Burke v Inspector-General in Bankruptcy
[2014] FCAFC 112
•3 September 2014
FEDERAL COURT OF AUSTRALIA
Burke v Inspector-General in Bankruptcy [2014] FCAFC 112
Citation: Burke v Inspector-General in Bankruptcy [2014] FCAFC 112 Appeal from: Burke v Inspector-General in Bankruptcy [2013] FMCA 2; (2013) 275 FLR 121 Parties: JOHN CHRISTOPHER BURKE v INSPECTOR-GENERAL IN BANKRUPTCY, ROBERT TOM, ROBYN ERSKINE and ANDREW SELLARS File number: NSD 334 of 2013 Judges: SIOPIS, FOSTER AND NICHOLAS JJ Date of judgment: 3 September 2014 Catchwords: APPEAL AND NEW TRIAL – whether appeal should be dismissed because the relief claimed by the appellant is of no utility.
BANKRUPTCY AND INSOLVENCY– whether, upon the true interpretation of s 155H(2) of the Bankruptcy Act, 1966 (Cth) (the Act), the word “convene” when used in respect of the committee referred to therein means “set up, form, appoint, establish or constitute” that committee or simply means “call or gather together” the members of such a committee at some point in time after such committee has already been appointed and established – whether the 60 day period prescribed by reg 8.34 of the Bankruptcy Regulations 1996 (Cth) as the period of time within which a committee appointed pursuant to s 155H(2) of the Act must decide whether a trustee should continue to be registered as a registered trustee under the Act or should cease to be so registered commences to run at the completion of the interview required by reg 8.30 of the Bankruptcy Regulations (or, perhaps, after a reasonable opportunity to attend such an interview has been given to the trustee) or, alternatively, commences to run when the committee contemplated by s 155H(2) of the Act has been appointed and established.
Legislation: Bankruptcy Act, 1966 (Cth) Part VIII esp. ss154A, 155, 155A, 155B, 155E, 155F, 155G, 155H, 155I and 155J
Federal Court of Australia Act, 1976 (Cth) ss 24, 25 and 27
Bankruptcy Regulations 1996 (Cth) regs 8.24, 8.25, 8.27, 8.28, 8.29, 8.30 and 8.34Cases cited: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564
Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334
Burke v Inspector-General in Bankruptcy [2013] FMCA 2; [2013] 275 FLR 121
NSX Ltd v Pritchard (2009) 178 FCR 151Date of hearing: 19 August 2013 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 100 Counsel for the Appellant: Mr JT Johnson Solicitor for the Appellant: Sally Nash & Co Counsel for the Respondents: Mr MJ Heath and Ms M Gaven Counsel for the Respondents: Australian Government Solicitor
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 334 of 2013
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
BETWEEN: JOHN CHRISTOPHER BURKE
AppellantAND: INSPECTOR-GENERAL IN BANKRUPTCY
First RespondentROBERT TOM
Second RespondentROBYN ERSKINE
Third RespondentANDREW SELLARS
Fourth Respondent
JUDGES:
SIOPIS, FOSTER AND NICHOLAS JJ
DATE OF ORDER:
3 SEPTEMBER 2014
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.The appellant pay the respondents’ costs of and incidental to the appeal.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 334 of 2013
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
BETWEEN: JOHN CHRISTOPHER BURKE
AppellantAND: INSPECTOR-GENERAL IN BANKRUPTCY
First RespondentROBERT TOM
Second RespondentROBYN ERSKINE
Third RespondentANDREW SELLARS
Fourth Respondent
JUDGES:
SIOPIS, FOSTER AND NICHOLAS JJ
DATE:
3 SEPTEMBER 2014
PLACE:
SYDNEY
REASONS FOR JUDGMENT
THE COURT
INTRODUCTION
On 28 February 2013, John Christopher Burke (the trustee) filed a Notice of Appeal from a judgment of a Federal Magistrate given on 8 February 2013 (Burke v Inspector-General in Bankruptcy [2013] FMCA 2; (2013) 275 FLR 121). The Federal Magistrate had dismissed an application by the trustee in which the trustee challenged the validity of a decision made by a delegate of the Inspector-General in Bankruptcy (the Inspector) pursuant to s 155H(2) of the Bankruptcy Act, 1966 (Cth) (Bankruptcy Act) to convene a committee to consider whether the trustee should continue to be registered as a trustee under and for the purposes of that Act. In his Application in the Federal Magistrates Court the trustee sought declaratory and injunctive relief against the Inspector and also against the individual members of the committee which the delegate had constituted.
The trustee’s appeal to this Court must be dismissed with costs. There is a question as to whether costs should be ordered on an indemnity basis. We shall return to this topic later in these Reasons.
There are two fundamental reasons why the appeal was always bound to fail.
First, by the time the appeal was instituted on 28 February 2013, the trustee had voluntarily surrendered his registration and the Inspector had accepted that surrender. These acts had the consequence that the trustee had ceased to be registered before he lodged his Notice of Appeal.
In light of those circumstances, this Court would never have granted any substantive relief to the trustee even if it had come to the view that the decision of the Federal Magistrate was wrong.
Second, for reasons which we shall shortly give, the claims for relief made in the Federal Magistrates Court were without merit with the inevitable consequence that the appeal was also without merit and would have been dismissed in any event.
THE VOLUNTARY TERMINATION OF THE TRUSTEE’S REGISTRATION AND ITS CONSEQUENCES
The evident purpose of the trustee’s application in the Federal Magistrates Court was to halt the Inspector’s investigation into the trustee’s fitness to continue as a registered trustee and to compel the Inspector to restart that process or even perhaps to encourage her to abandon it altogether. That investigation had commenced in 2011 although it had its origins in audits of the trustee’s performance carried out in 2005 and in the years between 2005 and 2011.
On 27 February 2013, the day before the trustee filed his Notice of Appeal in this Court, the Inspector received a letter from the trustee. On the same day, a delegate of the Inspector sent a letter to the trustee which was in the following terms (omitting formal parts):
REQUEST FOR VOLUNTARY TERMINATION OF REGISTRATION
I acknowledge your letter of 27 February 2013 seeking voluntary termination of registration as a registered trustee in bankruptcy.
Pursuant to sub-section 155G(2) of the Bankruptcy Act 1966 and under a delegation from the Inspector-General in Bankruptcy, I advise that your request is hereby accepted.
Please deliver your certificate of registration to this office within seven days.
The delegate’s letter was conveyed to the trustee as an attachment to an email despatched at 5.05 pm on 27 February 2013. There was no suggestion before us that the trustee did not receive and read that email and the letter attached to it at about the time that the email was sent.
Under s 155G(1) of the Bankruptcy Act, a registered trustee may give to the Inspector a written request that the person cease to be registered as a trustee. There is no dispute that the trustee gave such a request to the Inspector and that it was received by her on 27 February 2013.
Under s 155G(2), a registered trustee who gives such a request to the Inspector ceases to be registered as a trustee when the Inspector accepts the request. Here, the Inspector accepted the trustee’s request on 27 February 2013.
Thus, by reason of the matters described at [10] and [11] above, the trustee ceased to be registered as a trustee by no later than 5.05 pm on 27 February 2013. That state of affairs was brought about by his own voluntary act.
By 28 February 2013, when the current appeal was instituted, there was no possibility that any substantive relief would be granted to the trustee by this Court even if this Court considered that the Federal Magistrate had erred in his judgment. The trustee’s only purpose in bringing his application in the Federal Magistrates Court was to preserve the trustee’s status as a registered trustee under the Bankruptcy Act. Once he took steps voluntarily to terminate that registration there was no point in continuing with his case by instituting the present appeal.
