Carlos, Gayle Dorothy v Official Trustee in Bankruptcy
[1997] FCA 304
•14 Apr 1997
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
No QG 7119 of 1997
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND
RE: GAYLE DOROTHY CARLOS
EX PARTE:THE OFFICIAL TRUSTEE IN BANKRUPTCY
CORAM: SPENDER J
PLACE: BRISBANE
DATE: 14 APRIL 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
The amounts recovered by the Official Trustee under the indemnities for costs of litigation and other costs be distributed as follows:
$60,000.00 to the Deputy Commissioner of Taxation;
$4,000.00 to Mr W J Ware;
$3,000.00 to Mr K J Schulkins;
$2,976.00 to Mr T Moore;
$3,000.00 to Mr G J Moore;
$3,000.00 to Mr M J Schumacher;
$3,000.00 to Mr J Schumacher; and
$2,148.00 to Mr E G Evans
The balance of any funds in the estate after payment of the costs of the administration, including legal costs, to be distributed on a pro rata basis to the employees on account of their admitted claims for holiday pay.
The costs of and incidental to the application be the costs of the Official Trustee in the administration of the estate.
Note:Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
No. QG 7119 of 1997
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND
RE:GAYLE DOROTHY CARLOS
EX PARTE:THE OFFICIAL TRUSTEE IN BANKRUPTCY
CORAM: SPENDER J
PLACE: BRISBANE
DATE: 14 APRIL 1997
REASONS FOR JUDGMENT
This is an application on behalf of the Official Trustee in Bankruptcy as trustee of the property of Gail Dorothy Carlos, a bankrupt, for such orders pursuant to s 109(10) of the Bankruptcy Act 1966 (‘the Act’) as the court thinks just and equitable as to the distribution of the proceeds of property recovered by the Official Trustee in Bankruptcy (‘the Official Trustee’) pursuant to an indemnity provided by the first and second respondents.
The Official Trustee also seeks an order that the costs of the application be taxed and paid out of the estate of the bankrupt.
Gail Dorothy Carlos was declared bankrupt on 7 February 1990, pursuant to the presentation of a creditor's petition on behalf of the National Australia Bank Limited. The Official Trustee is a trustee of that estate.
The first respondent, the Deputy Commissioner of Taxation (‘the Deputy Commissioner’), is a creditor of the bankrupt’s estate in the sum of $91,946.00, of which there is a priority claim of $68,644.00 pursuant to s 109(1)(a) of the Act. The second respondent, William Joseph Ware, is an unsecured creditor in the amount of $16,283.00. The material suggests that he trades as “Ipswich Saddlery and Camping”.
Mrs Carlos was discharged from bankruptcy on 19 May 1993.
So far as the bankrupt estate is concerned, the total debts admitted to proof total $290,315.00. Before 23 August 1996 the Official Trustee and Donald Stanley Carlos owned land in Western Australia. There were extensive negotiations with Mr Carlos to achieve the realisation of the bankrupt's interest in the property.
A meeting of creditors of the bankrupt's estate was convened on 30 November 1992 to ascertain if any creditors would be prepared to fund legal proceedings to seek an appropriate order to appoint trustees for sale of that property. There were at that time insufficient funds in the estate to pay the anticipated legal costs of such an application, and the Australian Government Solicitor advised the meeting that the costs of such an application could be expected to be $5000.00.
The two creditors, the Deputy Commissioner and Mr Ware, were prepared to offer the necessary funds and indemnities to meet the anticipated costs of the application. Deeds of indemnity were executed on 6 May 1993 and 21 May 1993 respectively, and the creditors each paid $2,500.00 pursuant to those deeds. It is to be noted that in addition to the anticipated or likely costs, there were also indemnities given in respect of any undertakings that were necessary to be offered by the Official Trustee in connection with the litigation.
An application was made on behalf of the Official Trustee on 17 October 1995, seeking orders pursuant to s 129 of the Property Law Act 1974 for the appointment of trustees of sale of the property. On 26 August 1996 the property was sold for $290,000.00. Of that amount, $120,212.07 was received by the Official Trustee for his interest in the property.
Of the amounts of debts proved in the estate there is a priority payment to the Deputy Commissioner of $68,644.00. There is, in respect of the six former employees, a total amount of $17,124.00 owing for wages. This amount is made up of K.J. Schulkins $3000.00, T. Moore $2976.00, E.J. Moore $3000.00, M.J. Schumacher $3000.00, J. Schumacher $3000.00, and E.G. Evans $2148.00. Apart from Mr Evans, all of those former employees are owed various amounts by way of holiday pay.
The wages component has the priority attributed to it by s 109(1)(e), and the holiday payments are given priority pursuant to s 109(1)(g) of the Act.
