Xu v Trafford-Jones - Personal Insolvency Agreement Set Aside, Sequestration Order Made

Original Word Document (143.8 KB) Federal Court of Australia

Xu v Trafford-Jones, in the matter of Cao [2026] FCA 401

| File number: | NSD 1546 of 2025 |
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| Judgment of: | PERRY J |
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| Date of judgment: | 10 April 2026 |
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| Catchwords: | PRACTICE AND PROCEDURE – application for de novo review of decision of a registrar setting aside a personal insolvency agreement and making a sequestration order – application dismissed

BANKRUPTCY AND INSOLVENCY – whether personal insolvency agreement should be set aside – where agreement provided for derisory return to creditors, investigations are incomplete, majority of voters in favour appear to be related to, or to share a common interest with, the debtor, and creditors largely associated with the debtor are excluded – personal insolvency agreement unreasonable and not in the best interests of creditors generally

BANKRUPTCY AND INSOLVENCY – where sequestration order ought to be made – where freezing orders by the Supreme Court of NSW against the debtor provide little comfort to creditors in circumstances where there are grounds for a reasonable suspicion that the orders have been breached – where controlling trustee has not taken any steps to investigate suspicious transactions

BANKRUPTCY AND INSOLVENCY – where it would impose undue burden on Official Trustee to conduct investigations and examinations as opposed to creditor-funded proposed trustees – where replacement of trustee in best interests of creditors – where creditors should not be afforded opportunity to object to the appointment in circumstances where majority of creditors appear not to be at arm’s length from the debtor |
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| Legislation: | Bankruptcy Act 1966 (Cth), ss 58(3)(b), 188, 222(1)(d), 222(1)(e), 222(10)

Federal Court of Australia Act 1976 (Cth), ss 35A(1)(h), 35A(5)

Bankruptcy Regulations 2021 (Cth), reg 61(3)

Federal Court (Bankruptcy) Rules 2016 (Cth), r 2.02

Insolvency Practice Schedule (Bankruptcy), ss 90-15(1), 90-15(3), 90-35

Conveyancing Act 1919 (NSW), s 37A |
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| Cases cited: | Bechara v Bates (2021) 286 FCR 166

Bendigo and Adelaide Bank Ltd v Clout [2016] FCA 119

Borg v De Vries (Trustee), Re The Bankrupt Estate of David Morton Bertram [2018] FCA 2116

Break Fast Investments Pty Ltd v Sampson (Trustee), in the matter of Voukidis [2022] FedCFamC2G 516

Deputy Commissioner of Taxation v Zappia [2019] FCA 2152

DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (2014) 86 NSWLR 293; [2014] NSWCA 96

Elks, in the matter of Moreton Resources Limited (Receivers Appointed) [2025] FCA 1670

Hingston v Westpac (2012) 200 FCR 493

Jiaqing Xu v Cao & Du Management Pty Ltd (No 2) [2024] NSWSC 1596

Jiaqing Xu v Cao & Du Management Pty Ltd [2024] NSWSC 1474

Loane v Gold Ribbon (Accountants) Pty Ltd [2004] FCA 537

Mokhtar v Piscopo [2024] FCA 493

Moran v Robertson [2012] FCA 371

Moss v Gunns Finance Pty Ltd (In liq) (2018) 16 ABC(NS) 325; [2018] FCAFC 185

New Age Constructions (NSW) Pty Ltd v Etlis [2013] FCA 884

Osborne v Gangemi (2011) 9 ABC(NS) 257; [2011] FCA 1252

Storry v Clout [2024] FCA 1274

Totev v Sfar (2008) 167 FCR 193; [2008] FCAFC 35

Westpac Banking Corporation v Hingston (No 2) [2010] FCA 1116

Xu v Cao & Du Management Pty Ltd (No 3) [2025] NSWSC 979

Xu v Cao & Du Management Pty Ltd [2025] NSWSC 1077 |
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| Division: | General Division |
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| Registry: | New South Wales |
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| National Practice Area: | Commercial and Corporations |
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| Sub-area: | General and Personal Insolvency |
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| Date of hearing: | 3 March 2026 |
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| Counsel for the Applicant: | Mr A McInerney SC with Mr N Kabilafkas |
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| Solicitors for the Applicant: | Juris Cor Legal |
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| Solicitor for the Second Respondent: | Mr J Tomaras of ACME Consulting |
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| Solicitor for the Third Respondent: | Ms N McGill of Sparke Helmore Lawyers |
ORDERS

| | | NSD 1546 of 2025 |
| IN THE MATTER OF HOWARD HAO TING CAO | | |
| BETWEEN: | JIAQING XU

Applicant | |
| AND: | THYGE TRAFFORD JONES

First Respondent

HOWARD HAO TING CAO

Second Respondent

OFFICIAL TRUSTEE IN BANKRUPTCY

Third Respondent | |

| order made by: | PERRY J |
| DATE OF ORDER: | 10 April 2026 |
THE COURT ORDERS THAT:

1. The personal insolvency agreement approved by a majority of the creditors of the second respondent on 29 August 2025 pursuant to Part X of the Bankruptcy Act 1966 (Cth) be set aside.

2. Pursuant to s 222(10) of the Bankruptcy Act 1966 (Cth), a sequestration order is made against the estate of the second respondent, Howard Hao Ting Cao of [REDACTED], with the effective date of bankruptcy being 8 May 2025.

3. Pursuant to s 90-15(1) and (3)(b) of the Insolvency Practice Schedule (Bankruptcy) to the Bankruptcy Act 1966 (Cth), the Official Trustee cease to be a trustee of the estate of the second respondent.

4. Pursuant to s 90-15(1) and (3)(b) of the Insolvency Practice Schedule (Bankruptcy) to the Bankruptcy Act 1966 (Cth), Alan Ma and Antonio (also known as Anthony) Bagala from DVT Mcleods be appointed as trustees in bankruptcy of the second respondent.

5. The second respondent’s estate is to pay the applicant’s costs of the proceedings.

6. The first and the third respondents’ costs are reserved.

7. On or before 4:00pm on Friday 24 April 2026, the first and third respondents are to advise the chambers of Justice Perry as to whether they seek any order as to costs.

THE COURT NOTES THAT:

1. In the event that the first and third respondent seek an order as to costs and that order is not agreed, the first and third respondents are to provide draft minutes of order (agreed if possible) setting a timetable for the making of short submissions on the issue of costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

PERRY J

| 1 INTRODUCTION AND SUMMARY OF CONCLUSIONS | [1] |
| 2 BACKGROUND | [11] |
| 2.1 The Loan Agreement | [11] |
| 2.2 The corporate structure | [14] |
| 2.3 The Supreme Court proceedings and the freezing orders | [21] |
| 2.4 Rearrangement of the debtor’s affairs | [30] |
| 2.5 The first report of the Controlling Trustee | [45] |
| 2.6 Amended personal insolvency agreement | [47] |
| 2.7 Section 189A Report | [56] |
| 2.8 Creditor’s meeting on 29 August 2025 | [63] |
| 3 EVIDENCE | [65] |
| 4 SHOULD THE AMENDED PERSONAL INSOLVENCY AGREEMENT BE SET ASIDE? | [68] |
| 4.1 Legal principles | [68] |
| 4.2 The amended PIA should be set aside | [72] |
| 5 SHOULD A SEQUESTRATION ORDER BE MADE? | [85] |
| 6 REPLACEMENT OF THE OFFICIAL TRUSTEE | [91] |
| 6.1 The application and objections | [91] |
| 6.2 Legal principles | [94] |
| 6.3 Parties’ submissions | [100] |
| 6.4 The Official Trustee should be replaced | [101] |
| 7 COSTS | [105] |
1. INTRODUCTION AND SUMMARY OF CONCLUSIONS

1 On 8 May 2025, the first respondent, Mr Trafford-Jones, was appointed Controlling Trustee of the estate of the second respondent, Mr Howard Cao (the debtor), pursuant to s 188 of the Bankruptcy Act 1966 (Cth).

2 In his Section 189A Report on PIA Proposal dated 13 August 2025 on the debtor’s proposed amended personal insolvency agreement (Amended PIA), the Controlling Trustee identified that the debtor’s estate had a deficiency of assets in the sum of $110,118,114.

3 On 29 August 2025, the Amended PIA was adopted at a meeting of creditors pursuant to s 222(1)(d) and (e) of the Bankruptcy Act.  The Amended PIA provided for distribution of a total sum of $300,000 to creditors, with the exception of Excluded Creditors as defined in the Amended PIA, being persons who, or entities which, were largely associated with the debtor.

