In the matter of the Bankrupt Estate of Hope WA 893 18 1
[2021] FedCFamC2G 361
•16 December 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
In the matter of the Bankrupt Estate of Hope WA 893 18 1 [2021] FedCFamC2G 361
File number(s): PEG 191 of 2021 Judgment of: JUDGE LUCEV Date of judgment: 16 December 2021 Catchwords: BANKRUPTCY – Trustee in bankruptcy – whether Trustee to act as receiver and manager of property of family trust – powers of receiver and manager – determination of creditor claims of family trust – relief from breaches, failures and omission in relation to administration of family trust Legislation: Corporations Act 2001 (Cth) ss 477, 556
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)
Federal Circuit and Family Court of Australia Act 2021 (Cth) s 272
Federal Circuit Court Act 2001 (Cth) s 114
Federal Court Rules 2011 (Cth) rr 1.34, 14.22, 14.24, 14.25, 174
Insolvency Law Reform Act 2016 (Cth)
Bankruptcy Act 1966 (Cth) ss 90-15, 90-20, 134, Sch 2
Trustees Act 1962 (WA) s 75
Cases cited: Bufalo v Official Trustee in Bankruptcy [2011] FCAFC 111
Cardaci v Cardaci & Ors (No 5) [2021] WASC 331
Emanuele v Australian Securities Commission [1997] HCA 20; (1997) 188 CLR 114; (1997) 71 ALJR 717; (1997) 144 ALR 359; (1997) 23 ACSR 664; (1997) 15 ACLC 763
Hutchins, in the matter of Ardenberg Pty Ltd (in liq) (Administrators Appointed) (No 2) [2020] FCA 1424
Jones v Matrix Partners Pty Ltd Re Killarnee Civil and Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310; (2018) 354 ALR 436; (2018) 124 ACSR 568; (2018) 36 ACLC 18-017; (2018) 70 AILR 102-397
QBE Insurance (Australia) Ltd v WA Metal Recycling Pty Ltd, in the matter of WA Metal Recycling Pty Ltd (in Liq) [2016] FCA 238
Re Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297; (2004) 22 ACLC 1326
Unal v Cetinkaya [2015] FCA 270
Zhang v Cheng (No 2) [2020] FCCA 507; (2020) 354 FLR 1
Division: Division 2 General Federal Law Number of paragraphs: 44 Date of last submission/s: 15 November 2021 Date of hearing: 15 November 2021 Place: Perth Counsel for the Applicant: Ms E. McCloskey Solicitor for the Applicant: Tottle Partners ORDERS
PEG 191 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF THE BANKRUPT ESTATE OF ALISON JOANNE HOPE WA 893/18/1
BETWEEN: NATASHA MARGARET PETRIE AS TRUSTEE FOR THE BANKRUPT ESTATE OF ALISON JOANNE HOPE
Applicant
ORDER MADE BY:
JUDGE LUCEV
DATE OF ORDER:
15 NOVEMBER 2021
THE COURT ORDERS THAT:
1.Subject to any Notice of Objection filed by any person referred to in Order 2 below, on or before 6 December 2021, the following orders take effect from 13 December 2021:
(a)A direction nunc pro tunc pursuant to ss 90-15 and 90-20 of the Insolvency Practice Schedule (Bankruptcy) (Bankruptcy Act 1966 (Cth), Schedule 2) (“Insolvency Practice Schedule (Bankruptcy)”) that the Applicant, in her capacity as the trustee in bankruptcy of the bankrupt estate of Alison Joanne Hope is justified in acting as receiver and manager of the property of the Hope Family Trust (“HFT”).
(b)An order nunc pro tunc pursuant to section 272 of the Federal Circuit and Family Court of Australia Act 2021 (Cth), alternatively the Court's implied jurisdiction, that Natasha Margaret Petrie be appointed as receiver and manager (“Receiver”), without security, of the property of the HFT.
