In Moltoni v Macks as Trustee of the Bankrupt Estate of Moltoni (no 2) [1] the Federal Court of Australia considered a bankrupt’s application for review of the Bankruptcy Trustee’s decision not to allow him to leave Australia and live in the UK. Although there were doubts about the bankrupt’s assistance to date with the Trustee’s investigations, this decision explored other factors and highlights that the power to refuse travel to a bankrupt is not punitive.

BackgroundI

n 2006, Maruti Holdings Pty Limited (Maruti) paid US$21 million to a company in the British Virgin Islands, Sinclair Strategies Ltd (Sinclair).

Mr Moltoni became a director of Sinclair in 2013.

In September 2017, the Australian Taxation Office (ATO) issued an amended assessment to Mr Moltoni, on the basis that the US$21 million payment to Sinclair was in effect, made in return for Mr Moltoni’s consultancy services provided to Maruti and was treated by ATO as Mr Moltoni’s income.

In November 2017, after Mr Moltoni had returned to Australia for his daughter’s wedding, ATO issued a Departure Prohibition Order preventing him from leaving Australia.That order remained in force.The ATO subsequently authorised Mr Moltoni to return to the UK provided he return by March 2018.

Mr Moltoni returned to Australia in March 2018 and, as a result of the ATO’s amended assessment, declared himself bankrupt in October 2018. ATO represents over 99% of the value of creditors in the bankruptcy.

Mr Moltoni wished to return to the UK to live with his wife. In February 2020, the Trustee did not permit Mr Moltoni to leave Australia and reside in the UK because he thought:

  • it was unlikely that Mr Moltoni will return to Australia; and
  • it would hamper the administration of his estate.

The Trustee considered Mr Moltoni should remain in Australia for at least another 6 months whilst investigations continued and before the Trustee would be in a position to complete any examination.

As a result, Mr Moltoni applied to the Court to review the Trustee’s decision.

Issue

In considering Mr Moltoni’s application, the following questions needed to be answered:

    1. Was the reason for traveling and relocation to the UK genuine?
    2. Was he likely to return to Australia?
    3. Would his relocation hamper the administration of his estate?
    4. Has Mr Moltoni complied with his obligations under the Bankruptcy Act 1966 (Cth)(Act)?

Underlying Principles

There was no dispute between the parties about the relevant principles to consider, including:

  • a resident of Australia may travel freely notwithstanding that it is a bankrupt“;[2]
  • “[restrictions to travel]…must be seen as being aimed at ensuring the proper administration of bankruptcy laws and of bankrupt estates under such laws and not as penalty imposed on a citizen as a consequence of inability to pay debts….“;[3]
  • “[these type of matters]…must always be treated as being of fundamental importance, requiring careful consideration of all relevant circumstances“;[4]
  • “….the decision of the trustee need not be wrong, unreasonable, absurd or in bad faith for the court to exercise its discretion”;[5] and
  • the Act does not forbid a bankrupt from living abroad and… from living abroad permanently“.[6]

Considerations

Genuineness of travel

His Honour held that Mr Moltoni’s intention was genuine on the basis that:

  • his home was in the UK and his main reason to travel to the UK was to reunite with his wife;
  • Mr Moltoni’s wife was unable to move to Australia due to family commitments (carer of her aged parents) and work commitments; and
  • Mr Moltoni also submitted he was unable to engage in his profession as a tax accountant in Australia, but would be able to obtain employment in the UK.

Likelihood of return to Australia

His Honour took into account the Trustee’s submission that Mr Moltoni was not forthcoming in relation to his obligations under the Act.

Mr Moltoni submitted that:

  • previously, he complied with ATO’s terms allowing him to travel to the UK and return to Australia by March 2018;
  • both he and his wife have strong family ties to Australia;
  • both he and his wife would provide undertakings; and
  • he would take all relevant steps to assist the Trustee in the proper administration of his estate.

The Court accepted Mr Moltoni’s submission and held that it was likely that Mr Moltoni would return to Australia when required. However, Mr Moltoni and his wife needed to provide undertakings, including providing a mortgage over his wife’s property in Australia guaranteeing approximately $500,000.

Mr Moltoni’s compliance & whether administration would be hampered

The Trustee submitted that Mr Moltoni would hamper the administration of his estate because, amongst other things, he was evasive in assisting the Trustee to obtain records relating to his overseas companies.

After examining the evidence, the Court recognised there were many issues surrounding Mr Moltoni’s financial dealings which the Trustee had to continue investigating and expressed doubts that Mr Moltoni had effectively complied with all of his obligations. The Court was not particularly convinced about Mr Moltoni’s denial of any knowledge or involvement in matters being investigated.

Decision

Despite some doubts as to whether Mr Moltoni had fully assisted the Trustee’s investigations so far, the Court considered that it was unreasonable to stop Mr Moltoni from travelling to the UK and residing there provided that he would be subject to all of the necessary undertakings and restrictions.

Key takeaways

The Court has broad discretion to consider whether it is in the interest of justice and equity to refuse permission to a bankrupt to travel overseas.

This is a reminder that the underlying principles for preventing a bankrupt from travelling overseas are based on the need to assist the effective administration of the estate, rather than being punitive in nature.

Additionally, it appears that Court is willing to accept that the digital world may facilitate investigations without the need for a bankrupt to remain in the country.