Neither the trustee nor any of his legal representatives informed this Court of the fact that the trustee was no longer registered. Nor did the Inspector or her lawyers do so until one week before the hearing of the appeal. On 13 August 2013, in a Supplementary Written Submission filed on that day, the Inspector informed the Court, for the first time, that the trustee was no longer registered.
At the commencement of the hearing of the appeal, Counsel for the Inspector successfully applied to tender fresh evidence on appeal pursuant to s 27 of the Federal Court of Australia Act, 1976 (Cth) (Federal Court Act). That evidence comprised an affidavit affirmed by Mark George Edgar Findlay affirmed on 13 August 2013. By his affidavit, Mr Findlay proved that the trustee was no longer registered as a trustee having ceased to be so registered on 27 February 2013.
When asked by the Court to explain why the Court had not been informed long before 13 August 2013 of the fact that the trustee had ceased to be registered on 27 February 2013, Counsel who appeared for the trustee at the hearing of the appeal informed the Court that he could not explain it. Counsel told the Court that he personally had become aware that his client was no longer registered within a few days after 27 February 2013 but that he and those instructing him did not know of the Inspector’s letter dated 27 February 2013 when the appeal was instituted. Nonetheless, the legal representatives of the trustee must have known of the existence and contents of that letter by early March 2013 at the latest. Counsel gave no indication as to whether he knew that the trustee had requested to be deregistered at the time when the appeal was instituted. Of course, by the close of business on 27 February 2013, the trustee himself knew that he had requested the Inspector to terminate his registration and that the Inspector had agreed to do so.
Counsel for the trustee was then asked why he had not informed the Chief Justice at the Call-Over of the matter held on 17 April 2013 of the fact that the trustee had ceased to be registered. He said that he could not explain this omission either. He was then asked why he had not referred to this circumstance in his Written Submissions filed in support of the trustee’s appeal. To that, he said:
COUNSEL:I can’t explain that either. It’s an oversight on my part and it was a matter known to all parties, I should say except the Court at that time.
The Court then enquired of Counsel for the Inspector as to why the Inspector and her legal representatives had failed to inform the Court long before 13 August 2013 of the fact that the trustee had ceased to be a registered trustee on 27 February 2013. Counsel for the Inspector informed the Court that the Inspector had told her solicitor that the trustee was no longer registered soon after 27 February 2013 but that, because the person within his instructing solicitor’s office had then gone on extended leave, the information had not been passed on to him until 7 August 2013 and had not otherwise been acted upon until passed on to him.
The explanation given by the Inspector for failing to inform the Court soon after 27 February 2013 of the fact that the trustee was no longer registered is most unsatisfactory. However, it seems to us that what occurred was the result of an unfortunate lack of communication. It was an honest mistake.
No explanation for failing to inform the Court of the events of 27 February 2013 has been proffered by the trustee or his legal representatives. We conclude that no explanation can be given for this conduct. It seems to us that the silence of the trustee and his legal representatives during the period from 27 February 2013 to 13 August 2013 on this critical matter was not the result of an honest mistake. Rather, it seems to us that it was the result of a deliberate decision not to refer to the fact that the trustee was no longer registered for as long as possible. Why such a course of action was undertaken is difficult to comprehend or accept.
The impact of the trustee’s conduct and that of his legal representatives was made far worse by what occurred at the Chief Justice’s Call-Over on 17 April 2013. That Call-Over took place approximately seven weeks after the trustee had ceased to be registered. The Chief Justice was led to believe that there was an important question of principle involving the interpretation of the Bankruptcy Act at the heart of the appeal which also had implications for Corporations Law. His Honour was told that the appeal turned on the correct meaning to be given to the word “convene” in s 155H(2) of the Bankruptcy Act. His Honour indicated that, for that reason, he was minded to allocate three judges to hear the appeal. Counsel encouraged his Honour to do just that. His Honour was not told that the trustee had already ceased to be registered.
Had the Chief Justice been told that the trustee had already ceased to be registered, we have no doubt that his Honour would not have allocated three judges to hear the appeal. It would have been heard by a single judge as is the norm for matters of this nature (see s 24(1)(d) and s 25(1AA)(a) of the Federal Court Act). Had his Honour been told this, his Honour would undoubtedly have closely questioned Counsel as to why the appeal was being pressed at all and what the trustee hoped to achieve by maintaining the appeal. It is highly likely that, had the Chief Justice been dealt with frankly, he would have appreciated that the only reason that the appeal was being pursued, at least from the trustee’s point of view, was in order to gain some relief from the costs order made by the Federal Magistrate.
The Court was inappropriately prevailed upon to allocate three judges to the hearing of the trustee’s appeal when it was clearly a matter which did not warrant the allocation of such resources. In addition, the Court was denied an opportunity to case manage this appeal properly by the parties’ failure to inform the Court of an important fact. Most of the blame for this must be placed at the door of the trustee and his legal representatives.
Because the trustee had ceased to be registered as a trustee before the appeal was instituted, the appeal was futile from the start.
THE CORRECTNESS OF THE FEDERAL MAGISTRATE’S DECISION
The Trustee’s Claims in the Federal Magistrates Court
In his Application in the proceeding below (SYG 1136 of 2012) the trustee claimed:
1.A declaration that there has been no valid and effectual act on the part of the First Respondent [the Inspector] to convene a Committee pursuant to the provisions of s. 155H(2) of the Bankruptcy Act 1966 for the purposes of the envisaged meeting of the Committee the subject of notice issued by the [sic] Robert Tom on 9 May 2012 for 30 May 2012.
2.A declaration that the notice issued by Mr Robert Tom purporting to be a notice given by him as a member of a Committee appointed by the First Respondent pursuant to the provisions of s. 155H(2) of the Bankruptcy Act 1966 to enquire into the Applicant is of no force or effect for the purposes of Bankruptcy Regulation 8.30.
The trustee also sought an order releasing him from an undertaking given to the Federal Magistrates Court on 8 May 2012 in an earlier proceeding between the same parties (SYG 980 of 2012). We have set out the terms of that undertaking at [60] below.
In addition, the trustee sought orders restraining all respondents from continuing to proceed with the process of investigation and report under s 155H and s 155I of the Bankruptcy Act which was then under way. He also claimed indemnity costs.
A hearing took place before the Federal Magistrate on 17 October 2012 and on 14 December 2012. The Magistrate gave judgment on 8 February 2013.
It appears that, when the hearing in the Court below resumed on 14 December 2012, Counsel for the trustee argued that the inescapable conclusion which the Court should reach was that, on 8 or 9 May 2012, the Inspector had validly convened a committee pursuant to s 155H(2) of the Bankruptcy Act for the purpose of considering the trustee’s fitness to continue as a registered trustee. It was then submitted on behalf of the trustee that, in light of that circumstance, two consequences followed:
(a)The Inspector’s conduct was a breach of the undertaking given to the Court by her on 8 May 2012; and
(b)The committee so convened was, by 14 December 2012, functus officio.
(see the Federal Magistrate’s Reasons at [8]).
It was upon the basis of these new arguments that the Court below was urged to grant the injunctive relief in the form originally sought by the trustee in his Application. This was a fundamental change from the basis upon which that relief had originally been sought by the trustee.
The arguments which we have summarised at [29] and [30] above were founded upon the proposition that a committee had been validly convened whereas the declarations claimed by the trustee in his Application were based upon the exact opposite contention viz that no such committee had been validly convened. It appears that the trustee simply abandoned his claim for declarations in the form set out in his Application in the Court below without taking any steps to regularise this about face by seeking to amend his Application.
