A further twist in bankruptcy proceedings

In Issue 40 (October 2017) of Sheridans’ View we noted the High Court of Australia’s reported decision in the matter of Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28 that the Court still needs to be satisfied that a debt is truly owed by the debtor before making them bankrupt (Bankruptcy: Reliance on a judgment debt?).

That was on 17 August 2017 but on 21 December 2017 came a further twist. Things had been happening in the meantime.

While the High Court’s reasons for judgment were not published until August 2017, following an expedited hearing, the High Court had in fact dismissed the appeal by Ramsay on 4 May 2017.

Ramsay wasted no time, getting the matter of its creditor’s petition relisted before the primary judge as a matter of some urgency. The urgency arose by reason of the fact that Ramsay’s petition was due to expire on 5 June 2017.

On 1 June 2017 the hearing of the creditor’s petition took place. At the outset of the hearing Counsel appeared for a Mr Weston, a registered trustee, who had accepted appointment as controlling trustee under the personal insolvency provisions of the Bankruptcy Act 1966 (Cth). The issue raised by Counsel for Mr Weston was whether Mr Compton had signed an effective authority under S188, and therefore whether the proceeding was stayed by force of S189AAA.

Ramsay argued, successfully, that the jurisdictional connections referred to in S188 had not been satisfied in circumstances where Mr Compton had moved from Australia to Virginia, USA.

The primary judge indicated that he was not satisfied that a stay was in place and the hearing proceeded to deal with the question whether the discretion to make a sequestration order should be exercised (i.e. “going behind” the judgment).

On 2 June 2017 the primary judge held that no conclusion could be reached that Mr Compton was “ordinarily resident in Australia”, gave judgment on the creditor’s petition and made an order that Mr Compton’s estate be sequestrated.

On 4 June 2017 Mr Compton filed a notice of appeal. The appeal was based on a single issue, namely whether the primary judge had erred in concluding that the proceedings relating to the creditor’s petition were not stayed pursuant to S189AAA.

Subsequently, the Court was informed that the newly appointed bankruptcy trustee would not be taking any further steps in relation to Mr Compton’s bankrupt estate until the resolution of the appeal.

Mr Compton had his appeal hearing in the Federal Court.

On 21 December 2017, the Federal Court held that the ‘jurisdictional nexus requirements’ were met in relation to Mr Compton’s S188 authority because Mr Compton was ordinarily resident in Australia at the time he signed the authority. The appeal was allowed and the Court declared that the proceedings relating to Ramsay’s creditor’s petition were stayed, for the period of time set out in that section.

The Reasons for Judgment are worth reading for the Court’s consideration of the jurisdictional nexus requirements.

In this case, while Mr Compton had moved to the USA, the reasons for the debtor’s move were considered by the Court to be ‘of a temporary nature’ and that “the position that… [the debtor] was ordinarily resident in Australia was not displaced.”

 So it appears that Mr Compton will have a chance to propose a Personal Insolvency Agreement (PIA). Will it be accepted?