Quinn v O'Rourke, in the matter of O'Rourke

Federal Court of Australia|2020-08-13|Before: Kenny J, Gleeson J

The respondent's application for a stay pursuant to s 29 of the Federal Court of Australia Act 1976 (Cth) or s 52(3) of the Bankruptcy Act 1966 (Cth) is refused. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GLEESON J: 1 On 11 August 2020, I made an order that the estate of the respondent (Ms O'Rourke) be sequestrated under the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). 2 Ms O'Rourke seeks "an order for a stay" either pursuant to s 29 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) or s 52(3) of the Bankruptcy Act. 3 The application was opposed by the petitioning creditors (Quinns).

Legal framework 4 Section 29 of the FCA Act provides: (1) Where an appeal to the Court from another court has been instituted: (a) the Court or a Judge, or a judge of that other court (not being the Federal Circuit Court or a court of summary jurisdiction), may order, on such conditions (if any) as it or he or she thinks fit, a stay of all or any proceedings under the judgment appealed from; and (b) the Court or a Judge may, by order, on such conditions (if any) as it or he or she thinks fit, suspend the operation of an injunction or other order to which the appeal, in whole or in part, relates. (2) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the stay of proceedings. 5 Section 37(2) of the Bankruptcy Act provides relevantly: (2) The Court does not have power to rescind or discharge, or to suspend the operation of: (a) a sequestration order; 6 Section 52(3) of the Bankruptcy Act provides: (3) The Court may, if it thinks fit, upon such terms and conditions as it thinks proper, stay all proceedings under a sequestration order for a period not exceeding 21 days. 7 It is well established that the Court has power to stay proceedings under a sequestration order, but not to stay a sequestration order itself: Du Bray v ACW [2020] FCA 994 at [9]; Endresz v Australian Securities and Investments Commission [2014] FCA 1139 (Endresz) at [9]. 8 A stay of proceedings under a sequestration order may be made pending an appeal under r 36.08 of the Federal Court Rules 2011 but Ms O'Rourke has not instituted any appeal against the sequestration order. She wishes to consider whether to do so. Section 29 of the FCA Act does not have any relevant operation. It is concerned with cases where an appeal to the Federal Court of Australia has been instituted from another court. 9 Accordingly, the issue is whether the Court should make an order under s 52(3) of the Bankruptcy Act. 10 In Nolten v Groeneveld Australia Pty Ltd [2011] FCA 1494 at [24], Kenny J observed that the test for a stay under s 52(3) is not materially different from the test under r 36.08. That is, the Court has a broad discretion and the relevant question is whether the applicant for the stay has shown a reason or an appropriate case to warrant the exercise of the discretion in his favour. Commonly, the question is addressed in the context of an appeal and the issues are whether there is an arguable point on the proposed appeal and whether the balance of convenience favours the grant of a stay. At [46], her Honour identified as a relevant question whether there was a "real risk of irreparable injury" to the bankrupt if a stay was not granted pending the hearing of his appeal.

Ms O'Rourke's submissions 11 Ms O'Rourke identified the following matters in support of her application: (1) She wishes to have an opportunity to formulate grounds of appeal in circumstances were her property is "not in jeopardy". In this regard, Ms O'Rourke asserted that the Court had made a finding that she has a substantial surplus of assets over liabilities. (2) Any prejudice to her creditors and the public interest is outweighed by the prejudice to her of a sequestration order being able to be actioned while the opportunity to formulate appeal grounds is undertaken. (3) The making of a sequestration order will change her status and her property will vest in the trustee. The value of her property will be reduced as a result of the order, and loan covenants will be triggered. Conversely, if the sequestration order were not made, Ms O'Rourke could retain funds that she receives from any source and use them to pay the Quinns. (4) The sequestration order will be recorded on the National Property Insolvency Index (NPII). (5) Ms O'Rourke's personal and business affairs will be damaged irretrievably by becoming a bankrupt, even if an appeal is successful. She will be deprived of the ability to earn a living as a solicitor. Her credit risk score will be downgraded. (6) A record of the sequestration order on the NPII will have a debilitating effect on Ms O'Rourke's family members, including her adult son who works with her on co-ventures. 12 Ms O'Rourke also offered to undertake not to dispose of property (except with the Court's consent) or grant any interests in her property during a stay under s 52(3), and to file a statement of affairs within 21 days.

Consideration 13 Ms O'Rourke's capacity to institute an appeal is not affected by whether or not a stay is ordered. As Beach J noted in Endresz at [18], the right to appeal against a sequestration order is not "property" under the Bankruptcy Act and does not vest in the trustee under s 58(1). 14 It is not to the point that the position would be different and more favourable to Ms O'Rourke if she were not made bankrupt. That change of status has now occurred. Any stay cannot undo the consequences of that change. Ms O'Rourke's property is not "in jeopardy" because it has vested in the trustee of her bankrupt estate. Further, as Beach J observed in Endresz at [20], an "asserted deleterious effect on reputation is not a sufficient condition for a stay". 15 Ms O'Rourke did not explain the effect of a stay on whether the sequestration order would be recorded on the NPII or the risk of harm to her of that record, beyond reputational harm and the negative effect on her family members which was expressed in the most general terms. Even assuming in Ms O'Rourke's favour that the risk of harm to Ms O'Rourke's family members is a relevant consideration, there is no evidence to support her very general contentions in this regard.

Conclusion 16 Ms O'Rourke has not demonstrated that the Court's discretion under s 52(3) should be exercised to stay all proceedings under the sequestration order. Accordingly, the stay application will be refused. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gleeson.

Bankruptcy Act 1966(Cth)ss 37, 52, 58

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