Bradley, David Geoffrey v Muir, Brian, registrar in Bankruptcy

[1984] FCA 345

Re: DAVID GEOFFREY BRADLEY
And: BRIAN MUIR, REGISTRAR IN BANKRUPTCY
No. G238 of 1984
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
St. John J.
Lockhart J.
Morling J.

CATCHWORDS

Bankruptcy - appeal - application for inquiry into conduct of appellant as Trustee of certain estates and for cancellation of appellant's registration as a person qualified to be a Trustee in bankruptcy - default by Trustee in preparation and filing of documents - whether undue weight given to past derelection - whether insufficient weight given to subsequent improvements - the Court's expectations of a Trustee in bankruptcy.

Bankruptcy Act 1966, s. 155(5), 160, 179, 212B, 215.

HEARING

SYDNEY

#DATE 22:10:1984

ORDER

THE COURT ORDERS THAT:

1. The appeal be dismissed.

1. The appellant pay the respondent's costs of the appeal.

JUDGE1

This is an appeal from the judgment of a single Judge of this court (Beaumont J.) whereby his Honour ordered that the registration of the appellant as a trustee in bankruptcy be cancelled pursuant to sub-section 155(5) of the Bankruptcy Act 1966 ("the Act").

2. The appellant is 49 years of age. He qualified as a chartered accountant in 1976. Previously he had been employed by various firms of chartered accountants in Sydney, and specialised in insolvency work and the liquidation of companies. After qualifying as a chartered accountant, he entered into partnership with another chartered accountant and purchased a practice at Lidcombe. Most of the work done by the appellant was in the field of liquidation and insolvency with which he was familiar. Problems arose between the partners, and in March 1979 the partnership was dissolved.

3. The appellant then commenced practice on his own account at North Parramatta. The work of the practice was demanding, and the appellant employed junior staff and subcontracted work to a large degree. For various reasons, the appellant's financial position was not particularly healthy, and it appears to have progressively worsened for some years after 1978.

4. In February 1980 marital problems arose between the appellant and his wife. The dispute between the two was acrimonious and involved proceedings in the Family Court which resulted in their being divorced in May 1981, and in the approval by that Court to a property settlement in October 1981 which required payment of money by the appellant to his former wife.

5. These, and other matters, contributed to the appellant's failure to file documents required by the Act and the Bankruptcy Rules, especially accounts, in some 42 of the 76 estates of which he had been appointed trustee. Most of the administrations were under Part X of the Act. Various letters were written to the Official Receiver and to the Registrar in Bankruptcy on behalf of creditors complaining of the inactivity of the appellant in relation to some of the estates in question.

6. The respondent applied to this Court on 22 Setember 1983 for, first, an order pursuant to s. 179 and s. 212B of the Act that the Court inquire into the conduct of the appellant as trustee of certain estates; and, second, an order pursuant to sub-s. 155(5) for cancellation of the appellant's registration as a person qualified to be a trustee in bankruptcy.

7. There is no dispute that in many cases the appellant was guilty of default in the preparation and filing of documents required by the Act and Rules notwithstanding that since the commencement of these proceedings steps have been taken by him to rectify the position. Details of the appellant's default are contained in a schedule annexed to the learned trial Judge's reasons for judgment which we need not pause to specify.

8. His Honour found that the problems which beset the appellant were essentially over the period 1979 to 1983 and that the appellant's

"position, both in terms of his professional activities and of his health, seems to have improved considerably from the middle of 1983 although he is still receiving medical treatment. With assistance from Miss Adams, steps were taken to improve the level of professional efficiency of the practice, especially by computerization. Further, in the middle of 1983, Mr. Thomas was employed."

1. Miss Adams is a chartered accountant who assisted the appellant with some of his problems and, indeed, lent him $32,000. Mr. Thomas is a chartered accountant employed by the appellant in 1983 to rectify some of the serious problems which had arisen in the course of the administration of his office.

2. His Honour found:
   
   

"In about October 1983, the appellant commenced negotiations with a large firm of accountants for the sale of his practice. In the negotiations, the appellant disclosed the pendency of these proceedings, which were commenced on 22 September

1983. The negotiations were broken off in February

1984. The appellant said that he believed that the negotiations, which had reached an advanced stage, were broken off by the other party because of the disclosure of this application.

In his oral evidence in this application, the appellant disclosed to the Court some other matters. In March 1983, the appellant pleaded guilty to twenty seven charges of failing to hold general meetings of companies of which he was liquidator in contravention of s. 271 of the Companies Act, 1961 (N.S.W.). Mr. Simpson, S.M. was of the view that, in the circumstances, considerable leniency was justified and fined the appellant $20.00 on twenty six of the charges and $5.00 on the remaining charge.

