Wi Pere Wharekura v Brett Harrison

[2005] FMCA 1988

FEDERAL MAGISTRATES COURT OF AUSTRALIA

WI PERE WHAREKURA v BRETT HARRISON [2005] FMCA 1988

BANKRUPTCY – Application to set aside refusal by trustee to consent to bankrupt leaving Australia.

Bankruptcy Act 1966 (Cth), ss.81, 178, 269, 272 & 272(1)(c)
Corporations Act 2001 (Cth), s.206A

Re Wheeler; Ex parte Wheeler v Halse (1994) FCR 166
Re Tyndall; Ex parte Official Receiver (1977) 30 FLR 6
Luna v Pattison [2004] FMCA 237
Casella v Prentice [2002] FMCA 48
Jackson-Grose v Official Receiver [2002] FMCA 239
Re Hicks; Ex parte Lamb (Heerey J, 4 March 1994 VB 1473 of 1993)
Healey v Prentice(No 2) [2000] FCA 1598

Applicant: WI PERE WHAREKURA

Respondent: BRETT HARRISON

File Number: SYG2881 of 2005

Judgment of: Barnes FM

Hearing date: 13 October 2005

Delivered at: Sydney

Delivered on: 13 October 2005

REPRESENTATION

Counsel for the Applicant: Mr P. McGrath

Solicitors for the Applicant: Tibby Morgenstern Solicitor

Counsel for the Respondent: Nil

Solicitors for the Respondent: Somerville & Co

ORDERS

1. That the application is dismissed.

2. That the applicant pay the respondent’s costs pursuant to Order 62 of the Federal Court Rules to be paid out of the estate of the applicant.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG2881 of 2005

WI PERE WHAREKURA

Applicant

And

BRETT HARRISON

Respondent

REASONS FOR JUDGMENT

1. This is an application brought by Wi Pere Wharekura (the applicant) under s.178 of the Bankruptcy Act 1966 (Cth) to set aside a decision of the Trustee of his estate in bankruptcy refusing consent for him to leave Australia. The applicant is a bankrupt. A sequestration order in respect of his estate was made on 6 May 2004. Joint trustees in bankruptcy were appointed.

2. Pursuant to s.272(1)(c) of the Bankruptcy Act 1966 (Cth) (the Act) a person who has become bankrupt and before discharge from bankruptcy may not leave Australia without the consent in writing of the Trustee of his estate. The applicant sought the consent of the Trustees to travel overseas to New Zealand.

3. This application came before the Court as a matter of some urgency as the applicant seeks to travel to New Zealand on 19 October 2005.  The matter proceeded by way of submissions on the affidavit evidence before the Court. 

4. The application filed on 7 October 2005 is supported by an affidavit sworn on that day in which the applicant attested that he was a New Zealand citizen of Maori ethnicity and that he had a strong and long-standing involvement with Maori rugby league football.  He stated that in October 2004 (after his bankruptcy) he convened and organised a New South Wales based team to play in the New Zealand Maori National Tournament.  He led the team to New Zealand.  He stated that it was a condition of participation in the tournament that the winning team compete the following year.  The tournament and associated cultural and social events commence on Wednesday 19 October 2005 and finish on Monday 24 October 2005.  The bankrupt seeks permission to travel to New Zealand on 19 October 2005 and to return to Australia on 24 October 2005. 

5. The applicant’s affidavit detailed his involvement with the team as convenor, organiser and manager for the 2005 tournament.  It also described the work that he had carried out to date in connection with the organisation of the tour, arrangement of sponsorship, involvement of particular players and attendance of Aboriginal elders on the tour.  The applicant claimed to believe that without his physical presence the team would lack the necessary co-ordination and cohesion and would not be able to participate adequately or at all, in the numerous planned cultural activities.  The tournament is to be played in Rotorua where the applicant was born and raised.  The cultural activities are said to be of particular importance.  The applicant claims that according to Maori tradition only a Rotoruan-born Maori would be permitted to lead such a group with distinct Maori ethnic objectives.  No-one else could substitute for him as far as he is aware. 

