Should a stay be granted?
17 The Court's discretion is a broad one. The weight of authority in this Court does not require special or exceptional circumstances: Stirling Harbour Services Pty Ltd v Bunbury Port Authority (No 2) [2000] FCA 87 at [13]-[14]. Still, there is an onus on the applicant to demonstrate a proper basis for a stay. As the mere filing of an appeal will not suffice (Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 ("Alexander") at 694), it follows that the mere filing of an application to extend the time to appeal cannot. The following considerations are relevant to the exercise of the Court's discretion:
(a) The starting point is that a successful party is entitled to the benefit of the judgment and is entitled to commence with the presumption that the judgment is correct. Where an applicant for a stay has not made out an appropriate case but has left the situation in a state of speculation or mere argument, weight must be given to the fact that the judgment below was given against the applicant.
(b) Although a judge will generally not be required to speculate about the prospects of success, a stay will not be granted in the absence of arguable grounds of appeal or where the appeal is not bona fide, and so will not be granted if an appeal has no prospect of success.
(c) Whether there is a likelihood that a successful appeal will be rendered nugatory.
(d) Where the balance of convenience lies.
See, for example, Alexander at 694; and Australian Workers Union v Pilkington (Aust) Ltd (2000) 101 FCR 35 at [30]-[31] per Finkelstein J.
18 Ms Tangsilsat submitted that the stay should be granted because her client was solvent, had been disadvantaged by self-representation, may not have put in all the evidence, would lose his house and the creditors would not be disadvantaged. She also submitted, in effect, that the proposed appeal would be rendered nugatory if the writ of possession were executed.
19 On the question of solvency s 5 of the Bankruptcy Act provides that a person is solvent if and only if (s)he is able to pay his or her debts, as and when they become due and payable and that otherwise the person is insolvent. The test of solvency is the cash flow test: Keith Smith East West Transport Pty Ltd v Australian Taxation Office [2002] NSWCA 264 at [33]. (This was a case involving s 95A of the Corporations Act 2001 (Cth) but the statutory definition is essentially the same as the definition in the Bankruptcy Act.)
20 Ms Tangsilsat relied on Mr Dunlop's affidavit sworn on 29 September 2011, which annexed documents purporting to demonstrate that funds were available. Some of this material was before the federal magistrate but some post-dated the sequestration order. Mr Gardner, who appeared for the trustee, relied on evidence that appears to confirm the correctness of the federal magistrate's decision that Mr Dunlop was not solvent.
21 But it would not be right to determine the question at this point. While the alleged error or errors on the part of the federal magistrate who made the sequestration order are elusive (they do not appear in the draft notice of appeal, and they were not identified in any submission), and the trustee raised questions about Mr Dunlop's bona fides, I am prepared to assume for present purposes that Mr Dunlop has an arguable case.
22 On the evidence before me, however, it could not be said that the prospects of success are high. Ms Tangsilsat submitted that Mr Dunlop had a line of credit available which would enable him to discharge the debt to the petitioning creditors. She referred to a copy of a bank statement annexed to her submissions, although she did not tender it and it was not in evidence. The document dealt with the period 8 September 2009 to 7 October 2009 and revealed a closing balance of $257,222.98 in debit. In handwriting, which Ms Tangsilsat identified as her own only when I queried it, appeared the words "LIMIT $300,000". Even if there were evidence to support the submission, the remaining credit could not meet the full extent of Mr Dunlop's indebtedness. Evidence tendered by the trustee showed that there were two additional creditors at the time the sequestration order was made (the debts to them were incurred in 2007), who last year lodged a proof of debt and whose existence was not disclosed to the federal magistrate. Indeed, the debt owing to the petitioning creditors of $45,499.95 represented about a third of the amount owing to unsecured creditors.
23 Furthermore, without wishing to pre-empt the outcome of the application for an extension of time, the lengthy delay in approaching the Court counts heavily against Mr Dunlop. In his affidavit in support of the application for an extension of time to file the notice of appeal, Mr Dunlop sought to explain the delay by saying that he did not know his rights. Whether that explanation is acceptable is a matter to be determined on a later occasion. But the federal magistrate's orders of 27 July 2011 were not challenged, nor his refusal to set aside those orders on 14 October 2011. And the delay in seeking to stay the execution of the writ of possession is largely, if not entirely, unexplained. Certainly, the affidavit in support of the stay application did not include any explanation and I was informed that, although Ms Tangsilsat did not receive instructions until 25 August 2011, Mr Dunlop had previously consulted a solicitor in connection with the application for the issue of the writ.
