FEDERAL COURT OF AUSTRALIA Gladstone (Trustee) v Digrigoli (No 2) [2016] FCA 1220 File number: QUD 541 of 2016 Judge: RANGIAH J Date of judgment: 7 October 2016 Catchwords: BANKRUPTCY AND INSOLVENCY – foreign proceedings under the UNCITRAL Model Law on Cross-Border Insolvency – orders allowing administration, realisation and distribution of Australian asset by USA bankruptcy trustee Legislation: Bankruptcy Act 1966 (Cth) Cross-Border Insolvency Act 2008 (Cth) ss 6, 8 and 11 UNCITRAL Model Law on Cross-Border Insolvency Arts 17, 21 and 22 United States Bankruptcy Code s 541 Date of hearing: 7 October 2016 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 11 Solicitor for the Applicant: Mr S Butler of McCullough Robertson Counsel for the Respondent: The respondent did not appear ORDERS QUD 541 of 2016 BETWEEN: LESLIE THERESE GLADSTONE IN HER CAPACITY AS TRUSTEE IN BANKRUPTCY FOR THE ESTATE OF SILVANA DIGRIGOLI APPOINTED UNDER CHAPTER 7 OF THE BANKRUPTCY CODE (US) Applicant AND: SILVANA DIGRIGOLI Respondent JUDGE: RANGIAH J DATE OF ORDER: 7 OCTOBER 2016 THE COURT ORDERS THAT: 1. Pursuant to s 6 of the Cross-Border Insolvency Act 2008 (Cth) and articles 21(1)(e) and 21(2) of the UNCITRAL Model Law on Cross-Border Insolvency (Model Law), the administration, realisation or distribution of the respondent's assets, located in Australia, be entrusted to the foreign representative of the applicant. 2. Pursuant to article 21(1)(g) of the Model Law, subject to the provisions of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), all powers normally available to a trustee in bankruptcy appointed under the provisions of the Bankruptcy Act, be made available to the applicant. 3. The Public Trustee of Queensland transfer to the applicant, after deduction of any fees, all monies it holds consequent upon payment to it by the Western Downs Regional Council on or about 20 May 2015, of the proceeds of sale of real property located in Queensland, and more properly described as Lot 11 on RP 184125, County of Auburn, Parish of Bartsch, Local Government of Western Downs, Title Reference 16751227 – including any accretions on the money since received by the Public Trustee, by paying such monies into the trust account of the applicant's lawyers, McCullough Robertson Lawyers. 4. Each party and all other persons affected by these orders, has liberty to apply on three (3) business days' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT RANGIAH J: 1 The applicant was appointed as the respondent's bankruptcy trustee by the United States Bankruptcy Court, Southern District of California, with effect from 19 January 2011. 2 The respondent resides in the United States of America. She and her former husband jointly owned a property at Kowguran, near Miles, in Queensland. The US Bankruptcy Court authorised the applicant to sell the property, but in the course of organising the sale the applicant became aware that the property had already been sold on the instructions of the local council for unpaid rates. The council paid the residual amount of about $67,000 to the Public Trustee of Queensland as unclaimed money. The Public Trustee has not agreed to transfer the funds to the applicant. 3 On 8 September 2016, on the applicant's application, I ordered that pursuant to s 6 of the Cross-Border Insolvency Act 2008 (Cth) and para 1 of Art 17 of the UNCITRAL Model Law on Cross-Border Insolvency ("the Model Law"), the proceeding of the United States Bankruptcy Court be recognised as a foreign proceeding. 4 The applicant has also filed an interim application seeking orders pursuant to Art 21 and Art 22 of the Model Law that would allow her to receive the money held by the Public Trustee, repatriate the money to the United States, and deal with the money in the administration of the respondent's bankrupt estate. On 8 September 2016, I made orders for service of the interim application and other material on the respondent, her former husband, her creditors and the Public Trustee. I also ordered the publication of a notice of the hearing in a newspaper circulating in San Diego, California. I ordered that the interim application be listed for hearing on 7 October 2016. 5 I am satisfied that the material has been served and the notice published in accordance with the orders that I made. There has been no appearance at the hearing by any of the parties served. 6 Pursuant to s 6 of the Cross-Border Insolvency Act, the Model Law has the force of law in Australia. Article 21 of the Model Law provides, relevantly: 1. Upon recognition of a foreign proceeding, whether main or non-main, where necessary to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including: … (e) Entrusting the administration or realization of all or part of the debtor's assets located in this State to the foreign representative or another person designated by the court; … (g) Granting any additional relief that may be available to [insert the title of a person or body administering a reorganization or liquidation under the law of the enacting State] under the laws of this State. 2. Upon recognition of a foreign proceeding, whether main or non-main, the court may, at the request of the foreign representative, entrust the distribution of all or part of the debtor's assets located in this State to the foreign representative or another person designated by the court, provided that the court is satisfied that the interests of creditors in this State are adequately protected. 7 The relief available under Art 21(1)(g) includes any relief available to a trustee in bankruptcy under the Bankruptcy Act 1966 (Cth): see ss 8 and 11 of the Cross-Border Insolvency Act. 8 The orders the applicant seeks against the Public Trustee require the payment to her of funds which include funds that are not the respondent's property. The funds held by the Public Trustee are the proceeds of the sale of property held jointly by the respondent and her former husband, Santo Digrigoli, who each have an equal interest in the funds. I am satisfied by the applicant's evidence that under s 541 of the United States Bankruptcy Code, property acquired during a marriage that is equally owned by the married couple (referred to as "community property") forms part of the bankrupt estate. The funds held by the Public Trustee are the proceeds of the sale of such community property. 9 The Court has the power under Art 21 of the Model Law, to grant any "appropriate relief". Previous cases in this Court have dealt only with the assets of the foreign debtor, who is the subject of the foreign proceeding, but I am satisfied that it is appropriate to require payment of the whole of the amount held by the Public Trustee, which includes funds that are not the foreign debtor's funds, to the foreign representative. 10 In granting relief under Art 21, the Court must be satisfied that the interests of the creditors and other interested persons, including the debtor, are adequately protected. All the creditors who have claims in the respondent's bankrupt estate reside in the United States, and their interests are adequately protected by their ability to participate in the United States bankruptcy. There are no reasons of public policy which would prevent the Court from making the orders sought under Art 6 of the Model Law. There are no Australian creditors who have made a claim to the funds. Mr Digrigoli has not opposed the orders sought. 11 It is appropriate to grant the relief sought by the applicant, subject to one matter: the orders should allow the Public Trustee to deduct its proper fees from the funds before the balance of those funds is paid to the applicant. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rangiah. Associate: Dated: 14 October 2016