FEDERAL COURT OF AUSTRALIA

Pearce (Trustee) v Mulhern (Bankrupt) (No 3) [2012] FCA 16

Upon MICHAEL RICHARD MULHERN undertaking to this Honourable Court that:

1.    He will not seek to obtain another Passport.

2.    He will meet with his Trustees and their Solicitors for an interview at their office at Level 9, 26 Wharf Street, Brisbane on Wednesday, 18 January 2012 commencing at 10.00 a.m.

3.    He will provide his Australian residential address, mobile telephone number, e-mail address to the Trustees forthwith and contact details for an alternate person whom the Trustees may contact to ascertain his whereabouts and contact details.

4.    He will comply with his duties and obligations under the Bankruptcy Act 1966 and in particular will provide his Trustees with information and records requested by them within 7 days of any such request.

5.    He will personally attend any further interviews with his Trustees as requested by them upon reasonable notice to him.

6.    He will not leave Australia without first obtaining his Trustees’ written consent to such departure.

7.    He will attend any adjourned hearing of the Public Examination being conducted by his Trustees on such adjourned dates and at such times and places as his Trustees advise him.

THE COURT ORDERS THAT:

1.    At the conclusion of this hearing Officers of the Australian Federal Police take the Respondent Bankrupt, MICHAEL RICHARD MULHERN, also known as DEREK O'MALLEY, to the Brisbane Watch-house and that such Officers bring the Respondent Bankrupt, MICHAEL RICHARD MULHERN, also known as DEREK O'MALLEY, before the Court at Level 6, of the Commonwealth Law Courts at Brisbane at 10.00 a.m. on 17 January 2012.

2.    The Respondent Bankrupt, MICHAEL RICHARD MULHERN, also known as DEREK O'MALLEY, attend before the Court at Level 6, of the Commonwealth Law Courts at Brisbane at 10.00 a.m. on 17 January 2012 for the purpose of his Public Examination.

3.    The Respondent Bankrupt, MICHAEL RICHARD MULHERN, also known as DEREK O'MALLEY, 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.

4.    The costs of this application including the costs of this day be payable from the estate of the respondent bankrupt with priority in accordance with section 109 of the Act.

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

REASONS FOR JUDGMENT

1    On 9 August 2011 a Judge of this Court ordered that a warrant be issued pursuant to s 78(1) of the Bankruptcy Act 1966 (Cth) for the arrest of the respondent bankrupt, Michael Richard Mulhern: Pearce (Trustee) v Mulhern (Bankrupt) [2011] FCA 930. Mr Mulhern is also known as Derek O’Malley. An order was also made for Mr Mulhern to be committed to gaol.

2    Section 78(1) relevantly provides as follows:

78 Arrest of debtor or bankrupt

(1)    Where it is made to appear to the Court:

(a)  ….;

(b)  ….;

(c)  ….;

(d)  ….; or

(f)  that a bankrupt has, without good cause shown, neglected or failed to comply with an order of the Court or with any other obligation under this Act;

the Court may issue a warrant for the arrest of the debtor or bankrupt, as the case may be, and his or her committal to such gaol as the Court appoints until the Court otherwise orders and may, by the same warrant, order that any property and books in the possession of the debtor or bankrupt be seized and delivered into the custody of such person as the Court appoints.

The reasons for decision given on 9 August 2011 record that the basis upon which the order was made was both a failure to comply with “an order of the Court” and also a failure on the part of Mr Mulhern to comply with “other obligation[s]” imposed by the Act. Those reasons state that Mr Mulhern “has engaged in… a deliberate and persistent pattern of gross breaches of the Bankruptcy Act”. The “most recent” was said to be a failure to attend Court in accordance with the requirement of a summons for his public examination. There was also said to be “a pattern of a failure” in terms of giving to the Trustee various books of account and disclosing to the Trustee items of property.

