Carrafa (Trustee), in the matter of Pithers (Deceased)

[2024] FedCFamC2G 208

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 2)

Carrafa (Trustee), in the matter of Pithers (Deceased) [2024] FedCFamC2G 208

File number:

MLG 202 of 2024

Judgment of:

JUDGE FORBES

Date of judgment:

6 March 2024

Catchwords:

BANKRUPTCY - distribution of final dividend where bankrupt estate fails to file statement of affairs – where no personal representative - where principal creditors known – where funds recovered to meet proven debts – where other creditor claims unlikely – application by trustees for court to approve dividend – relevant considerations – relief granted

Legislation:

Bankruptcy Act 1966 (Cth) ss 19, 140, 145, 146, 147, 246, 252A

Cases cited:

Barnet (Trustee), In the matter of Zhang (Bankrupt) v Zhang [2017] FCA 924

Clout (Trustee), In the Matter of Warren (Bankrupt) v Warren [2023] FCA 755

Juratowitch (in his capacity as Trustee) v Capar [2017] FCCA 2669

McLean (Trustee), in the matter of Erbas (Bankrupt) v Erbas [2019] FCA 1763

Owners Corporation PS334337A v Hoiles [2012] FMCA 2018

Quin as Trustee of the Bankrupt Estate of Philip Chill [2020] FCCA 2652

Re Sturt; Ex parte Official Trustee in Bankruptcy [2001] FCA 1649; (2001) 117 FCR 1

Sutherland v Estate of Ek Kiang Oey [2015] FCCA 1980

Division:

Division 2 General Federal Law

Number of paragraphs:

44

Date of hearing:

5 March 2024

Place:

Melbourne

Solicitor for the Applicant:

Aitken Partners

ORDERS

MLG 202 of 2024

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)

IN THE MATTER OF IRENE GLADYS PITHERS (DECEASED)

MICHAEL CARRAFA AND FABIAN KANE MICHELETTO (IN THEIR CAPACITIES AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF IRENE GLADYS PITHERS)

Applicants

ORDER MADE BY:	JUDGE FORBES
DATE OF ORDER:	5 MARCH 2024

THE COURT ORDERS THAT:

1.Subject to the steps below being taken by the Applicants, pursuant to section 146 of the Bankruptcy Act 1966 (Act), the Applicants distribute all relevant dividends amongst the creditors who have proved their debts in the bankrupt estate of the late Irene Gladys Pithers (Bankrupt) and shall proceed in accordance with Division 5 Part VI of the Act as if the Bankrupt had filed a statement of her affairs and those creditors had been stated to be creditors in it:

(a)a Notice of Intention to Declare a First Dividend in the bankrupt estate of the Bankrupt be published in the Australian and Herald Sun newspapers; and

(b)no distribution is to be made until 21 days have elapsed after publication of the last of the notices.

2.The costs of this application be expenses in the administration of the Bankrupt’s estate.

Note: The form of the order is subject to the entry in the Court’s records.

Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).

REASONS FOR JUDGMENT

JUDGE FORBES

INTRODUCTION

1. The applicants are the trustees (Trustees) of the bankrupt estate of the Late Irene Gladys Pithers, who is deceased (Bankrupt). The Trustees have applied to the Court for orders pursuant to section 146 of the Bankruptcy Act 1966 (Cth) (the Act) permitting them to declare and distribute a first and final dividend amongst creditors who have proved their debts in the Bankrupt estate (Bankrupt Estate).

2. These reasons for judgment explain why I have decided to make the orders sought by the applicant Trustees. The orders permit the Trustees to distribute a dividend amongst proven creditors of the Bankrupt Estate in accordance with Div 5 of Pt VI of the Act as if the Bankrupt had filed a statement of her affairs and those creditors had been stated to be creditors in her bankruptcy.

   BACKGROUND

3. The following narrative is drawn from the Trustees’ affidavit sworn on 30 January 2024[1] in support of this application, and the applicant’s written outline of submissions dated 4 March 2024.

   [1] Affidavit of Fabian Kane Michelotto sworn 30 January 2024 (Micheletto Affidavit)

4. At some stage prior to 1987, the Bankrupt and the late Kenneth Pithers became the registered proprietors as joint tenants of a property in Blacktown.  In or around December 2008, Kenneth passed away and his interest in the Blacktown property passed to the Bankrupt.  The property was, at all material times, unencumbered and not subject to any claimed security interest.

