Perpetual Corporate Trust Limited v Xu
[2021] FCCA 1178
•7 May 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Perpetual Corporate Trust Limited v Xu [2021] FCCA 1178
File number(s): SYG 676 of 2021 Judgment of: JUDGE BAIRD Date of judgment: 7 May 2021 Catchwords: BANKRUPTCY – interim application – urgent application – direction to registered trustee – where respondent has failed to comply with judgment – where respondent has interfered with sale of property Legislation: Bankruptcy Act 1966 (Cth) s 50 Cases cited: Ewert v Martin [2018] FCA 1931 (20 November 2018)
McKenna Pty Limited(in liquidation) v Trives [2016] FCA 1247
Number of paragraphs: 32 Date of last submission/s: 7 May 2021 Date of hearing: 6 and 7 May 2021 Place: Sydney Counsel for the Applicant: Mr M Collins Solicitor for the Applicant: Dentons Australia Solicitor for the Respondent: Mr Dai (6 May 2021) ORDERS
SYG 676 of 2021 BETWEEN: PERPETUAL CORPORATE TRUST LIMITED
Applicant
AND: WENFANG XU
Respondent
ORDER MADE BY:
JUDGE BAIRD
DATE OF ORDER:
7 MAY 2021
ORDERS
THE COURT UPON the oral application of the respondent’s solicitor Mr Jim Dai, and UPON the respondent’s confirmation that she has terminated Mr Dai’s instructions to appear on her behalf:
1.GRANTS LEAVE to Mr Jim Dai to withdraw from the record without complying with rr.9.01 and 9.03 of the Federal Circuit Court Rules2001 (Cth).
2.GRANTS LEAVE to the respondent Wenfang Xu to appear in person today only.
THE COURT ORDERS THAT:
3.Subject to the interests of any secured creditor in respect of the land comprised in certificate of title folio identifier 7/207499 and known as 10 Yeramba Place, Rydalmere NSW 2116 (Property), pursuant to section 50 of the Bankruptcy Act 1966 (Cth), Barry Taylor, registered trustee, of HLB Mann Judd is appointed as trustee (Trustee) to take control of the Property.
4.The Trustee shall open a bank account with a trading bank in the name of the respondent and the Trustee (Trustee’s Nominated Account) and arrange that monies may be withdrawn from that account only upon the authority of the Trustee or a nominated officer of the Trustee.
5.The Trustee has the following powers:
(a)Powers to communicate on behalf of the respondent, provide instructions on behalf of the respondent and direct funds due to the respondent from the sale of the Property to the Trustee’s Nominated Account;
(b)Powers enabling the Trustee to engage any third party, including legal representation, as the Trustee requires to discharge his statutory duties under these orders.
6.The Trustee is at liberty to lodge a caveat over the Property and any other property owned by the respondent, as a person who has an interest in such property by operation of section 50 of the Act.
7.The respondent is restrained, without the prior approval of the Court, from transferring or disposing of the Property or any sale proceeds of the Property unless authorised by the Trustee.
8.The Property ceases to be subject to the control of the Trustee upon the determination of the creditor’s petition filed in these proceedings on 21 April 2021 (Petition).
9.The Trustee’s costs of and incidental to his appointment be paid as a priority from:
(a)any surplus funds realised in relation to the sale of the Property;
(b)the bankrupt estate of the respondent, should a sequestration order be made against the respondent in these proceedings or should a debtor’s petition relating to the respondent be accepted by the Official Receiver before the determination of the Petition;
(c)the property of the respondent should the respondent enter into a debt agreement or a personal insolvency agreement under Parts IX and X of the Act, or the respondent’s estate is administered under Part XI of the Act.
10.Any party adversely affected by the orders in paragraph 3 to 9 above HAS LEAVE to apply on 4 clear days’ notice for any variation of the orders.
11.The respondent pay the applicant’s costs and of concerning this interim application.
12.The balance of the interim application is STOOD OVER to 3 June 2021, or such other date and time as is listed for the hearing and determination of the Petition.