(c)An order that the Receiver has the powers detailed below in the Schedule of Powers, together with the powers that a liquidator has in respect of the property of a company pursuant to section 477(2) of the Corporations Act 2001 (Cth).
(d)An order that the Receiver is justified in determining creditor claims of the HFT at the date of her appointment as Trustee in Bankruptcy, namely 18 May 2018.
(e)An order pursuant to section 75 of the Trustees Act 1962 (WA) that the applicant, in her capacity as Receiver acted honestly and reasonably and ought to be excused from any breaches, failures or omissions relating to the administration of the HFT.
(f)The Receiver automatically be released and discharged as Receiver upon the distribution of the proceeds of the property of the HFT in accordance with these orders.
(g)Pursuant to rule 14.24 of the Federal Court Rules 2011 (Cth) the remuneration of the applicant in acting as Receiver of the assets of the HFT for the period 18 May 2018 to 2 June 2021 be fixed in the amount of $44,315.80 plus GST and $2,730.47 in disbursements.
(h)Pursuant to rule 14.24 of the Federal Court Rules 2011 (Cth) the future remuneration of the applicant in acting as Receiver of the assets of the HFT be capped at $7,785 plus GST and disbursements.
(i)Pursuant to rule 1.34 of the Federal Court Rules 2011 (Cth), the formal requirements of rule 14.25 of the Federal Court Rules 2011 (Cth) be dispensed with.
(j)The applicant is authorised to maintain all documents held by her in relation to her appointment as Receiver for a period of seven years from the date of her discharge, after which she will have liberty to dispose of those documents.
(k)The costs and expenses in respect of and incidental to this application be costs in the receivership of the HFT and be paid forthwith from the assets held by the Receiver.
(l)There be liberty to apply, including in respect of future remuneration if necessary, on 72 hours’ notice in writing to the persons referred to in Order 2 below.
Schedule of Powers
(m)The Receiver has the power to do all things necessary or convenient to be done for or in connection with, or incidental to, the attainment of the objectives noted below.
Objectives
(n)The objectives of the appointment of the Receiver are to:
(i)regularise the getting in and realisation of the property of the HFT to enable the discharge of liabilities of the HFT;
(ii)in the event the property of the HFT is insufficient to discharge all its liabilities, to distribute the proceeds of the property of the HFT to its creditors in accordance with the priorities in section 556 of the Corporations Act 2001 (Cth); and
(iii)enable the Receiver to recover the costs of the receivership of the HFT.
2.Service of this order be effected by the Applicant forthwith upon:
(a)the former bankrupt;
(b)any creditors of the HFT;
(c)the beneficiaries of the HFT; and
(d)Australian Securities and Investment Commission.
3.If a Notice of Objection is filed by 6 December 2021 pursuant to Order 1, there be a further directions before Judge Lucev at 10.00 am on 8 December 2021.
4.Reasons for Judgment in relation to these orders be published from Chambers at a later date.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE LUCEV
INTRODUCTION
Orders were made in this matter at hearing on 15 November 2021 in the terms sought by the Applicant. At that time the Court indicated it would publish Reasons for Judgment at a later date. These are those Reasons for Judgment, the form and content of which largely follow the Applicant’s very helpful submissions filed 8 November 2021.
APPLICATION
This is an application for directions pursuant to ss 90-15 and 90-20 of the Insolvency Practice Schedule (Bankruptcy) (Bankruptcy Act 1966 (Cth), Schedule 2) (“Schedule 2”), filed on 16 September 2021:
(a)for directions that the Applicant is justified in acting as receiver and manager of the property of the Hope Family Trust (“Trust”);
(b)appointing the Applicant nunc pro tunc as receiver and manager of the property of the Trust;
(c)for approval of the Applicant’s remuneration and expenses as receiver and manager; and
(d)various ancillary orders.
