Khan v Melluish
[2010] FMCA 119
•11 February 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KHAN v MELLUISH | [2010] FMCA 119 |
| BANKRUPTCY – Application to review decision of Trustee in bankruptcy refusing to consent to overseas travel by bankrupt. |
| Bankruptcy Act 1966 (Cth), ss.139U, 139W, 178, 272 Corporations Act 2001 (Cth), s.1323 |
| Healey v Prentice(No. 2) [2000] FCA 1598 Re Hicks ex parte Lamb (1994) 217 ALR 195; [1994] FCA 1473 Re Tyndall (1977) 30 FLR 6; [1977] FCA 15 |
| Applicant: | NADEEM KHAN |
| Respondent: | JOHN MELLUISH AS TRUSTEE IN BANKRUPTCY OF THE BANKRUPT ESTATE OF NADEEM KHAN |
| File Number: | SYG 245 of 2010 |
| Judgment of: | Barnes FM |
| Hearing date: | 11 February 2010 |
| Delivered at: | Sydney |
| Delivered on: | 11 February 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr Cutler |
| Solicitors for the Applicant: | Bartier Perry |
| Solicitors for the Respondent: | Norton Rose Australia |
| Counsel for Intervenor: | Mr Scarcella |
ORDERS
Leave is granted to the liquidator of Western Sydney Automotives Pty Ltd (receivers and managers appointed in liquidation) to intervene.
The application be dismissed.
The applicant return his passport to the office of his trustee in bankruptcy by 5.30 pm today.
Liberty to either party to apply by way of telephone in the event of an issue with compliance with order 3.
The applicant pay the costs of the respondent as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 245 of 2010
| NADEEM KHAN |
Applicant
And
| JOHN MELLUISH AS TRUSTEE IN BANKRUPTCY OF THE BANKRUPT ESTATE OF NADEEM KHAN |
Respondent
REASONS FOR JUDGMENT
(Revised from transcript)
This is an application filed on 8 February 2010 by Nadeem Khan, a bankrupt, seeking orders pursuant to s.178 of the Bankruptcy Act 1966 (Cth) that the court either grant an appeal against the decision of Mr Melluish as the Trustee in bankruptcy of Mr Khan’s bankrupt estate to refuse consent to Mr Khan to travel to Pakistan on 12 February 2010 or, in the alternative, that the Trustee be ordered to return Mr Khan’s passport to him (although I note that the passport was made available in connection with a visa application).
The issue before the court relates to a decision of the Trustee to refuse consent to the applicant to travel overseas. The matter was heard on short notice as the applicant wishes to depart Australia tomorrow.
The application is opposed by the Trustee on the basis that the bankrupt has not carried out all his obligations under the Bankruptcy Act and in light of concern (expressed in connection with the decision to refuse consent) about whether Mr Khan would return to Australia in accordance with his proposal.
In particular, the notice of opposition states that the bankrupt had not cooperated in the administration of his estate and that he had failed to provide evidence of his income on the request of the Trustee under s.139U of the Act, thereby preventing the assessment of his income and contributions under s.139W. It was also contended that the bankrupt was required to assist the Trustee in administration of his bankruptcy in relation to serious matters raised by the liquidator of Western Sydney Automotives Pty Ltd (In Liquidation) (Receivers and Managers appointed) (WSA) a major creditor in the estate. The Trustee’s investigations into such matters are continuing.
In addition, in his decision and in the affidavit filed in these proceedings the Trustee expressed concern that the bankrupt was a flight risk. Concern was also expressed that the bankrupt may use the opportunity while overseas to deal with moneys alleged to have been taken from WSA.
It was submitted that the reasons for the proposed travel overseas were not of a sufficiently compassionate nature that they should prevail over the serious concerns of the Trustee.
Counsel for the liquidator of WSA sought leave to intervene in these proceedings. After some discussion, leave was granted on agreed terms. The applicant was a director of the WSA group of companies. In addition, it appears on the material before the court and the submissions of the parties that the companies are creditors of Mr Khan and hence creditors of his bankrupt estate (see the affidavit of Jack Bournelis sworn on 10 February 2010 and of John Melluish sworn on 11 February 2010).
