FEDERAL COURT OF AUSTRALIA

Wong (Trustee), in the matter of Mackellar (Bankrupt) v Mackellar [2020] FCA 1151

File number:

QUD 186 of 2020

Judgment of:

DERRINGTON J

Date of judgment:

12 August 2020

Catchwords:

BANKRUPTCY – application for recognition of a foreign proceeding as a foreign main proceeding or foreign non-main proceeding pursuant to the Cross-Border Insolvency Act 2008 (Cth) and the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law – Hong Kong proceedings – respondent filed no evidence in opposition and did not oppose orders – individual’s centre of main interest in Hong Kong despite having departed that country and not returned – absence of evidence of habitual residence

BANKRUPTCY – ancillary relief sought under Art 21 of the Model Law – orders made staying any proceedings against the debtor or any of his assets, a stay on enforcement of judgments or orders, and suspension of dealings in his property granted – order made that the administration and realisation of the debtor’s assets located in Australia be entrusted to the foreign representatives – order made that all powers normally available to a trustee in bankruptcy under the Bankruptcy Act 1966 (Cth) be made available to the foreign representatives

Legislation:

Bankruptcy Act 1966 (Cth)

Corporations Act 2001 (Cth)

Cross-Border Insolvency Act 2008 (Cth)

Federal Court (Bankruptcy) Rules 2016 (Cth)

Convention on the Civil Aspects of International Child Abduction

European Union Convention on Insolvency Proceedings 1995

Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law

Cases cited:

Ackers v Saad Investments Company Ltd (in liq) (2010) 190 FCR 285

Akers v Deputy Commissioner of Taxation (2014) 223 FCR 8

Aquino (Trustee), in the matter of McGowan (Bankrupt) v McGowan [2020] FCA 221

BHP Billiton Iron Ore Pty Ltd v National Competition Council (2007) 162 FCR 234

Cooper as liquidator of Wanted World Wide (Australia) Ltd (in liq) v Commissioner of Taxation (2004) 139 FCR 205

Directors of Rizzo-Bottiglieri-De Carlini Armatori SpA v Rizzo-Bottiglieri-De Carlini Armatori SpA [2018] FCA 153

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89

Frugtniet v Australian Securities and Investments Commission (2017) 255 FCR 96

Gainsford v Tannenbaum (2012) 216 FCR 543 at 554

Hicks v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCA 757

Jong (Trustee) v Au, in the matter of Au [2020] FCA 585

Kapila, in the matter of Edelsten (2014) 320 ALR 506

La Macchia v Minister for Primary Industries and Energy (1992) 110 ALR 201

LK v Director-General, Department of Community Services (2009) 237 CLR 582

Pink v MF Global UK Limited (In Special Administration) [2012] FCA 260

Raithatha v Ariel Industries PLC (2012) 212 FCR 139

Re ABC Learning Centres Ltd 728 F (3d) 301

Re Eurofood IFSC Ltd [2006] Ch 508

Senvion GmbH, in the matter of Senvion GmbH (No 2) [2019] FCA 1732

Division:

General Division

Registry:

Queensland

National Practice Area:

Commercial and Corporations

Sub-area:

General and Personal Insolvency

Number of paragraphs:

69

Date of hearing:

10 August 2020

Solicitor for the Applicant:

Mr P Evans of Cornwalls Law

Solicitor for the Respondent:

Mr D Jardine of Hopgood Ganim

ORDERS

QUD 186 of 2020

BETWEEN:

WONG TECK MENG AND MAK HAU YIN AS JOINT AND SEVERAL TRUSTEES OF THE PROPERTY OF WOLFGANG FRANK WILLIAM MACKELLAR (A BANKRUPT)

Applicant

AND:

WOLFGANG FRANK WILLIAM MACKELLAR (A BANKRUPT)

Respondent

order made by:

DERRINGTON J

DATE OF ORDER:

12 August 2020

THE COURT ORDERS THAT:

1.    Pursuant to section 6 of the Cross-Border Insolvency Act 2008 (Cth) (the CBI Act), Articles 15 and 17 of the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (the Model Law) and rule 14.03 of the Federal Court (Bankruptcy) Rules 2016 (Cth), the proceeding in the High Court of the Hong Kong Special Administrative Region, Court of First Instance in bankruptcy proceedings number 7321 of 2017, Re: Mackellar Wolfgang Frank William, relating to the respondent (the Foreign Proceeding), in which the applicants were appointed jointly and severally as the trustees in bankruptcy for the estate of the respondent, be recognised as a foreign proceeding, within the meaning of Article 2(a) of the Model Law.

2.    Pursuant to section 6 of the Act and Articles 17(2)(b) of the Model Law, the Foreign Proceeding be recognised as a foreign main proceeding.

3.    Pursuant to section 6 of the Act and Article 21(1)(a)-(c) of the Model Law, except with the leave of the Court or with the applicants’ written consent:

(a)    the commencement, continuation of enforcement of any individual action or legal proceeding (without limitation, any arbitration, mediation, or any judicial, quasi-judicial, administrative action, proceedings or process whatsoever) against the respondent or any of his assets, rights or obligations be stayed;

(b)    the enforcement or any execution of judgment, order or award against the respondent or his assets be stayed;

(c)    the right to transfer, encumber, or otherwise dispose of any of the respondent’s property be suspended;

to the same extent that would apply if each such stay or suspension arose under the Bankruptcy Act 1966 (Cth).

4.    Pursuant to section 6 of the Act and Article 21(1)(g) of the Model Law, all powers available to a trustee in bankruptcy appointed under the Bankruptcy Act 1966 (Cth) be made available to the applicants until each ceases to be a foreign representative in relation to the Foreign Proceeding.

5.    Pursuant to section 6 of the Act and Article 21(1)(d) of the Model Law, the respondent to be examined so as to provide evidence on oath, as well as delivering up all documents in his power or possession concerning the respondents assets, affairs, rights, obligations or liabilities (the Examination).

