Cumins, Anthony v Newman, Diane Denise
[1997] FCA 1498
•28 NOVEMBER 1997
FEDERAL COURT OF AUSTRALIA
BANKRUPTCY - summons to attend examination - application by “an examinable person” to set aside summons - whether information sought was relevant to the bankrupt’s affairs - whether the examinable person possessed any information concerning those affairs - whether trustee obliged to disclose all relevant information when applying for summons - whether trustee was engaged on a fishing expedition - motion to set aside summons dismissed.
Bankruptcy Act 1966 (Cth) s 81
Karounos v Official Trustee (1988) 19 FCR 330 applied
ANTHONY CUMINS and BRIAN CUMINS v DIANE DENISE NEWMAN
No. WAG 7091 of 1997
CARR J
28 NOVEMBER 1997
PERTH
IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAG 7091 of 1997
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF
WESTERN AUSTRALIA
BETWEEN:
ANTHONY CUMINS
DebtorBRIAN CUMINS
ApplicantAND:
DIANA DENISE NEWMAN
RespondentJUDGE:
CARR J
DATE OF ORDER:
28 NOVEMBER 1997
WHERE MADE:
PERTH
MINUTE OF ORDERS
THE COURT ORDERS THAT:
The summons issued to the applicant under section 81 of the Bankruptcy Act 1966 be amended by:
(a)deleting the words “and Riverwood Park Pty Limited respectively” in the fourth line of paragraph 2;
(b)deleting sub-paragraph 2(i); and
(c)amending the word “businesses”, wherever it appears, to read “business”.
That summons shall be returnable on a date to be fixed by a Deputy District Registrar.
Applicant’s motion be otherwise dismissed.
There be no order as to costs of the motion as between the parties to the motion, but the costs of the respondent to the motion be her costs in the bankruptcy.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF
WESTERN AUSTRALIAWAG 7091 of 1997
BETWEEN:
ANTHONY CUMINS
DebtorBRIAN CUMINS
ApplicantAND:
DIANA DENISE NEWMAN
Respondent
JUDGE: CARR J DATE: 28 NOVEMBER 1997 PLACE: PERTH
REASONS FOR JUDGMENT
Introduction
The Court has before it a motion on notice by which the applicant, Mr Brian Cumins seeks to have set aside a Summons to Attend Examination which has been served on him under s 81 of the Bankruptcy Act 1966 (Cth) (“the Act”). The summons requires the applicant to attend at a specified time, date and place to be examined on oath and to give evidence in relation to the examinable affairs of Mr Anthony Cumins (“the bankrupt”). It also requires him to bring with him and to produce at the examination all documents showing the receipt by a company called Spring Enterprises Pty Ltd (“Spring Enterprises”) “... of the [business] or assets of the Parkdale Victoria Cash Converters Store” from the bankrupt or from companies of which the bankrupt was a director at the relevant time.
Factual Background
The applicant is the brother of the bankrupt. A sequestration order was made against the bankrupt on 19 December 1995. The respondent, Ms Diane Denise Newman is his trustee in bankruptcy. An affidavit sworn by the respondent discloses the following information: The bankrupt was the only director of Goldstone Investments Pty Ltd (“Goldstone”) which conducted the business of pawn brokers under the business name “Cash Converters Parkdale” in the State of Victoria. The respondent is interested in obtaining more details about the sale of that business to Spring Enterprises of which the applicant is the sole director and in which the applicant has a direct and indirect shareholding interest. The bankrupt held a controlling interest in Goldstone at the time when it sold its business. This was because the bankrupt then beneficially owned 75 of the 100 issued shares in the capital of a company called Karri-Glen Pty Ltd (“Karri-Glen”). In turn Karri-Glen held 160 of the 180 issued shares in the capital of Goldstone. In or about December 1994 Goldstone sold its business to Spring Enterprises. The respondent suggests in her affidavit that that business consisted of assets which included goodwill and contracts, franchised rights, book debts, plant and equipment and stock in trade. She says that any profits from the sale of that business would have been received by Goldstone and would thereby have benefited the bankrupt by reason of his controlling interest and shareholding in that company. As I have mentioned, the applicant is the only director of Spring Enterprises. He also has what might be described as an indirect interest in that company. That interest arises through a company called Riverwood Park Pty Ltd (“Riverwood Park”). The applicant holds one of the two issued shares in the capital of that company. The other share is held by a Ms Alison Jean Cumins. The principal activity of Riverwood Park is stated as being “trustee company for the Cumins Family Trust”. Riverwood Park as the trustee for the Cumins Family Trust is the beneficial owner of one of the two issued shares in the capital of Spring Enterprises. To sum up, the applicant is a director of the purchaser of the business and his family trust holds one half of the issued capital of that purchasing company.
