Trust Company (PTAL) Limited (Trustee for the LM Managed Performance Fund), in the matter of Drake v Drake
[2014] FCA 1445
•22 December 2014
FEDERAL COURT OF AUSTRALIA
Trust Company (PTAL) Limited (Trustee for the LM Managed Performance Fund), in the matter of Drake v Drake [2014] FCA 1445
Citation: Trust Company (PTAL) Limited (Trustee for the LM Managed Performance Fund), in the matter of Drake v Drake [2014] FCA 1445 Parties: THE TRUST COMPANY (PTAL) LIMITED (ACN 008 412 913), KORDAMENTHA PTY LTD (ACN 100 169 391) and CALIBRE CAPITAL LIMITED (ACN 108 318 985) AS TRUSTEES FOR THE LM MANAGED PERFORMANCE FUND v PETER CHARLES DRAKE File number: QUD 682 of 2014 Judge: WIGNEY J Date of judgment: 22 December 2014 Catchwords: PRACTICE AND PROCEDURE – Application pursuant
to ss 30 and 50 of the Bankruptcy Act 1966 – whether
trustee should take control of respondent’s property –
whether respondent should be restrained from departingAustralia
Legislation: Bankruptcy Act 1966 (Cth)
Bankruptcy Regulations 1996 (Cth)
Corporations Act 2001 (Cth)Cases cited: Australian Securities and Investments Commission v Wiggins (1998) 90 FCR 314
Deputy Commissioner of Taxation v Clyne (1983) 50 ALR 118
Talacko v Talacko (2010) 183 FCR 297
Talacko v Talacko (2010) 183 FCR 311
Talacko v Talacko [2010] FCA 193
Tasman KB Pty Limited v Watkins [2004] FCA 1190
Weiss v Official Trustee in Bankruptcy (1983) 1 FCR 40Date of hearing: 22 December 2014 Date of publication of reasons: 24 December 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 28 Counsel for the Applicants: P McQuade QC Solicitor for the Applicants: Minter Ellison Respondent: Did not appear
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 682 of 2014
BETWEEN: THE TRUST COMPANY (PTAL) LIMITED (ACN 008 412 913)
First ApplicantKORDAMENTHA PTY LTD (ACN 100 169 391)
Second ApplicantCALIBRE CAPITAL LIMITED (ACN 108 318 985) AS TRUSTEES FOR THE LM MANAGED PERFORMANCE FUND
Third ApplicantAND: PETER CHARLES DRAKE
Respondent
JUDGE:
WIGNEY J
DATE OF ORDER:
22 DECEMBER 2014
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The Official Trustee in Bankruptcy (Trustee) is directed to take control of the Respondent's, Peter Charles Drake, property as that term is defined in s 5(1) of the Bankruptcy Act 1966 (Cth) (herein after referred to as “property”) from the date of this order until 4.00pm on 21 January 2015 or earlier order.
IT IS FURTHER ORDERED THAT:
2.The Respondent other than in accordance with this order be restrained until 4.00pm on 21 January 2015 or earlier order from taking any steps by himself or by his employees, agents or attorneys for the purpose of or in furtherance of selling, transferring, or otherwise dealing with or diminishing the value of his property.
3.The Trustee open an account with a trading bank in joint names of the Respondent and the Trustee (Account) into which funds of the Respondent are to be deposited and arrange that moneys may be withdrawn from such account only upon the authority of the Trustee or a nominated person of the Trustee.
4.The Trustee furnish to the Respondent by email transmission to the Respondent at the email address [email protected] and to the Applicant details of the Account within 24 hours of it being opened.
5.The Respondent until 4.00pm on 21 January 2015 or earlier order deposit to the credit of the Account all moneys, cheques, negotiable instruments and other documents and instruments representing money received by the Respondent on or after the date of this order.
6.The Respondent keep adequate records of all moneys, cheques, negotiable instruments and other documents representing moneys to which the previous order relates and deliver such records to the Trustee if requested.
7.The Trustee be authorised to make payment from the Account to the Respondent for such reasonable business, legal or living expenses of the Respondent as approved by the Trustee.
8.The Court dispense with the requirement to lodge the reasonable remuneration and expenses of the Trustee.
9.On or before 9 January 2015 the Respondent swear and provide to the Trustee an affidavit identifying all his property, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of his interest in such property.
