Re The Official Trustee in Bankruptcy v Ex parte Bayliss, P

[1987] FCA 283

Re: PETER JOHN BAYLISS
Ex parte: THE OFFICIAL TRUSTEE IN BANKRUPTCY (as trustee of Peter John Bayliss
a bankrupt)
No. VIC E302 of 1987
Bankruptcy - Injunctions - Statutes

COURT

IN THE FEDERAL COURT OF AUSTRALIA

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

CATCHWORDS

Bankruptcy - interlocutory injunction against third party - prevention of dissipation of assets - extent of court's powers under s.30(1)(b) Bankruptcy Act - circumstances where injunction "necessary" under s.30(1)(b).

Injunctions - interlocutory - where specific power under statute to grant - equitable principles - balance of convenience relevant - court not confined to "Mareva" principles - granted where "necessary" under s.30(1)(b) Bankruptcy Act.

Statutes - grant of general power - whether confined by specific provision of Act - question of construction - s.30(1)(b) Bankruptcy Act.

Bankruptcy Act s.30(1)

HEARING

BRISBANE

#DATE 3:6:1987

Counsel for the Applicant: Mr. J. Griffin Q.C. with Mr. G. Egan

Solicitors for the Applicant: Williams and Williams

Counsel for the Respondent: Mr. R. Cooper Q.C. with Mr. V. Green

Solicitors for the Respondent: Feez Ruthning & Co.

ORDER

THE COURT NOTES THAT:

Upon the applicant giving the usual undertaking as to damages:

1. The respondent Hadotone Pty. Ltd. undertakes until further order to pay any moneys which come into its hands pursuant to the contract of sale referred to in paragraph one (1) on page six (6) of the application herein into an interest-bearing account maintained in the names of Jon Broadley and Alexander John Wilson.

2. Hadotone Pty. Ltd. further undertakes until further order to collect into its hands all moneys due to it pursuant to the aforesaid contract after payment of all proper costs and disbursements in relation to the aforesaid sale.

THE COURT ORDERS THAT:

1. Each of the parties is to have liberty to apply, including application in respect of the abovementioned undertakings.

2. Costs be reserved.

NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

This is an application by the Official Trustee in relation to the estate of the bankrupt, who is a well-known Brisbane abortionist. The applicant seeks an interlocutory injunction to achieve the result that certain proceeds of sale of property are not dissipated.

1. In outline, the applicant's case is that in recent years the bankrupt has participated, or earned the right to participate, in a very large income, that he has an aura of wealth about him, and yet claims to have very little; his statement of affairs asserts that he has debts of about $4.8 million and contingent liabilities of about $2 million. In anticipation of his bankruptcy, so the applicant seeks to assert, the bankrupt has got rid of assets in favour of the respondent Hadotone Pty. Ltd., a company ostensibly controlled by his children. There is evidence that the bankrupt set up a number of companies and trusts.

2. It was said on behalf of the applicant that there is a practical difficulty in investigating the history of financial structure established by the bankrupt, in that because of the unavailability of a registrar to hear the matter, a public examination cannot be held for some time. While, no doubt, that creates an obstacle as to obtaining evidence from persons other than the bankrupt, his obligations under ss.77 and 265(1)(b) of the Bankruptcy Act are clear and do not depend upon the availability of a registrar. Evidence was given that the bankrupt has produced documents relating to his affairs, speaking generally, only up to 1983; the documents since that year were withheld. The applicant may think it not likely to be productive to require information under s.77, but the likely delay in obtaining an examination under s.81 cannot assist the applicant when the compulsory processes available under ss.77 and 265 have not been fully used; I have therefore not taken that circumstance into account in favour of the applicant.

3. The principal proceedings in relation to which the present relief is claimed are for a declaration that a transfer of a half-interest in property at 56-64 Logan Road, Woolloongabba, Brisbane is void under s.120 or s.121 of the Bankruptcy Act. That interest was formerly the property of the bankrupt but has been transferred to a company controlled by his children; the entire property is to be sold, at arm's length. The issue is whether the proceeds, insofar as they represent the bankrupt's former share, should be retained for the time being.

4. A question arises at the outset as to the basis of the Court's power to grant an interlocutory injunction in such a case as this. Section 30(1) of the Bankruptcy Act is as follows:
   
   

"The Court -

(a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part X or Part XI coming withing the cognizance of the Court; and

(b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter."

