Hancock v Porter (Trustee), in the matter of Yu (Bankrupt)

[2025] FedCFamC2G 1404

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 2)

Hancock v Porter (Trustee), in the matter of Yu (Bankrupt) [2025] FedCFamC2G 1404

File number(s):

SYG 1730 of 2025

Judgment of:

JUDGE CAMERON

Date of judgment:

31 July 2025

Catchwords:

BANKRUPTCY – Leave to proceed against a bankrupt in respect of a provable debt – relevant considerations.  

Legislation:

Bankruptcy Act 1966 (Cth) ss.58, 82

Cases cited:

Allanson v Midland Credit Ltd (1977) 30 FLR 108

GFIN Pty Ltd v Gooden (No 2) [2020] FCA 1440

JKB Holdings Pty Ltd v de la Vega [2013] NSWSC 501

Mango Media Pty Ltd v Velingos (2008) 216 FLR 176

Yan v Spyrakis [2022] FCA 872

Division:

General

Number of paragraphs:

17

Date of hearing:

31 July 2025

Place:

Sydney

Counsel for the Applicant:

Mr D Allen

Solicitor for the Applicant:

JBL Solicitors

ORDERS

SYG 1730 of 2025

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)

IN THE MATTER OF YU

BETWEEN:

JOHN LESLIE HANCOCK

Applicant

AND:

JASON LLOYD PORTER AND JOSHUA-LEE ROBB AS TRUSTEES OF THE BANKRUPT ESTATE OF DE HONG YU

Respondent

ORDER MADE BY:	JUDGE CAMERON
DATE OF ORDER:	31 JULY 2025

THE COURT ORDERS THAT:

1.The applicant have leave pursuant to s.58(3)(b) of the Bankruptcy Act 1966 (Cth) to continue Supreme Court of New South Wales proceeding no.2022/00284785.

Note: The form of the order is subject to the entry in the Court’s records.

Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).

REASONS FOR JUDGMENT

JUDGE CAMERON

INTRODUCTION

1. This proceeding was commenced on 26 May 2025 and, as filed, sought leave pursuant to s.58(3)(b) or s.58(5) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) to proceed with an existing claim against De Hong Yu (Bankrupt), being Supreme Court of New South Wales proceeding number 2021/00094768 (First SC Proceedings).  Those proceedings were ones which the applicant, Mr Hancock, commenced, as the file number suggests, in 2021.  I am informed that just before the First SC Proceedings were to be heard, a question arose concerning whether leave was required to proceed further.  The hearing did not proceed and this proceeding appears to result from that. 

2. The respondents in this proceeding are the Trustees of the Bankrupt’s estate, who have filed a submitting appearance. 

3. At the outset of the hearing of the application today, the Court was asked to amend the application so that instead of it referring to the First SC Proceedings, it would refer to other Supreme Court proceedings with the number 2022/00284785 (Second SC Proceedings).  The first step in the Second SC Proceedings appears to have been the appointment, on the application of one of the Trustees, of trustees for sale of properties formerly owned by the Bankrupt.  A subsequent step in the Second SC Proceedings appears to have been an application by the trustees for sale for orders facilitating the sale of a property at Cherrybrook and the payment of the net proceeds of sale into court.  The present applicant, Mr Hancock, was joined as a respondent to that interlocutory proceeding.  The Second SC Proceedings appear to have reached a stage where they now concern the fate of the net proceeds of sale of that property. 

4. I am willing to make the amendment that the applicant seeks so he can pursue in the Second SC Proceedings his interests involving the real estate but I am only willing to do so because it appears that the issue there, as far as the applicant is concerned, is in many respects the same as the issue that he raised in the First SC Proceedings.  The fate of those earlier proceedings is unknown to me, and although I have been told by counsel that, somehow or other, it has been rolled into the later proceedings, the fact of the matter is that the applicant has certain claims which he seems to be making in two sets of proceedings in the Supreme Court.

5. So as the situation is now, the applicant seeks leave pursuant to s.58(3)(b) or s.58(5) of the Bankruptcy Act to proceed with his claim in the Second SC Proceedings.

   BACKGROUND

6. According to the statement of claim in the First SC Proceedings, the applicant offered to perform legal services for the Bankrupt and his company, GWM Resources, and they agreed to sign and return a written offer.  The pleading is elliptical and I presume that the written offer is something which the applicant provided to the Bankrupt and his company.  It is alleged that it was a term of that agreement that the Bankrupt charged all of his real property interests with payment of the applicants’ fees and disbursements.  It is also alleged that the Bankrupt represented that he would so charge his property.  The applicant's fees were not paid. 

7. It is alleged that after GWM Resources was placed into liquidation in December 2019, the applicant continued to do work for the Bankrupt who entered into a written “mandate agreement”, in respect of which, it was alleged:

   33It was a standard condition of the Plaintiff’s Mandate Agreement, (which is relied upon as if printed in full)

   a.Clause 5(f) – Security of Payment by way of Caveatable interest and charge and Personal Property Security Register (PPSR);

   b.Clause 5(g) – acknowledgement that the Plaintiff is a secured creditor with all of the rights and entitlements of a secured creditor.

   The Defendant continued to instruct the Plaintiff to act on his behalf over an extended period of time to 10 February 2021 in various matters, outlined in paragraph 29 above.

   The applicant alleged that he was not paid in full for the work he performed under that arrangement. 

