Dai v Zhu
[2013] FCCA 1406
•18 September 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DAI & ANOR v ZHU & ANOR | [2013] FCCA 1406 |
| Catchwords: BANKRUPTCY – Application to set aside a bankruptcy notice and for an extension of time to comply with it – orders made by a registrar to dismiss the application with costs – orders set aside by consent following a stay of the judgment debt – condition on the stay not met – dismissal of application. |
| Legislation: Bankruptcy Act 1966, ss.120, 122 |
| Dai v Zhu [2013] NSWCA 134 Zhu v Yingle Culture Exchange (Australia) Pty Ltd (In Liq); Zhu v Dai [2011] NSWSC 1339 |
First Applicant: Second Applicant: | QIN FEN DAI CARTER BAI |
| First Respondent: | YI LIN ZHU |
| Second Respondent: | LIE JIANG |
| File Number: | SYG 773 of 2013 |
| Judgment of: | Judge Driver |
| Hearing date: | 18 September 2013 |
| Delivered at: | Sydney |
| Delivered on: | 18 September 2013 |
REPRESENTATION
| Counsel for the Applicants: | Mr P Cutler |
| Solicitors for the Applicants: | Luminous Legal |
| Counsel for the Respondents: | Mr A DiFrancesco |
| Solicitors for the Respondents: | Thomsons Lawyers |
ORDERS
The application to set aside Bankruptcy Notice BN8143 of 2012 issued on 11 December 2012 be dismissed.
The applicants are to pay the respondents costs as agreed or taxed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 773 of 2013
| QIN FEN DAI |
First Applicant
CARTER BAI
Second Applicant
And
| YI LIN ZHU |
First Respondent
| LIE JIANG |
Second Respondent
REASONS FOR JUDGMENT
(revised from transcript)
I have before me an application filed on 15 April 2013 seeking to set aside Bankruptcy Notice number NN8143 of 2012, and also seeking an extension of time for compliance with the Bankruptcy Notice, as well as other orders. The application was considered by a registrar, who on 23 April 2013 ordered that the application be dismissed with costs. The applicants field an application for review of that decision on 14 May 2013.
The matter came before me in the context of a decision of the Court of Appeal in Dai v Zhu[1]. In that decision, Basten J made orders in effect inviting the Bankruptcy Court to extend time for compliance with the bankruptcy notice in the context of a stay granted with conditions. A stay had earlier been granted on the judgment supporting the Bankruptcy Notice, subject to conditions, in the Supreme Court, but the conditions were not met. Basten J also imposed conditions on the stay granted by the Court of Appeal. One of those conditions concerned the fate of the Bankruptcy Notice. Another required the payment of $500,000 by the debtors within 28 days.
[1] [2013] NSWCA 134
I was presented with consent orders on 3 June 2013 and made those orders, which set aside the orders made by the registrar on 23 April 2013, and extended time for compliance with the Bankruptcy Notice, in effect until the decision of the New South Wales Court of Appeal on the appeal to it from the judgment on the Supreme Court supporting the Bankruptcy Notice.
As matters transpired, the debtors were unable to meet the condition for the $500,000 payment imposed by Basten J, and the stay accordingly lapsed. In the light of that, I varied the orders I had made to extend time for compliance with the Bankruptcy Notice until 3 September 2013, with a view to an early hearing on the application. Those orders were further varied so that the matter could be heard today.
The background to the matter is otherwise detailed in the submissions of the parties, in particular those of the respondent creditors.
On 30 November 2011, default judgment was entered for the respondents against the applicants in Supreme Court of NSW proceedings number 2011/185762 (“the 2011 Proceedings”) in the sum of $1,977,794.25[2].
[2] Affidavit of H Lu affirmed 14.4.13, page 6.
On 23 November 2012, summary judgment was entered for the respondents against the applicants in Supreme Court of NSW proceedings number 2008/289276 (“the 2008 Proceedings”) in the sum of $1,367,534.85[3].
[3] Affidavit of H Lu affirmed 14.4.13, page 9.
The Bankruptcy Notice was issued by ITSA on 11 December 2012 and numbered BN 8143[4].
[4] Affidavit of H Lu affirmed 14.4.13, annexure A.
