Hung (Trustee), in the matter of Farouk v Farouk

Introduction 1 On 29 November 2018, the High Court of the Republic of Singapore judged the respondent, Mr Mohammed Farouk, to be bankrupt and appointed the applicants, Mr Lin Yueh Hung and Mr Chee Yoh Chuang, as joint and several trustees in bankruptcy of the respondent's estate (Case No.: HC/B 1714/2018) (the Singapore Proceedings). 2 In this proceeding, the applicants seek orders recognising the Singapore Proceeding as a "foreign main proceeding" in this country pursuant to rr 14.03(1) and 14.04(2) of the Federal Court (Bankruptcy) Rules 2016 (Cth) (the Rules), s 6 of the Cross-Border Insolvency Act 2008 (Cth) (the Act) and Art 17 of the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (the Model Law). They also seek certain ancillary relief pursuant to Art 21 of the Model Law, contingent upon such recognition. 3 The Model Law has force in Australia by reason of s 6 of the Act and, more particularly, has such force as if it referred to, inter alia, the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) wherever it refers to "the law [or laws] of the enacting State relating to insolvency": Act, s 8. This Court is a competent forum for the purposes of performing the functions referred to in the Model Law relating to the recognition of foreign proceedings and cooperation with foreign courts if, amongst other things, the functions relate to proceedings involving a debtor who is an individual: Act, s 10. Those are the circumstances in this case. 4 Rule 14.03(4) and 14.06 of the Rules requires service of an application of this nature on the respondent and the giving of notices in relation to this application. In this case, ex parte orders were made pursuant to r 14.03(3) on 17 February 2021 for service to be effected on the respondent by email. An affidavit has been filed by Ms Meredith Baker of the applicants' local solicitors which satisfies the Court that the applicants have performed the requirements as to service and notices ordered by the Court. The Court can therefore be satisfied that these proceedings have been properly notified to the respondent and potential interested persons. 5 The applicants have drawn the Court's attention to correspondence received from two creditors of the respondent. That correspondence did not indicate that those creditors opposed the present application and, in any event, it may be noted that no other person appeared or sought leave to appear in this proceeding.

Issues 6 There are three issues that arise in this application: (1) Should the Singapore Proceeding be recognised as a "foreign proceeding" under the Model Law (as in force in Australia under the Act)? (2) Should that recognition be as a "foreign main proceeding"? (3) Should the Court also grant the ancillary relief sought by the applicants?

Should the Singapore Proceeding be recognised as a "foreign proceeding" in Australia? 7 There is no need to go into the details of the operation of the Model Law here: see e.g. Abate, in the matter of Chang Rajii v Chang Rajii (No 2) [2018] FCA 241 at [15] - [28]. 8 It is sufficient to note that Art 17 of the Model Law provides that a foreign insolvency shall be recognised as a "foreign proceeding" if the following matters are established: (a) the foreign proceeding is a proceeding within the meaning of Art 2(a); (b) the foreign representative applying for recognition is a person or body within the meaning of Art 2(d); (c) the application meets the requirements of paragraphs 2 and 3 of Art 15 (as modified by s 13 of the Act); and (d) the application has been submitted to the relevant Court for the purposes of Art 4. 9 Over time, this Court has recognised those criteria as falling within two broad categories, namely status-based criteria and procedural criteria. 10 For the reasons stated below, those criteria are satisfied with the consequence that the Singapore Proceeding should be recognised as a "foreign proceeding" under the Model Law.

Status-based criteria 11 As to the first of the status-based criteria, the Singapore Proceeding is a "foreign proceeding" within subparagraph (a) of Art 2 of the Model Law, because it is a judicial or administrative proceeding conducted in Singapore pursuant to the Bankruptcy Act of the Republic of Singapore. It relates to the bankruptcy of the respondent in which his assets and affairs are subject to the control of licenced accountancy practitioners who are supervised by the High Court of the Republic of Singapore, for the purpose of reorganisation or liquidation. 12 The second status-based criteria is also satisfied because the applicants are "foreign representatives" within subparagraph (b) of Art 2 of the Model Law, as they are authorised and are given broad powers to investigate the conduct and affairs of Mr Farouk as a bankrupt under the Bankruptcy Act in Singapore, and they are entitled to recover and realise assets for distribution to the bankruptcy creditors.

