Growden and Committee under Part VIII of the Bankruptcy Act
[2008] AATA 604
•11 July 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 604
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2007/2523
GENERAL ADMINISTRATIVE DIVISION
) Re HAYDN GROWDEN Applicant
And
Committee under Part VIII of the Bankruptcy Act
Respondent
DECISION
Tribunal Mr G L McDonald, Deputy President Date11 July 2008
PlaceMelbourne
Decision The decision under review is affirmed.
..............................................
Deputy President
CATCHWORDS
BANKRUPTCY – refusal of registration as a trustee in bankruptcy – whether applicant had knowledge and ability to act as trustee – ability to perform satisfactorily the duties of a registered trustee – whether to exercise discretion in favour of registration – whether applicant’s answers to interview questions correct – decision under review affirmed.
Administrative Appeals Tribunal Act 1975 ss 2A and 37
Bankruptcy Act 1966 ss 19, 19(1), 19(1)(k), 63, 64U, 73, 73B, 74(5), 77(3), 86, 86(1), 122, 129AA, 139U, 149, 149J, 153A, 153B, 155A, 155A(2), 155A(2)(a), 155A(2)(i), 155A(3), 155A(4A), 178, 178(1), 189A, 252A and 252B
Bankruptcy Regulations 1996 regs 8.01(1)(a), 8.02(1), 8.02(1)(c) and 8.12
REASONS FOR DECISION
11 July 2008 Mr G L McDonald, Deputy President 1. The applicant is applying for the review of a decision of a Committee established under s 155A of the Bankruptcy Act 1966 (the Act) refusing him registration as a trustee in bankruptcy.
2. Section 155A(2) of the Act sets out the matters about which the Committee, and hence this Tribunal in its review of the decision, must be satisfied before deciding whether a person should be registered. The Committee decided that the applicant met all of the requirements except that provided in s 155A(2)(a) of the Act. That subsection provides that an applicant must have “...the qualifications, experience, knowledge and abilities prescribed by the regulations.”
3. Regulation 8.02(1) of the Bankruptcy Regulations 1996 (the Regulations) provides:
(a)completion of the academic requirements for the award of a degree, diploma or similar qualification from an Australian university or college of advanced education, or other Australian tertiary institution of an equivalent standard, being a degree, diploma or similar qualification granted to a person who has completed:
(i)a course of study in accountancy of not less than 3 years’ duration; and
(ii)a course of study in commercial law of not less than 2 years’ duration;
(b)engagement in relevant employment on a full-time basis for a total of not less than 2 years in the preceding 5 years;
(c)the ability to perform satisfactorily the duties of a registered trustee.
4. It is conceded and the Tribunal accepts that the applicant meets (a) and (b). It is claimed by the respondent that he does not meet (c). This is the first issue for the Tribunal to determine.
5. If the applicant does not meet the requirements of s 155A(2)(a) and reg 8.02(1)(c) then the Tribunal must consider whether to exercise a discretion granted in s 155A(3) which would permit him to be registered.
6. Section 155A(3) of the Act provides:
Discretion to decide in favour of registration. If the committee considers that the applicant is suitable to be registered as a trustee, it may decide that the applicant should be registered even it if is not satisfied that the applicant has the qualifications, experience, knowledge and abilities prescribed by the regulations for the purposes of paragraph (2)(a).
7. If the applicant does not meet the requirement of s 155A(2)(a) and reg 8.02(1)(c) and it is determined that the discretion provided for in s 155A(3) should not be exercised in his favour then the Tribunal is, as was the Committee, obliged to determine that the applicant should not be registered (s 155A(4A) of the Act). Importantly in this case the Tribunal notes that s 155A(4A) defines ‘ability’ to include ‘knowledge’.
8. The Tribunal accepts the applicant meets all of the requirements except that it is claimed he does not satisfy those parts of s 155A(2)(a) and reg 8.02(1)(c) which require him to have the ability, including knowledge, to perform satisfactorily the duties of a registered trustee in bankruptcy. The Committee’s decision is based on the answers the applicant provided to a number of questions asked at an interview conducted between it and the applicant on 19 March 2007. The interview process was recorded and the Tribunal has before it a transcript of the proceeding.
9. It would be usual in a hearing of this type for this Tribunal to determine the applicant’s ability as defined at the date the Tribunal reaches its decision. In this case however it is evident that the Tribunal must determine this issue on the date the applicant answered the questions to the Committee. To do so otherwise would result in the applicant being given the advantage, over other candidates, who had not had the opportunity to prepare answers over the time between the original Committee process and the review conducted by the Tribunal. This results in it being the function in the first instance of the Tribunal to determine whether the answers given to the questions asked demonstrated the requisite degree of “ability including knowledge” to warrant the applicant being eligible for registration.
