Break Fast Investments Pty Ltd v Sampson (Trustee), in the matter of Voukidis
[2022] FedCFamC2G 516
•28 June 2022
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Break Fast Investments Pty Ltd v Sampson (Trustee), in the matter of Voukidis [2022] FedCFamC2G 516
File number(s): MLG 741 of 2022 Judgment of: JUDGE A KELLY Date of judgment: 28 June 2022 Catchwords: BANKRUPTCY – application for orders that a person cease to act as trustee of bankrupt estate and that another person be appointed to act as trustee – where trustee agrees to abide by result of application – where bankrupts’ son is only creditor that intervenes to oppose application – where history of litigation extending over a decade – where several adverse findings made as to credit of bankrupts’ son – where bankrupts are found to have acted, in effect, at direction of their son – where questions arise as to dates on which bankrupts executed security and loan documentation – whether company controlled by bankrupts’ son has valid and enforceable security interest – whether quantum of any loan for which security may have been given should be investigated – where son transfers bankrupts’ shares in company owning property – where intervener and majority of unsecured creditors oppose motions for the removal and replacement of trustee – where applicant willing to fund investigations – applicable principles – relief granted.
PRACTICE AND PROCEDURE – where person with financial interest in administration of regulated debtor’s estate may apply for order that a person cease to be trustee and for an order that another person be appointed as trustee – where Insolvency Practice Rules (Bankruptcy) 2016 place 60 day time limit upon making of application by certain persons for order that person cease to be trustee and order that another person be appointed as trustee – whether provision imposing time limit extinguishes right to apply for such relief – whether time limit capable of being extended – whether provision substantive or procedural – whether period capable of being extended under ss 30, 33 of Act.
BANKRUPTCY – duties of trustee – independence and impartiality – where unsecured creditor requests trustee to vacate office in order that investigations may be undertaken by a replacement trustee – where trustee convened meeting of creditors – where creditor being related to the bankrupts leads opposition to motions for trustee’s removal and replacement – where before meeting trustee circulates notice to all creditors disclosing that trustee had no funds to obtain legal advice – where trustee’s memorandum explained basis as to why proof of debt lodged by company related to bankrupts had been accepted by trustee – where, after creditor makes application to court, trustee’s circular invites unsecured creditors who opposed motions for replacement and removal to consider intervening in proceeding to voice their opposition to the application – where tenor of memorandum and circular raised questions as to authorship of memorandum and circular – protracted litigation – whether to exercise power conferred to conduct inquiry.
Legislation: Acts Interpretation Act 1901 (Cth), ss 13, 15AA
Bankruptcy Act 1966 (Cth), ss 4A, 5, 19, 30, 33, 41, 52, 54L, 55, 57, 58, 60, 90, 91, 94, 108, 109, 115, 116, 120, 121, 122, 127, 145, 149, 149B, 178, 179, 180, 217
Insolvency Practice Schedule (Bankruptcy) 2016 Sch 2 ss 1-1, 5-5, 5-15, 5-16, 5-30, 70-45, 75-5, 75-10, 75-15, 75-50, 90-1, 90-5, 90-10, 90-15, 90-20, 105-1Insolvency Practice Rules (Bankruptcy) 2016 (Cth), ss 75-80, 75-85, 75-90, 75-95, 75-100, 75-140, 75-145, 90-80
Cases cited: Ambridge Investments Pty Ltd (in liquidation) (receiver appointed) v Baker & Ors [2010] VCS 59
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321
Barranbali Pty Ltd v Pioneer Australia Pty Ltd (2021) 285 FCR 365
Borg v De Vries (2018) 16 ABC(NS) 399
C & O Voukidis Pty Ltd v Break Fast Investments Pty Ltd [2014] FCA 1000
Chase v Donnelly [2002] FCA 1565
Djordjevich v Rohrt [2022] VSCA 84
Glenfyne International Holdings Ltd (In liq) v Glenfyne Farms International AU Pty Ltd (In liq) (2019) 101 NSWLR 358
DSG Holdings Australia Pty Ltd v Helenic Pty Ltd [2014] NSWCA 96; (2014) 86 NSWLR 293
Hankey; ex parte Kratzmann (1986) 11 FCR 512
Kerr (Trustee), in the matter of Cross (Bankrupt) v Bechara [2015] FCA 284
Owners of "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404
Peter and Kathy Voukidis v C & O Voukidis Pty Ltd (deregistered) (Unreported, 7 June 2021)
Pioneer Australia Pty Ltd v Bettles as Trustee of the Bankrupt Estate of Quinn (2020) 17 ABC(NS) 577
Re Azmac Pty Ltd (in liquidation) (2020) 146 ACSR 113
Re Wong; Ex parte Wong v Donnelly (1995) 63 FCR 426
Taffs v Porter [2016] FCCA 1875Peter and Kathy Voukidis v C & O Voukidis Pty Ltd (deregistered) (Unreported, 7 June 2021)
Voukidis & Anor v C & O Voukidis Pty Ltd (In Liq) [2018] VSC 267Division: Division 2 General Federal Law Number of paragraphs: 205 Date of hearing: 27 May 2022 Place: Melbourne Counsel for the Applicant: Mr J. Evans, Q.C. Solicitor for the Applicant: Sinisgalli Foster Legal The Respondent: Submitting appearance save as to costs Counsel for the Intervener: Mr M. Bennett Solicitor for the Intervener: CLIC Law Group Pty Ltd ORDERS
MLG 741 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF THE BANKRUPT ESTATE OF PETER VOUKIDIS AND KATHY VOUKIDIS
BETWEEN: BREAK FAST INVESTMENTS PTY LTD (ACN 090 648 990)
Applicant
AND: DAVID HENRY SAMPSON
Respondent
VOUKIDIS HOLDINGS PTY LTD
Intervener
ORDER MADE BY:
JUDGE A KELLY
DATE OF ORDER:
27 MAY 2022
THE COURT ORDERS THAT:
1.Pursuant to ss 202-203 of the Federal Circuit and Family Court of Australia Act 2021 (Cth), direct that the parties be allowed to appear and to make submissions before the Court by video and audio link.
2.Pursuant to r 2.03(1) of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth), Voukidis Holdings Pty Ltd be granted leave to intervene and be heard in the proceeding.
3.Pursuant to par 90-15(3)(b) of the Insolvency Practice Schedule (Bankruptcy), Sch 2 of the Bankruptcy Act 1966 (Cth), David Henry Sampson be removed as, and cease to be, the trustee of the bankrupt estate of Peter Voukidis and Kathy Voukidis.
4.Pursuant to par 90-15(3)(c) of the Insolvency Practice Schedule (Bankruptcy), Sch 2 of the Bankruptcy Act 1966 (Cth), Scott Darren Pascoe be appointed as trustee of the bankrupt estate of Peter Voukidis and Kathy Voukidis.
5.The intervener pay the applicant’s costs of and incidental to this proceeding.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
KELLY A, J
Introduction
These reasons for judgment explain why orders were made pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy), Sch 2 of the Bankruptcy Act 1966 (Cth) (Act), removing the respondent, David Henry Sampson, and appointing Scott Darren Pascoe, as trustee of the bankrupt estate of Peter Voukidis and Kathy Voukidis (Mr and Mrs Voukidis).
By way of overview, the applicant creditor, (Break Fast), sought that the existing trustee should be removed and a new trustee appointed in his stead in circumstances where the current trustee had been appointed at the behest of Mr and Mrs Voukidis, a couple now aged 90 and 85 years respectively. The applicant’s case is that the bankrupts are subject to the effective control of their son, Christos Voukidis, an accountant, and that two substantive matters require investigation which the current trustee, being without funds, is and remains, unable to do.
The applicant has offered to provide the funds necessary to enable the investigation of those matters which, if pursued successfully, may well result in the distribution of significant dividends to the creditors of the estate and the possible annulment of the bankruptcies.
Voukidis Holdings Pty Ltd, a company now controlled by Christos Voukidis (Voukidis Holdings) purports to be a secured creditor by reason of a mortgage which, it is asserted, was created in 2010. The unregistered mortgage is relied upon as creating an equitable charge over certain property in New South Wales and so constituting a security interest said to rank ahead of the claims made by unsecured creditors. If the security is valid for the full amount of the indebtedness asserted by the company, unsecured creditors will receive no dividend from the bankrupt estate. Two matters said to require investigation are as follows: First is the efficacy of the purported security. This is put squarely in contest for a variety of reasons, including whether and when certain loan and related documentation was executed, the true amount of any indebtedness of the bankrupts under this transaction and whether and when any security interest was created. Secondly, the applicant identifies an alleged transfer by the bankrupts of some 1003 of the 1004 shares in the company within a period which would attract the operation of s 120 of the Act. By this alternative route, the estate would seek to recover the monies secured by the purported security. Voukidis Holdings opposes the present application.
Background
Although the underlying facts and circumstances are somewhat convoluted, the following matters may be stated. It is useful to do so having regard both to the basis upon which Break Fast seeks orders for the removal and replacement of the trustee of the estate of the bankrupts and to the basis upon which the intervener, Voukidis Holdings, opposes the application. The company is now controlled by the bankrupts’ son, Christos (formerly a director of Break Fast).
In July 1986, the bankrupts purchased a property situate at 60 Belmore Street, Burwood, NSW (Belmore Street property). Situated on the Belmore Street property were four apartments. The ownership of the Belmore Property changed from time to time over the period 1991-2012. On about 21 February 2003, the bankrupts transferred the whole of their right, title and interest in the Belmore Street property to a company, C & O Voukidis Pty Ltd (C & O Voukidis), a company in which they owned the majority of its shares. At a later time, Christos and his wife, Olga (now deceased) were the directors of C & O Voukidis.
Another property that is part of the subject matter of this application (the occupants of which are Mr and Mrs Voukidis), is 3 Wyatt Avenue, Burwood, NSW (Wyatt Avenue property).
On 12 March 2010, following a trial conducted over the period 5 October – 13 November 2009, Vickery J determined certain questions of liability in a proceeding styled Ambridge Investments Pty Ltd (in liquidation) (receiver appointed) v Baker & Ors [2010] VCS 59. At the heart of the proceeding lay competing contentions as to the interests of various parties in a property held by Break Fast and in which Christos Voukidis was to hold a 25% interest. As concerned Christos Voukidis, the reasons for judgment are replete with references to his involvement in certain transactions including at [126]-[149]. His Honour described Christos as an experienced tax accountant, made findings against him of dishonesty, including that he had falsified documents and deliberately flouted court orders, had acted in breach of court orders in a manner described as being wilful and contumelious and whose evidence was unreliable, dishonest and deliberately false. In upholding the plaintiff’s claims for relief, the defendants, including Christos, conceded that an entitlement to the taking of accounts had been established: [625].
In 2012, the Belmore Street property was sold by a mortgagee, National Australia Bank (NAB). At the time of this sale, C & O Voukidis was registered as proprietor of the property and Mr and Mrs Voukidis owned the majority, or all, of the shares in that company.
