FEDERAL COURT OF AUSTRALIA Levy v Reddy [2009] FCA 63 BANKRUPTCY AND INSOLVENCY – Bankruptcy Act 1966 (Cth) section 29 – ex parte interlocutory application by trustee in bankruptcy appointed in United Kingdom – application to restrain bankrupt from disposing of or dealing with his divisible property in Australia – request from Registrar of High Court of Justice of England and Wales – assets only partially owned by bankrupt – appointment of receiver in Australia Held: Interim orders granted on ex parte basis. Bankruptcy Act 1966 (Cth) s 29 Cross Border Insolvency Act 2008 (Cth) s 436 Federal Court Rules O 25A Insolvency Act 1986 (UK) s 306(1) Australian Mutual Provident Society v Gregory (1908) 5 CLR 615 applied Ayres v Evans (1981) 56 FLR 235 cited Dick as Trustee in Bankruptcy v McIntosh [2001] FCA 1008 cited Radich v Bank of New Zealand (1993) 45 FCR 101 applied Re Ayres; Ex parte Evans (1981) 51 FLR 395 cited PETER MAURICE LEVY v MARK REDDY (A BANKRUPT) QUD 25 of 2009 COLLIER J 6 FEBRUARY 2009 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QUD 25 of 2009 BETWEEN: PETER MAURICE LEVY Applicant AND: MARK REDDY (A BANKRUPT) Respondent JUDGE: COLLIER J DATE OF ORDER: 6 FEBRUARY 2009 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The hearing in respect of these Interim Orders sought be heard ex parte. 2. The Respondent, Mark Reddy, by himself and, where applicable, his employees, agents or otherwise, be restrained until such time as any further or other order is made by this Court from disposing of or dealing with in any way his divisible property (within the meaning of section 116 of the Bankruptcy Act 1966 (Cth) and ascertained by reference to the commencement of his bankruptcy in the United Kingdom on 25 July 2008), as would be prohibited if the Respondent was bankrupt under the Bankruptcy Act 1966 (Cth), other than for the following purposes: (a) to enable him to pay and to continue to pay reasonable legal expenses of defending or responding to these proceedings; (b) to pay ordinary and proper business expenses bona fide incurred by him; (c) to pay ordinary and proper living expenses bona fide incurred by him; (d) to meet his taxation liabilities; (e) to comply with any statutory requirements to which he is subject; (f) to meet any mortgage or other loan commitment entered into prior to the date of this order. 3. Jason Walter Bettles (of Worrells Solvency and Forensic Accountants, Level 6, 50 Cavill Avenue, Surfers Paradise in the State of Queensland) be appointed Receiver without security of that divisible property pending further or other order of this Honourable Court. 4. In particular, Jason Walter Bettles is appointed Receiver without security of the Respondent's interest in land described as Lot 22 on SP 106487, County of Ward, Parish of Gilston, Title Reference 50262349 (46 Peach Drive, Robina in the State of Queensland) and Lot 21 on SP 406487, County of Ward, Parish of Gilston, Title Reference 50262348 (48 Peach Drive, Robina in the State of Queensland) (the "Respondent's Land") and the Receiver is entitled to lodge caveats with the Registrar of Titles over the titles of the Respondent's Land to protect and note the Receiver's interest in the Respondent's Land. 5. There be served on the Respondent a sealed copy of these Interim Orders along with a copy of the Application and the Supporting Affidavits as soon as possible hereafter. 6. Within 14 days of service of these Interim Orders (along with a copy of the Application and the Supporting Affidavits) and of notification to the Respondent by the Receiver of his appointment, the Respondent is to deliver to the Receiver a Statement of Affairs in respect of the Respondent's divisible property. 7. The Respondent and any third party affected by this Order shall have liberty to apply on notice to the Applicant to discharge or vary this Order, or to seek directions hereunder. 8. The Applicant's costs of and incidental to obtaining this Order be the Applicant's reserved costs. 9. The solicitors for the applicant to make arrangements for the original of the letter, a certified copy of which is marked as Annexure "PML-9" and referred to in the Affidavit of Peter Maurice Levy sworn 12 January 2009, to be delivered to the District Registrar, Queensland Registry, Federal Court of Australia, by 4.00 pm on 5 March 2009. 10. Further hearing in this matter be set down at 9.30 am on 6 March 2009. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QUD 25 of 2009 BETWEEN: PETER MAURICE LEVY Applicant AND: MARK REDDY (A BANKRUPT) Respondent JUDGE: COLLIER J DATE: 6 FEBRUARY 2009 PLACE: BRISBANE REASONS FOR JUDGMENT 1 This is an ex parte application for interlocutory relief by the trustee in bankruptcy of the respondent appointed pursuant to the Insolvency Act 1986 (UK). 