6. The applicant stated that he had travelled to New Zealand on three occasions since bankruptcy with the consent of the Trustee – in October 2004, January 2005 and April 2005 each for short periods.  However he continued:

   After these three trips, an occasion arose namely on 21 July 2005, to attend the unveiling of my sister's tombstone; this is in accordance with Maori tradition and should take place on the tenth anniversary of the passing of a relative … 

   The obtaining of the Trustee's consent to travel overseas on the previous three occasions seemed a formality and on this occasion I did not apply for that consent.  I had a return ticket and I was to return to Australia within about two days. 

   I was turned back at the airport because I had been placed on a police watch list.

7. In contrast a letter from the applicant’s travel agent dated 12 October 2005 tendered in support of the respondent's opposition to the orders sought in these proceedings (to which I will return) states that applicant had tickets to depart Australia on Friday 19 August 2005.  In his affidavit of 10 October 2005 the respondent, Brett Pritchard, Geoffrey Harrison, states that the applicant was detected at the airport on

   
   

   19 August 2005.  While there is a difference as to the date of the attempt to travel there is no suggestion that there was more than one attempt. 

8. The applicant also stated that he had lived in Australia long term, had domestic and commercial ties to Australia because of his relationships with his de facto wife and her children and grandchildren and his employment for the last five years with BMS Consulting Pty Limited.   He wishes to attend the unveiling of the stone for his sister.  He claims that he has every reason and intention to return to Sydney, that he has a return ticket that has been paid for and that the travel expenses for the team have been paid out of sponsorship funds.  He provided a copy of his request to the Trustee to travel referring to the tour and the unveiling of his sister’s headstone and explaining that his expenses had been met.  An itinerary for the trip with some details and copies of letters relating to organisation of the proposed trip were also provided.  The applicant was not required for cross-examination. 

9. The respondent Trustee opposes the application and seeks that the application be dismissed.  The respondent relies on four affidavits sworn by him:  an affidavit sworn on 10 October 2005 and filed on

   
   

   13 October 2005 and three affidavits sworn on 23 August 2005 which were filed in support of the issue of a summons under s.81 of the Bankruptcy Act 1966 for the examination of the applicant, his de facto wife and another person.  Annexed to one of the affidavits in support of the issue of a summons to examine the applicant is a considerable amount of information. 

10. The affidavits detail at length a number of concerns of the respondent about the financial affairs of the bankrupt.  The Trustee places reliance on the material in the affidavits filed in support of the summons for examination of the bankrupt and others, the evidence as to the earlier travel with consent and the applicant’s subsequent attempt to travel to New Zealand on 19 August 2005 without the consent of the Trustee.  He was detected at Sydney Airport as a result of a PACE alert placed by the Trustee so that travel did not proceed. 

11. The affidavit of Mr Harrison of 10 October 2005 sets out at some length the concerns of the Trustee in relation to the issue of consent to travel.  Mr Harrison was not required for cross-examination.  Hence this is the unchallenged evidence before me as to the financial circumstances and events that have occurred since the applicant became bankrupt.  Such matters are not addressed in the applicant’s affidavit evidence. 

12. In particular, the Trustee points out that the past consents to travel (in October 2004, January 2005 and April 2005) were given before certain information (which gave rise to the issue of the summons pursuant to s.81) became known to the Trustee. The examinations commenced on 5 and 6 October 2005 and were adjourned until 4 November 2005. The Trustee detailed concerns about the extent of, and inconsistencies in, information provided by the applicant in relation to his earnings, the fact that the applicant is the sole signatory on a bank account maintained in the name of BMS Property Consultants Pty Limited (BMS) and that based on investigations and information disclosed at the examination, the Trustee believed that the applicant controlled the operations and finances of this company. Further the applicant had advised that he made withdrawals from the company bank account to meet his own personal expenditure and a preliminary analysis indicated that the applicant's income was in excess of that disclosed in his income questionnaire and to the Court. The Trustee believed it likely that the applicant would have an assessed income such as to be liable to pay contributions to the Trustees of his estate.

