Judge Heffernan of the Federal Circuit Court of Australia, delivered his decision in Naudi & Reid as Trustees of the Bankrupt Estate of Albarouki v Albarouki

Case reference: ADG 92 of 2017

On 19 August 2019, Judge Heffernan of the Federal Circuit Court of Australia, delivered his decision in Naudi & Reid as Trustees of the Bankrupt Estate of Albarouki v Albarouki. We are pleased to report that Rodgers Reidy was successful in a claim to recover significant assets  in a bankruptcy where we alleged that the assets were transferred to the Respondent, the Bankrupt’s former spouse, for no consideration in order to defeat the claims of creditors.

The Court declared the transfer of assets was void by operation of sections 120 and 121 of the Bankruptcy Act 1966 (Cth).

The Respondent submitted to the Court that consent orders made in the Family Court for the transfer of the three properties, pursuant to a Binding Financial Agreement can only be set aside on the Trustee’s application to the Family Court, as in accordance with the authority of Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 2017.[1]

This was notwithstanding that the transfer of the properties occurred eight (8) months before the consent orders were made and the Respondent could not produce the Binding Financial Agreement to the court. The Respondent further submitted to the Court that proper consideration was given for the three properties as the Family Court consent orders required her to relinquish her interests in the Bankrupt’s companies.

His Honour, Justice Heffernan found in favour of the Trustees and said:

1.         in relation to consideration, “I am satisfied on the balance of probabilities that no monetary consideration was paid for the [properties]. The consent orders in the Family Court do not alter that fact.”[2] His Honour was satisfied that, “the reason that there was no mention of the companies in the Binding Financial Agreement is because the use of the companies as purported consideration for the transfers was an idea that only arose at the time of the application for consent orders…The application was however, only a ruse.”[3] His Honour concluded that the Respondent’s alleged consideration of relinquishing the interests in the companies was no consideration.

2.         that the case of Official Trustee v Mateo was distinguishable from the matter because “the beneficial and legal interest in the relevant property had already passed. In this case, the consent order in the Family Court did not, as in Mateo’s case, vest in the wife all the husband’s beneficial interest in the properties. The transfer of the husband’s beneficial and legal interest had already occurred.”[4]

3.         that section 79 of the Family Law Act 1975 (Cth), which allows the court to make orders altering the property rights of husband and wife when it is just and equitable to do so; did not apply to validate the consent orders. His Honour commented that, “The reality is, the application for the consent orders misled the Family Court because at the time the orders were made, the Bankrupt had no beneficial or legal interest in the three properties which could be altered by the operation of s[ection] 79…The companies were not consideration for the transfers of the three properties.”[5]

4.         that the Application for consent orders by the Bankrupt and Respondent, “in light of the evidence as a whole and obviously misleading nature of the application itself, the completion by both the Bankrupt and the respondent of the Statement of Truth simply highlights that the application for consent orders was a sham, the final act in an ongoing attempt to defeat the claims of creditors of the Bankrupt.”[6]

5.         that His Honour was “not satisfied that the respondent acted in good faith and accordingly the exception in s 121(4) [of the Bankruptcy Act] does not assist her.”[7]

As a result of this favourable decision, the creditors having significant exposure will be pleased that a dividend of 100 cents in the dollar is now expected to be paid with interest payable to creditors where applicable.