2 Interim orders sought by the applicant in the application are as follows: 1 That the hearing in respect of these Interim Orders sought be heard ex parte. 2. The Respondent, Mark Reddy, by himself and, where applicable, his employees, agents or otherwise, be restrained until such time as any further or other order is made by this Court from disposing of or dealing with in any way his divisible property (within the meaning of Section 116 of the Bankruptcy Act 1966 (Cth) and ascertained by reference to the commencement of his bankruptcy in the United Kingdom on 25 July 2008), as would be prohibited if the Respondent was bankrupt under the Bankruptcy Act 1966 (Cth), other than for the following purposes: (a) to enable him to pay and to continue to pay reasonable legal expenses of defending or responding to these proceedings; (b) to pay ordinary and proper business expenses bona fide incurred by him; (c) to pay ordinary and proper living expenses bona fide incurred by him; (d) to meet his taxation liabilities; (e) to comply with any statutory requirements to which he is subject; (f) to meet any mortgage or other loan commitment entered into prior to the date of this order. 3. Jason Walter Bettles (of Worrells Solvency and Forensic Accountants, Level 6, 50 Cavill Avenue, Surfers Paradise in the State of Queensland) be appointed Receiver without security of that divisible property pending further or other order of this Honourable Court. 4. In particular, Jason Walter Bettles is appointed Receiver without security of the Respondent's interest in land described as Lot 22 on SP 106487, County of Ward, Parish of Gilston, Title Reference 50262349 (46 Peach Drive, Robina in the State of Queensland) and Lot 21 on SP 406487, County of Ward, Parish of Gilston, Title Reference 50262348 (48 Peach Drive, Robina in the State of Queensland) (the "Respondent's Land") and the Receiver is entitled to lodge caveats with the Registrar of Titles over the titles of the Respondent's Land to protect and note the Receiver's interest in the Respondent's Land. 5. There be served on the Respondent a sealed copy of these Interim Orders along with a copy of the Application and the Supporting Affidavits as soon as possible hereafter. 6. Within 14 days of service of these Interim Orders (along with a copy of the Application and the Supporting Affidavits) and of notification to the Respondent by the Receiver of his appointment, the Respondent is to deliver to the Receiver a Statement of Affairs in respect of the Respondent's divisible property. 7. The Respondent and any third party affected by this Order shall have liberty to apply on notice to the Applicant to discharge or vary this Order, or to seek directions hereunder. 8. The Applicant's costs of and incidental to obtaining this Order be the Applicant's reserved costs. 9. Further hearing in this matter be set down for…………………..2009. 3 The applicant is a partner and licensed insolvency practitioner in the United Kingdom. The applicant deposes in an affidavit sworn 12 January 2009 that, following the presentation of a bankruptcy petition to the High Court of Justice of England and Wales and its service effected upon the respondent, the respondent was declared bankrupt at a hearing on 25 July 2008. The applicant deposes further (in summary) that: · The applicant was appointed by the High Court of Justice of England and Wales as the respondent's trustee in bankruptcy on 25 July 2008. · Prior to the respondent's bankruptcy, the respondent was subject to an Individual Voluntary Arrangement ("IVA") under the Insolvency Act 1986 (UK) of which was the applicant was the supervising insolvency practitioner. Notwithstanding the IVA, some time before 9 July 2007 the respondent disposed of all of his assets within the United Kingdom and relocated to Australia. · The enquiry agent engaged by the applicant traced the respondent to an address in Robina, Queensland, and has also discovered that the respondent is a joint owner of two residential properties in Robina. Annexed to the applicant's affidavit are copies of title searches in respect of those two properties showing that they are jointly owned by the respondent with another person (although subject to a mortgage), and evidence that the properties have a potential cumulative sale price in excess of $1 million. The applicant deposes that inquiries have been made of the relevant mortgagees and that the equity of the respondent and his co-owner in the properties is substantial. · The applicant and an employee wrote to the respondent on 23 September 2008 and 7 November 2008 requesting that the respondent provide his proposals for payment of his creditors and the applicant's remuneration and expenses, however no response has been received from the respondent. · Due to the absence of communication from the respondent, and because the respondent had disposed of his assets in the United Kingdom and now has assets in Australia, the applicant proposes to take steps to safeguard those assets for the benefit of the bankrupt estate, and cause those assets to be recovered and realised into the bankrupt estate. In particular, the applicant has appointed solicitors in Australia and nominated an insolvency practitioner whom he wishes to be appointed as base receiver to the divisible property of the respondent and to act on the applicant's behalf in gathering the respondent's assets. 