Trustee's decision to refuse Bankrupt Permission to Travel Overseas Upheld

Trustee’s Decision to Refuse Bankrupt Permission to Travel Overseas Upheld

Federal Magistrate Barnes recently heard an application by a bankrupt in Khan –v- John Melluish As Trustee in Bankruptcy of the Bankrupt Estate of Nadeem Khan [2010] FMCA 119 in which it was argued that the Trustee’s decision to refuse the bankrupt permission to travel overseas was unjust and perverse. Despite the bankrupt’s contentions, the Court upheld the Trustee’s decision.

The Facts

The bankrupt, Mr Khan, made an application under s 178 of the Bankruptcy Act 1966 (Cth) (the Act) in which he appealed the Trustee’s decision to refuse permission and sought orders requiring the Trustee to return his passport and provide approval for him to travel overseas to visit his relatives and attend a family wedding.

In support of his application, the bankrupt argued that he had co-operated during the administration of his estate to the extent that he himself had appointed the Trustee through a Debtor’s Petition. The bankrupt also argued that Trustee should have provided his consent to the travel plans on compassionate grounds and that any concerns that the Trustee had should have been alleviated when the bankrupt’s supporters deposited a $200,000 bond to secure the bankrupt’s undertaking to return.

The Trustee opposed the bankrupt’s application and argued that the bankrupt had:

• not co-operated during the administration of his estate;
• failed to discharge his statutory obligations pursuant to the Act;
• failed to answer serious allegations in relation to the liquidations of his former businesses;
• failed to co-operate during the Trustee’s assessment of his capacity to make financial contributions to his estate; and
• failed to properly account for over $2M of cash which was withdrawn from his former businesses immediately prior to the appointment of Liquidators.

In addition, the Trustee also argued that the bankrupt was a significant flight risk, that any undertakings that he would return to assist with the administration of his estate could not be relied upon and that the cash withdrawals from his former businesses could potentially be disbursed overseas, to the detriment of his personal creditors and creditors of his former businesses.

The Trustee was supported in his opposition of the bankrupt’s application by one of the Liquidators of the bankrupt’s former businesses who had been granted leave to intervene. The Liquidator expressed similar concerns to that of the Trustee.

The Decision

The Court accepted that s 178 of the Act gave the Court a very wide power to review and if necessary, amend or overturn a Trustee’s decision. However, the Court noted that it must not interfere with the exercise of a Trustee’s discretion or powers under the Act unless the bankrupt shows that the impugned conduct of the Trustee was incorrect or that other conduct would be preferable and that justice and equity require the Court’s intervention[1].

In the end, the Court decided that:

• The Trustee had properly considered the relevant facts and that in the circumstances, the Trustee’s refusal to grant his permission for the bankrupt’s overseas travel was justifiable;
• The bankrupt’s reasons for overseas travel were not of such a nature that they should prevail over the serious concerns of the Trustee; and
   
• The bankrupt’s overseas travel had the potential to hamper the administration of the bankrupt’s estate and also, the potential to defeat the rights of his creditors.
   

The decision clearly illustrates:

• The significant powers and levels of discretion which can be exercised by Trustees under the Act;
   
• That the Courts can and will support Trustees in bankruptcy with their efforts to enforce their decisions;
   
• The approach the Courts may take in assessing the competing interests of creditors, Trustees and their duties and the interests of bankrupts; and
   
• The fact that the Act imposes significant statutory obligations upon bankrupts which must be discharged during the administration of their estates.