6.    The respondent pay the applicants costs.

7.    Subject to order 6, the costs of the applicants be costs of the bankruptcy of the respondent, and accorded the same priority as costs of the proceedings incurred by a trustee in bankruptcy appointed under the Bankruptcy Act 1966 (Cth).

8.    The remainder of the application be adjourned until 9:30am on 12 October 2020.

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

REASONS FOR JUDGMENT

DERRINGTON J

Introduction

1    Mr Wolfgang Mackellar (Mr Mackellar) was made bankrupt by an order of the High Court of the Hong Kong Special Administrative Region, Court of First Instance (the Hong Kong Court) on 31 January 2018 as a consequence of certain bankruptcy proceedings brought against him (the Hong Kong Proceedings). Those proceedings had been commenced in 2017. On 24 May 2019 a resolution of Mr Mackellar’s creditors appointed Mr Wong Teck Meng (Mr Wong) and Mr Mak Hau Yin (Mr Yin) as his trustees in bankruptcy (the trustees).

2    Mr Mackellar has not complied with his obligations as a bankrupt as required by the insolvency laws of Hong Kong and the evidence reveals that he is now located in Australia.

3    By the present application the trustees seek orders, inter alia, that the Hong Kong Proceedings and their status as trustees be recognised under the Cross-Border Insolvency Act 2008 (Cth) (the CBI Act) and the Model Law on Cross-Border Insolvency of the United National Commission on International Trade (the Model Law) so that they may more efficiently fulfil their duties in the administration of Mr Mackellar’s estate.

4    The evidence before the Court establishes that Mr Mackellar was served with the application and that he has entered an appearance by his solicitors. Orders were made on 21 July 2020 that he file and serve any affidavit material on which he intended to rely at the hearing of the application by 28 July 2020. No material was filed in accordance with that order. Mr Mackellar appeared at the hearing by his solicitor but did not advance any submissions and did not oppose the making of the orders sought by the trustees. The unfortunate consequence was that the court did not, therefore, have an effective contradictor in relation to some of the more difficult questions in issue.

Relevant facts

5    There is no need to detail the circumstances which led to the Hong Kong Court making a sequestration order in respect of the estate of Mr Mackellar. It suffices to observe that judgment was entered against him in the Hong Kong District Court on 22 September 2017 for an amount of HK$973,145 (approx AUD $175,000) by BOC Credit Card (International) Ltd (BOC). The judgment debt was not paid and BOC eventually commenced the bankruptcy proceedings against him which resulted in the making of the sequestration order.

6    The Hong Kong Official Receiver was initially appointed as Mr Mackellar’s trustee in bankruptcy by the original court order, however, that entity was replaced by the trustees following a resolution of creditors. The resolution was formally filed with the Hong Kong Court.

7    The trustees have deposed that Mr Mackellar has failed to respond to their requests for information about his assets, affairs, rights, obligations and liabilities. He has further failed to comply with his obligation to file a completed statement of affairs. None of this is disputed.

8    As a result of Mr Mackellar’s failure to comply with his obligations under the Hong Kong bankruptcy laws, the Official Receiver and the trustees applied to the Hong Kong Court for orders extending the period of bankruptcy. Orders were made on that application to the effect that the relevant period of bankruptcy, within the meaning of that term as it is used in the Bankruptcy Ordinance (Chapter 6) (the Ordinance), be deemed not to have commenced to run from the date of the sequestration order, namely 31 January 2018, but from when Mr Mackellar complies with his obligations under the Ordinance, including that he attend an interview and provide certain information to the trustees. The effect is that Mr Mackellar’s bankruptcy will not lapse until four years from the date on which he complies with the obligations imposed on him by Hong Kong insolvency laws.

9    The trustees have deposed that they are unaware of any assets or other property owned by Mr Mackellar in Hong Kong.

10    In the incomplete statement of affairs which Mr Mackellar delivered to the trustees, he nominated his present address as being in Brookfield in Queensland and that is consistent with his having instructed the Brisbane firm of solicitors, Hopgood Ganim, in relation to the present application. It was submitted on behalf of the trustees, and it is accepted, that in the current Covid-19 pandemic circumstances it is not foreseeable that Mr Mackellar will be able to reside anywhere other than in Queensland or, at least, Australia for the foreseeable future. That would seem to be true despite Mr Mackellar’s identified occupation as airline pilot.

11    In his affidavit Mr Wong on behalf of the trustees deposed:

From my limited dealings with the Respondent I am able to say that whilst his bankruptcy arose in Hong Kong, he no longer has any apparent interests in that jurisdiction. In this respect, as the Respondent appears to reside in Queensland, his activities centre only in Australia.

12    Searches undertaken by the solicitors instructed by the trustees have revealed that Mr Mackellar is not the registered owner of real property in Queensland although he is a director of a company, Mackellar Industries Pty Ltd, which has its registered office in Queensland. He is also the joint shareholder of the only issued capital in that company. There is no evidence of what, if any, business is undertaken by that company or if it owns any assets.

13    It is not immediately apparent why the trustees made no attempt to explain Mr Mackellar’s previous activities and circumstances in Hong Kong. There is an absence of any substantial evidence relating to what Mr Mackellar did there or what his business activities were. There is some evidence which is suggestive of his activities, but only to a limited extent. A letter from the trustees’ firm to Hopgood Ganim dated 16 August 2019, indicated that four substantial Hong Kong creditors of Mr Mackellar had lodged proofs of debt in his bankruptcy, but no information was provided as to the circumstances in which the indebtedness arose even though such information would have been within the trustees’ possession. Nevertheless, the fact that Mr Mackellar had incurred substantial debts in Hong Kong is indicative that he undertook activities there at a not insignificant level.

