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Episode 26
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Substantive Law
Complex Bankruptcies
Law as stated: 19 October 2020
What is this?
This episode was published and is accurate as at this date.
Mark Robinson shares his experiences in managing complex bankruptcies – lots of interesting stories in this episode!
Substantive Law| What area(s) of law does this episode consider? | Primarily bankruptcy. This episode also touches on the impact of holding assets in discretionary trusts and superannuation funds, in addition to the impact of family court proceedings and voidable transactions. It also considers cross-border insolvency law. |
| Why is this topic relevant? | In this episode, experienced liquidator Mark Robinson, explores the intricacies of complex bankruptcies through a storytelling dialogue of some high-profile cases he has been professionally involved in. |
| What legislation is considered in this episode? | Cross-Border Insolvency Act 2008 (Cth) Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (UNCITRAL) Bankruptcy Act 1996 (Cth)
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| What complex bankruptcy and common law cases are considered in this episode? | Ray Williams
Geoffrey Edelsten
John Cummins QC
Lewis v Condon [2013] NSWCA 204: In this case the NSW Court of Appeal held that a trust was not a sham despite being created with the intent to deceive others. The Court said, “although the [relevant] trust was created with an intent to deceive others, the primary judge was right to conclude that it was not a sham trust”. In the Court’s view, in order for there to be a sham, it was necessary there be an intention that the discretionary trust created not bear its apparent legal consequence. While there was an improper purpose, the Court said, “this was entirely consistent with the creation of a genuine discretionary trust”. Of paramount importance is whether there was any intention to create a trust. |
| What are the main points? |
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| What are the practical takeaways? |
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| Show notes | James McGrath’s second reading speech on the Bankruptcy Amendment (Enterprise Incentives) Bill 2017 Mark Robinson’s article ‘Large and complex bankruptcy – Maximising returns for creditors’ |
| David Turner:
1:00 | Hello and welcome to Hearsay, a podcast about Australian laws and lawyers for the Australian legal profession, my name is David Turner. As always, this podcast is proudly supported by Assured Legal Solutions, a boutique commercial law firm making complex simple. Let’s talk about the B word: bankruptcy. The Bankruptcy Act 1966 is the body of law which creates Australia’s personal insolvency process, a framework which allows people in severe financial distress to be released from insurmountable debts, while at the same time providing for the realisation of their available assets and distribution of those to affected creditors. Sounds simple, right? Now add into the mix of global pandemic the looming insolvency cliff and the government’s policy responses to both. Is it still sounding simple? Well as today’s Hearsay guest is about to tell you, not so. Mark Robinson is a registered liquidator and leading bankruptcy trustee at DVT Group with years of experience in large and complex bankruptcies and he’s here to share his experiences in dealing with some of the curliest ones, as well as his predictions on what the post-COVID bankruptcy landscape will look like. Mark Robinson, thanks so much for joining me today on Hearsay. |
| Mark Robinson: | Oh thank you for having me David. |
| DT: | Now as I said, you have years of experience in the bankruptcy landscape and you’ve dealt with both simple bankruptcies as well as some of the most complex and famous bankruptcies in Australia, what makes a complex bankruptcy different to the straightforward ones? |
| MR: 2:00 | So, I’d probably put up the top of my factors that make bankruptcy complex, out of the three factors that I’ll talk about, stems from the complex personalities of the bankrupt themselves. They’ve ridden the wave of business success for some time, are highly intelligent and continue to maintain a very healthy ego. Pre-bankruptcy they’ve had the resources and advice to restructure their personal affairs. Well, they maintain a willing and close network of close friends, family and advisors, and they often approach bankruptcy with a bit of a war games mindset as a long series of commercial and legal skirmishes with the aim to win at all costs. Consequently, the trustee, that being me more often than not, has to match and encounter a robust and intelligent personality and their network of friends, family and advisors, so that’s the first of the three top factors. |
| DT: | And in some of the complex bankruptcies we’re going to talk about this afternoon, that’s definitely present. |
| MR: | Absolutely, absolutely, so we’ll look forward to teasing that out a bit later on. |
| DT: | Yeah absolutely. What are your other two factors? |
| MR: 3:00 | Yeah well I guess that the next cab off the rank would be the structure and conduct of a bankrupt’s financial affairs pre-bankruptcy can also add significantly to complexity. Ranging from holding assets in discretionary trusts, and superannuation funds, through to complex family court property proceedings and orders, and transferring legal title to assets to trusted friends and family members. So that would be my number 2. And then I guess covering off my top three, often in complex bankruptcies the bankrupt continues to have access through family and friends to significant funds to engage effective and legal business advisors. In contrast, most often the bankruptcy trustee’s resources are finite and not lavish. And so the trustee has to be experienced and clever enough to adopt the correct investigation recovery strategies to counter a well-resourced adversarial bankrupt. |
| DT: 4:00
| Now that last one’s something interesting and quite counterintuitive because usually when you think of the asymmetry of resources between the trustee and the bankrupt, you would expect although as you say, not lavish, the trustee is going to be the better resourced party but in a complex bankruptcy that’s not so… |
| MR: | Oh in a complex bankruptcy that’s often not so because you’re talking about former captains of industry and they’ve had control over 10s or maybe hundreds of millions of dollars or even billions of dollars flowing through, not necessarily their hands, but at their direction. They’ve only had to have captured a small percentage of that and parked it somewhere convenient to be able to reach out and have access to it through a friend or third party. So you are quite often fighting a big war chest. |
| DT:
5:00 | And it sounds like all three of those factors kind of work together when having that experience as you say as a captain of industry and having that intellect and that network, combined with the structuring of assets that keep them away from vesting in the trustee, lead to a person who is very well equipped to fight those skirmishes as you say. TIP: Modern bankruptcy law has come a long from debtor’s prisons, which by the way existed in Australia well into the 20th century. As we hear in this episode, bankruptcy law today more closely parallels the law of corporate insolvency. But the fundamental and ancient principle that still remains in bankruptcy today is the equal, or in Latin pari passu which literally means ‘on equal footing’ payment to creditors of funds raised from the realisation of the insolvent debtor’s assets. |
| MR: | Absolutely, and in one of the cases, I wouldn’t call my outcome a straight out win, I’d call it a draw. |
| DT:
6:00 | I’m looking forward to hearing about that. Now before we get onto those examples, one thing you mentioned as a complexity in the structuring of complex bankrupt assets is family court orders. That often there might be a separation that’s occurring at the same time. Can you tell me a bit about how that makes the process more complex? |
| MR:
