Solomons and de Vries as Joint and Several Trustees of the Bankrupt Estate of Li v Li
[2020] FCCA 3026
•23 October 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
Solomons and de Vries as Joint and Several Trustees of the Bankrupt Estate of Li v Li [2020] FCCA 3026
File number(s): SYG 3324 of 2018 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 23 October 2020 Catchwords: BANKRUPTCY – Application for order under s.146 of the Bankruptcy Act 1966 (Cth) (Act) that the distribution of dividends proceed as if bankrupt had filed a statement of affairs as required by the Act – application granted. Legislation: Bankruptcy Act 1966 (Cth), s 146 Cases cited: Official Trustee in Bankruptcy, in the matter of Shaw [1999] FCA 968
Re Sturt; Ex parte Official Trustee in Bankruptcy [2001] FCA 1649
Roufeil (Trustee), in the matter of Jarvie (Bankrupt) [2015] FCA 232
Number of paragraphs: 18 Date of hearing: 23 October 2020 Place: Sydney Solicitor for the Applicant: Mr N Dale of Gillis Delaney Lawyers, by telephone The Respondent: The Respondent did not appear ORDERS
SYG 3324 of 2018 IN THE MATTER OF THE BANKRUPT ESTATE OF ZHE LI
BETWEEN: DAVID SOLOMONS AND ANTONY DE VRIES AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF ZHE LI
ApplicantAND: ZHE LI
Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
23 OCTOBER 2020
THE COURT ORDERS THAT:
1.Pursuant to s.146 of the Bankruptcy Act 1966 (Cth) (Act) the applicants, as trustees of the bankrupt estate of Zhe Li, distribute a dividend to the creditor who has proved his debt in the bankrupt estate of Zhe Li, that creditor being Mr Kiran Chandra Ramrakha, in accordance with Div.5 of Pt.VI of the Act as if Zhe Li had filed a statement of affairs, and Mr Kiran Chandra Ramrakha had been stated to be a creditor in it.
2.By 30 October 2020 the trustees serve a sealed copy of these orders on Zhe Li and on the Australian Tax Office, such service to be effected by email.
REASONS FOR JUDGMENT
(Revised from the transcript)
By interim application the trustees of the estate of Ms Zhe Li (Trustees) apply for an order under s.146 of the Bankruptcy Act 1966 (Cth) (Act) which provides:
Where a bankrupt has failed to file a statement of his or her affairs as required by this Act, the Court may, on the application of the trustee, upon such terms as it thinks fit, order that distribution of dividends amongst the creditors who have proved their debts shall proceed in accordance with this Division as if the bankrupt had filed a statement of his or her affairs and those creditors had been stated to be creditors in it.
The Trustees were appointed trustees in bankruptcy of the estate of Ms Zhe Li following the making of a sequestration order on 28 February 2019.
The interim application was filed on 12 October 2020 and it was listed before me for hearing at 10:15 am on 23 October 2020. There is in evidence an affidavit made by Mr Nicholas Anthony James Dale, the solicitor for the Trustees, detailing attempts that have been made to serve the interim application, together with the affidavits on which the Trustees rely, on Ms Zhe Li. That evidence reveals that extensive efforts have been made to ascertain the place or places at which the interim application and supporting affidavits could be served on Ms Zhe Li. The Trustees settled on sending the interim application to three email addresses on 19 October 2020 together with the supporting affidavits.
One of those email addresses is an email address Ms Zhe Li recorded in the notice of appearance she filed in response to the creditor’s petition. Mr Dale, who appears for the Trustees, also took me to evidence which reveals that the email addresses to which the interim application and supporting material were sent are email addresses that have been used by, or on behalf of, the Trustees when communicating with Ms Zhe Li during the course of the administration of the bankruptcy. Mr Dale took me to pages 147, 203 and 250 in exhibit JK1, by way of example. I am satisfied that Ms Zhe Li has been given proper notice of this application.
I also note that after the matter was listed my associate sent an email to the parties on 20 October 2020, including an email to Ms Zhe Li at the email address which she nominated in her notice of appearance, confirming the hearing before me and also providing telephone dial-in details. Ms Zhe Li did not dial in and therefore this application is proceeding in her absence. Being satisfied that Ms Zhe Li has been served with the application, it is appropriate now that I proceed to deal with it.