Satisfaction of the requirements of the Act and the Model Law

14    The Model Law operates in Australia by reason of s 6 of the Act. More particularly it has the force of law in Australia as if the Model Law referred to, inter alia, the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act), whenever it refers to the law of the enacting state relating to insolvency: s 8 of the CBI Act. The Federal Court of Australia is competent to perform the functions referred to in the Model Law relating to the recognition of foreign proceedings and cooperation with foreign courts if, inter alia, the functions relate to a proceeding involving a debtor who is an individual: s 10 of the CBI Act.

15    For the purposes of this case the relevant Australian Legislation is the Bankruptcy Act and the Federal Court has jurisdiction to determine the application.

The provisions of the Model Law and the CBI Act

16    By Art 1(a) of the Model Law it has application where assistance is sought in Australia by a foreign court or a foreign representative in connection with a foreign proceeding. Some of the terms used in Art 1(a) are defined by Art 2 as follows:

(a)    Art 2(a) defines “foreign proceeding” in the following terms:

(a) “Foreign proceeding” means a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation;

(b)     Art 2(d) defines a Foreign Representative as follows:

(d) “Foreign representative” means a person or body, including one appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor’s assets or affairs or to act as a representative of the foreign proceeding.

17    Article 2 also provides definitions for other important terms:

(a)    A “foreign main proceeding” is defined as:

“Foreign main proceeding” means a foreign proceeding taking place in the State where the debtor has the centre of its main interests;

(b)    The expression “foreign non-main proceeding” is identified as follows:

“Foreign non-main proceeding” means a foreign proceeding, other than a foreign main proceeding, taking place in a State where the debtor has an establishment within the meaning of subparagraph (f) of the present article.

18    The effect of Art 4, together with s 10 of the Act, is that the functions referred to in the Model Law relating to the recognition of foreign judgments and cooperation with foreign courts shall be performed by the Federal Court where the proceedings involve a debtor who is an individual.

19    Article 6 of the Model Law creates a public policy exemption to the obligation of a court to take action in relation to a matter arising under it. It provides:

Public policy exception

Nothing in the present Law prevents the court from refusing to take an action governed by the present Law if the action would be manifestly contrary to the public policy of this State.

20    Article 15 of the Model Law makes provision for a foreign representative to apply for recognition of the foreign proceedings as follows:

Application for recognition of a foreign proceeding

1.     A foreign representative may apply to the court for recognition of the foreign proceeding in which the foreign representative has been appointed.

2.     An application for recognition shall be accompanied by:

(a)     A certified copy of the decision commencing the foreign proceeding and appointing the foreign representative; or

(b)     A certificate from the foreign court affirming the existence of the foreign proceeding and of the appointment of the foreign representative; or

(c)     In the absence of evidence referred to in subparagraphs (a) and (b), any other evidence acceptable to the court of the existence of the foreign proceeding and of the appointment of the foreign representative.

3.     An application for recognition shall also be accompanied by a statement identifying all foreign proceedings in respect of the debtor that are known to the foreign representative.

21    Section 13 of the CBI Act imposes additional requirements on the making of an application for recognition:

13     Application for recognition of foreign proceeding

In addition to the requirement in paragraph 3 of Article 15 of the Model Law (as it has the force of law in Australia) that an application for recognition be accompanied by a statement identifying all foreign proceedings in respect of the debtor that are known to the foreign representative, the application must be accompanied by a statement identifying:

(a)     all proceedings under the Bankruptcy Act 1966 in respect of the debtor; and

(b)     any appointment of a receiver (within the meaning of section 416 of the Corporations Act 2001), or a controller or a managing controller (both within the meaning of section 9 of that Act), in relation to the property of the debtor; and

(c)     all proceedings under Chapter 5 of the Corporations Act 2001, section 601CL of that Act or Schedule 2 to that Act, in respect of the debtor;

that are known to the foreign representative.

22    Article 16 of the Model Law is a facilitative provision which assists in the proof of the matters required to be established under Art 15:

Presumptions concerning recognition

1.     If the decision or certificate referred to in paragraph 2 of article 15 indicates that the foreign proceeding is a proceeding within the meaning of subparagraph (a) of article 2 and that the foreign representative is a person or body within the meaning of subparagraph (d) of article 2, the court is entitled to so presume.

2.     The court is entitled to presume that documents submitted in support of the application for recognition are authentic, whether or not they have been legalized.

3.     In the absence of proof to the contrary, the debtor’s registered office, or habitual residence in the case of an individual, is presumed to be the centre of the debtor’s main interests.

23    The circumstances in which a foreign proceedings will be recognised are identified in Art 17:

1.     Subject to article 6, a foreign proceeding shall be recognized if:

(a)     The foreign proceeding is a proceeding within the meaning of subparagraph (a) of article 2;

(b)     The foreign representative applying for recognition is a person or body within the meaning of subparagraph (d) of article 2;

   (c)     The application meets the requirements of paragraph 2 of article 15;

   (d)     The application has been submitted to the court referred to in article 4.

2.     The foreign proceeding shall be recognized:

(a)     As a foreign main proceeding if it is taking place in the State where the debtor has the centre of its main interests; or

(b)     As a foreign non-main proceeding if the debtor has an establishment within the meaning of subparagraph (f) of article 2 in the foreign State.

3.     An application for recognition of a foreign proceeding shall be decided upon at the earliest possible time.

4.     The provisions of articles 15, 16, 17 and 18 do not prevent modification or termination of recognition if it is shown that the grounds for granting it were fully or partially lacking or have ceased to exist.

24    The expression “establishment” in Art 17 is defined by Art 2(f) as being:

(f) “Establishment” means any place of operations where the debtor carries out a non-transitory economic activity with human means and goods or services.

25    The effect of the above articles and provisions of the CBI Act is that if the prescriptive requirements are satisfied the foreign proceedings must be recognised by the court unless such recognition would be manifestly contrary to the public policy of Australia: Kapila, in the matter of Edelsten (2014) 320 ALR 506, 511 [22] (Re Edelsten).