The trustee did not apply to amend his Application although the Federal Magistrate appears to have proceeded upon the basis that, by the time the hearing had concluded in December 2012, the trustee was arguing that a committee had been validly convened whereas the Inspector was contending for the opposite conclusion. The Federal Magistrate ultimately rejected the trustee’s arguments. The parties’ respective contentions on the question of whether a committee had been validly convened in April or May 2012 were later carried forward into their submissions made to this Court in the present appeal.
The Judgment of the Federal Magistrate
After reciting the facts (at [2] of his Reasons), the Federal Magistrate summarised the trustee’s claims (at [3]). He then moved to record and consider the parties’ respective submissions.
At [23], the Federal Magistrate said:
23.The evidence discloses some confusion among the members of the committee as to whether the committee had been convened or not. There is no doubt that the committee had been constituted by the appointment of its members. There is no doubt the committee had engaged in some communication. There is also no doubt that the committee had invited Mr Burke to attend the interview as required by regulation 8.30.
At [26], the Federal Magistrate held that, for the purposes of s 155H(2) of the Bankruptcy Act, a committee may be “convened” after it has been constituted (meaning after it has been established or set up). In doing so, the Federal Magistrate accepted a submission made on behalf of the Inspector and the committee members that the holding of an interview pursuant to reg 8.30 of the Bankruptcy Regulations 1996 (Bankruptcy Regulations) is a condition precedent to the convening of a committee for the purposes of s 155H(2) of the Bankruptcy Act (see, in particular, [21] and [26] of his Honour’s Reasons). His Honour went on to explain the process (at [26] and [27]) as follows:
26… Procedural fairness requires that the committee must conduct the interview required by regulation 8.30 with an open mind. That would be questionable if the committee had already commenced considering whether the trustee should continue to be registered. While not expressed in either the Bankruptcy Act or the Regulations, the practical operation of the de-registration provisions requires a two step process. First, if after requesting the written explanation pursuant to s.155H(1), the Inspector-General is dissatisfied with (or does not receive in the required time) the trustee’s response, the Inspector-General must constitute the committee for the purpose of possible future deregistration of the trustee. Secondly, if after the interview opportunity required by regulation 8.30 the Inspector-General remains dissatisfied, then the Inspector-General must convene the committee for the purposes of s.155H(2). It is from that point that the 60 day time limit runs.
27I conclude that on the best interpretation of the legislative provisions available to me, and regardless of what the parties may have previously thought, the committee has not yet convened and cannot convene until Mr Burke is given a fair opportunity to attend an interview pursuant to regulation 8.30.
His Honour then dismissed the trustee’s Application with costs.
The Grounds of Appeal
By his Notice of Appeal, the trustee specified the following grounds of appeal:
1.The learned Federal Magistrate erred in law in determining that, for the purposes of the exercise of powers of the Inspector-General in Bankruptcy under the provisions of s.155H(2) of the Bankruptcy Act 1966 that the Committee, comprising the Second Respondent, Third Respondent and Fourth Respondent may be “convened” after it has been constituted (Judgment para [26] and that the Committee had not convened and could not convene until after the Trustee had been given a fair opportunity to attend an interview provided for under Bankruptcy Regulation 8.30 (Judgment para [27]).
2.The learned Federal Magistrate ought to have determined having regard to the obligations imposed upon the Inspector General in Bankruptcy (the First Respondent) having the obligation to “convene” a committee under the provisions of s.155H(2) that on the facts of the particular case before him the Committee had been convened at the time that they communicated with each other on 8 or 9 May 2012 for the purposes of determining an appropriate time to invite the Appellant (Trustee) to attend an interview contemplated by the provisions of Bankruptcy Regulation 8.30.
In his Notice of Appeal, the trustee claimed the following relief:
1.The Orders of Federal Magistrate Driver made on 8 February 2013 be set aside.
2.A Declaration that the First Respondent (Inspector General in Bankruptcy) convene a Committee for the purposes of s.155H(2) of the Bankruptcy Act1966 comprising the Second Respondent, Third Respondent and Fourth Respondent to consider whether the Applicant should continue to be registered on 9 May 2012.
3. Costs including the costs of the Court below.
4.The proceeding be remitted to the Federal Magistrate’s Court of Australia constituted by Federal Magistrate Driver for determination in accordance with the declaration referred to in paragraph 2 above, and otherwise according to law.
5. Such further or other order as to the Court seems fit.
The Arguments on Appeal
The following submissions were made on behalf of the trustee:
(a)The requirement to “convene” a committee specified in s 155H(2) of the Bankruptcy Act is mandatory once the pre-conditions spelt out in that subsection are satisfied.
(b)The word “convene” when used in s 155H(2) is not used in the sense of convening a meeting. Rather, the word is directed to the appointment of a group of people as constituting the relevant committee for the purposes of s 155H(2) and succeeding subsections of s 155H and for the purposes of s 155I. This interpretation of the word when used in s 155H(2) is consistent with the ordinary English meaning of the word adopted by Lindgren J in NSX Ltd v Pritchard (2009) 178 FCR 151 at 155 [20].
(c)The process contemplated by s 155H – s 155J of the Bankruptcy Act is as follows:
(i)The relevant committee must be established for the purposes of those provisions;
(ii)The Chairperson of a committee must be the Inspector or such other person as may be appointed as such by her;
(iii)A committee appointed under s 155H(2) may make such enquiries as are reasonable for the purpose of making an informed decision or as the Chairperson of the committee believes are appropriate in order for the committee to have sufficient information to make the decision (reg 8.27(1) and (2) of the Bankruptcy Regulations);
(iv)Before making a decision that is adverse to a person, a committee must inform the person of any information or material that the committee relies on, or proposes to rely on, in making the decision and give that person a reasonable opportunity to reply to, or rebut, the information or material (reg 8.27(3)); and
(v)The committee must conduct an interview in accordance with regs 8.28, 8.29 and 8.30 of the Bankruptcy Regulations.
(d)It is only after a committee has been properly constituted that any person in the name of the committee can give appropriate notices requiring the trustee to attend for an interview. Under reg 8.34, a committee must decide a matter under s 155I(1) of the Bankruptcy Act within 60 days of being convened.
(e)On 9 May 2012, Mr Robert Tom sent an email to the trustee notifying him that the committee had rescheduled its interview with him to Wednesday, 30 May 2012. The sending of that email was in breach of the undertaking given to the Federal Magistrates Court on 8 May 2012.
(f)On the facts of this case, at 2.53 pm on 8 May 2012, Adam Toma convened a committee comprising Mr Tom, Ms Robyn Erskine and Mr Andrew Sellars under and for the purposes of s 155H(2) of the Bankruptcy Act in respect of the trustee.
(g)The action which constitutes a convening of a committee for the purposes of s 155H(2) is not the action of the Chairperson of the committee or any other member of the committee but is rather that of the Inspector or her delegate.
(h)Once the committee has been convened the committee must conduct itself in accordance with the Bankruptcy Act and the Bankruptcy Regulations.
It was submitted that, for all of the above reasons, the Federal Magistrate erred when he found that there had not been a convening of the committee in the circumstances of the present case.
In oral submissions made at the hearing of the appeal, Counsel for the trustee said that there was a typographical error in the trustee’s Notice of Appeal. In the declaration now sought on appeal (Par 2 of the trustee’s claims for relief), the word “convene” should read “convened ”. That is to say, the declaration now sought is a declaration as to a past state of affairs not a declaration as to a present obligation. As a result, the trustee now seeks a declaration from this Court which had never been sought in the Court below.
Counsel who appeared for the respondents at the hearing of the appeal made the following submissions:
(a)Two consequences follow from the circumstance that the trustee was no longer registered as such at the time he instituted the present appeal, namely:
(i)The declaration which the trustee seeks on appeal ought not be made because the trustee has no present real interest in the outcome of the Court’s determination of that question (Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at 356; and Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-582); and
(ii)The Court ought not to entertain the appeal merely to decide the question of costs.
