FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Mellos (Trustee), in the matter of Pan (Bankrupt) [2024] FedCFamC2G 469
File number(s): MLG 81 of 2024 Judgment of: JUDGE J YOUNG Date of judgment: 23 May 2024 Catchwords: BANKRUPTCY – Application of trustee under s 146 of the Bankruptcy Act 1966 (Cth) for distribution of dividends – where no statement of affairs filed by the Bankrupt with the Official Receiver – application heard ex parte – orders that the distribution of dividends proceed as if the Bankrupt had filed a statement of affairs as required by the Act – application granted Legislation: Bankruptcy Act 1966 (Cth) ss 19(1), 140, 145, 146, 153A, 54(1), 77CA. Cases cited: David Ian Mansfield As Trustee of The Bankrupt Estate of Maria Fokas v Fokas [2019] FCCA 134
Quin as Trustee of the Bankrupt Estate of Philip Chill [2020] FCCA 2652
Division: Division 2 General Federal Law Number of paragraphs: 44 Date of hearing: 13 May 2024 Place: Melbourne Counsel for the Applicant: Ms Carruthers Solicitor for the Applicant: Macpherson Kelley Lawyers Table of Corrections 30 May 2024 In paragraph 24, reference to “10 May 2024” has been corrected to show “13 May 2024” ORDERS
MLG 81 of 2024 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF PEIHUA PAN, BANKRUPT
NICK MELLOS AS TRUSTEE OF THE BANKRUPT ESTATE OF PEIHUA PAN
Applicant
ORDER MADE BY:
JUDGE J YOUNG
DATE OF ORDER:
23 MAY 2024
THE COURT ORDERS THAT:
1.Within 21 days of these orders being made, the Applicant will publish a notice of intention to declare a First and Final Dividend in the bankrupt estate of Peihua Pan (Bankrupt) (Bankrupt Estate) in the public notices section of The Australian Newspaper and the Sydney Morning Herald.
2.Pursuant to s 146 of the Bankruptcy Act 1966 (Cth) (Act) the Applicant as trustee of the Bankrupt Estate distribute a dividend to those creditors who have proved their debts in the Bankrupt Estate in accordance with Division 5 of Part VI of the Act, as if the Bankrupt had filed a statement of affairs and those creditors were found to be creditors in it, on the following conditions:
(a)The Applicant proceed with the annulment of the Bankruptcy under s 153A of the Act.
(b)The surplus that would otherwise be paid to the former Bankrupt on annulment is to be paid to the Official Receiver to be held by the Official Receiver on behalf of the Bankrupt until the bankrupt completes, signs and provides to the Official Receiver a Statement of Affairs in accordance with the requirements of s 54 of the Act or until further order by the Court.
(c)The costs and expenses of the Official Receiver, in respect of or arising out of these conditions, are to be paid out of the surplus held by the Official Receiver on behalf of the former Bankrupt on a trustee basis.
(d)The holding of the surplus by the Official Receiver on behalf of the former Bankrupt does not prevent garnishee or attachment by a creditor or creditors of the surplus.
3.The Applicant refrain from paying a dividend to any creditor in accordance with order 2 before midnight on the day which falls 21 days after the date of publication of the notice in order 1.
4.The Applicant’s costs of and incidental to this Application to be paid out of the Bankrupt Estate.
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 J YOUNG
Before the Court is an Application by the trustee of the bankrupt estate of Peihua Pan (Bankrupt Estate) pursuant to s 146 of the Bankruptcy Act 1966 (Cth) (Act). The trustee, Mr Nick Mellos (Trustee), seeks orders permitting the distribution of a first and final dividend amongst those creditors of the Bankrupt Estate who prove their debts in accordance with Division 5 of Part IV of the Act as if Ms Peihua Pan (Bankrupt) had filed a statement of affairs and those creditors had been stated to be creditors in her Bankruptcy.
FACTUAL CONTEXT
On 24 August 2021, an order was made for the Bankrupt Estate to be sequestrated under the Act. The order was made upon petition of a creditor, the owners of Strata Plan No 85814. The Trustee was appointed trustee of the Bankrupt Estate on that same date.
The Trustee was also appointed trustee of the bankrupt estates of Mr Rui Yu on 31 March 2020 and Mr Jin Yu on 3 August 2021. Mr Rui Yu and Jin Yu, together with the Bankrupt, are the join proprietors of Unit A, C Street, Suburb D, NSW (Unit A). Mr Rui Yu is the husband of the Bankrupt and Mr Jin Yu is the son of the Bankrupt.
