Barnet (Trustee), in the matter of Zhang (Bankrupt) v Zhang

Federal Court of Australia|2017-08-02|Before: Lee J

Pursuant to FCR 9.08, James Zhang be removed as the respondent to this proceeding.
Pursuant to s 146 of the Bankruptcy Act 1966 (Cth) (Act), the distribution of dividends to creditors who have proved their debts in the bankrupt estate of James Zhang proceed in accordance with Div 5 of Part VI of the Act as if the bankrupt had filed a statement of affairs in accordance with the prescribed form, and those creditors were stated to be creditors in it.
The applicant's costs of the application are to be paid from the estate of the bankrupt as part of the costs, charges and expenses of the administration of the estate. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

A INTRODUCTION 1 This is an application by Ms Katherine Barnet (Trustee) as trustee of the bankrupt estate of Mr James Zhang (bankrupt). The application is brought on the basis that the bankrupt has failed to file a statement of affairs in accordance with s 54(1) of the Bankruptcy Act 1966 (Cth) (Act). The following substantive orders are sought: (a) That the distribution of dividends to the creditors who have proved their debts in the estate shall proceed in accordance with Div 5 of Part VI of the Act as if the bankrupt had filed a statement of affairs in accordance with the prescribed form and those creditors had been stated to be creditors in it. (b) That the Trustee's costs of this application be paid from the estate of the bankrupt. 2 I take the application to be made in accordance with s 146 of the 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. 3 For the reasons which follow, it is appropriate to make the orders sought by the Trustee.

B facts 4 The following narrative is drawn from the Trustee's affidavit sworn on 4 July 2017 in support of this application, and an affidavit sworn by the Trustee's solicitor, Mr Mark Petrucco, on 1 August 2017. 5 Proceedings against the bankrupt were commenced by way of a creditor's petition filed by the Commonwealth Bank of Australia (CBA) in the Federal Magistrates Court (as it was then known) on 13 August 2012 (Bankruptcy Proceedings). The creditor's petition was served on the bankrupt pursuant to an order for substituted service made on 24 September 2012. The bankrupt did not take any steps in the Bankruptcy Proceedings and on 24 October 2012 a sequestration order was made against the bankrupt's estate and the Trustee was appointed. 6 On 29 October 2012, the Trustee sent a letter addressed to the bankrupt to an address in Sylvania Waters NSW (Sylvania Waters Property). The letter advised the bankrupt of the obligation to complete and lodge a statement of affairs with the Trustee in accordance with s 54(1) of the Act, and formally requested that this be done. The evidence discloses that the letter was returned, in the fashion of the 1962 song by Elvis Presley, "with writing on it, 'return to sender'". 7 Relevant searches revealed that the Sylvania Waters Property was also the registered address of 888 Group Pty Ltd, of which the bankrupt was a former director. Enquiries in late November 2012 with the liquidator appointed to 888 Group Pty Ltd failed to reveal contact details for the bankrupt. The Trustee subsequently engaged a commercial agent to locate the bankrupt, without success. 8 A preliminary report to creditors was issued by the Trustee on 9 January 2013. 9 The Trustee's investigations revealed that the bankrupt's former wife, Ms Jenny Hu, was a registered proprietor of the Sylvania Waters Property, and that the bankrupt had agreed to transfer his interest in the Sylvania Waters Property to Ms Hu as part of what was described as a 'divorce agreement'. A copy of this agreement was provided to the Trustee on or around 25 January 2013. 10 For reasons not traversed in the affidavit material, no further steps appear to have been taken by the Trustee between receipt of the 'divorce agreement' and providing instructions to her solicitors, in or around March 2016, to substantiate Ms Hu's claim. 11 Ultimately, in late July and early August 2016, the Trustee formalised an agreement with Ms Hu that the Sylvania Waters Property be sold and the net 'equity' would be shared equally between Ms Hu and the Trustee in her capacity as trustee of the bankrupt's estate. Neither Ms Hu, nor the bankrupt's son, Mr William Zhang, were in contact with the bankrupt by this stage. 12 The Sylvania Waters Property was sold at auction on 3 September 2016 for $2,590,000 and completion took place on 17 October 2016. Following discharge of a mortgage registered to BNY Trust (Australia) Registry Limited, and, I infer, in accordance with the agreement with Ms Hu, the Trustee received $486,002.11. After allowing for approved trustee remuneration, costs and disbursements, the Trustee estimates a surplus of $337,688 to pay a dividend to creditors who have proved in the estate. They are as follows: (a) CBA $317,448; (b) Australia Taxation Office (ATO) $17,899. 13 In December 2016, the Trustee engaged another commercial agent, Australian Investigation Security Management, in an attempt to locate the bankrupt, again without success. 14 Somewhat surprisingly, on 25 March 2017, the bankrupt sent an email to a colleague of the Trustee, providing an email address and contact number, and enquiring about the sale proceeds of the Sylvania Waters Property. 15 On 24 April 2017, the Trustee caused an email to be sent to the bankrupt attaching a copy of the letter dated 29 October 2012 and requesting that the bankrupt complete the statement of affairs by 8 May 2017. No response or completed statement of financial affairs has been received from the bankrupt. 16 The Trustee's searches have not identified any further assets of the bankrupt estate. The creditors set out at [12] above are the only known creditors of the bankrupt estate. The Trustee's searches, which are set out at paragraphs [42]-[43] of the Trustee's affidavit, involved the sending of letters to numerous entities calling for proofs of debt, and the placement of an advertisement in the Sydney Morning Herald on 2 March 2017, advising of the Trustee's intention to declare a final dividend and inviting creditors to lodge a proof of debt. No further creditors have been identified. 17 On 21 July 2017, the Trustee's solicitor attempted to serve a copy of the present application and the supporting affidavit on the bankrupt by email, including a request that a statement of financial affairs be completed as soon as possible. On the same day, a solicitor employed by the Trustee's solicitor placed a telephone call to the telephone number provided by the bankrupt to notify him of the email. The pre-fix to that number, (+86), is the international country code for Peoples Republic of China. The file note of the telephone call records that an automated message indicated that the telephone was "powered off" and no voice mail facility was offered. 18 On 26 July 2017, the Trustee made enquiries of the Commonwealth Department of Immigration and Border Protection as to whether the bankrupt had left Australia and, if so, whether he had returned on any occasion. 19 On 1 August 2017, a further telephone call was made to the bankrupt by the Trustee's solicitor. Again, an automated messaged stated that the telephone was "powered off" and no voice mail facility was provided. On the same day, enquiries were made by the Trustee's solicitor of an employee of the Trustee as to whether further contact had been made with the bankrupt. There had been none since the email sent to the bankrupt on 24 April 2017. 20 As at 1 August 2017, no further contact with the bankrupt has been achieved, either by telephone or email, and the enquiry with the Commonwealth Department of Immigration and Border Protection has not yet been answered. 21 The Trustee deposes that the administration of the bankruptcy is complete save for the distribution of a final dividend to creditors.

