Vitek v Taheri/FMCA Examination/ Conduct
Vitek v Taheri & Ors [2012] FMCA 536 (22 June 2012)
Last Updated: 26 June 2012FEDERAL MAGISTRATES COURT OF AUSTRALIA
| VITEK v TAHERI & ORS | [2012] FMCA 536 |
BANKRUPTCY – Summonses – interim application to discharge summonses as abuse of process – consideration of proper purpose of s.81 of Bankruptcy Act 1966 (Cth) – whether summonses brought for improper purpose.
BANKRUPTCY – Summonses – where creditors brought application to summon wife of bankrupt – where wife and former trustees entered into Deed of settlement and release prior to removal of former trustees – where Deed related to the sale of properties of bankrupt to bankrupt’s wife by former trustees – where creditors seek to determine circumstances in which Deed came into existence – whether examination of wife is in relation to examinable affairs of bankrupt – where possibly in relation to examinable affairs of bankrupt if suggested purchase of properties for undervalue – where trustees have power to compromise claims with debtors of bankrupt estate – where trustee aware of creditors’ seeking to impugn Deed – whether Deed affirmed by trustee – whether purpose of examination to determine whether basis to challenge Deed exists – where creditors did not challenge Deed under s.178 of Act – whether examination of wife would serve any purpose – whether to set aside summons.
BANKRUPTCY – Summonses – where creditors brought application to summon two former trustees of bankrupt – where information sought from examination goes to conduct of former trustees – where challenge to conduct of trustees may form application under s.176 of Act – whether action under s.176 would be separate litigation – whether summons sought to aid litigation pending or likely to be instituted – whether to set aside summonses.
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| Bankruptcy Act 1966 (Cth), ss.5, 80, 81, 120, 121, 134, 176, 178, 179, 179A Bankruptcy Legislation Amendment Act 1995 Conveyancing Act 1919 NSW, s.37A |
| Re Cheesman; Cheesman v Waters [1997] 143 ALR 78 Turner v Official Trustee in Bankruptcy [1998] FCA 1558 Re H. J. Price (No.4) 14 ABC 142 Re Alafaci (1976) 9 ALR 262 Karounos and Others v Official Trustee (1988) FCR 330 |
| Third Respondent: | ANDREW BARNDEN |
| Fourth Respondent: | DANIEL JURATOWITCH |
| Delivered on: | 22 June 2012 |
REPRESENTATION
| Solicitors for the Third and Fourth Respondents: | ERA Legal |
ORDERS
(1) Summonses set aside.
(2) Applicants to pay the costs of the Respondents to be taxed if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
Applicant
And
First Respondent
Second Respondent
| ANDREW BARNDEN |
| DANIEL JURATOWITCH |
REASONS FOR JUDGMENT
Introduction
- These Reasons consider the extent to which s.81 of the Bankruptcy Act 1966 (Cth)[1] can be utilised, in particular in relation to the examination of persons who were previously the trustees of the bankrupt estate, at the behest of a creditor. In so doing it is necessary to consider what constitutes the “examinable affairs” of a bankrupt. The court has before it an application for a summons to examine a relevant person or examinable person under s.81 filed on 27 March 2012 by the first and second applicants and an interim application filed on 23 May 2012 by the third and fourth respondents seeking a discharge of that summons. The matter proceeded on the basis that the second, third and fourth respondents all wish to have the summons set aside.
- The court had made interlocutory orders in relation to the conduct of the matter including orders relating to the filing and service of affidavits and written submissions. Those were not complied with by the Applicants and two affidavits, one of David Matthew Farrer sworn 5 June 2012 and one of Mirjana Pavlovic sworn 8 June 2012 were not read. The applicant’s written submissions were taken into account. The background history of the matter contained in these Reasons is substantially informed by those submissions.
History
- Peter and Shoshana Vitek[2], are major unsecured creditors of the first respondent, Siamac Taheri (Bankrupt), pursuant to a judgment obtained in NSW Supreme Court 2005/258339[3] following a contested hearing. On 14 May 2010 the applicants secured a judgment for principal and interest in a combined amount of $881,082 and costs of the proceeding on an indemnity basis. Following the entry of judgment against, amongst others, the bankrupt, he presented his own debtors petition on 31 July 2010. The third and fourth respondents, Andrew Barnden and Denial Juratowich[4]were appointed as the bankrupt’s trustees in bankruptcy.
