Federal Court of Australia

Remta v Baker (Executrix) [2022] FCA 1485

ORDERS

THE COURT ORDERS THAT:

1.    Application for stay dismissed.

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

REASONS FOR JUDGMENT

BANKS-SMITH J:

1    On 31 October 2022 a registrar of the Federal Circuit and Family Court of Australia (FCFCOA) made a sequestration order with respect to the estate of Peter Remta. It appears that the order was made following non-compliance with a bankruptcy notice, which in turn referred to a debt by way of a default judgment entered in favour of the petitioning creditor by the District Court of Western Australia.

2    The registrar, pursuant to s 52(3) of the Bankruptcy Act 1966 (Cth), stayed all proceedings under the sequestration order for a period of 21 days.

3    On 17 November 2022 Mr Remta filed an application in the FCFCOA for review of the registrar's decision. Mr Remta was represented for the purpose of the review application.

4    The review application came on for hearing on 22 November 2022 before a judge of the FCFCOA. The judge confirmed the sequestration order made by the registrar and refused to grant any further stay. No reasons have been published.

5    On 2 December 2022 Mr Remta filed a notice of appeal in this Court. The notice includes some 14 grounds, most of which challenge the underlying judgment debt. Mr Remta also contends that the primary judge's decision of 22 November 2022 'was made in a peremptory and ill-considered manner without any review or [examination] of the facts depriving the Appellant of a fair and proper resolution of his requested review of the original sequestration order of the Registrar of 31 October 2022'.

6    Today Mr Remta sought on an urgent basis an immediate stay of all proceedings under the sequestration order pending the outcome of the appeal. In particular, he seeks the stay so that he can continue as a director of Azark Project Pty Ltd, which he says operates the Azark Project (described below).

7    I note that the primary judge has not published reasons for his decision on the review application. I was told by Mr Remta that although he was not present, his counsel who was present at the hearing before the primary judge told Mr Remta that the primary judge did not give oral reasons for his decision and that the parties were taken by surprise that the review application was determined on that date.

8    Before moving to consider Mr Remta's evidence, it is appropriate to summarise some principles.

Principles as to stays and sequestration orders

9    Mr Remta is self-represented before me. He has not pointed to the source of the power that he requests I exercise in order to grant the stay. The time period relevant to s 52(3) of the Bankruptcy Act has expired. I will assume that Mr Remta relies on r 36.08(2) of the Federal Court Rules 2011 (Cth). That rule provides:

However, an appellant or interested person may apply to the Court for an order to stay the execution of the proceeding until the appeal is heard and determined.

10    An appellant who seeks a stay under r 36.08 of the Rules must satisfy the Court that a stay is required to preserve the subject matter of the litigation, or that the refusal of a stay would make it difficult for the Court, in the determination of the appeal, to grant the relief sought.

11    In short, Mr Remta must establish that there is an arguable point on the proposed appeal or some rational prospect of success in relation to any of the grounds of appeal, and that the balance of convenience favours the grant of a stay: Endresz v Australian Securities and Investments Commission [2014] FCA 1139 at [16].

12    Mr Remta's application is to be considered in the context that a sequestration order takes effect as soon as it is made. As soon as a debtor becomes a bankrupt, their property immediately vests in the trustee in bankruptcy, under s 43(2) and s 58(1) of the Bankruptcy Act. They remain bankrupt until discharged or until the bankruptcy is annulled.

13    The Court does not have the power to suspend the operation of the sequestration order, but only to stay proceedings under it. The position was neatly summarised by Stewart J in Du Bray v ACW [2020] FCA 1142:

[8]    Section 153B(1) of the Bankruptcy Act provides that if the court is satisfied that a sequestration order ought not to have been made, the court may make an order annulling the bankruptcy. Under s 37(2) the court does not have power to suspend the operation of a sequestration order. If an appeal against a sequestration order is successful, the sequestration order can be set aside (under s 28 of the Federal Court of Australia Act 1976 (Cth); Simon v Vincent J O'Gorman Pty Ltd (1979) 27 ALR 619 at 625 and 631; De Robillard v Carver [2007] FCAFC 73; 159 FCR 38 at [149]-[150] and [1]) or the bankruptcy may be annulled (under s 153B(1)). In either event the sequestration order has operation while it remains extant: Pattison v Hadjimouratis [2006] FCAFC 153; 155 FCR 226 at [58].