4 By an application made on 1 September 2025, the applicant, Mr Jiaqing Xu, a creditor of the debtor, sought various orders including an order setting aside the Amended PIA.

5 In addition, the creditor sought:

(1) a sequestration order against the debtor’s estate pursuant to s 222(10) of the Bankruptcy Act; and

(2) leave pursuant to s 58(3)(b) of the Bankruptcy Act for the creditor of the debtor’s bankrupt estate to continue proceedings in the Supreme Court of New South Wales no. 2022/0078620 (the 2022 Supreme Court proceeding) for recovery of a claimed debt of $20,685,290.

6 On 13 October 2025, the debtor filed a notice stating grounds of opposition to the creditor’s application contending that the Amended PIA should not be set aside or that, if the Amended PIA is set aside, a sequestration order is neither in the interests of creditors nor necessary to protect creditors’ rights.

7 On 30 October 2025, a Registrar of this Court set aside the amended PIA under s 222(10)(d) and (e) of the Bankruptcy Act pursuant to power conferred on the Registrar by s 35A(1)(h) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and  rule 2.02 of the Federal Court (Bankruptcy) Rules 2016.  The Registrar also made a sequestration order against the debtor’s estate, granted leave to the debtor nunc pro tunc to continue the 2022 Supreme Court proceedings, and required the debtor to pay the creditor’s costs of and incidental to the application as agreed or taxed.  The Registrar further noted the Consent to Act as Trustee form had been signed by Alan Ma and Antonio Bagala and lodged with the Official Receiver.

8 By an interlocutory application filed on 20 November 2025, the debtor seeks review of the Registrar’s decision.   The application for review of the Registrar’s decision is brought pursuant to s 35A(5) of the FCA Act.  It is common ground that the review of the Registrar’s decision is a hearing de novo.  In other words, I must decide the creditor’s application afresh without the need to identify error in the Registrar’s decision: Elks, in the matter of Moreton Resources Limited (Receivers Appointed) [2025] FCA 1670 at 78.  It is also common ground that the onus lies on the petitioning creditor to establish their case: Totev v Sfar (2008) 167 FCR 193; [2008] FCAFC 35 at [12]-[14]; and Bechara v Bates (2021) 286 FCR 166 at [17], [20] and [21].

9 The creditor also sought, by way of an interim application dated 5 December 2025, orders pursuant to s 90-15(1) and (3)(b) of the Insolvency Practice Schedule (Bankruptcy) to the Bankruptcy Act that the Official Trustee (who was appointed by default after the Registrar’s orders were made on 30 October 2025) cease to be a trustee of the debtor’s estate and that Alan Ma and Antonio (also known as Anthony) Bagala from DVT Mcleods be appointed as trustees in bankruptcy of the debtor.

10 For the reasons set out below:

(1) pursuant to s 222 of the Bankruptcy Act, the Amended PIA should be set aside on grounds it is unreasonable and not calculated to benefit the creditors generally;

(2) a sequestration order should be made against the estate of the debtor pursuant to s 222(10) of the Bankruptcy Act, with the effective date of bankruptcy being 8 May 2025;

(3) pursuant to s 90-15(1) and (3)(b) of the Insolvency Practice Schedule (Bankruptcy) to the Bankruptcy Act, the Official Trustee should cease to be a trustee of the estate of the debtor; and

(4) Alan Ma and Antonio Bagala of DVT Mcleods should be appointed as trustee in bankruptcy of the debtor’s estate pursuant to ss 90-15(1) and (3)(b) of the Insolvency Practice Schedule (Bankruptcy) to the Bankruptcy Act.

1. BACKGROUND

2.1 The Loan Agreement

11 In around 2016, the debtor, through various entities, undertook a large property development in Greenacre, New South Wales.  The debtor engaged investors, including the creditor, to assist in financing the project.

12 On 17 October 2017, the creditor entered into a loan agreement (as lender) with Cao & Du Mana gement Pty Ltd, the debtor’s company, as trustee of the Cao & Du Family Trust (which was the borrower) and the debtor who was the guarantor (Loan Agreement).

13 Under the Loan Agreement, the creditor lent $3,300,000 to Cao & Du Management. As repayment, Cao & Du Management was required to pay the creditor $6,600,000 on 31 October 2018.  The debtor guaranteed Cao & Du Management’s obligations under the Loan Agreement.

2.2 The corporate structure

14 It is necessary to set out the corporate structure that underlies the Greenacre Project in order to explain how the various entities interconnect, particularly by way of the various directorships and shareholdings held by the debtor and his mother, Xiaowen Su (Ms Su).

15 The purpose of the Loan Agreement was to allow Cao & Dao Management to purchase units in the Option Greenacre Investment Trust.  Cao & Du Management is the sole unitholder of Option Greenacre Investment Trust.

16 The trustee of the Option Greenacre Investment Trust is Option Capital Partners Pty Ltd (ACN 605 040 006).  An ASIC Current & Historical Company Extract dated 27 August 2025 records that the directors of Option Capital Partners are the debtor and his mother, Ms Su.  That extract also records that the sole shareholder is Ms Su’s company, CHT Aus Holdings Pty Ltd (ACN 651 325 110).

17 Option Capital Partners holds 95% of units in the Option Greenacre Property Fund, the trustee of which was Option Funds Management Limited (ACN 154 912 768).  An ASIC Current & Historical Company Extract dated 27 August 2025 records that the debtor was the director of Option Funds Management between the periods 24 July 2014 to 17 March 2023, and again from 6 June 2024 to 5 July 2024.  The shares in Option Funds Management are said by the debtor to be held by Option Capital Holdings Pty Ltd, the directors of which are the debtor and Jason Meares.  The three shareholders of Option Capital Holdings are TCB Holdings Pty. Limited (25%), Meares Enterprises Pty. Limited (25%) and Ms Su’s company, CHT (50%).

18 Option Funds Management obtained the right to develop land in Greenacre NSW for the construction of 177 units, 14 townhouse blocks, nine street facing retail shops together with a commercial property and underground parking (Greenacre Project).  The Greenacre Project is complete and 90 residential units had been sold as at 24 September 2025.

19 104 properties in the Greenacre Project are presently owned by a company called Option Greenacre Management Pty Ltd (ACN 680 279 154), which is now the trustee of the Greenacre Property Fund.  Previously, these properties were held by Option Funds Management.   Option Funds Management currently holds only six properties.

20 An ASIC Current & Historical Company Extract dated 14 August 2025 records that all shares in Option Greenacre Management are held by CHT.  CHT is owned and controlled by the debtor’s mother, Ms Su.  The extract also records that the debtor and Ms Su are directors of Option Greenacre Management.

2.3 The Supreme Court proceeding s and the freezing orders

21 The 2022 Supreme Court proceeding concerns the recovery of monies in the sum of $69,500,485.97 owed to the creditor pursuant to the Loan Agreement.

22 The creditor has successfully obtained judgment against Cao & Du Management (the borrower) in the sum of $21,984,458.90: Xu v Cao & Du Management Pty Ltd [2025] NSWSC 1077 (Elkaim AJ).  The proceedings against the debtor as guarantor under the Loan Agreement have been stayed pending determination of the issues before this Court.

23 On 15 November 2024, Hamill J made ex parte interim freezing orders against the debtor and Cao & Du Management, which had effect up to and including 29 November 2024: Jiaqing Xu v Cao & Du Management Pty Ltd [2024] NSWSC 1474.  On 29 November 2024, Coleman J made orders extending the freezing orders until further order.  Coleman J delivered judgment ordering the continuation of the freezing order against the debtor on 12 December 2024: Jiaqing Xu v Cao & Du Management Pty Ltd (No 2) [2024] NSWSC 1596.  On 16 December 2024, Coleman J made orders reflecting his Honour’s decision.

24 On 26 February 2025, in separate Supreme Court proceedings 2025/00063318 commenced by the debtor against the creditor (which are presently stayed pursuant to the debtor entering into the personal insolvency agreement), Williams J made freezing orders against the debtor and Ms Su.

25 On 26 August 2025, Lonergan J made disclosure orders in the 2022 Supreme Court proceedings against the debtor and Cao & Du Management: see Xu v Cao & Du Management Pty Ltd (No 3) [2025] NSWSC 979.  Freezing orders were also made against the debtor’s mother, Ms Su, and CHT.

26 On 5 September 2025, in the 2022 Supreme Court proceedings Elkaim AJ made freezing orders against Option Wealth Pty Ltd (ACN 169 079 805), Option Capital Partners and Option Finance Australia Pty Ltd (ACN 169 337 517).  Subsequently on 16 September 2025, his Honour made further freezing orders also against Option Funds Management and Option Capital Holdings.

