Gainsford v Tannenbaum / \federal Court

- Gainsford v Tannenbaum

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[2012] FCA 904. Cross –Border Insolvency considered.

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Summary

In this decision, the court declined an application pursuant to the Cross-Border Insolvency Act 2008 (Cth) for orders to assist the South African trustees of Mr Tannenbaum’s bankrupt estate on the basis that South Africa was not the ‘centre of the debtor’s main interests’. It held that his ‘habitual residence’ had changed from South Africa to Australia. This disqualified the South African proceedings from being ‘foreign main proceedings’. However, the court made similar orders to those sought but under s.29 of the Bankruptcy Act to assist the trustees’ information gathering and investigative activities.

Facts

The applicants, who were the South African trustees of Mr Tannenbaum’s bankrupt estate, were investigating a scheme operated between 2004 and 2009 by Mr Tannenbaum in South Africa under which he had received AUD390m, of which some USD31.7m had been transferred to an Australian company.
Some USD14m had been transferred from that company to other entities controlled by Mr Tannenbaum or his associates. Mr Tannenbaum left South Africa for Australia in mid-2007. The applicants were seeking orders to assist in their inquiries as they were concerned that Mr Tannenbaum’s failure to co-operate was hampering their administration of his insolvent estate.

The trustee’s extensive investigations had included the examination of some 200 witnesses over 37 days in South Africa and the institution of some 90 High Court proceedings in South Africa under voidable disposition provisions (the applicants noted the earliest trial listing was not until 2017).　

Issues

The Court had to determine whether the South African proceedings satisfied the conditions specified in the Cross-Border Insolvency Act 2008 (‘CBIA’).

Decision

The Court began by distinguishing the CBIA’s status based criteria from its procedural criteria. The Court was satisfied as to the status based conditions-precedent:

1. The South African proceeding was a ‘foreign proceeding’
2. The applicants were ‘foreign representatives’, and
3. The Australian court was a court of competent jurisdiction

Likewise, the Court was satisfied as to the procedural conditions precedent. The application was accompanied by:

1. the necessary certificates constituting the presumptive proofs provided for in the CBIA, and statements from the applicants identifying any other proceedings (none in this instance)
2. A supporting statement canvassing relevant Australian proceedings or appointments, and
3. An interim application seeking directions as to service

However, the court found a major problem when turning to the substantive criterion relating to the recognition of a foreign proceeding. As noted above, with Mr Tannenbaum having been living in Australia since 2007 and essentially having severed all ties with South Africa, could South Africa, in the terms of the Model Law, be the ‘centre of the debtor’s main interests’ (COMI)?
To answer this question the court had to examine the concept of ‘habitual residence’, because in the case of an individual this is posited as the presumptive COMI. And so it asked ‘where is Mr Tannenbaum’s place of habitual residence and is there proof that his COMI is other than at this place?" (para 35). The Court’s approach was informed by the judgment of Heath J in Williams v Simpson [2011] 2 NZLR 380. In that case the Court applied the jurisprudence arising in the context of the Hague Convention on the Civil Aspects of Child Abduction. That Convention had wrestled for many decades with the notion of the habitual residence of the child (and parents).
Accordingly, Logan J turned to the leading Australian authority LK v Director-General, DOCS (2009) 237 CLR 582. The High Court pointed in the direction of ‘the ordinary meaning of the composite expression’ which, it stated, is to be regarded as a question of fact. The High Court accepted that "[h]abitual residence, consistent with the purpose of its use, identifies the center of a person’s personal and family life as disclosed by the facts of the individual’s activities" (para 25).
On this basis Logan J held that Mr Tannenbaum was not habitually resident in South Africa and ‘that at the very latest, if not already by 2009, he was habitually resident in Australia as at the time this application was filed and remains so’ (para 43 – emphasis added). The Court found the presumption was not rebutted. Hence, the court was compelled to dismiss the application insofar as it sought recognition of the South African proceedings as a foreign main proceeding. Moreover, the court rejected an argument for recognition as a foreign non-main proceeding as after 2009 all Mr Tannenbaum’s business operations in South Africa ceased and there was no present ‘establishment’ in South Africa as required by the CBIA.
Aware that this was a somewhat quixotic outcome the Court noted at para 53:
The circumstances of the present case may well highlight a deficiency or at least a gap in the Model Law in relation to individual debtors. Particularly in a case where large amounts have been raised from creditors and retained by the borrower … the incentive for a debtor to quit the jurisdiction may be a strong one. A lag might then occur between when the absence of the debtor and the funds is detected and when proceedings for insolvency are taken and a sequestration order is made. … By the time that a debtor is made insolvent in one jurisdiction and Model Law recognition proceedings commenced in another, the debtor may have established habitual residence in that other jurisdiction.
However relief was granted to the applicants under their alternative claim for relief based on s.29 of the Bankruptcy Act.
Taking an expansive view of this ‘judicial comity’ provision the court looked past the fact that South Africa was not a ‘prescribed country’ for the purposes of s.29, and, invoking the ‘ideal of universality of application with respect to bankruptcy proceedings’ the Court made orders compelling Mr Tannenbaum’s provision of a Statement of Affairs and his examination, by way of assistance to the SA High Court and that court’s appointees.