The bankrupt was publicly examined on 9 October 1996. He was asked questions about the sale and disposal of the business from Goldstone to Spring Enterprises. I set out below the questions put to the bankrupt and his answers:
“When was the Parkdale store sold? --- December 1994.
Who was that sold to? --- sold to my brother.
Which brother? --- Brian.
How much was it sold for? --- I think from memory it was $270,000, I think.”
It is common ground that that evidence was not correct. The actual purchaser was not the bankrupt’s brother (the applicant) but Spring Enterprises. The respondent trustee says that the business included a franchised right to sell goods under a master franchise from Cash Converters Pty Ltd of which the applicant has at all material times been a director and/or held a controlling interest as shareholder. She says that from the transcript of the public examination of the bankrupt it is clear that he (the bankrupt) did not have any documentation concerning the disposal of the business by Goldstone. She is concerned that the disposal of that business may have been in breach of the bankrupt’s fiduciary duty as a director of Goldstone by the possible sale and disposal of assets of the business at an under-value. For that reason, so the respondent deposes, she requires the production from Spring Enterprises of documents which go to the nature and form of the disposal of the business and the receipt by Spring Enterprises of that business, and any books of accounts of Goldstone held by Spring Enterprises. I interpolate here to note that the summons to attend examination served on the applicant seeks documents in relation to the sale of another business. The respondent no longer presses for production of those documents.
The applicant has sworn an affidavit in support of his motion to set aside the summons to attend examination. In that affidavit the applicant says that in December 1994 he was approached by the bankrupt with a request that he buy Parkdale Cash Converters from Goldstone as there had been problems with the store manager and Goldstone lacked the finances to make the store operate well. The applicant says further that he established Spring Enterprises with a business associate, Mr Wayne Hosking, who had agreed to be the store manager once it was acquired. The applicant swears that “the deal” agreed between him (acting for Spring Enterprises) and the bankrupt (acting for Goldstone) was that Spring Enterprises would take over the shop fittings and fixtures and plant and equipment at a book value of $80,171, the stock at cost of $57,461, some shares in Cash Converters Finance Corporation Ltd at cost of $5,000 and some unsecured notes in Cash Converters Finance Corporation Ltd of $6,000. In return Spring Enterprises agreed to arrange the release of Goldstone from obligations under the lease of certain premises and from the following debts:
. arrears of fees to Cash Converters Pty Ltd $37,000
. loan from Cash Converters Finance Corporation Ltd $86,000
. loan from Mr Donald Allen $62,000
. debt to Australian Jewellery Valuations $2,400; and
. debt to Victoria Park Jewellers $1,200
The applicant swears further that no money changed hands and there is no documentation evidencing these arrangements, save for a formal deed of assignment of a franchise agreement, a copy of which the applicant annexes to his affidavit. I note that the consideration expressed in that deed of assignment is the assumption by Spring Enterprises of all the obligations and liabilities imposed on Goldstone under the franchise agreement from Cash Converters Pty Ltd. The applicant says further:
“The figures given are simply taken from the accounts of Spring Enterprises Pty Ltd and I cannot recall them independently. With effect from 1 July, 1996, Wayne Hosking took over the store and commenced to trade in a company called Wayne Hosking Pty Ltd. The deal was done again on the basis of Wayne’s company taking over the liabilities of the store and no money changed hands. Spring Enterprises Pty Ltd made a loss on the purchase and sale of this store.”
The applicant concludes his affidavit by swearing:
“The above is all I know and could say if I were to be examined in answer to the Summons.”
The Legislative Framework
Section 81 of the Bankruptcy Act relevantly provides that the Court or a Registrar may on the application of the trustee of a bankrupt’s estate summon what is described as “an examinable person” for examination in relation to the bankruptcy. There is no suggestion that the applicant is not an examinable person. The summons requires that person to attend at a specified place, time and date before the Court or the Registrar to be examined on oath about the bankrupt and the bankrupt’s examinable affairs. The summons may also require the examinable person to produce books (including books of an associated entity of the bankrupt which are in the possession of the examinable person and which relate to the bankrupt or to any of the bankrupt’s examinable affairs. The person before whom the examination is conducted may put or allow to be put to a person being examined, such questions about the bankrupt or any of the bankrupt’s examinable affairs as he or she thinks appropriate. The person being examined is obliged to answer all questions so put to him or her. The person conducting the examination may also direct the person being examined to produce specified books or specified classes of books that are in the possession of that person and are relevant to matters about which the person is being or is to be examined. The authorities suggest that if a person is aggrieved by the issue of a summons under s 81, his or her proper course is to apply for an order to discharge the summons - see the cases referred to in McDonald, Henry & Meek “Australian Bankruptcy Law & Practice” para 81.1.15 at p 3672. That is the course which the applicant has taken in this matter.
