Naudi and Reid as Trustees of Bankrupt Estate of Albarouki v Albarouki (No.2)
[2019] FCCA 2187
•19 August 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| NAUDI & REID AS TRUSTEES OF BANKRUPT ESTATE OF ALBAROUKI v ALBAROUKI (No.2) | [2019] FCCA 2187 |
| Catchwords: BANKRUPTCY – Antecedent transactions – where three properties transferred by bankrupt within two years of date of bankruptcy – where trustee alleges transfers void – where bankrupt purportedly entered into binding financial agreement with respondent – where after transfer of subject properties consent orders made in Family Court – where application for consent orders misled Family Court – where properties transferred for no consideration. |
| Legislation: Bankruptcy Act 1996 (Cth), ss.30, 120, 120(1)(b), 120(2) & (3), 121, 121(b) and 121(4) Fair Work Act2009 (Cth) |
| Cases cited: Official Trustee in Bankruptcy v Lopatinsky (2003) FCAFC 109 & (2003) 129 FCR 234 Cannane v J Cannane Pty Ltd (In Liquidation) (1998) 192 CLR 557 |
| Applicant: | ROBERT WILLIAM NAUDI AND STUART GEORGE REID IN THEIR CAPACITIES AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF NIDAL ALBAROUKI |
| Respondent: | SHARON BUSHRA ALBAROUKI |
| File Number: | ADG 92 of 2017 |
| Judgment of: | Judge Heffernan |
| Hearing date: | 16 May 2018 |
| Date of Last Submission: | 16 May 2018 |
| Delivered at: | Adelaide |
| Delivered on: | 19 August 2019 |
REPRESENTATION
| Counsel for the Applicant: | Ms G. Walker |
| Solicitors for the Applicant: | DW Fox Tucker Lawyers |
| Counsel for the Respondent: | Mr P. Britten-Jones |
| Solicitors for the Respondent: | Brander Smith McKnight |
ORDERS
THE COURT DECLARES THAT:
The transfer for the Bankrupt’s interest in each of the 205 Denham Court Road, Denham Court NSW 2565, 125 Fox Valley Road, Denham Court NSW 2565 and 2 Carbasse Crescent, St Helens Park NSW 2560 is void as against the Trustees by operation of sections 120 and 121 of the Bankruptcy Act 1966 (Cth).
THE COURT ORDERS THAT:
The transfer of 205 Denham Court Road, Denham Court from the Bankrupt to the respondent is set aside.
The respondent do all things necessary to cause 205 Denham Court Road, Denham Court to be registered in the name of the applicants.
Pursuant to section 30 of the Bankruptcy Act 1966 (Cth), the respondent account to the applicants for:
(a)50% of the proceeds of sale of 2 Carbasse Crescent, St Helens Park; and
(b)The entirety of the proceeds of sale of the 125 Fox Valley Road, Denham Court.
The respondent pay to the applicant an amount equal to any rent received and/or payable to the respondent in relation to 205 Denham Court Road, Denham Court in the period from 3 April 2013 to the date of judgment.
The respondent pay the applicants costs.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADG 92 of 2017
| ROBERT WILLIAM NAUDI AND STUART GEORGE REID IN THEIR CAPACITIES AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF NIDAL ALBAROUKI |
Applicant
And
| SHARON BUSHRA ALBAROUKI |
Respondent
REASONS FOR JUDGMENT
This is an application by the applicant Trustees in Bankruptcy for a declaration that the transfer of the Bankrupt’s interest in three properties to the respondent is void as against the Trustees by operation of s.120 and/or s.121 of the Bankruptcy Act 1966 (Cth) (‘the Bankruptcy Act’). The Trustees seek consequent orders including:
a)That the transfer of a property situated at 205 Denham Court Road, Denham Court, New South Wales 2565 (‘the Denham Court property’) from the Bankrupt to the respondent be set aside;
b)That the respondent accounts to the Trustees for fifty percent of the proceeds of the sale of a property situated at 2 Carbasse Crescent, St Helens Park, New South Wales 2560 (‘the Carbasse Crescent property’) and the whole of the proceeds from the sale of a further property situated at 125 Fox Valley Road, Denham Court, New South Wales 2565 (‘the Second Denham Court property’); and
c)That the respondent pay to the applicant Trustees an amount equal to the rent received and/or payable in relation to the Denham Court property from 3 April 2013 to the date of judgment.
The respondent, Ms Sharon Bushra Albarouki, opposes the orders and asks that the application be dismissed.
The respondent contends that she has a defence to the Trustees’ claims on a number of grounds:
a)Section 120 cannot operate because the transfers of the Denham Court properties were not transfers “by a person who later becomes bankrupt” but rather, were transfers made by operation of consent orders made in the Family Court;
b)In the alternative, there was no transfer of property to which s.120 could operate because interest in all three properties had been transferred by operation of a Binding Financial Agreement;
c)The transfers of the three properties were not for consideration less than market value but were part of a property settlement between the parties as set out in the Binding Financial Agreement and the consent orders; and
d)Section 121 does not apply because the respondent at all times acted in good faith and could not have known or reasonably inferred a fraudulent intent on the part of the Bankrupt or that he was about to become bankrupt.
Background
A sequestration order was made against the Bankrupt, Mr Nidal Albarouki, and the applicants were appointed as Joint and Several Trustees of his Bankrupt Estate on 3 June 2015. The respondent, Ms Albarouki, is the ex-wife of the Bankrupt. Before March of 2013 the Bankrupt was the registered proprietor of the Denham Court property, the Carbasse Crescent property, and the Second Denham Court property.
The Denham Court property and the Second Denham Court property were transferred to the respondent for no monetary consideration. The Carbasse Crescent property was transferred from the joint names of the Bankrupt and the respondent into the sole name of the respondent for no monetary consideration. Each transfer of the properties above listed the consideration for the transfer as being made pursuant to “a Binding Financial Agreement” or “a Financial Agreement”. After the interest in each of the properties had been transferred by the Bankrupt to the respondent, they jointly made an urgent application for, and on the 30 July 2013 obtained, consent property orders in the Family Court of Australia. Those orders required the Bankrupt to transfer his interests in the three properties to the respondent in return for the respondent transferring her interests in three businesses to the Bankrupt. As I have already noted, the transfer of the properties had already been effected before the date of those orders. The Trustee says that the Family Court orders were an ex post facto ruse designed simply to give the appearance of legitimacy to the transfer of the three properties and that the transfers themselves were a sham designed to defeat the claims of the Bankrupt’s creditors.
As far as can be established it seems the Bankrupt left Australia on or about 12 August 2014 and has not returned.
Legislative framework
For the purpose of these proceedings, the relevant antecedent transaction provisions of the Bankruptcy Act are ss.120 and 121.
Section 120 provides, inter alia, as follows:
“Section 120(1) Transfers that are void against trustee
(1)A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a)the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b)the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
Exemptions
(2)Subsection (1) does not apply to:
(a)a payment of tax payable under a law of the Commonwealth or of a State or Territory; or
(b)a transfer to meet all or part of a liability under a maintenance agreement or a maintenance order; or
(c)a transfer of property under a debt agreement; or
(d)a transfer of property if the transfer is of a kind described in the regulations.
Transfers not void against trustee
(3)Despite subsection (1), a transfer is not void against the trustee if:
(a)in the case of a transfer to a related entity of the transferor:
(i) the transfer took place more than 4 years before the commencement of the bankruptcy; and
(ii) the transferee proves that, at the time of the transfer, the transferor was solvent; or
(b)in any other case:
(i) the transfer took place more than 2 years before the commencement of the bankruptcy; and
(ii) the transferee proves that, at the time of the transfer, the transferor was solvent.
Rebuttable presumption of insolvency
(3A)For the purposes of subsection (3), a rebuttable presumption arises that the transferor was insolvent at the time of the transfer if it is established that the transferor:
(a)had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor’s business transactions and financial position; or
(b)having kept such books, accounts and records, has not preserved them.”
