Glover v Roche - [2003] FMCA 576

FEDERAL MAGISTRATES COURT OF AUSTRALIA

GLOVER & ANOR v ROCHE & ANOR

[2003] FMCA 576

BANKRUPTCY – Appointment of trustee upon the making of a sequestration order – whether the Court appoints a trustee or whether a trustee is appointed by force of the Act considered – registered trustee appointed upon filing a consent to act with the Official Receiver – manner in which a consent may be filed considered – whether a consent must be filed prior to the making of a sequestration order considered.

REMOVAL OF TRUSTEE – Whether the registered trustee had a conflict of interest considered.

Bankruptcy Act 1966 (Cth), ss.58, 153B, 156A, 157, 160, 272

Bankruptcy Regulations
Federal Court Rules

Neil Keith Smith; ex parte Kern Corporation Limited (unreported, Pincus J, 19 June 1985)

First Applicant:

Second Applicant:

PETER RICHARD GLOVER

PETER LENNOX SHEILS

First Respondent:

Second Respondent:

CHRISTOPHER ROCHE

BARRY JOSEPH ROCHE

File No:

CZ17 of 2003

CZ31 OF 2003

Delivered on:

2 December 2003

Delivered at:

Canberra via telephone to Sydney and Brisbane

Hearing date:

2 December 2003

Judgment of:

Driver FM

REPRESENTATION

Counsel for the Applicants:

Dr D Hassall

Solicitors for the Applicants:

Peter R Glover

Solicitors for the First Respondent:

Mr R Cowen

Tucker & Cowen Solicitors

Solicitors for the Second Respondent:

Mr B Spinks
Robinson Legal

ORDERS – CZ17 of 2003

The Court declares that, upon the making of sequestration orders against the estates of Christopher Roche and Barry Joseph Roche on 30 October 2003, William Balfour Rangott became the registered trustee of the bankrupt estates of the bankrupts pursuant to s.156A(3) of the Bankruptcy Act 1966 (Cth).
There be no costs order in respect of costs incurred after 30 October 2003 arising out of order 4 made by this Court on 30 October 2003.
The applicants on the motion filed in court on 2 December 2003 for the removal of William Balfour Rangott as trustee of the bankrupt estates be granted leave to amend the notice of motion to delete the bankrupts as applicants.
The motion by Pilor Pty Ltd pursuant to s.156A(4) of the Bankruptcy Act for the removal of William Balfour Rangott as the trustee of the bankrupt estates is dismissed with costs.
The bankrupts are released from undertakings not to leave Australia given prior to the making of sequestration orders against their estates on 30 October 2003, noting that the undertakings are otiose, having regard to the operation of s.272(1)(c) of the Bankruptcy Act.
The bankrupts’ passports held by, or under the control of, this Court shall be given to the trustee, William Balfour Rangott, for safekeeping as soon as is practicable.

ORDERS – CZ31 of 2003

Order 1 sought in the notice of motion filed in court by leave on 2 December 2003 is granted.
William Balfour Rangott, in his capacity as trustee of the bankrupt estates of Christopher Roche and Barry Joseph Roche, be joined as an applicant to the proceedings instituted Peter Richard Glover and Peter Lennox Sheils on 20 November 2003.
Order 1 made by Stone J on 21 November 2003 be amended by addition at the end of that order the following words:
“except where not less than seven days notice is given by the bankrupts of any such disposition to Mr Rangott, as trustee of their bankrupt estates”.
William Balfour Rangott has liberty to take such further steps as he considers appropriate in pursuance of the proceedings instituted by Peter Richard Glover and Peter Lennox Sheils, but in default of any further steps being taken by him within 14 days of the date of this order, order 1 made by Stone J on 21 November 2003 is discharged by force of this order.
Costs in these proceedings are reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
CANBERRA