[9]    There are two points to take from the above. The first is that the power that the court has is not to stay the sequestration order, but only to stay proceedings under the order. The sequestration otherwise immediately takes effect until it is set aside or annulled. The other is that even if the appeal is successful and the sequestration order is set aside, it would have continued to operate in the interim …

14    More recently the Full Court in Ritson v Commissioner of Police (NSW) [2021] FCAFC 208 confirmed the position at [57]-[66] (Allsop CJ, Lee and Downes JJ).

Regardless of any stay, a bankrupt director remains disqualified from acting

15    As noted, Mr Remta seeks a stay so that he can continue in his role as a director of Azark despite his bankruptcy. However there is a difficulty in this regard for Mr Remta, even if a stay were to be granted. Section 206B(3) of the Corporations Act 2001 (Cth) (which is located within Part 2D.6 of that Act) provides that a person is disqualified from managing corporations if the person is an undischarged bankrupt. Until such time as the sequestration order is set aside or the bankruptcy is annulled, Mr Remta will remain an undischarged bankrupt. A stay of proceedings under the sequestration order pending an appeal would not alter his status in that regard: Watts, in the matter of Watts [2011] FCA 1185 at [7] (Yates J); Mehajer v Weston (Trustee), in the matter of Mehajer [2018] FCA 608 at [33] (Lee J); and Du Bray at [33].

16    It is possible, however, for Mr Remta to seek an order permitting him to act as a director of Azark.

17    A person who is disqualified from managing corporations under Part 2D.6 of the Corporations Act may only be appointed as a director of a company if the appointment is made with permission granted by the Australian Securities and Investments Commission under s 206GAB, or with leave granted by the Court under s 206G: s 201B(2).

18    Section 206G of the Corporations Act empowers the Court to grant leave for a disqualified person to manage corporations. It relevantly provides:

Court power to grant leave

(1)    A person who is disqualified from managing corporations may apply to the Court for leave to manage:

(a)    corporations; or

(b)    a particular class of corporations; or

(c)    a particular corporation;

if the person was not disqualified by ASIC.

(2)    The person must lodge a notice with ASIC at least 21 days before commencing the proceedings. The notice must be in the prescribed form.

(3)    The order granting leave may be expressed to be subject to exceptions and conditions determined by the Court.

Note: If the Court grants the person leave to manage the corporation, the person may be appointed as a director (see section 201B) or secretary (see section 204B) of a company.

(4)    The person must lodge with ASIC a copy of any order granting leave within 14 days after the order is made.

(5)    On application by ASIC, the Court may revoke the leave. The order revoking leave does not take effect until it is served on the person.

19    In Frigger, in the matter of an application by Frigger [2019] FCA 1730, Jackson J summarised the principles relevant to such an application and I respectfully adopt that summary (as I did in Macalister, in the matter of an application by Macalister [2021] FCA 1455):

[8]    In Re Altim Pty Ltd [1968] 2 NSWR 762 at 764, Street J identified the fundamental principles which informed the court's discretion under a statutory predecessor to s 206G as follows:

The section under which this application is made proceeds upon the basis that a person who is an undischarged bankrupt is prima facie not to be permitted to act as a director or to take part in the management of a company. The Court is given jurisdiction to grant leave for such activities to be carried on, but an applicant who comes to the Court seeking leave must bear the onus of establishing that the general policy of the Legislature laid down in this section ought to be made the subject of an exception in his case. It should be borne in mind that the section is not in any sense a punishment of the bankrupt. Nor should a refusal to grant leave under the section be regarded as punitive. The prohibition is entirely protective, and the power of the Court to grant leave is to be exercised with this consideration in the forefront.

[9]    Even in the absence of a contradictor it is for the applicants for leave to place before the court evidence in appropriate form that is capable of satisfying the court that, in the given case, an exception should be made to the legislative policy underlying the prohibition in the Act. ASIC's absence is not necessarily to be given significant weight: Watts, in the matter of Watts [2011] FCA 1185; (2011) 284 ALR 403 at [18] (Yates J).

[10]    Generally, before it can lift the disqualification the court needs to know what the applicants propose to do by way of corporate management, although this may not be necessary if the application is for leave to take part in the management of a specified corporation or corporations: Re Shneider (1996) 71 FCR 69 at 73 (Drummond J). In those cases the court will consider the structure of the companies, the nature of their businesses and the interests of their shareholders, creditors and employees, and any risks to those persons or to the public which may be involved in the applicants assuming positions on the board or in management: Adams v Australian Securities & Investments Commission [2003] FCA 557; (2003) 46 ACSR 68 at [8] (Lindgren J).