27 On 26 February 2025, the 2022 Supreme Court proceedings were fixed for hearing on 1 September 2025.

28 On 22 September 2025, Elkaim AJ delivered judgment in Xu v Cao & Du Management Pty Ltd [2025] NSWSC 1077.  With respect to the claim against the debtor pursuant to the guarantee, his Honour noted at [9]-[11]:

I was told that Mr Cao had entered into a personal insolvency agreement under Part X of the Bankruptcy Act 1966 (Cth), which, following a meeting of creditors on 29 August 2025, had not been set aside (s 189 of the Bankruptcy Act). This circumstance brought into play ss 60, 229 and 231 of the Bankruptcy Act.

The plaintiff has commenced the process of setting aside the personal insolvency agreement through Federal Court proceedings, but these proceedings are unlikely to be heard for some months. It would not be appropriate for me to await the result of the proceedings.

The immediate effect of the above Bankruptcy Act provisions is to stay the cross claims brought by both defendants. This was agreed and is consistent with the decision of Young J in John v Neiman Holdings Pty Ltd (1986) 84 FLR 84 and, perhaps more directly, the decision of Biscoe J in Neighbourhood Association NA 285249 v Watson [2007] NSWLEC 729 at [3] and [6].

29 During the hearing of the 2022 Supreme Court proceedings, the debtor admitted to falsely stating in a statutory declaration that he had received independent legal advice in respect of the guarantee he gave under the Loan Agreement.  The debtor also accepted he was a sophisticated man of business capable of protecting his own interests in relation to the Loan Agreement and making an informed commercial decision about whether to enter into the Loan Agreement including on the default interest rate in the agreement.

2.4 Rearrangement of the debtor’s affairs

30 I note at the outset that certain appointment dates cited by the creditor in submissions apparently in reliance on the Form 484 did not accord with the purported effective dates of appointment or transfers as shown on the documentation itself and instead appear to rely on the dates on which those forms were lodged with the Australian Securities and Investments Commission.  Where that is the case, I have also referred to the relevant “ appointment date ” and “ earliest date of change ” as depicted in the documentation.  Where a Form 484 has been lodged by the debtor after the freezing orders were made on 15 November 2024, but the “ appointment date ” and “ earliest date of change ” in those forms are purportedly dated prior to 15 November 2024, I do not make any findings as to whether those appointments and transfers were made on the recorded effective date.  Nor do I make any findings as to whether those transfers are in breach of any freezing orders made against the debtor.  I do find, however, that where the debtor has backdated a Form 484 such that it precedes the date of a freezing order, it gives rise to a reasonable suspicion that the debtor was seeking to avoid being in breach of the freezing orders.

31 Since at least late 2024, the debtor has transferred his interests in the Greenacre Project to his mother, Ms Su, by appointing her as a director of various entities, and her company, CHT, as shareholder of companies in which the real property assets of the Greenacre Project are held.

32 As noted at paragraph 20 above, CHT is the shareholder of Option Greenacre Management, which owns 104 properties in the Greenacre Project.  Those properties are held on trust for Option Capital Partners as unitholder.  The debtor lodged a Form 484 on 2 December 2024 appointing Ms Su as director of Option Capital Partners, with an effective date of 18 November 2024.  In a Form 484 lodged on 5 March 2025, the debtor also transferred his shares in Option Capital Partners to CHT (Ms Su’s company), with an effective date of 2 August 2024, making CHT the sole shareholder.

33 On 2 December 2024, the debtor appointed Ms Su as a director of Option Finance Australia.  Ms Su ceased being a director on 7 April 2025, but was reappointed on 23 July 2025.

34 On 20 December 2024, the debtor lodged a Form 484 appointing Ms Su as a director of Option Holdings Pty Ltd, with an effective date of 2 December 2024.  The ASIC Current & Historical Company Extract of Option Holdings states that Ms Su ceased being a director of Option Holdings on 1 May 2025. On 2 May 2025, the debtor lodged a Form 484.  The Form 484 notified that Ms Su was appointed a director of Option Holdings, with an effective date of 15 April 2025.

35 On 9 May 2025, the debtor lodged another Form 484, notifying that Ms Su had been appointed a director of Cao & Du Management and that the debtor had transferred his shares in Cao & Du Management to CHT.  The effective date for both the appointment and share transfer was 14 April 2025.

36 On 15 May 2025, the debtor lodged a Form 484 that transferred CHT’s 100% shareholding in Option Wealth to Jiahong Gu (with an effective date of 1 July 2022).  I note that the ASIC Current & Historical Company Extract dated 27 August 2025 for Option Wealth states that Ms Su was a director of Option Wealth between 2 December 2024 and 7 April 2025, and was then reappointed on 1 June 2025. On 12 June 2025, Ms Su, as director of Option Wealth, signed a Form 484 that transferred the shares in Option Wealth from Mr Gu back to CHT, with an effective date of 1 June 2025.

37 On 25 August 2025, the shares in Cao & Du Management (which, as stated at paragraph 35 above, were transferred to CHT on 14 April 2025) were transferred back to the debtor.

38 Ms Su was cross-examined before the Registrar with the assistance of an interpreter.  During that cross-examination, Ms Su gave evidence that she did not know any details about the bank accounts held by each of the companies including the identity of the banks with which they held bank accounts and she admitted that the bank accounts were controlled by the debtor.  Ms Su also accepted during cross-examination that she did “ not have any idea about what moneys have gone into and out of any of the bank accounts for the companies in the Option Group since August 2024 ”.  As a result, the creditor contends that there is a reasonable basis for concluding that the debtor is in effect a shadow director of the companies of which Ms Su, who is in her mid-70’s, speaks and writes in Chinese, and speaks very little English, is the sole director and CHT, the sole shareholder. It suffices for present purposes for me to accept that the evidence raises, at the least, a serious question to this effect.

39 I also note that, relevantly, in giving reasons for making freezing orders over CHT and Ms Su in Xu v Cao & Du Management Pty Ltd (No. 3) [2025] NSWSC 979, Lonergan J stated at [85]-[89]:

There is a close familial relationship between Mr Cao and the sole shareholder and director or CHT, Ms Su, (his mother), overlaid by the network of associated companies, the effect of which is to give Mr Cao a degree of control over assets he has transferred out of his direct ownership and legal control. This relationship, coupled with the temporal coincidence of the share transfers complained of, demonstrates the real danger that Mr Cao has transferred, or caused associated companies and persons to transfer assets to quarantine the effects of his personal insolvency, all while undertaking significant gambling activity.

The plaintiff submitted that discretionary considerations support the freezing orders sought by the plaintiff against CHT and Ms Su for the following reasons:

• First, the evidence clearly discloses the defendants’ asset dissipation to and by CHT with the involvement of Ms Su, and the Court should infer this was done with an intent to frustrate these proceedings, in breach of the December 2024 freezing orders and the freezing orders made by Williams J, all while Mr Cao undertook further gambling activities.

• Second, the plaintiff has a strong prima facie case for final relief.

• Third, the plaintiff has offered to the Court the usual undertaking as to damages.

• Fourth, the freezing orders sought by the plaintiff in prayers 4 and 6 of the plaintiff’s notice of motion, ought to be made to prevent the risk of abuse of the Court’s process by CHT and Ms Su.

Mr McInerney also submitted orally that despite Mr Cao denying in cross-examination that he was exercising control over his mother or CHT, the history of transactions and their timing, and the sudden restoration of the two shares that had been transferred to CHT in May 2025 when the impropriety was pointed out in Ms Chu’s August 2025 affidavit, all suggest Mr Cao is exercising control over CHT and/or his mother.

The freezing orders sought against CHT and Ms Su should be made

In my view the inference that Mr Cao is exercising a degree of control over Ms Su and CHT is demonstrated by the evidence, and I draw that inference.

Mr Cao’s assertion in cross-examination that he has been loaned money for gambling by his mother, and his admissions that he gambled money at a time that post-dated the freezing orders that affected him and possibly those that affected his mother, adds to my concern that assets will be dissipated by Ms Su and CHT, either by providing them to Mr Cao, or being party to their movement away from potential attachment in satisfaction of any judgment the plaintiff may obtain.

(Emphasis in original.)

40 In finding a prima facie case had been established, Lonergan J accepted that the creditor had satisfied the threshold requirement of a claim for recovery of property under s 37A of the Conveyancing Act 1919 (NSW) on the grounds of voluntary alienation of property with intent to defraud creditors.  First, her Honour found (at [97]) that the “ alienation ” requirement was satisfied by:

(1) the debtor’s transfer of 100 shares in Option Capital to CHT for $100 on 3 March 2025; and

(2) the debtor’s transfer of 2 shares in Cao & Du Management to CHT for $2.00 on 9 May 2025.

