Re Butler, J.H. Ex Parte Butler, J.H. v Taylor, A

Re: JAMES HARKESS BUTLER
Ex Parte: JAMES HARKESS BUTLER V ALAN TAYLOR (TRUSTEE IN BANKRUPTCY)
No. Q B2668 of 1991
FED No. 343
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
Drummond J.(1)

CATCHWORDS

Bankruptcy - Refusal of Trustee to allow bankrupt to travel overseas - relevant considerations in refusing bankrupt's application for an order allowing him to travel overseas. Bankruptcy Act 1966, ss. 77(a)(ii), 178 and 272(c).

HEARING

BRISBANE

#DATE 6:4:1992

Counsel for the applicant: A.I. Philippides

Solicitors for the applicant: Clayton Utz

Counsel for the respondent: K.S. Howe

Solicitors for the respondent: James Walker

ORDER

THE COURT ORDERS THAT:

1. The application is dismissed.

2. There is to be no order as to costs.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

On 21 November, 1991 a sequestration order was made in respect of Mr Butler. The respondent, Mr Taylor, was appointed his trustee in bankruptcy. Mr Taylor says he has received proofs of debt in excess of $4.1 million and that while Mr Butler's statement of affairs discloses assets totalling $331,200.00, his investigations suggest that these assets are either non-divisible for the purposes of the Bankruptcy Act 1966 (Cth) or are uncollectable.

