The Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of Duncan Frederick Sadler v Duncan Frederick Sadler [2020] NZHC [1060]

The Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of Duncan Frederick Sadler v DuncanFrederick Sadler [2020] NZHC [1060] [20 May 2020]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYI TE KŌTI MATUA O AOTEAROAKIRIKIRIROA ROHECIV-2020-419-29[2020] NZHC 1060UNDER the Insolvency (Cross-border) Act 2006AND UNDER the High Court RulesIN THE MATTER of an application pursuant to Schedule 1,Chapter III, Article 15, and rules 24.56,24.57 and 18.7 of the RulesBETWEEN THE OFFICIAL TRUSTEE INBANKRUPTCY as Trustee of the BankruptEstate of DUNCAN FREDERICK SADLERApplicantAND DUNCAN FREDERICK SADLERRespondentHearing: On the papersAppearances: PV Cornegé for the ApplicantJudgment: 20 May 2020JUDGMENT OF ASSOCIATE JUDGE SMITHThis judgment was delivered by me on 21 May 2020 at 11ampursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors:Tompkins Wake, Hamilton[1] The respondent, Mr Sadler, lives in Raleigh, New South Wales, Australia.[2] On 9 December 2016, Mr Sadler became bankrupt on his own bankruptcypetition. He filed the required statement of affairs with his bankruptcy petition. TheOfficial Trustee was appointed trustee of his bankrupt estate under the Bankruptcy Act1966 (Commonwealth of Australia).[3] The case manager for Mr Sadler's Australian bankruptcy is Ms KatrinaHoward, who is employed with the Insolvency and Trustee Services section of theAustralian Financial Security Authority (the AFSA). Ms Howard has had the care,conduct and supervision of Mr Sadler's bankrupt estate on behalf of the OfficialTrustee.[4] In or about February 2019, Ms Howard became aware that Mr Sadler may havean asset in New Zealand. Briefly, Mr Sadler was named as a beneficiary in the will ofhis late mother, who died on 6 June 2017. Ms Howard's enquiries have elicited theinformation that approximately $140,000 was left to Mr Sadler by his mother, and thatthat money has either been retained by Mr Sadler's sister, who is the administrator ofthe estate, or has been paid to Mr Sadler's son. It appears that Mr Sadler obtained legaladvice to the effect that, because he was bankrupt, he could not take any share in theestate.[5] The Official Trustee now wishes to investigate whether Mr Sadler was in factentitled to a share in the estate, and if so, to ascertain what has happened to the funds.Action might then be necessary for the recovery of the funds. To do those things theOfficial Trustee wishes to have a local agent appointed in New Zealand to carry outthe investigation and any appropriate recovery steps.Application to have Mr Sadler's Australian bankruptcy recognised as "foreignmain proceeding" under the Insolvency (Cross-border) Act 2006[6] Under the Insolvency (Cross-border) Act 2006 (the Act) the Official Trusteeapplies for the following orders:(1) That Mr Sadler's Australian bankruptcy be recognised as a "foreignmain proceeding" under the Act;(2) Entrusting the administration or realisation of all of Mr Sadler's assetslocated in New Zealand to Russell David Fildes, Official Assignee,New Zealand; and(3) Granting leave to serve any order made by the Court outside of NewZealand.[7] The application was listed for first call in this Court on 2 June 2020, butfollowing service of the papers on him, Mr Sadler signed a consent memorandum,under which he consented to the application and advised that he did not intend to takeany further steps with regard to it. The consent memorandum recorded that Mr Sadlerhad been told that, if the application was granted, it would result in an orderrecognising his Australian bankruptcy in New Zealand, and appointing the NewZealand Official Assignee as the Official Trustee's agent in New Zealand, and that, ifthat occurred, it was considered very likely that the Official Assignee would take stepsto deal with Mr Sadler's property in New Zealand for the benefit of his Australiancreditors. The memorandum further recorded Mr Sadler's understanding that he wasentitled to take independent legal advice.Relevant legal principles[8] The Act provides a statutory framework for facilitating insolvency proceedingswhen a person is subject to insolvency administration in one country, but has assets ordebts in another country,1 or where more than one insolvency administration hascommenced in more than one country in relation to a person.2 In this case, we areconcerned with the first of those situations: Mr Sadler is subject to insolvencyadministration in Australia, but is said to have assets in New Zealand.[9] The relevant rules relating to the recognition of a foreign bankruptcyproceeding are contained in Chapter III of Schedule 1 of the Act.1 Insolvency (Cross-border) Act 2006, s 3(b)(i).2 Insolvency (Cross-border) Act 2006, s 3(b)(ii).[10] Article 15 of Schedule 1 provides:(1) A foreign representative may apply to the High Court for recognition ofthe 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 foreignproceeding and appointing the foreign representative; or(b) a certificate from the foreign court affirming the existence of theforeign proceeding and of the appointment of the foreignrepresentative; 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 theforeign proceeding and of the appointment of the foreignrepresentative.