(b)Once an interview with the registered trustee has been fixed and undertaken, the committee convenes for the statutory purpose (or matter) it is required to consider, namely, whether the trustee should continue to be registered. The committee does not convene until after the interview and the 60 day time limit does not run until the interview has been completed.
(c)The flaw in the trustee’s submissions in the present case is to elide or conflate the requirement to properly constitute the committee for the purposes of s 155H(2) and for that committee to meet to interview the trustee, on the one hand, with the requirement for the committee to formally convene for its statutory purpose (i.e. to consider whether the trustee should continue to be registered), on the other hand.
(d)Adam Toma, as a delegate of the Inspector, appointed or constituted a committee, pursuant to s 155H(2), for the purpose of considering the trustee’s fitness to continue as a trustee. The members were Mr Tom, Ms Erskine and Mr Sellars. Mr Toma did so on or about 23 April 2012, not 8 or 9 May 2012.
Consideration
The Relevant Facts
By letter dated 26 July 2011, from Mark Findlay, as a delegate of the Inspector, to the trustee (the show cause letter), Mr Findlay asked the trustee to give to the Inspector a written explanation in answer to the facts and matters set out in that letter. He also requested the trustee to provide reasons and arguments as to why he should be permitted to continue to be registered as a trustee under the Bankruptcy Act. In the show cause letter, Mr Findlay asserted that the trustee had failed to exercise properly his powers as a registered trustee, had failed to carry out properly his duties as a registered trustee and had failed to meet the standards required of a registered trustee. Mr Findlay drew the trustee’s attention to three particular administrations in respect of which he said that the trustee had fallen short of the standards required of him as a registered trustee. He said that, in each of the administrations specifically referred to, the trustee had failed to require the bankrupt to make income contributions in circumstances where he should have done so. In the show cause letter, Mr Findlay went on to traverse in detail earlier correspondence which had passed between the office of the Inspector and the trustee.
By letter dated 23 August 2011, the trustee responded to the show cause letter.
On 4 October 2011, Mr Findlay sent a further letter to the trustee. That letter was in the following terms:
COMMITTEE TO CONSIDER INVOLUNTARY TERMINATION OF REGISTRATION
I refer to my “show cause” letter to you of 26 July 2011 in respect to consideration of your involuntary termination as registered trustee and your response dated 23 August 2011.
I wish to advise that as a delegate of the Inspector-General in Bankruptcy I have concluded that it would be appropriate for a Committee to be formed to consider whether you should continue to be registered as a trustee in bankruptcy.
I had issued the letter dated 26 July 2011 because I had formed the belief that you did not have the ability to perform satisfactorily the duties of a registered trustee, had failed to exercise the powers, or carry out the duties of a registered trustee properly, and failed to comply with a Performance Standard for Trustees (“the Performance Standards”).
The letter referred to your admissions that you did not have the capacity to remain a trustee under your current arrangements.
In your response you indicated that there is to be a takeover of ‘The Business Physician Pty Limited’ by agreement with Alan Nicholls of Nicholls and Co; that the Business Physician will cease to take on any insolvency work; you will work for Nicholls and Co under the supervision of Alan Nicholls; all current files will be integrated into the Nicholls and Co insolvency management system (except two files involving current litigation) and all such current files will be reviewed at no cost to the bankrupt estate by processing files in the Nicholls and Co system. The administrations will be treated as new administrations and checked off against the Nicholls and Co comprehensive checklists.
These changes are supported. However, the difficulties you have had keeping abreast of your bankruptcy administrations go back at least six years. The show cause notice referred to various matters arising from the annual inspection of your administrations in April 2011. The previous inspections which took place in October 2008 and April 2009 revealed delays and deficiencies in carrying out a range of duties such as reporting to creditors and investigating bankrupts’ interests in house properties and investigating possible antecedent transactions.
Whilst the proposed arrangements with Mr Nicholls will relieve you of the majority of your caseload, I do not believe that you have the ability to perform satisfactorily your duties as a trustee, even if allied with Mr Nicholl’s practice. Regulation inspectors in July 2005 noted and expressed a concern that you lacked resources and support staff and you conceded that you were behind in your work, experiencing domestic problems. My predecessor said in the inspection report of 25 July 2005 “During the inspection you explained to my inspectors that family pressures ultimately caused you to leave BDO and establish your own practice. Although this circumstance goes some way in explaining why the estates were not administered correctly, it does not excuse the inaction.
As a result of the inspection, I have serious reservations as to whether you are able to properly administer the 16 active personal insolvency matters to which you have been appointed. Please advise within 7 days how you intend to rectify this situation. Possible solutions are to apply to the Court, pursuant to section 180 of the Act, to accept your resignation from the office of trustee for the active administrations. In that eventuality, the Official Trustee would become the trustee of the administrations, pursuant to section 160 of the Act. Alternatively, you may wish to transfer your files to another trustee using the streamlined method for replacing a trustee, described in section 181A of the Act.”
In your reply of 27 July 2005 to the inspection report, you described your difficult circumstances as an aberration. It now appears as no aberration. Some six years later, it appears that you have struggled on with no support staff and insufficient resources at great cost to yourself and with the result that the standard of administration generally as evidenced by the inspection reports over the last six years has been unsatisfactory. I conclude from this that you do not have the ability and acumen to remain a registered trustee. It is not simply a matter of inadequate resources. To carry on with inadequate resources in a state of semi-paralysis for so long reflects a lack of initiative and acumen. As an insolvency practitioner, you should be acutely aware of when a business has insufficient resources and the need for timely remedial action.
The Chairperson of the Committee will advise you in due course of the date time and location of your interview by the Committee and will make available to you a copy of all the evidence available to the Committee.
At 12.26 pm on 13 April 2012, Robert Tom sent an email to Matthew Osborne. At that time, Mr Osborne was the Principal Legal Officer at Insolvency and Trustee Service Australia (ITSA). Mr Tom was a Business Manager – Regulation & Enforcement in the Brisbane office of ITSA. He was also a delegate of the Inspector. That email was in the following terms:
Subject: Committee re section 155H for trustee John Burke
Matthew, confirming our conversation this morning.
I have been appointed to chair the committee on this matter. Mr Burke is a Sydney based trustee.
I am in the process of forming the committee and wonder if there might be someone available from your area to be the Australian Public Service member on the panel.
I expect the panel may be in a position to interview Mr Burke in Sydney in the week beginning 7 May.
Your assistance with this matter is appreciated and if you could let me know by Monday midday that would be great.
Regards
At 12.41 pm on 13 April 2012, Mr Tom sent an email to Denise North, who was at that time the Chief Executive of Insolvency Practitioners Association of Australia (IPAA). That email was copied to Mr M Murray at IPAA. That email was in the following terms:
Subject: Committee to consider ongoing registration of a trustee
Good afternoon Denise,
I am currently moving to form a committee which would consider the continued registration of a trustee, John Christopher Burke and am seeking your nomination as to an appropriate registered trustee to be a member of that committee.
Mr Mark Findlay [who] is the Business Manager of ITSA’s Regulation and Enforcement in our Sydney office issued a Show Cause letter to Mr Burke and has received a response from Mr Burke. As the delegate of the Inspector-General Mr Findlay has requested that a committee be convened to consider Mr Burke’s registration as a trustee. I have been asked to form that committee and be its chairperson.
The decision to form a committee was communication [sic] to Mr Burke in October 2011 and there has been some correspondence since that time between the Inspector-General and Mr Burke seeking to resolve the situation however the situation remains.
