Traveling / moving abroad in the event of bankruptcy

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In Moltoni v Macks as Moltoni Bankruptcy Trustee (# 2) [1] the Federal Court of Australia has considered a bankrupt’s request for review of the Bankruptcy Trustee’s decision not to allow him to leave Australia and live in the UK. While there have been doubts about the bankrupt’s assistance with the trustee’s investigations, this decision explored other factors and underscores that the power to refuse to travel to a bankrupt is not punitive.

ContextI

n 2006, Maruti Holdings Pty Limited (Maruti) paid US $ 21 million to a British Virgin Islands company, Sinclair Strategies Ltd (Sinclair).

Mr. Moltoni became a director of Sinclair in 2013.

In September 2017, the Australian Taxation Office (ATO) issued an amended assessment to Mr. Moltoni on the grounds that the payment of US $ 21 million to Sinclair was in fact made in exchange for Mr. Moltoni’s advisory services provided to Maruti and was treated by ATO as income of Mr. Moltoni.

In November 2017, after Mr Moltoni returned to Australia for his daughter’s wedding, the ATO issued a departure ban preventing him from leaving Australia. This ordinance remained in force. The ATO then allowed Mr Moltoni to return to the UK on the condition that he return by March 2018.

Mr. Moltoni returned to Australia in March 2018 and, following the modified ATO valuation, declared bankruptcy in October 2018. ATO accounts for over 99% of the creditors’ value in bankruptcy.

Mr Moltoni wanted to return to the UK to live with his wife. In February 2020, the Trustee did not allow Mr. Moltoni to leave Australia and reside in the UK because he believed:

  • Mr. Moltoni was unlikely to return to Australia; and
  • this would hamper the administration of his estate.

The administrator estimated that Mr. Moltoni would have to stay in Australia for at least another 6 months while investigations continued and before the administrator was able to complete a review.

Consequently, Mr. Moltoni asked the Court to review the trustee’s decision.

Publish

When considering Mr. Moltoni’s candidacy, the following questions had to be answered:

    1. Was the reason for travel and relocation to UK real?
    2. Was he likely to return to Australia?
    3. Would his move interfere with the administration of his estate?
    4. Has Mr. Moltoni complied with his obligations under the Bankruptcy Act 1966 (Cth) (Act)?

Underlying principles

There was no dispute between the parties regarding the relevant principles to be considered, including:

  • a resident of Australia can travel freely even if they are bankrupt“;[2]
  • “[restrictions to travel]…should be seen as aimed at ensuring the proper administration of bankruptcy laws and bankrupt assets under those laws and not as a sanction imposed on a citizen for his inability to pay his debts….“;[3]
  • “[these type of matters]… Should always be treated as of fundamental importance, requiring careful consideration of all relevant circumstances“;[4]
  • “….the trustee’s decision does not need to be erroneous, unreasonable, absurd or in bad faith for the court to exercise its discretion ”;[5] and
  • the law does not prohibit the bankrupt from residing abroad and … from live abroad permanently“.[6]

Considerations

The authenticity of the trip

His Honor considered that Mr. Moltoni’s intention was real on the grounds that:

  • his home was in the UK and the main reason for his trip to the UK was to find his wife;
  • Mr Moltoni’s wife was unable to relocate to Australia due to family commitments (caring for her elderly parents) and professional commitments; and
  • Mr Moltoni also said he was unable to practice his profession as a tax accountant in Australia, but would be able to get a job in the UK.

Likelihood of returning to Australia

His Honor took into account the trustee’s argument that Mr. Moltoni was not accommodating with regard to his obligations under the Act.

Mr. Moltoni argued that:

  • previously he had complied with ATO conditions allowing him to travel to the UK and return to Australia by March 2018;
  • he and his wife have close family ties with Australia;
  • he and his wife would provide engagements; and
  • he would take all the relevant measures to help the trustee in the proper administration of his estate.

The Court accepted Mr. Moltoni’s thesis and found it likely that Mr. Moltoni would return to Australia when necessary. However, Mr Moltoni and his wife had to make commitments, including a mortgage on his wife’s property in Australia securing around $ 500,000.

Mr. Moltoni’s compliance and whether the administration would be hampered

The trustee argued that Mr. Moltoni would interfere with the administration of his estate because, among other things, he was evasive in helping the trustee obtain documents relating to his overseas companies.

After reviewing the evidence, the Court recognized that there were numerous issues surrounding Mr. Moltoni’s financial transactions which the Trustee had to investigate further and expressed doubts that Mr. Moltoni had in fact fulfilled all its obligations. The Court was not particularly convinced that Mr. Moltoni denies any knowledge or involvement in the matters under investigation.

Decision

Despite some doubts as to whether Mr Moltoni had so far fully assisted the attorney’s investigations, the Court found it unreasonable to prevent Mr Moltoni from traveling to and residing in the UK. provided that it is subject to all the necessary commitments and restrictions. .

Key points to remember

The Court has a broad discretion in determining whether it is in the interests of justice and equity to deny a bankrupt permission to travel abroad.

This is a reminder that the underlying principles for preventing a bankrupt from traveling overseas are based on the need to assist in the efficient administration of the estate, rather than being punitive in nature.

Additionally, it appears the Court is ready to accept that the digital world can facilitate investigations without a bankrupt needing to stay in the country.

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