Mr Butler says attempts by him to obtain employment in Australia have been unsuccessful, but he has now received an offer of employment from an organisation called the Perth Group, in Manila, as a consultant advising on marketing and promotion of the group's Park Hotel and its new resort. It is intended that he will be based in the hotel in Manila. As required by s. 77(a)(ii) of the Bankruptcy Act, Mr Butler surrendered his passport to Mr Taylor some time ago. He has requested the return of the passport so that he can take up this job in Manila, but Mr Taylor has refused to return it.
Mr Butler consequently applied to this court under s. 178 of the Bankruptcy Act for an order directing Mr Taylor to return the passport and to give his consent to Mr Butler travelling to Manila for the purpose of taking up this job offer. Such consent is necessary to ensure that Mr Butler does not commit a breach of s. 272(c) of the Bankruptcy Act if he goes to Manila.
In Re Tyndall (1977) 30 FLR 6, a case involving an application by a bankrupt for permission to travel overseas on business, Dean J. held that s. 178 confers the widest possible discretion as to the appropriate order in an application pursuant to the section, and the court is not confined to interfering with the trustee's act, omission or decision only if it is of the view that the trustee has absurdly or unreasonably or in bad faith.
He further held that restrictions on travel introduced in relatively recent times into the bankruptcy legislation must be seen as being aimed at ensuring the proper administration of the bankruptcy laws and of bankrupt estates under such laws and not as a penalty imposed upon a citizen as a consequence of inability to pay debts leading to the making of a sequestration order.
The application first came before me on the evening of 30 March, 1992. It was adjourned until Friday, 3 April, 1992, essentially because the trustee said he needed a little more time to gather in the results of investigations he had on foot. Further material coming from both sides is now available to me. When the matter first came before me Mr Taylor put forward reasons for opposing the application which were rather more wide-ranging than those he ultimately relied upon on Friday last. The reasons, as summarised by his counsel, upon which he now relies are as follows.
Firstly, Mr Taylor says Mr Butler has concealed his interest in the company called Trans Border Transport Pty. Ltd. ("Trans Border Transport").
Secondly, Mr Taylor relies on the fact that Mr Butler disposed of his shareholding in Trans Border Transport and another company, Promco Travel Pty. Ltd. ("Promco Travel"), on 13 July, 1991, three days after Mr Butler was served with a bankruptcy notice in respect of which the sequestration order was made.
Thirdly, Mr Taylor says that there has been concealment by Mr Butler of the existence of a family trust with which he was connected.
In his first affidavit Mr Taylor says that Mr Butler did not list his shareholdings in Trans Border Holdings Pty. Ltd. and Promco Travel. But Mr Butler did list his interest in Promco Travel and thus Mr Taylor was plainly in error in making the suggestion about non-disclosure of Mr Butler's interest in Promco Travel. He also listed his interest in Promco International Corporation Pty. Ltd. ("Promco International") and also identified a debt he claimed was owing by that company to him in an amount of $330,000.00. This is the only significant asset which Mr Taylor has identified, although it appears he has assessed it as uncollectable.
However, the fact remains that Mr Butler transferred his shares in Promco Travel to the son of a former business associate, Mr Eustace, only three days after he was served with a bankruptcy notice. Mr Butler says those shares were effectively valueless. In his affidavit sworn on 3 April, Mr Butler says that when he attended at Mr Taylor's offices on 16 December, 1991 he told one of Mr Taylor's assistants, namely, a Mr Staddums or a Mr Malt, that he was transferring his shareholding in Promco Travel to an acquaintance and he also says he had further discussions with Mr Carter, another of Mr Taylor's assistants, in late January or early February 1992 about this particular share transfer.
Mr Taylor does not dispute what Mr Butler has to say in this regard about the disclosures he says he then made but Mr Taylor says he intends to challenge Mr Butler's divestiture of his shareholding in this company. Nor does Mr Butler dispute the allegation by the trustee that he transferred his shareholding in the other company, Trans Border Transport, at the same time. Mr Taylor intends to attack this transfer also. As to Trans Border Transport, it is the trustee of a unit trust in which the units are held equally by the Butler Family Trust and the Eustace Family Trust, Mr Eustace being Mr Butler's former business partner. Both family trusts are discretionary trusts. It is the Butler Family Trust, the existence of which as I have mentioned, Mr Taylor alleges was also concealed.
It appears from what was said in argument before me on Friday, 3 April, 1992 that while Mr Butler may once have held shares in this company he had no beneficial interest in any of the company's assets or activities other than his interest as a potential beneficiary under the discretionary trust. Mr Butler says his failure to reveal his interest in Trans Border Transport in his statement of affairs arose from his failure to understand properly the nature of the structure which had been created with the assistance of his solicitor. His claim to ignorance of Trans Border Transport's role, as his reasons for not mentioning it in his statement of affairs, may be doubted, but he also says, and again Mr Taylor does not dispute this, that at the meeting at the end of January or early February 1992 with Mr Taylor's assistant, Mr Carter, he had some discussions with Mr Carter about his interest in this company and he then said he would instruct his solicitors to provide the requisite information.
It appears his solicitors now acting for him were also involved in 1989 in setting up the two family trusts of which Trans Border Transport is the trustee. Mr Butler says that information concerning this trust was provided on his instructions by his solicitors to the solicitor for the trustee in late February last together with a copy of the trust deed. This is confirmed by Mr Butler's solicitor, Mr Morrow, in the latter's affidavit which was read to me on Friday, 3 April, 1992 without objection by Mr Taylor.
It is also apparent from the letter from Mr Butler's solicitors to Mr Taylor's solicitor dated 16 March, 1992, a copy of which is exhibited to the affidavit of Ms Forde, that a large amount of documentary material concerning Mr Butler's involvement in both Trans Border Transport and Promco Travel was then forwarded to Mr Taylor's solicitor. Mr Butler says that the unit trust was created in 1989, that is, well before his bankruptcy and that the income is distributed to the Butler and Eustace Family Trusts. Mr Taylor's investigations indicate that Trans Border Transport receives income of $8,000.00 per month under a lease of a petrol station.
While I do not express any opinion on the likely success of the attack on Mr Butler's divestiture of his shares in the two companies, Trans Border Transport and Promco Travel, which Mr Taylor says he intends to make, I think it fair to say that the suggestions advanced on behalf of Mr Taylor of concealment by Mr Butler of his interest in these two companies do overstate, in a way detrimental to Mr Butler, what appears to be the position.
Mr Taylor also says that Mr Butler has failed to produce to him a stamped copy of the trust deed constituting the Butler Family Trust of which Trans Border Transport is the trustee.
In his second affidavit, Mr Taylor says that Mr Butler:

"... will not or can not produce a stamped copy of the Trust".