The principles that should apply on this application are those stated by Gleeson J in Roufeil (Trustee), in the matter of Jarvie (Bankrupt) [2015] FCA 232. In that case her Honour said that there are two issues in relation to an application under s.146 of the Act that need to be determined. First, whether the bankrupt has failed to file a statement of affairs as required by the Act; and second, assuming that that question is answered in the affirmative, whether the Court, in the exercise of its discretion, should order the distribution of dividends amongst the creditors that have proved their debts.
I am satisfied, on the evidence before me, that Ms Zhe Li has not provided a statement of affairs, and she has failed to do so even though the Trustees have made attempts to induce her to do so. That means that the precondition for the exercise of the discretion conferred by s.146 of the Act is satisfied.
In Re Sturt; Ex parte Official Trustee in Bankruptcy [2001] FCA 1649 at [14], it was said that s.146 of the Act:
…is 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.
In Official Trustee in Bankruptcy, in the matter of Shaw [1999] FCA 968 at [4], it was said that the purpose of s.146 of the Act is:
…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.
Relevant factors to the exercise of the discretion conferred by s.146 of the Act include whether the creditors have been notified of the application and have had the opportunity to be heard, and whether the trustee has taken steps to ascertain whether there are creditors other than those who have come to the trustee’s attention by filing a proof of debt.
I then turn to the evidence that it is before me. The evidence reveals that there is only one creditor who has lodged a proof of debt which the Trustees have accepted, that creditor being the petitioning creditor, Mr Kiran Chandra Ramrakha. The evidence also sets out the steps the Trustees have taken, or have caused to be taken, to ascertain the identity of any other creditors of Ms Zhe Li. That includes the making of enquiries to a number of mercantile agents; and it also includes a publication in The Australian newspaper on 3 June 2020. No person has come forth in response to the efforts the Trustees have made to indicate that they are creditors, or claim to be creditors, of Ms Zhe Li.
There is one potential creditor about which I should say something; and that concerns the Australian Tax Office (ATO). The evidence reveals that one of the Trustees, Mr Solomon, took particular care to determine whether Ms Zhe Li has any liabilities to the ATO. That led to Mr Solomon preparing a document dated 3 September 2020 titled “Estimated tax liabilities position”. That is a document which was provided to the ATO.
The position, as revealed on the evidence, is that Ms Zhe Li has not filed tax returns for the years 2001, 2002, 2004, 2018 and 2019. There is in evidence, however, tax assessments for other years. These reveal, and I am satisfied, that Ms Zhe Li was – in the periods at least in relation to which the tax assessments were issued – an employee and the owner of what appears to be an investment property. The notices of assessment record credits due to Ms Zhe Li, and in any event, income of modest amounts.
On the basis of his review of this material Mr Solomon, in the circular to which I have referred, concluded that it is unlikely that the Commissioner of Taxation would have a provable debt in the bankrupt estate.
I should also note that there is in evidence a letter dated 19 August 2020 from the ATO to the Trustees stating as follows:
There is presently no claim in this administration, however there may be a claim when the income tax returns for the years ended 30 June 2001, 30 June 2002, 30 June 2004, 30 June 2018 and 30 June 2019 are lodged and issued.
In addition to providing to the ATO the circular to which I have referred, the Trustees have caused to be served on the ATO a sealed copy of the application that is before me together with the affidavit of Mr Solomon’s and the affidavit of Ms Kulagina, being the material that is before me today, and there has been no appearance today by the ATO.
It is therefore possible that the ATO might become a creditor in the event of a tax return being filed and a notice of assessment being issued. The question is whether that possibility ought to weigh against my making an order under s.146 of the Act. In my opinion, it ought not, for the reasons submitted by Mr Dale. First, the view of the Trustees is that there is no current provable debt before the Trustees; and there is nothing in the material to suggest to me that Ms Zhe Li will, at any time, be filing a tax return. That uncertainty is not a matter which should prevent me from making an order to distribute the estate. Further, and this was also submitted by Mr Dale, the likelihood is if tax returns are filed it is doubtful that there will be any tax payable, or if there will be, it will be of a relatively insignificant amount. Mr Dale also said, in any event, even if that were to occur the ATO would have its right to pursue recovery on the completion of the bankruptcy.
For these reasons, I am satisfied that it is appropriate that I should exercise the discretion conferred by s.146 of the Act in favour of making an order under that section, and I propose in a moment to make orders in terms of those sought in the interim application. I will also order that a sealed copy of these orders be served on Ms Zhe Li and the ATO.
I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 10 November 2020
0
3
1