The application is supported by the affidavit of the Applicant sworn 14 September 2021 (“Petrie Affidavit”) and her affidavit of service sworn 22 October 2021 (“Affidavit of Service”). An affidavit of Damien O’Reilly sworn 5 November 2021 (“First O’Reilly Affidavit”) has also been filed to confirm service of the application and two Petrie affidavits on Ms Alison Joanne Hope, the former bankrupt (“Bankrupt”). Service on the Bankrupt was effected to comply with the request from ASIC in its letter to Tottle Partners dated 13 October 2021: Affidavit of Service, attachment NMP-9 at p 41.
Notice
Notice of the application has been given, by email dated 5 October 2021, to known creditors of the Bankrupt Estate and the Trust: Affidavit of Service at [6]-[9].
Notice has also been given to known beneficiaries of the Trust, including the Bankrupt’s two children, who are minors: Affidavit of Service at [11] to [14] and attachments NMP-1 at p 6, and NMP-2 at p 12.
Notice was given to ASIC because of the acquisition by the Commissioner of the rights of indemnity that vested in the Commissioner upon deregistration of Tears of the Sea Pty Ltd (“the Company”), the former trustee of the Trust. The Company had incurred liabilities on behalf of the Trust, thus entitling it to be indemnified from the assets of the Trust for those liabilities: Affidavit of Service at [15].
ASIC has indicated it does not oppose the orders sought, intend to appear at the hearing of the application, or wish to be joined as a party to the proceeding: Affidavit of Service, attachment NMP-9 at p 41.
Factual Background
At all material times the Bankrupt was the sole director and shareholder of the Company: Petrie Affidavit, attachment NMP-2 at p 16, which had been appointed trustee of the Trust in 2010 by the Bankrupt in her capacity as appointor: affidavit of Damien O’Reilly sworn 8 November 2021 (“Second O’Reilly Affidavit”), attachment DXO-1.
Through and for the benefit of the Trust, and at all times under the control and direction of the Bankrupt, the Company operated two franchised beauty salons – Essential Beauty Morley and Essential Beauty Warnbro.
Essential Beauty Morley was sold in 2015: Petrie Affidavit at [14(a)(ii)].
The business was in financial difficulty in about May 2018, and ceased trading on 17 May 2018: Petrie Affidavit at [14(b)], attachment NMP-5, p33. The Trust was insolvent at that time: Petrie Affidavit, attachment NMP-13 at p 161.
On or about 15 May 2018 the Company resigned as trustee of the Trust and the Bankrupt was appointed trustee in its place: Petrie Affidavit, attachment NMP-3 at p 22 and following. For reasons that are not entirely clear, however, on or about 18 May 2018, by a “Deed of Resignation and Consent”: Petrie Affidavit, attachment NMP-4 at p 31, the Bankrupt resigned as trustee:
(a)without appointing a replacement trustee; and
(b)purported to delegate the powers of the trustee of the Trust to any subsequently appointed controlling trustee.
The Bankrupt was then made bankrupt on her own petition, with the Applicant as trustee of the Bankrupt’s estate: Petrie Affidavit, attachment NMP-1 at p 14.
On her appointment as trustee of the Bankrupt’s estate, the Applicant took control of what she understood to be the assets of the bankrupt estate and the assets of the Trust.
The Applicant proceeded to realise the assets under her control which included:
(a)plant and equipment of the businesses; and
(b)debtors, including the balance of the amount owed to the Company as trustee of the Hope Family Trust from the sale of the Morley business in 2015,
see Petrie Affidavit at [25].
The Applicant’s investigations subsequently disclosed that in the three days that the Bankrupt was trustee of the Trust, the Bankrupt did not incur any liabilities on behalf of the Trust: Petrie Affidavit at [18]. The Bankrupt had no right of indemnity from the assets of the Trust. Her only asset of note was a claim as creditor of the Trust: Petrie Affidavit at [22], attachment NMP-8 at pp 54- 58.