10. Applicants often mistake a hearing before the Tribunal as being limited to the matters identified in the reasons for decision of the decision maker or the issues contained in the outline of contentions filed by the parties. The hearing is, however, a de novo hearing. That is, matters not considered, or expressly considered, by the decision maker may become relevant for the Tribunal to consider. In this case the knowledge of the applicant was clearly an issue identified for consideration. However a person’s ability to act as a trustee extends to considerations other than knowledge. Section 19(1) of the Act sets out the duties of a trustee in bankruptcy as follows:
(a)notifying the bankrupt’s creditors of the bankruptcy;
(b)determining whether the estate includes property that can be realised to pay a dividend to creditors;
(c)reporting to creditors within 3 months of the date of the bankruptcy on the likelihood of creditors receiving a dividend before the end of the bankruptcy;
(d)giving information about the administration of the estate to a creditor who reasonably requests it;
(e)determining whether the bankrupt has made a transfer of property that is void against the trustee;
(f)taking appropriate steps to recover property for the benefit of the estate;
(g)taking whatever action is practicable to try to ensure that the bankrupt discharges all of the bankrupt’s duties under this Act;
(h)considering whether the bankrupt has committed an offence against this Act;
(i)referring to the Inspector‑General or to relevant law enforcement authorities any evidence of an offence by the bankrupt against this Act;
(j)administering the estate as efficiently as possible by avoiding unnecessary expense;
(k)exercising powers and performing functions in a commercially sound way.
The Hearing
11. The Tribunal had before it the documents filed for purposes of s 37 of the Administrative Appeals Tribunal Act 1975 (the T documents). The respondent’s reasons for decision[1] set out the questions which it decided provided examples of questions which it claimed the applicant had not answered correctly. There were in total 23 written questions (the written questions) which were given to the applicant 20 minutes before the interview with the Committee. Additionally the three members who constituted the Committee asked a number of other questions (the oral questions) on topics connected to the written questions which arose from the answers given by the applicant. As part of the material submitted to the Tribunal the applicant prepared a detailed set of documents including responses to the answers which the respondent had identified as being answered incorrectly. The applicant also referred to some of the oral questions which he claimed were ambiguous and others where he claimed the answers expected were incomplete and additional answers which he gave were also open.
[1] T1 pages 5-17
12. The applicant was unrepresented and he made his submissions from the bar table. While his submissions contained some material which could be described as evidence, he also relied on material contained in a number of documents which were exhibited.
13. The respondent wanted to call the applicant to give evidence as it wished to cross examine him on a number of matters. The applicant was reluctant to undergo cross examination. It was pointed out to the applicant that his failure to enter the witness box may result in the Tribunal in making adverse findings against him on the evidence. He was given time to consider which course he should follow but maintained his refusal to give sworn evidence.
14. The applicant claimed he made notes (the interview notes) during the interview with the Committee and tendered these at the conclusion of the interview process before the Committee. The interview notes did not form part of the material filed with the T documents. The Tribunal earlier directed that the interview notes be produced. However, Mr Agardy, on behalf of the respondent, stated that there were no interview notes which formed part of the documentation of the Committee. The notes that were found were notes made by the applicant on the two pages of the written questions given to him prior to interview. The applicant maintained that the interview notes were in addition to the notes appearing on the question sheet. He submitted the interview notes formed part of his answers to the questions asked and would have provided more detail to the oral answers set out in the transcript. The applicant also maintained since no reference had been made to the interview notes in the Committee decision, the Committee should be taken to have agreed with their contents.
15. The transcript of the proceeding before the Committee reveals that a member of the Committee requested the applicant to return the two pages of the written questions.[2] The applicant is then recorded as saying “Yes and my notes.” It is unclear from the face of the record whether the applicant’s comment related to his notes on the written question paper or whether it referred, as the applicant claims, to the interview notes.
[2] T11 page 173
16. A differently constituted Tribunal at a procedural hearing had earlier indicated that there was no need to call any member of the Committee as the hearing was a de novo hearing.[3] While the applicant submitted that the Committee “lost or destroyed papers that I had intended to provide more detail and explanation of the items raised during the interview process”[4] as stated earlier he declined to give oral evidence in the Tribunal.
[3] Exhibit R1 page 14
[4] Submission 1, Statement of Facts and Contentions, page 7
17. The purpose before the Committee was to undertake an oral examination of the applicant. If in fact the applicant chose to make interview notes and submit them, then that was something he was not invited to do. If this is what occurred then the Committee may have been better advised to decline taking any interview notes as not forming part of its procedures. However if the Committee accepted the interview notes then it should have made clear what part, if any, the notes played in its consideration of the applicant’s answers. In the absence of sworn evidence the issue remains unclear and the Tribunal is not in a position to make a decision as to which version of the events is to be preferred. The notes are not before the Tribunal and accordingly the Tribunal is placed in the position, in undertaking a merits review function, that it must make its decision on the basis that any interview notes tendered to the Committee do not form part of the material able to be considered when assessing whether the applicant possesses the requisite knowledge. The applicant had the opportunity of giving evidence to the Tribunal but decided not to. This does not preclude the Tribunal from considering his submissions and the matters he claims to rely upon in support. The Tribunal is not a court and must consider cases and “pursue the objective of providing a mechanism of review which is fair, just, economical, informal and quick.”[5] The fact that the applicant chose not to give sworn evidence may, however, affect the weight that the Tribunal accords to the matters raised.
[5] s 2A of the Administrative Appeals Tribunal Act 1975
The Applicant’s Knowledge
18. The applicant was given a form with 23 questions to consider before the interview with the Committee commenced. The form did not constitute the only questions asked and in total over 160 questions were canvassed at the interview.
