Karas, Irene v Page, a a as Official Receiver in Bankruptcy District of the State of Victoria

[1997] FCA 1257

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - application to set aside Notice to Give Evidence and Produce Documents - whether Notice not limited to books in the applicant’s possession - whether Notice not limited to books relating to a matter concerned with the performance of functions of a trustee of the estate of the bankrupt - whether Notice too wide - whether Notice oppressive.

Bankruptcy Act 1966 (Cth), ss 19AA, 77C

Re JTC McKee; Ex parte Laroar Holdings Pty Ltd (1996) 71 FCR 156, applied

IRENE KARAS v
AA PAGE AS OFFICIAL RECEIVER IN BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA and PAUL A PATTISON AS TRUSTEE OF THE BANKRUPT ESTATE OF TOM KARAS (NO VIC 2116 OF 1997)

VG 7706 of 1997

TAMBERLIN J
MELBOURNE
14 NOVEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 7706  of   1997

BETWEEN:	IRENE KARAS APPLICANT
AND:	AA PAGE AS OFFICIAL RECEIVER IN BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA AND PAUL A PATTISON AS TRUSTEE OF THE BANKRUPT ESTATE OF TOM KARAS (NO VIC 2116 OF 1997) RESPONDENTS
JUDGE:	TAMBERLIN J
DATE OF ORDER:	14 NOVEMBER 1997
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The application is dismissed.

1. The applicant is to pay the costs of the respondents.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 7706 of 1997

BETWEEN:	IRENE KARAS APPLICANT
AND:	AA PAGE AS OFFICIAL RECEIVER IN BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA AND PAUL A PATTISON AS TRUSTEE OF THE BANKRUPT ESTATE OF TOM KARAS (NO VIC 2116 OF 1997) RESPONDENTS

JUDGE:	TAMBERLIN J
DATE:	14 NOVEMBER 1997
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

The applicant, on 31 October 1997, filed an application seeking an order that a Notice to Give Evidence and Produce Documents, dated 9 October 1997 and served on the applicant pursuant to s 77C of the Bankruptcy Act 1966 (Cth) (“the Act”), be set aside in whole or in part. In the alternative, a declaration is sought that insofar as the Notice requires the applicant to produce the documents set out in the Schedule to the Notice, production should be limited to the documents only insofar as they relate to the bankrupt and to a matter connected with the performance of the functions of the Official Receiver or a trustee appointed under the Act.

The Notice reads as follows:

“WHEREAS

(A)      Mr Paul A Pattison is the trustee (“the Trustee”) of the bankrupt estate of Tom Karas (“the bankrupt”) who became bankrupt on 8 July 1997 (No: Vic 2116 of 1997)

(B)      It is the function of the Trustee to take possession of the property of the bankrupt pursuant to Section 129 of the Bankruptcy Act 1966, and to determine whether the estate includes property that can be realised to pay a dividend to creditors pursuant to Section 19 of the said Act, and it is the function of the Trustee or the Official Receiver to investigate the bankrupt’s conduct and examinable affairs and the books, accounts and records kept by the bankrupt so far as they relate to the bankruptcy, pursuant to Section 19AA of the said Act.

I, Alistair Ashley Page, of 9th Floor, Melbourne Central Tower, 360 Elizabeth Street, Melbourne, Official Receiver in and for the abovenamed Bankruptcy District, give notice that pursuant to paragraph 77C(1) of the Bankruptcy Act 1966, you are required to attend before John Lynch and/or Alex Chua, officers, who have been authorized by me to exercise powers under this paragraph, at this office at 10.00 o’clock AM on Monday, the 27th day of October 1997, to give evidence and produce such documents as set out in the schedule hereto marked “Annexure A” that relate to the examinable affairs of the bankrupt.

For your information I advise that Section 5 of the Bankruptcy Act 1966 contains the following definition:-

“Entity” means a natural person, company, partnership or trust.

“Books” includes any account, deed, paper, writing or document and any record of information however compiled, recorded or stored, whether in writing on microfilm, by electronic process or otherwise.

“Examinable Affairs” in relating to a person means:-

(a)the person’s dealings, transactions, property and affairs; and

(b)the financial affairs of an associated entity of the person, in so far as they are, or appear to be, relevant to the person or to any of his conduct, dealings, transactions, property and affairs.

“Associated Entity” in relation to a person means:-

(a)an entity (other than a company) that is, or has been, associated with the person; or

(b)a company that is, or has been, associated with the person at a time when the company is, or was, as the case may be, a private company.”