10.The Respondent until 4.00pm on 21 January 2015 or earlier order is not to leave Australia.
11.The Respondent until 4.00pm on 21 January 2015 or earlier order is not to attend any point of international departure.
12.The Respondent deliver up to the Queensland District Registrar of the Federal Court of Australia all passports of the Respondent in his possession or control.
13.The Respondent until 4.00pm on 21 January 2015 or earlier order not apply for any other passport.
IT IS FURTHER ORDERED AND DECLARED THAT
14.Service of the Originating Application, the interim application, the supporting affidavits and this order (herein after referred to as the “Material”) be effected in the following manner:
(a)By sending the Material by email transmission to the Respondent at the following email address [email protected]; and
(b)By leaving the Material in a sealed envelope addressed to the Respondent at 14 The Esplanade, Surfers Paradise in the State of Queensland; and
(c)By sending a copy of the Material by pre-paid post to Mr Peter Charles Drake, c/- Ramsden Lawyers, Oracle East Suite E311, Level 3, 6 Charles Avenue, Broadbeach QLD 4218;
(d)By sending a copy of the Material by pre-paid post to Mr Peter Charles Drake, c/- Harris Group Chartered Accountants, Level 32 Central Plaza One, 345 Queen Street, Brisbane, QLD 4000
15.It is declared that service of the Material is effected on the date and time of the last of the acts referred to in the preceding paragraph.
16.The Respondent be notified that service of the Material has occurred, such notification being made by text message sent to the mobile telephone number for the Respondent referred to in paragraph 59 of the Affidavit of Simon Vertullo sworn 20 December 2014.
17.The parties have liberty to apply.
18.Costs are reserved.
PERSONS OTHER THAN THE APPLICANTS, THE TRUSTEE AND THE RESPONDENT
IT IS FURTHER ORDERED THAT
19.Set off by banks.
This order does not prevent any bank from exercising any right of set-off it has in respect any facility which it gave the Respondent before it was notified of this order.
20.Bank withdrawal by the Respondent.
No bank need inquire as to the application or proposed application of any money withdrawn by the Respondent if the withdrawal appears to be permitted by this order.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 682 of 2014
BETWEEN: THE TRUST COMPANY (PTAL) LIMITED (ACN 008 412 913)
First ApplicantKORDAMENTHA PTY LTD (ACN 100 169 391)
Second ApplicantCALIBRE CAPITAL LIMITED (ACN 108 318 985) AS TRUSTEES FOR THE LM MANAGED PERFORMANCE FUND
Third ApplicantAND: PETER CHARLES DRAKE
Respondent
JUDGE:
WIGNEY J
DATE:
24 DECEMBER 2014
PLACE:
SYDNEY
REASONS FOR JUDGMENT
On 22 December 2014 I made orders against Peter Charles Drake pursuant to s 50 of the Bankruptcy Act 1966 (Cth) (the Act) appointing an interim trustee to Mr Drake’s property, along with a number of ancillary orders. I also made orders pursuant to s 30 of the Act designed to prevent Mr Drake’s departure overseas. The orders were made on an urgent ex parte application, and operate up to and including 21 January 2015. When making the orders I indicated that I would, in due course, provide brief reasons for making the orders. These are my reasons.
BACKGROUND
Mr Drake was a director, with others, of a public company named LM Investment Management Limited (LMIM). LMIM carried on business as a responsible entity of several managed investment funds, seven of which were registered management schemes and one of which was an unregistered scheme. The unregistered scheme was the LM Managed Performance Fund (MPF). The applicants are, respectively, the custodian of MPF, The Trust Company (PTAL) Limited (PTAL), and the trustees for MPF, Calibre Capital Limited and KordaMentha Pty Ltd (the Trustees). Mr Drake was also a director of LM Administration Pty Limited (LMA). LMA, together with LMIM, were known as the LM Group. There is evidence that strongly suggests that Mr Drake was the controlling mind of the LM Group.
The LM Group was based on the Gold Coast in Queensland. The funds managed by LMIM in their heyday totalled at least $800 million and represented the investments of some 12,000 Australian and overseas investors. The funds managed by the LM Group were ostensibly to be invested in property and property development ventures on the Gold Coast.
