Weinstein (Trustee) v Morris

Federal Court of Australia|2016-06-09|Before: Charles P, Gilmour J

The administration and realisation of all of the respondent's assets located in Australia be entrusted to the applicant in her capacity as trustee in bankruptcy for the estate of Lilian Morris (aka Shams Azar Yousefi Tehrani) appointed under Chapter 7 of the US Bankruptcy Code.
The distribution of all of the respondent's assets located in Australia to be entrusted to the applicant, including the proceeds from the sale of a property, located at 116 Rothesay Heights, Mindarie, in the sum of $459,130.62 AUD and the additional amount of $70.68 AUD, currently being held in the Gadens Account, to be transferred to the applicant for the applicant's possession and control for administration in connection with the US Proceedings, for the benefit of all creditors of the respondent.
The applicant has liberty to apply within 14 days on the question of costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GILMOUR J: 1 This application concerns the cross-border insolvency of the respondent, traversing Australia and the United States of America. The applicant, as trustee of the bankrupt estate of the respondent, seeks orders, amongst others, for the administration and realisation of the defendant's assets in Australia to be entrusted to the applicant in her capacity as trustee of the respondent's bankrupt estate under Chapter 7 of the United States Bankruptcy Code. 2 The applicant, at the outset of the hearing, sought the leave of the Court to amend the application by way of an amended application dated 9 June 2016, in the form tendered in Court on the hearing of the application. I granted leave. The amendments arose consequent upon the sale of real property referred to in the original application, of which sale has now been completed. 3 The applicant read the following affidavits in support of the Application: (a) Affidavit of Marlene G Weinstein sworn on 11 April 2016 (First Weinstein Affidavit) with exhibit MGW1 (Exhibit); (b) Affidavit of Courtney Jayne Manzoney affirmed on 9 May 2016 (First Manzoney Affidavit); (c) Affidavit of Charles P Maher sworn on 10 May 2016 (Maher Affidavit); (d) Affidavit of Marlene G Weinstein sworn on 11 May 2016 (Second Weinstein Affidavit); (e) Affidavit of Justin Bates sworn on 24 May 2016 (First Bates Affidavit); (f) Affidavit of Justin Bates sworn on 26 May 2016 (Second Bates Affidavit); (g) Affidavit of Courtney Jayne Manzoney affirmed on 2 June 2016 (Second Manzoney Affidavit).

Background 4 The following background is not controversial and is drawn substantially from the applicant's written submissions.

Appointment 5 The applicant was appointed as Chapter 7 trustee of the bankrupt estate of the respondent on 25 February 2016 by the United States Bankruptcy Court in case number 15-42732 CN (US Bankruptcy Proceedings), when the respondent's Chapter 11 reorganisation case was converted to a Chapter 7 liquidation (US Conversion Order).

Local Property 6 At the time of the US Conversion Order, the respondent was the sole registered proprietor of a vacant block of land at 116 Rothesay Heights, Mindarie (Mindarie Property), in the state of Western Australia. 7 On or about 11 March 2016, the applicant received a copy of a contract for sale for the Mindarie Property, between the respondent and Neil and Sophia Dawe. 8 The applicant considered that the respondent did not have standing to enter into the contract at the time that it was executed, in view of the US Conversion Order. 9 Nonetheless, the applicant, in order to allow the sale to proceed, consented to the sale of the Mindarie property on the basis that the respondent would direct that all surplus settlement proceeds be paid to the trust account of Gadens, who were appointed as the applicant's local agent pursuant to an order made on 4 April 2016 in the United States Bankruptcy Court. 10 The settlement of the sale of the Mindarie Property occurred on 29 April 2016, with the consent of the applicant. At settlement of the sale of the Mindarie Property, a cheque in the amount of $459,130.62 AUD, was paid in favour of the Gaden's trust account and was deposited into that account. 11 As at 8 June 2016, the sale proceeds remained in Gaden's trust account, along with an additional amount of $70.68 AUD, being a refund due to the respondent on the sale of the Mindarie Property.