Attempts to communicate with the Bankrupt
On 26 August 2021, the Trustee sent a letter to the Bankrupt at her last known address, Unit B, C Street, Suburb D, NSW (Unit B). In this letter, the Trustee advised the Bankrupt (among other things) that he had been appointed as trustee of her bankrupt estate and informed her of her obligations to file a statement of affairs or Bankruptcy Form within 21 days of the date of being notified of her Bankruptcy.
On 6 July 2022, the Trustee sent a letter to the Bankrupt and noted that the Bankrupt had not yet filed her statement of affairs. The Trustee further indicated that in the absence of a statement of affairs, the Trustee would be unable to distribute proceeds of sale of Unit A to creditors and release surplus funds. He also advised the Bankrupt that he would be required to make an application to allow an annulment of the Bankrupt Estate pursuant to s 146 of the Act.
On or about 14 July 2022, Ms Winnie Leung from the office of the Trustee had a telephone conversation with the Bankrupt, Mr Rui Yu and Mr Jin Yu. During the telephone conversation, Ms Leung requested the Bankrupt to file the completed Bankruptcy Form.
On 15 July 2022, Ms Leung sent an email to the Bankrupt, Mr Rui Yu and Mr Jin Yu advising, among other things, that the Bankrupt needed to file a statement of affairs to annul her Bankruptcy.
On 2 November 2022, Ms Leung sent an email to the Bankrupt noting that the Bankruptcy cannot be annulled without an application to the Court if the Bankrupt does not file a Bankruptcy Form. The email attached a copy of a Bankruptcy Form for completion by the Bankrupt.
On 8 December 2022, the Trustee sent a letter to the Bankrupt which, amongst other things, requested that the Bankrupt file a statement of affairs otherwise the Trustee would be required to make an application pursuant to s 146 of the Act.
On or about 10 February 2023, Ms Leung had a telephone conversation with the Bankrupt, Mr Rui Yu and Mr Jin Yu, in which the Bankrupt was requested to complete and file the Bankruptcy Form.
On 13 February 2023, Ms Leung sent an email to the Bankrupt, Mr Rui Yu and Mr Jin Yu advising, among other things, that the Bankrupt was still yet to file a Bankruptcy Form without which the Trustee was unable to distribute any funds from the Bankrupt Estate. The email again attached a Bankruptcy Form for the Bankrupt to complete.
On 22 February 2023, the Trustee sent a letter to the Bankrupt stating, among other things, that Unit A had been sold and settlement effected on 13 February 2023. The Trustee informed the Bankrupt that one-third of the net sale of proceeds were being held in an account by the Bankrupt Estate. The letter also confirmed that the Bankrupt was still yet to file a statement of affairs and that the Trustee would be required to take various steps including making an application pursuant to s 146 of the Act.
Sale of Unit A
On 20 January 2022, Unit A was transferred into the Trustee’s name in his capacity as trustee of the Bankrupt Estate, as well as his capacity as trustee of the bankrupt estates of Mr Rui Yu and Mr Jin Yu.
On 14 December 2022, Unit A was sold at auction for $2,250,000, with settlement effected on 13 February 2023. One-third of the net proceeds, being $250,288.42, was deposited into an account held by the Bankrupt Estate.
Identification of and notice to creditors
The Trustee deposed to making various enquiries and actions to identify the creditors of the Bankrupt, including:
(a)writing to all major banks requesting details of any facilities held, such as credit cards;
(b)writing to the Australian Taxation Office requesting details of any outstanding tax liabilities;
(c)making enquiries with the credit reporting agency to confirm details of any financial facilities in the name of the Bankrupt.
The Trustee deposed that despite his investigations, he had been unable to ascertain whether there are any unsecured creditors in the Bankruptcy. He also deposed to being unable to locate or provide a complete listing of the Bankrupt’s creditors, owing to the Bankrupt not having filed a statement of affairs. The only creditors the Trustee has been able to identify were those who were secured against Unit A.
On 22 January 2024, the Trustee caused a notice to the creditors of the Bankrupt Estate to be published in The Australian Newspaper (Notice). The Notice invited creditors and potential creditors of the Bankrupt Estate to contact the office of the Trustee by 12 February 2024 and stated that a dividend will be declared shortly. The Trustee deposes in his most recent affidavit filed with the Court that he has not been contacted by any creditor in response to the Notice.
