FEDERAL COURT OF AUSTRALIA Royal v El Ali, in the matter of the bankrupt estate of El Ali [2013] FCA 923 Citation: Royal v El Ali, in the matter of the bankrupt estate of El Ali [2013] FCA 923 Parties: PETER PAUL ROYAL, JUDITH LOUISE ROYAL and MICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI v NATHAN EL ALI, MAHMOUD EL ALI, MAHMOUD ZREIKA and SARACEN HOLDINGS PTY LIMITED (ACN 126 493 552) File number: NSD 1731 of 2013 Judge: YATES J Date of judgment: 11 September 2013 Catchwords: PRACTICE AND PROCEDURE – application for a limited freezing order Legislation: Bankruptcy Act 1966 (Cth) ss 58(3), 120, 121 Date of hearing: 11 September 2013 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 19 Counsel for the Applicants: Dr C Birch SC with Ms P Thew Solicitor for the Applicants: Watson Mangioni Lawyers Pty Limited Solicitor for the First Respondent: Mr D Massey of Daniel Massey Solicitor and Consultant Solicitor for the Second, Third and Fourth Respondents: Mr E Yamine of Bartier Perry IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1731 of 2013 IN THE MATTER OF THE BANKRUPT ESTATE OF EL ALI BETWEEN: PETER PAUL ROYAL First Applicant JUDITH LOUISE ROYAL Second Applicant MICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI Third Applicant AND: NATHAN EL ALI First Respondent MAHMOUD EL ALI Second Respondent MAHMOUD ZREIKA Third Respondent SARACEN HOLDINGS PTY LIMITED (ACN 126 493 552) Fourth Respondent JUDGE: YATES J DATE OF ORDER: 11 SEPTEMBER 2013 WHERE MADE: SYDNEY THE COURT NOTES THAT: 1. The first and second applicants, by their counsel, give the usual undertaking as to damages in respect of the orders made today. THE COURT ORDERS THAT: 2. Leave be granted to the applicants to proceed against the first respondent. 3. To the extent necessary, leave be granted to the applicants to proceed against the second, third and fourth respondents. 4. The first respondent be restrained until 5.00 pm on 18 September 2013 from removing from Australia or, in any way, transferring, disposing of, dealing with or diminishing in value the proceeds of sale of the property known as 1 Sirius Road, Voyager Point, New South Wales, being Lot 72 in Deposited Plan 661069. 5. The respondents file and serve any affidavits on which they propose to rely in relation to the applicants' application for freezing orders, by 10.00 am on 17 September 2013. 6. The proceeding be listed at 2.15 pm on 18 September 2013 for further hearing or the making of further orders. 7. Leave be granted to apply on 24 hours' prior notice. 8. Costs be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1731 of 2013 IN THE MATTER OF THE BANKRUPT ESTATE OF EL ALI BETWEEN: PETER PAUL ROYAL First Applicant JUDITH LOUISE ROYAL Second Applicant MICHAEL GREGORY JONES IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF NATHAN EL ALI Third Applicant AND: NATHAN EL ALI First Respondent MAHMOUD EL ALI Second Respondent MAHMOUD ZREIKA Third Respondent SARACEN HOLDINGS PTY LIMITED (ACN 126 493 552) Fourth Respondent JUDGE: YATES J DATE: 11 SEPTEMBER 2013 PLACE: SYDNEY REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 The application before the Court is for leave to proceed against the first respondent, who is a bankrupt, and for a limited freezing order against the third respondent in respect of the proceeds of sale of a property known as 1 Sirius Road, Voyager Point, New South Wales (the Voyager Point property). 2 The first and second applicants are creditors of the first respondent. The third applicant is the trustee of the first respondent's bankrupt estate. 3 I will explain the role of the second and fourth respondents in respect of the first respondent's affairs when outlining the facts relevant to the present application. The second to fourth respondents are represented by the same solicitors. 4 There is no doubt that leave is required to proceed against the first respondent: s 58(3) of the Bankruptcy Act 1966 (Cth). The first respondent does not oppose leave being granted. There is a question whether leave is also required to proceed against the second to fourth respondents. If leave be required, I am satisfied that it should be granted, at least insofar as it is necessary to seek the freezing order that is claimed. 5 The facts relevant to the present application are as follows. 6 On 1 October 2010, the first and second applicants obtained freezing orders in the Supreme Court of New South Wales (the Supreme Court) against the first respondent and the fourth respondent. The fourth respondent is a company. At the time the freezing orders were made, the first respondent was the sole director and shareholder of the fourth respondent. The fourth respondent was registered as the owner of the Voyager Point property. It also owned other assets. 7 On 26 November 2010, the freezing orders were varied in ways that are not material to the disposition of the present application. On 23 June 2011, judgment was given by the Supreme Court against the first respondent in the sum of $1,099,456.74 with costs. On that day, the Supreme Court extended the freezing orders that previously had been made against the first and fourth respondents, for a 28-day period. On 18 July 2011, the Supreme Court further extended the freezing orders until further order of that court. I have been informed, and accept for the purposes of the present application, that the freezing orders as extended have not been discharged. 8 In apparent breach of the freezing orders made and extended by the Supreme Court, the first respondent transferred his shares in the fourth respondent to the second respondent on about 23 August 2011. It is said that the second respondent is the first respondent's nephew. When complaint was made about this by the first and second applicants' then solicitors, the shares were transferred back to the first respondent on about 18 October 2011. 