QUIN AS TRUSTEE OF THE BANKRUPT ESTATE OF PHILIP CHILL

[2020] FCCA 2652

FEDERAL CIRCUIT COURT OF AUSTRALIA

QUIN AS TRUSTEE OF THE BANKRUPT ESTATE OF PHILIP CHILL [2020] FCCA 2652

Catchwords:
BANKRUPTCY – Distribution of final dividend where bankrupt fails to file statement of affairs – relevant considerations – prejudice to estate – relief granted – imposed to constrain declaration of dividend for brief period.

PRACTICE & PROCEDURE – Necessary parties – bankrupt not a necessary party to present application – bankrupt removed from application.

Legislation:

Bankruptcy Act 1966 (Cth), ss.19, 30, 32, 54, 77, 77CA, 120, 140, 144, 145, 146, 153A, 267B, 281; Sch.2, s.90-15
Federal Circuit Court Rules2001 (Cth), r.11.1(4)

Cases cited:

Ambrose (Trustee) v Poumako (No 3) [2013] FCA 22
Barnet (Trustee), in the matter of Zhang (Bankrupt) v Zhang [2017] FCA 924

Coshott v Prentice (2014) 221 FCR 450

McLean (Trustee) v Erbas [2019] FCA 1763
Official Trustee in Bankruptcy, in the matter of Shaw [1999] FCA 968

Re Sturt; Ex parte Official Trustee in Bankruptcy (2001) 117 FCR 1
Roufeil (Trustee), in the matter of Jarvie (Bankrupt) [2015] FCA 232
Sampson (Trustee), in the matter of Condon (Bankrupt) [2016] FCA 312
Tyler v Thomas (2006) 150 FCR 357

Vale v Sutherland (2009) 237 CLR 638

Applicant: DAVID CHARLES QUIN AS TRUSTEE OF THE BANKRUPT ESTATE OF PHILIP CHILL

Respondent: PHILIP CHILL

File Number: MLG 1880 of 2020

Judgment of: Judge A. Kelly

Hearing date: 21 September 2020

Date of Last Submission: 21 September 2020

Delivered at: Melbourne

Delivered on: 23 September 2020

REPRESENTATION

Solicitor Advocate for the Applicant: Mr J. Giacco

Solicitors for the Applicant: Craddock Murray Neumann Lawyers

Respondent: No appearance

ORDERS

1. Pursuant to s 146 of the Bankruptcy Act 1966 (Cth), the distribution of a first and final dividend to creditors of the bankrupt estate of Philip Chill (also known as Philip Sin Wah Chill), who have proved their debts, proceed in accordance with Division 5 of Part VI of the Bankruptcy Act, as if the bankrupt, Philip Chill, had filed a statement of his affairs, and those creditors had been stated to be creditors in it; and, subject to paragraphs (2)-(4) of this Order, that the Trustee, David Charles Quin, so act.

2. Direct that by 4:00pm on Monday, 28 September 2020, the applicant cause to be published in The Age newspaper, a notice of intention to declare a first and final dividend in the bankrupt estate of Philip Chill.

3. The Trustee shall not declare or distribute a first and final dividend in the bankrupt estate of Philip Chill until 21 days have elapsed after publication of the notice pursuant to paragraph (2) of this Order.

4. No distribution is to be made until a search of either:

   (a)the records of the bankruptcy administration (through the AFSA Practitioner Annual Administration Return On Line Portal); or

   (b)a National Personal Insolvency Index;

   is conducted within 48 hours of any proposed distribution, and which confirms that no Statement of Affairs has been lodged by the bankrupt.

5. Philip Chill be removed as respondent to the proceeding.

6. The applicant’s costs of this application including reserved costs be paid from the estate of the bankrupt in accordance with the Bankruptcy Act.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 1880 of 2020

DAVID CHARLES QUIN AS TRUSTEE OF THE BANKRUPT ESTATE OF PHILIP CHILL

Applicant

And

PHILIP CHILL

Respondent

REASONS FOR JUDGMENT

Introduction

1. These reasons for judgment explain why orders have been made pursuant to s 146 of the Bankruptcy Act 1966 (Act) permitting the trustee of the bankrupt estate of the respondent Philip Chill (also known as Philip Sin Wah Chill), to distribute a first and final dividend amongst the creditors of the bankrupt’s estate who have proved their debts and that the trustee be permitted to proceed in accordance with Div 5 of Pt VI of the Act as if the bankrupt had filed a statement of his affairs and those creditors had been stated to be creditors in his bankruptcy.