The purpose of the section is to prevent property, including a former matrimonial home, from being transferred to related parties to the disadvantage of the Bankrupt’s creditors, for example, if transferred below market value or for no consideration.[1] The onus of proof of these matters rests with the Trustee.
[1] Official Trustee in Bankruptcy v Lopatinsky (2003) FCAFC 109.
Section 121 provides, inter alia, as follows:
“Transfers that are void
(1)A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a)the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and
(b)the transferor’s main purpose in making the transfer was:
(i) to prevent the transferred property from becoming divisible among the transferor’s creditors; or
(ii) to hinder or delay the process of making property available for division among the transferor’s creditors.
Showing the transferor’s main purpose in making a transfer
(2)The transferor’s main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
Other ways of showing the transferor’s main purpose in making a transfer
(3)Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.
Transfer not void if transferee acted in good faith
(4)Despite subsection (1), a transfer of property is not void against the trustee if:
(a)the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
(b)the transferee did not know, and could not reasonably have inferred, that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b); and
(c)the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.”
Accordingly, it can be seen that the two aspects to be proven in an application under this section are that, but for the transfer, the property would probably have been available to the creditors of the Bankrupt Estate, and secondly, that the main purpose was either to prevent or delay its division amongst creditors. Intention for the purpose of the second matter can be inferred from proof of the first.[2]
[2] Cannane v J Cannane Pty Ltd(In liquidation) (1998) 192 CLR 557.
It has been held that where all of the facts concerning a transaction are within the knowledge of a person other than the Trustee, only a slight degree of proof is required to shift the burden of providing the relevant intent to defraud creditors.[3]
[3] Deryk Rowan Andrew as Trustee for the Estate of Colin George Ward (Deceased) v Zant & Ors [2004] FCA 1716.
The powers of the Court with respect to bankruptcy are couched in extremely broad terms. Section 30 provides as follows:
“(1) The Court:
(a)has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and
(b)may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.
(2)The Court may direct such inquiries to be made and accounts to be taken for the purposes of any proceeding before the Court as the Court considers necessary and may, when directing an account to be taken, or subsequently, give special directions as to the manner in which the account is to be taken or vouched.
(3)If in a proceeding before the Federal Court under this Act a question of fact arises that a party desires to have tried before a jury, the Federal Court may, if it thinks fit, direct the trial of that question to be had before a jury, and the trial may be had accordingly in the same manner as if it were the trial of an issue of fact in an action.
(5)Where:
(a)a bankrupt, a debtor or any other person has failed to comply with an order or direction of a Registrar, or with a direction or requirement of an Official Receiver or trustee, under this Act; or
(b)a trustee has failed to comply with an order, direction or requirement of a Registrar, or with a requirement or request of the Inspector‑General, under this Act;
the Court may, on the application of the Registrar, Official Receiver, trustee or Inspector‑General, as the case requires:
(c)order the person who has failed to comply with the order, direction, requirement or request, as the case may be, to comply with it; or
(d)if it thinks fit, make an immediate order for the committal to prison of that person.
(6)The power conferred on the Court by subsection (5) is in addition to, and not in substitution for, any other right or remedy in respect of the failure to comply with the order, direction, requirement or request, as the case may be.”
As I have noted above, the purported consideration for the transfer of the three properties referred to Binding Financial Agreements. Part VIIIA of the Family Law Act 1975 (Cth) (‘the Family Law Act’) caters for Financial Agreements. Financial Agreements do not need to be made prior to marriage.[4]
[4] Section 90C Family Law Act 1975 (Cth).
By virtue of s.90G of the Family Law Act, Financial Agreements are binding in the following circumstances:
“(1)Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if:
(a)the agreement is signed by all parties; and
(b)before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement; and
(c)either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement); and
(ca)a copy of the statement referred to in paragraph (c) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and
(d)the agreement has not been terminated and has not been set aside by a court.
(1A)A financial agreement is binding on the parties to the agreement if:
(a)the agreement is signed by all parties; and
(b)one or more of paragraphs (1)(b), (c) and (ca) are not satisfied in relation to the agreement; and
(c)a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in circumstances from the time the agreement was made); and
(d)the court makes an order under subsection (1B) declaring that the agreement is binding on the parties to the agreement; and
(e)the agreement has not been terminated and has not been set aside by a court.
(1B)For the purposes of paragraph (1A)(d), a court may make an order declaring that a financial agreement is binding on the parties to the agreement, upon application (the enforcement application) by a spouse party seeking to enforce the agreement.
(1C)To avoid doubt, section 90KA applies in relation to the enforcement application.
(2)A court may make such orders for the enforcement of a financial agreement that is binding on the parties to the agreement as it thinks necessary.”
The existence of a Financial Agreement does not defeat a claim by a Trustee in Bankruptcy under ss.120 or 121 of the Bankruptcy Act. It is not necessary for a Trustee in Bankruptcy to apply to the Family Court to have the Financial Agreement set aside.[5]
[5] Combis v Jensen (2009) 179 FCR 150.
The Family Court has power to set aside Binding Financial Agreements pursuant to s.90K in a variety of circumstances, including where a party to the agreement entered it in order to defraud or defeat creditors, or where a party acted with reckless disregard of the interests of a creditor.
Materials relied on
The applicant relies on the following materials:
a)The affidavit of Robert William Naudi, dated 27 November 2017 (‘the Naudi affidavit’); and
b)Exhibits as tendered at trial.
The respondent relies on the following materials:
a)Affidavit of Sharon Bushra Albarouki dated 30 January 2018.
The evidence
The case for the applicant
The case for the applicant was largely based on the documents obtained by Mr Naudi during the course of his investigation into the Bankrupt’s financial affairs. The Bankrupt and the respondent married on 19 January 1992. They were divorced in 2006.[6]
[6] Exhibit A9.
In May 1996, the Bankrupt and the respondent became Directors and shareholders of Starlink International Services Pty Ltd (‘Starlink’). They became registered proprietors of the Carbasse Crescent property as joint tenants in common in September of 1997.[7] In February 2003, Ms Albarouki stopped being a Director of Starlink.[8] The Bankrupt became the registered proprietor of the Second Denham Court property in May 2006.[9]
[7] Affidavit of Naudi, Annexure ‘RWN 24’.
[8] Ibid, ‘RWN 6’.
[9] Ibid, ‘RWN 24’.
In October 2008, Corn N Pop Pty Ltd was incorporated and the Bankrupt was the Sole Director.[10] That company later became known as Elle Amour Pty Ltd. In June 2009, Spa Car Wash Pty Ltd was incorporated with the Bankrupt as the Sole Director and shareholder.[11] That company later became known as Australian Medical Research Centre Pty Ltd. Neither of those companies was ever registered for GST purposes.
[10] Ibid, ‘RWN 37’.
[11] Ibid, ‘RWN 37’.
By the end of the financial year in 2009, the Bankrupt owed Starlink an amount of $607,816.39. The respondent owed Starlink $62,520.73.[12]
[12] Ibid, ‘RWN 6’ at p 80.
On 13 July 2009, Esteem Group Pty Ltd was registered as a corporation[13] with the Bankrupt as the Sole Director, Company Secretary and sole shareholder.
[13] Ibid, ‘RWN 37’ at p 587.
Mr Albarouki entered into a contract for the sale and purchase of the Denham Court property, apparently after auction, on 17 March 2010. The purchase price was $2,050,000.[14] Settlement and transfer of that property took place on 4 May 2010 apparently for full market value.
[14] Ibid, ‘RWN 50’ at p 701.
On 18 January 2011, liquidators were appointed to Starlink by the Supreme Court of South Australia. At that time the Bankrupt was alleged to owe Starlink $649,275.63. The respondent was alleged to owe Starlink $62,520.73 and Elle Armour Pty Ltd owed it $36,120.99. As a result, Starlink sued the Bankrupt and the respondent in the District Court of South Australia in proceedings that commenced in February 2012 (‘the District Court proceedings’).[15] The Adelaide based law firm, Grope Hamilton Lawyers, filed a Notice of Acting in those proceedings for both the Bankrupt and Ms Albarouki on 4 April 2012.[16]
[15] Exhibit A1.
