Pearce (Trustee) v Mulhern

REASONS FOR JUDGMENT 1 This is an interim application made by Mr Mulhern, a bankrupt, against the trustees of his property (the Trustees) for orders to the effect that the Trustees deliver up to Mr Mulhern his Australian and Irish passports and forthwith give to him their consent in writing to proposed overseas travel. The application is brought pursuant to s 178 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). 2 The dealings between the Trustees and Mr Mulhern have been before this Court on at least three earlier occasions. On 9 August 2011, Logan J issued a warrant for Mr Mulhern's arrest: see Pearce (Trustee) v Mulhern (Bankrupt) [2011] FCA 930. This was done under s 78 of the Bankruptcy Act. In his reasons for decision published on 9 August 2011, Logan J observed that it appeared to him that Mr Mulhern, who apparently also uses an alias ("Derek O'Malley"), had engaged in what is "aptly described in the submissions made on behalf of the Trustees as a deliberate and persistent pattern of gross breaches of the Bankruptcy Act" (at [3]). This included, according to Logan J, a failure to appear on 9 August 2011 in accordance with a summons for public examination which was personally served upon Mr Mulhern. 3 Logan J, after referring to what he described (at [5]) as "a pattern of a failure on the part of [Mr Mulhern] to fulfil the various duties cast on [him] by s 77 of the Bankruptcy Act", concluded that he should issue the warrant for Mr Mulhern's arrest. 4 On 12 January 2012, in proceedings before Buchanan J, his Honour made a further order issuing a warrant for Mr Mulhern's arrest: see Pearce (Trustee) v Mulhern (Bankrupt) (No 2) [2012] FCA 7. In Buchanan J's reasons it was recorded that, while Mr Mulhern was arrested by the Australian Federal Police on 8 January 2012 at Sydney Airport, he was later that day granted bail on the posting of the surety of $2,000. In those circumstances, the Trustees applied for a further warrant for Mr Mulhern's arrest so that he could be taken before the Court in Brisbane for the purpose of carrying out the public examination which he had thus far failed to attend. Buchanan J was satisfied that it was proper to issue a further arrest warrant. In so concluding, his Honour observed (at [4]) that: Each of the matters judged relevant by Logan J remains relevant. Furthermore, Mr Mulhern seems to have been actually in the process of attempting to depart from Australia, confirming his apparent intention to repudiate his obligations. 5 Subsequently, on 16 January 2012, Flick J of this Court ordered that Mr Mulhern be released from custody at the conclusion of the first day of the hearing of his public examination (to be held on 17 January 2012): see Pearce (Trustee) v Mulhern (Bankrupt) (No 3) [2012] FCA 16. His Honour also made ancillary orders on the basis of certain undertakings which Mr Mulhern gave to the Court. Those undertakings included, relevantly: not seeking to obtain another passport; meeting with the Trustees and their solicitors for an interview on 18 January 2012; complying with his duties and obligations under the Bankruptcy Act; personally attending any further interviews the Trustees required; not leaving Australia without first obtaining the Trustees' written consent to departure; and attending any adjourned hearing of the public examination being conducted by the Trustees. 6 In his reasons for decision, Flick J recorded the background to the making of the application before him (to which I have also briefly referred). His Honour noted (at [15]) that Mr Mulhern sought his immediate release from custody, whereas the Trustees submitted that he should remain in custody pending the public examination on 17 January 2012. 7 Flick J accepted the submissions of the Trustees (as set out in [16] of his reasons for decision) and took the view that, although detaining Mr Mulhern in custody even for a short period was self-evidently a serious deprivation of liberty, it was manifestly appropriate for the power to issue a warrant for his arrest to be exercised. His Honour also concluded that no order should be made releasing Mr Mulhern from custody in advance of his attendance at the public examination scheduled for 17 January 2012. This conclusion was drawn on the basis, as set out in [16], that to order Mr Mulhern's release now involved: the very real prospect that Mr Mulhern will again seek to avoid compliance with an order of the Court that he attend a public examination and will again seek to avoid the obligations imposed upon him by the Bankruptcy Act. 8 The matter has come before me today supported by Mr Mulhern's affidavit sworn on 2 February 2012. The