13. The Trustee also stated that there was insufficient information to finalise an assessment of the applicant’s income as the books and records produced by the applicant at the examination did not satisfactorily comply with the requirements of the summons and the director of BMS Property Consulting Pty Ltd had not produced any books or records at the examination.  The Trustee had been unable to verify the bankrupt's total accumulated earnings.

14. Moreover the Trustee stated that, as a result of investigations arising out of information provided in June and July 2005 (i.e. after the last consent to travel had been given) he had become aware that the bankrupt may have committed breaches of s.269 of the Bankruptcy Act 1966 and s.206A of the Corporations Act 2001.  The Insolvency and Trustee Service of Australia and ASIC had been informed of the investigations and relevant facts.

15. The affidavit of 10 October 2005 also set out in some detail the Trustee’s understanding of the ownership of real property on the part of the applicant together with his de facto partner or in her name.  It recited that, subsequent to the date of bankruptcy, it appeared that considerable moneys had been borrowed secured by unregistered mortgages over these properties and that the funds were utilised by BMS in circumstances  where the bankruptcy of the applicant had not been disclosed to the lenders.  BMS had also borrowed a significant amount, as had the applicant's partner.  Evidence at the examinations was to the effect that the borrowed funds were utilised by BMS in undertaking business activities.  The bank accounts of BMS were said to be controlled by the applicant.  There were no details provided to the Trustee as to the how the funds were used, other than a general description.  The size and nature of the company’s activities were unclear. 

16. On 2 July 2005 $100,000 was deposited in BMS’ bank account from another company.  The applicant is a signatory of the account of the other company, from which BMS had agreed to purchase goods.  The purchase was financed.  On 21 July 2005 the bankrupt made a cash withdrawal of $155,000 from the BMS account.  The Trustee stated that the applicant had failed to provide an adequate explanation as to use of these funds. 

17. Concern was also expressed in light of the Trustee’s investigations of a proposed development in New Zealand.  The applicant appeared to be the guiding mind behind a proposed development in Rotorua and it appeared that BMS was involved in the project.  The extent of the development of the project was as yet unknown. 

18. The Trustee stated that on 16 September 2005 (before the examinations started) he had received the request for permission to travel from the applicant who also requested consent to an adjournment of the s.81 examinations until early November 2005. The Trustee had advised the applicant that he was not prepared to grant approval to travel overseas until the examinations were concluded. The examinations have commenced but are not yet concluded.

19. The affidavit concluded that the Trustee believed that the bankrupt had not been open and frank, nor made full disclosure of his examinable affairs, that he had failed to produce books and records as required by his examination summons and that the Trustee had serious concerns as to the unexplained use of funds held by the applicant personally or in the bank account of BMS.  

20. I turn then to the Court's power to make the orders sought by the applicant.  After some discussion with the legal representatives for the parties, the application proceeded on the basis that the Court's jurisdiction was in accordance with what was stated by Lee J in Re Wheeler; Ex parte Wheeler v Halse (1994) FCR 166 in relation to setting aside a decision of the trustee of the bankrupt's estate.

21. Counsel for the applicant relied on Re Tyndall; Ex parte Official Receiver (1977) 17 ALR 182 and Luna v Pattison [2004] FMCA 237. A number of other authorities were also referred to by counsel for the respondent, in particular Casella v Prentice [2002] FMCA 48 and Jackson-Grose v Official Receiver [2002] FMCA 239.

