Cull (Trustee), in the matter of Holmes (Bankrupt)

[2024] FedCFamC2G 432

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 2)

Cull (Trustee), in the matter of Holmes (Bankrupt) [2024] FedCFamC2G 432

File number(s):

MLG 729 of 2024

Judgment of:

JUDGE MANSINI

Date of judgment:

13 May 2024 

Catchwords:

BANKRUPTCY - application by trustee under s.146 of the Bankruptcy Act 1996 (Cth) for distribution of dividends in circumstances where no Statement of Affairs filed – factors relevant to the exercise of discretion – orders that the distribution of dividends proceed as if bankrupt had filed a Statement of Affairs as required by the Act – application granted with an order that the Trustees retain their costs of these proceedings.

Legislation:

Bankruptcy Act 1966 (Cth ) ss. 19, 32, 54, 77CA, 140, 145, 146

Cases cited:

Barnett v Zang [2017] FCA 924

McLean (Trustee) v Erbas [2019] FCA 1763

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

Division:

Division 2 General Federal Law

Number of paragraphs:

57

Date of hearing:

24 April 2024

Counsel for the Applicants: 

Mr Segal

ORDERS

MLG 729 of 2024

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)

IN THE MATTER OF MAREE EILEEN HOLMES, BANKRUPT

INNIS ANTHONY CULL AND GESS MICHAEL RAMBALDI AS TRUSTEES OF THE BANKRUPT ESTATE OF MAREE EILEEN HOLMES

Applicants

ORDER MADE BY:	JUDGE MANSINI
DATE OF ORDER:	13 MAY 2O24

THE COURT ORDERS THAT:

1.Pursuant to section 146 of the Bankruptcy Act 1966 (Cth) (Act), the Applicants as Trustees of the Bankrupt Estate of Maree Eileen Holmes (Trustees), distribute dividends to the single creditor who has proved their debts in the Bankrupt Estate of Maree Eileen Holmes in accordance with Division 5 of Part VI of the Act as if Maree Eileen Holmes had filed a statement of affairs and the creditor had been stated to be a creditor in it.

2.The Trustees’ costs fixed in the sum of $13,833.64 are to be retained by the Trustees in accordance with section 140(2) of the Act.

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 Mansini

IN SUMMARY

1. Before the Court is an application for distribution of dividends amongst a creditor of a bankrupt estate.

2. The application is made by the appointed trustees in bankruptcy of the sequestrated estate. It is necessitated by the absence of a statement of affairs filed by the subject bankrupt.

3. Searches have resulted in identification of a single creditor who has proved their debt as against the subject bankrupt’s estate. However, absent action by the bankrupt to attend to the statement of affairs, there can be no distribution of dividends without leave of the Court.

4. For the reasons that follow, I have determined to make orders as sought with costs of the trustee to be paid as a priority payment.

   CONTEXT

5. The Court has received evidence of the following factual context which is taken primarily from two affidavits of Mr Cull, sworn 27 March 2024 and 22 April 2024.  Mr Cull is a registered bankruptcy trustee, member of Chartered Accountants Australia and a partner of accounting firm Pitcher Partners. Together with Mr Rambaldi, he has the care and conduct of the administration of the subject bankrupt’s estate.  His affidavit reflects matters within his direct knowledge as well as information provided to him from other sources which may be accepted as credible.

6. The parties and persons relevant to these proceedings are:

   (a)Ms Maree Eileen Holmes (Bankrupt), the subject bankrupt whose estate was sequestrated under the Bankruptcy Act 1966 (Cth) (Act) on 15 September 2020;

   (b)Ms Catherine Margaret Holmes, the daughter of the Bankrupt, whose estate was also sequestrated under the Act on 15 September 2020;

   (c)Mr Innis Anthony Cull and a Mr Gess Michael Rambaldi (Trustees), who were on 16 September 2020 appointed by the Official Trustee as trustees responsible for the administration of the subject bankrupt’s estate and of her daughter’s bankrupt estate; and

   (d)WMD Law, the single creditor of the Bankrupt’s estate. 

