Reasons
32 In our opinion, his Honour was in error in two respects relating to his consideration of the adjournment question and in refusing to adjourn the petitions.
33 First, his Honour did not expressly set out in his reasons why it was that the adjournment application had been refused. At [6], his Honour referred to grounds 3, 4 and 7 of the appellants' notices of opposition to the sequestration orders as being relied upon for an adjournment. But his Honour did not return in his reasons to deal with this matter again. Moreover, although his Honour may have treated grounds 3, 4 and 7 as being the only basis upon which an adjournment was sought, it seems to us that this perspective was too narrow. At all events, we are left in a state of uncertainty as to the basis upon which his Honour considered the adjournment application but then refused it. The absence of reasons is a sufficient basis to set aside his decision.
34 Second, let it be assumed that his Honour implicitly rejected the adjournment application on the basis that he was not satisfied that grounds 3, 4 and 7 of the appellants' notices of opposition had been made out. Grounds 3, 4 and 7 sought to invoke s 52(2)(b) of the Act. His Honour was dealing with these grounds in the context of whether under s 52(2)(b), "other sufficient cause" had been demonstrated such as to enliven a discretion to refuse the sequestration orders. But the question of whether an adjournment of the petitions should have been granted involved broader considerations that were not confined to s 52(2). Even if "other sufficient cause" had not been made out as a basis for an exercise of discretion to refuse the petition (as his Honour found having rejected grounds 3, 4 and 7), that did not necessarily entail that an adjournment of the petitions ought to be refused. Such a question involved broader considerations than merely looking at the matter through the narrow lens of s 52(2)(b).
35 It is appropriate to make a number of observations concerning s 52(2)(b).
36 A petitioning creditor has a "prima facie right" to a sequestration order once proof of the matters required by s 52(1) has been satisfied (Deputy Commissioner of Taxation v Cumins (2008) 101 ALD 78 at [14] per Gilmour J; Clapham v Commonwealth Bank of Australia [2013] FCAFC 84 (Clapham) at [54] per North, Barker and Nicholas JJ; Cain v Whyte (1933) 48 CLR 639 at 646 and 648, the Court agreeing with Henchman J; Russell v Polites Investments Pty Ltd [2012] FCA 11 at [23]-[24] per Flick J and Rozenbes v Kronhill (1956) 95 CLR 407 at 414 per Dixon CJ and Webb and Fullagar JJ). Nevertheless, there is a discretion to refuse such an order for inter alia "other sufficient cause" (s 52(2)(b)).
37 The circumstances which may constitute "other sufficient cause" are extremely variable, and it is inappropriate to catalogue or circumscribe them (Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 at 5 per Fisher, Morling and Wilcox JJ and Cain v Whyte at 645). But even if "other sufficient cause" has been shown, that merely enlivens the Court's discretion to refuse to make a sequestration order. The power in s 52(2) is permissive, not mandatory. Even if a debtor can bring himself within s 52(2)(b), that does not entitle him to have a sequestration order refused (Russell v Polites at [24] per Flick J).
38 But the question of whether the hearing of a petition should be adjourned falls more for consideration under s 33(1) of the Act and generally, rather than under s 52(2)(b). If "other sufficient cause" is not made out under s 52(2)(b), then the exercise of any discretion under s 52(2) simply does not arise. Alternatively, if "other sufficient cause" is made out, then the discretion that arises under s 52(2) is a discretion whether to dismiss the petition. If the discretion is exercised not to dismiss the petition, then the question of whether to proceed to make a sequestration order then and there or to adjourn the petition arises under s 33(1) or more generally. But it does not strictly arise under s 52(2), which is only a discretion whether to dismiss the petition. This distinction ought to be kept in mind and has sometimes not been clearly made (cf Clapham).
39 His Honour found that "other sufficient cause" had not been made out in relation to grounds 3 and 4 in opposition (see [15] to [20]) and in relation to ground 7 in opposition (see [22] to [23]). But even accepting for present purposes such findings to be correct, that did not foreclose any discretion to be exercised on the adjournment question that arose under s 33(1) and more generally.