2. I was satisfied that, despite repeated requests, the bankrupt had neglected or failed to complete and file a statement of his affairs with the Official Receiver or to provide a copy of that statement to the applicant trustee in accordance with the requirements of s 54 of the Act.

Background

1. The principal affidavit sworn in support of the application was made by the applicant, a registered trustee in bankruptcy and chartered accountant having nearly 3 decades experience in insolvency. 

2. On 23 January 2020, an order was made for the sequestration of the bankrupt’s estate.  The order was made upon the petition of Owners Corporation PS420743J and on that date the applicant was appointed trustee of the bankrupt estate.

3. On 20 January 2020, the trustee sent a letter to the bankrupt which explained the trustee’s duties and requested that the bankrupt file his statement of affairs and deliver his books records and passport and attend an interview scheduled to occur 29 January 2020.  The trustee supplied the bankrupt with a statement of affairs, in blank, for completion.

4. The trustee deposed that the bankrupt had neglected or failed to complete and file a statement of his affairs with the Official Receiver or to provide a copy of that statement to the trustee in accordance with the requirements of s 54 of the Act.

5. On the date prior to the scheduled appointment for an interview with the trustee, the bankrupt transmitted an email asserting that the sequestration order had been made against him in circumstances which, as he alleged, entailed fraud and collusion on the part of the petitioning creditor and his solicitor.  He appeared to assert that the trustee’s appointment was, for that reason, also tainted by fraud.  Those matters notwithstanding, the bankrupt’s email further stated that, so as to minimise his loss, he had sought details as to the amount payable by him and the identity of the person to whom it should be paid, coupled with a request that the bankruptcy be annulled.  In providing that response, the bankrupt did not return to the trustee a duly completed statement of affairs.

6. On 30 January 2020, and in light of the matters contained in the bankrupt’s email above, the trustee sent a further letter advising the bankrupt of his failure to comply with the request to complete, file and serve his statement of affairs. The trustee further advised that if the bankrupt considered he was in a position to pay out his debts in full, the annulment of his bankruptcy pursuant to s 153A of the Act may be possible; however, completion of the statement of affairs would be a prerequisite to consideration of any such annulment.

7. Despite the approach taken by the trustee in seeking to facilitate the possibility of annulment, on 2 February 2020, the bankrupt responded, by email, suggesting that the trustee had been party to an institutional fraud and that it was open to him to appeal the making of the sequestration order.  Again, the bankrupt did not supply the trustee with a completed statement of affairs.  Notably, the bankrupt’s email was addressed to a large number of recipients, and included this court (notwithstanding no proceedings were pending before it).

8. On 12 February 2020, the trustee addressed a further letter to the bankrupt which, in effect, urged him to complete file and serve his statement of affairs.  On the same date, the bankrupt responded to that email asserting that, by pursuing the administration of the bankrupt estate, the trustee had failed to inform himself whether his conduct was in compliance with the law or in furtherance of a criminal fraud.

9. On 21 February 2020, the trustee made application to the Official Receiver requesting that a notice be issued pursuant to s 77CA of the Act requiring the bankrupt to give the Official Receiver a statement of affairs within 14 days after being provided with that notice. On 26 February 2020, the Official Receiver served the bankrupt with the s 77CA notice.

10. On 26 February 2020, at some time after service of the s 77CA notice, the bankrupt addressed an email to the insolvency and trustee services division of the Australian Financial Security Authority (AFSA) directing a litany of complaints at a number of targets, including AFSA.

11. On 24 March 2020, the trustee served the bankrupt with a report concerning his initial remuneration and informing him that he could, within 20 business days after the receipt of that report, seek a remuneration claim notice.  On 26 March 2020, and in response to a further email from the bankrupt, the trustee advised that: $143,200 had been realised from the bankrupt’s bank account; this sum was anticipated as being likely to be sufficient to enable an annulment to occur; a report to creditors had been issued inviting the provision of proofs of debt; the completion of a statement of affairs would be necessary to consider annulment; and, if the statement of affairs was not provided, it would be necessary for the trustee to apply to the court for relief.  The trustee warned the bankrupt that the costs of administration would only increase if the matter was not addressed.  The bankrupt responded on that date, challenging the legal requirement that he complete a statement of affairs.

