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Mallett and Inspector-General in Bankruptcy [2018] AATA 3739

Tribunal: Deputy President Richard Hanger AM QC

The applicant, Dr Mallet, was a co-founder of ABC learning centres and was due to have her bankruptcy discharged on 17 June 2017 until the trustee of her bankruptcy filed a notice of objection. The Inspector-General confirmed the notice of objection on the grounds that prior to filing bankrupt the applicant had transferred assets to prevent creditors from accessing them.

Prior to her bankruptcy and following legal advice in April 2010, Dr Mallet created a family trust fund and transferred $3.1 million to the trust. The applicant submitted that this was to protect her assets from her husband who she was divorcing. At the time of her declaration of bankruptcy in April 2014 only $14,558.39 remained in the trust, the majority of it had been used in legal fees and payments to the Australian Tax Office.  

Any transfer of property in the five years preceding a filing of bankruptcy is subject to review. If it can be determined that the purpose of the transfer was to prevent the property from being taken by the individual’s creditors, or to hinder that action, that transfer is undone and the property can be accessed.[1]

The AAT had to determine if the applicant had intentionally transferred funds into the trust to prevent any creditor from accessing those funds.

The AAT reviewed evidence from Dr Mallet that the funds were moved to the trust to prevent her husband from possibly accessing them during their divorce. As she was engaged in divorce proceedings at the time of the creation of the trust and transfer of funds, the AAT determined that her husband could have become a creditor and seek access to settlement funds.

As part of its considerations, the AAT had also heard that the Australian Taxation Office (ATO) had issued a $6.5 million tax assessment to Dr Mallet in 2009 and was undergoing legal proceedings regarding tax liability in the Federal Court.

When the AAT took into account the factors surrounding the creation of the trust, the applicant’s court proceedings with the ATO and her husband, the AAT determined that the main purpose of the transfer was to prevent that property from becoming available to her creditors.

The AAT then considered if there was a reasonable excuse for the transfer of property to prevent creditor access. It found that the sole purpose of the transfer was to prevent creditors accessing the funds and that there as there was no reasonable excuse for the conduct.

The AAT affirmed the decision of the Inspector-General to allow the notice of objection to the automatic discharge of bankruptcy.

Read the full written decision on AustLII.

 

[1] Section 149D of the Bankruptcy Act 1966