7:00 | Well it makes it more complex, fundamentally, family law courts are able to consider bankruptcy matters. They’re both federal laws and both the Federal Court and the Family Court can hear bankruptcy matters and in the family law the consideration of commercial concerns is with the lens of being very family friendly. And so when you’ve got a very sophisticated bankrupt that might be able to concoct a family separation of some sort and not necessarily be a genuine separation and let’s say the spouse of partner continues to be aid and abet and be friendly with the bankrupt notwithstanding from the eyes of the court there’s been a separation. It is a mechanism by which through voluntary means, even with voluntary orders under the family court that assets can be removed out of the grasp of the bankruptcy trustee. |
| DT: | Now many of those complexities come into play later on in the process in those legal skirmishes later on, but how does a complex bankruptcy differ to a simple bankruptcy on day one? What are your day one steps in a complex bankruptcy? |
| MR:
8:00 | Well I guess it is more….it is pre-day one, is the distinction between complex and standard bankruptcies, if we can call them that. With complex bankruptcies it really does behove the trustee and the aggrieved creditors and the legal advisors and financial advisors to do a lot of planning pre-bankruptcy just in terms of where do the assets sit? What are the various corporate and other trust structures and superannuation funds, where are they? Quite often there’s been a long legal skirmish involved you know a review of the transcripts etc of those proceedings and documents lodged in those proceedings, just to sort of determine what’s there, and also to map out a plan of approach to the bankruptcy once the bankruptcy occurs. And that plan of approach will require resourcing as well. So it’s also a case of trying to, from the trustee’s point of view, securing an appropriate budget to achieve the agreed plan. So it’s the pre-planning process that’s the biggest distinction. |
| DT: | To what extent do you have reliable information on which to conduct that pre-planning I suppose? Because I imagine most of these complex bankruptcies are creditor initiated rather than debtor initiated and in those circumstances there’s plenty of public information you can gather but so much of it you’ll not be able to access until you have those compulsive powers that the Bankruptcy Act gives you. How do you go about planning the job? |
| MR:
9:00 | Well as I said there’s the obvious, the statutory registers which you’ve touched on, but there is beyond the obvious sort of insights that you can get because of their egos and their profile, there’s the media. The media has quite often tracked these individuals for quite a period of time, including you know it’s quite often a bankruptcy that follows a corporate collapse and so there’s at least two to three years’ worth of media reports. There’s 2-3 years’ worth of court reports, and then also the financers might well of appointed some corporate style of appointees such as receivers etc so they might have, in doing their corporate investigations be able to provide information in and around that individual director’s interests in the company and what they might well have done in disposing of or dealing with the corporate assets. So you know, the one advantage of the complex bankruptcies is that there should be, and normally is, some pretty good hints as to where the happy hunting grounds might be from the perspective of a trustee. |
| DT:
10:00 | That isn’t necessarily intuitive, but it does make sense that you have those different sources of intelligence with a high-profile public individual. Now let’s talk about some of the high-profile bankruptcies you’ve worked on in your career. I want to start with Ray Williams, the CEO of HIH insurance. Tell me a bit about that job. |
| MR:
11:00
12:00
13:00 | Yeah look I think it was a fascinating job, probably the highlight of my career, and it was in my early bankruptcy trustee career together with Max Prentice who’s a generation older than me but another high-profile bankruptcy trustee. And just one of the reasons it was fascinating was the personality of Ray Williams. So, I’ll just spend a few minutes sketching out what he was like and what he was about. So, he was a likeable, devoutly religious man but with a healthy ego. So way back in 1968 Ray Williams co-founded the business that would evolve overtime to become HIH insurance Limited, which was Australia’s second largest general insurer at the time so a very substantial business. Ray Williams was HIH’s CEO for a short period of time from 1998 to the year 2000, and he was also a very well-known big spender during his short period as CEO, you know executive bonuses rocketed 20-fold, by way of example. Further during this time, Williams agreed to buy another corporate rogue’s Rodney Alder’s FAI insurance into HIH without conducting due diligence would you believe it. So this proved to be a poison pill because FAI had significant liabilities artfully hidden by Adler and his lieutenants. So court documents around that time in 1997 disclosed that Ray Williams’ personal wealth was that he had shares worth at that time about $14 million, but majority of those were HIH shares. We must remember he had several millions invested in superannuation funds and he had encumbered property in his own name but heavily encumbered, but you know with a market value of about $4 million. Importantly Ray Williams’ wife, longstanding wife Rita Williams, had multi-million properties in her name in Balmoral and Seaforth, luxurious suburbs here in Sydney. So interestingly, three months after his resignation as CEO in 2001, provisional liquidators from McGrath Nicol were appointed by the court and the magnitude of HIH losses unfolded. Debts were estimated at $5.3 billion dollars, so it was the largest corporate collapse in Australia to that date adversely affecting many individuals and businesses Australia-wide. So in May 2002, and this will give you a sense of how things can drag out with these complex bankruptcies until the trustee actually comes to the fore, wasn’t until in May 2002 that Rodney Adler and Ray Williams were ordered to pay $8 million worth compensation after ASIC successfully sued the duo for breach of directors’ duties. It so transpired that Rodney Adler paid that entire $8 million and later in the day sought contribution from Ray Williams. So then in 2005, you know the timeline rolls along, a Royal Commission was held into the collapse of HIH and a big part of that was not just the corporate collapse of HIH but also why was the regulator APRA asleep at the wheel? It was the big big question that was to be answered as a consequence of that inquiry. Also, in 2005, Williams was sentenced to gaol for four and a half years with a non-parole period of two years and nine months for lying in company prospectuses about the financial state of HIH and unsurprisingly for being a reckless director, when we heard about how he liked to splash the money around. So that’s the background, in terms of how did he go bankrupt I guess is the… |
| DT:
| I mean that’s the big question. There were some pretty substantial assets there including $14 million of shares that I suppose in the end were not worth a whole lot, if they were mostly HIH shares. What did the creditor landscape look like there? |
| MR: 14:00 | Yeah look that’s an interesting part that’s quite specific to the circumstances. The debt that actually caused Ray Williams to reach out to declare himself bankrupt was HIH’s liquidator Tony McGrath seeking the return from Williams of his $1 million termination payment when he exited as CEO back in the year 2000. That was what precipitated Ray Williams to reach out and appoint a trustee. It also transpired that Tony McGrath in that position as liquidator for HIH had a massive contingent liability claim for hundreds of millions of dollars against Williams for his very poor conduct as a director of HIH and causing substantial loss and damage to the creditors of that company. |
| DT: | But it was the, and I don’t want to call $1 million modest, but in the circumstances, it’s the modest liability that precipitated or catalysed the appointment. |
| MR: 15:00 | Yes that’s right because the larger claims, let’s say quantifying damages and you know that either shareholders and creditors of HIH incurred, takes a lot of forensic analysis by corporate appointees such as liquidators like McGrath Nicol to do a lot of work to be able to quantify that claim. So it’s quite often the smaller and more readily identifiable claims that precipitate complex bankruptcies. |
