Australian courts to the rescue – acting in aid of foreign courts in bankruptcy matters

15 May 2009

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The recent decision of Levy v Reddy [2009] FCA 63 considers the operation of section 29 of the Bankruptcy Act 1966 (Cth) (BA).

Section 29 of the Bankruptcy Act 1966 (Cth)

Section 29(2) provides that the Federal Court and Federal Magistrates Court:

• shall act in aid of the courts of Australia’s external territories, the United Kingdom, Canada and New Zealand that have jurisdiction in bankruptcy; and
• may act in aid of the courts of other countries that have jurisdiction in bankruptcy.

Section 29(3) provides that where a letter of request from a court of an external territory or other country is filed with the court requesting aid in a bankruptcy matter, the court may exercise such powers as it could exercise if the matter had arisen within its own jurisdiction.

The facts

Mr Reddy was declared bankrupt by the High Court of Justice of England and Wales on 25 July 2008. On the same day Mr Levy, an insolvency practitioner in the UK, was appointed Mr Reddy’s trustee in bankruptcy.

Leading up to the declaration of bankruptcy, Mr Levy had a supervisory capacity over Mr Reddy’s affairs under the UK bankruptcy legislation. Nonetheless, prior to the declaration, Mr Reddy disposed of all his assets in the UK and relocated to Australia.

Mr Levy discovered that Mr Reddy was a joint owner of two residential properties in Queensland. As a result Mr Levy made an ex parte application to the Federal Court for the following interim orders:

• an order that Mr Reddy be restrained from disposing of or dealing with his divisible property (except for some limited purposes); and
• an order appointing a receiver to Mr Reddy’s divisible property and in particular his interest in the two residential properties.

Mr Levy’s application was supported by a letter from the Registrar in Bankruptcy of the UK court requesting the assistance of the Federal Court.

The decision

Mr Levy’s application was successful. Justice Collier found that:

• were Mr Reddy a bankrupt within the meaning of the BA, on the evidence before her Honour, the court would have had both jurisdiction and cause to make a freezing order to prevent frustration or abuse of the court’s process; and
• the court had power pursuant to section 29 of BA to make the interim orders sought and should make them.

Cross Border Insolvency Act 2008 (Cth)

It is interesting to note that Mr Levy chose to proceed by way of section 29 of the BA rather than by way of the Cross Border Insolvency Act 2008 (Cth) (CBIA). The CBIA, which commenced in July 2008 and gives effect to the Model Law on Cross Border Insolvency, provides for cross border assistance with all signatories to the Model Law, some 17 countries.

Prior to the commencement of the CBIA, both the BA and the Corporations Act 2001 (CA) contained provisions for cross border assistance. The case, which was the subject of our article on 6 February 2009, considered the interaction between the CBIA and the CA. In that case Justice Barrett of the NSW Supreme Court accepted that the CA and CBIA regimes co-exist.

Section 21 of the CBIA provides that if the Model Law or a provision of the CBIA is inconsistent with section 29 of the BA, the Model Law or the CBIA prevails and section 29 of the BA is of no effect to the extent of the inconsistency. In the present case, Justice Collier found that on the facts before her, there was no inconsistency between section 29 of the BA and the CBIA or the Model Law. As a result Mr Levy was entitled to make application to the court pursuant to section 29 of the BA, instead of the CBIA.

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