Re On, W.C.O. v Ex parte Vereker, J.M.

[1985] FCA 305

Re: WILLIAM CHOI ON ON
And: JOHN MICHELLE VEREKER and BELCREST INTERNATIONAL PTE LIMITED
No. P.839 of 1985
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION BANKRUPTCY DISTRICT
OF THE STATE OF NEW SOUTH WALES AND
THE AUSTRALIAN CAPITAL TERRITORY
Wilcox J.

CATCHWORDS

Bankruptcy - Petition for sequestration order - Alleged acts of bankruptcy making of settlement and departing from dwelling-house or usual place of business - Debtor formerly resident and carrying on business in Hong Kong - Whether acts of bankruptcy took place when debtor present, resident or carrying on business in Australia - Circumstances under which proceeds of sale of jointly owned property received by wife - Whether presumption of advancement rebutted.

Bankruptcy Act 1966 ss.40 (1) (b), (c), 43 (1), 50

Bankruptcy Rules r.21

Martin v Martin (1959) 110 C.L.R. 297 referred to.

HEARING

SYDNEY
#DATE 11:7:1985

ORDER

The petition be dismissed.

The orders made on 31 May 1985 for the appointment of a receiver and for the examination of William Choi On On and Ping Ju Choi Ng be dissolved.

The petitioners pay to the respondent William Choi On On his costs of the petition, such costs not to include the costs of the debtor in relation to the applications determined by Burchett J. on 24 June 1985.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

On 30 May 1985 there was filed in the Court a petition, in the name of John Michelle Vereker and Belcrest International Pte Limited, seeking the making of a sequestration order against the estate of William Choi On On of 107 Deepwater Road, Castle Cove in Sydney. The petition alleged a debt to the petitioners in the sum of 118,713,348.30 Japanese yen -- an amount equal to about $A770,000.00 -- pursuant to a guarantee of a debt by Dominican Finance Limited or, alternatively, in the sum of $HK3,373,009.90 -- an amount equal to something under $A600,000.00 -- by virtue of endorsements made by Mr Choi upon three cheques drawn by Yip Chun Ling in favour of Belcrest International Pte Limited on the Bank of China, Hong Kong. The petition alleged that the debtor, within six months before the presentation of the petition, committed the following acts of bankruptcy:

"(1) In or about April or May, 1985, he settled property on his wife, namely $A500,000.00, voluntarily and without valuable consideration, such property not being property that had accrued to the debtor after marriage in right of his wife;

(2) In or about April or May, 1985 he disposed of property, namely $A500,000.00 to his wife with intent to defraud creditors, such disposition not being one for valuable consideration in favour of a person who acted in good faith;

(3) In or about April or May, 1985 he departed from his dwelling-house and from his usual place of business, with intent to defeat or delay his creditors."

The petition further alleged that, at the date of the commission of the alleged acts of bankruptcy the debtor was personally present, or alternatively ordinarily resident or alternatively had a dwelling-house, in Australia.

On 31 May 1985 counsel for the petitioners moved the Court ex parte for orders pursuant to s.50 of the Bankruptcy Act 1966 appointing a specified registered trustee, John William O'Brien, as receiver of the property of the debtor with power to do in Australia or elsewhere all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objective of collecting, getting in and preserving and maintaining the property of the debtor and that the debtor and his wife Ping Ju Choi Ng be summoned for examination before the Registrar as to the debtor, his trade dealings, property or affairs. Having regard to the circumstances disclosed in an affidavit of Mr Vereker, and the prospect that assets of the debtor then in Australia might be dispersed, I made the orders sought by counsel; reserving liberty to each of Mr and Mrs Choi to apply to the Court on 24 hours' notice for an order to dissolve or vary any of the orders I had made.

Pursuant to the liberty reserved by me, the debtor and his wife each applied for orders dissolving the order appointing a receiver and setting aside the summonses issued by the Registrar pursuant to the second order I had made. These applications were heard by Burchett J.. The applicants put a number of matters in support of the submission that the orders made by me were beyond power or otherwise legally erroneous but without success. By orders made on 24 June 1985 Burchett J. dismissed each of the applications. No question was raised before his Honour as to the availability of an act of bankruptcy upon which a sequestration order might be made in Australia.

