Lamb, Kenneth Wayne v Registrar in Bankruptcy for the State of Victoria

I '

CATCHWORDS

Bankruptcy

- qualification to act as trustee

- whether a

person who is an employee is for that reason necessarily not

qualified to act as a trustee within the meaning of s.155

the Bankruptcv Act

1966

- employees not a class of persons

expressly excluded by s.155 from registration as a trustee - the fitness of a person to hold the office of a trustee in

each case must depend on its

own facts.

Bankruptcy Act 1966; ss.155 and 179

KENNFTH WAYNE

LAMB v. THE REGISTRAR IN

THE BANKRUPTCY FOR THE

STATE OF VICTORIA

VG No. 168 of 1984

Smithers ACJ, Northrop and Jenkinson	JJ.
3 October 1984
Melbourne.

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA

DISTRICT

REGISTRY

)

No. 168 of 1984

)

GENERAL DIVISION

)

ON APPEAL from the Federal

Court of Australia

Between:

KENNETH WAYNE LAMB

(Appellant)

And:

THE REGISTRAR IN

BANKRUPTCY €OR THE

STATE OF VICTORIA

(Respondent)

Judqes Makinq Order: Smithers ACJ, Northrop and Jenkinson

JJ.

Date of Order:	3 October 1984
Were Made:	Melbourne.

O R D E R

THE COURT ORDERS THAT:

1. The appeal be allowed.

2 .

The Orders and Declaration

of the Court below

be set

aside and in lieu thereof the application be- dismissed.

3. The question of the appellant's costs of the application and of the appeal be reserved.

IN THE FEDERAL COURT OF AUSTRALIA )

)

VICTORIA	DISTRICT	REGISTRY	)	VG	No. 168 of 1984
)

GENERAL DIVISION

)

ON APPEAL from the Federal

Court of Australia

Between: KENNmH WAYNE LAMB

(Appellant)

m: THE REGISTRAR IN

BANKRUPTCY FOR

THE

STATE OF VICTORIA

(Respondent)

Coram: Smithers ACJ, Northrop and Jenkinson JJ.

3 October 1984 1984

REASONS FOR JUDGMENT

SMITHERS J.: This is an appeal from a judgment of the trial judge that in exercise of the power contained in s.155(5) of the Bankruptcv Act Act (the Act) , an order should be made

cancelling the registration

of the appellant Kenneth Wayne

Lamb as a person qualified to act

as a trustee pursuant

Part VI11 of the the Act and declaring that the appellant

no longer qualified	to be a person registered pursuant to Part
8 of the Act.

The appellant was reglstered under

s.155 of the Act

as a

person qualified to act

as a Trustee on

18 March 1983 pursuant

to an order made by the Court

9 February 1983. At that

time the appellant was carrying on practice as a public

accountant in partnership with

a Mr. Scott under the style

"Scott & Lamb".

appears

that

this

partnership

was

eventually dissolved and on 6 June 1983 the appellant became

employee of the firm

chartered accountants known as

Duesburys.

He was employed by that firm on the basis that he

would be introduced to the firm.

responslble

for, and

retain,

clients which he

The firm intended to consider the

possibility of admitting

the appellant into partnership once

I .

he obtained

membership

the

Institute

Chartered

Accountants. In July 1983

a Deputy Registrar in Bankruptcy

informed the respondent had acquired the status

appellant

that

he was

concerned

that

the

of	an employee, this

concern arising out	of the decisions of Re Dawes (1934) 7 ABC
190 and Re Hickman	(1943) 13 ABC 138.

It has

been sworn on

behalf of the appellant in these

proceedings by the senior insolvency partner of Duesburys

that :

_ .

113. _ _ _ _ During his employment, the Trustee

-- Cthe

appellant3has complete independence in respect

the administrations in which

he acts as trustee or

as liquidator. I am able to assure the Court on behalf of my partners that they do not interfere

they intend to interfere or direct the

Trustee in the conduct of those administrations.

4. That my partners and I, some of whom are also

Trustees

Bankruptcy

and

Registered

Liquidators, are very much

aware of the need for

independence of trustees in this regard."

In the judgment under appeal many important powers and discretions vested in a trustee by the Act are referred to.

Thus, there is the exercise of discretlon

as vested in the

trustee both in bankruptcy and under Part X of

the Act. In

the course of his duties a trustee must decide questions

affecting the interests of creditors, debtors and bankrupts.

Such

questions

may

time

consuming

and

relatively

unrewarding to

the trustee and, if he is

an employee, to his

employer. A trustee must decide whether to apply for	a public
examination of a bankrupt or for the examination of other

parties.

He must

decide

whether

challenge

antecedent

transactions.

All these decisions may involve many hours of

preliminary

investigation

detailed

and

preparation.

Examinations or legal proceedings may then be of considerble length and in the end prove to be unfruitful. Problems will arise in relation to the admission or rejection of proofs of

debts. Questions will arise

as to whether an objection to

the

discharge of a bankrupt shall be lodged.

The preparation of the trustee's report concerning the

conduct

of a bankrupt, possibly adverse, and whlch may be

challenged

the

bankrupt

and

the

possibility

participation by the trustee in

an opposed application for

discharge

may

make

considerble

calls

upon

the

time

and

judgment of the trustee.

Similarly, in relation to deeds of assignment he has

many decisions to make affecting the interests of creditors

and	a bankrupt. As is pointed out by the learned trial

Judge :

"The examples given are not to be regarded as

exhaustive.

Suffice

say

that

a trustee

plays a central role

in the administration of

estates under the

Act and is under

a general duty

to exercise the powers committed to him in such

fashion that the objects

of the Act, including

those of equality between creditors and fairness

to bankrupts and debtors, are served. The objects

of the Act are of public importance and it is of

great importance to the communlty that the role

given by the legislature to a trustee, is

fulfilled only by persons

who are, and who

are

seen to be, completely independent."

It is said that

a trustee who is an employee and subject

to the control of

his employer in deciding what work should be

done by him, the manner in which it should be done, when it should be done, the time within whlch it should

be completed,

and the staff

which he may use to

d it,

may well flnd that

is unable

to carry out the required diligent performance of

his duties as

a trustee because of

his desire to be more

productively employed in the eyes of his employers

so as to

advance

the

prospects

promotion

and

admission

partnership.