26    The effect of the recognition of a foreign proceeding is stated by Art 20(1) which provides:

Effects of recognition of a foreign main proceeding

1.     Upon recognition of a foreign proceeding that is a foreign main proceeding:

(a)     Commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities is stayed;

   (b)     Execution against the debtor’s assets is stayed;

(c)     The right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.

27    Article 21 grants power to the court to accord the foreign representative additional relief:

Relief that may be granted upon recognition of a foreign proceeding

1.    Upon recognition of a foreign proceeding, whether main or non-main, where necessary to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including:

(d)     Providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor’s assets, affairs, rights, obligations or liabilities;

(e)     Entrusting the administration or realization of all or part of the debtor’s assets located in this State to the foreign representative or another person designated by the court;

28    Additional procedural requirements on the making of an application for recognition are imposed by r 14.03 of the Federal Court (Bankruptcy) Rules 2016 (Cth) (Federal Court Bankruptcy Rules) which provide:

(1)     An application by a foreign representative for recognition of a foreign proceeding under article 15 of the Model Law must be made by filing an application in accordance with Form B2.

(2)     The application must:

(a)     be accompanied by the statements mentioned in article 15 of the Model Law and in section 13 of the Cross‑Border Insolvency Act; and

(b)     name the foreign representative as the applicant and the debtor as the respondent; and

(c)     be accompanied by an affidavit verifying the matters mentioned in paragraphs 2 and 3 of article 15 of the Model Law and in section 13 of the Cross‑Border Insolvency Act.

(3)     When filing the application, the foreign representative must file, but need not serve, an interim application seeking directions as to service, and the Court may give any directions about service, and make any incidental orders, that it thinks just.

(4) The applicant must serve a copy of the application and the other documents mentioned in subrule (2):

(a)     unless the Court otherwise orders—on each respondent (if any) to the proceeding as soon as practicable after filing an application and, in any case, at least 5 days before the date fixed for hearing; and

(b)     on any other persons the Court may direct at the hearing of the interim application.

(5)     A person who intends to appear before the Court at the hearing of an application for recognition must file and serve the documents mentioned in rule 2.04.

Consideration

Service and compliance with procedural matters

29    There is no doubt that the present application and supporting materials were served on Mr Mackellar. Not only is that deposed to in the affidavit of Mr Darrin Costello, but on 17 July 2020 Mr Mackellar, by his solicitors Hopgood Ganim, entered an appearance.

30    The proceedings have been commenced by and in the correct form being Form B2 as prescribed by the Federal Court Bankruptcy Rules. Service was effected at least five days prior to the hearing as required by r 14.03(4)(b). The application has also been made to the correct court as required by Art 4, being the Federal Court.

31    The trustees have deposed to all of the matters required to be stated in the material, being the verification of the matters in Art 15 of the Model Law and s 13 of the CBI Act:

(a)    A certified copy of the decision making the sequestration order is before the Court as is a copy of the document initiating the proceedings in Hong Kong and these satisfy the requirements of Art 15(2). By Art 16 the Court is entitled to presume the authenticity of the documents exhibited in support of the truth of the trustees’ assertions in this respect.

(b)    Mr Wong has stated in his affidavit that he is not aware of any proceedings in Hong Kong involving Mr Mackellar and is not aware of any other proceeding in Australia or elsewhere involving Mr Mackellar under the Bankruptcy Act to appoint a receiver or controller or managing controller in relation to his property, pursuant to the Corporations Act 2001 (Cth) (Corporations Act) or in any respect whatsoever. These statements satisfy Art 15(3) and s 13 of the CBI Act.

32    In this case no requirement is imposed for the translation of any documents into English for the purposes of application: see Art 15(4).

Recognition of proceedings as “foreign proceedings”

33    On the available material the Court is able to conclude that the Hong Kong Proceedings are “foreign proceedings” within the meaning of Art 2(a) of the Model Law. They are a collective, judicial or administrative proceeding in a foreign state, pursuant to a law relating to insolvency in which the assets of the affairs of the debtor are subject to the control or supervision by a foreign court, being the Hong Kong Court. The proceedings are “collective” in the sense that they affect Mr Mackellar’s creditors collectively because their debts are transformed into rights to participate in the distribution from the assets of his estate: Raithatha v Ariel Industries PLC (2012) 212 FCR 139, 145.

34    The trustees are within the scope of the meaning of the term “foreign representative”. They have been authorised in a foreign proceeding to administer the liquidation of Mr Mackellar’s assets. That is so despite the fact that they were substituted for the originally appointed trustee, being the Official Receiver. It appears that their appointment by the creditors was registered with the Court which apparently gives the Court’s imprimatur to it. The trustees have exhibited a copy of the resolutions of the creditors’ meeting appointing them as trustees in bankruptcy in lieu of the Official Receiver which was filed in the Court. By Art 16(1) and (2) this affords sufficient proof that the trustees are foreign representatives within the meaning of Art 2(d).

35    Mr Mackellar is a debtor by virtue of the judgment against him granted by the Hong Kong District Court.

36    In these circumstances where the requirements of Art 17 have been complied with the trustees are entitled to an order recognising the proceedings as “a foreign proceeding”.

Is the Hong Kong proceeding a foreign main or foreign non-main proceeding

37    The essential difficulty in the present matter is the whether the Hong Kong proceedings should be characterised as a foreign main proceedings or a foreign non-main proceedings within the definitions in Art 2. The trustees submitted, in the first instance, that it was the former and, in the alternative, that it was the latter. If it transpires that the trustees are not able to establish that the proceedings are main or non-main, they will not be recognised as such with the consequence that the benefits of such recognition will not accrue.