CZ17 of 2003

CZ31 of 2003

PETER RICHARD GLOVER

First Applicant

PETER LENNOX SHEILS

Second Applicant

And

CHRISTOPHER ROCHE

First Respondent

BARRY JOSEPH ROCHE

Second Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

I have before me an unresolved issue arising out of bankruptcy proceedings that were before the Court in Brisbane before Federal Magistrate Rimmer, on 30 October 2003. On that day, Federal Magistrate Rimmer did a number of things. She annulled the bankruptcy of Christopher Roche, which commenced on 10 September 2003, upon the acceptance by the Official Receiver of a debtor’s petition presented by Mr Roche. That annulment, although not specifically stated, was made pursuant to s.153B of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”).
Secondly, Her Honour made orders in respect of creditors’ petitions that I am told had been presented some two days before they were heard. There had been earlier creditors’ petitions filed, but the petitions that were dealt with by the Court on 30 October 2003 were those filed some two days before the hearing. Her Honour ordered that a sequestration order be made against the estate of Christopher Roche and the estate of Barry Joseph Roche on those creditors’ petitions. Thirdly, Her Honour ordered that the costs of the petitioning creditors, and other interested creditors, be agreed or taxed in accordance with the Federal Court Rules and paid from the estates of the respondents in accordance with the Bankruptcy Act.
Fourthly, and for present purposes importantly, Her Honour ordered that the application, which I take to mean the creditors’ petitions, be adjourned to determine the issue of the appointment of a private trustee, to a Federal Magistrate sitting in Canberra, for not more than two hours hearing at 10.00am 27 November 2003. Due to my unavailability on that day, the matter is being dealt with before me today.
I have the benefit of the transcript proceedings before Federal Magistrate Rimmer on 30 October 2003. It is apparent to me from that transcript that, in the circumstances, and given the state of the material in which Her Honour found herself dealing with, she considered herself unable to make any decision on whether a registered trustee was the trustee of the bankrupt estates pursuant to the petitions. With that in mind, Her Honour expressed the view that in the absence of any decision or declaration by her that there was a registered trustee, the Official Trustee was the trustee of the bankrupt estates, at least on an interim basis until the issue of the identification of the trustee was resolved by the Court.
I have had the benefit of seeing written submissions and also hearing oral submissions from Mr Cowen and Mr Hassall. I have also heard from Mr Begbie. I thank them for the assistance rendered to the Court in the resolution of what is an unusual situation and a novel issue. Sections 156A and 160 of the Bankruptcy Act are particularly relevant. Section 160 of the Bankruptcy Act provides that:
If at any time there is no registered trustee who is the trustee of the estate of a bankrupt, the Official Trustee shall, by force of this section, be the trustee of the estate.
It follows that the default position under the Bankruptcy Act is that the Official Trustee is the trustee of a bankrupt estate. It is, in my view, also apparent from the scheme of the legislation that there cannot be a bankruptcy under the Act without there being a trustee to administer the bankrupt estate. Section 156A of the Bankruptcy Act relevantly provides as follows. Subsection (1) provides that:
A registered trustee may, by instrument signed by him or her and filed with the Official Receiver, consent to act:
a)as the trustee of the estate of the debtor specified in the instrument in the event that the debtor becomes a bankrupt; or
b)as the trustee of the joint and separate estates of such of the debtors specified in the instrument, being members of a partnership or joint debtors who are not in partnership with one another, as may become bankrupts, or, if only one of those debtors becomes a bankrupt, as the trustee of the estate of that debtor.
Subsection (2) provides that an instrument under subsection (1) shall be in accordance with the approved form. Subsection (3) provides that:
Where:
a)at the time when a debtor becomes a bankrupt, a registered trustee has, under subsection (1), consented to act as the trustee of the estate of the debtor and the consent has not been revoked, the registered trustee becomes, at that time, by force of this subsection, the trustee of the estate of the bankrupt; and
b)at the time when 2 or more debtors, being members of the partnership or joint debtors who are not in partnership with one another, become bankrupts, a registered trustee has, under subsection (1), consented to act as the trustee of the joint and separate estates of those debtors and the consent has not been revoked, the registered trustee becomes, at that time, by force of this subsection, the trustee of the joint and separate estates of those bankrupts.
It is possible that Federal Magistrate Rimmer and some of those appearing before her proceeded in the belief that it was open to the Court to appoint a trustee. If that belief was held, it was an erroneous belief. For the purposes of ss.156A(3) and 160 of the Bankruptcy Act, the Court does not appoint a trustee. I do not rule out the possibility that a trustee may be appointed by order of the Court in other circumstances[1], but for the purposes of these proceedings, I do not see any circumstance as being relevant at this time.