(3) An application for recognition shall also be accompanied by a statementidentifying all foreign proceedings in respect of the debtor that are known tothe foreign representative.(4) The Court may require a translation of documents supplied in support ofthe application for recognition into an official language of New Zealand.[11] The terms "foreign proceeding", and "foreign representative", are defined inArticle 2 of Schedule 1 as follows:For the purposes of this Schedule:(a) foreign proceeding means a collective judicial or administrativeproceeding in a foreign State, including an interim proceeding,pursuant to a law relating to insolvency in which proceeding the assetsand affairs of the debtor are subject to control or supervision by aforeign court, for the purpose of reorganisation or liquidation;(b) foreign main proceeding means a foreign proceeding taking place in theState where the debtor has the centre of its main interests;(d) foreign representative means a person or body, including oneappointed on an interim basis, authorised in a foreign proceeding toadminister the reorganisation or the liquidation of the debtor's assetsor affairs or to act as a representative of the foreign proceeding.[12] In this case, there was no Australian court proceeding which resulted in MrSadler's bankruptcy – his bankruptcy arose from his own petition. In thosecircumstances the Official Trustee cannot rely on Article 15(2)(a) or (b): there hasbeen no relevant "decision", and no foreign court has been involved. The OfficialTrustee therefore relies on Article 15(2)(c) – "other evidence acceptable to the court".33 Insolvency (Cross-border) Act 2006 Schedule 1, Article 15(2)(c).[13] Article 17 sets out the criteria for determining when a foreign proceedingshould be recognised. Article 17 provides:(1) Subject to article 6, a foreign proceeding shall be recognised if:(a) the foreign proceeding is a proceeding within the meaning ofsubparagraph (a) of article 2;(b) the foreign representative applying for recognition is a person orbody within the meaning of subparagraph (d) of article 2;(c) the application meets the requirements of paragraph (2) of article15; and(d) the application has been submitted to the High Court.(2) The foreign proceeding shall be recognised:(a) as a foreign main proceeding if it is taking place in the State wherethe debtor has the centre of its main interests; or(b) as a foreign non-main proceeding if the debtor has anestablishment within the meaning of subparagraph (f) of article 2 inthe foreign State.(3) An application for recognition of a foreign proceeding shall be decidedupon at the earliest possible time.(4) As soon as practicable, after the Court recognises the foreign proceedingunder paragraph (1) of this article, the foreign representative shall notify thedebtor, in the prescribed form, that the application has been recognised.(5) The provisions of articles 15, 16, 17, and 18 do not prevent modificationor termination of recognition if it is shown that the grounds for granting itwere fully or partially lacking or have ceased to exist.[14] Applications for the recognition of foreign proceedings under the Act are dealtwith in this Court under r 24.56 of the High Court Rules 2016. That rule provides:24.56 Applications for recognition of foreign proceedings(1) An application by a foreign representative under article 15(1) must bemade by originating application under Part 19.(2) In addition to complying with the requirements of article 15, theapplication must—(a) be supported by an affidavit verifying the statement referred to inarticle 15(3) (identifying all foreign proceedings in respect of thedebtor that are known to the foreign representative) or by other swornevidence acceptable to the court:(b) be served, in accordance with Part 6 of these rules, on the debtoror a New Zealand agent or representative of the debtor unless a Judgedirects that the application may in all the circumstances proceedwithout that service.(3) A foreign representative who has filed an application under subclause (1)may apply without notice for relief of a provisional nature under article 19(1).Evidence supporting the application[15] Ms Howard provided an affidavit in support, generally confirming the mattersrelating to Mr Sadler's estate, and the Official Trustee's wish to investigate thepossibility of a further asset in New Zealand, as set out above.