40 Moreover, as a consequence of the narrow lens taken by his Honour, it would appear that his Honour then failed to take into account in the context of the adjournment question:
(a) the significance of the freezing orders to the appellants' inability to pay their debts;
(b) the appellants' entitlement to challenge the decision made at first instance in the ACT proceeding and the effect that a successful challenge would have on the freezing orders and the appellants' ability to then deal with their property;
(c) the effect of making the sequestration orders on the appellants' ability to pursue such appeal rights in the ACT proceeding; and
(d) the unusual circumstances that the appellants found themselves in as a result of the undue delays in the ACT proceeding which had been beyond their control, at least to a large extent.
41 We accept that the decision whether to adjourn the hearing of the petitions was an exercise of discretion by and for his Honour and that the appellants had a heavy onus in demonstrating that the exercise of the discretion miscarried. Nevertheless, we consider that his Honour took an incorrect approach by proceeding to view the adjournment question only through the narrow lens of s 52(2). Further, and as a consequence, his Honour failed to take into account relevant considerations as set out in [40] above. In our opinion, errors of the type discussed in House v The King (1936) 55 CLR 499 at 504-5 per Dixon, Evatt and McTiernan JJ were established.
42 As his Honour's discretion in refusing the adjournment miscarried, it therefore becomes necessary for us to re-exercise it. We are in as good a position as his Honour to do so. Moreover, given that we are now exercising this discretion for ourselves, we are entitled to consider the matter based upon the circumstances now known to us rather than being confined to only the material before his Honour.
43 The adjournment application in each case should be granted such that each creditor's petition is adjourned sine die pending the outcome of any appeal filed by the appellants in the ACT proceeding. We say this for a number of reasons.
44 Principally, it is apparent that the appellants' inability to pay the judgment debts in favour of ASIC arose from the freezing orders made in the ACT proceeding.
45 It is appropriate to again recite some of the long history of the ACT proceeding:
(a) As we have said, the ACT proceeding was commenced on 29 January 1999. Subsequently the appellants filed a counterclaim in that proceeding.
(b) On 29 January 1999, 26 February 1999 and 17 September 1999, Crispin J made freezing orders against the assets of the appellants. These were added to or varied from time to time (1 July 2002, 5 February 2010 and 2 February 2012).
(c) Unusually, the trial of that proceeding commenced as late as 10 June 2008. It concluded on 3 October 2008 with judgment reserved.
(d) Even more unusually, judgment was handed down almost 5 years later on 1 August 2013.
(e) On 6 December 2013, Refshauge J heard submissions on the final orders to be made in the ACT proceeding. But surprisingly, even at the time when the creditor's petitions were heard by Pagone J, final orders in the ACT proceeding had still not been made. And as a consequence, no appeal rights had then been triggered, although the appellants asserted before his Honour that they intended to challenge Refshauge J's judgment once final orders were made; that appeared to have been accepted by both his Honour and ASIC.
(f) After Pagone J delivered judgment in this matter, final orders were made in the ACT proceeding on 21 November 2014. As against the appellants, judgment was entered against Allan Endresz and Jozsef Endresz for $18,633,178.47 and against Dawn Endresz and William Forge for $12,715,615.17. Further, various declarations and orders were made in respect of the appellants' properties to reflect the Commonwealth's equitable interest therein; these were the properties the subject of the freezing orders. Further, the appellants' counterclaim was dismissed.
(g) The appellants then filed an appeal in the ACT proceeding on 23 December 2014. If the appellants succeed on such an appeal, one of the effects will be to free up the appellants' properties which will then be able to be used to pay the appellants' debts. Moreover, in such an eventuality, the appellants may be able to obtain damages by enforcing the undertaking as to damages that the Commonwealth gave as the price for obtaining the freezing orders. Moreover, if they succeed in successfully appealing the dismissal of their cross-claim, then they may also have a separate entitlement to damages.
(h) But in terms of the appellants' appeal in the ACT proceeding, the Official Trustee has taken the position that some aspects of such rights of appeal are vested in Official Trustee and accordingly under its control. We will return to this later.