On 19 March 2013 LMIM was placed into voluntary administration. It was subsequently placed into liquidation. Some time prior to September 2013 the Australian Securities and Investments Commission (ASIC) commenced an investigation into the collapse of the LM Group. In September 2013 ASIC applied for, and obtained, orders in the Supreme Court of Queensland, which included asset preservation or freezing orders in respect of Mr Drake’s assets, the appointment of receivers in respect of Mr Drake’s property, and the surrender of Mr Drake’s passport.
In November 2014 ASIC commenced proceedings in this Court against Mr Drake and others, seeking pecuniary penalty orders and other relief, in respect of alleged contraventions of ss 181 and 182 of the Corporations Act 2001 (Cth) by Mr Drake and others in their capacity as directors of LMIM. The alleged contraventions involved the approval by Mr Drake and others of large increases to a loan facility or facilities made available to Maddison Estate Pty Limited, a company with which Mr Drake was associated. The funds advanced included funds managed by MPF.
Also in November 2014 PTAL obtained a judgment against Mr Drake in the Supreme Court of Queensland for $22,510,925.74. On 1 December 2014 a bankruptcy notice issued in respect of Mr Drake, relying on this Supreme Court judgment. There is evidence that the notice has been served in accordance with reg 16.01 of the Bankruptcy Regulations 1996 (Cth). Needless to say, Mr Drake has not paid the amount the subject of the notice. Nor is that likely.
The reason for the urgent application for relief under ss 30 and 50 of the Act was that PTAL had been advised by ASIC that ASIC intended to consent to the dissolution of the Supreme Court asset preservation and passport orders, effective 5 pm on 22 December 2014. PTAL and the Trustees feared that, upon dissolution of those orders, there would be no restraint upon Mr Drake dealing with his assets and no restraint upon him leaving Australia. PTAL and the Trustees feared that, in these circumstances, Mr Drake would deal with and dissipate his property so it was no longer available for the creditors of his bankrupt estate, assuming, as appears almost inevitable, that he is made bankrupt. PTAL and the Trustees also feared that, unless subject to some restraint, Mr Drake would leave Australia, and his absence would create a significant impediment to the timely and due administration of his bankrupt estate, the investigation of Mr Drake’s examinable affairs, and the potential recovery of moneys or property by the trustee in bankruptcy.
RELEVANT PROVISIONS AND PRINCIPLES
Section 50(1) of the Act provides as follows:
At any time after a bankruptcy notice is issued, or a creditor’s petition is presented in relation to a debtor, but before the debtor becomes a bankrupt, the court may:
(a)direct the Official Trustee or a specified registered trustee to take control of the debtor’s property; and
(b) make any other orders in relation to the property.
In Deputy Commissioner of Taxation v Clyne (1983) 50 ALR 118 at 123, Neaves J said the following in relation to s 50 of the Act:
The section is clearly a provision in aid of the creditors of a debtor who has already committed an act of bankruptcy and has a creditor’s petition pending against him. It is a necessary and ancillary provision designed to enable appropriate steps to be taken to preserve and protect the property of a debtor so that, in the event of a sequestration order being made, that property will be available for distribution equitably amongst them in accordance with the statutory provisions contained elsewhere in the Bankruptcy Act 1966. That this is its purpose is reinforced by a consideration of the provisions contained in s 50(2), with their emphasis on obtaining information concerning the debtor or his trade dealings, property or affairs.
At the time of Neaves J’s judgment, s 50 had no operation until a creditor’s petition had been presented. Subsequent amendments make it plain that an order under s 50 can be made at any time after a bankruptcy notice has issued.
In Tasman KB Pty Limited v Watkins [2004] FCA 1190, Allsop J, as the Chief Justice then was, made orders under s 50 of the Act appointing a registered trustee to the debtor’s property and restraining the debtor from dealing with his assets, in circumstances where there was no dispute about the debt, bankruptcy was likely, and there was evidence that persons associated with the debtor had attempted to operate his bank accounts despite an existing Mareva injunction. Dodds-Streeton J made similar orders in not dissimilar circumstances in Talacko v Talacko [2010] FCA 193 (see also Ryan J in Talacko v Talacko (2010) 183 FCR 297). Dodds-Streeton J said at [49] that s 50 of the Act is aimed at facilitating the preservation and protection of the debtor’s property, so that in the event of sequestration, it will be available for equitable distribution to creditors.
Section 30(1) of the Act relevantly provides 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 IX, X or XI coming within 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.