19. The Committee concluded that the applicant’s answers to Questions 3, 4, 9, 13, 14 and 23 were examples of questions not satisfactorily answered by the applicant. The applicant has provided a written response explaining the answers he gave.[6] The first step is to examine whether the answers as recorded in the transcript have been answered satisfactorily. In order to do that it is necessary to decide the standard which will result in a satisfactory answer. The applicant proposed that the Tribunal examine disqualification cases[7] with the view to determining a standard. The Tribunal does not accept those cases, which involve entirely different considerations, that is whether the actions of a trustee were such that he/she should no longer be registered as a trustee, from those raised in a case such as this dealing with entry qualifications, as being apposite.
[6] Submission named “HG1”: Response to Undated Decision of the Committee convened by the Inspector General to Interview Haydn Growden on 19 March 2007”, pages 30-60
[7] that is, cases where the Tribunal had disqualified trustees in bankruptcy from continuing in that role
20. The respondent has set out the main issues it would expect a candidate to meet in respect of each of the written questions.[8] The Tribunal accepts the answers provided by or to the Committee as being the issues expected to be covered by the applicant. It was of course open to a candidate to provide additional material provided it is relevant and accurate. The subsidiary questions follow on from the principle question and it could be expected that a candidate would have the ability to provide additional information covering the issue raised by the question. The Act and Regulations, including the performance standards set out in Schedule 4A to the Regulations, set the standard of knowledge which may be expected from a trustee. The Tribunal has examined the applicant’s answers on that basis. It became apparent from reading the transcript of the proceeding before the Committee, listening to the applicant at the hearing and reading his written submissions that he is apt to give extensive answers. While extensive answers may cover the topic they also have the potential to confuse and obfuscate revealing a lack of ability to provide relevant, succinct and clear answers. This in turn becomes an issue as to whether the person is able to undertake some of the duties set out in s 19(1) of the Act. The Tribunal will return to this aspect after examining the issue of the applicant’s knowledge by reference to the questions identified by the Committee as being those where the applicant did not provide a satisfactory response.
[8] T1 pages 8-15
Question 3 and the Applicant’s Answer
21. The first question is:
Question 3
What action would you take to investigate potential preference payments, when there are no funds in the estate and the creditor that received the possible preference is a creditor that sends out regular work.
The model answer given is:
The committee would expect the applicant’s answer to cover a discussion of Performance Standard 2.3, conflict of interest and that he would give consideration to not acting as trustee in this administration.[9]
[9] T1 page 8
22. The answer the Committee provided contains reference to General Standard 2.3[10] which is as follows:
[10] Schedule 4A of Bankruptcy Regulations
If, during an administration, it becomes apparent that the trustee has an actual or potential conflict of interest in relation to the administration, the trustee must, as soon as practicable after becoming aware of the conflict of interest:
(a)notify the creditors, the person who appointed the trustee, a committee of inspection or the court, as appropriate, of the conflict of interest; and
(b)take appropriate steps to avoid the conflict of interest.
Examples of conflicts of interest
1. The appointer or, in the case of a sequestration order, the bankrupt is or was a client of the trustee or the trustee’s firm in relation to a financial, trust or insolvency planning matter.
2. The trustee or a member of the trustee’s firm is a personal friend, relative or business associate of the debtor.
23. In his answer[11] the applicant correctly identified that there was a conflict of interest between the trustee and the creditor because of the latter regularly referring work to the trustee. However the applicant then went on to state that the trustee could proceed to undertake preliminary investigations to examine what recovery work, if any, needs to be undertaken. He made reference to the Statement of Affairs, to determine the size of the deficiency of the estate and to ascertain if there are any preferential creditors, interviewing the bankrupt, having the bankrupt hand over his books and records to determine whether the creditor was aware that the bankrupt was solvent at the time that the creditor may have been paid. Further he stated that the trustee could investigate whether the creditor had received an advantage over other creditors, whether there was a transfer to the creditor, and when the transaction occurred. The applicant also included a reference to s 122 of the Act with specific mention of the six month period prior to a creditor’s petition being presented.
[11] T1 pages 8-10
24. In answer to further questioning the applicant stated that if the investigation revealed a prima facie case of a preference which was going to be material then the trustee might want to get legal advice as was specified in Schedule 4A of the Regulations.
25. A further question elicited what amounts to a retraction of the desirability of obtaining legal advice and a statement that trustees must take steps to avoid such conflicts. The steps the applicant then suggested were to manage the conflict by writing to other creditors asking if the other creditors wanted the trustee to remove himself and he concluded:
It might be best to let them get their own trustee and the trustee can run which they want without incurring costs which they are going to eventually have to pay.[12]
[12] T1 page 10
Tribunal’s Assessment Of The Applicant’s Answer to Question 3
26. The answer given by the applicant covered a number of options, not all of which were entirely consistent. One aspect involved the trustee undertaking a considerable amount of work in order to determine whether there was what the applicant described as a “prima facie” case. In the end the applicant suggested that the trustee approach the creditors and for them to find another trustee. Nowhere does the applicant state what is the most obvious point, that is, whether he would consider taking action to remove himself as being trustee because of the potential conflict of interest, that is take appropriate steps to avoid the conflict of interest[13]. The applicant’s answer highlighted a tendency of wanting others[14] to make that decision for him. The principle responsibility in identifying and dealing with potential conflicts of interest rests with the person who will be conflicted. Here, that person is the trustee. The Tribunal is satisfied that the applicant has tried to cover every peripheral aspect without recognising where the core responsibility rests. Further there is no recommendation or other requirement in Standard 2.3 for the trustee to obtain legal advice. It is always open to obtain legal advice but the question posed put the position that a conflict already existed. There would seem little point in obtaining legal advice to confirm something which is obvious. Additionally the investigations suggested by the applicant would simply add to the cost of the Administration without resolving or contributing to the resolution of the stated existing conflict. For these reasons the Tribunal would not regard his answer as meeting a satisfactory standard.
