The Federal Court of Australia recently considered the Court’s discretionary power to provide assistance to a foreign trustee (Hong Kong) in bankruptcy, by way of appointing a receiver over divisible property located in Australia in the case of Lees v O’Dea (No 2) [2014] FCA 1082.  It also continued the ongoing focus on practitioner’s remuneration, an issue which has attracted some attention in various state courts.

Background

Mr O’Dea was bankrupted by order of the High Court of the Hong Kong Special Administrative Region (the Hong Kong Court) on 3 July 2013. The Applicants, Mr Lees and Mr Ng were subsequently appointed the Joint and Several Trustees in Bankruptcy of the estate of Mr O’Dea (Trustees).

The Trustees could not locate or communicate with Mr O’Dea. Subsequently, on 12 March 2014, the Trustees sought judicial assistance from the Federal Court

in Victoria, pursuant to section 29 of the Bankruptcy Act 1966 (Cth) (the Act) seeking various orders, via a Letter of Request issued by the Hong Kong Court.

The Letter of Request sought assistance from the Federal Court to enable a public examination of Mr O’Dea and other parties (including his mother), the delivery of Mr O’Dea’s passport, an injunction preventing Mr O’Dea dealing with assets in Australia, the filing of a Statement of Affairs by Mr O’Dea and production of documents. On 30 April 2014, Justice North of the Federal Court made the orders sought pursuant to the Letter of Request.

The public examination of Mr O’Dea and two other parties took place in early August 2014.

On 31 July 2014, Mr O’Dea’s mother passed away. The Will of Mr O’Dea’s mother named Mr O’Dea as her sole beneficiary.  The  bequeathed  property included real property that was subject to a mortgage.

There were some apparent drafting errors in the will and Mr O’Dea’s solicitor gave notice to the trustee that they intended to apply to the Supreme Court for interpretative guidance.

Interim Application seeking appointment of a receiver

In light of the notification received from Mr O’Dea’s solicitor, the Trustees filed an application seeking interim orders (relevantly) in relation to the appointment of receivers to the estate of Mr O’Dea and a restraint in relation to Mr O’Dea dealing with his mother’s estate pursuant to the will.

On 5 September 2014, the application was held before Justice North. Despite there being little debate about the orders sought, the Court did not appoint a receiver. However the restraining orders were made in regards to Mr O’Dea dealing with the estate of his late mother. The application was reserved until 8 December 2014.

In the interim, solicitors for Mr O’Dea notified the trustees that Mr O’Dea would be seeking orders from the Court to delete the clause of the will which bequeathed the estate to Mr O’Dea and appointed him as executor. Upon receipt of that notification, not unsurprisingly, the Trustees had their application relisted.

This application

This application is the relisting of the interim application. Mr O’Dea appeared unrepresented and opposed the appointment of a receiver.

The Court in making its determination considered three key issues:-

  • whether the Court has power to appoint a receiver
  • the necessity for a receiver
  • whether the Court should exercise its discretion to appoint a receiver.

Power to appoint a receiver

Justice North considering the powers of the Court pursuant to section 29 of the Act and the matter of Gainsford v Tannenbaum (2012) 216 FCR 543, which affirmed that:

“…the case for the provision by the Court of assistance of the kind sought is compelling. There is ample power under s 29(3) of the Bankruptcy Act to grant that assistance.”

Following the decision of Radich v Bank of New Zealand (1993) 45 FCR 101 (Radich), Justice North considered that the assistance that a Court may provide"is not limited to where the Australian Court and the foreign court have powers that mirror each other”.

The nature of Mr O’Dea’s interest in the estate of his mother was considered to be a chose in action “being his right to have the deceased estate administered in accordance with the duties to the executors” and thus divisible property for the purposes of section 116 of the Act.

Necessity for the appointment of a receiver

Justice North considered it appropriate to appoint a receiver on the basis of the Application to amend the will by Mr O’Dea’s solicitor on the following basis:

  • The property the subject of the Application is the property Mr O’Dea has a chose in action over.
  • The Applicants have ... a very real interest in ensuring that whatever interest [Mr O’Dea] had in the estate is received by [them].

It was reinforced that the appointment of a receiver is for the purpose is to “seek the enforcement of rights, not the establishment of rights, and should not confer advantage on one class of creditors because some assets may be in a particular jurisdiction.”

Should the discretion be exercised

The Trustees had provided undertakings as to the scope of their conduct, which were accepted by the Court. In making orders appointing receivers, Justice North facilitated the outcome sought – to enable involvement in the proceedings in relation to the Will and in doing so adopted orders made in earlier decisions of the Court . While the orders are lengthy, the key orders handed down were:

  • The Receivers were appointed. That appointment provided the receiver with standing to appear at the Rectification Application, and to deal with the Property accordingly.
  • The costs of the Receivers were capped by the hourly rates of the receivers and associated staff members. Leave from the Court was required if the fees are expected to exceed $30,000.00 (plus GST). The cap was imposed to ensure that the fees incurred were proportionate to the property recovered (being limited).
  • The costs incurred by the Receivers were to be paid out of the money received during the receivership under the  Order.

Points to take away

This case demonstrates the power of the Courts to assist courts in other countries within the bankruptcy jurisdiction,.

Trustees, both local and international can take comfort from the decision – the Australian Courts will, where appropriate, provide assistance to enable recovery of divisible property even if that is for a foreign trustee.

Further, this case continues the recently identified focus on costs and remuneration. It reiterates the importance to Trustees and Receivers of ensuring that the costs associated with the administration of a bankrupt estate are property and reasonably incurred. We dealt with this issue in a recent newsflash in the insolvency sense, which you can read here.