The Company incurred various liabilities for and on behalf of the Trust, and it therefore had a right to be indemnified out of Company assets: Petrie Affidavit at [18]-[19].
The Company was deregistered on 20 September 2018 Petrie Affidavit, attachment NMP-2 at p 20, hence the notice given to ASIC in respect of its potential interest in this application. The Applicant was not aware of the reasons why the Company was deregistered, and while she considered the merits of seeking reinstatement of the Company, that did not appear to her to be justified by the time and likely cost that that process would entail: Petrie Affidavit at [20].
The corollary of the above is that since her appointment in 2018, the Applicant has acted as bare trustee of the assets of the Trust and she has dealt with Trust assets without having the power to do so. She now seeks the assistance of the Court to regularise those dealings and to secure authority to complete the administration of those assets that she has realised.
Relevant Legal Principles
Section 90-15 Schedule 2
Section 90-15(1) of Schedule 2 vests the Court with power to make such orders as it thinks fit in relation to the administration of a regulated debtor's estate. The Bankrupt Estate is a regulated debtor estate: s 5-16 of Schedule 2.
Before the introduction of the Insolvency Law Reform Act 2016 (Cth), s 134(4) of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”) provided:
“The trustee may at any time apply to the Court for directions in respect of a matter arising in connexion with the administration of the estate.”
As the previous regime gave the Court the power to make directions “in respect of a matter arising in connexion with” an estate and the current regime gives the Court the power to make such orders it thinks fit “in relation to” the administration of regulated debtors’ estates, the principles that guided the Court in giving directions under the former regime can be said to apply equally to this application (emphasis added).
In Unal v Cetinkaya [2015] FCA 270 at [61]–[68] per Beach J, the Federal Court, following Bufalo v Official Trustee in Bankruptcy [2011] FCAFC 111, summarised the principles applicable to the giving of a direction pursuant to s 134(4) of the Bankruptcy Act, as follows:
“… s 134(4) should be read together with s 30(1).
,,, s 134(4) is not by itself an appropriate mechanism to determine the substantive rights of creditors as against a trustee.
…the fact that a trustee invokes s 134(4) because he has a doubt “in respect of a matter arising in connexion with the administration of the estate” does not oblige the Court to give the directions sought.
…generally, a proper subject matter for directions is the manner in which a trustee should act in carrying out his statutory functions and exercising or not exercising his powers under the Act. But the power to give a direction should be exercised with considerable care.
…the Court will generally not give an advisory opinion divorced from a concrete issue between the trustee and creditors, the trustee and the bankrupt, the trustee and third parties or otherwise decontextualised from an actual transaction or course of conduct.
… relatedly, the Court may decline to give a direction where:
(a) the relevant issue has not been appropriately crystallised, including where its factual or legal foundation is still evolving;
(b) the trustee has not yet obtained legal or other expert opinion on the matter in doubt so that the trustee can then consider and act on such an opinion thereby obviating the need to approach the Court;
(c) there is a more suitable mechanism for addressing the issue;
(d) relatedly, s 134(4) (and the protection it may provide) is being used for the purpose of avoiding a more suitable inter partes dispute resolution mechanism; or
(e) an opinion is being sought from the Court on a decision whose character, say a purely commercial decision, is more appropriate for the trustee to make, subject to the review mechanisms of s 178; s 134(4) and its counterparts in ss 424(1), 447D and 479(3) of the Corporations Act 2001 (Cth) do not justify juridical commercial proxies for what the trustee should decide.
… if a trustee has made full disclosure of all material facts he may be protected from liability for a breach of at least his statutory duty for things done in accordance with the direction.”
Power to appoint a receiver and manager
The general ground upon which an empowered court appoints a receiver is the protection or preservation of property for the benefit of persons who have an interest in it: QBE Insurance (Australia) Ltd v WA Metal Recycling Pty Ltd, in the matter of WA Metal Recycling Pty Ltd (in Liq) [2016] FCA 238.