On 27 May 2014, an order was made on the application of Break Fast that C & O Voukidis be wound up in insolvency. On 16 September 2014, an application to review the order placing C & O Voukidis (in liquidation) was dismissed: C & O Voukidis Pty Ltd v Break Fast Investments Pty Ltd [2014] FCA 1000. C & O Voukidis’ then sole director, Christos Voukidis, was ordered to pay the costs of that application. This company is now deregistered.
Some context for the present application may be gleaned from the reasons of Davies J in C & O Voukidis Pty Ltd v Break Fast Investments Pty Ltd [2014] FCA 1000. From those reasons it appears that C & O Voukidis had been a defendant in no less than four proceedings instituted over the period 2005-2013, one of which involved a claim in which Break Fast, as plaintiff, made claims against, amongst others, Christos Voukidis, alleging he had made a series of payments, purportedly in his capacity as a director of Break Fast, to C & O Voukidis; such payments amounting to $2.2M. In this proceeding, it was further alleged that those funds had been used to reduce C & O Voukidis’ indebtedness to NAB under mortgages held by that bank and secured over the Belmore Street and Wyatt Avenue properties respectively, and/or to re-novate those mortgages with NAB: [2014] FCA 1000, [1], [10].
In turn, Break Fast had made claims to an equitable interest in the Wyatt Avenue property and the surplus of the proceeds of sale of the Belmore Street property.
On 23 May 2017, in another proceeding, Elliott J granted Mr and Mrs Voukidis leave pursuant to s 471B of the Corporations Act 2001 (Cth) to bring proceedings against C & O Voukidis (in liquidation). Leave was also granted to Break Fast to defend that claim for and on behalf of C & O Voukidis (in liquidation). Such leave was granted to Break Fast because the Court was satisfied the liquidator of C & O Voukidis was unwilling to defend the proceedings and Break Fast was the principal creditor in the liquidation of that company. Similar considerations now arise in this application in as much as Break Fast is practically the only unsecured creditor of the bankrupts’ estate that is not related to them. Furthermore, as in the proceedings involving C & O Voukidis (in liquidation), so here, Voukidis Holdings is under the effective control of Christos who now asserts, in his capacity as a director of that company, it is a secured creditor of the bankrupts including over the Wyatt Avenue property.
On 13 June 2017, Mr and Mrs Voukidis commenced proceedings against C & O Voukidis (in liquidation) seeking declarations for an equitable mortgage, equitable lien or resulting trust in respect of the surplus arising from the proceeds of sale of the Belmore Street property. Following a six-day trial in 2017, Sloss J published reasons for judgment on 24 May 2018, dismissing with costs all claims for relief: Voukidis & Anor v C & O Voukidis Pty Ltd (In Liq) [2018] VSC 267. Sloss J summarised her conclusions upon the several issues raised for determination in the proceeding at [337].
As the reasons for judgment of Sloss J at [1]-[2] reveal, although the relevant events had taken place some 15 years earlier, a central issue in the proceeding concerned the authenticity of a letter dated 12 February 2003 from Mr and Mrs Voukidis to the directors of C & O Voukidis; namely, their son Christos and his wife, Olga, and signed by each of them. Sloss J distilled the issue arising from this letter as whether it evidenced a security arrangement between Mr and Mrs Voukidis and the company controlled by their son and daughter-in-law, noting that the “signed original of the 12 February 2003 letter is no longer available, but copies of varying quality have been produced in evidence”: [2]; see also at [165], [203]-[206]. Her Honour also noted that while it was not disputed that the signatures on the letter were those of the parties said to have signed it, what was in dispute was whether the letter had been prepared in 2003 by the solicitor for Mr and Mrs Voukidis and whether it had been signed by the parties on the date that it bore. For the defendant, it was contended the February 2003 letter had more likely been created in about 2015 by Cristos Voukidis “when it became apparent to the plaintiffs’ son that this was the last route open to assert a claim to the proceeds remaining after the sale of the 60 Belmore Street property by the secured creditor in 2012”: [3].
The reasons for judgment in Voukidis v C & O Voukidis Pty Ltd (In Liq) [2018] VSC 267 are with respect, typically detailed and comprehensive. Without wishing to suggest the need or of accepting the necessity for examining the whole of these reasons, some of the principal findings may be noted: Mr Peter Voukidis’ evidence as to the style of his signature effectively amounted to a plain acknowledgement that his signature on the February 2003 letter had been signed at some time after September 2014: [82], [97]; Mr Peter Voukidis’ evidence in relation to certain loans purportedly made by he and/or his wife to their son Christos was such that he clearly did not know an alleged loan of $650,000 had grown to $1.8M: [95]; while Mr Peter Voukidis had for the most part presented as a truthful witness, he often had no recollection of particular events; rather, evidence he gave “was to the effect that he had signed a particular document without reading it” and that “he trusted Christos implicitly to look after him and Kathy, and their money, in their retirement”, concluding “Peter left it to Christos to organise whatever had to be done, and paid little, if any, attention to the detail”: [96]; Mrs Kathy Voukidis clearly had little recall of the events in issue and appeared to have reconstructed her evidence to suggest she had signed the February 2003 letter in about 2004; her evidence on related issues was unconvincing: [106]; in other proceedings, adverse findings had been made that Christos Voukidis had “altered bank statements to hide the fact of debits being made to the account of Break Fast”, a fact that he sought to downplay before Sloss J as matters for which he now took responsibility: [164]; Christos Voukidis was an unimpressive witness such that “much of the evidence Christos Voukidis gave lacked veracity, or was simply implausible, and little weight can be given to it”: [171]-[173], [207]-[212]; by contrast, the liquidator of C & O Voukidis, whose evidence was frank and truthful, had examined affidavits sworn by Mr Christos Voukidis in the period 2012 – 2016 and found that “they ‘do not refer to any debt owed by the Company to the Parents or the Parents’ alleged interest’.”: [180], [183].
Sloss J made detailed findings in relation to the February 2003 letter at [187]-[197] and concluded it had not been prepared by a solicitor, concluding at [218]:
. . . the plaintiffs have not discharged their onus of satisfying the Court, on the balance of probabilities, that the letter dated 12 February 2003 was prepared for or on behalf of them, and on or about that date. For the reasons set out above, I am not satisfied that the 12 February 2003 letter was prepared by Mr Bouzanis in or about February 2003. Nor am I satisfied that the letter was signed by the plaintiffs, or by Christos and Olga Voukidis on behalf of the defendant, on or about the date it bears.
Consequently, as it had not been proved that the February 2003 letter was prepared on behalf of the bankrupts in or about February 2003 (or that it was signed by the respective parties on around that date), her Honour rejected Mr and Mrs Voukidis’ claim that there had been an agreement in around February 2003 that the transfer by them of their interests in the Belmore Street property had been made on terms of a loan by them to C & O Voukidis: [219]-[221]. Further, her Honour concluded there was little if any evidence suggesting the February 2003 letter was capable of establishing an intention to create a mortgage over the Belmore Street property or that it would secure repayment of a sum of $650,000. Evidence to the contrary from Christos Voukidis was unconvincing and improbable: [232]-[247]. Sloss J rejected the various alternative formulations of the claims made by Mr and Mrs Voukidis.
On 14 June 2018, Sloss J ordered Mr and Mrs Voukidis to pay the costs of the proceeding and ordered that those costs be paid to Break Fast (as it had been the party that incurred the costs of defending the proceeding (costs order)).
On 27 October 2020, costs payable under this costs order were taxed in the sum of $264,965.47.
Break Fast now claims against the bankrupts’ estate as an unsecured creditor for $264,965.
Share transfers
As noted above, amongst the material supplied by the solicitor for Break Fast to the trustee of Mr and Mrs Voukidis’ bankrupt estate on 29 July 2021, was an affidavit that he had made on 31 May 2021 providing a history of various impugned dealings. Included in that affidavit at [37]-[48] was a detailed summary of facts and circumstances relied upon to demonstrate that: from May 2020, Christos Voukidis had been the sole director of Voukidis Holdings; Mr and Mrs Voukidis’ shareholdings in Voukidis Holdings had been transferred on 15 May 2022 to a company, the shares in which were owned by a company styled Voukidis Management Pty Ltd and a person said to be a business partner of Christos.
The evidence shows that prior to 5 August 2020, Mr and Mrs Voukidis were registered as the ordinary shareholders of 1003 of 1004 ordinary shares in Voukidis Holdings, with Mr Voukidis holding 502 of the ordinary shares, and Mrs Voukidis holding 501 of the ordinary shares.
This evidence also shows that on about 5 August 2020, ZV Asset Management Pty Ltd, a company associated with Christos Voukidis and his family, was registered as an ordinary shareholder of Voukidis Holdings. In addition, further shares were issued by the company described as ‘dividend-variable’ shares, one which was held by each of Mr and Mrs Voukidis.
In the application for freezing orders made before Delaney J, his Honour made findings that in his dealings with shareholdings in Voukidis Holdings in August 2020, Christos Voukidis and companies associated with him had the effect of significantly depleting Mr and Mrs Voukidis’ shareholding in Voukidis Holdings and that such transfers had been effected “apparently without any consideration, or at least no consideration to which they referred in their recent affidavit in support of an instalment order”: Peter and Kathy Voukidis v C & O Voukidis Pty Ltd (deregistered) (Unreported, 7 June 2021 at [15]-[19]). The evidence suggests that until the transfer of their shares had taken place, Mr and Mrs Voukidis owned 99.9% of the ordinary shares in Voukidis Holdings. Further, as deposed to by the solicitor for Break Fast, because the constitution of Voukidis Holdings has not been lodged with the Australian Securities and Investment Commission, it is not possible to discern whether or when a supposedly new class of shareholdings described as dividend-variable shares had been created.
Contextually, those share transfers occurred following judgment in the proceedings referred to above, including the issue of a summons for the taxation of costs.
Dealings registered or lodged on title to Wyatt Avenue property
A search of the title to the Wyatt Avenue property discloses: (a) Mr and Mrs Voukidis are registered as proprietors of the fee simple estate in that property; (b) AMP is registered as first mortgagee on that title; (c) on 25 August 2020, a caveat was lodged on behalf of Voukidis Holdings claiming an estate or interest as mortgagee by virtue of a loan agreement (the date of such mortgage as recorded in that caveat was stated to be 20 August 2020). Further, adjacent to the heading, Details Supporting The Claim was typed “Loan Agreement dated 1 Oct 2010”.
The purported loan agreement dated 1 October 2010 (2010 loan agreement), stipulated that Voukidis Holdings would loan Mr and Mrs Voukidis the sum of $3M. The evidence presently available in relation to loans actually made to Mr and Mrs Voukidis is examined below.
On 27 May 2021, the solicitor for Break Fast became aware that a further caveat had been lodged by Voukidis Holdings on 7 May 2021. Attempts to delay lodgement were unsuccessful and this second caveat was lodged on behalf of Voukidis Holdings. By this caveat, the estate or interest claimed was as equitable mortgagee and in reliance upon an “unregistered mortgage and loan agreement” dated 31 March 2021 (further loan agreement). The second caveat was amended pursuant to a statutory declaration made by Christos Voukidis (in his capacity as sole director of the caveator) on 26 May 2021. Some of the foregoing events occurred on the same date, or post-dated, from the issue of the bankruptcy notices referred to below.