Procedural history
On 22 December 2023 the Application was filed with the Court. The Application was made ex-parte but noted the Trustee intended to inform the Bankrupt of the proceeding. The Application was supported by an affidavit of the Trustee sworn on 21 December 2023. The Application noted a return date of 9.30 am on 14 February 2024.
The Application and the supporting affidavit were sent to the Bankrupt by email on 8 February 2024.
No response was received by the Trustee or the Court and the Bankrupt did not appear on 14 February 2024.
On 14 February 2024 the matter was adjourned to 17 April 2024 (14 February Orders). The 14 February 2024 Orders were sent to the Bankrupt by email on 22 March 2024.
No response was received by the Trustee or the Court and the Bankrupt did not appear on 17 April 2024.
On 17 April 2024 the matter was adjourned to 13 May 2024 (17 April Orders). The 17 April Orders were sent to the Bankrupt by email on 10 May 2024.
No response was received by the Trustee or the Court and the Bankrupt did not appear on 13 May 2024.
LEGAL PRINCIPLES
Where a sequestration order is made, the person against whose estate it is made is obliged to make and file a statement of affairs with the Official Receiver and to furnish a copy of that statement on the trustee: s 54(1) of the Act.
The Act provides for the Official Receiver to obtain information and evidence. By written notice given under s 77CA of the Act, the official Receiver may require the Bankrupt to provide to the Official Receiver a statement of their affairs within 14 days of the notice.
Part VI of the Act deals with the administration of property and enables (where possible) the efficient distribution of dividends to creditors from the proceeds of property that is identified, recovered and realised by the trustee.
A trustee is required to declare and distribute dividends “with all convenient speed” amongst the creditors who have proved their debts: s 140 of the Act. This requirement is in addition to a trustee’s overarching duty of efficient administration pursuant to s 19(1) of the Act.
Section 145 of the Act provides that a trustee shall declare and distribute a final dividend when the trustee has realised all the property of the bankrupt (or so much as can be realised in the trustee’s opinion without needlessly prolonging the trusteeship). Before declaring and distributing a final dividend, a trustee shall give notice to any creditor or potential creditor who has not proved their debt that if that person does not prove their debt within the period specified, the trustee will declare a final dividend without regard to that person’s claim: s 145(3) of the Act. The trustee shall not declare the dividend until “until after the expiration of 21 days after the expiration of the period specified in the notice”: s 145(6) of the Act.
When a bankrupt fails to file a statement of affairs, s 146 of the Act provides:
Where a bankrupt has failed to file a statement of his or her affairs as required by this Act, the Court may, on the application of the trustee, upon such terms as it thinks fit, order that distribution of dividends amongst the creditors who have proved their debts shall proceed in accordance with this Division as if the bankrupt had filed a statement of his or her affairs and those creditors had been stated to be creditors in it.
In Quin as Trustee of the Bankrupt Estate of Philip Chill [2020] FCCA 2652, Kelly J summarised the authorities on the purpose and application of s 146, at [31]–[32]:
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.
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.
CONSIDERATION
Application heard ex parte
This Application was heard ex parte. It is unnecessary for the Bankrupt to be named as a party to the Application or for her to be served with it: Barnet v Zhang [2017] FCA 924, [28]–[29]. Even though not strictly required, the evidence before the Court shows that the Bankrupt has received notice of the Application and of the hearing date.
The Bankrupt did not appear before the Court on any occasion, including on 13 May 2024, request an adjournment or otherwise communicate with the Court in relation to this Application.
In all of the circumstances, the Court determined to proceed ex-parte.
Section 146 application
Has the Bankrupt failed to file a statement of affairs?
On the evidence before the Court, the Bankrupt has failed to file a statement of affairs as required by the Act. More than two and one half years has passed since the Bankrupt was first requested to file a statement of affairs. In that period the Trustee sent a number of letters to the last residential address of the Bankrupt and numerous emails to the Bankrupt’s email address seeking a statement of affairs. The solicitors for the Trustee have also had telephone communication with the Bankrupt on more than one occasion requesting a statement of affairs be filed. I am satisfied that the Bankrupt has been notified and reminded on multiple occasions of her obligation to file a statement of affairs and, notwithstanding those attempts made by the Trustee, she has not done so.
Accordingly, the jurisdiction to make an order pursuant to s 146 of the Act is enlivened.
Discretionary considerations
Due to the Bankrupt’s failure to file a statement of affairs, the Trustee is unable to ascertain whether there are any further creditors in the Bankruptcy. This failure, but for an order under s 146 of the Act, presents an obstacle to the declaration and payment of a final dividend that the Trustee is otherwise in a position to pay.
