FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Official Trustee in Bankruptcy, in the Matter of Ashworth [2022] FedCFamC2G 1038
File number(s): MLG 2329 of 2022 Judgment of: JUDGE SYMONS Date of judgment: 8 December 2022 Catchwords: BANKRUPTCY – Application by trustee under s 146 of the Bankruptcy Act 1996 (Cth) for distribution of dividends in circumstances where no Statement of Affairs filed – factors relevant to the exercise of discretion – orders that the distribution of dividends proceed as if bankrupt had filed a Statement of Affairs as required by the Act – application granted subject to certain events occurring Legislation: Bankruptcy Act 1996 (Cth) ss 19, 54, 77CA, 140, 145, 146, 281 Cases cited: Quin as Trustee of the Bankrupt Estate of Phillip Chill [2020] FCCA 2652
Division: Division 2 General Federal Law Number of paragraphs: 45 Date of last submission/s: 8 December 2022 Date of hearing: 8 December 2022 Place: Melbourne Solicitor for the Applicant: Harris Carlson Lawyers ORDERS
MLG 2329 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF IN THE MATTER OF THE BANKRUPT ESTATE OF DAVID ASHWORTH
BETWEEN: THE OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATE OF DAVID ASHWORTH
Applicant
ORDER MADE BY:
JUDGE SYMONS
DATE OF ORDER:
8 DECEMBER 2022
THE COURT ORDERS THAT:
1.Pursuant to s 146 of the Bankruptcy Act 1996 (Cth) (Act) and subject to order 2, the distribution of a first and final dividend to creditors of the Bankrupt Estate of David Ashworth (Bankrupt Estate) who have proved their debts before the time of declaration or distribution, proceed in accordance with Division 5 of Part VI of the Act as if David Ashworth (Bankrupt) had filed a statement of affairs and those creditors had been stated to be creditors in it.
2.No distribution is to be made until there has been a search of the National Personal Insolvency Index, to be conducted within 48 hours of any proposed distribution which confirms that no statement of affairs has been lodged by the Bankrupt.
3.The applicant withhold a sum sufficient to pay to the Inspector General the amount of the interest charge and realisation charge payable from the Bankrupt Estate, and any interest payable pursuant to s 281 of the Act.
4.Any distribution of a dividend from the Bankrupt Estate be subject to the entitlement of the applicant to retain an amount sufficient for payment of the costs and disbursements, including any legal costs and disbursements incurred in the administration of the Bankrupt Estate.
5.Any distribution of a dividend from the Bankrupt Estate be subject to the entitlement of the applicant to retain an amount sufficient for the payment of its remuneration.
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
(Revised from Transcript)JUDGE SYMONS:
INTRODUCTION
The Official Trustee in Bankruptcy, in the capacity of trustee of the estate of David Ashworth (Trustee), applies for an order under s 146 of the Bankruptcy Act 1996 (Cth) (the Act).
The Trustee was appointed trustee in Bankruptcy of the estate of David Ashworth (who also goes under the name of David Otto) (the Bankrupt) on 8 May 2020 when it replaced the registered trustee Anthony Michael Castley of William Buck (Castley). The appointment of Castley followed the making of a sequestration order by a Registrar of this Court on 25 October 2017 that was responsive to an underlying debt of $7,636 owed to petitioner Grant Williams.
The application that is before me was filed on 19 October 2022. It is supported by the affidavit of Timothy Liu affirmed on 6 October 2022 (Liu affidavit), the affidavit of Jacqueline Angela Ravbar sworn 24 November 2022 (Ravbar affidavit) and the affidavit of Makenzee Emily Braddy affirmed 25 November 2022 (Braddy affidavit).
The Trustee filed written submissions on 7 December 2022 and made brief oral submissions to the Court this morning through its solicitor, Ms Sullivan.
BACKGROUND TO THE APPLICATION
The application is made against the following factual background which is taken primarily from the Liu affidavit. Mr Liu is a case manager in the Insolvency and Trustee Services Business Line of the Australian Financial Services Authority (AFSA) and together with his colleagues, has the care and conduct of the administration of the Bankrupt’s estate. His affidavit reflects matters within his direct knowledge as well as information which he has acquired as a result of his review of the William Buck file.
Identification of assets and expenses
The Liu affidavit deposes to the following matters, the first being the assets realised in the administration. Those are identified as being limited to the proceeds of sale of property located at 39 Coxen Street, Maryvale, Queensland, being in the amount of $66,670.90.
