FEDERAL COURT OF AUSTRALIA

McLean (Trustee), in the matter of Erbas (Bankrupt) v Erbas [2019] FCA 1763

ORDERS

THE COURT ORDERS THAT:

1.    Subject to the steps below being taken by the Applicant, pursuant to section 146 of the Bankruptcy Act 1966 (Act), the Applicant distribute a first and final dividend amongst the creditors who have proved their debts in the Regulated Debtor Estate of the Bankrupt and shall proceed in accordance with Division 5 Part VI of the Act as if the Bankrupt had filed a statement of his affairs and those creditors had been stated to be creditors in it:

1.1     A Notice of Intention to Declare a First and Final Dividend in the bankrupt estates of Aysun Erbas and Sinasi Erbas be published in The Australian and Herald Sun newspapers;

1.2     No distribution is to be made until 21 days have elapsed after publication of the last of the Notices;

1.3     No distribution is to be made until a search of the National Personal Insolvency Index is conducted within 48 hours of any proposed distribution and which confirms that no Statement of Affairs has been lodged by the Respondent.

2.    The costs of this application be expenses of the administration of the joint Regulated Debtor Estates of the Respondent and Ms Erbas.

3.    The separate Regulated Debtor Estate of the Respondent indemnify the separate Regulated Debtor Estate of Ms Erbas with payment of the costs of this application and of all remuneration and costs of the Applicant associated with having the Respondent provide a statement of affairs.

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

REASONS FOR JUDGMENT

ANDERSON J:

1    Mr Sinasi Erbas was declared bankrupt on 26 September 2017. On the same day, Neil Stewart McLean (Trustee) was appointed the sole trustee of the Regulated Debtor Estates of Mr Erbas (Bankrupt) and his estranged wife, Ms Aysun Erbas (Ms Erbas). In general terms, the Trustee has realised funds in the joint estate of the Bankrupt and Ms Erbas. However, the Bankrupt has failed or refused to file a statement of affairs.

2    On 26 July 2019, the Trustee made an application to this Court for, amongst other orders, an order under s 78(1) of the Bankruptcy Act 1966 (Cth) (Act) that a warrant be issued for the arrest of the Bankrupt. However, at the hearing of the application on 23 October 2019, at which the Bankrupt did not appear, Mr Lhuede, the solicitor representing the Trustee, confirmed that the Trustee only sought orders in the following terms:

1.    Subject to the steps below being taken by the Applicant, pursuant to section 146 of the Bankruptcy Act 1966 (Act), the Applicant distribute a first and final dividend amongst the creditors who have proved their debts in the Regulated Debtor Estate of the Bankrupt and shall proceed in accordance with Division 1 Part VII of the Act as if the Bankrupt had filed a statement of his affairs and those creditors had been stated to be creditors in it:

1.1     A Notice of Intention to Declare a First and Final Dividend in the bankrupt estates of Aysun Erbas and Sinasi Erbas be published in The Australian and Herald Sun newspapers;

1.2     No distribution is to be made until 21 days have elapsed after publication of the last of the Notices;

1.3     No distribution is to be made until a search of the National Personal Insolvency Index is conducted within 48 hours of any proposed distribution and which confirms that no Statement of Affairs has been lodged by the Respondent.

2.    The costs of this application, be expenses of the administration of the joint Regulated Debtor Estates of the Respondent and Ms Erbas.

3.    The separate Regulated Debtor Estate of the Respondent indemnify the separate Regulated Debtor Estate of Ms Erbas with payment of the costs of this application and of all remuneration and costs of the Applicant associated with having the Respondent provide a statement of affairs.

3    The Trustee’s application is supported by the following affidavits (Supporting Affidavits):

(a)    affidavit of Neil Stewart McLean sworn 25 July 2019 (McLean Affidavit), which broadly recounts various steps taken by the Trustee in relation to the bankrupt estate, including attempts by him and his office to compel the Bankrupt to complete and submit a statement of affairs;

(b)    affidavit of Neset Icbudak, a process server, sworn 11 June 2019, which deposes to the Bankrupt and Ms Erbas being personally served on 30 May 2018 with various documents, including an order of the Federal Circuit Court of Australia dated 28 May 2018 requiring the Bankrupt and Ms Erbas to take certain steps (including and order requiring the Bankrupt to complete and file his statement of affairs); and

(c)    affidavit of Adam Christopher Rushby, a process server, sworn 15 August 2019, which deposes to the Bankrupt being personally served on 9 August 2019 with various documents including a copy of this application and the McLean Affidavit.

