Does the Court have jurisdiction to order such stay?
43 Importantly in this proceeding however, Canstruct has contended that the Court lacks power to order a stay of the termination of the DOCA and the commencement of the winding up of Project Sea Dragon. In essence, Canstruct contends that, because his Honour made the order that Project Sea Dragon be wound up in insolvency, provisions of the Corporations Act referable to the making of an order for winding up and appointment of liquidators have been engaged, in particular :
Section 5-15 of Schedule 2 to the Corporations Act Insolvency Practice Schedule (Corporations), which deems a company to be under external administration upon the appointment of liquidators;
Section 198G (1), which prohibits directors from performing the function of directors or exercising the powers of directors once the company was under external administration;
Sections 513A(d) and s 513C(b), which had the effect that the winding up of Project Sea Dragon is taken to have commenced on the day the administration began, namely 14 February 2023;
Section 477, which invests liquidators with powers;
Section 474(1), which imposes a statutory duty on the liquidators to take all of the property of the company into their custody or control;
Section 468, which made void dispositions of property of the company that occurred after the commencement of the winding up (namely 14 February 2023);
Section 468A, which made void transfers of shares after commencement of the winding up (namely 14 February 2023);
Section 471B, which prevents a person commencing or proceeding with proceedings in the Court against the company without leave;
Section 470(1)(b), which requires the applicant for the order to lodge notice of the making of the order with ASIC within two business days after the making of the order; and
Section 475, which requires directors to make out and verify a statement in writing and provide it to the liquidators as to the affairs of Project Sea Dragon, and to do so within 10 business days after the making of the winding up order.
44 In short, Canstruct submitted that a stay order could not prevent the operation of the above provisions of the Corporations Act engaged upon the making of the orders for winding up and appointment of a liquidator, and even if the Court ordered a stay the provisions of the Corporations Act would operate, and would immediately affect the legal rights and obligations of the company, as well as its directors, creditors, and shareholders.
45 Canstruct submitted that it is not appropriate to order a stay if it will not be effective. This submission requires a finding by me not only that an order by me in the terms sought by the Stay Applicants would be ineffective, but that the original order of the primary Judge of 22 February 2024 was similarly ineffective.
46 I am not prepared at this interlocutory stage to make such findings, for the following reasons.
47 First, the weight of authority favours the existence of a power vested in the Court to make stay orders suspending or postponing the coming into effect of orders such as those made by the primary Judge.
48 As the Full Court explained by reference to general principles in Fuchs Lubricants (Australasia) Pty Ltd v Quaker Chemical (Australasia) Pty Ltd (No 2) [2021] FCAFC 114:
11. In our view, the judgment of the Full Court in Arnhem Land Aboriginal Land Trust is distinguishable. In that case, the Full Court had already made a declaration and in that context considered whether or not the declaratory order could be stayed. In the present case, in contrast, the Court has not yet made a declaration and what is proposed is a stay of a package of orders proposed to be made by the Full Court, including a declaration. In these circumstances, the proposed stay is akin to an order suspending or postponing the coming into effect of the declaration. The power to make such an order seems to have been accepted by Carr J in Bunnings Forest Products Pty Ltd v Bullen [1994] FCA 1526; (1984) 54 FCR 342 at 347:
... if an appeal were foreshadowed and the circumstances warranted taking such a course, a Full Court might before pronouncing judgment or, perhaps, before entry of judgment stay a declaratory order by suspending or postponing its coming into effect for a period fixed by reference to some appropriate stage of the further appellate process. Alternatively, the court or a judge might, in an appropriate case, stay the exercise of rights which might be declared to exist, pending an appeal which might have the result of the declaration being set aside.
12. The above passage was cited with apparent approval by the Full Court in Arnhem Land Aboriginal Land Trust at [5].
13. In the circumstances of this case, where the Court proposes to make a declaration of invalidity of certain patents, we consider it prudent to stay not only the revocation order but also the declaration of invalidity, pending the outcome of the special leave application and any appeal. Otherwise, the declaration may convey an incomplete and thus misleading impression to the general public. Further, we consider it appropriate to stay paragraph 4, as this forms part of the package of consequential orders.