12. The trustee of a bankrupt estate is obliged to report to creditors within three months of the date of the bankruptcy upon the likelihood of them receiving a dividend before the end of the bankruptcy: Act, s 19(c). Consistently with that duty, on 24 March 2020, the trustee sent a circular to the creditors of the bankrupt estate advising that it appeared there were sufficient assets in the estate for all creditors (and the costs of the bankruptcy), to be paid in full and that this would allow for the bankruptcy to be annulled. The report further advised that the annulment would, in part, be dependent upon whether the bankrupt filed a statement of affairs but that while he had been hindered in his investigations, it appeared the bankrupt had filed no tax return since 2001.

13. On 30 March 2020, in answer to the bankrupt’s enquiry, the trustee directed his attention to s 54 of the Act and reiterated that if no statement of affairs was supplied by 15 April 2020, an application would be made to the court pursuant to s 146 of the Act.

14. The trustee deposed as to the results of his investigations and to his belief that the bankrupt estate has sufficient funds to pay a dividend of 100 cents in the dollar to creditors and that the bankruptcy could be annulled.

Procedural history

1. By initiating application filed on 3 June 2020, the trustee sought orders pursuant to ss 30, 32, and 146 and Sch 2, ss 90-15(1) and 90-15(3)(d) of the Act, permitting the trustee, subject to certain steps to distribute a first and final dividend amongst the creditors who had proved their debts in the bankrupt estate and to proceed in accordance with Div 5 of Pt VI of the Act as if the bankrupt had filed a statement of his affairs and those creditors had been stated to be creditors in that bankrupt estate.

2. The application was supported by the trustee’s principle affidavit.

3. On 16 June 2020, copies of the initiating application and supporting affidavit were delivered by ordinary post and as attachments by email to the bankrupt.  The receipt of those documents was demonstrated by the bankrupt’s responses to the matters which they addressed, including by his responses on the morning of the directions hearing in this court.

4. The proceeding was listed for directions on 27 July 2020 and this information appeared on the cover sheet of the initiating application.

5. When the matter was first returnable on 27 July 2020, there was no appearance by or on behalf of the respondent.  However, in the circumstances that respondent had supplied extensive material by email on the morning of the hearing, orders were made affording him an opportunity to file and serve any affidavits and submissions on which he sought to rely.

6. In the event, no such submissions or affidavits were filed by or on behalf of the respondent and when the matter was called for hearing, he did not appear.  The opportunities afforded to the bankrupt were not taken.

Applicable principles

1. 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 with the Official Receiver a statement of affairs and to furnish a copy of that statement to the trustee. A failure to comply with this requirement attracts a penalty.

2. Part V of the Act concerns the subject, Control over person and property of debtors and bankrupts, and provides, by Div 1, a series of provisions including with respect to: a bankrupt’s duties as to discovery; access by the Official Receiver and others to premises; access by the trustee to the books of associated entities; the powers of the Official Receiver to obtain information, evidence and a statement of affairs; allowance for the expenses associated with compliance; arrest; and, coercive proceedings for discovery of the bankrupt property.  In particular, a bankrupt is also generally required to disclose to the trustee, as soon as is practicable, all of his or her property.  A bankrupt is further required to aid, to the utmost of his or her power, in the administration: Act, para 77(1)(f)-(g). 

3. Section 77CA of the Act provides that the Official Receiver may, by written notice given to a bankrupt, require the bankrupt to give the Official Receiver a statement of his or her affairs within 14 days of such notice. A failure to comply with a notice given under this provision is an offence: Act, s 267B.

4. These provisions underscore the importance to the administration of a bankrupt estate of proper disclosure being made by a bankrupt.

5. Part VI of the Act, which concerns Administration of Property, is arranged in seven Divisions and comprises ss 82-147.  The subjects addressed by those divisions variously concern: (1) proof of debts; (2) order of payment of debts; (3) property available for payment of debts; (4) realisation of property; (4A) orders in relation to property of entity controlled by bankrupt or from which the bankrupt derived a benefit; (4B) contributions by bankrupt and recovery of property; (5) distribution.  The scheme of Part VI 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.