| DT: | Now earlier on in the episode you described complex bankruptcies as being characterised by a number of skirmishes, is that the case in respect of the Williams bankruptcy? |
| MR:
16:00
17:00
18:00 | Yeah, look it was in terms of the fact that you know he had for many years held the family’s valuable assets in his wife’s name in a longstanding family trust and in a superannuation fund. And so, you know with the access to those three vehicles, a wife of 40 years standing, a family trust and a superfund that’d been contributing over many years, and he had been getting good advice, they were very difficult to look at and overturn because I guess the basic premise is, and it’s a general bankruptcy concept, that you know if you’re solvent at the time and there are no creditor clouds looming on the horizon, you know you are free and able to deal with your assets as you see fit. It only becomes an issue as and when you become insolvent. Now if you were very wise early on in your corporate career and dealt with keeping it separate from your investable assets for many decades prior to becoming insolvent, it becomes something that is very difficult for a bankruptcy trustee to attack. TIP: Section 58 of the Bankruptcy Act provides that upon a person becoming bankrupt then all property belonging to the bankrupt that is divisible amongst their creditors, which is pretty much everything except for sentimental items, tools used for work, or a car if it isn’t worth too much and a couple of other things, vests in the trustee in bankruptcy. However, under section 116(2)(a) there’s an exclusion for property held on trust for another person. Now trusts can remain beyond the reach of a bankruptcy trustee insofar as they satisfy that exclusion provision. One exception to this would be if the court was to find the trust was a sham for example its purpose was to disguise assets and didn’t bear its apparent legal consequence. In that case the trustee would be able to reclaim the assets held under the trust. In a 2013 case decided by the NSW Court of Appeal, Lewis v Condon [2013] NSWCA 204, it was held that the trust was not a sham despite the trust being created with the intent to deceive others. The Court said, “although the [relevant] trust was created with an intent to deceive others, the primary judge was right to conclude that it was not a sham trust”. In the Court’s view, in order for there to be a sham, it was necessary there be an intention that the discretionary trust created not bear its apparent legal consequence. While there was an improper purpose, the Court said, “this was entirely consistent with the creation of a genuine discretionary trust”. Talk about an unexpected result! But the lesson is this: what matters is whether there was an intention to actually create a trust; not what nefarious purposes the trust was created for. |
| DT:
| And I suppose that leads me to this question, when you look at the structuring of a high net worth individual on day one or as you say, perhaps well before day one over a complex bankruptcy, at what point do you say that you’re going to try and unwind that structure? What aspects of the structure do you say, ‘well I accept that’s structured the way it is and there’s nothing I can do about that,’ and what aspects do you say, ‘well that doesn’t seem quite right, I’m going to pursue that further?’ |
| MR:
19:00
20:00 | Yeah that’s right, that’s a good question and that’s why in terms of it’s like peeling back the layers of an onion I guess is the best way to describe it. In terms of, I talked about pre planning in bankruptcy, about complex bankruptcies having a plan for day one and that day one might be looking at the first layer of the onion in terms of these structures and making examinations and inquiries of individuals, and maybe private examinations or public examinations of key individuals including the bankrupt under oath just to pinpoint exactly how these structures came to be and how they were treated. Quite often it’s the case that, you know, the structures are meant to work a certain way as per the documents, but how they are actually applied and utilised in practise is a different thing again. And so sometimes bankrupts back when they were just merely debtors trip up in that regard. And so when you plan to peel back the first layer that is also your first layer of funding, and then you sort of take a breath then at that point, determine what evidence you’ve got at that point, whether there are any further chinks worth exploring in terms of the bankrupt’s armoury to try and protect their assets. Also on a cost benefit basis what’s likely to be gained at the end of that process, and if you’ve still got some rabbit holes to go down, then you roll into the second phase and you repeat that if the funding creditors have got the stomach for it, until such time as you get some success. But the best way not to get burned too much, from a creditor’s funding perspective, is to have that iterative process. |
| DT: | Now returning to Ray Williams’ bankrupt estate, how did you get the assets in there? Tell me a bit about the process of realisation? |
| MR:
21:00 | Well in Ray Williams, that was the matter that I loosely referred to as a draw because he had been well advised. Further because his family was relatively wealthy through the benefit of having assets that they’d had access to for many decades, had the ability to fund a tier one law firm as well and that was the same firm that had assisted him through the Royal Commission and also through the various ASIC applications and court proceedings, and how they were also sufficiently funded. And my rough calculation is that at the end of the day they would have had between $3-5 million worth of fees forwarded their way. He had access to significant legal advice. I was able to secure a latterly acquired property but it wasn’t one of the gems in the crown, so to speak, and some watercraft and some various other things that were sufficient to fund my examination process, but you know in terms of recoveries I was only able to secure about $1 million at the end of the day, after costs, to get back to creditors which given the tens ranging out to hundreds of millions of dollars of damage that he caused, was not a significant return. |
| DT:
22:00 | No, it’s sort of a drop in the ocean isn’t it? You mentioned some real property, some watercraft, some of those luxury assets that are probably common to a few different complex bankruptcies, do you treat the realisation of luxury assets differently to the realisation of say, you know, just any old residential property or any old personal effects? |
| MR: | Yeah absolutely. You know, by definition luxury assets are things that aren’t necessary you know for the bankrupts day-to-day living requirements or family living requirements. They are surplus assets and so I have no compunction at all moving very rapidly to secure and sell for good value in an appropriate market. You know luxury goods contrast that with a family home that might have a lot of other bankrupt’s family members who aren’t bankrupt and haven’t been involved in the bankrupt’s business dealings, you’ve got to be very mindful of due process with all tenants in a residential property, for example, so that’s a lot more process driven and hence a more time bounded process than luxury goods. |
| DT: | Now moving on to another one of those high-profile bankruptcies in your career, Doctor Geoffrey Edelsten, tell me a bit about that. |
| MR: 23:00 | Oh yeah look, he’s a fantastic fellow from the point of view that he’s like Lazarus Rising this fellow. Noting that a lot of your listeners will be a bit younger than me, they mightn’t be aware of his early career so I might just quickly touch on that just to add a bit of colour. He’s an Australian medical entrepreneur, in the 1980s his unconventional medical clinics and lifestyle attracted a lot of media attention. He owned mansions, helicopters, a fleet of Rolls Royce, a bunch of Lamborghinis with number plates such as ‘Macho’, ‘Spunky’ and ‘Sexy.’ He was also the first private owner of an Australian football team, the Sydney Swans, which he purchased in 1985. His multidisciplinary medical clinics were actually in front of their time, and they were at the forefront of the modern corporate medical practises that we see today, they were open 24 hours and fitted with chandeliers, grand pianos and mink covered examination tables, so I’ll leave it at that. Wouldn’t be very effective in today’s COVID environment, I’m not quite sure how you clean down a mink examination table. |