Bankruptcy proceedings and contemporaneous events
On 31 March 2021, Break Fast issued bankruptcy notices against each of Mr and Mrs Voukidis. Each notice relied upon the costs orders made on 14 June 2018 and 27 October 2020. Each notice was addressed to Mr and Mrs Voukidis respectively at the Wyatt Avenue property.
On 27 April 2021, Mr and Mrs Voukidis made application to pay the judgment debt by instalments. A supporting affidavit stated the market value of the Wyatt Avenue property was $1.95M and subject to a mortgage in favour of AMP for $723,000. Reference was also made to a further encumbrance of $1.737M in favour of Voukidis Holdings. On 5 May 2021, this application was refused on the basis of the length of time required to repay the judgment debt.
On 27 May 2021, bankruptcy notices were served on Mr & Mrs Voukidis’ solicitor.
On 4 June 2021, Break Fast sought freezing orders against the assets of Mr and Mrs Voukidis and Voukidis Holdings. On 7 June 2021, orders were made by Delany J freezing the assets of Mr & Mrs Voukidis to a value of $276,000 (the sum of which represented the amount of the costs order together with interest up to 31 March 2021). Matters considered by Delany J as being relevant to the making of freezing orders incorporated the findings of Sloss J above. His Honour concluded that the debtors and/or their son, Christos, would, unless restrained, take further steps to put their assets beyond the reach of Break Fast. Delany J stated as follows:
20.The validity of the concerns expressed on behalf of Break Fast Investments in support of freezing orders that the plaintiffs and/ or Christos Voukidis are taking steps, and, unless restrained will take further steps, to seek to put their assets beyond reach of the judgment creditor is supported by observations made by Sloss J in her Honour's substantive reasons for decision in the proceeding. Those observations include:
. . .
21.There is evidence on affidavit that Christos Voukidis has been involved in a number of separate proceedings in Victoria, New South Wales, and in the Federal Court. The fact that this person is involved in litigation, even in multiple proceedings is not necessarily of significance for an application such as the present. However, of more significance is that in one of those cases, Ambridge Investments Pty Ltd (in liq) (receiver appointed) v Baker, Vickery J made a number of serious findings against Mr Christos Voukidis. Those findings included that:
(1) he had falsified bank statements;
(2) he deliberately flouted court orders;
(3) his breach of court orders was wilful, contumelious and dishonest; and
(4) he deliberately gave false evidence.
22.Those findings by Vickery J add weight to the concerns that underpin this application regarding both Voukidis Holdings and the Burwood property, given Christo Voukidis' involvement in dealings concerning both this entity and property since August 2020.
23.There is no question that Break Fast Investments has a strong arguable case. It has an ironclad case, it has the benefit of a judgement which, on the affidavit material provided, it appears those against whom the freezing order is sought are actively seeking to take steps to defeat.
24-25 . . . .
26.I am satisfied there is a danger that the judgment will be wholly or partly unsatisfied as a result of the actions of the plaintiffs and Voukidis Holdings in either disposing or dealing with assets so as to diminish their value or in an endeavour to put those assets beyond the reach of Break Fast Investments. In the circumstances discussed above based on the affidavit evidence this is an appropriate case to make a freezing order and to make the ancillary orders sought on behalf Break Fast Investments.
In other findings by Delany J, his Honour recognised that as a further reason for the making of freezing orders, there had been dealings in the shareholdings of Voukidis Holdings in August 2020 and more recently “involving Christos Voukidis and companies and persons associated with him” which had had “the effect of very significantly depleting the previous shareholding of the plaintiffs, Mr and Mrs Voukidis, [in that company].”
The order made by Delany J on 18 June 2021 recorded that the debtors, Mr and Mrs Voukidis, together with Break Fast were each represented by senior counsel. While the order made on that date did not identify the counsel which had represented the company, Voukidis Holdings, it does record that the order was obtained after Voukidis Holdings by its counsel, had undertaken not to deal with a mortgage or any other interest which it may have in the Wyatt Avenue property until relieved by the Court of its undertaking not to do so.
It is unnecessary to recite the detailed provisions of the freezing order made on that date save to note that for the purposes of that order the debtors’ assets were expressed to include the Wyatt Avenue property or its net proceeds of sale.
Creditor’s and debtors’ petitions
Before the making of freezing orders by Delany J, Break Fast presented a creditor’s petition against Mr and Mrs Voukidis in the then Federal Circuit Court of Australia.
On 20 July 2021, Mr and Mrs Voukidis made application to the Official Receiver, doing so by a joint debtor’s petition and the filing of their statement of affairs. Mr and Mrs Voukidis nominated the respondent, Mr Sampson, to be the trustee of their estate in the event their petition was accepted. Their petition was accepted by the Official Receiver: Act, s 57(4). Upon such acceptance being endorsed upon the debtors’ petition, by force of par 55(4A)(b) of the Act, Mr and Mrs Voukidis became bankrupt.
On 22 July 2021, a registrar of this Court dismissed the creditor’s petition and fixed the applicant creditor’s costs of $8,432.82 to be paid from the estate of the bankrupt debtors.
On 29 July 2021, the solicitor for Break Fast sent the respondent: a copy of the freezing orders made by Delany J; sealed copies of the costs orders, and; copies of his affidavits providing: (i) a history of the transactions described above; (ii) details of the involvement of Christos Voukidis in the transfers in Voukidis Holdings of the shareholdings formerly owned by Mr and Mrs Voukidis; (iii) details of the 21 proceedings in which Christos Voukidis had been involved since 2009; (iv) the concerns held by Break Fast in relation to these matters.
By letter dated 17 August 2021, Mr Sampson notified Break Fast of his appointment as trustee.
Trustee’s report to creditors – 17 August 2021
Following an investigation into the bankrupts’ estate, on 17 August 2021 their trustee produced a report to the creditors. In his report, the respondent informed creditors that he considered it unlikely they would receive a dividend from the estate:
7.4 Real Property
In their SOA’s, the bankrupts’ disclosed that they are the registered proprietors of real property located 3 Wyatt Avenue, Burwood NSW 2134 (“the property”), which has an estimated value of $2,200,000 and is subject to a registered first mortgage held by AMP Bank which is owed approximately $723,000. The property is also subject to a caveat registered to Voukidis Holdings Pty Ltd who is said to be owed $1,830,000 pursuant to an unregistered mortgage and loan agreement dated 31 March 2021. My investigations into this caveat are ongoing and creditors will be notified of any material updates.
. . . .
8. Creditors
Annexure “B” to this Report is a Schedule of the known creditors of the bankrupts as at the date of this report. This Schedule has been compiled from the bankrupts’ SOA as well as information supplied by creditors or disclosed by my investigations.
Part A of the Schedule lists the secured creditors of the bankrupts whilst Part B lists their unsecured creditors.
Part B lists the unsecured creditors of the bankrupts by name and the amount owing to each. The total amount owing to the unsecured creditors of the bankrupt is $642,659.
. . . .
12.Based on my investigations to date, it is unlikely that there will be a dividend to creditors.
If my view changes, I will notify creditors.
The Statement of Affairs (attached to the trustee’s report as Annexure A) identified a total deficiency in encumbered assets of $391,966 a total of unencumbered assets of $48,740 together with liabilities to unsecured creditors for a total sum of $1.034M and an estimated deficiency (subject to the costs of administration) of $985,915.
Part A of the statement of secured creditors (attached to the trustee’s report as Annexure B) identified two secured creditors: (1) AMP, being for a sum of ~$712,000, and; (2) Voukidis Holdings, being for a sum of $1.830M. In each case, the statement of secured creditors suggested that each security was a mortgage over the Wyatt Avenue property thereby creating it as secured property. Part B of that statement identified 10 unsecured creditors apart from Break Fast and that the total of such unsecured creditors’ claims amounted to $642,659.
Annexure C to the trustee’s report provides a summary of receipts and payments which is of no, or no material, significance (save that cash at bank was then $28,300).
Creditors of the bankrupts’ estate
As a secured creditor, AMP claims the bankrupts are indebted to it for the sum of $723,000 which sum is secured by its registered first mortgage over the Wyatt Avenue property.
Voukidis Holdings claims as both a secured and partly unsecured creditor. It does so purportedly by reason of the 2010 loan agreement and a mortgage. Pursuant to that agreement a claim was made that the company held a security interest pursuant to an equitable (i.e. unregistered) mortgage or charge. The fact, if it be the fact, of any such loan agreement was not disclosed in the earlier proceedings heard by Sloss or Delany JJ. To the contrary, the suggestion of any such loan agreement was only brought to the attention of Break Fast in 2021 after steps were taken to recover the costs as quantified by the costs orders.
Claims by all other creditors against the bankrupts’ estate are by family members or companies and/or service providers having some connection with Christos Voukidis.
Those circumstances combine to give rise to a genuine concern expressed by Break Fast as to the true indebtedness of the bankrupts’ estate to Christos and his related parties.
As stated, Break Fast claims to be an unsecured creditor for the sum of $264,965.
Request for removal of trustee
Following the release of the trustee’s first report, on 26 August 2021, Break Fast’s solicitor wrote to the respondent requesting his agreement to be replaced as trustee with another trustee. By this letter, Break Fast’s solicitor observed that the respondent: did not propose calling a meeting of creditors; had not identified any transfers of property that may be void as against him as trustee in the bankruptcy of the subject estate; did not consider there were any other major matters requiring investigation (save as referred to in his report), and; considered it unlikely there would be a dividend to unsecured creditors. The solicitor formally requested the transfer of the administration of the bankrupt estate to Mr Pascoe of PwC and furnished a copy of the consent of that registered trustee to accept the appointment. He also advised the respondent of his instructions that Break Fast was willing to fund Mr Pascoe in conducting the further investigations that had been suggested from the facts and circumstances referred to above relating to the affairs of Mr and Mrs Voukidis and “which, given the contents of your report, it is not presently willing to fund you to undertake.”
On 6 December 2021, the respondent replied to this request advising that a circular had been sent to all creditors of the bankrupts’ estate nominating Mr Pascoe to be the replacement trustee. The email further advised that the circular notice had asked creditors to advise whether they objected to the nomination taking effect without there being a meeting of creditors and stated:
Notices of objection was received from four creditors and a meeting of creditors will need to be convened for creditors to vote on the transfer of the estate to Mr Scott (sic) by way of ordinary resolution. Accordingly, could you please advise whether your client still wishes for the transfer of the administration of the estate to Mr Scott (sic)?
By letter dated 13 December 2021, Break Fast’s solicitor made a request of the respondent pursuant to s 70-45 of the Insolvency Practice Schedule (Bankruptcy) for copies of any proofs of debt (and supporting documents) of all unsecured creditors (other than itself), and “a copy of all documents received or otherwise obtained by you which substantiate the existence and amount of the secured debt allegedly owing to Voukidis Holdings Pty Ltd in the sum of $1,830,000.00.” The solicitor provided a detailed background upon which the request for such documents was made and concluded at [9] that Break Fast considered “it is in the interests of all creditors of the joint estate that these serious matters be further investigated which it is willing to pursue by funding a proposed replacement trustee.”
