Goddard, Re I.G. Allen, Ex Parte R.

C A T C H W O R D S

I	BANKRUPTCY - trustees - duties - whether obliged to recover debts due

to estate - application

by Registrar for inquiry

- procedure to

i	be followed - removal of trustee.
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Re:

Ian Geoffrey Goddard

Ex parte:

Robert Arthur Allen & Ors

Qld E181 of 1982

Re:

John Waymouth Ahern and Desmond

William Xniqht

Ex parte:

Robert Arthur Allen & Ors

1	Qld OM2 of 1986
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IN THE FEDEXAIL COURT OF AUSTRALIA

)

I GENERAG DIVISION

)

BANKRUPTCY DISTRICT OF THE SOUTHERN )

DISTRICT OF THE STATE OF OUEENSLAND

)

QLD E181 of 1982

RE:	IAN GEOFFREY GODDARD

EX PARTE: ROBERT ARTHUR ALLEN

Deputy Registrar in Bankruptcy for the

Southern District of the State of

Queensland

Applicant

AND:	JOHN WAYMOUTH AHERN

First Respondent

AND: DESMOND WILLIAM KNIGHT

Second Respondent

QLD OM2 of

1986

RE: JOHN WAYMOUTH AHERN and DESMOND WILLIAM

KNIGHT

l	EX PARTE: ROBERT ARTHUR ALLEN

Deputy Registrar in Bankruptcy for the

Southern District of the State of

Queensland

Applicant

AND: JOHN WAYMOUTH AHERN

First Respondent

AND:	DESMOND WILLIAM KNIGHT

Second Respondent

MIMPlTES OF ORDER

PINCUS

ORDER:

MAKING

JUDGE

!	DATE OF ORDER:	14 NOVEMBER 1986
WHERE MADE:	BRISBANE

. .

THE COURT ORDERS:

, I -

by consent, that John Waymouth Ahern be removed

from office as trustee of the estate	of Ian
Geoffrey Goddard;

that the applications be otherwise dismissed.

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m:	Settlement and entry of orders is dealt with in

Rule 124 of

Bankruptcy

the

Rules.

IN THE FDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	)

QLD E181 of 1982

RE:	IAN GEOFFREY GODDARD

EX PARTE:

ROBERT ARTHUR ALLEN

Deputy Registrar in Bankruptcy

for the

Southern District

of the State

Queensland

Applicant

AND:	JOHN WAYMOUTH AHERN

First Respondent

AND:	DESMOND WILLIAM KNIGHT

Second Respondent

QLD OM2 of 1986

RE:

JOHN WAYMOUTH AHERN and DESMOND WILLIAM KNIGHT

, .

M	PARTE: ROBERT ARTHUR ALLEN

Deputy Registrar in Bankruptcy for the

Southern District

of the State

l	Queensland

Applicant

AND:

J O H N PJAYMOUTH

AHERN

First Respondent

AND:	DESMOND WILLIAM KNIGHT

Second Respondent

PINCUS J.

14 NOVEMBER 1986

REASONS FOR JUDGMENT

These are applications brought by

Mr. R.A. Allen, Deputy

Registrar in Bankruptcy for the Southern District

of the State

Queensland, for

orders relating to Messrs. Ahern and Knight

who

2 .

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are registered trustees. One of the applications is made in the

I	.	estate of Mr. I.G. Goddard. Reasons in respect of	an application
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by Mr. Goddard concerning his discharge have been delivered today,

and it seems to me unnecessary to repeat the history of the matter

insofar as it is set out in those reasons. These applications and

that made by

Mr.

Goddard have been procedurally connected in that

the present applicant sought to attach these matters to Mr. Goddard's application. Initially, he attempted to do that by

suggesting in a

report by him concerning Mr. Goddard's bankruptcy

affairs that steps should be taken against Messrs. Ahern and

Knight.

In the end, however, two formal applications were filed.