38    The distinction between a foreign main and foreign non-main proceedings was identified by Rares J in Board of Directors of Rizzo-Bottiglieri-De Carlini Armatori SpA v Rizzo-Bottiglieri-De Carlini Armatori SpA [2018] FCA 153 [19] where his Honour said:

Article 17(2)(a) and (b) draws a distinction between a foreign main proceeding (being one that “is taking place in the State where the debtor has the centre of if its main interests”) and a foreign non-main proceeding (being one where the debtor has “an establishment … in the foreign State”) that focuses on the debtor's activities in the locale that is the source of the foreign representative's authority to seek recognition here. I discussed the test for determining what “the centre of main interests” of a debtor is under Art 17(2)(a) in Ackers v Saad Investments Company Ltd (in official liquidation) (2010) 190 FCR 285.

39    Art 2 requires that for the proceedings to be a “foreign main proceeding” it must be “a foreign proceeding taking place in the State where the debtor has the centre of its main interests”. The concept of “centre of main interest” is more applicable to a company and the Model Law provides by Art 16(3) that:

3. In the absence of proof to the contrary, the debtor’s registered office, or habitual residence in the case of an individual, is presumed to be the centre of the debtor’s main interests.

Temporal operation of the definitions

40    The grammatical tense of the definitions in Art 2 suggests that the proceeding in question must be one which, at that time when a court is called upon to determine the application for recognition, it is then taking place in the foreign state being the place where, at that time, the debtor has as their centre of main interests. This was the view expressed by Beach J in Edelsten, albeit somewhat reluctantly. His Honour considered that the preferable construction was that the issue be determined at the time of the commencement of the foreign proceeding. The considerations assayed by his Honour in this respect (at 516 – 517 [36] – [39]) are somewhat compelling and they ought to be set out in full:

[36]     Contrastingly, it has been suggested that the relevant date is to be gleaned from the requirements of Art 15 and that so considered, the relevant date should be the commencement of the foreign proceeding. Having regard to the evidence required to accompany an application for recognition under Art 15 and the relevance accorded to the decision commencing the foreign proceeding and appointing the foreign representative, the date of commencement of that proceeding may be seen to be the more relevant date. See the UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation, January 2014 published by the UN (UN Guide) at [159]. On 18 July 2013, UNCITRAL at its 973rd meeting recommended that the UN Guide “be given due consideration, as appropriate, by … judges”. I am not obliged to consider the UN Guide; moreover, Art 31 of the Vienna Convention on the Law of Treaties has little application to it. Nevertheless, it is useful in its explanations and recitation of the relevant history. I have also had reference to the UNCITRAL Model Law on Cross-Border Insolvency: The Judicial Perspective, March 2014 published by the UN (UN Judicial Guide) which has also been of assistance. I should say for completeness that little help is gained by analysing the history, as has been elegantly explained by Heath J in Williams v Simpson (No 5) [2011] 2 NZLR 380 ; [2010] NZHC 1786 at [31]–[32] .

[37]     There are advantages in using the date of the commencement of the foreign proceeding. Not only might it be justified by the language and requirements of Art 15, but it injects certainty and uniformity of approach. The date of the application for recognition in a particular jurisdiction at a particular time may be a chance event taking place perhaps years later. What happens if in a particular case the “centre of main interests” has been aligned to a debtor’s principal place of business? That business may cease on the commencement of the foreign proceeding. If the time for assessment is on the filing of the recognition application, recognition could not be given. What happens if the foreign proceeding is in the US and over the course of the following 3 years, different recognition applications are made at different times in 3 different jurisdictions that have adopted the Model Law? And let us assume that the debtor has moved around and changed activities and circumstances over time since the commencement of the foreign proceeding. Is it suggested that it is appropriate to have a diversity of outcome on each recognition application based on the centre of main interests fluctuating at the different times? The foreign proceeding may then be variously treated in different jurisdictions at different times as a “foreign main proceeding”, a “foreign non-main proceeding” or a proceeding that is neither. Further, such diversity of outcomes is produced by the activities and movements of the debtor post the commencement of the foreign proceeding. Why should the operation of the Model Law in relation to the recognition of the foreign proceeding be so dependent upon such collateral, ad hoc and adventitious movements of the debtor post the commencement of the foreign proceeding?

[38]     I do not see how such diversity of outcomes based upon such ephemeral debtor movements and activities, in essence after the event, provides “effective mechanisms for dealing with cases of cross-border insolvency” or promotes “[c]ooperation between the courts”, “[g]reater legal certainty” or “[f]air and efficient administration of cross-border insolvencies” within the meaning of the preamble to the Model Law. Is such diversity of outcomes what is meant by Art 8 when it stipulates that “[i]n the interpretation of the present Law, regard is to be had … to the need to promote uniformity in its application”? I doubt it.

[39]     My preference is to consider this question as at the date of the commencement of the foreign proceeding, but I cannot say that Moore [Moore (as debtor-in-possession of Australian Equity Investors) v Australian Equity Investors [2012] FCA 1002] and Gainsford [Gainsford v Tannenbaum (2012) 216 FCR 543] are plainly wrong. Accordingly, I will assess the position now. But in any event, even if I were to use the earlier timeframe, that would not change my ultimate conclusions; they may even be fortified.

41    Although it would appear there are clearly good reasons for adopting the relevant temporal trigger as being the time of the commencement of the foreign proceedings, with greater reluctance than Beach J had, I am nevertheless prepared to accept that this application should be determined on the basis that the time for evaluating whether a proceeding is a foreign main proceeding is the occasion on which the issue is to be decided. It is a view that has been followed elsewhere: ie Aquino (Trustee), in the matter of McGowan (Bankrupt) v McGowan [2020] FCA 221 [40] (Aquino v McGowan): and there was no argument to the contrary in this matter. Indeed, even the applicants suggested that I should adopt that course and the respondent made no submissions with respect to it.