46 As we have said, the freezing orders affected the appellants' ability to pay their debts, including meeting their obligations to pay the judgment debts in favour of ASIC. It was not denied that the freezing orders had such an effect. Whilst it is true that the appellants asserted before Pagone J that they were able to pay their debts because of the availability of funds to which Allan Endresz claimed to have access as the general partner in the Ezybonds (Pacific) Ltd Partnership, his Honour rejected that contention (see at [14]); as we have said, a ground of appeal before us sought to challenge that finding, but this was not pressed. In terms of the freezing orders and their effect, his Honour made the following findings:
The freezing orders covered all the property owned beneficially by each of the appellants [9] and [21]; and
The appellants had (and have) no personal assets other than those the subject of the freezing orders [9] and [21].
47 It seems to us that a powerful discretionary reason in favour of adjourning the creditor's petitions in each case was the existence of such freezing orders, which were always in prospect of being and are now in essence under challenge. It was these orders and their effect that produced the inability of the appellants to pay their debts.
48 The line of authority concerning whether a Mareva injunction against a judgment debtor operates to provide a de facto "stay of execution" on a judgment debt or otherwise precludes the making of a sequestration order can be put to one side (National Australia Bank Ltd v Pollak (2001) 186 ALR 44; [2001] FCA 1408 at [41] to [53] per Madgwick J; Re Ousley; Ex parte Commissioner of Taxation (1994) 48 FCR 131 at 138-9 per Heerey J; Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 29 per Davies, Wilcox and Branson JJ and Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572 at 584-90 per von Doussa, Moore and RD Nicholson JJ). Whether to adjourn a petition involves broader considerations. Moreover, the practical effect of the freezing orders was not to be denied.
49 It is appropriate to elaborate on various matters.
50 First, it is not in dispute that the appellants are bona fide seeking to challenge in essence the freezing orders and to pursue their appeal rights in the ACT proceeding. If they succeed, they will be free to deal with their property and to discharge their debts. Such was always in prospect at the time his Honour dealt with the petitions.
51 Second, the delay in the resolution of such questions has not been caused by the appellants. It is rather due to the apparently inordinate delays of the ACT Supreme Court in finalising the proceeding before it. It is inappropriate to comment further as we are not fully appraised of the circumstances as to why such delays have occurred. But the simple fact is that there have been such delays, which for the most part have not been due to the appellants' conduct.
52 Third, although we accept that the ACT proceeding did not involve ASIC as a party, nevertheless when ASIC filed its creditor's petitions it well knew of the freezing orders and their effect on the appellants (it knew this at the latest from the proceedings challenging the bankruptcy notices). We do not need to consider whether the ACT proceeding, the freezing orders and the appeal sought to be pursued by the appellants amount to "other sufficient cause" within s 52(2)(b). We are rather dealing with an anterior and broader question of whether the creditor's petitions should have been adjourned before his Honour. Even if we had decided, which we do not need to for present purposes, that such circumstances did not fit within s 52(2)(b), that does not deny the force of the appellants' contention that his Honour should have adjourned the creditor's petitions rather than made the sequestration orders.
53 Fourth, the appellants are likely to be prejudiced in seeking to exercise their appeal rights if the sequestration orders remain in place. This is because the Official Trustee has asserted that under s 58 of the Act, certain dimensions of such appeal rights have now vested in the Official Trustee. The appellants' right to control any such appeal has been adversely affected and curtailed. This is a relevant matter that ought to have been considered when his Honour dealt with the adjournment question. Such a consequence was inevitably one effect of the sequestration orders. The effect was to constrain the appellants from challenging the very orders that led to their inability to pay their debts in the first place.
54 Fifth, unlike perhaps other cases, there is no suggestion of the appellants incurring substantial liabilities if the sequestration orders are set aside and the petitions adjourned over pending the resolution of the appeal in the ACT proceeding. The appellants are not trading and three of the four appellants have retired.