41 Secondly, her Honour found at [100] that:

These transfers, their temporal coincidence with Mr Cao’s bankruptcy, the family and corporate connections between the transferors and transferees, coupled with the nominal value of these transfers and the fact that they have occurred in breach of the December 2024 freezing orders, all supports the inference that these transfers have occurred with an intent to defeat or delay the claims of creditors.

42 I also note Lonergan J’s observations at [33]-[42]:

Mr Tzovaras was not required for cross-examination, but Mr Cao was. He stated his occupation to be “Finance Broker”. He admitted that he knew that in the Controlling Trustee Report there was reference to deposits and withdrawals at the Sydney Crown Casino of $30,702,400.00. He admitted that this related to his gambling.

At the request of counsel for the defendants, Mr Notley, Mr Cao was advised of his rights under s 128 of the Evidence Act 1995 (NSW) to claim privilege against self-incrimination. He objected to answering any questions that may tend to incriminate him for contempt by way of breaches of the freezing orders. He was provided with a Certificate under s 128 of the Evidence Act in respect of any evidence that indicated any breach of the freezing orders.

Mr Cao admitted that he last gambled at Sydney Crown Casino in early January 2025 and had gambled at a casino in Singapore in the past six months, “in February”, but he was not sure whether it was before or after 25 February 2025. He asserted that the source of his money for gambling was money borrowed from his mother. He said that she had made investments in China a long time ago.

Mr Cao claimed that although he knew there was a freezing order in place affecting his mother, he did not believe the transfer back to him by her of the two shares in Cao & Du in the last few days was a breach of the freezing order because “it’s not her asset”, and it was “just to rectify a mistake”.

Mr Cao also admitted that he had been talking with Mr Tomaras fortnightly, there were emails between them and that he had spoken to him on the phone that morning. He also admitted that there had been meetings about “his legal matters” in the last three months where Mr Cao, Mr Tomaras and Mr Tzovaras all spoke together, including about strategy for his various pieces of litigation.

In respect of the Deed of Assignment of the Tung Chit debt, Mr Cao said that he did not believe it was an asset because there is no judgment, and he does not know whether “my $1.6 million claim is going to be granted”.

Mr Cao was asked about the transfer recorded on 3 March 2025 of his 100 shares in Option Capital to CHT. He asserted that those shares were actually transferred in August 2024, but the acknowledgment form was not lodged until March 2025. He said that there were meetings and discussions about transfer of shares involving him and his mother, but the meetings were not documented, and he cannot recall if there is any document supporting the date of the transfer that he alleges.

Mr Cao was asked about the transfer of his two shares in Cao & Du to CHT, and in that context was examined about seeking to control things through his mother and so avoid the effect of the PIA. He insisted that his secretary “Julie”, aka Li Fang Zhu, made the transfer by mistake. He denied instructing her to do so.

Mr Cao was asked about meetings by Cao & Du since 14 April 2025, the time at which his mother was appointed a director. He said that there had been a board meeting with his mother about changing solicitors on “about 9 or 10 August” but there were no minutes taken of that meeting. He confirmed that his mother was aware of the defendants’ application to adjourn the hearing, but “was not sure” if she knew of the application for freezing orders.

Later in his cross-examination Mr Cao asserted that he had borrowed money for gambling from “other friends” and that they were all in his list of creditors. When shown the list of creditors he was not able to identify them but insisted the Controlling Trustee had been given a list. He said that the $30 million referred to in the Controlling Trustee’s Report is not the total money borrowed from his mother; “its a turnover figure”. Finally, Mr Cao said that he is repaying his mother whenever there are funds available, and that there were repayments happening between him and her in the past to her personal bank account.

43 Elkaim AJ made similar findings in Xu v Cao & Du Management Pty Ltd [2025] NSWSC 1077 at [29]-[36]:

Another subject concerning credit relates to his apparent breaches of freezing orders. There are perhaps many, but, exemplified by gambling at the Sydney Crown Casino and Mr Cao’s apparent manipulation of the first defendant’s structure by share transfers and the appointment of his mother as a director of related companies.

When cross-examined about the gambling Mr Cao gave this evidence:

“Q. Well, this is the evidence you’re giving, Mr Cao. You said, (1) I got it from my mother, (2) it was a loan from my mother. That was your answer, correct?

A. Yes.

Q. And my proposition to you was, wherever the money came from, once you’ve received it, it’s your money. You understand that? It’s an asset of yours. Do you agree?

A. I don’t agree.

HIS HONOUR

Q. Let the just ask you this. Is it your position that because the money you used for gambling came from your mother, you were not in breach of the freezing order which was concerned with your money? That’s your position?

A. Yes, that’s my position.”

This is not dissimilar to Mr Cao’s evidence before Lonergan J on 26 August 2025, when her Honour was dealing with a notice of motion seeking freezing orders.  The following questions and answers are on p 36 of the transcript:

“Q. What was the source of your money to undertake that gambling?

A. Borrowed.

Q. Who did you borrow it from?

A. My mum.” …

The answers given before me and before Lonergan J, make it clear that the money to be used for gambling came into Mr Cao’s possession in order for him to facilitate the gambling. His suggestion that because the money came from his mother and therefore effectively bypassed him, and in turn was therefore not a breach of the freezing order, is untenable.

In fairness to Mr Cao, but having no effect on his credit, I should add that although the evidence referred to $30 million being gambled, that was a reflection of money going into and out (withdrawals and deposits) of his gambling account at the casino and not a total of the amount he had spent. He estimated the amount he had spent was closer to $2 million.

On 9 May 2025 Mr Cao transferred his two shares in the first defendant to his mother’s company (CHT Aus Holdings Pty Ltd) and his mother (Ms Su) was made a director of the first defendant. On 15 May 2025, Mr Cao transferred 100 of CHT’s shares in Option Wealth Pty Ltd (Option Wealth) to Jiahong Gu for $100 and then on 12 June 2025 Ms Su transferred Jiahong Gu’s 100 shares in Option Wealth to CHT for $100. Mr Cao was a director and shareholder in Option Wealth from 2014 – 15 May 2025 when Ms Su was appointed a director. Mr Jiahong Gu is a former director of Option Wealth.

On 25 August 2025 CHT transferred shares in the first defendant to Mr Cao. There is a strong inference that the various share transfers and the appointment of Ms Su as a director of the first defendant were ‘manipulations’ designed to circumvent freezing orders.

The result of the above is that I think the plaintiff succeeded in so demolishing Mr Cao’s credit that he should not be believed unless independently corroborated.

(Emphasis added.)

44 The creditor submits, and I accept, that, in circumstances where there has been a question raised involving the same parties in respect of these transfers in different proceedings, the findings in other matters in the Supreme Court to which I have referred enable me to form a reasonable suspicion that the debtor has engaged in conduct to circumvent the freezing orders, alienate his assets and retain de facto control of various companies to which his mother was appointed as director.

2.5 The first report of the Controlling Trustee

45 On 12 May 2025, the Controlling Trustee provided the First Report to Creditors pursuant to reg 61(3) of the Bankruptcy Regulations 2021 (Cth) and the Insolvency Practice Rules (Bankruptcy) 2016.  The First Report identified that under the then proposed personal insolvency agreement, $400,000 would be made available to creditors.  In exchange for that sum being made available, the debtor would assign a debt owed to him of $1.6 million to CHT, his mother’s company.  It will be recalled, as stated at paragraph 25 above, CHT is subject to a freezing order.  Thus, the $400,000 could not be provided.

46 On 12 June 2025, the Registrar extended the convening period for the Controlling Trustee to 5 September 2025.

2.6 Amended personal insolvency agreement

47 As earlier explained, the Amended PIA provided for the distribution of a total sum of $300,000 (before expenses) to “ Participating Creditors ” as opposed to “ Excluded Creditors ”.  Thus, clause 5.1 of the Amended PIA provides that “[t]he property and income of the [d] ebtor and which is to be available to pay Participating Creditors’ Claims is the PIA Fund which is to consist of the PIA Contributions.” Clause 5.2 states that “[t]he property and income of the [d] ebtor will not otherwise be available to pay Participating Creditors’ Claims, other than as set out in this Deed.” In turn, clause 8.3 of the Amended PIA provides that “ [n]o Excluded Creditor is entitled to make any Claim for any dividend under this Deed. ”

48 A “ Participating Creditor ” is defined in clause 1 of the Amended PIA as a creditor with a claim against the debtor which has been admitted by the trustee.  Clause 7.1 of the Amended PIA provides with respect to a Participating Creditor that:

Division 1 of Part VI of the Act and part 6 of the Regulations apply to Claims made under this Deed as if a sequestration order had been made against the Debtor on the Fixed Date and as if the Trustee were trustee in bankruptcy of the Debtor’s bankrupt estate.

