Daimler Chrysler Financial Services Australia Pty Ltd v McKillop
[2007] FMCA 1118
•9 July 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DAIMLER CHRYSLER FINANCIAL SERVICES AUSTRALIA PTY LTD & ANOR v McKILLOP & ANOR | [2007] FMCA 1118 |
| BANKRUPTCY – Costs – whether order for costs against Trustee appropriate upon setting aside of Personal Insolvency Agreement. |
| Bankruptcy Act 1966, s.64A |
| First Applicant: | DAIMLER CHRYSLER FINANCIAL SERVICES AUSTRALIA PTY LTD |
| Second Applicant: | INSPECTOR-GENERAL IN BANKRUPTCY |
| First Respondent: | DONALD MCKILLOP |
| Second Respondent: | DESMOND ANTHONY RYAN AS THE TRUSTEE OF THE ESTATE OF DONALD MCKILLOP, A DEBTOR |
| File number: | MLG 336 of 2007 |
| Judgment of: | McInnis FM |
| Hearing date: | 21 June 2007 |
| Delivered at: | Melbourne |
| Delivered on: | 9 July 2007 |
REPRESENTATION
| Counsel for the First Applicant: | Mr G.W. Moffatt |
| Solicitors for the First Applicant: | Mills Oakley Lawyers |
| Counsel for the Second Applicant: | Mr J. Giacco |
| Solicitors for the Second Applicant: | Australian Government Solicitor |
| First Respondent: | No appearance |
| Counsel for the Second Respondent: | Mr P.F. Agardy |
| Solicitors for the Second Respondent: | Koroneos Lawyers |
ORDERS
The Second Respondent shall pay the Applicants’ costs including reserved costs if any to be taxed in default of agreement pursuant to Order 62 of the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG336 of 2007
| DAIMLER CHRYSLER FINANCIAL SERVICES AUSTRALIA PTY LTD |
First Applicant
| INSPECTOR-GENERAL IN BANKRUPTCY |
Second Applicant
And
| DONALD MCKILLOP |
First Respondent
| DESMOND ANTHONY RYAN AS THE TRUSTEE OF THE ESTATE OF DONALD MCKILLOP, A DEBTOR |
Second Respondent
REASONS FOR JUDGMENT
The Application in this matter seeks two orders which are not opposed by the Trustee. The orders which the Court made on 21 June 2007 are as follows:-
(1)Pursuant to section 222 of the Bankruptcy Act 1966 the Personal Insolvency Agreement dated 5 December 2006 in Administration No. V75 of 2006 be set aside.
(2)A Sequestration Order be made against the estate of Donald McKillop.
On the date of the orders there was no appearance for the First Respondent, Donald McKillop.
After the orders were made a further issue of costs remained for determination by the Court.
Based on submissions made by the First Applicant supported by the Second Applicant the Court made the orders referred to above.
The issue of costs arises directly in this application as both the First and Second Applicants have submitted that the Second Respondent namely the Trustee should not be indemnified in relation to costs and further it is submitted that the Court upon making the orders set out above should make an order that the Trustee should be required to pay the First Applicant’s costs of the application.
The Second Applicant likewise seeks an order that the Second Respondent pay the Second Applicant’s costs. It is further submitted by both Applicants that the Second Respondent should not be indemnified in relation to any order made for payment of costs but rather that the Second Respondent as Trustee should pay the costs personally. At the hearing it was noted that in this instance it would be unnecessary to proceed to make a specific order that the Second Respondent pay the costs personally as the Second Respondent agreed that if a costs order were to be made, contrary to the submissions made by the Second Respondent, then those costs would be paid personally without the need for a specific order to that affect.
Hence, the issue which the Court is required to determine is whether in the exercise of its discretion having regard to the orders already made it is appropriate to order that the Second Respondent pay the First and Second Applicant’s costs.
Background
The background in this matter is not disputed and I accept has been accurately set out in the First Applicant’s contentions of fact and law as follows:-
“4. Debonair Services Pty Ltd (Debonair) commenced to trade, with the First Respondent having a 10% shareholding.
5. In 2004 the First Respondent and his spouse Irene Gisela McKillop jointly owned two properties, one in Essendon and the other in Indented Heads. There was a total equity in the two properties of approximately $600,000.00 comprising the Essendon property $350,000.00 and the Indented Heads property $250,000.00.
6. On 28 April 2004 a Westpac Banking Corporation mortgage AC825515B was registered on Certificate of Title Volume 2383 Folio 427 (the Essendon property).
7. On 2 July 2004 the First Respondent entered into a Guarantee for the Agreement between the First Applicant and Debonair to hire a 2004 Mercedes Benz E240 Classic Sedan registration number SVB 869.
