BANKRUPTCY UPDATE FOR PERSONAL
&
CORPORATE INSOLVENCY
PRACTITIONERS
19 MARCH 2013
PRESENTED BY SALLY NASH
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CURRICULUM VITAE OF
SALLY SUSAN NASH
Sally is acknowledged as a leading insolvency lawyer in NSW, Australia. She was
admitted to practice in 1977 and has practiced in insolvency, general commercial
litigation and debt recovery litigation since that time. Her practice is in all NSW State
and Australian Federal Courts involving commercial and insolvency litigation acting
for creditors, Trustees, Liquidators, bankrupts and directors. She also has extensive
experience acting for secured creditors in the enforcement of their securities. Sally
has been involved in many leading cases and is very highly regarded by her clients
and fellow practitioners.
Sally is a member of the Law Society of NSW, Law Council of Australia, Commercial
Insolvency and Reconstruction Committee; Insolvency Practitioners Association of
Australia; Turnaround Management Association Australia and Member of the
Smaller Practice Issues Committee of INSOL International, International Association
of Restructuring, Insolvency and Bankruptcy Professionals.
In the past Sally has lectured at the College of Law and Newcastle University. In
2010 Sally reviewed and updated the Lawyers Practice Manual for New South Wales
debt recovery chapter. In 2011 Sally wrote the Australian chapter on Australian
Bankruptcy Law for INSOL, International in the INSOL publication “Consumer Debt
Book”.
See also website www.sallynashandco.com.au
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1. Law Reform
1.1 On 3 June 2011 the Government has released an “Options Paper: a
modernisation and harmonisation of the regulatory framework applying to
insolvency practitioners in Australia” for discussion. It states:“Australia maintains separate corporate and personal insolvency
regimes. The Senate Committee’s report raised a number of concerns
about the differences in personal and corporate insolvency regulation.
These differences reflect the reality that a one-size-fits-all approach to
insolvency is not appropriate and will not deliver suitably tailored
outcomes for both companies and individuals. There are, however,
benefits to be gained from removing unnecessary divergence between
the two regimes, including reducing legal complexity, risk, and costs for
insolvency practitioners, creditors, shareholders, regulators and other
stakeholders. This paper canvasses the possibility of significant
coordinated amendments to both the Corporations Act 2001 and the
Bankruptcy Act 1966.”
2. Bankruptcy Statistics
2.1 ITSA publishes statistics on bankruptcy including, demographics, principle
causes, income and debt issues and an interesting matter concerning
postcodes if you want to look up the number of bankrupts in your suburb.
There were 17 bankrupts in my suburb in the 2011 ITSA Annual Report.
There are no bankrupts in my parents’ suburb. There were 67 bankrupts in
postcode 2010 which is Darlinghurst/Surry Hills
2.2 The demographic of the bankrupt person has moved from mid 30s such that
29% of bankrupts are now between the ages 40 – 49 and 13% are aged 60 or
older. 27% are a couple with dependents whereas 40% is a single person
without dependents.
2.3 Unemployment or loss of income remains the largest reason for non-business
related bankruptcies being 34%. Economic conditions, credit restrictions are
listed as 42% of business related bankruptcies.
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2.4 24% of bankrupts earnt between $30,000 - $50,000 in 2011 but 17% earnt
$70,000 or more, compared with 51% of the Australian Gross Household
Income.
3. A Rise in Conduct Issues
3.1 There are very few cases involving Section 179 of the Bankruptcy Act. Most
matters deal with Section 178 of the Bankruptcy Act being a review of the
decision of a Trustee in Bankruptcy. Section 179 is the ability of the Federal
Court or Federal Magistrates Court to remove a Trustee.
3.2 Tapp v LawCover Insurance Pty Ltd [2013] FCA 35. The case dealt with a
bankrupt’s right to indemnity under an insurance contract with respect to an
outstanding judgment debt. The right to indemnity vested in the Trustee in
Bankruptcy, but pursuant to Section 117 of the Bankruptcy Act any recovery
would be for the benefit of that creditor and would not form part of the assets
vested in the Trustee for the benefit of payment to unsecured creditors under
Section 109 of the Bankruptcy Act. The right to the benefit of the insurance
policy vested with the Trustee in Bankruptcy but the Trustee under Section
117 of the Bankruptcy Act has no benefit for the creditors of the bankrupt
estate.
“(1) Where:
(a) a bankrupt is or was insured under a contract of insurance against
liabilities to third parties; and
(b) a liability against which he or she is or was so insured has been
incurred (whether before or after he or she became a bankrupt);
the right of the bankrupt to indemnity under the policy vests in the
trustee and any amount received by the trustee from the insurer under
the policy in respect of the liability shall, if the liability has not already
been satisfied, be paid in full forthwith to the third party to whom it has
been incurred.
(2) Subsection (1) does not limit the rights of the third party in respect
of any balance due to him or her after the payment referred to in that
subsection has been made.
(3) This section applies notwithstanding any agreement to the contrary,
whether entered into before or after the commencement of this Act.”
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3.3 A Request was made to the Official Trustee in Bankruptcy to complete an
assignment. Particulars were sought. Rares J in the Federal Court found as
there was no benefit under Section 58 of the Bankruptcy Act there was no
reason for the Official Trustee not to assign the claim and that the Official
Trustee had failed to fulfil its obligation under Section 19(1)(f)(j)(k) of the
Bankruptcy Act. It is useful to set out those Sections below: “(1) The duties of the trustee of the estate of a bankrupt include the
following:
(f) taking appropriate steps to recover property for the benefit of the
estate;
(j) administering the estate as efficiently as possible by avoiding
unnecessary expense;
(k) exercising powers and performing functions in a commercially
sound way.”
3.4 It was asserted that the Official Trustee did not cooperate with the Applicant to
seek directions under Section 134(4) of the Bankruptcy Act: “Section 134(4) The Trustee may at any time apply to the Court for
directions in respect of a matter arising in connection with the
administration of the estate.”
3.5 Part of the history of the litigation was Tapp & Anor v Official Trustee in
Bankruptcy [2009] FMCA 1264 in which Tapp sought and obtained an order
for leave to proceed under Section 58(3) of the Bankruptcy Act to sue for
damages against Roger Gray, the bankrupt who was a solicitor whose
practising certificate was suspended and a Receiver appointed to manage his
legal practice and who may have had the benefit of a LawCover policy of
insurance: “20 As submitted for the Applicants, the existence and availability of
such an insurance policy in relation to the claims made by the Tapps
against Mr Gray is a significant factor in favour of the grant of leave
under Section 58(3)(b) of the Bankruptcy Act.
21 In this context it is also relevant to have regard to the fact that it
appears that the Tapps would not be able to proceed directly against
Law Cover, having regard to s.6 of the Law Reform (Miscellaneous
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Provisions) Act 1946 (NSW), because the contract of insurance under
which Mr Gray may be entitled to an indemnity came into existence on
1 July 2009, that being later than the event giving rise to his claimed
liability to pay damages to the Tapps (failure to initiate litigation on their
behalf prior to 2 July 2004). Such an approach to s.6 was taken by the
New South Wales Court of Appeal in The Owners - Strata Plan
No.50530 v. Walter Construction Group Limited (In Liquidation) & Ors.