| DT: | Yeah I wonder how you disinfect mink. |
| MR: 24:00
25:00 | And so he had a lot of other troubles as well that go with the almost manic like personality. He was registered as a doctor in the late 1980s in New South Wales and then Victoria. And then in 1990 was actually jailed. He was jailed for perverting the course of justice for soliciting Christopher Dale Flannery, a notorious underworld figure, to assault a former patient that was going to dob on him, sue for a poor procedure. But notwithstanding all of that, in 2009 he decided to rise up from the ashes and with a business partner founded Allied Medical Group. It grew to have more than 20 super clinics across Australia and in 2011 Allied Medical Group was sold to Sonic Healthcare which is you know the big corporation out there today, in a deal worth well over $100 million. So you know, he got cashed up and decided to trade in the old wife and get a newer number Brynne, and in 2004 whilst they were living in the United States, he discovered the House of Nurielle boutique in Las Vegas which was owned by a Miami based couple Rafael Mawardi and his wife Limor. Now the Mawardis designed one-off dresses and suits for celebrities and the partying rich, and so Edelsten forked out for himself and Brynne tens of thousands of dollars on clothes. In fact, Edelsten was so impressed that in July 2011 he entered into a joint venture agreement with the Mawardis paying $3.2 million US dollars for half of the Mawardi’s fashion company. So interestingly enough, in 2011 the post GFC wreckage of the US real estate market presented opportunities for the clever but also pitfalls for the reckless. So you can understand which side of the equation Edelsten was going to end up. Edelsten sent Mawardi, who was a fashion designer, off to buy distressed property, as you do. |
| DT: | As you do. |
| MR: 26:00 | As you do, exactly right. and so Mawardi bought some large slum-like apartment complexes in Ohio and Tennessee, so quite depressed areas in the United States and also a mosquito infested casino complex in none other than the Dominican Republic. So you know right off the scale. |
| DT: | Distressed indeed! |
| MR:
27:00
28:00 | Absolutely, whilst taking next to no due diligence! Further, to top all of that off, Edelsten bought a private jet for $4 million and decided to do a lavish fit out on this private jet. So suffice it to say, that all investments quickly failed, and in 2012 Edelsten and Mawardi fell out, both accusing each other of fraud. By late 2013 there had been numerous court filings and hearings in the US involving many teams of lawyers. The general dispositional feeling around those court cases was that Edelsten had wrongly deprived the Mawardis of their interests in various properties through the JV. And so that then leads to the interesting question as to how he became bankrupt and then my involvement. So in June 2013, a Florida court appointed a receiver to the joint venture of Edelsten and Mawardi and ordered Edelsten not to further deal with the properties. Notwithstanding that, and it’s pretty typical Edelsten, four months later he executed a mortgage on the Ohio property without court consent. So in January 2014 the day before Eldeston was due to appear in court to face criminal contempt hearing for you know, obtaining that security, he filed for bankruptcy in the US. A Florida based insolvency practitioner Soneet Kapila was appointed his trustee. Edelsten’s debts were not just in respect of his US dealings, but also included $14 million owing to the Australian taxation office. And then what flowed from that, and there was a very unique aspect of this particular bankruptcy, was the nature of my appointment. On the 3rd of September 2014 Soneet Kapila the US trustee in bankruptcy appointed to Edelsten, issued an application in the Federal Court of Australia under the UNCITRAL Model Law for recognition of a foreign bankruptcy proceeding in Australia, so that he could deal with Edelsten’s Australian assets and interests. Mr Kapila’s application was granted and I effectively became his Australian agent. This was the first time that such an application in personal bankruptcy had been made in an Australian court. |
| DT: | Wow! Now that meant that you were dealing with the Australian aspects of the administration. |
| MR:
29:00 | That’s right. TIP: UNCITRAL stands for the United Nations Commission on International Trade Law and UNCITRAL Model Laws are the basis for all kinds of cross border legislation across the world, including for arbitration, e-commerce and yes, cross border insolvency. The UNCITRAL Model Law is given effect in Australia through the Cross-Border Insolvency Act 2008 (Cth). Now that act allows a trustee in bankruptcy from another country to bring an application before an Australian court for recognition of a foreign bankruptcy proceeding in the country where the debtor has “its centre of its main interests”. Now Bankruptcy Act 1966 (Cth) also contains provisions requiring that Australian courts having jurisdiction in bankruptcy aid the courts of other participating jurisdictions including the United Kingdom, Canada and New Zealand. And those countries have legislation with equivalent provisions requiring them to aid us. |
| DT: | I imagine there were substantial creditor claims and assets overseas, but what was the asset and liability position in Australia? |
| MR:
30:00
31:00 | Yeah well in Australia, it was essentially the taxation office claiming $14.1 million. They subsequently reduced their claim down to $9 million. I was certainly feeding back what I was discovering around creditors here in Australia and also the asset position here back to the US trustee. And that sort of led to in October 2014, the US trustee reaching a US court settlement with all parties, including the ATO. And that settlement funnily enough comprised predominantly, in terms of the assets to be liquidated, the Australian based assets. The settlement required Edelsten to pay the US trustee only $1.25 million from the sale of his Palazzo Versace condo in QLD. And his Quay West apartment here in The Rocks Sydney. Now he was allowed to keep more than 50% of any assets held by his trust, the Norman Smith Trust and they were predominantly the residual of the US property assets. So I’d say looking at it on the face of it, many would say this would appear favourable to Edelsten, this sort of settlement, but so expansive had Edelsten been his spending and poor investments, that the reality was that the US trustee concluded that once Edelsten paid the $1.25 million, he’d have nothing left. That was the bottom line. So the deal was consummated and the major Australian creditor, being the ATO, got $500,000 against their reduced $9 million claim. |
| DT: | Wow! Now an interesting case for a whole number of reasons, one of which of course is the nature of your appointment and your cooperation with an overseas bankruptcy trustee. What does the cross-border dimension add in terms of complexity? |
| MR:
32:00 | I think it is funnily enough it works in the other direction from the perspective of the US trustee it actually simplifies it. Because the foreign trustee in this case was able to reach out to the Australian assets and include them in the pool of assets to be distributed in a proposed settlement, and which in fact they were. And so you know the interesting piece here is that some albeit, relatively nominal, sum of the realisation of these Australian assets would have been utilised to settle up with some US creditors. |
| DT: | As you said the majority of the assets that were subject to that settlement agreement were in Australia. Now you mentioned that an aspect of the settlement agreement was the realisation of some assets in what I think was the Norman Smith Trust, how do these trust, I’m not sure what kind of trust it was in that case, but how do the imposition of trust structures affect complex bankruptcies? |