The Trustee seeks that the order pursuant to s 146 of the Act be subject to certain conditions. For the reasons that follow, I consider such conditions to be appropriate and so order.
The evidence of the Trustee is that there is a surplus available. In those circumstances, the Trustee seeks an order to annul the Bankruptcy under s 153A of the Act. Such an order will have the consequence that any unidentified creditor will not be prejudiced by reason of the Bankruptcy and the failure by the Bankrupt to file a statement of affairs identifying that creditor. Section 146 empowers the Court to impose terms as the Court thinks fit in respect of the order sought under that section. Those terms are not limited to the dividend and are capable of having application to the surplus: David Ian Mansfield As Trustee of The Bankrupt Estate of Maria Fokas v Fokas [2019] FCCA 134 (Mansfield).
The Trustee seeks orders that the surplus be paid to the Official Receiver and retained until such time as the Bankrupt has provided a statement of affairs to the Official Receiver. In circumstances where the Court is satisfied that the Bankrupt has failed to provide a statement of affairs, the Court considers such an order to be appropriate. That order will also allow for further order of the Court if the Bankrupt or some other person seeks to agitate this condition.
The Trustee also seeks an order that that the costs of or consequential to the Official Receiver are met out of the surplus and that the holding of the surplus will not affect rights of enforcement of a creditor or creditors.
In all the circumstances, I consider it is appropriate to make the orders sought by the Trustee and that that the orders sought are within the scope of the terms and purpose of s 146 of the Act: Mansfield at [6]–[9].
I shall also order that the Trustee’s costs of and incidental to this application be paid out of the Bankrupt Estate.
DISPOSITION
For the reasons set out above, I make the orders at the commencement of this decision.
I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment of Judge J Young. Associate:
Dated: 23 May 2024
- AGLC
- Mellos (Trustee), in the matter of Pan (Bankrupt) [2024] FedCFamC2G 469
- Case
- [2024] FedCFamC2G 469
- Decision Date
CaseChat Overview and Summary
The Court considered the purpose of section 146, which is to ensure that the absence of a statement of affairs does not prejudice creditors. The authorities cited indicated that the Court must be satisfied that it is appropriate to make an order. The Court found that the trustee had made multiple attempts to communicate with the Bankrupt to request the statement of affairs, including letters, emails, and telephone calls. Given the Bankrupt's failure to respond, the Court was satisfied that the trustee had taken appropriate steps. Additionally, the Court noted that creditors had been notified of the application and had not objected. Therefore, the Court determined that it was appropriate to grant the application.
In granting the application, the Court ordered that the distribution of dividends should proceed as if the Bankrupt had filed a statement of affairs. This decision was based on the evidence that the trustee had made reasonable efforts to obtain the statement of affairs, and creditors had been notified and had not objected to the application. The Court's order ensured that the interests of creditors were protected and that the distribution of dividends could proceed in the interests of all parties involved.
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Ratio Decidendi
Legal Principle Established
Established by: JUDGE J
In Quin as Trustee of the Bankrupt Estate of Philip Chill [2020] FCCA 2652, Kelly J summarised the authorities on the purpose and application of s 146, at [31]–[32]: 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. 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.CONSIDERATIONApplication heard ex parte This Application was heard ex parte. It is unnecessary for the Bankrupt to be named as a party to the Application or for her to be served with it: Barnet v Zhang [2017] FCA 924, [28]–[29]. Even though not strictly required, the evidence before the Court shows that the Bankrupt has received notice of the Application and of the hearing date. The Bankrupt did not appear before the Court on any occasion, including on 13 May 2024, request an adjournment or otherwise communicate with the Court in relation to this Application. In all of the circumstances, the Court determined to proceed ex-parte.Section 146 applicationHas the Bankrupt failed to file a statement of affairs? On the evidence before the Court, the Bankrupt has failed to file a statement of affairs as required by the Act. More than two and one half years has passed since the Bankrupt was first requested to file a statement of affairs. In that period the Trustee sent a number of letters to the last residential address of the Bankrupt and numerous emails to the Bankrupt’s email address seeking a statement of affairs. The solicitors for the Trustee have also had telephone communication with the Bankrupt on more than one occasion requesting a statement of affairs be filed. I am satisfied that the Bankrupt has been notified and reminded on multiple occasions of her obligation to file a statement of affairs and, notwithstanding those attempts made by the Trustee, she has not done so.