8. On 5 July 2004 the First Applicant entered into an Agreement with Debonair to hire a 2004 Mercedes Benz E240 Classic Sedan registration number SVB 869.
9. On 13 July 2004 the First Respondent entered into a Guarantee for the Agreement between the First Applicant and Debonair to hire a 2004 Mercedes Benz E240 Classic Sedan registration number SZU 803.
10. On 14 July 2004 the First Applicant entered into an Agreement with Debonair to hire a 2004 Mercedes Benz E240 Classic Sedan registration number SZU 803.
11. On 23 December 2004 the First Applicant entered into an Agreement with Debonair to hire a 2004 Mercedes Benz CLK320 Avantgarde registration number TFV 304.
12. On 23 December 2004 the First Respondent entered into a Guarantee for the Agreement between the First Applicant and Debonair to hire a 2004 Mercedes Benz CLK320 Avantgarde registration number TFV 304.
13. On 20 October 2005 Debonair was placed in administration.
14. On 16 November 2005 an Agreement was entered into between the First Respondent and Irene Gisela McKillop to transfer the First Respondent’s half interest in the Essendon property in consideration of selling the Indented Heads property to reduce Debonair’s overdraft to the Westpac Bank.
15. In December 2005 Debonair entered into a Deed of Company Arrangement.
16. A Transfer of Land dated 15 December 2005 between the First Respondent and Irene Gisela McKillop as transferors and Irene Gisela McKillop as transferee of Certificate of Title Volume 2383 Folio 427 (the Essendon property) with the consideration noted as Pursuant to an Agreement between the Transferor and the Transferee dated 16th day of November 2005.
17. In March 2006 the Indented Heads property was sold at auction with the net proceeds of sale being paid to the mortgagee, Westpac Banking Corporation.
18. On 10 March 2006 the Transfer of Land was registered on Certificate of Title Volume 2383 Folio 427 (the Essendon property).
19. On 21 March 2006 the First Applicant filed a Writ in the County Court against the First Respondent in proceeding CI 06 00947 (the County Court proceeding) in which the First Applicant claimed from the First Respondent $136,081.90, interest and costs being the balance of the monies outstanding under the three Agreements after the three vehicles the subject matter of those Agreements were sold by the Applicant.
20. On 1 August 2006 Westpac Banking Corporation mortgage AE517104A was registered on Certificate of Title Volume 2383 Folio 427 (the Essendon property).
21. On 5 October 2006 orders were made in the County Court proceeding by Her Honour Judge Harbison which amongst other things ordered that the First Respondent file and serve a Defence in the County Court proceeding by 30 October 2006.
22. On 13 October 2006 the First Respondent signed an authority pursuant to Section 188 of the Act appointing the Second Respondent, Des Ryan of Ryan Insolvency, as Controlling Trustee.
23. By facsimile transmission header dated 13 October 2006 from John Micallef and Co solicitors for the First Respondent to Mills Oakley solicitors for the First Applicant forwarded a Statement of Affairs of the First Respondent dated 12 October 2006.
24. By letter dated 13 October 2006 from the Second Respondent to the Official Receiver the Second Respondent enclosed copies of the following documents:
(a) a Controlling Trustee Authority signed by the First Respondent (and witnessed by the Second Respondent) and Trustee Declaration signed by the Second Respondent both executed on 13 October 2006;
(b) an Acknowledgement signed by the First Respondent on 12 October 2006 acknowledging that he had received and read a Prescribed Information Booklet;
(c) a Personal Insolvency Agreement checklist signed by the First Respondent on 12 October 2006;
(d) a Proposal under Part X of the Act signed by the First Respondent on 12 October 2006; and
(e) a Statement of Affairs of the First Respondent signed on 12 October 2006.
25. The Statement of Affairs notes amongst other things the following:
7. Legal Actions. Are you involved in any legal proceedings or disputes? No
33. Sale, Transfer or Gift of Assets in the last 5 years. Have you sold, transferred or given away assets worth more than $1,000.00 in the last 5 years? Yes.
| What did you sell, transfer or give away | To whom was it sold transferred or gifted | Date Transferred | What was it worth? | How much was it sold for? | How much did you receive net? |
| House | Wife | 2005 | $80,000 equity | Nil Natural Love & affection | Net |
40. Unsecured Creditors
| Creditor Name | Full Postal Address | Nature of debt | Account No | Mth/Yr Incurred | Total amount owing | Related Party | Joint Debt |
| Suncorp | GPO Box 1453 Bris Qld 4001 | Loan | 30953718 | 2005 | 41,000 | No | No |
| Macquarie Leasing | GPO Box 4294 Syd NSW 1164 | Loan | 2005 | 34,200 | No | No |
26. By letter dated 23 October 2006 from John Micallef & Co to Mills Oakley enclosed a statement for a Westpac Premium Option Home Loan in the account names of the First Respondent and Irene Gisela McKillop for the period 19 July to 17 August 2006.
