Federal Court of Australia

Cowley as Trustee of the Bankrupt Estate of Lau v Lau, in the matter of Lau [2020] FCA 1164

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 6 of the Cross Border Insolvency Act 2008 (Cth) (Act) and Art 15 and Art 17(1) of the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (Model Law) (Sch 1 to the Act) and r 14.03 of the Federal Court (Bankruptcy) Rules 2016 (Cth), the proceeding in the High Court of the Hong Kong Special Administrative Region, Bankruptcy Proceedings No. 104 of 2017, relating to the respondent and the subsequent appointment of the applicants (trustees) by the creditors of the respondent as joint and several trustees of the respondent’s bankrupt estate (together the proceedings) be recognised as a foreign proceeding, within the meaning of Art 2(a) of the Model Law.

2.    Pursuant to s 6 of the Act and Art 17(2) of the Model Law, the proceedings be recognised as a foreign main proceeding, within the meaning of Art 2(a) of the Model Law.

3.    Pursuant to s 6 of the Act and Art 21(1)(e) of the Model Law, the administration, realisation and distribution of all of the respondent’s assets located in Australia be entrusted to the trustees.

4.    Pursuant to s 6 and Art 21 of the Model Law, except with the leave of the Court or with the trustees’ written consent:

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

(b)    the enforcement or execution of any 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 as would apply if each such stay or suspension arose under the Bankruptcy Act 1966 (Cth).

5.    Pursuant to s 6 of the Act and Art 21(1)(g) of the Model Law, all powers normally available to a trustee in bankruptcy appointed under the provisions of the Bankruptcy Act 1966 (Cth) be made available to the trustees.

6.    Pursuant to s 6 of the Act and Art 21(1) of the Model Law, the respondent’s title to the property described as Lot 3 in Group Titles Plan 107398 in the State of Queensland be vested in the trustees as registered owner of an estate in fee simple.

7.    The trustees’ costs of and incidental to this proceeding be costs in the bankruptcy of the respondent.

ORDERS

THE COURT ORDERS THAT:

1.    The applicant comply with r 14.07(1)(d) of the Federal Court (Bankruptcy) Rules 2016 (Cth) within 14 days of the date of this order.

2.    Order 3 of the orders made on 15 July 2020 be varied by adding the following words after “entrusted to the trustees”:

provided that the order is stayed until further order insofar as it permits distribution of the respondent's assets located in Australia, or the proceeds of sale of any of those assets.

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

REASONS FOR JUDGMENT

GLEESON J:

1    On 15 July 2020, I made orders pursuant to the Cross-Border Insolvency Act 2008 (Cth) (CBI Act) on the application of the applicants (trustees), the trustees of the estate of Lau Yu, also known as Jaffe Lau (Mr Lau), a bankrupt. By s 6 of the CBI Act, subject to the Act, the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (Model Law) has the force of law in Australia.

2    Subsequently I discovered that, in making those orders, I had overlooked Art 21(2) of the Model Law which provides:

Upon recognition of a foreign proceeding, whether main or non‑main, the court may, at the request of the foreign representative, entrust the distribution of all or part of the debtor’s assets located in this State to the foreign representative or another person designated by the court, provided that the court is satisfied that the interests of creditors in this State are adequately protected.

(Emphasis added)

3    Consequently, I re-listed the proceeding and made an order requiring the trustee to file further evidence.

4    After receiving further evidence and hearing further submissions, I made an order varying order 3 made on 15 July 2020 to stay it insofar as it permitted the trustees to distribute Mr Lau’s assets in Australia until further order. The intent of this order is to ensure that Mr Lau’s assets in Australia will not be distributed until the applicant has satisfied the Court that the interests of creditors in Australia will be adequately protected, as required by Art 21(2).

5    These are my reasons for making the orders made on 15 July 2020 and 1 September 2020.

BackgrounD Facts

6    Mr Lau is a Hong Kong national who at all material times has resided in Hong Kong. Mr Cowley stated that, in the course of his investigations as trustee and in his dealings with Mr Lau and his lawyers both in Hong Kong and London, Mr Cowley has not seen anything to suggest that Mr Lau has lived at any address outside Hong Kong.

7    Mr Lau was declared bankrupt by the High Court of the Hong Kong Special Administrative Region of the People’s Republic of China, Court of First Instance (HK High Court) on 5 September 2017 (bankruptcy order). The order was made on the petition of a creditor, The Hong Kong and Shanghai Banking Corporation Limited.

8    The proceeding for which recognition was sought is Bankruptcy Proceedings No. 104 of 2017 in the HK High Court (HK proceeding).

9    On 8 January 2020, the UK High Court of Justice recognised the HK proceeding as a foreign main proceeding within the meaning of the Model Law. On 28 April 2020, the UK Court granted Mr Lau permission to appeal from the 8 January 2020 orders.