Orders for substituted service of the Bankruptcy Notice were made by Registrar Segal on 21 February 2013 (“the Sub Orders”). A copy of those orders is at annexure E to the affidavit of Hudson Lu affirmed 14 April 2013. By the Sub Orders, the Bankruptcy Notice was permitted to be served on the applicants by delivery to their solicitor, Mr Lu of Luminous Legal, before 25 March 2013. Service under order 3 of the Sub Orders was deemed to have occurred on 25 March 2013 even if delivered earlier than that to Mr Lu.
On 28 February 2013, the Bankruptcy Notice was served on Mr Lu[5]. Accordingly, under order 3 of the Sub Orders, service of the Bankruptcy Notice on the applicants was effected on 25 March 2013.
[5] Affidavit of H Lu affirmed 14.4.13, [8].
The initial application in these proceedings to set aside or, alternatively, to extend time for compliance, with the Bankruptcy Notice was filed on 15 April 2013 (“the application”). The time for compliance with the Bankruptcy Notice was also extended by order of the Court on 15 April 2013 to 23 April 2013 following an ex parte application by the applicants.
On 22 November 2012, the applicants applied for a stay of the orders in the 2008 Proceedings and the 2011 Proceedings to Rothman J in the Supreme Court of NSW (the Judge that made the original orders against the applicants). A copy of that decision of Rothman J is annexure B to the affidavit of Mr Lu. On 22 November 2012, Rothman J ordered that the Court’s orders be stayed “subject to the condition that within seven days from the date of this order, [Ms Dai and Mr Bai] pay into court the amounts [of each judgment, interest and costs] or [Ms Dai and Mr Bai] provide the Court with an irrevocable undertaking for [those amounts].”[6]
[6] Affidavit of H Lu affirmed 14.4.13, [4] and pages 7 & 10 orders 7 to 9.
The applicants did not pay the judgment amounts as ordered by Rothman J and so at the end of 29 November 2012, the orders of Supreme Court were no longer stayed[7].
[7] Affidavit of H Lu affirmed 14.4.13, [5].
The applicants’ Australian home at 124 Gloucester Road, Hurstville, was sold in around March 2012 by the mortgagee in possession (Westpac Banking Corporation). In about late June 2012 the surplus funds from the sale of $312,056.65 were paid into the Supreme Court in interpleader proceedings 2012/00178888. In August 2012, $92,822.39 of those monies was paid to the respondents by consent of the parties in satisfaction of costs orders made by Rothman J in respect of a judgment made on 3 November 2011[8]. Around 30 November 2012, pursuant to the orders of Rothman J of 22 November 2012, the Court paid to the respondents the remainder of the funds held in Court of $219,234.26.
[8] Zhu v Yingle Culture Exchange (Australia) Pty Ltd (In Liq); Zhu v Dai [2011] NSWSC 1339.
On 25 January 2013, the applicants filed with the NSW Court of Appeal a Summons Seeking Leave to Appeal (“the Summons”).[9] The Summons and the appeal itself have been set down for hearing for one day on 29 October 2013. At the time of the Registrar’s decision on 23 April 2013, no date had been set for hearing of the Summons or the appeal.
[9] Affidavit of H Lu affirmed 14.4.13, annexure C.
In prayer for relief 6 of the Summons[10], the applicants sought an order that the judgment and orders of Rothman J of 26 October 2012 be stayed until further order of the Court of Appeal. The applicants as at 23 April 2013 had not moved the Court of Appeal to hear prayer for relief 6.
[10] Affidavit of H Lu affirmed 14.4.13, page 18.
On 22 April 2013, the applicants filed a notice of motion with the Court of Appeal seeking a stay of enforcement of the judgment and orders of Rothman J of 26 October 2012 (“the Stay Application”).
The Stay Application was heard by Basten J on 20 May 2013 and decision given on 24 May 2013[11].
[11] Dai v Zhu [2013] NSWCA 134.
On 24 May 2013, Basten J granted a partial stay of the judgment and orders of Rothman J of 26 October 2012. In order 1 of 24 May 2013, Basten J ordered:
Execution by way of proceedings under the Bankruptcy Act 1966 (Cth) of the orders of Rothman J identified in the Schedule set out below be stayed pending determination of the proceedings in this Court seeking leave to appeal from those orders and, if leave be granted, the appeal.
