FEDERAL COURT OF AUSTRALIA Edge Technology Pty Ltd v Wang [2000] FCA 1586 BANKRUPTCY – Act of Bankruptcy – Debtors remaining out of Australia with intent to defeat or delay creditors – Debtors absenting themselves by making it impossible for their creditors to ascertain their whereabouts – inferences drawn from circumstances of departure – Bankruptcy Act 1966 (Cth) s 40(1)(c). Bankruptcy Act 1966 (Cth) ss 40(1)(c) and 43. Ex parte Coates; In re Skelton (1877) 5 ChD 979 Re Andrews; ex parte Manning (1966) 8 FCR 56 Ex parte Goater, Re Finney (1874) 30 LT 620 Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370 Flower v Padget (1798) 7 TR 509; 101 ER 1103 Re Aspinall; ex parte Gardner (1812) 1 Ves & B 45; 35 ER 18 Re Parr; ex parte Osborne(1813) 2 Ves & B 177; 35 ER 286 In re Alice Alderson; Ex parte Jackson [1895] 1 QB 183 Re Thai; Ex parte Deputy Commissioner of Taxation (1994) 121 ALR 470. EDGE TECHOLOGY PTY LTD & ORS v WANG & ANOR N 7671 of 2000 CONTI J SYDNEY 24 OCTOBER 2000 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7671 OF 2000 BETWEEN: EDGE TECHNOLOGY PTY LIMITED (In Liquidation) (Receiver Appointed) First Applicant EDGE HOLDINGS LIMITED (In Liquidation) (Receiver Appointed) Second Applicant MICROSOFT LICENSING INC Third Applicant AND: JEN-TSE-WANG First Respondent SIU CHUI LAI WANG Second Respondent JUDGE: CONTI J DATE OF ORDER: 24 OCTOBER 2000 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. A Sequestration Order be made in relation to the estate of the First Respondent Mr Jen-Tse Wang. 2. The costs of the Applicant be paid out of the estate of the First Respondent. 3. A Sequestration Order be made in relation to the estate of the Second Respondent Mrs Siu Chui Lai Wang. 4. The costs of the Applicant be paid out of the estate of the Second Respondent. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7671 OF 2000 BETWEEN: EDGE TECHNOLOGY PTY LIMITED (In Liquidation) (Receiver Appointed) First Applicant EDGE HOLDINGS LIMITED (In Liquidation) (Receiver Appointed) Second Applicant MICROSOFT LICENSING INC Third Applicant AND: JEN-TSE-WANG First Respondent SIU CHUI LAI WANG Second Respondent JUDGE: CONTI J DATE: 24 OCTOBER 2000 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Edge Technology Pty Limited (In Liquidation) has presented a creditors petition to this Court for a sequestration order pursuant to s43 of the Bankruptcy Act 1966 (Cth) in respect of the estate of Jen-Tse Wang (also known as Johnson Wang) and Siu Chui Lai Wang (also known as Phyria Wang, Siu Chui Lai and Siu Chui Wang) both formerly of 3 Gleneagles Avenue, Killara in the State of New South Wales. By reason of the orders of Hill J made on 28 July 2000, Microsoft Licensing Inc has been given leave to appear and be heard in these proceedings. 2 The petition was presented to the Court on 28 July 2000. In this petition, the Applicant alleges that Mr and Mrs Wang (the Respondents to the petition) are indebted to it in the sum of $1,368,653 being an amount lent by the Applicant to Mr and Mrs Wang and due and payable by each of them to the Applicant. The Applicant further alleges that Mr Wang has committed the following acts of bankruptcy specified in s 40(1)(c) of the Act, namely, that since 7 June 2000, with intent to defeat or delay his creditors, Mr Wang: (a) departed from his dwelling house; (b) departed Australia; (c) has remained out of Australia; and (d) has otherwise absented himself. Similarly, the Applicant alleges that Mrs Wang has committed the following similar acts of bankruptcy, namely, that since 10 June 2000, with intent to defeat to delay her creditors, Mrs Wang: (a) departed from her dwelling house; (b) departed Australia; (c) has remained out of Australia; and (d) has otherwise absented herself. 3 Mr and Mrs Wang by a notice of intention to oppose the creditor's petition filed on 7 August 2000, stated that they intended to oppose the making of a sequestration order and intended to dispute the acts of bankruptcy. Such opposition was said to be supported by the facts and circumstances set out in the affidavit of Mr Jen-Tse Wang sworn on 4 August 2000. In the Application before me, Mr Wang's affidavit was not read on behalf of either Respondent. Furthermore, no other evidence was sought to be relied upon by either Respondent. 