Nicols as trustee of the bankrupt estate of Manietta v Manietta, in the matter of Manietta

Background 1 These reasons follow on from Nicols as trustee of the bankrupt estate of Manietta v Manietta, in the matter of Manietta [2022] FCA 39 (Manietta No 1). Familiarity with Manietta No 1 is assumed. Defined terms, names and abbreviations used within are in accordance with those used in Manietta No 1, save where additional terms have been defined in these reasons. 2 The parties were unable to agree short minutes to give effect to Manietta No 1 and accordingly submitted competing short minutes supported by written submissions. 3 The freezing orders dispute is detailed in Manietta No 1 but for present purposes it suffices to note that the applicant (the Bankruptcy Trustee) on the one hand and all respondents save the seventh respondent (the Manietta respondents) on the other hand brought competing applications in relation to interlocutory freezing orders. The Bankruptcy Trustee sought a new freezing order in respect of property that had not previously been restrained to supplement certain freezing orders that had been obtained ex parte and continued by consent since 2020. The Manietta respondents sought to discharge certain of the existing 2020 freezing orders and opposed the making of the new freezing order sought by the Bankruptcy Trustee. 4 The freezing orders in dispute related, directly or indirectly, inter alia to the assets of the New Mizpah Trust. The trustee of the New Mizpah Trust is Mizpah Investments (the New Mizpah Trustee). The unitholders in the New Mizpah Trust are Galt in its capacity as trustee of the TAS Fund (the TAS Fund Trustee) holding 96.43% and D'Aconia Copper in its capacity as trustee of the Manietta Settlement Trust (the Manietta Settlement Trustee) holding the remaining 3.57%. References within these reasons to the New Mizpah Trustee and the Manietta Settlement Trustee are intended to denote the particular corporate entities acting in their respective capacities as trustee of the relevant trust. 5 The majority unitholder, the TAS Fund Trustee, is, or purports to be, a SMSF of which Mrs Manietta is the sole member. Mr Manietta ceased to be a member of the TAS Fund in about March 2017 at which time he purported to roll over his interest to a retail superannuation fund (the HUB24 Superfund), now operated by the seventh respondent. Central to the Bankruptcy Trustee's claims is the allegation that the TAS Fund was established and/or operated as a sham: see Manietta No 1 at [75] - [78]. 6 The minority unitholder, the Manietta Settlement Trustee, is the trustee of a discretionary trust of which Mr and Mrs Manietta are members. 7 The New Mizpah Trustee is the registered proprietor of the Moncur Street property. The Moncur Street property comprises the principal asset of the New Mizpah Trust and of the TAS Fund by virtue of the TAS Fund Trustee's substantial unitholding in the New Mizpah Trust. The Moncur Street property is also the home of Mr and Mrs Manietta. 8 Part of the background to the interlocutory dispute was the Maniettas' desire to sell the Moncur Street property and relocate to the Central Coast where Mrs Manietta's parents reside. Mrs Manietta's evidence was that her father, who is elderly and suffers from significant health conditions, requires constant care. Each of the Maniettas also deposed to the Moncur Street property no longer being a suitable place of residence for them due to the current condition of the property and their own physical limitations. For those reasons the Maniettas wished to sell the Moncur Street property in prevailing market conditions and thereafter utilise the proceeds of sale to purchase a property in a location closer to Mrs Manietta's parents so that she could take care of them. The 2020 freezing orders did not cover the assets of the New Mizpah Trust, including the Moncur Street property. 9 Although not in evidence, it appears to be common ground between the parties that a contract of sale was entered into in respect of the Moncur Street property for $8.1 million on 1 February 2022 with completion due 42 days thereafter. Mr and Mrs Manietta will vacate the Moncur Street property on completion. 10 In Manietta No 1 I determined that a freezing order should be made in respect of the assets of the New Mizpah Trust but that the order should be subject to an appropriate limit on the value of the assets restrained and not unlimited in the way in which the Bankruptcy Trustee contended: [125] and [128]. The Bankruptcy Trustee has not sought to establish what an appropriate limit on the freezing orders would be relative to the total amount of creditors' claims and the amount likely to be necessary to otherwise complete the administration of the bankrupt estate. The Bankruptcy Trustee amended his claim post the interlocutory hearing to add a claim that contended that Mr Manietta's interest in the TAS Fund was in the order of 98% of that fund. Prior to that amendment, the Bankruptcy Trustee had contended that Mr Manietta's interest in the TAS Fund was in the order of about 50% of that fund. In the latest version of the pleadings the Bankruptcy Trustee maintains both claims, that is, that Mr Manietta's interest in the TAS Fund is 50% and/or 98% (with neither claim being expressed in the alternative). 11 The parties have now lodged submissions in respect of the framing of the new freezing orders and as to the appropriate costs order to be made in respect of the two interlocutory applications.