55 Sixth, we have considered that the timing of the resolution of the appeal in the ACT proceeding may be beyond the duration of the petitions, as extended by our order of 19 February 2015 (see s 52(2) of the Act). And if that be so, then fresh petitions may need to be filed. No doubt that has certain disadvantageous consequences, but in our view that is a less disadvantageous course than allowing the sequestration orders to stand. One disadvantageous outcome is that new acts of bankruptcy may need to be established (s 44(1)(c)) with a new commencement date (s 115(1)) and "relation back" period; but as the appellants' assets are frozen, no new transactions relating thereto can presently take place in any event which could prejudice creditors. Further, there do not appear to be any transactions currently "caught" by the net of ss 120 to 122 that if new petitions had to be filed would "escape"; after all, the freezing orders have frozen all assets for some years. We have tried to ameliorate this consequence of the petitions potentially lapsing by extracting relevant undertakings from the appellants to prosecute their appeal rights with due expedition. But we accept that this is not a perfect solution. We have also provided in our orders of 19 February 2015 that the adjournment of the petitions is subject to any further order of Pagone J, so that the matter can be reviewed if necessary before the petitions expire.
56 Seventh, we accept ASIC's submission that in considering whether to grant an adjournment of the hearing of a petition, due weight should be given to the prima facie right of a petitioning creditor to obtain a sequestration order and to avoiding or minimising delay once bankruptcy proceedings have been instituted. But this case has unique features. The appellants' assets have been frozen and their inability to pay their debts has been brought about by orders that they are challenging. Further, any delay involved in such challenge has been through no fault of the appellants. Moreover, ASIC filed the petitions well knowing of such circumstances. Further, the public interest in stopping individuals, who are unable to meet their debts, from continuing insolvent trading does not loom large for consideration in the present case for the reasons set out at [54] (cf Rotstein & Associates Pty Ltd v Slaveski [2010] FCA 493 at [17] per Bromberg J). Further, adjourning over the petitions does not adversely affect creditors' rights or postpone recoveries. The freezing orders under challenge presently inhibit the creditors in any event. Alternatively expressed, if the sequestration orders were to remain in place, the Official Trustee in any event is now inhibited by the freezing orders from realising the appellants' assets.
57 Eighth, ASIC has submitted (see [32] of its written submissions) that:
The mere fact than an appeal is pending from a judgment is not of itself a sufficient ground for staying or adjourning proceedings upon the petition (Bryant v Commonwealth Bank of Australia (1996) 134 ALR 460 at [466]-[468] per Kirby J; Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 26-27 per Davies, Wilcox and Branson JJ and Cumins at [17] per Gilmour J). Further, in the current case the appeal from the decision of Refshauge J is not an appeal pending against the judgment relied on as the foundation of the bankruptcy proceedings.
58 At the level of generality in which this submission is expressed, so much may be accepted. But it fails to address the real point, which is the significance of the freezing orders. It is these orders which have brought about the inability of the appellants to pay their debts and it is these orders that effectively are under challenge as part of the broader appeal in the ACT Court of Appeal.
59 There is no exhaustive catalogue of the circumstances under which the Court should grant an adjournment of a petition. The general context of each individual case needs to be considered (Field v Commercial Banking Co of Sydney Ltd [1978] 37 FLR 341 at 349-50 per C.A. Sweeney J). The present case is not of the usual type where an adjournment application is made where an appeal is pending against the judgment relied on as the foundation for the bankruptcy proceeding (cf Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148 per Davies, Lockhart and Neaves JJ). Nevertheless, its unusual and idiosyncratic features that we have described above warranted an adjournment of the petitions.
60 Finally, for completeness, we note that the appellants applied under s 27 of the FCA Act to adduce fresh evidence on the appeals to establish error on the part of the primary judge. Had it been necessary to do so, we would have refused such an application. But in the present circumstances, where we are now exercising the discretion for ourselves, we are able to take such material into account. We have done so, in addition to taking into account other material demonstrating the status of the appeal in the ACT proceeding, and the Official Trustee's position on the operation of s 58 of the Act.