[2007] NSWCA 124, as considered and examined by McCallum J in
Perpetual Trustees Victoria Ltd v Malouf [2008] NSWSC 834 at [18]
and [19]. In Perpetual Trustees McCallum J pointed out that in
comparable circumstances (where an earlier version of the Law Cover
insurance policy was under consideration), the procedure under s.6 of
the Law Reform (Miscellaneous Provisions) Act for proceeding in
relation to an insurer was not available when the event giving rise to
the liability of the insurer had occurred before entry into the relevant
contract of insurance because no charge could arise over insurance
moneys that might be payable under a contract that did not yet exist.”
3.6 On 7 February 2011 the Supreme Court awarded judgment in favour of Mr
and Mrs Tapp against Gray the solicitor in the amount of $290,845.50 plus
interest and costs. Primarily there was a claim which had become statute
barred by the solicitors in activity.
3.7 All solicitors maintain a policy of professional indemnity insurance. It was the
subject of that insurance policy which became the decision delivered by Rares
J in January 2013 Tapp v LawCover Insurance Limited [2013] FCA 35: “Importantly, Section 117(1) is a separate and distinct provision that the
property of the bankrupt in the Trustee in a way different to the general
provisions for vesting of all other available property of the bankrupt
provided for in Section 58…Accordingly, the Trustee has only one
power to deal with the property consisting of a right to indemnity under
insurance policies to which Section 117 applies and that power is to
pay the particular creditor in preference to all other creditors of the
bankrupt’s estate.
The proceedings in this case illustrate how expense can be run up by
seeking to have a preliminary investigation of the merits of a bankrupt’s
allegations by the Trustee and the Federal Court where there are wide
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ranging conflicts in sworn evidence about the alleged claims. The
cases will be few where some decisive point exists to which the
Trustee or the Court can be satisfied that the claim has no reasonable
prospect of success. The more likely result of a review of the evidence
will be that the Trustee, or the Court, cannot be satisfied that no
possible cause of action could be made out, because the possibility
cannot be excluded that at trial on properly adduced and tested
evidence facts sufficient to support a claim could be established…
The Trustee informed the Court after I delivered the above reasons
orally that it will assign its rights to indemnity under the policy to the
Applicants subject to any reasonable payment of costs. LawCover has
sought that its costs of the Interlocutory Application be paid by the
Applicants and/or the Trustee. The Applicants and the Trustee have
reached an agreement that each bear their own costs. In my opinion
the difficulties in these proceedings to date have been largely
occasioned because of the failure of the Trustee to carry out its duties
under Section 19(1) of the Act for the reasons that I have given. When I
required Submissions to be made by the Trustee on 24 December
2012 I drew attention to Part VB of the Federal Court of Australia Act.
Belatedly, the Trustee which has been a party to this litigation from its
inception, only this morning recognised its obligation to act in a way
that conforms with the overarching purpose of the Civil Procedure
Provisions of the Act and the Federal Court Rules, 2011 (Cth). In my
opinion the real reason for parties to have borne their substantial
expenses in this litigation up to today has been due to the Trustee’s
conduct. While the parties seem to have had some doubt as to what, in
my opinion, was pellucid about the situation after the discharge of Mr
Grey from bankruptcy, the Trustee offered no assistance to them or the
Court on a question that is fundamental to its functions under the Act.
Hence, the utility in the declarations that I will make. I am of the opinion
that the appropriate order in the circumstances of this case is that the
Trustee bear, and not seek to recover from the estate of the bankrupt,
the costs thrown away by reason of the proceedings before the Docket
Judge and before me to date. It is appropriate to order that the Trustee
pay LawCover’s costs so thrown away.”
3.8 Scott Pascoe had no difficulty obtaining an order that he be indemnified out of
the bankrupt estate of Liprini in Liprini v Liprini & Anor [2012] FCA 1103 which
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was an Application for an appeal out of time. The Application for leave to
appeal was granted but the appeal was dismissed and the Court made the
following order for costs: “The costs of Scott Darren Pascoe and the Second Respondent be
indemnified from the bankrupt estate of the Applicant, either as agreed
or taxed.”
3.9 As sometimes happens the primary dispute in the Liprini bankruptcy was
between two brothers with the Trustee being the meat in the sandwich. The
above decision alone refers to 7 prior cases involving Liprini v Liprini
including an Application under the Vexatious Proceedings Act, 2008 that the
bankrupt be prevented from taking proceedings in the Supreme Court of
New South Wales without leave of the Court and a similar action in the
Federal Magistrates Court.
3.10 Jagot J considered but did not order an inquiry into the conduct of the
Trustee. Instead the Trustee removed himself. The dispute being in relation
to the convening of the meeting of creditors. Her Honour stated: “In my earlier reasons for judgment I noted at [19] that I accepted,
consistent with the principles discussed in Re Burn; Ex Parte Dawson,
McClelan and the Trustee [1932] 1 Ch 247, the Trustee had power to
apply to the Court for directions in respect of the creditor’s request for a
meeting. No such approach to the Court seeking appropriate directions
had been made. To the contrary, the Trustee awaited the
commencement of this proceeding by the Applicant and actively
defended the proceedings. As noted the proceedings sought orders for
removal of the Trustee. The Trustee now agrees that the orders should
be made for his removal. Accordingly the Applicant has been
successful in the proceeding and obtaining the orders sought. As
Counsel for the Applicant said the Trustee, by reason of this
proceeding has exceeded the orders sought. In addition, Federal
Magistrate Barnes delivered her judgment in the interim, upholding the
Trustee’s position in relation to the Proof of Debt.”
3.11 In other words the Trustee, in dealing with a person who had been declared
vexatious and in considering a Proof of Debt still took the view that it was
easier to resign as Trustee than continue on the course which he had
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adopted and which had been vindicated in a number of Courts. Her Honour
then made the following order: “That the Respondent be removed as Trustee…
The Respondent pay the Applicant’s costs of an incidental to the
proceeding as agreed or taxed.
The Respondent not be indemnified from the bankrupt estate of
Alan Stephen Liprini for the costs of an incidental to this
proceeding.”
3.12 It is worth noting that by 19 July 2012 in Liprini v Liprini & Anor [2012] FMCA
666 Barnes FM referred to 16 cases involving Liprini v Liprini or Pascoe v
Liprini. Indeed the Trustee was successful in obtaining an order that his
costs be paid from the bankrupt estate of Dr Liprini, in these cases.
3.13 The type of argument dealt with by the Court is adequately set out in a
decision of Barnes FM dealing with a Section 78B of the Judiciary Act notice
in Liprini v Liprini & Anor [2012] FMCA 719: “10 Dr Liprini’s general contentions are that his rights to access to the
justice system had been breached. More specifically, it appears that
the Dr Liprini takes issue of the fact that a stay in relation to the
administration of his bankrupt estate was not granted prior to
proceedings or on the day when the matter was last before the Court,
notwithstanding the fact that he had sought an adjournment of the
proceedings at that time and failed to address the substance of his
claim.
11 Dr Liprini claims that he is without resources, his property has been
stolen and that he is homeless. There is no evidence before the Court
in these proceedings to support such claims. As allegations they are
not such as to raise a matter with Section 78B of the Judiciary Act.”
In other words there was no constitutional issue.
