FEDERAL COURT OF AUSTRALIA

Ollis v Rayner [2007] FCA 2012

BANKRUPTCY – restraining order made under s 10 of Criminal Assets Recovery Act 1990 (NSW) against appellant’s property – respondents sought sequestration order against appellant’s estate – whether restraining order operates as a stay for purposes of s 41(3)(b) of Bankruptcy Act 1966 (Cth) – restraining order and Criminal Assets Recovery Act gave appellant liberty to apply – no reason why appellant could not have made application to pay debt – sequestration order appropriate

WORDS AND PHRASES – “ancillary order”

Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41(3)(b), 52(1), 58A

Criminal Assets Recovery Act 1990 (NSW) ss 4, 7, 10, 12, 27, 31

Proceeds of Crime Act 2002 (Cth) ss 18, 24

Boscolo v Botany Council [1996] FCA 897 cited

Commissioner of Taxation v Stuart-Jones (2000) 102 FCR 296 cited

New South Wales Crime Commission v Ollis (2006) 65 NSWLR 478 cited

Rayner & Anor v Ollis [2007] FMCA 1160 considered

Re Solomon; Ex parte Reid (1986) 10 FCR 423 cited

Sood v Crown Diagnostic Imaging Pty Ltd (2006) 156 FCR 240 followed

Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572 cited

Woodcroft v Director of Public Prosecutions (2000)174 ALR 60 followed

VICTOR WARREN OLLIS v GAVIN BRUCE RAYNER AND CAROL LOUISE RAYNER

NSD 1541 OF 2007

BENNETT J

19 DECEMBER 2007

SYDNEY

THE COURT ORDERS THAT:

1.                  The appeal is dismissed.

2.                  The appellant is to pay the respondents’ costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

BACKGROUND

1                     The facts in this appeal from a decision of Smith FM (Rayner & Anor v Ollis [2007] FMCA 1160) are not in dispute.  Judgment was obtained by the respondents against Mr Ollis in the sum of $39,411.55 on 1 July 2005 in an unrelated matter (‘the judgment’).  Mr Ollis’ property then became the subject of an application by the New South Wales Crime Commission for a “proceeds assessment order” under s 27 of the Criminal Assets Recovery Act 1990 (NSW) (‘the Assets Recovery Act’).  On 19 January 2006 Sully J of the New South Wales Supreme Court made a restraining order (‘the Supreme Court order’) against, inter alia, Mr Ollis pursuant to s 10 of the Assets Recovery Act in the following terms:

Pursuant to section 10 of the Criminal Assets Recovery Act 1990 that no person (other than any registered mortgagee dealing with its right to do so under the registered mortgage) is to dispose of, or attempt to dispose of, or otherwise deal with or attempt to otherwise deal with any interest in property (within the meaning of “interest in property” as defined in section 7 of the Criminal Assets Recovery Act 1990) of Victor Warren Ollis, including the interest in property in the property described in Schedules One, Two, Three, Four and Five hereto.

2                     An “interest in property” is widely defined in s 7 of the Assets Recovery Act and includes an interest in real or personal property, money and the goodwill of a business.  The effect of the Supreme Court order brought Mr Ollis’ property under the control of the Supreme Court pending the Court’s assessment of an amount to become payable as a debt to the Crown.  Neither Mr Ollis nor the respondents could deal with any interest in the property without the leave of the Supreme Court. 

3                     In the Supreme Court order Justice Sully gave liberty to a number of people including Mr Ollis to apply on three days’ notice.  There is no suggestion that Mr Ollis did so.  The Supreme Court order has been in effect at all relevant times since it was made. 

4                     During the currency of the Supreme Court order, a bankruptcy notice was issued and served on Mr Ollis by the respondents.  The date of the act of bankruptcy passed and a creditors petition was presented.  There is no suggestion of any defect in the bankruptcy notice or the creditors petition and there is no dispute as to the debts alleged in the notices. 

5                     The respondents then sought a sequestration order against Mr Ollis’ estate.  The  making of a sequestration order was opposed by Mr Ollis on the basis that the effect of the Supreme Court order is that the judgment on which the respondents rely is one on which execution has been stayed at all relevant times and therefore the bankruptcy notice should not have issued. 

6                     The issue before Smith FM and on this appeal is whether the Supreme Court order operated as a stay for the purposes of s 41(3)(b) of the Bankruptcy Act 1966 (Cth) (‘the Bankruptcy Act’).  That section provides that a bankruptcy notice may not issue where ‘if, at the time of the application for the issue of the bankruptcy notice, execution of a judgment or order to which it relates has been stayed’.  It is not clearly stated in the Bankruptcy Act or the Assets Recovery Act whether a restraining order under the Assets Recovery Act, such as the Supreme Court order, operates as “stay” of a judgment for the purposes of the issue of a valid bankruptcy notice under the Bankruptcy Act.