The freezing orders 12 The financial affairs and interests of Mr Manietta and of his bankrupt estate are complex. They are described in detail in Manietta No 1 (at [5] to [9] and [31] to [46]) and are not repeated here. 13 Similarly, the history of Mr Manietta's bankruptcy, and the interlocutory procedural history of the present proceedings is complicated and is described in Manietta No 1 at [20] - [28]. Again, I will not repeat that detail in these reasons. 14 For present purposes, it is sufficient, although necessarily incomplete, to note that ex parte freezing orders obtained by the Bankruptcy Trustee in June 2020 were extended by consent on a number of occasions prior to that consensual arrangement being revisited in late 2021 in the context of the Maniettas moving to list the Moncur Street property for sale. In Manietta No 1, I noted that (at [18]): An unusual feature of the 2020 freezing orders is that they are not limited to a specified monetary value or percentage of the restrained assets. Similarly, the proposed additional freezing orders sought in the present application are not limited to a specified monetary sum or percentage of the restrained assets. This is in the context of the creditors' claims totalling about $5.9 million and the value of all of the restrained assets exceeding that sum by a significant amount. Even taking into account the costs of the administration and costs of the present proceedings beyond the recoverable costs, it appears that the value of the assets restrained or otherwise impacted by the existing freezing orders may exceed the likely quantum of the Trustee's claim in the event that the Trustee is successful. One of the issues in the present application concerns whether the freezing orders in issue should be subject to a limitation and if so, what that limit should be. 15 The Bankruptcy Trustee did not on the interlocutory applications seek to establish, by evidence and by reference to the administration of the estate, what would be an appropriate limit for the new freezing order, or the existing freezing orders if they were not discharged. 16 In Manietta No 1, I was ultimately satisfied that it was appropriate to make a freezing order in respect of the assets of New Mizpah Trust but that the freezing order should not be unlimited in terms of the value of the assets restrained: [125] and [128]. Taking into account all of the matters relevant to the balance of convenience, including but not limited to the hardship on Mr and Mrs Manietta, my view was that the freezing orders in respect of the assets of the New Mizpah Trust should be subject to a cap on the value of the restrained assets.

