Juratowitch (in His Capacity as trustee) v Capar

[2017] FCCA 2669

FEDERAL CIRCUIT COURT OF AUSTRALIA

JURATOWITCH (IN HIS CAPACITY AS TRUSTEE) v CAPAR [2017] FCCA 2669

Catchwords:
BANKRUPTCY – Distribution of final dividend where bankrupt fails to file  statement of affairs – relevant considerations – prejudice to estate – relief granted – terms imposed to constrain declaration of dividend for brief period.

PRACTICE & PROCEDURE – Necessary parties – bankrupt not a necessary party to present application – bankrupt removed from application.

Legislation:

Bankruptcy Act 1966 (Cth), ss.19, 30, 54, 77, 120, 145, 140, 144, 146, 281.

Federal Circuit Court Rules2001 (Cth), r.11.1(4).

Cases cited:

Ambrose (Trustee) v Poumako (No 3) [2013] FCA 22

Barnet (Trustee), in the matter of Zhang (Bankrupt) v Zhang [2017] FCA 924

Coshott v Prentice (2014) 221 FCR 450

Official Trustee in Bankruptcy, in the matter of Shaw [1999] FCA 968

Re Sturt; Ex parte Official Trustee in Bankruptcy (2001) 117 FCR 1
Roufeil (Trustee), in the matter of Jarvie (Bankrupt) [2015] FCA 232
Sampson (Trustee), in the matter of Condon (Bankrupt) [2016] FCA 312
Tyler v Thomas (2006) 150 FCR 357
Vale v Sutherland (2009) 237 CLR 638

Applicant: DANIEL PETER JURATOWITCH (IN HIS CAPACITY AS TRUSTEE)

Respondent: GURKAN CAPAR

File Number: MLG 1931 of 2017

Judgment of: Judge A Kelly

Hearing date: 30 October 2017

Date of Last Submission: 30 October 2017

Delivered at: Melbourne

Delivered on: 1 November 2017

REPRESENTATION

Solicitor for the Applicant: Ms Nichols

Solicitors for the Applicant: SLF Lawyers

The Respondent: No appearance

ORDERS

1. Pursuant to s 146 of the Bankruptcy Act 1966 (Cth), the distribution of a first and final dividend to creditors of the bankrupt estate of Gurkan Capar, who have proved their debts, proceed in accordance with Division 5 of Part VI of the Bankruptcy Act, as if the bankrupt Gurkan Capar had filed a statement of his affairs, and those creditors had been stated to be creditors in it; and, subject to paragraph (2), that the Trustee, Daniel Peter Juratowitch, so act.

2. The Trustee shall not before 22 November 2017, declare or distribute a first and final dividend in the bankrupt estate of Gurkan Capar.

3. Gurkan Capar be removed as the respondent to the proceeding.

4. The applicant’s costs of this application be taxed and paid from the estate of the bankrupt in accordance with the Bankruptcy Act.

NOTATION: These orders have been amended pursuant to rule 16.05(2) of the Federal Circuit Court Rules 2001 (Cth) to reflect the deletion of the words “taxed and” from order (4).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 1931 of 2017

DANIEL PETER JURATOWITCH (IN HIS CAPACITY AS TRUSTEE)

Applicant

And

GURKAN CAPAR

Respondent

REASONS FOR JUDGMENT

Introduction

1. By application filed on 5 September 2017, an order is sought authorising the trustee of the respondent’s bankrupt estate to distribute final dividends from that estate pursuant to s 146 of the Bankruptcy Act 1966 (Cth) (Act). 

2. The order is sought in circumstances where the bankrupt has declined, despite request, to file or serve a statement of affairs.

3. An order is sought authorising the trustee to distribute final dividends amongst those creditors who have provided their debt in the bankruptcy.

4. Subject to the terms on which relief is granted, I am satisfied that an order should be made pursuant to s 146.

Background

1. On 22 April 2014, a sequestration order was made in this court against the estate of the respondent.  On that date, the applicant was appointed as trustee of the bankrupt estate.

2. On 22 April 2014 and again on 7 May 2014, the trustee wrote to the respondent requesting that he furnish a statement of affairs.  Further, on 16 June 2014 the office of the trustee contacted the respondent and advised he would complete that statement.  Thereafter, the trustee’s office made at least six attempts to communicate with the respondent so as to obtain from him a completed statement of affairs.  On the last such occasion, a person answered the trustee’s phone call but, upon being advised of the purpose of the call, promptly hung up.

3. A person against whom a sequestration order is made must, within 14 days of being notified of the making of that order, make out a statement of affairs which is to be filed with the Official Receiver and served on the trustee: sub-s 54(1).  Contravention of that obligation may attract a penalty of 50 penalty units.

4. The applicant has failed to furnish a statement of affairs.

5. A bankrupt is also generally required to disclose to the trustee, as soon as is practicable, all of his or her property.  A bankrupt is further required to aid, to the utmost of his or her power, in the administration: para 77(1)(f)-(g).  The respondent has not done so.