4 Annexed to the applicant's affidavit is a certified copy of a letter from a Registrar in Bankruptcy of the High Court of Justice in the United Kingdom reciting a number of facts also found in the applicant's affidavit, and requesting the assistance of the Court in relation to the application. 5 Three additional affidavits have been filed supporting the application. They are: · two affidavits sworn by Michael Anthony Coates, the solicitor of the applicant, on 21 January 2009 and 6 February 2009. Mr Coates has deposed, inter alia, that he has received instructions from the applicant (subsequent to the execution of the applicant's affidavit) seeking orders that Jason Walter Bettles of Worrells Solvency and Forensic Accountants, a registered trustee in Australia, be appointed interim receiver of the divisible property of the respondent situated in Australia; and · an affidavit sworn by Jason Walter Bettles consenting to being appointed as a receiver of the divisible property of the respondent situated in Australia. CONSIDERATION 6 This matter came before me this morning on an ex parte basis. At the hearing it became clear that orders sought by the applicant were pursuant to s 29 Bankruptcy Act 1966 (Cth). Section 29 provides as follows: (1) All Courts having jurisdiction under this Act, the Judges of those Courts and the officers of or under the control of those Courts shall severally act in aid of and be auxiliary to each other in all matters of bankruptcy. (2) In all matters of bankruptcy, the Court: (a) shall act in aid of and be auxiliary to the courts of the external Territories, and of prescribed countries, that have jurisdiction in bankruptcy; and (b) may act in aid of and be auxiliary to the courts of other countries that have jurisdiction in bankruptcy. (3) Where a letter of request from a court of an external Territory, or of a country other than Australia, requesting aid in a matter of bankruptcy is filed in the Court, the Court may exercise such powers with respect to the matter as it could exercise if the matter had arisen within its own jurisdiction. (4) The Court may request a court of an external Territory, or of a country other than Australia, that has jurisdiction in bankruptcy to act in aid of and be auxiliary to it in any matter of bankruptcy. (5) In this section, prescribed country means: (a) the United Kingdom, Canada and New Zealand; (b) a country prescribed by the regulations for the purposes of this subsection; and (c) a colony, overseas territory or protectorate of a country specified in paragraph (a) or of a country so prescribed. 7 On the evidence before me a number of issues are clear. 8 First, the respondent is a bankrupt in the United Kingdom pursuant to an order of the High Court of Justice of the United Kingdom. 9 Second, the High Court of Justice is a court of a prescribed country for the purposes of s 29 Bankruptcy Act. 10 Third, upon the commencement of the respondent's bankruptcy, the bankrupt's estate as defined in the Insolvency Act 1986 Act (UK) vested in the applicant immediately upon the appointment taking effect: s 306(1) Insolvency Act 1986 Act (UK). The bankrupt's property as defined by the Insolvency Act 1986 Act (UK) includes money, goods, things in action, land and every description of property wherever situated: s 436 Insolvency Act 1986 Act (UK). Real property of the respondent situated in Australia as described in the applicant's affidavit falls within this statutory definition and is potentially subject to the bankruptcy administration by the applicant. 11 Fourth, prima facie there is evidence before me that the respondent has previously acted to the detriment of his creditors to dispose of property which was properly the subject of an insolvency administration. 