Procedural criteria 13 Turning then to the procedural criteria, there are three matters which must be established in accordance with paragraphs 2 and 3 of Art 15 and subparagraph 1(d) of Art 17 of the Model Law. Those matters will be considered seriatim. 14 Firstly, a certified copy of the decision commencing the foreign proceedings and appointing the applicants as the foreign representatives must be produced. That has occurred in this case: a sealed copy of the relevant order made by the High Court of the Republic of Singapore in the Singapore Proceeding has been adduced by way of an exhibit to the affidavit of one of the applicants, Mr Chee, affirmed on 23 December 2020. 15 Secondly, paragraphs 2 and 3 of Art 15 (as modified by s 13 of the Act) require a statement identifying all of the following of which the applicants are aware: (1) All "foreign proceedings" in respect of the respondent. (2) All proceedings under the Bankruptcy Act in respect of the respondent. (3) Any appointment of a receiver (within the meaning of s 416 of the Corporations Act 2001 (Cth) (the Corporations Act), or a controller or a managing controller (both within the meaning of s 9 of the Corporations Act), in relation to the property of the respondent. (4) All proceedings under Chapter 5, s 601CL or Sch 2 of the Corporations Act in respect of the respondent. 16 In this regard, Mr Chee deposed in his affidavit that, to the best of his knowledge and belief, there are no other foreign proceedings in respect of the respondent, nor is the respondent currently the subject of any other known bankruptcy proceedings of any kind in Australia. 17 It is convenient to note here that, pursuant to Art 18 (as modified by s 14 of the Act), the applicants must promptly inform the Court if they become aware of any proceedings of the nature identified above with respect to the respondent. 18 Thirdly, subparagraph 1(d) of Art 17 of the Model Law requires that the present application have been submitted to the court referred to in Art 4, being a court competent to perform the functions under the Model Law in the enacting State. As previously noted, that is this Court.