As you may know Mr Burke is currently located in Sydney.
I am also currently in contact with the Attorney General’s Department to recruit a third member to the committee.
In previous correspondence regarding the matter of trustee McDonald you put forward a number of names. One of those was Jason Bettles, a trustee with Worrell here in Queensland. If you are comfortable with that nomination I would be happy to have Mr Bettles on the committee.
Could you advise me if Mr Bettles is the IPA’s nominee or would you able to provide the name of another trustee so nominated.
Once the committee is formed I will dispatch to the trustee you have nominated the material provided to me and set a date for the committee to meet together and also with Mr Burke. I expect that that meeting would be in Sydney during the next month.
At 2.42 pm on the same day (13 April 2012), Mr Osborne sent an email to Mr Tom. That email was copied to Mr Andrew Sellars and Mr David Bergman. That email was in the following terms:
Hi Robert
Andrew has said he can assist with this Committee.
I will leave you two to liaise on the process/documentation.
Regards
Matthew
At 3.07 pm on the same day (13 April 2012), Mr Tom responded to Mr Osborne by way of a further email. This latter email was copied to Mr Sellars. This email was in the following terms:
Thank you Matthew, will be in contact with Andrew next week.
Robert
At 5.49 pm on 13 April 2012, Ms North responded to Mr Tom in the following terms:
I spoke to Robyn and she is happy to assist, subject to availability – are you able to give me some dates?
Many thanks
The person referred to as “Robyn” in Ms North’s email is Ms Robyn Erskine, an experienced insolvency practitioner.
On 23 April 2012, Mr Tom sent a letter to the trustee. That letter was in the following terms:
Committee to consider involuntary termination of Registration
I refer to Mr Tim Cole’s letter of 9 March 2012 and your correspondence in response dated 23 March 2012. I also refer to the correspondence of Mr Mark Findlay of 26 July 2011 (“the show cause letter”), your response of 23 August 2011 and finally Mr Findlay’s correspondence of 4 October 2011 in which he has advised that this matter has been referred to the Inspector-General to form a Committee which would consider your continued registration as a trustee. I have been appointed as the delegate of the Inspector-General to chair the Committee charged with considering whether you have breached the legislation relating to your duties and/or obligations as a trustee and if so what action should be taken, including considering whether you should continue to be registered as a trustee. The other committee members will be Ms Robyn Erskine, a registered trustee nominated by the IPAA and Mr Andrew Sellars, Legal Officer of the Insolvency & Trustee Service Australia, the Australian Public Service representative.
The committee once formed needs to set down a suitable time for you to attend for interview. I have set the date and time for interview to be 10.30am on Wednesday 9 May 2012 as a suitable date. Please advise if this is not a suitable date and time for you.
The interview will most likely be in the ITSA conference centre, Level 4, 201 Elizabeth Street Sydney. You may choose to be legally represented but this is not compulsory. Time will be allowed for you to make submissions and introduce any further information either in writing or orally and this includes any other parties who would like to put submissions on your behalf.
I will contact you next week to firm up your interview time and I will also forward to you documents to be provided to the committee by the ITSA delegate, on which the committee, along with submissions you may put at interview, will be basing its decision. Any additional information that the committee will consider will also be provided to you and you will have opportunity to comment or refute prior to any final decision being made.
The interview will be professionally recorded and a transcript will be provided to you as soon as it is available. You should note that pursuant to regulation 8.30 should you not attend at the agreed time, without reasonable excuse, the committee may proceed with its consideration of the matter. Can you also please contact me to advise who will be putting submissions to the committee on your behalf?
On the matter of the process that will be followed please note the following regulations apply:
[At this point in his letter, Mr Tom set out verbatim Regulations 8.24, 8.27 and 8.30 of the Bankruptcy Regulations]
Essentially the committee will be deciding whether subsections 155H(l)(aa), (f) and (g) of the Bankruptcy Act applies, namely whether you, as a registered trustee, “have the ability (including knowledge) to perform satisfactorily the duties of a registered trustee” whether you as trustee “have failed to exercise powers of a registered trustee properly or has [sic] failed to carry out the duties of a registered trustee properly; or” and finally whether as trustee you “have failed to comply with a standard prescribed for the purposes of subsection (5)”. You will be invited to put submissions on each point.
As stated these proceedings are to comply with regulations Part 8 of the Bankruptcy Act. The process is an inquisitional one not an adversarial one. It is both to provide you with an opportunity to further rebut or comment on the issues raised by Bankruptcy Regulation and to allow the Committee to seek clarification on issues and ask questions concerning your administrations and practices.
[Mr Tom then went on to explain the process that would be followed.]
Mr Tom sent a second letter dated 23 April 2012 to the trustee. In that letter, Mr Tom said that the committee had now been formed and that the interview required by reg 8.30 of the Bankruptcy Regulations was confirmed for 10.30 am on 9 May 2012.
At 12.18 pm on 24 April 2012, Mr Tom sent an email to Mr Sellars and to Ms Erskine. That email was in the following terms:
Subject: Committee to Consider Trusteeship of Mr John Burke
Good afternoon Robyn and Andrew
Thank you again for agreeing to be on this committee.
This committee has been formed, pursuant to section 155H of the Bankruptcy Act to consider whether the trustee, Mr John Burke should remain registered as a trustee. Mr Burke is a New South Wales trustee and is based in Parramatta in Sydney.
I have attached a copy of a letter which was sent to Mr Burke yesterday. You will notice from that correspondence that collectively we constitute the committee.
The letter of 23 April provides reference to the earlier relevant correspondence. All of that correspondence is contained in the folder of material which has been provided to you.
The correspondence of Mark Findlay of 26 July 2011 is what is generally referred to as a Show Cause letter and sets out a number of concerns held by Mr Findlay, as the delegate of the Inspector-General, regarding three issues. Those issues are;
1.That he may no longer have the ability to perform satisfactorily the duties of a registered trustee in accordance with sl55H(l)(aa) of the Act;
2.That he had failed to exercise posers [sic] of a registered trustee properly or has failed to carry out the duties of a registered trustee properly, in accordance with section 155H(l)(f) of the Act; and
3.That he has failed to comply with a standard prescribed for the purposes of subsection (5). Subsection (5) of section l55H states “The regulations may prescribe standards applicable to the exercise of powers, or the carrying out of duties, of registered trustees. This is in accordance with section 155H(l)(g) of the Act.
The letter of Mr Findlay dated 4 October 2011 is written in response to Mr Burke’s reply. It is through that correspondence that Mr Findlay referred the matter to committee. I appreciate that this matter has taken some time to get to the committee stage however you will notice some recent correspondence, at the beginning of the folder of material provided, between Mr Tim Cole of ITSA and Mr Burke which explains some of that delay.
It is generally the process that when the matter is referred from the Business Manager of Regulation i.e. in this case Mr Findlay to the Inspector-General to form the committee, several copies of all the material upon which the committee would rely is created and provided to each committee member and the trustee. That has been done to the extent that the material has been provided to you. Today I have also sent the material to Mr Burke.
As you will note from the letter of 23 April the interview with Mr Burke has been set down for Wednesday 9 May commencing at 10.30am. The interview will be conducted at our Sydney office which is situated at level 4, 201 Elizabeth Street Sydney. An appropriate room has been reserved and a professional audio recording service booked.
I have spoken with Mr Burke this morning and he is fine with the makeup of the committee and other details. He advised whilst he is suffering from ill health at the moment he will be available to attend the interview on 9 May. It may also be the case that he will be legally represented.
I had selected that 10.30am start as I thought it would be the most convenient for each of us however if that start time is not convenient of either of you please let me know and I will see if Mr Burke is available if I move it out to a 11am start time.