| MR:
33:00 | Look generally speaking they’re very difficult in terms of a discretionary trust, which is the usual sort of trust arrangement that a bankruptcy trustee comes up against. A bankruptcy trustee cannot direct the trustee of the trust to make a distribution in favour of the bankrupt as beneficiary of that trust. Because that’s deemed to be more of a private interest in a trust might have, not of a property’s nature that that vests in a trustee. And so it’s more of a case of attacking the trust from the point of view as to when did the assets that comprise the trust actually become part of trust? And whether that’s a transaction that wasn’t for proper commercial value and within the required timeframe that can be clawed back from the trust. |
| DT: | And how is the acquisition funded? From what sources? |
| MR: | Absolutely spot on. |
| DT:
| Now, the last one of these high-profile bankruptcies that we’re going to talk about today is John Cummins QC, that’s a name that many of our listeners will be familiar with even if they’re not insolvency lawyers, not because of the bankruptcy proceeding, but because of the other proceedings that followed the bankruptcy. It’s a case famous for the failure to lodge a tax return for basically the entirety of a career at the bar. Tell me a bit more about John Cummins. |
| MR: 34:00 | Oh, look he’s a classic personality, you know he was a very successful personal injury barrister who was taken, and this gives a bit of colour around him, he was taken to referring to himself as JC QC AJC. Now that was a reference to him being Queen’s Counsel and a director of the prestigious Australia Jockey Club. So that’s the way he would describe himself when he introduced himself to people that he didn’t know. So that sort of gives you that sort of air of the man at that point in time. |
| DT: | And I get the feeling there might be a few racehorses in the asset? |
| MR:
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37:00
38:00 | Surprisingly not. But he certainly had an interest in them. So just the quick colour of the history around Cummins, you know he’s a solicitor, became a solicitor in 1957 so a long time ago and went to the bar 19 years later, so back in 1980 he became Queen’s counsel. He married Mary Cummins in 1964 and they had four children. So, you get a sense that their life has been up and running for a long period of time. And the interesting transaction occurred in August 1987. In August 1987 more than 13 years before his eventual bankruptcy, Cummins disposed of all his available assets at that point in time. The assets comprised of his share in the family home, at prestigious Hunters Hill, he transferred to his wife for an expressed price of $205,000 however no money changed hands, and he also transferred his shares in his barrister’s chambers, transferred that to his family trust for an express price of $360,000; again no money changed hands. Then interestingly, in the late 1990s, so a considerable time later, more than 10 years later, the famous journalist Paul Barry broke the story in the Sydney Morning Herald about Sydney barristers who in the face of enormous unpaid tax bills reached for the bankruptcy option, quite often more than once. So that caused a furore and particularly as to what the taxation office was doing about it. So the tax office decided to focus their investigations on barristers and in 1999 they discovered that Cummins was not lodging tax returns. And so they contacted him and what comes in turn, he instructs a new tax accountant. So the first time Cummins lodged a tax return was in February 2000 and that was for the period between 1992 and 1999: an 8-year period. And the return showed that his annual income ranged up to and beyond $400,000 per annum. So until his lodgement in the year 2000, Cummins had not submitted a tax return for 45 years since before he’d been admitted as a solicitor. TIP: Let’s discuss voidable transactions. In Cummins’ a question of whether a transaction was voidable was complicated by the presumption of advancement, which presumes in absence of evidence to the contrary, that a husband purchasing property for a wife (and archaically it hasn’t been applied the other way yet) intends her to own that property beneficially. In Cummins, that would have meant that a share of the property in Hunters Hill that Mr Cummins purported to have transferred to his wife, would have been out of reach of the Bankruptcy Trustee, and therefore out of reach of his creditors. In Cummins it was held that section 121 of the Bankruptcy Act applied. Section 121 relates to transfers of property that are done in an attempt to defeat creditors. The transfer was determined by the High Court to be voidable and the Court instead held that a joint tenancy still existed between Mr and Mrs Cummins in the Hunters Hill property. Eventually 50% of the sale of the property was clawed back into the bankrupt estate. In order to prove that a transfer was unlawful under s 121, the trustee has to show that the transferor’s “main purpose” was to prevent, hinder or delay the creditors getting a share of the property transferred. Establishing the subjective element of intention can be difficult but it’s assisted by s 121(2) by which it is taken that an improper purpose existed if the person’s insolvency at the time can be reasonably inferred. |
| DT: | Wow. 45 years! |
| MR: | 45 years. And so based on that 8years worth of income that he did eventually disclose, the ATO you know made an assessment of in the order $1 million tax payable. And in December 2000 based on that assessment, Cummins declared himself bankrupt. He fell on his sword. |
| DT: | Now that’s interesting we’ve spoken about 3 high profile bankruptcies, I said earlier in the episode that I expected many of them to be creditor initiated but yet here not one of the three. |
| MR: 39:00 | So I guess they see it as being inevitable that you know not just one creditor, but a range of creditors could make them bankrupt, and so you know given that they’re sophisticated business people, they’re wanting to be proactive and drive the issues and so you know they would much prefer to prep for the bankruptcy in their way to take it on. And so you know that is quite often the flavour that you get complex bankruptcies that they actually initiate the bankruptcy. |
| DT: | Now in both this bankruptcy and the last on Geoffrey Edelsten, the tax office was a major creditor, how do you find dealing with the ATO as a stakeholder in complex bankruptcies? |
| MR:
40:00 | They’re very good if the claim is large against the Commonwealth firstly, and secondly if it has a public interest component to it. And certainly, in Cummins it was deemed to be of public interest that he be dealt with appropriately because he hadn’t paid tax for 45 years and he had disposed of his available assets so be it, 13 years prior. And so, they, on my application as trustee, they were willing to fund that and also provide technical support in terms of obviously tax was the big issue here and they were able to pull out historical records etc to assist in the forensic analysis of the unpaid tax. |
| DT:
| And of course, that application brought by you and funded by the ATO still stands as authority on questions like the presumption of advancement and the presumption that properties held by married persons is as joint tenants, which we’ll elaborate on later in the episode. Just to conclude on John Cummins’ bankruptcy again what was the asset position like? |
| MR:
41:00 | Well the asset position in his own name was nil. And so, the only prospective interest that we had was if we were successful in showing that disposition of the interest in the matrimonial home and the barristers chambers could be overturned. And then further you know that then to be supported by an order against the bankrupt’s wife to make good that claim of the bankrupt estate and that was eventually made good by way of sale of the matrimonial property and an appropriate divvy up of the proceeds. |
| DT:
| Now again it is interesting that in all of these cases the bankruptcy is initiated by the debtor. When a creditor is pursuing a creditor’s petition against a person who’s likely to have a complex bankruptcy, who might be a high net worth individual, who has complex structures in which they hold their assets, a creditor can choose to appoint a private bankruptcy trustee, or perhaps the official receiver appointed as the trustee. Now, the answer is clear to me that a private bankruptcy trustee, an experienced bankruptcy trustee should be appointed rather than the official receiver, but could you tell our listeners why that is? |
| MR: 42:00
| Well I guess the first point to make is that the official trustee as part of AFSA, Australian Financial Securities Authority, is part of the federal government that they have a policy of even where they are the trustee, if there are assets and issues in even matters that their trustee of, they’ll refer those out to registered trustees because they consider that to be the province of business and commerce and they will just hold on to what they call the ‘public interest bankruptcies’ i.e. providing the service of bankruptcy trustee services for those estates that have got no assets and minimal income. So it’s always going to come across to a private trustee in any event. If you’re looking at a petitioning creditor, let’s say a major financier looking to bankrupt a former captain of industry in terms of a finance extended to a large corporate that’s collapsed, they will only be looking at a list of prospective trustees to do a beauty parade to work out who might have the best strategies and who’s going to be most cost effective. |
| DT: | Are they that proactive in selecting a registered trustee? Do they look at strategy? At planning? |
| MR: 43:00
44:00 | Oh look my experience has been that generally large petitioning creditors, traditionally in this space at least, large finances would lean very heavily on their legal advisors. Their panel lawyers who come from the larger and more sophisticated law firms in terms of the very large corporate collapses, and then you know some very gifted mid-tier and smaller firms in respect of the mid-market. It’ll be a combined decision of the financier together with their lawyer who is normally on the scene and dealing with the file well and truly before the bankruptcy trustees are sounded out as to their interest in taking the matter on. TIP: Creditor’s petitions are filed in the Federal Circuit Court and they have to be based on an ‘act of bankruptcy’, which is set out in s 40 of the Bankruptcy Act. The most common of these acts of bankruptcy is the failure to comply with a bankruptcy notice, but they can also include acts done with the intent to defeat or delay creditors, including the classic ‘keeping house’ to avoid creditors. The creditor has to show that this ‘act of bankruptcy’ occurred in the 6 months prior to the petition being filed. Now bankruptcy, and the filing of creditor’s petitions in particular, is an area that’s been operating differently during the COVID-19 pandemic. Prior to COVID-19, a creditor had to be owed a judgement debt of at least $5,000 before they could issue a bankruptcy notice. Following the pandemic, this amount was increased to $20,000, as part of the government’s initiative to provide temporary relief for financially distressed individuals. To put the effect of that change into perspective, AFSA, the Australian Financial Security Authority, reported that in the first quarter of 2020, July to September – there were 2,946 new personal insolvencies in Australia. Of this, 1,676 were bankruptcies. Now that’s 50% lower than the same quarter last year. |
| DT: 45:00 | Now something you mentioned earlier is that what really sets a complex bankruptcy apart from a simple one is the extent of the preplanning that’s required. Some of our listeners will be acting for creditors who are pursuing creditors petitions, some of them will be acting for high net worth individuals who may in the troubling financial times we find ourselves in, be considering bankruptcy. Whether acting for a creditor or a potential bankrupt, what should one be thinking about at that pre planning stage? What are the issues to consider before pulling the trigger on a petition? |
| MR:
46:00
47:00
48:00
| Firstly identifying where the bankrupt is physically, in Australia or overseas, and can they be effectively served is the first thing that they should look at because that can consume for no great return a lot of resources and cost. So that’s a relatively straightforward one. I always advocate to try and gather together as much information as they can from various sources, court sources, register sources, loan applications etc that might be available if they’re a financier petitioning creditor, to really work out in terms of loan applications quite often discloses an asset and liability position as well, to try and work out what is the potential equity here? As I said before, if they’ve been reported on in the media, you know they’ll be a good trail of you know what trophy homes they’ve bought, potentially you know watercraft etc, where they’ve been holidaying overseas, whether they’re a professional punter like other bankrupt Eddy Groves who maintained a beautiful home just outside Las Vegas. So that will come within the purveyance so it’s then you are in preplanning looking at what the size of the opportunity is in terms of potential recoveries. There is also for large petitioning creditors, large financiers, whether they want to also by virtue of making a high-profile person bankrupt, send a message to the market in terms of not being perceived to be an easy mark in terms of lending and that personal guarantees actually do mean something. And so at that point once you can work out what the potential opportunity for recovery is then working out what the process is to achieve that recovery in terms of identifying that process which might be a series of examinations first of all to get finer and better information. And then based on that evidence and good evidence making court applications and getting the relevant court orders to give effect to those recoveries, what does the cost of that look like? Both in terms of legal costs, court costs and of course the fair and reasonable fees of the registered trustee and the risks associated with being successful or unsuccessful. And it’s weighing that up together with the corporate interest and/or public interest elements pre bankruptcy to work out whether you really want to go forward with it. I do advocate against just sticking the toe in, you know if a petitioning creditor in this preplanning goes in with the concept of ‘they’ve only got X dollars,’ if that X dollars available to fund the process, if that X dollars is not going to get you to the end of the process, why bother? Why begin? Don’t even bother spending it. Save your money. You’ve got to really work out what is the likely process and the cost of that process and then fund accordingly. So the way a petitioning creditor can de-risk that process a bit is what we’ve talked about before, is to chunk down that process into many milestones and to only fund to the next milestone albeit that you’ve got resources available to fund beyond that milestone and take a rest and regather, regroup at each milestone to make sure that you’re on the right path. |
| DT: | Sounds almost a bit like agile project management. |
| MR: 49:00 | Very similar. And in fact in my Master’s degree in economics, management economics, is in project management. So there you go there’s no surprise I talk in this sort of language. |
| DT:
50:00 | It’s not a surprise that you’re very skilled at budgeting and planning the project out. Now, before I move on to talking about pre planning for the bankrupt tell me a bit about the examinations process? Are you just examining the bankrupt or in a complex bankruptcy where else looking for information? TIP: Episode 25 of Hearsay, my interview with Vince Pirina and Andy McEvoy from Aston Chace explored the Public Examinations process in the context of a liquidation. The Bankruptcy Act provides for a similar process under s 81. A creditor, who has a debt provable in the bankruptcy, a bankruptcy trustee or an official receiver can apply to the Court for an examination in relation to the bankruptcy. The court can order that any of the bankrupt’s associates, whether business or personal, who can be reasonably presumed to have relevant knowledge of the affairs of the bankrupt, be compelled to participate in a public examination. Public examinations generally take place where there is evidence or suspicion that there has been conduct by the bankrupt which was intended to defeat their creditors. Following a public examination, the Registrar can order the payment of debts owing to the bankrupt or handing over of property belonging to the bankrupt. |