22. It was urged upon me by counsel for the applicant that the test was as set out by Heerey J in Re Hicks; Ex parte Lamb (Heerey J, 4 March 1994 VB 1473 of 1993) as referred to in Luna v Pattison at [25]. In this part of his judgment Heerey J described a suggestion he had made to counsel for the Trustee in argument that:

    … the following issues were, while not necessarily conclusive, nevertheless at the forefront of the matters to be considered in exercising my discretion:  … the proposals are genuine … [I]s the bankrupt likely to return to Australia as promised?  Will the visit hamper the administration of the estate? 

23. In this instance I have considered each of these issues.  I have also had regard to the fact that in the cases cited, the court has gone on to look more generally at other material before the court, in particular in relation to the extent to which the administration of the estate may be hampered by the consent being given.  As the authorities make clear, the decision in relation to consent to the travel of a bankrupt is a serious question that involves the weighing of competing interests. 

24. I accept that the Court should not be too ready to interfere with the decision of the Trustee.  As suggested in Casella at [18] – [19], the Court should interfere with the Trustee's exercise of discretion:

    “only if it be shown [by the applicant] that the impugned conduct of the Trustee was incorrect or that other conduct was, or … would be, preferable and that justice and equity required the Court's intervention.” Healey v Prentice (No.2) [2006] FCA 1598 at [21].

25. In this instance there is a considerable body of material before me from the applicant in relation to the sporting and cultural aspects of the proposed trip.  It is conceded that the present application is not put on the basis it would afford the applicant an opportunity to earn income which would assist in the administration of the estate or the creditors of the estate.  However there is said to be, and I accept that there is, a genuine social aspect to the visit consisting of the sporting and cultural activities and the applicant's wish to participate in the ceremony in relation to the burial place of his sister.  It was submitted that the proposed travel is merely a five day trip for limited purposes and that such a trip would not impede the administration of the estate.  The examination is scheduled to recommence on 4 November 2005 and it is said that the applicant will have returned by then.

26. It was also submitted for the applicant that despite the concern being expressed by the Trustee, there is nothing to suggest that the applicant's travel proposal is not genuine or that there is any reason for concern about his likelihood of returning, given his residence in Australia for some 30 years, his relationship with his de facto and her family and his past travel to New Zealand, in particular in October 2004 for the same purpose.

27. Counsel for the applicant addressed the applicant’s attempt to travel overseas without the consent of his Trustees in August 2005. He suggested that even if there was an offence under s.272(1)(c) of the Bankruptcy Act that was not sufficient to warrant a refusal of consent and that there was no evidence before the Court as to the extent of the Trustee's fears in relation to the possibility that had been raised that other offences had been committed. It was also suggested that to the extent the Trustee was concerned about the failure of the director of the company BMS to produce documents, that was not a matter that should be taken into account in refusing the applicant's application to travel overseas.

28. It was submitted that if the Trustee has concerns about the extent or frankness of the applicant's disclosure, that could be addressed in the November examination and resolved at that time.  It was in any event, submitted that the precise nature of the Trustee’s “fear” was not entirely clear from his affidavit evidence.  In particular it was said not to be clear whether it was a fear that the applicant would not return or a fear that he would engage in a business activity which may involve financial dealings which could be to the detriment of creditors and the administration of the estate.  It was contended that such concerns were not clearly supported by the affidavit evidence before the Court.  Reference was made to the discussion by Deane J in ReTyndall; Ex parte Official Receiver (1977) 30 FLR at 11 of the acknowledged legitimate desire of a bankrupt to travel to pursue legitimate commercial or personal desires. It was suggested that this was not a case in which it was appropriate to subordinate such interest to the need to administer the estate and that the imposition of restrictions on travel might be seen as a penalty imposed on the bankrupt's estate. It was contended that the decision of the Trustee was not a just and equitable order and that permission should be given or the matter should be remitted to the Trustee for reconsideration.