Should the Singapore Proceeding be recognised as a "foreign main proceeding"? 19 Having determined that the Singapore Proceeding should be recognised as a foreign proceeding, the next question that arises is whether such recognition should be as a "foreign main proceeding" under the Model Law (as in force in Australia under the Act). 20 Article 17(2) of the Model Law provides that the Singapore Proceeding shall be recognised as a "foreign main proceeding" if Singapore is the respondent's centre of main interest (COMI). A debtor's habitual residence is presumed to be their COMI, absent any proof to the contrary: Model Law, Art 16(3). 21 For the purposes of Art 17(2), the debtor's COMI is to be determined as at the occasion on which the issue is to be decided: Wong (Trustee), in the matter of McKellar (Bankrupt) v Mackellar [2020] FCA 1151 (Wong) at [42]. As to the debate concerning the correctness of this position, see Wong at [40] - [42] and the cases there cited. 22 In this case, Mr McKechnie of Counsel very properly drew the Court's attention to the nature of the evidence available surrounding the respondent's present COMI. In this regard, it must be kept steadily in mind that, in applications of this nature, the respondent bankrupt almost necessarily will have ceased conducting business, to a large degree, in the forum from which the application is made. This issue must have been within the contemplation of the drafters of the Model Law. Axiomatically, although the bankrupt remains involved in the foreign jurisdiction in the sense that their affairs are being administered in that jurisdiction, their day-to-day involvement may be much less than had occurred previously. That is a contextual matter in the light of which the issue of the respondent's present COMI needs to be ascertained. 23 On the material available to the Court on this application it can be seen the respondent has indicated that he most recently resided at 95 Grange Road, number 17-11, Singapore, 249616 (referred to in the material as "the Grange Road property"), and that seems to be his habitual residence. However, it is also to be noted that he has a presence in other jurisdictions or at least that he often spent six months of each year outside of Singapore. 24 In Ackers v Saad Investment Company Ltd (in liquidation) (2010) 190 FCR 285, Rares J adopted the approach and meaning identified by the European Court of Justice in relation to the present issue in Re Eurofood IFSC Ltd [2006] Ch 508. In that case, the Court referred to the definition of COMI contained in the regulation which had effected the adoption of the European Union Convention on Insolvency Proceedings 1995. That regulation identified a debtor's COMI as being the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties. 25 At [33] - [34] of the Court's reasoning, it was said: 33 That definition shows that the centre of main interests must be identified by reference to criteria that are both objective and ascertainable by third parties. That objectivity and that possibility of ascertainment by third parties are necessary in order to ensure legal certainty and foreseeability concerning the determination of the court with jurisdiction to open main insolvency proceedings. That legal certainty and that foreseeability are all the more important in that, in accordance with article 4(1) of the Regulation, determination of the court with jurisdiction entails determination of the law which is to apply. 34 It follows that, in determining the centre of the main interests of a debtor company, the simple presumption laid down by the Community legislature in favour of the registered offıce of that company can be rebutted only if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at that registered offıce is deemed to reflect. 26 The foregoing identifies the necessity for the Court to determine from where the respondent conducts the administration of his interests on a regular basis by reference to objective and ascertainable indicators of that location. 27 In this case, the evidence satisfies the Court that the respondent's COMI is in Singapore: (1) The evidence discloses that the respondent's main or habitual residence is in Singapore. (2) The respondent himself applied for bankruptcy in Singapore, which is where his bankruptcy is occurring. That would strongly suggest that his main business interests are located in that jurisdiction. (3) The respondent is a Singapore permanent resident. (4) In his statement of affairs for the purposes of the Bankruptcy Act of Singapore (filed on 20 December 2018), the respondent listed his address as Unit 2, Level 12, 341 Bukit Timah Road, Singapore. (It ought to be noted, however, that this statement was rejected). (5) That statement of affairs listed a Singapore address and an Indian address as his contemporaneous address. The statement did not record any Australian or other international addresses. (6) The statement of affairs also identified that the majority of the respondent's assets, the most significant of which is the Grange Road property, are located in Singapore. (7) The respondent previously carried on a business in Singapore as a director of five companies, which largely suggests that it was there that his main interests were located. (8) Although the respondent has stated that he had a shareholding or interest in Dubaian or Australian companies, the applicants have ascertained that Dubaian company was wound up and that the Australian company has not traded in ten years. (9) The vast majority of the respondent's known creditors are located in Singapore, although some, it has to be recognised, are based in Dubai and India. 28 The matters referred to above are direct evidence of factors which are "objective and ascertainable by third parties" which go to the respondent's connection to and interests in Singapore. In this case, those matters are sufficient to establish that Singapore is the respondent's COMI. 29 For completeness, it is noted that Mr McKechnie very properly identified the possibility that the respondent's COMI might be elsewhere, and referred to the evidence which might point to that being the case. However, that evidence is not significant enough to impact upon the above conclusion. 30 The applicants have satisfied the Court that the Singapore Proceeding should be recognised as a "foreign main proceeding" under Art 17(2)(a) of the Model Law. 31 Pursuant to Art 20 (as modified by s 16 of the Act), the effect of such recognition is that: (a) the commencement or continuation of individual actions or individual proceedings concerning the respondent's assets, rights, obligations or liabilities in Australia are stayed, as is any execution against the respondent's assets in Australia; and (b) the right to transfer, encumber or otherwise dispose of any assets of the respondent in Australia is suspended.

Ancillary relief under Art 21 32 Article 21 of the Model Law provides that, upon recognition of a foreign proceeding, where necessary to protect the assets of a debtor, or the interests of creditors, the Court may, at the request of the foreign representative, grant any appropriate relief. 33 The scope of that power includes: staying the commencement of individual actions or other enforcement action not otherwise caught by the stay and restrictions imposed by Art 20; entrusting the administration or realisation of any part of the debtor's assets located in Australia to the applicants or another person designated by the Court; and granting any additional relief that may be available to a registered liquidator under the Bankruptcy Act. 34 It should be recognised, as it was in Tucker v Aero Inventory (UK) Ltd (No 2) (2009) 181 FCR 374, that those additional powers are not intended to be the exhaustive powers of the Court to grant further relief in the assistance of foreign trustees.