On Wednesday 19 June 1985 the debtor filed a Notice of Intention to Oppose Petition. The Notice took numerous grounds including a denial that the debtor had committed any of the specified acts of bankruptcy and an allegation that if, contrary to his denial, he had committed an act of bankruptcy at that time, he was not personally present or ordinarily resident in Australia and did not have a dwelling-house or place of business in Australia.

The petition came before the Court for hearing on Monday 24 June 1985. Counsel for the petitioning creditors sought an adjournment, pointing out that the Notice of Intention to Oppose Petition had not been filed and served three clear days before the return date of the petition, as required by r.21 of the Bankruptcy Rules. He conceded that certain of the material in the initial affidavit of Mr Vereker, which was no doubt hurriedly compiled, was not in a form admissible upon a final hearing of the petition and sought time to rectify these deficiencies. Counsel for the debtor opposed any adjournment, pointing out that his client and his wife were subject to the constraints of the orders I had made on 31 May and that, under the circumstances, the petitioners should have been ready to proceed. He added a submission that, even disregarding the form of the existing evidence, it did not indicate, upon a prima facie basis, that any act of bankruptcy had occurred at a time when Mr Choi was personally present, ordinarily resident or carrying on business in Australia or when he had a dwelling-house or place of business in Australia. I indicated a view that, under the circumstances, it would be proper to allow the petitioners some further time in which to supplement, in admissible form, some of the material in Mr Vereker's affidavit and in particular in relation to the debt claimed to be owing but that, having regard to the orders made on 31 May, no significant amount of time should be allowed unless it appeared prima facie -- even by hearsay or indirect evidence -- that there was an act of bankruptcy upon which a sequestration order might be made by the Court. Counsel for the petitioners sought a further short time to amplify the evidence in this respect and, in the result, I adjourned the matter until Wednesday 26 June 1985 when further material was tendered and counsel addressed me as to the existence of a relevant act of bankruptcy.

I have reached the conclusion that the evidence before me, including material which would not be admissible upon a final hearing but to which I have had regard for the purposes of this present application, fails to indicate the existence of any act of bankruptcy upon which a sequestration order may, at this time, be made by this Court. Under those circumstances it would be unjust -- and I think pointless because I do not think that the evidentiary deficiencies are able to be cured -- to grant to the petitioners the substantial adjournment they seek. I propose to dismiss the petition and to dissolve the orders made by me on 31 May last.

The acts of bankruptcy upon which the petitioners rely are provided by s.40(1)(b) and s.40(1)(c) of the Bankruptcy Act. Relevantly those paragraphs provide:

"40.(1) A debtor commits an act of bankruptcy in each of the following cases:-

. . .

(b) if in Australia or elsewhere -

(i) he makes a conveyance, transfer, settlement or other disposition of his property or of any part of his property;

(ii) . . .

(iii) he makes a payment; or

(iv) . . .

that would, if he became a bankrupt, be void as against the trustee;

(c) if, with intent to defeat or delay his creditors -

(i) . . .

(ii) he departs from his dwelling-house or usual place of business;

. . . "

Although the section provides that an act of bankruptcy falling within para. (b) may be committed outside Australia, an Australian nexus is required. Section 43, which confers upon the Court jurisdiction to make sequestration orders, provides:

"43.(1) Subject to this Act, where -

(a) a debtor has committed an act of bankruptcy; and

(b) at the time when the act of bankruptcy was committed, the debtor -

(i) was personally present or ordinarily resident in Australia;

(ii) had a dwelling-house or place of business in Australia;

(iii) was carrying on business in Australia, either personally or by means of an agent or manager; or

(iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager,

the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor."

The evidence presently before the Court consists of two affidavits of Mr Vereker, the first petitioner -- one a formal affidavit verifying the allegations in the petition and the other a lengthy affidavit in support of the s.50 application -- a copy of an affidavit of Mrs Choi filed in the Supreme Court of New South Wales in relation to current proceedings between the parties and others in that jurisdiction and a portion of the transcript of oral evidence given by Mrs Choi in those proceedings. I take the following summary of the facts of the matter from that material, doing so on a prima facie basis. There is no significant conflict of evidence in that material.