- The former trustees publicly examined the bankrupt, the second respondent Veeda Taheri[5] and the bankrupt’s son Siamac Taheri. The bankrupt had indicated in his statement of affairs that he had an interest in a number of properties, four of which are of particular concern in this matter. These were:
- (i) 266 Unwins Bridge Road Sydenham;
- (ii) 14/365 Kent Street Sydney;
- (iii) 323/569-581 George Street Sydney;
- (iv) 259/569 – 581 George Street Sydney.
“3.1 Veeda and Siamak warrant that Veeda paid the sum of $150,000.00 deposit to acquire the Unwins Bridge Road property and they understand that a breach of this warranty will result that the Trustees may claim damages for a breach of warranty.
3.2 The Trustees forgive, release and waive now and in the future all claims, save claims in the nature of fraud, against Veeda, Sabak and the Dry Ice business howsoever arising from or in connection with any claim against them by the Trustees of the estate of Siamak in respect to the Properties and Mitcham Specialist Group Pty Limited.
3.3 The Trustees of the estate of Siamak indemnify to a maximum amount equal to the Settlement Amount plus legal costs and incidental disbursements and hold harmless Veeda and Sabak and the Dry Ice Business form all claims, save claims in the nature of fraud, whatsoever in respect of the Properties and any other property that they own or owned arising from or in connection with any claim against them by the Trustees of the estate of Siamak.”
- The proposal had been predicated on a number of matters, although none of these were suggested to me to have been conditions precedent. Perhaps the most important was the obtaining by the trustees of independent valuations for the properties and the provision by the bankrupt’s wife of detailed information concerning her contributions to the original cost of and financing repayments on the properties.
- At the instigation of the applicants a meeting of creditors was called on 1 April 2011 to replace the former trustees. The former trustees reported to creditors on 24 May 2011 recommending that they not be replaced for a number of reasons including the forceability that their replacement would jeopardise the proposed settlement. The applicants thus had notice of the settlement prior to the Deed being signed. The meeting of creditors was finally held on 7 June 2011 and immediately prior thereto the former trustees executed the Deed, a copy of which is annexed to the affidavit of Andrew Gordon Cameron sworn on 22 May 2012. At the meeting of creditors the former trustees were replaced by Mr Paul Leroy but they did not forward the $350,000.00 that had been in their trust account to the new trustee on the basis of a lien that was claimed for their remuneration.
- I am advised that the current trustee, Mr Leroy, has accepted legal advice that he is bound by the Deed. He takes no part in these proceedings. On 26 April 2012 he wrote to the bankrupt’s wife concerning settlement of the matter:
- “Reference is made to the Deed of Purchase (“Deed”) executed on the 7 June 2011.
- Schedule III of the Deed (refer to Annexure “A”) details the calculation of the settlement amount. I am in the process of working out the final settlement amount and accordingly, I request you provide me with the following information within fourteen (14) days from the date of this letter:
- 1. Details of mortgage interest payments made by yourself during the period 30 July 2010 to 7 June 2011, together with a copy of the bank statements evidencing the payments;
- 2. Details of outgoings and expenses paid by yourself during the period 30 July 2010 and 7 June 2011, together with a copy of the bank statements and/or any other documentation evidencing the payments; and
- 3. In the event that all outgoings and expenses were paid by the managing agent from the rental trust account, please confirm that this is the case.
- Your assistance in this matter is greatly appreciated.
- If you have any enquiries please contact Gavin King of this office on 02 9263 2600.
- Yours Sincerely,
- Paul Leroy
Trustee”
“We refer to the above matter and to our previous correspondence with your office and confirm that we act for Ms Veeda Taheri.
We provide the following information in response to the request contained in your letter to our client dated 26 April 2012:
- 1. Mortgage Interest Payments Made by Veeda Taheri between 30 July 2010 and 7 June 2011
- (a) 259/569-581 George Street, Sydney $26,877.43
- (b) 323/569-581 George Street, Sydney $25, 841.19
- 2. Outgoings and Expenses Paid by Veeda Taheri between 30 July 2010 and 7 June 2011
- (a) 259/569-581 George Street, Sydney
- (i) Council rates $826.98
- (b) 323/569-581 George Street, Sydney
- (i) Council rates $826.98
- (ii) Strata levies $10,273.00
- (iii) Water rates $429.00
- 3. We are instructed that other strata levies, water rates and other expenses payable over the properties were paid by the Managing Agent out of rent receiver for the properties.