Entrusting administration and realisation of assets in Australia to another person 35 In this case, the applicants request that the Court entrust the administration, realisation and distribution of all of the respondent's assets in Australia located in Australia to Mr Frank Lo Pilato on the basis that he is better placed than they to administer the respondent's assets in Australia, given he has an office in Australia and experience in managing Australian assets. 36 Mr Lo Pilato is the managing partner of the Canberra office of RSM Australia and is a director of that firm. He is a registered bankruptcy trustee who has over 30 years' experience in insolvency, restructuring and recovery. In accordance with r 14.05 of the Rules, a Consent to Act has been filed on behalf of Mr Lo Pilato in accordance with Form B19 under the Rules that specifies an address for service within Australia. 37 Naturally enough, the applicants are aware that, the pursuit of the assets of the respondent in Australia, if any, requires investigations into what interests the respondent may have held in any Australian companies, be that as a director or shareholder. If assets are found, they need to be sold, and if any companies exist, they will have to be administered. Further, proofs of debt may be required, and work may need to be done on repatriating any proceeds recovered in Australia to Singapore. 38 Self-evidently, entrusting the administration of these matters to Mr Lo Pilato will create efficiencies in the administration of the respondent's estate generally. Those efficiencies are self-evident and include that Mr Lo Pilato has local knowledge and a presence in Australia, can act with minimal supervision, understands the operation of Australian bankruptcy laws, is able to act expeditiously to seek financial information surrounding the respondent, and is able to ascertain the nature and extent of his creditors. Naturally, his presence in Australia means that decisions in relation to the Australian administration of the estate might be made quickly and importantly, the use of an Australian agent or designated person has the benefit of reducing further expense were it necessary for the applicants to come back to the Court. 39 The applicants have discharged the onus of showing that it is appropriate, pursuant to Art 21(e) of the Model Law, that the administration, realisation and distribution of the respondent's assets located in Australia be trusted to Mr Lo Pilato as their Australian representative.

Vesting powers normally available to trustee in bankruptcy in an Australian representative 40 The applicant's also seek to have all the powers normally available to a trustee in bankruptcy appointed under the Bankruptcy Act made available to Mr Lo Pilato. 41 In cases of this nature, it is appropriate that such powers be made available to foreign representatives and their agents upon recognition of the foreign proceeding in Australia. Article 23 of the Model Law provides for a foreign representative to have standing to initiate actions to avoid or otherwise render ineffective acts detrimental to creditors that are available in Australia to registered liquidators under Australian law. The import of the Act is that, upon recognition of a foreign proceedings, a foreign representative will have the same standing as if they were appointed to be a trustee in bankruptcy pursuant to ss 120, 121, 121(a), 122, 128(b), 128(c) and Div 4(a) of Pt 6 of the Bankruptcy Act. 42 By extension, where Mr Lo Pilato has been entrusted with the administration, realisation and distribution of the respondent's assets located in Australia, it is appropriate to make the orders sought granting the relevant powers to him.

Other matters 43 Finally, it should be noted that, in accordance with r 14.07 of the Bankruptcy Rules, the applicants are required to: (1) serve a copy of these orders on the respondent at the email address mf@faroukstar.com; (2) within seven days, send a notice of the making of these orders in accordance with Form B21 under the Rules to every known creditor of the respondent; and (3) within 14 days, publish a notice a notice of the making of these orders in accordance with Form B21 under the Rules in The Straits Times. 44 There is no reason why the respondent should not pay the applicants' costs of these proceedings. 45 I should also indicate my appreciation to Mr McKechnie of Counsel for his careful and thorough written submissions which assisted greatly in the resolution of this matter. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.