27. The Controlling Trustee’s Report was prepared by the Second Respondent and is dated 10 November 2006.
28. The report of the Second Respondent stated that:
(a) the unsecured creditors amounted to $85,200.00 comprising Suncorp $41,000, Macquarie Leasing $34,000 and Surdex Steel $10,000.00. The First Respondent notified the Second Respondent of the amount owing to Surdex after preparing his Statement of Affairs;
(b) the First Respondent had fully expended his equity in the Essendon and Indented Head properties and that Irene Gisela McKillop had provided fair consideration for the transfer.
(c) the proposed personal insolvency agreement provided for payment of $20,000.00 over a four year period after acceptance by creditors of the offer;
(d) the dividend would be 14.44 cents in the dollar; and
(e) the Second Respondent believed that the creditor’s interests would be better served by accepting the First Respondent’s proposal rather than bankrupting him.
29. A circular letter dated 10 November 2006 was sent from the Second Respondent addressed “To The Creditor” enclosing the following:
(a) Notice of meeting of Creditors to be held on Monday 20 November 2006 at 11.00 am.
(b) Copy of report as Controlling Trustee.
(c) Statement by Debtor pursuant to Section 188A of the Act.
(d) List of Creditors.
(e) Copy of Statement required by Section 189Bof the Act.
(f) Statement headed Information in Respect of Conduct of Part X Meetings.
(g) Proxy Form (yellow).
(h) Proof of Debt for Voting (blue).
30. By letter dated 10 November 2006 from the Second Respondent to the Insolvency and Trustee Service Australia (ITSA) enclosed the following documents:
(a) circular letter;
(b) a notice of meeting;
(c) a statement about the possible resolutions that may be passed at the meeting;
(d) information in respect of the conduct of Part X meetings;
(e) a report by the controlling trustee pursuant to s189A;
(f) a proxy form; and
(g) a proof of debt form.
31. By letter dated 22 November 2006 from the Second Respondent to ITSA it was stated that the First Respondent’s proposal for a personal insolvency agreement had been passed by special resolution at a meeting of creditors on 20 November 2006.
32. By letter dated 28 November 2006 from John Micallef & Co to Mills Oakley it was stated that the First Respondent was currently entering into Part X arrangements and an indication was sought of the First Applicants position.
33. On 5 December 2006 the First Respondent signed a personal insolvency agreement pursuant to which the First Respondent agreed to pay the Second Respondent $20,000.00 over a four year period after acceptance of the offer by creditors.
34. By letter dated 5 December 2006 from the Second Respondent to ITSA a copy of the personal insolvency agreement dated 5 December 2006 and signed by the First Respondent and the Second Respondent was enclosed.
35. By letter dated 21 December 2006 from ITSA to the Second Respondent a Certificate of Appointment of the Second Respondent as Controlling Trustee was enclosed.
36. By letter dated 17 January 2007 from John Micallef & Co to Mills Oakley it was requested that the First Applicant’s instructions be obtained as the First Respondent had been discussing Part X arrangements for some time.
37. By letter dated 23 January 2007 from John Micallef & Co to Mills Oakley it was stated that the First Respondent had entered into Part X arrangements and instructions were being sought from the First Respondent and the Second Respondent.
38. On 31 January 2007 a copy of the Circular letter dated 10 November 2006 from the Second Respondent addressed “To The Creditor” and the attachments listed in that letter including amongst other things the report of the Second Respondent were forwarded by facsimile transmission from Ryan Insolvency Pty Ltd to Mills Oakley.
39. By facsimile transmission header dated 1 February 2007 from Mills Oakley to Ryan Insolvency Pty Ltd notice was given that;
(a) the personal insolvency agreement did not comply with the Act;
(b) Macquarie Leasing, Suncorp and Surdex Steel must be informed of the First Applicant’s debt and the deficiencies in the Agreement; and
(c) the Second Respondent had a duty under sections 190A(d) and (e) of the Act to consider that the First Respondent had committed an offence under the Act and then refer the matter of the First Respondent’s breaches under section 268 of the Act to the appropriate authorities.
