10 Section 154 contains a set of provisions that relate to the effect of annulment including provisions like those in s 74 but with more detail. Counsel for the applicant makes the point that there are no equivalent provisions governing what should occur if the setting aside of a sequestration order brings the bankruptcy to an end. The ultimate disposition of an appeal, particularly if the High Court is involved, may take a considerable period of time, and much may have to be done in the administration of the bankrupt estate in the meantime.
11 It is submitted for the applicant that bankruptcy is not something declared or ordered by the Court as such. It is a status that arises by virtue of the statute upon the making of a sequestration order or acceptance of a petition in the case of a debtor's petition. The making of a sequestration order triggers the status of bankruptcy but, once triggered, the status remains until brought to an end by virtue of the provisions of the Act, namely by annulment or discharge. Some related issues have been discussed in M Quilter, 'The Federal Court's Powers to Deal With Sequestration Orders: the Bankruptcy Act 1966 (Cth) Section 37(2)', Australian Bar Review, Vol 15, 1997, pp 252-261, and DA Hassall, 'Annulment of Bankruptcy and Review of Sequestration Orders', Australian Law Journal, Vol 67, 1993, pp 761-771.
12 The applicant's argument has the direct support of Gibbs J (as he then was) in Re Deriu (1970) 16 FLR 420. A bankrupt applied for an order rescinding a sequestration order on the ground that he was never indebted to the petitioning creditor. The application was made pursuant to s 37 of the Act, as it then stood, dealing with rescission of orders. Gibbs J held that the judgment upon which the bankruptcy notice was founded was not founded upon a real debt and that the petitioner was not entitled to a sequestration order. The question considered was whether or not the sequestration order should be rescinded pursuant to s 37 or annulled pursuant to s 154. Gibbs J took the view that the High Court in Cameron v Cole (1944) 68 CLR 571 had held that the then annulment provision (s 124) completely regulated annulments and that a sequestration order could not be annulled under the provision for rescission, not following another single judge decision on the point. In the course of his reasons Gibbs J said (at 422):
'Indeed, as Williams J. pointed out in Cameron v. Cole (1944) 68 C.L.R., at p.610, the rescission of the sequestration order would not put an end to the bankruptcy (see s 43(2) of the Bankruptcy Act 1966-1969).'
Section 43(2) was the same in principle then as now.
13 That indeed was one of the grounds of the decision of Williams J in Cameron v Cole. In considering whether use of the power to rescind was appropriate, his Honour said (at 610):
'I agree with the Chief Justice that a sequestration order cannot be annulled under this section. In addition to the reasons which he has given, this result follows, in my opinion, from the provisions of s. 54(2), because under that section the rescission of a sequestration order would not discharge the bankruptcy.'
Section 54(2) was the same in principle as the present s 43(2).
14 Williams J had earlier said (at 607-608):
'But the effect of a sequestration order is to vest the property of the bankrupt in the official receiver and the official receiver then proceeds to realize that property for the benefit of the creditors. If the Court were simply to set aside such an order under its inherent jurisdiction complete justice would not be done, because such of the bankrupt's property as has not been disposed of would still remain vested in the official receiver. The Court would therefore have to order the official receiver to do such acts and execute such instruments as were necessary to vest the property in the bankrupt. An order simply to set aside a sequestration order under the inherent jurisdiction of the Court or to rescind it under s. 26 would not, therefore, be completely effective. This and other difficulties are recognized and provided for by s. 124, which clothes the Court with special powers upon a rehearing where an application is made to annul a sequestration order.'
That passage supports the point referred to in [10] above.
15 Counsel for the respondent pointed out that Williams J was in dissent in the result in Cameron v Cole. That is true. However, there are many strands of reasoning in the judgments in that case and those issues were not relevant points of distinction between Williams J and the other members of the Court. The opinion of Williams J is at least persuasive and it was open to Gibbs J to adopt it. In one sense it does no more than recognise the express terms of the statute.
16 The applicant also relies upon the decision of the High Court in Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589. In that case the Deputy Commissioner of Taxation presented a petition for a sequestration order against the estate of Clyne based upon the debtor's failure to comply with the requirements of a bankruptcy notice served on him. John William O'Brien consented to act as trustee of the debtor's estate if he became bankrupt. On 6 September 1983 the debtor presented his own petition and William Edward Andrew consented to act as trustee if the debtor became bankrupt. The petition was accepted by the Registrar and the debtor thereupon became bankrupt by force of s 55(3) of the Act. At that date the creditor's petition stood adjourned to 19 September 1983. On 7 October 1983 a sequestration order was made on that petition 'to take effect on 6 September 1983 prior to the presentation by the debtor of his own petition pursuant to the provisions of s 55 of the Act' and it was declared that Andrew was to be the trustee of the estate. The Full Court varied the original order by substituting the date 5 September 1983 for the date 6 September 1983 because that date was necessary for the creditors' bankruptcy to precede the bankruptcy on the debtor's own petition. That decision was reversed in the High Court. Gibbs CJ, Murphy, Brennan and Dawson JJ said (at 598):
'It was submitted that the bankruptcy under s. 55 would be superseded by the making of a sequestration order. This argument, which is based on authorities decided at a much earlier stage of the bankruptcy law, and on some cases under the companies legislation, cannot be accepted; it ignores the effect of ss. 43(2) and 55(8) which make it clear that a bankruptcy continues until the bankrupt is discharged or the bankruptcy is annulled.'