6. In the exercise of his duty, the trustee ascertained that the respondent was the registered proprietor of certain property in Victoria: s 19(1)(b). The respondent was so registered, with Figen Capar, as joint proprietor of the fee simple estate of that property. Their interest in that property was subject to a registered first mortgage.

7. Following the making of an order for the sequestration of the estate, the trustee lodged a caveat and in due course was registered as a tenant in common of the fee simple estate with Figen Capar.

8. On 16 December 2014, the trustee and Figen Capar transferred their interests in the property as tenants in common to Figen Capar as sole proprietor.  The property remains subject to the same mortgage.  Although the evidence provides little detail, I infer that the trustee was able to realise the bankrupt’s interest in that property.

9. In consequence of the realisation of the bankrupt’s interest in that property the trustee has secured the sum of $71,070 for the bankrupt estate which sum is held in an interest bearing deposit.  The trustee is now satisfied that this sum is the only asset of the bankrupt estate.

10. On 12 October 2015, the trustee gave notice of his intention to declare a first and final dividend.  By his notice, the trustee invited persons who might be creditors of the bankrupt (but who had not yet lodged a proof of debt) to do so by 30 October 2015.  The trustee’s notice further stated his intention to declare a first and final dividend without regard to any claim that was not lodged by the stipulated date. 

11. The notice was advertised on eight occasions in the period 12 October 2015 to 30 October 2015. 

12. Notice was also served on known creditors of the bankrupt estate. 

13. In consequence of the notices or otherwise, only three known creditors of the bankrupt estate have been ascertained.  The total sum of the bankrupt’s indebtedness to those known creditors is $55,125.00.

14. The trustee has deposed that the administration of the bankrupt estate is complete save for the distribution of a dividend to the proven creditors.

15. Although the bankrupt was served personally with a copy of the application and supporting affidavit some six weeks before the hearing, he did not appear.  A copy of this application and supporting affidavit was served on the known creditors of the bankrupt estate.  No creditor appeared, whether to support or to oppose the application.

Consideration

1. Part VI of the Act, which concerns Administration of Property, is arranged in seven Divisions and comprises ss 82-147.  The subjects addressed by those divisions variously concern: (1) proof of debts; (2) order of payment of debts; (3) property available for payment of debts; (4) realisation of property; (4A) orders in relation to property of entity controlled by bankrupt or from which the bankrupt derived a benefit; (4B) contributions by bankrupt and recovery of property; (5) distribution.  The scheme of Part VI is to enable, where possible, a distribution of dividends to creditors from the proceeds of property that is identified, recovered and realised by the trustee.

2. Division 5 of Part VI, is comprised of ss 140-147. By sub-s 140(1), the trustee must generally, and with all convenient speed, declare and distribute dividends to creditors who have proved their debts. In this connection, it will be recalled that the trustee is also subject to a duty to administer the estate as efficiently as possible, including by avoiding unnecessary expense: para 19(1)(j).

3. Where all, or sufficient of, a bankrupt’s property has been realized to enable a final dividend to be declared, a trustee shall declare and distribute a final dividend: sub-s 145(1). 

4. In the circumstances for which it provides, s 146 enables a trustee to distribute a final dividend where authorised by the court to do so. Section 146 applies to circumstances in which a bankrupt has failed to file a statement of affairs as required by the Act.

5. In Official Trustee in Bankruptcy, in the matter of Shaw [1999] FCA 968, Gyles J held at [4] that the purpose of s 146 was “to give the Court the means of ensuring that the absence of a statement of affairs does not prejudice those with an interest in the bankrupt’s affairs.” In Barnet (Trustee), in the matter of Zhang (Bankrupt) v Zhang [2017] FCA 924 at [22], Lee J observed that s 146 was “intended to facilitate the distribution of dividends among the creditors of the bankrupt in circumstances where the trustee has not had the benefit of a statement of affairs prepared by the bankrupt”: citing Re Sturt; Ex parte Official Trustee in Bankruptcy (2001) 117 FCR 1 at 4 [14] per Sackville J.

6. In Re Sturt; Ex parte Official Trustee in Bankruptcy (2001) 117 FCR 1 at [19], Sackville J held that Court must be satisfied that it is appropriate to make an order. His Honour stated: “The Court may need to be satisfied, for example, that creditors have been notified of the application and have had an opportunity to be heard (although ordinarily the application would be made in the interests of creditors). As in this case, the Court might require evidence that the trustee has taken appropriate steps to ascertain whether there are creditors, other than those who have come to its attention by filing a proof of debt or otherwise.”  This reasoning was endorsed in Zhang [2017] FCA 924.

7. Division 5 contains provisions requiring the giving of notice with respect to the declaration of dividends. Relevantly, I am satisfied that the trustee gave written notice of his intention to declare a final dividend, which notices allowed a reasonable period for lodgement of proofs of debt in accordance with sub-s 140(3)-(4) respectively.