Relevant principles

4    Section 54 of the Act required the Bankrupt to make out and file with the Official Receiver a statement of his affairs within 14 days of being notified of his bankruptcy and to furnish a copy to the Trustee.

5    As noted, the Bankrupt has, to date, failed to provide the statement of his affairs. According to a file note prepared by a colleague of the Trustee of a telephone conversation she had with the Bankrupt on 20 March 2019, the Bankrupt refused to accept that he is bankrupt and refused to complete and submit his statement of affairs.

6    Div 5 of Pt VI (ss 140-147) of the Act provides the mechanism by which a trustee may declare and distribute a dividend to creditors in a bankrupt estate. A trustee’s duty is to “with all convenient speed, declare and distribute dividends amongst the creditors who have proved their debts”: s 140(1) of the Act. Before declaring a dividend, the trustee is required to give notice of that intention to those who the trustee knows claims, or might claim to be, a creditor in the estate but has not lodged a proof of debt: ss 140(3), 140(5) and 145(3) of the Act.

7    In circumstances where a bankrupt has not provided a statement of affairs, a trustee of bankrupt estate may be uncertain as to the identity of the creditors in the estate and therefore unable to meet the statutory requirements for distributing a dividend to creditors. To this end, s 146 of the Act provides the following:

Distribution of dividends where bankrupt fails to file statement of affairs

Where a bankrupt has failed to file a statement of his or her affairs as required by this Act, the Court may, on the application of the trustee, upon such terms as it thinks fit, order that distribution of dividends amongst the creditors who have proved their debts shall proceed in accordance with this Division as if the bankrupt had filed a statement of his or her affairs and those creditors had been stated to be creditors in it.

8    In Barnet (Trustee), in the matter of Zhang (Bankrupt) v Zhang [2017] FCA 924, Lee J stated the following at [22] and [23]:

Section 146 of the Act is “intended to facilitate the distribution of dividends among the creditors of the bankrupt in circumstances where the trustee has not had the benefit of a statement of affairs prepared by the bankrupt”: Re Sturt; Ex parte Official Trustee in Bankruptcy [2001] FCA 1649; (2001) 117 FCR 1 at 4 [14] per Sackville J. Its purpose is “to give the Court the means of ensuring that the absence of a statement of affairs does not prejudice those with an interest in the bankrupt’s affairs”: Official Trustee in Bankruptcy, in the matter of Shaw [1999] FCA 968 at [4] per Gyles J.

In Sturt, Sackville J said (at 5 [19]):

... [o]n any application under s 146 of the Bankruptcy Act the Court must be satisfied that it is appropriate to make an order. The Court may need to be satisfied, for example, that creditors have been notified of the application and have had an opportunity to be heard (although ordinarily the application would be made in the interests of creditors). As in this case, the Court might require evidence that the trustee has taken appropriate steps to ascertain whether there are creditors, other than those who have come to its attention by filing a proof of debt or otherwise.

9    There is no requirement under the Act that the Bankrupt be named as a respondent to the Trustee’s application under s 146: Rahman v Lombe [2018] FCA 457 at [12] per Gleeson J.

10    Also relevant to the Trustee’s application is s 32 of the Act, which provides that “[t]he Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit”. In addition, the Court has the power under s 90-15(1) of the Insolvency Practice Schedule (Bankruptcy), being sch 2 to the Act, to “make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate”. This includes “an order in relation to the costs of an action (including court action) taken by the trustee of the estate … in relation to the administration of the estate”: s 90-15(3)(d).