The respondent did not supply Break Fast with many of the documents sought until some time later and, in particular, on 24 January 2022, after Break Fast had successfully pressed the respondent to adjourn the first creditors meeting held on 11 January 2022.
On 22 December 2021, the respondent issued a circular notice advising creditors he considered it necessary, in light of the objections to the proposed transfer of the administration taking place without a meeting of creditors, for him to convene such a meeting and advising that such meeting would be convened on 21 January 2022 via Google Meet for the purposes of considering his removal as trustee of the bankrupts’ estate and the appointment of Mr Pascoe as a replacement trustee. Attached to that notice was a series of documents. The respondent advised creditors that they must provide a completed statement of claim at or prior to the meeting if they wished to vote at it (albeit that it was not necessary to do so again if such a claim had already been provided).
The respondent further advised he had suspended his investigations into the financial affairs of the bankrupts’ estate and that he would continue to so suspend his investigations until the outcome of the creditors meeting.
One of the attachments to the trustee’s circular notice was an agenda which identified at Item 9 that there would be an adjudication on proofs of debt (POD) and statements of claim for voting purposes and, as Items 10 – 11, the proposals for motions that Mr Sampson be removed, and Mr Pascoe be appointed, respectively as trustee of the bankrupts’ estate (motions).
On 14 January 2022, Break Fast submitted to the trustee its statement of claim in accordance with s 75-80 of the Insolvency Practice Rules (Bankruptcy) 2016 (Cth) setting out the amount for which it claimed that Mr and Mrs Voukidis were indebted to it. Break Fast claimed against those debtors for a total sum of $284,334.79. Annexed to its statement of claim were copies of the costs orders made on 14 June 2018 and on 27 October 2020 respectively.
A POD was also lodged by Voukidis Holdings.
First creditors meeting – 21 January 2022
The first creditors meeting was held on 21 January 2022 and was adjourned at the request of a director of Break Fast, Mr Gregory Taylor, who asked that the respondent undertake further investigations into the admissibility of Voukidis Holdings’ POD. Before me, the evidence disclosed that Mr Taylor requested the adjournment in circumstances where it had emerged, for the first time, that the respondent had not met with the bankrupts but was instead receiving instructions and information from their son, Christos. Contextually, it will be recalled that Mr and Mrs Voukidis, who are now in their mid-80s or 90s, were considered by Sloss J in 2018 to be acting, in effect, as and when and in the manner that Christos directed them to do.
Mr Taylor contended he did not consider a quorum was present and that he wanted the meeting adjourned. At all events, the meeting was so adjourned to 11 February 2022.
Before turning to the events occurring at the adjourned meeting, I note the respondent provided a document styled, Trustees Running Sheet for Meeting of Creditors, in relation to the meeting to be held on 21 January 2022. Matters set out in this running sheet included the trustee’s summary of the background to the circumstances giving rise to the bankruptcy upon their presentation of their debtors’ petition and that in presiding at the meeting it was for the trustee to rule upon the entitlement of each creditor to vote and the amount for which each creditor’s claim was to be admitted for voting purposes so as to determine whether a quorum was present.
Annexure 12 to the affidavit of the solicitor for Break Fast sworn on 6 April 2022 included (at pp. 189-196), a composite document which appeared to comprise the minutes of the meeting of creditors held via Google Meet on 21 January 2022 (pp. 189-192) and the minutes of the reconvened meeting on 11 February 2022, again by Google Meet, (pp. 192-196).
As concerned the first meeting, the minutes noted that the purpose of the meeting was to consider motions for the removal and appointment of a trustee of the bankrupts’ estate and further that it had been announced the proxies appointed for the meeting and the value of their voting entitlements admitted for the purposes of voting included, in relation to the unsecured creditors of the joint estate: (1) Break Fast, whose claim was admitted for voting purposes in a value of $284,334; (2) Voukidis Holdings, whose claim was admitted for voting purposes in the value of $484,000; (3) five unsecured creditors had been classified as entities related to the bankrupt debtors; (4) the trustee determined that the creditors present had been admitted to vote for the amounts as disclosed; (5) responding to a request whether a full investigation had been done into the POD lodged by Voukidis Holdings, the trustee responded:
The Trustee advised that a preliminary investigation had been done for the purposes of voting only as following receipt of the request to transfer the file, all investigations were suspended whilst it was determined whether the administration would be transferred to Mr Scott.
Mr Taylor requested that the meeting be adjourned to enable the trustee to undertake a full investigation into the claim made by Voukidis Holdings Pty Ltd. He further advised that if funding is required for this to be done, to advise.
The Trustee advised as a matter of procedural fairness that he would adjourn the meeting to enable further investigations into the admissibility of the [claim (sic)] lodged by Voukidis Holdings.
The meeting was then adjourned to 11 February 2022 at 11.00 am.
On 24 January 2022, the respondent sent Break Fast’s solicitor 12 documents as described in his affidavit made on 23 May 2022, including the purported mortgage and loan agreement. The 12 documents supplied to Break Fast’s solicitor were ~80 pages in length.
On 28 January 2022, Break Fast’s solicitor again wrote to the respondent noting, amongst other things, that: in the course of the meeting on 21 January 2022 it had become apparent the respondent had not been personally involved in the consideration of the material filed in the bankruptcy and had not separately considered the basis of claims made by Voukidis Holdings in relation to its alleged equitable mortgage; instead, it had been with Christos Voukidis that the respondent was dealing and taking instructions on behalf of his parents, being a person who also controlled Voukidis Holdings, the purported second ranking secured creditor after AMP and “it seems represents the majority of the unsecured creditors by number and value.” After drawing attention to other suggested flaws in the administration of the bankrupts’ estate the solicitor repeated the earlier request for a copy of the POD of “Voukidis Holdings and the formal statements of claim by the non-Break Fast creditors, provided to you as trustee.” This letter seemingly crossed with the trustee’s letter dated 24 January 2022.
Adjourned meeting – 11 February 2022
At this meeting, Break Fast again sought to adjourn the resumed creditors meeting, doing so on the stated basis that the length and complexity of the 12 documents recently supplied by the respondent to it supported a conclusion that further time was needed for Break Fast to examine them. The trustee refused the request, relying on s 75-140(2) of the Insolvency Rules which prescribes that a meeting of creditors must not be adjourned to a day that is more than 15 business days after the first day on which the original meeting was held: see trustee’s circular to creditors dated 5 May 2022 at (ii).
By his affidavit sworn on 6 April 2022, Break Fast’s solicitor described the events occurring at the adjourned meeting on 11 February 2022 and deposed that despite the concerns raised by him in relation to the debt claimed by Voukidis Holdings, the respondent had recognised the claim made by that company “for a secured amount of $1,945,025 and allowed Voukidis Holdings to vote for $424,521 on an unsecured basis.” The solicitor deposed Break Fast had claimed that Voukidis Holdings should not have been allowed to vote on an unsecured basis, and at the most, it should have been allowed for one dollar, with the result that “In consequence of recognising the Voukidis Holdings’ debt on an unsecured basis for $421,521, creditors voting in favour of the replacement of the trustee, was one creditor with 39% of the vote (Break Fast) voting in favour and eight creditors with 61% of the vote against. The resolution did not pass and Mr Sampson remains as trustee of the estate.”
The submissions of the applicant’s counsel dated 23 May 2022 at [5]-[6] set out the events that were said to have occurred at the adjourned meeting on 11 February 2022 and read:
5.[The applicant] sought to replace Mr Sampson at a meeting of creditors of the bankrupt estate of Peter and Kathy Voukidis, on 11 February 2022. At that meeting, Mr Sampson determined to admit a proof of debt lodged by Voukidis Holdings for voting purposes, as an unsecured creditor in the amount of $421,521. That was based upon a determination made by Mr Sampson on 11 February 2022 (and supported by a 7 page memorandum also dated 11 February 2022) that:
(1)Voukidis Holdings was a creditor of the bankrupt estate of Peter and Kathy Voukidis for an amount seemingly in the order of $1.945 million (although the exact amount is obscure);
(2)Voukidis Holdings holds a valid equitable interest over the [Wyatt] Property to secure its debt.
6.The consequence of Mr Sampson’s decision to admit Voukidis Holdings for voting purposes, as an unsecured creditor in the amount of $421,521, meant that the resolution to replace him failed, and he was not required to exercise a casting vote.
Following the meeting on 11 February 2022, the respondent provided creditors with the following: minutes of the meeting held on 21 January 2022; minutes of the reconvened meeting held on 11 February 2022; the trustee’s running sheet for the meeting held on 21 January 2022; a memorandum said to have been read to the creditors meeting held on 11 February 2022 (namely, by a member of the respondent trustee’s firm, BPS Recovery, Mr B. Cruickshanks).
The minutes record that in relation to the subject, Entitlement of creditors to vote, a lengthy statement had been read to the meeting by Mr Cruickshanks. The minute further records that, over the objection of Break Fast’s director, Mr Taylor:
The Trustee advised that he was satisfied for the purposes of voting of all creditors at the meeting and further advised that he was happy to engage further with Mr Taylor with respect to his further investigations. The Trustee advised that he was an independent trustee who was acting impartially and independently and in the interests of all creditors of the estate.
The trustee advised that further investigation is needed to be undertaken and invited creditors to fund public examinations and the costs of obtaining independent legal advice as he had minimal funds held in the estate account and not sufficient funds to obtain legal advice.
The Trustee advised that he would write separately to Mr Taylor on the issue of providing funding.
The trustee then advised that each of the above creditors were entitled to vote and were admitted for voting purposes.
The minutes record the trustee advised that a quorum was present and that he then advised the meeting that to have a resolution passed, the majority of the voting creditors (in number and value), needed to vote in favour of the resolution. In relation to the subject, Statement by creditors, the minutes record (in perhaps an understated way) that there had been “a lengthy discussion between Chris Voukidis, Greg Taylor and Alan Foster relating to historical legal proceedings in which they were both previously involved in.” As concerned the resolution for the removal and replacement of the trustee of the bankrupts’ estate, Break Fast was the only unsecured creditor to vote in favour of the resolutions and represented a voting entitlement by value of 39% of all unsecured creditors, while all other creditors voted against the resolutions, such creditors representing a voting entitlement by value of 61% of those unsecured creditors.
The minutes conclude that the trustee declared the resolution (sic, the motions) had not passed and that he remained as trustee of the estate. In contrast with the documents prepared by the trustee for the creditors’ meeting to be held on 21 January 2022, no equivalent running sheet was prepared for the adjourned meeting to be held on 11 February 2022. The memorandum dated 11th February 2022 and supplied by the trustee following the meeting on 11 February 2022 (that was apparently read by Mr Cruickshanks), forms part of Annexure 12 to the affidavit of Break Fast’s solicitor sworn on 6 April 2022 (pp. 201-207).