3.14 The above two cases highlight the difficulty in which the Trustee may have to
deal with. Both refer to the ability of a Trustee to seek and obtain directions
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of the Court. However I ask what a Trustee should do in circumstances
where there are no assets and, for example, in the matter of Tapp where
there was no documentation provided to the Official Trustee upon which the
Official Trustee could fully understand what the Tapps were requesting.
Indeed His Honour took the view that the Official Trustee in Bankruptcy
should have used its vast resources to draw the necessary documents for
the benefit of Mr Tapp and to the cost of the estate.
3.15 In the past I have acted for many Trustees on assignments of a chose in
action. Indeed it was a reasonably lucrative procedure to enable money to
be paid into a bankrupt estate. The practice appears to have fallen in to
disuse primarily I believe because of the substantial litigation reported
between Willoughby v Official Trustee in Bankruptcy being a review under
Section 178 of the decision of the Official Trustee to assign a chose in
action, which was substantially a claim against Clayton Utz. The insurer of
Clayton Utz purchased the chose in action and the Trustee was then
involved in lengthy and serious litigation reviewing its decision: “On 14 April 1999 the Trustee and LawCover executed a Deed (“the
Deed”). The Deed recited that the chose in action against Clayton Utz
was an after-acquired asset in the first bankruptcy. The Deed provided
that upon full payment being received of the sum of $5,100 payable
under the Deed, the Trustee would thereby transfer and vest the action
pending in the Federal Court against Clayton Utz under action number
WAG 183 of 1998, and underlying causes of action (apart from cause
of actions under the Trade Practices Act) to LawCover as purchaser.
The Trustee undertook not to transfer or vest the Trade Practices
claims to any person and consents to those claims being dismissed.”
3.16 After much litigation between the Willoughbys and the Official Trustee the
decision of the Official Trustee to assign the claim to LawCover was
successfully challenged and ultimately the Official Trustee was directed to
assign the chose in action to Mrs Willoughby.
3.17 A similar problem arose in the litigation between John Emmanuel Rose, a
bankrupt solicitor, and Meriton Apartments Pty Ltd whereby he sought to sue
Meriton Apartments Pty Ltd and his Trustee assigned to the bankrupt, before
discharge, the vested claim against Meriton. That claim spawned substantial
and complex litigation in the Federal Court, the Supreme Court, New South
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Wales Court of Appeal and High Court of Australia. The issue being that
assigning the chose in action to the bankrupt, before discharge simply had
the effect of re-vesting the chose in action in the Trustee as an afteracquired asset.
3.18 The fact that a Trustee does not apply for directions seems to be a criticism
of Trustees. In Donnelly (Trustee) in the matter of Keddie (bankrupt) [2012]
FCA 1485 the Trustee applied to the Federal Court for directions on how to
treat Proofs of Debt between a law partnership and separate creditors in the
bankruptcy. The well-known decision In the matter of bankrupt estate of
John Lawrence Sharpe; Re John Lawrence Sharpe; ex parte Max
Christopher Donnelly [1998] FCA 6 was an Application by the Trustee for
directions as to how he should treat the income of the Barrister whether
memorandum of fees issued by the bankrupt and outstanding at the date of
bankruptcy were property and vested or whether they were income. As we
all now know it is income.
4. Time Limits of 60 Days from Becoming Aware
4.1 Section 178 has a 60 day time limit. I argue that it should be construed strictly.
There is no requirement for notice. Indeed not making a decision is equally
open to challenge. It is when the person affected by the decision of the
bankrupt or the creditor is aware of the decision that the 60 days commences
to run.
4.2 Mrs Samootin has litigated with the Official Trustee in Bankruptcy, her former
solicitors, former real estate agents, her former husband and neighbour for in
excess of a decade. The litigation is always along the same lines and in the
most recent matter the Official Trustee sought and obtained a separate issue
determination on whether or not the bankrupt had become aware within 60
days of commencing her claim and if so then her claim was statute barred
being commenced more than 60 days from her becoming aware.
4.3 Katzmann J stated in Samootin v Official Trustee in Bankruptcy [2012] FCA
64: “If the Official Trustee is right, then the Application (by the bankrupt)
will have to be dismissed, for it will have been made outside the time
prescribed by the Act. No Application has been made for an extension
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of time. In any event there is no power to extend time. Miss Samootin
did not argue to the contrary. Section 33(1)(c) of the Bankruptcy Act
confers a general power on the Court to extend any time limited by the
Act, even after its expiration in the absence of any provision to the
contrary. But the general power must give way to the specific restriction
in Section 178(2) which was inserted into the Bankruptcy Act on 5 May
2003 – after the commencement of Section 33. See David Grant & Co
Pty Ltd (Receiver Appointed) v Westpac Banking Corporation [1995]
HCA 43 which deals with the analygas provisions of the Corporations
Law. For the reason given in that case, the requirement in Section
178(2) for the Application to be made within 60 days of the date a
person effected by the Trustee’s act, omission or decision becomes
aware of it, should not be treated as qualified by the operation of
Section 33(1)(c). This interpretation accords with the evident purpose
of Section 178(a) – the avoidance of inconvenience and cost to
Trustees. In that regard I note the explanatory memorandum to the
Bankruptcy Legislation Amendment Bill, 2002 (Cth) which introduced
Section 178(2) stated [199]: “Item 142 proposes an amendment to Section 178 of the Act to insert a
60 day time limit in which an Application may be made to the Court for
a review of a Trustee’s act, omission or decision. At present no time
limit is specified; some bankrupt’s (sic) have applied to the Court for a
review many years after the act, omission or decision concerned. This
is both inconvenient and costly for Trustees; setting a time limit will
allow a reasonable period for persons to seek review under Section
178.”
4.4 On determining the separate issue determination the bankrupt ultimately
withdrew her case and has had limited action since that time, primarily
because the New South Wales Court of Appeal has made an order that she
not file any documents without leave of the Judge of the Court.
4.5 I am pleased to say that Steven Golledge and I researched the topic at length.
The Courts are now reviewing cases with some strict proximity to time limits.
In the New South Wales Court of Appeal in Raniere Nominees Pty Ltd trading
as Horizon Motor Lodge v Daly [2006] NSWCA 235 a 28 day time limit for
bringing a claim in the Workers Compensation Commission was viewed
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strictly and the Court refused to extend the time under Section 145 of the
Workers Compensation Act.
4.6 Many will have heard of the High Court decision or seen its effect in the
matter of David Grant & Co Pty Ltd v Westpac Banking Corporation [1995]
HCA 43. In considering the effect of a Statutory Demand and the requirement
that any Application to set aside the demand be filed and served within 21
days as required by Section 459G of the Corporations Act, the High Court
again considered the 21 days as a strict time limit which could not be
extended.