It is apparent that if a trustee is also

n employee the

requirement

independence

and

impartiality

inhe

performance of his duty as

a trustee may come into conflict

with his duty to his employer. And in that situation the

possibility of a trustee being subject to influence that may

make it difficult for him to act in particular cases with

impartiality

the

interests

creditors

generally

inevitably present. In so saying in Re Dawes (supra) Lukin

refused the application of a Managing Clerk for

a solicitor to

be qualified to act

as a trustee.

In Re Hickman (supra) Clyne

J. said at pp.138 and 139:-

"In my opinion, however,

a person desirous

becoming

registered

as a trustee

should

independent in the sense that

e can carry out his

duties as a trustee whenever required

to do so and

free from any such control as may debar him from giving his time and attention to the duties and responsibilities of a trustee. If he has not that independence and as an employee is subject to the

control of another, there is always the risk

of a

conflict of

duties, and in particular, the risk

that

his

duties

as an employee

might

prejudicial to

his duties as a trustee.

Moreover, it is not satisfactory or expedient that

an officer of the	Court should be under the more
or less continuous	control of an employer.

The applicant at the present time has not that

independence, which

is, I think, an essential

qualification for any person	who desires to become
registered as a trustee."

There is, however, authority in which a less strict view

of the requirements of the Act was taken. Thus, in Re Robson

(unreported) 11 November

1980

Wickham

J. acceded

application by an

employee of a firm of chartered accountants

to be registered as qualified to act as

a trustee. However,

the decisions in Re Dawes and

Re Hickman were not referred to.

In 1983, in Re Totterdell unreported 14 June 1983 Burt C.J. heard an application for registration by a person who had previously worked in the office of the Official Receiver and

whose

appointment was strongly supported by the Official

Receiver.

The decision in Re Hickman (supra) was quoted to

the learned Chief Justice. In an affidavit filed in support of the application a partner in the firm which employed the applicant deposed that there would be no interference by the

firm with the applicant in the performance

of his duties if

became registered as a person qualified to act as a trustee.

Burt C. J. said:

"Well this is

an application which I intend to

grant. The only point that might lead me to the

contrary arises out of the decision of

Mr. Justice

Clyne, in re Hickman, which was decided in

1943,

and in that case his Honour appears to have held

that

public accountant, who is employed

another

public

accountant

- the

relationship

between them being, as appears from the reasons,

that

of employer and managing clerk

- was not

thought

be a satisfactory

person

appointed to this position, or office, because

may well be that

could

not, while being

S G

employed,

bring

his

job,

independent

judgment, and that he might

be subject to the

control of his employer, which would not enable him properly to carry out his duties. Well that

in the end really is a question

f fact, I think,

that is declded in each particular case.

It is

not	a matter which arises directly out of the

Statute. I think perhaps in 1983 where firms of accountants have become far larger, and it may be,

in certain cases, incorporated for all

I know,

that

relationship

between

the

so-called

employer - I can't say he is the legal employer

and the person

who may be said, and in fact

is, a

servant, is not one out

f which there is any real

possibility of the employer exerting any degree of

control over the employee in the carrying out by

that employee, of

his duties.

He is employed

as a

professional

man,

and

he has a status

which

enables him, in

the

carrying

out

his

professional work, to exercise an unfettered professional judgment, in the same way, I expect, as a - I mentioned a surgeon might exercise his judgment, although technically he is employed by

either a layman or

a board - hospital board. This

appears

in every

particular applicant

respect a very

competent,

xperienced,

professional man, well trained to carry out the

duties of the appointment which

he is seeking, and

I think the application should be granted."

In Re Partridqe (unreported)	22 September 1982 Lockhart J.
said of a trustee:-

"He must be scrupulously careful to ensure that

never allows himself to be placed in

a position of

conflict between various duties or between duty

and interest; nor must

he ever allow the situation

to arise where

he may be seen to be in that

position

of conflict or potential conflict.

registered trustee must not only be impartial;	he
must be seen to be impartial."

It is apparent therefore that there are grounds upon

which it might be thought incompatible with the nature

of the

office of trustee that an employee should be registered as a

trustee.

The question is, however, whether according to law a

person who

is an

employee is for that reason necessarily a

person not qualified to	act as a trustee within the meanlng	of
s.155 of the Act.

In this case the learned Judge

has

ordered that the

registration of the appellant

trustee be cancelled, not

because of any impropriety

on his part

as a trustee but on the

ground that employer renders him

his

employerlemployee

relationship

with

his

a person whom the Court should not think

qualified to act as a trustee. The order was made under

s.155

and not 5.179.

These sections provide as follows:-

"155(1) Each Registrar shall keep,

as prescribed,

a register in which shall be entered the names and

such other

particulars

are

prescribed

persons whom the Court directs to

be registered

under this section as qualified

to act as trustees

and who have given security in the prescribed

amount and manner.

( 2 )

person may apply to the Court to be

registered as

qualified to act as a trustee and,

subject to this section, the Court may, if

thinks fit, by

order

direct

that

he be so

registered upon his enterlng into a bond in

the

prescribed amount and manner with such surety or

sureties as the Registrar approves.

( 3 )

A person who is registered under this section

is entitled, upon request, and upon payment

of the

prescribed fee, to be issued	with a certificate of
his registration.

(4) Nothing

thls

section

authorizes

the

registration as

trustee of a

company,

partnership, corporation or association.

( 5 )

The Court

may,

any

time,

cancel

the

registration of a person under this section.

(6) ...

( 7 ) ... "

"179 (1) The Court may, on the application

of the

Registrar,

a creditor or the bankrupt, inquire

into the conduct of

a trustee in relation to

bankruptcy

and

may

do ne

both

the

following:-

(a) remove the trustee from office; and

(b) make such order as it thinks proper.

( 2 ) The Registrar or a creditor may at any time

require a trustee to answer an inquiry in relation

to the bankrupt's estate or affairs.

(3) The Registrar or a creditor may apply to the

Court to examine a trustee or any other person in relation to the bankruptcy.

(4) ..."

There seem to me to

be different situations requiring separate

consideration. First, an employee

who

pursuant

his

agreement of employment is entitled to

carry on the business

of acting as a trustee and keep the fees for his

own benefit.