4 An amended creditor's petition was filed on 8 August 2000. Edge Holdings Pty Limited (In Liquidation) (Receiver Appointed) was added as an additional petitioning creditor and Applicant, and the same alleges that Mr and Mrs Wang (the Respondents to the petition) are indebted to such Applicant in the sum of $1,717,751, being an amount lent by them to Mr and Mrs Wang and due and payable by Mr and Mrs Wang to them. The indebtedness of Mr and Mrs Wang to Edge Technology Pty Ltd and Edge Holdings Pty Limited is explained in the affidavit of Mr Godfrey Topp, Chartered Accountant, dated 28 July 2000. Mr Topp is a partner of Armstrong Wily & Co Chartered Accountants who are responsible, subject to the supervision of partner Mr Andrew Wily, for the day to day management of the insolvent administration of the Edge Group companies in Australia since the appointment of a voluntary administrator to those companies on 7 June 2000. A list of those companies is outlined in Mr Topp's affidavit referred to above. On 8 June 2000, Mr Chris Wykes was appointed by Cash Resources Australia Pty Limited to be the receiver of the assets of certain companies in the Edge Group. Since then Mr Topp has been responsible for the liquidations of those companies in the Edge Group, subject to the supervision of Mr Wily. 5 In determining whether a debtor has committed an act of bankruptcy under s40(1)(c) of the Bankruptcy Act 1966 (Cth), the crucial element is the intent of the debtor. The fact merely that a debtor has departed from his or her dwelling house of itself attaches little significance: Ex parte Coates; In re Skelton (1877) 5 Ch D 979 at 980 per Bacon CJ. In determining whether the debtor possessed the requisite intention, some assistance can be found in the following passage of the judgment of Clyne J in Re Andrews; ex parte Manning (1966) 8 FCR 56 at 58 where his Honour said: "Intent to defeat or delay is a question of fact and must be alleged by a petitioning creditor in his petition and proved. It is seldom that the intent of a debtor can be proved by a debtor's own statements, and it is usually shown by inference from the circumstances in which the debtor departed from his dwelling house or place of business. The evidence necessary to prove the intent must differ according to the circumstances of each particular case. The conduct of a debtor in various forms may give rise to a presumption of intent obliging the debtor to rebut the presumption, but in the end this intent must be established." In considering the conduct of the debtor against a background of all the facts and circumstances, it is clear that the Court must infer that a person intends the necessary consequences of his or her own acts: Ex parte Goater, Re Finney (1874) 30 LT 620 at 621 per Mellish LJ. 6 While intent lies at the heart of s40(1)(c), it does not follow that such intent need be a debtor's sole intent in leaving or remaining out of the country. As observed in Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370 at 375 per Stephen J: "The language of s40(1)(c) does not appear to require such a construction; an act may be done with a number of intents in mind. The authorities have proceeded upon this view – Ramsbottom v Lewis (1808) 1 Camp 279; 170 ER 957; Holroyd v Whitehead (1814) 3 Camp 530; 170 ER 147…" 7 Circumstances may arise where the conduct of a debtor in leaving Australia may cause delay to his or her creditors. Unless such delay occurs with an intention to cause such delay, this will not satisfy s40(1)(c): Flower v Padget (1798) 7 TR 509; 101 ER 1103. The intent must also be complete at the moment of departure: Re Aspinall; ex parte Gardner (1812) 1 Ves & B 45; 35 ER 18; Re Parr; ex parte Osborne (1813) 2 Ves & B 177; 35 ER 286. A party is likely to have absented himself or herself where, with intent to defeat or delay his or her creditors, he or she has so acted as to render it impossible for his or her creditors to ascertain his or her whereabouts: In re Alice Alderson; Ex parte Jackson [1895] 1 QB 183. Such conduct is a continuing act of bankruptcy: see Re Thai; Ex parte Deputy Commissioner of Taxation (1994) 121 ALR 470 at 471 per Davies J and the cases there cited. 8 Mr Coles QC, who appeared for the Applicant, has assisted the court with an outline of submissions including references to the authorities above cited. I will proceed to state the following facts said to give rise to the inference of the necessary intent on the part of the Respondents to delay or defeat their creditors in the circumstances presently postulated. 9 Mr Wang is a director of and controls the Australian incorporated companies known as the Edge Group. Those companies (referred to in Mr Topp's affidavit of 28 July 2000), including the Applicants Edge Technology Pty Limited and Edge Holdings Pty Limited, are insolvent, having been placed in administration on 7 June 2000, and for the most part such companies (including for instance the first and second Applicants) are also already in liquidation. Mr Wang permanently departed Australia on 7 June 2000, immediately after he caused to be appointed voluntary administrators to companies within the Edge Group. I have explicitly used the word 'permanently', since a copy of Mr Wang's outgoing passenger card marked exhibit "A" in these proceedings contains Mr Wang's declaration that he was an Australian resident departing permanently. 