We enclose herewith copies of tax invoices, statements and receipts evidencing the payments made by our client with the exception of strata levies notices which our client is currently obtaining from the Strata Manager.
We look forward to receiving details of your calculation of the Settlement amount pursuant to clause 2.1 and schedule 111 of the Deed of Purchase and Release dated 7 June 2011 at your earliest convenience.
Please do not hesitate to contact Mr Andrew Cameron at our office if you require any further information to assist you in finalising the calculation of the Settlement amount.
Yours faithfully
McLaughlin & Riordan
Per
Andrew Cameron”
- It should also be noted that on 2 October 2010 the applicants commenced proceedings in the Supreme Court of New South Wales against the bankrupt’s wife, the bankrupt’s son and two other defendants, for the rescission of another agreement entitled “settlement agreement” but in this case one signed on 30 April 2009 relating to the contract for sale of a property at 591 Elizabeth Street Redfern. It does not appear that this contract or property has any relevance to the matters in issue.
Evidence
- Mr Vitek, the first applicant, filed an affidavit in support of the application under s.81 which said at paragraph 16:
- “The purpose of conducting public examinations of the three respondents is to determine the circumstances in which the Deed came into existence, whether there is a basis for challenging the Deed, to obtain a copy of the Deed and determine that circumstances that led to the creation of the Deed and the information available to the Former Trustees that caused them to form the view that $350,000 was an appropriate settlement figure in all of the circumstances.”
- An affidavit of Andrew Gordon Cameron sworn on 22 May 2012 was filed on behalf of Veeda Taheri and an affidavit of Nicholas Simpson sworn on 23 May 2012 was filed on behalf of the third and fourth respondents, the former trustees. The importance of the two latter affidavits is in their exhibits. No witnesses were cross examined.
Discussion
- The power to examine persons involved in a bankruptcy is found in s.81 of the Act which contains expressions that are defined in s.5. The relevant parts of s.81 for the purposes of this proceeding are:
- “81 Discovery of bankrupt's property etc. [see Table B]
- (1) Where a person (in this section called the relevant person ) becomes a bankrupt, the Court or a Registrar may at any time (whether before or after the end of the bankruptcy), on the application of:
- (a) a person (in this section called a creditor ) who has or had a debt provable in the bankruptcy;
- (1) Where a person (in this section called the relevant person ) becomes a bankrupt, the Court or a Registrar may at any time (whether before or after the end of the bankruptcy), on the application of:
- (b) the trustee of the relevant person's estate; or
- (c) the Official Receiver;
- summon the relevant person, or an examinable person in relation to the relevant person, for examination in relation to the bankruptcy.
- (1A) A summons to a person by the Court or the Registrar under subsection (1) shall require the person to attend:
- (a) at a specified place and at a specified time on a specified day, being a place, time and day that are reasonable in the circumstances; and
- (b) before the Court or the Registrar or, if the Court or the Registrar thinks fit, a magistrate;
- “81 Discovery of bankrupt's property etc. [see Table B]
to be examined on oath under this section about the relevant person and the relevant person's examinable affairs.”
- Section 5 defines the terms “relevant person” “examinable affairs” and “associated entity” in the following way:
- “"examinable person , in relation to a person (in this definition called the relevant person" ), means:
- (a) if the relevant person is a debtor and property of the debtor is known or suspected to be in the possession of a person--that person;
- (b) if the relevant person has become a bankrupt and any of the property of the bankrupt is known or suspected to be in the possession of a person--that person;
- “"examinable person , in relation to a person (in this definition called the relevant person" ), means:
(d) if a person, including:may be able to give information about the relevant person or any of the relevant person's examinable affairs--that person; or
(i) a person who is an associated entity of the relevant person; or
- (ii) a person with whom an associated entity of the relevant person is or has been associated;
(e) if books (including books of an associated entity of the relevant person):
- (i) are in the possession of a person, including a person of a kind referred to in subparagraph (d)(i) or (ii); and
- (ii) may relate to the relevant person or any of the relevant person's examinable affairs;
that person.
