Federal Court of Australia

Davidson v Official Receiver [2021] FCAFC 73

ORDERS

THE COURT ORDERS THAT:

1.    The Appellant is given leave to appeal pursuant to s 24(1A) of the Federal Court of Australia Act 1976 (Cth).

2.    The appeal is otherwise dismissed.

3.    The Appellant pay the Respondents’ costs of and incidental to this appeal, to be taxed failing agreement.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

These orders have been amended in accordance with r 39.05(h) of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

Background

1    On 16 December 2013, Mr William Stephen Vlahos (the Bankrupt) became bankrupt on the filing of a debtor’s petition under s 55 of the Bankruptcy Act 1966 (Cth). By operation of s 149 of the Act, the Bankrupt was automatically discharged from his bankruptcy on 16 December 2016. Mr Philip Newman, the Second Respondent, is the Trustee of the Bankrupt Estate of Mr Vlahos.

2    On 6 December 2019, the Official Receiver, the First Respondent, issued a notice pursuant to s 139ZQ of the Act to Mr Sam Davidson, the Appellant, requiring payment of $12,507,025.84 to the Trustee (the Notice). The Appellant received the Notice on or about 11 December 2019. The amount claimed under the Notice is said to represent the aggregate of payments made by the Bankrupt to Mr Davidson. The Trustee claims that the payments to Mr Davidson are transfers of property for less than market value and are void within the meaning of s 120(1) of the Act. Pursuant to s 120(7) of the Act, transfers of property include the payment of money.

3    This appeal arises from a proceeding in the Federal Circuit Court (MLG 319 of 2020) in which Mr Davidson applied for an order pursuant to s 139ZS(1) of the Act setting aside the Notice on the ground that it was issued by the Official Receiver out of time (see also MLG 315 of 2020, relating to Mr Boris Janezic, which was heard and determined concurrently). By an order made on 24 February 2020, and amended on 2 March 2020, the primary judge directed that the application be heard as a preliminary question pursuant to Part 17 of the Federal Circuit Court Rules 2001 (Cth).

4    The question before the Circuit Court and on appeal is whether the claim made by the Trustee under the Notice is statute barred pursuant to s 127(3) of the Act. On 14 May 2020, the primary judge dismissed Mr Davidson’s application for summary judgment: see Janezic v Official Receiver & Anor and Davidson v Official Receiver & Anor [2020] FCCA 1153. Mr Davidson seeks leave to appeal from that judgment and, if leave is given: (1) orders setting aside the Notice; (2) a declaration pursuant to s 30(1) of the Act that the Trustee is barred by s 127(3) from commencing an action pursuant to s 139ZQ(8) against Mr Davidson in respect of the claims made under the Notice; and (3) costs of and incidental to both the Circuit Court proceeding and the present appeal.

5    For the reasons that follow, leave is given pursuant to s 24(1A) of the Federal Court of Australia Act 1976 (Cth) but the appeal is otherwise dismissed.

Statutory context

6    Before considering the application for leave to appeal, or the substantive merits of the appeal, it is appropriate to consider the statutory context in which the questions of construction arise: see also Re McLernon; Ex parte SWF Hoists and Industrial Equipment Pty Ltd v Prebble [1995] FCA 539; 58 FCR 391 at 394-404 (Carr J).

7    Section 120(1) of the Act provides that a transfer of property from a bankrupt to another person in the period commencing five years before the commencement of the bankruptcy, and ending on the date of the bankruptcy, is void if it was for no consideration or for consideration of less than market value. In this context, ‘void’ means ‘voidable’ on the basis that a disposition by a person who later becomes bankrupt is effective unless and until impugned in proceedings by the trustee in bankruptcy: see, eg, Official Trustee in Bankruptcy v Alvaro [1996] FCA 1493; 66 FCR 372 at 426 (Wilcox and Cooper JJ).

8    Section 127(3) of the Act requires that an action under s 120 with respect to a transfer of property must be commenced by the trustee before the expiration of six years from the date on which the bankrupt became bankrupt. In the present proceeding, the Bankrupt became bankrupt on the filing of his debtor’s petition on 16 December 2013. Accordingly, the limitation period under s 127(3), for the commencement of an action under s 120, expired on 16 December 2019.