It is relevant to have regard first to the nature of the application before the court. A Trustee in bankruptcy may consent to a bankrupt leaving Australia (see s.272(1)(c) of the Act). In this case the Trustee refused such consent. Under s.178 of the Bankruptcy Act, if a bankrupt is affected by a decision of the trustee, “he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable”. This section gives the court a very wide power of review and confers a wide discretion, but the power is a judicial one and the court cannot stand in the shoes of an administrative body and exercise the powers of that body in its place.
It has been said (see for example, Healey v Prentice(No. 2) [2000] FCA 1598, at [21]) that the court should only interfere with the exercise of a Trustee’s discretion “if it be shown [by the applicant] that the impugned conduct of the trustee was incorrect or that other conduct was, or…would be, preferable and that justice and equity require[d] the Court’s intervention”.
The parties agreed generally that the relevant principles and factors to be taken into account were summarised in Re Tyndall (1977) 30 FLR 6; [1977] FCA 15. The applicant bears the onus of showing a ground on which there ought to be a review. Moreover it is not for the court to dictate to the Trustee what weight each factor should be given in a particular case.
Counsel for each of the applicant and the respondent referred to the general principles in Re Tyndall, in which Deane J (as he then was) set out the object of the travel restrictions under the Bankruptcy Act. There is no suggestion that changes to the Bankruptcy Act since the time of the decision in Re Tyndall are such that these general principles are not of guidance and relevance to the issue presently before the court.
In Re Tyndall Deane J rejected a narrow approach to the circumstances in which the court should or could exercise its discretion in relation to a decision made by a Trustee. His Honour referred generally to the well-established policy under bankruptcy legislation that the court should not unduly interfere with day to day administration of the bankrupt’s estate, pointed out that the issue of a bankrupt wishing to travel was not an ordinary day-to-day administrative issue, and suggested at [13] that such applications:
…must always be treated as being of fundamental importance requiring careful consideration of all relevant circumstances for the reason that they are ordinarily related to the freedom of a subject, who is neither a criminal nor under criminal restraint, to travel to pursue his legitimate commercial or personal desires.
Deane J acknowledged that restrictions under the bankruptcy legislation must be seen as being aimed at ensuring the proper administration of the bankruptcy laws and the bankrupt’s estate and not as a penalty imposed upon a citizen as a consequence of an inability to pay debts leading to the making of a sequestration order.
His Honour continued at [25]:
In some cases, the possibility that the bankrupt has committed offences under the Act and is seeking to abscond from possible prosecution will be extremely relevant.
In Re Tyndall Deane J then considered whether leave should be granted in the particular case before him taking in to account all the circumstances and the stage of administration of the bankrupt estate. Relevantly, his Honour also made the point (at [12]) that the Trustee had to make decisions, some of which would be business or commercial decisions, and that “unless it w[as] shown that the trustee’s decision was perverse or clearly wrong, it would be inappropriate and unjust for the court to interfere”.
The solicitor for the respondent also referred to the factors discussed in Re Hicks; Ex parte Lamb (1994) 217 ALR 195; [1994] FCA 1473 as of relevance in this case. In Re Hicks Heerey J stated (at 198) that he had suggested to counsel for the Trustee that certain issues “while not necessarily conclusive, nevertheless [were] at the forefront of the matters to be considered in exercising [his] discretion”. Those issues were whether the proposed visit was genuine; whether the bankrupt was likely to return to Australia as promised; and whether the visit would hamper the administration of the estate. I consider that that it is appropriate to have regard to these issues, but also that all relevant circumstances should be taken into account in determining whether the court should interfere with the Trustee’s exercise of discretion in a particular case. I note for the sake of completeness that there is no suggestion that further evidence in support of the application to travel has come to light since the Trustee made his decision.
The basis of the application for leave to travel is contained in two affidavits sworn by the applicant and by his brother. Neither Mr Khan was required for cross-examination.