7. On 15 September 2020, the estate of Maree Eileen Holmes (Bankrupt) was sequestrated under the Act which order was responsive to an underlying debt of $17,346.58 owed to petitioning creditor WMD Law.

8. Also on 15 September 2020, the estate of a Ms Catherine Margaret Holmes, the daughter of the Bankrupt, was sequestrated under the Act. That order was also responsive to an underlying debt owed to petitioning creditor WMD Law.

9. On 16 September 2020, the Trustees were appointed as trustees of the Bankrupt’s estate and the Bankrupt’s daughter’s estate (later replaced as trustees of the Bankrupt’s daughter’s estate by a Mr Michael Badge as trustee of the daughter’s estate).

10. On 28 March 2024, the present application was filed by the Trustees in their ongoing capacity as official trustees of the Bankrupt’s estate.

    Existence and whereabouts of the Bankrupt

11. The Bankrupt was born on 13 January 1933 and, at the time of these reasons, is 91 years old.

12. At the time of the Trustees’ appointment, the Bankrupt was known to reside with her daughter at a property then owned by the Bankrupt’s daughter and located in Woolooware in the State of New South Wales. On 4 October 2022, the Woolooware property was sold by ING Bank pursuant to a mortgagee sale. The Bankrupt’s daughter completed a Foreign Resident Capital Gains Withholding Clearance Certification application for Australian residents wherein the Bankrupt’s daughter specified her address as a property located in Cronulla, in the State of New South Wales.

13. As at 27 March 2024, Mr Cull deposed to the Cronulla address as being the last known address for the Bankrupt and that he was not aware of the Bankrupt’s current address.

14. As at 18 April 2024, the New South Wales Registry of Births, Deaths and Marriages had no record of any registration of the death of the Bankrupt in the period 17 April 2014 and 17 April 2024.

15. There was some evidence of requests for information made by the Trustees to independent institutions following their appointment, namely to the Australian Taxation Office and various financial institutions, none of which resulted in any indication of transactions or activity by the Bankrupt.

    The circumstances of the Bankrupt’s underlying debt – the deceased estate

16. The circumstances of the underlying debt owed in these proceedings involved legal services provided to the Bankrupt in an application for Letters of Administration in the deceased estate of her cousin (a Mr Leonard Gregory Ewen Toner) who had died leaving an estate in the State of Queensland.

17. In August 2019, the Bankrupt was successful in obtaining Letters of Administration for the Deceased Estate.

18. Between November 2019 and March 2020, the Bankrupt (together with her daughter acting under a Power of Attorney for the Bankrupt) took steps as administrator of the cousin’s deceased estate including withdrawals of funds.

19. On 26 November 2021, after the sequestration order subject of these proceedings was made and they were appointed as trustees of the Bankrupt’s estate, the Trustees made application to the Supreme Court of Queensland that the Bankrupt be removed from the office of administrator of the cousin’s deceased estate on grounds related to (in)capacity.

20. On 10 December 2021, the Supreme Court of Queensland ordered that the Bankrupt be removed as administrator of the cousin’s deceased estate and that the Public Trustee of Queensland be appointed in her place. On instruction of his counsel in those proceedings, Mr Cull gave evidence of his understanding that all property of the cousin’s deceased estate was ordered to vest in the Public Trustee of Queensland. The costs of those proceedings were to be paid from the cousin’s deceased estate.

21. On 20 January 2023, the Trustees and the Public Trustee of Queensland made claims against the bankrupt estate of the Bankrupt’s daughter in relation to the withdrawals from the cousin’s deceased estate. In November 2023, those claims were resolved resulting in recovery by the Trustees of the sum of $165,459.02 into the Bankrupt’s estate.   

    Attempts to obtain a statement of affairs

22. By his affidavit deposed 27 March 2024, Mr Cull’s evidence was that the Bankrupt had not provided a “bankruptcy form” and he had not had the benefit of a “bankruptcy form” which he clarified was a reference to what he said was formerly referred to as a statement of affairs. At the time of hearing, counsel for the Trustees confirmed that no statement of affairs had yet been filed.

