Emerson Lewis lawyers recently acted for the applicant, Marketlend Pty Ltd (Marketlend), in successfully resisting a review application commenced by Senthil Govindasamy (Govindasamy), whereby Govindasamy sought a review of sequestration orders made by a Registrar, and also a review of the Registrar’s refusal to grant Govindasamy’s adjournment application brought before the Court pursuant to s 206(1) of the Bankruptcy Act 1966 (Cth). In Marketlend Pty Ltd v Senthil Govindasamy [2024] FCA 704, Stewart J, in a hearing de novo, dismissed Govindasamy’s application to adjourn a creditor’s petition issued against him by Marketlend, concluding that it would be for the advantage of Mr Govindasamy’s creditors to administer his affairs in bankruptcy. As a result, the Registrar’s original orders were undisturbed.
The proceeding before the Registrar
The proceeding came before a Registrar of the Court on 16 April 2024 and concerned an application by
Govindasamy for an adjournment of the creditor’s petition issued against him by Marketlend on 26 October 2023. Govindasamy had signed a Controlling Trustee Authority on 12 February 2024, resulting in the appointment of controlling trustees (Controlling Trustees). In doing so, the creditor’s petition issued by Marketlend was automatically stayed pending the conclusion of a creditor’s meeting to approve or reject Govindasamy’s proposed Personal Insolvency Agreement (PIA).
On 11 April 2024, despite a recommendation by the Controlling Trustees that creditors would be better served under bankruptcy than the PIA, a majority of creditors voted in favour of the PIA, which was subsequently signed by Govindasamy. The Controlling Trustees had not yet executed the PIA. This had the effect of ending the automatic stay on the creditor’s petition. Govindasamy proceeded to apply for an adjournment of the creditor’s petition to permit the execution of the PIA by the Controlling Trustees. A Registrar of the Court refused to adjourn the petition and made sequestration orders against Govindasamy’s estate.
The Registrar was empowered to make orders in relation to both the potential adjournment of the creditor’s petition and the sequestration of Mr Govindasamy, pursuant to s 35A(1)(h) of the Federal Court of Australia Act 1976 (Cth) (Act), r 2.02 of the Federal Court (Bankruptcy) Rules 2016 and Schedule 1, Items 10 and 19 of those Rules. The Registrar’s dismissal of the adjournment application and orders sequestrating Mr Govindasamy was therefore a valid exercise of power.
How can a decision of a Registrar be reviewed by the Federal Court?
The orders of the Registrar were an exercise of power under s 35A of the Act. A party to a proceeding in which a Registrar has exercised any of the powers of the Court under s 35A of the Act, may apply to the Court to review that exercise of power. The Court may then review the Registrar’s exercise of power, and make such orders as it thinks fit (s 35A(6) of the Act). Govindasamy applied for such a review.
The principles which apply to the Court’s review of a Registrar’s decision were summarised succinctly in Bechara v Bates (2021) 286 FCR 166. Importantly, the review is a hearing de novo (that is, the Court does not review whether the Registrar made an error, but considers the matter afresh, at the time of the review). As such, even though Govindasamy was the party who applied for review, Marketlend formally remained the applicant as the proceedings were conducted afresh.
The proceedings before Stewart J
Of principal concern to Stewart J in the Review Application was whether it would be for the advantage of Govindasamy’s creditors to administer his affairs under the PIA, rather than under bankruptcy. In so determining, regard was had to several aspects of Govindasamy’s financial situation, including his complex relationship with various trusts and corporations, the transfers of properties by such corporations to Govindasamy’s daughter for nil consideration, Govindasamy’s “substantial earning capacity”, and the purported cause of Govindasamy’s insolvency.
Stewart J also noted the differences in estimated return for creditors under both the PIA and bankruptcy, opining that both scenarios would “produce … paltry outcomes” in terms of the return to creditors. Stewart J focused on Marketlend’s submission that creditors would be better served under bankruptcy because of the ability to better investigate Govindasamy’s affairs, which may ultimately serve creditors better His Honour relied on the findings made by Govindasamy’s Controlling Trustees, being that there were potential voidable transactions made at the direction of Govindasamy warranting further investigation; as well as features of unit trust dividends and the corporate structure of Govindasamy’s related entities which warranted further investigation.
Although a majority of Govindasamy’s creditors had voted in favour of the PIA, Stewart J noted that this was “not decisive on the question of advantage” to creditors.
Ultimately, Stewart J made orders in favour of Marketlend, dismissing Govindasamy’s adjournment application. The orders of the Registrar sequestrating Govindasamy remained undisturbed as a result.