This Court has power to appoint a receiver and manager pursuant to s 272 of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (“FCFCOA Act”), which came into effect on 1 September 2021. Section 272 is in the same terms as the now repealed s 114 of the Federal Circuit Court Act 2001 (Cth). Such orders can be made nunc pro tunc: Zhang v Cheng (No 2) [2020] FCCA 507; (2020) 354 FLR 1, at [12] per Judge Street, citing Emanuele v Australian Securities Commission [1997] HCA 20; (1997) 188 CLR 114; (1997) 71 ALJR 717; (1997) 144 ALR 359; (1997) 23 ACSR 664; (1997) 15 ACLC 763; see also Jones v Matrix Partners Pty Ltd Re Killarnee Civil and Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310; (2018) 354 ALR 436; (2018) 124 ACSR 568; (2018) 36 ACLC 18-017; (2018) 70 AILR 102-397.
The Court may relieve a trustee from personal liability.
By s 75 of the Trustees Act 1962 (WA) (“Trustees Act”) a court may excuse a trustee for any breach or failure to obtain directions from a court if the court is otherwise satisfied the trustee has otherwise acted honestly and reasonably, and ought fairly to be excused for the breach or failure.
The onus is on the Applicant to demonstrate that not only has she acted honestly and reasonably but also that she ought fairly to be excused: Cardaci v Cardaci & Ors (No 5) [2021] WASC 331 at [765].
Application of Legal Principles
The directions sought by the Applicant are connected with the Applicant’s administration of the Bankrupt Estate, so much is apparent from the links between the affairs of the Trust and the affairs of the Bankrupt, including that the largest asset of the Bankrupt Estate is its claim against the Trust and the overlap between the liabilities of the Bankrupt Estate corresponding with the liabilities of the Trust: Petrie Affidavit at [22] and [29], attachments NMP-8 at p 56, and NMP-18 at p 191.
Having acted on the basis of legal advice obtained in a similar matter: Petrie Affidavit, attachment NMP-9 at p 77, there is nothing to suggest that the Applicant has not acted honestly or reasonably, or that she had acted otherwise than in good faith and in the interests of creditors, many of whom are creditors in both estates, in dealing with the assets of the Trust in the manner that she did: Petrie Affidavit at [29], attachment NMP-18 at p 191. The overlap in creditor pools arises from the guarantees the Bankrupt provided in respect of the Company’s operation of the businesses while it was trustee of the Trust: Petrie Affidavit, attachment NMP-9 at p 80.
While the Applicant may have misunderstood (based on the legal advice previously obtained referred to at [29] above) the nature and extent of any powers afforded to her by reason of the Bankrupt’s “Deed of Resignation and Consent”: Petrie Affidavit, attachments NMP-4 at p 31 and NMP-9 at pp 75 and 77, the steps she took to secure the plant and equipment of the Trust were taken against the backdrop of threats by the landlord that those assets would be lost, to the detriment of creditors of the Bankrupt Estate and creditors of the Trust: Petrie Affidavit at [15]-[16].
No one has objected to the orders that have been proposed by the Applicant.
The Applicant expects that after payment of her remuneration and expenses there will be:
(a)a return of 100 cents in the dollar for priority creditors, being for superannuation guarantee contributions and FEG payments for one employee: Petrie Affidavit at [28(a) and (b)] and [32]; and
(b)a return of approximately 16 cents in the dollar to ordinary unsecured creditors: Petrie Affidavit at [28(c)] and [32].
In all of the circumstances the Court considers it would be appropriate and prudent:
(a)to appoint the Applicant receiver and manager of the Trust to enable her to distribute the assets that have been realised in accordance with the priority regime under s 556 of the Corporations Act 2001 (Cth), given that the liabilities of the Trust were incurred when the Company was trustee; and
(b)in the exercise of its associated jurisdiction under s 134 of the FCFCOA Act, to excuse the Applicant from any breaches, failures, or omissions that she may have committed in relation to her administration of the Trust, pursuant to s 75 of the Trustees Act.