9    Of particular relevance to the present appeal is s 139ZQ of the Act. This provision was introduced in 1992 as part of amendments affected by the Bankruptcy Amendment Act 1991 (Cth). Section 139ZQ provides an administrative mechanism for the recovery of sums of money, or property, transferred by a bankrupt under a transaction that is void against the trustee of a bankrupt estate: Halse v Norton [1997] FCA 673; 76 FCR 389 at 392 (Black CJ), 398-399 (Lee and Nicholson JJ). The issuing of a s 139ZQ notice has been variously described as an administrative “aid” or “shortcut” aimed at assisting a trustee in bankruptcy to recover property which the trustee claims to be entitled to: Verge (Trustee), in the matter of Underdown (deceased) (a bankrupt) v Fazio [2013] FCA 18 at [14] (McKerracher J).

10    A notice given pursuant to s 139ZQ of the Act may be issued on the initiative of the Official Receiver or upon the application of the trustee to the Official Receiver for the giving of such a notice: s 139ZQ(1)(a) and (b). The present case arose in the latter context.

11    The notice must set out the facts and circumstances upon which the Official Receiver considers that the transaction is void against the trustee: s 139ZQ(2). The notice must be given to the person who has allegedly received property from the bankrupt (s 139ZQ(1)), the bankrupt and the registered trustee (s 139ZQ(5)). An amount claimed under a s 139ZQ notice may be recovered by the trustee as a debt by the bringing of a proceeding in a court of competent jurisdiction against the person to whom the property was transferred: s 139ZQ(8).

12    The court may set aside a s 139ZQ notice if it is satisfied that Subdivision J of Division 4B of the Act does not apply to the person who received the notice, having regard to the alleged facts and circumstances set out in the notice: s 139ZS(1). An application to set aside the notice must be made within 60 days of the date the notice was given under s 139ZQ: s 139ZS(1A)(a) of the Act (see also s 139ZS(1A)(b)).

13    The principal question that arises in this appeal concerns the interaction between these statutory provisions in the Act. Specifically, the issue is whether a notice issued pursuant to s 139ZQ of the Act, to recover a transfer at undervalue, is valid notwithstanding that the limitation period in s 127(3) has expired before the notice is complied with or sought to be enforced. It will be recalled that, in the present context, the Notice was given only 10 days prior to the expiration of the limitation period for the commencement of a proceeding pursuant to s 120 of the Act.

Application for leave to appeal

14    The dismissal of the application for summary judgment was an interlocutory judgment. Accordingly, an appeal cannot be brought without leave of the Court: s 24(1A) of the Federal Court Act.

15    The principles relevant to determining an application for leave to appeal were recently summarised by Stewart J in Coshott v Official Trustee in Bankruptcy, in the matter of the Bankrupt Estate of Michael Petrovic Lenin (deceased) [2019] FCA 913 at [28]-[30]:

The principles to be applied in determining an application for leave to appeal are stated in Bienstein v Bienstein [2003] HCA 7; 195 ALR 225 per McHugh, Kirby and Callinan JJ at [29] as follows:

An applicant for leave must establish that the decision in question is attended with sufficient doubt to warrant the grant of leave. The applicant must also show that substantial injustice will result from a refusal of leave to appeal.

Therefore, there are two considerations. First, whether in all the circumstances of the case, the decision is attended by sufficient doubt to warrant it being reconsidered by the Full Court; and second, whether substantial injustice would result if leave were refused supposing the decision to be wrong.

These two criteria, however, do not represent a “hard and fast rule” (Samsung Electronics Company Ltd v Apple Inc [2011] FCAFC 156; 217 FCR 238 at [29] per Dowsett, Foster and Yates JJ), but they nevertheless provide “general guidance which the Court should normally accept” (Rawson Finances Pty Ltd v Federal Commissioner of Taxation [2016] FCAFC 95; 103 ATR 630 at [39] per Robertson, Moshinsky and Bromwich JJ).

[Emphasis added]

16    In relation to the first consideration identified in the passage above, the Appellant submitted that the decision of the primary judge is attended by sufficient doubt to warrant it being reconsidered. This submission followed logically from the Appellant’s contention that the claim made in the Notice was statute barred and should be set aside.