4.7 The matter is given great consideration by Driver FM in Heshmati v Paul
Burness and Morgan Lane [2012] FMCA 884: “In Samootin v Official Trustee in Bankruptcy, Katzmann J agreed to
address the question of the operation of Section 178(2) as a separate
issue in the proceedings before her. However it transpired that it was
not necessary to answer the question, because the substantive
proceedings were abandoned. In Liprini v Pascoe [2012] FCA 886
Jagot J proceeded on the basis that the parties agreed that the 60 day
time limit in Section 178(2) had expired and there was no continuing
right of appeal. In my view, Section 178(2) on its face discloses a
parliamentary intention that the 60 day time limit is an absolute one
which cannot be extended by the Court. I note first the imperative
language of the section and the use of the word “must”. I note secondly
that the limitation period is a long one. Federal statutory limitation
periods generally range from a few days to a period of 35 days as in
the Migration Act, 1958. I note further that the administration of
bankrupt estates could be significantly disrupted if there were no
certainty in decisions made by Trustees in that administration. The
opportunity to bring proceedings outside the limitation period of 60
days could create significant uncertainty, including the bankrupt
administration had been completed. In that regard I note the limitation
period does not commence to run until the person becomes aware of
the Trustee’s act, omission or decision.”
4.8 The issue can be well used to the advantage of Trustees. In Wenkart v
Pantzer [2003] FCA 456 (5 May 2003) Beaumont J considered the effect of
Regulation 8.09(1) and the Trustee’s claim for remuneration under Section
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162 of the Bankruptcy Act in relation to the compliance with the time limits
imposed under the Act.
“2 Regulation 8.09(1) relevantly provides that where a Trustee claims
remuneration under Section 162 of the Bankruptcy Act, 1966 a
bankrupt who is dissatisfied with the amount of the claim may, by
notice in writing lodge within 14 days of being notified in writing or
becoming aware of the amount of the claim.(My emphasis) requiring
the taxing officer to tax a claim.
3 On behalf of the Respondent it is submitted that such a notification or
state of awareness occurred on 15 March 2002 when, at a meeting
held, the creditors considered the Applicant’s proposal under Section
73 for a composition.
12 In my opinion, the Applicant was not then notified of the amount of
the claim. As the minutes record, the Applicant was notified that the
Respondent would therefore claim 85% of the IPAA guide for hourly
rates pursuant to Section 162(4) and Regulation 8.08…
In my opinion this is a formulae claim rather than a claim which
specifies an amount.”
4.9 Thus gave rise to the voluminous and lengthy Wenkart v Pantzer litigation of
which I believe there are more than 20 cases dealing primarily with the
Trustee’s entitlement to claim remuneration.
5. Remuneration and Entitlement to Charge
5.1 It is useful to consider the entitlement of a Trustee to charge remuneration
and whilst the Regulator and the Courts look at the decisions of Bellin v
Pattison (Trustee) [1999] FCA 51 and Adsett v Berlouis [1992] 109 ALR 100 I
think a more favourable interpretation of the Trustee’s entitlement to
remuneration under Section 162 of the Bankruptcy Act is in Brake v
Townsend [2006] FCA 1156. The bankruptcy was in this matter was annulled
under Section 153B of the Bankruptcy Act on the basis that the bankrupt was
solvent. The Trustee had refused to issue a Section 153A Annulment
Certificate and incurred substantial costs in dealing with the bankruptcy
administration and complaints.
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“26 At 29 March 2004, three payments had been made in the
administration. The first was an amount of $8,099.10 paid on 12
December 2003 in respect of the trustee’s remuneration. The second was
a payment of $800.00 made on 29 January 2004 in respect of a
mandatory charge payable to the Commonwealth Government under the
Bankruptcy (Estate Charges) Act 1997 (Cth) and the third payment of
$764.42 was made on 27 March 2004 in respect of rates levied by the
Gold Coast City Council concerning the property at 56 Hoffschidldt Drive,
Currumbin Waters. At 29 March 2004, $336.48 was held in the
administration bank account.
27 In general terms, the trustee denied the allegation that the
administration had been conducted contrary to the interests of the
applicant or in a malicious way and asserted that the work undertaken in
the administration was consistent with the proper administration of the
estate and responsibilities required under the Act. In further general terms,
Mr Carey filed an affidavit which contested a number of the matters Ms
Townsend asserted. Mr Carey says that Ms Townsend did not produce
any documents to him whatsoever nor tender any documents to him at the
meeting on 25 June 2003. Mr Carey says he did not refuse to accept any
documents. Mr Carey says that the bankrupt was in a distressed state and
a considerable amount of time was spent explaining the bankruptcy
process. Mr Carey says Ms Townsend agreed to complete the Statement
of Affairs and return it promptly. As to the properties, Mr Carey says no
action was to be taken to sell the properties in the immediate future and
that this would allow Ms Townsend time to complete the Statement of
Affairs and return it to the trustee.
28 These matters are mentioned in some detail because they illustrate the
divergence of approach between the trustee and the bankrupt. Ms
Townsend was agitating for very little to be done and purporting to direct
the trustee not to do things against the background of allegations that
taking steps would be both unnecessary and vexatious. On the other
hand, the trustee says he identified a statement of the necessary steps
taken in the administration, submitted that description to the creditors for
approval and contends that the steps taken by him represent the orthodox
and proper administration of the estate.
30 In light of all of these complaints, Ms Townsend offered to pay on 7
November 2003, $4,500.00 as full and final payment of the trustee’s
administrative costs.
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31 It is plain that at this time Ms Townsend was asserting her view of the
limited nature of the steps that she thought were ‘reasonable’ and her view
as to whether particular conversations, steps, correspondence and other
communications ought to have been undertaken by the trustee and his
staff.
100 Before setting out the proposed orders, it should be noted that the
matters before Federal Magistrate Coker on 5 November 2004 and
subsequently on 15 February 2005 involved a challenge to the refusal of
the trustee to issue a certificate for the purposes of s 153A, an
examination of the requests by the trustee for the provision of funds in
connection with the administration of the estate and a consideration of
whether the bankruptcy ought to be annulled pursuant to s 153B. Although
Federal Magistrate Coker determined that the bankruptcy ought to be
annulled on the ground of the solvency of the applicant, a substantial part
of the proceeding involved a consideration of evidence going to the first
limb of the application as to whether a certificate ought to have issued on
the part of the trustee and whether the court had power to direct an
annulment in circumstances where a factual contention that all debts of the
bankrupt including the costs (both expenses and remuneration) had been
paid by a certain date, was resolved in favour of the applicant. The
applicant was successful on the second limb of the application.
Accordingly, any costs arising out of or in connection with the hearing
which now might be the subject of an order, ought to be limited to those
matters arising out of or in connection with the first limb of the application.”
5.2 In the above case of Brake the Court was dealing with vested bankruptcy
property and unsecured creditors in that bankruptcy. In the matter of Young v
Macryannis [2011] FCA 1272 the Federal Court was dealing with non-vested
property being trust property but for which the Trustee was conducting an
administration because the executrix of the deceased estate was not. Whilst
the Trustee lost at first instance the Full Court of the Federal in MacDonald v
Young [2012] FCAFC 137 and MacDonald v Young (No 2) [2012] FCAFC 161
upheld the position of the Trustee: “The obligations of the Trustee under the Bankruptcy Act extended only
to the property of the deceased that was divisible amongst his
creditors. The non-divisible property of the deceased did not come
under the control of the Trustee, but should have been under the
control of an executor or administrator, which would have been the
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case had a grant of probate or letters of administration been made.
Since no grant had been made, the Trustee, in effect, undertook
obligations that may have resided in the NSW Trustee. In those
circumstances, the principles of general law apply to his dealing with
the exempt assets. To the extent that the actions of the Trustee confer
to benefit on the beneficiaries of the exempt assets he would, under
general law, be entitled to reimbursement of reasonable costs and
expenses in doing so. In so far as some benefit was conferred on the
beneficiaries he may also be entitled to a lien on the proceeds of that
realisation for any expenses reasonably incurred and reasonable
remuneration for the work done.