40. By facsimile transmission header dated 1 February 2007 from Ryan Insolvency to Mills Oakley it was stated that:
(a) all other creditors including the First Applicant would be dealt with separately;
(b) the Controlling Trustee was aware of the First Applicant at all times;
(c) the personal insolvency agreement was not binding on the First Applicant as it was not included as a creditor; and
(d) the personal insolvency agreement was executed on 5 December 2006.
41. By facsimile transmission header dated 2 February 2007 from Ryan Insolvency to Mills Oakley a copy of the personal insolvency agreement was enclosed.
42. By letter dated 9 February 2007 from Mills Oakley to ITSA it was stated that Mills Oakley acted for the First Applicant a creditor of the First Respondent, the First Applicant had not been made aware of the existence of the signed personal insolvency agreement until 23 January 2007 and that in those circumstances the First Applicant believed that the First Respondent was not entitled to enter into the personal insolvency agreement.
43. On 12 February 2007 the First Applicant entered judgment against the First Respondent in the County Court proceeding in default of Defence in the amount of $151,209.67.
44. By letter dated 15 February 2007 from Mills Oakley to Ryan Insolvency a request was made for the Trustee to provide answers as to whether Macquarie Leasing, Suncorp and Surdex Steel were notified of the existence of other creditors of the First Respondent and whether any dividend had been paid.
45. By letter dated 15 February 2007 from ITSA to the Second Respondent a request was made for the Second Respondent to inform which section of the Act supported the determination that the First Respondent could choose only selected creditors to be included in the Personal Insolvency Agreement and why the First Applicant had been omitted.
46. By letter dated 17 February 2007 from Ryan Insolvency to Mills Oakley it was stated that Macquarie Leasing, Suncorp and Surdex Steel were not advised in the Second Respondents Report of any other debts owed by the First Respondent and that no dividend had been paid to the creditors.
47. By letter dated 19 February 2007 from Mills Oakley to ITSA a copy of correspondence passing between Mills Oakley and the Second Respondent was enclosed.
48. By letter dated 28 February 2007 from the Second Respondent to ITSA the Second Respondent stated that he relied on s229(3) of the Act which allowed for the personal insolvency agreement to include selected creditors leaving the rights of other creditors to pursue a debtor unaffected, he further relied on instructions provided in a training session conducted by ITSA in 2004 and the First Applicant was not able to be included in the signed personal insolvency agreement as it was not a specified creditor.
49. On 5 March 2007 Brenda Mundie, Inspector in the Bankruptcy Regulation Branch of ITSA, telephoned the Second Respondent. In reply to the question by Ms Mudie as to when the Second Respondent became aware that the First Respondent owed a debt to the First Applicant the Second Respondent said he had known of the debt from the beginning.
50. By letter dated 22 March 2007 from ITSA to the Second Respondent responses were sought in regard to a number of questions in relation to the conduct of the administration of the First Respondent’s property.
51. By letter dated 30 March 2007 from the Second Respondent to ITSA a response was provided to those questions.”
It is noted that the background set out in those contentions included a number of footnotes which accurately cross referenced to affidavit material filed in the Application. I have not included those footnotes. It is not necessary to recite in detail the affidavit material save to note that I accept that the footnotes referred to in that background summary are accurate and supported by the appropriate affidavit evidence.
It will be apparent from the contentions that the orders already made by the Court were entirely appropriate in the exercise of the Court’s discretion.
The key items of background information relevant however to the question of costs would appear to be paragraphs 61 to 64 which for convenience I restate in the following bullet point form:-
· The Second Respondent was aware of the fact that the First Applicant was a creditor of the First Respondent and was required to give the First Applicant notice of the meeting in accordance with s64A of the Act.[1]
· As a result of the fact that the First Applicant was not served with the documents listed in paragraph 60 the First Applicant was not aware of the meeting, did not attend the meeting and did not have the opportunity to vote.
· If the First Applicant had voted against the personal insolvency agreement the resolution would not have passed as the requirement for a special resolution to be voted for by three quarters of the value of creditors present would not have been achieved.
· The First Applicant did not receive notification from the Second Respondent after the personal insolvency agreement had been signed by the First and Second Respondents.
Submissions
[1] Letter dated 1 February 2007 from Ryan and Associates to Mills Oakley exhibit “MDW 11”.
First Applicant’s Submissions
The First Applicant submitted that it is appropriate to make an order that the Second Respondent pay the First Applicant’s costs of the Application. There are three grounds relied upon as follows:-
The Second Respondent’s failure to comply with his duties as Trustee, in particular failing to notify the First Applicant of the giving of an authority under s.188
Omitting to include the First Applicant as a Creditor in the report
Failing to serve the First Applicant with the following documents in accordance with Part X of the Bankruptcy Act 1966:-
oThe Notice of Meeting
oThe Controlling Trustee’s report
oThe written declaration of the Controlling Trustee
oWritten statement about the special resolutions under s.204 that may be reasonably be expected to be passed as a meeting of creditors
It was submitted that the Second Respondent at all material times was aware of the First Applicant’s debt and that the First Applicant was a Creditor of the First Respondent. Accordingly it was submitted the Second Respondent was required to give the First Applicant notice of the meeting in accordance with s.64A of the Bankruptcy Act.