[16] Exhibit A1.
Cleanway Services Pty Ltd was incorporated and registered for GST purposes on 21 May 2012. The respondent was at all times the Sole Director and shareholder until it was deregistered.
The legal challenges faced by the Bankrupt intensified somewhat in May 2012 when the Fair Work Ombudsman commenced proceedings against him and others in the Adelaide Registry of the Federal Court for alleged contraventions of the Fair Work Act 2009 (Cth) (‘the Fair Work Act’).
Starlink’s solicitors wrote to the solicitors for the Bankrupt and the respondent on 16 November 2012 advising that they intended to proceed with an application for summary judgment in the District Court proceedings. In November 2012, the respondent claims her relationship with the Bankrupt ended. On 29 November 2012, the Bankrupt caused a letter to be sent from Mulally Mylott Solicitors to Lai & Co, the solicitors for the respondent, in relation to amendments to a ‘proposed’ Binding Financial Agreement that Mr Lai had apparently prepared.[17] The next day, the second Denham Court property was transferred from the Bankrupt to the respondent without monetary consideration, purportedly “pursuant to a Financial Agreement dated 28 November 2012”. The transfer was witnessed by the solicitors Mr Paul Mulally and Mr Lawrence Lai and it was stamped as having no duty payable.[18]
[17] Exhibit A3.
[18] Op cit, ‘RWN 26’.
About one week later, Starlink’s application for summary judgment in the District Court proceedings was heard and on 7 December the decision was reserved.[19]
[19] Exhibit A1.
The Bankrupt left Australia on 15 February 2013.[20]
[20] The Exhibits reveal that during the course of events described in this judgment, the Bankrupt made numerous departures and returns to Australia prior to his final departure in August 2014. Not all of them have been mentioned in these reasons.
The Bankrupt’s position in the District Court proceedings became untenable when on 27 February 2013 Starlink filed an application to re-open the summary judgment argument. In the course of his defence of these proceedings, the Bankrupt had denied in both his pleadings and in an Affidavit the existence of any loan to him by Starlink.[21] He further denied that the respondent had received a loan from Starlink in any amount.[22] Subsequent to the application for summary judgment, the solicitors for the plaintiff had obtained a copy of a private company loan agreement for the year ended 30 June 2007 between Starlink and the Bankrupt and apparently signed by him on behalf of Starlink as lender and himself as borrower.[23]
[21] Op cit, ‘RWN 7’ at p 191.
[22] Ibid.
[23] Ibid at pp 188 to 201.
The Bankrupt returned to Australia on 6 March 2013. On 27 March 2013, the Carbasse Crescent property was transferred from the Bankrupt to the respondent without monetary consideration purportedly, “pursuant to a Financial Agreement dated …” (the transfer document is blank where the date should be).[24]
[24] Ibid, ‘RWN 30’ at p 559.
On the same day settlement occurred for the Second Denham Court property.[25]
[25] Exhibit A5.
On 2 April 2013, the transfer of the Carbasse Crescent property was registered.[26] The next day a document was executed for the transfer of the Denham Court property from the Bankrupt to the respondent without monetary consideration indicating that the consideration was, “pursuant to a Binding Financial Agreement”.[27] The document does not identify the date of the alleged Financial Agreement. The respondent’s solicitor, Mr Lai, witnessed her signature on the document.
[26] Op cit, ‘RWN 31’ at p 561.
[27] Ibid, ‘RWN 20’ at p 407.
On the same day, a Financial Agreement, pursuant to s.90D of the Family Law Act, was signed between the parties.[28]
[28] Ibid, ‘RWN 12’ at pp 349 to 355.
The terms of that Agreement are significant. It states that it relates to all property and financial resources of both parties. It indicates that the Bankrupt was the owner of the assets and financial resources listed at Schedule 1 of the Agreement as follows:
a)125 Fox Valley Road, Denham Court, NSW 2565 (F.I.12-221923), current market value $1,100,000 – in husband’s sole name; and[29]
b)205 Denham Court Road, Denham Court, NSW 2565 (F.I.1-736764), current market value $1,700.000 in husband’s sole name.[30]
[29] The Second Denham Court property.
[30] Op cit, ‘RWN 12’ at p 353.
Schedule 1 also indicates that the Bankrupt had no non-real estate assets.
The Financial Agreement provided that the Bankrupt relinquished his interests in the Second Denham Court property, the Denham Court property, and the Carbasse Crescent property, as well as requiring him to discharge the mortgage over the Carbasse Crescent property. It should be noted that the Financial Agreement did not refer to any companies.[31] It also provided that neither party would be liable to pay spousal maintenance to the other.
[31] Ibid at pp 349 to 353.
Two days later transfers for the Denham Court property and the Second Denham Court property were registered. On 11 April 2013, Prime Lawyers wrote to Lai & Co referring to the transfer of the three properties pursuant to the Binding Financial Agreement and putting the respondent on notice that it regarded the Agreement as having been entered with the purpose of defeating claims of creditors. The letter advised that an application would be made to the Family Court to set aside the Agreement. That letter also requested a copy of the Binding Financial Agreement. A copy was not provided by the respondent’s solicitor which caused Prime Lawyers to write on 9 May 2013 again requesting a copy. The following day Mr Lai emailed Mr Murphy of Prime Lawyers and advised him that he no longer had instructions “in this matter” and that he had no instructions from the respondent to accept service of proceedings on her behalf.[32]
[32] Exhibit A8.
For reasons that it is unnecessary to explain at this point in the narrative, in May 2013, Starlink withdrew its application for summary judgment against the Bankrupt and the respondent in the District Court proceedings. The matter was listed for trial in that Court on 3 February 2014. On 21 June 2013, the ANZ Bank wrote to Mr Lawrence Lai informing him that his client, the respondent Ms Albarouki, had been unconditionally approved for finance of $655,000 for the purchase of the Second Denham Court property.[33] This is the property that had been transferred into her name without monetary consideration two months earlier. On 23 July 2013, a solicitor acting on behalf of the Bankrupt emailed Mr Lai enclosing a copy of an application for draft consent orders in the Family Court of Australia. The next day, Mr Lai returned via email a copy of those documents signed by the respondent. On that same day, the respondent transferred the Carbasse Crescent property to Mr Chrun and Ms Du for $428,000.[34]
[33] Exhibit A4.
[34] Op cit, ‘RWN 32’ at p 536 (NB this property was later transferred by Chrun and Du to Nhu Van Lam on 21 February 2014 for an identical amount).
The next day, in response to the Bankrupt’s instructions that the Family Court application was urgent and the orders required that day, his solicitor emailed him questioning the urgency, advising of the difficulty in obtaining urgent listings and noting that he had not been given any instructions by the Bankrupt as to why the matter was in fact urgent.[35] That email also expressed the solicitor’s considerable frustration that the Bankrupt had once again left the country.
[35] Ibid, ‘RWN 11’ at p 284.
The application was filed the following day, 26 July 2013. Three days later the respondent herself emailed the Bankrupt’s solicitor with an apparent explanation for the urgency, advising that urgent and unforeseen family circumstances required her to travel overseas and that accordingly she required urgent finalisation of the Family Court proceedings.[36]
[36] Ibid, ‘RWN 16’ at p 390.
Her flight itinerary disclosed that she was leaving for Dubai the next day.
On 30 July 2013, consent orders were made by the Family Court of Australia.[37] They provided as follows:
[37] Ibid, ‘RWN 17’ at p 394.
“BY CONSENT IT IS ORDERED
1.That the Applicant shall transfer and/or relinquish to the Respondent all his interest in the former matrimonial home situated and known as 125 Foxvalley Road, Denham Court NSW 2565 into the Respondent’s name.
2.That the Respondent shall have the sole responsibility for mortgage repayments of the property situated at 125 Foxvalley Road, Denham Court NSW 2565 and all costs and associated outgoings with the said home.
