NZ Court looks to Australian Court for bankruptcy assistance

This week’s TGIF considers the case of Official Assignee in Bankruptcy of the Property of Cooksley, in the matter of Cooksley v Cooksley, in which the Federal Court granted assistance to the High Court of NZ in administering a bankruptcy.

BACKGROUND

The Respondent bankrupt (a New Zealand citizen) was made bankrupt in New Zealand on his own application under the Insolvency Act 2006 (NZ). Accordingly, all of the Respondent’s property vested in the Official Assignee in Bankruptcy in New Zealand (the equivalent of the Official Trustee in Australia).

The Respondent was then later employed in Australia. The Federal Court received a letter of request from the High Court of New Zealand to assist it in the administration of the Respondent’s bankrupt estate. Specifically, the High Court requested assistance in arranging for the Respondent to make income contributions to the Official Assignee for the benefit of his creditors. The application for request was brought under section 29 of the Bankruptcy Act and section 10 of the Cross Border Insolvency Act.

Section 29 of the Bankruptcy Act provides that:

• the Court must act in aid of, and be auxiliary to, the Courts of prescribed countries that have jurisdiction in bankruptcy; and

• where a letter of request from a court of another country is received, the Court may exercise such powers with respect to the matter as if it had arisen within its own jurisdiction.

New Zealand is specified as a ‘prescribed country’.

Section 10 of the Cross Border Insolvency Act provides that the Federal Court is competent to perform the functions set out in the Model Law on Cross-Border Insolvency of the United National Commission on International Trade Law (Model Law).

DECISION

Logan J ultimately held that both section 29 of the Bankruptcy Act and section 10 of the Cross Border Insolvency Act favoured granting the assistance sought, such that the Official Assignee’s appointment (as a foreign representatives) and the New Zealand bankruptcy (as a foreign proceeding) would be recognised in Australia. His Honour held that the Official Assignee should be empowered to exercise all powers as are conferred on a trustee in bankruptcy as if the Respondent had been declared bankrupt under the Bankruptcy Act.

In doing so, his Honour made the following comments:

1. While the language in section 29 indicates that the Court is bound to exercise insolvency assistance, the type of assistance granted is a matter for the exercise of judicial discretion.

2. Section 29 is declaratory of the common law position that there should be commonality of insolvency provisions between jurisdictions.

3. A relevant factor in deciding to grant assistance is that both countries have essentially the same provisions in their bankruptcy legislation relating to requests by courts of one country for the aid of the courts of the other country.

4. The operation and application of the Model Law is not straightforward when it comes to individuals, although it appears that here the Official Assignee was a ‘foreign representative’ and the Respondent’s New Zealand bankruptcy a ‘foreign proceeding’ for the purposes of the Model Law.

5. The Australian bankruptcy law position is that the affording of assistance under section 29 should not be used for the enforcement of a foreign revenue law. Notwithstanding the fact that the Respondent’s largest creditor was the Crown in respect of a student loan, this debt was not in the nature of a taxation liability.

6. It is important that the Official Assignee gave a number of undertakings to the Court in return for the granting of assistance (including that the Official Assignee would inform the Federal Court of any changes in the status of the matter and that any matters of controversy between the Official Assignee and any party resident in Australia would be determined by the Federal Court). Although the Model Law does not mandate the giving of such undertakings, they are relevant to the exercise of discretion in relation to the precise assistance to be granted.

COMMENT

The case illustrates the willingness of Australian Courts to assist foreign courts in cross-border insolvency situations, particularly where there is comity in the respective countries’ insolvency regimes.