REASONS FOR JUDGMENT
(ex tempore, revised from transcript)
JUDGE BAIRD
On the application coming before me yesterday, as an urgent matter, and as the duty judge I have heard from the applicant’s counsel, Mr Collins, and had the benefit of Mr Collins’ written outline of submissions filed with the Court on 6 May 2021. I have also received an outline of submissions from Mr Dai, solicitor on the record for the respondent, Ms Wenfang Xu. The application was part-heard yesterday, and having had regard to the matters I raised, practitioners requested that the matter be stood down today, at 3pm, for the purposes of settlement negotiations.
At 3pm today, I received notice from the applicant’s counsel that he mentioned the matter for the respondent’s solicitor, and asked the matter stand down to 3.30pm, in the expectation that a certain consent regime would be reached. Just before 3.30pm, my Chambers received a message from Mr Dai, that his instructions had been withdrawn, and he was no longer in a position to act for Ms Xu, and that Ms Xu intended to appear by telephone herself this afternoon.
Ms Xu has appeared on telephone today, with the assistance of a friend, who has identified herself as ‘Ms Dana Smith’. Ms Smith is able to speak Mandarin, and has advised the Court she has been asked by Ms Xu to communicate a message from Ms Xu.
As a courtesy to the Court, before me this afternoon, Mr Dai has appeared by telephone, and sought leave to withdraw. Ms Xu has informed me that she has terminated Mr Dai’s instructions, he is no longer acting, and she wants to appear by herself, with the assistance of Ms Smith. For the purposes of the efficiency of this afternoon’s hearing, I have allowed these matters to occur.
Ms Smith has communicated 3 points to the Court on behalf of Ms Xu, as follows:
(1)Ms Xu does not believe that there is a legal debt beyond the $96,000, (approximately), identified in the bankruptcy notice. She is willing to pay that amount.
(2)The extra amount sought by the applicant is not a legally-binding amount. It needs to go to the Supreme Court and get a costs assessment.
(3)Certain property that was sold in September 2020 was sold in circumstances which included, she says, an offer to pay $96,000, which was rejected. She says the situation is not fair. She is willing to pay some interest on the $96,000, but it will never ever reach $85,000 of interest.
Ms Smith then continued to say for Ms Xu, the applicant claims, without any substantiation, that her husband is on Centrelink with depression; she has got a daughter with a brain disability; and she is working hard, and $75,000 is her whole year’s income. She was concerned that there is no justice, and her voice did not get to the court via her lawyers.
I have considered Ms Xu’s submissions. They are, as I have said, from the bar table, at the last minute, and without any substantiation.
The evidence tendered yesterday and read yesterday on behalf of Ms Xu, made clear, that Ms Xu has affirmed an affidavit in English, and not indicated any issues with understanding the affidavit she signed, and which was witnessed. That affidavit did not provide any detail or substantiation of any claims about her assets or her expenses, nor any statements concerning her familial situation.
For the reasons that follow, I am satisfied, upon the evidence of the applicant that has been read and tendered in Court, and persuaded by the applicant’s submissions, that it is, pursuant to s 50 of the Bankruptcy Act 1966 (Cth), appropriate that the orders sought in the interim application, dated 26 April 2021, upon which the applicant moved yesterday are made, and that it is in the interest of creditors to do so.
Background
The applicant creditor, Perpetual Corporate Trust Limited, commenced this proceeding by filing a creditor’s petition on 21 April 2021 seeking sequestration orders against Ms Xu. The creditor’s petition is listed for hearing on 3 June 2021.
It is not apparently in dispute that a bankruptcy notice was served on Ms Xu on 8 March 2021 (affidavit of service of bankruptcy notice of Patrick Dunn dated 21 April 2021, affidavit of Ms Xu dated 3 May 2021 at [6]), in accordance with regulation 16.01(1)(a) of the Bankruptcy Regulations 1966 (Cth) (inforce at that time). The bankruptcy notice was not complied with, and Ms Xu committed an act of bankruptcy on 29 March 2021 for the purposes of s 40(1)(g) of the Act (affidavit of Helen Troughton verifying creditor’s petition).
The bankruptcy notice relies on a judgment of the Supreme Court of NSW entered against Ms Xu in favour of the applicant on 17 December 2019. In addition to the amount owing to Perpetual under the judgment and referred to in the bankruptcy notice, Ms Xu owes additional amounts by way of interest and costs payable pursuant to a loan contract with Perpetual, with a total unsecured debt of approximately $176,560.39 owing as at 3 May 2021 (excluding some interest and costs). I observe the loan statement is in evidence before me.