8. Not long after the statement of claim was filed in the First SC Proceeding, the Bankrupt presented a debtor's petition.  Since that time, his properties have been sold and proceeds from the sales have been or will be deposited with the Supreme Court in the Second SC Proceedings as a result of orders made in that case.  As recorded earlier, Mr Hancock the applicant is participating in the Second SC Proceeding, as is another party who appears to claim a secured interest in the funds in question.  In that regard, on 26 April 2024, the Supreme Court relevantly noted:

   8.The Court notes that John Leslie Hancock and APJ each claim an interest in the net proceeds of sale of the Cherrybrook Property which is to be paid into Court.

   LEGISLATION

9. Section 58 of the Bankruptcy Act relevantly provides:

   …

   (3)Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:

   …

   (b)except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.

   …

10. In order to grant leave, the Court must be satisfied that the debt which is the subject of this proceeding is a provable debt. Section 82 of the Bankruptcy Act describes debts provable in bankruptcy and relevantly provides:

    (1)Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.

    …

11. The purpose of the s.58(3)(b) requirement that proceedings against a bankrupt in respect of a provable debt require leave is to assist in the orderly administration of the insolvent estate. The paragraph's objective:

    … is, clearly enough, to ensure that the bankrupt estate and the provable claims upon it remain under the control and the supervision of the courts having jurisdiction in bankruptcy. The legislation as a whole is aimed at marshalling assets, ascertaining debts and claims and applying the former towards the satisfaction of the latter. The procedures by which the process is to be conducted and the objective is to be achieved is set out in the Bankruptcy Act and administered by those Courts to which exclusive jurisdiction in bankruptcy is given by Parliament. To the extent that an attempt is made to resort to any other process of dealing with debts and claims, particularly if resort is to be had to courts other than the bankruptcy courts, there must first be screening by a bankruptcy court. (Mango Media Pty Limited v Velingos (2008) 216 FLR 176 at [13]).

12. The Court may grant leave under s.58(3)(b) for a proceeding to continue in another court where, by a contested trial of the action in the other court, the issues can be dealt with more comprehensively than could possibly be the case if the creditor were required to lodge proof of debt for its claim against the bankrupt simpliciter, and where the procedure for the lodgment of a proof of debt and an appeal from a decision of the trustee in relation to it could result in the issues being determined in a less satisfactory way: Allanson v Midland Credit Ltd (1977) 30 FLR 108 at 114. Even if there is some doubt as to leave being necessary, the Court may proceed on the basis that it is: GFIN Pty Ltd v Gooden (No 2) [2020] FCA 1440.

13. In Yan v Spyrakis [2022] FCA 872 at [11] Katzmann J summarised factors that weigh in favour of the granting of leave as follows:

    (1)the proceeding subject of the application involves parties other than the bankrupt and it might be necessary for the bankrupt to become a party ...

    (2)it is in the interests of justice that the claims made against the bankrupt are determined at the same time as the Court determines the claims against the other parties ...

    (3)the facts are complex and the issues will be better and more comprehensively dealt with in a contested trial than if the creditor were required to lodge a proof of debt against the debtor alone ...

    (4)       there is no opposition from the trustee in bankruptcy ...

    (5)the proceeding was commenced well before the date of the bankruptcy and there is no evidence to suggest that the application was made to gain an advantage over other creditors ... and

    (6)the proceeding is otherwise ready for hearing such that the interests of unsecured creditors were unlikely to be prejudiced ...

    CONSIDERATION

14. At the outset, I find that the debts which the applicant seeks to demonstrate were owed to him by the Bankrupt are properly considered provable debts and so can be addressed under s.58(3)(b).

15. I also find that even if there is some doubt as to whether leave should be granted, it is appropriate that it be granted nonetheless. This is because the matters which are alleged to be the basis of the applicant's alleged entitlement to payment from the Bankrupt or his estate present a degree of legal and factual complexity which would, with respect, be better resolved by the Supreme Court than by the respondent Trustees. In that regard, I also note that the question in issue is whether the applicant has a secured interest in some of the funds held by the Supreme Court, a status that under s.90 of the Bankruptcy Act he would lose were he to file a proof of debt with the Trustees. That is to say, it seems that the only practical way for the applicant to make out the secured claim he alleges, if he can, is to press it in the Supreme Court. Noting that the funds in question have been or will be paid into court, the statement of Lindsay J at [121] of JKB Holdings Pty Ltd v de la Vega [2013] NSWSC 501 is also relevant to the appropriateness of leave being granted:

    As his Honour records in Commonwealth Bank of Australia Limited v Estate of the Late Mahmoud Slieman [2010] NSWSC 661 at [11]: “The Court requires strict proof as to who has the entitlement to the funds in court. There is a heavy burden placed on the party seeking payment of money out of court [under Trustee Act s 98 and UCPR r 55.11]. It is necessary for that party not only to prove his or her entitlement to the funds but also to prove that all other potential claimants to the funds in court have been properly notified. Otherwise there is a risk of incorrect payments being made.”

16. I also record that although they have sent a letter to the Court, via the applicant, arguing that a grant of leave was not in the interests of the entirety of the creditors and would hinder the administration of the estate which is not in funds, the respondent Trustees did not appear to oppose the present application. 

    CONCLUSION

17. For these reasons, I will grant the applicant the relief he seeks.

I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Cameron.

Associate:

Dated:       27 August 2025