3.That the Applicant shall transfer and/or relinquish to the Respondent all his interests in the former matrimonial property situated and known as 205 Denham Court Road, Denham Court NSW 2565 into the Respondent’s name.
4.That the Respondent shall have the sole responsibility for mortgage repayments of the property situated at 205 Denham Court Road, Denham Court NSW 2565 and all costs and associated outgoings with the said home.
5.That the Applicant shall relinquish all his interests to the Respondent in the business being Elle Amour Pty Limited CAN 133 665 460.
6.That the Respondent shall transfer and/or relinquish all her interests to the Applicant in the business of Esteem Group Pty Limited CAN 138 263 886 into the Applicant’s name.
7.That the Respondent shall transfer and/or relinquish to the Applicant all her interests in the business of Spa Car Wash Pty Ltd CAN 137 958 653 into the Applicant’s name.
8.That the Respondent shall transfer and/or relinquish to the Respondent (sic) all her interests in the business of Clean Way Services Pty Ltd CAN 158 475 828.
9.The Applicant shall retain to himself, the ownership of Holden Ute Registration No. BCV-79W.
10.The Applicant shall retain to himself, the ownership of all furniture and furnishings currently in his possession and his bank accounts in his name and funds therein.
11.The Respondent shall retain to herself, the ownership of all bank accounts in her name and funds therein.
12.The Applicant shall retain and keep to himself all his superannuation interests in his name.
13.The Respondent shall retain and keep to herself, all her superannuation interests in her name.”
On 10 September 2013, the Bankrupt lodged an application to deregister Australian Medical Centre Pty Ltd. He declared the company was not carrying on business, had assets of less than $1,000, and no outstanding liabilities.[38]
[38] Ibid, ‘RWN 35’ at p 570.
The respondent, Ms Albarouki, transferred the Second Denham Court property to Mr Jimmy Murphy for $1,000,000 on 16 December 2013.[39] Between the beginning of February and the end of March 2014, the Bankrupt and the respondent twice changed their solicitors in the District Court proceedings. On 8 April 2014, the respondent made an offer to resolve the District Court proceedings as against herself for an amount of $10,000. The offer was conveyed in a letter from her new solicitors, Saldaneri & Associates. The letter indicated that the respondent had been suffering financially and emotionally since the breakdown of her marriage and struggling simply to support her children with no assistance from the Bankrupt.[40] In order to consider her offer, Starlink requested the respondent to provide a Statement of Assets and Liabilities. That request was ignored and the respondent instead asked Starlink to indicate the exact amount it was claiming from her. After some further correspondence, on 3 May 2014 the respondent settled with Starlink International and paid it the amount of $62,520.73.
[39] Ibid, ‘RWN 28’ at p 554.
[40] Ibid, ‘RWN 53’ at p 1,001.
On 6 May 2014, the Bankrupt’s former solicitors, Grope Hamilton Lawyers, obtained judgment against him in the amount of $62,737.92.[41]
[41] Ibid, ‘RWN 53’ at pp 1,070 & 1,078.
The Bankrupt made an offer, which was rejected, to resolve the District Court proceedings in the amount of $15,000 on 10 June 2014. The offer was put on the basis that he had no assets to meet any judgment that might be obtained against him. On 12 June 2014, the District Court entered a default judgment in favour of Starlink against the Bankrupt in the amount of $748,828.26 plus costs.[42]
[42] Ibid, ‘RWN 24’ at p 447.
About a month after that judgment was obtained, the Bankrupt’s solicitor, Ms Saldaneri, made a further offer to Starlink to settle the judgment in the District Court proceedings on behalf of the Bankrupt in the amount of $100,000. That offer was rejected on 24 July 2014. On 31 July 2014, Ms Saldaneri emailed the solicitor for Starlink indicating that the Bankrupt’s financial position was dire and that he held no assets that could satisfy the judgment amount in the absence of a commercial settlement.[43]
[43] Ibid, ‘RWN 53’ at p 1,088.
The Bankrupt returned to Australia on 29 July 2014 and then departed Australia again on 12 August 2014. As far as can be ascertained, he has not returned to this country.
Perhaps somewhat optimistically, on 24 September 2014, Starlink made an offer to the solicitor for the Bankrupt to resolve the District Court judgment.[44] The Bankrupt’s solicitor responded on 6 October 2014 advising that she no longer acted for the Bankrupt and for that reason could not obtain instructions with respect to their offer.
[44] Ibid, ‘RWN 53’ at p 1,090.
The respondent put the Denham Court Road property on the market in December 2014. She set an asking price of $2,600,000. On 10 December 2014, Starlink filed injunctive proceedings in the District Court of South Australia seeking an order restraining the respondent from dealing with the proceeds of the sale of the Denham Court Road property. Those orders were made on 27 December 2014 and extended on 14 January 2015 until further order.
A default judgment was entered against the Bankrupt on 2 April 2015 in the Federal Court in relation to the Fair Work Ombudsman proceedings. In late April, Ms Saldaneri emailed the solicitor for Starlink and advised them that she did not know the whereabouts of the Bankrupt and was not in contact with him, and had not been for some time, and advised that the respondent did not know his whereabouts.[45] On 1 June 2015, the applicant lodged an application to de-register Esteem Group Pty Ltd declaring that it was not carrying on business, had assets of less than $1,000, and had no outstanding liabilities.[46]
[45] Ibid, ‘RWN 53’ at pp 1,094 to 1,096.
[46] Ibid, ‘RWN 36’ at p 573.
As I have already noted, the sequestration order was made against the Bankrupt on 3 June 2015. The de-registration of Esteem Group Pty Ltd occurred on 5 August 2015. That was followed by the de-registration of Cleanway Services Pty Ltd on 18 October 2015, pursuant to s.601AB of the Corporations Act 2001 (Cth). It should be noted that pursuant to subsection 1(c) of that section, ASIC may only de-register a company under that section if it is satisfied that it has no reason to believe that the company is carrying on business.
After the appointment of the applicants as Trustees, there followed repeated attempts by them to obtain information and documents from the Bankrupt and the respondent.
On 8 February 2016, Saldaneri & Associates wrote to the solicitors for the applicants on behalf of Ms Albarouki, the respondent.[47] The email attached a copy of a contract for sale of the Denham Court Road property, dated 17 March 2010, (ie. when it was purchased by the Bankrupt). It indicated that the contract had been executed by the Bankrupt in his personal capacity. The email also enclosed a copy of the Minutes of a meeting of the Trustee of the Albarouki Family Trust, dated 10 March 2010. The Minutes indicate that that it was unanimously resolved on that day that the Trust would purchase the Denham Court Road property. Ms Saldaneri’s email asserted that the Trust had been paying tax on the property since purchase.[48] The applicant’s solicitor responded to that email on 3 March 2016, indicating clearly that the documents provided were insufficient evidence for the applicant to forego the entitlement to the properties. That letter clearly put the respondent’s solicitor on notice that the Trustees did not accept, on the basis on the documents provided, that the Bankrupt purchased the Denham Court Road property in his capacity as Trustee of the Albarouki Family Trust. It requested further evidence.[49] Approximately one week later, Ms Saldaneri wrote again by email to the applicant’s solicitor. That email enclosed a further copy of the contract for sale of the Denham Court property. This further copy identified the purchaser as “Nidal Albarouki for Albarouki Family Trust”. It also enclosed a Land Tax Assessment Notice. Ms Saldaneri gave the following explanation for this turn of events:
“We are instructed that Mr Albarouki had an issue with his solicitor and the Contract was amended to properly reflect the purchaser.
We are instructed that our client holds the original stamped contract which reflects the purchaser as Nidal Albarouki as Trustee for the Albarouki Family Trust.
The previous copy of the Contract was forwarded to us by Mr Albarouki some time ago before his departure for the Middle East and Mrs Albarouki instructs us that she has never seen such document but she holds the original stamped contract which reflects that the property was purchased on Trust.”
[47] It should be noted that Ms Saldineri claimed not to be acting for the Bankrupt at this time.