[13] as provided in Schedule 2A item 2.3(b)
[14] that is, the other creditors
Question 4 and the Applicant’s Answer
27. The next question is:
Question 4
Under what circumstances would you register for GST as a representative of an incapacitated entity? When would you be entitled to claim input tax credits?
The model answer given is:
The committee would expect the applicant’s answer to cover whether there was a situation in existence where an entity was registered or was required to be registered for GST. An entitlement to input tax credits is for any credible acquisition to the extent that it is required for a credible purpose. The GST Act excludes an acquisition from being a credible purpose if of a private or domestic nature. A review of the ATO rulings should also be used as a guide.[15]
[15] T1 page 10
28. The applicant’s answer contained reference to need to continue registration for the payment of GST, if that was in place,[16] the need to continue lodging bas returns and the need to claim input tax credits where there had been a taxable supply to the entity. The latter was to be evidenced by an examination of the tax invoices.
[16] at the time of the bankruptcy
29. The applicant was asked a subsidiary question “what are you going to do about raising your invoices for the fees that you are going to charge in relation to that registration?” He was prompted by a further question as to what he would do about a fee of $8000 for submitting a BAS return. The applicant responded by referring to the need for the trustee who, he assumed would not be earning less than $50,000 per annum, being registered for payment of GST. The questioner then expressly asked whether the applicant thought the entirety of the GST raised on the trustee’s invoice for the administration of the estate was a credit which was claimable through the next BAS return. The applicant responded that he could not see any reason why the total charged should not be a claimable input credit. He then proceeded to say if private expenses of the trustee, for instance, in the use of a car where some use was business related and some was for private use, there may need to be an apportionment. He then continued:
I am just trying to think of possibilities – what would there be? If somebody’s funding the – perhaps if they did something that’s not payable by the estate, like, for instance, they referred to an offence which was outside the bankruptcy that they simply did as a matter of their …then you wouldn’t be invoicing the estate then, would you. You shouldn’t be invoicing for things that they don’t have to pay.[17]
[17] T1 pages 11-12
Tribunal’s Assessment Of The Applicant’s Answer to Question 4
30. In respect of the first question the applicant correctly identified the need to determine whether or not there was an obligation for the entity to be registered for the payment of GST. The subsidiary question asked of him however, raises a different issue. The fee charged by the trustee to administer an estate does not ordinarily constitute a taxable supply against which an input credit can be claimed. However, if as part of the orderly administration of an estate the trustee decides it is desirable to permit the entity to continue trading (for example, until it can be sold) then the costs of the time devoted to the operation of the business may constitute a taxable supply. To the extent the applicant thought the entire costs of the trustee constituted a claimable supply the answer provided is unsatisfactory. Additionally and importantly, the applicant made no mention of reference to the ATO rulings as being of assistance.
31. The Tribunal notes that the second question was initially somewhat confusingly framed. It contains reference to private equity used to support the plant and equipment purchased before directly proceeding to ask the question about the trustee’s fee being subject to an input credit. The reference to the private equity and plant and equipment seems to lead nowhere as the questioner and the applicant agreed that the sale of the house would be GST free. The applicant may have experienced some confusion with exactly what was being asked of him.
32. The Tribunal notes the model answer refers to “credible acquisitions” and “credible purposes” whereas when used in the A New System (Good and Services Tax ) Act 1999 the terms are both defined terms by reference to “creditable”, which more aptly refers to the nature of the terms in the context of that Act. This does not affect the assessment of the answer given by the applicant, as the terms were used in the model answer that was not given to applicant at the time.
Question 9 and the Applicant’s Answer
33. The next question is:
Question 9
What are the five ways in which a bankruptcy may come to an end?
The model answer given is:
The committee would expect the applicant’s answer to cover:
1.Automatic discharge 3 years after date of filing statement of affairs – s149
2.Upon withdrawal of an objection – s149J
3.Annulment by the Court where it is satisfied that the petition ought not to have been presented or a sequestration order ought not to have been made – s153B
4.Where trustee is satisfied that debts have been paid in full, the bankruptcy is annulled on the date of the last payment – s153A
5.Upon the passing of a special resolution at a meeting of creditors accepting a composition or arrangement, the bankruptcy is annulled – ss74(5)
34. The applicant correctly referred to s 153A, where the trustee is satisfied that the debts are paid in full and to s 153B[18] and s 149[19] of the Act. The applicant then proceeded to outline what he described as “creative” ways of discharge and referred to s 252A and s 252B being the equivalent of s 153A and 153B except that the latter deal with annulment of bankruptcy where a deceased estate is involved. This does not identify another way a bankruptcy comes to an end but states a different circumstance where the same result will occur.