The above stay was granted on the conditions that:
(a) that the applicants pay into court the amount of $500,000 within 28 days, subject to satisfaction of the respondents' obligation in paragraph (b);
(b) the respondents file with the Registrar an undertaking to the Court, signed by their solicitor, to consent to any application made by the applicants in the Federal Circuit Court or the Federal Court seeking an extension of time within which to comply with any bankruptcy notice issued by the respondents to a date 28 days after the determination of the proceedings in this Court;
(c) in the event that an undertaking in compliance with paragraph (b) is not proffered to the Registrar in a form acceptable to him within 14 days of the date of this judgment, the condition imposed on the applicants by paragraph (a) will lapse;
(d) if, at any time after moneys have been paid into court in pursuance of paragraph (a), the Registrar is satisfied that the respondents have failed to comply with their undertaking, the condition provided in paragraph (a) will lapse and the Registrar may arrange for the release of the moneys to the applicants, and
(e) the applicants take all necessary steps to ensure the expeditious determination of the proceedings in this Court.
It is common ground that respondents complied with condition (b) above as ordered by Basten J.
On 3 June 2013, by consent of the parties, orders were made by me in these proceedings consistent with the orders made by Basten J on 24 May 2013.
The applicants did not comply with condition (a) above as ordered by Basten J on 24 May 2013. Accordingly, on 22 June 2013 the stay ceased to have effect.
On 22 July 2013, Fabian Gleeson J, in the Court of Appeal, ordered that the respondents be released from their undertaking to the Supreme Court [which had been given in compliance with condition (b) ordered on 24 May 2013].
On 9 August 2013, I was informed by the parties of the orders of 22 July 2013 and that the stay ceased to have effect. That ultimately resulted in today’s hearing.
There has been no further application for a stay of the judgment and orders the subject of the appeal in the NSW Court of Appeal.
The parties are in general agreement as to the principles determining this application. The relevant principles were set out and explained by Lucev FM (as he then was) in Richardson v Leonard Cohen & Co[12]. In considering whether to set aside a bankruptcy notice or extend time for compliance with it, the Court should take into account factors including where there is a judgment debt subject to appeal, whether there is an arguable case on appeal, whether a stay of execution has been sought or obtained, prejudice to the debtor or creditors, the impact of the date of bankruptcy, the impact on any related legal proceedings, delay, and whether or not undertakings have been given.
[12] [2007] FMCA 78
The question of whether the applicants have an arguable case on appeal in the Court of Appeal from the decision of the Supreme Court of 26 October 2012 is not an easy one. The applicants rely upon the affidavit of Mr Lu filed in this Court on 14 April 2013, and also the affidavit of Mr Lu made on 22 April 2013, for the purposes of the proceedings in the Court of Appeal. The respondents rely upon the affidavit of Oliver James Small, made on 11 September 2013, which introduced the creditors’ arguments in those proceedings. The arguments being advanced in the Court of Appeal appear somewhat complex.
It is, in my view, difficult, if not impossible, for this Court to express any clear view on the merits of the parties’ arguments in the Court of Appeal proceedings. That appeal will be heard on 29 October 2013, and the merits of the appeal should be then more clear. At the present time, it seems to me that the most that can be said is that the appeal is not obviously hopeless, and neither does it obviously have good prospects of success. The outcome of the appeal is uncertain.
The issue of a stay has been one of significance, and supported the consent orders that I made on 3 June 2013. At that time, the second of two stay orders had been made on conditions. The fact of those orders was sufficient to support the consent orders I made, however as with the first stay, issued by the Supreme Court, the condition for the money payment on the second stay order was not met. In my view, the seeking and granting, subject to conditions, of both stays, has no continuing significance.
The issue of prejudice is a significant one. First, there is no obvious prejudice to the applicant debtors should their application be dismissed. It is likely to the point of being almost inevitable, that the appeal in the Court of Appeal will be heard prior to any decision of this Court on a creditor’s petition. Indeed, it cannot be considered inevitable that a creditor’s petition will be presented, given that the debtors are not resident in Australia and it is not known whether they have any assets in Australia. On the other hand, if time for compliance with the bankruptcy notice is further extended, that will delay the establishment of a date of the act of bankruptcy, which will impact on the relation back period.
That issue is detailed in the respondents’ written submissions, which I agree with and adopt.
