Thursday, 3 April 2014

Millionaire bankrupt's dishoarderly affairs

The interior of Arcadia Road
Photo courtesy BPS Recovery
BPS Recovery's Max Prentice wants guardians to manage the assets of a bankrupt who filled his five properties with newspapers, textbooks and batteries.

The bankrupt, who SiN has chosen not to identify, is a former university lecturer with a degree in chemical engineering and an extensive property portfolio.

"In 40 years in practice I have never had such an asset-rich bankrupt," Prentice, trustee in bankruptcy and co-principal of BPS Recovery said.

"The bankrupt had unencumbered title to four properties in Glebe and one in Newtown."

The bankrupt's debts are estimated at around $180,000, while the value of his assets exceeds $2 million. Normally this would result in an annulment, but there's nothing normal about this technical insolvency. 

The man was declared bankrupt on April 10, 2012 after utilities suppliers petitioned the Federal Court over thousands of dollars in outstanding bills.

Prentice accepted the appointment in June 2012 and immediately slapped caveats on a large Victorian terrace in Arcadia Road, Glebe, two apartments in nearby Sheehy St, another in Charlton Way and an apartment in Chelmsford Street, Newtown. None of the properties were encumbered by mortgages but neither the title deeds nor the bankrupt could be located.

“He’s a nocturnal gentleman,” BPS partner David Sampson said, confirming impressions expressed in a judgement handed down 
by Supreme Court judge Paul Brereton in December, 2012. 

“It is somewhat remarkable that the registered proprietor of five unencumbered properties in Glebe and Newtown would be unable to be found,” the judge said during his ruling on an application by Prentice which sought the issuing of new security of title deeds for the bankrupt's properties.

“But such hints of his appearance and habits as the evidence reveals suggests that he is reclusive, occasionally frequents one of the properties at late hours of the night, and cannot be found in the phone book.

“Although he is the registered owner of a car, that car cannot be found; and an electoral roll search has not located him.”

Justice Brereton ordered new certificates of title be issued so some of the properties could be sold, but Prentice and Sampson then encountered another obstacle.

“They were uninhabitable,” Prentice recalled. “They were full of newspapers, they had rats and one had grass growing through the floor.” He and Sampson set about having the properties restored and getting them on the market. Meanwhile the search continued.
Textbooks on engineering made up a significant part
of the bankrupt's library
Photo courtesy BPS Recovery

They hired a private detective. They made enquiries at the bankrupt’s various inner city properties, at the Glebe police station, at Centrelink, the Missenden Psychiatric Unit at Royal Prince Alfred Hospital and at the University of Sydney. The man's whereabouts were a mystery.

What Prentice and Sampson did know was that whilst the bankrupt had no record of income, he had hundreds of thousands of dollars salted away in bank and credit union accounts.

The breakthrough came in September 2013 when the City of Sydney Council issued a waste removal notice on the Arcadia Road property.

The front and rear yards of the house were stuffed with material the council deemed was “likely to provide harbourage for pests”. Prentice had no option but to engage cleaners to remove the items.

Then on October 11, 2013 City of Sydney Council issued a further order requiring the property’s interior be dealt with. The next day, as the cleaners began removing the materials inside the house the bankrupt appeared.

He was advised by the cleaners to contact the trustee. The next day the bankrupt arrived at the BPS offices on Kent Street. Prentice recalls that he was lucid, sober, asked intelligent questions and provided the long overdue statement of affairs (SoFA). It was the one and only instance of either contact or communication between the bankrupt and the trustee.

By this time 18 months had elapsed since the court made its sequestration order. But in the interim, BPS had not been idle.

Unsure as to the full extent of their client’s indebtedness, Prentice and Sampson had sold three of the properties, raising $810,000 after costs. They had also made an interim distribution to petitioning creditors.

Now Prentice is preparing to make a final distribution that will see all creditors paid 100 cents in the dollar plus interest.

Following the final distribution the bankrupt’s estate would comprise two properties and well in excess of $500,000 in cash.

That has Prentice and Sampson concerned and they have instructed their law firm to apply to the courts for an order that would see management of the man’s assets placed in the hands of a guardian or financial manager.

Lander & Rogers partner Craig Higginbotham is handling the application. He said what the trustee wants to achieve is “the court’s processes intervening and providing step-by-step orders to follow which would discharge the trustee’s duties and also see the bankrupt looked after,” he said.

“In the unusual event that there’s a surplus, there is an annulment because everyone gets paid.

“But what we see is for the calculations of distributions to be done, the admissions of proofs of debt to be ruled on, the final net position to then be determined and at that stage we put together an application that has two components.

"The first is the court’s direction as to the termination of the bankruptcy - so that the payment's out - and then the annulment, but at the same time we seek orders in the same set of proceedings and same set of orders that the trustee is directed to pay it to a financial manager or guardian, provided that we get an order that a financial manager or guardian be appointed.

“We want the imprimatur of the court’s orders or directions so that Max as trustee – his duties are fulfilled – but we also recognize that there’s an issue here and the bankrupt needs some help," he said.

And therein lies perhaps the biggest question mark. How will the cashed-up, acutely intelligent bankrupt react to this attempt to diminish his control of his assets, assuming of course he can be found?

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