(emphasis added)
49 However, and possibly even more relevantly, the extent to which a superior Court has inherent jurisdiction to stay a winding up order was explained by the Full Court of the Supreme Court of Victoria in Brinds Ltd v Offshore Oil N.L. [1986] VR 635. In that case the Full Court considered an application for a stay of an order for the winding up of Brinds Ltd, and for an order suspending some or all of the powers of the liquidator, pending an appeal from an earlier Full Court to the Privy Council. At first instance Tadgell J had made an order for the winding up of Brinds Ltd on 5 May 1983, and on the same date granted a stay of 14 days staying all operation of his order for winding up. As the Full Court observed, this stay was continued by other orders pending the determination of the Full Court appeal, until a period of time during which the stay lapsed and a fresh application for a stay was made.
50 In considering the jurisdiction of the Full Court to grant a stay, Fullagar J (with whom Southwell and Nicholson JJ agreed) said at 637:
In my opinion the liquidator, conducting a winding up by this Court, is under the control of this Court, and in my opinion this Court has inherent jurisdiction to direct him not to do certain acts pending the hearing of the appeal to Her Majesty in Council, if this Court should be of opinion that the doing of such acts in that interim would be calculated to work injustice. I am not at the moment speaking of the necessary procedure applicable to obtaining an order on that basis.
Further, quite apart from the Court's powers over the liquidator in a winding up by the Court, the weight of authority is, I think, in favour of there being an inherent power in this Court to stay any order, or to stay proceedings under any order, pending an appeal where the refusal of a stay would be likely to work a substantial injustice: see Howarth v. Walker (1903) 3 S.R. (N.S.W.) 235; Battle Creek Toasted Corn Flake Co. v. Kellogg (1924) 55 O.L.R. 127 (Can.), and F.A.I. Insurances Ltd. v. Registrar of Workers' Compensation Commission of New South Wales [1982] 1 N.S.W.L.R. 239. With respect, I would prefer the reasoning in those cases to that in the recent South Australian case of Van Reesema v. Giameos (No. 2) (1978) 17 S.A.S.R. 390, in which Howarth v. Walker was apparently not cited. Each of the regulations relevant in Victoria (namely r. 6 of the Order in Council and s. 218 of the Supreme Court Act) is in my opinion purely enabling in character. At the time of the first order in council regulating appeals to the Privy Council, if such an order can now be located, I think the position must have been that there were various colonies of Britain in differing stages of economic and political and judicial development, and thus when the authorities by order in council gave minimal power the intention, I think, must have been to give just that minimal power without affecting other powers which a superior court in a colony might have. Similarly, I think that the legislation in Victoria was intended only to give somewhat more minimal power, whereas I think neither the order in council nor the legislation should be read as restrictive of such powers as the superior court of a colony or State might have which are not inconsistent with the permissive provisions already referred to. As will be seen, however, these considerations are not essential to our ultimate decision.
(emphasis added)
51 His Honour continued at 638:
I come now to turn to what might be called the merits of the application or alternative applications. It is, I think, important, first, to recognize the effect of the winding-up order made by Tadgell J., which became effective on the day the Full Court delivered judgment, that is 16 December 1983. It has remained fully effective ever since: "The effect of the winding-up order, so far as it caused a change of status, was immediate and definite ... [it had the] effect of taking the property of the Company out of its own hands ... and placing it under the entire control of the official liquidator, with power to carry on the Company's business and to dispose of its property": Robert H. Barker & Co. Ltd. v. Simon (1914) 19 C.L.R. 24, at p. 27, per Griffith C.J.
It is one thing to seek and perhaps obtain a stay of a winding-up order before it has become effective; it is another thing altogether to allow the liquidator to proceed for a year or more, during which time the liquidation fees are mounting (in May 1985 they totalled some $57,000), before applying for a stay, or for some restraints upon the liquidator's powers to be exercised in the winding up.