7                     Federal Magistrate Smith, for reasons to which I will refer, was satisfied that it was appropriate to make the sequestration order (at [36]).  His Honour was not satisfied that the existence of the Supreme Court order meant that the bankruptcy notice was invalidly issued or that an act of bankruptcy did not occur when Mr Ollis failed to pay the amount demanded in that notice (at [35]).

8                     It is not in dispute that, were it not for the Supreme Court order, Mr Ollis had the means to comply with the bankruptcy notice and would have done so to pay the petitioning creditors, the respondents.  It is not in dispute that Mr Ollis could not deal with the property the subject of the Supreme Court order without leave and that there was no relevant after-acquired property.

Existing authority

9                     As Smith FM observed, the Bankruptcy Act does not specify whether or when a restraining order under the various legislative schemes will amount to a “stay” on execution of a creditor’s judgment, so as to prevent the issue of a valid bankruptcy notice (at [9]).  Smith FM noted at [8] that s 58A of the Bankruptcy Act recognises restraining orders and forfeiture orders.  Section 58A provides that s 58(1), which allows for the vesting of property upon bankruptcy, does not apply where such an order has been made.  Federal Magistrate Smith expressed the view that there is no implication in s 58A nor in any other Commonwealth legislation that a sequestration order should not be made against the estate of a person whose property is wholly or partially “frozen” by a restraining order (at [8]). 

10                  While there is no direct authority on this aspect of the relationship between the Assets Recovery Act and the Bankruptcy Act, there has been consideration of comparable Commonwealth legislation for criminal assets forfeiture and recovery.

11                  The Full Court said in Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572 at 584 that, for the purposes of ss 40(1)(g) and 41(3)(b) of the Bankruptcy Act, there need not be an express order of a court staying execution of the particular judgment on which the creditor relies.  The Full Court at 585 approved the observations of Beaumont J in Re Solomon; Ex parte Reid (1986) 10 FCR 423 at 425–426 that, for the purposes of s 41(3)(b), execution is deemed to have been stayed where the judgment creditor is not in a position to issue immediate execution upon it.  Circumstances preventing the judgment creditor from issuing execution include action by the judgment creditor to prevent payment of the debt or the appointment of a receiver over the debtor’s property by order of the court so that the debtor, ‘in practical reality’ is prevented from paying the debt (Wiltshire-Smith at 586–587).  The onus is on the debtor to prove affirmatively that the claim in respect of which the bankruptcy notice was issued could and would have been paid but for some act or omission which has the practical effect, in a business sense, of preventing the debtor from paying the debt (Boscolo v Botany Council [1996] FCA 897 per Jenkinson J at 8 with whom O’Loughlin J agreed and per Sackville J at 4).

12                  In Sood v Crown Diagnostic Imaging Pty Ltd (2006) 156 FCR 240, Gyles J considered the “interplay” between the bankruptcy legislation and the Proceeds of Crime Act 2002 (Cth) (‘the Commonwealth Act’).  The question before his Honour was whether an order pursuant to s 18 of the Commonwealth Act effectively stays execution on an outstanding judgment against the party subject to that order for the purposes of ss 40(1)(g) and 41(3)(b) of the Bankruptcy Act (at [1]).  Justice Gyles recognised at [11] that the concept of a “stay” has been ‘stretched beyond recognition’ but proceeded to consider and apply existing authority to the effect that the test as laid down by the Full Court in Wiltshire-Smith was whether in the eyes of ordinary fairness in business it will be said that the order has, in a business sense, prevented the debtor from paying (at [12]).  In this regard Mr Ollis says that if he had to make an application for leave to deal with the property the subject of the Supreme Court order, the creditor was not entitled to levy immediate execution.

13                  Having considered a number of relevant authorities (Sood at [12]), including Ling v Enrobook Pty Ltd (1997) 74 FCR 19, Re Ousley; Ex parte Commissioner of Taxation (1994) 48 FCR 131, National Australia Bank Ltd v Pollak (2001) 186 ALR 44 and Commissioner of Taxation v Stuart-Jones (2000) 102 FCR 296, Gyles J concluded at [13] that the ability of the debtor to seek an order permitting payments of the judgment debt pursuant to s 24 of the Commonwealth Act means that execution is not stayed in the relevant sense.  The debtor had submitted, as Mr Ollis does here, that it is unrealistic to think that such an application could be made after service of the bankruptcy notice and prior to the time for compliance.  His Honour rejected the submission.  As his Honour concluded, where the debtor had the ability to seek an order permitting payment of the judgment debt, the payment is optional for the debtor in a practical sense.  His Honour found nothing to indicate that the legislature contemplated that the Commonwealth Act would interfere with the ordinary operation of the bankruptcy law beyond the effect of the sections introduced to deal expressly with that topic.  Justice Gyles noted the absence of locus standi of the creditor under the Commonwealth Act to vary the restraining order.  However, that factor does not affect the logic of his Honour’s reasoning or the debtor’s ability to apply to vary the order.