The Trustee’s time sheets which recorded all the work allegedly done
by him and his staff in relation to non-divisible assets…Mrs Young has
failed to obtain a grant of probate of the Will of the deceased, so as to
have standing to deal with the exempt assets. Accordingly, if Mrs
Young were ordered to pay the Trustee’s costs, further questions could
arise as to whether she would be entitled to an indemnity from the
exempt assets in respect of the costs ordered against her. In these
circumstances, the decision of the primary Judge, that there be no
order as to costs of the Trustee’s Application, shall not be
disturbed…The Trustee has been partially successful in the appeal. An
appropriate order would be for Mrs Young to pay 50% of his costs of
the appeal.”
6. Section 121 of the Bankruptcy Act
6.1 In Mathai v Nelson [2012] FCA 1448, the Trustee has been successful in
obtaining an order that the transfer of property in 1978 was void and that the
property acquired with that transferred property (being money) vests in the
Trustee in Bankruptcy for the benefit of the unsecured creditors. The
advantage of the order as made, both in the Federal Magistrates Court and
the Federal Court is that the creditors obtain the benefit of capital gains on
real estate in Kew in Victoria.
6.2 In Mathai v Nelson [2012] FCA 1448: “In 1978 Mr Mathai arranged for the purchase of real estate in Kew for
$122,500 part of which was financed with his money and part with his
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overdraft. A trust was created and the real estate was acquired for the
trust. At the time Mr Mathai had creditors. Those creditors were
subsequently paid. The Mathai Family Trust was established in 1977
prior to the purchase of the first Kew property a demand was made on
the bankrupt to repay $423,990. Judgment was entered against the
bankrupt in 1985 for $3,786,179.25. At the time of bankruptcy those
judgment creditors were not creditors in the bankruptcy. The
bankruptcy arose by reason of an English judgment in 1995
subsequently registered in Australia. The bankruptcy was in 2007.
Applying Section 121 of the Bankruptcy Act and a wide definition of
“creditor” not necessarily including creditors in the bankruptcy but
creditors who had been discharged. The critical issue was “intent to
defraud creditors” or putting the object out of the reach of present or
future creditors. Whilst the use of the word “fraudulent” is no longer part
of Section 121(1) the Court nonetheless set aside not only the transfer
of the money but also the acquisition of the real estate and ordered that
the Kew property was held beneficially on trust for the Trustee in
Bankruptcy.”
6.3 The above case has wide ranging implications for asset preservation and
planning. It follows on from the High Court decision in Cummins which is
useful to review.
“The present case concerns the traditional matrimonial relationship.
Here, the following view expressed in the present edition of Professor
Scott'
s work respecting beneficial ownership of the matrimonial home
should be accepted[84]:
"It is often a purely accidental circumstance whether money of the
husband or of the wife is actually used to pay the purchase price to the
vendor, where both are contributing by money or labor to the various
expenses of the household. It is often a matter of chance whether the
family expenses are incurred and discharged or services are rendered
in the maintenance of the home before or after the purchase."
To that may be added the statement in the same work[85]:
"Where a husband and wife purchase a matrimonial home, each
contributing to the purchase price and title is taken in the name of one
of them, it may be inferred that it was intended that each of the
spouses should have a one-half interest in the property, regardless of
the amounts contributed by them." (footnote omitted)”
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6.4 In Oliver v Malanos [2011] FMCA 2 the Trustee was successful in the Federal
Magistrates Court but unsuccessful in the Federal Court retaining the benefit
of property said to be held on trust by the wife which was ultimately upheld
and therefore the trust property did not vest under Section 116(2) of the
Bankruptcy Act.
7. Proofs of Debt
7.1 Generally Trustees have been successful in having their decisions in relation
to Proofs of Debt upheld. I think this is because the decision making process
is more transparent. The important thing to remember is that it is a de novo
hearing and new evidence can be adduced. If all parties have been joined
then it is appropriate for the Trustee to simply file a Submitting Appearance
and for the bankrupt and creditor to entertain the dispute before the Court.
7.2 In Robert Gilbert Coshott v John Christopher Burke & Commonwealth Bank of
Australia [2012] FCA 517 the Trustee filed a Submitting Appearance, save as
to costs and the dispute was between the creditor, the Commonwealth Bank
of Australia and the bankrupt. The bankrupt lost.
“33 The bank sought to lodge proof of debts in bankruptcy based on
a judgment debt and costs orders established in its favour after
contested and protracted litigation. The amounts in issue are
substantial, now totalling well over $300,000, including interest. The
nature of Mr Coshott’s defence to the proof of those debts in his
bankruptcy is that the release was executed on 23 June 2005
during the pendency of the appeal, challenging the judgment debt
and a costs order. The consideration for the release of what were
then a judgment and costs orders worth well over $200,000 was
stated as $1. There was no evidence of any settlement negotiations
or contemporaneous recognition of the release. The gravity of the
bank’s allegation is significant, namely, that the purported release is
a fabrication. The only person who can benefit from the existence of
the release is Mr Coshott. He has given no evidence of any basis
upon which it could be inferred that there was any prospect of his
claim succeeding before the Court of Appeal in 2005.
34 The question then arises as to why the bank would give up its
entitlement to a not insignificant monetary judgment, including
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interest, for the MasterCard debt and its right to have its substantial
costs orders assessed in respect of lengthy hearings and contests
in the Court of Appeal. There is no explanation in the evidence for
the bank agreeing to do so.
35 Mr Coshott argued that the bank’s failure to produce forensic
expert evidence that the release document was a fabrication was
fatal to the bank’s assertion. I reject that contention. There is no
dispute by any of the three persons who gave evidence that the
release appears to bear their signatures. But it is readily possible to
take copies of signatures from one document and insert them in
another using photocopiers or other technology. The original of the
release document was never produced in evidence. There is no
sufficient explanation for its absence from evidence or any credible
explanation as to where it might be. The copy of the release in
evidence is not crystal clear. It looks to have been copied more
than once. Mr Coshott had access to documents bearing the, or
copies of the, actual signatures of each of the persons whose
signatures appear on the release, through having received
correspondence and affidavits during the course of the District
Court and Court of Appeal proceedings and, in Mr Ryner’s and Ms
Maloney’s case, in the course of his other dealings with those
persons.
36 I am not satisfied that the release represents a document that
was ever executed by any of the parties or persons whose
signatures it bears. First, it is inconceivable that Mr Lanser would
have continued to act and involve the bank in the Court of Appeal
proceedings, incurring the time, trouble and expense of doing so,
including the cost of briefing senior counsel, for another six months
if he had signed a release on or about 23 June 2005. Secondly,
there is no conceivable reason why the bank would want to give up
its undoubted claim against Mr Coshott for over $80,000, including
interest by then, based on the District Court judgment, or its
entitlements to orders for costs before Sorby DCJ or the 2004 Court
of Appeal proceedings. Mr Coshott was not then bankrupt, and
although he may have had other creditors chasing him, that would
not give the bank any reason to give up for nothing its rights to a
perfectly good opportunity to recover the judgment debt and costs
when assessed by ordinary processes or to prove in his bankruptcy,
were that to occur. Thirdly, no contemporaneous documentation
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suggests that any negotiations had occurred to settle the
proceedings brought by Mr Coshott in the Court of Appeal or
elsewhere. Mr Lanser’s contemporaneous correspondence with
both Hill Ryner & Co and senior counsel he briefed demonstrates
that those proceedings remained active and on foot at all times until
their final disposition on 15 December 2005.”
