Watts v Bendigo & Adelaide Bank Ltd (No 2) [2010] FCA 1429 (17 December 2010)

Last Updated: 21 December 2010

FEDERAL COURT OF AUSTRALIA

Watts v Bendigo & Adelaide Bank Ltd (No 2) [2010] FCA 1429

Citation:		Watts v Bendigo & Adelaide Bank Ltd (No 2) [2010] FCA 1429
Appeal from:		Bendigo and Adelaide Bank Ltd v Watts [2010] FMCA 623
Parties:		GAMBHIR WATTS and BHOJI WATTS v BENDIGO & ADELAIDE BANK LTD
File number:		NSD 1126 of 2010
Judge:		KATZMANN J
Date of judgment:		17 December 2010
Catchwords:		PRACTICE AND PROCEDURE – stay of all proceedings under sequestration order – whether stay should prevent recording of the fact that a sequestration order was made on the National Personal Insolvency Index
Legislation:		Bankruptcy Act 1966 (Cth), ss 52(1A), 52(3) Federal Court of Australia Act 1976 (Cth), s 29 Federal Court (Bankruptcy) Rules 2005 (Cth) r 4.10 Bankruptcy Regulation 1996 (Cth), regs 13.02, 13.03, 13.04
Cases cited:		Teese v Long [2003] FCA 274
Date of hearing:	16 November 2010
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	14
Counsel for the Appellants:	The first appellant appeared in person on behalf of both appellants.
Solicitor for the Respondent:	H Van Ravels of Gadens Lawyers

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1126 of 2010

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:	GAMBHIR WATTS First Appellant BHOJI WATTS Second Appellant
AND:	BENDIGO & ADELAIDE BANK LTD Respondent

JUDGE:	KATZMANN J
DATE OF ORDER:	17 DECEMBER 2010
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appellants’ motion filed on 8 November 2010 is dismissed.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1126 of 2010

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:	GAMBHIR WATTS First Appellant BHOJI WATTS Second Appellant
AND:	BENDIGO & ADELAIDE BANK LTD Respondent

JUDGE:	KATZMANN J
DATE:	17 DECEMBER 2010
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. On 11 August 2010 a sequestration order was made in the Federal Magistrates Court in relation to the estates of the appellants, Mr and Mrs Watts, on the petition of the respondent, the Bendigo & Adelaide Bank Ltd. On certain conditions the Federal Magistrate granted a stay of all proceedings under the sequestration order for the maximum statutory period of 21 days pursuant to s 52(3) of the Bankruptcy Act 1966 (Cth). The background to the sequestration order is presently irrelevant. On 31 August 2010 the appellants filed a notice of appeal from the Federal Magistrate’s orders in this Court. Two days after the stay expired on 1 September 2010, the appellants filed a notice of motion (“the first notice of motion”). The primary relief sought in the first notice of motion was an order staying “the operation of the sequestration order... and all proceedings pursuant to it” pending the disposition of the appeal. That motion was heard by another judge of this Court, who granted a stay, not on the terms sought, but staying “all proceedings under the sequestration order” pursuant to s 29 of the Federal Court of Australia Act 1976 (Cth): Watts v Bendigo and Adelaide Bank Limited [2010] FCA 1013. The order was made on 14 September 2010, which means that there was a period of just over two weeks when no stay was in place.
2. After the stay was granted in this Court, the appellants filed a second notice of motion (“the motion”) on 8 November 2010, naming the “Insolvency and Trustee Service Australia, Australian Government” as respondent and seeking a primary order in the following terms:

Recording made by the Official Receiver on the National Personal Insolvency Index (the NPII) of the sequestration order made by the Federal Magistrates Court in proceeding SYG101 of 2010 to be removed and the Official Receiver and Inspector General in Bankruptcy and Insolvency and Trustee Service Australia, Australian Government to defer/stay recording and all other proceedings under the sequestration order until final judgment is given in this appeal.