Mr Liu deposes to the Inspector-General having approved Castley’s remuneration in the sum of $15,000 plus GST on 13 October 2021 and the Official Trustee having made a payment of $19,203 to William Buck on 15 March 2022 in respect of Castley’s remuneration.
As at the date of the Liu affidavit, which was 6 October 2022, a sum of $35,939.74 was available in the Bankrupt Estate, but that figure may of course be reduced somewhat taking into account any deductions yet to be made on account of the Official Trustee’s remuneration and expenses, or for the realisations charge which is payable to the Commonwealth.
Identification of creditors and projected distribution to them
In terms of the proved debts, the Liu affidavit identifies that the following debts have been lodged; that of Creditcorp Services Pty Ltd in the amount of $7,851, the amount of $7,636 referable to the petitioning creditor Mr Williams, and an amount of $32,055 owing to Carters law firm.
The Official Trustee has admitted each of these amounts with the result that the total admitted debts of the Estate is $47,542. No other creditors appear to have debts provable in the Bankrupt Estate, and if no further proofs of debt are lodged in the Bankrupt Estate it is anticipated, subject of course to the possible deductions that might occur in the future, that the Official Trustee will be in a position to declare a dividend to the creditors of approximately $28.17 in a dollar.
Insofar as investigations have been made into the Bankrupt’s other debts, the Trustee has done the following:
(a)obtained an Equifax Report on 17 March of 2022. This did not disclose anything suggestive of an outstanding debt; and
(b)obtained a PPSR Grantor Search Certificate on 17 March 2022 which did not record any registered securities against the Bankrupt.
Based on the Trustee’s own investigations, it would also appear that the following debts may have been owed by the Bankrupt. The first an amount of $1,083 to Cash Converters, and the second an amount of $3,056 to Panthera Finance.
On 28 June 2021 and 11 November 2021, a Notice of Intention to Declare Dividends (NIDD) was issued to Cash Converters and Panthera Finance respectively. The NIDDs requested that the recipient lodge a proof of debt in the Bankrupt Estate. On 11 November 2021, Panthera Finance informed the Trustee that a proof of debt would not be lodged. Cash Converters is yet to lodge a proof of debt in the bankrupt estate and there is nothing to suggest that it has an intention to do so.
Attempts made to obtain a Statement of Affairs from the Bankrupt
Insofar as attempts have been made to obtain a Statement of Affairs from the Bankrupt, based on a review of the file transferred by William Buck to the Official Trustee, the Liu affidavit deposed to the various steps taken by Castley and his firm to obtain the Bankrupt’s Statement of Affairs. These included that on 23 November 2017, William Buck sent a letter to the Bankrupt informing him, amongst other things, that he had obligations under s 54(1) of the Act to file a Statement of Affairs. This letter also informed the Bankrupt that if he required assistance with the Statement of Affairs, that such assistance could be provided. The letter enclosed two sets of blank Statement of Affairs forms.[1]
[1] Exhibit “TL-13” to the Liu affidavit.
On 26 November 2017, the Bankrupt sent Castley an email from the address bookings@easyguitarclasses.com (Bookings email address). After this point, significant correspondence was sent or exchanged between the Bankrupt and Castley using the Bookings email address over the period 14 December 2017 to 22 February 2019. The correspondence from Castley reiterated the importance of the Bankrupt completing and filing his Statement of Affairs and that the consequence to the Bankrupt of his failure to do so would be that he would remain an undischarged bankrupt given that the three year period of bankruptcy would not commence until he filed his Statement of Affairs and it was accepted by the Official Receiver.
Although the Bankrupt did, on 10 January 2018, send Castley an email that attached a copy of a Statement of Affairs, he some six months later on 9 July 2018 informed Castley that AFSA had not accepted it for filing.
Correspondence was also exchanged with the Bankrupt using the email address davidotto@live.com (Otto email address) over the period 2 October 2019 to 20 February 2020. The correspondence from Castley and William Buck reiterated the importance of the Bankrupt completing and filing his Statement of Affairs and that the consequences to him of his failure to do so, namely, that he would remain an undischarged bankrupt. On 12 February 2020, the Bankrupt informed Castley that AFSA had not accepted his second Statement of Affairs.
