Shanahan (Trustee) in the matter of O’Neill (Bankrupt) v 250 East Property Pty Ltd
[2022] FedCFamC2G 884
•24 October 2022
Federal Circuit and Family Court of Australia
(DIVISION 2)
Shanahan (Trustee) in the matter of O’Neill (Bankrupt) v 250 East Property Pty Ltd [2022] FedCFamC2G 884
File number(s): ADG 265 of 2022 Judgment of: JUDGE BROWN Date of judgment: 24 October 2022 Catchwords: BANKRUPTCY – urgent ex parte interlocutory application – interim injunction sought to restrain respondents dealing with property – relating bank period – property asserted to be controlled by entity related to bankrupt namely a trust – assertion bankrupt has supplied services to and received no remuneration from related entity – where the applicant is concerned the respondent will remove or appoint a new trustee – injunctive orders made Legislation: Bankruptcy Act 1966 (Cth) Div 4A, ss 5, 139A, 39CA, 139D
Federal Circuit and Family Court of Australia Act 2021 (Cth) s 140
Division: Division 2 General Federal Law Number of paragraphs: 42 Date of hearing: 17 October 2022 Place: Adelaide Counsel for the Applicant: Mr Dal Cin Solicitor for the Applicant: Townsends Solicitors Respondents: No appearance ORDERS
ADG 265 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF RODNEY JOHN O'NEILL AND DENISE KAY O'NEILL, BANKRUPT
BETWEEN: JOHN GERVASE SHANAHAN AS TRUSTEE FOR THE BANKRUPT ESTATE OF RODNEY JOHN O'NEILL AND DENISE KAY O'NEILL
ApplicantAND: 250 EAST PROPERTY PTY LTD ACN 624 848 620
First Respondent250 EAST PTY LTD ACN 168 080 091
Second RespondentRODNEY JOHN O'NEILL (and others named in the Schedule)
Third Respondent
order made by:
JUDGE BROWN
DATE OF ORDER:
17 OCTOBER 2022
THE COURT ORDERS THAT:
1.The First, Second and Fourth Respondent be restrained from any dealings with the land described in Certificate of Title Register Book Volume 6247 Folio 36, being Apartment 701, 250 East Terrace, Adelaide in the State of South Australia until further or other order.
2.The Third Respondent, Mr Rodney John O’Neill, be restrained, until further order, from exercising its power of appointment to remove the trustee or appoint a new trustee to the East Terrace Trust.
3.Further consideration of the matter is adjourned to 28 October 2022 at 2.15pm for directions to take place at Court.
4.The trustee’s costs of today’s hearing be reserved to the adjourned hearing.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE BROWN:
These reasons for judgment relate to an application for an urgent ex-parte injunction arising from an application brought pursuant to the provisions of Division 4A of the Bankruptcy Act 1966 (Cth).[1]
[1] Hereinafter referred to as “the Act”.
The case was listed before me, along with other directions matters, at 9.30 am on 17 October 2022. At 10.00am that day, I was also required to resume hearing a part-heard family law case, which needed my attention.
Accordingly, I was pressed for time. At the same time, I accepted that there was a degree of urgency concerning the application, particularly given the assertion that there was a risk of an asset, potentially subject to the bankruptcy, being dissipated.
In these circumstances, I elected to proceed with the application and heard submissions from counsel for the applicant, Mr Dal Cin, who had also prepared reasonably extensive written submissions.
Following those submissions and having read the affidavit of the applicant, filed on 13 October 2022, I was persuaded to make the injunctive orders sought. However, I also indicated that I would provide more extensive reasons in support of this decision, as soon as time permitted. These are those reasons.
The applicant in the proceedings is John Gervase Shanahan (“Mr Shanahan”). He is the trustee of the bankrupt estate of Rodney John O’Neill (“Mr O’Neill”) and his wife Denise Kay O’Neill (“Mrs O’Neill”).
Mr and Mrs O’Neill were made bankrupt by order of the court on 19 October 2021. Mr Shanahan was appointed their trustee on 29 April 2022. As required by the relevant legislation, Mr O’Neill provided a statement of his affairs, to Mr Shanahan on 16 June 2022.[2]
[2] Affidavit of John Gervase Shanahan filed 13 October 2022 at page 15 of annexure JGS-1.
In his statement of affairs, Mr O’Neill indicated that his residential address was Apartment 701/250 East Terrace, Adelaide. He indicated that he was renting these premises but was not paying any monetary amount as rent. He further provided the answer no in response to the question, on the pro forma statement of affairs document, to the question: Do you have any interest in real estate?[3]
[3] Affidavit of John Gervase Shanahan filed 13 October 2022 at page 27 of annexure JGS-1.