[1] For example when S156A(5) of the Act
There is practically no authority on the point. However, I have been referred to an unreported decision of His Honour Pincus J on 19 June 1985 in the matter of Neil Keith Smith; ex parte Kern Corporation Limited. In that decision on page 3, His Honour said:
Lastly, it was argued on behalf of the debtor that I had a discretion not to appoint the registered trustee who had consented to act, Mr Burns. That appears not to be correct: see s.156A(3). The effect of that provision is that once the trustee has consented to act the sequestration order has the effect of making him the trustee of the estate; it is for that reason that the usual form of order merely notes that the registered trustee has consented to act and does not appoint him. I will make a sequestration order.
I agree with His Honour's reasoning. In my view, that is the only interpretation open from a plain reading of ss.156A and 160. It follows that the question to be resolved by me is one of fact, namely, did a registered trustee consent to act as the trustee of these bankrupt estates pursuant to s.156A(3) prior to the debtors becoming bankrupt?
The factual issue is relevantly dealt with in an affidavit by Peter Karl Olsen, filed in court today. Mr Olsen is employed by the Insolvency Trustee Service Australia as the Senior Assistant Official Receiver. He relevantly deposes that he was present at court in Canberra for the hearing of the creditor's petition on 30 October 2003.
It is apparent from the transcript of proceedings that the annulment of the pre-existing bankruptcy of Christopher Roche was dealt with first and the creditor's petitions were dealt with afterwards. Mr Olsen deposes that following the lunch time adjournment (it may in fact have been earlier, but I do not regard that as material) and prior to the making of sequestration orders in respect of the bankrupt estates, Mr Robert Montegino, a law clerk in the employ of Peter Glover, handed to him four form 12 consents to act as trustee forms containing the consent of William Balfour Rangott to act as trustee in the joint estate of Christopher Roche and Barry Joseph Roche and the estate of Christopher Roche and the estate of Barry Joseph Roche.
Mr Olsen further deposes that:
These forms are dated 28 October 2003, however, they were received by me on 30 October 2003, and upon returning to the office that afternoon I processed the forms and arranged for the appropriate details concerning the making of the sequestration order by Federal Magistrate Rimmer to be entered on ITSA’s computerised data base.
Mr Olsen further deposes, in paragraph 5 of his affidavit:
As is the practice in our office I attached to the Form 12 relating to the estate of Christopher Roche and the Form 12 relating to the joint estate of Christopher Roche and Barry Joseph Roche a date stamp from ITSA indicating they were received on 30 October 2003. It was an oversight that a date-stamp was not printed on the Consent to Act as Trustee form relating [to] the estate of Barry Joseph Roche as a duplicate joint petition prepared by Mr Rangott was stamped instead.
Mr Olsen deposes that copies of the four Form 12s handed to him by Mr Montegino are annexed to the affidavit. He further deposes that the time on the date stamp is not accurate as this aspect of the stamp is inoperative:
However, my recollection, as referred to above, is that the documents were handed to me at approximately 1.30pm on 30 October 2003.
It is apparent from what follows that the position of ITSA is that it has no objection to Mr Rangott's appointment as trustee pursuant to s.156A(3). I find, on the basis of Mr Olsen's affidavit and the annexures, that consents to act by William Balfour Rangott as registered trustee of the joint and individual estates of Christopher Roche and Barry Joseph Roche, were signed by him in the approved form on 28 October 2003.
I also find, on the basis of Mr Olsen's affidavit, that those forms were handed to Mr Olsen as an authorised representative of the Official Receiver in the Australian Capital Territory on 30 October 2003 in the court premises in Canberra prior to the making of the sequestration orders made by Federal Magistrate Rimmer on that day. Mr Olsen agreed to receive them.
Those facts do not in themselves finally resolve the issue of whether Mr Rangott is the registered trustee of these estates pursuant to s.156A(3). There is another issue to resolve. That is whether the relevant consents were filed with the Official Receiver, prior to the sequestration orders being made, pursuant to s.156A(1) of the Bankruptcy Act and, if they were not, whether that matters, for the purposes of the identification of a trustee, under s.156A(3).
Mr Hassall and Mr Cowen have referred me to various authorities which, while they are of some interest, do not help particularly in resolving this question. It is apparent that filing with the Official Receiver is an administrative process. The legislation was amended in 1996 in order to remove the need for consents to act to be filed in the Court and instead to provide that they be filed with the Official Receiver. The Parliamentary intention, in my view, was to simplify the procedure and to provide an administrative process, at least for record keeping purposes, in relation to the appointment of registered trustees under the Act.
