The Full Federal Court in the case of Totev v Sfar [2008] FCAFC 35 considered the practical difficulties and effect of time lapsing between the original sequestration order being made and a review by way of hearing de novo.  During that time, without a stay in place, a delay in the review hearing de novo and the making of the original sequestration order means that the property of the Respondent Debtors becomes vulnerable.   Per Justice Emmett at [17]:

Nevertheless, a sequestration order has an effect on the status of the debtor and on the property of the debtor and any delay in the hearing of an application for review might give rise to practical difficulties.  Any practical difficulties could only be completely avoided by a review application being heard on the same day as a sequestration order is made by a registrar or by requiring that any review application must be filed on the day on which the sequestration order is made and by staying the sequestration order from the moment at which the review application is filed. Such considerations emphasise the great importance of bankruptcy matters being dealt with in a highly expeditious fashion. Courts exercising bankruptcy jurisdiction must be assiduous in avoiding delay in dealing with any question concerning the making of a sequestration order.

To avoid the practical difficulty highlighted by Emmett J, it is important to remember to seek a stay application to protect a bankrupt estate to avoid any adverse consequences before the sequestration order is set aside.

There are two methods to obtain a stay on a bankrupt estate pending a review and/or appeal of the sequestration order.  One is under s. 52(3) of the Bankruptcy Act 1966 and the other is under r. 36.08 of the Federal Court Rules.  The stay under the Bankruptcy Act is limited by statute to a maximum of 21 days.  The stay under the Federal Court Rules is not limited by time.

To avoid adverse consequences, debtors should seek a stay over their estate if they want to review and/or appeal the decision.  Consenting Trustees should be aware that any steps taken during a stay (or on notice of an application for one) may be at their own cost and risk and not payable out of the estate in the event of a successful review or appeal.   Unsecured petitioning creditors who are subject to a stay could use the time wisely to contact the debtors solicitors to negotiate a work out solution and seek payment to resolve the matter.

Kristine Hopkins is experienced in bankruptcy matters and has represented creditors, trustees and debtors. Should you have any questions about this article please do not hesitate to contact her on 03 9607 8279.