It was held that, absent annulment of the bankruptcy consequent upon acceptance of the debtor's petition, there could be no later sequestration order. The Full Court also concluded that by force of law each of the two trustees was a trustee of the estate of the bankrupt and deleted the declaration that Andrew was the trustee.
17 The critical issue for the present case is the interplay between the provisions of the Act and the appellate jurisdiction of the Federal Court. It is argued for both the respondent and the Inspector-General in Bankruptcy, who was permitted to intervene, that the appeal provisions fundamentally alter the reasoning in the authorities to which reference has been made. If a sequestration order is set aside on appeal, it is as if it were never made and thus it is taken that there never was any valid triggering of the statutory consequence of bankruptcy.
18 In Simon v Vincent J O'Gorman Pty Ltd (1979) 41 FLR 95; 27 ALR 619 it was contended that no appeal lies from the making of a sequestration order, the person being made bankrupt being confined to making an application to the Court for annulment of or discharge from the bankruptcy, relying upon Re Deriu. The Full Court rejected that argument and distinguished Re Deriu on the basis that it was concerned with the rescission of a sequestration order rather than with the appeal provisions. Franki J said (at 41 FLR 102, 27 ALR 625-626):
'In all the circumstances I consider that if we decide that the sequestration order was wrongly made we should uphold the appeal in such a way as to avoid the consequences and stigma of bankruptcy attaching to the appellants and possibly affecting the rights of any other creditors. The order which was made by the High Court in Wren v. Mahony was: "Appeal allowed with costs. Order of the Court of Bankruptcy set aside and in lieu thereof order that the petition be dismissed with costs" (1972) 126 C.L.R., at p.238. A similar order was made by the Full Court of this Court in Re Schierholter; Ex parte Geis (1978) 32 F.L.R. 22. Both appellants appealed by filing the one notice of appeal, but there is evidence before us that, although the solicitors still remain on the record for both appellants, the second appellant does not wish to pursue the appeal. Since the order made by the trial judge was that the court "hereby makes a sequestration order against the estate of the debtors", it is appropriate to make an order that the appeal be allowed.
I would order that the appeal be allowed and that the sequestration order of the Federal Court of Bankruptcy be set aside and in lieu thereof order that the petition be dismissed and that the first respondent pay the costs, including any reserved costs, of the appellants of the proceedings before the trial judge, of the proceedings in the High Court and of the appeal to this Court.'
Lockhart J said (at 41 FLR 109, 27 ALR 631):
'In Wren v Mahoney (1972) 126 CLR 212 the High Court ordered that an appeal by the bankrupt against the making of a sequestration order be allowed, that the order of the Federal Court of Bankruptcy be set aside and in lieu thereof that the petition be dismissed. The Full Bench of this Court made an order to the same effect in Re Schierholter; Ex parte Geis (1978) 32 F.L.R. 22. These decisions confirm the view I have reached notwithstanding that the point asserted by the respondents does not appear to have been argued in either case.'
19 I was also referred to the decision of the High Court in Commissioner for Railways (NSW) v Cavanough (1935) 53 CLR 220 which confirms the principle that a judgment reversed is the same as no judgment. In that case the respondent was an officer of the Government Railways. The Government Railways Act 1912 (NSW) provided that an officer convicted of felony should be deemed to have vacated his office. The respondent was summarily convicted of larceny. He appealed to Quarter Sessions which upheld his appeal and set aside the conviction. During the period which elapsed from his conviction until its reversal he received no salary and the performance of his duties was suspended. It was held that he was entitled to his salary because, his conviction having been quashed, he could not be considered ever to have been convicted and could not be deemed to have vacated his office. As he was never out of office he was entitled to the salary attached to it.
20 The decision of the Full Court in Allanson v Midland Credit Ltd (1977) 30 FLR 108; 16 ALR 43 requires consideration. On 2 December 1976 a sequestration order was made against the estate of Mr Allanson. A notice of appeal to the High Court was filed seeking an order setting aside the sequestration order. Upon payment of a sum for security for prosecution of the appeal there was a stay of the judgment appealed from pursuant to O 70 r 12(2) of the High Court Rules. Thereafter, leave was sought to proceed in an action in the Supreme Court of New South Wales pursuant to s 58(3) of the Bankruptcy Act as it then stood. The first question for the Full Court was whether Mr Allanson was a bankrupt. Bowen CJ, Riley and Deane JJ said (at 113):
'One view may be that the stay of the judgment itself under r. 12(2) blocks it at source so as to render it completely ineffective for all purposes, except the hearing of the appeal. On this view, neither the judgment nor the sequestration order made in pursuance of it can, while the stay operates, be used as the basis for satisfying one of the statutory conditions precedent ("debtor has become a bankrupt") to the operation of s. 58(3). Such a situation could be compared with that which exists after the grant of a perpetual stay of a winding-up order under the Companies Act which operates to terminate the liquidation.