[16] The second affidavit was that of Mr Matthew Osborne. Mr Osborne is aprincipal legal officer with the AFSA, and he provided expert evidence on relevantAustralian law and the application of the relevant provisions of the Act. Mr Osbornedeposed that the administration of Mr Sadler's bankruptcy is a "collectiveadministrative proceeding" in relation to his debtor's petition, involving ongoingoversight by the Official Assignee for the period from the date of the bankruptcy tothe date of the discharge. The administrative proceeding is "collective" in nature, inthat it is for the benefit of the bankrupt's creditors entitled to prove their debts in thebankruptcy. Under the relevant provisions of the Bankruptcy Act 1966, debts provedrank equally except as otherwise provided, and creditors are to be paid proportionately,subject to statutory priorities. And the bankruptcy proceeding arose out of anAustralian law relating to insolvency (the Bankruptcy Act 1966), in which thebankrupt's assets and affairs are subject to control or supervision by a "foreign court",(either the Federal Circuit Court of Australia, or the Federal Court of Australia), forthe purposes of reorganisation or liquidation.4 The control or supervision is effectedby an authority competent to control or supervise foreign proceedings, namely theOfficial Trustee.5[17] Mr Osborne said that the Official Trustee is authorised to administer thereorganisation or the liquidation of the bankrupt's assets or affairs, and to act as arepresentative of the foreign proceeding.6[18] The third affidavit was that of Mr Russell Fildes, who is an Official Assigneeemployed by the Insolvency and Trustee Service of the Ministry of BusinessInnovation and Employment in New Zealand. Mr Fildes formally consented to being4 Bankruptcy Act 1966 (Cth), s 30.5 Bankruptcy Act 1966 (Cth), ss 18, 19, 58 and 134.6 Bankruptcy Act 1966 (Cth), ss 18, 19, 58, 108, 109 and 134, and Cross-Border Insolvency Act2008 (Cth), s 11.appointed as the Official Trustee's representative entrusted with the administration orrealisation of all of Mr Sadler's assets located in New Zealand, if so appointed.Discussion and conclusions[19] I am satisfied that the orders sought are appropriate and should be made.[20] Ms Howard has deposed that she is authorised on behalf of the Official Trusteefor the purposes of making the present application, and the Official Trustee isauthorised in the relevant foreign proceeding (Mr Sadler's bankruptcy) to administerthe reorganisation or the liquidation of Mr Sadler's assets or affairs. The applicationhas accordingly been brought by a "foreign representative", as required by Article15(1) of Schedule 1 of the Act.[21] And I am satisfied on the evidence produced that Mr Sadler's Australianbankruptcy constitutes a "foreign main proceeding" for the purposes of the Act. It isa collective administrative proceeding in a foreign state, pursuant to the law relatingto insolvency in Australia, in which the assets and affairs of Mr Sadler are subject tocontrol or supervision by a foreign court (the Federal Circuit Court of Australia, or theFederal Court of Australia), for the purpose of reorganisation or liquidation. Theadministrative proceeding in Australia is collective in nature, as it is being undertakenfor the benefit of all of Mr Sadler's creditors who have proved debts in his bankruptcyand who have become entitled to receive a pro rata distribution from his bankruptestate.[22] The question of how Article 15(2) applies when the foreign bankruptcyproceeding arises from a debtor's own bankruptcy petition, was addressed by DavisonJ in The Official Trustee in Bankruptcy v Henare,7 which was also a case involving anAustralian bankruptcy that occurred as a result of the debtor lodging a debtor'spetition. Davison J was satisfied on the affidavit evidence produced in that case thatthe Official Trustee's administration of the respondent's bankrupt estate in Australiawas a foreign proceeding, as defined, as "the assets and affairs of the debtor are subject7 The Official Trustee in Bankruptcy v Henare [2019] NZHC 1024.to control or supervision by a foreign court, for the purpose of reorganisation orliquidation".8[23] The Henare case thus confirms that a foreign bankruptcy which commenceson the filing of a debtor's petition for bankruptcy may be a "foreign proceeding" forthe purposes of Article 15 of Schedule 1 of the Act, and the evidence produced in thiscase is sufficient to satisfy the requirements of Article 15(2)(c).[24] Ms Howard's affidavit includes a statement that she is not aware of any foreignproceedings in respect of Mr Sadler, so Article 15(3) of Schedule 1 of the Act istherefore satisfied. The requirements of r 24.56 of the High Court Rules have beenmet.[25] I find also that the Australian bankruptcy proceeding is a "foreign mainproceeding" as defined in Article 2 of Schedule 1 of the Act,9 as the bankruptcyadministration is taking place in Australia, where Mr Sadler has centred his interests.[26] Mr Fildes is obviously suitably qualified, and I accept that it is appropriate toappoint him as the Official Trustee's New Zealand agent.Orders[27] I make the following orders:(1) Mr Sadler's Australian bankruptcy, arising out of his debtor's petitionunder s 55(2) of the Bankruptcy Act 1966 (Cth), is recognised as aforeign main proceeding under the Act;(2) The administration or realisation of all of Mr Sadler's assets located inNew Zealand is entrusted to Russell David Fildes, Official Assignee;and8 At [24].9 At [24].(3) Leave is granted to the Official Trustee to serve these orders outside ofNew Zealand.Associate Judge Smith