[18] annulment by the court
[19] automatic discharge after three years
35. The applicant then went on to talk about to what he described as a “Houdini” example of a discharge by referring to the death of a bankrupt which he then qualified by stating the death of the bankrupt “…doesn’t actually bring the estate to an end…”[20]
[20] T1 page 12
36. Subsequently the applicant volunteered that he had an even more creative discharge solution in respect of which he stated he had “…seven thousand pages of case law, if you don’t believe me” before proceeding to say “Section 86, 153A combination. Get it?” When asked to explain it the applicant stated:
Section 86 is set off. There is some cases where unliquidated damages have been – we know they are not allowed … credit if they are not in relation to a contract. But they can be proved – they can be admitted as self matter by the trustee, so the person goes bankrupt, who knows, they owe the creditor $100,000., it has been petitioned, and so on. They soon end up in bankrupt. And in terms of … he has got a damages claim against the same creditor, it’s 200 grand. The trustee sets it off. All the creditors become paid.
…
And he calls the debtor in, and – okay. He calls for proofs of debts, don’t exist, and onto 153A.[21]
[21] T1 page 13
37. The applicant was then prompted to see if he could identify a further “mainstream” discharge provision and he nominated s 73 of the Act.[22]
[22] composition or arrangement
The Tribunal’s Assessment of the Answer Given to Question 9
38. The answers given in respect of ss 149, 153A, 153B, are correct. The applicant did not nominate s 149J[23] and had to be prompted to return to a more mainstream example to nominate s 73.
[23] withdrawal of an objection
39. Clearly the death of a bankrupt does not discharge the bankruptcy, unless directed by a court.[24] The applicant did not mention the qualification is the requirement of an order from the court for the bankruptcy to be discharged. The applicant’s answer on this issue is accordingly unsatisfactory.
[24] s 63 of the Act
40. The Tribunal experienced some difficulty with the applicant’s combination of ss 86 and 153A and had, additionally, some difficulty, to put it in his terms, of “getting it”. He appears to be saying if a set off situation arises, that is the bankrupt having a claim against the creditor which exceeds the debt owed to the creditor, then the bankruptcy may be discharged because the outstanding debt is less than the amount involved in any damages claim. If that is what the applicant is referring to then it is not “a creative” answer but one which involves the payment of the debt in full. It is an example of the operation of s 153A. Section 86(1) deals with the situation of where the set off does not extinguish the claimed debt but limits the bankruptcy to the balance.
41. The applicant’s reference to s 73 is clearly meant to refer to the discharge which may follow acceptance by creditors of a composition or arrangement. The actual provision dealing with annulment is s 74(5). The Tribunal is satisfied that the applicant correctly identified the area where annulment is available.
42. Overall the Tribunal would accept that the applicant displayed knowledge of the discharge provisions but that he obfuscated his answers by referring to examples which he incorrectly seemed to think were “novel” ways leading to annulment.
Question 13 and the Applicant’s Answer
43. The next question is:
Question 13
There are now performance standards in place which apply to Trustees (including Controlling Trustees). What do you consider to be the purpose of these standards?
The model answer given is:
The committee would expect the applicant’s answer to cover that the standards are in place to ensure that trustees (including controlling trustees) act at all times in accordance with the powers and duties under the Act and Regulations and in relation to the practice of bankruptcy law generally; and to ensure that an administration to which the standards apply is carried out consistently to a high standard.[25]
[25] T1 page 13
44. The applicant answered by referring to Schedule 4A and mentioned that trustees would be expected “to carry out these standards - carry out their practice in accordance with these standards”.[26] The applicant then went on to describe the genesis of the standards as being constituted from case law and other professional standards.
[26] T1 page 13
The Tribunal’s Assessment of the Answer Given to Question 13
45. The applicant’s answer adequately covered the topic. He was not asked to provide the foundation upon which the standards were developed. To the extent he covered this aspect his answer was unnecessary but does not detract from the correctness of the answer he gave.
Question 14 and the Applicant’s Answer
46. The next question is:
Question 14
What is the consequence of a Trustee (including a Controlling Trustee) failing to comply with one or more of the standards?
The model answer given is:
The committee would expect the applicant’s answer to cover that the standards are prescribed for the purpose of subsection 155H(1), which deals with involuntary termination of registration. Repetitive breaches and or a breach with serious consequences could give rise to a disciplinary response.[27]
[27] T1 page 14
47. The applicant responded by acknowledging it was the responsibility of the Inspector-General to write a “show cause” letter to the trustee. The applicant also referred to the Inspector-General’s duty to establish a Committee of enquiry if the trustee is unable to provide a satisfactory response to the show cause letter.
48. The applicant also referred to common law consequences and the power of the court to remove a trustee, and referred to s 178 of the Act and the reluctance of the court to interfere with the powers of the trustee unless there is a “…serious breach that…is not in the public interest.”[28]
[28] T1 page 14
The Tribunal’s Assessment of the Answer Given to Question 14
49. The applicant identified some of the consequences which may arise from a trustee breaching the standards. He correctly identified the court’s power to remove a trustee which was not identified in the model answer. However his reference to “the public interest” is not something which a court is required by the Act to take into account upon an application being made to it by a bankrupt, a creditor or the Inspector-General in bankruptcy. In any such application the court will reach its decision on the facts concerning “an act, omission or decision” reached by the particular trustee in the particular case.[29] So while the applicant showed an appreciation of the possibility of a court intervention he did not accurately describe its function correctly. The applicant correctly described “common law” consequences which may arise from a breach of a duty of care and this, too, was not something adverted to in the model answer. However he failed to mention the more obvious point of the possibility of the trustee being the subject of disciplinary action. To that extent his answer is incomplete.