The Bankruptcy Trustee's position 17 At the hearing of the interlocutory application, when pressed as to the appropriate limit on the freezing orders, Senior Counsel then appearing for the Bankruptcy Trustee stated that if the Court was of the view that the unlimited freezing orders were excessive because they should be limited to the $5.9 million of creditors' claims, then the Bankruptcy Trustee may not have anything much to say about it. Senior Counsel for the Bankruptcy Trustee subsequently submitted that the appropriate limit may be in excess of the total known creditors' claims (being $5.9 million) and would include the costs of administration and the Bankruptcy Trustee's legal costs in the present proceedings to the extent not otherwise recovered. The Bankruptcy Trustee did not lead any evidence on the interlocutory applications as to the likely amount in excess of $5.9 million which would be appropriate to cover the matters raised in Senior Counsel's submissions. 18 In his latest submissions, the Bankruptcy Trustee contends that the freezing orders should in substance be unlimited so as to protect the whole of the Bankruptcy Trustee's best case - that is the claim that 98% of the TAS Fund is property vested in Mr Manietta's bankrupt estate. The Bankruptcy Trustee seeks to put in place a freezing order regime at two levels: first, to restrain the assets of the New Mizpah Trust and second, to restrain the assets of the unitholders in the New Mizpah Trust. At the level of the New Mizpah Trust the Bankruptcy Trustee seeks orders whereby: (a) $6 million from the sale of the Moncur Street property is restrained and paid into a joint controlled moneys account in the names of the solicitors for the Bankruptcy Trustee and for the New Mizpah Trustee; (b) an amount equivalent to 2% of the net Moncur Street property sale proceeds is paid to or for the benefit of Mrs Manietta; (c) the New Mizpah Trustee is otherwise restrained from selling, transferring, mortgaging, charging or encumbering any assets of the New Mizpah Trust including by way of distribution to unitholders pending further order of the Court or on terms agreed in writing between the Bankruptcy Trustee and the New Mizpah Trustee or their respective legal advisers; and (d) the New Mizpah Trustee is restrained from creating, issuing or allocating any further units in the New Mizpah Trust pending further order or written agreement between the parties or their advisers. 19 The above regime is subject to the usual exceptions in respect of conduct of the New Mizpah Trustee that is in the ordinary course of business or directed to paying its reasonable legal costs and disbursement in these proceedings. 20 In relation to the potential for terms to be agreed in respect of the assets of the New Mizpah Trust over and above the proposed $6 million in the joint controlled moneys account, the Bankruptcy Trustee submits that he does not oppose the balance of the gross proceeds of sale of about $2,100,000 being used by the New Mizpah Trustee to purchase a new property in which the Maniettas could live. Presumably, this is on the basis that the freezing order would otherwise extend to any new property that is acquired by the New Mizpah Trustee. The Bankruptcy Trustee further submits that if more than $2.1 million is required to purchase a new property that is something that the Bankruptcy Trustee would be required to seriously consider if and when he is informed of the amount required by Mr and Mrs Manietta's solicitors. 21 The second part of the regime proposed by the Bankruptcy Trustee is directed to the Manietta Settlement Trustee, the minority unitholder in the New Mizpah Trust. In that regard, I note that one of the 2020 freezing orders which the Manietta respondents seek to discharge, and the Bankruptcy Trustee seeks to maintain, is directed to the restraint of the assets of the majority unitholder, the TAS Fund Trustee. The Bankruptcy Trustee seeks an order restraining the Manietta Settlement Trustee in respect of the assets of the Manietta Settlement Trust including to restrain distribution to the "beneficiaries of the New Mizpah Trust" pending further order or on terms agreed in writing by the parties or their representatives. This proposed restraint is subject to the usual exception in relation to conduct in the ordinary course of business and the payment of reasonable legal expenses and disbursements. The Bankruptcy Trustee contends this order is necessary because the Manietta Settlement Trustee is a unitholder of the New Mizpah Trust and "may receive moneys". No explanation is given in respect of why the restraint on distributions is directed specifically to beneficiaries of the "New Mizpah Trust" and not to beneficiaries of the Manietta Settlement Trust. Nor is any explanation given in respect of how the Manietta Settlement Trust would receive moneys via its unitholding in the New Mizpah Trust if the New Mizpah Trust is restrained from making distributions that would cause it to breach the amount of any cap imposed on the freezing order directed to the New Mizpah Trust's assets. 22 The Bankruptcy Trustee has not attempted to demonstrate why it is appropriate to restrain assets that very likely exceed the combined value of all known creditors' claims and the likely cost of otherwise finalising the administration of the bankrupt estate (noting that the Bankruptcy Trustee has not put on evidence on what those costs may be). 23 The Bankruptcy Trustee now contends that the freezing orders should be assessed by reference to his claim for 98% of the assets of the TAS Fund. No reference is made to his additional claim (which is maintained in the most recent amended pleading) to a 50% interest in the TAS Fund. The claim for 50% of the TAS Fund also relies on the allegation of sham.