One

of those asks

that

there be an inquiry Into the

bankrupt estates of Mr. Goddard, that

Mr. Ahern be removed from

the trusteeship of Estate

181

of 1982,

that Messrs. Ahern and

Knight be examined In relation to those estates, and that Mr.

Knlght pay the sum of $522.61 to the trustee	of	Estate	181 of
1982.

Two of those matters are easily disposed of. Mr. Ahern,

without making any admission, consents to an order for his removal

and I will order accordingly.

As to the $522.61, it seems clear,

as was submitted, that the same was after-acquired property and no

order should be made relating to it.

That

leaves

for

consideration,

respect

of the

application just mentioned, the questions whether there should be	!
an inquiry into the bankrupt estates, and whether Messrs. Ahern	I

and Knight should be examined

in relation to them.

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The

other

application asked for orders that Messrs.

Ahern and Knight "do answer the matters referred to" in two

reports of Mr. Allen dated 12 March 1986 and 14 April 1986. As I

understood the argument of

Mr. Logan of counsel for the applicant,

that was not pressed and

I will say no more about it. The second

application further asks that Messrs. Ahern and Knight show cause

why their registration

as trustees under the Bankruptcv Act should

not be cancelled and for directions.

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In brief summary then, the applications remaining to be

dealt with are for an inqulry, examinations of

the two trustees

and cancellation of

their registration.

Before comlng to the details of these matters,

I note

that there appears to me to have been some problems relating to

the administration of bankrupts' estates, arising from trustees'

inactivity. That is particularly so, of course, where there is no

cash in an

estate, so that the trustee either has to work

at his

own	expense or persuade creditors to provide money, for the

purpose, for example, of recovering debts claimed by the bankrupt

I .,

to be due to his estate. The facts to be referred to below show

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that as

to Mr. Ahern, and to a lesser extent, as to Mr. Knight,

!	the estate of Mr. Goddard illustrates the problem.	7. .
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The Act sets out some trustees' duties in s.19, and it

will

noted that they include ascertaining the assets and

liabilities of the bankrupt (l(b)) and investigating his conduct,

dealings and transactions (l(c)(i)). Section

19 does not appear

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to be a comprehensive statement of the duties

of those consenting

to be appointed

as trustees of

an estate, and those duties arc to

be found, in large part, in

the general law of trusts. Under that

law, trustees have a duty to sue when necessary. In Re Broqden;

Billinq v.

Broqden (1888) 38

Ch.D. 546, the trustee was held to

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have failed in that duty and the case went to

the Court of Appeal.

Fry L . J .

said, at p.571:

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"A trustee undoubtedly has a discretion as to the

mode and manner, and very often

to the time in

which and at which

he shall carry his duty into

effect. But his dlscretion

never an absolute

one; it is always limited by the duty - the dominant duty, the guiding duty - of recovering,

securing, and duly applying the trust fund."

l	Lopes L.J.	at p.574, speaking	of	a trustee whose duty it was to
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!	obtain payment of trust moneys at	a specified time, said:
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i	"Such a trustee,	in my	opinion, is bound at the
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expiration of a specifled time to demand payment of

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the

trust

moneys,

and

that

demand

not

complied with within a reasonable time to take

active measures

to enforce its payment, and if

necessary, to institute legal proceedings. I know

of nothing which would excuse the neglect of such

action on the

part of a trustee, unless

it be a

well-founded belief that such action on his part

would result in failure and

be fruitless, the

burden of proving the grounds of such well-founded

belief lying on the trustee setting it up in his

own exonerat ion.

In my view, however, Broqden's case, and others like it

in the law of trusts,

do not show that

a trustee in bankruptcy is

necessarily obliged to expend

his

own

funds in recovering the

1 property of the bankrupt and money said to be due to him. Section

129(1) requires the trustee to take possession

of all property of

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the bankrupt capable of manual delivery. but there is no express

provision requlrmg hlm to

recover

choses

action.

Sectlon

109(10) empowers the Court to make orders giving creditors who

have indemnified

a trustee In respect of costs of litigatlon

advantage

over

others

"in consideration

the

risk

assumed

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The presence of that provision is hardly conslstent with

a view

that the trustee has

a general obligation to assume the risk

himself.