Robyn, I will also send you a copy of correspondence between the Chief Executive and Inspector-General Veronique Ingram and Denise North of the IPAA which sets out the basis on which trustees, such as yourself, will be reimbursed for participation on committees such as this.
Please let me know if you have any questions.
By 24 April 2012, Mr Tom believed that the Inspector (or her delegate) had established a committee to consider the trustee’s ongoing fitness to remain a registered trustee. The committee comprised Mr Tom, as Chair, Ms Erskine and Mr Sellars. The committee and the trustee had all agreed that the trustee would be interviewed as required by the Bankruptcy Act and Bankruptcy Regulations on Wednesday, 9 May 2012, at ITSA’s Sydney office.
In a letter dated 30 April 2012, Sally Nash & Co, lawyers, who had by then begun to act for the trustee, wrote to Mr Tom in his capacity as “Chairman of Committee”. This was a reference to the committee which had been established to consider whether the trustee should continue as a registered trustee. By that letter, Sally Nash & Co requested that a number of documents be provided to that firm.
On 3 May 2012, Sally Nash & Co again wrote to Mr Tom. By that letter, Sally Nash & Co sought a deferral of the trustee’s interview from 9 May 2012 to a date after the determination of a proceeding in this Court (Coshott v Coshott, NSD 1208 of 2009). The trustee had been appointed as the trustee of Mr Coshott’s bankrupt estate. Mr Coshott had brought proceedings against the trustee and others.
On 4 May 2012, the appellant commenced a proceeding in the Federal Magistrates Court of Australia (as that Court was then known) (proceeding SYG 980 of 2012) (the first proceeding).
The respondents named in the first proceeding were the Inspector, Mr Tom, Ms Erskine and Mr Sellars. By the first proceeding, the trustee sought orders requiring the respondents to specify the grounds upon which they intended to rely when they came to consider whether the trustee should continue as a registered trustee and the provision of various documents. He also sought interim orders that the time for Mr Tom, Ms Erskine and Mr Sellars “… to convene and determine the application under Section 155H(1) of the Bankruptcy Act … be extended until further order …” and an extension of the time by which those respondents were obliged to furnish their s 155H report until 60 days after the determination of the Coshott proceedings.
The first proceeding was made returnable before the Federal Magistrates Court on 8 May 2012 and was resolved on that day upon the following terms:
BY CONSENT, THE COURT ORDERS THAT:
1.The proceedings are dismissed with no order as to costs with the intent that each party pay their own costs of the proceedings.
2.The respondents undertake not to convene a committee pursuant to s.155H(2) of the Bankruptcy Act 1966 (Cth) (“the Act”) to consider whether the applicant should continue to be registered before 22 May 2012.
3.The applicant and the respondents acknowledge and accept that no committee pursuant to s.155H(2) of the Act has yet convened to consider whether the applicant should continue to be registered.
4.The applicant undertakes to the Court not to challenge or impugn any committee member of any committee to be convened in relation to the applicant pursuant to s.155H(2) of the Act that consists of Mr Robert Tom, Mr Andrew Sellars and Ms Robyn Erskine.
At 2.53 pm on 8 May 2012, which was after the first proceeding had been resolved in the manner we have set out at [60] above, Adam Toma sent an email to Mr Tom. That email was copied to Mr Findlay and to Mr Tim Cole. The subject matter of the email was said to be: “Committee to consider involuntary termination of registration – John Burke”. That email was in the following terms:
Hi Robert.
For the sake of completeness I confirm my verbal instructions and the appointment of the committee as constituted with you as Chair.
I confirm that I have sent you the relevant documentation for the Burke Committee following this appointment via registered mail. As chair, please continue to facilitate the process and keep me informed of developments.
Mark – please ensure that Robert receives all recent communication [sic] between ITSA (R&E) and Mr Burke.
Regards
Adam
At the time when he sent that email, Mr Toma was the National Manager Regulation and Enforcement of ITSA.
At 4.37 pm on 8 May 2012, Mr Tom sent an email to both Ms Erskine and Mr Sellars in the following terms:
Good afternoon Robyn and Andrew, please [sic] attached the Consent Order made by Magistrate Driver and the summary of the matters discussed below.
It has been agreed that the committee will not now convene and meet with Mr Burke prior to 22 May 2012.
There are two provisions of the Act which impose a time period on the committee;
1.Regulation 8.34 which says that the committee must decide the matter under subsection 155I(1) within 60 days of being convened.
2.Reg 8.31 which says that the committee must give a copy of its report (to the trustee and the Inspector-General) within 14 days of having made its decision.
…
Could you please advise me when it would be most convenient for you to meet in Sydney to interview Mr Burke, after 22 May. I am available at any time after that date.
Robyn, I note that you will be on leave toward the second part of June and we are not restricted to making a decision and finalising our report prior to that date. It could be that we do so however it is possible that we meet and interview Mr Burke prior to your leave and finalise our report after you return from leave. Whilst dealing with these matters promptly is important, there are also other factors which should also be considered.
I have recently been involved in a similar matter and the finalisation of the report can take some time.
Please let me know which dates, after 22 May, would be most suitable to you.
Having received those dates I will co-ordinate with Mr Burke to get this matter back on track.
At 2.40 pm on 9 May 2012, Mr Tom sent an email to Ms Erskine and Mr Sellars as follows:
Good afternoon Robyn and Andrew,
It appears that Wednesday 30 May is a date which suits each of us. However if things have changed please let me know.
I will contact Mr Burke and arrange that date with him.
At 2.56 pm on 9 May 2012, Ms Erskine sent an email to Mr Tom in the following terms:
I’m fine for the 30 May.
regards
At 3.33 pm on 9 May 2012, Mr Tom sent an email to the trustee in which he said:
Subject: Committee formed by the Inspector-General
Good afternoon Mr Burke
With reference to the Order made by Federal Magistrate Driver yesterday I would like to reschedule the Committee’s meeting with you to Wednesday 30 May 2012. The proposed time and place will remain as originally scheduled.
Would you please advise if this date is not suitable for you.
If I have not heard back from you by close of business Wednesday 16 May I will confirm that date with the other committee members.
Please contact me if you have any questions.
Regards
Decision
By the time final addresses were made in the Court below, the parties had agreed on the following matters:
(a)The Inspector, by her duly authorised delegate, Adam Toma, had appointed or constituted a committee comprising Robert Tom, as the Inspector’s representative and as Chair, Ms Robyn Erskine, as the IPAA’s nominee, and Andrew Sellars, a senior employee in the Australian Public Service, to consider and decide whether the trustee should be permitted to continue to be registered as a registered trustee under and for the purposes of the Bankruptcy Act pursuant to ss 155H to 155J of the Bankruptcy Act.
(b)That committee was appointed or constituted by Mr Toma some time between 23 April 2012 and 2.53 pm on 8 May 2012. The trustee contended that the committee was not actually appointed until 8 May 2012 whereas the Inspector argued for the earlier date. Thus, there was a contest at the hearing below as to when the committee was appointed.
On appeal, there remained an issue between the parties as to the precise date when the committee was appointed. The only other substantive issue on appeal concerned the meaning of the word “convene ” in s 155H(2) of the Bankruptcy Act.
The Federal Magistrate found (at [10], [11] and [23] of his Reasons) that the committee had been validly formed by no later than 3.30 pm on 9 May 2012 when Mr Tom sent his email to the trustee. He made no finding as to precisely when the committee was formed. His Honour thought that, in light of his interpretation of the word “convene” in s 155H(2), it did not matter whether the committee had been constituted on or about 23 April 2012 or on 8 or 9 May 2012. His Honour held that the act of appointing or constituting the committee was a separate and distinct act from the act of convening a committee under s 155H(2) and the Inspector, or her delegate, might convene a committee after it has been constituted.