The Manietta respondents' position 24 The Manietta respondents' position is that there should be an effective monetary cap on the freezing orders and that cap should be $2.8 million. That figure is derived as follows. The Manietta respondents submit that the Bankruptcy Trustee cannot restrain assets beyond $5.9 million, being the value of all creditors' claims in the bankrupt estate. From the starting point of $5.9 million the Manietta respondents submit that there should be two deductions to arrive at an appropriate cap. First, the value of assets otherwise restrained should be deducted, being a deduction of $501,176 comprised of: jewellery ($105,324), artworks ($275,852) and ($120,000). 25 Next, the Manietta respondents submit that a further $2.6 million should be deducted to arrive at a cap of $2.8 million (rounded up from $2,798,824). The deduction of $2.6 million represents the value of Mr Manietta's superannuation in the HUB24 Superfund. Part of the Bankruptcy Trustee's claim in the substantive proceedings seeks to recover the purported roll over of Mr Manietta's interest in the TAS Fund to the HUB24 Superfund. Mr Manietta's interest in the HUB24 Superfund is not the subject of a freezing order or an application for a freezing order. The Manietta respondents' evidence is that Mr Manietta has been denied access to his HUB24 Superfund account by the seventh respondent since the seventh respondent was served with the present proceedings. The Manietta respondents submit that the $2.6 million should be taken into account in determining the appropriate cap on the freezing order in respect of the assets of the New Mizpah Trust. The Manietta respondents submit that given that Mr Manietta's interest in HUB24 Superfund is not restrained, the Bankruptcy Trustee's position would be protected by requiring the seventh respondent to give the Bankruptcy Trustee 7 days' notice before allowing Mr Manietta to access these funds. 26 The Manietta respondents further submit that once freezing orders are in place at the level of the New Mizpah Trust, the existing freezing orders directed to preserving the assets of the TAS Fund as the majority unitholder in the New Mizpah Trust should be released. This would enable the New Mizpah Trust to make distributions to unitholders and for unitholders to disperse those distributions provided the distributions do not infringe any cap imposed at the New Mizpah Trust level (and reflected in the proposed restrained moneys account). For completeness I note that one of the 2020 freezing orders was directed to restraining assets of D'Aconia Copper. The Manietta respondents submit that they do not presently understand the relevance of this restraint of D'Aconia Copper in its own capacity as it holds no assets in its own right. The Manietta respondents do not seek the dissolution of this order. The Manietta respondents do, however, oppose the making of a new freezing order against D'Aconia Copper in its capacity as trustee of the Manietta Settlement Trust.