49 “ Claim ”, in turn, is defined as “ any debt, claim or liability, present or future, certain or contingent, ascertained or sounding in damages being a claim which arose or the circumstances giving rise to which, occurred prior to the Fixed Date. ”

50 The term “ Excluded Creditors ” is defined in item 8 of the First Schedule under the Amended PIA.  The table below sets out the persons and entities who are defined as Excluded Creditors and in each case, their claimed debt value (as set out in Annexure B of the Amended PIA:

| Excluded Creditor | Claimed debt value |
| Xiaowen Su (debtor’s mother) | $17,143,067.00 |
| CHT Aus Holdings Pty Ltd (Ms Su’s company) | $78,798,259.87 |
| Zhengzhou Jianda Prefabricated Components CO., Ltd | $30,177,300.42 |
| Shen Nan Yu | $150,000.00 |
| Qian Cui | $80,000.00 |
| Eric An | $2,000,000.00 |
| Ni Du (debtor’s ex-wife) | $1,877,480.00 |
| Tzovaras Legal (Australia) Pty Ltd (debtor’s lawyers) | $18,018.00 |
| ACME Consulting | $21,846.00 |
| Kams & Associates (debtor’s accountant) | $385.00 |
51 As explained above, CHT is presently the shareholder in Option Greenacre Management and Option Capital Partners.  Ms Su is a director of several entities associated with the Greenacre Project and, as the creditor submits, appears to be a proxy of the debtor’s business arrangements to avoid creditors.

52 CHT and Ms Su, both Excluded Creditors, are admitted as creditors for the purpose of the Amended PIA, and voted by proxy in favour of the Amended PIA at the meeting held on 29 August 2025, the proxy being in each case John Tomaras/Ted Tzovaras.

53 Read together with these definitions, the effect of clauses 7 and 8.3 are twofold:

(1) First, it results in Participating Creditors, including the creditor, who will receive a nominal return of 0.0049 to the cent, being treated as if the Bankruptcy Act applies and a sequestration order has been made.

(2) Secondly, the claims of Excluded Creditors (including Ms Su and Ms Su’s company, CHT) are protected as they are isolated from the $300,000 distribution and their claims remain alive as against the debtor.

54 Coupled with the fact that the funder is located in China and no details have been given about the funder aside from his name and address, clause 10.3 of the Amended PIA gives little comfort to Participating Creditors that even the nominal amount proffered by the funder could be recovered in the event that the funder defaults.  Specifically, clause 10.3 provides that:

If any default under this Deed is not remedied within the time allowed by the Trustee, the Trustee may, in the trustee’s absolute discretion, issue a written declaration that in the opinion of the Trustee the terms of this Deed are unable to be fulfilled. Upon execution of such declaration by the Trustee this Deed will immediately terminate pursuant to section 222D of the Act.

55 Thus, even if the $300,000 is not paid by the funder by the payment date, that does not even result in termination of the Amended PIA.  Rather, termination will occur only where the Trustee forms the opinion that the terms of the Deed are “ unable ” to be fulfilled and decides in her or his “ absolute discretion ” to issue a declaration to that effect.

2.7 Section 189A Report

56 On 13 August 2025, the Controlling Trustee issued the 189A Report in relation to the Amended PIA.  The report provided details of the Amended PIA, including that:

(1) the creditors’ meeting to vote on the Amended PIA would take place on 29 August 2025;

(2) all creditors with a provable debt would be entitled to vote, including “ Excluded Creditors ”;

(3) $300,000 had been made available by Mr Jie Cao to creditors, although no security for the contribution had been offered;

(4) the debtor’s bankrupt estate had a deficiency of $110,118,114;

(5) if the Amended PIA was accepted by creditors, “ Participating Creditors ” would receive a return of 0.0049 cents in the dollar; and

(6) the Amended PIA would have the effect of releasing the debtor from all provable debts of the debtor, except for the debts owing to “ Excluded Creditors ”.

57 The Controlling Trustee also contrasted the situation under the Amended PIA with that of creditors in a bankruptcy, noting (correctly) that:

Creditors should note that if the Debtor is declared bankrupt, the provisions of the Act make will make no distinction between the Participating Creditors and the Excluded Creditors, (all unsecured creditors with a provable debt will be captured by the bankruptcy).  Creditors should also note that secured creditors are not affected by a PIA or by the Debtor’s bankruptcy, except for any amounts still owing to them after they have realised their security, which would form an unsecured debt in bankruptcy.

58 The Controlling Trustee’s recommendation was (not surprisingly) to reject the proposed Amended PIA given, among other things, that, no details had been provided by the debtor despite repeated requests as to how his mother has the personal capacity to fund his gambling and business interests and given the low return in comparison to the debt level.

59 For completeness, I note that the covering letter dated 13 August 2025 from the Controlling Trustee to the creditors enclosing the 189A Report and advising of the meeting of the creditors, confusingly recommends that the creditors accept the Amended PIA.  However, while the letter attaches a document described as an Amended PIA which differs in certain respects from the version that was ultimately approved by a majority of creditors, nonetheless that document made provision only for the sum of $300,000 to be made available to creditors with the exception of Excluded Creditors.  Given that matter and the Controlling Trustee’s contrary recommendation in the 189A Report supported by his detailed analysis, I infer that the covering letter included the recommendation to accept the Amended PIA in error.

60 With respect to the investigations undertaken as at the date of the 189A Report by the Controlling Trustee into suspicious transactions, the s 189A Report refers, among other things, to a “Binding Financial Agreement” (BFA) that was entered into on 31 August 2023 between the debtor and his former wife, Ms Ni Du.  The BFA discloses the four assets of the debtor and Ms Du.  Three of the assets were properties, while the other asset was shares in Cao & Du Management.  The debtor owned 50% of each of these assets.  The first property was valued at $2.7 million, the second at $1.4 million and the third at $1.2 million.  The shares in Cao & Du Management had no value. Despite the nominal value in the Cao & Du Management shares, the 189A Report explains that the terms of the BFA required Ms Du to resign as a director of Cao & Du Management and transfer her shares to the debtor within 28 days of the BFA being executed.  The BFA also required the debtor to transfer his ownership in all three properties to Ms Du.

61 The Controlling Trustee stated in the 189A Report that they had obtained legal advice on the BFA and the exchange in assets held in the marital pool.  The Controlling Trustee was of the view that the BFA “ will likely be void against a bankruptcy trustee pursuant to (at least) section 120 of the [Bankruptcy] Act as an undervalued transaction and possibly pursuant to section 121 of the Act as a transfer to defeat creditors.”

62 The 189A Report also contains a section titled “Betting Agencies”, which states that the debtor’s records disclose his membership accounts with Crown Sydney casino and Crown Melbourne casino. The Controlling Trustee’s enquiries revealed that the debtor had deposited and withdrawn $30,702,400 into Crown Casino Sydney during the period 8 August 2022 to 4 March 2025, with Crown Sydney advising that the debtor’s total net result was a loss of $1,519,345.  It also reported that the debtor had deposited and withdrawn $3,557,580 into Crown Melbourne during the period 15 November 2018 to 8 December 2024, with Crown Melbourne advising that the debtor’s total net result was a loss of $723,945.

2.8 Creditor’s meeting on 29 August 2025

63 On 29 August 2025, the creditors attended a meeting to vote on the Amended PIA. The Amended PIA was approved by 17 creditors in favour, 11 against, pursuant to Part 10 of the Bankruptcy Act.  Importantly, of those 17 creditors who approved the Amended PIA, a majority were Excluded Creditors who carried a majority of the voting power.  This included CHT (Ms Su’s company) which had a claimed value of $78,798,259.87 (and an admitted value of $55,107,145) and Ms Su, whose claimed and admitted value was $17,143,067.

64 At this meeting, the creditor’s debt was also admitted for an amount of $8,880,726.99.  The creditor has obtained judgment against Cao & Du Management for $21,984,458.90 (a debt that the debtor provided a guarantee for, and which is currently unenforceable due to the Amended PIA).  The judgment debt is significantly higher than the admitted debt recorded in the minutes of the creditor’s meeting prior to the vote on the Amended PIA.