Mr Vereker is a chartered accountant practising in Victoria. Belcrest International Pte Limited, a Singapore company, is a client of Mr Vereker upon whose behalf he acts, inter alia, in relation to the investment of funds. Over a period of some years he has invested money, in his own name but on behalf of Belcrest, with a Hong Kong finance company, Dominican Finance Limited, whose directors include Mr Choi and Mr Simon Yip Chun Ling. By a resolution of the board of directors of Dominican dated 30 June 1981 Mr Choi was empowered "to make all the decisions at his own discretion, in respect of this Company's affairs and businesses". Early in 1982 Mr Vereker became concerned about the financial stability of Dominican and withdrew the moneys on deposit with that company but, in April 1982, he agreed to re-invest those moneys after being contacted by Mr Choi who said that he would personally guarantee the deposit and would add an additional 4% to the usual rate of interest. The investment was rolled over from time to time and on each occasion Mr Vereker received a note from Mr Choi confirming the arrangement for an additional 4% interest but there was not, at that stage, any written confirmation of the arrangement for a personal guarantee.

On 15 October 1984 Mr Vereker wrote to Mr Choi notifying that he required redemption of the deposit, then 98,749,750 yen, on 15 November 1984. On that day he visited the offices of Dominican where he had a conversation with Mr Choi and Mr Yip. They informed him that Dominican was experiencing financial difficulties and was unable to redeem the deposit at that stage but they offered personal guarantees and security over some real estate in the Republic of Dominica if he would agree to extend the deposit. Mr Vereker agreed to a rollover until 15 February 1985. Mr Yip signed a written guarantee. Mr Choi promised to have his solicitors send to Mr Vereker in Australia a written guarantee and the document for the Dominican mortgages. Those documents never arrived. After two telexes from Mr Vereker to Mr Choi went unanswered Mr Vereker again journed to Hong Kong. On 15 February 1985 he went to the offices of Dominican where he had another conversation with Mr Choi and Mr Yip. Mr Yip told him that Dominican could not re-pay at that time but offered to re-pay the moneys personally by instalments. On 16 February 1985 Mr Yip wrote three cheques: a cheque for $HK1,000,000,00 payable 20 April 1985, a cheque for a further $HK1,000,000,00 payable 20 May 1985 and a cheque for $HK1,373,009.90 payable 20 June 1985. The total, $HK3,373,009.90 was the then equivalent of 111,320,459 yen, the amount of principal and interest due at 15 February 1985. Mr Choi endorsed each of the cheques by way of guarantee of payment. Both Mr Choi and Mr Yip signed a letter addressed to Mr Vereker itemizing the cheques "drawn on the account of Mr Simon Yip and confirmed on the reverse side by Mr William Choi" and providing, inter alia, for a fourth cheque on 20 June to cover interest to that date, with an adjustment to cover any variation which might occur in the exchange rate of the Hong Kong dollar against the yen. The first of these cheques, that of 20 April, was dishonoured upon presentation; but by then, without notice to Mr Vereker, Mr Choi had left Hong Kong and was in Australia.

According to Mrs Choi, she and her husband applied about the end of April 1984 to migrate to Australia with their two children under the Business Migrant's Scheme. The Business Migrant's Scheme is apparently designed to give preference to applicants with demonstrated entrepreneurial skills who agree to bring into Australia not less than a specified capital sum. Mrs Choi had no business experience; she had always worked as a primary school teacher. So it must have been Mr Choi's entrepreneurial skills -- their positive aspects do not appear from the evidence -- that caused the application to migrate to be accepted in December 1984. Mr and Mrs Choi were told that they were required to move to Australia by 26 September 1985 and to transfer to Australia the sum of $A500,000.00 before obtaining final visas for entry into Australia.