7.3 In Charter Finance Pty Ltd v Finn [2012] FMCA 681 and in James v
Woodgate [2012] FMCA 1214 each of the decisions of the Trustee was
upheld.
7.4 Whilst the cost of litigating a Proof of Debt is not borne by the Trustee, the
Court can always make a costs order against a party including the Trustee in
Bankruptcy. See Nishtom Pty Ltd v Robinson (Trustee); in the matter of
Kinsella (bankrupt) [2007] FCA 978. The costs of the Proof of Debt litigation of
both parties were to be paid from the estate.
7.5 The important matter for the Trustee is to seek further particulars of how the
claim is calculated. In particular to seek documentary proof and where money
has been paid copies of the relevant bank statements.
8. Annulment versus Review of Bankruptcy
8.1 Section 153B of the Bankruptcy Act enables the Court to annul a bankruptcy
on the basis that the order ought not to have been made. There is no time
limit for making the Application. Indeed allowing for appeals the Application
could be two years after the Sequestration Order is made. For this reason I
always recommend that the Trustee consent to any formal stay of the
administration of the bankrupt estate, if an order for stay is sought.
8.2 If on the other hand an Application for review is made within 21 days of the
Sequestration Order being made this gives the Trustee no protection under
Section 154 of the Bankruptcy Act.
8.3 Section 154 of the Bankruptcy Act sets out: “(1) If the bankruptcy of a person (in this section called the former
bankrupt ) is annulled under this Division:
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(a) all sales and dispositions of property and payments duly made, and
all acts done, by the trustee or any person acting under the authority of
the trustee or the Court before the annulment are taken to have been
validly made or done; and
(b) the trustee may apply the property of the former bankrupt still
vested in the trustee in payment of the costs, charges and expenses of
the administration of the bankruptcy, including the remuneration and
expenses of the trustee…”
8.4 Section 154 has no effect where an order is made setting aside or reviewing
the Sequestration Order made by a Registrar of the Court. A Trustee faced
with an Application for review is on dangerous ground so far as the course he
undertakes for protection of the assets and the incurring of remuneration. If he
goes too far he will not be recompensed. If he doesn’t go far enough the
benefit of assets may be lost to the estate.
8.5 The Trustee can only claim remuneration if there is an annulment under
Section 154. He is out of pocket in relation to a review. Kyriackou v Shield
Mercantile Pty Ltd (No 2) [2004] FCA 1338: “There are, unfortunately, some cases in which, irrespective of the
outcome, an injustice may result. This may be one such case. Mr
Kyriackou, as the successful Appellant in this plainly entitled to recover
his legal costs against the First Respondent…The central fact is that
the Bankruptcy Notice upon which the Sequestration Order was based
was invalid. That is a matter for which the First Respondent must take
full responsibility, and in relation to the First Respondent should pay
the Appellant’s costs. The next question arises is whether the Official
Trustee, as Second Respondent to this appeal, is entitled to any order
for costs arising out of the appeal. The Official Trustee chose to be
represented in the appeal in order to advance arguments relating to the
cost that he had incurred in administering the estate, and in relation to
his remuneration. He did not participate in the substance of the appeal.
In my view there should be no order as to the Official Trustee’s costs
relating to the appeal. The final and most difficult issue to be
determined is whether, as the Appellant contends, the Sequestration
Order should be simply set aside or whether as the Official Trustee
contends the bankruptcy should be annulled. It would be quite wrong in
my view to burden Mr Kyriackou who is the successful Appellant in the
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proceeding with the cost of administering a bankrupt estate that should
never have been made the subject of a Sequestration Order.
Regrettably that leaves the Official Trustee with no obvious and
immediate recourse against either the Appellant or the First
Respondent. It also leaves him with what might be considered to be a
legitimate sense of grievance. He may be out of pocket for doing no
more than what he was required by statute to do.”
8.6 The Trustee will probably be ordered to provide a report by way of Affidavit to
the Court within a week prior to the final hearing setting out the bankrupt’s
conduct, assets, liabilities and income issues. This is because bankruptcy
involves public policy and the Court will not lightly let a person out of a
Sequestration Order. The cost of preparing the report will be covered by an
order of the Court but not usually the cost of the Trustee’s remuneration,
although some Federal Magistrates are aware of the conflict and may be
prepared to make an order.
9. Can the Trustee Ever Win in the Family Court, Yes but at what Cost
9.1 Official Trustee in Bankruptcy v Brown & Brown [2011] FMCA 88 - The real
estate was entirely registered in the name of the wife. It was not disclosed to
the Trustee. After discharge the husband commenced Family Court property
orders. The wife advised the Official Trustee. On determining issues Miss
Brown received 67% of the former matrimonial property and the Official
Trustee 33%.
9.2 Davies v Davies & Anor [2012] FMCA Fam 866 – In following Re Gillies the
Court considered property registered to the bankrupt but held in trust for the
wife and determined the Trustee’s interest at 68%, the wife at 32%.
9.3 Debrossard v Official Trustee in Bankruptcy [2011] FamCA 648 – The
property was owned as joint tenants. The husband and wife entered into
Consent Orders after bankruptcy giving the wife 100%. The Family Court set
the Consent Orders aside and ultimately determined 60% to the wife and 40%
to the Trustee in Bankruptcy allowing for a pooling of the husband’s
inheritance received after separation and during bankruptcy.
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9.4 In Combis Trustee of the property of Peter Jensen (bankrupt) v Jensen [2009]
FCA 778 – A Binding Financial Agreement was said to be a “transfer of
property” and able to be set aside under Section 121 of the Bankruptcy Act.
9.5 Sellars v Ceraso [2012] FMCA 48 – Natural love and affection is not market
consideration.
9.6 The Family Court only deals with the vested bankruptcy property. It has power
to take assets from the Trustee but not to give assets to the Trustee. This
includes acquired and after-acquired assets.
9.7 Determination of Family Law pool is a four step process: 1. Determine the joint matrimonial pool.
2. Determine contributions by the husband and/or wife – financial and nonfinancial.
3. Determine needs of the husband and/or wife including payment of
liabilities.
4. Determine equities.
9.8 Under Section 79(14) of the Family Law Act the Trustee in Bankruptcy stands
in the shoes of the bankrupt’s spouse who has no entitlement to appear or be
heard.
9.9 Potential problems in the Family Court with respect to a husband and wife
who were not in fact separated and not intending to seek a divorce were
considered in Stanford v Standford [2012] HCA 52. Until this case it had
always been regarded that separation as a preliminary requirement to a
divorce was necessary pre-requisite to the obtaining of Family Law property
settlement orders. The wife was 89 years and the husband was 87. They
purchased a house. The wife had moved into a nursing home.