For present purposes, I note the memorandum stated the respondent’s view that “However, after an investigation of the numerous issues raised by Messrs Taylor and Foster, I have formed the view that the amount claimed by Voukidis Holdings is a provable debt notwithstanding that certain events which occurred after 1 October 2010, appeared to cast some doubt about the veracity of the company’s claim.” Having expressed that conclusion, the memorandum provided a chronology of events said to have occurred in the period September 2009 to July 2021 inclusive. Without wishing to embark upon any examination of the relative merits of some of the views expressed in that memorandum, I note that under the heading, General observations at pages 5-6 of the memorandum, the author stated:
I acknowledge that the drafting of the subject documents may not have been of the highest legal calibre, however whatever their shortcomings were, it is considered that a reasonable person would acknowledge that it was the clear intention of Mr & Mrs Voukidis and Chris as the controlling mind of Voukidis Holdings, that to secure the loan advanced by Voukidis Holdings to Mr & Mrs Voukidis, they gave the company a charge over their Burwood property by way of a second mortgage which could not be registered because AMP held a registered first mortgage on the Burwood property.
Some of the statements or assumptions underlying those matters stand in marked contrast with findings made by Sloss J above. The author of that memorandum was not identified.
A further document, also forming part of Annexure 12 to that affidavit (pp. 208-209) is entitled Meeting Attendance Register-Creditors, which notes that the respondent had acted as chair and that in relation to the creditor, Voukidis Holdings, he had acted as its proxy or attorney and acted in relation to its unsecured claim for $484,000 and had recorded that the nature and value of its security, by way of an unregistered mortgage was for a secured debt of $1,677M.
Later events
By circular letter dated 5 May 2022 addressed to the creditors of the bankrupts’ estate entitled Application to have Scott Pascoe replace David Sampson as trustee, the respondent provided in summary a narrative of events giving rise to the dissatisfaction of Break Fast in his acceptance of Voukidis Holdings’ POD and advised he needed to obtain legal advice for which funding was required, absent which, no further investigations would occur in relation to the admissibility of that POD.
The respondent further advised that he would not be opposing the application and would abide by any orders of the Court. In doing so, the respondent noted that eight creditors representing 61% of voting creditors had opposed his replacement and, somewhat curiously, suggested that they may wish to consider intervening in the proceeding to voice their opposition to the application for his replacement. In concluding, the respondent drew the creditors attention to a decision of the Federal Court in Pioneer Australia Pty Ltd v Bettles (2020) 17 ABC(NS) 577 as to which he stated “From my perusal of the subject judgment, the facts and circumstances detailed therein, appear to be rather similar to those in the bankrupt estate of Peter Voukidis and Kathy Voukidis.” Remarkably, what was not stated in the respondent’s circular to creditors was that the order made in that application had been for the removal of the trustee.
Break Fast’s solicitor made a further affidavit on 11 May 2022 in which he deposed to receiving, on 5 May 2022, a circular to creditors of the bankrupts’ estate giving notice of the application the subject of this proceeding and in which the respondent advised “I will not be opposing the application and I will be informing the court that I will abide by any orders in respect of the application save as to costs.” The solicitor further deposed that on 9 May 2022 he received confirmation that this circular and attachments had been served on all unsecured creditors of the bankrupts’ estate. He also deposed that he had not received any notice from any other creditor wishing to intervene or otherwise to oppose the application for the trustee’s replacement and that Mr Pascoe, a registered trustee, had signed a consent to act.
The foregoing events became the catalyst for this application.
Procedural history
By application filed on 7 April 2022, orders were sought pursuant to s 90-15 of Sch 2 of the Act, for the respondent, Mr Sampson, to cease acting as trustee of the bankrupts’ estate and to appoint another registered trustee as trustee of the bankrupts’ estate.
In support of that application, Break Fast’s solicitor filed an affidavit sworn on 6 April 2022 which recounted the history giving rise to the now bankrupts’ indebtedness to Break Fast and matters which had been the subject of investigation as described above.
Break Fast established that the respondent had agreed to accept service of process by email. Other affidavits were filed on behalf of the applicant for the purposes of establishing evidence of particular narratives of events and to foreclose avoidable hearsay arguments.
The application was listed for hearing on 17 May 2022 and on that date a series of directions were given affording the parties opportunities to file further material and submissions.
On 19 May 2022, Voukidis Holdings, filed grounds of opposition to the application. Four grounds of opposition were stated, in substance, as follows: (1) the application was out of time; (2) no basis for an extension of time was shown; (3) granting the application was not to the general advantage of persons interested in the administration of the bankrupt estate, and; (4) conversely, granting the application was to the general advantage of persons interested in the administration of the bankrupt estate.
On 20 May 2022, Chris Voukidis, made an affidavit in his capacity as a director of Voukidis Holdings. The affidavit was prepared by the intervener’s solicitor. Mr Voukidis deposed to matters in support of the grounds of opposition to this application that:
(a)on about 1 October 2010, funds were advanced by Voukidis Holdings to the bankrupts which advances were secured over the Wyatt Avenue property;
(b)“both advances” were for a total sum of ~$1,945,025 of which $424,521 was unsecured and which was accepted by the respondent at the meeting held on 11 February 2022;
(c)on 27 May 2021, he had lodged a caveat on title to the Wyatt Avenue property, claiming an equitable mortgage over that property purportedly pursuant to an unregistered mortgage and loan agreement dated 31 March 2021;
(d)on 13 August 2021, he received from the respondent a letter requesting that Voukidis Holdings substantiate its loan, mortgage and evidence of the advances being made. The deponent stated in somewhat open terms that all documents requested by the trustee were provided to the respondent (i.e., without identifying when this had occurred);
(e)following the trustee’s initial report to creditors given on 17 August 2021 and receipt of the respondent’s letter dated 18 October 2021, Voukidis Holdings sent to the trustee on 27 October 2021 notice of its objection to the transfer of the administration;
(f)the first meeting of creditors convened on 21 January 2022 was adjourned to 11 February 2022 so as to enable the respondent to undertake further investigations;
(g)Break Fast was ‘out of time’ to make its application for removal of the trustee as it had been aware of the claim by Voukidis Holdings since “at least the report to creditors on 17 August 2021, and certainly at the meeting held on 11 January 2022”;
(h)creditors had not been asked to consider Mr Pascoe as the proposed trustee;
(i)the respondent was willing to continue to act as trustee of the bankrupts’ estate;
(j)there was unlikely to be any return to creditors;
(k)Voukidis Holdings was giving consideration to “funding the bankrupts to make an offer to creditors, but will not do so if the relief is granted” (i.e., in this application);
(l)trustee’s fees (to date, of $83,276) would be duplicated if a new trustee was appointed.
As appears from Christos’ affidavit made on 20 May 2022, much that was contained in it was advanced by way of assertion or stated in conclusory terms and by way of submission. In the way in which the affidavit had been framed, the answer to whether the application was out of time was effectively presented as a self-fulfilling event.
On 23 May 2022, Break Fast filed its submissions together with two affidavits as to which:
(a)the first, deposed by its sole director, Gregory Taylor, recounted his involvement as director of Break Fast since 2011 and his instructions given to its solicitor in the conduct of various proceedings since 2014. Mr Taylor further deposed to being concerned that Break Fast would not receive any dividend from the bankrupts’ estate unless matters were properly investigated and that Break Fast remained “willing to fund a replacement trustee to undertake those investigations, but not Mr Sampson”;
(b)the second, by Break Fast’s solicitor, deposed to the receipt of the 12 documents sent to him on 24 January by the trustee after the first creditors meeting had been adjourned to investigate the admissibility of Voukidis Holdings’ POD.
The application was listed for hearing on Friday, 27 May 2022 and on that day the parties’ counsel made oral submissions in support of, or opposition to, the relief sought in the application. Having identified the evidence being relied upon, the relevant affidavits were read without objection, and no application was made to cross-examine any deponent.
On that date, I indicated that relief would be granted in the terms sought by Break Fast. The Court requested counsel to furnish chambers with a joint minute including as to costs. Although the matter was concluded before the luncheon adjournment, by late afternoon no minute had been received. However, in the course of closing addresses and before the Court adjourned to prepare written reasons for its decision, senior counsel for the applicant had furnished a copy of the sealed order pronounced in Pioneer Australia Pty Ltd v Bettles (Trustee of the bankrupt estate of Quinn) in which Derrington J had made orders pursuant to s 90-15 of the Insolvency Schedule for the removal and replacement of trustees of a bankrupt estate, including that the interveners pay the costs of that application.
Having waited for the provision of a minute, ultimately the Court prepared an order that was sealed and transmitted to the parties’ counsel. The transmission of that order resulted in a response from the intervener’s counsel suggesting that counsel were still “liaising regarding a form of order” including in relation to costs and that while he had understood the issue of costs would be decided on the papers, sought to be heard on this issue. As a result, counsel were informed that if the intervener sought to be heard on the question of costs, submissions should be filed without delay. Each party filed submissions that I have now considered.
Matters for investigation in the administration of the bankrupts’ estates
Break Fast expressed concern that it would not receive any dividend from the bankrupts’ estate unless the following matters were pursued by another trustee:
(a)whether the written 2010 loan agreement between Voukidis Holdings and the bankrupts was in existence at that time, or whether it had been created some years later;
(b)whether the loan agreement contained a ‘charging clause’ in respect to the Wyatt Avenue property;
(c)whether the transfer by the bankrupts of their 1003 of the 1004 issued ordinary shares in Voukidis Holdings on 5 August 2020 to ZV Asset Management for no apparent consideration was void against trustee in bankruptcy pursuant to s 120 of the Act;
(d)whether a deed of loan mortgage dated 31 March 2021 constituted a transaction that was void as against the trustee in bankruptcy pursuant to s 121 of the Act;
(e)whether the caveats lodged on 25 August 2020 and 27 May 2021 were maintainable;
(f)whether the bankrupts were indebted to Voukidis Holdings at the date of their bankruptcy for a sum in excess of $1.6M (or some other amount); and
(g)whether the bankrupts’ actions after 4 May 2020 had put their property beyond the reach of unsecured creditors and attracted the operation of s 120 of the Act.
Stated in other terms, these are the very matters which the current trustee has effectively declined to investigate further for want of any funds to do so.
Legislative framework
For the purposes of his application it is necessary to identify the legislative framework that governs the making of an application for the removal and appointment of a replacement trustee of a bankrupt estate including the time limitation which may apply to the making of such an application. It is also of some assistance to recognise the provisions which govern the acceptance of a debtor’s petition, the administration of a bankrupt estate and, in particular, those affecting the position of secured creditors and the rights of a secured creditor to realise or otherwise deal with its security to the exclusion of the process of administration of a bankrupt’s estate and from the property which is divisible amongst the creditors of the bankrupt estate. On the making of a sequestration order or the acceptance of a debtor’s petition which renders the estate of a debtor bankrupt, fundamental changes are effected to the status of the debtor. Equally fundamental changes are effected to the rights and entitlements of the body of unsecured creditors and, in particular, to pursue an entitlement for recovery of the full amount of a debt claimed against the bankrupt. Stated in other terms, “where a debtor becomes bankrupt, the particular statutory scheme of the Act is engaged for the administration of the estate of the bankrupt for the benefit of the creditors”: Barranbali Pty Ltd v Pioneer Australia Pty Ltd (2021) 285 FCR 365, [21] (Greenwood J). By contrast, the position of a secured creditor is, in general, unaffected by the event of bankruptcy.