The Liu affidavit also contains evidence concerning the attempts made by the Bankrupt to file his Statement of Affairs. As would be apparent from the foregoing, he did make two attempts to file this statement, neither of which was accepted by the Official Receiver.
The first statement was signed by the Bankrupt on 10 January 2018. It is exhibit “TL17” to the Liu affidavit. It was not accepted by the Official Receiver with the explanation given that “form illegible”.
On 18 March 2019, Castley made an application to AFSA to issue a notice to the Bankrupt to file his statement pursuant to s 77CA of the Act. It appears that although AFSA acceded to that application, it was unable to serve the s 77CA notice on the Bankrupt.
On 2 October 2019, AFSA sent an email to the Bankrupt via the Otto email address that attached a copy of the s 77CA notice, attached a blank Statement of Affairs and requested that the Bankrupt advise when the Statement of Affairs would be returned.
On 11 October 2019, the Bankrupt sent an email to AFSA in which he stated, amongst other things, that he would obtain assistance to ensure that the statement was completed in accordance with AFSA’s guidelines.
On 25 February 2020, the Bankrupt lodged a further Statement of Affairs for filing with the Official Receiver. On 26 February 2020, AFSA sent a letter to the Bankrupt which provided the following explanation for rejection:[2]
Declaration of the statement of affairs was not signed. As such, the Official Receiver cannot accept your statement of affairs for filing.
Form illegible: Several questions appear to have been cut off. Furthermore it appears that the format of the form has been altered from its original format. As this is a proscribed form, it cannot be altered. Any additional information you wish to provide should only be provided on the blank page 2 of the form, or as a separate statement.
[2] Exhibit “TL24” to the Liu affidavit.
On 17 April 2020, AFSA again reminded the Bankrupt that he would remain bankrupt indefinitely if he did not file his Statement of Affairs. More recently, between 3 and 4 February 2021 and again on 16 December 2021, the Official Trustee sent correspondence to the Bankrupt which emphasised, again, the importance of him filing a Statement of Affairs. The correspondence also contained an invitation to the Bankrupt that he approach AFSA for assistance with completing his Statement of Affairs (or Bankruptcy Form, as it is now called).
Attempts to serve the Bankrupt with this application
Turning then to attempts to serve the Bankrupt with this application, those matters are set out in the Ravbar affidavit. The information which has been provided in that affidavit is first that the Official Trustee does not have a current residential or mailing address for the Bankrupt. However, the Official Trustee exchanged emails with the Bankrupt via the Otto email address, with the most recent email having been received from the Bankrupt on 5 March 2021.
On 22 October 2022, a copy of the application, the Liu affidavit, and a genuine steps statement were emailed to the Bookings email address and the Otto email address. An automatic response was received stating the email sent to the Bookings email address was not delivered. A similar notification was not received in respect of the email sent to the Otto email address.
On 21 November 2021, an attempt was made to call the Bankrupt on the telephone number he provided to AFSA on 8 January 2018. The call went to a message which stated “this number has incoming call restrictions”. The application was also the subject of a public notice published in the Courier Mail on 16 November 2022 which stated that the application made under s 146 of the Act was listed for hearing today at 9.30 am.
Notice of application provided to creditors
Insofar as notice of the application has been provided to the creditors, evidence as to steps taken were set out in the Braddy affidavit. The information included that the copy of the application was sent to the creditors on 16 and 17 November 2022, and that the Trustee has not been notified of any intention on the part of the creditors to be heard.
CONSIDERATION
The Trustee submits that against this background, which includes the failure across a protracted period by the Bankrupt to comply with his obligation under s 54(1) of the Act to file a Statement of Affairs, and where notice of the application has been provided to the creditors, and what have been described as reasonable efforts made to bring the application to the Bankrupt’s attention, the Court should determine the application today in the absence of the Bankrupt and make the order sought.
I note at the outset that it was unnecessary for the Bankrupt to be named as a party to the application or to be served with it: Barnett v Zang [2017] FCA 924 at [28] to [29]. I accept, however, that the Trustee has taken reasonable steps to bring the application to the attention of the Bankrupt and that there remains the possibility that he did in fact have notice of the application, given that there was no indication that the email sent to the Otto email address was not delivered.
The information sent to this address included a letter that identified in bold that the matter had been listed for hearing on 8 December 2022 at 9.30 am.