17    Indeed, the Appellant submitted that the appeal raises important questions of law regarding the interaction between the limitation period in s 127(3) and the effect of a notice issued pursuant to s 139ZQ of the Act. The Appellant also submitted that this is a matter of considerable practical importance in the administration of bankrupt estates and the public would benefit from determination of the question at an appellate level.

18    Further, the Appellant submitted that a number of undesirable consequences would follow if leave to appeal were refused, including that it would be possible to “indefinitely” extend the statutory limitation period in s 127(3) by issuing an administrative notice under s 139ZQ of the Act. The Appellant submitted that this outcome would be incongruous with the intention of Parliament, in that it would allow trustees to pursue claims for a transfer at undervalue well after the expiration of the six-year limitation period prescribed by s 127(3) of the Act.

19    In relation to the second consideration, the Appellant submitted that if leave were refused, there would be a substantial injustice. This is because Mr Davidson would have to expend considerable time and money defending a claim that might otherwise be statute barred. The Appellant also identified the substantial prejudice which might follow if Mr Davidson were exposed to a potential liability of $12.5 million, which includes large sums of money that have been distributed to other members of a betting syndicate operated by the Bankrupt.

20    In the present case, we agree that the appeal from the summary judgment raises important matters in respect of which there is sufficient doubt and reasonable argument: Cement Australia Pty Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101; 187 FCR 261 at [20] (Keane CJ, Gilmour and Logan JJ). If the decision of the primary judge were wrong, significant financial consequences would follow for both the Appellant and other persons who may be the subject of claims by the Trustee in relation to the estate of the Bankrupt: Decor Corporation Pty Ltd v Dart Industries Inc [1991] FCA 844; 33 FCR 397 at 400 (Sheppard, Burchett and Heerey JJ). Accordingly, this is an appropriate case for the grant of leave to appeal.

Grounds of the appeal

21    The Appellant raised the following grounds in the draft Notice of Appeal:

Grounds of appeal

1. His Honour erred in finding that the second respondent can satisfy the Court that the provisions of section 120 of the Bankruptcy Act 1966 (Cth) (“the Act”) are fulfilled to establish the validity of the Notice issued under s 139ZQ of the Act dated 6 December 2019 (“the Notice”) even though the six year limitation period set out in section 127(3) of the Act has expired.

2. His Honour erred in finding that the fact that section 127(3) of the Act would prevent the second respondent from bringing a proceeding under section 120 of the Act did not affect the operation of section 139ZQ of the Act in relation to the Notice.

3. His Honour erred in finding that an action to enforce a s 139ZQ notice is not an “action under s 120 of the Act” within the meaning of section 127(3) of the Act, so that s 127(3) is not engaged when a debt action is brought under section 139ZQ(8) of the Act.

4. His Honour erred in finding that the Notice can be valid and effective where the second respondent has no viable claim under section 120 of the Act because any such claim is statute barred under section 127(3) of the Act.

5. His Honour erred in considering that the expression “the trustee of a bankrupt under Division 3” of Part VI of the Act in s 139ZQ(1) of the Act includes the trustee of a former bankrupt who has been discharged from bankruptcy under Division 2 of Part VII of the Act.

[Footnotes omitted]

22    During the course of oral submissions to the Court, grounds 1 to 4 were addressed concurrently, with separate submissions in relation to ground 5. We proceed in the same way.

Grounds 1 to 4

23    The Appellant submitted that a notice issued pursuant to s 139ZQ of the Act is only valid and effective if the trustee in bankruptcy has a claim under a provision of the Act that would, if established, make the relevant transaction in question voidable. Accordingly, if the trustee in bankruptcy does not have such a claim, no valid notice can subsist under s 139ZQ(1), and the notice should be set aside on the basis that the subdivision does not apply: see, eg, Sutherland v Vale [2009] HCA 26; 237 CLR 638 at [4]-[13] (Gummow, Hayne, Heydon, Crennan and Kiefel JJ); Official Trustee in Bankruptcy v Lopatinsky [2003] FCAFC 109; 129 FCR 234 at [151]-[152] (Whitlam and Jacobson JJ, Lee J agreeing).