The Schedule to the Notice reads:

“You are directed to provide the following information in your possession, relating to the examinable affairs of the bankrupt, including but not limited to the following.

1.  In relation to the bankrupt and to the associated entities of the bankrupt being Conmoore Pty Ltd, Karas Family Trust and Karmel Family Trust and in particular:

·   all books and records of Conmoore Pty Ltd, Karas Family Trust and the Karmel Family Trust

·   company secretarial file of Conmoore Pty Ltd;

·   minute books relating to the Trusts;

·   cash receipts and payments books for all entities;

·   cheque butts and deposit books for all entities;

·   any document which evidences the source of any deposits banked into any bank account of Conmoore Pty Ltd

·   bank statements for all entities covering all accounts since and including the year 1992;

·   Trust deeds for the trusts;

·   documents relating to the purchase of 320 Drummond Street Carlton by Conmoore Pty Ltd including settlement statement

·   evidence of funding the purchase of 320 Drummond Street Carlton;

·   documents relating to the transfer of 320 Drummond Street Carlton to Irene Karas;

·   financial statements for all entities for the last five years;

·   income tax returns for all entities for the last five years and

·   income tax returns of Irene Karas for the last five years

·   general ledgers for the years 1992 to date for Conmoore Pty Ltd, Karas Family Trust and the Karmel Family Trust

·   general journals for the years 1992 to date for Conmoore Pty Ltd, Karas Family Trust and the Karmel Family Trust

·   invoices for payments made by Conmoore Pty Ltd and invoices for payments made by the Karas Family Trust in the years since and including 1992

·   documents appointing you as trustee to the Karas Family Trust

2.  Evidence that art work by J. Del Mace was purchased by you and belongs to you.” (Emphasis added)

The recipient of the Notice, Irene Karas, the applicant has sworn an affidavit which simply states that she was served with a Notice. She annexes some correspondence and says that on 27 October 1997 her examination commenced but that from the outset it was made clear by her solicitor that the examination was to proceed only under protest.  The examination has not been completed.

The grounds on which orders are sought, setting aside the Notice, are:

(a)The Notice is not limited to books in the possession of Mrs Karas;

(b)It is not limited to books relating to a matter connected with the performance of the functions of the Official Trustee or a trustee under the Act;

(c)It is too wide;

(d)It is oppressive.

Mr Pattison has filed an affidavit sworn on 10 November 1997.  He resists the application. He is the registered trustee of the bankrupt estate of Mr Tom Karas.  Mr Karas was made bankrupt by order of the Federal Court on 8 July 1997.  Mr Page, the Official Receiver in Bankruptcy, caused the Notice to be issued and served on the applicant who is the wife of the bankrupt.

Mr Pattison says that he requested the issue of the Notice in the performance of his duties under s 19 of the Act, and, in particular, in order to investigate what entitlement he has in respect of the property at 320 Drummond Street, Carlton, and whether transactions involving the bankrupt were undertaken with the intention of defeating creditors or are otherwise voidable against him as trustee. He describes each of the entities referred to in the Schedule as an associated entity of the bankrupt and, says that the applicant is an examinable person in relation to the affairs of the bankrupt. The period for which documentation was requested, in some instances being five years, is reasonable and would fall within the scope of the relation back period for void transactions under the Act. He considers that there is cause to investigate the entitlements to the property at Drummond Street and the liabilities of the applicant and other entities pursuant to the Act.

The applicant is the wife of the bankrupt and was his partner for four years. She is an associated entity of the bankrupt.  She is also a director and secretary of the company Conmoore Pty Ltd (“Conmoore”), which acts as trustee of the family trust, a discretionary trust of which the applicant and the bankrupt are beneficiaries.  Until mid-December 1995 the bankrupt was a director of Conmoore.  The applicant and the bankrupt are also beneficiaries of the Karmel Family Trust, and the bankrupt is a trustee.  Both Conmoore and the family trusts are also associated entities of the bankrupt. The affidavit asserts that, in view of her offices in relation to each of the entities, it is likely that she has knowledge of the affairs of those entities in relation to the bankrupt’s examinable affairs, and moreover, that she either has relevant documents as sought in her possession or knows their whereabouts.

The affidavit raises some matters which it is said call for investigation.  It refers to purchase of the Drummond Street property for $423,000 at an auction in November 1994.  This was executed in the name of the bankrupt and/or a nominee.  Conmoore was the nominee.  On 7 July 1997, the day before Mr Karas was made bankrupt, the property was transferred from Conmoore to the applicant.  Three months later, on or about 11 October 1997, the property was sold at an auction to a company Rosebee Glen Pty Ltd for $825,000.  The trustee wishes to investigate the entitlement of the bankrupt estate to the property or the proceeds of sale.  A caveat has been lodged.