Mr Toma gave evidence before the Federal Magistrate on 14 December 2012. He was cross-examined on that day. However, neither party pointed to any particular evidence given by him which might assist in pinpointing precisely when the committee was formed. The transcript of Mr Toma’s evidence was not provided to us. In any event, we think that the emails and letters to which we have referred at [52]-[66] above make the position clear.
We think that, when the emails and letters to which we have referred at [52]-[66] above are carefully considered, the correct inference to be drawn is that the committee was appointed or constituted by Mr Toma on or about 23 April 2012. The first letter dated 23 April 2012 sent to the trustee on that day (as to which, see [52] above where the letter is extracted) contains a number of statements which suggest that the appointment of the committee is imminent. The second letter sent on the same day is expressed in language which clearly indicates that, by the time that that letter was sent, the committee had been formed. The later emails of 8 and 9 May 2012 are not inconsistent with these observations. Nor is the circumstance that the respondents to the first proceeding gave an undertaking in the terms in which they did, given that they have apparently always thought that “appointing” a committee is different from “convening” a committee.
We now turn to consider the meaning of the word “convene” in s 155H(2) of the Bankruptcy Act.
Part VIII of the Bankruptcy Act deals with registered trustees. Division 1 deals with the procedure which governs a person’s initial application for registration as such a trustee. That initial application must be made in the approved form (s 154A(2)) and be accompanied by such information and documents as are prescribed by the Bankruptcy Regulations (s 154A(3)). After receiving a properly made application, the Inspector must “convene” a committee to consider the application (s 155(1)). That committee must consist of the Inspector, or her delegate, an APS employee and a registered trustee chosen by the IPAA (s 155(2)). The committee must consider the application and interview the applicant (s 155(3)). Within 60 days of interviewing the applicant, the committee must decide whether the applicant should be registered as a trustee or not (s 155A(1)). The committee may require the trustee to sit for an exam (s 155A(1A)). If the committee is satisfied that the applicant meets the criteria set out in s 155A(2), the committee must decide that the applicant should be registered. If the committee is not so satisfied, the committee may still decide to register the applicant (s 155A(3)). Section 155A(4) and (4A) set out certain factors which mandate a decision against registration. Section 155A(5) authorises the committee to impose conditions upon an applicant’s registration.
Sections 155B to 155F deal with, among other matters, the imposition and modification of conditions on any particular applicant. Under s 155E(1), a registered trustee may apply to the Inspector for a condition to be changed or removed. Under s 155E(4), the Inspector must “convene” a committee to consider any such application. Under s 155F(1), the committee must decide on any modifications to such conditions within 60 days of interviewing the applicant.
Thus, the 60 day time limits imposed under s 155A(1) and under s 155F(1) relate to the date when the applicant is interviewed in each case. The interview is compulsory (s 155(3) and s 155E(6)). The time limits commence to run when the interview is completed.
Section 155G governs the voluntary termination of registration.
Sections 155H and 155I govern the involuntary termination of a trustee’s registration. Those sections are in the following terms:
155H Consideration of involuntary termination of registration
(1)The Inspector-General may ask a registered trustee to give the Inspector-General a written explanation why the trustee should continue to be registered, if the Inspector-General believes that:
(a)the trustee no longer has a qualification or ability that is prescribed by the regulations made for the purposes of paragraph 155A(2)(a); or
(aa)the trustee no longer has the ability (including knowledge) to perform satisfactorily the duties of a registered trustee; or
(b)the trustee has been convicted of an offence involving fraud or dishonesty since registration as a trustee; or
(c)the trustee is not insured against liabilities that the trustee may incur, or has incurred, working as a registered trustee; or
(d)the trustee is no longer practising as a registered trustee; or
(e)the trustee has contravened any conditions imposed by the committee on the trustee’s practice; or
(f)the trustee has failed to exercise powers of a registered trustee properly or has failed to carry out the duties of a registered trustee properly; or
(fa)if the trustee is or was the administrator of a debt agreement—the trustee has failed to properly carry out the duties of an administrator in relation to a debt agreement; or
(g)the trustee has failed to comply with a standard prescribed for the purposes of subsection (5).
(2)If the Inspector-General does not receive an explanation within a reasonable time, or is not satisfied by the explanation, the Inspector-General must convene a committee to consider whether the trustee should continue to be registered.
(3)The committee must consist of:
(a)the Inspector-General; and
(b)an APS employee; and
(c)a registered trustee chosen by the Insolvency Practitioners’ Association of Australia (A.C.N. 002 472 362).
(4)In considering whether the trustee should continue to be registered, the committee must take into account the matters mentioned in paragraphs (1)(a) to (g).
(5)The regulations may prescribe standards applicable to the exercise of powers, or the carrying out of duties, of registered trustees.
155IDecision on involuntary termination of registration
(1)The committee must:
(a)decide that the trustee should continue to be registered; or
(b)decide that the trustee should cease to be registered.
(2)The committee may decide under paragraph (1)(a) that:
(a)the trustee should continue to be registered unconditionally; or
(b)the trustee should continue to be registered on the condition that:
(i)the trustee meets specified conditions; or
(ii)specified conditions are imposed on the trustee’s practice; or
(iii)specified modifications are made to conditions on the trustee’s practice.
(3)The committee may decide under paragraph (1)(b) that:
(a)the trustee should cease to be registered unconditionally; or
(b)the trustee should cease to be registered if the trustee fails to meet specified conditions.
(4)The committee must give the trustee and the Inspector-General a report of its decision relating to the application, and the reasons for the decision.
(5)The trustee may apply to the Administrative Appeals Tribunal for review of the committee’s decision.
(6)The Inspector-General must give effect to the committee’s decision.
There is no mention in these sections of any requirement for an interview or any particular period of time within which the committee is obliged to complete its task.
Part 8, Division 6 of the Bankruptcy Regulations deals with the variation and termination of the registration of registered trustees. Subdivision 2 governs the constitution and procedure of committees generally. Regulations 8.24 and 8.25 provide:
8.24 General procedures of a committee
(1)Subject to the Act and this Division, a committee may determine its procedure.
(2)A committee must observe natural justice.
(3)A committee is not bound by any rules of evidence but may inform itself on any matter as it sees fit.
(4)A committee must keep a written record of its decisions.
8.25Procedure at committee meetings
(1)Subject to this regulation, all members of a committee must be present in order to constitute a quorum for a meeting of the committee.
(2)At a meeting of a committee a matter is to be decided by a majority of the votes of the members.
(3)Any member may participate in a meeting by telephone.
(4)A member who participates in a meeting by telephone is taken to be present at the meeting.
(5)A member who participates in a meeting by telephone is taken to be present at the meeting.
Subdivision 3 deals with inquiries and interviews. Regulations 8.27 and 8.30 are in the following terms:
8.27Inquiries by the committee
(1)A committee considering an application may make inquiries of any person for the purposes of making a decision under subsection 155F(1) or 155I(1) of the Act.
(2)Inquiries made must be:
(a)inquiries that are reasonable for the purpose of making an informed decision; or
(b)inquiries that the Chairperson of the committee believes are appropriate in order for the committee to have sufficient information to make the decision.
(3)Before making a decision that is adverse to a person, a committee must:
(a)inform the person of any information or material that the committee relies on, or proposes to rely on, in making the decision; and
(b)give the person a reasonable opportunity to reply to, or rebut, the information or material.