When there is a profitable business being carried on, as was the case in Re A.&.B.C. Chewing Gum Ltd. [1975] 1 W.L.R. 579; [1975] 1 All E.R. 1017, Plowman J. said that "as a matter of practice a stay is never granted". In my opinion, even where it is not a case of a profitable business being carried on, it must only be in rare circumstances that a company, the subject of a winding up, can stand by for a long period while liquidation proceeds, and then obtain a stay or an order severely restricting the liquidator's activities, whether for a short period pending some event, or generally.
52 The Full Court plainly had no issue with a stay of winding up orders or an order for the appointment of a liquidator, on the basis that such orders fell under the inherent jurisdiction of the Court.
53 An earlier case in which the power of a court to stay a winding up order was considered was Krextile Holdings Pty Ltd v Widdows [1974] VR 689. In that case an order had been made by the Supreme Court winding up Brush Fabrics Pty Ltd and associated companies. A liquidator was appointed pursuant to s 231A of the Companies Act 1961 (Vic). A shareholder of each of the companies applied for a stay of the liquidation proceedings. Gillard J observed at 693 as follows:
By s. 283 every company being wound up must add the words ''in liquidation" after the name of the company in all invoices, order forms etc. lt might be herein interpolated that the governing words in this section are: "Where a company is being wound up." If, therefore, a permanent stay of proceedings in relation to winding up were granted, it is patent that the company concerned would no longer be in a state of being wound up. Accordingly, the operative words in the section would be no longer applicable to the company concerned and the company would not be required to add the expression "in liquidation", if an order for a stay were granted. Upon the staying order becoming effective, as a matter of mere interpretation of the section itself the provisions of the section are no longer operative. It might be added that it is not easy to so interpret the verbiage used in other sections of the Act as will be seen when s. 227 is examined more closely.
By Subdivision 3 of Division 4 of Part X various transactions with the company may be set aside and execution against the company stayed. It is unnecessary to deal with these various sections in this subdivision in detail.
As well as these various powers and duties conferred and imposed on the company, its members and the liquidator, this Court is also given wide jurisdiction to control the winding up and applications may be made to it in relation to the various aspects of winding up the affairs of the company. The list of sections set out above was not intended to be exhaustive but merely indicative of the kind of matters which necessarily arose from the making of a winding-up order.
Although the important and operative expression in s. 243 contains a reference to "proceedings", in my view, the word is not limited merely to applications to the Court, or to any proceedings that must be brought to the Court under the Act in relation to a winding up. In my opinion, all the matters that flow directly from or are invoked by the making of an order as a part of the process of winding up under the provisions of the Companies Act 1961 are "proceedings in relation to the winding up". It is the performance or observance of all the statutory powers and duties indicated above which are comprehended within the expression "all proceedings in relation to the winding up".
Accordingly, if an order were made under s. 243 of the Companies Act 1961 it would be the process of winding up referred to in the various statutory consequences set out above and which directly flow from the making of the order that would be stayed. The Court, of course, is not empowered to revoke or recall its order once it is passed and entered. The effect of a perpetual stay of proceedings under s. 243, however, must mean a virtual end to the winding-up process under that order. The statutory provisions that ordinarily would cause certain things to be done no longer apply to the company and the order for winding up becomes quite inoperative: see, per Molesworth, J., in Re Oriental Bank Corporation (1884), 10 V.L.R. (E.) 154, at p. 185; Re Western of Canada Oil, Lands and Works Co., [1874] W.N.148; Re Stephen Walters& Sons Ltd. (1926), 70 Sol.Jo. 953; Re South Barrule Slate Quarry Co. (1869), L.R. 8 Eq. 688; cf. Re Telescriptor Syndicate, Ltd., [1903] 2 Ch. 174.
(emphasis added)
54 See also Austral Brick Co Pty Ltd v Falgat Constructions Pty Ltd (1990) 21 NSWLR 389 at 392 where Krextile was cited.
55 More authority is also relevant. As O'Callaghan J explained in Australian Securities and Investment Commission (ASIC) v Aviation 3030 Pty Ltd (No 2) [2019] FCA 391:
1. Yesterday, I pronounced certain winding up orders in this proceeding: see Australian Securities and Investment Commission v Aviation 3030 Pty Ltd [2019] FCA 377.