23. Mr Cull’s evidence was that he had attempted to notify the Bankrupt of her obligation to make and file a statement of affairs as follows:

    (a)On 17 September 2020, by way of a letter sent via email to XXXXX [email protected];

    (b)On 30 September 2020, by way of a letter sent via email to XXXXX [email protected];

    (c)On 21 December 2020, by way of email correspondence sent to XXXXX [email protected];

    (d)On 24 March 2021, by way of a letter sent via email to XXXXX [email protected] and via registered post sent to XX XXXXX X Avenue, Woolooware NSW 2230; and

    (e)On 7 June 2021, by way of a letter sent via email to XXXXX [email protected] and via registered and express post sent to XX XXXXX X Avenue, Woolooware NSW 2230.

24. Mr Cull gave evidence that he did not receive a response to his correspondence from the Bankrupt and the Bankrupt did not file a statement of affairs. Mr Cull subsequently referred the Bankrupt to the Australian Financial Security Authority (AFSA) for her failure to file her statement of affairs but AFSA decided not to issue a s.77CA notice or proceed with prosecution.

25. On 12 December 2023, Mr Cull sent a letter addressed to the Bankrupt at the Cronulla address (nominated by the Bankrupt’s daughter in the clearance certificate application upon sale of the Woolaware property) by which he advised of his recovery of sufficient funds to pay a dividend to unsecured creditors in her bankrupt estate. By that letter, Mr Cull again attempted to notify the Bankrupt of her obligation to make and file a statement of affairs and requested that she do so by 8 January 2024. The letter was subsequently returned to Mr Cull’s office marked “Return to Sender – Construction Site”.

26. On 26 February 2024, Mr Cull instructed his solicitors to send an email to the Bankrupt’s daughter attaching a copy of his 12 December 2023 letter to the Bankrupt and requesting details of the address where the Bankrupt resided, which email was sent that same day.

27. On 27 February 2024, Mr Cull telephoned the Bankrupt’s daughter’s last known mobile phone number. He deposed to having contacted the Bankrupt’s daughter on that number many times when he was her trustee in bankruptcy. He further deposed that, on this occasion, the phone rang but no one answered the call and he was directed to a recorded voicemail message. By that voicemail message, the owner of the number identified themselves as “Cate Holmes”. Mr Cull believed that he recognised the voice as that of the Bankrupt’s daughter based on his prior discussions with her. Mr Cull left a detailed voicemail message and requested a return phone call. Mr Cull then sent a text message (SMS) to the same number as follows:

    Hi cate. It’s Innis Cull from Pitcher Partners. I am hoping to speak to you about Marees bankrupt estate. We do not have a current address for Maree and she has not completed the necessary documents in her bankruptcy. Could you please ask Maree to call me on this number and otherwise text me her current address. Thank you. Innis Cull

    (sic.)

28. As of 27 March 2024, neither the Bankrupt nor the Bankrupt’s daughter had contacted Mr Cull in response to his telephone call of 27 February 2024 and Mr Cull’s solicitor had informed him that the Bankrupt’s daughter had not responded to the solicitor’s email of 26 February 2024.

    Attempts to identify creditors

29. Mr Cull deposed to the following steps taken by him or his office:

    (a)Correspondence to and with various financial institutions, namely; The Commonwealth Bank of Australia, Westpac Banking Corporation, National Australia Bank, ANZ Bank, Suncorp Bank, ING Bank, Citibank, Bendigo and Adelaide Banks, Macquarie Bank, Delphi Bank, Bank of Queensland, HSBC, Bankwest, AMP Bank and CIA Bank. In response, the Commonwealth Bank of Australia identified that Ms Holmes held one pensioner security account with a credit balance of $0.01. Additionally, the Westpac Banking Corporation advised that Ms Holmes was a signatory to a bank account opened in the name of the Deceased Estate. The remaining financial institutions advised that they had no accounts in the name of Ms Holmes.

    (b)Freedom of information request of the Australian Taxation Office which showed that:

    (i)      there were no transactions recorded on any Running Balance Account for Ms Holmes;

    (ii)     there were no transactions recorded on any Statement of Account for Income Tax for Ms Holmes; and

    (iii)   there were no Tax Returns lodged or required for the requested period.  

    (c)Equifax credit report obtained on 14 December 2023 which showed that the Bankrupt had no active accounts, no closed credit accounts, no overdue accounts and no missed repayments reported.

