September 20, 2017

Why would any Bankrupt hand in their Passport?

Two recent cases have led me to ask the question.  “Why would any bankrupt in their right mind hand in their passport to their Trustee in Bankruptcy?”

In both cases, I thought it was a no-brainer; the Trustee should retain the passport, but in each case I got it wrong; the Court ordered for the passport to be returned to the bankrupt.

Here we look at the circumstances of each case:

Tinkler v Melluish

Mr Tinkler wished to travel to the US to visit his children and “explore employment opportunities”.  Melluish refused permission on the basis that he thought Mr Tinkler was a flight risk and Mr Tinkler had been uncooperative in providing financial records in relation to living expenses, the sale or transfer of assets and a related company; essentially Mr Tinkler had not complied with s77 of the Bankruptcy Act.

Justice Nicholas of the Federal Court rejected the trustee’s contention that Mr Tinkler was a flight risk and held that as Mr Tinkler disputed he had not complied with s77, there were no grounds to withhold the passport.

The Judge held there were three issues to consider:

  1. Is the proposed visit genuine?
  2. Is the bankrupt likely to return to Australia as promised? and
  3. Will the visit hamper the administration of the estate?

The Judge also noted the two other authorities to consider:

  1. Re Tyndall, “a citizen should be allowed to travel” and restricting such travel should only occur to ensure proper administration of the estate, and
  2. In Weiss v Official Trustee, the Court held that preventing travel should only occur if the bankrupt was intending to delay or defeat creditors by staying overseas.

The trustee also submitted that Mr Tinkler had $554 million in creditors and very complex affairs and resolution of the s77C dispute and the complex affairs of the bankrupt should be resolved before he travelled.  The Court did not place the same amount of weight on these issues and therefore ordered in favour of the bankrupt.

No order for Mr Tinkler’s costs were made.  The Court ordered that Melluish’s costs be paid from the estate.


Wangelin v van der Velde

Mr Wangelin was made bankrupt on 26 March 2015 on a judgement debt of $282,378 obtained by the Queensland Building and Construction Commission (QBCC) on 25 July 2014.  Other debts of the bankrupt were the ATO for $1,004,895 and $422,420 owing to the liquidator of the bankrupt’s former construction company, ABW Design and Construction Pty Ltd (ABW).

Mr Wangelin is a German resident, but lived in Australia from about 2000 until August 2014, when he returned to Germany to live.  Prior to leaving Australia, funds totalling $155,391 were transferred to the bankrupt’s late wife’s bank account in Germany, ironically on the same date the QBCC obtained judgement against Mr Wangelin.  As the sole beneficiary of the estate, Mr Wangelin had a claim to these funds.

Despite becoming aware of his bankruptcy in July 2015, Mr Wangelin failed to provide his Statement of Affairs (SOA) or any information and records required by the trustee.  In December 2015, Mr Wangelin returned to Australia and upon attempting to depart in January 2016, was prevented from doing so by the trustee.

The trustee required Mr Wangelin to complete his SOA and provide an explanation and evidence of the disbursement or otherwise of the funds transferred to Germany.  The SOA was provided, but as no information about the funds transfer was given, the trustee refused to grant permission for Mr Wangelin to leave the country.

Mr Wangelin subsequently applied to the Federal Court under s178 of the Bankruptcy Act to have the trustee’s decision overturned.

The trustee contended that the bankrupt had not explained the disbursement of the funds and was a flight risk, ie: likely to return to Germany permanently and not assist with the trustee’s investigations.  The bankrupt contended the information was in Germany and could not be provided until his return.

Justice Collier in the Federal Court agreed with the bankrupt and ordered he be allowed to return to Germany, noting, amongst other things:

    1. “I am satisfied that Mr Wangelin is a credible witness”,
    2. “I am at a loss to understand how Mr Wangelin remaining in Australia can possibly assist the objective of the trustees to secure this source material” (documents to explain the disbursement of the $155,391).
    3. “I am not persuaded that Mr Wangelin has failed or refused to cooperate with the trustees as they claim”,
    4. “I am satisfied that Mr Wangelin’s current personal circumstances, in being forced to remain in Australia, are particularly dire, and
    5. “I note the serious and genuine concerns of the trustees that Mr Wangelin is a flight risk….I consider that it is an acceptable risk”.

Justice Collier also ordered the Trustee to pay the costs of the bankrupt.

Mr Wangelin gave no undertaking that he would return to Australia, nor was any such condition imposed on him by the Court. To date, he has not returned to Australia.

Article written by David Stimpson, Executive Director SV Partners Queensland

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