Dunlop, B.N. v The Inspector-General in Bankruptcy
[1990] FCA 564
•25 SEPTEMBER 1990
Re: BRIAN MALCOLM DUNLOP
Ex parte: THE INSPECTOR-GENERAL IN BANKRUPTCY
No. T846
FED No. 564
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
Gummow J.(1)
CATCHWORDS
Bankruptcy - Deeds of Assignment under Part X - application by Inspector-General in Bankruptcy for recovery of unaccounted moneys arising from breach of duty by trustee - - files relating to administration of estates destroyed by trustee - not fraudulent conduct - also breach of statutory duties by trustee to keep records etc. - s. 212 Bankruptcy Act 1966 - supervening bankruptcy and discharge of trustee - effect thereof upon subsequent application under s. 212.
Bankruptcy Act 1966
Bankruptcy Amendment Act 1980
Bankruptcy Amendment Act 1987 Companies Act 1961 (N.S.W.)
Arnotts Limited v Trade Practices Commission (No. 1) (1989) 21 FCR 297
Re Buena Vista Motors Pty Ltd (In Liq.) (1971) 1 NSWLR 72
Re Vassis; Ex parte Leung (1986) 9 FCR 518
HEARING
SYDNEY
#DATE 25:9:1990
Counsel and solicitors: M.R. Aldridge Esq. instructed by the
for the Applicant Australian Government Solicitor.
Counsel and solicitor: R.G.L. Davies Esq. instructed for the Respondent by Peter L. Colquhuon and Co., Albury
JUDGE1
This application was filed on 22 June 1990. The Inspector-General in Bankruptcy seeks an order pursuant to either of or both s. 176 and s. 212 of the Bankruptcy Act, 1966 ("the Act") that the respondent, Brian Malcolm Dunlop, pay $20,388 to the estates of Dennis James Yarwood and Sandra Lee Yarwood, Nos NX195 of 1979 and NX196 of 1979 respectively; this sum is said to be the loss sustained by those estates as a result of the breach of duty by Mr Dunlop as trustee of those estates.
On 30 October 1979, Mr and Mrs Yarwood each executed a deed of assignment in pursuance of Part X of the Act and Mr Dunlop was appointed trustee. On 5 February 1985, a sequestration order was made against Mr Dunlop, and a Mr Prentice of Messrs Prentice, Parberry and Barilla, a firm of chartered accountants, was appointed trustee of the bankrupt estate.
Shortly thereafter, on 5 March 1985, a Judge of this Court ordered that the registration of Mr Dunlop, as a person qualified to act as a trustee, be cancelled and that the Official Trustee act as trustee of 22 estates under Part X previously administered by Mr Dunlop. Among those estates, were the estates of Mr and Mrs Yarwood.
Mr Dunlop was discharged from his bankruptcy by virtue of the operation of the Act on 5 February 1988. On 7 March 1989, a contested application was made before a Judge of this Court for an examination of Mr Dunlop. The application was successful and further directions were given by another Judge of the Court on 4 April 1989. The examination then took place before Davies J. on 16 May 1989.
In the course of his examination, Mr Dunlop agreed that on 30 April 1982, he had signed a Trustees Account of Receipts and Payments in respect of the two Yarwood estates for the period commencing 1 May 1981 and ending on 30 April 1982. Receipts totalling $22,542.49 were shown as being the proceeds of sale of the house in Melbourne, $13,185.41; proceeds of a sale of a house in Albury, $1,861.64; and proceeds of sale of stock, $7,495.44. Particulars also were given of payments comprising $2,153.66. Included in that sum was trustee's remuneration of $1,337.60.
In his examination, Mr Dunlop said he thought that one further return had been lodged but he had no record of it. He said that in mid to late 1983, the files in respect of these two estates along with other files were destroyed when he ceased his accountancy practice. Mr Dunlop said that as he had sold his practice and had no storage facilities, he took the files in question to the Albury tip and watched them being buried.