Another view may be that the effect of the stay does not prevent the judgment and sequestration order remaining as a fact but that no step which depends for its effectiveness upon the judgment can be taken. If this view be correct, it might be argued that Mr. Allanson still had the status of a bankrupt, but that no step in which it was necessary to rely upon the order of sequestration could be taken. Subject to the interpretation of s. 58(3), it might then be argued that an application for leave to proceed was such a step.
Whatever be the correct view of the effect of the stay brought about by the operation of r. 12 (2), the ultimate answer to the question must depend upon the operation, in the light of that view, of ss. 43(2) and 58(3) of the Act. Section 43(2) fastens upon "the making of the sequestration order" to give the debtor the status of a bankrupt. There is no doubt a sequestration order was made. Section 43(2) goes on to provide that he "continues to be a bankrupt" until discharge or annulment, neither of which events has occurred. Unless the view is taken that the stay under r. 12(2) has the effect of eliminating the fact of the sequestration order, it may be argued that Mr. Allanson became and continued to be a bankrupt by force of the Bankruptcy Act regardless of the view taken of the precise effect of the stay under r. 12(2).'
The Full Court did not finally decide the issue.
21 In The Official Receiver in Bankruptcy v Todd (1986) 14 FCR 177 there was discussion about the effect of s 55(8) and its equivalents, including s 43(2), but in another context.
22 I have been referred to a series of decisions relating to the power to grant, and the effect of, a stay pending appeal including Re Wardle; Ex parte Widin v Australia and New Zealand Banking Group Ltd (1987) 70 ALR 633; Coleman v Lazy Days Investments Pty Ltd (1994) 55 FCR 297; Symons v Bateman [1999] FCA 658; and Guss v Johnstone [2000] FCA 1593. Those decisions, whilst of interest, do not solve the present problem.
23 It is useful to revisit Clyne v Deputy Commissioner of Taxation with this point in mind. Gibbs CJ, Murphy, Brennan and Dawson JJ said (at 597):
'Moreover, the court has, in our opinion, no power to backdate a sequestration order to make it take effect either before, or contemporaneously with, the commencement of the bankruptcy resulting from the acceptance of the debtor's petition. In a number of cases in which a bankruptcy petition was wrongly dismissed and the debtor was thereafter adjudicated bankrupt on his own petition, the appellate court, in allowing an appeal, has directed that the receiving order made against the debtor should be amended as if dated on the day on which the petition was wrongly dismissed, and should be deemed to be made on the creditor's petition: In re Haynes; Ex parte Kibble (1890) 7 Morr. 50; In re Johns; Ex parte Spears (1893) 10 Morr. 190; In re Teale; Ex parte Blackburn [1912] 2 K.B. 367. The practice established by those cases can be justified by the power that an appellate court has in allowing an appeal to make the order which should have been made in the first instance. However, the Act itself provides when a debtor becomes a bankrupt - either upon the making of a sequestration order (s. 43(2)) or upon the acceptance by the registrar of the debtor's petition: s. 55(3)(b). Apart from the power of an appellate court to put right what was wrongly done in the first instance, no court has power to cause a debtor to become a bankrupt on a date earlier than that for which the Act provides. Neither the general power conferred by s. 30(1)(b) of the Act to make such orders as the court considers necessary for the purpose of carrying out or giving effect to the Act, nor the power given to the Federal Court by its rules to antedate its orders (O. 35, r. 3) extends to permit the court to make an order which would bring about a result different from that prescribed by the express provisions of the Act and so serious in its possible consequences.'
And (at 600-601):
'However, no annulment was sought either at first instance, or an appeal to the Full Court of the Federal Court, or in argument before us. Although no order annulling the bankruptcy resulting from the acceptance of the appellant's own petition can be made here, it does not follow that the setting aside of the sequestration order should be followed by a dismissal of the petition. That would sanction what appears to be an abuse of process. The appropriate course is to allow the respondent or any other creditor an opportunity to apply for annulment. Thereby the interests of the general body of creditors and the public may be protected. It is true that the respondent had an opportunity to apply for annulment and declined to take it, but he cannot be held to have elected finally not to apply for annulment. The respondent was contending that the petition could found a sequestration order though the existing bankruptcy were not annulled. In those circumstances, the respondent cannot be taken to have elected not to apply for annulment if his contention were rejected. Now that the question is resolved against the respondent's contention, he must elect whether to apply for annulment. Although we regret that these proceedings cannot be brought more speedily to finality, we find it necessary to set aside the sequestration order made on the creditor's petition, and to order that the matter be remitted to a judge of the Federal Court to enable him to consider any application that may be made for an annulment of the sequestration order made on the debtor's own petition and any application for the imposition of conditions on the making of any order for annulment. If no application for an annulment is successfully made, the creditor's petition for a sequestration order must be dismissed. If an application for an annulment is successful, a sequestration order may be made on the creditor's petition if the other necessary proofs are satisfactory.'
Deane J, having formed the view that there was a gap in the legislation leaving it to speculation as to what the legislature would have done to reconcile the possibility of two bankruptcies, said (at 604-605):