Included in the reasons for requesting issue of the s 77C Notice was the perceived need to obtain information regarding the settlement date of the sale and to determine entitlements to the proceeds. The basis for the trustee’s belief in this respect is information obtained from the bankrupt’s Statement of Affairs; from the applicant and Mr Nightingall during examination under s 77C; from newspaper reports regarding the sale of the property, and from title documentation.

At the hearing, in relation to s 77C Notice on 27 October 1997, the applicant refused to produce any of her documents with the exception of a copy of the Karmel Family Trust Deed. She also refused to answer any questions regarding her means and contributions to the property enjoyed by the bankrupt and the lifestyle of the bankrupt, or any questions regarding the transactions involving the nominated entities and the property at Drummond Street, including the source of funds for the purchase of that property.

Section 77C of the Act reads as follows:

“(1)  The Official Receiver, by written notice given to any person, whether a bankrupt or not, including any person employed by or in connection with a Department, or an authority, of the Commonwealth, of a State or of a Territory, may require the person:

(a)to give to the Official Receiver such information as the Official Receiver requires for the purposes of the performance of the functions of the Official Receiver or a trustee under this Act; and

(b)to attend before the Official Receiver, or before an officer authorised in writing by the Official Receiver to exercise powers under this paragraph, and:

(i)        give evidence; and

(ii)       produce all books in the possession of the person;

relating to any matters connected with the performance of the functions of the Official Receiver or a trustee under this Act.

(2)  The Official Receiver or authorised officer may require the information or evidence to be given on oath, and either orally or in writing, and for that purpose may administer an oath.”

I will now turn to the grounds relied on by the applicant.

Notice not limited to books in applicant’s possession

There is no substance in this submission. The Schedule to the Notice makes it clear that the information sought is information in the possession of the applicant. If it is not in her actual or constructive possession then she does not have to produce any documents, nor does she have to give the information.  The expression “information” is, of course, sufficiently broad to include oral testimony or knowledge which is not in written form.

No limitation to books relating to a matter concerned with the performance of functions of a Trustee

The Notice is expressly and specifically limited to information in the possession of the applicant which relates to the examinable affairs of the bankrupt. Under s 77C the Notice extends to evidence or to any matter connected with the performance of the functions of the Official Receiver or a trustee. Under s 19AA, a registered trustee who is the trustee of the estate of a bankrupt may investigate the bankrupt’s conduct and examinable affairs and books, accounts and records kept by the bankrupt, so far as they relate to the bankruptcy. The Official Receiver may also investigate any bankrupt’s conduct and examinable affairs, as well as books, accounts and records kept by the bankrupt, so far as they relate to the bankruptcy. Accordingly, it is clear that the investigation of the bankrupt’s examinable affairs is clearly a function and responsibility of a registered trustee and of the Official Receiver. Accordingly, the submission that the Notice is not limited to books relating to a matter connected with the performance of the functions of the Official Trustee or a registered trustee cannot be sustained.

The Notice is too wide

It is well settled that the provisions of s 77C are designed to enable the trustee to make the fullest investigations into a bankrupt’s property, dealings and affairs: Re Bond; Ex parte Ramsay (1994) 54 FCR 394 at 401 per Sheppard J. As Spender J said in Re JTC McKee; Ex parte Laroar Holdings Pty Ltd (1996) 71 FCR 156 at 164:

“It is part of the trustee’s function to get in the assets of a bankrupt estate and to distribute them rateably amongst the creditors. Part of that function, in my opinion, requires the trustee to investigate and assess the prospect of recovering funds from the existing action. The obtaining of information by evidence, and the production of books relating to those matters of complaint is a matter which is, in my opinion, immediately connected with the performance of that function of a trustee.”

There is no suggestion in the present case that the Notice was issued for any ulterior or improper purpose.

It is true that the Notice covers a broad time span. However, it is to be observed that the financial statements and income tax returns have been limited to a period of the last five years. Counsel observed that this is the period for which taxation records must be kept. There is evidence that Conmoore was incorporated in August 1991 and that the other two important entities, the Karas Family Trust and the Karmel Family Trust, were set up in 1991, although the exact date is not specifically provided. The trustee makes the point that s 121 of the Act is not specifically limited as to time to issue the Notice.

