ABL Nominees Pty Ltd v Trinick (Trustee)

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FEDERAL COURT OF AUSTRALIA

ABL Nominees Pty Ltd v Trinick (Trustee) [2016] FCA 996

File number: SAD 379 of 2015
Judge: BESANKO J
Date of judgment: 22 August 2016
Catchwords:

BANKRUPTCY AND INSOLVENCY – application by creditor to set aside or terminate a personal insolvency agreement – whether applicants are creditors with standing to bring application – where applicants have not lodged proof of debts – where applicants are assignees of debts – Bankruptcy Act 1966 (Cth), ss 222, 222C

BANKRUPTCY AND INSOLVENCY –whether certain creditors should have been admitted to vote on personal insolvency agreement special resolution – where applicants were only admitted to vote collectively for value of $1 – where applicants voted against personal insolvency agreement – whether applicants should have been admitted to vote for the full face value of their debts – consideration of entitlement to vote on assigned debts – whether assignee must prove the value of consideration given for assigned debt – Bankruptcy Act 1966 (Cth), ss 64D, 64ZA, 64ZB

BANKRUPTCY AND INSOLVENCY – whether there is a reason personal insolvency agreement should be set aside – whether trustee adequately investigated debtor’s affairs and provided proper advice to creditors – whether trustee acted impartially – where potential undervalued transactions and transfers to defeat creditors – Bankruptcy Act 1966 (Cth), ss 222, 222C

BANKRUPTCY AND INSOLVENCY – whether personal insolvency agreement complied with requirements of Part X – whether special resolution specified provisions to be included in personal insolvency agreement – whether there are material differences between proposed personal insolvency agreement and executed personal insolvency agreement  – Bankruptcy Act 1966 (Cth), s 188A

Legislation: Bankruptcy Act 1966 (Cth) ss 64D, 64ZA, 64ZB, 83, 84, 116, 118, 120, 121, 122, 123, 124, 125, 128B, 128C, 179, 188, 188A, 189A, 189AC, 190, 190A, 196, 204, 222, 222C, 224
Cases cited:

Beard v Prestige Baking Industries Pty Ltd and Another (1981) 52 FLR 384

Bechrose Pty Ltd v Jefferson and Another (1999) 94 FCR 494

George v Deputy Commissioner of Taxation and Another (2004) 57 ATR 450; [2004] FCA 1433

Re Dingle; Westpac Banking Corporation v Worrell and Another (1993) 47 FCR 478

Re McLean and Another; Ex parte Friends’ Provident Life Office (1992) 36 FCR 502

Starkey v Rondo Building Services Pty Ltd [2005] FCA 1081

Date of hearing: 3, 4 February 2016 and 29, 30 March 2016
Registry: South Australia
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Category: Catchwords
Number of paragraphs: 174
Counsel for the Applicants: Mr T Cox SC
Solicitor for the Applicants: Fisher Jeffries
Counsel for the First Respondent: Mr G Gretsas
Solicitor for the First Respondent: Gretsas & Associates Lawyers
Counsel for the Second Respondent: The Second Respondent appeared in person on 4 February 2016, 29 and 30 March 2016

ORDERS

SAD 379 of 2015
BETWEEN:

ABL NOMINEES PTY LTD (ACN 106 756 521)

First Applicant

BENDIGO AND ADELAIDE BANK LIMITED (ACN 068 049 178)

Second Applicant
AND:

GLENN DOUGLAS TRINICK AS TRUSTEE OF…

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Details
Case
[2016] FCA 996
Decision Date

CaseChat Overview and Summary

ABL Nominees Pty Ltd and others filed an application in the Federal Court of Australia seeking to set aside a Personal Insolvency Agreement (PIA) executed by Mr. Trinick. The applicants argued that the PIA should be set aside due to various irregularities, including inadequate investigation of the debtor’s affairs by the trustee, improper voting rights afforded to certain creditors, and non-compliance with statutory requirements. The applicants also sought to terminate the PIA on the grounds that it did not meet the necessary legal standards.

The central legal issues before the court included whether the applicants had the standing to bring the application, whether they should have been permitted to vote on the PIA special resolution, whether there were grounds to set aside the PIA, and whether the PIA complied with the statutory requirements. Specifically, the court had to consider whether the applicants, as assignees of debts, were creditors with the necessary standing to apply to set aside the PIA, particularly since they had not lodged proofs of debt. Additionally, the court needed to determine whether the trustee adequately investigated the debtor’s affairs, provided proper advice to creditors, and acted impartially, especially in light of potential undervalued transactions and transfers designed to defeat creditors. The court also had to examine whether the PIA was authorised by a special resolution and whether it complied with the requirements set out in Part X of the Bankruptcy Act 1966.

The court found that the applicants had the necessary standing to bring the application as they were assignees of debts. It ruled that the trustee had not adequately investigated the debtor's affairs, particularly regarding the security position held by the National Australia Bank. The court concluded that the trustee's actions were insufficient and did not comply with the requirements of the Act. Furthermore, the court determined that the PIA was not authorised by a special resolution as it did not specify the provisions to be included in the agreement as required by the Act. Consequently, the court held that there were sufficient grounds to set aside the PIA executed on 9 October 2015.

The court ordered that the parties be heard as to the appropriate orders in light of these reasons, indicating that further proceedings would be necessary to determine the final outcome.