The reasoning of Lucev FM in Richardson at [63] applies here:
The Court refers to what it said in McPhee:
There is no particular evidence of prejudice to the respondent, as creditor of the applicant. There is no evidence as to other creditors of the applicant. The most that can be said, in general terms, is that to grant an extension of time would delay the time at which the act of bankruptcy occurs, and that it is in the interests of creditors generally, where a sequestration order ultimately follows, that the act of bankruptcy be earlier no later ... because there are ‘potential adverse consequences’ if the act of bankruptcy is delayed ...’ (footnote omitted)
and La Pegna v Deputy Commissioner of Taxation:
It must however be remembered that issuance of a bankruptcy notice based on properly issued final judgment, followed by a failure to comply with the bankruptcy notice, brings about an act of bankruptcy upon which all creditors, and not merely the Respondent, can found a petition. A bankruptcy notice founded upon a judgment debt provable in bankruptcy is not required. The legislative purpose is to "identify markers or criteria that point towards insolvency". This is for the benefit of the public, and that is a benefit to which the Court must have regard when exercising the discretion. Part of that public interest, as well as a matter in the interests of creditors generally, is to ensure that in the determination of the relation back date no unfair advantage is obtained by the better informed or more resolute creditors.”
In the present case, there is evidence of prejudice to the respondents and any creditors of the applicants generally from prolonging the relation back date.
In the October 2012 judgment, Rothman J found that between 2008 and 2011, while the 2008 proceedings were on foot, Ms Dai turned $730,000 of bank deposits into cash withdrawals and has never accounted to the Court what use was made of that cash after it was withdrawn. Rothman J found as follows:
Daisy Yu Monies
47.It is said that Ms Dai and Mr Bai have failed to provide proper discovery relating to monies withdrawn from the bank account of Ms Daisy Yu, the defendants' daughter. A number of transfers were made to Ms Yu's bank account over a two-year period, some of which transfers were from KVB Kunlun. Approximately $500,000 was also transferred to Ms Yu's various bank accounts upon written instruction from Ms Dai to Citibank, located in the United States. These monies are said to be monies "drawn down from Ms Dai and Mr Bai's home loan".
48.These monies were subsequently withdrawn from Ms Yu's bank accounts in cash. Ms Yu's affidavit of 2 March 2012 states that the withdrawals were carried out at the direction of Ms Dai, and that the large majority of the withdrawals were given to Ms Dai or paid into Ms Dai and Mr Bai's home loan.
49.There has been no documentation, or explanation provided with respect to the whereabouts of these cash withdrawals, totalling approximately $730,000, nor bank statements for the home loan account.”
Further, the events the subject of the 2008 and 2011 Proceedings date back to between 2005 and 2008. Each day that delays the relation back date could have serious prejudice to creditors particularly under the time limitations in ss.120 and 122 of the Bankruptcy Act 1966 (Cth).
The parties differed, in argument, on the question of delay. They agree that the proceedings in the Court of Appeal are now being progressed appropriately towards the hearing date next month. The respondent creditors, however, point to delay in earlier proceedings in the Supreme Court.
While I have regard to that delay, I am principally concerned with the conduct of proceedings in the Court of Appeal. It does not appear to me that the issue of delay is one of overriding importance in this case. I note that no undertakings have been offered by the applicant debtors.
There is nothing before me to persuade me that there is any basis to set aside the bankruptcy notice now. Whether the debt supporting the bankruptcy notice is a real debt will depend upon the outcome of the appeal in the Court of Appeal.
The real question is whether this Court should extend time for compliance with the bankruptcy notice until the Court of Appeal proceedings have been resolved. I have come to the view that time should not be further extended. The dominant consideration in my mind is that if time is further extended, the date of the commission of an act of bankruptcy will be further delayed, which will impact on the relation back period. Further, the stays which had been earlier issued, subject to conditions, are no longer operative.
In essence, the Court is placed in the same position as it was at the time that the application was considered by the registrar. The registrar dismissed that application with costs. I have come to the conclusion, now, that I should make the same orders. I will order that the application to set aside bankruptcy notice BN8143 of 2012 issued on 11 December 2012 be dismissed. I will further order that the applicants are to pay the respondents costs as agreed or taxed.
I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Judge Driver
Associate:
Date: 25 September 2013
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