As I have indicated, Mr Dunlop remained as a registered trustee until the order made on 5 March 1985. He agreed in his examination that he ceased to be a registered trustee only because an application was successfully made to the Court for his removal. He also agreed that he did not seek permission from the Registrar or the Official Trustee or any other interested party before he destroyed the files in question. He also agreed that in hindsight, the destruction of the files may have had the effect of preventing any investigation in relation to his conduct in the administration of these estates, but he denied that this was part of his thinking when he destroyed the files.
As to the sum of approximately $20,000 that had been disclosed as remaining in the estates of Mr and Mrs Yarwood, Mr Dunlop said that he had a vague recollection that the funds of the estate had been paid to the Australian Taxation Office. However, other evidence which has been produced in response to inquiries by or on behalf of the present applicant indicates that this cannot have been the case.
Mr Dunlop also said in his examination that he understood that as a result of the destruction of the files and the failure to lodge any further accounts, it was impossible to establish, other than through him, what in fact had happened to the moneys in issue.
In an affidavit sworn in response to the present application, Mr Dunlop says he has no recollection of what actually occurred during his administration of the two estates in question. He says he does recall that he had a bond to cover his administration with the New Zealand Insurance Company Limited. That company has since indicated to the applicant that in the event of a court order being made on the present application against Mr Dunlop, it is prepared to meet its liability under the bond and pay to the Commonwealth the total amount of the bond, namely $4,000.
At the examination before Davies J. on 16 May 1989, reference was made by Mr Dunlop to the performance of various tasks in his office by employees, in particular a Mr Peter Thompson. Subsequent inquiries on behalf of the applicant have failed to disclose the existence of any person of that name who could assist in the present inquiries. In that regard, I refer to what is said in para. 8 of the affidavit in support of the application by Mr David Gorney, sworn 21 June 1990. In that affidavit, particulars also are given of numerous inquiries concerning whether accounts were conducted by Mr Dunlop as trustee with various banks in the Albury-Wodonga area, again without success.
The respondent complains of delay in the present matter but, as will be apparent from what I have indicated, any delay is very significantly the product of his own unwillingness, or at least inability, to assist with inquiries in respect of the two estates, when s. 170 of the Act imposed certain liabilities upon him as a trustee to furnish information.
As I have said, the present application is brought under s. 212 and s. 176 of the Act. Section 176 is made applicable through the medium of s. 231. The primary provision, however, is s. 212. As substituted by the Bankruptcy Amendment Act 1980, s. 212 provided as follows:
"212 (1) Where the Registrar is of the opinion, whether as a result of an account furnished to him in pursuance of section 211 or of an audit under that section or for any other reason, that a trustee who is or has been a controlling trustee may have been guilty of malfeasance, misfeasance, negligence, wilful default or breach of trust in relation to the property or affairs of the debtor, the Registrar may apply to the Court for an order under sub-section (2).
(2) The Court may order that the trustee make good any loss that has been sustained by reason of the malfeasance, misfeasance, negligence or wilful default of, or a breach of trust by, the trustee or may make such other order as the Court thinks just and equitable in the circumstances."
The present s. 212 became effective on 31 July 1989, a result of the operation of s. 73 of the Bankruptcy Amendment Act 1987. Sub-section 73 (2) provided that notwithstanding the inclusion of the new provision, the previous s. 212 continued to apply in relation to an application made under s. 212 before the commencement of s. 73 of the 1987 Act. The new s. 212 inserted by s. 73 is as follows:
"212 (1) Where, on application by the
Inspector-General or by a creditor of the debtor, the Court is satisfied that a person who is or has been a controlling trustee in relation to a debtor has been guilty (whether before or after the commencement of this section) of breach of duty in relation to the debtor's property or affairs, subsection (2) applies.
(2) The Court may make any one or more of the following orders:
(a) an order directing the person to make good any loss that has been sustained because of the person's breach of duty;
(b) if the person is registered under section 155 - an order suspending for a specified period, or cancelling, the person's registration under that section;
(c) any other order that the Court considers just and equitable in the circumstances."
It is significant, as counsel for the applicant emphasised, that the new s. 212 is expressed to apply to breaches of duty, whether before or after the commencement of the section. It is also significant that the expression "breach of duty" is used in place of the more detailed collocation in the previous s. 212.