Two regulations made under the Bankruptcy Act are relevant. The first is regulation 16.02(2). That sub-regulation provides that:
Where sub-regulation (1) applies, the document is taken to be received, filed or lodged only when the document, or where applicable, a copy of it, is actually received by, or on behalf of the Inspector General or the Official Receiver, as the case requires.
Sub-regulation 16.02(1) makes provision for various means of transmitting documents to the Official Receiver or the Official Trustee. The opening words of regulation 16.02(1) are:
Unless the contrary intention appears, where a document is required or permitted by the Act or these Regulations to be given or sent to, or filed, or lodged with, the Inspector-General, the Official Receiver or the Official Trustee, the document must...
Various paragraphs then follow. One relates to posting, one relates to facsimile transmission and one relates to sending by another mode of electronic transmission. One apparent effect of this regulation is to establish that a document is filed with the Official Receiver when it is actually received by or on behalf of the Official Receiver. The regulation is not particularly helpful because sub-regulation 16.02(2) appears to be limited to transmission documents by one of the methods specified in sub-regulation 16.02(1).
In the present case, we are not dealing with a document posted or sent by facsimile or sent by some form of electronic transmission. We are dealing with a document handed personally to an official from ITSA, with apparent authority to receive the document. The position of the Official Trustee is that the Official Trustee was willing and able to receive the consents in the manner in which they were presented by hand on 30 October 2003.
I find that regulation 16.02 does not apply in the present circumstances. I do not regard the regulation as exhaustive of the methods by which a document may be filed with the Official Trustee. It remains an open question how a document is filed with the Official Trustee when it is filed by hand. Logically, one would expect that something would be placed on the face of a document when it is presented to the Official Trustee and filed. I accept Mr Hassall's submissions that filing with the Official Trustee for the purposes of s.156A(1) is not, or at least is not necessarily, the same thing as filing a document in the registry of a court. It may be that the language of the Act has not properly caught up with Parliament's intention to replace a formal with a more informal procedure.
In my view, it is not inconsistent with s.156A(1) of the Bankruptcy Act for a document to be presented by hand to an authorised representative of the Official Receiver and received by that representative at a place where the representative is willing and able to receive it. That place may be an office of the Official Trustee, but it need not necessarily be so. Provided that an authorised representative of the Official Trustee is willing and able to accept the document, in my view, the requirement for filing under s.156A(1) of the Bankruptcy Act is satisfied wherever the document is presented.
On that basis, I find that the consents to act by Mr Rangott were filed with the Official Trustee when they were presented by hand in court to an authorised representative of the Official Receiver on 30 October 2003 prior to the making of the sequestration order.
It follows that I find that the requirements of s.156A(3) were satisfied and that Mr Rangott, upon the making of the sequestration order later in the day on 30 October 2003, became the trustee of the bankrupt estates by force of s.156A(3). It also follows that the purported identification by Federal Magistrate Rimmer of the Official Trustee as trustee of the bankrupt estates upon the making of the sequestration orders on that day was ineffective. It was ineffective because Mr Rangott was appointed as registered trustee immediately upon the making of the sequestration orders by force of the Act. There was no appointment of anyone else open to the Court.
If I am wrong in the conclusions that I have reached about the filing of the consents to act with the Official Receiver prior to the making of the sequestration order, then, for completeness, I will refer to regulation 8.06 of the Bankruptcy Regulations. That regulation provides that a trustee who signs an instrument under subsection 156A(1) of the Act in relation to a debtor must file the instrument with the Official Receiver as soon as practicable after signing it, or if the Court makes a sequestration order against the debtor's estate, not later than two working days after the day on which the order was made.
This is a curious regulation because, on its face, s.156A appears to require that a consent to act be filed with the Official Trustee prior to the making of a sequestration order, at least for the purposes of the identification of a registered trustee. It is possible that the regulation is invalid to the extent that it purports to authorise a consent to act to be filed after the making of the sequestration order. However, a court, particularly a lower level court, as this Court is, should not be too quick to find that a regulation is invalid.