10 Mrs Wang was a director of Edge Holdings (the ultimate holding company) until 24 February 2000 and remains a shareholder in that company. She was also a director of Edge Group Pty Limited, KTX Technology Pty Limited, Edge Properties Pty Limited, Edge Computers Pty Limited and Edge Technology until 24 February 2000. Mrs Wang's outgoing passenger card marked exhibit "B" in these proceedings also contains her explicit declaration that she permanently departed Australia on 10 June 2000. 11 Prior to and since 7 June 2000, Mr and Mrs Wang have been and remain indebted to the Applicants in large sums of money. A trial balance sheet for Edge Technology Pty Limited in respect of loans to Mr and Mrs Wang (described therein as shareholders) discloses that on 7 June 2000 (the date of the appointment of the administrator) the amount of the loan indebtedness was $1,368,653.90. Such material is exhibited to the affidavit of Mr Topp and marked "AGT-8". An examination of the financial account exhibited to the affidavit of Mr Topp and marked "AGT-9" and "AGT-10" demonstrates that large sums of money are owed by Mr and Mrs Wang to Edge Holdings Pty Ltd. A letter from Mr and Mrs Wang to the auditor of Edge Technology Pty Limited and Edge Holdings Pty Limited, Mr Neil Cameron of KPMG (exhibited to the affidavit of Mr Topp and marked "AGT-11"), confirms the existence and correctness of such directors' loan accounts in the sum of $1,567,914.00. In light of more recent adjustments, the evidence discloses that Mr and Mrs Wang owe Edge Holdings Pty Limited $1,717,751.60. There is no suggestion that Mr and Mrs Wang have repaid those debts. 12 Mr and Mrs Wang also owe money to, or are subject to claims by, numerous other creditors including Microsoft Licensing Inc and various other companies to whom personal guarantees have been given by them. As I mentioned in [1] above, Microsoft Licensing Inc has been granted leave to join in the application for a sequestration order of Mr and Mrs Wang's estates. Mr and Mrs Wang departed from Australia without notifying such other creditors that they were departing or making any arrangements for payment of their creditors. 13 Since Mr Wang departed Australia on 7 June 2000 and Mrs Wang departed Australia on 10 June 2000, Mr Topp of Armstrong Wily & Co Chartered Accountants (the Administrator and subsequently Liquidator of the Edge Group of companies see [4] above) has had no contact with or from either Mr or Mrs Wang. He has received no statements of affairs from Mr Wang with respect to companies in the Edge group or other co-operation or assistance from him with respect to the administration or liquidation of companies in the Edge Group. Mr Topp has sought to speak to Mr Wang on the mobile telephone number he was given for Mr Wang, but it has been disconnected. Mr Topp has also written to Mr and Mrs Wang's Solicitor on numerous occasions. On 16 June 2000 Mr Topp requested to be informed whether Mr Wang intended to return to Australia and whether Mr and Mrs Wang were intending to discuss the repayment of their loans to companies in the Edge Group with the administrator. No response to that letter has since been received. 14 On 20 June 2000, demand was made on Mr and Mrs Wang in respect of the loans they owed to Edge Technology and Edge Holdings. The only response to that demand was a facsimile from Mr Law, Mr and Mrs Wang's Solicitor, on 21 June 2000, stating that he had referred the various letters of demand to Mr and Mrs Wang, and had been "instructed to seek an extension of time in which to respond to close of business on Friday 30 June. Our clients are seeking advice which is expected will take this time to obtain". Mr Topp as Administrator wrote back on 21 June 2000 saying that he would defer taking action only until 26 June 2000. No further response has been received. 15 On 13 July 2000, Mr Topp as Liquidator wrote to Mr Law. The letter firstly asked whether Mr and Mrs Wang were intending to return to Australia. Secondly it requested that Mr Law provide contact details including the address, facsimile and telephone numbers for Mr and Mrs Wang so that Mr Topp might contact Mr Wang directly in relation to a liquidation process for the Edge group of companies. Mr Topp also noted that he did not yet have a response to the demands for repayment of loans owed by Mr and Mrs Wang to the Applicants and that he was required to request Mr Wang to provide a report as to affairs in respect of the companies. No response has been received to that letter. Furthermore, no explanation has been given for such failures to respond. 