10    The trustee has identified the Queensland property and two bank accounts held with Westpac Banking Corporation in Australia as assets of the bankrupt estate. Mr Lau’s sole Australian creditor of which the trustees are presently aware is Westpac, which has a registered mortgage over the Queensland property. The trustees expect that Westpac will need to enforce its mortgagee over the property in order to recover any amount owed to it by Westpac.

11    The trustees sought orders to the following effect:

(1)    that the HK proceeding be recognised as a “foreign proceeding” within the meaning of Art 2(a) of the Model Law;

(2)    that the HK proceeding be recognised as a “foreign main proceeding” within the meaning of Art 2(b) of the Model Law;

(3)    that the administration, realisation and distribution of Mr Lau’s assets located in Australia be entrusted to the trustees; and

(4)    other relief under Art 21 of the Model Law consequent upon recognition of the HK proceeding as a foreign main proceeding including an order that Mr Lau’s title to property described as Lot 3 in Group Titles Plan 107398 in the state of Queensland (Queensland property) be vested in the trustees.

12    In support of the application, the trustees relied on the following evidence:

(1)    affidavits of the first named applicant, Mr Cowley, sworn 13 May 2020 and 9 July 2020; and

(2)    affidavit of Wendy Jacobs, the trustees’ solicitor, sworn 29 June 2020.

13    On 11 June 2020, orders were made for service of the application and any supporting affidavits on Mr Lau.

MODEL LAW ON CROSS-BORDER INSOLVENCY

14    The Model Law is contained in Sch 1 to the CBI Act. Relevantly, and subject to the CBI Act, the Model Law applies where assistance is sought in this State by a foreign representative in connection with a foreign proceeding: Art 1(a).

15    Article 2 of the Model Law contains the following relevant definitions:

“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;

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

…

“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.

16    Article 4 of the Model Law provides that the functions referred to in the Model Law relating to recognition of foreign proceedings and cooperation with foreign courts shall be performed by a specified court or courts or other authority. Section 10(a) of the CBI Act provides relevantly that, if the functions relate to a proceeding involving a debtor who is an individual, the Federal Court of Australia is taken to be specified in Art 4 as a court competent to perform the functions referred to in the Model Law relating to recognition of foreign proceedings.

17    Article 6 provides that nothing in the Model Law prevents a Court from refusing to take action governed by the Model Law if the action would be manifestly contrary to the public policy of the State.

18    Article 15 of the Model Law provides:

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.

4.    The court may require a translation of documents supplied in support of the application for recognition into an official language of this State.

19    Section 13 of the CBI Act provides:

In addition to the requirement in para 3 of Art 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 (Cth) in respect of the debtor; and

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

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

that are known to the foreign representative.

20    Article 16 of the Model Law provides:

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.

21    Article 17 of the Model Law provides:

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.

22    Thus, if certain matters are established, the foreign proceeding must be recognised, unless recognition would be manifestly contrary to the public policy of Australia: Kapila, In the matter of Edelsten [2014] FCA 1112 at [22].

23    Rule 14.03 of the Federal Court (Bankruptcy) Rules 2016 (Cth) states, relevantly:

(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.

24    Article 21(1) of the Model Law provides, relevantly that, 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:

…

(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;

...

(g)    granting any additional relief that may be available to [a trustee in bankruptcy] under the [Bankruptcy Act].

Recognition of foreign proceeding

Status-based criteria

25    These criteria are conditions precedent specified by Art 17(1) of the Model Law, namely:

(1)    the HK proceeding is a “foreign proceeding” within the meaning of Art 2(a);

(2)    the applicants are a “foreign representative” within the meaning of Art 2(d); and

(3)    the application has been submitted to the court referred to in Art 4.

26    The orders of the HK High Court state that, when Mr Lau was adjudged bankrupt, the Official Receiver became the Provisional Trustee of Mr Lau’s estate.

27    On 4 October 2017, the trustees were appointed as joint and several trustees of Mr Lau’s bankrupt estate at a general meeting of creditors convened and chaired by the Official Receiver.

28    In the absence of evidence of the kind referred to in Art 15(a) and (b), Mr Cowley gave evidence which demonstrated that the HK proceeding is a collective judicial or administrative proceeding in Hong Kong, which is a Special Administrative Region of the People’s Republic of China pursuant to the Bankruptcy Ordinance (Cap 6), a law relating to insolvency. Pursuant to the HK proceeding, the assets and affairs of Mr Lau have been placed under the control of the trustees, who are authorised to administer Mr Lau’s bankrupt estate and the liquidation of Mr Lau’s assets subject to the supervision of the HK High Court.