In addition, the pro forma statement of affairs form, at question 55, posed the following question: Are you currently, or in the last five year have you been, involved in a trust as a trustee, beneficiary or unit holder? To which Mr O’Neill has indicated the answer no.[4]Mr Shanahan has reason to believe that this answer has either been provided in error or is not candid.
[4] Affidavit of John Gervase Shanahan filed 13 October 2022 at page 34 of annexure JGS-1.
In this context, on 7 July 2022, Mr Shanahan wrote to Mr O’Neill to seek clarification in respect of various aspect of the statement of affairs provided by him, particularly in respect of his involvement in directorships and trusts. On 19 July 2022, Mr O’Neill indicated he had been a director of 250 East Pty Ltd and three other companies but could not recall other details.
In respect of trusts, Mr O’Neill indicated that as far as he could recall he had not been involved in a trust in the past five years.[5]He acknowledged having been a shareholder and director of companies appointed to be trustee but was unable to recall receiving any benefits as a consequence of such positions. Mr Dal Cin submits that this answer is not likely to be completely frank.
[5] Affidavit of John Gervase Shanahan filed 13 October 2022 at page 44 of annexure JGS-1.
As will be indicated further in due course, it is the submission of Mr Dal Cin that, by dint of his occupation of Apartment 701, Mr O’Neill has received some form of interest in property, as a consequence of his relationship with the trust or corporate entities related to it. He submits that this engages the provisions contained in Division 4A of the Act, particularly section 139D.
In these broad circumstances, Mr Shanahan seeks various injunctions, which would have the effect of restraining Mr O’Neill and various entities said to be related to him, particularly a discretionary trust known as the East Terrace Trust, from dealing with Apartment 701/250 East Terrace, Adelaide. The potential beneficiaries of the trust include Mr O’Neill and members of his family. The trust was established on 1 April 2014.
Mr Dal Cin, submits to the court, on the basis of the evidence provided by Mr Shanahan, that there is a risk that Mr O’Neill, who is the appointer of the East Terrace Trust, may appoint or remove a new trustee to the trust, who, due to the manner in which various entities related to him and his business partner, Mr Sommariva, are configured, has the potential to result in control of the apartment vesting in a third party and the estate being put to unwarranted expense to recover it.
It was on this basis that Mr Shanahan’s solicitor sought the urgent listing of his application initially filed with the court on 6 October 2022. He asserts that if Mr O’Neill had prior knowledge of the application, this would be likely to defeat the purpose of his injunction application, given the ease with which a new trustee could be appointed.
In December of 2014, the second respondent company, which for convenience I will refer to as 250 East acquired a piece of land at 250 East Terrace, Adelaide. 250 East was the corporate trustee of the East Terrace Trust. The land was acquired with the intention that it be re-developed as a multi-story residential complex, consisting of two towers.
In November of 2016, 250 East transferred a 40% interest in the land to the fourth respondent, Pajo Projects Pty Ltd. Thereafter, 250 East and Pajo Projects entered into a joint venture to develop the land together. Mr Sommariva is a director of Pajo Projects.
Mr Shanahan has acquired an unexecuted copy of the joint venture agreement between 250 East and Pajo Projects.[6] This indicates that each corporate entity would be entitled to receive a penthouse, on level 7 on each of the towers, which it was hoped would be subsequently developed on the relevant land.
[6] Affidavit of John Gervase Shanahan filed 13 October 2022 at page 118-127 of annexure JGS-1.
It is the submission of Mr Dal Cin that the statement of affairs, completed by Mr O’Neill in respect of his bankruptcy, in which he acknowledges that his residential address is Apartment 701, is a reference to the penthouse referred to in the unexecuted joint venture.
Similarly, Mr Dal Cin points to the fact that Mr O’Neill provided Mr Sommariva, as a contact person for him, at a nominated address of Apartment 702/250 East Terrace, as evidencing the fact that the intention of the joint venture that each of the venturers concerned would receive a seventh floor apartment in the development, has been accomplished.
In addition, in his statement of affairs, Mr O’Neill indicates that his accommodation is provided by his business partner. It is Mr Shanahan’s belief that this person is Joe Sommariva, who, as previously indicated, is a director of Pajo Projects and whom Mr O’Neill has nominated as living at Apartment 702/250 East Terrace, Adelaide.
The Adelaide City Council was the planning authority responsible for approving various stages of the development project proposed by 250 East and Pajo Projects. Relevant approvals were provided to Mr O’Neill personally.
In addition, Mr Shanahan has obtained what he refers to as working documents, which he attributes to Mr O’Neill and which he interprets as indicating that Mr O’Neill would receive the sum of $185,000.00 by way of the East Terrace Consultancy.
Between January 2018 and November 2020, a company with an address in Victoria, lent significant sums of money to 250 East and Pajo Projects, in respect of which sums Mr O’Neill and Mr Sommariva agreed to act as personal guarantors.