“examinable affairs" , in relation to a person, means:
- (a) the person's dealings, transactions, property and affairs; and
- (b) the financial affairs of an associated entity of the person, in so far as they are, or appear to be, relevant to the person or to any of his or her conduct, dealings, transactions,property and affairs.
"associated entity" , in relation to a person, means:
- (a) an entity (other than a company) that is, or has been, associated with the person; or
- (b) a company that is, or has been, associated with the person at a time when the company is, or was, as the case may be, a private company.”
- The effect of s.81 is to allow a creditor to summons a relevant person to be examined about the bankrupt and the bankrupt’s examinable affairs. It is accepted that the bankrupt’s wife is an associated entity of the bankrupt. She submitted to an earlier examination as detailed in the history.
- There are three other sections of the Act relevant to the issues in this matter:
- “[176] Court may order trustee to make good loss caused by breach of duty
- (1) Where, on application by the Inspector-General or by a creditor who has or had a debt provable in the bankruptcy, the Court is satisfied that a person who is or has been a trustee of a bankrupt's estate has been guilty (whether before or after the commencement of this section) of breach of duty in relation to the bankrupt's estate or affairs, subsection (2) applies.
- (2) The Court may make any one or more of the following orders:
- (a) an order directing the person to make good any loss that the bankrupt's estate has sustained because of the person's breach of duty;
- (b) if the person is a registered trustee--an order directing the Inspector-General to cancel the person's registration as a trustee;
- (c) any other order that the Court considers just and equitable in the circumstances.
- [178] Appeal to Court against trustee's decision etc.
- (1) If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.
- (2) The application must be made not later than 60 days after the day on which the person became aware of the trustee's act, omission or decision.
- (1) If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.
- [179] Control of trustees by the Court
- (1) The Court may, on the application of the Inspector-General, a creditor or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following:
- (a) remove the trustee from office; and
- (b) make such order as it thinks proper.
- (2) The Inspector-General or a creditor may at any time require a trustee to answer an inquiry in relation to the bankrupt's estate or affairs.”
- “[176] Court may order trustee to make good loss caused by breach of duty
- Although clearly dissatisfied with the “settlement” entered into by the trustee the creditor made no application to the court in respect of that decision under s.178 and has not made an application under s.179 although that section does cover conduct engaged in prior to the date of the trustee’s cessation Re Cheesman; Cheesman v Waters [1997] 143 ALR 78 per Merkel J; Turner v Official Trustee in Bankruptcy [1998] FCA 1558 per Burchett, Drummond and Sackville JJ.
- These provisions must be considered in the light of certain amendments to the Act. In 1990 there was inserted into the Act Division 4A dealing with the control of trustees and it included a s.179A that allowed a creditor:
- “Who has or had a debt provable in a bankruptcy of a person, being a bankruptcy in relation to which the relevant trustee is or has been a trustee of the person’s estate [to at any time] apply to the Registrar for a person to be examined about the examinable affairs in relation to the relevant trustee and under s.179B(i) the Registrar on an application under s.179A had the power to summons the relevant trustee.”
- This division was repealed by the Bankruptcy Legislation Amendment Act 1995. The repeal was explained in the Explanatory Memorandum:
- “Division 4A of Part VIII provides for the compulsory examination of trustees on oath before the Registrar. Clause 126 proposes its repeal, consequential upon the abolition of the office of Registrar. No alternative procedure is proposed to replace Division 4A of Part VIII as it is considered that the revised supervisory and registration mechanisms regarding trustees will be adequate safeguards against misconduct by trustees.”
- The applicants have particularised their grounds for seeking these examinations set out in paragraph 16 of Mr Vitek’s affidavit in their written outline of case at [17] and [18]:
- “[17] Insofar as the Former Trustees are concerned, there are a number of bases upon which the Former Trustees may be publically examined. First, the Former Trustees have, or are suspected to have, any property of the Bankrupt. The Former Trustees are in possession of the sum of $350,000 in respect of a “settlement” with the Bankrupt’s Wife and claim a lien for unapproved remuneration and also disbursements and expenses as set out in paragraph 7 above. Secondly, the Former Trustees, have formerly been trustees of the Bankrupt estate and are associated entities who “may be able to give information about the relevant person or any of the relevant person’s examinable affairs.” Thirdly, the Former Trustees are in possession of books that relate to the Bankrupt.