In fact, Mr Butler's solicitors, by letter dated 23 March 1992 to the solicitor for Mr Taylor, a copy of which is exhibited to the affidavit of Ms Forde, say:

"We confirm that, from our records, it appears that the trust deeds etc. have not been stamped."

Counsel for Mr Taylor said that the importance of having the stamped deed was that Mr Taylor would need it to ascertain what was the consideration for any transfers of property made in connection with the establishment of the trust but, as I have said, Mr Taylor has been given a copy of a trust deed, albeit unstamped, and while on the material before me Mr Butler and his solicitors on his instructions would appear to have been generally co-operative in meeting Mr Taylor's request for information, there is nothing to indicate that the lack of a stamped trust deed is likely to be productive of real problems for Mr Taylor.
No other argument was advanced to me why the absence of a stamped deed, which Mr Taylor's solicitor says may well not exist, is a matter which, by itself or together with the other matters relied on, would justify my refusal of Mr Butler's application.
On 30 March, 1992 the case was put to me on behalf of Mr Taylor as one in which one of the reasons for his decision not to return Mr Butler's passport was that there was a general lack of co-operation received by Mr Taylor from Mr Butler. On Friday, 3 April, 1992 counsel for Mr Taylor conceded that he could not really make out such a proposition. In this regard I note that in paragraph 34 of his second affidavit Mr Butler says:

"I have instructed my Solicitors to give to the Solicitors for the Trustee whatever information is required in this respect."

I interpolate that this is a reference to Promco Travel and Trans Border Transport.
In paragraph 34 Mr Butler also says:

"I have attended all meetings requested by the Trustee, answered queries put to me ..."