[48] Ibid, ‘RWN 46’ at pp 668 to 671
[49] Ibid, ‘RWN 47’ at p 673.
On 8 April 2016, the solicitors for the applicants wrote to Ms Saldaneri demanding an explanation for the two versions of the contract for sale and purchase of the Denham Court property. That letter pointed out that the applicants had been provided with an executed copy of the contract from Lai & Co Solicitors who had acted as solicitors for the purchaser of the property. The copy of the contract provided by Lai & Co simply stated that purchaser was Nidal Albarouki and did not include the hand written annotation which appeared on the second version of the contract provided to the applicants by Ms Saldaneri “for Albarouki Family Trust”. An explanation was requested for the discrepancies. No explanation was received and on 28 April 2016 the applicant’s solicitor wrote about the matter again to Ms Saldaneri.
On 21 June 2016, the applicant’s solicitor received a letter from Brander Smith McNight Lawyers advising that they were now acting on behalf of the respondent Ms Albarouki. In reply to the applicant’s request for an explanation as to the discrepancies between the two copies of the contract that had been provided by Ms Saldaneri the respondent’s new solicitor stated the following:
“Our instructions are that the property described as 205 Denham Court Road Denham Court, NSW (“Property”) was purchased by Nidal Albarouki as a natural person in 4 May 2010 for full market value”.[50]
[50] Ibid, ‘RWN 51’ at p 738.
The new solicitors did not attempt in that letter to explain the extraordinary state of affairs with respect to the second version of the contract.
On 25 July 2017, approximately four months after these proceedings were commenced, Brander Smith McNight wrote to the solicitor for the applicant stating that their client, the Bankrupt Mr Albarouki, wanted to consider a formal arrangement with the creditors of the Bankrupt Estate.[51]
[51] Exhibit A10.
Having not provided a Statement of Affairs, or even attempted to co-operate with the Trustees in Bankruptcy, there appears to have been a small flurry of interest from the Bankrupt as the trial in this matter approached. On 28 March 2018, CK Lawyers wrote to the Trustee indicating that they had been consulted by the Bankrupt in relation to the possibility of an annulment of his Bankruptcy. On 1 May 2018, Brander Smith McNight wrote to CK Lawyers requesting copies of any correspondence from them to the applicant which indicated that an annulment might be negotiated. On 7 May 2018, CK Lawyers replied to that letter enclosing various items of correspondence.[52]
[52] Exhibit A11.
On 4 March 2016, in the Federal Court, Besanko J ordered the Bankrupt to pay pecuniary penalties totalling $94,050 in relation to the judgment obtained against him by the Fair Work Ombudsman.
In his brief examination in chief, the applicant, Mr Naudi, told the Court that since being appointed Trustee he had not been provided with the purported Financial Agreement between the Bankrupt and the respondent from November 2012. He had not had any direct dealings with the Bankrupt, did not know his whereabouts, and in terms of the contact details had only received an email address. He had received some correspondence from solicitors purporting to act on behalf of the Bankrupt as described above. A creditors listing from the morning Mr Naudi gave evidence showed the Bankrupt had creditors in excess of $900,000.[53]
[53] Exhibit A15.
In cross-examination, Mr Naudi confirmed that he had never met the Bankrupt, had made no enquiries as to whether he had assets overseas, and that given the Bankrupt’s lack of cooperation, he had not had access to the records of companies in which the Bankrupt had held shares. He had sought unsuccessfully to get the Bankrupt to complete a Statement of Affairs. He had not engaged anyone to make a valuation of Australian Medical, the Esteem Group, or Cleanway Services. Mr Naudi agreed that it appeared that no mortgage had been taken out on the Denham Court property when purchased by the Bankrupt in 2010. He was not able to ascertain the purchase price or level of mortgage for either the 2006 purchase of the Second Denham Court property, or the 2003 purchase of the Carbasse Crescent property. Mr Naudi agreed that it would be speculation on his part as to what, if anything, Esteem Group Pty Ltd actually did between 2009 and 2015. He agreed that he had no records to show its level of assets and liabilities for that period of time. Similarly, he had not seen any documents which recorded the assets and liabilities of Cleanway Services as at March/April 2013, when his attention was drawn to items 46 and 49 of the Family Court Application for consent orders.[54] He conceded that he had no documents or information that could shed light on the Bankrupt’s claim that, as at the date of the Family Court Application, his interest in Spa Car Wash, Cleanway Services, or Global Waste was worth $2,200,000. He acknowledged that he had not made any application under the Family Law Act to set aside the consent orders.
[54] Op cit, ‘RWN 14’ at p 373.
His evidence was that, as far as Australian Medical Centre Pty Ltd was concerned, the latest it could have carried on business would have been around 10 September 2013.
Case for the respondent
The respondent, Ms Albarouki, gave brief evidence-in-chief and was cross-examined. She told the Court that she currently resides at the Denham Court Road property. In her Affidavit the respondent states that she is a qualified beautician and worked part-time until late 2015. She had four children with the Bankrupt. Since late 2015, her evidence was that she had been unemployed and caring full time for the youngest child who had developmental problems and disabilities. With respect to her relationship with the Bankrupt, Ms Albarouki said in her Affidavit that she and the Bankrupt had separated on a final basis in early 2005. At that time the Bankrupt was the sole owner of the Denham Court property and the second Denham Court property, and they were joint owners of the Carbasse Crescent property. Their divorce was granted on 21 March 2006 and the respondent states in her Affidavit:
“Following separation I no longer had any meaningful contact with Nidal and communicated with him solely through our children”.
At the time of separation, the children were aged six months, six, eleven and twelve years respectively. She states that during the separation the Bankrupt was operating a number of very financially successful companies and that they agreed during the separation for the Bankrupt to keep the companies whilst she retained the three properties.
The respondent states in her Affidavit that whilst she and the Bankrupt had joint representation for the Starlink proceedings against them in the District of South Australia they, “did not maintain any meaningful contact through the District Court proceedings”. Her evidence was that she did not have any real involvement with operating Starlink and was told very little about it by the Bankrupt. She states that throughout the District Court proceedings, and the period leading up to and following her settlement with the liquidators in February 2014, she was not aware and did not know that the Bankrupt was, or was about to become, bankrupt because they did not maintain any meaningful contact. As far as she was aware up to the time of his bankruptcy in June 2015 the Bankrupt appeared to be affluent.
Her evidence as to the Financial Agreement was that by early November 2012 she intended to finalise her property and financial affairs with the Bankrupt. She acknowledged that she had been very unorganised and tardy in doing this. She states that after separation, the Bankrupt had not made any significant contribution to child support. She states that the Bankrupt had the transfer document for the Second Denham Court property stamped on 30 November 2012 but did not register it at that time. It was the intention of the parties to document and give effect to the earlier agreement as to the division of property by way of a Binding Financial Agreement and/or consent orders in the Family Court. She says that she relied on the professional advice and services of Lai & Co through the property settlement process, and with respect to the property agreement. She was told that the draft document entitled, ‘Financial Agreement’, pursuant to s.90D of the Family Law Act 1975, was a Financial Agreement to be made after a divorce order. She says she was advised by her solicitor that the document would give effect to the earlier property agreement between her and the Bankrupt. She states that on 2 April 2013, the Bankrupt transferred interest in the Carbasse Crescent property to her in anticipation of executing the Binding Financial Agreement. On 3 April 2013, she says the Denham Court property was sold to her but not transferred at that time and that on the same day she and the Bankrupt formalised the property agreement by executing the Binding Financial Agreement.
On 5 April 2013, she says that the Bankrupt transferred his interest in the Denham Court property to her in accordance with the Binding Financial Agreement and did the same with respect to the Second Denham Court property.