24 The evidence of the trustee, Mr Chubb, shows that the application for the writ of possession was filed after the trustee afforded Mr Dunlop with a reasonable opportunity to arrange for the annulment of his bankruptcy, including refinancing the mortgage on his property with a view to paying all his creditors. It was not until 29 October 2010 that the trustee first required Mr Dunlop to surrender his keys to the property and certain machinery and asked him to vacate the property by 15 November 2010 in order to enable the property to be sold. The trustee foreshadowed at that time filing an application in the Federal Magistrates Court.
25 There was no evidence to support the submission that the proposed appeal would be rendered nugatory if the stay were refused. Indeed, there was no evidence touching upon the execution of the writ. Mr Dunlop told me that he no longer resided on the property. There was no evidence of an imminent sale. There was no evidence that the trustee had even advertised the property for sale or had located an interested purchaser.
26 I should, however, point out that in an affidavit sworn on 10 October 2011 Mr Chubb deposed to the extraordinary circumstance that when the matter came before the Federal Magistrates Court for directions on 20 September 2011 Ms Tangsilsat told the Court that she had exchanged contracts on property the subject of the writ of possession, although the trustee had at no stage given his consent to the sale. Even so, Mr Chubb said that a request from Mr Gardner to Ms Tangsilsat for a full copy of the contract and the deposit cheque (purportedly for 0.25% of the purchase price rather than the standard 10%) went unanswered and the sale price was well below the true value of the property, causing the trustee to conclude that the purported sale was merely a device to further delay the administration of the estate.
27 In all the circumstances I am not satisfied that the execution of the writ would cause any great inconvenience to Mr Dunlop.
28 While I accept that the consequences of refusing a stay would disadvantage Mr Dunlop, his private interests are not the only matters to be taken into account. The Court must also have regard to the interests of the creditors, particularly unsecured creditors, and the community, which is also concerned with the due administration of the estate of a bankrupt. See, for example, Bryant v Commonwealth Bank of Australia (1996) 134 ALR 460; and Cirillo v Consolidated Press Property Pty Ltd (formerly known as Citicorp Australia Limited) [2007] FCAFC 167 at [51]. I reject Ms Tangsilsat's submission that a stay would not disadvantage the creditors. They have been waiting now for years. In relative terms, an additional period of delay might seem inconsequential. But with every day that passes while they remain unpaid, the greater the disadvantage is likely to be. A stay, of course, would not cancel the sequestration order. By operation of law Mr Dunlop's property has already vested in the trustee; a stay cannot alter that. What it would do, however, is frustrate the orderly administration of the estate. This is a material consideration where no steps were taken to apply to have the sequestration order set aside for nearly two years and the prospects of a successful appeal are not high.
29 Mr Dunlop's failure to disclose the true extent of his indebtedness either to the federal magistrate or to this Court is another significant factor weighing against him in the exercise of the Court's discretion.
30 In all the circumstances, I am not persuaded to grant a stay.
31 The interlocutory application should therefore be dismissed with costs. The application for an extension of time should be heard at the earliest convenient date. I propose making orders now so as to avoid the further cost of a directions hearing. The orders I will make are that:
- Morgan James Chubb as trustee of the bankrupt estate of James Henry Dunlop be joined as fifth respondent pursuant to r 9.05 of the Federal Court Rules 2011 (Cth).
- The interlocutory application filed on 14 October 2011 be dismissed.
- The applicant pay the respondents' costs.
- The applicant file and serve any further evidence in support of his application filed on 30 September 2011 for an extension of time within which to file a notice of appeal ("the application") on or before 20 November 2011.
- The respondents file and serve any evidence in reply on or before 27 November 2011.
- The application be listed for hearing on a date to be fixed with my associate.
I grant liberty to the parties to apply on 24 hours' notice.
I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.