29. However I note that in Re Tyndall while Deane J discussed at some length the difficulties and concerns that had to be balanced in making a determination in relation to travel, ultimately his Honour was persuaded that that applicant's interest in travel should in fact be subordinated to the need to administer the estate, finding that the restrictions on travel were justified in ensuring the proper administration of the bankruptcy laws and the bankruptcy estate and that they were not imposed as a penalty (at 15).  His Honour also noted, at 15, that in some cases the possibility that a bankrupt had committed offences under the Act and was seeking to abscond from possible prosecution would be relevant. 

30. In response the legal representative for the Trustee referred to the issues raised as matters of concern in the affidavits of Mr Harrison. In particular, it was pointed out that the previous travel with consent had occurred before certain information emerged. It was contended that there had been a significant change in the Trustee's concerns and that the Trustee had been hampered since the sequestration order by the non-production of materials by the applicant and by inconsistent information. The concerns described above had emerged. The possibility of offences had arisen not only in relation to the travel without the consent of the Trustee under s.272 but also under s.269 of the Bankruptcy Act 1966 (in relation to the bankrupt possibly obtaining credit without disclosing his bankruptcy) in light of transactions that had come to the attention of the Trustee in relation to the real estate. An issue had also arisen under s.206A of the Corporations Act 2001 in relation to disqualification of a person from managing a company out of concerns that the Trustee had about the applicant's role in withdrawing funds, being the sole signatory and administering and managing the operations of BMS. 

1. In other words it was said, and I accept, that the Trustee had significant concerns in three areas in relation to possible offences and that there was evidence before the Court in relation to the nature of those concerns relevant to the exercise of the Trustee's consent (see Re Tyndall).  The attention of the Court was also drawn to the detail of the financial transactions that had come to the attention of the Trustee. 

2. It was conceded for the respondent that there was a social interest in the applicant attending the sporting and cultural activities associated with the football competition.  However it was contended that the evidence put before the Court did not establish that there was a necessity for the applicant to attend, but rather that there was a desire for him to do so.  In that respect, as indicated, I accept that the evidence before the Court from the applicant as to the trip does establish that the applicant has a genuine desire to attend the sporting and cultural activities associated with the football competition and also a genuine desire to attend the events in relation to the blessing of his sister's tombstone.  In that sense there is a genuine proposal before the Court to attend an overseas activity (Luna v Patterson). 

3. As to the need for him to attend, the affidavit evidence is accompanied by limited supporting documentation.  While he has clearly had a significant role in the organisation and arrangement of these trips, it is not such as to establish that he has a ‘need’ to attend in a sense that might be described as compelling.  It has not been established that the essential and significant aspects of the sporting trip cannot go ahead in his absence.  Further, on his own evidence, the blessing of his sister's tombstone did not occur at the time initially contemplated.  It was postponed and there is nothing to suggest that it cannot be postponed again. 

4. The evidence of the applicant addresses the genuineness of the proposed trip and the applicant’s ties, but does not address the administration of the estate.  The significant matters raised by the Trustee are the Trustee's concerns about the likelihood of the bankrupt returning to Australia and whether the visit at this time will hamper the administration of the estate.  The bankrupt has lived in Australia for a considerable time and has ties to Australia.  He has New Zealand citizenship and holds a New Zealand passport.  He wishes to travel to New Zealand.  The Trustee raised concerns about a number of past and possible future activities.  These concerns have to be considered in the context of the precise nature of the refusal of consent.  The refusal of consent, as explained by the Trustee in the affidavit evidence before the Court, was a refusal to consent to the applicant's application until such time as the examinations have been concluded.  Consent was refused in the context of a number of concerns of significance that had arisen since the applicant’s prior travel with consent.