1. EVIDENCE

65 The creditor relies on the following material:

(1) Affidavit of Zheng Chu, solicitor, affirmed on 29 August 2025 (First Chu Affidavit) and its underlying exhibits;

(2) Affidavit of Zheng Chu affirmed on 24 September 2025 (Second Chu Affidavit) and its underlying exhibits;

(3) Affidavit of Zheng Chu affirmed on 29 September 2025 (Third Chu Affidavit) and its underlying exhibits;

(4) Affidavit of Zheng Chu affirmed on 5 December 2025 (Fourth Chu Affidavit) and its underlying exhibits;

(5) Affidavit of Zheng Chu affirmed on 9 December 2025 (Fifth Chu Affidavit) and its underlying exhibits; and

(6) Documents contained in the creditor’s Court Book marked MF-1 at the hearing before the Registrar.

66 The debtor relies on the following material:

(1) Affidavit of John Tomaras, solicitor, sworn on 13 October 2025;

(2) Affidavit of Xiaowen Su affirmed on 13 October 2025 (Su Affidavit);

(3) Affidavit of Mingqiu Wu affirmed on 13 October 2025;

(4) Affidavit of Arthur Markopoulos sworn on 20 January 2026; and

(5) Documents contained in the debtor’s Court Book marked MFI-2 at the hearing before the Registrar.

67 The Official Trustee relies on the affidavit of Michael Kuyf affirmed on 27 February 2026.

1. SHOULD THE AMENDED PERSONAL INSOLVENCY AGREEMENT BE SET ASIDE?

4.1 Legal principles

68 Pursuant to s 222 of the Bankruptcy Act, the Court may, on application relevantly by a creditor, make an order setting aside a personal insolvency agreement if it is satisfied that:

(d)     the terms of the agreement are unreasonable or are not calculated to benefit the creditors generally; or

(e)     for any other reason, the agreement ought to be set aside.

69 First, as to the state of satisfaction required by s 222(1)(d), the Full Court in Moss v Gunns Finance Pty Ltd (In liq) (2018) 16 ABC(NS) 325; [2018] FCAFC 185 at 12 explained that regard may be had to a variety of factors, including (as the creditor submits):

first, the relative size of the debts owing and the proposal; secondly, the nature of the relationship between the debtor and the creditors who voted in favour of the PIA: Hingston v Westpac Banking Corporation [2012] FCAFC 41; (2012) 200 FCR 493 at 505 58; and thirdly, whether the circumstances call for a greater opportunity to inquire into the debtor's affairs and the closeness of the creditors' vote, particularly if influenced by creditors who were not at arm's length from the debtor: Osborne v Gangemi [2011] FCA 1252; (2011) 9 ABC (NS) 257 at 268 [47].  Fourthly, the inadequacy of a return may also constitute sufficient basis to set aside the PIA, especially so when other factors point in favour of setting it aside: Bendigo and Adelaide Bank Ltd v Clout [2016] FCA 119; (2016) 14 ABC (NS) 46 at 54 [46].

70 Secondly, the phrase “ for any other reason ” under s 222(1)(e) grants a wide power to the Court to set aside a personal insolvency agreement, particularly given that “ there are no particular limits circumscribing the discretion ”: Moss v Gunns at 13.  A principal factor in exercising the discretion is assessing the likely extent to which creditors may properly be satisfied that the proposal on offer reflects a fair and honest attempt by the debtor to address their debt: Osborne v Gangemi (2011) 9 ABC(NS) 257; [2011] FCA 1252 at 44.  Further, as s 222 allows the Court to set aside an agreement despite it being accepted by creditors, the vote of creditors is not paramount in an absolute sense: Hingston v Westpac (2012) 200 FCR 493 at 92.

71 Factors relevant to s 222(1)(e) overlap with those relevant to an assessment under s 222(1)(d) and include (as the creditor submits) the extent to which creditors can know the true financial position of the debtor, particularly if bankruptcy offers the potential for creditors to be put in a better position to know that information: Osborne at [44].  The Court may also take into account that it may be in the interests of some creditors, such as parties related to the debtor, to avoid closer investigations into their dealings: New Age Constructions (NSW) Pty Ltd v Etlis [2013] FCA 884 at [81]-[84].

4.2 The amended PIA should be set aside

72 For the reasons set out below, I agree with the creditor that the following factors overwhelmingly establish that the Amended PIA should be set aside on grounds that it is unreasonable and was not calculated to the benefit of creditors generally:

(1) the return to creditors of $0.0049 cents to the dollar is nominal and insufficient;

(2) the Controlling Trustee recommended against the adoption of the Amended PIA;

(3) the majority of voting power approving the Amended PIA derives from entities associated with the debtor or his mother, Ms Su, or appear to share common interests with the debtor;

(4) the debtor’s own assets and income are not available to creditors;

(5) the Amended PIA would in effect release the debtor from all provable debts of the debtor to the creditors, but does not discharge the debtor’s indebtedness to the Excluded Creditors;

(6) the Court cannot be satisfied that the debtor did not enter into a private arrangement with the Excluded Creditors to induce them to vote in favour of the Amended PIA; and

(7) the investigations by the Controlling Trustee are incomplete.

73 First, I accept, as the debtor contends, that a nominal return to creditors is not, in and of itself, sufficient to set aside a personal insolvency agreement.  However, while still a return (as the debtor also contends), the return of $0.0049 cents to the dollar is a derisory one, being grossly disproportionate to the bankrupt’s indebtedness: Bendigo and Adelaide Bank Ltd v Clout [2016] FCA 119 at 46); Moran v Robertson [2012] FCA 371 at 23).  In my view, this provides a strong case that warrants the Amended PIA being set aside, especially when this factor is coupled with the fact that the investigations are incomplete: Westpac Banking Corporation v Hingston (No 2) [2010] FCA 1116 at [69]-82 (approved in Clout at 46). Thus, as White J observed in Clout at [52], an assessment of the weight to be given to the nominal nature of a return requires “ consideration of the completeness of the trustee’s investigation and the information available at the time of the meeting as to the [debtor’s] affairs.”  Therefore, while a derisory return to creditors may not be unreasonable if it is manifest that no further amounts can be obtained, that is not the present case.  To the contrary, quite apart from other evidence to which I have referred, in his s 189A Report the Controlling Trustee expressed the view that the BFA – which disclosed four substantial assets of the debtor and his former wife – was likely void:  see above at paragraph 61.

74 Secondly, the debtor emphasises that a majority of creditors (including Excluded Creditors) voted in favour of its adoption.  However, the bare vote in the context of this case falls well short of portraying the true picture.  Not only is the majority vote contrary to the Controlling Trustee’s recommendation against the adoption of the Amended PIA, but the relationship between the debtor and at least certain creditors voting in favour of the Amended PIA and the exclusion of those voters from the Amended PIA is on its face not an arm’s length one: Moran at [78]. Specifically, as I have earlier held:

(1) the majority of the voting power approving the Amended PIA derived from entities associated with the debtor and his mother, Ms Su, or appear to share a common interest with the debtor;

(2) they are also Excluded Creditors whose interests are protected by reason of their being excluded from the distribution for which the Amended PIA provides, while under the Amended PIA their claims remain alive as against the debtor; and

(3) all of the Excluded Creditors voted by way of proxy through the debtor’s solicitor in this proceeding suggesting a common interest.

75 As to (1), creditors associated with the debtor and his mother Ms Su, include at the least CHT, Ni Du, Eric An, Tzovaras Legal, Acme Consultants, Kams & Associates (being the Excluded Creditors referred to above), as well as Cao & Du Family Trust, Option Funds Pty Ltd and Option Funds Management Ltd.

76 The debtor argues that the process of approving the Amended PIA was lawful and informed in that the Controlling Trustee set out his views in the 189A Report, and the creditors voted based on that information.  He also submits that there is no requirement under the Bankruptcy Act that creditors’ votes be at arm’s length.

77 However, in my view the inference that these voters were exercising their votes in furtherance of the debtor’s interests for reasons extraneous to the desire to recover what they claim is owing to them, and otherwise than in the interests of the creditors as a whole, is irresistible and not (as the debtor contends) merely “ speculative ”.  These are also powerful factors in support of orders setting aside the amended PIA: Clout at [45]; Etlis at [65], 81; Loane v Gold Ribbon (Accountants) Pty Ltd [2004] FCA 537 at [3], [20].  The nature of the relationship between the debtor and creditors who voted in favour of the Amended PIA also strongly supports the view that the Amended PIA is unreasonable: Hingston at 58.