6. Division 5 of Pt VI, is comprised of ss 140-147. By s 140(1), the trustee must generally, and with all convenient speed, declare and distribute dividends to creditors who have proved their debts. In this connection, it will be recalled that the trustee is also subject to a duty to administer the estate as efficiently as possible, including by avoiding unnecessary expense and in a commercially sound way: par’s 19(1)(j)-(k).

7. Where all, or sufficient of, a bankrupt’s property has been realized to enable a final dividend to be declared, a trustee shall declare and distribute a final dividend: Act, s 145(1).

8. In the circumstances for which it provides, s 146 enables a trustee to distribute a final dividend where authorised by the court to do so. Section 146 applies to circumstances in which a bankrupt has failed to file a statement of affairs as required by the Act.

9. 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.

10. 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.

11. Division 5 contains provisions requiring the giving of notice with respect to the declaration of dividends. Relevantly, the trustee advanced this application on the basis that he would give notice of his intention to declare a final dividend and allowed a reasonable period before doing so. A trustee is proscribed from declaring a dividend until the expiration of 21 days after the expiration of the period specified in the notice: sub-ss 140(7), 145(6). In this case, the trustee proposes that notice be given to known (and published for unknown) creditors of the bankrupt estate to be published in the immediate future.

12. It follows that the trustee will be proscribed from declaring a dividend until after a period of 21 days has expired from the giving of notice.

13. The further delay in the 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 furnish a statement of affairs to the trustee which would, but for an order under s 146, present an obstacle to the declaration and payment of a final dividend which the trustee is in a position to pay and thereby to complete efficiently the administration of this estate. I have identified no countervailing reason why a final dividend ought not be paid or why relief ought not be given under s 146 so as to permit finalisation of the administration of this bankrupt estate.

14. The trustee relied upon s 30 as a source of power to grant relief. Paragraph 30(1)(b) confers a general power on the court in a bankruptcy proceeding to make such orders as it considers necessary for the purposes of carrying out or giving effect to the Act in any case or matter. Section 30 has been described as the jurisdictional foundation for the making of orders for payment of money (albeit in the context of relief arising from a transfer of property that is void pursuant to s 120 of the Act): Ambrose (Trustee) v Poumako (No 3) [2013] FCA 22, [20] (Mansfield J). The power conferred by s 30 should not be construed narrowly: Vale v Sutherland (2009) 237 CLR 638, [19]. Yet s 30 does not authorise the making of orders that would bring about a result which differs from that prescribed elsewhere in the Act; cf Coshott v Prentice (2014) 221 FCR 450 (FC); Poumako (No 3) [2013] FCA 22, [16]; Tyler v Thomas (2006) 150 FCR 357, [13], [78], [208] (FC).

15. Relatedly, by force of ss 90-15(1) and 90-15(3)(d) of Sch 2 of the Act, the court is conferred power to make such order as it thinks fit in relation to the administration of a regulated debtors estate, including as to costs.  By s 90-15(4) of Sch 2 of the Act, the court may take into account certain matters in the exercise of power to make orders.  I have considered those matters, including that the bankrupt has failed to serve a statement of affairs and of the seriousness of that failure and its impact upon an efficient completion of the administration of the estate.  The bankrupt is a regulated debtor and I am satisfied that within the ambit of s 90-20(1)(a), the applicant is a person who may apply for the making of orders authorised by s 90-15, Sch 2 of the Act: see Act, Sch 2, ss 5-15(a), 5-16(a), 5-20(a), 5-25, 5-30(iii).

16. Section 146 relevantly provides that the court may on the trustee’s application make such order as it thinks fit. Where the court grants such application it may order that distribution of dividends amongst creditors who have proved their debts shall proceed in accordance with Div 5 of Pt VI as if the bankrupt had filed a statement of affairs and those creditors had been stated to be creditors in it.

1. In my view, because s 146 confers express power to authorise the distribution of dividends, it is unnecessary to have recourse to the more general power conferred by para 30(1)(b) to make such orders. Otherwise, I am satisfied that the provisions relied upon support the making of the relief that is sought in the proceeding.