…
8.30Involuntary termination of registration—interview
(1)If the Inspector-General is required under subsection 155H(2) of the Act to convene a committee to consider whether a trustee should continue to be registered, the Inspector-General or authorised employee on the committee must, after consultation with the other members of the committee:
(a)fix a date, time and place for the interview; and
(b)give written notice of that date, time and place to the trustee and the other members of the committee.
(2)The committee must interview the trustee as soon as practicable and, for that purpose:
(a)any member of the committee may participate in the interview by telephone; and
(b)the trustee may participate in the interview by telephone.
(3)A member, or trustee, who participates in an interview in accordance with paragraph (1)(a) or (b) is taken to be present at the interview.
(4)If the trustee fails to attend, or participate by telephone in, the interview and does not, within 7 days, give the committee a reasonable excuse for that failure, the committee may proceed with its consideration of the matter.
(5)If an trustee who fails to attend, or participate by telephone in, an interview gives the committee, within 7 days, a reasonable excuse for that failure, the committee must arrange another interview date, time and place.
Regulations 8.28 and 8.29 are not presently relevant.
Regulation 8.34, which is in Subdivision 4, provides that a committee must decide a matter under s 155I(1) of the Bankruptcy Act within 60 days of being convened.
A committee which is established for the purpose of considering whether a registered trustee should continue to be registered must comply with reg 8.27 and must conduct an interview with the relevant trustee in accordance with reg 8.30. Notwithstanding that such an interview is mandatory, the 60 day time limit prescribed by reg 8.34 begins to run when the committee is convened. This stands in contradistinction to the position in respect of the initial application by trustee applicants. An initial application must be decided within 60 days of the completion of the interview required by s 155(3) (s 155A(1)).
In the relevant provisions of the Bankruptcy Act and the Bankruptcy Regulations, there is a distinction made between the event or circumstance which triggers the 60 day time limit under s 155A(1) and s 155F(1) and the event or circumstance which triggers the 60 day time limit under reg 8.34. This distinction should be understood as having been deliberately made. Had the legislature intended that the event which is intended to trigger the 60 day time limit under reg 8.34 is the completion of the relevant interview, it could easily have said so. After all, it did specify that very event in respect of the 60 day time limit provided for in s 155A(1) and in s 155F(1).
It follows, we think, that the triggering event for reg 8.34 purposes is not the completion of the prescribed interview. It is some other event or circumstance. That event is defined as the convening of the committee under s 155H(2).
In s 155, the word “convene” is used in the active voice, just as it is in s 155H(2). It is the Inspector who must convene the committee in both cases.
A fair reading of ss 154A to 155G reveals that the very first step which must be taken after receipt of a properly made application is the “convening” of a committee (s 155(1)). We think that “convene”, when used in s 155(1), means “set up, form, appoint, establish or constitute”. That is why s 155(2), the very next subsection, addresses the composition of the committee and why the succeeding sections address the powers and functions of the committee once formed. We note that the committee itself has a general power to determine its own procedures (reg 8.24(1)).
In similar vein, if the inspector has sought a written explanation from a registered trustee under s 155H(1) and does not receive an explanation within a reasonable time, or is not satisfied with the explanation provided by the trustee, the next step which must be taken is to convene a committee. Only then can the committee perform its statutory functions under s 155H(4) and s 155I. Only then can it conduct the prescribed interview. We think that the word “convene” in s 155H(2) has the same meaning as it bears in s 155(1).
We do not find the reasoning of the Federal Magistrate at [26]-[27] of his Reasons at all persuasive. We do not agree that, if the committee has been “convened” within the meaning of s 155H(2), it cannot approach the prescribed interview with an open mind. The structure of s 155H proceeds upon the basis that the Inspector has not received an explanation or is not satisfied with the explanation which has been received. The Bankruptcy Act itself contemplates that the Inspector, or her delegate, will Chair the committee which has been convened under s 155H(2).
In addition, in the last sentence of [26] of his Reasons, the Federal Magistrate has effectively redrafted s 155H(2) by removing the actual language used to express the preconditions to action on the part of the Inspector and replaced them with:
If, after the prescribed interview has taken place or after a reasonable opportunity has been given to the trustee to attend such an interview, the Inspector remains dissatisfied with the trustee’s response to her s 155H(1) request, then [the Inspector must convene a committee] …
This approach is not warranted. It does unnecessary violence to the plain language of s 155H(2).
It follows that, on the point of principle, we do not accept the submissions made on behalf of the respondents to the appeal.
In the present case, the committee was “convened” in the sense of “formed (etc)” on or about 23 April 2012 and was, therefore, by reason of the operation of reg 8.34, obliged to decide whether the trustee should continue as a registered trustee by no later than 22 June 2012.
It is clear that the committee did not decide the matter which it was called upon to decide within the prescribed time. It is also clear that the reason that it did not do so was because the trustee had instituted the proceeding in the Court below from which the present appeal has been brought. At all times until December 2012, the trustee was claiming that the appointment of the committee was fundamentally flawed. The trustee’s conduct in commencing the proceeding below was calculated to frustrate the deregistration process and was successful in doing so for some considerable time.
By December 2012, the trustee had changed his case from one where he was alleging that no committee had ever been properly constituted to one where he alleged that the committee had been properly constituted but was now functus officio. But the trustee never sought to amend his claims for relief to reflect this change of position. Notwithstanding this about face, the trustee continued to seek relief in the terms of his Application as filed. This much is clear from the summary of issues given by the Federal Magistrate at [3] of his Reasons. The trustee did not seek in the Court below a declaration in the form of the declaration which he now seeks on appeal. For these reasons, even though we think that the Federal Magistrate erred in his reasoning, we do not think that he erred in dismissing the trustee’s Application with costs. There was no basis upon which the relief sought by the trustee could have been granted.
In his Notice of Appeal, the trustee sought an order remitting the matter to the Court below. When the futility of such a course was drawn to the attention of Counsel for the trustee, that claim for relief was quickly abandoned. Further, in his submissions in reply, Counsel also abandoned the trustee’s claim for costs in the Court below and informed the Court that his client would accept an order setting aside the order for costs made by the Federal Magistrate and an order made in lieu thereof to the effect that there be no orders as to the costs of the proceeding below. Since the trustee’s desire to improve his position in respect of costs appears to have been the only reason that this appeal was ever instituted, this was yet another significant shift in the trustee’s position.
COSTS
This appeal should never have been brought. We cannot help but think that it was only ever instituted and maintained for the sole purpose of endeavouring to overturn the Federal Magistrate’s costs order or, alternatively, to create leverage with a view to compromising that order. The appeal was always bound to fail because it was futile. It was futile even if the point of statutory construction was decided in favour of the arguments now pressed upon the Court by the trustee.
The history of the litigation between the trustee and the respondents does the trustee and his legal representatives no credit. On the other hand, the Inspector must bear some responsibility for what has occurred. She failed to alert the Court at the earliest opportunity of the fact that the trustee had surrendered his registration and, more importantly, advocated in the Court below and before us a construction of s 155H(2) which is untenable.
Costs should follow the event. We have considered whether an indemnity costs order against the trustee might be appropriate. However, although the trustee was culpable, we cannot overlook the fact that, had the Inspector conducted her case differently both in the Court below and before us, matters would not have unfolded in the unsatisfactory way in which they did. We therefore think that the order for costs should be on the party/party basis.
We do not propose to interfere with the costs order made by the Federal Magistrate in the proceeding below.
CONCLUSIONS
The appeal will therefore be dismissed with costs.
I certify that the preceding one hundred (100) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Siopis, Foster and Nicholas. Associate:
Dated: 3 September 2014
Key Legal Topics
Areas of Law
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Insolvency Law
Legal Concepts
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Appeal
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Bankruptcy Act 1966 (Cth)
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Voluntary Termination of Registration
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