Macks as Trustee of the Bankrupt Estate of Lee v Lee
[2021] FedCFamC2G 249
•12 November 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Macks as Trustee of the Bankrupt Estate of Lee v Lee [2021] FedCFamC2G 249
File number(s): ADG 512 of 2019
ADG 513 of 2019
CAG 27 of 2021Judgment of: JUDGE MANOUSARIDIS Date of judgment: 12 November 2021 Catchwords: BANKRUPTCY – Application by trustees in bankruptcy for approval under s 100-5(2) of the Insolvency Practice Schedule (Bankruptcy) (IPS) of assignment of rights to sue conferred on the trustee in bankruptcy by the Bankruptcy Act 1966 (Cth) – whether purported trustees validly appointed trustees in bankruptcy – whether trustees had given creditors notice of the assignment as required by s 100-5(3) of the IPS – whether it was reasonably open to the trustees to form the opinion that the proposed assignment was in the best interests of the creditors – not reasonably so open – application for approval of assignment dismissed.
BANKRUPTCY – Practice and procedure – whether proceedings should be dismissed for want of prosecution – proceedings not dismissed because there would be significant tangible benefits to the creditors if causes of action the subject of the proceedings were prosecuted by the trustees, assuming they obtain funding to do so.
Legislation: Bankruptcy Act 1966 (Cth), ss 5, 58(1)(a), 116, 120, 121, 127, 134, 160, 178, 181A, Sch 2 – Insolvency Practice Schedule (Bankruptcy), s 100-5
Bankruptcy Regulations 2021 (Cth), reg 85
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021, r 2.03
Cases cited: Adsett v Berlouis [1992] FCA 368; (1992) 37 FCR 201
Citicorp Australia Ltd & Ors v Official Trustee in Bankruptcy & Anor [1996] FCA 1115; (1996) 71 FCR 550
Cvitanovic [2021] FedCFamC2G 47
Macks as Trustee of the Bankrupt Estate of Lee v Lee [2021] FCCA 1614
Macks as Trustee of the Bankrupt Estate of Lee v Lee (No 2) [2021] FCCA 1800
R v Australian Broadcasting Tribunal; Ex parte 2hd Pty Ltd [1979] HCA 62; (1979) 144 CLR 45
Re Cirillo & Anor; Ex parte Official Trustee in Bankruptcy [1996] FCA 1443; (1996) 65 FCR 576
Seear v Lawson (1880) 15 Ch. D. 426
Division: Division 2 General Federal Law Number of paragraphs: 86 Date of last submission/s: 29 October 2021 Date of hearing: 18 October 2021 Solicitor for the First Applicant in his personal capacity: Mr A Craven of Andreyev Lawyers, by video Solicitor for the Second Applicants: Ms A Hogan of Namadgi Legal, by video Counsel for the Respondents: Mr J T Johnson, by video Solicitor for the Respondents: Anderson Lawyers ORDERS
ADG 512 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF UNJU LEE
BETWEEN: PETER IVAN MACKS AS TRUSTEE OF THE BANKRUPT ESTATE OF UNJU LEE
First Applicant
DANIEL IVAN CVITANOVIC AND STEPHEN JOHN HUNDY AS T/EES OF BANKRUPT ESTATE OF UNJU LEE
Second ApplicantsAND: HYE JIN BACK LEE
Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
12 NOVEMBER 2021
THE COURT ORDERS THAT:
1.The respondent’s interim application for summary dismissal filed on 1 June 2021 is dismissed.
2.Pursuant to r 2.03 of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) Mr Macks is granted leave to be heard as an interested party.
3.The interim application Mr Macks filed on 16 June 2021 is otherwise dismissed.
4.The costs of the interim applications are reserved.
5.The proceeding is listed for a directions hearing at 9:30 am on 26 November 2021, such directions hearing to proceed by telephone.
THE COURT NOTES THAT:
6.These are orders of the Federal Circuit and Family Court of Australia (Division 2).
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).
ORDERS
ADG 513 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF UNJU LEE
BETWEEN: PETER IVAN MACKS AS TRUSTEE OF THE BANKRUPT ESTATE OF UNJU LEE
First Applicant
DANIEL IVAN CVITANOVIC AND STEPHEN JOHN HUNDY AS T/EES OF BANKRUPT ESTATE OF UNJU LEE
Second ApplicantsAND: DONG SIK LEE
First RespondentKYUNG HEE LEE
Second Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
12 NOVEMBER 2021
THE COURT ORDERS THAT:
1.The respondents’ interim application for summary dismissal filed on 1 June 2021 is dismissed.
2.Pursuant to r 2.03 of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) Mr Macks is granted leave to be heard as an interested party.