Orders

Orders of the court

1. The parties be heard as to the appropriate orders in light of these reasons.

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

Background

Background to the litigation

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Evidence

Evidence Before The Court

On 9 October 2015, Mr Trinick, as Controlling Trustee, and Mr Irvin signed a PIA. The key features of the PIA as executed are as follows:(1)The Deed defines “Creditors” as “creditors of Mr Irvin as at 10 June 2015”.(2)The property available to pay the creditors’ claims is described as follows:(a)the sum of $53,000 paid to the trustee prior to the date of the Deed;(b)Ms Carol Bull will pay to the trustee the sum of $200,000 for the purchase of Mr Irvin’s shares (100%) held in the company, Wideview Holdings trading as Group Portraits, payable on the following terms: upfront payment of $100,000 upon execution of the Deed, and four payments of $25,000 each with the first payment to be made within 90 days after the execution of the Deed and each subsequent payment to be made within 90 days thereafter (total payments within 12 months from the date of execution of the Deed).(3)There is no income or future income of Mr Irvin which is to be made available to pay the creditors’ claims.(4)The property of Mr Irvin received under the PIA is to be distributed in the manner set out in cl 7.(5)The void (antecedent) provisions in ss 118 and 120 to 125 of the Act are not applicable.(6)Mr Irvin is released and discharged from all provable debts, save and except that Wideview Holdings is an excluded party. The Deed provides that Wideview Holdings is not entitled to make a claim against the debtor during the term of the Deed, whether under the deed or otherwise, for the payment of a dividend, but it also provides that the debt of Wideview Holdings is not extinguished as a result of the Deed.Witnesses and Evidence The applicants called Mr Flamer-Smith as a witness and tendered a number of documents. Mr Flamer-Smith is a manager, Legal and Resolutions, employed by the Bendigo and Adelaide Bank. ABL Nominees is a wholly owned subsidiary of the Bendigo and Adelaide Bank. Mr Flamer-Smith swore three affidavits which were tendered in evidence and which comprised his evidence-in-chief. Mr Flamer-Smith was cross-examined about the following topics. First, he was cross-examined about each of the loans and the fact that there was no bank statement or bank cheque or electronic funds transfer evidencing the payment of the consideration for the assignments of the loans. Mr Flamer-Smith was also cross-examined about the screenshots generated by the bank’s program called Quantum which showed (according to the applicants), the payment for loans in batches, that is to say, the payment for the assignment of a number of loans at the one time. Secondly, Mr Flamer-Smith was cross‑examined about certain internal assignments which had apparently taken place in relation to Loans 3 and 4, and the paucity of documents in relation to those assignments. Thirdly, Mr Flamer-Smith was cross-examined about “claw back” provisions in favour of the assignees and the establishment of a collateral account (see, by way of example, cl 11 of the Loan Sale and Servicing Deed in relation to Loan 1). Finally, Mr Flamer-Smith was cross‑examined about the notes he made of the meeting of creditors on 7 October 2015. Mr Flamer-Smith had produced handwritten notes he took at the time of the meeting and typed notes which he prepared two days after the meeting. One of Mr Trinick’s witnesses, Mr Patterson, produced Mr Trinick’s minutes of the meeting of creditors held on 7 October 2015. The two versions were not the same and that is of significance in considering the precise terms of the special resolution.

Decision

Reasons for decision

It is submitted by the applicants that Mr Trinick did not investigate the security position of the National Australia Bank. The only evidence of investigations into the National Australia Bank’s security position was a request for information sent to the National Australia Bank by Mr Goh on 26 October 2015 which was answered on the same day. This was well after the meeting on 7 October 2015. There is no evidence of any further investigation being undertaken by Mr Trinick in relation to the real estate security held by the National Australia Bank or the position of the co-guarantors.Conclusions with respect to the investigations carried out by Mr Trinick and his Report to Creditors The matters which I have identified provide additional reasons for an order setting aside the PIA executed on 9 October 2015. Whether they would be sufficient in themselves to justify such an order is not a matter I need to address. It would be difficult to do that because I would have to consider all the circumstances and make assumptions about the other circumstances.Was the PIA as executed authorised by a Special Resolution? In view of the conclusions I have reached, I do not strictly need to address this issue. However, I will identify the arguments and indicate my views as to the major arguments. Section 188A(1) of the Act identifies the nature of a PIA. It is a deed that is expressed to be entered into under Part X and complies with subsection (2). Section 188A(2) sets out the matters which must be in a PIA. The required contents of a PIA include an identification of the debtor’s property that is available to pay creditors’ claims and a specification of the extent to which the debtor is to be released from his or her provable debts. Section 204(1) provides that the creditors may at a meeting called in pursuance of an authority under s 188, by special resolution, require the debtor to execute a PIA. Section 204(2) provides that a special resolution requiring a debtor to execute a PIA must specify the provisions to be included in the agreement. The proposed PIA executed by Mr Irvin on 10 June 2015 was a completed pro forma document. It was tabled at the first meeting of creditors held on 15 July 2015. The proposed PIA provided that the debtor’s property that was to be available to pay creditors’ claims included all divisible property of the debtor as defined by s 116 of the Act. Furthermore, the proposed PIA provided that “the debtor shall be absolutely released and discharged from all provable debts owed by him or her to each of the creditors respectively and from all claims, actions, suits, demands and other proceedings by each of the creditors in respect of or on account of those debts”. The Third Report to Creditors stated that the lump sum offered under the PIA was $53,000 and the payments to be made by Ms Carol Bull would total $200,000. The report also stated that Mr Irvin had amended his proposed PIA to exclude any antecedent transactions. That was a variation to the proposed PIA which Mr Irvin executed on 10 June 2015. The Third Report to Creditors also stated that Wideview Holdings would not participate in any dividend under the PIA.

Ratio Decidendi

Legal Principle Established

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