42    I mention that in [39] of his reasons Beach J accepted that he was bound to follow the decisions of single judges of this Court unless he was convinced that they were “plainly wrong”. There is support for that interpretation of precedential doctrine from a range of single instance decisions, some of which are referred to in Cooper as liquidator of Wanted World Wide (Australia) Ltd (in liq) v Commissioner of Taxation (2004) 139 FCR 205, 211 – 212 [46] and Hicks v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCA 757 [75]. See also Frugtniet v Australian Securities and Investments Commission (2017) 255 FCR 96, 116 – 17 [93] and BHP Billiton Iron Ore Pty Ltd v National Competition Council (2007) 162 FCR 234, 254 [88]. However, whether that comity focused principle requires the same level of perception of error as is required in relation to decisions as between intermediate appellate courts remains an open question: cf Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89. One might query whether confidence is maintained in law where a litigant is denied a verdict to which the judge believes they are entitled because “mutual politeness as between judges”: La Macchia v Minister for Primary Industries and Energy (1992) 110 ALR 201, 204 [76]: dictates that the verdict is not to granted unless and until the judge is completely certain that an inconsistent decision of a judge of equal status ought not to be followed. A useful discussion on the concept of what is meant by “plainly wrong” can be found in the recent erudite article “Plainly Wrong”: The application of the Federal Court’s threshold of error Lucas R, (2020) 48 Australian Bar Review 372.

Where is Mr Mackellar’s centre of main interest?

43    It should be kept steadily in mind that, although Mr Mackellar was served and has appeared in this action by solicitors, he adduced no evidence going to any issue, including those matters relevant to where he had his centre of main interest or his habitual residence. All that is really known of Mr Mackellar is that he is presently in Australia and not in Hong Kong where he had previously resided and had conducted his business and activities.

44    In Ackers v Saad Investments Company Ltd (in liq) (2010) 190 FCR 285 (Ackers v Saad Investments) Rares J considered at some length the meaning of the expression “centre of main interests”. His Honour observed that the existence of a constituent and universally accepted understanding of that concept was essential to the operation of cross-border insolvency laws as between contracting states. In that vein his Honour was prepared to accept and adopt the meaning identified by the European Court of Justice in Re Eurofood IFSC Ltd [2006] Ch 508 (Eurofood). There, the Court referred to the definition of “centre of main interest” contained in the regulation which had effected the adoption of the European Union Convention on Insolvency Proceedings 1995 which was, “the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties”. The Court had observed that this convention had been the origin of the expression insofar as it was used in relation to cross-border insolvencies. The Court in Eurofood continued at [33] – [34]:

33     That definition shows that the centre of main interests must be identified by reference to criteria that are both objective and ascertainable by third parties. That objectivity and that possibility of ascertainment by third parties are necessary in order to ensure legal certainty and foreseeability concerning the determination of the court with jurisdiction to open main insolvency proceedings. That legal certainty and that foreseeability are all the more important in that, in accordance with article 4(1) of the Regulation, determination of the court with jurisdiction entails determination of the law which is to apply.

34     It follows that, in determining the centre of the main interests of a debtor company, the simple presumption laid down by the Community legislature in favour of the registered offıce of that company can be rebutted only if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at that registered offıce is deemed to reflect.

45    From this it is possible to identify that the relevant task is to identify those objective and ascertainable indicators which reveal where the debtor conducts the administration of his interests on a regular basis. However, there are some not insignificant difficulties in doing that in the present matter given the limited nature of the evidence of Mr Mackellar’s circumstances. Whilst some evidence relating to that issue has been produced by the trustees, Mr Mackellar, who had had every opportunity to file and read affidavit material for the purposes of the hearing, declined to do so.

46    Despite these difficulties, there are a number of factors which suggest that, whilst Mr Mackellar is not presently residing in Hong Kong, his centre of main interests remains there. Those factors include:

(a)    Hong Kong is where his bankruptcy is occurring and the Hong Kong Proceedings there are continuing. In those proceedings there are outstanding orders which require Mr Mackellar to take certain action including providing information and being interviewed by trustees.

(b)    Mr Mackellar’s creditors appear to be in Hong Kong. The evidence reveals that apart from BOC, the petitioning creditor, he owes HK$933,071 to DBS Bank (Hong Kong) Limited, HK$6,706,228 to Hitachi Capital (Hong Kong) Limited and HK$683,108 to The Hong Kong & Shanghai Banking Corporation Limited. It would seem that Mr Mackellar’s debts are located in Hong Kong.

(c)    The above suggests that whatever business activity had been engaged in by Mr Mackellar it was located in Hong Kong such that, whatever remains of it, will be there as will the evidence of it having been undertaken.

(d)    There is also evidence that Mr Mackellar is proposing to offer to his creditors in Hong Kong that he enter into an Individual Voluntary Agreement pursuant to the Hong Kong Bankruptcy Ordinance. If he does this it is likely that it will have to be performed there. This constitutes some evidence of his continuing activities in Hong Kong.

(e)    Mr Mackellar has no real property in Australia.

(f)    Mr Mackellar has appointed an agent in Hong Kong to deal with the trustees for the purposes of attempting to resolve issues around his bankruptcy.

47    Above reference has been made to the observations of Mr Wong in paragraph 8 of his affidavit to the effect that Mr Mackellar does not appear to have any interests in Hong Kong. Mr Evans, a solicitor who appeared for the trustees, submitted that Mr Wong’s observation was a conclusory opinion only and was not intended to diminish the effect of the identified post-bankruptcy activities of Mr Mackellar in Hong Kong. In the circumstances Mr Wong’s comment can be accepted as having been intended to refer to new interests in that jurisdiction. It seems to be apparent that the trustees were aware of the ongoing issues surrounding Mr Mackellar’s estate in Hong Kong and his involvement in them and, in particular, his desire to reach a compromise with his creditors.

48    On the other hand, there exists some evidence which suggests that Mr Mackellar’s centre of main interest might be in Australia. That includes his apparent residency here, at least during the current pandemic, and his directorship of a company. In the latter respect, the directorship does not necessarily carry with it any suggestion of activity in the sense that he has some actual involvement in the company’s business, assuming it has any. In the absence of any evidence to the contrary, it might be thought that Mr Mackellar is not involved in the management of Mackellar Investments given that it would be unlawful were he to be so involved: ss 206A(2)(a) and 206B(4)(a)(ii) of the Corporations Act.