In Talacko v Talacko (2010) 183 FCR 311, the Full Court (Gray, Mansfield and McKerracher JJ) held that s 30(1) of the Act empowered the Court to order that a person in respect of whom a bankruptcy notice has been issued be restrained from leaving the jurisdiction and be required to deliver up his or her passport. The Court said (at [35]):
To restrain a citizen from travelling is an order which would not be granted lightly and, in granting the order, the importance of the right to be free to travel would be a significant consideration to weigh in the balance. So also would be the prospect that the purposes of the Bankruptcy Act would be defeated or the bankruptcy rendered nugatory if travel were not restrained. The weighing of such considerations in the course of the exercise of judicial discretion is a task with which courts are charged on many occasions.
As for the need for restraint in making an order interfering with a person’s freedom to travel see also Weiss v Official Trustee in Bankruptcy (1983) 1 FCR 40 at 43 and Australian Securities and Investments Commission v Wiggins (1998) 90 FCR 314 at 320.
THE EVIDENCE
It is unnecessary to recite the evidence before the Court in any great detail. It is sufficient to indicate that the evidence relied on by PTAL and the Trustees is sufficient to establish the following matters.
First, it is highly unlikely that Mr Drake will satisfy the bankruptcy notice. When judgment was entered against him in the Supreme Court, he told the presiding judge that he “will not be able to pay anything”. Mr Drake is also apparently indebted to LMA in the sum of $26,473,875. In these circumstances, bankruptcy is almost inevitable.
Second, despite Mr Drake’s apparent assertions to the contrary, he appears to have an interest in at least some property. There is a property in Fiji which is owned in his name, though Mr Drake apparently claims that he holds it as bare trustee for his children. Mr Drake also has an interest in a property on Russell Island in Queensland, though apparently it may have little value. There are also funds to the tune of $110,479.97 held in a trust account of Mr Drake’s former lawyers, apparently on account of legal fees. There has apparently, in the past, been some dispute as to the beneficial ownership of those funds. It appears that most recently Mr Drake or his lawyers have claimed that the funds are held on behalf of Mr Drake personally.
Third, there is evidence of facts and circumstances that suggest that an investigation by a trustee in bankruptcy may reveal that Mr Drake has some interest in, or otherwise controls, other property, including property overseas. The receivers appointed by the Supreme Court on ASIC’s application reported that Mr Drake had transferred about $500,000 to bank accounts operated by his defacto partner, Ms Maria Magi, including to an account in Fiji. The receivers also reported that their investigations reveal that Mr Drake had established and was controlling the operations of an insurance broking business. The business operated via a discretionary trust.
Fourth, the affairs of Mr Drake and the corporate group previously controlled by him are extremely complex and involved a global operation in many countries including Dubai, the United Kingdom and Canada. Investigations by the voluntary administrators originally appointed to LMIM identified a number of payments by LMIM to Mr Drake and various overseas entities. Investigations by the trustees identified, amongst other things, that MPF had made payments amounting to some $20.8 million to LMA ostensibly representing prepaid management fees. As at March 2013, MPF was said to be owed $12.3 million by LMA in respect of services not provided. In this context, it should also be noted that LMA had, during the same period, advanced over $26 million to Mr Drake. The opinion of senior insolvency practitioners involved in investigating the affairs of the LM Group and Mr Drake is that Mr Drake has never properly accounted for these funds or the funds advanced to him by MPF that are the subject of the Supreme Court judgment and bankruptcy notice.
Fifth, the Trustees, through Mr Vertullo, a registered and official liquidator, chartered accountant and experienced insolvency practitioner, believe, based on the information available to them, that Mr Drake may have assets or money held by third parties for his benefit both in Australia and overseas and that, if not restrained, Mr Drake will deal with those assets in such a way that they will not be preserved for distribution to creditors. They have also expressed concern that, if not restrained, Mr Drake is likely to leave Australia. There is evidence that, in recent times, Mr Drake has contacted ASIC to inquire whether he is able to apply for a new passport so that he may travel overseas to pursue work opportunities. There is evidence from which it may be inferred that Mr Drake has overseas connections and may have access to property or assets overseas. The Trustees have expressed concern that if Mr Drake is permitted to leave Australia, his absence will create a significant impediment to the timely and due administration of Mr Drake’s bankrupt estate upon a sequestration order being made.
