BANKRUPTCY – trustee – duties – control of trustee – supervisory jurisdiction of court – application for inquiry and claim for damages by discharged bankrupt – whether discharged bankrupt has standing under ss 178 and 179 – whether claim for damages under general law available under those sections – invalid notices of objection by trustee – apparent extension of bankruptcy – objections based on pre-December 1996 contribution assessments – assessments invalid as retrospective – insufficient time for payment – notice of objection relying on non-payment of contribution assessments expressed in the alternative – subsequent notices of objection based on failure to provide information – whether issued for improper purposes – duty of trustee in assessing contributions and issuing objections to discharge – National Standards – relief claimed essentially damages to support setting aside of bankruptcy notice based on earlier costs order in favour of trustee – relief unavailable under ss 178 and 179 – no utility in inquiry.
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Macchia v Nilant [2001] FCA 7
Case
[2001] FCA 7
Decision Date
CaseChat Overview and Summary
Mario Silverio Macchia, a former bankrupt, sought orders from the Court, including an inquiry into the conduct of his trustee in bankruptcy, Charles Nilant, and for damages. Macchia alleged that Nilant breached his duties by lodging objections to Macchia's automatic discharge from bankruptcy, which he argued were invalid and caused him loss and damage. The primary issues for the Court to decide were whether the case fell within the scope of sections 178 and 179 of the Bankruptcy Act 1966 (Cth), which allow for the Court's supervisory powers over trustees in bankruptcy, and whether the relief sought was consistent with the purpose of these sections. The Court needed to determine if the trustee's actions warranted an inquiry under these sections and if Macchia's claim for damages was appropriately raised under the Bankruptcy Act or if it was better pursued under common law.
The Court held that although Nilant's conduct in lodging the objections was open to criticism, it did not warrant an inquiry under sections 178 and 179 of the Bankruptcy Act. The Court found that no useful information would likely emerge from such a proceeding, and there was no apparent benefit to be derived from it. The objections had already been withdrawn, and Macchia was discharged from bankruptcy. The Court emphasized that section 179 is intended for the supervision of the trustee, not for providing a general jurisdiction to award damages for alleged breaches of duty to the bankrupt. The Court also concluded that there was no apprehended improper exercise of post-discharge power by the trustee that would warrant a formal removal order. Consequently, the application seeking relief under sections 178 and 179 was dismissed.
ORDERS:
1. The amended application is dismissed in relation to the relief claimed under paragraphs 2 and 3.
2. The application is otherwise adjourned to 19 January 2001 at 9am for submissions as to costs and further directions in relation to the relief claimed in paragraph 1 of the application.
Orders
Orders of the court
1. The amended application is dismissed in relation to the relief claimed under paragraphs 2 and 3 thereof.
2. The application is otherwise adjourned to 19 January 2001 at 9am for submissions as to costs and further directions in relation to the relief claimed in paragraph 1 of the application.
Note:
Background
Background to the litigation
Mario Silverio Macchia, a former bankrupt, seeks orders from the Court including orders for an inquiry into the conduct of his trustee in bankruptcy and for the payment of damages. He says, in substance, that the trustee breached his duty to him in various ways through the lodgment of objections to his automatic discharge from bankruptcy. The objections were invalid and, he says, caused him to suffer loss and damage. He invokes ss 178 and 179 of the Bankruptcy Act 1966 (Cth) under which the Court exercises supervisory powers over trustees in bankruptcy. The primary questions for decision are whether this is a case to which those sections should be applied and whether the relief sought is consistent with their purpose. Factual Background Mario Silverio Macchia became a bankrupt on 16 September 1991 under a sequestration order made pursuant to a creditors’ petition. Charles Nilant was appointed and remained his trustee in bankruptcy. A statement of his affairs was filed with the Registrar in Bankruptcy on 21 January 1994. In the ordinary course, by virtue of s 149(3) of the Bankruptcy Act 1966 (Cth), Mr Macchia would have been automatically discharged on 21 January 1997, that being the end of the period of three years from the date on which the statement of affairs was filed. Automatic discharge however did not occur because on 3 July 1996 Mr Nilant lodged an objection to discharge. The