5. In or about August 2017, the Bankrupt purportedly entered into a contract of sale of the property.  The sale realised $685,000.

6. Subsequently, the Bankrupt apparently appointed a person as her attorney pursuant to an enduring power of attorney document.  The Bankrupt also apparently appointed that person as her enduring guardian (Guardian).  In order to give effect to the transfer of the property to the purchasers, the Guardian executed the transfer document in her capacity as the Bankrupt’s enduring power of attorney.

7. The Bankrupt did not receive any of the proceeds of the sale.  Save for the payment of legal fees and outstanding rates and utilities, the balance of the proceeds were distributed to others, with the largest distribution being to the apparent Guardian.

8. In June 2018, at the Bankrupt entered into a resident agreement with Allity Pty Ltd (Allity) whereby Allity agreed to provide aged care services to the Bankrupt at its Beechwood aged care facility in Revesby, NSW.

9. On 15 April 2019, the Bankrupt died.  Prior to her death the Bankrupt was unable to pay her debts to Allity.

10. On 8 February 2022, Allity, as the petitioning creditor, commenced proceedings in this Court seeking a sequestration order in relation to the Bankrupt’s Estate.

11. On 5 May 2022, the Trustees were appointed as joint and several trustees of the Bankrupt Estate.

12. As the Bankrupt died prior to the making of the sequestration order and the appointment of the Trustees, the Bankrupt (personally) could not complete and lodge a statement of affairs.

13. To the best of the Trustees’ knowledge, there has not been any application for probate or letters of administrations in respect to the Bankrupt’s deceased estate, and searches of the New South Wales, Queensland and Victorian Supreme Court probate records reveal that no such application has been made[2].

    [2] Micheletto Affidavit at [10]-[11] and Annexure FKM-1 pages 14-20

14. The Trustees have prepared reports to creditors in July 2022 and October 2023. The Trustees have attended to a number of matters as set out in those reports.

15. Following investigations into the Bankrupt’s Estate, the Trustees determined that there were certain claims available in respect to the Bankrupt’s Estate relating to the sale of the Blacktown property and the distribution of the sale proceeds. One of those claims has been successfully settled, with the terms being recorded in a Deed of Settlement (Deed)[3], the terms of which have been viewed by the Court but are to remain are confidential.

    [3] Micheletto Affidavit at [17]

16. Investigations to date have revealed only one creditor, being the petitioning creditor, Allity, which has lodged a claim for $28,081.33. The Trustees accept the claim as claimable against the Bankrupt Estate.

17. Should the terms of the Deed be complied with, there will be sufficient funds realised in the Bankrupt’s Estate to annul the bankruptcy[4]. I am informed by the Trustees’ solicitor that pursuant to the Deed sums of money have been paid into his firm’s trust account which should be sufficient to meet known creditor claims and the usual charges of administering the estate. I am informed and accept that should further creditors emerge, the Deed will operate to put the Trustees in sufficient funds.

    [4] Micheletto Affidavit at [19]

18. Based on the realisations to date and in anticipation of the terms of the Deed being complied with, the Trustees have assessed that the Bankrupt Estate will hold sufficient funds to facilitate an annulment pursuant to section 252A of the Act. Given the terms of the Deed, the Trustees expect that they will be able to pay a dividend to creditors that will result in a return of 100 cents in the dollar.

    HEARING

19. The application was listed for hearing on 5 March 2024.  Mr Chenoweth, solicitor appeared on behalf of the Trustees.  Given the nature of the application, there was no requirement for an appearance on behalf of the Bankrupt Estate.

20. Mr Chenoweth relied upon the initiating application, the affidavit of Mr Micheletto, a written outline of submissions and a number of relevant authorities.  Mr Chenoweth spoke to the written outline in his brief oral address and subsequently provided the Court with a copy of the Deed.

    LEGAL PRINCIPLES

21. In circumstances where a bankrupt has not provided a statement of affairs, a trustee of the bankrupt estate may be uncertain as to the identity of the creditors in the estate and therefore unable to meet the statutory requirements for distributing a dividend to creditors. To this end, section 146 of the Act provides:

    “Where a bankrupt has failed to file a statement of his or her affairs as required by this Act, the Court may, on the application of the trustee, upon such terms as it thinks fit, order that distribution of dividends amongst the creditors who have proved their debts shall proceed in accordance with this Division as if the bankrupt had filed a statement of his or her affairs and those creditors had been stated to be creditors in it.”