12 Fifth, although the orders made in respect of the respondent's property by the High Court of Justice in the United Kingdom are not recognised in this Court as operating as an assignment of the respondent's Australian lands (Australian Mutual Provident Society v Gregory (1908) 5 CLR 615), the Court may act in aid of the foreign court under s 29 Bankruptcy Act to make property in Australia available to the trustee in bankruptcy to enable it to be realised for the benefit of the creditors in the foreign bankruptcy: Australian Mutual Provident Society v Gregory (1908) 5 CLR 615 at 623, 625, 628, 630; Radich v Bank of New Zealand (1993) 45 FCR 101 at 109, 115, 119; Dick as Trustee in Bankruptcy v McIntosh [2001] FCA 1008 at [7]. Indeed, s 29(1) requires this Court to give all assistance it can to a requesting Court if the conditions of the section are satisfied, leaving this Court with a discretion as to what assistance ought to be given (including discretion as to any conditions attach to the provision of assistance): Re Ayres; Ex parte Evans (1981) 51 FLR 395 at 405-407 esp at 407 per Lockhart J; Ayres v Evans (1981) 56 FLR 235 (FC) at 240, 247, 254-255; Radich v Bank of New Zealand at 105, 118; Dick as Trustee in Bankruptcy v McIntosh at [8]. 13 Sixth, it is clear that under s 29 Bankruptcy Act the Court has power to appoint a receiver of the respondent's property in Australia in aid of the administration of the respondent's insolvent estate in the United Kingdom: Re Ayres; Ex parte Evans (1981) 51 FLR at 408-409; Ayres v Evans (1981) 56 FLR at 240, 247, 255; Radich v Bank of New Zealand at 121-122; Dick as Trustee in Bankruptcy v McIntosh at [19]. 14 Finally, I note that s 21 Cross Border Insolvency Act 2008 (Cth) provides: If the Model Law (as it has the force of law in Australia) or a provision of this Act is inconsistent with section 29 of the Bankruptcy Act 1966 , the Model Law or the provision of this Act prevails, and that section has no effect to the extent of the inconsistency. 15 In this case Mr Coates for the applicant has submitted that the present application is not made in terms of the Model Law on Cross Border Insolvency as enacted in Australia by the Cross Border Insolvency Act 2008 (Cth). On the facts before me there is prima facie no inconsistency between s 29 and either the Model Law on Cross Border Insolvency or the Cross Border Insolvency Act 2008 (Cth) 16 An order restraining a person from dealing with his or her own property is an extreme measure, particularly where the properties identified by the applicant are owned jointly with a third party, and the application is made ex parte. However in the circumstances I consider that: · the applicant is obliged to take steps, for the benefit of the bankrupt estate, to safeguard and cause to be recovered and realised into the bankrupt estate of the respondent assets of the respondent in Australia; · in view of the history of this case there is, prima facie, a real risk that, had the respondent been given prior notice of these ex parte proceedings, he could have acted to dispose of his Australian assets so as to prevent those assets being realised for the benefit of his UK creditors; · as the proposed orders apply only to assets of the respondent, including the respondent's interests in the relevant real properties at Robina, at this stage no undertaking as to damages need be given by either the applicant or the interim receiver in respect of the interests of the third party co-owner of the real properties. The proposed orders contemplate liberty to apply to the respondent and any third party affected by the orders; · the applicant is entitled to make application pursuant to s 29 Bankruptcy Act, and in these circumstances is not required to proceed under the Cross Border Insolvency Act 2008 (Cth). 17 Were the respondent a bankrupt within the meaning of the Bankruptcy Act I consider that, on the evidence before me, the Court would have both jurisdiction and cause to make a freezing order to prevent frustration or abuse of the Court's process pursuant to O 25A Federal Court Rules. In my view, and in light of the facts and principles I have set out in this judgment, the Court has power pursuant to s 29 Bankruptcy Act to make the interim orders sought by the applicant, and should make those interim orders. 18 In conclusion however, I understand that the original letter from the Registrar of the High Court of Justice in the United Kingdom requesting aid, a certified copy of which was annexed to the affidavit of the applicant, has not yet been produced to the District Registrar of Queensland Registry of the Federal Court. I am prepared for the purposes of today's application to make the orders sought on the basis of the certified copy of that letter, however I also direct the applicant's solicitors to ensure that letter be produced expeditiously and delivered to the District Registrar to whom it is addressed. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier. Associate: Dated: 6 February 2009 Solicitor for the Applicant: Mr Michael Coates of Bennett & Philp Solicitor for the Respondent: The Respondent did not appear Date of Hearing: 6 February 2009 Date of Judgment: 6 February 2009