| MR:
51:00 | Well you’re principally looking for information from those that hold assets that were formerly the bankrupt’s and could well be you know holding them in essentially in a constructive trust style arrangement for the bankrupt and dealing with them at the direction of the bankrupt. And so that’s quite often family members, close friends, and business associates, and in some cases unfortunately their legal advisors, financial advisors that are getting a bit too close to their client. And so you can throw the net very very wide and obviously it’s different depending on the transaction that you’re looking at, and it’s also very much dependent on what budget you’ve got to try and get to the answer. But the thing is about an examination, when you have an examination, you don’t just end it there. You don’t have no ability to go back to process, you quite often have an examination, generally adjourn it, see what’s become disclosed in that examination has actually proved to be truthful or otherwise. And then if some critical information is proved to either to be incorrect or patently wrong, return back to the examination process to get the correct information. |
| DT: | Again it can be done iteratively or throughout the whole process. |
| MR: 52:00 | It’s a living process. And also within bankruptcy which is a bit unique as compared to corporate examinations, we can afford to do it more iteratively because we’ve got a private examination process under section 77C of the Bankruptcy Act which is just before a representative of the official trustee and is recorded and it’s under oath and those sorts of things so and then you can move quickly with a lot less expense than a full-blown public examination before the court. |
| DT: | Absolutely, and of course not waiting for a hearing date either. Now what about the bankrupt? Or someone contemplating bankruptcy? Particularly someone who has significant assets, what should they be thinking about from a pre planning perspective or someone advising them? |
| MR:
53:00
54:00
55:00 | Yeah look they can have someone advise them, somebody like myself, but if I was involved in giving information in that regard obviously in terms of structuring etc., I’d be conflicted out from being the eventual trustee because I wouldn’t be able to approach that with the appropriate clean hands. I guess you know in terms of those bankrupts that still have access to significant assets and income albeit less than that’s what they owe, they should also be contemplating whether they can do a deal with creditors and whether they do necessarily need to first up go bankrupt, whether in fact they could instead of avail themselves in Part 10 in the Act and enter into a personal solvency arrangement whereby which they would make their assets and income available to creditors. They might be able to find a third party that might be able to provide assets or income that would otherwise not be normally available in bankruptcy to sweeten the pot, to coin an expression, and see whether creditors are amenable to that. And if the majority of creditors, passed by way of special resolution, are amenable to that, well then a personal insolvency agreement can be entered into and the debtor can avoid bankruptcy. So that’s one bit of preplanning. TIP: As an alternative to bankruptcy, Personal Insolvency Agreements permit a debtor, defined under s 187(1) of the Act as “a person who is insolvent”, to make an agreement with their creditors. This agreement puts in place a process for establishing a return to creditors without the need for a formal bankruptcy. Part X of the Bankruptcy Act 1966 (Cth) governs Personal Insolvency Agreements. And for debtors this helps them avoid the stigma associated with formal bankruptcy. For creditors, the arrangement can provide access to more funds than might have otherwise been available under a traditional bankruptcy as third parties can come to the table and contribute additional funds. The process usually involves the debtor instructing a solicitor or a registered trustee who then calls a meeting of their creditors. The creditors can resolve to accept the bankrupt’s proposal or reject it. The proposal requirements are set out in s 188A(2) of the Act which includes the requirement to identify the debtor’s property, income and setting out the conditions for the operation of the agreement, amongst other things. The agreement can be terminated if the debtor defaults on any of its terms, and it’s also worth noting that unless otherwise specified in the agreement, a trustee ordinarily doesn’t have access to property or income a debtor acquires or earns after executing the Personal Insolvency Agreement. Another bit of preplanning is that sometimes creditors just want their pound of flesh and they just want to see a bankrupt that has had substantial assets and income spend some time in bankruptcy. |
| DT: | As you say, sometimes it’s driven, particularly in a creditor-initiated bankruptcy, by ‘I need to send a message to the market.’ |
| MR:
56:00 | Absolutely. Or in the case of a statue creditor like the ATO, on a public interest point that they want to make somebody bankrupt. But once somebody is bankrupt, well then that need and desire of creditors might then have been dissipated because the debtor has gone bankrupt, there has been an examination report done by the trustee, so therefore creditors then might be in a fresh mindset of actually considering an offer to give an early release of the bankrupt out of bankruptcy through a process called annulment under section 73 of the Act. And again it’s a bit like a Part X personal insolvency arrangement except done post-bankruptcy. And again it’s got to be approved by a special resolution of creditors. But if access to assets or income outside of the bankruptcy can be made available to creditors of the bankruptcy and it proves to be a better return, creditors’ mindset might have changed sufficiently to be amenable to the offer. |
| DT: | And again in a complex bankruptcy both of those factors, both non-financial drivers for the bankruptcy in the first place and access to assets outside of bankruptcy here, are both likely to be present. |
| MR:
57:00 | Well that’s right. Quite often with a section 73 annulment, what you’re also trying to do as trustee is to encourage some of those assets that you really think should have been disgorged into the bankruptcy but are just too costly and expensive to bring into the bankruptcy by way of court application, you’re sort of saying ‘hey I know you’ve got an asset out there that’s worth $X million, how about making at least 50% of that available to creditors, notwithstanding I, as trustee, haven’t been able to absolutely prove legal interest of the estate in it?’ |
| DT: | And once the bankruptcy is actually commenced, what can a creditor do following your appointment to make your appointment easier or to make the process of bankruptcy more advantageous for them? |
| MR:
58:00 | Look, I think communication is the key. And regular and often a good trustee will set up the protocols for that communication. We’ve talked about the planning process before and that there was, you know, milestones mapped out in terms of the investigation and recovery process. You know at each of those milestones the key creditors, particularly funding creditors and/or if a committee of members has been formed, should come together with the trustee to do essentially two things: 1) reflect back on how recovery action to that date has gone and what the returns have been or likely to be, and then also 2) with a forward looking lens at that juncture assist the trustee to formulate a funded plan to take it to the next step of investigations and recoveries. So it’s a communication piece. So it’s also the case that there might be a large number of very sophisticated creditors in a bankruptcy and they’re very close, they’ve got their ears to the ground. And so they might come across some information that the trustee has not yet come across. So it’s also feeding interesting information, and relevant information back into the trustee that might help the trustee in the administration of the estate. |