The Respondent’s Submissions
The respondent submits that she needs to examine the applicant with respect to what she describes as “inherently suspicious and partially inexplicable conduct by the [bankrupt] in the transfer of a business (over which he had a controlling interest) to a company formed by his brother.” The respondent contends that the information before the Court demonstrates that the applicant clearly received (through his company) a business that belonged to the company in which the bankrupt had a “primary interest”. She points to the fact that there was no written documentation to evidence that transfer, nor any formal settlement of the sale of the business. Furthermore the respondent contends that the alleged consideration for the transfer of the business was merely the purchaser’s agreement to take over the existing debts and liabilities of the business, principally being liabilities which were owed to companies of which the applicant had a controlling interest. The respondent submits that it is clear that she is bound to make appropriate enquiries in such circumstances.
The Applicant’s Contentions
In his affidavit, the applicant describes the grounds upon which he relies for an order that the summons be set aside. They are that:
.the information which is sought from him in his capacity as a director of Spring Enterprises is irrelevant to the affairs of the bankrupt; and
.in his capacity as a director of Spring Enterprises, he is not in possession of any information concerning the affairs of the bankrupt.
In written and oral submissions made this morning, Mr M.I. Cooke, counsel for the applicant, made the following further submissions, namely that:
.the respondent has failed to disclose to the Court all of the relevant information which she has concerning this matter. The applicant was said to be unfairly prejudiced by this. The respondent, so it was submitted, should not be permitted to argue that the transaction is inherently suspicious without disclosing the full facts;
.the respondent has embarked upon “a pure fishing expedition designed to harass the Applicant at the instance of” the bankrupt’s creditors; and
.the evidence is such that no suspicion should be aroused by this transaction.
Reasoning
As the Court of Appeal observed in relation to s 25(1) of the Bankruptcy Act 1914 (UK), which has sufficient similarity to s 81 of the Act to be of assistance in this matter:
“Shortly put, the whole object of such an examination [the private examination of a person capable of giving information respecting a debtor or his dealings] is to enable the trustee to obtain information which will enable him to discover and recover assets for the distribution to creditors in the bankruptcy.
In Karounos v Official Trustee (1988) 19 FCR 330 at 334-335 a Full Court of this Court set out the relevant principles to be applied in relation to an application to set aside a summons issued under s 81 of the Act. I will further summarise those principles which I consider to be relevant to the present matter as follows:
.the power given by s 81 is an unusual and far-reaching one whose use could easily become oppressive and vexatious if not approached responsibly by applicants for summonses and controlled carefully by the Registrar or the Court;
.however, the power is exercised in the interests of creditors, and those interests should not be defeated by an unduly technical or restrictive approach to the use of the power. The procedure is basically designed to establish what assets the bankrupt had, what has happened to those assets and whether action should be begun (or continued) to recover them;
.an application to the Court to set aside the summons will usually be determined on a broad view of the issues in the particular case and a weighing of competing principles;
.the Court must consider afresh, on the material before it, whether the summons should be set aside; and
.the Court will give due weight to the fact that a summons is sought by a registered trustee, who will not be presumed to have acted unfairly or for an improper purpose except on convincing evidence. Nevertheless the evidence will be subject to proper scrutiny and a summons will be set aside if the Court is not satisfied that it should have been issued.
I now turn to the circumstances of the present matter for the purposes of applying those principles.
Relevance
I do not think that the information which is sought from the applicant in his capacity as a director of Spring Enterprises is irrelevant to the affairs of the bankrupt. The applicant has conceded that the transaction which the respondent wishes to investigate took place. Furthermore that there was no written documentation (other than the assignment to which I have referred earlier) to evidence the transfer of the business. The respondent’s counsel, in his written outline of submissions, describes the consideration provided by the applicant’s company in the following terms:
“... the alleged consideration for the transfer of the business was merely the purchaser’s agreement to take over the existing debts and liabilities of the business (principally being liabilities which were owed to companies of which Mr Brian Cumins had a controlling interest).”