14                  In Stuart-Jones Mathews J was considering the Assets Recovery Act.  At [26] her Honour expressed the view that it was at least arguable that a restraining order under s 10 will have the effect of preventing the levying of execution against the person’s property so that the judgment creditor was not in a position to issue immediate execution on the judgment.  Her Honour considered that a restraining order under the Assets Recovery Act bore a closer resemblance to the appointment of a receiver or trustee than to a Mareva injunction.  It could then constitute a stay of execution under s 41(3)(b) of the Bankruptcy Act.  Mathews J did not, however, consider it necessary to express a concluded view as the restraining order applied to part only of the debtor’s property.  Her Honour did observe that it might operate as a stay so long as, in a practical and business sense, it prevented the debtor from paying the judgment debt.  The onus of proving this matter lies with the debtor which, in Stuart-Jones, was not established (at [27]).

15                  In Sood, Gyles J referred to Stuart-Jones and Mathews J’s indication that the operation of the restraining order as a stay was at least arguable (at [6]).  After reviewing the cases since Stuart-Jones, his Honour came to a conclusion that differed from her Honour’s indication.  He placed some weight on the factor referred to but not taken into account by Mathews J, the ability of the debtor to make an application.  That ability was, in his Honour’s view, decisive (at [13]).  Further, Gyles J was of the view that the restraining order is akin to a Mareva injunction in its effect, contrary to the view of Mathews J (at [13]).

16                  I agree, with respect, with the considered view of Gyles J.  It is not inconsistent with the reasoning of Mathews J in that her Honour acknowledged that the restraining order may not operate as a stay if, in a practical and business sense, the debtor could pay the debt.  Taking action by making an application to vary a restraining order may be no more impractical, in a business sense, than realising an asset or withdrawing monies to pay a judgment debt.

The Assets Recovery Act

17                  Federal Magistrate Smith gave detailed consideration to the operation of the Assets Recovery Act and to the differences between that Act and the Commonwealth Act.  His Honour concluded at [22] that there was nothing in the language of ss 10(1) or 12(1) or any other provision of the Assets Recovery Act to give rise to an implication that the Supreme Court does not have power to frame or vary a restraining order so as to make available to a person who is subject to the order sufficient of his assets to meet a debt owed to a bona fide creditor under a judgment.  His Honour gave a number of examples which might be appropriate.  He concluded that those sections encompass a discretion in the Supreme Court to allow the payment of specified debts which is at least as broad as that expressly conferred by s 24 of the Commonwealth Act.  As Smith FM noted at [23], in the absence of express limitation, the fact that the scheme of the Assets Recovery Act envisages the payment of debts incurred by way of living expenses or legal expenses (s 10(5)) suggests that the Court also intended, in appropriate cases, to allow the payment of other creditors owed amounts under regularly obtained judgments rather than the contrary.  His Honour followed the reasoning of Gyles J in Sood.

Section 10 of the Assets Recovery Act

18                  Mr Ollis contends that s 10 of the Assets Recovery Act, which provides for a restraining order, does not provide for a right on the part of the owner of the property to make an application in respect of it.  Mr Ollis accepts that the Supreme Court order provides, in its terms, for liberty to him to apply to the Court.  He submits, however, that such an application does not extend to setting aside or varying the Supreme Court order made under s 10.  In that regard he submits that the Assets Recovery Act differs from the Commonwealth Act the subject of consideration in Sood.

19                  I do not accept Mr Ollis’ submission.

20                  Section 10(1) of the Assets Recovery Act provides that the restraining order applies ‘…except in such manner or in such circumstances (if any) as are specified in the order’.  Orders under s 10(1) may be made ex parte on the application of the New South Wales Crime Commission (s 10(2)).  The Supreme Court order included liberty to Mr Ollis to apply, which therefore specified such an application as an exception to the order for the purposes of s 10(1).  That exception encompassed an application to vary the order to permit, for example, disposition or dealing with property to which the order applies or varying the property the subject of the restraining order.