    Notice of this application to creditors and the Bankrupt

30. Mr Cull caused a Notice of Intention to Declare a First and Final Dividend to the Creditors of Maree Eileen Holmes which was published in The Australian newspaper on 25 January 2024. That notice called for proofs of debt from all creditors that claimed to have a provable debt in the Bankrupt’s estate and that such proofs be lodged with Mr Cull’s office by 9 February 2024.

31. On 16 February 2024, Mr Cull’s office conducted a search of the Personal Property and Securities Register which results recorded that no registrations were registered over the Bankrupt personally.

32. As at 27 March 2024, Mr Cull’s evidence was that his office had not received any proofs of debt in response to the notice published on 25 January 2024. Further, that the only creditor of the Bankrupt’s estate whom Mr Cull had identified or that had made contact with Mr Cull or his office was: WMD Law.

33. On 5 April 2024, the solicitors for Mr Cull caused a copy of the sealed application in this matter and accompanying affidavit of 27 March 2024 to be sent by email to each of the following:

    (1)The Bankrupt’s daughter;

    (2)The Official Solicitor to the Public Trustee of Queensland;

    (3)The solicitors for Mr Badge in his capacity as the trustee of the bankrupt estate of the Bankrupt’s daughter; and

    (4)A representative of WMD Law,

    (5)and a copy of each of the above mentioned communications was before the Court in this matter.

    LEGAL FRAMEWORK

34. Division 5 of Part VI of the Act provides a framework to enable, where possible, an efficient distribution of dividends to creditors from the proceeds of property identified, recovered and realised by the appointed trustee. The trustee has an overarching and specific obligation to ensure the efficient administration and to declare and distribute dividends amongst the creditors who have proved their debts with all convenient speed: ss.19(1) and 140 of the Act.

35. Relevant to the present application, the starting point is that upon sequestration the bankrupt person is obliged to make out and file a statement of their affairs with the Official Receiver, and to furnish a copy on the appointed trustee: s.54(1) of the Act. The obligation is to be discharged within 14 days of the day on which the person is notified of the bankruptcy.

36. Additionally the Official Receiver may, at its discretion, give a written notice essentially requiring a bankrupt to give them a statement of their affairs within 14 days: s.77CA of the Act.

37. Whether all (or a sufficient amount) of a bankrupt’s property has been realised to enable a final dividend to be declared, a trustee shall declare and distribute a final dividend: s.145(1) of the Act.

38. In circumstances of a failure to file a statement of affairs as required by the legislation the Court is empowered to order, at its discretion, the distribution of dividends amongst the creditors who have proved their debts. Specifically, s.146 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.

39. The authorities on the purpose and application of s.146 were summarised in Quin as Trustee of the Bankrupt Estate of Phillip Chill [2020] FCCA 2652 per Kelly J at [31] to [32]:

    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.

    In Re Sturt; Ex parte Official Trustee in Bankruptcy (2001) 117 FCR 1 at [19], Sackville J held that Court must be satisfied that it is appropriate to make an order. His Honour stated: “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.” This reasoning was endorsed in Zhang [2017] FCA 924.

40. The trustee must give a reasonable period of written notice of the intention to declare a dividend to anyone who claims or might claim to be a creditor but has not lodge a proof of debt, with such notice to specify a reasonable period within which creditors may lodge their proofs of debts: s.140(3) and (4) of the Act.

41. In McLean (Trustee) v Erbas [2019] FCA 1763 at [7], Anderson J observed that “where a bankrupt has not provided a statement of affairs, a trustee of 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.”

    CONSIDERATION

42. A feature of applications of this kind is that they need not name the bankrupt as a party nor is service on the bankrupt required: Barnett v Zang [2017] FCA 924 at [28]-[29]. Accordingly, absent an objector, the evidence of the applicant goes unchallenged. The Trustees did not contend that the Bankrupt was notified in the present case nor does the evidence before the Court establish as much.