24    The Appellant submitted, as a corollary to the above contentions, that the Trustee did not have a viable claim under s 120 because any such claim was statute barred under s 127(3) of the Act. On the Appellant’s submission, it followed that once the limitation period expired on 16 December 2019, the transfer of the property to the Appellant could no longer be impugned (including by issuing a s 139ZQ notice). Indeed, it was submitted that the mere issuing of the Notice, which itself had not been complied with, nor sought to be enforced by the Trustee, did not constitute a sufficient step taken before the limitation period expired.

25    An element of the Appellant’s contentions concerning the relationship between a notice issued pursuant to s 139ZQ and the limitation period in 127(3) is that “an action” under s 120 of the Act means a civil proceeding in a court of competent jurisdiction. In this regard, the Appellant submitted that as there is no general definition of “action” in the Act, it should be given its ordinary meaning, namely, a civil proceeding.

26    The Appellant also relied upon the practical operation of the Notice as a consideration supporting the submission that it should be set aside. In particular, the Appellant submitted that no sum can become “payable” until 60 days after a notice is given (by reason of s 139ZS(1A) of the Act) and, in the present case, this would only occur after the six-year limitation period under s 127(3) has expired. Further, the Appellant submitted that a claim for payment of money under the Notice may only be enforced by the entry of judgment, in this Court or the Circuit Court, for the amount payable under s 139ZQ(8) of the Act. The Appellant submitted that initiating such a proceeding would be “an action” under s 120 and would therefore be barred by s 127(3) if commenced outside the six-year limitation period.

27    At the heart of the Appellant’s submission was thus the contention that the six-year limitation period under s 127(3) for the commencement of an action, in respect of a transfer at undervalue under s 120 of the Act, cannot in effect be extended by issuing an administrative notice under s 139ZQ. The Appellant submitted that if this were permitted, it would produce the absurd outcome that the limitation period under s 127(3) of the Act may be extended “indefinitely”.

28    The Appellant’s submission may, in substance, be distilled to the following propositions:

(1)    the validity of the Notice depends on the application of s 120 to the impugned transaction;

(2)    because s 120 is the underlying basis upon which the Notice is issued, s 127(3) operates in the present circumstances to preclude “an action”;

(3)    the issuing of the Notice does not constitute “an action” taken by the trustee under s 127(3) because it does not constitute the commencement of a civil proceeding;

(4)    the Trustee can only be taken to have commenced “an action” if it has sought to enforce the Notice and, on the present facts, the Trustee has not taken any such steps within six years of the transaction being voidable under s 120;

(5)    therefore, in this instance, the limitation period in s 127(3) precludes the issuing of the Notice, or alternatively, if issued and not complied with, the recovery of the amount claimed under the Notice pursuant to s 139ZQ(8) of the Act; and

(6)    the conclusion in (5) is fortified by the policy consideration that the time limited by s 127(3) of the Act should not be capable of being extended by issuing a notice under s 139ZQ, that step being a purely administrative act intended to be an “alternative” to commencing an action pursuant to s 120 of the Act.

29    For the above reasons, the Appellant submitted that the Court should make a declaration under s 30(1)(b) of the Act to the effect that any action under s 139ZQ(8) for the recovery of the $12.5 million claimed in the Notice is, or would be, statute barred: see, eg, Re McLernon at 403 (Carr J); Halse v Norton at 392 (Black CJ).     

30    The Trustee submitted that s 139ZQ was introduced to provide an administrative mechanism, and an alternative to litigation, for the setting aside of transactions which are void against the trustee. The rationale for the introduction of Subdivision J of the Act was to make the recovery of property disposed of under voidable transactions in a bankrupt estate more efficient and cost effective, thereby ensuring a better return to creditors: see, eg, Cooper v Moloney (No 5) [2012] SASC 211 at [62], footnote 32 (Blue J).