At some time after signing the Binding Financial Agreement, she says that she was advised by her solicitor that the Agreement could prove to be unsuccessful in some circumstances and might possibly be terminated or set aside. In late July 2013, she received a draft Application for Consent Orders from the Bankrupt’s solicitors. She states that the Application for Consent Orders listed the Denham Court property and the Second Denham Court property but not the Carbasse Crescent property as it was previously sold. She states that it was the Bankrupt who placed the value on the companies, Esteem Group, Cleanway Services and Spa Car Wash, in the amount of $2,200,000 but makes no other comment about that. She asserts that the Family Court made orders on 30 July 2013 that reflected both financial and non-financial contributions made by the Bankrupt including the transfers of property to her. She claimed to believe that it was pursuant to the consent orders that she transferred her interests in the three companies to the Bankrupt. The respondent states that she has not received any rental income for the Denham Court property at any time.
Prior to cross-examination, the respondent sought in brief examination-in-chief to correct a significant matter in her Affidavit of 30 January 2018. Contrary to her clear statement in that document that after separating from the Bankrupt on a final basis in early 2005 she had no meaningful contact with him, she told the Court that whilst she and the Bankrupt had divorced in 2006, they were reconciled and started living together again in 2010.[55] This was because she had trouble looking after four children on her own. The respondent also corrected the claim in her Affidavit that at the time of separation, the Bankrupt was a registered proprietor of the Denham Court Road property, saying that this did not occur until 2010 when they discussed its purchase at about the time they reunited. She told the Court that the Bankrupt remained living with her at that property until about October/November 2012 when it became apparent that the relationship between them was not going to work out.[56] The respondent said that during the period of their brief reconciliation, the Bankrupt was operating the businesses, Esteem Group, Spa Car Wash and Cleanway, and they were running quite well although she was limited in what she knew about them.[57]
[55] Transcript at p 60 lines 10 to 35.
[56] Transcript at pp 61 to 62.
[57] Transcript at p 62.
In cross-examination, the respondent said that between 2005 and 2010 she did not live under the same roof as the Bankrupt. After 2010, they lived together as a “proper family”. She said that she agreed with the Bankrupt about finalising property and financial affairs in early 2012. She said that the Binding Financial Agreement she executed in April 2013 was in the same terms that she had agreed with the Bankrupt in early November 2012.[58] Ms Albarouki was not able to give any adequate explanation for why it was she had not mentioned in her Affidavit that she reconciled and lived with the Bankrupt from 2010 until about 2012. Her unconvincing explanation came down essentially to this:
“I think the main focus was on something else. I was distracted with something different than just mentioning the fact that we reconciled. I was – think the more concern was I was worried about the stability of my children and the properties, and I just did not mention the fact that I was reconciled in that period of time.”[59]
[58] Transcript at p 65, line 2.
[59] Transcript at p 66, lines 25 to 29.
The respondent claimed to be unaware that the liquidators of Starlink were seeking over $600,000 from the Bankrupt in the District Court action. She acknowledged that she had seen the District Court Statement of Claim. When a copy of the Statement of Claim was shown to her and it was pointed out that the amount sought from the Bankrupt was identified immediately above two paragraphs which identify the amount sought from her, the respondent still did not directly answer the question as to whether or not she was aware that the liquidators were seeking $600,000 from the Bankrupt. Her answer was:
“Now I can see it, yes”.[60]
[60] Transcript at p 68, line 31.
I do not accept the evidence of the respondent that she was unaware during the course of the District Court proceedings that the Bankrupt was being pursued for over $600,000.
The respondent claimed not to be able to recall whether or not she knew that the Fair Work Ombudsman had issued proceedings against the Bankrupt in the Federal Court of Australia. This was not withstanding the fact that those proceedings were instituted at a time when she was residing with the Bankrupt, they were co-defendants in other proceedings, and were represented by the same solicitor in those proceedings.
Ms Albarouki was cross-examined about the letter sent by her solicitor Ms Saldaneri which asserted that she had not had contact with the Bankrupt since sometime in 2014. She agreed that she had resiled from that but disagreed that it meant that she had actually had contact with the Bankrupt up until sometime in 2014, maintaining that they finished their relationship by 2012 and that after that she had no contact with him. Her explanation was that by the time Ms Saldaneri asked her in 2014, she was definitely having no contact with the Bankrupt.[61] The email in question was in fact sent in 2015. She maintained that it was an error and that she has not had any contact with the Bankrupt since 2012.
[61] Transcript at p 69, lines 32 to 34.
When cross-examined about the apparent disparity between her claim that she had no meaningful contact with the Bankrupt throughout the District Court proceedings, and hence did not know he was about to be made bankrupt, and her evidence that she was living with him until November 2012, the respondent said the fact that they were living together did not mean that they had proper communication:
“There are certain things that we did not discuss at all.”[62]
[62] Transcript at p 78, line 25.
The respondent drew a distinction between the type of contact she had with the Bankrupt by virtue of living with him and “meaningful contact”. The effect of her evidence was that despite living together for over two years with the children as a family and attempting to reconcile, there was no communication between them, they had separate rooms and she was living with the Bankrupt simply for the sake of the children. The reconciliation ended when things “got out of hand” and she obtained a restraining order against the Bankrupt. She claimed that in the two years they cohabited she did not speak with the Bankrupt and would only communicate with him through the children.[63] This included having no conversation with him about purchasing the Denham Court property, all conversations about that matter having occurred through the agency of her son.
[63] Transcript at p 80, lines 30 to 44 & p 81, lines 20 to 30.
I do not accept the respondent’s evidence about the discrepancy as to when the parties separated, the explanation for her failure to mention the reunification with the Bankrupt in her trial Affidavit, not having discussed any aspect of the District Court proceedings with the Bankrupt, not being aware of the amount sought against the Bankrupt in the District Court proceedings, and not speaking to him except through the children for the two year reconciliation period. I found the evidence of the respondent similarly unconvincing when she was cross-examined about a claim she had made in an Affidavit she had sworn in the course of the District Court proceedings. In that document she swore as follows:
“Since the liquidation of the plaintiff the first defendant (ie the Bankrupt) and I have been searching for these invoices in order to put our case …”
That claim is inconsistent with her evidence of the lack of meaningful contact between them during the reconciliation period. She denied in cross-examination that the clear import of that statement was that they had been looking for documents together.[64] I do not accept her denial.[65] I found her evidence that she had no significant involvement in Starlink difficult to accept in light of her answers in cross-examination about claims that she made in the District Court Affidavit that she had personally made cash payments for invoices issued to Starlink. Ms Albarouki was not able to explain what she meant in that earlier Affidavit by saying that she had “personally” made payments. She said she was not able to recall what she had done in that regard. She characterised her involvement with Starlink as:
“Not real, real, heavy involvement … just little bits and pieces like I mentioned. Not heavily, fully involved in the business …”[66]
[64] Transcript at p 85, line 12.
[65] See for example respondent’s trial affidavit at para [14].
[66] Transcript at p 88.
She claimed at first not to be able to remember if she had in fact paid for company expenses, then claimed that she had paid some of the company expenses but said:
“I paid some of the company expenses, but it doesn’t mean I was fully involved in the business. It depends on what definition of “fully involved in the business”. To me it was just very brief, not full on. A full-time position is something when you are heavily involved in a company. And I wasn’t at that time. A couple of invoices paid here and there. It was paid, but it doesn’t mean I was operating and working in Starlink.”[67]
[67] Transcript at p 89, line 46 to p 90, line 5.
When challenged that her claimed payments for Starlink were clearly more than just a couple of invoices, “here and there”, the respondent replied:
“It’s just a term I said. It doesn’t mean that’s the way it is.”[68]
[68] Transcript at p 90, line 11.
Ms Albarouki maintained nonetheless that she had personally paid $62,000 in expenses on behalf of Starlink.[69]
[69] Transcript at p 90, line 14.
The respondent was also cross-examined about one of the invoices annexed to her District Court Affidavit. It was purportedly by an expense paid by her on behalf of Starlink. The invoice appeared to be for the installation of garage doors at her family home, being the Carbasse Crescent property. In cross-examination, she stated that she could not recall if it had been a Starlink expense or not, postulated that there might have been some link to Starlink but suggested that an accountant may be able to explain the expenditure on taxation grounds.[70]
[70] Transcript at pp 91 to 92.