9 However, once again in apparent breach of the freezing orders made by the Supreme Court, the first respondent retransferred his shares in the fourth respondent to the second respondent on about 1 November 2011. There is evidence that, on 22 August 2011, the second respondent was appointed a director and secretary of the fourth respondent. 10 It can thus be seen that, whereas the first respondent was originally the sole director and shareholder of the fourth respondent, by no later than 1 November 2011, he had been replaced by the second respondent. 11 In the meantime, on 20 September 2011, the first and second applicants filed a creditor's petition against the first respondent. On 16 December 2011, a sequestration order was made against the first respondent's estate by the Federal Magistrates Court of Australia (now the Federal Circuit Court of Australia). The presiding Federal Magistrate noted that the date of the act of bankruptcy was 5 September 2011. The third applicant was appointed the first respondent's trustee in bankruptcy. 12 On 14 March 2012, the third applicant wrote to the second respondent noting that the first respondent had transferred his shares in the fourth respondent to the second respondent on about 1 November 2011. It would seem that this information came to the third applicant's attention as a result of routine inquiries about the first respondent's bankrupt estate. The third applicant advised the second respondent that he considered this transfer to be void as against him (the third applicant) pursuant to s 120 and s 121 of the Bankruptcy Act 1966 (Cth). The third applicant also noted that the transfer was in breach of the freezing orders made by the Supreme Court. The third applicant demanded that the shares be transferred to him as the first respondent's trustee in bankruptcy. No response was received to this correspondence and no action has been taken by the second respondent to transfer the shares to the third applicant. 13 On 3 April 2013, the third applicant wrote to the first respondent's solicitors giving notice of the demand that had been made on the second respondent. 14 In June 2013, the third applicant caused a search to be carried out with respect to the Voyager Point property. The search revealed that, on about 8 December 2011, in apparent breach of the freezing orders made by the Supreme Court, the fourth respondent transferred the Voyager Point property to the third respondent for $1.00. A further search carried out with respect to the Voyager Point property on 25 June 2013 revealed that it had been transferred to a company called Pronto Properties (NSW) Pty Ltd. The evidence currently before me indicates that the sale price was $1,700,000 and that the sale was made on 21 March 2013. The first and second applicants first became aware of this sale on 12 June 2013 when, having instructed valuers to undertake a valuation of the Voyager Point property, they were informed that the property had been sold. 15 On 23 August 2013, the applicants commenced the present proceeding. It has been commenced on the first and second applicants' initiative to recover shares in the fourth respondent so that they are placed in the third applicant's ownership as trustee in bankruptcy of the first respondent's bankrupt estate. It seems that the third applicant is without funds. He has consented to join in the proceeding on the basis that the first and second applicants indemnify him against any adverse costs order that might be made. 16 In a letter dated 10 September 2013 from the solicitors for the second, third and fourth respondents to the solicitors for the applicants, the second, third and fourth respondents contended that the Voyager Point property had been held by the fourth respondent and then by the third respondent as a trustee. The details of this trust are not disclosed in the letter. Nevertheless, I have also been informed today that, in the course of the proceedings in the Supreme Court, the Voyager Point property was referred to as an asset of a discretionary trust. 17 The applicants' case is that there is reason to suspect that the first respondent has an interest in that trust and that the assets of the trust include the proceeds of sale of the Voyager Point property. As I presently understand it, that "reason to suspect" is based on the pattern and timing of the first respondent's conduct in transferring his shares in the fourth respondent to the second respondent, and in the conduct of the fourth respondent and then the third respondent disposing of the Voyager Point property, in the face of the first respondent's impending and actual bankruptcy, and in apparent breach of the Supreme Court's freezing orders. 18 The solicitor appearing for the third respondent today has informed me that he has been instructed that the proceeds of sale of the Voyager Point property have already been disbursed. He submits that, although the relief claimed in the proceeding as commenced includes a freezing order, the third respondent has been given inadequate notice that such an order would be sought today. He submits that the third respondent is prejudiced in not being able to put evidence before the Court or to mount, as it were, an informed defence to the present interlocutory application. 19 I appreciate that little notice has been given to the third respondent of the bringing of today's application for a freezing order. Nevertheless, I am persuaded that the applicants have shown sufficient colour of right to obtain such an order, at least for a short period of time. In that connection, the third respondent has not been able to demonstrate any real prejudice that would be occasioned to him, apparently as a trustee, by making a limited order on that basis. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate: Dated: 11 September 2013