The Bankrupt did not appear before the Court today, request an adjournment or otherwise communicate with the Court.
In all the circumstances, the Court determined to proceed to hear the Trustee in relation to the claim for relief in the proceedings in the Bankrupt’s absence.
Section 146 – Applicable Principles
Where a sequestration order is made, the person against whose estate it is made is obliged by s 54(1) of the Act to make and file a Statement of Affairs with the Official Receiver and to furnish a copy of that statement on the Trustee.
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 give the Official Receiver a statement of their affairs within 14 days of the notice.
The scheme at Part VI of the Act is to enable, where possible, an efficient distribution of dividends to creditors from the proceeds of property that is identified, recovered and realised by the Trustee. Pursuant and subject to the provisions of s 140 of the Act, the Trustee is required to declare and distribute dividends amongst the creditors who have proved their debts with all convenient speed. That is also further to the Trustee’s overarching duty of efficient administration which is set out at s 19(1) of the Act.
Whether all (or a sufficient amount) of a bankrupt’s property has been realised to enable a final dividend to be declared, a trustee shall declare and distribute a final dividend in accordance with s 145(1) of the Act.
The authorities on the purpose and application of s 146 were summarised by Judge Kelly in Quin as Trustee of the Bankrupt Estate of Phillip Chill [2020] FCCA 2652 at [31] to [32]:
[31]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.
[32]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.
Has the Bankrupt failed to file a Statement of Affairs?
A question arises then, 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 five years have passed since the Bankrupt was first requested to file a Statement of Affairs. The registered trustee, Castley, over the period November 2017 to February 2020 and since that time, the Trustee in February and December 2021, sent numerous emails and letters to the Bankrupt that reminded him both of his obligation to file a Statement of Affairs and the consequence that would attend his failure to do so.
The Bankrupt was an active participant in many of these exchanges and did in fact make two attempts to file a Statement of Affairs. As the evidence discloses, both attempts were unsuccessful. While the explanation provided in respect of the rejection of the first Statement of Affairs might be kindly described as unhelpful, the explanation provided for rejection on the second occasion did, by contrast, identify for the Bankrupt in detail how his Statement of Affairs was deficient.
I note that this explanation was provided on 26 February 2020, almost three years prior to today’s hearing, and followed by reminders on at least three occasions that the Bankrupt’s obligation under s 54(1) of the Act remained unperformed.
I am satisfied in these circumstances that the Bankrupt has not filed a Statement of Affairs and the jurisdiction to make an order pursuant to s 146 of the Act is engaged.
Discretionary considerations
Turning then to discretionary considerations, the further delay in distribution of funds from the Bankrupt Estate operates to the prejudice of the known creditors. The prejudice arises by reason of the failure of the Bankrupt to file a Statement of Affairs which would, but for an order under s 146, present an obstacle to the declaration and payment of a final dividend that the Trustee is otherwise in a position to pay.
In circumstances where at least three creditors have been identified, and it is likely that they will stand to benefit from a distribution of moneys realised in the bankruptcy, there is utility in making an order under s 146 of the Act.
For completeness, the Trustee’s obligation to distribute as dividend the moneys of the Bankrupt Estate is subject to the requirement to withhold a sum sufficient to pay the Inspector General the amount of the interest charge and realisation charge payable from the estate, and any interest payable pursuant to s 281 of the Act. Distribution of a dividend from the Bankrupt Estate is also subject to an entitlement that the Trustee may retain an amount sufficient to pay the costs of the administration of the Bankrupt Estate, including the Trustee’s legal costs by way of disbursements (s 140(2) of the Act).
I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Symons. Associate:
Dated: 8 December 2022
- AGLC
- Official Trustee in Bankruptcy, in the Matter of Ashworth [2022] FedCFamC2G 1038
- Case
- [2022] FedCFamC2G 1038
- Decision Date
CaseChat Overview and Summary
The central legal issue the Court had to address was whether the Official Trustee could proceed with the distribution of dividends in the absence of the bankrupt's Statement of Affairs, and if so, under what conditions. The Court needed to consider the statutory obligations under section 146 of the Act, the necessity of the Statement of Affairs, and the principles guiding the efficient administration and distribution of a bankrupt's estate. The Court also had to determine whether the Official Trustee had taken reasonable steps to bring the application to the bankrupt's attention and if the creditors had been adequately notified.