Throughout this section of cross-examination the respondent returned consistently to the proposition that she had only minimal involvement with Starlink and was told nothing about it by her husband.[71] That is obviously inconsistent with her claim to have personally paid debts on behalf of Starlink and the fact that she was a Director of the company for several years.
[71] For example see transcript at p 97, line 40.
A further matter that was subject to close cross-examination was the proximity between the signing of the Binding Financial Agreement on 3 April 2013, and the urgent consent application for property orders in the Family Court, and the respondent’s motivation for seeking consent orders in the Family Court. The respondent said that she was advised by her solicitor about the potential for the Binding Financial Agreement to “fail” because she approached Mr Lai with some concerns that the Bankrupt might be able to come back against her for a more favourable settlement and have the Binding Financial Agreement set aside.[72] She said it was that which motivated her to go back to speak to Mr Lai, although she could not recall how long after the signing of the Binding Financial Agreement that was. It was put to the respondent that the reason she got further advice from Mr Lai was because of the letter sent by Prime Lawyers on 11 April 2003 threatening to make an application to set aside the Binding Financial Agreement. The respondent said that she could not exactly remember what had happened at that time, but she acknowledged having seen the letter from Prime Lawyers.[73] Ms Albarouki claimed not to be able to recall whether or not her concern about the security provided by the Binding Financial Agreement was as a result of advice Mr Lai had given her in response to that letter.
[72] Transcript at p 100, lines 5 to 16.
[73] Transcript at p 100, line 42 and Exhibit A6.
The respondent was shown a copy of the letter from Prime Lawyers addressed to her and dated 9 May 2013. After some hesitation, she acknowledged that she received that letter. That letter clearly put her on notice of the fact that Prime Lawyers regarded the transfer of property as having been entered into for the purpose of defeating creditors, or with reckless disregard for their interests as a creditor. It demanded a copy of the Financial Agreement from her and also confirmed that they had been advised that Mr Lai neither had a copy of the Binding Financial Agreement or held instructions on behalf of the respondent. I indicate at this point that I am prepared to draw the inference that the letter from Prime Lawyers was a substantially contributing reason for the joint application for consent orders having been made.
The respondent was not able to recall whether she received advice from Mr Lai about the Binding Financial Agreement after either the first letter from Prime Lawyers, or the second letter from them addressed directly to her. She said that the advice she received from Mr Lai was not related to the letters from Prime Lawyers.[74] When asked about the email sent by Mr Lai on 10 May 2013 advising Prime Lawyers that he no longer held instructions in relation to the matter, Ms Albarouki attempted to draw a distinction and suggested that Mr Lais response was as reference to any dispute with Prime Lawyers and that:
“It’s not – it’s referring not to my situation here with the financial binding.”[75]
[74] Transcript at p 101, lines 20 and 21.
[75] Transcript at p 102, lines 3 and 4.
The respondent said that Mr Lai did work on the consent orders after 10 May 2013, but she could not recall if she told him not to communicate with Prime Lawyers. She claimed not to be able to recall whether it was after the letters from Prime Lawyers that she started the process of obtaining consent orders. The respondent was not able to explain why it was, if the consent order of the Family Court came about as a result of her concerns about the motives of her former husband, the Bankrupt, that the first draft of those orders was generated by his solicitor. Her answer was, in effect, that she had left the lawyers to deal with it and could not comment on that matter.
I do not accept the evidence of the respondent as to her state of mind surrounding the decision to apply for consent orders in the Family Court. The clear inference from the evidence is that the decision was motivated at least substantially by the potential threat posed by Prime Lawyers. Further, I am satisfied that the respondent was aware that the terms of the Binding Financial Agreement might be regarded as an attempt to defeat creditors and that this was indeed the intent of both she and the Bankrupt. The respondent was equally unconvincing when cross-examined about the fact that in the application for consent orders in the Family Court she stated the final separation date between herself and the Bankrupt was 22 April 2006.[76]
[76] Transcript at p 105 - 106.
The respondent was unable to explain why it was that paragraph 14 of the application to the Family Court indicated that the parties had not previously entered into a Financial Agreement under the Family Law Act. She acknowledged that the Agreement of 3 April 2013 should have been identified there, could not explain its absence and simply said that she had left things in the hands of her lawyer. Notwithstanding this, Ms Albarouki gave evidence that she had read s.79 of the Family Law Act prior to signing the application for consent orders.
She explained the fact that she answered “no” to the question about whether or not any other person might be entitled to become a party to the case under subs.79(10) of the Family Law Act as being because she did not understand matters properly, had left them in the hands of the lawyers to deal with, and did not really understand at the time what a creditor was, and what effects the status of a creditor might have on any consent orders.[77]
[77] Transcript at p 107.
She said that she did not understand any interrelationship between the District Court proceedings and any consent orders in the Family Court, and that her lawyer did not explain it to her. When it was put to her that she understood that if orders were made in the Family Court, liquidators might not be able to recover their claim against the Bankrupt, she responded:
“I have no clue. I was not advised about that. I did not know that’s how it works. … I am literally left in the dark, I don’t know. I don’t know it works together with consent orders. I wasn’t showed and told and explained thoroughly back then. I ….[78]
[78] Transcript at p 108, lines 5 to 10.
Ms Albarouki claimed not to be able to recall whether she knew at the time the consent orders were made that the three properties had already been transferred into her name.[79] She claimed not to be aware of any motive behind obtaining the consent order relating to avoiding the Bankrupt’s creditors. She could not explain why the Carbasse Crescent property was not mentioned in the application for consent orders and could not recall if the sale of that property had settled or not at the time consent orders were applied for.
[79] Transcript at p 108, lines 22 & 23.
In fact, as the cross-examiner put to her, that property was transferred on the same day that the respondent executed the application for consent orders. The transfer was for the sum of $428,000. Similarly, the respondent had no explanation for why there was no mention of the claim by the liquidators in the District Court proceedings under the liability section of the Application. The effect of her evidence appeared to be that, whilst she had some understanding that in excess of $600,000 was being sought from the Bankrupt, she only understood it up “to a point”, not 100 per cent:
“I wasn’t – didn’t understand it properly back then, how it worked.”[80]
[80] Transcript at p 112, lines 37 & 38.
I found that answer unconvincing and I do not accept her evidence on that matter. I find it unusual if Ms Albarouki was so concerned about the Bankrupt becoming dissatisfied with the Binding Financial Agreement that she felt the need to obtain consent orders in the Family Court that she would not also have made an application with respect to parenting orders relating to the children. Her answer to that was that she was satisfied that, knowing her ex-husband, he would be unlikely to come back and attempt to take responsibility for the children.[81]
[81] Transcript at p 113.
Ms Albarouki was cross-examined about the apparent alteration of the contract for the sale of the first Denham Court property to make it appear that it had been purchased by the Bankrupt as a trustee. She claimed she was not able to recall from where she got the altered version of that contract. That was the extent of the respondent’s attempt to explain the suspiciously convenient appearance of that document in the chronology of these events. She also claimed, and again, unconvincingly, that she could not recall if the Bankrupt had purchased the first Denham Court property in his personal capacity, or as a Trustee.
There was no re-examination of the respondent by her counsel.
The overall impression of Ms Albarouki’s evidence was that quite apart from any genuine difficulties she had in recalling the relevant events, she was evasive, selective in her memory, and when she believed it to be in her best interests, was prepared to make false denials. Specifically, I found her to have been at the very least disingenuous as detailed above. Taking her evidence as a whole, I did not regard it as both honest and reliable.
Submissions
It is submitted by the applicant that the transfers of property were undertaken without monetary consideration for an improper purpose, namely to defeat the Bankrupt’s creditors. The orders obtained in the Family Court were, it was submitted, simply a step taken in furtherance of that improper purpose. The application for those orders had no work to do with respect to the properties because all legal and beneficial interests had been transferred prior to the applications being made. It was submitted that the Court should find the relevant transfers void against the Trustee.