Consideration 27 In Manietta No 1, an important aspect of weighing up the balance of convenience was to introduce a value cap on what had hitherto been unlimited freezing orders in circumstances where the Bankruptcy Trustee's position was progressively amended and where the Bankruptcy Trustee sought new freezing orders also on an unlimited basis. The Bankruptcy Trustee succeeded in establishing that the balance of convenience favoured the making of freezing orders on the basis that the hardship occasioned to Mr and Mrs Manietta would in part be offset by the introduction of a cap on the value of the assets restrained. The Bankruptcy Trustee's claim is based on the legal doctrine of sham. It is a difficult case but one which I have found to be reasonably arguable: Manietta No 1 at [107] - [108]. The Bankruptcy Trustee's claim seeks to establish, inter alia, that the bankrupt estate is entitled to either 50% or 98% of the TAS Fund and to claw back the purported roll over of $2.6 million into the HUB24 Superfund. The Bankruptcy Trustee has not sought to demonstrate why, in the particular context of this case, the balance of convenience would favour restraining assets the value of which exceeds the amount likely to be required to finalise the administration of the bankrupt estate. The Manietta respondents submit, and I accept, that it is likely that if orders are made in accordance with the short minutes proposed by the Bankruptcy Trustee that would result in assets that exceed the amount necessary to effect the discharge of the bankrupt estate being restrained. The practical result in these circumstances would appear to be that part of the restrained assets are likely to be returned to Mr Manietta upon his discharge, even if the Bankruptcy Trustee succeeds in the present proceedings. In my view, the balance of convenience in this case is appropriately struck by making orders that restrain assets which approximate the likely amount required to finalise the administration of the bankrupt estate. The Bankruptcy Trustee has not led evidence that would enable other than the roughest impression to be formed in this respect. The only evidence available as to the total amount claimed by creditors suggests that the total is $5.9 million. No evidence has been led as to the costs of the administration. It is apparent that the administration has been on foot since May 2017 and that costs have been incurred in identifying Mr Manietta's property and understanding the complex asset holding arrangements involving the related corporations and trusts identified at [8] to [9] of Manietta No 1. Costs have also been incurred in conducting examinations. The bankruptcy was due to expire on 9 May 2020 but has been extended to 2025. The Bankruptcy Trustee has also commenced the present proceedings which are listed for final hearing in June 2022. A large body of affidavit evidence has been filed. Clearly, the costs of the administration have been substantial. The orders should make an allowance in this regard. 28 The Manietta respondents contend that the total amount of assets restrained should be reduced by $2.6 million being the value of the value in Mr Manietta's HUB24 Superfund account. In doing so they acknowledge that there is no Court order in place which preserves the position in relation to Mr Manietta's access to the HUB24 Superfund balance going forward. The fact that Mr Manietta has not been able to access the HUB24 Superfund account is a factor to which I had regard in assessing the hardship on Mr Manietta and indirectly, Mrs Manietta. To reduce the value of the assets restrained by this amount would introduce a risk of a potentially significant shortfall between the assets restrained by Court order on the one hand and the amount likely to be necessary to finalise the administration of the estate. This risk can be mitigated by making an order that the seventh respondent give a reasonable period of notice to the Bankruptcy Trustee if it wishes to change its position and to give Mr Manietta access to the funds in the HUB24 Superfund account. I note that the seventh respondent has filed a submitting appearance in the substantive proceedings and although aware of the freezing order dispute, it has not taken an active role. To afford the seventh respondent an opportunity to be heard in relation to the order I will make that it provide notice to the Bankruptcy Trustee before dispersing any of the balance of the HUB24 Superfund account, I will grant liberty to the seventh respondent to apply to vary or vacate that order within a short timeframe should it choose to do so. 29 Taking all of the above into account and doing the best I can, I will make orders which impose an effective cap of $5.9 million on the freezing orders at the level of the New Mizpah Trust with that sum to be paid into a joint controlled moneys account as proposed by the parties. The freezing orders that previously applied at the New Mizpah Trust majority unitholder level (that is, in respect of the TAS Fund Trustee) will be discharged. To do otherwise would be to circumvent the utility of the cap being put in place at the New Mizpah Trust level. The freezing orders which I will make directed to the assets of New Mizpah Trust will prevent distributions to the unitholders that would reduce the $5.9 million which is to be held in the joint controlled moneys account. It is not consistent with the way in which I have weighed the balance of convenience to restrain distributions in the hands of the unitholders when any such distributions do not impinge on the $5.9 million to be held in the joint controlled moneys account. 