22. Section 146 is to be found within Division 5 of Part VI of the Act. That division is comprised of ss 140-147. It is a part of the Act which deals with the distribution of property, in particular the declaration and distribution of dividends to creditors.

23. Notably, by sub-section 140(1) the trustee must generally, and with all convenient speed, declare and distribute dividends to creditors who have proved their debts. As has been observed in relevant authorities, the trustee is also subject to a duty to administer the estate as efficiently as possible, including by avoiding unnecessary expense and in a commercially sound way[5].

    [5] Bankruptcy Act1966 s 19(1)(j)-(k)

24. Where all, or sufficient of, a bankrupt’s property has been realised to enable a final dividend to be declared, the trustee shall declare and distribute a final dividend.

25. However, there are circumstances where a trustee is not to distribute a final dividend unless authorised by the Court to do so. An application is required where, as here:

    (1)the sequestration order was made after the bankrupt had died and the trustees have not been able to identify any legal representative of the bankrupt; and

    (2)neither the bankrupt, nor any legal representative has filed a statement of affairs.

26. In Quin as Trustee of the Bankrupt Estate of Philip Chill [2020] FCCA 2652, Judge A Kelly of this Court surveyed the relevant authorities pertaining to the purpose and operation of section 146. At [31] his Honour noted:

    [31]In Official Trustee in Bankruptcy, in the matter of Shaw [1999] FCA 968, Gyles J held at [4] that the purpose of s 146 was “to give the Court the means of ensuring that the absence of a statement of affairs does not prejudice those with an interest in the bankrupt’s affairs.” In Barnet (Trustee), in the matter of Zhang (Bankrupt) v Zhang [2017] FCA 924 at [22], Lee J observed that s 146 was “intended to facilitate the distribution of dividends among the creditors of the bankrupt in circumstances where the trustee has not had the benefit of a statement of affairs prepared by the bankrupt”: citing Re Sturt; Ex parte Official Trustee in Bankruptcy (2001) 117 FCR 1 at 4 [14] per Sackville J.

27. The Court must be satisfied in all the circumstances that it is appropriate to make an order.  In the circumstances of this case, that requires consideration of a number of matters, each of which have been addressed in the applicant’s written submissions.

28. First, the application is made ex parte. The applicant Trustees submit, and I accept, that in an application of this kind is not necessary, nor desirable, for the bankrupt to be a formal party before the Court.  Here, of course, the Bankrupt is deceased.  The issue, then, is whether the application should be served upon any legal representative.

29. In respect of that question, the applicant submits that just as there is no obligation on the Trustees to serve the application on the Bankrupt, nor is there any obligation to serve the application on anyone else.  As authority for the proposition, the Trustees cite Barnet (Trustee), In the matter of Zhang (Bankrupt) v Zhang [2017] FCA 924 at [28] (Lee J) (Zhang) and Clout (Trustee), In the Matter of Warren (Bankrupt) v Warren [2023] FCA 755 at [52].

30. Moreover, and in any event, the Trustees have adduced evidence of having conducted searches of the New South Wales, Queensland and Victorian Supreme Court probate records leading to the conclusion, to the best of their knowledge, that there has not been any application for probate or letters of administration in respect of the Bankrupt’s deceased Estate[6].

    [6] Micheletto Affidavit at [11], annexure FKM-1

31. Turning then to the circumstance which enlivens the Court’s power pursuant to section 146 of the Act, namely the failure of the Bankrupt to file a statement of affairs as required by the Act.

32. The Trustees depose that they have not received a copy of the statement of affairs. As the Bankrupt died prior to the Trustees’ appointment, self-evidently the Bankrupt could not complete and lodge a statement of affairs. Also, as noted above, the Trustees have been unable to identify any legal representative of the Bankrupt who would be required to complete and file a statement of affairs pursuant to section 246 of the Act.

33. In the circumstances, the applicants submit, and I accept, that the Court has authority to make orders in accordance with section 146[7].

    [7] Sutherland v Estate of Ek Kiang Oey [2015] FCCA 1980; Owners Corporation PS334337A v Hoiles [2012] FMCA 2018

    CONSIDERATION

34. The power conferred by section 146 requires the exercise of discretion. The discretion must be exercised judicially and reasonably.