3    On 8 January 2012 Mr Mulhern was arrested by the Australian Federal Police at Sydney Airport. Upon his arrest Mr Mulhern was taken to the Surry Hills Police Station in Sydney and given into the custody of the New South Wales Police. Later in the day he was granted bail.

4    An application was thereafter made for another warrant to issue so that Mr Mulhern could be taken to Brisbane to appear before a Judge and for his public examination. On 12 January 2012 the Duty Judge of this Court in Sydney made the further orders then sought: Pearce (Trustee) v Mulhern (Bankrupt) (No 2) [2012] FCA 7. His Honour was satisfied that each of the matters that led to the issue of the warrant on 9 August 2011 remained relevant and that “Mr Mulhern seems to have been actually in the process of attempting to depart from Australia, confirming his apparent intention to repudiate his obligations” under the Bankruptcy Act: [2012] FCA 7 at [4]. That subsequent warrant was apparently executed and Mr Mulhern was then taken to Brisbane.

5    The proceeding again came before the Court this morning. Notwithstanding an order made two hours prior to the scheduled hearing time that Mr Mulhern be brought before the Court at Brisbane at 10.00 am there was then no appearance. Indeed, some two hours later there was still no appearance. The reason for non-attendance, it should be noted, was not to be attributed to Mr Mulhern. Those having the custody of Mr Mulhern were not able to secure his attendance. They did not contact the Court or explain their difficulties. If there is difficulty experienced in bringing a person in custody before a Court at a nominated time, it is to be expected that those responsible should at least proffer their own explanation for their default. At issue is both the liberty of the subject and compliance with orders of the Court. But such matters may, perhaps, for present purposes be left to one side. Of more immediate importance is the fact that the proceeding was stood down until 4:00 pm in Sydney with a view to determining the liberty of Mr Mulhern.

6    When the proceeding was ultimately heard at 4:00 pm, Mr Mulhern sought his immediate release.

THE POWER OF ARREST

7    At least three things should be noted at the outset in respect to the power conferred by s 78(1) to issue a warrant for the arrest of a debtor or bankrupt.

8    First, it is a power to be exercised to ensure the proper administration of the Bankruptcy Act: Re Wong; Ex parte Wong v Boardwalk Regency Corporation (Unreported, Federal Court of Australia, Cooper J, 27 February 1996). Cooper J there relevantly observed:

The use of the power to arrest under s78 of the Act should be seen as being aimed at ensuring the proper administration of the bankruptcy laws in respect of persons and their property where the necessary circumstances specified in the section have been made out. The power should not be used to frustrate the freedom to travel and financial interests of persons not declared bankrupt who wish to return to the jurisdiction and so expose themselves to due process of the bankruptcy laws in the ordinary way.

His Honour there set aside a warrant which had been issued.

9    Second, the power conferred is not untrammelled. It may only be exercised in those circumstances where “it is made to appear to the Court” that one or other of those matters set forth in s 78(1)(a), (b), (c), (d) or (f) have been made out. Section 78(1)(e) has been repealed. It is sufficient if the matters set forth in s 78(1) are established on the balance of probabilities: Bankruptcy Act, s 34A.

10    Third, the power is discretionary – s 78(1) providing that “the Court may issue a warrant…”. That power is a power conferred by the Legislature for the purpose of promoting the object and purpose of the Bankruptcy Act. Centrally relevant to the manner in which the discretionary power is to be exercised must always remain an assessment as to whether the deprivation of liberty of a debtor or bankrupt is necessary in order to ensure the proper administration of the Bankruptcy Act. In addition to the discretionary power conferred by s 78 are such other powers which may also be exercised to promote the object and purpose of the Act. Thus, for example, s 30(1) relevantly confers a power to “make such orders … as the Court considers necessary for the purposes of carrying out or giving effect to this Act…”. That power embraces a power to order that a person in respect of whom a bankruptcy notice has been issued be restrained from leaving the jurisdiction: Talacko v Talacko [2010] FCAFC 54, 183 FCR 311. The presence of s 78 in the Bankruptcy Act was there said not to be any reason for concluding that that was the only power to restrain a person from leaving Australia. There was said to be no discernible difference between the power conferred by s 30(1) of the Bankruptcy Act to that conferred by s 23 of the Federal Court of Australia Act 1976 (Cth) for the Court to make such orders as it considers appropriate.