[29] s 178(1)
Question 23 and the Applicant’s Answer
50. The next question is:
Question 23
You have recently been registered to practice as a trustee and have been approached by a solicitor who can channel insolvency work to you. You recognise this is an opportunity to establish yourself in the profession, but the solicitor requires some financial reward for this assistance. What issues, if any, would you take into consideration?
The model answer given is:
The committee would expect the applicant’s response to cover a discussion on the relevant performance standards including PS 2.3 Conflict of interest.
51. The applicant answered that “A trustee cannot take any sort of a cut, kick back, whatever you call it.”[30] He firmly stated that he would not participate in any such arrangement. In this he is clearly correct.
[30] T1 page 15
52. The applicant was then asked a supplementary question about the referee being requested to give professional advice in relation to the estate and, in particular, if the referee stated he would assist the debtor by filling out a Statement of Affairs for $1000. The applicant answered that that would depend on the commerciality of the arrangement between the trustee and the referee. The applicant equivocated between stating that if it took three hours to complete the work then a fee of $300 per hour would be “all right” but subsequently he felt that $1000 may be a “little bit to (sic) high”.[31]
[31] T1 page 15
53. The applicant was then asked for his response to a proposition from a solicitor who referred work on the understanding that the solicitor would be instructed with respect to any legal work arising from the estate. The applicant answered that if the legal work was “legit” then he would accept that arrangement. He said “...let’s face it that’s the way the world turns round, it’s going on in every single insolvency business in town.”[32] He referred to Schedule 4A stating that if the referring solicitor was charging too a high a fee because the solicitor thought he could get away with it then other quotes should be obtained. He stated in his experience he preferred to work with solicitors he knew and trusted and where he knew what was being charged. The applicant, in the context of working with people he knew and who were prepared to assist, then stated he liked working with such people “…especially when they are very expensive.”[33]
[32] T1 page 16
[33] T1 page 16
The Tribunal’s Assessment of the Answer Given to Question 23
54. The Tribunal is satisfied that the applicant’s answer does not pay sufficient attention to the conflict of interest provisions set out in item 2.3 of the general standards contained in Schedule 4A. It would be appropriate for the trustee to notify the creditors of the fact of the referral and, for instance, advise them of the costs quoted by the solicitor compared to the recommended scale of costs chargeable by solicitors for the work involved. The reference to the applicant being attracted “…especially to those who are expensive” is either a transcription error or it demonstrates a complete misunderstanding by the applicant of what his duties and role involve. Taking into account the balance of his answer the Tribunal is satisfied that there was more probably than not a transcription error.
Overall Assessment Of The Applicant’s Knowledge
55. Clearly not every question needs to be answered in accordance with the model answers provided. It could be expected that the main points raised by the questions would be covered. In some cases the applicant has done this. However, the applicant demonstrated discursive and sometimes obscure deviations and forays into fanciful scenarios that not only obfuscated those questions he correctly, or party correctly answered, but also demonstrated often incorrect or incomplete knowledge of the area about which he was asked. The Tribunal is satisfied that the applicant answered the questions satisfactorily in respect of only one of the five topics.[34] While partly satisfactory answers were given in respect of at least two of the topics[35] the answers were incomplete [36] and insufficient.[37]
[34] Question 13
[35] Questions 14 and 23
[36] for Question 14
[37] for Question 23
56. The respondent nominated answers in respect of five topics from a total of 23 topics[38] involving 168 oral questions asked of the applicant. The respondent maintained that the five topics it identified in respect of which the applicant had not satisfactorily answered were an “example”.[39] If that is the case the question arises as to whether the Tribunal should then examine the balance of the 19 topics and make its own assessment of the applicant’s answers to questions asked on those topics. In undertaking administrative review the Tribunal stands in the place of the original decision maker and must reach its decision on the material before it. It would, in the Tribunal’s view, be unfair to reach a conclusion as to the applicant’s ability and knowledge based on just those five topics selected by the respondent in which it seems to be suggested that he gave less than satisfactory answers.
[38] T10 page 114-116
[39] T1 page 8
57. Some of the questions asked of the applicant did not relate to his knowledge but to his past experiences in working for employers involved in bankrupt estates and were not involved with the listed questions given to the applicant prior to the interview.[40] It is not necessary for the Tribunal to consider the answers to those questions. The applicant answered the following listed questions correctly 2, 5, 6, 7, 8, 15 and 20. The answers to Questions 1, 10 and 11 were incomplete.
[40] Questions 1-22 (T11 pages 123-128) and Questions 149-168 (T11 pages167-173)
58. Question 1 asks:
What are the types of administrations you might be required to administer as a registered trustee in Bankruptcy?
The model answer given is:
-Interim Receiving Order Part IV s50 Regs 4.05 – 4.08, court, on application of a creditor after debtors fail to comply with Bankruptcy Notice can order the Official Trustee or a Registered Trustee to take control of debtor’s property until Bankruptcy etc.