Second, an employee

who

pursuant o

his agreement

employment does the work attached to his duties

of being a

trustee as part of and subject to the control of his employer including the decisions he makes and how and when he performs

the work attached

to his trusteeship as though the performance

of that work stood in no different a class from his ordinary

work as an employee, with the fees belng paid to the employer

and his remuneration being at a fixed salary

or w ge.

In the first case some adjustment might

be made against

salary

or otherwise for use made of the employer's staff,

premises and equipment. But of course, whichever of these

employment agreements are made there remains the inevitable

fact that the employee is closely bound to the employer, and

looks to advancement in the firm and perhaps to partnership.

In	that position he would naturally desire to please his

employer and, with all the goodwill and honesty in the world,

might find it easier to favour the firm or its clients in

matters arising out of

his trusteeship.

However, of

course, even a man in business

for himself

may no doubt have business dealings of commercial importance

with various persons and be subject to actual or unconscious

influence in making decisions in a trusteeship favourable or

unfavourable to those persons.

It is to be observed that by

s.155(4) neither a company,

a partnership,

nor

corporation

association

may

registered

a trustee. However, there is no statutory

provision that a member of

partnership may not be

10.

registered. The Court has been informed that it is common

for

members of a partnership to be

so registered.

It is clear, therefore, that for the Court to act upon the view that because

of the mere fact that an applicant for

registration is an employee he

is not qualified to act as a

trustee is to exclude from registration a class of persons not

enumerated; a class of persons not excluded from registratlon

by the Act. And the question arises why the legislature

refrained from including employees in the classes of persons

not eligible to be registered. This question has to be

considered alongside

the non-exclusion by the statute

indivldual partners. It

is clear that considerations of the

same class

those whlch are thought to disquallfy an

employee can relate to

partner.

His

Interests

are to

support the Partnership and preserve and promote

his

own

position therein. Clearly, albeit

he be an honest man, the

scope for influence in particular cases is present.

The thrust of

the question gathers weight if one refers

to the statutory provisions relating to the registration

company

liquidators.

The

Companies

(Victoria) Code s.17

provides that a natural person may make

an application to the

Commissioner for Corporate Affairs for registration as a liquidator. Section 18(2) provides that the Commlssion shall grant the application if:

(a)

the applicant is :

(1) a member

the

Institute

Chartered

11.

Accountants in Australia, the Australian

Society

Accountants

any

other

prescribed body;

(il) holds

a degree, diploma or certificate from

a prescrlbed University or Institution and

has

passed

xaminations

specified

subjects or has other qualifications and

experience

that

the

opinion

the

Commissioner

are

quivalent

to the

qualiflcations last mentioned.

(b)

the Commissioner is satisfed as to the experience of the

applicant

connection

with

the

winding

corporations; and

Commissioner

satisfied

that

the

applicant

capable of performing the duties of a liquidator and

otherwise a fit and proper person to be registered as a

liquidator, but otherwise the Commissioner	shall refuse
the application.

It is provided

by s.ZO(3) in relation to an applicant to

be registered as the liquidator of

specified corporation

that the applicant shall be

so registered if the Commissioner

is satisfied that the applicant

has sufficient experience and

ability and is a fit and proper person to act as liquidator of

the corporation having regard to the nature

of the property or

business of the corporation, the interests of its creditors

and contractors but otherwise the Commissioner shall refuse

the application. Section ZO(4) provides that the Commissioner

shall not register

as a liquidator persons who have suffered

12.

prohibition under a law from acting as a director

or being

concerned in the management

of a corporation.

It registration of a liquidator the somewhat elaborate provisions

observed

that

relation

to the

of the Act

do not contain any suggestion that the status

the applicant

as an employee, whether an accountant or some

other class of employee nor that

his status as a partner in an

accounting	firm, or in any other firm is	a	disqualifying
factor.

It is not to be thought that either in relation to the

registration of

a trustee in bankruptcy or of

a company

liquldator the legislature was unaware that where the trustee

or liquidator was an employee or a partner, especially where

the employer was an accountant and the partner's firm that of

accountants, there was

a possibility that the trustee who was

an employee might be controlled or influenced by his employer

and that a trustee who was a partner might be influenced by

notwithstanding, the legislature has seen fit not to exclude

from registration as a trustee an employee or a partner either

absolutely or conditionally.

his

interests

the

partnership.

But

these

factors

It is of course to be expected that

trustee who is an

employee or a partner will perform his duties to the creditors

and

other

parties

concerned

the

performance

the

trusteeship honourably and independently free from fear,

favour or affection in relation

to the interests

his

13.

employer or p incompatible with the performance of

lartners.

Nev thele

s s

mind

those duties that the

work done in the estate in respect

of which a trustee who is

an employee should be

performed as part

of the duty of the

trustee to his employer in which, as is usual in duties

performed, the employer is entitled to control the performance

of the work involved so that

he may dlrect when and in what

manner the work shall

be done and to direct the employee as to

the decisions he shall make in the exercise

of his discretion.

If, on

an application for registration as a person qualified

to act as trustee

the

applicant had,

in relation to the

anticipated future performance of

his duties

trustee,

surrendered his independence to

an employer to that extent,

could hardly be regarded a5 qualified to act as

a trustee.

And should it appear that

an employee already registered as

trustee should thereafter become

an employee who had

surrendered his

independence and intended so to perform his

duties, including the exercise of his discretlon, there would

be ground for the cancellatlon	of his registratlon as a
trustee.

But it is not essential to the relationship of employer and employee that it should involve such a surrender. In the

present case it appears to be understood

by the employers of

the

appellant

that

they

have

no entitlement

under

the

agreement for hls employment to interfere in the exercise

any of his duties

as a trustee. The evidence is that the firm

would not interfere in the performance of those duties against

the wishes of the appellant. If this is thought less of

14.

declaration of his independence than is desirable it has to be

recognised that the trustee has

the advantage of

the use of

the premises of

his employers and of members of the staff and

of their office equipment. These factors must be allowed for

the flnancial terms

of the trustee's employment. They

assist him to run his affairs

as trustee. At one stage of

this hearing the Court was informed by counsel that the

agreement between the appellant and his employers was that

remuneration earned by him as

a trustee was paid directly to

his employers. Later this was withdrawn and the Court was informed that since the appellant became an employee he had not become trustee of any estate and no arrangement had been

made as

to the financial consequences

as between himself and

his employer

of his becoming a trustee and desiring to use the

firm's premises, staff and equlpment.

arrangement under

which the employer's trusteeship

fees were

paid by him

to his

employers would appear to me to be evidence of loss of independence and accordingly likely to raise questions as to

the propriety of his conduct

as a trustee. Clearly a trustee

an possibility of conflict of interest between his duties

employee

would

require

alert

to the

who

was

trustee and those as an employee.