- [18] In relation to “examination affairs”, the Former Trustees are able to give evidence regarding the Bankrupt’s “dealings, transactions, property and affairs” insofar as they relate to the Former Trustees’ involvement with the agreement to compromise all of the Bankrupt’s estate claims against the Bankrupt’s Wife, the basis upon which the Former Trustees proceeded to settle with the Bankrupt’s Wife, what steps the Former Trustees took to fully investigate the Bankrupt estate’s rights against the Bankrupt’s Wife, why the Former Trustees failed to seek litigation funding and why the Former Trustees considered it necessary to execute the Deed immediately prior to the meeting at which they were replaced as trustee in bankruptcy by the major unsecured creditors, the Applicants.”
- I do not think it would be controversial to describe s.81 as intended to assist creditors in the following ways. First, to confirm the accuracy of the bankrupt’s statement of affairs. Second, to discover the whereabouts of any assets of the bankrupt not previously disclosed or the true value of those disclosed. Third, to investigate the dealings of the bankrupt for the purposes of clawing back payments which may have been made in the circumstances outlined in ss.120 and 121 of the Act. The examinations are intended to enquire into the conduct of the bankrupt and other persons, usually prior to the bankruptcy, that have a direct or indirect bearing upon the value of the bankrupt’s estate. As the authors of the service note at [9 – 1056]:
- “Questions are not to be put unless they are bona fide for the benefit of the creditors and not for any indirect purpose: Re Easton; Ex parte Davies (1891) 8 Mor 168 at 171... a fishing enquiry which is based on the Official Receiver’s hope to build up a case as to which there is no information before the court showing that the person being examined is implicated ought not to be permitted: Re Price (No 3) 1948 14 ABC 137.”
- In Re H. J. Price (No 4) 14 ABC 142 Clyne J, in relation to what was then s.80 of the Act, described the powers now found in s.81 to produce books and documents “relating to the bankrupt his trade dealings property or affairs” in the following way:
- “Viewed in this setting, the words, I think, refer to the documents dealing with transactions in the business, trade or occupation in which the bankrupt was directly or indirectly engaged, where such documents:
- (a) Impugn or might impugn the conduct of the bankrupt, or
- (b) Relate or might relate to property which the bankrupt is entitled or which he may have disposed of or concealed; or
- (c) Which exhibit, or to use the phrase familiar in another branch of the law “touch and concern” the dealings of the bankrupt in its trade, business or occupation.
- I do not claim that the meaning I have given to these words is an exhaustive and precise meaning, but it is, I think, a reasonable and sensible construction of what would at first sight appear to be a list of verbal generalities.”
- “Viewed in this setting, the words, I think, refer to the documents dealing with transactions in the business, trade or occupation in which the bankrupt was directly or indirectly engaged, where such documents:
“I find it difficult to understand, though it is no doubt possible, how documents which have come into existence after the bankruptcy of a debtor can be regarded as documents relating to the bankrupt, his trade dealings, property or affairs.”
- In my view the only way it could be said that an examination of the bankrupt’s wife in respect of the Deed was an examination in relation to the examinable affairs of the bankrupt would be if it was being suggested that her purchase of the property under the Deed was effectively a purchase at an undervalue so that she would be in possession of property of the bankrupt that was properly that of his creditors. If such an examination took place would it serve any purpose? It is to be remembered that the trustees have the power under s.134 of the Act to compromise claims with debtors of the bankrupt estate. This is what the Deed does. Furthermore, the new trustees have accepted that they are bound by the Deed. Mr Sneddon, on behalf of the bankrupt’s wife, says they go even further than this, they have by virtue of the letter dated 26 April 2012 affirmed it and propose to carry it out and settle the arrangements. He argues that having affirmed the Deed they cannot now rescind. The applicants argue that there is no affirmation by that letter but one wonders what they would class as an affirmation short of actual completion.