-Bankruptcy Part IV – Sequestration Order from creditor’s petition s52 – debtor’s petition ss55-57 Reg 4.05 – 4.19
-Debt agreement Part IX s185 – 185Z. Arrangement with creditors for debtors with liabilities, assets and income below threshold amounts [ss185C(4)] Reg 9.
-Part X, Personal Insolvency Agreement s188 – arrangement between creditors and debtor – no limit/threshold amount as for debt agreement.
-Administration Order – Part XI – basically bankruptcy of a deceased estate See Reg 11.
-Statutory Trustee – sale of joint property pursuant to s38 of the Property Law Act.[41]
[41] T10 page 117
59. The applicant correctly identified four of the possible six answers provided in the model answer. His reference to s 77(3) of the Act is presumably meant to be a reference in general terms to s 73 of the Act. Section 73B provides that a trustee other than the trustee already appointed may be substituted to become the trustee of a composition or scheme of arrangement and it is this to which the Tribunal assumes the applicant was referring in his answer. As is clear from the model answer there are some categories the applicant did not identify.
60. Question 10 asks:
You have realised sufficient funds in an estate to enable you to pay a dividend to creditors. What steps do you take to facilitate the dividend being paid?
The model answer given is:
-Advertising of dividend (S.140(3) & (5)
-Waiting 21 days pursuant S.140(7)
-Adjudication of POD, marked admitted or rejected (PS3.4)
-PODs admitted in correct estate (PS3.3)
-Sufficient evidence to support the claim (PS3.5)
-Evidence of check with bankrupt if creditor not listed on S of A or if amount greater than amount disclosed by bankrupt
-Evidence of check to ensure dividend cheques paid to address disclosed on POD and/or authorised address by creditor.[42]
[42] T10 pages 119-120
61. The applicant omitted reference to checking creditors’ claims against the Statement of Affairs filed by the bankrupt and to the need to check that any dividend was being sent to the creditor’s correct address.
62. Question 11 asks:
As controlling trustee you have to prepare a report to creditors on a debtor’s proposal. What sources would you have available to prepare the report and what should the report contain.
The model answer given is:
The usual sources are interview the debtor, debtor’s statement of affairs, discussions with creditors and searches (eg. real property, motor vehicles).
The controlling trustee must summarise and comment on the information available on the debtor’s affairs, and in respect of the debtor’s proposal, state whether the creditors’ interests would be better served by accepting the proposal or by the bankruptcy of the debtor. (s189A).[43]
[43] T10 page 120
63. The applicant omitted to mention the need to prepare a report of the trustee’s findings to the creditors for their consideration as required by s 189A of the Act.
64. The Tribunal is also satisfied that Questions 12, 16, 17 and 18 were not correctly answered by the applicant.
65. Question 12 asks:
What time limits, if any, does a trustee have to deal with assets that vest?
The model answer given is:
See S 129AA[44]
[44] T10 page 120
66. The applicant answered the question by reference to the sections in the Act which deal with the limitation of time for making a claim. The model answer required reference to s 129AA which covers property vesting, including that disclosed in the Statement of Affairs and after acquired property disclosed within 14 days of the bankrupt becoming aware of the devolution of the property. The applicant seems to have not grasped what was being asked of him.
67. Question 16 asks:
As a Trustee (including a Controlling Trustee), are you entitled to be remunerated and if so, what is the source of that entitlement?
The model answer is:
Requirements of the Act:
s162; s64U; Reg 8.12; Schedule 4A – Standard 2.13 to 2.16; PINS 7.3 (Capping)[45]
[45] T10 page 121
(Tribunal Note: the reference to the PINS (Personal Insolvency National Standard) is curious. It is a reference to code of conduct developed by the Insolvency and Trustee Service Australia and the Insolvency Practitioners Association of Australia (IPAA) in 1998. The code was effectively replaced and its provisions incorporated as part of the Regulations with effect from 1 December 2004. A new and updated code has been introduced by the IPAA in December 2007. It follows that the reference to the PINS in the model answer would appear to be otiose).
68. The applicant failed to identify s 64U and, curiously, referred to s 139U. He failed to mention reg 8.12, and Schedule 4A items 2.13-16. The applicant referred to Schedule 4A and mentioned some of its requirements. While he covered some of the issues his answer was incomplete.
69. Question 17 asks:
What are the statutory duties of a trustee, in relation to notifying creditors and the bankrupt, in connection with, the trustee’s remuneration?
The model answer given is:
Assess benefit of living in the house rent free as part of the income of the bankrupt.[46]
[46] T11 page 130
70. The model answer for Question 17 is clearly the answer for Question 18.
71. Question 18 asks:
A bankrupt says that he shares a house property with this 2 children, who are not bankrupt and who pay the mortgage on the property. What factors would you take into account when calculating the bankrupt’s income for the purposes Division 4B of the Bankruptcy Act 1966 (“the Act”).
The model answer given is:
Assess benefit of living in the house rent free as part of the income of the bankrupt[47]
[47] T10 page 121
72. The applicant has identified a query in relation to the question, that is whether the children are dependants. Given the question states that the children are paying the mortgage on the house it would be fair to assume that the children are independent. The applicant states he thinks it is fair that the bankrupt should be able to live with them without any assessment of the value to the bankrupt being made. The applicant has not correctly answered the question.
