FEDERAL COURT OF AUSTRALIA Makinna Pty Ltd (in liq) v Trives [2016] FCA 1247 File number(s): NSD 1493 of 2016 Judge(s): JAGOT J Date of judgment: 11 October 2016 Catchwords: BANKRUPTCY AND INSOLVENCY – protection of debtor's property pending sequestration order Legislation: Bankruptcy Act 1966 (Cth) Family Law Act 1975 (Cth) Cases cited: Deputy of Commissioner of Taxation v Clyne (1983) 50 ALR 118 Date of hearing: 11 October 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 20 Counsel for the Applicant: Mr S Golledge Solicitor for the Applicant: Matthews Folbigg Lawyers Counsel for the Respondent: The respondent appeared in person ORDERS NSD 1493 of 2016 BETWEEN: MAKINNA PTY LTD (IN LIQUIDATION) Applicant AND: SIMON EDWARD TRIVES Respondent JUDGE: JAGOT J DATE OF ORDER: 11 OCTOBER 2016 THE COURT DIRECTS THAT: 1. Pursuant to s 50 of the Bankruptcy Act 1966 (Cth), Barry Anthony Taylor take control of the respondent debtor's property including the proceeds of sale of the land comprised in certificate of title identifier 41/285800 being the land situated at 3 Caramar Close, Picton, New South Wales 2571, currently held in the amount of $541,045.51. 2. Such control cease on the making of a sequestration order in respect to the respondent or earlier order of the Court. THE COURT ORDERS THAT: 3. The respondent pay the applicant's costs as agreed or taxed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT JAGOT J: 1 This is an application for directions pursuant to s 50(1) of the Bankruptcy Act 1966 (Cth) (the Act) which provides that at any time after a bankruptcy notice is issued or a creditor's petition is presented in relation to a debtor, but before the debtor becomes a bankrupt, the Court may direct the Official Trustee or a specified registered trustee to take control of the debtor's property and make any other orders in relation to the property. 2 The circumstances in which the application is brought by the liquidator of Makinna Pty Ltd (in liq) are explained in the evidence which has been tendered in support of the application and in the written submissions filed on behalf of the applicant. 3 In short, Mr Trives is formerly the sole director and shareholder of Makinna Pty Ltd, now in liquidation. The company was wound up on an application for an outstanding tax debt by the Deputy Commissioner of Taxation. The books and accounts of the company showed that Mr Trives was indebted to the company in the amount of $540,182.89. Demands for payment were made by the liquidator on 6 November 2013, 28 November 2013 and 23 May 2014, but were not answered. Examination summonses were issued, including to Mr Trives, and evidence was given on examination on 15 August 2016. 4 The liquidator then moved to recover the outstanding loan amount from Mr Trives in the District Court of New South Wales, commencing proceedings on or about 7 July 2016. No defence was filed in response to the claim, and a judgment debt against Mr Trives in the sum of $637,041.12, inclusive of interest and costs, was entered on 11 August 2016. No application was made to set aside that judgment. 5 On the liquidator's application of 17 August 2016, a bankruptcy notice was issued and served on Mr Trives on 5 September 2016. 6 The bankruptcy notice was not complied with and Mr Trives committed an act of bankruptcy on 26 September 2016. 7 A creditor's petition was then filed by the liquidator against Mr Trives in this Court on 27 September 2016, and is listed for hearing on 2 November 2016. 8 Mr Trives had entered into a contract for sale of a property he owned at 3 Carramar Close, Picton NSW 2571 (the Picton property), and answered questions about that transaction during his public examination on 15 August 2016. It emerged that an amount of approximately $500,000 was likely to be received on settlement of the property after payment of all costs and expenses of the sale and discharge of an existing mortgage. In his examination, Mr Trives said that these moneys were the only source from which he could make payment of the outstanding judgment debt, but that he was unlikely to receive those moneys due to claims of various persons including his wife, his mother-in-law and his son. 9 On 13 September 2016, Mr Trives informed the Court of the release of a part of the deposit which was apparently to be used to purchase a new property, and if an injunction was granted that money would be forfeited. However, what occurred was that the contract of sale on the new property was rescinded and the only amount forfeited was $1537.50, the rest of the money being returned. 10 Also on 13 September 2016, orders were made including an interlocutory order restraining Mr Trives from disposing of any interest in, or dealing with any proceeds of sale of, the Picton property, as well as orders that Mr Trives file and serve any defence and all affidavits and other evidence on which he proposes to rely by close of business on Friday, 7 October 2016. 11 No defence or evidence was filed. 12 On 28 September 2016, the sale of the Picton property was completed and in accordance with the orders made in the interlocutory hearing, a sum of $541,045.31 was received by the liquidator and was paid into court. 13 The principles that apply to directions made pursuant to s 50 of the Act are clear. The section is a provision in aid of the creditors of a debtor who has committed an act of bankruptcy; it is an ancillary provision designed to enable appropriate steps to be taken to preserve and protect the debtor's property in the event of a sequestration order being made (Deputy of Commissioner of Taxation v Clyne (1983) 50 ALR 118 at 123). 14 As noted, the creditor's petition against Mr Trives is listed for hearing before this Court on 2 November 2016. The applicant submits that there is a real risk of dissipation of the sale proceeds unless an order pursuant to s 50 of the Act is made. This is demonstrable in Mr Trives' evidence as to his present financial position, the potential undefined claims from others over the proceeds of the sale of the Picton property, and the steps that were taken to use parts of the proceeds of sale for the acquisition of another property. 15 The applicant submits, and I accept, that the making of such an order will not prevent any other claims such as can be validly made, including any claim under the provisions of the Family Law Act 1975 (Cth) by Mr Trives' wife. 16 Further, the circumstances demonstrate that it may well be the case that any acquisition of another property would be either solely or at least jointly in the name of Mr Trives' wife, the effect of which would be to transfer her claim to the part or whole of the funds from the sale of the Picton property to that of a legal owner of another property. It is accurate to say that any recourse to that property on behalf of the creditors of Mr Trives would be rendered substantially more complicated than if the moneys in Court are placed under the control of an interim trustee. 17 The proposed interim trustee, Mr Barry Taylor, has consented to act as the trustee of the funds and, if and when orders are made on 2 November 2016, to act as the trustee in bankruptcy of Mr Trives. 18 I accept the submissions that are put for the applicant that the effect of the proposed direction under s 50 of the Act will be to ensure that any and all claims are dealt with in a forum where the interests of all parties including creditors of Mr Trives will be heard, rather than by other arrangements which if made will undoubtedly complicate the position. 19 Mr Trives, in his oral submissions, indicated that his position was that he was in effect a victim of bad accounting advice which led to the establishment of the company in liquidation and the appearance but not the actuality of borrowings by him when in fact the moneys were, as he put it, his wages from another entity. Mr Trives also said that the liquidator would not accept offers he made for the payment of the tax debt over time, and otherwise that he did not see how he could be said to be in breach of any loan agreement given that there was no timeframe for him to repay the money under the alleged loans. 20 The difficulty with these submissions is that there is, as I have said, a judgment debt as a result of the proceedings in the District Court and Mr Trives did not defend the District Court proceedings. Nor did he appeal against the orders made by the District Court for the judgment debt on 11 August 2016. His submissions seek to go behind the judgment debt which is not permitted. The circumstances which led to the winding up of the company as a result of the tax debt are not before this Court and cannot be relevant to the order which is now sought. As a result I am persuaded to make the directions which are proposed. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot. Associate: Dated: 21 October 2016