C relevant principles 22 Section 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": Re Sturt; Ex parte Official Trustee in Bankruptcy [2001] FCA 1649; (2001) 117 FCR 1 at 4 [14] per Sackville J. Its purpose 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": Official Trustee in Bankruptcy, in the matter of Shaw [1999] FCA 968 at [4] per Gyles J. 23 In Sturt, Sackville J said (at 5 [19]): … [o]n any application under s 146 of the Bankruptcy Act the Court must be satisfied that it is appropriate to make an order. The Court may need to be satisfied, for example, that creditors have been notified of the application and have had an opportunity to be heard (although ordinarily the application would be made in the interests of creditors). As in this case, the Court might require evidence that the trustee has taken appropriate steps to ascertain whether there are creditors, other than those who have come to its attention by filing a proof of debt or otherwise.

D consideration 24 I am satisfied that the bankrupt has not engaged with the Trustee or complied with s 54(1) of the Act. I am satisfied that the Trustee has taken reasonable and appropriate steps to contact the bankrupt. Indeed, the bankrupt has clearly not wished to engage with the bankruptcy process, and, it appears from the evidence before me, may well have left Australia for an indefinite period. 25 The Trustee's administration of the bankruptcy has been ongoing since late October 2012. The evidence establishes that the Trustee has made numerous attempts to engage with the bankrupt, and has otherwise taken steps to advance the administration of the bankrupt estate. 26 I am satisfied that the Trustee's searches (referred to at [16] above) have been reasonable and appropriate. The placement of the advertisement in the Sydney Morning Herald was also reasonable and appropriate, and provided an adequate opportunity for potential creditors to be notified to ascertain whether they wished to be heard in relation to the distribution of a final dividend. The outcome of this process has resulted in only two creditors providing proofs of debt: the ATO and CBA, the petitioning creditor. 27 To the extent necessary, I am satisfied that the absence of any steps taken between 25 January 2013 and March 2016 has not resulted in any relevant prejudice undermining this application.

E Final matter 28 When this application was filed on 5 July 2017, the bankrupt was named as a respondent to the proceedings. As Gleeson J made clear in Roufeil (Trustee), in the matter of Jarvie (Bankrupt) [2015] FCA 232 at [12], there is no requirement under the Act that any party be named as a respondent to the application. Accordingly, there is no obligation on the Trustee to serve the application on the bankrupt. The approach of Gleeson J was followed by Perry J in Sampson (Trustee), in the matter of Condon (Bankrupt) [2016] FCA 312 at [12]. 29 Given the nature of an application under s 146 of the Act, it does not seem to me necessary that the bankrupt be named as a respondent to the proceeding. In those circumstances FCR 9.08 is engaged, which provides for removal by the Court of a party that has been unnecessarily joined.

F CONCLUSION & ORDERS 30 For the reasons given, I order that the distribution of dividends proceed in accordance with Div 5 of Part VI of the Act to creditors who have proved their debts in the bankruptcy as if the bankrupt had filed a statement of affairs in accordance with the prescribed form and those creditors had been stated to be creditors in it. I also order that the costs of this application be paid from the bankrupt estate. 31 Further, I order that, pursuant to FCR 9.08, James Zhang be removed as the respondent to the proceeding. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.

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