In any case in which his

duty as

trustee might be influenced or thought to be

influenced by the interests of the firm in its relationship

with, for instance, a creditor

or possible creditor of

bankrupt estate, the employee who is a trustee should refrain from accepting a trusteeship in that estate. If he fails to do so he would be in danger of removal under s.179 of the Act.

If he fails' to do so, and certainly if

such failure were

repeated, the inference might be that he was not

a fit and

proper person to be registered as a trustee and in that sense

not qualified to act as

a trustee and possibly be liable to

have his registration cancelled under s.155(5). As was said by the learned judge at first instance in Re Hetherinston &

14 December 1982 (unreported) at pp.37 and

38:-

“He should earnestly consider whether by becoming

controlling trustee he may

be exposing himself to

a conflict between interest and duty,

to any

conflict between any existing duties flowing from

any relationship with a debtor or

a creditor, or

any duties attaching to any office or post already

held

him,

and the duties involved in the

proposed office of controlling trustee.

He should

not rely upon what

he conceives to be hls

own

ability to reconcile any such conflict but should

rather ensure that the conflict does not arise.

controlling trustee should not be in

a posltion

where it may reasonably appear to those who are

entitled to the benefit of

his impartlal discharge

of the duties of his offlce that such a conflict ensts. As the offlce is a statutory one, there

is also a public interest that the holder

of it

should not be,

or reasonably appear to be subject

”

to a conflict.

It is to

be observed, however, that in relation to the

appointment of a trustee of a person who is adjudged bankrupt

the English provision is

as follows:-

“19. (1)

Where a debtor is adjudged bankrupt, or

the

creditors have resolved that he

be adjudged

bankrupt, the creditors may by ordinary resolution

appoint some fit person, whether a creditor or

not, to fill the office

of trustee of the property

of the bankrupt; or they may resolve to leave his

appointment

committee

inspection

hereinafter mentioned.

A person shall be deemed not

fl to act

as trustee

of the property of the bankrupt where

h has been

previously removed from the office of trustee of

bankrupt’s property for misconduct or	neglect of
duty.

16.

( 2 )

The person so

appointed shall give security

in the manner prescribed to the satisfaction

the Board

Trade and the Board, if satisfied

wlth

the

security,

shall

certify

that

his

appointment has been duly made, unless they object

to the appointment on the ground that it has not

been made in good faith by a majorlty in value of

the creditors voting, or that the person appointed

not

fit

act

trustee,

that

his

connection with or relation to the bankrupt or his

estate

any particular

creditor

makes

difficult for him to act with impartiality in the

interests of the creditors generally."

For present purposes it is important to observe that in these provisions the fact that the person appointed a trustee

is an employee of or partner in

a firm is not referred to as

ground of

provision for the removal of a trustee from office the stated

grounds of removal are:-

disqualification

for

the

office.

And in

the

"that

his

connection

with

relation

the

bankrupt, or his

estate, or any

particular

creditor might make it difficult

for him to act

with impartiality in the interest

of the creditors

generally.

Having regard legislature did not intend

to the foregoing it would seem that the

to exclude from registration a

person otherwise qualified for registration but who is the

employee of some other person or persons. The inference to be

drawn from the statute is that such persons are not as

employees disqualified to act as trustees. The question

relates to the fitness

of the person to hold the office of

trustee and each case must depend

on its own facts: see

Muir v. David

Geoffrev

Bradlev

(unreported

decision

Beaumont J. dated 6 July 1984 No. T886).

If it were shown in

relation

any

particular

estate

that

trustee's

relationship to his employer involved

surrender of

his

freedom to perform his duties as a trustee properly without

fear, favour or affection then his appointment as trustee in

any estate would be

subject to question. The surrender of his

freedom would be conduct to be inquired into and which would

support proceedings for his removal and for such other order

as might be thought fit. And in thls case if it were shown

that the employee had made such a surrender and intended to

conduct any trusteeship subject thereto and as the creature of

his

employer

that

would

support

an applicatlon

for

cancellation of his registration as a person qualified to

act

as a trustee

removal from office under either

ss.155(5) or

179 of the Act.

In this case it would appear that the employee and the employer have failed to grasp the real issue of the employee's

independence in the performance of acting

as a trustee in any

estate. They have approached the matter only in the most general manner. However, on the evidence it does not appear that the employee will not have the necessary independence.

Until or surrendered his independence he still

unless

does

appear

that he

trustee

has

remains

person

qualified to act as trustee within the meaning

of s.155(1) and

( 2 ) .

Problems arising from

a trustee's relationship with

particular persons which may bear upon

the faithful and proper

performance by him of his duties

as a trustee are significant

when he accepts any particular trusteeship.

The

onus is on

the trustee to avoid acceptance of any trusteeshlp where, in

the words of

Sweeney J. he may be exposing himself to a

conflict between interest and duty. It is not clear that the

applicant has surrendered his freedom or that,

if he has, he

will accept any trusteeship while that situation obtains.

I am	unable to resist the conclusion that the decision

of the learned judge proceeded on the basis that if

a person

registered as a trustee enters into

a relationship of employer

and employee with

an employer he thereupon ceases

be a

person qualified to act

as a trustee and that his registration

should be cancelled on that ground. However, havlng regard to

the foregoing

I am forced to conclude that

so to proceed is to

introduce into the legislative provisions a condition of

registration

which

cannot be found in the Act.

thls

extent, therefore, the decision involved	an error of law and
cannot stand.

Accordingly, the appeal should be allowed.

1 3

IN THE FEDERAL COURT OF AUSTRALIA	)	I
1	!

VICTORIA	DISTRICT	REGISTRY	)	V No. G168 of 1984
)

DIVISION

GENERAL

ON APPEAL FROM

THE FEDERAL COURT OF AUSTRALIA

KENNETH

WAYNE

LAMB

(Appellant)

and

THE REGISTRAR IN BANKRUPTCY

FOR THE STATE OF VICTORIA

(Respondent)

CORAM	:	Smithers ACJ, Northrop and Jenkinson JJ.
W:	3 October 1984

PLACE

: Melbourne

REASONS FOR JUDGMENT

NORTHROP J . :

In this appeal I

have had the advantage

reading the reasons for judgment prepared by the Acting Chief

Judge.	I agree with those reasons and the orders proposed by
him.