Notification to respondent and respondent's known creditors 12 On 23 May 2016, notification of orders made on 3 May 2016 was given together with a copy of the consent to act as Trustee and Form B20 to the respondent, care of her attorney on the record for her in the US Bankruptcy Proceeding. 13 On 23 May 2016, the attorney for the respondent in the US Bankruptcy Proceedings changed. On 26 May 2016, notification of the orders made on 3 May 2016 was sent to the new attorney for the respondent in the US Bankruptcy Proceedings by way of a letter from Justin Bates dated 25 May 2016. 14 On 5 May 2016, the known United States creditors of the respondent were served with notice of these proceedings. 15 On 6 May 2016, the known Australian creditors of the respondent, being National Australia Bank and Bowen Buchnbinder Vilensky, were served with notice of these proceedings. 16 On 11 May 2016, notification of these proceedings was advertised in The West Australian newspaper. 17 On 13 May 2016, notification of these proceedings was advertised in The Australian newspaper. 18 There has been no appearance filed on behalf of: (a) the respondent; (b) any United States creditor of the respondent; (c) any Australian creditor of the respondent; or (d) any other person.

The applicable law 19 The Cross-Border Insolvency Act 2008 (Cth) (Act) and the Model Law on Cross-Border Insolvency of the United Nation's Commission on International Trade Law (Model Law) provide for the fair and efficient administration of cross-border insolvencies. 20 A foreign representative may apply to an Australian Court for recognition of a foreign proceeding: Article 15(1) of the Model Law.

Recognition of proceedings 21 Generally, a foreign proceeding shall be recognised as a matter of course if: (a) It is a "foreign proceeding"; (b) The applicant is a "foreign representative"; (c) The application is accompanied by acceptable evidence of the foreign proceedings and the appointment of the foreign representative; and (d) The application is made to a competent local court of authority. See Articles 15 and 17 of the Model Law, section 13 of the Act and rule 14.03 of the Federal Court (Bankruptcy) Rules 2016 (Cth) (Rules).

Compliance 22 The applicant has provided evidence of the US Proceedings, being the US Conversion Order. 23 The applicant has complied with section 13 of the Act by providing a statement identifying her knowledge in relation to: (a) all proceedings under the Bankruptcy Act 1966 in respect of the respondent; and (b) referring to any appointment of a receiver (within the meaning of section 416 of the Corporations Act 2001), or a controller or a managing controller (both within the meaning of section 9 of that Act), in relation to the property of the respondent; and (c) all proceedings under Chapter 5, or section 601CL, of the Corporations Act 2001 in respect of the respondent. 24 The applicant has otherwise complied with rule 14.03 of the Rules in relation to the commencement and service of cross-border insolvency proceedings. 25 The applicant, in these circumstances, submits that the Court ought to recognise the US Proceedings as a foreign proceeding in circumstances where the applicant has satisfied the four criteria set out above and has complied with Articles 15 and 17 of the Model Law, section 13 of the Act and rule 14.03 of the Rules.

Foreign main proceeding 26 Pursuant to Article 17 of the Model Law, it is necessary for the Court to determine where the respondent's centre of main interest (COMI) is located, so as to determine whether the foreign proceeding should be recognised as a "foreign main-proceeding" or "foreign non-main proceeding" as referred to in Article 2 of the Model Law. 27 The applicant referred to the following authorities. 28 In Moore (as debtor-in-possession of Australian Equity Investors) v Australian Equity Investors [2012] FCA 1002, the Court at [20] noted that "the centre of main interest should correspond to the place where the debtor conducts the administration of the debtor's main interest on a regular basis." 29 In Gainsford & Ors v Tannenbaum [2012] FCA 904, a personal insolvency matter, the Court at [47] noted that "for individuals…the inquiry as to COMI must remain a broad factual one." 30 In Kapila, Re Edelsten [2014] FCA 1112 at [55], the Court followed the approach of the Court in Moore, by determining that "Edelsten now has and had at the commencement of the US Bankruptcy Court proceedings many creditors and various business ventures in the US. But many of the more tangible assets and definitive creditors, secured, unsecured and regulatory in nature appear to be Australian based." The Court made an order that the US proceedings be recognised as a "foreign non-main proceeding." 31 As the applicant correctly submits, the factual bases in the present proceedings are distinguishable from those in Edelsten. Here the tangible assets and creditors are located in the United States. 32 The applicant submits that in these proceedings, the respondent's COMI is the United States and that the Court ought to recognise the US Proceedings as a "foreign-main proceeding", in accordance with Article 17, 2(a) of the Model Law, where the respondent's COMI is in the United States. The applicant has established that the respondent: (a) was, as at the time of the commencement of these proceedings, residing in the United States; (b) has two known properties located within the United States; (c) maintains bank accounts in the United States; (d) has two secured creditors located in the United States and no secured creditors located in Australia; (e) has approximately 26 unsecured creditors located in the United States and only two unsecured creditors in Australia; (f) provided her address for service for notices for the Mindarie Property as PO Box 82 Lafayette, California; and (g) had only one known asset in Australia, which has now been sold.