31    In substance, the Trustee submitted that while the operation of s 139ZQ is contingent on s 120 of the Act, it does not follow that s 127(3) imposes a limitation period in respect of the giving of a notice pursuant to s 139ZQ of the Act. The Trustee submitted that the expiry of the limitation period under s 127(3) does not have the effect of rendering an extant notice given pursuant to s 139ZQ invalid or unenforceable. That is to say, while s 127(3) limits the time within which an action may be commenced, it does not affect the continuation of an action which has already been commenced. Accordingly, the Trustee submitted that the Appellant’s construction was contrary to the evident purpose of Subdivision J, namely to facilitate the recovery of a bankrupt’s property which had been disposed of under a voidable transaction. The Trustee further submitted that the Appellant’s contention is unsupported by either principle or authority.

32    We pause to observe that the statutory context in which the relevant provisions are contained is important. Section 120 is contained in Division 3, Subdivision A of Part 6 of the Act, which provides for the recovery by a trustee of voidable transfers of property. Conversely, s 139ZQ is found in Division 4B, Subdivision J of Part 6 of the Act. As we have said, this subdivision was introduced for the purpose of allowing the Official Receiver to issue an administrative notice in relation to transactions he or she considers to be voidable. Section 120 renders a transaction void at the election of the trustee whereas s 139ZQ does not operate in this way. Rather, s 139ZQ provides a separate administrative avenue for the recovery of the bankrupt’s property disposed of under a voidable transaction.

33    As to the Appellant’s submission that the phrase “an action” in s 127(3) should be construed to mean a proceeding in a court, the Trustee submitted that would be contrary to the clear intent and plain terms of that provision. The Trustee submitted that subsection is unequivocally directed at “actions” taken by a trustee, in the sense of steps taken in furtherance of the Trustee’s powers under the Act to recover property which the bankrupt has divested at an undervalue prior to the sequestration of a bankrupt.

34    The Trustee rejected the Appellant’s submission that an action under s 120 is capable of being extended “indefinitely” by issuing a s 139ZQ notice. The Trustee submitted that provided a notice issued pursuant to s 139ZQ is given in relation to a voidable disposition of property within six years, the notice cannot be statute barred. Therefore, it does not follow that a trustee can extend the time for bringing a claim under s 120 at all, let alone indefinitely.

35    Finally, the Trustee submitted that the Appellant’s submissions were misconceived in that they conflate the Trustee’s right to recover property under s 120, with an action to enforce a notice issued pursuant to s 139ZQ under s 139ZQ(8) of the Act. The Trustee submitted that an action to recover a sum payable pursuant to s 139ZQ(8), as a debt, is plainly not an action under s 120; rather, it is a separate statutory cause of action founded upon a failure to comply with a notice issued pursuant to s 139ZQ. According to the Trustee, it followed that the time for recovery of a debt could not conceivably commence until the s 139ZQ notice in question had been issued because it is not until that time that the debt comes into existence.

36    We observe that there is no action pursuant to s 139ZQ(8) of the Act in the present proceeding. Accordingly, any issue concerning a claim pursuant to s 139ZQ(8), or the time within which an action under that section must be commenced, does not arise on the facts and is unnecessary to decide.

37    For completeness, we note that the Official Receiver adopted the Trustee’s submissions. The Official Receiver further submitted that if the Appellant’s submission were accepted – namely, that the Notice had to be complied with or sought to be enforced within the six-year limitation period in s 127(3) – it would require the trustee of the bankrupt estate and/or the Official Receiver to have regard to the following considerations when issuing a notice:

a. the date of commencement of the bankruptcy;

b. the passage of time between the trustee’s application and the Official Receiver’s issue of the s.139ZQ notice;

c. whether the recipient is likely to file an application to set aside the notice (application);

d. the statutory 60-day period within which the recipient of the notice must comply with the s.139ZQ, or otherwise file an application;

e. the period within which the recipient of the notice actually complies with, or alternatively, actually files an application;

f. the interlocutory steps taken in the course of any application;

g. the Court’s capacity to hear any application;

h. the date of the final hearing and determination of the application;

i. any appeal in relation to an application; and

j. the date upon which a trustee will elect to commence an application under s.139ZQ(8) to recover the amount owing under the outstanding notice.

38    The Trustee submitted that neither the trustee in question nor the Official Receiver could be appraised of all such factors at the time of issuing a notice pursuant to s 139ZQ. Accordingly, such a construction would be contrary to the intent of the legislature when enacting Subdivision J of the Act.