Act 1966 as qualified to act as 2 trustee, he had taken, and	had	!
I

thereafter continued in, employment under a

contract of service.

The grounds upon which the Registrar based

his application were:-

"(a)

that the Trustee is not andfor does not

have the appearance of being an

independent person able to exercise hls

own independent judgment;

(b)

that the Trustee's duty may, andfor will be likely to, come into conilict with

his duty as an employee of

the firm of

Messrs. Dueabury's;

the

Trustee

has

insufficient

independence to remain qualified

as a

Trustee registered under Part

VI11

the Bankruptcy Act.

In his

reasons

for

acceding

the

application Sweeney J .

observed:

""he status of the respondent as an employee is in my opinion fatal to hls continued

registration as a person qualiiied to act as

trustee.

diligent

employee,

even

with

understanding employers who are sensitive to his obligations as a trustee, does not have

the freedom which

a self-employed trustee

enjoys.

A trustee should be master of

his own

time %ree to decide for himself in relation to

any estate where he goes, what he does and when he does it, free €rom any	possible
direction by employers and free from any

thought that

he may be.prejudicing his chances

of advancement

or of a partnership by devoting

time to carrying out

his duty as

a trustee.

He must enjoy that freedom and must be seen	by
the court, by credicors, and by debtors and

bankrupts, to enjoy it.

Neither the Registrar nor

any scintilla of evidence suggested that

the appellant

or any of his employers or any person

17ith whom 1115

employment brought him into association

k7as not of good character,

3 .

or that the appellant's professional competence

as 2 trustee could

be questioned in any	way.	In concluding his reasons for judgment
Sweeney S . observed:-

"Nothing in these reasons is intended in any

way

reflect

upon

the

character

competence

the

respondent

of his

employers. "

Nor was the decision under

appea.1 grounded, as I

infer from the

learned judge's appellant's contract

reasons,

upon

any

particular

term

the

of	service or upon any circumstance which

might attend the appellant's psrformance

oi that contract, but not

thc performance of all or

some other contracts of similar service.

The grounds oi the decision derived from considerations which unremarkable contract of service during ordinary business hours as

any

an a.ccountant in erq?loyment by a chartered accountant woulcl

suggest. (That is not

to sa-y that the Evidence concernimg the

appellant's contract

of service, which will be discussed later,

~7as

unremarkable.) Everything turned,

in reaching the decision

under appeal, upon a consideration of %7hat

might be involved,

far

the commonplace contract for such employment

servant

concerned,

the

performance

oi a

of any accountant

who was

registered as a trustee.

Section 155 05 the Bamkruptcy Act 1966 provides:

"155( 1) Each

Registrar

shsll

keep,

prescribed, a register in which shall be entered the nzmes and such other particulars as are prescribed of persons whom the Court directs to be

registered under

this

rction

qualiiled to ect as trustees and ~ h o

have qiven security in the prescribed

amourit and manner.

( 2 ) A person may s-pply to the Court to be

registered as qualified to act 2 s a

trustee and,

subject to this section,

the Court may, if it thinks fit, by order direct that he be so registereci upon his entering into a bond in the

prescribed amount an& manner

with such

surety

or sureties

% S the Registrar

approves.

( 3 ) A person who is registered under this

section is entitled, upon request, and

upon payment

o€ the prescribed fee, to

issued with a certificate

of his

registration.

(4)

Nothing in this section authorizes the

registration

a s

trustee

company, partnership, corporation or

association.

(5) The Court may, at any time, cancel the

registration	oi a	person under thls
section.

( G ) A

person,

n o t

beinq

the

Official

Trustee or a person registerec? und-,r

this secc1on, who acts as a trirstee of

the estate or affairc oi am iasolvent person or- a ban!-:rupt is l l e b l e , orl conviction by-the Court o r by a court

of summary jurisdiction, to

2 fine not

exceeding $20 for each day on which

has so acted, not being

a day on which

his acting- as a trustee was confined

to taking such steps as were necessary

for the protection o€ the property of

l	the insolvent person or bankrupt.

( 7 ) It is a defence to proceedings brought

against a person under snb-section ( 6 ) in respect of his having acted as a trustee of the estate or affairs of an

insolvent person if

he proves that his

acting

as a

trustee was confined to

taking such steps

as were necessary

for the protection of the property

Lhe

insolvent

person

pending

the

taking of proceedings under this Act.

Such differences as there are between that section

and the similar

L ‘

s.126 of the Bankruptcy distinguishing decisions under the former Act upon applications

Act

1924 aiford

ground

Cor

for registration,

upon applications for cancellation, if there

have been any. Nor can any

such a ground be found, in

my opinion,

in a comparison of other provisions of the two Acts.

It was

upon

an applica-tion to be registered under

5.126

of the 1524 Act that Clyne J. gave the following reasons

For

refusing to order the registration

of an accountant:

“The applicant at the present time has

not

that independence, which

is, I think, an

essential qualification for any person who

desires to become registered

as a trustee. He

is at present enlploped as a mnsginq clerk, and, alcnouqb he has a riqht of private

przctice, and, although his ert1ploye.r

apparently

willing

to gra i l t

him

unusual

liberty, his epployer nevertheless has the

right, i;l~enever he desires to exercrse it, to

drrect what work should. be done by him, the

nlanller in wkich and ~.711leil such work should be

done.

I consider,

therefike,

that

the

applicant

ought not to be permitted to

be registered as

a trustee under the Act.

”

(He Nickman (1943)

13 A.B.C.

138.)

The

report of the case affords

other information about the

evidence adduced, except that it

is stated in the headnote that

both the applicant and

his employer were public accountants.

In Re Da7es (1934)

7 A.B.C.

190 Lukin

J. had refused to

order the registration

n i an applicant who was

a solicitor

employed as the managing clei-!r of a solicitor practising in	B r o k e n
Hill. Lultin J. observed ( 7 A.B.C. at 191):

"No question arises as to his honesty and good

repute:

that

is sufficiently

established.

There is, however, the further objection that

he is

not an independent

person

able

exercise his own indcpendent and uninfluenced

judgment.