78 Thirdly, under the Amended PIA the debtor’s own assets and income are insulated from the claims of creditors with the exception of the Excluded Creditors. Thus, under the Amended PIA, creditors are to be paid out of a fund procured by a third party, Jie Cao.  Yet Jie Cao’s identity is unknown, as is the source of the funds to be provided by Jie Cao, the terms on which Jie Cao has ostensibly agreed to advance the monies to pay creditors and the trustee, whether Jie Cao is related to Ms Su or the debtor, and why Jie Cao is providing the funds.  This lack of transparency induces a high degree of disquiet about the proposed arrangement and whether it will in fact ever be fulfilled by Jie Cao: Etlis at [82].  Added to this, Jie Cao is resident in China rendering enforcement of the Amended PIA even more problematic in the event that Jie Cao fails to provide the funds.

79 Fourthly, as I earlier held, the Amended PIA does not have the effect of discharging the debtor’s indebtedness to the Excluded Creditors.  As a result, the Amended PIA favours the interests of Excluded Creditors – quite a number of whom are related to the debtor – but extinguishes the rights of Participating Creditors for a de minimis return.  In other words, it treats Participating Creditors as if the Bankruptcy Act applies and a sequestration order has been made, while isolating the claims of Excluded Creditors so that their claims remain alive as against the debtor’s assets and income. This strongly weighs in favour of the Amended PIA being set aside.  The debtor’s submission that the creditor has identified no procedural irregularity in the voting of the Amended PIA is beside the point. Even if there was no procedural irregularity, the evidence provides a reasonable suspicion that, in substance, the terms of the Amended PIA are unreasonable and have not been calculated to the benefit of creditors generally. In these circumstances, I cannot be satisfied that the debtor did not enter into an alternative private arrangement with the Excluded Creditors to induce them to vote in favour of the Amended PIA.  As the creditor submits, this would be a convenient outcome for them in circumstances where implementation of the Amended PIA provides Participating Creditors with only $300,000 and removes the Excluded Creditors from the creditor pool under the Amended PIA.  As the creditor also submits, a ‘private bargain’ of this nature undermines the fundamental purpose of Part X of the Bankruptcy Act for which the Court provides relief: Deputy Commissioner of Taxation v Zappia [2019] FCA 2152 at [11]-12.

80 F ifth ly, the Controlling Trustee’s failure to investigate various matters demonstrates the unreasonableness of the Amended PIA as it cannot be confirmed that the Amended PIA is in the best interests of creditors generally.

81 The debtor’s position is that the investigations completed by the trustee to date are sufficient and that no further investigation would result in an increase of the $300,000 fund to be distributed amongst Participating Creditors under the Amended PIA.  However, there are a number of concerning matters that ought to be the subject of a proper and well-resourced investigation by a trustee, as the creditor has submitted.

(1) The first matter is that there is a reasonable basis for suspecting that Ms Su may be  acting as the debtor’s puppet as a result of various appointments of her as a director and/or shareholder, including that of Option Capital Partners on 18 November 2024, Option Finance Australia on 2 December 2024 and again on 23 July 2025, Cao & Du Management on 14 April 2025, Option Holdings on 2 December 2024 and again on 15 April 2025 and Option Wealth on 2 December 2024 and again on 1 June 2025.  I do not accept the debtor’s submission that the Su Affidavit, which sets out her professional experience, makes it clear that Ms Su acted on her own accord.  As I stated at paragraph 38 above, during cross-examination at the hearing before the Registrar, Ms Su accepted the proposition that she did “ not have any idea about what moneys have gone into and out of any of the bank accounts ” held by the companies of which she was a director or sole shareholder.

(2) The second matter concerns the debtor’s transfer of his shares in Cao & Du Management to Ms Su by way of a Form 484 dated 9 May 2025 (and with an effective date of 14 April 2025), which were later returned to the debtor on 25 August 2025.  The debtor submitted that the transfer to CHT is of little significance and that, in any event, they were transferred in error.  and it is not unusual for someone to transfer directorships if he or she is going bankrupt.  To the extent that the debtor argues certain transfers were made in error, it is not my function on this application to make findings as to whether or not, in fact, these transfers were made in error. Rather, my role is to decide whether, based on a reasonable suspicion, these are transactions which the Controlling Trustee might reasonably consider warranted further investigation.  In this regard, the transfer of shares between Cao & Du Management is a transfer that on its face ought to be investigated, particularly when one has regard to all the other transfers that took place around a similar period and Ms Su’s lack of knowledge about the very companies of which she is a director.  In those circumstances, the appointments of Ms Su as a director are, to say the least, unusual.

(3) The third matter concerns the investigations that the Controlling Trustee has admitted are incomplete, including (a) investigations into whether the transfers to the debtor’s associated entities are void; (b) investigations into the management accounts of entities of the debtor, such as Option Finance, Option Realty and Option Wealth which have not been verified; and (c) investigations into whether Option Funds Management or the Family Trust are related party creditors.  I do not accept the debtor’s submission that the idea of a superior return arising from further investigations is speculative and not sufficient to render the Amended PIA unreasonable.  The threshold requirement is that there is “ some hope ” of a superior result to the creditors if the investigations were conducted: Osborne at [45].

(4) The fourth matter concerns the BFA between the debtor and his former wife. This has not been investigated to determine if it is a transaction to defeat creditors, although the Controlling Trustee advised in the s 189A Report that it was likely to be void under s 121 of the Bankruptcy Act. This evidence contradicts the debtor’s submission that the 189A Report demonstrates the Controlling Trustee has reached his final view on the BFA, and that there is nothing further that needs to be investigated in relation to the debtor and his former wife’s affairs.  Further, even if these properties have been sold (as the debtor asserts), the monies from those sales may be traceable.

(5) The fifth matter concerns the extent and circumstances of the debtor’s gambling, which raise serious questions for investigation.  The Debtor has apparently deposited and withdrawn at least in excess of $34 million with Crown Sydney and Crown Melbourne.  Further, in the 189A Report, the Controlling Trustee noted that while the debtor stated that his mother was the source of the funds for his gambling, she was not aware of the same; nor had the debtor answered questions from the Controlling Trustee as to how his mother had the personal capacity to fund the debtor’s gambling and business interests.  Given these circumstances, I agree with the creditor that the amounts deposited and withdrawn from the casino gives rise to a reasonable suspicion of unusual conduct, which ought to be properly investigated by a trustee.

(6) It may also be the case that the Controlling Trustee’s investigations into whether Option Funds Management or the Family Trust are related party creditors are not yet complete (although this is not clear).

82 In short, while there may “ be circumstances in which informed creditors may consider it in their best interests to approve a personal insolvency agreement and accept comparatively little in return ” (as Flick J held at [23] in Moran), the present is not such a case.  Nor is this a case where the evidence demonstrates that further investigations are unlikely to be fruitful.  Here, the Excluded Creditors are not bound by the terms of the Amended PIA, nor are they receiving any of the funds being distributed under the Amended PIA.  It follows that the Excluded Creditors cannot be regarded as informed creditors who considered it in their best interests to vote in favour of an insolvency agreement where they are accepting “comparatively little in return”: Moran at [23].  Further, there is no evidence before me that would support a positive finding that further investigations would not be fruitful.  To the contrary, the evidence is clear that there are a number of transactions over the period that give rise to a reasonable suspicion that further investigations may result in a superior return being identified.

83 Having regard to the matters at paragraphs 72 to 82 above, I am therefore satisfied that there is some hope of a superior return to creditors if further investigations were conducted.

84 It follows that the Amended PIA should be set aside on grounds it is unreasonable and was not calculated to the benefit of creditors generally.

1. SHOULD A SEQUESTRATION ORDER BE MADE?

85 The creditor seeks a sequestration order pursuant to s 222(10) of the Bankruptcy Act.  The debtor asserts that a sequestration order is not necessary in circumstances where freezing orders are in place, and a receiver is already investigating the affairs of Cao & Du Management.

86 However, I agree with the creditor that a sequestration order ought to be made on the following grounds.

87 First, as the creditor contends, the freezing orders in the 2022 proceedings provide little comfort to the debtor’s creditors in circumstances where the evidence suggests that the debtor may have acted in breach of those orders.  Thus, despite freezing orders having been in place in the 2022 proceedings since 15 November 2024, the debtor has lodged documents in March and May 2025 transferring his interests in various companies to his mother’s company, CHT, and engaged in gambling activities which appeared to be in breach of the freezing orders.  Contrary to the debtor’s submissions, it is not my task to determine whether these transactions were in fact in breach of the freezing orders.  It suffices for present purposes that there is a reasonable basis on the evidence for suspecting that the debtor and his mother have a disregard for court orders.  I also consider that there is a reasonable basis on which to suspect that the various transfers of the debtor’s shares and directorships in various companies are a façade designed to disguise the debtor’s de facto control of these companies via his mother for the reasons already explained at paragraph 81(1) above.