On 19 January 2022, after the sequestration order had been made, Mr O’Neill, as the appointer of the East Terrace Trust, which was established on 1 April 2014, removed 250 East as its trustee. On the same day, Mr O’Neill appointed 250 East Property & Building Pty Ltd[7] as the trustee of the East Terrace Trust.
[7] The Australian Company Number for this company is ACN 624 848 620. In the application filed on 13 October 2022 the first respondent is identified as being 250 East Property Pty Ltd and this ACN number is attributed to it. In Mr Shanahan’s affidavit on the cover sheet the first respondent is identified as being 250 East Property & Building Pty Ltd. I have not had an opportunity to ventilate this irregularity with those representing Mr Shanahan.
Records obtained by Mr Shanahan indicate that Mr Sommariva is the sole director of East Property & Building Pty Ltd, which until 18 January 2022 was apparently known as Sommariva Property & Building Pty Ltd.[8] Mr O’Neill does not have an interest in this company.
[8] Affidavit of John Gervase Shanahan filed 13 October 2022 at page 147 of annexure JGS-1.
At present, it is Mr Shanahan’s evidence that the East Terrace Trust is a discretionary trust created by Mr O’Neill and intended primarily to benefit him and Mrs O’Neill. He is the appointor of the trust and has the power to appoint a new trustee. Mr Shanahan has provided the court with a copy of the relevant trust deed.[9]
[9] Affidavit of John Gervase Shanahan filed 13 October 2022 at page 45 of annexure JGS-1.
It is further Mr Shanahan’s position that 250 East and Pajo Projects are the registered proprietors of Apartment 701 as a consequence of the joint venture agreement between them to develop the East Terrace site. On 19 January 2022, Mr O’Neill appointed 250 East Property & Building Pty Ltd, which it is convenient to refer to as the new trustee of the East Terrace Trust.
In all these circumstances, Mr Shanahan has deposed as follows:
I apply for interlocutory injunctions to restrain dealings with Apartment 701, and to restrain the exercise of the power of appointment by the bankrupt in respect of the East Terrace Trust because I am concerned that if the bankrupt, the First Respondent, or the Fourth Respondent are not restrained, then they may enter into a transaction which will divest the First Respondent, and the East Terrace Trust, of Apartment 701 and make it more difficult for these proceedings to successfully recover the land.
I am also concerned that the bankrupt may exercise the power of appointment so as to change the trustee of the East Terrace Trust again and thereby frustrate these proceedings.
In my capacity as trustee in bankruptcy of the bankrupt, I give an undertaking as to damages.
There are presently no assets in the administration of the bankrupt estate.
I have the benefit of an indemnity from a creditor of the bankrupt in respect of any liability which may arise by reason of the undertaking as to damages.[10]
[10] Affidavit of John Gervase Shanahan filed 13 October 2022 at [46]-[50] of annexure JGS-1.
Legal Considerations
Mr Dal Cin relies on the provisions of Division 4A of the Bankruptcy Act to support his submission that the relevant apartment should vested in Mr Shanahan as a consequence of Mr O’Neill’s bankruptcy and therefore he has standing to bring the current urgent interlocutory injunction application.
Section 139A authorises a bankruptcy trustee to apply to the court in respect of what is known as a respondent entity. The expression related entity is defined in section 5 as including a trust, a trustee or a beneficiary of a trust.
Section 139CA defines a concept known at the examinable period, which allows applications to be made in respect of a related entity in the period five years prior to the making of any applicable sequestration order.
This in turn engages section 139D, which is headed Order relating to property of an entity other than a natural person. The section reads as follows:
(1)Where, on an application under section 139A for an order in relation to a respondent entity other than a natural person, the Court is satisfied that:
(a)the bankrupt supplied personal services to, or for or on behalf of, the respondent entity at a time or times, during the examinable period and before the end of the bankruptcy, when the bankrupt controlled the entity in relation to the supply of those services;
(b) either:
(i)the bankrupt received for those services no remuneration in money or other property; or
(ii)the remuneration in money or other property that the bankrupt received for those services was substantially less in amount or value than a person supplying those services in similar circumstances might reasonably be expected to have received if the person had dealt with the entity at arm's length in relation to the supply of those services;
(c)during the examinable period, the entity acquired an estate in particular property as a direct or indirect result of, or of matters including, the supply by the bankrupt of those services;
(d)the bankrupt used, or derived (whether directly or indirectly) a benefit from, the property at a time or times during the examinable period when the bankrupt controlled the entity in relation to the property; and
(e) the entity still has an estate in the property;
subsections (2) and (3) have effect, whether or not the bankrupt has ever had an estate in the property.