43. On the evidence before the Court, the Bankrupt is alive but elderly (at 91 years) and may not be of capacity to attend to her own legal affairs (there being evidence of dealings with her cousin’s deceased estate by the Bankrupt’s daughter operating pursuant to a Power of Attorney and that the Supreme Court of Queensland was satisfied of such as to order the Bankrupt’s removal as administrator of that deceased estate).

1. There was evidence of effective communications dispatched to the Bankrupt’s daughter at an operative mobile telephone number, some 57 days before the hearing of this application, which went unanswered and to which there was no response.

2. There has been a protracted period of some three years and seven months since compliance with s.54(1) of the Act was first due.

3. The Trustees submitted that, against the unchallenged factual background, which includes the failure across a protracted period by the Bankrupt to comply with her obligation to file a statement of affairs, and where notice of the application has been provided to the creditors, and reasonable efforts made to bring the application to the Bankrupt’s attention, the Court should determine the application in the Trustees’ favour.

4. In all of the circumstances, the Court determined to proceed to hear the Trustees in relation to their claim for relief in the Bankrupt’s absence.

5. On the evidence, the Bankrupt has failed to file a statement of affairs as required by the Act. I am satisfied that the Bankrupt and the Bankrupt’s daughter (whether acting with authority as the Bankrupt’s Power of Attorney or otherwise being in a position to bring the matter to her attention) were notified, and reminded repeatedly, of the Bankrupt’s obligation to file such statement. The Bankrupt not having done so, the Court’s jurisdiction pursuant to s.146 of the Act is engaged.

6. The single known creditor, WMD Law, is owed a debt for legal services rendered some 5 years ago.

7. The Trustees properly caused a Notice of Intention to Declare a First and Final Dividend to the Creditors of Maree Eileen Holmes to be published in The Australian newspaper on 25 January 2024.

8. A reasonable period of more than 21 days had elapsed at the time of the hearing before the Court and no additional or potential creditors were forthcoming. There have also been searches of AFSA and National Personal Insolvency Index records.

9. I am satisfied that the Trustees have taken proper steps to notify known creditors, together with those who might yet have been ascertained, of their opportunity to file a proof of debt and to do so before a final dividend was declared. 

10. It falls to be determined what ought be done in the absence of a completed statement of affairs.

11. The further delay in the distribution of funds from the Bankrupt’s estate operates to the prejudice of the known creditor. The prejudice arises by reason of the failure of the Bankrupt to furnish a statement of affairs to the Trustees which would, but for an order under s.146 of the Act, present an obstacle to the declaration and payment of a final dividend. The Trustees are otherwise in a position to pay and complete the administration of the Bankrupt’s estate. There is 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.

12. Distribution of a dividend from the Bankrupt’s estate is subject to the anterior entitlement in the Trustees retain an amount sufficient for payment of the costs of administration of the Bankrupt estate (which includes, by way of disbursements, their legal costs in these proceedings): Act, ss.32 and 140(2) of the Act. The Court sought to be addressed about the quantum of those costs with regard to consideration of the creditor’s interests in determining what orders are appropriate to be made under s.146. As at the time of hearing, the Applicants costs of and incidental to this application were deposed as being:

    (1)$1,845 in respect of the Court’s filing fee for this proceeding;

    (2)$7,625 plus GST in respect of the legal fees of Atticus Lawyers; and

    (3)$4,363.64 plus GST in respect of Counsel’s fees,

    (4)A total of $13,833.64.

13. On the evidence including of the amount recovered by the Trustees in the Bankrupt’s Estate and the debt owed to WMD Law, there is no apparent reason why the Court would not exercise its discretion to make any orders under s.146 in addition to a costs order as sought.

    DISPOSITION

14. For the above reasons, the Court will make orders pursuant to s.146 of the Act permitting the Trustees of the bankrupt estate of Maree Eileen Holmes to distribute a first and final dividend amongst the creditor of the Bankrupt’s estate who have proved their debts and that the Trustees be permitted to proceed in accordance with Division 5 of Part VI of the Act as if the Bankrupt had filed a statement of her affairs and the creditor had been stated to be a creditor in her bankruptcy. There will also be an order as to retention of the Trustees’ costs of these proceedings in the fixed amount of $13,833.64.

I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Mansini.

Associate:

Dated:       13 May 2024