Part IV of the Act addresses the subject, Proceedings in connexion with bankruptcy, is arranged in six divisions and comprises ss 40 – 76B. Within Div 2 of Pt IV, s 52 deals with proceedings and orders that may be made upon a creditor’s petition including the making of a sequestration order against the estate of a debtor. Within Div 3, ss 55-57A address Debtor’s petitions and provides by s 55(4A) that where a debtor’s petition has been accepted, the Official Receiver shall make an endorsement to that effect upon the petition whereupon the debtor shall become a bankrupt (by the combined force of that provision and the presentation of his or her petition). For the purposes of the Act, the term bankrupt is defined as meaning a person against whose estate a sequestration order has been made or a person who has become a bankrupt by virtue of the presentation of a debtor’s petition: Act, s 5.
Part VIII of the Act which concerns the subject, Trustees, is arranged in three divisions and comprises ss 156A – 184A. A registered trustee who has, by instrument, consented to act as the trustee of the estate of a debtor in the event that person becomes a bankrupt becomes, by force of sub-s 156AA(3), the trustee of that person’s estate at the time that he or she becomes bankrupt. The duties of a trustee include: determining whether the estate of the bankrupt includes property that can be realised to pay a dividend to creditors; reporting to creditors within three months of the date of the bankruptcy on the likelihood of creditors receiving a dividend before the end of the bankruptcy; determining whether the bankrupt has made a transfer of property that is void against the trustee; taking appropriate steps to recover property for the benefit of the estate; administering an estate as efficiently as possible by avoiding unnecessary expense; exercising powers and performing functions in a commercially sound way, and; each of the duties imposed on a trustee under Sch 2: Act, pars 19(1)(b)-(f), (j)-(l).
Division 4 of Part IV of the Act concerns the subject, Effect of bankruptcy on property and proceedings and comprises ss 58 – 63. Subject to the Act, where a debtor becomes a bankrupt, his or her property vests forthwith in the Official Trustee or the registered trustee who has become the trustee of the estate of the bankrupt forthwith, or, in the case of after-acquired property, as soon as it is acquired by, or devolves on, the bankrupt: Act, 58(1). Presentation of a petition may operate to stay legal proceedings against the debtor: Act, s 60.
Within Div 2 of Part VI, Order for payment of debts, by s 108 and except as otherwise provided by the Act, all debts proved in a bankruptcy rank equally and, if the proceeds of the property of the bankrupt are insufficient to meet them in full, they shall be paid proportionately.
Within Part VI, Div 3 addresses the topic, Property available for payment of debts. For the purposes of the Act, the term property is given an expansive definition: Act, s 5.
In Sub-div A of Div 3 of Pt VI, General, s 115 provides for the date upon which a bankruptcy commences (whether upon the petition of a creditor or the debtor). The subject, Property divisible amongst creditors, is addressed by s 116 which regulates extensively the identification of that property which does, and that which does not, constitute property divisible amongst the creditors of a bankrupt. Section 116 is to be read with s 58 which identifies that property which vests in a trustee upon the debtor. Critically, nothing in s 58 affects the right of a secured creditor to realize or otherwise deal with his or her security: Act, s 58(5): see also, e.g., s 54L. In Pt VI of the Act, further rights are conferred on secured creditors to prove in the bankruptcy, including so as to prove for any balance (i.e., shortfall) that may be due after the realisation of its security: Act, see, e.g., ss 90-91, 94.
The term secured creditor in relation to a debtor is defined by s 5 and reads:
secured creditor, in relation to a debtor, means:
(a)in the case of a debt secured by a PPSA security interest – the PPSA secured party in relation to the interest, if the interest:
(i) arose as a security for the debt; and
(ii)is perfected (within the meaning of the Personal Property Securities Act 2009); or
(b)in the case of any other debt – a person holding a mortgage, charge or lien on the property of the debtor as a security for a debt due to him or her from the debtor.
As noted, in this case, the applicant has put in issue whether and when any mortgage (i.e. security) was executed by either bankrupt and in any event whether and when such mortgage arose as a security for any debt of the kind relied upon by the intervener.
By ss 120-122 of the Act, provision is made to render void, as against a trustee in bankruptcy, certain transactions effected at undervalue, transfers that have a purpose of preventing property from becoming divisible amongst creditors of the bankrupt’s estate or transfers that have the effect of giving a creditor a preference, priority or advantage over other creditors.
Supervisory jurisdiction
Thus, the scheme of the Act “is to establish a regime for the orderly administration of the estate of a bankrupt” and, by the various provisions which vest the property of the bankrupt in the trustee, supplies a proof of debt process, provides mechanisms for identification of the property divisible amongst creditors and for recovering a transfer of property in the manner provided by ss 120-122, so as “to strike a balance between the interests of the creditors in the administration of the estate of the bankrupt ultimately leading, where possible, to a distribution of a dividend, and the interests of the bankrupt particularly with regard to 116(2) of the Act”: Barranbali Pty Ltd v Pioneer Australia Pty Ltd (2021) 285 FCR 365, [30]. Included in that regime is provision for supervision of a trustee’s administration of a bankrupt estate. The Act confers powers of supervision on both the Inspector-General and the Court.
The substantive issue raised in this proceeding concerns the application for orders that the respondent, being the trustee of the bankrupt estate of Mr and Mrs Voukidis, cease to be the trustee, and that another person be appointed as the trustee of that estate.
Within Div 5 of Pt VIII, provision is made for a trustee to resign from office with consequential provision being made for the nomination of a substitute trustee of the estate of a bankrupt: Act, ss 180-184A. In particular, by s 180, the Court may, subject to such terms and conditions as it thinks just, accept the resignation of a registered trustee from the office of trustee of an estate. Absent an affirmative step being taken by a trustee to resign, more broadly par 30(1)(b) of the Act confers power on the Court to make such orders as it considers necessary for the purposes of carrying out or giving effect to this Act in any case or matter. While the term, petition, is defined in s 5, no definition is provided for the terms case or matter.
Beyond the provisions made by ss 30 and 180-184A as may be employed where a trustee seeks to vacate his or her office, further provision is made by the Insolvency Practice Schedule (Bankruptcy) (Insolvency Schedule) which confers power on the Court to grant such relief as it thinks fit in the administration of an estate including by the making of orders that a trustee cease to hold that office and to appoint another person to act as the trustee of the subject estate.
The Insolvency Schedule, which has effect by force of s 4A of the Act, is a part of the Act: Acts Interpretation Act 1901 (Cth), par 13(1)(b). Objects of this schedule include that the administration of the estates of regulated debtors should be regulated consistently and in a manner that would give greater control to the creditors of the estate: Insolvency Schedule, s 1-1(2)(a)-(b). The recognition of those objects is of some importance in the consideration of the scope of the power conferred on the Court to make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate and relatedly the proper characterisation of a time limit imposed by the Insolvency Rules upon the making of certain applications for any order of the kind provided by s 90-15 including such order as the Court thinks fit under s 90-15(1) or of the kind described in ss 90-15(2) or 90-15(7) which, by extension would include any order open to be made under ss 30 or 33 of the Act.
In Barranbali Pty Ltd v Pioneer Australia Pty Ltd (2021) 285 FCR 365, at [32], Greenwood J considered Sch 2 to the Act to be entirely consistent with those considerations such that “The object of the schedule is to ensure consistency in the administration of regulated debtor’s estates and to give creditors greater control in the regulation of the administration of regulated debtors’ estates.” His Honour stated at [32] with reference to the entitlement conferred by Div 90 of the Insolvency Schedule that “the entitlement of such a person to apply to seek an order that a person cease to be a trustee of the estate and that another person be appointed as the trustee of the estate, is beneficial and enabling in the regulation of regulated debtors estates.”
The Insolvency Schedule is arranged in four Parts comprising Divisions 1-105 and, by Part 3, provides General rules relating to estate administrations which contain a number of duties that are imposed upon trustees including with respect to creditors meetings.
As concerns meetings by creditors of the estate of a bankrupt, Div 75 of Part 3 of the Insolvency Schedule, entitled Meetings of creditors, confers power on a trustee to convene meetings and obliges a trustee to do so in particular circumstances as, for example, when directed to do so by the creditors of the estate: Insolvency Schedule, ss 75-10 and 75-15: see also s 75-5.
As concerns the review of the administration of a bankrupt’s estate, Div 90 of Pt 3 of the Insolvency Schedule entitled Review of the administration of a regulated debtor’s estate is arranged in four subdivisions comprising ss 90-1 to 90-35. The term regulated debtor includes a bankrupt. The expression regulated debtor’s estate in relation to a bankrupt means, subject to an immaterial exception, the estate of that bankrupt: Insolvency Schedule, s 5-15(a), 5-16(a).
A simplified outline of Div 90 is provided in Sub-div A by s 90-1 and states that the Court may enquire into the administration of a regulated debtor’s estate either on its own initiative, or on the application of the Inspector-General or of a person with a financial interest in the administration of the regulated debtor’s estate. It further provides that the Court has wide powers to make orders, “including orders replacing the trustee . . .” Section 90-1 also provides that the creditors of a regulated debtor’s estate may remove the trustee of the estate and appoint another. Section 90-1 provides context for the ensuing provisions of Div 90.
Sub-division B of Div 90, Court powers to enquire and make orders, is comprised of ss 90-2 to 90-20. So far as material, s 90-5 reiterates that the Court is seized of power to act on its own initiative to enquire into the administration of a regulated debtor’s estate. Section 90-10 then provides that the Court may so inquire on the application of creditors and others.
Section 90-15 is entitled Court may make orders in relation to estate administration, and is examined in further detail below.
Insolvency rules
The Insolvency Practice Rules (Bankruptcy) 2016 (Cth) (Insolvency Rules) provides by s 105-1(1) for the making of rules by legislative instrument for matters required or permitted by the Act to be so provided for by such rules or as may be necessary or convenient to be provided in order to carry out or give effect to the Act.
The Insolvency Rules made under the Act are arranged in three Parts comprising rr 1-1 to 90-90. As relevant to the present application, Part 3 of the Insolvency Rules, General rules relating to estate administration, comprises Divs 60 to 90. Division 75 addresses the subject, Meetings, while Div 90 concerns the subject, Review of the administration of a regulated debtor’s estate. Division 80 is not relevant.
Division 75 of the Insolvency Rules is arranged in six subdivisions comprising rules 75-1 to 75-270 as follows: Preliminary (Sub-div A); Convening meetings (Sub-div B); Procedures at meetings (Sub-div C); Rules about proxies and attorneys (Sub-div D); Additional rules for particular kinds of estates (Sub-div E), and; Other rules about meetings (Sub-div F).