ground of the objection was that: “…the bankrupt failed to pay the trustee any part of the amount that the bankrupt was liable to pay under Section 139ZG of the Act, being $10,451 or alternatively $8,985.”The ground was based upon s 149D(1)(f) of the Act. In elaboration of the objection it was said in the Notice of Objection that on 15 February 1995 Mr Nilant had assessed Mr Macchia as being liable to make income contributions from his income towards his estate for the Contribution Assessment Periods of 1 July 1992 to 30 June 1993 and 1 July 1993 to 30 June 1994. Correspondence ensued between Mr Nilant and Mr Macchia’s solicitors from June to November 1995. In the event, on 20 June 1996 Mr Nilant reassessed Mr Macchia for Contribution Assessment Periods 1 July 1992 to 30 June 1993 and 1 July 1993 to 30 June 1994. That reassessment had the effect of reducing the contribution required from $10,451 to $8,985. As appeared from the Notice of Objection dated 3 July 1996, Mr Macchia did not pay the contributions or any part thereof. As the Notice observed the objection had the effect of extending Mr Macchia’s bankruptcy to 21 January 2002. Notwithstanding the objection, Mr Macchia filed an application in this Court on 12 October 1995 seeking a declaration that he was discharged from bankruptcy on 17 September 1994. That application did not come on for hearing until 8 April 1997. In the meantime a second objection was filed on 19 March 1997. The ground of this objection, set out in the Notice was: “THAT the bankrupt failed to respond to a written request from his trustee to provide written information about the bankrupt’s property, income or expected income, in particular his interest in the deceased estate of Giulia Macchia and the property at 31 Gill Street, North Perth.”Reliance was placed upon s 149D(1)(d) of the Bankruptcy Act 1966. In setting out evidence establishing the grounds for the objection Mr Nilant referred to correspondence to Mr Macchia’s solicitor in April and June 1995. He sought information to enable him to determine whether Mr Macchia had any entitlement to property or income from the deceased estate of his mother Giulia Macchia who had died on or about 21 March 1995. This objection was also said to have the effect of extending the bankruptcy to 21 January 2002.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
FRENCH J
Mr Nilant’s counsel argued that Mr Macchia could not complain of any loss suffered by his “extended” bankruptcy because, the objection being invalid, it had never been extended. This is a singularly unattractive proposition. Even if a bankruptcy is not extended in law because the objection apparently extending it turns out to have been invalid, the apparent extension may generate commercial loss and unnecessary anxiety. In this case there is evidence that Mr Macchia lost employment opportunities because of his apparently continuing bankruptcy. The point however is one upon which no decision is necessary. In my opinion, while Mr Nilant’s conduct of the bankruptcy is open to criticism in relation to the objection notice he lodged on 3 July 1996, that conduct is not sufficient to warrant an inquiry. I come to that conclusion having regard, to the lack of any additional useful information likely to emerge from such a proceeding and the lack of any apparent benefit to be derived from it. The objections have been withdrawn and Mr Macchia is discharged from bankruptcy. The primary objective of these proceedings is to put him in a position to raise a claim for damages against the trustee which he can use as a set-off to support an order setting aside the trustee’s bankruptcy notice. For reasons I have already expressed, that is not a legitimate use of s 179. The section is concerned with the supervision of the trustee, not with providing a general jurisdiction for awarding relief by way of damages for alleged breaches of duty to the bankrupt. There is no apprehended improper exercise of post-discharge power by the trustee that would warrant any formal removal order even assuming such an order were open at this stage. No ground for an inquiry under s 179 is made out. Conclusion For the preceding reasons, the application in so far as it seeks relief under ss 178 and 179 of the Act is dismissed. As to whether the application can proceed so far as it claims an order setting aside the bankruptcy notice, I will hear the parties. This is a case in which the trustee’s conduct has undoubtedly contributed to the apparent extension of Mr Macchia’s bankruptcy well beyond the date at which he was entitled to automatic discharge. Nothing in this judgment precludes the possibility that he has a remedy under the general law. It may, however, be in the interests of both parties to bring this saga to an end now, perhaps on the basis that the bankruptcy notice is not proceeded with, but that is a matter for their further consideration. I will hear the parties as to costs.