11    In the present proceeding, a failure to attend a public examination assumes particular importance. The power to issue a summons requiring a person to attend for examination is conferred by s 81. The purpose of an examination pursuant to s 81 is to enable a Trustee to obtain information which would enable the Trustee to discover and recover assets for distribution to creditors in the bankruptcy. See: CBFC Ltd v Sim [2006] NTSC 57 at [12], 202 FLR 183 at 186.

THE PRESENT APPLICATION

12    In the present proceeding, it is not contended by Mr Mulhern that there was any absence of power to issue a warrant pursuant to s 78(1). The validity of the warrants issued in August 2011 and January 2012 was not put in issue. What was put in issue was whether he should now be released.

13    It may well be accepted that a failure to comply with an order of this Court or a failure to comply with obligations imposed by the Bankruptcy Act may not necessarily occasion an exercise of discretion such that a debtor or bankrupt is arrested pursuant to s 78(1) or further detained in custody until a public examination is concluded. Much will obviously depend upon the facts and circumstances of each individual case. Any failure to comply with an order of this Court would certainly require explanation. But a satisfactory explanation may be provided; as may an explanation be provided for an apparent failure to comply with obligations. The validity of an order (for example) may be put in question as may the fact of non-compliance. The arrest of a person and the continued deprivation of liberty must nevertheless be a power exercised with considerable caution and only exercised where to do so is necessary to further the object and purposes of the Bankruptcy Act.

14    The Trustee does not oppose an order that Mr Mulhern be released from custody. When the proceeding was called on for hearing at about midday, and when Mr Mulhern was not present, the Trustee was invited to address the Court on the issues to be addressed when Mr Mulhern was ultimately able to be brought before the Court. The Trustee anticipated that an order may then be made for his release. But that anticipation was questioned given the history of the proceeding to date and the apparent circumstances of his arrest at Sydney airport. Perhaps not surprisingly, the Trustee revisited his position during the course of the day. When the proceeding again came before the Court in Sydney at 4:00 pm, it was the Trustee’s position that, upon undertakings being given, Mr Mulhern was to be released from custody after the conclusion of the first day of a public examination to be conducted tomorrow.

15    Mr Mulhern nevertheless sought his immediate release from custody. Notwithstanding the initial indication by the Trustee at midday of the position that such an order would not be opposed upon undertakings being given, it is considered that Mr Mulhern should not be immediately released from custody.

16    The orders as ultimately sought by the Trustee, it is concluded, should be made. In rejecting the claim that Mr Mulhern should be immediately released from custody and in advance of his public examination tomorrow, it is considered that the following factors dictate that he should remain in custody pending that public examination, namely:

    the fact that Mr Mulhern failed to attend on 9 August 2011 for the purpose of a public examination to be held on that date. A summons requiring his attendance on that date had been issued on 19 July 2011 and had been personally served on Mr Mulhern;

    the importance that a public examination take place as an aid to the administration of the Bankruptcy Act;

    the failure on the part of Mr Mulhern to previously comply with the obligations imposed upon him, including a failure “in terms of giving to the trustee various books of account and disclosing to the trustee items of property and otherwise aiding the trustee in the administration of his bankrupt estate”: [2011] FCA 930 at [5];

    the fact that Mr Mulhern apparently has in his possession two original Irish birth certificates – one in the name of Michael Richard Mulhern and another in the name of Michael Oliver Mulhern. He has an Australian and an Irish passport. There is also a prospect that he may recently have applied for yet a further Irish passport; and

    the fact that Mr Mulhern has apparently assumed at least one alias.