- It seems to me that the letter is an unequivocal adoption of the contract written at a time when the new trustees were well aware that the current applicants were seeking to impugn the document. I believe that the only circumstances in which this Deed could be set aside are for fraud and that was not suggested to me as a constituent of the bankrupt’s wife conduct. One of the purposes said to be for carrying out the examination is to determine whether there is a basis for challenging the Deed, something the creditors could have done under s.178 but failed to do. There is a public interest in ensuring that trustees are allowed to get on with their job in as efficient a manner as possible and that their decisions are not subject to the whims of dissatisfied creditors. Where there is a genuine cause for dissatisfaction an avenue is open to those creditors. But if the creditors do not take it they should not be able, by a side wind, to agitate concerns whose time has past. The creditors themselves have no standing in relation to the Deed. They were not parties to it, they cannot rescind it.
- Then there is the question of releases and indemnities given to the bankrupt’s wife to the Deed. The new trustees are equally bound by these. The bankrupt’s wife submits that they show an intention on the part of the parties for bringing to an end once and for all the dispute about these properties, their value and ownership. In the face of these clauses could any action on the Deed not based upon fraud have any prospect of success? It does not appear likely.
- It was suggested by Mr Sneddon that the only possible cause of action that the new trustees might have against the bankrupt’s wife in respect of the Deed (as always excluding fraud), would be under s.37A of the Conveyancing Act 1919 NSW:
- “Voluntary alienation to defraud creditors voidable
- 37A Voluntary alienation to defraud creditors voidable
- (1) Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.
- (2) This section does not affect the law of bankruptcy for the time being in force.
- (3) This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors.”
- As matters transpired at the hearing the major complaint seemed to be that the old trustees had entered into the Deed with a complete disregard for the original requirements. In a report by the trustees to creditors dated 24 May 2011 under the heading “Settlement of Claim against the Properties” after referring to the provision by the bankrupt’s wife of a one page working paper in support of her position and not having seen any third party evidence to substantiate her claims, they said:
- “As part of the settlement, it was agreed that the final settlement amount would be made with reference to an independent valuation of each of the respective properties being carried out to accurately determine the current market value of the bankrupt’s interest.”
- It is suggested that the trustees did not obtain anything more than those one page documents and that the examination would reveal whether this was or was not correct. The applicants say that no formal valuation was carried out before the Deed was signed. I cannot see how these matters are the examinable affairs of the bankrupt. I am of the view that the examination of the bankrupt’s wife will serve no s.81 purpose and I would therefore set aside the summons.
- The issuance of a summons under s.81 against former trustees for the purposes of examining the trustee’s actions is as rare as the sighting of a Tasmanian tiger. There is only one recorded case on the matter in Australia Re Alafaci (1976) 9 ALR 262. At that time the Act was in a similar form to that it is today i.e. without the amendments that were inserted by Part 4A that have now been repealed, so that when Riley J made the pronouncement set out below it was not because there was an alternative method of examining the trustee:
- “So far as they are applicable to the trustee in the present case, s 81(1)(b) provides that: “The ... Registrar may ... summon ... a person ... who is supposed ... to be able to give information respecting the bankrupt or his trade dealings, property or affairs, to attend before the ... Registrar ... to give evidence and produce any documents in his custody or power relating to the bankrupt or his trade dealings, property or affairs”; s 81(3) provides that a person so summoned “may be examined on oath concerning the bankrupt or his trade dealings, property or affairs”; and s 81(9)(a) provides that a transcript of evidence given at an examination under s 81 “may be used in evidence in any proceedings under this Act against the person examined”.
- The summons issued in this case was dated 4 April 1973 and required the trustee to attend to give evidence in connection with “your trusteeship of the property and business of the abovenamed bankrupt as both controlling trustee and trustee pursuant to the Deed of Arrangement dated 31 March 1970 and numbered 15/70/Part X” and to produce “a copy of the Deed of Arrangement, any books, documents, invoices, letters, contracts, receipts or other writings relating to the conduct of the business of Classic Printing Service between February 1970 and 25 July 1972”.
- ...
- It is apparent from the terms of the summons that the trustee was not summoned “to give evidence and produce any documents in his custody or power relating to the bankrupt or his trade dealings, property or affairs”. That is the only purpose for which s 81(1) contemplates the issue of a summons: it does not authorize the issue of a summons for the purpose specified in the summons directed to the trustee in this case. Further, it is apparent from the transcript of the examination that if it could be said that the trustee was examined on the only topics specified in s 81(3) it would have to be at the same time conceded that his examination on those topics was merely incidental and subsidiary to his examination on a topic not so specified — namely, his own conduct as controlling trustee and subsequently as trustee of the deed of arrangement.