The respondent submits that it is fatal to the applicant’s case that the consent orders were made in the Family Court. This is because, pursuant to s.79, the Court can only make orders for the division of property when it is satisfied that it is just and equitable to do so. Whilst final property orders can be set aside or varied, the Trustee has not sought to set aside the orders in this matter. The respondent points to the decision in Official Trustee in Bankruptcy v Mateo[82] to submit that this is the ordinary course to be adopted. The respondent submits that the Family Court orders cannot be ignored, notwithstanding that they were made after the relevant transfers. Mr Britten-Jones submitted that the s.79 orders operate in two ways. Firstly, despite the orders post-dating the transfers, he submits that the transfers were made pursuant to those orders and for that reason there was no transfer of property by a person who later becomes a bankrupt.[83] Secondly, he submits that the orders provide a foundation for finding that either there was sufficient consideration given by the respondent to the transfers, or that the Trustees have failed to satisfy their onus of proving that no consideration was provided, or that it was provided at an undervalue.
[82] (2003) 127 FCR 2017.
[83] See Mateo, ibid, at para [64] and [104]; Official Trustee in Bankruptcy v Lopatinsky (2003) 129 FCR 234 at 76.
The respondent’s submissions are to a large extent predicated on the argument as to consideration. For the purpose of s.120(1)(b) of the Bankruptcy Act, the respondent submits that an analysis of this aspect begins with identifying what, if any, consideration was actually given, and then to determine whether the market value was less than the market value of the property transferred.[84] In the respondent’s submission, the first question is satisfied by reference to the consent orders. In consenting to those orders, the respondent gave consideration for the transfer of the properties because she relinquished any entitlement she might have had to sharing the three businesses identified in the orders. Agreeing to enter a Binding Financial Agreement and consenting to Family Court orders can be sufficient to amount to consideration.[85]
[84] Lopatinsky, ibid.
[85] Mateo, op cit, at para [67].
What is not explained in the respondent’s submission was how the Court should regard the fact that the properties had already been transferred to the respondent some months before the consent orders. The difficulty presented by that question is answered simply with the assertion that the properties were transferred pursuant to the orders.
As to the value of the asserted consideration, the respondent submits that the investigation by the applicant is incomplete and that the Trustees have not discharged their onus of proving that the consideration was less than the market value of the properties.
Discussion and conclusion
I reject the respondent’s submission as to consideration. I am satisfied on the balance of probabilities that no monetary consideration was paid for the Denham Court property, the Second Denham Court property, or the Carbasse Crescent property. The consent orders in the Family Court do not alter that fact. That conclusion is established by the chronology. Some repetition is required of matters previously mentioned in these reasons. Firstly, the transfer for the Second Denham Court property was executed and stamped in November 2012. The transfer recorded the consideration as “pursuant to a Financial Agreement dated 28 November 2012”. Settlement occurred on 27 March 2013. The transfer was registered on 5 April 2013. The Carbasse Crescent property, which was held in joint names, was transferred to the respondent in March 2013, without monetary consideration, “pursuant to a Binding Financial Agreement dated …”. That transfer was registered on 2 April 2013. Thirdly, a transfer for the Denham Court property from the sole name of the Bankrupt to the respondent was executed on 3 April 2013 without monetary consideration, “pursuant to a Binding Financial Agreement”. The transfer was registered on 5 April 2013.
The Binding Financial Agreement was signed on 3 April 2013. It made no mention of any companies. No Binding Financial Agreement dated 28 November 2012 has ever been produced by the respondent and it was not discovered in the course of the Trustee’s investigation. Both the Denham Court property and the Carbasse Crescent property were unencumbered at the time of transfer to the respondent. The respondent obtained finance to discharge the Bankrupt’s mortgage on the Second Denham Court property in the amount of $655,000, a couple of months after the property had been transferred to her. She sold that property for $1,000,000 to a third party in late 2013.
The respondent had been the registered proprietor of the three properties for about 3 months before the urgent application was made for the consent orders in the Family Court. I am satisfied that the decision in Mateo’s case is distinguishable on its facts from this matter. Whilst the Court in that matter held that s.79 of the Family Law Act empowers the Court to directly alter the interests of the party to a mortgage[86] and that the interests of the parties to the marriage in their matrimonial home were altered by operation of the order of the Family Court, Mateo’s case was not a case, such as here, where the beneficial and legal interest in the relevant property had already passed. In this case, the consent order in the Family Court did not, as in Mateo’s case, vest in the wife all the husband’s beneficial interest in the properties. The transfer of the husband’s beneficial and legal interest had already occurred. I am satisfied that this was not a case where the consent orders reflected an earlier agreement in 2012 that the respondent would get an interest in the three properties in return for the Bankrupt getting the companies. Such a proposition is completely inconsistent with the Binding Financial Agreement. I reject the respondent’s evidence to the contrary. I am satisfied that the reason there was no mention of the companies in the Binding Financial Agreement is because the use of the companies as purported consideration for the transfers was an idea that only arose at the time of the application for consent orders in an effort to give the proposed consent orders an appearance of justice and equity. The application was however, only a ruse.
[86] Mateo, op cit, at para [102].
That situation is not altered by the fact that even in the case of consent orders, an order pursuant to s.79 of the Family Law Act can only be made if the Court is satisfied that it is just and equitable to make the order. The reality is, the application for the consent orders misled the Family Court because at the time the orders were made, the Bankrupt had no beneficial or legal interest in the three properties which could be altered by operation of s.79. The power conferred by s.79 is directed to the alteration of interests. What interest in possession or reversion in the properties was in truth being altered by the consent orders? The companies were not consideration for the transfers of the three properties.
In the course of submissions, the respondent contended that in the absence of a thorough investigation by the Trustee and any information or co-operation from the Bankrupt, the fact that the Bankrupt had completed the ‘Statement of Truth’ at Part J of the Application for Consent Orders was a matter to which weight could be given in determining his motive for obtaining the consent orders, the question of whether consideration was given, and the accuracy of the value ascribed to the three companies by the Bankrupt. To the contrary, in light of the evidence as a whole and the obviously misleading nature of the application itself, the completion by both the Bankrupt and the respondent of the Statement of Truth simply highlights that the application for consent orders was a sham, the final act in an ongoing attempt to defeat the claims of creditors of the Bankrupt. It is particularly telling that in completing the Application form, the parties indicated falsely that they had not previously entered into a Binding Financial Agreement.
The date of the bankruptcy was 9 February 2015. The three properties in question where all transferred within five years before the commencement of the bankruptcy. As I have found above, the respondent gave no consideration for the transfer of any of the properties. None of the exceptions or exemptions under subss.120(2) and (3) apply to any of the transfers. I am satisfied that the applicants have proven that each of the transfers is void as against them as Trustees in Bankruptcy pursuant to s.120.
Further, I am satisfied that the transfers are void as against the Trustees in Bankruptcy pursuant to s.121. I am satisfied that but for the transfers, the three properties would have become part of the Bankrupt Estate and would have been divisible amongst the creditors. I am further satisfied that the Bankrupt’s main purpose in transferring the properties was to either prevent or delay making the properties available for division among the creditors. The situation of the Bankrupt at the time of the transfers readily gives rise to an inference as to his intention in that regard. The application for summary judgment against him in the District Court of South Australia was extant at the relevant time. In addition, he faced the proceedings by the Fair Work Ombudsman in the Federal Court. He was clearly either insolvent or about to become insolvent at the time of the transfers.
I am not satisfied that the respondent acted in good faith and accordingly the exception in s.121(4) does not assist her. For the reasons I have already stated, I am satisfied that no consideration was given for the transfers. I am satisfied that the respondent knew, but in any event could reasonably have inferred, that the Bankrupt’s main purpose in making the transfers was for the reasons identified in s.121(b). I am also satisfied that the respondent could have reasonably inferred at the time of the transfers that the Bankrupt was about to become insolvent.
For the above reasons, I make the declarations and orders to be found at the beginning of these reasons.
I certify that the preceding one hundred and fifteen (115) paragraphs are a true copy of the reasons for judgment of Judge Heffernan
Associate:
Date: 19 August 2019
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