On 25 February Mr Choi left Hong Kong to visit China and the Phillipines on business. He has not, apparently, returned to Hong Kong since that day. Mr Choi eventually travelled directly from the Phillipines to Sydney. Mrs Choi stayed in Hong Kong and organized the remission to Australia of the required $A500,000.00 by two instalments: a transfer on 11 April 1985 of $A280,000.00 and a transfer on the following day of a further $A220,000.00, each transfer being from her account at the Commonwealth Trading Bank, Hong Kong, to an account in her name with the same bank in Sydney. Mrs Choi then attended at the Australian Commission in Hong Kong and deposited the passports of herself, her husband -- the passport having been forwarded from the Phillipines for the purpose -- and their two children. The passports were returned, with visas, on 16 April. Mr Choi's passport was sent back to him, in the Phillipines, by courier and on the following day Mrs Choi, with her two children and her mother, left Hong Kong for Australia, arriving in Sydney on 18 April. Mr Choi arrived from the Phillipines on the same day. The circumstances of Mr Choi's absence from Hong Kong after 25 February and the departure of the family to Australia strongly suggest, upon a prima facie basis, an intention to defeat or delay his creditors but the relevant departures, from Mr Choi's dwelling-house and usual place of business in Hong Kong, took place prior to his entry into Australia on 18 April 1985. At the time of those departures he was not, of course, personally present in Australia. He was not ordinarily a resident of Australia, he had no dwelling-house or place of business in Australia and he was not carrying on business, whether personally, by means of an agent or manager or as a member of a partnership , in Australia. In relation, therefore, to the third act of bankruptcy the requirements of s.43(b) cannot be satisfied. There is no jurisdiction to make a sequestration order based upon that act of bankruptcy.

The first and second acts of bankruptcy are repetitive. They each are based upon s.40(1)(b) of the Act and depend upon it being shown that the debtor made a conveyance, transfer, settlement or other disposition of his property, or any part of it, which would be void as against his trustee if he became bankrupt. This disposition need not take place in Australia but by virtue of s.43(b) the act of bankruptcy must take place at a time when the debtor was present or ordinarily resident, had a dwelling-house or place of business or was carrying on business, in Australia. In practical terms this means that it is necessary to enquire whether it appears that there was a disposition made by Mr Choi after his arrival in Australia on 18 April. There is little doubt that, if there were such a disposition, it would be void against his trustee if he became bankrupt in Australia.

In her affidavit filed in the Supreme Court Mrs Choi set out the sources of the funds she remitted to Australia. She claimed that the earlier remittance, $A280,000.00, came from three deposits to her Hong Kong bank account together with interest thereon. The deposits appear to have been made on 11 January 1985, 18 January 1985 and 11 April 1985 in the sums of $HK641,500.00 ($A100,000.00), $HK639,500.00 ($A100,000.00) and $HK389,186.32 ($A74,485.32) respectively. Mrs Choi claims that $HK700,000.00 was given to her by two of her sisters, that $HK599,600.67 came from the sale of a house in Los Angeles which she owned jointly with her husband and that the balance of of the deposits came from the sale of assets in Hong Kong which she owned.

According to Mrs Choi the second deposit, $A220,000.00, was also substantially the result of gifts; no less than $HK1,056,800.00 having been given to her by a total of seven friends and three relatives, mostly on 11 and 12 April 1984. The remaining $HK101,500.00 was said to have come from the sale of coins and other personal belongings. If Mrs Choi's affidavit is correct she is remarkably fortunate in her friends and relatives. Moreover, given that she has worked as a school teacher and has not been involved in business, it would appear that in generating the assets which she sold, she must also have been the beneficiary of previous largesse. It appears to me to be quite probable that some part of the gifts, past or present, came from her husband. This conclusion is consistent with the content of a conversation between Mr Vereker and Mr Francis Yip, son of Mr Simon Yip, on 12 May 1985 when Mr Vereker called enquiring for Mr Choi. According to Mr Vereker, Mr Yip said that Mr Choi is a very wealthy man and that he had "transferred his assets and large amounts of cash and gold to his wife". Whether, if there were a sequestration order, any gifts made by Mr Choi to his wife would be void as against the trustee would depend upon the time at which, and the circumstances under which, any proved gift was made. But the point, for present purposes, is that any gift of the money remitted to Australia must have been made at a date before Mr Choi came to Australia; the receipts of the Commonwealth Trading Bank which are attached to Mrs Choi's affidavit show that each of the deposits was received by the bank in her name alone.