5. The evidence before me raises unresolved concerns about apparent financial transactions, inconsistencies in evidence, a lack of satisfactory information provided by the applicant and the absence of an opportunity for verification by the Trustee at a time when the examination is not completed. The fact that another person has failed to produce books and records is not of itself in point, but it is part of the circumstances which have resulted in a situation that causes the Trustee concern, not only about matters such as his inability to verify the bankrupt's total accumulated earnings, and that the bankrupt should be making income contributions, but also about utilisation of company funds by the bankrupt as well as the possibility (and this is a significant matter) of a number of offences having been committed by the applicant in relation to s.272 as well as possible serious offences under s.269 of the Bankruptcy Act 1966 and s.206A of the Corporations Act 2001. These matters are still under investigation Clearly this is not the forum to delve further into these possibilities, other than to have regard to the evidence that the Trustee has become aware that the bankrupt may have committed offences, has informed the relevant bodies of the investigations and the relevant facts, and also that there are a significant number of matters under investigation in the bankruptcy which raise legitimate concerns for the Trustee at a time when the examination under s.81 is not complete.

6. As was stated in Luna v Pattison, in addition to the factors referred to in Re Hicks; Ex parte Lamb it is relevant to have regard not only to the applicant's wishes to travel overseas, but also to whether the administration of the estate would be hampered in a more general sense and to whether the basis for the trip or the issue of the applicant returning to Australia is attended by sufficient doubt because of concerns that have arisen since the commencement of the bankruptcy.  

7. Clearly, whether or not to interfere with the decision of a Trustee is a serious decision.  It involves a balancing of the interests of the applicant in legitimate travel with the interests of the Trustee and creditors in proper and prompt administration of the estate.  In this instance I have borne in mind that I am being asked to interfere with the decision of the Trustee in the exercise of a discretion that should only be interfered with if the applicant has satisfied me that the conduct of the Trustee was incorrect, or that other conduct was or would be preferable and that justice and equity required the Court's intervention; Healey v Prentice(No 2) [2000] FCA 1598 at [21].

8. Having regard to all of the material before me I am not satisfied that the applicant has established that this is a case in which it is appropriate for the Court to interfere with the decision of the Trustee.  The applicant has not satisfied me that the Trustee was unduly influenced by concerns that do not outweigh the applicant's legitimate interest in attending New Zealand for the social and cultural events as contended.  It has not been established that the decision of the Trustee was incorrect, or that on the material now before the Court, other conduct was or would be preferable or that justice and equity requires that the decision of the Trustee be set aside.  I am mindful of the competing factors in Tyndall.  I am also mindful of the factors in Re Hicks and the fact that the applicant has a genuine social desire to visit New Zealand, albeit not a compelling need and ties to Australia.  Against that I set the extensive concerns raised by the Trustee which cannot, on the material before me, be described as merely speculative and which have not been addressed by the applicant.  The Trustee's consent to the proposed travel has been withheld at what may be described as a delicate stage in the resolution of unresolved issues in particular in relation to unexplained use of assets of a company, and a recent withdrawal of funds by the applicant prior to his last attempt to travel overseas in circumstances where the investigation of these matters is not complete.  In all of the circumstances if the applicant were not to return or were to delay returning (and I note that there are no undertakings in this respect), or if activities occur in New Zealand (such as the Trustee has expressed concern about) this could hinder the prompt and proper administration of the estate.

9. What I say however should not be taken as expressing any view as to what might occur were the applicant in the future, particularly on provision of further information or after the public examination has been concluded, to seek permission on some justifiable basis to travel to New Zealand or elsewhere.  That would be a matter for the Trustee on the material before the Trustee at the time that any such application may be made.  Any consent could be made subject to safeguards considered necessary to ensure the bankrupt’s return.  (See Re Tyndall at 16). 

10. However, in this instance bearing in mind the role of the Court, on the material before me, in light of all the circumstances including the information that has come to the attention of the Trustee as to developments since the last travel approvals were given, the bankrupt’s attempt to travel to New Zealand without approval and the possibility of offences and unresolved issues in relation to the administration of the estate, I consider that the appropriate order is to dismiss the application of the applicant.  

RECORDED   :   NOT TRANSCRIBED

1. The respondent's costs should be paid out of the estate of the applicant. 

I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate: 

Date:  22 March 2006.