35. In Re Sturt; Ex parte Official Trustee in Bankruptcy [2001] FCA 1649; (2001) 117 FCR 1, Sackville J said:

    “[19][…] on any application under s 146 of the Bankruptcy Act the Court must be satisfied that it is appropriate to make an order. The Court may need to be satisfied, for example, that creditors have been notified of the application and have had an opportunity to be heard (although ordinarily the application would be made in the interests of creditors). As in this case, the Court might require evidence that the trustee has taken appropriate steps to ascertain whether there are creditors, other than those who have come to its attention by filing a proof of debt or otherwise.”

36. The Trustees submit that the Court can be satisfied that neither the Bankrupt (by reason of the Bankrupt dying before the sequestration order was made) nor any legal representative (by reason of there having been no application for, or Orders made in respect of, probate or letters of administration in respect of the Bankrupt’s deceased Estate) are in a position to complete and lodge a statement of affairs. On the evidence, I am so satisfied.

37. As to whether there are creditors, it is prudent that the Court to be satisfied that the Trustees have taken appropriate and sufficient steps to ascertain whether there are creditors, other than those who have come to their attention by filing a proof of debt or otherwise (see Zhang).

38. The affidavit relied upon by the applicants deposes that the Trustees have performed investigations to determine who the creditors of the Bankrupt Estate might be.  Those investigations have not revealed any other creditors of the Bankrupt Estate, save for the petitioning creditor Allity and possibly the Department of Veterans Affairs[8]. No other persons have contacted the Trustees’ office indicating that they are or may be a creditor of the Bankrupt Estate.  The Bankrupt Estate appears relatively straightforward and uncomplicated.

    [8] Micheletto Affidavit at [22]-[30]

39. Nevertheless, Division 5 of the Act contains provisions requiring the giving of notice with respect to the declaration of dividends. In this application, the Trustees have indicated they will give notice of their intention to declare a final dividend and will allow a reasonable period to elapse before doing so. This is an appropriate course that will provide a further opportunity for potential creditors to come forward. (see for example Zhang, McLean (Trustee), in the matter of Erbas (Bankrupt) v Erbas [2019] FCA 1763 at [14] (Anderson J).

40. The relief sought by the Trustees is consistent with the types of orders granted in other cases by this Court. They include provision for advertising in major metropolitan newspapers and for a period of 21 days to elapse prior to the dividend being distributed (consistent with ss 140(7) and 145(6) of the Act).

41. Further, the Trustees have expressed confidence that they will be able to pay a dividend to creditors that will result in a return of 100 cents on the dollar. This is so irrespective of whether or not the Department of Veterans Affairs is a creditor. The Trustees have formed the view that based on realisations made to date and assuming that the terms of the Deed are complied with, the Bankrupt Estate will hold sufficient assets to facilitate an annulment of the bankruptcy pursuant to section 252A of the Act. At the hearing, Mr Chenoweth informed the Court that a further significant payment had recently been made into his firms trust account pursuant to the Deed, giving the Court greater confidence about the Trustees’ forecast.

42. The Trustees also submit that the fact that a statement of affairs has not been filed causes prejudice to creditors and that this is a factor which weighs strongly in favour of exercising my discretion pursuant to section 146. Notably, Judge A Kelly observed in Juratowitch (in his capacity as Trustee) v Capar [2017] FCCA 2669 at [29] that:

    “[29]I accept the trustee’s submission that the further delay in the distribution of funds from the bankrupt estate operates to the prejudice of known creditors. The prejudice arises by reason of the failure of the bankrupt to furnish a statement of affairs to the trustee which would, but for an order under s 146 present an obstacle to the declaration and payment of a final dividend which the trustee is in a position to pay and thereby to complete efficiently the administration of this estate. I have identified no countervailing reason why a final dividend ought not be paid or why relief ought not be given under s 146 so as to permit finalisation of the administration of this bankrupt estate.”

    CONCLUSION AND ORDERS

43. For the reasons given, I order that the distribution of dividends proceed in accordance with Div 5 of Part VI of the Act to creditors who have proved their debts in the bankruptcy as if the Bankrupt had filed a statement of affairs in accordance with the prescribed form and those creditors had been stated to be creditors in it.

44. Orders will be made in the terms proposed by the applicants. I also order that the costs of this application should be paid from the Bankrupt Estate.

I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Forbes.

Associate:

Dated:       6 March 2024