49    In this context it should not be overlooked that Art 16 makes provision for certain presumptions which assist in the application of the Model Law’s provisions. In particular, Art 16(3) relevantly provides that “in the absence of proof to the contrary, the debtor’s habitual residence is presumed to be the centre of the debtor’s main interests.

Habitual residence

50    In Re Edelsten Beach J discussed the concept of “habitual residence” in the following terms:

46    The concept “habitual residence” has been used in many international conventions and other instruments. To treat it as presenting just a question of fact is attractive, but wrong. First, its use and content must be read in the light of the specific convention being considered and its context. Second, objective criteria derived from or implicit in such a context may need to be identified so that the conclusionary composite phrase can be applied to the facts. Third, the composite phrase may usefully be divided in the first instance, although ultimately the whole phrase must be construed and applied. Where does the insolvent reside? A wide variety of circumstances may bear upon that question. Is that residence habitual? Again, a wide variety of circumstances may bear upon that question. Past and present intentions of the insolvent may bear on such questions. Such intentions may manifest themselves in terms of the duration of connection or residence with a particular place. But intention is not to be given controlling weight (see LK v Director-General, Department of Community Services (2009) 237 CLR 582 (LK) at [28]). Moreover, an insolvent’s intentions may be ambiguous.

51    His Honour also correctly observed that a person may not have any habitual residence in the sense that they lead a nomadic or peripatetic lifestyle. Similarly, a person may own more than one residential home between which they regularly move such that, whilst they usually reside in a home which they own, none of them can be said to be their habitual residence. However, conversely, a person may have a habitual residence but, given their profession or employment they be rarely found to be located there. The modalities of modern life are such that there are now many people whose home or permanent residence is in one country, yet they are absent for extended periods in another where they undertake employment.

52    The concept of the expression “habitual residence” in the context of cross-border insolvencies was recently considered by O’Callaghan J in Jong (Trustee) v Au, in the matter of Au [2020] FCA 585 (Jong v Au). His Honour noted that the concept is regularly used in international conventions and is repeatedly identified as a notion of fact rather than one of law. His Honour also referred to the elucidation of the concept by the High Court in LK v Director-General, Department of Community Services (2009) 237 CLR 582, 592593 [22] – [25] (LK) where the Court observed that it is a composite phrase which refers to where a person resides and does so habitually. The High Court identified that in ascertaining where a person habitually resides a Court can consider “a wide variety of circumstances that bear upon where a person is said to reside and whether that residence is to be described as habitual”. It also noted that a person’s “past and present intentions will often bear upon the significance that is to be attached to particular circumstances such as the duration of a person’s connections with a particular place of residence”. Speaking in general terms the High Court said at 593 [25]:

Yet it may be accepted that ‘[h]abitual residence, consistent with the purpose of its use, identifies the center of a person’s personal and family life as disclosed by the facts of the individual’s activities’. Accordingly, it is unlikely, although it is not necessary to exclude the possibility, that a person will be found to be habitually resident in more than one place at the one time. But even if place of habitual residence is necessarily singular, that does not entail that a person must always be so connected with one place that it is to be identified as that person’s place of habitual residence. So, for example, a person may abandon a place as the place of that person’s habitual residence without at once becoming habitually resident in some other place; a person may lead such a nomadic life as not to have a place of habitual residence.

(citations omitted)

53    Although the decision in LK concerned the interpretation and operation of the Convention on the Civil Aspects of International Child Abduction, its application to the meaning of the concept of “habitual residence” in the Model Law has been accepted: Gainsford v Tannenbaum (2012) 216 FCR 543 at 554 [42]; Jong v Au [41].

54    Here it might possibly be discerned that Mr Mackellar presently resides in Australia. However, there is no evidence as to the duration of his residency, the permanence or otherwise of it, his modality of living or of his intentions. The reality is that all that is known is that he is physically located here at the present time and that he probably will not depart in the near future given the current pandemic. His directorship of a company called “Mackellar Industries Pty Ltd” adds very little to the issue. In these circumstances, it is not possible to find that he is “habitually resident” here with the result that the presumption in Art 16(3) is of no application in this matter.

Conclusion on Mr Mackellar’s centre of main interests

55    Despite the paucity of evidence, that which is available is sufficient to disclose objective and ascertainable indicators which reveal that Mr Mackellar conducts the administration of his interests on a regular basis in Hong Kong. The evidence of the existence of his sizeable debts and his attempts to reach a compromise with his creditors suggest the conduct of continual business activity there, albeit that it takes place in the context of the winding up of his affairs. In the context of his present circumstances the conduct is relatively substantial. In the absence of any evidence that he undertakes any activities in any other location, Mr Mackellar’s activities remain centred in Hong Kong. Had there been some evidence that he was habitually resident here, the presumption in Art 16 might have displaced the otherwise slim evidence as to Mr Mackellar’s activities, however, there was none and Mr Mackellar did not oppose the making of the orders.

56    Albeit not without a degree of hesitation, it can be concluded that the trustees have established that the Hong Kong Proceedings be recognised as a “foreign main proceeding”.

A foreign non-main proceeding

57    In the alternative, the trustees submitted that the Hong Kong Proceedings were a foreign non-main proceeding. That would necessitate a finding that Hong Kong was a place where Mr Mackellar had an “establishment”, being any place of operations where the debtor carries out a non-transitory economic activity with human means and goods or services. If it had not been determined that the proceedings were a foreign main proceeding, the evidence might have established that it was a foreign non-main proceeding for the reasons referred to above. That is, on the only available evidence, it might have been concluded that whatever activities Mr Mackellar carries out, even if they are only in the finalisation of his financial affairs, they are carried out in Hong Kong. Ultimately, however, there is no need to reach any final conclusion on this issue.