It was further submitted that as a result of the fact that the First Applicant was not served with the documents set out above, that the First Applicant was then not aware of the meeting referred to earlier in this judgment which was to occur on 10 November 2006. It was argued that the First Applicant not being aware of the meeting accordingly did not attend the meeting and was denied the opportunity to vote. Had the First Applicant voted against the Personal Insolvency Agreement it was submitted the resolution would not have passed as the requirement for a special resolution to be passed by three-quarters of the value of creditors present would not have been achieved. It should be noted that the intention to vote in this manner is not crucial or necessarily relevant to the application concerning costs. It was noted however that the First Applicant did not receive notification from the Second Respondent after the Personal Insolvency Agreement had been signed by the First and Second Respondents.
Many other arguments were raised in relation to the chronology of events which led the Court to set aside the Personal Insolvency Agreement and those arguments are not now relevant to the question of costs. It is significant to note however that one of the arguments raised concerning the Court’s exercise of discretion as to whether to set aside the Personal Insolvency Agreement was the failure of the Statement of Affairs to disclose the Applicant’s claim even though it was then a contingent debt.
Second Applicant’s Submissions
The Second Applicant submitted that upon making the orders referred to earlier it should follow that the costs of the proceedings ought to be paid by the Second Respondent on the basis that his conduct gave rise to the proceeding and as indicated earlier those costs should not be indemnified out of the Bankrupt Estate of the First Respondent. Reference again was made to the failure to notify the First Applicant of the fact that the First Respondent had given a s.188A authority and failure to provide information about the debt owed to the First Applicant. Likewise, it was reiterated that there was a failure to notify the First Applicant of the meeting of creditors held on 13 October 2006 and failure to notify the First Applicant of the execution of the Personal Insolvency Agreement.
Second Respondent’s Submissions
In fairness it should be noted that the Second Respondent through Counsel has candidly acknowledged that a mistake was made at least to the extent of a failure to notify the First Applicant and failure to report the debt owed to the First Applicant and as I understood it the other criticisms made the detailed submissions of the Applicants were not significantly challenged.
It was submitted for the Second Respondent that some attempt was at least made by the Second Respondent to terminate the Personal Insolvency Agreement and this occurred by correspondence dated
17 April 2007 (Exhibit 2R1). I do note however that in response to that letter the solicitors for the Insolvency and Trustee Service Australia by letter dated 23 April 2007 (Exhibit 2A1) stated that it was considered the proposal to terminate the Personal Insolvency Agreement was improper for two reasons, first the validity of the agreement is in issue and currently before this Court and secondly, the notice to creditors proposing termination did not properly specify a reason for termination.
Nevertheless it was submitted by Counsel for the Second Respondent that that endeavour by the Second Respondent should be regarded as relevant by the Court in considering the exercise of its discretion concerning costs. The Trustee it was submitted should not be ordered to pay costs but rather should be indemnified for his costs.
Reasoning
In my view there have been clear failures on the part of the Second Respondent of the kind outlined for and on behalf of both Applicants.
I accept their submissions and the legal consequences that flow identified in those submissions.
I do not regard the Second Respondent’s conduct as being saved by the purported or attempted termination of the Personal Insolvency Agreement. I accept that that attempt was flawed for the reasons advanced in the correspondence referred to earlier from the solicitors for ITSA.
I further accept that it is appropriate in a case of this kind for the Second Applicant to become involved in these proceedings as there are clear principles which need to be addressed and I am satisfied having regard to the role of the Second Applicant that the involvement of the Second Applicant was entirely appropriate and proper in the circumstances.
In my view it follows therefore that there should be an order for costs against the Second Respondent and that order should include an order that the Second Respondent pay the costs of the First and Second Applicants.
Whilst I accept that there has been a genuine error made by the Second Respondent and it has been described by Counsel as “an expensive lesson for the Trustee”, that does not in my view for the reasons advanced based on the arguments provided by the Applicants persuade me that I should refuse to make the order for costs sought on behalf of the Applicants.
In my view the appropriate order is as follows:-
The Second Respondent shall pay the Applicants’ costs including reserved costs if any to be taxed in default of agreement pursuant to Order 62 of the Federal Court Rules.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 13 July 2007
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