2. After I did so, counsel for the defendants made an application for a short stay of the winding up orders. I granted the application.
3. Because of the public interest involved, I will now briefly explain why.
4. The court has the power to order such a stay as an incident to its general power to control its own proceedings, as well as pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth) and r 36.08(2) of the Federal Court Rules 2011 (Cth).
5. …
6. …
7. The principles governing the exercise of the Court's discretion to order a stay of winding up orders were summarised by Reeves J in Deputy Commissioner of Taxation v Ansett Resources & Industries Pty Ltd [2010] FCA 833; (2010) 79 ACSR 347 at [11]-[12]:
... [I]t is clear, in my view, that I have the power under s 23 of the Federal Court Act 1976 (Cth) to order a stay of the winding-up order pending an appeal to the Full Court. The grant of such a stay is a matter for the discretion of the court in all the circumstances of the case: see HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd [2002] FCA 1638; (2002) 44 ACSR 169 at [47]- [48] (HVAC) per French J. Furthermore, the principles applicable to this stay application are the same as those that apply under the Rules of Court to the stay of any order of the court pending an appeal: see Kalifair Pty Ltd v Digi-Tech (Aust) Ltd [2002] NSWCA 383; (2002) 55 NSWLR 737 at [18] (Kalifair); Masri Apartments Pty Ltd (in liq) v Perpetual Nominees Ltd [2004] NSWCA 255; (2004) 209 ALR 86 at [17] (Masri); and Gronow, McPherson's Law of Company Liquidation (Lawbook Co, subscription service) at [16.190].
Under the Federal Court Rules, the normal principles are these. First, it is not necessary to demonstrate some "special" or "exceptional" reason for the stay : see Powerflex Services Pty Ltd v Data Access Corporation [1996] FCA 460; (1996) 67 FCR 65 at 66 and HVAC at [48]. Secondly, there is an onus on the applicant to make out a reason or appropriate case for the discretion to be exercised in its favour: see HVAC at [48] and Ng v Van Der Velde [2010] FCA 89 at [20] and [21] (Ng). Thirdly, the fact that an appeal will be rendered nugatory if a stay is not granted, is usually regarded as a substantial factor in favour of a stay. This, in turn, requires some assessment to be made to the prospects of success on the appeal: see, variously, Alexander v Cambridge Credit Corp Ltd (receivers appointed) (1985) 2 NSWLR 685 at 695; Kalifair at [18]; Masriat [17]; HVAC at [49(b)] and Ng at [21]. That assessment has been described as: "a preliminary nonspeculative assessment of whether the appellant by the grounds of appeal has raised an arguable case ... [involving] ... a low threshold of arguability": see Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd [2008] FCA 1867 at [40] per Greenwood J and Ng at [36]. Fourthly, if the grounds of appeal disclose an arguable case, it is necessary to consider where the balance of convenience lies. See Kalifair at [18] and Masri at [17] ...
56 I am not satisfied that a stay of winding up orders, granted by this Court, would be unable to "hold back the tide" of the provisions of the Corporations Act to which Canstruct has referred. Further, contrary to submissions of Canstruct, I am not persuaded that no analysis was conducted by Judges in the cases to which I have referred. Rather, the plain conclusion consistently reached was that superior courts of justice have inherent jurisdiction to stay a winding up order.
57 I am satisfied that the Federal Court has inherent power to stay any order, or to stay proceedings under any order, pending an appeal where the refusal of a stay would be likely to work a substantial injustice. This includes orders which would otherwise trigger processes under winding up provisions of the Corporations Act.
58 Second, I note the detailed arguments put by Canstruct referable to the analogy between relevant provisions of the Corporations Act and the Bankruptcy Act 1966 (Cth) (Bankruptcy Act).
59 In support of the proposition that a stay cannot prevent the operation of provisions of the Corporations Act engaged upon the making of a winding up order, Canstruct submitted that bankruptcy law provided a comparable situation.