Trustees have relied upon two affidavits in support of their opposition to the orders sought by Mr Mulhern, being an affidavit of Mark William Pearce of 1 February 2012 and an affidavit of Joseph Michael Dodrill, also dated 1 February 2012. The representatives of both parties have assisted the resolution of this matter on an urgent basis by providing short written submissions crystallising the dispute between them. 9 There is no dispute as to principle. It is accepted by both parties that I have the power to make an order for the return of Mr Mulhern's passport, including (under s 178) in circumstances where I consider that it is just and equitable to do so. The parties are also in agreement as to the relevant considerations, as set out in various decisions including Re Tyndall (1977) 30 FLR 6 (Re Tyndall), Re Hicks; Ex parte Lamb (1994) 217 ALR 195, and Sharma v Pattison [2006] FCA 287. In accordance with those principles, as I have said, it is clear that I can make the order sought or any order I consider to be just and equitable. 10 It is accepted that the decision of the Trustees is not to be disregarded, and that there is a policy under the bankruptcy legislation that the Court should not unduly interfere with the Trustees' day-to-day administration of a bankrupt's estate. In this case, however, the issue, as both parties acknowledged, appears to boil down to whether it is likely that Mr Mulhern will return to Australia as he has undertaken to do, and whether the proposed overseas travel (assuming he does return) will hamper the administration of the estate. 11 This is because both parties accept, as do I, that the reason for the proposed overseas travel is genuine. As set out in Mr Mulhern's affidavit, he was informed of the regrettable circumstance of the death of his father in Ireland on 30 January 2012. He is the eldest son of the family, and a number of relatives are travelling from around the world to attend the funeral and to remain thereafter in Ireland for some time. Mr Mulhern has an entirely understandable strong desire, which he describes as being very important to him, that he be permitted to travel so that he can be with his mother, brothers and sisters at this difficult time. 12 According to the evidence and submissions in support of Mr Mulhern's application, his proffered undertaking to the Court to return to Australia and to only use the passports for the purposes requested should be accepted. In short, the reasons in support are said to be: (1) Mr Mulhern and his family are residents of New York, and were resident in New York at the time of the bankruptcy, and this residency (that is, the fact of not being resident in Australia) has caused many of the problems, as I infer, that have arisen during the bankruptcy. (2) Mr Mulhern has completed a statement of affairs. (3) Mr Mulhern has voluntarily returned to Australia on three occasions since his bankruptcy. (4) The reason Mr Mulhern has returned to Australia is that he has good incentive to do so, namely, to deal with legal issues arising from disputes between the Mulhern group of companies and the Bank of Queensland. It is Mr Mulhern's position that the companies' assets, as a group, substantially exceed (in the order of $30 million) the value of the claims by the Bank of Queensland against those companies. In submissions it is said on Mr Mulhern's behalf that he wishes to take steps to protect those assets and defend the Bank of Queensland's claims. 13 It is also said that no other reason has been suggested for Mr Mulhern returning to Australia on three occasions. Accordingly, it is submitted on his behalf that I should accept that he will return in accordance with his undertaking, and that thereby there will be no, or only minimal, hampering of the carrying out of the administration of the bankruptcy. 14 For Mr Mulhern, particular weight is placed upon the observation of Deane J in Re Tyndall (at page 15) as follows: A citizen should be free to travel if and when his commercial activities or personal desires prompt him to do so. Restrictions upon such travel under the bankruptcy legislation must be seen as being aimed at ensuring the proper administration of the bankruptcy laws and of bankrupt estates under such laws and not as a penalty imposed upon a citizen as a consequence of inability to pay debts leading to the making of a sequestration order. 15 The Trustees submit that the factors relevant to whether it is just and equitable that Mr Mulhern's passports be returned to him in all of the circumstances weigh heavily against any exercise of discretion in his favour. Although the Trustees accept that Mr Mulhern has a good, compassionate reason for requesting the overseas travel, which counts in his favour, other relevant considerations weigh against any such permission being granted. 