It does not seem necessary to attempt to define the

extent of

the

duty of the trustee in bankruptcy in respect of

recovery of assets, including debts, said to form part

the

estate of the bankrupt. Clearly, however, the fact that there is

no cash In the estate does not of itself justify the trustee in

taking no steps whatever towards recovery

assets; in some

circumstances, he will have to make the cholce between spending

his own money and giving up the trusteeship. In

Re Gulf Sawmills

Ltd. C19227

3 W.W.R. 870, McDonald J. referred to the "duty of the

trustee

before

taking

a trusteeship

guard

against

the

contlngency of being placed in the uncomfortable position of

havlng to bear these expenses hlmself". If a prospective trustee

is not prepared to take at least some reasonable steps towards

recovery of assets, where there is no cash in the estate, he

should not accept the trusteeship.

turn now

the provisions which are immediately

relevant to the applications before

me,

Under s.179, the Court

has power to inquire into the conduct of the trustee in relation

to a

bankruptcy and

may remove him from office (sub-s.1). The

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Court may also order the examination

of a trustee in relation to

bankruptcy (sub-s.3).

Section

155 provides for registration of

persons as trustees and under

s.l55(5B) the Court may suspend for

a specified period, or cancel, the registration of	a	person as
trustee.

Under r.102, an appllcation to

the

Court that is not

required to be made by petltlon is to be instituted

by filing an

application and r.103(1) makes it necessary that the facts on

which the applicant proposes to rely in support

of the application

be stated in the affidavit. Where the application is one for an inquiry only, it presupposes that the facts are not fully known and a question arises as to what extent it is necessary to prove

facts relating to

trustee in order to justify

inquiry.

Obviously, an inquiry should not be ordered as a matter

of course.

In Re Alafaci; Reqistrar in Bankruptcy

v. Hardwick (1976) 9 A.L.R.

262, Riley J. discussed, at pp.267 and 268, the procedure to.be followed on an application for an inquiry and said, among other

things :

"Before the application is heard, therefore, the

trustee will know the grounds on which the Court

will be asked, inter alia, to inquire into his

conduct

and

the

facts

which

the

Registrar

proposes to rely in support

of his application that

the Court do

so inquire

... in such

case as

this, there is	a preliminary question to be decided
by the Court	- namely on the grounds and facts

before it, has

a case been made for inquiry into

the

trustee's

conduct?

the

answer

that

question is

'yes', the next question is - what is

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to be the scope of the inquiry?	... the Court will	I
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seek to inquire into specific matters, and

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ensure that the trustee is given proper opportunity

to prepare and present his case on those matters."

In Re Gault:

Gault

(1981) 57

F.L.R.

165,

application was made

€or an inquiry under

5.179, and Ellicott J.,

after referring to the remarks of Riley

J. in Re Alafaci (above),

and mentioning that he, (Ellicott J.) had required particulars

be given of the misconduct relied

on, remarked:

"The Court has

broad

discretion

deciding

whether to order an inquiry. In my opinion it is

not required to order

inquiry unless it is

satisfied that sufficient grounds have been made

out.

For instance, the Court should be loath to order

inquiry unless it considers that on

the evidence

before

there

are substantial

grounds

for

believing

that

the

trustee

erred

his

administration." (p.173)

See also Re Ladyman (1981) 38 A.L.R.

631,

a decision of Rogerson

J., as to the circumstances in which an examination of a trustee might be ordered under s.179(3).

It is

now necessary

to turn to the facts relating to

each trusteeship, but

should say at

the

outset that having

considered the material,

I am not satisfied that any inquiry is

necessary with respect to the estate of Mr. Goddard. That is

so,

not because the estate was satisfactorily administered -

it was

not - but because the facts relating to it appeared to me to have

been sufficiently eliclted by the proceedings which have already

taken place.

As mentioned in my reasons in the application by Mr.

