By Hayley Hitch, Paralegal of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group
A difficult decision for a trustee to make is whether to allow a bankrupt to travel overseas during the bankruptcy period. Based on human emotion, sympathy may be the response to a request by a bankrupt to visit an unwell family member in another country. But on the other hand, a trustee has a duty to the creditors of the bankrupt estate to ensure that the bankrupt is not a flight risk and does not skip the country in order to evade their bankruptcy obligations.
In the case of Pinto v Pinto (a Bankrupt), proceedings were originally brought by the Bankrupt pursuant to s 178 of the Bankruptcy Act 1966 (Cth), to appeal the Trustees’ decision to refuse his travel request – to visit “sick and aging relatives”. After the commencement of the proceedings, the Trustees reached an agreement with the Bankrupt and decided to allow him to travel. The former wife of the Bankrupt, who was a creditor for $2.1M pursuant to orders of the Family Court, then applied to be joined to the application to challenge the Trustees’ decision to allow travel.
The former wife of the Bankrupt provided evidence to the Court establishing that the Bankrupt’s travel would allow the Bankrupt to access funds held in Portugal that belonged to both the Bankrupt and the former wife, and therefore was unlikely to return to Australia. Interestingly the Court accepted evidence of the Bankrupt’s son that although his mother could not afford to do so, and the trustees had not undertaken any, he would assist his mother undertake public examinations “when he is able to, financially.” In bankruptcy, creditors can undertake public examination under section 81 as well as trustees. The son was found to be an impressive witness, and his evidenced was preferred to that of the Bankrupt, including evidence that his father had told him he had “no intention of telling my mother where my father has hidden their money.”
When looking at the flight risk aspect of a travel decision the questions asked are similar when considering a bail application. What connections does the bankrupt have with other countries? Is the bankrupt likely to return to Australia? What family or assets does the bankrupt hold in Australia or other countries? Does the bankrupt have financial connections or otherwise overseas?
In a travel request, the Court will also consider whether there was a genuine reason for the travel, and whether the travel would hamper the administration of the estate.
In Pinto, the Court held that the bankrupt was a likely candidate to avoid returning to the country on the basis that the Bankrupt “has closer ties to Portugal than to Australia”. The Bankrupt had failed to disclose the whereabouts of Millions of dollars, and not paid anything to his creditors despite the receipt of income (less than the income threshold) and his ability to purchase plane tickets and fund litigation. It also did not help the Bankrupt’s credibility, in proffering an undertaking to the Trustees to return from his travel, that he had previously been imprisoned for 3 months for contempt of Court.
In the end “justice and equity” required the Court to intervene and overturn the trustees’ decision to travel. They directed the Trustees to refuse permission to leave Australian and to retain his Australian and Portuguese passport.
The lessons from this case are not clear. The Trustees no doubt wished to avoid incurring further significant costs in litigation regarding the Bankrupt’s application to overturn their original decision. In the end the Trustees were still forced to be involved in litigation in circumstances where they do not appear to have been funded by the wife, and where the Court ordered that the wife’s costs be paid from the husband’s estate, and where the path to any recovery of assets for the benefit of creditors from monies hidden overseas remains unclear.
At the very least Pinto is a reminder that Trustees need to be cautious, not only of challenge by the Bankrupt to a refusal to travel, but also of any creditor’s challenge to a travel permission they might be inclined to grant.
Read the decision in: Pinto v Pinto (a Bankrupt)  FCCA 831(link is external)
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact Hayley Hitch or one of the Principals of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeff Brown on (02) 9806 7446 or firstname.lastname@example.org
Stephen Mullette on (02) 9806 7459 or email@example.com.