Having regard to the evidence referred to earlier, the beliefs and concerns expressed by the Trustees appear to be beliefs and concerns properly and reasonably held.
Sixth, whilst Mr Drake has not been personally served with this application, it may safely be concluded that prior to the hearing of the application, he was made aware, by way of telephone, text message and email, that the application was being made. The application and supporting affidavits were both emailed to Mr Drake and his (apparently former) solicitor and delivered to the concierge of the prominent Gold Coast apartment complex in which Mr Drake apparently now resides. Despite this, Mr Drake failed to appear and make any submissions in opposition to this application.
SHOULD AN ORDER UNDER SECTION 50 OF THE ACT BE MADE?
I am satisfied on the evidence before me that it is almost inevitable that a sequestration order will be made against Mr Drake and that an order under s 50 is warranted so as to preserve and protect the property of Mr Drake, such as it is, so that if and when a sequestration order is made, that property will be available for distribution amongst his creditors in accordance with the Act. Mr Drake has, up until now, been restrained from dealing with his property. For whatever reason, ASIC is now content for that restraint to be lifted.
The fears expressed, by or on behalf of PTAL and the Trustees, that once that restraint is lifted Mr Drake may deal with and dissipate his property or property within his control, are well-founded. Mr Drake presided over a spectacular corporate collapse which resulted in the loss of many millions of dollars by investors in funds supposedly managed by him through his various corporate entities. Not all of those funds, including funds advanced to Mr Drake, have been properly accounted for. There is little reason to be confident that Mr Drake will not deal with his property in a way likely to defeat his creditors.
I am also satisfied that the ancillary orders sought by PTAL and the Trustees are warranted. These orders include an order that Mr Drake swear an affidavit identifying his property. In my opinion, such a requirement is warranted so that the interim trustee can properly identify and take control of Mr Drake’s property. Given Mr Drake’s apparent protestation that he has no property, this exercise may not be particularly fruitful. It is, nevertheless, warranted. If, as Mr Drake claims, he has no property, the swearing of such an affidavit is hardly a major imposition.
SHOULD AN ORDER UNDER SECTION 30 OF THE ACT BE MADE IN RELATION TO MR DRAKE’S PASSPORT AND TRAVEL?
It may readily be acknowledged that restraint and caution must be exercised in relation to curtailing or interfering with a person’s travel and freedom of movement, even in a bankruptcy context. The authorities previously referred to demand as such. Nevertheless, I am satisfied that there is a proper basis for interfering with Mr Drake’s travel and freedom of movement in all the circumstances of this matter. I note that, if and when a sequestration order is made against Mr Drake, he will in any event be required to surrender his passport: s 77(1)(a)(ii) of the Act.
For the reasons already given in the context of the s 50 order, I am satisfied on the evidence before me that the concerns expressed by or on behalf of PTAL and the Trustees that, if not restrained, Mr Drake is likely to leave Australia, if not for good then for some significant period, and that this will have a major deleterious effect on the due administration of his bankrupt estate, are well-founded. I am satisfied on the evidence that thorough investigations by an incoming trustee in bankruptcy would be warranted. There appears to be good reason to believe that Mr Drake may not have properly accounted for all the funds that may have been advanced to him or entities or persons associated with him during his control of the LM Group and the funds it managed. There likewise appears to be good reason to believe that Mr Drake may have access to or control over funds or assets that he denies having access to or control over, or assets or funds that have not been hitherto fully disclosed to those investigating the affairs of the LM Group and Mr Drake. If Mr Drake departs Australia, it will be difficult for any trustee in bankruptcy to thoroughly investigate whether there is substance to these concerns and take steps to retrieve or recover such property. The due administration of Mr Drake’s bankrupt estate will therefore be impeded.
THE ORDERS
It should be emphasised that Mr Drake was not personally served with the application and supporting affidavits prior to the hearing. The matter, accordingly, proceeded ex parte. For this reason, even though I am satisfied that Mr Drake was well-aware that this application was being made, the orders that have been made are limited in time. They expire on 21 January 2015. I have made an order for substituted service. I expect that, on or before 21 January 2015, PTAL and the Trustees will apply for an extension of these orders in circumstances where Mr Drake will have been served or may be taken to have been served. Mr Drake will then have the opportunity to appear, if he chooses to do so, and make submissions in opposition to any extension of the orders.
I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wigney. Associate:
Dated: 16 January 2015
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