The bankrupt’s evidence is that he became bankrupt upon filing a debtor’s petition on 25 February 2009. He attested to the fact that on 24 December 2009 he sought the consent of the Trustee to a proposal to travel to New York. He claimed that his wife had been invited to attend the wedding of a friend and to be part of the bridal party and that he sought approval to accompany her.
That application to the Trustee was unsuccessful and was not taken any further. There is limited information before the court in relation to that request and it appears that this reflects the information provided to the Trustee.
However on or about 25 January 2010 Mr Khan’s brother informed him that his (the brother’s) daughter and her fiancée had set a wedding date for 18 February 2010 in Pakistan. Mr Khan claimed to have a particularly close relationship with his niece (similar to a “brother-sister relationship”) and that she had lived with his family for some time. He also gave affidavit evidence in relation to the health of his elderly mother who has been hospitalised since fracturing her hip on 15 November 2009. The applicant’s affidavit addressed at some length the wish that the applicant’s mother travel to Pakistan and that a relative be available to accompany her. Mr Khan’s evidence is that others are unable to accompany her.
However, as counsel for the applicant told the court that it was now not clear that the applicant’s mother would be seeking to travel to Pakistan, the applicant’s evidence in relation to the need to accompany his mother is not directly in point. I accept that at present it is not clear that his mother is in a position to travel to Pakistan.
The applicant indicated that he wished to depart Australia tomorrow on an indentified available flight, or the next day in order to “make the necessary arrangements”, including clothes shopping; setting up the hall; decorations; catering; and attending a practice wedding ceremony in which he said that the family expected him to take a lead. He claimed that he was in his niece’s bridal party.
In addition, as he advised the Trustee by email and elaborated on in his affidavit, he wished to attend what he described as his great-grandfather’s “wake”. He explained that his great-grandfather died some considerable time ago but that the family would all be together at that time.
Initially the applicant sought approval from the Trustee in a short email, on the basis that it would be the last opportunity to travel with his mother given her age and her hospitalisation; that it would be a large family event; and that his children would not be going.
The applicant is the father of two children aged ten. He has “custody”, or the equivalent, of those children, pursuant to orders of the Family Court. He does not intend that the children travel with him, apparently because his ex-wife will not allow it. It is intended that the children will remain with a relative in Australia. The applicant advised the Trustee that he sought to travel from 10 February to 1 March 2010, although in his affidavit evidence he stated that he would seek to return to Australia “on or before 6 March 2010”.
In response to the applicant’s initial request and a subsequent email seeking an early response (in order that he might have time to obtain a visa to travel to Pakistan), the Trustee indicated on 29 January 2010 that before he considered the request for travel he would require evidence in support of the applicant’s claim that he had received two payments of $1,500 representing repayment of a loan to two friends, and one payment of $4,000 representing winnings from the Melbourne Cup. The Trustee specified the type of documentary evidence required.
In response, on 1 February 2010 the applicant provided some information in an email. He indicated that there was no documentary evidence of payment other than the bank statements provided; that he could not recall all the horses that had won, although he could recall “the major one”, and that he did not get cheques from bookmakers. He urgently requested his passport. He explained that he wished to travel with his elderly mother and that for the amounts involved the Trustee’s concerns were not a sufficient reason to refuse his request.
The Trustee wrote a more detailed letter to Mr Khan dated 2 February 2010, expressing the view that he had failed to provide evidence to substantiate his claims in relation to three cash deposits into his bank account, that investigations into possible undeclared income sources or asset realisations were therefore continuing and that while such investigations were ongoing the Trustee was not inclined to grant him permission to travel. The Trustee stated that in any event, even if substantiation was provided he was unlikely to grant permission as he did not believe that Mr Khan had “established a proper case for travel on compassionate grounds”, having regard to the application for release of his passport made on 24 December 2009 in relation to accompanying his wife to a wedding and, when that was rejected, the request for travel to Pakistan for a similar period on compassionate grounds to attend another wedding. The Trustee stated that he was “unconvinced that [the applicant was] seeking to travel overseas on compassionate grounds”. Reference was made to the fact that Mr Khan had family residing in Pakistan. It was also suggested that as Mr Khan’s conduct as a director of the WSA companies was under investigation, the Trustee considered him to be at risk of permanently leaving Australia and defeating creditors of his estate. The Trustee indicated that his position may be reconsidered if the applicant obtained written consent from the receivers and managers appointed in relation to the WSA companies (described as “the Nepean group”), for the proposed overseas travel.