His duty as trustee may, and will

be likely to, come into

conEl.ict uith his duty

as managing clerk for his employer, .g., when acting ufider s.105(]), and otherwise. Section

153(2) of the Act indicates the legislature's

opinion as to the necessity

for

having

trustee free

Zronl any influence that may 'make

it difficult for him to act with impartiality

in the interests of the creditors generally.'"

Section 105(jI oi the 1924 Act, re-enacted as s.134(j)

of the 1966

Act, authorised the trustee to "bring

, institute or defend any

action or other legal pt-oceedinq relating

to the a&ministrat~.on of

L the

estz-te"

It was

by virtue of S. 1 5 3 ( 2 ) of

the 1924 Act a

ground of connexion with or relation to the banlrrupt, or his estate,

remova.1

a. trustee

from

his

office

"that his

or any

particular creditor, might make it difzicult

for him to act with

impartiality in

the interests-of the creditors generally." That

provision 57a.s not re-enacted in the 1966

Act.

The

circumstances in which the applicant in Re

Ds:les

1 G70Uld have executed the office of trustee were singular, and very likely to have given rise, in Broken Hill in the fourth decade of

' l

this century, to the inpression that his judgment

~7as

subject to

the influence of his employer and the employer's clients. It

possible

that

Lulcin J. ~7as adverting

those

particular

circumstances, not

to the mere fact of employment under

a contract

of service.

)

In Re Robson (Sapreme Court

of Western hustralia :

unreported : judgment 11 November 1980) Wlclcham

J. made an order

under s.155(2) of the Act f o r

the registration of

an employe of a

firm of two chartered accountants, each

whom %7as himself

registered under the section. The transcript

of	the hearing of

the application discloses that Wickham

5. enquired whether it was

an obstacle to the granting

of the application thnt the applicant

57x5

in employment under a contract of service. He

was

then

been recently g-ranted by the Supreme Court of Western Australia.

informed that two applications for registration by employes had a.pplication was supported by the 0fficia.l Receiver in BankruFtcy

for the Eankrupccy District

OZ r;he

Stete of Plestern Bustra.iia.

'The transcript does not indicate whether the terms

of the co:ltract

of employment were in evidence. Wickham

S .

did not give reasons

for gra.ntinq the application.

In Re

Totterdell (Supreme Court of Western Australia :

unreported : judgment 14

June 1983) the application of an employe

of a firm of chartered accountants to be registered under

5.155 as

a trustee w3.s granted by Burt	C.J.	The transcript of the hearing	1 ,
I I

the application does not indicate whether the terms

of the

contract of employment were in evidence. It does appear that one

, I

of the partners employing the

applicmt had given,

in an affidavit

read in support of the application,

for himself and on behalf of

his partners an undertaking that there r70Uld be no interference with the applicant in the perforknmce of his duties if the

applicant were accorded the statu.s of a ceglstered trustee. This

appllcation was adso supported by the OZficial Receiver and che

learned Chief Justice was informed that three applications

fot-

registration by empl-oyes had been recently granted by the Court.

Burt C.J. observed:

"Well this is an application

which I intend to

grant.

The only point that might lead me to

the contrary arises out

of the decision

of Mr.

Justice

Clyne, in re Hiclrman, which

was

decided in

1943, and in that case His Honour

appears to have

held that a public accountant,

who is employed by another

public accountant -

the

relationship

between

them

being,

appears from the reasons, that of employer and

managing clerk

- was not thought to be

satisfactory person to

be appointed to this

position, or office, because it may well be that he could not, LJhile being so employed,

bring to his

job an independenc judgment, and

that he miqht be subject to the control

of his

employer, which

17ould not enable him properly

to carry out

his duties. Well that in the end

really is a question of fact, I think, tlmt is

decided in each particular case. It

is not

matter

which

arises

directly

out

of the

Statute.

think perhaps in 1963 where iirms of accountants have become fax larger, and

inay be, in certain cases, incorporated for all

I	know, that the relationship between the

so-called empl.oyer - I can't say he is the

legal employer

and the person who may be

said, and in €act is,

a servant, is not one

out of which there is any real possibility of

the employer exerting

any degree of control

over the employee in the carrying out by that

employee, of his duties. He is employed as a

professional man, and he has a status which enables him, in the carrying out of his professional work, to exercise an unfettered professional judgment, in the same way, I expect, as a - I mentioned a surgeon might exercise his judgment, although technically he is employed by either a laymm or a board -

hospitd board. This

particular

applicant

appears

every

respect

a very

competent, experienced, professional man, well

trained to carry

out

the

duties

the

appointment which he is seeking, and 1 think

the application should be granted.

It v7as submitted on behalf

of the appellant by

Mr. Guest

Q . C. , who appeared h t h 14r.

Beaxnont,

that the reascns of

Sweeney

a.,

and par t icular ly

the

passage

f rom

those

reasons

which

I f i r s t

quoted,

expressed

a conclusion that in no

circumstances

ought

employe t o be recristered

under 5.155. It was furkher

submitted

that such a conclusion

demonstrated

f a i l u r e t o

exerc ise

the

d i sc re t iona ry

judgment

which

s.155(15) required.

The reasons o r the

learned judge

are t o be considered as

a whole

and with reference to the

evidence

adduced.

regarded,

those

reasons

opinion

express

the

conclusion,

not

that no

employe

ought

t o be

r eg i s t e red ,

bu t

that no employe

cught t o be

reg is te red ,

the

t rms

whose

enplopnmt

place him

i n t h e

s i t u a t i o n

which

Sveeney

J. adumbrstes i n the pssege I -hanave

quoted.

No doubt i t would be a

r a r e

c o n t r x t

servjcc

under

. l

which

employe would

wholly i r e e of

the cons t ra in ts

t o which

the learned opjnton, as

jLldq-e re fer red .

Dut he is not t o be understood,

In my

asser t ing- that

t h e mere

f a c t of employment

under a

cont rac t

se rv ice prec ludes reg is t ra t ion under

s.L55.

The evldence as

t he

t e rms

the

appel lan t ’s

employment i s con ta ined i n an a f f idav i t sworn, by one of t h e members of the firm (“Duesburys“) by vhom he is employed, “with the howlerlge and concurrence of“ the o ther par tners . The deponent, T?Tarwick Allen Leeming, swore:

“2 .