2. The bankrupt has failed to file a statement of affairs as required by the Act.  I am satisfied that the bankrupt was notified, and reminded repeatedly, of his obligation to file such statement and that he has not done so and effectively challenged the obligation to do so. 

3. The court’s jurisdiction to make an order under s 146 is engaged.

4. In McLean (Trustee) v Erbas [2019] FCA 1763, [7], Anderson J observed that “where a bankrupt has not provided a statement of affairs, a trustee of bankrupt estate may be uncertain as to the identity of the creditors in the estate and therefore unable to meet the statutory requirements for distributing a dividend to creditors.” I am satisfied that the trustee has taken proper steps to notify known creditors, together with those who might yet have been ascertained, of their opportunity to file a proof of debt and to do so before a final dividend was declared.  However, the absence of a completed statement of affairs remains.

5. Subject to s 144, a creditor who has not proved their debt before declaration of a dividend is not entitled to disturb the distribution of a dividend that is declared before he or she has proved their debt. Persons claiming to be creditors of a bankrupt’s estate may apply for an extension of the time in which to prove their debt: Act, s 145(5).

6. It is appropriate to make an order as sought, subject however to terms that the trustee shall not declare or distribute a first and final dividend in the bankrupt estate until 21 days have elapsed after publication of the notice given under ss 140(7), 145(6). Likewise as sought by the applicant, no distribution should be made until a search of either:

   a)the records of the bankruptcy administration (through the AFSA Practitioner Annual Administration Return On Line Portal); or

   b)a National Personal Insolvency Index;

   is conducted within 48 hours of any proposed distribution, and which confirms that no Statement of Affairs has been lodged by the bankrupt.

7. It was unnecessary for the bankrupt to be named as a party to the application or to be served with it: Zhang [2017] FCA 924 at [28]-[29] citing Roufeil (Trustee), in the matter of Jarvie (Bankrupt) [2015] FCA 232 at [12] (Gleeson J); Sampson (Trustee), in the matter of Condon (Bankrupt) [2016] FCA 312 at [12] (Perry J). In Zhang, the respondent was removed as the respondent to the proceeding. It will simplify such applications if the bankrupt is not joined as a respondent. The joinder of the bankrupt as a respondent does not preclude the court from deciding the application: r 11.1(4) Federal Circuit Court Rules2001 (Cth). Non-joinder of the bankrupt as a respondent does not preclude that person from seeking to participate in the application. Notice of the application could be given to the bankrupt without the need for joinder.

8. For completeness, I note that the trustee’s obligation to distribute as dividend the moneys of the bankrupt estate is subject to the anterior obligation to withhold a sum sufficient to pay to 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.

9. Distribution of a dividend from the bankrupt estate is also subject to the anterior entitlement in the trustee to retain an amount sufficient for payment of the costs of administration of the bankrupt estate (which will include, by way of disbursements, his legal costs): Act, ss 32, 140(2).

10. An order should also be made that the applicant’s costs of this application be taxed and paid from the estate of the respondent.

Conclusion

1. I agree in the submissions of the trustee’s solicitor-advocate that despite the prolific quantity of his communications, the current proceeding has been of the bankrupt’s own making.  Had he completed his statement of affairs in a timely way as required by the Act, this bankruptcy would have been completed quite some time ago and without significant costs being incurred.  The trustee has been obliged to take steps appropriate to recover property for the benefit of the bankrupt estate and to administer the estate as efficiently as possible, including by avoiding unnecessary expense and in a commercially sound way: Act, par 19(1)(f), (j)-(k).

2. On the evidence before me, I was satisfied that the trustee had taken all reasonable steps to obtain a statement of affairs; that the applicants had failed to file a statement of affairs; and that there was no lawful excuse or any valid justification or explanation for the applicants’ failure to file a statement of affairs.  I am satisfied that, had the trustee not taken steps to obtain relief in the manner which was foreshadowed to the bankrupt, the cost to the estate would have increased markedly, including by reason of the need to address the matters being raised, repeatedly, by him.

I certify that the preceding fifty (50) paragraphs are a true copy of the reasons for judgment of Judge A. Kelly

Associate: 

Date: 23 September 2020