60 Specifically, Canstruct submitted that upon the making of a sequestration order, provisions of the Bankruptcy Act were automatically engaged causing property to immediately vest in the trustee in bankruptcy. Canstruct relied on Endresz v ASIC [2014] FCA 1139 at [8] in support of the proposition that it was not appropriate to order a stay of such sequestration order which caused automatic legislative operation:
"……It is conceptually incoherent to contemplate a judicial stay order as being available to countermand automatic legislative operation where no question of invalidity is involved."
61 Canstruct further relied on The Owners - Strata Plan No.20,347 v Saha [2021] FCA 961 where Stewart J observed:
[21] I was well aware that in the context of an appeal from a sequestration order the court has no power to order a stay of the sequestration order, but only to order that proceedings under the sequestration order be stayed. That is because a sequestration order takes effect immediately it is made; the debtor immediately becomes a bankrupt, and their property immediately vests in the trustee in bankruptcy. Those are the effects of ss 43(2) and 58(1) of the Bankruptcy Act. Section 52(3) of the Bankruptcy Act provides that the court may stay all proceedings under a sequestration order for a period not exceeding 21 days, but it does not provide the power to stay a sequestration order. Also, under s 37(2) the court does not have power to suspend the operation of a sequestration order. I had discussed this issue not long before in Du Bray v ACW [2020] FCA 1142 at [4] -[11] where I had cited Endresz v ASIC [2014] FCA 1139 at [8] -[11] .
62 An important provision of the Bankruptcy Act in this context is s 37 which specifically provides:
Power of Court to rescind orders etc.
(1) 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) a sequestration order; or
(b) an order for the administration of the estate of a deceased person under Part XI.
(emphasis added)
63 Further, s 52(3) of the Bankruptcy Act specifically permits the Court, if it thinks fit, and upon such terms and conditions as it thinks proper, to stay all proceedings under a sequestration order for a period not exceeding 21 days.
64 There is no equivalent to s 37 or s 52(3) of the Bankruptcy Act under the Corporations Act in respect of winding up orders.
65 Canstruct submitted that s 37 however was not at the core of reasoning that the Court does not have power, rather it was that "upon the making of sequestration order, the Bankruptcy Act by force of its provisions, changes the status of the debtor, enlivens powers of the trustee, and brings about changes to property".
66 At this interlocutory stage I am not prepared to find that principles arising from ss 37 and 52 of the Bankruptcy Act preventing a stay on a sequestration order have equivalent application to a winding up in insolvency. That there is no such specific legislation in the Corporations Act militates against such a finding. Following a sequestration order, property of the bankrupt vests forthwith in the trustee (s 58(1) Bankruptcy Act). The consequences of winding up in insolvency are different - as summarised in McPherson's Law of Company Liquidation at [7.100]:
As far as the company is concerned, the commencement of winding up therefore has a number of important consequences. Admittedly it has no immediate effect upon the corporate personality and powers of the company, and there is not, as there is in bankruptcy, an automatic transfer of the property of the company to the liquidator; but the effect of a company's going into liquidation is to:
• prevent it from carrying on business except for the limited purpose of winding up;
• impose a general prohibition upon its power to dispose of property, save for dispositions authorised by the Act or authorised realisations and other transactions by the liquidator;
• make the liquidator, generally speaking, the only person who can bring or defend proceedings on behalf of the company (see [7.1200], [8.1120]);
• require persons wishing to commence or continue proceedings against the company to obtain leave (see [7.900]-[7.1200]);
• fundamentally alter the rights of members or shareholders of the company (see [7.700]-[7.740]); and
• convert the rights of those with claims against the company from a right to pursue payment in the normal ways into a right to prove in the winding up in accordance with the Act.
This is partly the result of the specific provisions of the Corporations Act 2001 itself, but it is also a necessary consequence of the fact that, on winding up, control of the company's affairs is taken from the directors and vested in the liquidator, whose powers are restricted by statute to dealing with the assets for the purpose of winding up the company…
(footnotes omitted)
67 As I explained earlier, I am satisfied that the Court has inherent jurisdiction to stay the transfer of control of the company's affairs from the directors to the liquidator, in terms ordered by the primary Judge.
68 It is appropriate to now turn to the stay for which the Stay Applicants apply.