Ms Xu entered into a contract to sell her property at 10 Yeramba Place, Rydalmere NSW (Property) which is due to settle on or after 10 May 2021 (Ms Xu’s affidavit at [9]). Ms Xu has also entered into a contract to purchase a further property at [X] John Street, Lidcombe NSW 2141 (Ms Xu’s affidavit at [26]) and to obtain finance for that purchase in the amount of $1.22 million.
I was informed by Mr Dai yesterday that settlement of the Property has been delayed, but is likely to occur before 3 June 2021.
Interim Application
Perpetual filed this interim application on 23 April 2021 seeking the appointment of a trustee to Ms Xu’s Property in accordance with s 50 of the Act until the determination of the creditor’s petition
The application came before the duty judge, Judge Humphreys, on three occasions, before he referred it to me (via the Duty Registrar), as duty judge this week. Those three occasions were 27 April 2021, for the purposes of short service and listing the application, 4 May 2021, when Mr Dai appeared on behalf of the respondent, and yesterday morning, 6 May 2021. The matter came before me for hearing yesterday afternoon, and after the hearing was adjourned, continuing to today.
The intention of the interim application is to allow the sale of the Property to complete, and surplus proceeds to be held by the Trustee, and to otherwise maintain the status quo to protect creditors, until the determination of the creditors’ petition, which is presently listed for hearing on 3 June 2021.
I have received into evidence, the following:
(1)the creditor’s petition filed on 21 April 2021, and the supporting affidavits and trustee consent filed on that day:
(a)affidavit verifying paragraph 4 of the petition of Patrick Dunn dated 21 April 2021;
(b)affidavit of service of bankruptcy notice of Patrick Dunn dated 21 April 2021;
(c)affidavit pursuant to regulation16.01 of Patrick Dunn dated 21 April 2021;
(d)consent to act as trustee of Barry Anthony Taylor dated 14 April 2021
(2)affidavit of Helen Troughton of 21 April 2021 and the “Bundle” referred to in that affidavit;
(3)affidavit of Jeremy Deviesseux of 22 April 2021; and
(4)affidavit of Patrick of 27 April 2021.
It is appropriate to note the relevant principles set out in s 50 of the Act. Section 50(1) provides:
(1)At any time after a bankruptcy notice is issued, or a creditor’s petition is presented, in relation to a debtor, but before the debtor becomes a bankrupt, the Court may:
(a)direct the Official Trustee or a specified registered trustee to take control of the debtor’s property; and
(b)make any other orders in relation to the property.
I note that the form of orders sought in the applicant’s interim application is consistent with those made in Ewert v Martin [2018] FCA 1931, and see the relevant principles there set out by Derrington J, from [15]. In circumstances similar to the present matter, Jagot J, in McKenna Pty Limited(in liquidation) v Trives [2016] FCA 1247, made similar orders.
Turning to s 50 of the Act, I must be satisfied of a number of matters. I am satisfied on the evidence and having regard to the parties’ submissions that:
(a)Perpetual is a creditor, and has applied to this Court for the Court to make a direction to a registered trustee to take control of the debtor’s property, and make any other orders, in relation to the property;
(b)it is in the interests of the creditors to do so, for the reasons, that I will set out below, relating to Ms Xu’s conduct and the circumstances;
(c)a bankruptcy notice, as I have said, has been served on Ms Xu, on 8 March 2021, and Ms Xu has not complied with the bankruptcy notice; and
(d)Ms Xu in her affidavit, and today, does not take issue with the fact that she owes the amount specified in the bankruptcy notice.