73. Curiously in answer to the next question which dealt with the assessing benefit for the use of an employer provided motor vehicle the applicant saw the need for an assessment of the value of the benefit to be made. When further questioned on the difference between the house and car situations the applicant’s answers became confused and he commenced talking about living away from home allowances. The applicant then seemed to further confuse the house question by wrongly referring to it being provided by an employer.
Overall Assessment of the Applicant’s answers to Questions
74. The Tribunal, in undertaking this exercise, has concentrated on assessing whether the answers provided by the applicant were satisfactory for the purpose of his registration as trustee in bankruptcy. The assessment of his knowledge is not to be confused with the some of the more extraordinary statements he used, for example in answer to Question 28 he stated that a trustee “...needs to use all the skill of a the professional person, if not greater.”[48] And the expression about the Committee members “getting it’’. His use of expressions is not directly connected to his knowledge. It does however reflect on his likely ability to fulfil the role as a trustee. His lengthy discursive answers are antithetical to efficiency and s 19(1)(j) of the Act requires an estate to be administered “as efficiently as possible by avoiding unnecessary expense”. If the applicant spends time carrying out the administration of estate by researching and utilising novel interpretations he claims are available under the Act, rather than utilising more readily understandable and accessible provisions then efficiency will decline and expense will rise. Additionally creditors, the bankrupt and the courts, when considering reports prepared by the applicant, are likely to experience some difficulty determining what and why he is relying on obscure combinations of provisions when more readily comprehensible and better known provisions are available. Such usages are also not consistent with performing the functions of a trustee in a commercially sound way.[49]
[48] T11 page 130
[49] s 19(1)(k) of the Act
75. In the circumstances which the Committee, and subsequently this Tribunal, is assessing it is not possible or desirable to say that a candidate passes if he/she achieves correct answers in 50% of the questions asked. An overall assessment must be made to determine if the candidate has demonstrated that degree of understanding of the provisions of the Act and Regulations which leave the assessor satisfied he/she has sufficient knowledge to enable him/her to fulfil the requirements of the position which will be assumed if the candidate is registered. On balance, taking into account all of the questions and answers given by the applicant to the listed and oral questions, the Tribunal is not satisfied that the applicant demonstrated a sufficient working knowledge of the provisions of the Act and Regulations.
The Applicant’s Ability
76. The applicant’s ability extends beyond the knowledge he may possess of the provisions of the Act and Regulations. The above examples demonstrate that the applicant lacks judgment in the answers he gave to the questions asked.
77. An example of the latter is to be found in the applicant’s critique of the Committee’s assessment contained in HG1 of his Statement of Facts and Contentions. There he states with respect to Question 9:
It would be a challenge to natural justice for a committee of three senior bankruptcy practitioners and Government officials to fail an applicant on the basis of this question notwithstanding that they, in a combined effort, could produce less than half the plausible correct answers that the applicant could produce.
It is unfair to penalise an answer which has provided more than the required number of 5 possible answers.[50]
[50] page 42 Applicant’s Statement of Facts and Contentions
78. The conclusion he draws is not sustainable. The question was a simple one. The applicant embarked on a lengthy and hypothetical description of a scenario by reference to the combination of ss 86 and 153A rather than providing the more obvious and basic answer by referring to s 74(5) until he was prompted. The manner of his answering the questions asked including his references to “Houdini” and the asking of the members of the Committee if the “get it” display a lack of appreciation of the exercise in which he was engaged. It was an exercise designed to check that he possessed sufficient ability, including knowledge, to be registered as a trustee in bankruptcy. ‘Ability’, is not, in the context of s 155A(2)(i) and reg 8.01(1)(a) confined to the possession of ‘knowledge’ – if it was the legislation would not have mentioned ‘ability’ as being inclusive of ‘knowledge’. In the context and on a fair reading of the provisions ‘ability’ must include something more than ‘knowledge’. One of the meanings ascribed in the Macquarie dictionary is “competence in any occupation, or field of action from the possession of capacity, skill, means or other qualification” and the shorter Oxford English Dictionary the first meaning is “suitability”.
79. Bankrupts, creditors and the courts are entitled to have succinct, relevant information provided to them from trustees. There is also the applicant’s ability to undertake duties of a trustee in bankruptcy as set out in s 19(1) to be considered. While the applicant stated in the course of some of the answers he gave that there was a need to administer the estate as efficiently as possible without incurring unnecessary expense, his answers to some questions were unnecessarily lengthy as he presented scenarios not required by the questions and postulated convoluted answers.
80. The issue then is whether despite his lack of ability, including knowledge, the applicant should be permitted registration under s 155A(3). The Tribunal is not persuaded that he should be. The applicant has some of the formal qualifications and experience and may be registered in the future but currently the Tribunal is satisfied that he is unable to demonstrate that he has the ability including knowledge to be registered.
81. The decision under review is affirmed.
I certify that the eighty-one preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President G L McDonald
Signed: ...............................................................
Grace Horzitski Associate
Date of Hearing 25 and 26 March 2008
Date of Decision 11 July 2008
For the Applicant self represented
Counsel for the Respondent Mr P F AgardySolicitor for the Respondent Mr G Carroll
Australian Government Solicitor
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