If the trustee obtains information which may later persuade a Court that the transaction was improper and amounted to a transaction which can be challenged under Part 6 of the Bankruptcy Act, then it may well be that further monies will become available for distribution to the bankrupt’s creditors. Mr A.J.Aristei, counsel for the respondent also referred to me what he described as a “chain of statutory liability” on the part of the applicant and Spring Enterprises arising under the Corporations Law. This is not the occasion upon which to assess the prospects of recovery of further monies for the creditors. It is, of course far too early to speculate about such an outcome. However, I am satisfied that sufficient information has been put before the Court to show that what the applicant knows about this transaction (in his capacity as a director of Spring Enterprises or otherwise) is sufficiently relevant to the possibility of challenges under Part 6 of the Act to justify the issue of the summons.
Whether the applicant possesses any information
The applicant swears that he is not in possession of any information concerning the bankrupt’s affairs. As I have said earlier, he swears that what is contained in his affidavit is all that he knows and could say if he were to be examined in answer to the summons. That may well be the case. However, on a prima facie basis, I think that sufficient has been put before the Court to show that the matter calls for investigation. I do not think that it is proper (applying the principles referred to above) to require the trustee to accept what the applicant asserts in his affidavit, without having an opportunity to cross-examine him and test that evidence.
I appreciate the sense of frustration which emerges from Mr Cumins’ affidavit. However, there is a public interest in transactions such as this being exposed to the full light of day under the examination procedures provided by s 81 and other similar provisions in the Act.
Alleged Failure to Disclose
Mr Cooke told the Court that he was aware (because he acted for the bankrupt) that the respondent has “a range of other evidence” relating to the sale of the business. Mr Cooke said that the applicant “... believes that the trustee is doing this [seeking his examination] because he is a high profile businessman” and that the respondent was engaging in “... an exercise to get “brownie points” from the creditors.”
These are very serious allegations. The applicant has deliberately chosen not to adduce any affidavit evidence to support them. Mr Cooke further submitted that the applicant had a “legitimate expectation” that the trustee should provide to the Court and to him everything which she knows about the transaction. Counsel for the respondent contends that there is no authority which requires a trustee in such a situation to put before the Court and the applicant all of the information available to the trustee when seeking a summons under s 81. Counsel for the applicant did not refer me to any authority. It is not necessary, in this matter, for me to decide the point. However, I would note that it may well be that a trustee, acting quite properly in the public interest and in the interests of the creditors, may put forward sufficient evidence to justify an application under s 81 and at the same time keep some gunpowder dry. In the present matter, there is no evidence before me that the trustee has withheld relevant information or has in any way acted other than in a proper manner. Furthermore, the allegation that the applicant is unfairly prejudiced was unsubstantiated. I reject the applicant’s submission that the trustee has failed to comply with any relevant obligation.
Fishing Expedition
Mr Cooke submitted that the sale of the business was not a transaction between two brothers. Quite rightly, he pointed to the fact that there were two companies involved in the transaction. Then he said that each of those companies involved independent interested parties. In the case of the purchaser there was Mr Hosking. In the case of the vendor there were the other shareholders and directors in Goldstone.
In that regard I refer to the manner in which the applicant, in his affidavit, has described how he negotiated the transaction and in particular the passage which reads:
“The deal agreed between myself for Spring Enterprises Pty Ltd and the debtor for Goldstone Investments Pty Ltd ...”
I accept that this was probably a reference to the applicant acting as agent for Spring Enterprises and the bankrupt acting as an agent for Goldstone. However, I also take into account the extract from the transcript of the bankrupt’s examination referred to earlier. I think it is appropriate, at this stage, to focus on the bankrupt’s role in the affairs of Goldstone. I accept Mr Aristei’s submission that the evidence, at least on a primary facie basis, suggests that the bankrupt was the active mind and will of Goldstone. He was one of its three directors. He was its company secretary (a matter which on its own I would regard as being relatively insignificant) and his family trustee company, which he controlled, held 160 of the 180 issued shares in the capital of Goldstone. I reject Mr Cooke’s submission that the evidence shows an arm’s length transaction. It may turn out to have been such a transaction, but in my view there is sufficient evidence at this stage to justify the respondent in making further investigation. In short I consider that the evidence shows that the respondent was justified in applying for the summons and that sufficient grounds existed for its issue.
Conclusion
For the above reasons I decline to set aside the summons. In view of the fact that the respondent does not wish to pursue the matter of the sale of the other business, it will be appropriate to amend the summons accordingly. The applicant’s motion will otherwise be dismissed. I will hear counsel on the question of costs of the motion.
I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment of Justice Carr
A/g Associate:
Dated: 16 December 1997
Counsel for the Applicant: Mr M I Cooke Solicitor for the Applicant: Messrs Cooke & Co Counsel for the Respondent: Mr A J Aristei Solicitor for the Respondent: Messrs Hammond Worthington Prevost Date of Hearing: 28 November 1997 Date of Judgment: 28 November 1997
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