ICENXETH WAYXE LAXD (“The

Trustee”)

i s and

has been

since

June 1983,

employed

by my

firm as a Senior

Insolvency

Flanager.

i s h ibhly

regardeci 2s an

extremely

vel1

q u a l i f i e d

and

competent

Insolvency

Accountant ,

par t icu lar ly

the

a rea

t h e banlr)-uptcy

practice.

I be l ieve that

his

l u t u r e prospects

with

t h e

firm a r e

10.

11.

theie

expenses

can

be determined

l	future discussions.

3 .	Superannuation is available	to you after
one year of service.

(b) Introduction of Clients

Ne understand that there is a

high probability

that you will introduce clients

of your otm t~

the firm. If this does eventuate, we advise

that the firm will pay

to you a. fee equal to

of the

billinqs

one

year, less

any

write-offs for bad

debts. These clients will

reman yours at

all times.

-. jc) Career Advancement

In order that your advancement in the firm is

not restricted in any way,

we would strongly

encourage you to obtain membership

of the

Institute of Chartered

Accountants.

member of

the Institute, your progrcssion to

partnership could

be consid-ered in the Sutuce.

In liqht of such considerations, your personal client portfolio F70U.ld be taken Into axc~unt

in a-ssessing the capital cost

of almission.

We look forward to your corflmencemrnt with us

in the near future, and avait your advice

a s

to the probable drrtes.

Should you have any

queries m relation to the foreqoing, please

contact €lr.

Hichael Humphris

I "

Counsel for the appellant vere asked by members

of the

Court hearing the appeal wheLher there was agreement, between the appellant and his employers, either to be found in the letcer or

constituted in some other way,

as to uhether the appellant should

be entitled

to retain for himself remuneration for his

work as

trustee. (See Division

of Part VI11

of the Bankruptcy Act

1966.)

It was not submitted, nor could it

in my opinion have been

successfully argued, that paragraph

(b) o€ the letter provided any

indzcation of the answer to that enquiry

: Reither a bankrupt (or

a debtor under Part

X or

a- ley 1 personal representative under

Part

XI) nor his creditors could in my opinion be regarded

I .

12.

“clients“ of the trustee, within the meaning of that word in

paragraph (b). The response of Mr. Guest to the enquiry was that it could not be answered, because the appellant had not sincz he

took employment earned any remuneration as a

trustee.

The court

t7as left to in€er that agreement had not been reached between the

appellant and

his employers on the subject

of its enquiry.

The

question, whether an a-greement for bringing the amount of the

appellant‘s

remuneration

for

his

work

trustee

under

the

Bankruptcy Act to account in the calculation of his remuneration

for his service

as an employe of Duesburys would involve a

contravention

s.l65(l)(b)

of the

Bankruptcy Act, ~7as not

addressed by counsel	for either party to the appeal. Section 165
provides :

_ -

“(l) A

trustee of the estate

a bmlrrupt

shall not - .

make an- arrangement for receiving,

or accept, from the bankrupt or any

other person, in connexion with the

bankruptcy, any gift, remuneration

or pecuniary or other consideration

or benefit beyond the remuneration

fixed in accordance with this Act;

make an arrangement for giving up,

give

up, a part of his

remuneration to the ba-nlrrupt or any

other person;

except as provided by this Act,

directly

or indirectly derive any

profit advantage or from a transaction, sale or purchase for

or on account of the estate or any

gift,

profit or advantage from a

creditor; or

except with the leave of the Court,

di.rectly

or indirectly become the

purchaser

any

part

the

estate.

( 2 )

A trustee who contravenes sub-section

(1)

13.

is guilty of contempt of court.

See also ss . 231(4), 237(4) and 243(3).

Another letter from Duesburys was

in evidence, written

to the Deputy Registrar in Bankruptcy, who had made enquiry

of the

appellant concerning the terms of	his employment. That iecter
reads :

"This is to confirm that Wayne Lamb has joined

the firm of Duesburys 5.5 an employee, but as you are aware, up until. that time, he had been

in public practice

as a partner in

his own

firm.

The basis upon which we have engaged

Kayne is that he is

to pursue his role as a

registered

auditor

and

a8 a registered

liquidator ar?d

attract work in his own right

and

carry

out t.h& worlc using tile trained

insolvency staff employed by Duesburys. It is

unfortunate that Ikyne is not

a member of the

Institute of Chartered Accountants and because

oT that reason, he cannot be admitted to the

Partnership.

I wish to confirm on behalf of Duesburys that

the Partners have no intention

of, and would

not interfere

~ i t h

or direct tlayne in any way

against his wishes in the conduct of administrations taken in his own name. If we were not confident that Wayne could carry out

such appointments, we Would not have engaged

him.

The same situation is irlvolved in

a firm like

ours

even on a

Partner

basis

wherein any engagements taken on by any

of the

trustees In our firm

are completely handled by

them

their

own

right

without

any

interference from any other Partner

in the

firm	for any reason whatsoever. We do not

believe

that

insolvency

practice

can

operate under any other method.

We V70uld be

more than happy to discuss this

matter further with

you anc? give you any other

undertakings that you

require in this regawd.

If you wish to discuss the Inateer, would you please contact Harick Leeming.

14.

The evidence to which I have referred

may be thought to

justify a finding that the appellant's employers will abstain, not

only from giving him directions, and

from

seeking by other means

to influence him, as to his conduct in exercise of his fuactions

as a

trustee under the Bankruptcy kct, but also

from giving him

directions, as to the psrformance of duties of his employment, by

compliance with which

he would be deprived of the time required

for the proper performance

of those functions.

O r it may be that

terms 1.70Uld bc

implied, in a contract of

service made in the

circumstances which the evidence in this case discloses, that the

servant be nat subjecbed

by the master to directions

of either of

those ki?~&;.