[11]    As one would expect, the attitude of the shareholders to the application can be a relevant factor: see e.g. Jansen v Australian Securities & Investments Commission [2003] FCA 1564 at [12], [14] (Mansfield J).

[12]    The court will also look to the circumstances in which the debts giving rise to the bankruptcy were not paid, and the extent to which an applicant has cooperated with the trustee in bankruptcy: GRD v BJD [2018] WASC 374 at [12] (Master Sanderson), applying Chye v Australian Securities and Investments Commission [2012] FCA 1405 (Bromberg J).

Why Mr Remta seeks a stay

20    For today's purposes, it is important to understand Mr Remta's reasons for bringing the urgent stay application. He does so in order to continue to act as a director of Azark. Mr Remta filed an affidavit in support of his application in which he explains the following.

21    Mr Remta says that Azark is developing an underground nuclear waste disposal facility at Leonora in Western Australia which will be the only facility of its type in the southern hemisphere. He says that he has been a director of Azark since its incorporation and he has in effect been the principal executive officer responsible for complete management of the Project. He makes a very general statement that his exclusion from management 'would in all likelihood lead to the collapse of the Project and Azark'.

22    Mr Remta said that his role, duties and functions with regard to the Project are extensive and comprise:

(a)    the overall management, policy recommendations and decisions on all aspects of the Project's progress;

(b)    dealing with all local and overseas consultants and advisers for the Project, which include academic institutions like Stanford University in California and Helsinki University in Finland;

(c)    engagement with various high-level parties relating to Azark and the Project, which includes night-time telephone and streaming conferences with overseas parties;

(d)    coordinating the design work of the Project facility that requires engineering and other expertise in nuclear waste management not generally available in Australia;

(e)    negotiating with the federal and Western Australian governments regarding the establishment and availability of the Project facility;

(f)    providing assistance to the Western Australian government in its pursuit to host nuclear powered submarines proposed to be acquired by Australia under the AUKUS treaty arrangements;

(g)    ensuring availability of the Project facility for the permanent disposal of the waste generated by the submarine operations which is an essential aspect for hosting the submarines locally; and

(h)    arranging for the ARTEMIS review mission of the International Atomic Energy Agency and examinations by United Nations special rapporteurs to ensure the Project facility meets the highest standards possible in dealing with nuclear material, ensuring community safety, and the protection of human rights.

23    Mr Remta also says that his role regarding the Project is extensive and comprises personally developing the Project, with sporadic assistance only when required for specific aspects of the Project; and spending on average 50 hours a week without remuneration working on the Project, despite having serious health problems over the past two years.

24    Mr Remta claims that he is regarded 'as the most knowledgeable person in Australia in a global and economic sense' for nuclear waste management as his knowledge is 'beyond that of the federal government and its agencies in this field'. He says that he has no scientific training other than a 'first university levels in physics and chemistry which were very basic'. However, Mr Remta contends that Azark and the Project will be completely at risk if he were to be prevented from undertaking all of his role, duties and functions as described above.

Consideration

25    It is difficult without any reasons to hand (or relevant transcript) from the primary judge to discern the prospects of success of the appeal. There is no evidence before me as to the underlying debt or the circumstances in which the default judgment was entered. However, I do have concerns as to the apparent absence of reasons for the primary judge's decision to affirm the registrar's decision. Mr Remta has indicated he will ask the chambers of the primary judge for a copy of the transcript of the hearing. Bearing in mind the very significant effect of a sequestration order on a person, I would expect a copy of the transcript to be forthcoming.

26    But it seems to me that this stay application is resolved by a consideration of the balance of convenience. Such consideration indicates that no basis for relief is made out.

27    There are two main concerns.

28    First, there is insufficient evidence about Azark from which to conclude that there would be any real prejudice in the short term if the stay is not granted. Further, there is no evidence as to the structure or commercial arrangements that pertain to Azark and the Project, or steps undertaken to engage other people to now assist. The evidence given by Mr Remta as to his role in Azark is put at a very high and general level, but, relevantly for today's purposes, he does not point to any particular urgency or deadlines, or give precise evidence as to what work he would otherwise be required to undertake as a director in the short term.

29    Second, a stay would not achieve the relief that Mr Remta seeks at present. His immediate concern is his disqualification as a director. A stay will not assist in that regard, for the reasons I have given. The appropriate course is to bring an application for leave under s 206G of the Corporations Act. Should he choose to pursue that course, Mr Remta may wish to have regard to some of the authorities I have referred to above.

30    For these reasons I dismiss the application.

Associate:

Dated:    9 December 2022