“50 In argument in this Court, the legal person or representatives of the
wife accepted that the Application for a property settlement order had
been commenced when the wife was no longer competent and without
the wife having expressed any wish to seek the division of marital
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property. The legal person or representatives also accepted that the
very dominant consideration in the Full Court’s decision to make the
orders it did was its conclusion that the wife’s contributions during the
marriage established the moral obligation to which reference has been
made.”
9.10 Therefore a party to a marriage need not separate before making an
Application for property orders against a Trustee in Bankruptcy based on
financial and non-financial equitable contributions to the marriage and to the
assets including vested assets.
10. 66G Orders and Possession
10.1 All Courts are now getting tough with the co-owner and the bankrupt in
relation to possession and sale orders.
10.2 In Dixon as Trustee of the bankrupt estate of Badillo v Watiwat [2012]
NSWSC 402: “8 As a result of the combined effect of s 58 of the Bankruptcy Act 1966
and s 90 of the Real Property Act 1900, Mr Dixon and the defendant
are now the registered proprietors of the Property as tenants in
common.
9The Property is the substantial asset of the Bankrupt'
s estate. In Mr
Dixon'
s opinion, the realisation of what is now his interest in the
Property will result in all creditors of the bankrupt'
s estate being paid in
full.
10 The petitioning creditor of the bankrupt estate was Lion Finance Pty
Limited, the assignee of a number of debts owed by the Bankrupt to
the Australian and New Zealand Banking Group Limited, GE Money,
Westpac and American Express.
15 Section 66G of the Conveyancing Act is in the following terms: "66G (1) Where any property (other than chattels) is held in coownership the court may, on the application of any one or more of the
co-owners, appoint trustees of the property and vest the same in such
trustees, subject to incumbrances affecting the entirety, but free from
incumbrances affecting any undivided shares, to be held by them on
the statutory trust for sale or on the statutory trust for partition."
17 I am satisfied that Mr Dixon is a co-owner of the Property.”
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10.3 Stevenson J followed Black J in the decision of Pascoe v Dyason [2011]
NSWSC 1217.
“Very recently, Black J considered the principles which must guide me
in exercising the limited discretion I have under the section: Pascoe v
Dyason [2011] NSWSC 1217. With great respect and gratitude I will
adopt his Honour'
s summary of the relevant principles contained in [5]
to [8] of that judgment: "5. The purpose of this section is '
to provide a mechanism for
terminating the co-ownership [of property] where the co-owners
themselves cannot agree on how the co-ownership should be
determined'
: P Butt, Land Law , 6 th ed, 2010 at 265. In Callahan v
O'
Neill [2002] NSWSC 877, Young CJ in Eq observed:
'
It is fairly clear that, as a general rule, any co-owner holding at least
50% of a parcel of real property is entitled almost as of right to an order
for partition or sale under s 66G of the Conveyancing Act. It is only in
situations where it would, under settled principles, be inequitable to
permit such an application, including cases where there has been a
contract not to make an application that the order may be refused. This
appears from cases such as Ngatoa v Ford (1990) 19 NSWLR 72 and
Williams v Legg (1993) 29 NSWLR 687.'
6. Although the Court has a discretion whether or not to make an order
under this section, the grounds on which the Court will ordinarily refuse
to make it are limited. For example, if it is inconsistent with a
proprietary right or a contractual or fiduciary obligation, and there is no
general jurisdiction to refuse to grant such an order on the basis of
hardship or unfairness: Stephens v Debney (1960) 60 SR (NSW) 468;
Re McNamara and the Conveyancing Act (1961) 78 WN (NSW) 1068;
Ngatoa & Anor v Ford & Anor (1990) 19 NSWLR 72; Williams v Legg
(1993) 29 NSWLR 687; Westpac Banking Corporation v Sansom
(1994) 6 BPR 13,790; Woodson (Sales) Pty Ltd v Woodson (Aust) Pty
Ltd (1996) 7 BPR 14,685. In Hogan v Baseden (1997) 8 BPR 15,723 at
15,723, Mason P observed that it '
would not be a proper exercise of
discretion of the power to decline relief under s 66G ... to refuse an
application on grounds of hardship or general unfairness.'His Honour
also noted that:
'
[I]n the unhappy event that the parties are unable to settle their
differences then the making of an order appointing trustees for sale
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seems inevitable unless the respondent could establish a legally
binding agreement not to put her out of occupation of her home, or
circumstances that would ground some estoppel to similar effect.'(at
[59]).
7. In Chalhoub v Chalhoub [2005] NSWSC 572 at [17]- [18],
McLaughlin AsJ observed that, where a plaintiff and defendant are
registered as tenants in common in equal shares, then prima facie the
plaintiff is entitled to relief by way of an order under s 66G of the
Conveyancing Act for sale of the relevant property and for the division
of the net proceeds of such sale between the plaintiff and the
defendant in equal shares. It was for the defendant, who denied the
plaintiff'
s entitlement to such relief, to establish that the legal rights of
the parties consequent upon their status as registered proprietors as
tenants in common in equal shares were in some way altered by the
invocation of equitable rights recognised by a Court of Equity or that
there was some other reason why the Court should, in the exercise of
the limited discretion reposed in it by s 66G of the Conveyancing Act,
decline to make an appointment of statutory trustees or sale of the
subject property.
8. In Cain v Cain [2007] NSWSC 623 at [9]- [10], Young CJ in Eq noted
that the Court will usually consider it appropriate to make an order
under s 66G of the Conveyancing Act unless persuaded by cogent
arguments from those who oppose. His Honour then noted Counsel'
s
summary of the categories of cases in which the Court has declined to
grant such an order as including: where the legal title is held by
trustees and the trust instrument contains its own procedure for sale;
where the plaintiff'
s conduct rates as an estoppel against the sale; and
where an order would be incompatible with a contractual or equitable
duty binding the applicant. In Tory v Tory [2007] NSWSC 1078 at [42],
White J noted that an order under s 66G of the Conveyancing Act 'is
almost as of right unless on settled principles it would be inequitable to
allow the application'
, and observed that an application would be
refused if making the order would be inconsistent with a proprietary
right or contractual or fiduciary obligation or on the basis of
conventional estoppel or equitable estoppel. In Spathis v Nanos [2008]
NSWSC 418 at [19]- [20], Jagot AJ observed that the discretion was
not at large and is not to be exercised by reference to personal views
about hardship or unfairness. The Court of Appeal also noted that the
discretion to refuse relief under s 66G of the Conveyancing Act was a
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'
limited one'in Ross v Ross [2010] NSWCA 301 at [36]; see also
National Australia Bank Ltd v Pasupati [2011] NSWSC 540 at [20]."
10.4 The Supreme Court also in the matter of Juratowitch v Quitlong [2012]
NSWSC 1374 in ordering the appointment of Trustees for Sale possession
and eviction made the following comments: “On 16 March 2011 a Sequestration Order was made in relation to the
estate of Quitlong. A Trustee was appointed. The Trustee is co-owner
of the property with the Defendant. The Trustee in Bankruptcy is
entitled to the order that Trustees be appointed to the property and for
the property to be sold. The circumstances in which the Court can
decide to make an order under Section 66G are limited. It is not a
ground for refusal of such an order that the order will occasion
hardship…Mrs Quitlong opposes the orders. She says that she is the
owner of the property, no one has the right to sell the property which
would deal with her interest. However Section 66G of the
Conveyancing Act is a law that overrides what would otherwise be her
right to possession and to maintain ownership of the property as a coowner. It is that law that is invoked. Nothing she has put before me
provides any basis for withholding from the Trustee in Bankruptcy his
entitlement to the order.”