Consideration of Grounds 1 to 4

39    It is not in dispute in this appeal that:

(1)    the Bankrupt became bankrupt on 16 December 2013, when his debtor’s petition was accepted by the Official Receiver;

(2)    the Bankrupt was discharged from bankruptcy three years from the commencement of his bankruptcy, on 16 December 2016;

(3)    the Notice was issued pursuant to s 139ZQ and was given to Mr Davidson by the Official Receiver within six years of the date of the Bankrupt becoming bankrupt;

(4)    the Appellant made an application to set aside the Notice within the 60 day period prescribed by s 139ZS(1A);

(5)    the time for payment of the amount claimed under the Notice did not expire until after the expiration of limitation period specified in s 127(3) for an action under s 120 of the Act; and

(6)    the time for commencing proceedings under s 120 of the Act has now expired. Therefore, the Trustee can no longer seek a declaration that the transfer of property by the Bankrupt is void as against the trustee.

40    Having regard to the above facts, it is clear that the issue of whether a notice issued pursuant to s 139ZQ may be issued after the expiration of a limitation period under s 127(3) does not arise on these facts. We do not accept the Appellant’s contention that the Notice had to be issued, and either complied with or sought to be enforced, within the six-year limitation period in s 127(3) in order to be valid. Indeed, it is apparent from the chronology of events set out above that at the time the Notice was issued to the Appellant, the time limited by s 127(3) had not yet expired. In those circumstances, the Official Receiver could not be precluded from issuing a notice pursuant to his powers under s 139ZQ, by reason of s 127(3) of the Act. This conclusion is fortified by the following considerations.

41    First, as we have indicated, in circumstances where the Notice was issued within six years of the date of bankruptcy, there can be no recourse to the limitation period in s 127(3) to set aside that Notice. Further yet, in the circumstances of the present case, if the Trustee were to bring an action under s 139ZQ(8) to recover the amount payable under the Notice as a debt, the Appellant could not rely on s 127(3) to bar that cause of action. Plainly, at the time the Notice was issued, the transaction the subject of the Notice was allegedly void (in the sense of voidable).

42    Second, there is no basis to interpret the phrase “an action” in s 127(3) as being limited to a proceeding. Properly understood, an action must be understood as conduct by the trustee to recover money pursuant to a transaction at undervalue, not only by commencing proceedings but also by the taking of other steps.

43    Third, we observe that though s 139ZQ is an administrative mechanism, it creates an alternative pathway and separate cause of action to the curial process under s 120 of the Act. It is for this reason that once a s 139ZQ notice is validly issued (including within the limitation period in s 127(3)), it does not cease to be valid merely because it has not been complied with, or sought to be enforced, before the expiry of that limitation period.

44    Fourth, we do not accept that the issuing of a s 139ZQ notice allows the trustee to extend the time limited by s 127(3) indefinitely. The terms of s 127(3) make it plain that the legislative intent of that section is to abolish a trustee’s right to bring a claim if not issued within the six-year limitation period, not merely the right to obtain a remedy. In the context of a claim by the trustee pursuant to s 120 of the Act, the right of the trustee to recover property is indistinguishable from the remedy to which the trustee is entitled under that section. This is a further reason to regard the limitation period in s 127(3) as abolishing the right of the trustee to bring an action. This in turn supports the conclusion that the issuing of a notice pursuant to s 139ZQ is contingent on the notice being given within the limitation period in s 127(3).

45    However, for the reasons expressed above, we consider it is unnecessary to decide whether s 139ZQ leaves open the possibility of issuing a notice even after a time when s 127(3) would bar a claim by the trustee under s 120 of the Act. Simply put, the limitation period in s 127(3) had not been engaged when the Notice was issued under s 139ZQ and, accordingly, appeal grounds 1 to 4 must be dismissed. Indeed, we regard the reasoning of the primary judge as cogent and comprehensive in relation to this issue, and respectfully endorse his Honour’s approach to the preliminary question.