If there is an interpretation of the regulation which is reasonably open and pursuant to which the regulation remains valid, then the Court should, in my view, prefer that interpretation. One possibility is that the regulation has some work to do apart from the identification of a registered trustee under s.156A(3). That seems unlikely, in my view, and it is not apparent to me what that work would be.
For example, it would be ridiculous to require a consent to act as a registered trustee to be filed within two days of the making of a sequestration order in the event that the creditors wished to change the trustee following the making of the sequestration order. The creditors clearly have that power under s.157 of the Bankruptcy Act. It seems to me that the regulation was intended to bear upon the identification of a registered trustee under s.156A(3).
The other possibility is that the important thing that a registered trustee must do prior to the making of a sequestration order is to consent to act by signing a consent in the approved form. That is, in my view, consistent with Parliament's intention to simplify the procedure by substituting an administrative process of filing with the Official Receiver for the earlier, more formal, process of filing consents to act in the Court.
It is necessary in order to give effect to that interpretation to read s.156A in a way which divides for the purposes of subsection 156(3), the signing of the instrument from the filing of the instrument. That interpretation is, in my view, reasonably open. That is the interpretation which preserves the validity of the regulation and it is the interpretation which I adopt for the purposes of these proceedings, should I be wrong in my first determination as to when the consents were filed.
I find, therefore, as an alternative finding, that pursuant to regulation 8.06, it was open to the registered trustee to file with the Official Receiver his consents to act, for the purposes of s.156A(3), within two days of the making of the sequestration order. There is no doubt that the consents to act were filed in an office of the Official Trustee on the afternoon of 30 October 2003, following the making of the sequestration order.
I confirm, therefore, that Mr Rangott is the trustee of these bankrupt estates and has been the trustee of these bankrupt estates since the sequestration orders were made on 30 October 2003.
I have decided to make no order as to costs in respect of this unresolved issue on the creditor's petition. I should make no order as to costs in respect of the resolution of this issue, given the circumstances in which the sequestration orders were made, on a short service basis and in some confusion, given competing debtor’s and creditor’s petitions, and the need for an annulment of the debtor’s petition, and given the inability of the Federal Magistrate on 30 October 2003 to finally resolve the issue of the identification of the trustee. The issue is one of some novelty. I do not think any party is particularly at fault in the issue having to be deferred for resolution today. I do not and probably cannot purport to disturb the costs order made by Federal Magistrate Rimmer on 30 October 2003. I will order that there be no order as to costs in respect of any costs incurred in the proceedings after that day until today, when the issue, which was adjourned by Federal Magistrate Rimmer, was resolved.
I also have before me a motion seeking the removal of William Balfour Rangott as trustee of the bankrupt estates of Christopher Roche and Barry Joseph Roche. The motion is brought pursuant to s.156A(4) of the Bankruptcy Act by Pilor Pty Limited (“Pilor”) which claims to be a creditor in the bankrupt estates. The motion is supported by at least two other creditors. The motion is opposed by the petitioning creditors and by the registered trustee, Mr Rangott. The Official rRceiver takes no position either in support or in opposition of the motion.
At the outset a question arose as to whether the motion is brought pursuant to paragraph (a) or paragraph (b) of section 156A(4). Mr Cowen, for the creditor on the motion, put to me that the motion is principally brought under paragraph (b) but paragraph (a) is also called in aid to the extent that paragraph (b) is insufficient. Essentially, the creditor, Pilor, does not assert that Mr Rangott is not a fit and proper person to be a trustee generally. Pilor submits that Mr Rangott should not be the trustee of these estates.
Pilor proceeds on the basis of its motion and affidavits by Christopher Roche filed on 24 September 2003 and 24 October 2003, the orders of Federal Magistrate Rimmer made on 30 October 2003 in relation to the creditor's petitions, the affidavit of Michael Hart filed 14 November 2003, the affidavit of John Moncrieff filed 21 November 2003, the affidavit of Richard Cowen sworn 28 November 2003 and in addition, the affidavit of Marion Beckman filed on 2 December 2003.