| DT: | As you’ve said, in a complex bankruptcy there’s considerably more chatter about the bankrupt estate then there would be in a simple one and creditors can be valuable for some information. |
| MR:
59:00 | Absolutely. And it never ceases to amaze me that you know in a number of these complex bankruptcies the bankrupts had made enemies in the past and we tend to call them ‘deep throats’ and they quite often have gathered quite a lot of information, and at strange and curious times, it could well be two years into bankruptcy, a ‘Deep Throat’ will make themselves known, either to a creditor or directly to the trustee and disgorge a lot of very valuable information at that point in time. So it’s up to the trustee and creditors to say that they’ll always remain available to receive new information. |
| DT: | You mentioned a committee of creditors, is that common in a complex bankruptcy? |
| MR: | It is where there’s been a syndicate of creditors required to fund the action going forward. yes there would be a committee usually formed in that case. If however it’s a major financier who is funding it and it also happens to be through the personal guarantee situation the major unsecured creditor, that wouldn’t be a requirement to have a committee formed in that case. |
| DT: | It’s often a cost-benefit analysis as well, isn’t it? Whether or not to form a committee? |
| MR: 1:00:00 | Yes and also the interest of creditors as well. There’s not much point forming a committee if you struggle to obtain a quorum a couple of years into the bankruptcy because some of the creditors have lost interest. |
| DT: | Yeah absolutely. I want to turn now to some crystal ball gazing, we’ve in recent weeks seen a Chapter 11 style debtor in possession model for corporate insolvency, exposure draft of the bill is out, consultations recently concluded, do you predict any changes to the bankruptcy regime in a post-COVID world? |
| MR:
1:01:00
1:02:00 | Yes I do absolutely, and in fact the legislation for that is actually more mature than the debtor in possession legislation. There’s a piece of legislation that’s been not so much debated, but certainly it’s been around the professions and shared with the professions by the Attorney General’s Department who writes prospective legislation for what’s called the ‘one-year bankruptcy’. And that’s been sitting on the shelf effectively, it’s been well debated amongst the professional associations and Attorney Generals, it’s well refined, it has even gone all the way to parliament but then not actually tabled. So everybody’s sort of read it and is aware of it and that is a piece of legislation that would make the normal statutory period in bankruptcy which is currently three years, reduced down to one year. What we’re staring down the barrel of is particularly from early to mid-next year, 2021, a massive increase of personal insolvencies and they will have to be administered by the existing infrastructure, being the official trustee’s office, which is the public service, and the limited registered private trustee market. And so the government will be looking to speed up that process. And I think one-year bankruptcy would be a bit of a no brainer in that regard. So I think it’s ready to go, I think we’re just waiting for the government to press the go button on that early next year. TIP: The bill that Mark is referring to here is the Bankruptcy Amendment (Enterprise Incentives) Bill 2017 which was before Parliament until 2019 when it lapsed. In Senator James McGrath’s second reading speech, he said: “Our current personal insolvency laws put too much focus on stigmatising and penalising failure. As part of the National Innovation and Science Agenda, this reform aims to promote entrepreneurship and innovation and to reduce the stigma associated with bankruptcy.” We will leave a link to that second reading speech in our show notes. |
| DT: | I was going to ask you about the status of the one-year bankruptcy because it’s a proposal and as you say legislation that of course has been around since before coronavirus. I imagine it does speed the process up but at the same time does it not make bankruptcy a little more attractive? To the financially distressed individual? |
| MR: 1:03:00
1:04:00 | It does, and yep certainly you might see an uptick, I’m not quite sure let’s call it 10% might be an extra added on number in the bankruptcy pool that want to go bankrupt because they can see it as you know 12 months as a quick cleanse as being highly attractive. The other downside to it of course is particularly wearing the complex bankruptcy hat, one-year is not a long period of time for a bankruptcy trustee to undertake a thorough investigation. And so that would mean a more heavy reliance on complex bankruptcies, relying on the objection to discharge regime which does extend bankruptcies out to either five years for certain, let’s call them offences or certain transgressions. And for serious transgressions, out to 8 years. And so there would need to be more of a reliance on that. The problem is with reliance on that is that a trustee has to have valid grounds to object to discharge, and bankrupts might be able to, particularly if they’re well resourced, to be able to mount good rear-guard actions to dispense with that objection to discharge. And so you know what we might be faced with is high profile complex bankruptcies, potentially millions of dollars worth in recoveries, then being in and out within one year. But that’s a risk factor that obviously government is weighing up. |
| DT: | Yet another legal skirmish the trustee will be fighting uphill. |
| MR:
| Well that’s right. I mean the reality is a bankrupt estate doesn’t go away after discharge. And so yeah the bankrupt estate will still be there notwithstanding the bankrupt is discharged, but the problem is the trustee has got less of a hold over a discharged bankrupt in terms of complying with his or her directions in terms of giving up documents and attending examinations and the like. So it just makes the investigation process that much harder. |
| DT: | Absolutely well interesting times ahead! Thank you so much again for joining us today on Hearsay to discuss large and complex bankruptcies, and for our listeners if you’d like to know more about large and complex bankruptcies you can read Mark’s paper ‘Large and complex bankruptcy maximising returns for creditors’ which will be available on the Hearsay website in the show notes. Mark thanks again. |
| MR: | You’re welcome David. |
| DT: 1:05:00
1:06:00 | You’ve been listening to Hearsay The Legal Podcast. I’d like to thank our guest Mark Robinson from DVT Group for coming on the show. If you liked this episode about complex bankruptcies, why not brush up on corporate insolvency as well with Episode 9 my interview with Professor Jason Harris about voluntary administration. Or, if you’re looking for an ethics point, try listening to my interview with Jen McMillan from LawCover in Episode 4. Now if you’re an Australian lawyer, you can claim 1 continuing professional development point for listening to this episode. Whether an activity entitles you to claim a CPD unit is self-assessed, but we suggest that this episode constitutes an activity in the substantive law field. If you’ve claimed 5 CPD points for audio content only already this CPD year, you might need to access our multimedia content on our website to claim further points from listening to Hearsay. Visit htlp.com.au, that’s where you’re listening to this episode, for more information on claiming and tracking your points with us. The Hearsay team is Tim Edmeades, our audio engineer, Kirti Kumar our researcher, Araceli Robledo our business development manager, Zahra Wilson our social media coordinator, and me, David Turner. Nicola Cosgrove is our executive producer and does a little bit, or a lot, of everything. Hearsay The Legal Podcast is proudly supported by Assured Legal Solutions – making complex simple. You can find all of our episodes as well as summary papers, transcripts, quizzes and more at htlp.com.au. That’s HTLP for Hearsay The Legal Podcast.com.au and it’s probably where you’re listening to this. Thanks for listening. |
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