The Court found that the Official Trustee had complied with the statutory requirements and had taken reasonable steps to notify the bankrupt of the application. Given that the bankrupt did not appear or respond, the Court proceeded to hear the matter. The Court held that the Official Trustee could proceed with the distribution of dividends as if a Statement of Affairs had been filed, subject to certain conditions. These included conducting a search of the National Personal Insolvency Index to confirm that no Statement of Affairs had been lodged, withholding a sum sufficient to cover the interest charge and realisation charge, and retaining an amount for the Official Trustee's costs and remuneration.
In light of the considerations above, the Court granted the Official Trustee's application with specific conditions. These conditions ensure that the distribution of dividends is both lawful and equitable, protecting the interests of the creditors and the administration of the estate. The Court's decision underscores the importance of statutory compliance while also allowing for flexibility in exceptional circumstances.
Orders
Orders of the court
THE COURT ORDERS THAT:
1. Pursuant to s 146 of the Bankruptcy Act 1996 (Cth) (Act) and subject to order 2, the distribution of a first and final dividend to creditors of the Bankrupt Estate of David Ashworth (Bankrupt Estate) who have proved their debts before the time of declaration or distribution, proceed in accordance with Division 5 of Part VI of the Act as if David Ashworth (Bankrupt) had filed a statement of affairs and those creditors had been stated to be creditors in it.
2. No distribution is to be made until there has been a search of the National Personal Insolvency Index, to be conducted within 48 hours of any proposed distribution which confirms that no statement of affairs has been lodged by the Bankrupt.
3. The applicant withhold a sum sufficient to pay to the Inspector General the amount of the interest charge and realisation charge payable from the Bankrupt Estate, and any interest payable pursuant to s 281 of the Act.
4. Any distribution of a dividend from the Bankrupt Estate be subject to the entitlement of the applicant to retain an amount sufficient for payment of the costs and disbursements, including any legal costs and disbursements incurred in the administration of the Bankrupt Estate.
5. Any distribution of a dividend from the Bankrupt Estate be subject to the entitlement of the applicant to retain an amount sufficient for the payment of its remuneration.
Background
Background to the litigation
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
Insofar as notice of the application has been provided to the creditors, evidence as to steps taken were set out in the Braddy affidavit. The information included that the copy of the application was sent to the creditors on 16 and 17 November 2022, and that the Trustee has not been notified of any intention on the part of the creditors to be heard.CONSIDERATION The Trustee submits that against this background, which includes the failure across a protracted period by the Bankrupt to comply with his obligation under s 54(1) of the Act to file a Statement of Affairs, and where notice of the application has been provided to the creditors, and what have been described as reasonable efforts made to bring the application to the Bankrupt’s attention, the Court should determine the application today in the absence of the Bankrupt and make the order sought. I note at the outset that it was unnecessary for the Bankrupt to be named as a party to the application or to be served with it: Barnett v Zang [2017] FCA 924 at [28] to [29]. I accept, however, that the Trustee has taken reasonable steps to bring the application to the attention of the Bankrupt and that there remains the possibility that he did in fact have notice of the application, given that there was no indication that the email sent to the Otto email address was not delivered. The information sent to this address included a letter that identified in bold that the matter had been listed for hearing on 8 December 2022 at 9.30 am. The Bankrupt did not appear before the Court today, request an adjournment or otherwise communicate with the Court. In all the circumstances, the Court determined to proceed to hear the Trustee in relation to the claim for relief in the proceedings in the Bankrupt’s absence. Section 146 – Applicable Principles Where a sequestration order is made, the person against whose estate it is made is obliged by s 54(1) of the Act to make and file a Statement of Affairs with the Official Receiver and to furnish a copy of that statement on the Trustee. 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 give the Official Receiver a statement of their affairs within 14 days of the notice. The scheme at Part VI of the Act is to enable, where possible, an efficient distribution of dividends to creditors from the proceeds of property that is identified, recovered and realised by the Trustee. Pursuant and subject to the provisions of s 140 of the Act, the Trustee is required to declare and distribute dividends amongst the creditors who have proved their debts with all convenient speed. That is also further to the Trustee’s overarching duty of efficient administration which is set out at s 19(1) of the Act. Whether all (or a sufficient amount) of a bankrupt’s property has been realised to enable a final dividend to be declared, a trustee shall declare and distribute a final dividend in accordance with s 145(1) of the Act.