(2) The Court may, by order, vest in the applicant:
(a)the entity's estate in the whole, or in a specified part, of the property; or
(b)a specified estate in the whole, or in a specified part, of the property, being an estate that could, by virtue of the entity's estate in the property, be so vested by or on behalf of the entity.
(3) The Court may make an order directing:
(a) the execution of an instrument;
(b) the production of documents of title; or
(c) the doing of any other act or thing;
in order to give effect to an order under this section made on the application.
It is Mr Dal Cin’s submission that the evidence he has led indicates that Mr O’Neill has supplied services to one or all of the entities named in the application. This is evident by the fact that he has been described as a consultant in respect of the project to develop the East Terrace site and he applied personally for the development permits required.
Thereafter, Mr Dal Cin submits that the various criteria stipulated by section 139D(1)(b) – (e) have been satisfied. Essentially, Mr O’Neill received no remuneration or substantially less remuneration than he was entitled to in respect of the development. He has benefitted from property ostensibly controlled by a related entity, namely his continued occupation of the relevant apartment, which he controlled during the examinable period.
As I indicated orally, on 17 October 2022, I was satisfied that the prima facie circumstances outlined by Mr Dal Cin enliven section 139D. I also indicated that the prejudice to Mr O’Neill personally was slight as the penthouse, which he continued to occupy was obviously not going anywhere. In these circumstances, I said as follows:
MR DAL CIN: Yes. Now, and of course there will be some distress to Mr O’Neill in being involved in this litigation and…
HIS HONOUR: Well, the thrust of your submissions is that he’s not completely unaware of the complexities of this matter because you say he wasn’t completely transparent when he put his statement of affairs, but when he was asked to clarify things, well, he did…
MR DAL CIN: Yes.
HIS HONOUR: …to some extent say, “You know, but there were no distributions”, and that may be true, but that’s not the point because the trustee says the whole purpose of this mechanism was that when the successful joint venture was going to be completed, he was likely to have got his consultancy fee. He was going to get the penthouse, which occurred in the related back period in respect of related entities and therefore there’s an arguable case if I don’t make the order today, the prejudice to the trustee and therefore the other creditors is enormous, and the harm could be easily undone.
MR DAL CIN: Yes. That’s precisely the matters in some…
HIS HONOUR: I mean, as I’ve said at the outset, I understand the big picture, but there are so many moving parts, and obviously, I have an obligation to provide some reasons, but I’m not a computer.
MR DAL CIN: No. Well, your Honour has summarised each of the essential steps, and I’m confident that my written outline provides the references to the materials that I rely on for each of those steps. So if your Honour then, in due course, works through the outline, your Honour will see…
HIS HONOUR: And I can make the orders and perhaps publish some reasons in two or three days.
MR DAL CIN: Yes.
Regrettably, it has taken me more than two or three days to publish these reasons. I acknowledge what I said on 17 October was not marked by any marked degree of lucidity or jurisprudential eloquence. However, on more detailed reflection, I do not consider that my initial inclination to grant the orders sought was erroneous. In addition, the respondents are each in a position to make any submissions in rebuttable on 28 October 2022.
Section 140 of the Federal Circuit and Family Court of Australia Act 2021 (Cth) empowers Division 2 of the court to make whatever orders, including interlocutory orders, as it thinks appropriate. Accordingly, I am satisfied I have the authority to make an ex parte order as sought by the applicant.
The principles to be applied in granting an ex parte injunction in respect of property potentially affected by proceedings are not unduly controversial. Firstly, an applicant must establish an arguable case for the relief; secondly, the applicant must demonstrate a real risk that, in the event the injunction is not made, there is a real risk that any subsequent judgment made in the applicant’s favour would remain unsatisfied; thirdly, the balance of convenience must favour the making of such an order.
Given the ex-parte basis of the injunctions sought in the current matter, an adequate undertaking in damages is also necessary. This may extend to the protection of third parties, who may be affected by the making of any such injunction or who may incur expense in complying with it. Mr Shanahan has indicated a willingness to provide such an undertaking.
I am satisfied, on a prima facie basis, Mr Shanahan has established an arguable case that the property known as Apartment 701 should be subject to Mr O’Neill’s bankruptcy. If the apartment is divested in the short to medium term, I consider that such an outcome would potentially disadvantage any creditors of Mr O’Neill, whose interests Mr Shanahan is obliged to protect.
Given Mr O’Neill continues to occupy the apartment, I am satisfied, at present, that the balance of convenience favours the making of the injunction, particularly given the case will return to court in a comparatively short time frame. For all these reasons, I confirm the orders made on 17 October 2022, which are as set out at the commencement of these reasons for judgment.
I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Brown. Associate:
Dated: 24 October 2022
SCHEDULE OF PARTIES
ADG 265 of 2022 Respondents
Fourth Respondent:
PAJO PROJECTS PTY LTD ACN 158 823 119
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