88 Secondly, I do not consider that the fact that a receiver has been appointed to a wholly different entity (the Family Trust) that is itself a creditor with an admitted debt of $2.4 million does not mean that the receiver would act in the best interests of the debtor’s creditors.  As the creditor submits, the receiver appointed to the assets of the Family Trust is not tasked with investigating the debtor’s affairs in the context of considering maximum returns to the debtor’s creditors.  Nor, given the different tasks to be undertaken by the receiver and a trustee in bankruptcy administering the debtor’s estate, do I attach any significant weight to the possibility of duplication in the subject matter of transactions investigated by a trustee in bankruptcy and a receiver.

89 Th irdly, the Controlling Trustee has not taken any steps to investigate a series of suspicious transactions in order to recover funds for distribution to creditors.  This strongly suggests that  the matter would best be dealt with by way of bankruptcy where the possibility is open for the debtor (and potentially his mother) to be subjected to public examination as part of an investigation into the circumstances in which the debtor was able to incur debts which are at least 360 times greater than the amount now available to creditors: Moran at 78 and Clout at 46.

90 It follows that a sequestration order should be made against the debtor’s estate pursuant to s 222(10) of the Bankruptcy Act, with the effective date of bankruptcy being 8 May 2025.

1. REPLACEMENT OF THE OFFICIAL TRUSTEE

6.1 The application and objections

91 The Official Trustee was appointed by default after the Amended PIA was set aside pursuant to the Registrar’s decision and the sequestration order was made by the Registrar.  This occurred because the Consent to Act as Trustee form for one of the proposed trustees had not been filed in time.

92 As earlier explained, by the interlocutory application filed on 1 September 2025, the creditor also seeks orders pursuant to sub-sections 90-15(1) and (3)(b) of the Insolvency Practice Schedule (Bankruptcy) to the Bankruptcy Act to replace the Official Trustee and instead appoint Mr Ma and Mr Bagala from DVT Mcleods (the proposed trustees) as trustees in bankruptcy of the debtor. On 8 November 2025, the Australian Financial Services Authority advised that the appointment of the proposed trustees would take effect if there were no written objections against the appointment in accordance with s 181A of the Bankruptcy Act.

93 On 21 November 2025, the creditor’s solicitors were informed that five objections were made against the appointment of the proposed trustees, such that the Official Trustee remained the trustee of the debtor.  Since then, the investigations have revealed that the objecting creditors included Ms Su, the debtor’s wife, and other related creditors.

6.2 Legal principles

94 Section 90-15(1) of the Insolvency Practice Schedule (Bankruptcy) to the Bankruptcy Act provides that:

The Court may make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate.

95 Section 90-15(3) in turn relevantly provides that:

Examples of orders that may be made

(3)     Without limiting subsection (1), those orders may include any one or more of the following:

…

(b)     an order that a person cease to be the trustee of the estate;

(c)     an order that another person be appointed as the trustee of the estate;

…

96 In Borg v De Vries (Trustee), Re The Bankrupt Estate of David Morton Bertram [2018] FCA 2116 at [21]-[33], White J noted that s 90-15 was introduced for the purpose of aligning the provisions for the removal of a trustee in bankruptcy more closely with those for the removal of a liquidator of a corporation.  His Honour observed at [24] that the “ power to remove and replace is not made subject to conditions such as proof of error, misfeasance, negligence or other poor conduct by a trustee ”.  His Honour concluded at [33] that:

…the approach in the corporations cases to s 503 and its predecessors is apposite in relation to the removal and replacement of the trustee in bankruptcy under ss 90-15 and 90-20 of the Bankruptcy Schedule. The Court should exercise the power to remove and replace a trustee in bankruptcy in a manner which best advances the interests of the bankruptcy, having regard to the objects of the Bankruptcy Act. Having regard to s 1-1(2)(b) of the Bankruptcy Schedule, the proper interests of the creditors of the bankrupt will be an important consideration.

97 I set out the relevant principles governing the exercise of the discretion in s 90-15 of the Bankruptcy Act in Mokhtar v Piscopo [2024] FCA 493 at [29]-[42] and 44.  Of particular importance, I would emphasise that:

(1) the authorities have cautioned against undue interference by the Court in the administration of bankruptcy;

(2) the power to remove and replace is not made subject to conditions such as proof of error, misfeasance, negligence or other poor conduct by a trustee, nor is it limited to matters relating to the unfitness of the liquidator to hold office; and

(3) the ultimate question is whether removal would be in the best interests of the bankruptcy.

98 Further, I agree with the creditor that, while a creditor may seek to have the trustee replaced by a resolution of creditors pursuant to s 90-35 of the Insolvency Practice Schedule (Bankruptcy), this factor is of less consequence in circumstances where (as here) “ familial relationships intervene in the voting by a majority of those creditors ”: Break Fast Investments Pty Ltd v Sampson (Trustee), in the matter of Voukidis [2022] FedCFamC2G 516 at [155].  Thus, by analogy, Leeming JA stated in DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (2014) 86 NSWLR 293; [2014] NSWCA 96, at [81] that s 600A of the Corporations Act 2001 (Cth) “ reflects a legislative recognition that the reasons for the voting of related entities may diverge from those of other creditors, in a way that should be subjected to curial oversight. ”

99 The decision of White J in Borg at [54] illustrates the kinds of factors that may lead to a conclusion that removal and replacement of a trustee is appropriate even though there is no misfeasance or neglect in the administration of an estate in bankruptcy.  Specifically, at [54], his Honour held that:

The circumstances described above, taken in combination, satisfy me that an order for the removal and replacement of the trustees is appropriate.  That is not because I am satisfied of any misfeasance, neglect or other error in the conduct of the administration of the estate by the respondents.  It is instead because I am satisfied that it appears that the respondents consider that no further investigations are warranted or practical; that despite that, there do appear to be some matters which may warrant further investigations; that the first applicant is prepared to fund Mr Naudi to undertake those investigations, but not the respondents; because the respondents do not themselves oppose the order; and because no other party opposes the order.  In short, I am satisfied that the replacement of the trustees by Mr Naudi would advance the purposes of the Bankruptcy Act in the administration of the estate.

6.3 Parties’ submissions

100 The creditor’s application is not brought by reason of any neglect, misfeasance or inactivity of the Official Trustee.  The creditor wishes to co-operate with the debtor’s trustees for the purpose of urgently investigating the debtor’s affairs and is willing to fund the investigations and examinations at this stage to the amount of $100,000 in the first instance.  In the creditor’s submission, the Court should make orders replacing the Official Trustee with the proposed trustees in all of the circumstances on the basis that this was in the best interests of creditors and the failure to have Mr Ma and Mr Bagala appointed as trustee in the first place was through inadvertence. On the other hand, the debtor submitted that the Court should refuse the application and instead allow the creditors to be given the opportunity to object to the proposed appointment.

6.4 The Official Trustee should be replaced

101 I agree with the creditor that the Official Trustee should be replaced with the persons identified in the creditor’s application.

102 First, it is in the interests of creditors that the Official Trustee be replaced, as it will allow the investigations and examinations to occur in a timely and thorough manner.  Importantly in this regard, the amount of money owed to creditors is substantial and there are multiple transactions of different kinds which may be void or liable to be set aside.  It is thus important in my view that a well-resourced trustee is appointed at the earliest opportunity so that investigations into the various affairs (including the matters set out at paragraph 81 above) of the debtor can be conducted without delay.  This will also mean that the Official Trustee (which is publicly funded) is not required to use its own resources to undertake these investigations and may instead redirect those resources to other cases.  I agree with the creditor that it would impose an undue burden on the Official Trustee, a public body, to conduct the investigations and examinations, even if it were funded.

103 Secondly, I do not accept the debtor’s submission that creditors should be afforded an opportunity to object to the appointment of the proposed trustees.  I agree with the creditor that, if such an opportunity were afforded, it is unlikely that the Official Trustee would be replaced.  This is because the majority of creditors are, or are likely to be, related to the debtor and his mother, or share a common interest with the debtor, and therefore to have an interest in avoiding a thorough and well-resourced investigation into the debtor’s affairs.

104 Thirdly, as the evidence of the creditor’s solicitor, Zheng Chu, which was unchallenged, establishes, the failure to appoint Mr Ma and Mr Bagala as the new trustees in the first place occurred through inadvertence because the Consent to Act as Trustee form had not been filed.

1. COSTS

105 In circumstances where the creditor has been wholly successful in the orders sought, the debtor’s estate should pay the creditor’s costs.  The first and third respondents’ costs are reserved.

| I certify that the preceding one hundred and five (105) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Perry. |
Associate:

Dated: 10 April 2026

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