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Bankruptcy Trustee Wins with Section 139ZQ

News Alert 21 December 2017

Christopher Mel Chamberlain as Trustee of the Bankrupt Estate of Malcolm John Tilbrook v Patricia Susan Tilbrook

In a recent judgment, the Federal Court of Australia has confirmed that where a notice issued under s139ZQ of the Bankruptcy Act 1966 (Cth) (Act) is not challenged, the Court does not have to consider the underlying facts of the Notice.

Section 139ZQ of the Act gives the Official Receiver the power to require payment of a Division 3 Void Transaction.   Section 139ZQ(8) provides that the amount to be paid to the Trustee is recoverable by the Trustee as a ‘debt by action’ against the person in a court of competent jurisdiction.
 
This News Alert considers the facts and findings of the Federal Court’s decision in Christopher Mel Chamberlain as Trustee of the Bankrupt Estate of Malcolm John Tilbrook v Patricia Susan Tilbrook.

Facts

The relevant facts are as follows:

  1. on 8 February 2011, Mr Tilbrook (the Bankrupt) became bankrupt when his debtors' petition was accepted by the Official Receiver and the Trustee was appointed to the Bankrupt’s estate.
  2. prior to the bankruptcy, the Bankrupt’s spouse received approximately $340,000 following the sale of the Bankrupt’s property which she then used to acquire a health food store.
  3. the Trustee considered the transfer of funds by the Bankrupt was void under s120 of the Act.
  4. on 10 July 2015, at the Trustee’s request, the Official Receiver issued a s139ZQ Notice to the Bankrupt’s spouse demanding payment of the sum of approximately $340,000.
  5. the Bankrupt’s spouse was personally served with the Notice and failed to comply.
  6. the Trustee applied to the Federal Court of Australia for judgment pursuant to s139ZQ(8) of the Act.
  7. the validity of the Notice was not challenged.

Issue

The Court was faced with the question of whether it was necessary to go behind the facts stated in the s139ZQ Notice where the validity of the notice is not challenged.

Justice Flick undertook a detailed analysis of the jurisprudence on the application of s139ZQ.  In particular, His Honour applied the case of Halse v Norton (1997) 76 FCR 389, in which Lee and Nicholson JJ said that:

“If a notice served on a person under s 139ZQ remains uncontested, service of the notice provides the trustee with a right that may be enforced against that person, namely, the right to recover as a debt the sum claimed in the notice”.

Black CJ also said, similarly, that a person who wants to dispute a notice has the burden of putting before the Court:

“sufficient evidence to call the validity of the notice into question”.

In finding that if the trustee had to prove the existence of a void transaction each time he or she
Brought uncontested proceedings under s139ZQ(8), then the aim of the section would be
Frustrated. His Honour also applied Re Rose; Godfrey v Whitton [2006] FCA 823, in which Graham J stated that s139ZQ:

 “was inserted by the legislature with a view to providing an administrative shortcut whereby the necessity for protracted proceedings under ss 120, 121 and 122 of the Act could be circumvented”.

Decision

Justice Flick held that he had no reason to question that the debt was recoverable due to the following facts:

  1. the Notice had been served;
  2. the Notice had not been complied with and in accordance with s139ZQ(8), the amount was therefore recoverable as a debt;
  3. there had been no application to set aside the Notice under s139ZS or in the proceedings before him.

To hold otherwise, Justice Flick said, would defeat the object and purpose of the section (citing Rose).

Comment

This case is a reminder that s139ZQ remains a powerful tool for trustees to expedite recovery of void transactions when the s139ZQ Notice is unchallenged.

*TressCox Lawyers acted for the Trustee in this case.


Kristen Farmer, Partner
Sydney

Vivien Botsikas, Associate
Sydney

Alice Gant, Solicitor
Sydney

News Alert 21 December 2017
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