Mr Khan’s solicitors wrote to the Trustee on 4 February 2010 setting out in more detail the circumstances in which Mr Khan wished to travel, and the basis on which it was suggested that he would return to Australia. It was claimed that the travel would not hinder the administration of Mr Khan’s brankrupt estate.
However the Trustee confirmed by letter of 8 February 2010 that consent was not granted to the applicant’s overseas travel and advised Mr Khan’s solicitors of issues that would be raised were the matter to be pursued by way of the foreshadowed application to the Federal Court. The Trustee also addressed the applicant’s offer to provide, through his brother, a bond of $200,000. The Trustee did not see this as sufficient to secure the bankrupt’s return to Australia “in light of the seriousness of the allegations raised in the public examinations” of the applicant and another director and the accountant of the WSA companies (which were said to have implicated Mr Khan in the unlawful withdrawal of over $2 million in funds belonging to WSA), and having regard to advice from the liquidators that ASIC was currently investigating the applicant for alleged breaches of the Corporations Act 2001 (Cth) in his capacity as a director of WSA that would attract criminal penalties. The Trustee stated that while the investigation was open it was “inappropriate” that the bankrupt leave Australia.
The applicant has now brought the present application before this court. As indicated, leave was granted to the liquidator of the WSA companies to intervene. It is perhaps necessary that I address the views expressed on behalf of the liquidator of those companies. These proceedings are not, of course, proceedings in which the liquidator is seeking any order prohibiting the applicant from travelling overseas. Such proceedings could not be brought in this court, although it was acknowledged that proceedings could be brought under s.1323 of the Corporations Act in a court with jurisdiction. Hence, I bear in mind that I am not addressing the matters raised by the liquidator in such a context, but rather in the context of a review of the decision of a Trustee of a bankrupt estate.
Counsel for the liquidator expressed a concern that, from the perspective of the liquidator of the companies of which the applicant was a director and which are creditors in his estate, the applicant was a flight risk. Similarly, the solicitor for the Trustee submitted that from the perspective of the Trustee the applicant was a flight risk (as addressed in the Trustee’s affidavit and letters to Mr Khan of 2 and 8 February 2010). In that context counsel for the liquidator referred to various aspects of the evidence before the court (in particular his conclusions from investigations that the applicant had withdrawn some $2.45 million from the accounts and credit cards of the WSA group in late November 2008 to early December 2008, that the accounts may have been misleading and that the applicant had spent over $2.4 million in personal expenses using company funds and had not paid the entire amount back) in support of the view of the liquidator that the applicant was a flight risk. Voluntary administrators were appointed on 10 December 2008.
Whether or not the applicant is a flight risk is relevant generally to the decision whether or not to allow the applicant to travel overseas from the perspective of the Trustee in bankruptcy and on review by the court.
It is also relevant in that context to have regard to the material consisting of the transcript of the examination of directors and the accountant of the WSA group of companies in relation to the alleged withdrawal by the applicant of some $2.45 million from group accounts and credit cards. Despite being ordered to do so by the Supreme Court of New South Wales, the applicant has yet to sign the transcript of his examination. The Trustee is of the belief that the bankrupt withdrew significant cash amounts from the business prior to his bankruptcy and that he has failed to provide any reasonable evidence as to the disposal of those funds.
These matters are part of the background circumstances relevant to whether the applicant is a flight risk or is likely to return to Australia as promised. Where there is evidence to suggest that the applicant is a flight risk, that is a factor of particular significance in relation to the question of whether the departure of the applicant overseas, in circumstances where he might not return as proposed, would hamper the administration of his bankrupt estate (see Re Hicks).