Such factors, it is respectfully considered, are not outweighed by the assertions of Mr Mulhern this afternoon that:

    he voluntarily returned to Australia on 8 January 2012 with a view to resolving all issues with his Trustee; and

    the fact that an explanation can readily be provided as to his possession (for example) of two birth certificates.

Although detaining a person in custody (even for a short period of time) is self-evidently a serious deprivation of liberty, it is respectfully considered that it was manifestly appropriate for the power conferred by s 78(1) to have been exercised on both 9 August 2011 and 12 January 2012. It is further concluded on balance that no order should be made releasing Mr Mulhern from custody in advance of his attendance tomorrow at a public examination. To now order his release has 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. To permit his release upon undertakings being given to comply with obligations and to attend a public examination tomorrow only invites reservation as to why such undertakings now given would be honoured given Mr Mulhern’s previous failures.

CONCLUSIONS

17    Mr Mulhern should be detained in custody pending the public examination to be conducted tomorrow.

18    The orders as otherwise sought by the Trustee should be made. Reservation is expressed as to the form in which the undertakings have been drafted on behalf of the Trustee. But the form of those orders at least facilitates the public examination originally scheduled to take place on 9 August 2011 and are otherwise acceptable to the Trustee.

19    It is noted that the undertakings as sought by the Trustee were proffered to the Court this afternoon by Mr Mulhern. It was then explained to Mr Mulhern that the undertakings proffered to the Court had the potential consequence of an order for contempt being made in the event of non-compliance on his part. Those consequences, it was further explained, included (potentially) imprisonment.

20    Upon accepting those undertakings and in making the orders sought by the Trustee, it is to be assumed that Mr Mulhern will honour those undertakings and participate in a meaningful manner in the public examination. A failure on his part to do so may occasion a further application to be made and, if made, will be one resolved on its merits.

THE ORDERS OF THE COURT ARE:

Upon MICHAEL RICHARD MULHERN undertaking to this Honourable Court that:

1.    He will not seek to obtain another Passport.

2.    He will meet with his Trustees and their Solicitors for an interview at their office at Level 9, 26 Wharf Street, Brisbane on Wednesday, 18 January 2012 commencing at 10.00 a.m.

3.    He will provide his Australian residential address, mobile telephone number, e-mail address to the Trustees forthwith and contact details for an alternate person whom the Trustees may contact to ascertain his whereabouts and contact details.

4.    He will comply with his duties and obligations under the Bankruptcy Act 1966 and in particular will provide his Trustees with information and records requested by them within 7 days of any such request.

5.    He will personally attend any further interviews with his Trustees as requested by them upon reasonable notice to him.

6.    He will not leave Australia without first obtaining his Trustees’ written consent to such departure.

7.    He will attend any adjourned hearing of the Public Examination being conducted by his Trustees on such adjourned dates and at such times and places as his Trustees advise him.

THE COURT ORDERS THAT:

1.    At the conclusion of this hearing Officers of the Australian Federal Police take the Respondent Bankrupt, MICHAEL RICHARD MULHERN, also known as DEREK O'MALLEY, to the Brisbane Watch-house and that such Officers bring the Respondent Bankrupt, MICHAEL RICHARD MULHERN, also known as DEREK O'MALLEY, before the Court at Level 6, of the Commonwealth Law Courts at Brisbane at 10.00 a.m. on 17 January 2012.

2.    The Respondent Bankrupt, MICHAEL RICHARD MULHERN, also known as DEREK O'MALLEY, attend before the Court at Level 6, of the Commonwealth Law Courts at Brisbane at 10.00 a.m. on 17 January 2012 for the purpose of his Public Examination.

3.    The Respondent Bankrupt, MICHAEL RICHARD MULHERN, also known as DEREK O'MALLEY, 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.

4.    The costs of this application including the costs of this day be payable from the estate of the respondent bankrupt with priority in accordance with section 109 of the Act.

Associate:

Dated:    16 January 2012