No explanation is given in Mrs Choi's affidavit as to the circumstances under which she became entitled to deposit in her name alone the whole of the proceeds of the sale of the house in Los Angeles. The cheque of the Bank of Canton transferring the funds remitted from America was made payable to Mr and Mrs Choi jointly. Presumably the cheque was endorsed by Mr Choi or some other authority was given. If this was done by way of gift, once again, it was done before Mr Choi came to Australia.

Counsel for the petitioners submitted that the Court should infer, under the circumstances, that Mr Choi had not settled his share of the proceeds of the house upon his wife but had merely allowed her to take control of that share for convenience in remitting the money to Australia and/or in order to keep that share from his creditors. It followed, it was said, that this one half share -- worth a little under $A50,000.00 -- was held by Mrs Choi on trust for her husband when the parties arrived in Sydney. Any subsequent disposition of the money, with the consent of Mr Choi but for the benefit of Mrs Choi, would, it was contended, fall within the provisions of s.120 of the Bankruptcy Act in the event of a sequestration order being made.

There is nothing in the evidence to indicate, one way or the other, whether Mr Choi, in making available his one half share of the proceeds of the sale of the house, intended to confer a gift upon his wife or whether this was done pursuant to some understanding that she would hold the money on his account. In the case of a transfer of property from husband to wife there is a presumption that the husband intended to benefit the wife, so that the property transferred was to be held by her beneficially: see Martin v Martin (1959) 110 C.L.R. 297 at pp.303-305. This presumption is, of course, rebuttable but I do not think that this has been done in the present case. It seems to me likely that, by January 1985 when the remittance from America was received, Mr Choi was under financial stress. This increases, rather than reduces, the likelihood that he would wish to divest assets from himself and vest them beneficially in his wife: cf Martin at p.305. I see no basis for the view that the one half proceeds of the sale was held by Mrs Choi on behalf of her husband when the family arrived in Australia.

However, even if that conclusion is incorrect a difficulty remains. The petitioners would have to show a disposition of the proceeds of the one half share, with the consent of Mr Choi, which was inconsistent with the money being held on his behalf. There is a deal of evidence in Mrs Choi's affidavit relating to the disposition of the $A500,000.00 remitted by her to Australia. It appears that $A400,000.00 is held upon three separate deposits, one in the name of Mrs Choi's mother and the other two, apparently, in the name of Mrs Choi alone. $A50,000.00 was remitted by Mrs Choi to Hong Kong, allegedly mainly for the payment of outstanding debts. How this tallies with the requirement of the immigration authorities that the family bring with them not less than $A500,000.00 in capital I do not know but this is presently immaterial. There is nothing to show that any part of the one half share has been expended in a manner inconsistent with the assumed trust in favour of Mr Choi. For all that appears that one half share could be retained as part of the two current deposits, totalling $A250,000.00 in Mrs Choi's name.

I reach the conclusion that none of the acts of bankruptcy alleged in the petition are available to the petitioners with considerable regret. Upon the evidence it appears that Mr Choi is indebted to them, as endorsee of the cheques, in a sum which at 28 May 1985 amounted to $A770,000.00. This sum Mr Choi is unwilling, and apparently presently unable, to pay. Both he and his wife -- who could throw considerable light upon any settlements which might have been made by her husband upon her -- are now resident in Australia. It would be highly desirable, if one or more acts of bankruptcy can be established, that Mr Choi's affairs be administered in bankruptcy, and convenient for this to be done in Australia.

However, the evidence does not suggest even a substantial prospect that the petitioners can prove an act of bankruptcy which complies with the requirements of s.43 of the Bankruptcy Act. It is unlikely that the grant to them of additional time would repair those deficiencies. Under those circumstances the only proper course is to dismiss the petition. The petitioners must pay the costs of Mr Choi in relation to the petition. The costs of the proceedings before Burchett J. were reserved by his Honour. Having regard to the failure of the debtor in that application but also to the fact that, as I have held, there is no jurisdiction to make a sequestration order each party should be left to bear his own costs of those proceedings.