In June or July 1983, the appellant was charged with professional misconduct by the Institute of Chartered Accountants in respect of his convictions for contraventions of the Companies Act. Although the position did not clearly emerge, it would appear that the Institute convicted the appellant of this charge, reprimanded him and ordered him to pay costs in an amount of approximately $1,000.00.

Further, the cancellation of the registration of the appellant as a liquidator under Division 2 of Part II of the Companies (N.S.W.) Code is presently under consideration by the National Companies and Securities Commission."

1. In fact the trial Judge referred to the appellant throughout his reasons for judgment as "the respondent" because he was the respondent to the application before the Court; but, for reasons of convenience, we have substituted in our citations from his Honour's reasons the word "appellant" for the word "respondent".

2. His Honour gave two reasons for judgment: one on 27 April 1984 when he determined that this was an appropriate case in which to hold an inquiry under sections 179 and 212B; and the second on 6 July 1984 when his Honour made the orders under challenge in this appeal. In his April reasons for judgment his Honour said:
   
   

"In the Reasons for Judgment dated 27 April 1984, I concluded (at p.5) that Mr. Thomas' evidence established, prima facie at least, that the appellant lacks the capacity to discharge with professional competence the obligations inherent in the assumption of the office of trustee under the Act. The failure by the appellant to administer with any reasonable degree of diligence the estates catalogued in the schedule to those Reasons only confirms that view. And nothing which has since emerged in this proceeding displaces the provisional view which I had earlier formed. It is significant in this regard, that the appellant failed to respond to the many requests made by the Registrar for an explanation of the delays which had occurred in the administration of the estates in question. In the period 1980-1983, in most of the subject estates, requisitions were sent by the Registrar to the appellant seeking information and requesting action to be taken. In the great majority of cases, the requisitions failed to achieve any response on the short or even medium term. In a handful of cases, a reply was given but even then delays of many months were not uncommon: in this regard, the schedule annexed to the earlier Reasons speaks for itself.

An important feature of the case is the failure of the appellant to make any attempt to explain to the Registrar the difficulties he was experiencing in the period 1979-1983."

1. His Honour, in his July reasons for judgment, referred to a letter of 29 January 1982 from the respondent to the appellant which stated that examination of his records disclosed that accounts in respect of a large number of estates, mostly under Part X, were overdue, and the estates were particularized. The respondent required the appellant to file the accounts by 5 March 1982 and said in his letter that failure to do so would result in the respondent applying to the Court to examine him under sub-s. 179(3) of the Act and for an order that he be removed from the office of trustee under s. 179. The respondent also said in the letter that he intended to request the Auditor-General to audit the accounts in the relevant estates. His Honour found:
   
   

"It is surprising, to say the least of it, that the appellant made no attempt to reply to this letter. It is true that, by April 1982, the appellant had made arrangements for the preparation of many of the accounts the subject of complaint although well beyond the time prescribed pursuant to s. 175(1) of the Act. Nonetheless, no attempt was made by the appellant to explain to the Registrar the virtually insurmountable personal and other difficulties he had experienced and was continuing to experience. Indeed, until these proceedings were instituted, no attempt was made by the appellant to communicate the nature of his many problems to the Registrar or to the Court. This must reflect poorly upon the capacity of the appellant to continue to act as a trustee.

In my opinion, default in the form of failure by the appellant to take any step towards the filing of proper accounts in a significant proportion of the estates of which he was trustee extending, as it did, over a period of some three years in many cases, thus constituting a serious breach of Division 3 of Part VIII of the Act, and, in particular, s. 175(1), coupled with the failure by the appellant to ensure that the Registrar or the Court was informed of his incapacity to accept fresh appointments as a trustee, constitutes misconduct sufficiently serious to warrant the cancellation of the registration of the appellant as a trustee pursuant to s. 155(5) of the Act on the ground that the appellant is not "a fit and proper person to be entrusted with the important duties and grave responsibility which belong to a trustee" (cf. Re Humphreys and Walter (1931) 3 ABC 254 at p 258)."

1. His Honour went on to deal with the appellant's case that his faults were attributable to his partnership dispute, his matrimonial troubles, and his ill health, none of which, according to the appellant, applied any longer.

2. His Honour examined each of these matters in some detail and concluded that the failure of the appellant to perform adequately or, in some cases, at all, his professional duties in the estates mentioned in the period from 1979 to early 1983, together with the failure of the appellant to inform th eCourt of his inability to act upon any fresh appointments in that period, could not be entirely explained on the basis of his partnership dispute, matrimonial troubles and ill health.