Consideration

Distribution of first and final dividend

11    According to the information available to the Trustee as at the date of swearing the McLean affidavit, 25 July 2019, the Bankrupt’s unsecured creditors total approximately $28,693.42 (without post-bankruptcy interest). The Trustee also deposed to Ms Erbas having told him that she believes that there is only one joint creditor of the Bankrupt’s estate, being Kenuri Group Pty Ltd (in liquidation). Ms Erbas also expressed to the Trustee that she believed there was no property available to the Bankrupt’s estate other than a property of which the Bankrupt and Ms Erbas were joint registered proprietors (Property). The Trustee sold the Property for $625,000 on 22 December 2018 and currently holds the net proceeds of that sale.

12    I am satisfied that the Bankrupt has not complied with his obligation under s 54 of the Act to file a statement of his affairs to the Trustee. Moreover, the McLean affidavit establishes that the Trustee, and his office, have made numerous attempts to engage with the Bankrupt, and has otherwise taken steps to advance the administration of the bankrupt estate, including selling the Property. The Supporting Affidavits establish that a copy of this application and the McLean Affidavit have been served upon the Bankrupt and Ms Erbas.

13    In these circumstances, it is appropriate to make an order pursuant to s 146 of the Act in the form proposed by the Trustee, subject to the reference to “Division 1 Part VII” being replaced with “Division 5 Part VI”.

14    The Trustee has not as yet given notice to declare a first and final dividend and nor has he advertised the intention to declare a final dividend. The publication in The Australian and the Herald Sun of a Notice of Intention to Declare a First and Final Dividend in the bankrupt estates of the Bankrupt and Ms Erbas, as proposed by the Trustee, is reasonable and appropriate, and provides an adequate opportunity for potential creditors to be notified in relation to the proposed distribution of dividend.

15    Second, consistent with ss 140(7) and s 145(6) of the Act, no distribution of the dividend is to be made under 21 days have elapsed after publication of the last of the notices in these newspapers.

16    Finally, no distribution of the dividend is to occur until a search of the National Personal Insolvency Index is conducted within 48 hours of any proposed distribution and which confirms that no statement of affairs has been lodged by the Bankrupt.

Costs of the Trustee’s application

17    The Trustee also sought orders that:

(a)    the costs of this application be expenses of the administration of the joint regulated debtor estates of the Bankrupt and Ms Erbas; and

(b)    that the separate regulated debtor estate of the Bankrupt indemnify the separate regulated debtor estate of Ms Erbas with payment of the costs of this application and of all remuneration and costs of the Trustee associated with having the Bankrupt provide a statement of affairs.

18    Ms Erbas lodged the statement of her affairs on 1 November 2017. The basis for the indemnification of Ms Erbas’ bankrupt estate was explained in the following passages of the Trustee’s written submissions filed in support of his application:

18.     Given the existence of a joint indebtedness between Ms Erbas and the bankrupt she is being materially prejudiced by the continued delay in being able to finalise the Bankrupt’s estate. In this regard it is expected there will be a surplus in her estate and in the Bankrupt’s, the only asset coming from a jointly owned property.

19.     In dealing with the joint property and seeking to obtain from the Bankrupt a statement of affairs (including in bringing this application) so as to ascertain whether there are further joint or several creditors the Trustee would be entitled to allocate his remuneration and costs in relation thereof to the joint estate of the Bankrupt and Ms Erbas in the first instance. That said the Trustee accepts that any surplus due to Ms Erbas ought not be depleted due to the actions of the Bankrupt.

…

By such orders any uncertainty as to which estate is to ultimately meet such remuneration and costs is avoided. This will mean Ms Erbas has not been unfairly penalised by bearing the costs of these proceedings.

19    In the circumstances where the initiation and maintenance of the Trustee’s application is due to the Bankrupt’s recalcitrance, I agree that the costs of the application should be worn exclusively by his bankrupt estate, and not that of Ms Erbas’ bankrupt estate. It is appropriate to make the orders proposed by the Trustee as to the costs of this application.

Conclusion

20    For the reasons above, I make the orders proposed by the Trustee, as extracted above at [2], subject to the reference to “Division 1 Part VII” being replaced with “Division 5 Part VI”.

Associate:

Dated:        29 October 2019