There are issues arising out of the transactions in which the applicant may have been involved, his evidence on examination and concerns about his role as director. In particular, there are allegations in relation to removal by him of some $2.45 million from these companies and the absence of a satisfactory explanation from the perspective both of the liquidator and the Trustee in bankruptcy. Such matters are relevant not only to the liquidator but also, insofar as they give rise to a flight risk, are of significance in relation to the decision of the Trustee in bankruptcy and the review by the court. The concerns raised by such material are also relevant to the Trustee’s responsibility to determine whether the bankrupt estate may include property that may have been irregularly or unlawfully obtained by Mr Khan, which if located may be realised for the benefit of creditors. The Trustee pointed to the fact that he must determine whether Mr Khan has made a transfer of property that may be void against the Trustee and must take appropriate steps to recover property for the benefit of the estate (and see Mr Melluish’s affidavit of 11 February 2010 in relation to the relevance of investigations by the liquidators and ASIC to his administration of Mr Khan’s bankrupt estate).
In particular, the fact that there have been reports to the Australian Securities and Investment Commission by the liquidators in relation to potential breaches by the applicant of a number of provisions of the Corporations Act, while not directly of relevance to the administration of the bankrupt estate at this stage, is relevant in relation to the issue of whether the applicant could be seen as a flight risk.
Hence, these factors are relevant to be taken into account when considering whether the applicant, who bears the onus in this proceeding, has established that these concerns are either not relevant or are outweighed by the genuineness of his proposal for travel, the likelihood that he would return to Australia and whether the intended short-term visit to Pakistan would hamper the administration of his bankrupt estate.
More generally, insofar as it was suggested that I should in these proceedings draw adverse inferences from the transcript of the examination of the applicant, I note that there was an extensive resort by the applicant throughout his examination to claims of privilege. It was not disputed that it was open to the applicant to claim privilege in that context. There were also many instances on which “don’t recall” was his response. I do not consider that it is necessary in these proceedings to draw any inference as to the “evasiveness” of the applicant as submitted. Rather, the significance of these matters in these proceedings is the relevance of ongoing investigations to the issue of flight risk. The possible substantial unexplained financial transactions are also of relevance in relation to the administration of the bankrupt’s estate.
In relation to the issue of whether the travel proposal is genuine, I note that the applicant was not required for cross-examination. While it may seem an extraordinary coincidence that after an application to the Trustee to attend a wedding of a friend of his wife was refused, the applicant then sought to attend a wedding of a family member in Pakistan at the same time, Mr Khan’s evidence in this respect is unchallenged. Moreover there is some supporting documentation and a supporting affidavit from his brother. Hence I am satisfied on the material before the court that the applicant’s niece’s wedding is proposed to take place at that time in Pakistan as attested to by him and that he wishes to attend the wedding and participate in associated activities.
As indicated, the issue of the applicant’s mother requiring someone to accompany her is not of present significance, as there is no evidence before the court that she is able to travel as was intended. The potential “compassionate” aspect of the proposed travel is not as significant as it may have been were the applicant’s mother able to travel.
I also accept, on the basis of the unchallenged affidavit evidence of the applicant, that there is a proposal that a “wake” be arranged for his great-grandfather, although I note that he passed away some considerable time ago, and that the proposal is that the wake will take place since the whole family will be together in Pakistan. What is not clear on the evidence before the court is whether the absence of the applicant or indeed, of his mother, makes any difference to that proposal.
The applicant seeks to engage in family activities for a period up to and including 1 March 2010, although he indicated that he wished to return on or before 6 March 2010. He gave a number of reasons why he would attend and then return. First he said that he would return. That, of course, is not conclusive, although it is to be taken into account. Significantly, Mr Khan would be leaving his two young children, who live with him, in Australia with a family member. That is a factor that would indicate towards the view that he would return, although it does not establish that he would necessarily return at the time at which he proposed. I nonetheless take it into account. His wife, however, is travelling with him. The children are children of his ex-wife, so his family situation is not as strong a factor in support of his likely return as it might have been were he to be travelling unaccompanied, leaving his wife in Australia.
