petition and also the notices of appeal. I do not consider that it 1s appropriate for me to make any comment as to the prospects of success for the appeals I propose to adopt the approach taken by Pincus J. in Evans and Foster J. m Taylor. There is nothing to indicate that the appeals are otherwise than bona fide and reasonably arguable. No Full Court sittings are scheduled in Perth until March 1995 1.e. some five months hence. The applications for the stays are put on the basis that if these appeals are successful and stays of proceedings under the sequestration orders are not made then the appeals "will be rendered nugatory." Mr Stone submitted that there was no evidence of this betore the Court, only a bare assertion to that eftect in the appellants' affidavits. That 1s true, but the Act and the rules made under it spell out what will happen if the proceedings are not stayed pending appeal. Without attempting an exhaustive list these range from the filing by the appellants of statements of affairs followed by their trustee im bankruptcy calling for proofs of debt, taking possession of and realising property available for payment of debts and, possibly, to proceeding to distribute the proceeds. I have examined the cases which set oul the principles applicable to whether a stay should be gianted pending appeal T do not propose to rehearse them here as they are well-known Jn my view, the above cucumstances are sufficiently exceptional and successful appeals would be 1endered nugatory to the requisite degice (in this matter the two propositions are intertwined) to provide a basis for the Court to move to the next stage of weighing the balance of convenience, the nights of the parties (including here the rights of all creditors) and the risk of prejudice to the respondent and other creditors resulting from a stay. A stay of proceedings will not prevent the appellants' available property vesting in the trustee so the creditors will have that protection. Secondly, Mr Stone conceded that a stay of proceedings pending appeal would not prejudice his client and nor could he see any prejudice to the creditors as a body In all the circumstances, I think it is appropriate that there should be a stay of most of the proceedings under the sequestration order. However, I consider that the District Registrar in Bankruptcy and the trustee should be made aware of the appellants' affairs and the extent of the property which by the Act has become vested in the trustee. Accordingly, I consider that 1t would be appropriate that the appellants prepare and file their respective statements ot affaus. I understand that these would ordinarily have to be tiled by tomoriow. In the circumstances, I consider that they should have a reasonable eatension of time, say fourteen days, 1n which to do this. Secondly, the stays should only continue while the appeals are prosecuted with all due expedition. Thirdly, I propose to make an order that the hearing of the appeals be expedited so far as that is possible I propose to make orders which will reflect the above 1 certify that this and the preceding twelve (12) pages are a true copy of the Reasons for Judgment of Justice Carr. ( f . Associate: ipl od } Date: 31 October 1994 Counsel for the Applicant Mr M.L. Bennett Solicitors for the Applicant: Messrs Bennett & Co. Counsel for the Respondent: Mr D.M. Stone Solicitors for the Respondent: Messrs Williams & Hughes Date of Hearing: 28 October 1994 Date of Judgment: 31 October 1994