16 I know of no reason why Mr and Mrs Wang could not have readily communicated with Mr Topp. In particular, it is apparent that Mr Law has been in frequent communication with Mr and Mrs Wang since June of this year. Such an inference can be drawn from the fact that: (a) Mr Law appeared on behalf of Mr and Mrs Wang in the Federal Court on 5 July 2000 with instructions to make that appearance; (b) Mr Law further appeared in the Federal Court on 10 July 2000 for Mr and Mrs Wang with instructions to make that appearance; (c) Mr Law has appeared in these proceedings for Mr and Mrs Wang. The Applicants have relied on certain events which transpired during a hearing before the Court on 10 July 2000 in Microsoft Licensing Inc v Wang & Ors (N 1347 of 1999). On that occasion Mr Law, in his said capacity as Solicitor for Mr and Mrs Wang, did not inform the Court or Microsoft as to Mr Wang's whereabouts, save that he believed that Mr Wang was in Hong Kong. I do not suggest that Mr Law was obliged to do otherwise, but Mr Law did have implicit instructions to challenge Microsoft's application for leave to serve Mr Wang with proceedings out of the jurisdiction (see transcript of 10 July 2000 at pages 6-7). 17 When the Application was previously before Sackville J of this Court, his Honour asked Mr Law "…what is the virtue of requiring the Applicant to seek out Mr Wang in Hong Kong in order to effect personal service when he is obviously in a position to communicate with you and presumably you with him?" (page 6 of the transcript) Mr Law's response was: "All I can say is that it is probably at the highest it may well be a discretionary matter in view of the very serious consequences of a disobedience perhaps more than service on me should be considered to be personal service especially given my opponents do have other means of securing the order". It should be added that no explanation was given as to why Mr Wang, who must have been well aware of the proceedings, could not have been notified by Mr Law of the orders of the Court, or inform the Court of any appropriate means of bringing the orders to his attention. Nor did Mr Law explain what he meant by his assertion that Microsoft had some other means of securing the order. Sackville J further observed on such occasion: "…at the moment I would rather have thought the position is that Mr Wang knows about these proceedings; we don't know or nobody knows where he is precisely and the question is what is to be done about that situation having regard to orders that the court is making." (See pp 16-17 of the transcript). Significantly, Mr Law did not dispute the accuracy of his Honour's comments. 18 Mr Law briefly opposed the Application before me on the grounds that the evidence could only support an inference of his clients' intention to defeat or delay their creditors and hence the requisite standard of proof had not been met. I do not accept the validity of that submission. 19 I am satisfied from the evidence adduced before me that Mr and Mrs Wang have not left their creditors with any means of ascertaining their present overseas whereabouts. It follows that Mr and Mrs Wang have absented themselves pursuant to s40(1)(c)(iii): In Re Alice Alderson; Ex parte Jackson, supra at 186-7. It is not in dispute that the Applicants have left Australia. Furthermore, from the subpoenaed documents from the Department of Immigration and Multicultural Affairs, it appears that Mr and Mrs Wang have left the country permanently. The obstacles that they have placed in the way of their creditors in Australia from effectively communicating with them, together with their continuing absence overseas during the entirety of the last three months or so, and further together with the financial collapse of the Edge Group of Companies, sufficiently establishes that their departure from Australia was for reasons which included the reason to delay or defeat their creditors: see Barton v Deputy Commissioner of Taxation, supra at 375. 20 I therefore make a Sequestration Order in the estate of Mr Jen-Tse Wang and further order that the costs of the applicants be paid out of the estate of Mr Wang. I also make a Sequestration Order in the estate of Mrs Siu Chui Lai Wang and further order that the costs of the applicants be paid out of the estate of Mrs Wang. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti. Associate: Dated: 8 November 2000 Counsel for the First and Second Applicants: Mr B Coles QC Solicitors for the First and Second Applicant: Blake Dawson Waldron Solicitors for the Third Applicant Mallesons Stephen Jaques Solicitor for the Respondent: A.J. Law & Co Date of Hearing: 24 October 2000 Date of Judgment: 24 October 2000