BRETT RICHARD GEOFFREY HARRISON AS TRUSTEE OF THE PROPERTY OF ROBERT JOHN CHARLES CATTO, A FORMER BANKRUPT

[2019] FCCA 2229

FEDERAL CIRCUIT COURT OF AUSTRALIA

IN THE MATTER OF BRETT RICHARD GEOFFREY HARRISON AS TRUSTEE OF THE PROPERTY OF ROBERT JOHN CHARLES CATTO, A FORMER BANKRUPT

[2019] FCCA 2229

Catchwords:

BANKRUPTCY – Bankruptcy Act 1966 (Cth) – Application under s.109(10) of the Bankruptcy Act 1966 (Cth) – applicant trustee in bankruptcy seeks an order that the remaining balance of property of the bankrupt estate as recovered by him be applied and paid to a nominated creditor in priority over the admitted debts of all other unsecured creditors – order made.

Legislation:

Bankruptcy Act 1966 (Cth), ss.81, 109, 120, 121

Family Law Act 1975 (Cth), s.79

Cases cited:

Woodgate, in the Matter of Eaton (a Bankrupt) [2010] FCA 550

Trustee:

BRETT RICHARD GEOFFREY HARRISON

Former Bankrupt:

ROBERT JOHN CHARLES CATTO

File Number:

SYG 820 of 2019

Judgment of:

Judge Dowdy

Hearing date:

26 July 2019

Delivered at:

Sydney

Delivered on:

26 July 2019

REPRESENTATION

Counsel for the Applicant:

Mr B. Skinner of Counsel

Solicitors for the Applicant:

Church & Grace

THE ORDERS OF THE COURT ARE AS FOLLOWS:

(1) Pursuant to s.109(10) of the Bankruptcy Act 1966 (Cth) order that the balance of the funds held by the Trustee of the bankrupt Estate of Robert John Charles Catto be paid to the proved creditor Dr John Cox in priority over the admitted debts of all other unsecured creditors, after payment of all the costs, charges and expenses of the administration of the bankruptcy in the priority fixed by s.109(1)(a) of the Bankruptcy Act 1966 (Cth).

1. FEDERAL CIRCUIT COURT

OF AUSTRALIA

AT Sydney

SYG 820 of 2019

Brett Richard Geoffrey Harrison As Trustee Of The Property Of Robert John Charles Catto, A Former Bankrupt

Applicant

REASONS FOR JUDGMENT

EX TEMPORE

(Revised from Transcript)

Introduction

1.      By Application filed in this Court on 11 April 2019 the Applicant, as Trustee of the bankrupt Estate of Robert John Charles Catto (Debtor), applies under s.109(10) of the Bankruptcy Act 1966 (Cth) (the Act) for an order that the remaining balance of the property recovered by him for the Estate be applied and paid in its entirety to Dr John Cox (Dr Cox) in priority to the admitted debts of all other unsecured creditors.

Background

2.      The Debtor lodged a Debtor’s Petition on 14 September 2009 and became bankrupt on that date, at which time the Applicant was appointed the Trustee of the bankrupt Estate.

3.      However, the Debtor had become aware at least in May 2009 of the intended bankruptcy proceedings against him based on substantial judgments against him in the Supreme Court of South Australia entered on 3 December 2008 and 10 March 2009, and on 30 July 2009 in the Local Court at Manly he entered into consent orders with his wife (Mrs Catto) under s.79 of the Family Law Act 1975 (Cth) (s.79 consent orders), under which various transfers of property were made which were favourable to Mrs Catto and to the financial disadvantage of the Debtor.

4. In short and in other words, the Debtor entered into an agreement with his wife which was disadvantageous on its face, in anticipation of his looming bankruptcy. Such arrangements are not at all uncommon. The Applicant carried out investigations of the Debtor’s affairs and in reports to creditors commencing as of 7 October 2009 noted the potentiality of proceedings for setting aside the s.79 consent orders between the Debtor and Mrs Catto.

5. I note that the Applicant also carried out certain examinations under s.81 of the Act into the Debtor’s affairs to prepare for litigation with respect to the setting aside of the s.79 consent orders and other matters. The Applicant then in his third report to creditors dated 15 April 2019 sought indemnity funding to enable him as Trustee to commence a number of proposed legal actions which were particularised in the report.

6. This report referred to the possibility of a priority order in favour of any indemnifying creditors under s.109(10) of the Act in a situation when creditors had provided funds. The Applicant approached litigation funders to obtain litigation funding, but to no avail. In the result, no creditor was prepared to advance funds to the Applicant except Dr Cox (who held 11.77 per cent of the total proved debts in the Debtor’s Estate) who entered into a funding deed with the Applicant on 25 August 2018 to effect that purpose and advanced $60,000 to the Applicant to fund legal costs which were expended in full, but which, I note, have subsequently since been repaid to Dr Cox.

7. The Applicant commenced a proceeding in the Family Court of Australia to set aside the s.79 consent orders and this proceeding was settled by deed dated 1 August 2011 between the Applicant, the Debtor, and Mrs Catto which resulted in some $349,000 being received by the Applicant for the Estate, which would not have been recovered but for Dr Cox’s funding of the Family Court proceeding. The Applicant’s administration of the Debtor’s Estate is at an end but for the present Application in this Court.

8.      The evidence before me establishes that each of the other creditors, have been told of the present Application and none have indicated opposition to Dr Cox receiving the final balance of the Estate which is likely to be some $30,000. This payment to Dr Cox will mean that the other creditors will receive nothing in the dollar in satisfaction of their debts, and that Dr Cox will receive approximately 3.2 cents in the dollar of the debt of $940,043.00 owing to him.

9.      In his helpful Written Submissions Mr Skinner of Counsel has referred me to the decision of Nicholas J in Woodgate, in the Matter of Eaton (a Bankrupt) [2010] FCA 550 where the principles applicable to an application under s.109(10) of the Act are set out and I am guided by that case in making the order sought in favour of Dr Cox.

10. He was the only creditor prepared to fund the proposed litigation and he took the risk that are associated with any litigation and in particular with applications under ss.120 and 121 of the Act and but for him no legal proceeding would have been commenced in the Family Court and no funds would have been received.

Conclusion

11.    Even now, when I make this order Dr Cox is not getting very much from his investment in the funding of the litigation under the funding deed with the Applicant.  I also note that the legal proceeding in the Family Court and the financial position of the Debtor were somewhat complex and that also is a consideration that I can take into account.  All in all, in the circumstances it is my view that it is fair, just and reasonable that Dr Cox have an order made in his favour and I will make it as sought by Mr Skinner.

I certify that the preceding eleven (11) paragraphs are a true copy of the reasons for judgment of Judge Dowdy

Associate: 

Date:  14 August 2019