Goddard, he filed

his own petition

on 16 March 1982. The

sequestration order was made on 28 April 1982. It was, perhaps,

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to be expected that the sequence of events would cause confusion.

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Mr. Knight, who was appointed trustee under	the first bankruptcy,	..
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undertook the trusteeship and carried it on after the making of

the sequestration order under which Mr. Ahern was to be trustee.

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Neither

trustee

appeared

know

who

should

carry

the

responsibility

for

administration

Mr. Goddard's

estate,

and at

the

request

Mr.

Ahern, the Registrar made a "ruling" on that

question. He ruled on 2 March 1983 that Mr.

?+hem

should, and

that was accepted by Mr.

Knight, who ceased to act, and by Mr.

Ahern, who promptly wrote to Mr. Goddard asking him to

ca l l .

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However, neither before nor after March 1983, did Mr. Ahern take

any positive step of a significant kind towards administration

estate.

the

I turn

now to the evidence in greater detail. On 20

April 1982, according to the affidavit of Mr. Knight, Mr. Goddard

told him he intended to file a debtor's petition.

(He had,

fact, already signed one and it had been lodged in the Court.)

Mr. Goddard told Mr. Knight that he wanted Mr. Knight to act as

his trustee and had

a detailed discussion with him; a statement of

affairs was prepared.

Mr. Knight says that he thinks the reason

for Mr. Goddard's approach was that the

two men had had contact

with one another in relation to

a receivership of a company, and

that connection, said Mr. Knight, gave him knowledge	of some of
Mr. Goddard's assets.

Mr. Knight signed

consent to act

as trustee on the

same day, but, eight days later, the sequestration order

was made.

On 7 May 1982, Mr.

Knight advised creditors of his appointment;

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some proofs of debt were received. On

17 May 1982,

Mr. Knight

wrote asking for copies of mortgages over Mr. Goddard's home and

they were supplied on

2 1 May. On 26 May 1982, Mr. Knight arranged

to collect Mr. Goddard's books and business records, resulting in

the location of two further unsecured creditors, who were then

invited to lodge proofs of debt.

July

1982,

Mr. Ahern wrote to the Australian

Federal Police, trying to locate

Mr. Goddard. It was at one stage

suggested that Mr. Goddard had secreted himself, but that appears

to me not to be

so;

he kept in touch wlth Mr. Knight, but not

with Mr.

Ahern.

It is not clear why he did not appreciate that

Mr. Ahern had also been appointed trustee.

30 August

1982, Mr. Knight wrote to

Mr. Goddard,

enclosing income tax returns in respect of the year ended

30 June

1982.

would remark that it does not seem desirable, prima

facie, that a bankrupt's trustee act as personal accountant for

him.

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September

1982,

Mr. Ahern wrote a letter to

Messrs. R.G. Kilner and Black, Solicitors, advising that "despite exhaustive enquiries we have been unable to locate Ian G. Goddard

nor

obtain a statement

of his affairs".

The

reference

"exhaustive enquiries" appears to be an overstatement. In November 1982, Mr. Knight forwarded a copy of Mr. Goddard's statement of affairs to a Mr. Tuckey in connection with a debt

allegedly owing by

San

Carlos Constructions Pty. Ltd.

December 1982,

there was received the

sum of $522.61 referred to

10.

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above, and

December

1982,

Mr.

Ahern

asked

for

the

Registrar's ruling

which in also referred to above. It appears

I	that he had	not,	until	then,	appreciated	that	Mr.	Goddard	had
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another

trustee,

Mr.

Knight.

After

the

ruling

was

given,

Mr. Knight

says

"the

administration of the estate was left to the other trustee, Mr.

Ahern."

Mr.

Ahern, however, seems to have done very little. He

wrote to the Deputy Commissioner

of Taxation in August saying that

there

had

been

receipts

and

disbursements,

and

Australian

Guarantee Corporation the same month, saying that no dividend was

likely to be paid. Apart from

a few letters of that sort, nothing

of consequence occurred until the application for discharge was

made.