30 I will also make an order as indicated above that requires the seventh respondent to give seven days' notice if it seeks to change its position in relation to Mr Manietta's access to the HUB24 Superfund account. The $2.6 million in that account will serve as an allowance for the costs of the administration and any potential as yet unknown creditors' claims. It is not appropriate in these circumstances to otherwise allow for the likely costs of the administration by increasing the amount in the joint controlled moneys account. To the extent that the Bankruptcy Trustee may seek to obtain a freezing order in respect of Mr Manietta's HUB24 Superfund account at a future time, the Bankruptcy Trustee will have to demonstrate what would be an appropriate portion of this amount to be restrained by the Court. 31 I am not satisfied that the cap on the freezing orders should be reduced to deduct the estimated value of the chattels that are restrained because there is significant uncertainty as to the realisable value of these chattels. 32 Finally, I note that the Bankruptcy Trustee has given the usual undertaking as to damages. I further note that the Bankruptcy Trustee has submitted that he is not in principle opposed to reaching agreement with the New Mizpah Trustee to permit it to acquire a house on the Central Coast in which the Maniettas could reside pending the determination of these proceedings. The orders I will make will preserve the flexibility for the parties to reach an agreement as a means, on the one hand, of the Bankruptcy Trustee mitigating his risk on his undertaking as to damages, and on the other hand, potentially alleviating the hardship the Maniettas will experience in relocating their home to the Central Coast. 33 Subsequent to the parties lodging submissions, on the evening before these reasons were delivered, the parties both sent communications indicating that there had been developments in respect of the acquisition by Mrs Manietta of a property on the Central Coast and that a dispute may be emerging in respect of that issue. The parties have not sought to relist and no application has been made at this stage. I do not propose to address those communications in the abstract. There is a proper way to bring contentious matters before the Court and it is not via email correspondence.

Costs 34 I am satisfied that it is appropriate that the Bankruptcy Trustee should pay 50% of the Manietta respondents' costs on both of the interlocutory applications notwithstanding that the Bankruptcy Trustee succeeded in obtaining the freezing order against the New Mizpah Trustee. In Manietta No 1, I noted that (at [125]): While I am troubled by the way in which the Trustee has conducted the present applications, I have concluded that in the final analysis this does not count against the making of freezing orders if I am otherwise satisfied the orders should be made in order to prevent the potential frustration or inhibition of the Court's process. The concerns I have may appropriately be dealt with in requiring the Trustee to justify an appropriate limit to be included in any of the freezing orders that are made or continued, and in making appropriate costs orders. 35 The Bankruptcy Trustee's approach to the applications prolonged the interlocutory applications and hindered the prospect of a consensual resolution of the applications: see Manietta No 1 at [66], [120] - [125] and [127] - [128]. 36 The Bankruptcy Trustee's failure to specify an appropriate cap on the freezing orders it sought in the context of the particular circumstances of Mr Manietta's bankruptcy was a factor giving rise to the interlocutory applications and the incursion of unnecessary costs. The way in which the orders are now framed results in the pre-existing freezing order directed against the TAS Fund Trustee becoming unnecessary. It is appropriate that this order be discharged. In this way the Manietta respondents have enjoyed some partial success notwithstanding that a limited freezing order has been made against the New Mizpah Trustee over their objection. Accepting that the award of costs is discretionary and based on an informed synthesis of the whole of the circumstances attendant on the applications, I am satisfied that it is appropriate that the Bankruptcy Trustee pay 50% of the Manietta respondents' costs and otherwise the parties bear their own costs in respect of the two interlocutory applications. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman.

SCHEDULE OF PARTIES NSD 614 of 2020 Respondents Fourth Respondent: MIZPAH INVESTMENTS PTY LIMITED ACN 003 464 328 Fifth Respondent: THE GALT SUPERANNUATION FUND PTY LTD ACN 606 072 324 Sixth Respondent: TI AMO STRATEGIES PTY LIMITED ACN 101 495 523 Seventh Respondent: HTFS NOMINEES PTY LIMITED ACN 000 880 553 Eleventh Respondent: TI AMO STRATEGIES INVESTMENT ADVISERS PTY LIMITED ACN 615 257 086