1. There appears to be no provision in the English bankruptcy legislation corresponding to s.30(1)(b), so that English authorities cannot assist in its construction.

2. This is a case of bankruptcy within the meaning of the sub-section, and prima facie whether it is right to grant the order sought depends on whether the Court considers that order necessary for the purposes mentioned in para.(b) of s.30(1). I say "prima facie", because there is a limit on the Court's power given by para. (b), derived from a reading of the Act as a whole, namely that some specific provisions of the Act impose restraints on the Court's power of action, which restraints are not to be read as being overridden by the general provision of para.(b) of s.30(1). A number of examples of application of this notion may be found in the authorities, but the only one it is necessary to mention is the decision of the High Court in Clyne v. Deputy Commissioner of Taxation (1984) 55 ALR 143. There a sequestration order was backdated, but a majority of the High Court held that it was wrong to do so:
   
   

". . . the Act itself provides when a debtor becomes a bankrupt - either upon the making of a sequestration order (s.43(2)) or upon the acceptance by the Registrar of a debtor's petition

(s.55(3)(b)). Apart from the power of an appellate court to put right what was wrongly done in the first instance, no court has power to cause a debtor to become a bankrupt on a date earlier than that for which the Act provides. Neither the general power conferred by s.30(1)(b) of the Act to make such orders as the court considers necessary for the purpose of carrying out or giving effect to the Act, nor the power given to the Federal Court by its rules to antedate its orders (O.35, r.3) extends to permit the court to make an order which would bring about a result different from that prescribed by the express provisions of the Act and so serious in its possible consequences." (Emphasis added.)

It must be a matter of construction in each case whether a particular provision of the Act negates the possibility of the Court's making an order under the general power. For example, in Re: Lamb; Ex parte Melsom (1980) 29 ALR 157 at p 159 Brinsden J. had to consider an application for consolidation of the estates of two debtors, one of whom only was a bankrupt; the other had entered into a deed of arrangement. The difficulty was that s.53 of the Act, giving power to consolidate, applies only where debtors have become bankrupt, but his Honour ordered consolidation, under s.30(1)(b), on the basis that the statement of the specific consolidation power in s.53 does not exhaust the Court's powers.

1. Here, there is no question of the Court's being asked to do anything contrary to an express provision of the Act. It is true, as counsel for the respondents pointed out, that the Act contains elaborate provisions directed towards the same general object as the present application, but I have found nothing to justify reading down s.30(1)(b) so as to inhibit the power given by that provision (and in particular the power to grant an injunction) in any manner helpful to the respondent. Therefore, it appears that the only question, as to jurisdiction, is whether the interlocutory injunction sought is considered necessary for such purposes as are there mentioned. Of course, equitable principles may be useful in deciding how the jurisdiction should be exercised - in particular, the question of the balance of convenience. But I do not accept the proposition advanced by counsel for the respondent that an injuntion may be granted only on Mareva principles; the power to grant an injunction where it is necessary for the purposes of giving effect to the Act is simply derived from s.30(1)(b).

2. It appears to me to follow, inter alia, that it is not necessary in every such case as this to show that there is a serious question to be tried; it may be that at an early stage so little information is available with respect to the matter in relation to which an injunction is sought that the "serious question" test cannot be passed. Where one has an unco-operative bankrupt who has arranged his affairs in a complex way, the trustee may have difficulty in showing, shortly after bankruptcy, where and how the bankrupt's money has gone; interlocutory orders to hold the position may nevertheless be very necessary.

3. The applicant claims that there is a pattern of concealment in the bankrupt's actions, as well as evidence of a tendency to use Hadotone Pty. Ltd. as an asset repository. According to evidence which I accept, when asked about Hadotone Pty. Ltd. recently, the bankrupt claimed that he had had no connection with that company since 1983. That was untrue; on 10 April 1987 there was executed an authority to a bank making it, as I read it, necessary that the bankrupt be a co-signatory in any dealings with the company's account. There is evidence that another necessary signatory has pre-signed cheques, perhaps enabling the bankrupt to deal with the money of Hadotone Pty. Ltd. as he pleases. Further, there is evidence of a number of transfers to Hadotone Pty. Ltd. which require examination.

4. On 4 March 1987 the bankrupt transferred a unit being Lot 4 in registered building units plan 2534 to Hadotone Pty. Ltd. That transfer was (if the date be correct) executed some months after presentation of the petition and only 19 days before the making of a sequestration order. It was produced at the Real Property Office on the day of the sequestration order. The transfer acknowledges receipt of a sum of $100,000. Whether that sum was truly paid and, if so, what happened to it after payment are both presently unknown.