There has been some debate as to the nature and effect of the new s. 212. In my opinion, the section serves a dual function, that is to say, the creation of the right of, inter alia, the Inspector-General to approach the Court and the giving effect to of that right by the administration of the remedy provided for in the section. The dual character of legislation in this form is discussed in various High Court authorities, some of which are collected and referred to by the Full Court of this Court in Arnotts Limited v Trade Practices Commission (No. 1) (1989) 21 FCR 297 at 303-304; cf. Re Buena Vista Motors Pty Ltd (In Liq.) (1971) 1 NSWLR 72 at 74-75; McPherson, "The Law of Company Liquidation", 2nd Ed., 1980, pp. 310-313, as to Companies Act 1961 (N.S.W.), s. 305.
In the present case, I am satisfied on the evidence that there have been breaches of duty by the respondent of a serious character; in particular, there have been breaches of s. 169, s. 170, s. 171 and s. 173 of the Act. These provisions are made applicable to him through the medium of s. 231 of the Act. In addition, the destruction of the files at the Albury tip in 1983 was a serious contravention of the provisions of s. 312 of the Act.
Therefore, if there was nothing else in the case, the Court would be satisfied that the respondent has been guilty of breach of duty in relation to the property or affairs of Mr and Mrs Yarwood's estates, such that on the application of the Inspector-General, the Court would direct the respondent to make good the loss sustained because of the breaches of duty. The loss would be the moneys that cannot be accounted for, that is to say $20,388.
However, counsel for the respondent points to the circumstances that the respondent was discharged from his bankruptcy on 5 February 1988. He points to the effect given to an order of discharge by s. 153 and denies that there was any fraudulent breach of trust which would have the effect of qualifying the operation of the discharge.
Section 82 speaks of the proof of debts and liabilities and includes the demands arising by reason of breach of trust. However, the expression "breach of trust" (as explained by Burchett J. in Re Vassis; Ex parte Leung (1986) 9 FCR 518 at 626-527) is designed to bring in the debt which equity treated as owing by a delinquent trustee by reason of his breach of trust. Here, whilst undoubtedly the general law as to trusts and fiduciaries provides the background to the concepts which are spelled out in the statute, the legislation also has created a special regime imposing specific statutory duties upon persons in the position of Mr Dunlop. I have already referred to five statutory obligations where there has been, in my view, a breach of duty.
Further, the regime created by s. 212 has the effect of creating both a right and a remedy, and the right relied upon here by the applicant is one which was created by the legislature after, not before, the discharge had come into operation. In my view, for that reason alone, the Inspector-General is not successfully met by any claim of discharge flowing from the end of the bankruptcy of Mr Dunlop. Further, the breaches of statutory duty involved here would not, in my view, ordinarily be comprehended by the expression "breach of trust" in sub-s. 82 (2), where in addition to whatever may be the liability of a party at general law, there are specific duties created by the legislature and enforceable in the manner specified by the legislature.
For those reasons, I see no obstacle which is successfully placed in the path of the making of an order under sub-s. 212 (2) of the Act. It then becomes a question of whether the Court should make such an order. I have referred to the complaint as to delay and will not repeat what I said concerning it. The respondent also contends that no order should be made in view of other circumstances. In particular, he points to the circumstances that neither the Federal Police nor the Director of Public Prosecutions has taken any action against him. He also says that he has no recollection of what actually occurred in relation to his administration of the estates. In my view, that last point relied upon emphasises the gravity of the situation that arose with the destruction of the files and the alarming picture of maladministration with which one is left in the absence of an explanation of what happened to these moneys. Even if, as is the case, one stops short of finding fraudulent conduct, there has nevertheless been a grossly negligent and reckless breach of statutory duty.
Accordingly, I make an order in terms of paragraph 1 of the application filed 22 June 1990. You also seek costs, do you?
MR ALDRIDGE: Yes, your Honour.
HIS HONOUR: I also make an order in terms of paragraph 2 and Exhibit A may be handed back.
0
2
0