The Culleton bankruptcy

Mr Rodney Norman Culleton, a federal politician, was made bankrupt by the Federal Court on 23 December 2016: Balwyn Nominees Pty Ltd v Culleton [2016] FCA 1578.  In formal words, the Judge ordered that “the estate of Rodney Norman Culleton be sequestrated under the Bankruptcy Act 1966 (Cth)”. The Judge went on to order that “there be a stay of all proceedings under the sequestration order for a period of 21 days”.  The bankruptcy was based on a debt owed under a judgment of the District Court of Western Australia for over $270,000.

At least three significant issues arise for Mr Culleton – whether he has any prospects of appeal; whether he can have the stay of his bankruptcy further extended to allow him to pursue his appeal; and what impact the bankruptcy has on his role as politician.

The stay

Even though a stay is granted, Culleton is still a bankrupt, but the consequences of the Bankruptcy Act do not impact him while the stay is in operation.

This is because it is not the sequestration order itself which operates to change a debtor’s status or vest their property in the trustee: the making of the order is simply the event upon which the Act operates to bring about the consequences for that status and property: Evans v Heather Thiedeke Group Pty Ltd [1990] FCA 376. The bankruptcy is still recorded on the bankruptcy register – the National Personal Insolvency Index – even though a stay is in operation: Watts v Bendigo & Adelaide Bank Ltd (No 2) [2010] FCA 1429. During that time, the trustee in bankruptcy must take no action as trustee.

The end of the 21 days will be critical, it being the expiry of the time to file any appeal, subject any court rules extending this over the vacation period.

Although that is the maximum period allowed for a stay under the Bankruptcy Act, the Court itself has power to extend that time further, under s 24 of the Federal Court of Australia Act 1976: Nand v Fuji Xerox Australia Pty Limited [2014] FCA 757.

It is a rather unsatisfactory arrangement to have a serious status like bankruptcy stayed – left hanging – without being resolved quickly.

But stays can be and are granted to permit the bankrupt to appeal either from the initial judgment from which the debt arose, or from the court judgment making the sequestration order.

Whether a notice of appeal has actually been filed against the sequestration order itself is relevant. The circumstances do not “need to be ‘special’ or ‘exceptional’ in the sense of being unusual or rare”: Henderson v Amadio Pty Ltd (No 3) [1996] FCA 1436. Generally the court determining a stay application, or an extension of a stay, will need to decide whether there are arguable grounds of appeal, as to which, further comment is made below.

The impact of bankruptcy

A further point is that becoming a bankrupt – which lasts for at least 3 years – can affect a person’s right to retain their job.  This is an important policy issue right now. The government is trying to reduce the stigma and impact of bankruptcy in the interests of downplaying the negative perceptions of business failure, or of default in one’s personal finances. The particular reform now proposed under the government’s 2015 Innovation Agenda is to reduce the period of bankruptcy to one year; and to consider reducing the restrictions of bankruptcy.   

Bankruptcy prevents a politician from holding their job.  However, any removal of the statutory restrictions on bankruptcy as proposed by the government could not apply to politicians.

Section 44 of the Australian Constitution prevents an undischarged bankrupt or anyone who is “insolvent” from holding political office. Any change to the Constitution would need to go to a referendum of the people.  That change might not have much chance of success. 

Along with being bankrupt, the crime of treason also prohibits political office, understandably. The juxtaposition of bankruptcy with treason is an aspect of the history of the stigma of bankruptcy going back centuries, still around, which the government is trying to reverse. 

Court of Disputed Returns

Mr Culleton also had other potential parliamentary disqualifications. Questions were referred to the Court of Disputed Returns pursuant to section 376 of the Commonwealth Electoral Act 1918 (Cth) and heard on 7 December 2016 by Kiefel, Bell, Gageler, Keane and Nettle JJ – C15/2016, [2016] HCATrans 296.  Under s 354, the High Court is designated as the Court of Disputed Returns and it may hear the matter or refer it for trial to the Federal Court of Australia.  

Those questions were:

(a) Whether, by reason of s 44(ii) of the Constitution there is a vacancy in the representation of Western Australia in the Senate for the place for which Senator Rodney Norman Culleton was returned;

(b) If the answer to Question (a) is “yes”, by what means and in what manner that vacancy should be filled;

(c) What directions and other orders, if any, should the Court make in order to hear and finally dispose of this reference; and

(d) What, if any, orders should be made as to the costs of these proceedings.

Section 44(ii) provides that any person who is attainted of treason, or has been convicted and is under sentence, or subject to be sentenced, for any offence punishable under the law of the Commonwealth or of a State by imprisonment for one year or longer shall be incapable of being chosen or of sitting as a senator or a member of the House of Representatives. 

The High Court has reserved its judgment.

Arguable grounds of appeal

Back to the bankruptcy, as to Mr Culleton’s arguable grounds of any appeal, which might assist him have the stay continued, the comments of Justice Barker on some of his arguments suggest he might have difficulty.

unless you are a farmer

One ground raised before Justice Barker was that “unless you are a farmer and understand the land, a person should not sit as a Judge in a dispute between farmers”.

As the Judge patiently responded, “apart from observing in passing that judges have sat on disputes between all sorts of business people, including farmers, over centuries”, the documents offered by Mr Culleton “that are said to support an appeal do anything but that”.

R v Casement

Mr Culleton also referred to the law of treason, in the context of the famous trial of Roger Casement, suggesting some connection between the Treason Act 1351 and the WA District Court judge who found that Mr Culleton owed $270,000. His “judgment was of no force and effect because the District Court Judge on his appointment as a judge did not swear an oath to the Queen, but rather to the people and the State of Western Australia”.

Responding with further commendable patience, Justice Barker said that

“The time has arrived for people who consider that this is a constitutional issue of some moment to appreciate that the courts have long since discredited the theory (which is) without any legal merit”,

citing a slew of earlier decisions, one involving Mr Culleton, only two months earlier.

It may however be that Mr Culleton has other, more arguable, grounds available when or if he appeals.

The future

As to Mr Culleton’s continued status as a politician if he ultimately does not succeed, the Constitution seems to be clear.  Whether bankruptcy should prevent a person from holding political office is for the people to decide.

Postscript

The Federal Court records show that another creditors petition in bankruptcy has been filed with the Court against Mr Culleton. The petition was filed by a Francis Peter Bertola on 22 December 2016 with a hearing date given on 16 January 2017 – WAD591/2016.

Once a person is bankrupt it is not possible another creditor to file a petition, if its debt is one that pre-dates and is provable in the existing bankruptcy.  However this petition was filed on 22 December, the day before the hearing on 23 December 2016 at which Mr Culleton was made bankrupt.  We await the Court’s decision on that new petition.

No legal advice is given in this commentary, nor can it be relied upon as a statement of the law.

 

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