Within Sub-div C of Div 75, Procedures at meetings, the following rules may be noted:
(a)rule 75-50, Rules relating to meetings, provides that the Insolvency Rules may provide for and in relation to the meetings of creditors;
(b)par 75-50(2)(i) provide that the Insolvency Rules may provide for and in relation to voting;
(c)rule 75-80 provides that if a meeting of creditors is convened, the notice of meeting must state that each creditor must give the trustee a written statement in relation to the amount of its debt and in the manner provided by that rule;
(d)rule 75-85 regulates and constrains the entitlement of creditors, including secured creditors, to vote at a meeting;
(e)rule 75-90 requires the trustee to ensure that each creditor’s claim or proof of evidence bears evidence of its admission or rejection, the reason for such admission or rejection and the amount for which the claim or proof of evidence has been admitted;
(f)rule 75-95 enables a trustee, where necessary, to request a creditor to give evidence in writing in relation to a debt claimed by that creditor so as: to establish the liability of the regulated debtor for the debt and to identify the estate against which the claim should be admitted;
(g)rule 75-100 confers on the trustee authority to determine any question that may arise as to the entitlement of a person to vote. The authority is constrained by the requirements of par 75-100(2) which provides that in deciding upon the entitlement of a creditor to vote at a meeting, the trustee must have regard to the merits of the creditor’s claims and act impartially and independently without regard to the regulated debtor’s wishes;
(h)rule 75-145 requires that a trustee must, within 10 days after the end of a meeting of creditors cause minutes of the proceeding to be drawn up and entered in a record kept for that purpose and signed after they have been so entered.
Division 90 of the Insolvency Rules is arranged in four subdivisions: Review by Inspector-General (Sub-div A); Conduct of reviews by Inspector-General (Sub-div B), and; Application to court for review of administration (Sub-div C); Other matters (Sub-div D). As is immediately apparent and in contrast with the way in which Div 90 in the Insolvency Schedule is structured, Div 90 of the Insolvency Rules is primarily concerned with reviews by the Inspector-General. However, in Sub-div C of Div 90 in Part 3 of the Insolvency Rules, rule 90-80, Time limit on certain applications to Court for review, which applies to the making of certain applications under r 90-15. The text of r 90-80 of the Insolvency Rules is set out below.
Submissions
As in the case of the earlier proceedings before Sloss J, I accept real questions exist as to the execution of the 2010 loan agreement and mortgage including whether cl 3.1 of the loan agreement was effective to create a security interest. The notion that Mr and Mrs Voukidis would take out a loan for business purposes at such a late stage of life is itself questionable. Upon the evidence it may well be open to conclude that at least until May 2020 (being less than two years prior to the bankruptcy (i.e., 20 July 2021)), Voukidis Holdings did not have any security interest in the Wyatt Avenue property. Support for that conclusion may also be found from the reasoning of her Honour Rees J in Re Azmac Pty Ltd (in liquidation) (2020) 146 ACSR 113, [87]-[97]. As the analysis in that decision confirms, the circumstances of a particular transaction may demonstrate that a contract will not confer an immediate right of recourse to a property and may not create an equitable charge where no immediate proprietary interest or right of recourse to a particular asset has been conferred on the creditor. Upon the facts of the present case, it seems clear Voukidis Holdings did not advance $3M or any such amount on the date that the parties supposedly executed the loan agreement; namely, 1 October 2010.
Likewise, I am persuaded that the several impugned transactions, including the share transfers, may be void as against the trustee of the bankrupts estate. Whether or not that is so will be matters for consideration by the replacement trustee.
Subject to consideration of the intervener’s further submissions, I have concluded that Break Fast has made out its entitlement to relief under pars 90-15(3)(b)-(c) in the terms sought.
Grounds 3-4: Advantage/disadvantage of interested persons
By Grounds 3-4 of its grounds of opposition, the intervener stated its intention to oppose the application on two further bases that may be considered together:
3.Granting the Application is not to the general advantage of persons interested in the administration of the bankrupt estates of Peter and Kathy Voukidis (Administration No. NSW 1246 of 2021/3) (the Estate) including because:
a.the current trustee, David Henry Sampson, is willing to continue to act;
b.the current trustee, David Henry Sampson, continues to act with the benefit of the knowledge and experience previously gained during his administration of the Estate;
c.the current trustee, David Henry Sampson, has properly adjudicated on the relevant debts of the creditors of the Estate such that;
i. there is no demonstrable error in the adjudications;
ii. the adjudication is reasonably arrived at; and
iii. the adjudications occurred by way of proper processes; and
d.in circumstances where the (sic) is no dividend likely, and the matters complained of in the affidavit is supporting the application won’t add to the assets of the Estate, any investigations to be undertaken on the granting of the relief will not increase distributions to the person’s interested in the administration of the Estate.
4.Granting the Application is to the general disadvantage of persons interested in the administration of the Estate including because:
a.any further investigations or costs will reduce the distributions, if any, available to persons interested in the administration of the Estate; and
b.Further time taken upon the granting of the relief, including that the proposed trustee investigating to properly understand the present status of the Estate, will delay the progression of the Estate.
Each of Grounds 3-4 draw attention to considerations of the kind stated in pars 90-15(d)-(e) of the Insolvency Schedule as set out above.
Resolution
I do not accept that the willingness of the respondent to continue to act is a persuasive consideration against the exercise of discretion in this case. Irrespective of the knowledge gained by the respondent in the administration of the bankrupts’ estate to this point, objectively, the trustee was only appointed on 20 July 2021 and, has indicated his present inability (by reason of a lack of funds) to undertake the very investigations which Break Fast is prepared to fund and which Mr Pascoe is willing to undertake.
I reject the submission that the mere adjudication by the respondent upon the “proofs of debt for which no demonstrable error has been suggested” is fatal to the application. I was referred to no authority and can see no reason in principle why, for the exercise of discretion to remove a trustee, dispositive weight should attach in all cases to the manner in which a trustee had made a decision respecting the admission or rejection of a proof of debt for the purposes of voting at a creditors meeting (including the absence of demonstrable error in the manner of that adjudication). The reasoning in Borg v De Vries is contrary to that submission. As noted above, provisions such as s 90-15 of the Insolvency Schedule recognise that there may be a divergence of interest between creditors related to an insolvent person and other unsecured creditors: (2018) 16 ABC(NS) 399, [52], citing DSG Holdings Australia Pty Ltd v Helenic Pty Ltd [2014] NSWCA 96; (2014) 86 NSWLR 293 at [81] (Leeming JA, Meagher JA and Bergin CJ in Eq agreeing). The exercise of discretion should fall for consideration upon the unique facts and circumstances of each case. Self-evidently, factors which may attract particular weight in one case may be of greater or lesser significance in another.
Equally unpersuasive were the submissions that changing a trustee would disadvantage the administration of the estate by reason of further delay and cost. There is also little, if any, merit in the submission that the appointment of a replacement trustee would not advantage the estate as to do so “would not increase the prospects of a distribution from the estate” to unsecured creditors. Sole reliance upon the view first expressed by the trustee in his report to creditors that it was considered unlikely there would be a dividend to creditors says little if anything to the merit or prospects of success in pursuing the investigations identified by Break Fast including that the various impugned transactions may be void as against a new trustee.
For similar reasons, I reject the submission that the grant of relief to change the trustee would be to the disadvantage of the estate on the basis, as was said, that other creditors had voted against it. In this case, Break Fast appears to be the only unsecured creditor that is not related or otherwise connected to Christos Voukidis and/or others who are aligned with his interests.
I do not consider that any significant weight attaches to the parties’ competing submissions that no other unsecured creditor has objected to the grant of relief (as Break Fast contends), or conversely, that no unsecured creditor voted in favour of the motion for the replacement of the respondent as trustee of the bankrupts’ estate (as was contended for by the intervener). Whether or not those submissions be viewed as opposite sides of the same coin, in my view the substantive consideration is whether it is in the interests of the administration of the bankrupts’ estate to grant relief of the kind sought in all the circumstances.
Although it was faintly suggested that relief should be refused because none of the other creditors had been asked to consider the proposed replacement trustee, in my view this is an irrelevant consideration. I am fortified in this view in the circumstance that by the circular to creditors dated 5 May 2022, the respondent actively encouraged those creditors to give consideration to voicing their opposition to the application and yet they have not done so.
Further, I am unpersuaded that the present application is to be distinguished from the facts and circumstances of Bettles on the supposed basis that, as was said, here the respondent has undertaken a thorough investigation before admitting the proof of debt submitted by Voukidis Holdings over the strident objection of Break Fast. Relatedly, the intervener’s final submission against the grant of relief was that the application for the removal and replacement of the trustee was made by one, and only one, unsecured creditor. The submission was entirely divorced from the facts of Bettles. Something further should be said of the trustee’s memorandum dated 11 February 2022 that was read to the creditors meeting held on that date (see below).
Grounds 3-4 are rejected.
It follows that Break Fast is entitled to the relief sought.
Inquiry of the Courts initiative?
As noted, s 90-5(1) of the Insolvency Schedule confers power on the Court to inquire into the administration of a regulated debtor’s estate and for that purpose to require the provision of information, a report and documents. I have also referred above to the object in the Insolvency Schedule that creditors should have greater control in regulating the administration of a regulated debtors estate and that by par 75-100(2) of the Insolvency Rules, when deciding upon the entitlement of a creditor to vote at a meeting, a trustee must have regard to the merits of the creditor’s claims and act impartially and independently without regard to the regulated debtor’s wishes. Similar obligations are imposed by other provisions of the Insolvency Rules: see, e.g., rr 42-10, 42-55. The standards to be expected of registered trustees now found in Sub-div AA of Div 42 of the Insolvency Rules are of long-standing. So too is the expectation that the trustee of a bankrupt estate will be wholly independent of the bankrupt and creditors alike: see, e.g. Hankey; ex parte Kratzmann (1986) 11 FCR 512 at [5] (Burchett J).
In my view, some features of the trustee’s memorandum dated 11 February 2022 and his circular to creditors dated 5 May 2022 bear examination.
Without wishing to express any concluded findings about the matter, it may be that the views expressed in the trustee’s memorandum reflected his acceptance of arguments advanced by Voukidis Holdings as to the efficacy of its various loan agreements, mortgage and caveats and did so without there being any, or any sufficient, objective evaluation of the merit of the contentions being advanced on behalf of Break Fast against the acceptance of those matters. Viewed broadly, the tenor of many of the statements in the memorandum appear to accept the efficacy of those transactions or to discount reasons raised against them. The 2010 loan agreement and the obligations embodied in it are treated as a fact. The trustee’s concession that there may be “some doubt about the veracity of” the claim made by Voukidis Holdings appears to involve no active intellectual engagement by the trustee as to the merits of the contentions raised by Break Fast against acceptance of its claims.
The trustee accepted that no caveat had been lodged by Voukidis Holdings in 2010 to protect the purported interests created by the 2010 loan agreement and appears to have been dismissive of the fact that no such caveat was lodged until 25 August 2020 and again on 27 May 2021.
In a similar vein, the trustee appears to have been equally dismissive of the claims made respecting the transfer of 1003 of the 1004 issued ordinary shares in Voukidis Holdings and did so on the stated basis that he considered they will had no commercial value.