3. The proper respondent to the notice of motion (substituted by order of this Court on 11 November 2010) is the Inspector-General in Bankruptcy (“the Inspector-General”) who was represented at the hearing by Ms Nash, solicitor. Mr Watts appeared for both appellants on the undertaking that he file a written authority signed by his wife, which he did on 16 November 2010. The petitioning creditor, the bank, which is the respondent on the appeal, also appeared but, apart from making some brief oral submissions on the law, took no active part in the hearing of the motion.
4. The evidence is that on 15 September 2010 Mr Watts served on the Insolvency and Trustee Service Australia (“ITSA”) a copy of the stay order of 14 September 2010. On 11 October 2010 he received a letter from Australian Securities and Investment Commission (ASIC) advising him that it had received publicly available information from ITSA indicating that he might be an undischarged bankrupt and would therefore automatically be disqualified from managing a corporation under the terms of s 206B of the Corporations Act 2001 (Cth). Similar letters were sent on 13 October 2010. On 11 and 20 October 2010 Mr Watts complained to ITSA that it was inappropriate for it to “release any information during the stay period”. An application by Mr Watts for accreditation from the Australian Small Scale Offerings Board (“the ASSOB”) was also rejected, the ASSOB informing him on 12 October 2010 that the reason was that “[his] name is visible on the CITEC Bankruptcy register”. Mr Watts made a similar complaint about this to ITSA on 13 October 2010.
5. On 3 November 2010 the Inspector-General replied to Mr Watts. She pointed out that the National Personal Insolvency Index (“the NPII”), on which the making of the sequestration order had been recorded, is a public register and said that she assumed ASIC acquired the information about his bankruptcy by accessing the NPII. She responded to his concerns in this way:

While a trustee is restricted in the range of activities that he or she can undertake in relation to the administration while a stay is in place, it does not have the effect of preventing the person's change in status to ‘bankrupt’ and from section 58 of the Bankruptcy Act 1966 operating to vest the bankrupt's property in the trustee.  As the person has still been made bankrupt, the Official Receiver is obliged pursuant to regulation 13.03 of the Bankruptcy Regulations 1996 to enter the details of the bankruptcy on the NPII.  However, should the Court subsequently set aside the sequestration order, then the Official Receiver will remove the details of that bankruptcy from the NPII.

6. Mr Watts’s written submissions, handed up at the hearing, were short. It is convenient to set them out in full (without alteration).

1. Reference to the Act includes reference to the Regulations
a. The Court (Federal Court of Australia) on 14 September 2010 ordered (per Justice Yates) that:
‘All proceedings under the sequestration order made by the Federal Magistrates Court in proceeding SYG101 of 2010 on 11 August 2010 in relation to the estates of Gambhir Watts and Bhoji Watts (the applicants) be stayed until final judgment is given in this appeal’....
b. The Order does not include any reference to the Bankruptcy Act 1966 (the Act) or Bankruptcy Regulations 1996 (the Regulations).
c. The Regulations do not operate independently of the Act. The Regulations are enacted under Section 315 of the Act by the Governor-General for prescribing matters: required or permitted by this Act to be prescribed; or necessary or convenient to be prescribed for carrying out or giving effect to this Act.
d. Subsection 315 (2) (a) states ‘In particular, the regulations may provide for the establishment, maintenance, correction and inspection of the National Personal Insolvency Index’
e. Proceedings in connection with Bankruptcy under the Act are initiated by a Bankruptcy Notice and the procedure for issue of a bankruptcy notice is prescribed by Part 4 of the Regulations.
2. Definition of ‘Proceedings’
a. Section 5 of the Act state ‘proceeding means proceeding under this Act’.

2. Section 4, Federal Court of Australia Act 1976, Interpretation: “proceeding” means a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding, and also includes an appeal.

100. Order 1 Rule 4, Federal Court Rules which describes Interpretation of commonly used expressions does not include ‘proceedings’.

4. Regulation 4, Federal Court Bankruptcy Rules - Interpretation does not include ‘proceedings’.
5. Section 21 of Interpretation Act 1987 (New South Wales) which describes meaning of commonly used words and expressions does not include ‘proceedings’.
6. Merriam-Webster (1913) dictionary describes Proceedings thus: ‘The course of procedure in the prosecution of an act at law’.
7. Webster Comprehensive Dictionary - Encyclopedic Edition describe proceeding thus: ‘An act or course of action; a transaction or procedure; an action of issuing forth ... Law: Any action instituted in court; Any of the various steps taken in a cause by either party....’