There is currently the sum of $123,557.85 in the estate, and after disbursements for fees and other costs associated with the administration of the estate of $43,508.06, an amount of approximately $81,650.00 would be distributed in the ordinary way.
If the ordinary course were to be pursued in the present case, the Deputy Commissioner would receive the total of its priority payment and the sum of $13,000.00 would be remain for employees' wages.
In Re Clarke; Ex parte The Official Receiver (1981) 35 ALR 359, Sweeney J decided that, had the legislature intended to make the power of the court to give indemnifying creditors an advantage over other creditors also subject to s 221P and 221YU of the Income Tax Assessment Act 1936 (‘the ITAA’), it would have been simple to include that power in subsection (1) or to include the appropriate words in subsection (6).
His Honour concluded that the ordinary and natural meanings of the words in s 109 of the Act justified the conclusion that the power of the court to give an advantage to indemnifying creditors is not subject to s 221P and 221YU of the ITAA.
In Re Serra-Sanfelin; Ex parte the Official Trustee in Bankruptcy, (unreported, Lee J, 30 June 1988) his Honour said that:
“ ...each case must stand on its own facts and it is for the Court to weigh up all the circumstances including the amount of the risk run by the indemnifying creditors, the amount recovered, the proportion between the debts of indemnifying creditors and non-indemnifying creditors and any other matters considered to be relevant. In assessing the degree of risk, of course, the Court must be careful not to rely too strongly on the benefit of hindsight.”
In this particular case, I am satisfied that each of the indemnifying creditors did undertake a risk (although that risk was not major), and that they are entitled to some advantage.
The requirement that any order that the court makes be just and equitable is in this particular case difficult, since a large proportion of the estate consisted of a priority claim by the Deputy Commissioner.
The present position is that the provisions of the ITAA (referred to in s 109(1)(a) of the Act as it was prior to the 1996 amendments), do not apply to liabilities arising after 30 June 1993. While in the ordinary course Mr Ware would have received nothing as an unsecured creditor, it is necessary to give some recognition of his offer. In all the circumstances of this case, it seems to me fair to direct that the sum of $4000.00 be distributed to him as an indemnifying creditor out of the proceeds of the estate.
As to the position of the Deputy Commissioner, my initial view was that the sum of $55,000.00 would be just and equitable in the difficult factual circumstances of this case. But there is some force in the submissions made that, having regard to the amount of the priority claim of the Australian Taxation Office, such an order would effectively penalise the Deputy Commissioner.
I recognise the force of that submission. I order the Deputy Commissioner be paid, as an indemnifying creditor, the sum of $60,000.00.
That leaves a balance of approximately $17,500.00. Putting to one side any question of holiday pay, on my assessment, $17,124.00 of that amount is required to meet the amount of the priority claims of the employees' wages. I order that the balance of the two amounts that I have ordered to be distributed to the indemnifying creditors be paid, first, to the employees' wages in full, or, if the funds are insufficient for that, on a pro rata basis amongst the employees in respect of the amount of their priority claims.
If as I anticipate, there is a small surplus, that should be distributed to the employees pro rata, in the amounts of their priority claims for holiday pay.
The costs of and incidental to this application should be the Official Trustee's costs out of the estate.
The orders that I make in respect of the distributions are, of course, in respect of the property recovered as the result of the indemnities offered. I make that plain, because there is a difference between the amount of moneys in the estate and the amounts obtained in respect of the provision of the indemnities.
Of the amounts recovered by the Official Trustee under the indemnities for costs of litigation and other costs, there will be distributed the sum of $4000.00 to the indemnifying creditor, Mr Ware, and the sum of $60,000.00 to the indemnifying creditor, the Deputy Commissioner.
I order that the balance of the funds in the estate be paid, first, in respect of the six employees in their wages claims, referred to in paragraph 23 of the affidavit of Peter Thomas Moore filed 25 February 1997, in the following amounts: K.J. Schulkins, $3000.00; T. Moore, $2976.00; E.J. Moore, $3000.00; M.J. Schumacher, $3000.00; J. Schumacher, $3000.00; E.G. Evans, $2148.00. The balance of any funds in the estate, after payment of the costs of the administration, including legal costs, be distributed to the employees on account of their admitted claims for holiday pay on a pro rata basis.
The costs of and incidental to the application be the costs of the Official Trustee in the administration of the estate.
I certify that this and the preceding six (6 ) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.
Associate
Date: 14 April 1997
Solicitor for the Official
Trustee in Bankruptcy : Ms C Cameron of the Australian Government Solicitor
Mr E G Evans appeared in person for himself and the other former employees, namely, K J Schulkins, T Moore, E J Moore, M J Schumacher and J Schumacher.
Ms L Saarrimaki appeared in person for the Deputy Commissioner of Taxation.
Date of hearing : 14 April 1997
0
0
0