No consideration appears to have been given to the coincidental nature of the impugned transactions and the context in which they fell for consideration as against the judgments obtained by Break Fast and the institution of steps taken to bankrupt Mr and Mrs Voukidis.
The memorandum dated 11 February 2022 appears to accept, unquestioningly, the supposed execution of a mortgage over 10 ½ years after the 2010 loan agreement and despite this concluded none of these factors may have invalidated the charging clause in the loan agreement. More precisely, the trustee appears not to have considered that, in the absence of any advances, the charging clause may not have been engaged or that it was only engaged progressively to the extent of any such advances. For similar reasons, the trustee assumed that “Voukidis Holdings has held a charge over the Burwood property since 1 October 2010.”
No less surprising is the apparent disregard of the fact that it Voukidis Holdings claimed that Mr and Mrs Voukidis were indebted to it for substantial sums had only emerged very recently.
Similar observations may be made of the trustee’s circular to creditors dated 5 May 2022. While, at first sight, one might not be surprised to see the trustee of a bankrupt estate advising creditors in only general terms of the need to obtain legal advice, in the present case the trustee’s advice to creditors as conveyed in this circular may raise some matters of concern.
The respondent’s circular to creditors dated 5 May 2022 advised that in the absence of funding for the purposes of obtaining counsel’s opinion he would not undertake any further investigation into the admissibility of the POD lodged by Voukidis Holdings. In other statements made in that circular, the trustee advised he would abide the result of the application (and would not oppose it). Yet he suggested that the eight unsecured creditors who had represented 61% of the creditors voting against the motions might for that reason wish to consider intervening in this proceeding so as to voice their opposition to the application for his replacement. In particular, the respondent’s circular to creditors drew their attention to the decision of Derrington J in Bettles, stating:
I also draw your attention to the Federal Court judgment of Pioneer Australia Pty Ltd v Bettles as Trustee of the Bankrupt Estate of Quinn [2020] FCA 1788 (14 December 2020) in which, a number of creditors intervened to oppose the replacement of the trustee of a bankrupt estate. From my perusal of the subject judgment, the facts and circumstances detailed therein, appear to be rather similar to those in [the] bankrupt estate of Peter Voukidis and Kathy Voukidis.
In all of the circumstances, it strikes me as at least curious that having drawn the attention of unsecured creditors to that decision, the respondent did not see fit to inform them of the result of the application in that case; namely, that the trustee was removed and replaced.
I have reflected upon whether an available inference may be that Christos Voukidis had any active involvement in events leading to the preparation of the trustee’s memorandum dated 11 February 2022 or his circular to creditors dated 5 May 2022. Viewed broadly, just as Break Fast had made extensive submissions to the trustee, including against the acceptance of the POD lodged by Voukidis Holdings, it would seem unobjectionable that the trustee might take into account the competing submissions by that creditor.
However, on the evidence it seems clear that the steps taken for the presentation of the debtors’ petition, which included the nomination of the respondent as the trustee of their estate, occurred at the behest of Christos Voukidis. It seems equally clear that Christos has been actively engaged for over a decade in pursuing claims on behalf of the Voukidis interests including in the proceeding determined by Sloss J and in opposing the relief sought by Break Fast in various proceedings. With those matters in mind, I also note the evidence in this application supports a finding that the respondent has, at least for the most part, not conferred with the bankrupts; rather, he, or members of his firm, have had recourse to Christos Voukidis in obtaining information for the purposes of the administration of the bankrupt’s estate.
Given the protracted history of this matter I have reflected upon whether the impartiality and independence to be expected of the trustee of a regulated debtors estate – and in particular, the manner of preparation of the trustees memorandum and circular letter respectively – are matters about which the Court should conduct an inquiry. Having regard to the scope and purpose of sections 90-5, 90-10, 90-15 and 90-20 of the Insolvency Schedule, I have also reflected upon whether it would be to the benefit of the administration of this bankruptcy and to the administration of bankruptcy generally to inquire whether, and of the extent to which, Christos Voukidis had any involvement in the preparation of the memorandum dated 11 February 2022 and in promoting the respondent to recommend, by his circular notice, that other creditors give consideration to actively opposing the present application.
Although I might wish to allay any concern that the trustee has knowingly or unwittingly ‘done the bidding’ of Christos Voukidis and related unsecured creditors who had opposed the motions, I have concluded no useful purpose would be served in this case to do so. That is, at least in part, because a replacement trustee will be provided with the trustee’s working papers and will be in a position to confer with all interested parties, including Break Fast, in relation to the manner of the administration of the bankrupts’ estate since July 2021. It may well be that the parties’ resources are more usefully dedicated to the investigations that Break Fast has identified and promoted as being in the interests of all unsecured creditors of this estate. For the avoidance of doubt, I should be clear that the matters of concern I have identified may be readily answered by the respondent with the result that they can be put entirely to one side.
Costs
On 27 May 2022, the Court had the benefit of submissions of counsel for the applicant and intervener respectively. The Court indicated orders would be made substantially in the terms contained in the application. Senior counsel for the applicant indicated that a copy of the order pronounced by Derrington, J in Pioneer would be supplied to chambers. This occurred in circumstances where there had been discussion as to the necessity for any order or notation to be made recording the fact of the applicant having submitted and adduced evidence that it would provide the monies necessary to fund investigations. Senior counsel correctly submitted that in Pioneer, Derrington, J had recorded in the reasons for judgment that the applicant had adduced evidence and made submissions respecting its preparedness to fund investigations that were sought to be pursued by a replacement trustee in that case. Upon the basis of those submissions I indicated no order or notation as to these matters was required.
Having indicated I would grant the application, I considered it would be inimical to the orderly conduct of the administration of the estate to delay in the grant of the relief sought. For that reason, having stated that I would grant the relief sought in the application, I requested the parties to furnish minutes of a proposed order including as to costs. In that regard, I also stated that I would determine the issue of costs on the papers, doing so on an assumption that an order for costs would be opposed by the intervener. In the event, by mid-afternoon on Friday, 27 May 2022, no minute of order had been provided. In those circumstances, an order was prepared in chambers, sealed and copies were transmitted to the parties. Soon afterwards, counsel for the intervener responded expressing a belief that submissions as to costs were to be made before the issue of costs had been was decided. Although no statement to that effect was made by counsel during the course of the hearing, I determined the intervener should be afforded an opportunity to make any submissions as to costs if it was sought to do so.
In due course, the intervener filed submissions which were responded to by the applicant.
The intervener accepted that the Court had power to award costs and although the discretion to do so was unqualified, it was to be exercised judicially so as to ensure any order made was fair between the parties. It was submitted that as in Bettles, in an application made under s 90-15 for the removal of the respondent and replacement by a new trustee, the Court could not grant such relief without having gone through the process of confirming to its satisfaction that it would advance the administration of the bankrupts’ estate to grant the relief. Upon that basis it was said the Court could not have made such a decision at the first directions hearing and so, at worst, no order should be made against it for the costs of that directions hearing. Insofar as discretionary considerations were concerned, it was submitted that the respondent had done nothing wrong to warrant his removal; rather the fact of his being unfunded and so unable to undertake further investigation had been the catalyst for the application made under s 90-15.
Allied to this submission was the intervener’s reliance upon the time-bar erected by rule 90-80 of the Insolvency Rules and as being a further reason why costs should not be ordered. It is somewhat difficult to see why this was a relevant consideration to the exercise of discretion.
For Break Fast it was said, correctly, that it had succeeded in obtaining the relief for which it had applied and that it had done so over the opposition of the intervener, Voukidis Holdings. It was also observed that in the course of closing submissions, a copy of the sealed order made in Bettles had been provided and in which an order for costs of and incidental to the application had been made against the intervener. While I do not regard the exercise of discretion on an issue such as costs in another proceeding to be of any real assistance in the determination of an application for costs, the submissions made on behalf of Break Fast properly identified that: (1) inherent in the grant of relief sought by the application pursuant to s 90-15 of the Insolvency Schedule is a determination that it is desirable for the respondent trustee to be replaced in order that investigations for the benefit of the bankrupt estate can be undertaken; (2) the very subject matter of those investigations will be the asserted security interest and asserted debt of the intervener; that is, the opposition of Voukidis Holdings to the application involved its interest in taking steps to prevent or delay an investigation by a replacement trustee rather than for any other principled or altruistic motive; (3) stated in other terms, Voukidis Holdings was not an impartial creditor seeking to oppose relief for the benefit of a wider body of unsecured creditors; (4) upon the facts established by the evidence, Voukidis Holdings had been the principal creditor by value which had voted against the motion to replace the respondent and caused the vote to be lost on value and thereby effectively forced the making of the application; (5) finally, neither the trustee nor any other creditor had opposed the application.
Resolution
The Court’s principal power to award costs is found in s 30 of the Act which provides that a court may, in any proceeding before it, make such orders as to costs as it thinks fit. The power to award costs in relation to a proceeding, is inherently discretionary but is one that must be exercised judicially. Several provisions in Div 90 of the Insolvency Schedule provide that nothing in the applicable section serves to limit the Court’s powers under any other provision of the Act or under any other law: see, e.g. ss 90-10(4), 90-15(7). So too, s 90-20(2) of the Insolvency Schedule provides that where an application is made by a creditor on behalf of a committee, for relief under s 90-15 the reasonable expenses associated with the application are to be taken to be expenses of the administration of the estate. Whilst the present application is not of that kind (i.e. it is not made upon the resolution of a committee), these provisions in Div 90 inform the scope of the power conferred by s 30 and may support a conclusion that the power conferred by par 109(1)(a) to allow that certain costs be paid in first priority in the administration of a bankruptcy could be applied to an application under s 90-15.
I am persuaded by the submissions on behalf of Break Fast that strong justification exists for the exercise of discretion by the Court to make the usual order for costs in this case. Insofar as the intervener relied upon the respondent’s conduct and that he had done nothing wrong, the submission sought to conflate this conduct with the conduct of Voukidis Holidings.
Having afforded the intervener an opportunity to make submissions in relation to costs, I am not persuaded to depart from the view I had reached by the afternoon of 27 May 2022 where neither counsel had submitted any, or any joint, minute of proposed orders. It is also difficult to ignore that by its outline of submissions, the intervener had concluded with a submission that if the application was dismissed an order should be made that its costs of and incidental to the application should be paid by Break Fast.
Conclusion
For the foregoing reasons, orders were made on 27 May 2022 in the terms set out in these reasons. As stated on that date, having reached a clear conclusion in relation to the merits of the application and the submissions made in opposition, it appeared inimical to the objects of the Act and the orderly administration of the bankrupt estate to defer the pronouncement of orders until these reasons had been published. That said, the business of the Court has somewhat delayed the delivery of these reasons. I have reflected upon whether it would be appropriate to extend the time within which any appeal from the orders made on 27 May 2022 may be made but have concluded that any such extension is unwarranted. Insofar as it may be instructive, the delay in the delivery of these reasons approximated those in Borg v De Vries.
I certify that the preceding two hundred and five (205) numbered paragraphs are a true copy of the Reasons for Judgment of Judge A Kelly. Associate:
Dated: 28 June 2022
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