3. Beaumont J.'s findings were challenged before us on behalf of the appellant on various grounds.

4. First, it was submitted by counsel for the appellant that his Honour found a prima facie case that the appellant was in ill health over the period 1979 to 1983, but based that finding essentially on the evidence of Mr. Thomas, who was not a qualified medical practitioner. It was said that his Honour treated the appellant as having an onus to displace that prima facie presumption. This was said to constitute an error by the trial Judge. This is not in our view an accurate description of his Honour's reasoning process. His Honour found, primarily from Mr. Thomas' evidence, in his April judgment that:
   
   

"... the evidence given by Mr. Thomas of the respondent's behaviour patterns is admissible, in my view, as primary evidence of a non-expert nature of the respondent's capacity to perform the professional work involved in the trusteeships in question."

1. The appellant himself gave evidence after the April judgment where he asserted in substance the same matters mentioned by Mr. Thomas in his earlier evidence. If there was an error by his Honour in relying on Mr. Thomas' evidence, and we do not think that there was, it was subsumed in the appellant's own later adoption of the substance of that evidence. The appellant accepted that his health during the period 1979 to 1983 was poor. Indeed, he based much of his case upon that assertion, and he gave evidence that his health had improved considerably from mid 1983, although it seems he is still receiving some medical treatment.

2. His Honour specifically referred to the unchallenged evidence of Miss Adams to the effect that the appellant's health has improved substantially since 1983. His Honour said:
   
   

"However, the respondent is still receiving medical treatment and, made no attempt to call any expert medical evidence on this score; indeed, he successfully objected to the tender by the applicant of a report by the respondent's medical adviser. In these circumstances, I must assume that such adviser if called would not assist the respondent's case and am therefore unable to make a finding in favour of the respondent that he has fully recovered from his illness. In any event, the recency of the respondent's failures leaves open, as a real possibility, the unacceptable prospect of a relapse in performance on the part of the respondent. Moreover, the extent of the failure of the respondent to perform adequately or, in some cases, at all, his professional duties in the estates mentioned in the period from 1979 to early 1983 together with the failure of the respondent to inform the Court of his inability to act upon any fresh appointments in that period, cannot be entirely explicable as resulting from his partnership dispute, matrimonial troubles and ill-health."

1. We are not satisfied, having heard all the submissions advanced on behalf of the appellant, that his Honour erred in making any of those findings.

2. Counsel for the appellant then submitted that his Honour placed undue weight on the past dereliction of duty by the appellant over the period 1979 to 1983; that he gave insufficient weight to the reasons for it, to the subsequent improvement in the management of estates by the appellant, to his installation of a computerised office system, to the fact that the documents which should have been filed have now been filed, to the improvement in the health of the appellant and to the absence of any element of dishonesty by the appellant. It is common ground that there is no suggestion in this case of any dishonesty by the appellant.

3. We feel some sympathy for the appellant in the predicament in which he found himself throughout the years 1979 to 1983. He has, rightly we think taken steps to make amends for his former misconduct. But a trustee in bankruptcy is a person who must command and retain the confidence of the Court, of the creditors and debtors in bankruptcy proceedings and of the general community. His competence must be, and remain, of a high order. The events of the years 1979 to 1983 would plainly be sufficient of themselves to support the making of the order for disqualification notwithstanding the subsequent attempts by the applicant to regain the confidence of the Court in himself as a trustee. His Honour took into account, however, the matters advanced by the appellant to establish his present fitness to remain a trustee. In our opinion it has not been established that, in taking those matters into account, his Honour fell into any error.

4. Finally, it was assumed by both parties throughout these proceedings that the effect of an order under sub-s. 155(5) cancelling the registration of the appellant as trustee would extend to disqualify him from continuing to act as trustee of bankrupt estates or Part X administrations to which he has already been appointed. His Honour appears to have acted on that basis when he stated:
   
   

"In the event that consequential relief in the form of delivery up of documents and the like is necessary, further application may be made pursuant to the liberty to apply which I propose to reserve."

1. That assumption is probably correct (see ss. 160 and 215 of the Act); but the point is not entirely free from doubt and we do not find it necessary to decide it. As the application before his Honour was not only for cancellation of the appellant's registration as a trustee pursuant to sub-s. 155(5) but also for an inquiry pursuant to ss. 179 and 212B, those sections confer ample power upon the Court to make orders removing the appellant from his office as trustee of the estates concerned. His Honour's order reserving liberty to the respondent to apply for further relief is an adequate vehicle for that purpose.

2. The appeal should be dismissed with costs.