3. Entering the information by the Official Receiver on behalf of the Inspector General in Bankruptcy on the National Personal Insolvency Index (NPII) makes the relief granted by Court Order of 14 September party nugatory; the applicants are already suffering losses on account of such entry.
   
7. Section 52(1A) of the Bankruptcy Act provides that if the Court makes a sequestration order, the creditor who obtained it must give a copy to the Official Receiver. Rule 4.10 of the Federal Court (Bankruptcy) Rules 2005 (Cth) relevantly provides that this must be done within two days after the entry of the order. Regulation 13.02 of the Bankruptcy Regulations 1996 (Cth) establishes the NPII and requires that each Official Receiver maintain the NPII on behalf of the Inspector-General, whose responsibility it is to operate the NPII. Regulation 13.03 prescribes the information required to be entered on the NPII. That includes information of the kind specified in Schedule 8 of the Regulations. Item 3 of Schedule 8 stipulates that the information relating to a sequestration order that must be entered on the NPII is: the date of the order, the particulars of the bankrupt, the name of the petitioning creditor, the name and telephone number of the petitioning creditor’s solicitors, the name of the trustee and the date of filing of the Statement of Affairs.
8. There are three answers to the appellant’s argument.
9. First, as I said earlier, the stay was not granted under the Bankruptcy Act so the meaning of “proceedings” in that Act is not relevant. Neither is the definition in the Federal Court of Australia Act. The question is whether the act of the Official Receiver was a proceeding under the sequestration order. In my view, the entry of the information in the NPII was not a proceeding under the sequestration order. It operates as nothing more than a registration or record of the fact and details of the order. Moreover, I find there is nothing in the reasons of Yates J (who ordered the stay) to suggest that his Honour’s intention was to achieve the result Mr Watts desires.

Secondly, the sequestration order, itself, was not stayed. As the Inspector-General explained in her letter to Mr Watts, the stay does not have the effect of changing a bankrupt’s status, nor does it prevent his property vesting in the trustee. The only way to avoid the inclusion of the information on the NPII would be to avoid the making of the sequestration order. Once information is included in the NPII the only circumstances in which it may be removed is if the sequestration order is removed following a successful appeal or if it is inaccurate or misleading: reg 13.04 (1)(b) of the Bankruptcy Regulations.

11. Thirdly, the entry on the NPII of the information pertaining to the sequestration order does not render the stay nugatory. A similar argument was put and rejected by Lindgren J in Teese v Long [2003] FCA 274 (“Teese”). In that case, Ms Teese, who was applying for an extension of time in which to appeal against an order of the Federal Magistrate’s Court sequestrating her estate, included in her draft notice of appeal the following ground:

His Honour erred in making a Sequestration Order and granting a Stay of 21 days, as the making of a Sequestration Order, defeated the purpose and object of a 21 day stay.

12. Ms Teese’s chief submission was that the petitioning creditor had wrongly, and inconsistently with the 21 day stay, caused particulars of the sequestration order to be recorded on the NPII. Lindgren J, who dismissed the application for extension of time because he believed the appeal would clearly fail, said of this point at [19]:

The terms of the proposed fourth ground of appeal suggest inconsistency between the twenty-one day stay and the making of a sequestration order. They are not inconsistent. The expression “under the sequestration order” in subs 52(3) of the Act and in Driver FM’s fourth and final order does not refer to the obligation to notify imposed by subs 52(1A) of the Act and ordered by Driver FM. There remained ample work for the stay to do since there are many other steps required to be taken under the sequestration order.

13. This is sufficient to dispose of Mr Watts’s central argument, that the inclusion of the information concerning the sequestration order on the NPII renders the stay nugatory. As Lindgren J observed in Teese, there is plenty of work for the stay to do. The trustee’s duties under the Bankruptcy Act are extensive: see s 19. The effect of the stay is to relieve the trustee of these duties pending the disposition of the appeal.

I therefore dismiss the motion. I will hear from the parties on costs.

I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.

Associate:

Dated: 17 December 2010