Let, it be assumed that

both the findings and the

inplication cf terms were made by this Court. ney are not Cindings which will be knom, OK implications obvious, to the persons who will deal with the appellant in his capccity bf

trustee under the Bankruptcy Act. Most

those who Icnow zhe

appellant to be

an employe ofuesburys will know no more of the

relationship than that. It was submitted on the appellant's

behalf tkzt at the present time persons dealing with,

or affected

by the actions of, a

trustee under the Dankruptcy Act 170Uld not

think his

independence diminished. by his status of

employe, nor

doubt his imp%-tiality

on the ground that his employer had for

client one who was, or claimed to be, a creditor of the bankrupt,

or of the debtor who had invoked provisions contained in Part

X o€

that Act or

of t7hose

estate admlnistration under Part

XI had been

ordered. 'That is a subicission

which I

cannot accept. Suspicion

that a business a.ssociati.on may l'mrre

diminished the independence

of the associates

or ' o f

one OK other of

them, and that such an

15.

association may

h a v e rcsulted in partiality, is in my opinion

a s

readily excited now as at any time since the Bankruptcy Act

1924

b7as enacted. The subservience of servant to master may be less readily imagined

now than when

Re Dawes - or when Re Hickman

- ~7as

decided, but, in the professions from which trustees in bankruptcy

are drawn, not

so much less readily.

In his reasons for judgment Sweeney

J. drew attention to

a number of provisions in the Bankruptcy Act requiring the

exercise by

trustee in bankruptcy of functions which are

difficult OL- time consuming or call for a judicially formed

conclusion about conflicting claims

or for a

prudent comrnercial

judpenk.

Not a few

of those functions danznd Cor their pcoper

Lexerclse

substantial period of time 2-nd comple’ce impartiality and sound LeTal and commercial judymenk. Many

the decisions

taken by a trustee in the course of administration will aclverrelg

affect the interests of one	or more of those concerned, and other
-

decisions

the trustee will be conceived by some of those

concerned to

affect their interests adversely. Their reactions

cannot

reasonably

xpected

to be

always

limited

animadversion on the knowledge and skill and good judgment of the

trustee : some of them

will in some,

not

very

uncommon,

circumstances be human enough io doubt the trustee‘s integrity. If they know him to be in the employment o€ persons who practise in accountancy or in law, that knowledge will tend, in my opinion,

to stimulate d.oubt and suspicion.

I€ .they know, or

form a belief,

that another person concerned is a client

oi the employer, there

will be	a greater risk that the trustee’s integrity will	be
doubted.

16.

As Sweeney J.

pointed out, with ample quotation of high

authority, the appearance no less than the reality of independence

and impartiality in a trustee is required by the law.

B trustee

in the employment

of a firm of accountants is in my opinion

exposed to

a greater risk tinan a trustee in practice on

his obm as

an accountant that circumsta-nces which

he cannot prevent occurring

will impair the appearance OE his

independence or the appearance

of his impartiality in the eyes performance of hls duties as

persons affected by the

a trustee.

It	vas submitted on the appellant's behalf that a

trustee's association

with

others in a partnership could be said,

on much the same rounds a6 those on which a. trustee's employment

by others could be said, to diminish, or appear to diminish, the

trustee's

independence

and

impartiality.

Yet

trustees

bankruptcy may, and many

do, practise their professions

as members

of a

partnership.

blhy,

then, it was submitted, should not such

trustees practlse them professions in the employment of others.

That submission may be coupled with another, advanced on

the appellant's behalf, that

a person aspiring- to be

a company

liquidator is not denied registration on the ground	of employment
as another's servant.

To the latter submission it may be a sufficient answer that for many years the legislation regulating the registration of

company

liquidators

g-ave

explicit

direction

qualifications for registration, and to that extent absolved the

. 17-

1 18"

cannot in my opinion be determined satisfactorily on the evidence

vhich was adduced on the hearing

of the respondent's application.

Reference has already been made

t o the lack of evidence, and even

lack of

understanding by the appellant,

to whether the

quantum of entployment by Uuesburys will

the

appellant's

remuneration

in respect

hls

be affected by

his receipt, or by his

earning, of question would in y ~ y opinion have

remuneration

a s a trustee in bsnkruptcy.

That

to be resolved by express

agreement between the appellant and

his

employers if the Court

were to contemplate continuance of his registration as a trustee. Further, the organization of the vork of Duesburys, and in particl?l.ar the orgeniza t ion , and. any rlirectlon by another, of the appellailt' S w3rk as an employe, woLIld in my opinion have to be

made clear to the COU:~ by evjdence or much qreater particularity than is afforded by the affjdzvit of iarwicl; kllcn Leeining and the two lecters T have cjuoled. it would be necessary also ts address

the question a.s to whether the zppelhnt would be subject to any

influence by

hxs employers in deciding

to give or

L.7ithhOlU his.

consent to act as

a trustee in banlcruptcy in each, or in any,

particular case. And provision would have to be made to give the

court assurance that not only the present partners

of Duesburys,

but also those tin0

should join the firm while the appellant

remained

a. trustee in bankruptcy and in the firm' S employnent ,

would respect the appellant's independence in the discharge

his

functions as

trustee.

It0 doubt other aspects of the appellant's

relations with his empl.ogrers would call for careful consideration

upon a full disclosure in evidence

of those relations.

The order against which appeal

w s brought was:

r ..

20.

"The Court Orders:

1. That the registration of ICenneth Wayne Lamb ( "the respondent" 1 as a person

qualified to act as a

trustee pursuant

to Part

VI11 oE the Bankruptcy Act

1966

( "the Act") be cancelled in exercise of

' .	the pouer contained in s.155(5) of the Act.

AND DECLARES

that the respondent is no

longer qualified tobe a person registered pursuant to Part VI11 of the

Act

3. That the respondent pay t'ne taxed costs

the Registrar

of and incidental to

the Application.

That the taxed costs of

J.X~ incidental

t'ne

Application shall include

t h e

co5zs oE this day.

'Fiat

proceedings under the judgmcnt be

Stayed

until

FurLher

order

on the

respondent undertaking by his Counsel

that he wou1.d nut accept

an appointment

as a trustee to any aciministration under

Psrts IV, X or XC of the Bankruptcy Act

and further

theit he r~ovld . not sign ar.y

consent pursuant to s.156B and iurther

that he would

not

sign

pursuant

s.188(2)

any consent to exercise the

power conferred by

an authority given

a debtor pursuant o s.lEB(21.

6. That any notice of appeal be filed and

served by

8 June 1984.

That any times or periods

necessary to

be abridged to enable the appeal to be

heard. on 22 June 1984 be so abridged."

In my opinion paragraphs

1, 2, 3 and 4 of

that order

should be set aside and

the application remitted for further

hearing and deternlination by

judge exercising the original

jurisdiction oE the co~n-t

in ba-nkruptcy.

[1984] FCA 328

3 Oct 1984