Appropriate orders

58    In the light of the foregoing it is appropriate to recognise the Hong Kong Proceedings as being a foreign proceeding within the meaning of Art 2(a) of the Model Law and, further, that it be recognised as a foreign main proceeding.

59    The trustees sought an order that they be recognised as foreign representatives pursuant to Art 2(d), however, neither the foundation of the power to grant such relief nor the rationale for granting it, is apparent. There is nothing in the CBI Act nor the Model Law that suggests the existence of a power to “recognise” a foreign representative as such or that any such recognition has any consequences as is the case where the foreign proceeding is recognised: cf Senvion GmbH, in the matter of Senvion GmbH (No 2) [2019] FCA 1732 [15]. In these circumstances the making of the order would be inutile or irrelevant such that it ought not to be made.

Assistance orders

60    The trustees also seek orders pursuant to Art 21 which will afford them greater powers to undertake the administration of the sequestrated estate. The power to make orders under this article exist regardless of whether the foreign proceedings are main or non-main.

61    The discretion to make orders pursuant to Art 21 is enlivened where it is necessary to protect the assets of the debtor or the interests of the creditors”. The expression “necessary” does not require that the granting of powers under that article be absolutely necessary. Rather it should be taken as meaning that the granting of powers is desirable in the interests of ensuring that the foreign representatives have sufficient ability to carry out their functions so that the creditor’s interests can be advanced. In any event, in this case Mr Mackellar has, by his refusal and failure to comply with his obligations under the Hong Kong bankruptcy laws to provide information and materials to the trustees, generated sufficient concern as to what he may do with any assets he has in Australia, that the granting of the powers sought is necessary in the circumstances.

62    In addition to the above, in the exercise of the discretion to vest the foreign representative with additional powers, Art 22(1) of the Model Law requires that the Court must be satisfied that the interests of the creditors and other interested persons, including the debtor, are adequately protected. Here the additional powers further the interests of the creditors by allowing the trustees to more adequately carry out their tasks. The interests of Mr Mackellar are protected because any extension of power does not go beyond that which would otherwise exist under the Bankruptcy Act.

63    In the consideration of determining which additional powers ought to be granted to the trustees it is important to keep in mind that the general approach should be consistent with that identified in Re ABC Learning Centres Ltd 728 F (3d) 301 at 306 (3rd Circuit, 27 August 2013) (cited with approval by Allsop CJ in Akers v Deputy Commissioner of Taxation (2014) 223 FCR 8, 35 [112]):

The Model Law reflects a universalism approach to transnational insolvency. It treats the multinational bankruptcy as a single process in the foreign main proceeding, with other courts assisting in that single proceeding. In contrast, under a territorialism approach a debtor must initiate insolvency actions in each country where its property is found. This approach is the so-called “grab rule” where each country seizes assets and distributes them according to each country’s insolvency proceedings.

64    In essence, the Courts should avoid territorialism in favour of providing the maximum assistance to the foreign court conducting the main proceeding such that, in applications such as this the Court acts “as an adjunct or arm of the foreign bankruptcy court where the main proceeding is conducted”: Re ABC Learning Centres Ltd at 306; Aquino v McGowan [64].

65    The trustees seek the making of orders imposing additional restrictions on the commencement or continuation of proceedings against the respondent and his assets, the enforcement or execution of judgments against him or his assets, and the right of the respondent to transfer or deal with his property. The extent of the restriction sought is the same as would exist under the Bankruptcy Act. In the circumstances outlined above there is sufficient reason for making such an order.

66    Similarly, the trustees seek an order under Art 21(1)(g) of the Model Law that they be vested with the same powers in respect of the estate of Mr Mackellar as would a trustee in bankruptcy appointed under the Bankruptcy Act. They ask that such an order extend until they cease to be foreign representatives in relation to the foreign proceedings. Although there are presently no identified assets of Mr Mackellar which have been located in Australia (save for his joint shareholding in Mackellar Industries), if some are detected it would appropriate and efficacious for the existing trustees to undertake the administration of them rather than the estate having to bear the additional costs of new and additional controllers having to acquaint themselves with Mr Mackellar’s affairs. In any event, it is highly likely that the trustees will exercise their powers in Australia through their legal representatives here, and that is more so given the current Covid-19 pandemic. In the circumstances good reasons have been established for the making of the orders sought. Similar orders were made in relation to foreign representatives in Pink v MF Global UK Limited (In Special Administration) [2012] FCA 260. See also Ackers v Saad Investments.

Power to publicly examine Mr Mackellar

67    The trustees also seek orders pursuant to Art 21(1)(d) of the Model Law that they be provided with power to require Mr Mackellar for examination to answer questions and to produce documents relating to his affairs. Such powers are within the usual armoury of a trustee in bankruptcy. In this case where Mr Mackellar has failed to comply with his obligations under the Hong Kong insolvency laws to provide assistance and information to the trustees, the granting of such powers are not only warranted, they are necessary. Such an order as requested by the trustees, which is in substantially the same terms as Art 21(1)(d), should be made in this case.

68    Ancillary orders sought by the trustees in their application that a summons issue to Mr Mackellar pursuant to the provisions of the Bankruptcy Act for his examination and that an examination take place, were not pursued at the hearing. That part of the summons is to be adjourned to a date to be fixed.

Costs

69    There is no reason why Mr Mackellar ought not to pay the costs of the trustees application despite the fact that he ultimately did not oppose the making of the orders. The application was necessitated by his insolvency and his failure to comply with the requirements of the Hong Kong insolvency laws. The trustees’ costs of the application should be their costs in the bankruptcy such that they are accorded appropriate priority as would the costs of a trustee in bankruptcy appointed under the Bankruptcy Act. Similar orders were made in similar circumstances in Aquino v McGowan and, here, they were not opposed by Mr Mackellar.

I certify that the preceding sixty-nine (69) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.

Associate:    

Dated:    12 August 2020