Mr Spinks, in supporting the motion, relies upon his own affidavit filed on 2 December 2003. Mr Cowen presented written and oral submissions in support of the motion. As I understand those submissions, the concern of Pilor is primarily that Mr Rangott has earlier had dealings with the bankrupts in the course of acting as a receiver pursuant to an appointment made by the ACT Supreme Court.
That appointment was made earlier this year as part of efforts by the petitioning creditors as judgment creditors to gain relief in the execution of the judgment in their favour. Pilor is concerned that in pursuance of that role, Mr Rangott has put himself in a conflict of interest in a number of respects and they are set out in the submissions presented by Mr Cowen.
In addition, Mr Cowen raised a matter of convenience in as much as the registered trustee operates out of the ACT, whereas the bankrupts and at least some likely creditors are located in Queensland. I only regard the issue of convenience as having any relevance if there is substance to the objection to the trustee on the basis of his dealings with the bankrupt. In my view, there is no substance to that objection.
The mischief which s.156A(4)(b) of the Bankruptcy Act was plainly enacted to deal with was the mischief that a trustee in assenting to act as a registered trustee may have some association with a bankrupt. By reason of that association, the trustee may be an inappropriate person to administer the bankrupt estate. It is significant that s.156A(4) is silent on the question of any association between the trustee and a creditor. It is noteworthy that the section is in different terms from s.157(6)(c) of the Bankruptcy Act.
While the objection is presented by Pilor on the basis of an asserted association with the bankrupt, that association is purely factual in relation to the past efforts by the petitioning creditors to recover their judgment debts. The trustee plainly has had an association with the petitioning creditors. The role of the trustee in administering the bankrupt estates is obviously a broader one. The trustee must act in the interests of all creditors and not simply the petitioning creditors.
Possibly with that in mind, Mr Rangott has recently sought to resign his position as receiver, pursuant to the orders made in the Supreme Court. It may be that the consent of that Court is required for the trustee to relinquish that role. It does not appear that that consent has been forthcoming to date. However, I am inclined to think that it may not matter. Section 58(3) provides that:
Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a)to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b)except with the leave of the Court and on such terms as the court thinks fit, to commence any legal proceeding in respect of a provable debt or to take any fresh step in such a proceeding.
In the circumstances, I rather doubt that an occasion will arise during the course of the bankruptcy for the receivers to pursue the role conferred upon them by the Supreme Court. I do not rule out the possibility that they may have to. I do not rule out the possibility that the trustee may, in the course of the administration of the bankrupt estates, confront a difficulty or embarrassment.
The Bankruptcy Act makes provision for the resignation of a trustee. If the trustee feels that he cannot continue at some future time, he can resign. The Bankruptcy Act also makes provision for the removal of a trustee by the creditors at a meeting of creditors. If the creditors become dissatisfied with the performance of the trustee, they can act.
Finally, the Court has jurisdiction to investigate the conduct of a trustee and to remove a trustee upon such investigation. If, in the future, in the administration of these bankrupt estates such an investigation is called for, it could be dealt with. The present application is, in my view, premature. There is nothing, in my view, in what Mr Rangott has done to this point which disqualifies him from acting as trustee. It may, indeed, provide him with an advantage in that he has, in pursuing matters previously on behalf of the judgment creditors who became the petitioning creditors, developed an understanding of the property and affairs of the bankrupts.
He has had no objectionable association with the bankrupts, either personally or in relation to their affairs. Accordingly, I will dismiss the motion with costs.

I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 23 December 2003