Ground 5

46    By this ground of appeal, the Appellant raised a discrete question of statutory construction. Specifically, the Appellant submitted that the expression “trustee of a bankrupt” in s 139ZQ(1) does not include the trustee of a former bankrupt who has since been discharged. On that premise, it was submitted that Division 3 of Part 6 of the Act only relates to current bankrupts, not former bankrupts who have been discharged under Part 7 of the Act.

47    The Appellant conceded that the trustee of a bankrupt estate has rights to pursue property after a bankrupt has been discharged if: (a) the property vested in them upon bankruptcy under s 58 of the Act; (b) the property became divisible among creditors under s 116 of the Act; or (c) because a voidable transaction was identified after discharge of the bankrupt (for example, a transfer of property at undervalue under s 120 of the Act). However, the Appellant submitted that is no warrant for considering that the trustee’s powers to issue a notice pursuant to s 139ZQ should continue after discharge.

48    The Trustee submitted that there is nothing in the terms of s 139ZQ or the purpose of Subdivision J which prevents a notice from being given after a bankrupt is discharged from bankruptcy. The Trustee also directed attention to three matters which suggest that the Appellant’s construction should not be adopted:

(1)    first, s 5 of the Act expressly defines a trustee in relation to bankruptcy as “the trustee of the estate of the bankrupt” (emphasis added);

(2)    second, s 161(2) of the Act expressly provides that the trustee exercises their function in relation to the property of the bankrupt (emphasis added); and

(3)    third, s 139ZQ is, in any event, an administrative provision which operates irrespective of the status of the bankrupt and is ultimately directed to the recipient of property from the bankrupt (in this instance, the Appellant).

Consideration of Ground 5

49    For the following reasons, we reject the Appellant’s submission that the expression “the trustee of a bankrupt estate” in s 139ZQ does not include the trustee of a former bankrupt who has been discharged from bankruptcy.

50    First, the function of a trustee under the Act is to administer the estate of the bankrupt and that may occur many years after a discharge from bankruptcy. For instance, the definition of a “trustee” in s 5 of the Act specifies that the trustee in bankruptcy is “the trustee of the estate of the bankrupt” (emphasis added). Further, all of the property of a bankrupt vests in the trustee at the time of bankruptcy (s 58 of the Act) and the description of the trustee under s 161(2) of the Act is “the trustee of the property of a bankrupt” (emphasis added). This suggests that the power of the Official Receiver to issue a s 139ZQ notice at the request of the trustee does not cease merely because the bankrupt has been discharged. To the contrary, the trustee has an ongoing function in relation to the bankrupt estate.

51    Indeed, the trustee has power to recover property which the bankrupt has divested at an undervalue prior to his or her bankruptcy pursuant to s 120 of the Act. That power may be exercised even after the bankrupt is discharged from his or her bankruptcy, subject to the limitation period in s 127(3). Therefore, it cannot be supposed that there would be no power to issue a s 139ZQ notice in that same situation. This is further supported by the fact that a trustee of the bankrupt estate is only released from his or her duties seven years after the Official Receiver confirms that the administration of the bankrupt estate is finalised (s 184(1) of the Act), if not earlier released by the Court under s 183(2) of the Act.

52    Second, it is unsurprising that s 139ZQ does not expressly refer to a former bankrupt. That section is contained in Subdivision J of the Act and confers a right against third parties pursuant to the administration of the bankrupt estate by the trustee. The fact that Subdivision I of the Act defines bankrupt to include a person who has been discharged from bankruptcy does not lead to the necessary inference that because bankrupt is not so defined in Subdivision J of the Act it does not apply to a former bankrupt. Section 139ZQ is an administrative shortcut which operates in relation to a person who has received money or property as a result of a transaction that is void against the trustee of the bankrupt. As such, there was no requirement that s 139ZQ be expressly referable to the period in which the bankrupt remains undischarged from bankruptcy, nor to expressly provide that a s 139ZQ notice may be issued after the date of discharge. Rather, that construction is evident from the purpose and operation of s 139ZQ of the Act.

53    Accordingly, we do not accept the submission that s 139ZQ is limited in operation to the period during which the bankrupt is undischarged.

Disposition

54    For the reasons expressed above, leave to appeal is allowed but the appeal should otherwise be dismissed with costs.

Associate:

Dated:    21 May 2021