Section 12 of the Assets Recovery Act

21                  Mr Ollis accepts that s 12(2)(b) of the Assets Recovery Act provides that an application may be made for an order under s 12(1) by the owner, in this case Mr Ollis.  Section 12(1) provides relevantly:

The Supreme Court may, when it makes a restraining order or at any later time, make any ancillary orders (whether or not affecting a person whose interests in property are subject to the restraining order) that the Court considers appropriate and, without limiting the generality of this, the Court may make any one or more of the following orders:

(a) an order varying the interests in property to which the restraining         order relates

22                  Mr Ollis submits that an “ancillary order”, as provided for, does not extend to an order varying the restraining order itself.  He submits that an ancillary order requires the continued existence of the Supreme Court order in the terms in which it was made.

23                  Such a submission is contrary to s 12(1), which specifically provides for an application to vary the interests in property.  This would encompass both the extent of the interest and the identity of the property but, even if it did not, it is an example of the orders that may be made which would vary the terms of the Supreme Court order.  The application necessary for Mr Ollis to satisfy the judgment debt would not have necessitated the setting aside of the Supreme Court order but a variation of it, to release some part of the property from the restraint.  “Ancillary” orders may encompass not only incidental orders but also supplemental orders (Macquarie Dictionary, 3^rd edition).  It extends to an order which bears a logical relationship to the principal order (Black’s Law Dictionary, 6^th edition).

24                  I agree, with respect, with Giles JA in Woodcroft v Director of Public Prosecutions (2000)174 ALR 60 at [72] where his Honour said that an ancillary order must be ancillary to something, here to the Supreme Court order, in that it is incidental or supplemental to it.  Justice Giles commented that a narrow view of what is incidental or supplemental should not be taken.  His Honour then considered, as an ancillary order, an order varying the property the subject of a restraining order but concluded that, in the circumstances of Woodcroft, the order sought could not be so characterised (at [71]–[73]).

25                  Federal Magistrate Smith concluded at [20]–[22] that, while s 12 may not permit the reconsideration of the basis of the Supreme Court order or a variation of that order to apply for exclusion orders (New South Wales Crime Commission v Ollis (2006) 65 NSWLR 478 at [34]–[35] per Giles JA), neither New South Wales Crime Commission nor the language of the Assets Recovery Act precluded an application for an ancillary order to vary a restraining order.  I agree with Smith FM that there is no reason why, under the Assets Recovery Act, Mr Ollis was precluded from making an application which would have resulted in him satisfying the judgment debt by, for example, releasing sufficient property from the Supreme Court order to pay the judgment debt.  There is no evidence to support the submission that there was no prospect that he could have obtained the requisite exemption from the Supreme Court order or that he could not have obtained it within the time necessary to avoid the act of bankruptcy.  Mr Ollis points to a concurrent hearing in the Supreme Court Court of Appeal (New South Wales Crime Commission) and the fact that it was heard on the day of purported service of the bankruptcy notice.  I do not accept that this precluded Mr Ollis from making a s 12 application or that, in a practical business sense, a variation could not have been obtained.

26                  It follows that Mr Ollis was able to apply both under the terms of the Supreme Court order and under the Assets Recovery Act for an order to vary the Supreme Court order to exclude sufficient of the property to pay the judgment debt.

Secured debts

27                  Mr Ollis also submits that the purpose of the Assets Recovery Act is to ensure that only secured debts take priority to the confiscation of property under that Act.  Some support for that proposition can be found in the definition in s 4 of “dealing” (which is prohibited by a restraining order under s 10) to include:

(a)       if the interest is a debt – making a payment to any person in reduction of the amount of the debt

28                  There is also special provision for secured creditors (s 31(3)).  The Assets Recovery Act does not specifically provide for the ability to pay unsecured creditors – to the contrary in the above definition.  However, unlike secured creditors, the identity of unsecured creditors would not necessarily be readily identified.  There is provision in s 12(2)(d) for an application to be made with the leave of the Supreme Court for an order under s 12(1) by “any other person” which would include a judgment creditor.  While no such application was made by the respondents, there is no evidence that they were aware of the existence of the Supreme Court order.

Conclusion

29                  Federal Magistrate Smith gave comprehensive reasons for dismissing the application.  Those reasons canvassed each of the submissions made before him and those repeated in this appeal.  Mr Ollis has not established any error on the part of his Honour.  He has not made out a ground of appeal.

30                  There is no dispute that, otherwise, it was appropriate for Smith FM to make a sequestration order against Mr Ollis’ estate.  It follows that the appeal should be dismissed with costs.

Associate:

Dated:         18 December 2007