It is clear that the power must be exercised in the interests of creditors.  The procedure is designed to enable investigation to establish what assets the bankrupt had and what has happened to those assets in order to decide whether action should be commenced or continued to recover the assets.  In these circumstances the Court should exercise caution when asked to review the discretion and determination of the Official Receiver or trustee as to what documents ought to be produced or what oral information should be provided: see Karounos v Official Trustee (1988) 19 FCR 330 at 335. In other words, a wide area of discretion should be left to the determination of the trustee as to what information should be considered necessary or appropriate to enable the trustee to undertake a proper investigation of the circumstances surrounding the bankrupt’s affairs.

In view of these matters and in the absence of any persuasive evidence by the applicant to the contrary I am not satisfied that the Notice can properly be characterised as “too wide”.

Is the Notice oppressive?

No evidence has been proffered by the applicant to substantiate a contention that because of matters such as the volume, time, expense or difficulty in procuring any of the documents or providing information, the request is oppressive.

It is of course necessary to bear in mind that under ss 267B, 267C and 267D of the Act, a person who fails to comply with s 77C without reasonable excuse is liable to imprisonment. This emphasises the importance of a requirement that the discretionary power to issue the Notice and the scope or terms of the Notice must not be oppressive.

The applicant submits that under the Notice it is left to the applicant to determine whether a particular record or document relates to the “examinable affairs” of the bankrupt.  This is said to be oppressive because it imposes an obligation, backed up by a criminal sanction, whereby the applicant is required to make an assessment as to whether a document relates to the examinable affairs of the bankrupt.  This may involve a legally and factually complex assessment.  In order to avoid this difficulty it is said to be necessary that the Notice should specify with precision the exact information and documents which are said to relate the examinable affairs of the bankrupt.

The expression “examinable affairs” is defined in s 5(1) of the Act to mean, in relation to a person, the person’s dealings, transactions, property and affairs; and the financial affairs of an associated entity of the person insofar as they are or appear to be relevant to the person or to any of his or her conduct, dealings, transactions, property and affairs.

The Notice limits the information and evidence to be provided to that relating to the examinable affairs of the bankrupt which include the matters set out in pars (1) and (2) of the Schedule.  The documents must relate to the bankrupt or to the associated entities of the bankrupt which are specified.  It should also be observed that the purpose of the Notice is to investigate both the existence and contents of documents and therefore it will often be impossible to specify precise documents, but only classes of documents.

As I read the Schedule, it seeks information and documents which the Official Receiver considers relate to the examinable affairs of the bankrupt in the sense referred to above.  If the recipient can establish that any of the documents or classes of documents cannot on any reasonable view be considered to relate to the examinable affairs of the bankrupt, then a proper challenge can be duly mounted.  In the present case, there is simply no evidence to indicate that any of the documents or information sought are not reasonably capable of being considered relevant to the examinable affairs of the bankrupt.  Moreover, insofar far as compliance is concerned, the requirements are sufficient to enable the categories of books, records, information or evidence, the subject to the request, to be identified. For example, if one takes the first item which relates to all books and records of Conmoore, it is evident that there is no necessity to make any subjective judgment in relation to that matter.

If the recipient can show that, acting reasonably, she considered that such documents could not be relevant there would be no contravention of s 77C. Moreover, the definition of “examinable affairs” is limited to those affairs so far as they appear to be relevant to the bankrupt or to any conduct of the bankrupt person.

In view of these considerations and the relative specificity of the documents sought, I am not satisfied that the Notice can in any way be described as oppressive such that it could not or should not be complied with.

One further matter raised for the applicant was the lack of specificity of the expression “evidence” where used in pars (1) and (2) of the Schedule to the Notice.  It is suggested that “evidence” is a more general or vague criteria than “information, books or documents” because it calls for a decision as to whether material can be described as evidence, and that therefore the Notice is bad.  In my view this submission should not be accepted.  The expression “evidence” is used in a compendious way of referring to both information and documents.  For example, in par (2) the request calls for “evidence” that art work was purchased by and belongs to the applicant.  It is clear what this means. Such evidence may be either oral information or documentary material, each of which are encompassed in the expression “evidence”.

For the above reasons, I dismiss the application of this matter. The applicant must provide the information and documents sought.  The orders of the Court are:

1. The application is dismissed.

2. The applicant is to pay the costs of the respondents.

I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin

Associate:

Dated:             14 November 1997

Solicitor for the Applicant:	Irlicht & Broberg
Solicitor for the First Respondent:	Australian Government Solicitor
Counsel for the Second Respondent:	S Minahan
Date of Hearing:	10 November 1997
Date of Judgment:	14 November 1997