16 In the written submissions provided by the Trustees a series of matters are said to lead to this conclusion. In short, it is said that in those circumstances I could not, or should not, conclude that Mr Mulhern is likely to return to Australia as promised. If he did not return to Australia, clearly the administration of the estate would be hampered. Indeed, even if he did return, it would still be hampered given that the public examination is continuing and is scheduled for 7 February 2012. 17 The Trustees' reasons include that: (1) Mr Mulhern, in his position as a bankrupt, has not offered to provide any surety to support his assertion that he will return to Australia. (2) There is evidence which indicates that Mr Mulhern and his entire family are resident in New York. (3) He has no identifiable assets in Australia. (4) His debts in Australia are said to be in excess of $59 million. (5) He left Australia on two occasions, in February and August 2011, without seeking the consent of the Trustees. (6) It should be inferred from all of the evidence that Mr Mulhern is a serious flight risk. (7) There is evidence that Mr Mulhern has breached the undertakings given by him to the Court on 16 January 2012, casting serious doubts on the worth of any undertaking given by him to return to Australia. 18 The Trustees also submit that it should be taken into account that Mr Mulhern's public examination is due to recommence on 7 February 2012. There is evidence suggesting that Mr Mulhern has deliberately evaded providing responses to the Trustees' questions, and there is an urgent need for Mr Mulhern to provide the Trustees with information concerning his assets and bank accounts in the United States. Mr Mulhern has failed to provide the Trustees with all relevant documents, and otherwise has generally delayed and frustrated the Trustees in the administration of the bankrupt estate. It should be noted that in respect of the documentary issues Mr Mulhern's position is that all documents in his possession were seized by receivers in both Australia and the United States. 19 As I have said, I have no hesitation in accepting the genuineness of Mr Mulhern's strong desire to travel to Ireland for the funeral of his father and to be with his family during this time. That is a factor to which I give significant weight. However, there are other factors which weigh significantly to the contrary. There is the history of the matter, referred to in the previous decisions of this Court, all of which lead to a strong inference that Mr Mulhern is a serious flight risk. If Mr Mulhern leaves Australia I have significant doubts as to whether he will return, irrespective of the undertaking that he is willing to give to the Court. This is confirmed, as the representative for the Trustees submitted, by the fact that there is at least some evidence suggesting that, while Mr Mulhern attended the interview (as required) on 18 January 2012, he has not otherwise fulfilled all of the requests of the Trustees. 20 When this is taken into account together with the background to this matter, it seems to me that the strong inference is that Mr Mulhern is a serious flight risk and, accordingly, the bankruptcy would be seriously hampered by reason of the travel which is now proposed. I have also taken into account the fact that - although Mr Mulhern was apparently not aware of the bankruptcy at the precise time at which the orders were made - this matter has a long history, having been ongoing for well over 18 months. Mr Mulhern completed a statement of affairs on 12 March 2010, and, with his cooperation, this proceeding could have been far more advanced than it is today. 21 It is regrettable that Mr Mulhern is now in a situation where he has a genuine reason to travel overseas but, on the other hand, the bankruptcy is now at what seems to me to be a critical phase. A lengthy series of delays and other avoidance by Mr Mulhern of his obligations led ultimately to his arrest, on two occasions, to ensure the operation of provisions of the Bankruptcy Act and to thereby fulfil the policy and other requirements of that legislation. 22 It seems to me that the Trustees, as I have done, gave genuine and anxious consideration to Mr Mulhern's request and decided, in all of the circumstances, that it should not be acceded to. I share the Trustees' view and am not persuaded that it would be just and equitable, in all of the circumstances, for the orders Mr Mulhern seeks to be made. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.