8. A trustee is proscribed from declaring a dividend until the expiration of 21 days after the expiration of the period specified in the notice: sub-ss 140(7), 145(6).  In this case, the notices given to known (and published for unknown) creditors of the bankrupt estate were published from         12 October 2017.  The period specified in those notices allowed until 30 October 2017 for the lodgement of proofs of debt by such creditors. 

9. It follows that the trustee is proscribed from declaring a dividend until after 21 November 2017.

10. I accept the trustee’s submission that the further delay in the distribution of funds from the bankrupt estate operates to the prejudice of known creditors. The prejudice arises by reason of the failure of the bankrupt to furnish a statement of affairs to the trustee which would, but for an order under s 146, present an obstacle to the declaration and payment of a final dividend which the trustee is in a position to pay and thereby to complete efficiently the administration of this estate. I have identified no countervailing reason why a final dividend ought not be paid or why relief ought not be given under s 146 so as to permit finalisation of the administration of this bankrupt estate.

Conclusion

1. The trustee relied upon s 30 as a source of power to grant relief. Paragraph 30(1)(b) confers a general power on the court in a bankruptcy proceeding to make such orders as it considers necessary for the purposes of carrying out or giving effect to the Act in any case or matter. Section 30 has been described as the jurisdictional foundation for the making of orders for payment of money (albeit in the context of relief arising from a transfer of property that is void pursuant to s 120): Ambrose (Trustee) v Poumako (No 3) [2013] FCA 22, [20] (Mansfield J). The power conferred by s 30 should not be construed narrowly: Vale v Sutherland (2009) 237 CLR 638, [19]. Yet s 30 does not authorise the making of orders that would bring about a result which differs from that prescribed elsewhere in the Act; cf Coshott v Prentice (2014) 221 FCR 450 (FC); Poumako (No 3) [2013] FCA 22, [16]; Tyler v Thomas (2006) 150 FCR 357, [13], [78], [208] (FC). In my view, because s 146 confers express power to authorise the distribution of dividends, it is unnecessary to have recourse to the general power conferred by para 30(1)(b) to make such orders.

2. Section 146 relevantly provides that the court may on the trustee’s application make such order as it thinks fit. Where the court grants such application it may order that distribution of dividends amongst creditors who have proved their debts shall proceed in accordance with Division 5 of Part VI as if the bankrupt had filed a statement of affairs and those creditors had been stated to be creditors in it.

3. The bankrupt has failed to file a statement of affairs as required by the Act. More than three years have elapsed since the bankrupt was asked to file and serve such statement. The sequestration order was made on 22 April 2014 and on that date the trustee wrote to the bankrupt requesting that he complete and file a statement of affairs. I am satisfied that the bankrupt was so notified, and reminded repeatedly, of the obligation to file such statement and that he has not done so.

4. The court’s jurisdiction to make an order under s 146 is engaged.

5. I am satisfied that the trustee has taken proper steps to notify known creditors, together with those who might yet have been ascertained, of their opportunity to file a proof of debt and to do so before a final dividend was declared.

6. Subject to s 144, a creditor who has not proved their debt before declaration of a dividend is not entitled to disturb the distribution of a dividend that is declared before he or she has proved their debt. Persons claiming to be creditors of a bankrupt’s estate may apply for an extension of the time in which to prove their debt: sub-s 145(5).

7. It is appropriate to make an order as sought, subject however to terms that the order shall not take effect until 22 November 2017.  A term to this effect is appropriate in light of sub-ss 140(7) and 145(6).

8. It was unnecessary for the bankrupt to be named as a party to the application or to be served with it: Zhang [2017] FCA 924 at [28]-[29] citing Roufeil (Trustee), in the matter of Jarvie (Bankrupt) [2015] FCA 232 at [12] (Gleeson J); Sampson (Trustee), in the matter of Condon (Bankrupt) [2016] FCA 312 at [12] (Perry J). In Zhang, the respondent was removed as the respondent to the proceeding. It will simplify such applications if the bankrupt is not joined as a respondent. The joinder of the bankrupt as a respondent does not preclude the court from deciding the application: r 11.1(4) Federal Circuit Court Rules 2001. Non-joinder of the bankrupt as a respondent does not preclude that person from seeking to participate in the application. Notice of the application could be given to the bankrupt without the need for joinder.

9. For completeness, I note that the trustee’s obligation to distribute as dividend the moneys of the bankrupt estate is subject to the anterior obligation to withhold a sum sufficient to pay to the Inspector General the amount of the interest charge and realisation charge payable from the estate and any interest payable pursuant to s 281 of the Act.

10. Distribution of a dividend from the bankrupt estate is also subject to the anterior entitlement in the trustee to retain an amount sufficient for payment of the costs of administration of the bankrupt estate (which will include, by way of disbursements, his legal costs): sub-s 140(2).

11. An order should also be made that the applicant’s costs of this application be taxed and paid from the estate of the respondent in accordance with the Bankruptcy Act 1966.

I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Judge A Kelly

Date: 1 November 2017