I accept the applicant’s claim - and this evidence was provided to the trustee - that his brother would provide a $200,000 bond. I am told that this amount is presently held in the trust fund of his solicitors as security which would be forfeited to the Trustee should Mr Khan not return to Australia as proposed. It is relevant to have regard to whether a security provides some significant reassurance that an applicant would return or, indeed, would deal with the possibility that if he did not do so, there might be a significant impact on his estate or the funds available. The difficulty in this instance is that while the security is in a substantial amount, there is evidence of an investigation into the circumstances of apparent removal of an amount of approximately $2.45 million which the liquidator of the WSA companies considered was withdrawn from the accounts and credit cards of the WSA group in late November 2008 to early December 2008 by the applicant. There appears not to be an explanation as to the exact whereabouts of those funds. The applicant’s explanation about leaving money in a suitcase outside his home for a person to collect is not on its face persuasive. These circumstances are such that an amount of security which on its face seems significant, is considerably less significant. Associated with this is the fact that the investigations that have been carried out are such as to give rise to the possibility that the applicant may face potential charges for offences under the Corporations Act. While these are not offences under the Bankruptcy Act, such a possibility raises the risk that the applicant will not return as proposed. Hence it is relevant in considering whether a bond of the amount provided is of the significance that it might be in some other case. On balance, having regard to all of the evidence before me, I do not consider that the bond is such that the court can be satisfied that it is a sufficient guarantee that the applicant would return as he proposes.
It was contended by counsel for the applicant that while the applicant had family in Pakistan, he was intending to travel to Pakistan on a visa, and that if he overstayed he would not have a visa. However it is relevant to take into account that there is no evidence before the court that Pakistan is a country with which Australia has any extradition agreement. The applicant has family there. This is not a case in which the proposed travel is to a country (such as New Zealand) where arrangements could readily be made for the extradition of a person, should that be necessary. Evidence to that effect would provide some reassurance and would be a factor that weighed in favour of allowing the intended travel. There is no such evidence in this case.
Overall, having particular regard to the issue of whether the bankrupt is likely to return to Australia as promised, in the particular circumstances of this case the evidence is not such as to persuade me either that the Trustee erred in his approach or that the bankrupt is likely to return to Australia as proposed.
In relation to whether or not the travel would hamper the administration of the estate, it is the case that if the bankrupt only went overseas for three weeks, the concern would be less, although it would not be eliminated. There is a large sum of money unaccounted for in connection with the WSA companies and evidence of the Trustee’s lack of satisfaction with the extent to which the applicant has cooperated in the administration of his estate. The applicant has failed to provide requested evidence in relation to matters that are within the province of the Trustee. There is a possibility that the administration may be adversely affected if there are further funds that could be available for the benefit of creditors which might not remain available if the applicant were to travel overseas.
There is no suggestion in this case that the proposed travel would in any way assist the applicant to meet the debts owed to creditors, or that there would be any additional funds made available for the administration of his estate. The proposed travel is purely for family reasons.
Given the evidence in relation to flight risk, overall the evidence is not such as to satisfy me that the circumstances are such that having regard to the nature of the applicant’s wish to travel and the reasons given, the compassionate or family circumstances are such as to prevail over the serious concerns arising on the evidence before the court. I accept that it is appropriate that concerns in relation to financial transactions and income relevant to the administration of the applicant’s bankrupt estate be resolved before the applicant leaves Australia.
I note, for the sake of completeness, that this says nothing about whether or not the Trustee might approve travel by the applicant at some future date. It says nothing about the position of the liquidator in relation to any other proposal by the applicant to travel overseas, as that is not a matter before the court. At the present stage of the administration of the bankrupt’s estate, I am not satisfied on review of the trustee’s decision under s.178, that the orders sought by the applicant should be made. It follows that I do not need to enter into a consideration of the orders that can be made by the court in such circumstances, in particular whether a matter has to be remitted to a Trustee or whether the court can make orders allowing travel or returning a passport. The appropriate order is that the application be dismissed.
I certify that the preceding fifty (50) paragraphs are a true copy of the reasons for judgment of Barnes FM
Associate:
Date: 8 March 2010
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