As to whether the Court is satisfied that it is in the interest of the creditors to make the orders sought, I refer to Perpetual’s counsel’s written submissions which conveniently summarise the evidence relevant to these matters. The events which took place leading up to the filing of the creditor’s petition, include:
(a)Perpetual obtained judgment against Ms Xu on 17 December 2019 for debt and for possession of a property at Wentworth Point which it obtained possession of on 9 March 2020 in accordance with a writ of possession;
(b)Ms Xu interfered with Perpetual’s auction of the Wentworth Point property scheduled for 4 June 2020 by changing the locks, placing a sign at the property and communicating with potential bidders;
(c)after Perpetual was able to regain possession, proceed with an auction, and enter into a contract for sale Ms Xu lodged a caveat on title of the property and in response to a lapsing notice issued by Perpetual, commenced Supreme Court proceedings seeking to extend the operation of the caveat; and
(d)Ms Xu lodged a further caveat on title the day after settlement of Perpetual’s sale, which delayed the registration of transfer to the purchaser;
(e)on becoming aware of this interim application, the agent apparently appointed by Ms Xu to sell the Property stated the following in an email which is in evidence before me: “I do suggest the buyer to quickly urgently settle on this property before the matter gets nasty”
Ms Xu has filed an affidavit of 3 May 2021, and a grounds of opposition confirming she will oppose the creditor’s petition solely on the grounds that she is solvent.
I observe that solvency should have the result that she is able to promptly settle any debts, including the debts on the bankruptcy notice, but that, to date she has not paid the amount in the bankruptcy notice.
It is important that I make clear that the issue of Ms Xu’s solvency is not determined on this application. Section 50 of the Act arises on the interim application because Ms Xu has committed an act of bankruptcy, and the sequestration order has not yet been made. It is not necessary for me to make a preliminary assessment of the prospects of the creditor’s position except in the context of whether the interim application orders are in the interests of creditors.
On the material before me, in the light of Ms Xu’s previous efforts to interfere with Perpetual’s exercise of its rights under its judgments, her failure to comply with the judgment in whole in the 18 months since it was entered, and in the circumstances of Ms Xu’s behaviour in response to this application over the last, at least, 24 hours, I am satisfied there appears a significant risk that Ms Xu may deal with the proceeds of her sale of Property, and other property in which she claims to have an interest, in a manner which is likely to cause prejudice to Perpetual or to other creditors.
Ms Xu has set out in her affidavit some statements as to her assets, expenses, and her debts and the position of sale of the Property. Many of Ms Xu’s claims are unsupported by any documentary material. On the evidence of Perpetual and Ms Xu, unsecured debts are currently payable by Ms Xu in the order of at least $276,000. She appears to be in the process of selling or reaching settlement on the sale of the Property, in which she claims the net equity from sale is expected be $587,137.58, however in reality, having regard to her affidavit as a whole, it may well be that the net proceeds will be in the order of $186,000.
I am satisfied that the analysis of the material on which Ms Xu relies set out in Perpetual’s counsel’s submissions is realistic. Ms Xu proposes to be purchasing another property at Lidcombe and appears to have paid a deposit to the vendor from deposit funds obtained by her from the purchase of the Property. Ms Xu states she requires another $248,000 in cash to complete the Lidcombe purchase, in addition to loan funds of $1,220,000. The result is that the stated equity available from the Property may well be, as I have said, $186,000 approximately, or less.
In these circumstances, and given that Ms Xu has committed an act of bankruptcy by failing to comply with the bankruptcy notice, for the purposes of s 50 of the Act I am not satisfied on Ms Xu’s evidence that Ms Xu is able to pay her debts as and when they fall due. I consider it is in the interest of creditors to maintain the status quo, and prevent Ms Xu from dispersing the sale proceeds from the Property or incurring further debts until the creditor’s petition has been determined.
I have received into evidence a consent from Mr Barry Taylor to be appointed trustee on the making of any sequestration order. I note further, Mr Taylor has confirmed his consent to be appointed as trustee for the purposes of s 50 of the Act. I note, additionally, further to instructions conveyed to the Court by Mr Dai on behalf of Ms Xu yesterday, Ms Xu had (at that stage) agreed to pay Perpetual’s costs, but on the basis of being assessed or agreed
I have had regard to Ms Xu’s submissions communicated by Ms Smith. Ms Xu has not persuaded me that there is any reason why the order under s 50 of the Act sought by the applicant should not be made. I will make orders as sought in the interim application at paragraphs 4, 5 and 6. I will add and vary the proposed order 7 of the interim application.
I make orders accordingly.
I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Baird. Associate:
Dated: 28 May 2021
0
2
0