29    In Jong (Trustee) v Au, in the matter of Au [2020] FCA 585, O’Callaghan J was also satisfied that a proceeding in the HK High Court pursuant to the Bankruptcy Ordinance (Cap 6), in which the debtor had been declared bankrupt, was a “foreign proceeding” within the meaning of the Model Law.

30    Accordingly, I was satisfied that the HK proceeding is a “foreign proceeding” within the meaning of Art 2(a).

31    Mr Cowley also gave evidence that the trustees are authorised in the HK proceeding to administer the liquidation of Mr Lau’s assets and affairs

32    Accordingly, I was satisfied that the trustees are a “foreign representative” within the meaning of Art 2(d).

33    The application was submitted to the court referred to in Art 4, being the Federal Court of Australia.

Procedural criteria

34    The procedural conditions precedent are set out in Art 17(1)(c) of the Model Law, s 13 of the CBI Act and r 14.03 of the Bankruptcy Rules.

Article 17(1)(c)

35    Article 17(1)(c) requires the application to meet the requirements of Art 15(2). As noted above, Art 15(2) was satisfied by Mr Cowley’s affidavit evidence.

Article 15(3)

36    In his 13 May 2020 affidavit, Mr Cowley gave evidence the effect of which was that the trustees were not aware of any foreign proceedings in respect of Mr Lau apart from the HK proceeding.

Section 13 CBI Act

37    In his 13 May 2020 affidavit, Mr Cowley stated that the trustees were not aware of any proceedings of the kind required to be identified by s 13 of the CBI Act.

Rule 14.03 of the Federal Court (Bankruptcy) Rules 2016

38    The requirements of r 14.03 were satisfied by the form of the originating application, Mr Cowley’s 13 May 2020 and the interim application, all filed on 14 May 2020.

Conclusions

39    Subject to Art 6, the HK proceeding was required to be recognised as a foreign proceeding.

40    There was nothing to suggest that Art 6 applies to this case.

41    As the evidence was that Mr Lau’s centre of main interests is Hong Kong, the Hong Kong proceeding was required to be recognised as a foreign main proceeding.

Article 21 relief

42    The trustees sought an order pursuant to Art 21(1)(e) of the Model Law, entrusting administration, realisation and distribution of all of Mr Lau’s assets located in Australia to the trustees. Similar orders were made in Official Assignee in Bankruptcy of the Property of McCormick v McCormick [2018] FCA 410 (McCormick) and in Christie (Trustee); in the matter of Kian (Bankrupt) v Kian [2019] FCA 1141. I accepted that the order was necessary to protect the interests of Mr Lau’s creditors and that the interests of the only known creditor in Australia is adequately protected by a registered mortgage.

43    I also accepted that it was appropriate and necessary to protect the interests of Mr Lau’s creditors to grant the other relief sought under Art 21.

44    In particular, as Rangiah J noted in McCormick at [38], if this were an Australian bankruptcy, the Queensland property would vest in the trustee in bankruptcy on the making of a sequestration order.

45    Accordingly, I made orders to the effect sought by the trustees, subsequently varied as explained above.

Other matters

46    Article 21(2) should have been drawn to the Court’s attention by the applicant, who sought orders on an ex parte basis, before the 15 July 2020 orders were made.

47    In an ex parte hearing, it is the obligation of the party seeking orders, through its representatives, to take the place of the absent party to the extent of bringing forward all the material facts which that party would have brought forward in defence of the application: Walter Rau Neusser Oel Und Fett AG v Cross Pacific Trading Ltd [2005] FCA 955 at [38]. The obligation of candour and diligence applies in an application for an order which creates rights which would not otherwise exist: Garrard v Email Furniture Pty Ltd (1993) 32 NSWLR 662 at 677(E).

48    As the Full Court said in Town & Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Ltd (1988) 20 FCR 540 at 543:

The rationale behind the principle is clear; it is of the utmost importance in the due administration of law that the Courts and the public are able to have confidence that an ex parte order has been made only after the party obtaining it has complied with its duty to disclose all relevant facts.

49    In the course of revisiting order 3 of the 15 July 2020, I also discovered that the applicant had not complied with the rules requiring notification of applications for recognition under the Model Law and notification of orders made under the Model Law, being rules 14.06 and 14.07 of the Federal Court (Bankruptcy) Rules 2016. These rules are designed, among other things, to protect creditors located in Australia, by providing notification of proceedings under the CBI Act.

50    The precise circumstances in which the Court was not informed of Art 21(2) or the applicant’s non-compliance with the Federal Court (Bankruptcy) Rules was not explained, but the omissions were unsatisfactory and warrant caution in considering future applications for ex parte orders by the applicant.

Associate:

Dated:    15 September 2020