Bankrupt here and bankrupt there: Cross-border insolvency

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2 December 2011

For the first time in Australia the Court considers whether a sequestration order should be made against a debtor already under insolvency administration in another jurisdiction.

In Bank of Western Australia v Henderson (No 3) [2011] FMCA 840, the Federal Magistrates Court made a sequestration order against a debtor already under insolvency administration in New Zealand.  The Court held that the New Zealand sequestration order was not a sufficient reason to prevent making a sequestration order in Australia.

Facts

The debtor, a property developer, operated through various special purpose companies.  Some of these companies were registered in Australia, others in New Zealand. Large sums of money were borrowed via these companies from banks and financial institutions, with the debtor providing personal guarantees for the obligations of his companies.  The companies became insolvent in December 2009. 

The debtor was being pursued by creditors for debts in excess of $90 million.

In February 2010, the Bank of Western Australia (BankWest), presented a creditor’s petition in Australia alleging the debtor owed it approximately $28 million. 

In early June 2010 the debtor was declared bankrupt in New Zealand and his affairs were placed in the hands of the Official Assignee.

The Court considered whether or not the New Zealand bankruptcy orders were a sufficient reason not to make sequestration orders in Australia.

Decision

Under either section 29 of the Bankruptcy Act 1966 (Cth) (Act) or under the Cross Border Insolvency Act 2008 (Cth) (CBI Act) the New Zealand Official Assignee could exercise their rights in Australia.  It was argued by the debtor that this gave the Court “sufficient cause” to exercise its power to not make a sequestration order in Australia.

It was held that although the New Zealand Official Assignee had power to gather the debtor’s property in both New Zealand and Australia, s 29 also gave the Court power to appoint an Australian receiver to aid the Official Assignee in the administration of the debtor’s insolvent estate.

The Court considered a number of practical factors including the familiarity that an Australian trustee would have in finding the debtor’s assets and the reduced cost in appointing an Australian trustee to deal with the Australian companies and assets.

The Court made a sequestration order against the debtor.

Comment

This case provides authority for bankruptcy orders to be sought against a debtor in Australia, regardless of whether the debtor has become bankrupt in New Zealand.

Where a debtor has potential Australian assets (particularly assets that are difficult to locate) an Australian trustee may be in a better position to locate the debtor’s assets and eventually increase the probability of the creditor receiving payment.

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