The statement of affairs shows that Mr. Goddard claimed

to have due to him

a sum of $75,000 by Royal Insurance Co. Ltd.

As to that, Mr. Knight says, the debt was disputed and that there

was no money to enable the institution of

proceedings; however,

the matter is said to have been "investigated";

produces a

diary note relating to it. According to that note, a premium was

received after the occurrence

of the fire, but Mr. Goddard said

had "a legal opinion to the effect that the insurance company, if

they had

accepted the risk it should have paid out ..." On the

face of it, one would suspect that the claim was not very

promising, but it did not receive any real attention, apart from

brief conversation with Mr. Goddard about it. Mr. Knight also

deals in his affidavit with debts claimed by

Mr. Goddard to be due

by others; nothing was recovered and it has

to be said that no

11.

...

steps of any consequence appear to have been taken towards

recovery; in particular, no demand was made on any alleged debtor

Mr. Goddard. The impression created

perusal

the

file is

that in substance all that was done was to

go through the

forms of

acting as

trustee, no doubt because Mr. Knight was of the view

that nothing was likely

to be achieved by more vigorous action to

get some money into the estate.

One aspect of Mr. Knight's conduct of

which particular

complaint was made was delay in producing his file after requests

were

made.

clear

that

there

was

such

delay;

the

requests

were treated as a matter having low priority.

Mr. Knight says in his affidavit that about

bankruptcy administrations "actually pay their way in the sense of

providing the trustee with sufficient funds to at least cover the

costs of administration". Plainly, the estate in question wa5 not

within that 5%.

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It was argued on behalf of the applicant that directions

should be given in respect of the claim for the orders sought

against

Mr. Knight. Mr. Robin

P.C.

contended that particulars

should be ordered, that the wrong procedure had been used and that

an order for costs should be made against the applicant.

Although there is

a possibility that further examination

Mr.

Knight's conduct might throw more light upon it, the

material presently before the Court makes it plain enough that	an
inquiry is unnecessary.

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The bankruptcy

consequent

upon

acceptance

of the

debtor's petition has been annulled. However, in accordance with

the n e w expressed In my reasons dealing with the application by

Mr. Goddard, there was

bankruptcy and Mr. Knight was

a trustee.

The impression created by the papers

is that there was never any

serious expectation on the part of Mr. Knight that the bankruptcy

would produce anything for the credltors and no strong effort was

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made to get in any assets, because the estate was seen from the	t '
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outset as one which would be unprofitable.

Mr.	Logan, counsel for the appllcant, told me that it

was proposed to rely

against Mr. Knight on his conduct in

relation to other estates which were belng Investigated.

I see no

15, In general, necessary that a fairly specific prima

reason to keep this application alive to enable that to be done. above, it

facie case be made out before an inquiry is ordered.

I propose to

dismiss

these

applications

against

Mr. Knight

but

the

circumstances will not make any order as to costs.

I turn now to the applications against Mr. Ahern. He

has made reports to the Court saying, among other things:

"It was not untll

December 1985 that

Goddard

accepted that the current trustee administer his

estate and therefore no information in regard to

the debtor was available to the trustee until that

time

It is clear that none other than very desultory steps

were taken

by Mr. Ahern after he (with reluctance) accepted the

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”rullnq” in March 1983 that he, and not

Mr. KnlrJht,

should

administer Mr. Goddard’s estate.

IS improbable

that the

Inactivity was wholly or largely due

to Mr. Goddard’s attitude,

mentioned

above.

Mr.

Ahern

has

consented

hls

removal

trustee of the

estate

and

that

wlll

ordered;

the

clrcumstances, his consent might not have been necessary.

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However, an Inquiry under 5.179 into the admlnistration

of the estate by Mr. Ahern, the facts relating to which

are only

too simple, appears to me unnecessary; nothing	1 s to be gained by	I
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accompanied by an affidavit setting out in detail the evidence	I	_
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[1986] FCA 526

14 Nov 1986