Position of local creditors 33 The Court, in fashioning relief in such circumstances, requires to satisfy itself that the interests of creditors and other interested persons, including the debtor, are adequately protected. Where the Court is on notice that a local creditor has concerns about a foreign representative having control of the local assets, the Court is required to be assured that the interests of those creditors are protected: Article 22(1) of the Model Law. No such concerns have been raised. 34 Nonetheless, I am satisfied that the interests of the Australian creditors are adequately protected, in circumstances where: (a) National Australia Bank and Bowen Buchnbinder Vilensky have received notification of these proceedings and have not raised any objection; (b) the debts of National Australia Bank and Bowen Buchnbinder Vilensky will be treated in the same way as all other creditors located in the United States; and (c) notifications in accordance with form B20 have been published in The Australian and the West Australian newspapers which notify any other potential creditors in Australia of the existence of these proceedings and of this hearing. 35 No other creditor located in Australia has filed a notice of appearance in these proceedings or advised the applicant or Gadens that they are a creditor, whether secured or unsecured, of the respondent. Accordingly, I am prepared to proceed on the footing that there are only two creditors of the respondent in Australia, being National Australia Bank and Bowen Buchnbinder Vilensky, with claims totalling an estimate of $15,220 and will be protected if the orders set out in the Application are made.

Distribution of assets of the respondent 36 On the recognition of a foreign proceeding, whether as a foreign main proceeding or a foreign non-main proceeding, the Court may grant relief, including for the foreign representative to be entrusted with the administration or realisation of all or part of the assets of a debtor located in Australia: Article 21(1)(e) of the Model Law. 37 The Court also has the power to entrust the distribution of all or part of the debtor's assets situated locally to the foreign representative: Article 21(2) of the Model Law. 38 The factors upon which the applicant relies are that: (a) the sole known asset of the respondent in Australia has been realised, being the Mindarie Property; (b) the proceeds of the sale of Mindarie Property are currently held in the Gaden's trust account; and (c) there appears to be only two local creditors of the respondent, who are on notice of the proceedings and are known to the applicant. 39 The applicant submits, having regard to these factors, that the Court ought to make the orders sought at paragraphs 3 and 4 of the proposed orders, that: (a) the administration and realisation of all of the respondent's assets located in Australia be entrusted to the applicant in her capacity as trustee in bankruptcy for the estate of Lilian Morris (aka Shams Azar Yousefi Tehrani) appointed under Chapter 7 of the US Bankruptcy Code. (b) the distribution of all of the respondent's assets located in Australia to be entrusted to the applicant, including the proceeds from the sale of the Mindarie Property, in the sum of $459,130.62 AUD and the additional amount of $70.68 AUD, currently being held in the Gaden's Account, to be transferred to the applicant for the applicant's possession and control for administration in connection with the US Proceedings, for the benefit of all creditors of the respondent. 40 I am persuaded by these submissions that the relief sought by the applicant should be granted. 41 The applicant also seeks that the Court dispense with the requirements of rule 14.07(1)(d) of the Rules, that the applicant publish a notice in a daily newspaper of the making of any orders made in accordance with the Application (in accordance with Form B21), for reasons that: (a) The Mindarie Property was vacant land; (b) There is no evidence that the respondent has lived in Australia in recent years; (c) The making of the application has been advertised and no other creditor in Australia has appeared on the Application. 42 I would, for the reasons submitted by the applicant, dispense with the requirement of rule 14.07(1)(d). 43 There will be orders as sought by the applicant. I will also grant liberty to the applicant to apply within 14 days on the question of costs. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.

Corporations Act 2001(Cth)ss 9, 416, 601CL

Federal Court (Bankruptcy) Rules 2016(Cth)rr 14.03, 14.07(1)(d)

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