10.5 The Full Court of the Federal Court has recently upheld the above process
but in the Federal Court sphere. In the matter of Sopikiotis in the matter of
Sopikiotis (bankrupt) v Vince (Trustee) [2013] FCAFC 24 the Full Court
stated: “Mrs Sopikiotis is the sole registered proprietor of a property at
Camberwell. No other person claims to have an interest in the property.
The property vested in the Trustee upon the Sequestration Order being
made on 5 July 2011. Mrs Sopikiotis has remained in residence in the
property and failed to cooperate with her Trustee.”
10.6 On 21 November 2012 Bromberg J made orders requiring Mrs Sopikiotis
deliver up the Trustee the duplicate Certificate of Title to the property, that
she vacate the property within 60 days and if she failed to do so a warrant of
possession issue forthwith. She appealed. She lost.
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11. Succession Act, 2006 (NSW)
11.1 The right to have a deceased estate properly administered is set out in
Official Receiver in Bankruptcy v Schultz [1990] HCA 45. The issue for a
Trustee in Bankruptcy is when to intervene. In Sturis v Nicholls [2011]
NSWSC 599 the Trustee intervened but was held not to be an appropriate
person so to do.
12. Civil Disputes Resolution Act, 2011
12.1 The need to negotiate prior to litigation remains.
Superior IP International Pty Ltd v Ahearn Fox Patent and Trademark
Attorneys [2012] FCA 282: The duty referred to is set out in Section 37(n)(1) and (2) as follows: (1) The parties to a civil proceeding before the Court must conduct the
proceedings (including negotiations for settlement of the dispute to
which the proceeding relates) in a way that is consistent with the
overarching purpose.
(2) A party’s lawyer must, in the conduct of a civil proceeding before
the Court (including negotiations for settlement) on the party’s
behalf: a) Take into account the duty imposed on the party by subsection
(1) and,
b) Assist the party to comply with the duty.
Having identified and put the parties and their lawyers on notice that I
intend to have regard to them I consider I should now give the
opportunity to make submissions as to how they say I should proceed
to deal with this costs issue. However, since an obvious conflict is likely
to arise between the interests of the clients and that of their respective
lawyers on this issue, I consider I should make the following directions:
-
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1. That each of two lawyers concerned is to provide a copy of these
reasons to his respective client and advise it to seek independent legal
advice on the question of costs of these proceedings.
2. That the two lawyers concerned be joined as parties to these
proceedings for the limited purpose of determining the question of
costs of these proceedings.
3. I intend to direct the Registrar to provide a copy of these reasons to the
Queensland Law Society, the Bar Association of Queensland and the
Legal Services Commission so those bodies may take such action as
they consider appropriate.”
13. Unjust Contracts – National Consumer Credit Protection Act, 2009 (Cth)
13.1 The National Credit Code commenced on 1 July 2010. It applies to a
contract even though the loan may have been entered into before that date.
13.2 Section 76(1) of the Code permits the Court to re-open a transaction if the
Court is satisfied it was “unjust” in the circumstances relating to it at the
time it was entered into. I fully expect this to be a growing area of dispute
for Trustees particularly in relation to assignments. See Steve & Aristea
Karamihos v Bendigo & Adelaide Bank Limited [2013] NSWSC 172.
14. Compensation Orders – Section 82(2) of the Bankruptcy Act
14.1 In Director General, Department of Services, Technology Administration v
Veall [2012] NSWSC 118 company officers were involved in contraventions
of the Trade Practices Act and the Fair Trading Act. Orders were made for
compensation to be paid by those officers notwithstanding the fact that 3
were already bankrupt. The claim for compensation was not barred under
the Bankruptcy Act and leave to proceed was not required because an
order for compensation by way of damages was not provable in the
bankruptcy and therefore was not a provable debt under Section 82(2) of
the Bankruptcy Act being the equivalent of tortious un-liquidated damages.
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15. Section 60 Elections
15.1 In Liristis v Gadelrabb [2012] NSWCA 327 the New South Wales Court of
Appeal found that the clock restarts once there is a change of Trustee. By
operation of Section 181A of the Bankruptcy Act a new Trustee was
appointed at the end of the 28 day period to make an election under
Section 60 of the Bankruptcy Act. The Court found that the second Trustee
also had 28 days to make an election before the automatic effect of Section
60(3) of the Bankruptcy Act was triggered. This is notwithstanding the fact
that the second Trustee might be on notice of the first Trustee’s decision.
Notice must be served on the Trustee and not the Trustee’s solicitor.
16. Income
16.1 The well-known decision of In the matter of bankrupt estate of John
Lawrence Sharpe; Re John Lawrence Sharpe; ex parte Max Christopher
Donnelly [1998] FCA 6 was followed by the Supreme Court of New South
Wales in determining that a Barrister’s fees were income in circumstances
where he had sued the solicitor Adrian Garfield Barwick v Ross Ian
Goodridge [2011] NSWSC 1233; Adrian Garfield Barwick v Ross Ian
Goodridge (No 2) [2011] NSWSC 1523. Barwick ultimately discontinued the
proceedings. The Trustee and Barwick were ordered to pay the fees of
Goodridge, the bankrupt’s Barrister: “42 I therefore conclude that, notwithstanding that the Rights are
properly characterised as pre-bankruptcy property, the implied
exclusion arising from Part VI Division 4B of the Bankruptcy Act
applies to them and they do not vest in the bankruptcy Trustee
under Section 58 of the Bankruptcy Act. Accordingly I consider
that the rights have not passed to the bankruptcy Trustee for the
purpose of UCPR Rule 6.30 and that I should not permit the
amendment under UCPR Rule 6.30 to join the bankruptcy
Trustee as Defendant in these proceedings in place of Mr
Goodridge where this would substitute a person who has no
interest in the proceedings in place of Mr Goodridge who has
the interest in the proceedings, including in respect of any right
to costs arising on the discontinuance of the proceedings.”
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17. Jurisdiction – Section 27 of the Bankruptcy Act
17.1 No State Court has jurisdiction to hear and determine bankruptcy
matters. Section 27 of the Bankruptcy Act provides only for the Federal Court
of Australia, Federal Magistrates Court, Family Court and High Court to have
jurisdiction in bankruptcy matters. That jurisdiction is exclusive to those Courts
and is no longer shared with any of the State Courts. Most recently this matter
was considered and has been followed in Cordis as Trustee for Alexander
George v Dr Peter Ironside Pty Ltd & Ors [2009] QCA 302. The Plaintiff had
asserted rights in respect of real property on the basis of an interest as
Trustee which was inconsistent with the rights claimed by the Trustee in
Bankruptcy. The Plaintiff sought orders in respect of chattel seized by the
Trustee in Bankruptcy. The Court of Appeal of the Supreme Court of
Queensland upheld the Supreme Court decision that the Queensland State
Courts had no jurisdiction to determine whether a bankruptcy Trustee had title
to particular property and that jurisdiction was exercisable only by the Federal
Courts. The decision has been considered in recent matters, including Adrian
Garfield Barwick v Ross Ian Goodridge [2011] NSWSC 1233.
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