Remuneration
Since the date of her appointment, the Applicant has kept separate accounts of the work undertaken in respect of the administration of the Bankrupt Estate and the administration of the Trust, and this arrangement was made known to creditors: Petrie Affidavit, attachment NMP-9 at p 69 and following, but especially p 98 and following.
The Applicant proposes to deal with her remuneration in respect of work done in the Bankrupt Estate in accordance with procedures prescribed by the Bankruptcy Act and Schedule 2: Petrie Affidavit at [44].
In respect of work undertaken by the Applicant in her administration of the property of the Trust, the details of that work are deposed to in the Petrie Affidavit at [34]-[44], supported by the further material in the Petrie Affidavit at:
(a)attachment NMP-22 at p 214 and following, in respect of work undertaken in the period from 8 May 2018 to 8 September 2021; and
(b)attachment NMP-23 at pp 251-252, in respect of further work to be performed.
Those materials disclose that:
(a)as a matter of substance the Applicant’s work has been directed towards realising the assets and undertaking of the Trust;
(b)the Applicant is seeking approval of remuneration of:
(i)$44,315.80 for work undertaken to the period ending 8 September 2021;
(ii)$7,785 for work to complete the administration;
the above amounts being exclusive of disbursements of $2,730.47 and GST, but inclusive of an overall reduction of $16,449.90: Petrie Affidavit at [41].
The total remuneration sought by the Applicant is $52,100.80, which represents 28.94% of the $180,043.20 (ex GST) realised for the benefit of Trust creditors: Petrie Affidavit, attachment NMP-21 at p 212.
Relevant Legal Principles
There is no power in the Bankruptcy Act for the Court to make orders for the payment of a trustee in bankruptcy’s remuneration from trust assets. Further, while the Court has power to appoint a receiver and manager pursuant to s 272 of the FCFCOA Act, neither the FCFCOA Act nor the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) make provision for the payment of a receiver’s remuneration. In such a case, the Federal Court Rules 2011 (Cth) (“Federal Court Rules”) apply with any necessary modification and subject to any further direction that may be made by the Court: s 174(2)(b) of the FCFCOA Act and paragraph 1.5 of the Central Practice Direction – General Federal Law proceedings.
Relevantly, the Federal Court Rules provide:
(a)at r 14.24, that the Court may fix a receiver’s remuneration; and
(b)at r 1.34, that the Court may dispense any compliance with any of its Rules (which would include the power to dispense with the need for a receiver to provide security in the form of a guarantee pursuant to r 14.22 or for the receiver to lodge accounts for assessment under r 14.25).
The Court’s jurisdiction to allow remuneration is wide, whether the appointment of the trustee is made by the Court or not. It extends to allow the Court to authorise payment of remuneration for future work done, as well as work already completed: Re Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297; (2004) 22 ACLC 1326.
The principles with respect to a receiver’s entitlement to costs and expenses were recently reviewed and applied in Hutchins, in the matter of Ardenberg Pty Ltd (in liq) (Administrators Appointed) (No 2) [2020] FCA 1424 at [17] and following per Yates J. Proportionality remains a key consideration, and it is to be considered in the context of the complexity of the matter and overall reasonableness of the work undertaken in realising the assets.
Application of Legal Principles
In the context of acting as bare trustee of the property of the Trust, the remuneration sought by the Applicant is, in the Court’s view, reasonable in the circumstances, having regard to the nature and extent of the work done and the value of the assets that will now be available for distribution to creditors of the Trust and, by extension, creditors of the Bankrupt Estate.
CONCLUSION AND ORDERS
For the above reasons the Court made the orders it did on 15 November 2021.
I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Lucev. Associate:
Dated: 16 December 2021
0
12
8