FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Zappia (No 2) [2020] FCA 669

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to the Bankruptcy Act 1966 (Cth) (the Act) and, in particular section 222(1) as applied by section 76B of the Act to a composition under Division 6 of Part IV of the Act, the composition made between the first respondent and his creditors under Division 6 of Part IV of the Act on 19 September 2018 be set aside.

2.    Consequent upon Order 1, the applicant (Mr Zappia) and the creditors of Mr Zappia as at 16 September 2016 are restored to the positions they were in before the acceptance by his creditors by special resolution on 19 September 2018 of Mr Zappia’s composition proposal under section 73 of the Act, such that Mr Zappia, on the one hand, was and is taken to have been a bankrupt on and from 16 September 2016 to the date of his discharge from bankruptcy pursuant to section 149 of the Act, pursuant to the acceptance by the Official Receiver of debtor’s petition presented by Mr Zappia’s under section 55 of the Act, and the creditors of Mr Zappia as at 16 September 2016, on the other hand, are and have been on and from 16 September 2016 creditors of the bankrupt estate of Mr Zappia.

3.    The first respondent pay the applicant’s costs as agreed or taxed.

4.    Order 1 above be stayed for a period of 28 days to enable the first respondent to file an appeal and, if an appeal is filed, to make a further application for a stay.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

JAGOT J:

1    On 19 December 2019 I decided to set aside a composition entered into by the first respondent (Mr Zappia) under s 73 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) pursuant to a resolution of Mr Zappia’s creditors on 19 September 2018: Deputy Commissioner of Taxation v Zappia [2019] FCA 2152.

2    Formal orders have not yet been entered as Mr Zappia foreshadowed making an application to stay such orders pending a proposed appeal. Written submissions seeking and opposing the grant of the stay have now been filed and the parties consent to the determination of the application for a stay on the papers.

3    The applicable principles are well established. The first respondent (the Deputy Commissioner) identified the principles in these terms:

a.    first, a party is not entitled to the stay as of right. The Court proceeds on an assumption that the judgment to be appealed from is correct and the successful party is entitled to the benefits of the judgment;

b.    second, the jurisdiction to order a stay exists to balance the right of the successful party to the benefits of the judgment against the risk of irremediable harm to the unsuccessful party should that party succeed in an appeal absent a stay;

c.    third, the applicant for a stay will need to establish that the appeal has some merit, although the applicant need not demonstrate that the appeal will be successful, or that success is more probable than not;

d.    fourth, the evidence in support of a stay must provide an appropriately sound foundation on which a court may assess the risk of harm. In that respect, the applicant must not leave the situation in a state of mere speculation or argument.

(Citations excluded.)

4    Mr Zappia stressed the following statements in Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 694 and 695 respectively:

694.    In our opinion it is not necessary for the grant of a stay that special or exceptional circumstances should be made out. It is sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour.

695.    …where there is a risk that the appeal will prove abortive if the appellant succeeds and the stay is not granted, courts will normally exercise their discretion in favour of granting a stay.

5    Mr Zappia has offered the following undertakings to the Court in support of his application for a stay:

(i)    [Mr Zappia] will not seek to dispose of or to deal with any of his assets outside the ordinary course of business;

(ii)    [Mr Zappia] will not seek recovery of payments made for the purposes of the composition, from the Second Respondent;

(iii)    [Mr Zappia] will promptly attend upon any request by his Trustee to provide a deposition (as if it were a public examination) and / or agrees to furnish answers to any questions that the Trustee may have of him on affidavit;

(iv)    in the absence of [the Deputy Commissioner’s] consent to any further extension of the stay of proposed order 1, the stay will expire 28 days from the filing of any relevant notice of appeal, (so as to afford the [Deputy Commissioner] time to bring an application for any further stay before the Full Court);

(v)    [Mr Zappia] undertakes to have filed any submissions in respect of any notice of appeal filed by him, within 28 days of having filed his appeal and to read them in support of any further application that he may seek before the Full Court.

6    It will be apparent from proposed undertaking (iv) above that Mr Zappia is seeking a stay from me for a limited period (28 days after the filing of his notice of appeal) during which, unless the Deputy Commissioner consents to an extension of the stay, Mr Zappia will seek a further stay from the Full Court in respect of his appeal. A more orthodox stay order would be one made at the same time as the final orders which stays the orders for a period of 28 days in order to enable Mr Zappia to file an appeal. On the filing of the notice of appeal Mr Zappia could then seek a further stay in the exercise of the Court’s appellate jurisdiction. The limited scope of the stay which Mr Zappia currently seeks is relevant to the question whether the grant of the stay is appropriate. If the stay sought were one which operated until the determination of the appeal then the context for assessing the appropriateness of the stay would be different. The factors on which the Deputy Commissioner relied, and the submissions made in support, would warrant greater scrutiny. As it is, however, it seems to me that the Deputy Commissioner’s submissions are directed to a more extensive stay, one which would operate until the determination of the appeal.

7    The most important issue raised in the Deputy Commissioner’s submissions, viewed from the perspective of the limited stay which Mr Zappia seeks, is that the grant of a stay would have the consequence that there would be no trustee in bankruptcy having the powers and responsibilities for ensuring that property otherwise recoverable or divisible amongst Mr Zappia’s creditors is not disposed of, or diminished in value. If a longer stay had been sought by Mr Zappia this submission would have carried substantial weight in my mind. As it is, however, nothing more is sought than a stay to enable the filing of an appeal and, if an appeal is to be filed, to make an application for a stay pending the determination of the appeal.

8    In my view, in circumstances where the stay which is sought is to do nothing more than preserve the status quo for these limited purposes, it is appropriate to make the order for the stay on the basis of the undertakings of Mr Zappia which are accepted. While I accept the Deputy Commissioner’s submission that there is an interest in protecting the creditors of Mr Zappia’s estate to maximise the possibilities of successful investigation and recoveries for the benefit of creditors, I do not accept that Mr Zappia has not made out a proper basis for the limited stay which is currently sought.

Associate:

Dated:    18 May 2020