- In my opinion the summons dated 4 April 1973 was issued, and the examination of the trustee pursuant thereto on 7 August 1973 was conducted, in abuse of the power conferred by s 81.
- In R v West (1971) 18 FLR 333, his Honour Judge White, in a considered judgment delivered in the Central District Criminal Court of South Australia, after analysing s 81 and referring to relevant authorities, concluded that the proper use of s 81 is to aid in ascertaining the nature and extent (and, I would add, the whereabouts) of the property of the bankrupt, and that it is the duty of the tribunal before whom the examination is conducted to see that questions under s 81 are restricted to those which are put “bona fide for the benefit of creditors and not for any indirect purpose” (Re Easton (1891) 8 Morr 168 at 171, per Cave J). I respectfully agree with those conclusions.
- It cannot be said of the examination of the trustee in this case that it was directed to ascertain the nature, extent or whereabouts of the property of the bankrupt. It may be argued that it was “for the benefit of creditors” that he should have been examined with the object of discovering whether there was anything in the conduct of his trusteeship that would found an application for an order that he make restitution to the estate, but no attempt was made to justify the examination on that ground when, as shown in the passage quoted above, objection was taken; and if that were the purpose of an examination under s 81 it would, in my opinion, be an examination for an “indirect purpose”.
- In any event, I am of opinion that the intention of the legislature was that the vehicle for any necessary investigation of the conduct of a trustee in his office should be not s 81 but s 179. The latter section provides that “the Court may ... inquire into the conduct of a trustee in relation to a bankruptcy” and is applicable mutatis mutandis in relation also to the trustee of a deed or composition under Pt X (see ss 231(4), 237(4), 243(3)). It is thus, in contrast to s 81, expressly and directly applicable where the conduct of a trustee is in question. Moreover, its setting in the Act is in Div 4, headed “Control over Trustees”, of Pt VIII, which deals with the subject of “Trustees”. On the other hand, as was pointed out in R v West, supra at 336, s 81 is one of five sections constituting Pt V of the Act, the subject of which is “Control over Person and Property of Debtors and Bankrupts”; and its text clearly indicates that its object is, in the words of its side-note, “Discovery of bankrupt's property”.
- I am of the opinion that in the summoning and examination of the trustee in this case the power conferred by s 81 was exercised for a purpose for which it was not intended to be used and was therefore exercised invalidly.”
- If one looks at the stated purpose for conducting the public examinations “the circumstances in which the Deed had come into existence, whether there is a basis for challenging the Deed and determine that [sic] circumstances that led to the creation of the Deed and the information available to the former trustees that caused them to form the view that $350,000.00 was an appropriate settlement figure in all the circumstances” these are all matters going to the conduct of the trustees. The information may be information that the creditor needs to make an application to the court under s.176. See [14] of these reasons. That would be a separate piece of litigation and as the Full Bench Forster, Woodward and Spender JJ said in Karounos and Others v Official Trustee (1988) FCR 330 at [8]:
- “Discharge or adjournment of a summons may be appropriate where there is litigation pending or is likely to be instituted and it is alleged that:
- I am of the view that if the trustees were to be examined under s.81 it could only be as an aid to litigation likely to be instituted under s.176. What other purpose is there? An examination to elicit information for the edification of the creditors is not in itself a proper purpose and it would be wrong to put the trustees to such an expense. The purposes identified in the applicants’ affidavit and submissions are not, respectfully, purposes. They are indicators of the way in which examinees are likely to be questioned. No explanation is given as to the possible result of such questioning other than rescission of the Deed. Absent fraud I do not believe the Deed can now be rescinded and certainly that would be a matter for the new trustees not the applicants.
- I am of the view that the summonses issued under s.81 against the former trustees are not summonses properly issued under that section for the purposes of that section. I would set them aside.
- I would set aside both summonses and I would order that the applicants pay the costs of the respondents to be taxed if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.
Date: 22 June 2012
[1] “Act”
[2] “The applicants”
[3] “SC Proceedings”
[4] “The former trustees”
[5] “The bankrupt’s wife”
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