5. The bankrupt is said to have sold property at Ivanhoe in the State of Victoria late last year to Hadotone Pty. Ltd. for $160,000. According to the evidence, that property is said to have been later resold for $220,000. Again, it is unknown whether the $160,000 was paid or, if it was paid, what was done with the money.

6. Evidence was given, and unchallenged, that at an interview with the bankrupt on 8 April 1987, Mr. P.J. Allport produced a copy of a certificate of title relating to land at Sandford Street, St. Lucia evidencing that the bankrupt was then registered as proprietor of that property. The bankrupt said he had sold the unit to Hadotone Pty. Ltd. pursuant to a contract of sale under which the completion date was 1993. When asked if any consideration had passed, the bankrupt did not answer.

7. Lastly, there is the transfer by the bankrupt of the Woolloongabba property to Hadotone Pty. Ltd. That was produced at the Real Property Office on 21 November 1985 and showed a consideration of $404,000. There is no evidence as to whether that sum was in fact paid. Since the petition was presented less than a year later, the transaction falls well within the time-limit mentioned in s.120(1) of the Bankruptcy Act. Counsel for the respondent submitted that, according to the stamp duty marking, the relevant contract for sale was made in 1984, before there could have been any apprehension about the bankrupt's financial position.

8. In my view, it would not be right to make any assumptions in favour of the respondent about the contract in question. It has chosen to lead no evidence relating to it - not even as to payment of the consideration, a matter which I would have thought would be simple enough to prove. There is no evidence on which I could safely rely as to the bankrupt's financial position at any relevant time.

9. The Woolloongabba property was most recently sold under a contract made three days after the sequestration order. The coincidence as to time helps the applicant. The material presently before me shows a strong case that there is a need for close investigation of the subject of transfers of the bankrupt's property to Hadotone Pty. Ltd. in advance of the bankruptcy and I see no reason why the Woolloongabba property should be excluded from that scrutiny.

10. Counsel for the respondent argued that there is no likelihood that the money received by Hadotone Pty. Ltd. would disappear. As to that, I simply could not say. It does not appear to be in dispute that the bankrupt has recently had a partial interest in a business producing gross income of well over $1 million per annum, nor that in 1983 and 1984 he claimed to have a substantial surplus of assets, nor that he now claims that there is a vast deficiency of assets. If his financial position has deteriorated so drastically, one possible contributing factor is that he has got rid of property to Hadotone Pty. Ltd., a company claimed to be controlled by his children.

11. There are other circumstances tending towards the conclusion that it is "necessary", within the meaning of s.30(1)(b), to grant the relief sought. One is that if the transactions with the property in question, other than the most recent, were effected without any regard to the bankrupt's then financial position, then there are unusual time gaps. The contract which, as I have pointed out, has not been produced, is said to have been entered into in 1984. The transfer is dated April 1985 and the delay is unexplained. If the transfer date is correct, there is an apparent delay of seven months before the document was lodged at the Real Property Office; that is also unexplained. Further, if the $404,000 was in fact paid on settlement, one might have expected the bankrupt's cash position at the date of bankrtupcy to be less calamitous than he has claimed it to be.

12. It should be added that search warrants were recently issued with a view to obtaining documents of the bankrupt's companies, including Hadotone Pty. Ltd., but the validity of such warrants is under challenge; as a consequence of that, by orders or undertakings the applicant is presently unable to examine such documents of Hadotone Pty. Ltd. as have been obtained on search. That is not to say, however, that Hadotone Pty. Ltd. could not itself have come forward with some explanation of the impugned transaction; if it was bona fide, I would have expected someone connected with it to have produced evidence to that effect. The absence of any such evidence assits the applicant, on the principle of Jones v. Dunkel (1959-60) 101 CLR 298.

13. As to the balance of convenience, it is agreed that, if an order is to be made restraining the disposition of the proceeds of sale, the money may be placed in an interest-bearing account. There is no evidence that Hadotone Pty. Ltd. has urgent need of the money - or, indeed, that it would not place the money in such an account in the absence of an order of the Court.

14. I shall merely indicate my preparedness to grant interlocutory relief in respect of the funds in question, of such a kind as to preserve them until further order. As counsel have intimated, there is to be discussion as to the precise form of relief.