What Mr Butler says appears to be supported by the affidavit sworn by his solicitor Mr Morrow and by the correspondence that has passed between Mr Butler's solicitor and the trustee and the trustee's solicitor.
Mr Taylor in opposing the return of the passport also relies on what is said to be the "double" leasing by Promco International Corporation Pty. Ltd. ("Promco International") of certain plant and equipment as going to justify that decision. Mr Butler was a director of Promco International. He deposes to an explanation for what Mr Taylor has to say about this aspect of Promco International's activities. That company operated approximately 20 service stations and leased a large number of petrol pumps from a finance company. There was another lease entered into by Promco International with a second finance company which Mr Butler says is in respect of general plant and equipment installed in a number of these service stations.
He says he was not involved in negotiation of the leases with either of these finance companies and was not aware at the time of the signing of the leases that there was any duplication between the pumps referred to in annexure "A" to the lease from Bridge Acceptance Corporation Ltd. with the items of plant and equipment referred to in the lease from Natwest Australia Bank. Mr Butler says it was never his intention that there should be any "double" leasing of equipment.
In any event, and whatever be the true position, it does not seem to me to be a matter to which Mr Taylor, as Mr Butler's trustee in bankruptcy, can have regard in deciding whether or not to refuse to return Mr Butler's passport, that there are circumstances associated with these leasing transactions which may expose Mr Butler to the possibility of prosecution under the general criminal law as opposed to prosecution under the Bankruptcy Act.
When this matter was drawn to the attention of counsel for Mr Taylor, he accepted that this was the case. Counsel said the relevance of what Mr Taylor has to say in his second affidavit about the alleged "double" leasing of Promco International's plant and equipment and also about the withdrawal by Mr Butler and his fellow director of Promco International of two amounts, each equal to one half of an insurance payment made to Promco International, really went to the question of Mr Butler's credibility, which is of relevance in these proceedings.
Mr Butler's counsel points out that after service on him of the bankruptcy notice he travelled to the Philippines and returned to Brisbane. He was in fact served with the bankruptcy petition immediately on his return. He submits that given the financial difficulties he was facing when served with the bankruptcy notice in July, if he had assets concealed overseas and if he intended to defeat his creditors, it is likely he would have absconded well before a sequestration order was made and well before he had to hand over his passport.
Counsel for Mr Butler also points out, and this is reflected in Mr Butler's first and second affidavit, that Mr Butler is prepared to give undertakings designed to ensure that the trustee will be able to serve him with any process that may be required in the course of administering his estate here in Brisbane. Mr Butler is also prepared to undertake to return to Brisbane when required by Mr Taylor upon 14 days notice, and in particular to return for the public examination which Mr Taylor intends to have carried out in about six weeks time. Mr Butler's proposed employer in Manila has, in exhibit "B1", indicated that it would be prepared to release Mr Butler for return to Brisbane for such purpose.
Although Mr Butler is prepared to give the undertakings I have referred to and although I think the trustee has, in some respects, overstated his case for refusing to return Mr Butler's passport, I have, as I indicated at the outset, decided I should refuse Mr Butler's application. I do so for the following reasons.
Firstly, I am not satisfied the offer of employment in Manila which provides the reason for Mr Butler's application is bona fide. In his first affidavit read on Monday, 30 March, 1992, Mr Butler says that, given his belief that he had little chance of employment in Australia, he approached some business associates known to him in Hong Kong, Bangkok, and Manila and that it was as a result of these inquiries that he received the offer in question.
In his second affidavit he gives more details of how he came to receive this offer. The offer of employment is contained in a letter dated 2 March 1992 from Mr Percy, which letter is exhibit "A" to Mr Butler's first affidavit. The offer involves no cash payments of any kind, apart from what is described as a single annual bonus payment related to profit performance to be paid in December of each year. The letter of offer also notes that whilst a specific figure cannot be given, based on past performances this figure should be no less than AUD15,000.00.
It appears that Mr Butler would reside free of cost in the Park Hotel in Manila, but that the cost of his food and beverages would ultimately be debited from the single annual payment he will receive. While there is material indicating advice from a gentleman said to be the general manager of the Park Hotel that this type of offer is not uncommon in the Philippines, I am not satisfied that Mr Butler has revealed the whole of the proposed arrangement between himself and the Perth group. I have already mentioned the fact that the offer involves no cash payment at all to Mr Butler except a single bonus payment in December of each year. It is not apparent how such an offer could be said to provide much in the way of enabling Mr Butler to support his wife who is apparently going to remain in Brisbane, nor can it be said that if Mr Butler is able to accept this offer, it is likely to be of any benefit whatsoever to his creditors.
Mr Butler's solicitors, in their letter to Mr Taylor's solicitor of 25 March, 1992, a copy of which is exhibited to the affidavit of Ms Forde, dealt with this last mentioned important consideration by saying:
"Details of the income being offered to Mr Butler have already been
provided. If the Trustee considers that some part of that very
modest income should be contributed by Mr Butler, then we are
instructed that the Trustee indicate what part he considers should be
contributed. It is noted that the income will be barely sufficient
to sustain Mr Butler and his family."
Secondly, the trustee intends to investigate the transfers by Mr Butler of his shareholdings in Promco Travel and Trans Border Transport which were both made immediately after service of the bankruptcy notice on him. Mr Butler's explanation for these transfers do not provide convincing answers to the trustee's concern that there may, particularly with respect to Promco Travel, be assets of value that properly belong to the estate. Although there are no funds in the estate available to the trustee, one of the creditors, the Bank of New Zealand, has agreed to fund the trustee's investigation into the share dispositions. Mr Taylor says he expects that he will require Mr Butler to submit to a public examination which, as I have mentioned, is likely to take place in about six weeks time, and in the course of that examination there will, I expect, be further investigation into the share transfers.
Given that I am not satisfied that the offer of employment in Manila is a bona fide one or at least that there has been full disclosure of what is involved in the offer so far as Mr Butler is concerned, I think that if Mr Butler is allowed to leave the country prior to his public examination there is an unacceptable risk that the investigation of the transfers, and thus the administration of the estate may be unduly delayed. When this is taken into account with the fact that the offer of employment appears to offer no benefit at all to the creditors, it is, in my opinion, clear that the application should be refused.

[1992] FCA 343

06 APRIL 1992