3.The interim application Mr Macks filed on 16 June 2021 is otherwise dismissed.
4.The costs of the interim applications are reserved.
5.The proceeding is listed for a directions hearing at 9:30 am on 26 November 2021, such directions hearing to proceed by telephone.
THE COURT NOTES THAT:
6.These are orders of the Federal Circuit and Family Court of Australia (Division 2).
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).
ORDERS
CAG 27 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF THE BANKRUPT ESTATE OF UNJU LEE
BETWEEN: DANIEL IVAN CVITANOVIC
First ApplicantSTEPHEN JOHN HUNDY
Second Applicant
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
12 NOVEMBER 2021
THE COURT ORDERS THAT:
1.The application is dismissed.
2.The costs of the application are reserved.
THE COURT NOTES THAT:
3.These are orders of the Federal Circuit and Family Court of Australia (Division 2).
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
INTRODUCTION
In these reasons for judgment I consider three questions that have arisen in connection with two proceedings Mr Macks, the former trustee in bankruptcy of the bankrupt estate of Ms Unju Lee (bankrupt), commenced against members of the bankrupt’s family. Before I identify the questions, it will be necessary to set out the background out of which the questions arise. I have already set out in detail much of that background in three judgments;[1] and these reasons for judgment assume familiarity with those judgments.
[1] Macks as Trustee of the Bankrupt Estate of Lee v Lee [2021] FCCA 1614; Macks as Trustee of the Bankrupt Estate of Lee v Lee (No 2) [2021] FCCA 1800; Cvitanovic [2021] FedCFamC2G 47
BACKGROUND
On 2 June 2014 the bankrupt became a bankrupt on her own petition. On 12 December 2014 Mr Macks was appointed trustee of the bankrupt’s estate.
Commencement of the Proceedings
On 17 December 2019 Mr Macks, in his capacity as trustee of the bankrupt’s estate, commenced two proceedings, one against Ms Hye Jin Back Lee, the bankrupt’s sister-in-law (ADG512 proceeding), and one against Mr Dong Sik Lee and Ms Kyung Hee Lee, the bankrupt’s sister and her husband (ADG513 proceeding). (I will collectively refer to the two proceedings as “the Proceedings”, and will collectively refer to the respondents in the Proceedings as “the Lee parties”.)
The ADG512 proceeding relates to the purchase in October 2012 by Ms Hye Jin Back Lee of the bankrupt’s interest in a property situated at 8-10 Tangarra Street Croydon Park, New South Wales, and the ADG513 proceeding relates to the purchase in around August 2012 by Mr Dong Sik Lee and Ms Kyung Hee Lee of the bankrupt’s interest in a property at 4-6 Tangarra Street Croydon Park, New South Wales. The statements of claim filed in each proceeding allege the transfers were void under s 120 and s 121 of the Bankruptcy Act 1966 (Cth) (Act). The statements of claim also make alternative claims that are not based on any provision of the Act.[2]
[2] Macks as Trustee of the Bankrupt Estate of Lee v Lee [2021] FCCA 1614, at [4]-[11]
On 3 November 2020 I made orders in the Proceedings for discovery and the filing of evidence, and I set the Proceedings down for hearing for five days commencing on 22 March 2021. I also listed the matters for directions on 3 March 2021.
22 February 2021 – Mr Macks ceases to be trustee of bankrupt estate
On or about 22 February 2021 Mr Macks’ registration as a registered trustee was suspended for three years. Under s 160 of the Act the Official Trustee in Bankruptcy became the trustee of the bankrupt estate.[3]
[3] Affidavit S J Hundy 24.09.2021, [8]
On 2 March 2021 the Official Trustee in Bankruptcy sent a letter to the Registrar of this Court stating that as “a result of the deregistration of the previous Trustee, the Official Trustee in Bankruptcy became the trustee of the bankrupt pursuant to section 160 of the Bankruptcy Act 1966”. The letter further stated that the Official Trustee was still in the process of collecting the file from Mr Macks, and, therefore, was not in a position to make a determination in relation to the Proceedings.
1 April 2021 – Trustees purportedly appointed
There is in evidence a document titled “Certificate of Appointment of Trustee”, which records that Mr Daniel Ivan Cvitanovic and Mr Stephen John Hundy (Trustees) were appointed trustees of the bankrupt’s estate on 1 April 2021.[4] Mr Hundy has deposed that he and Mr Cvitanovic were appointed trustees pursuant to s 181A of the Act,[5] which provides as follows:
[4] Affidavit S J Hundy 24.09.2021; annexure “A”
[5] Affidavit S J Hundy 24.09.2021, [9]
(1) The current trustee of a bankrupt's estate may, with the written consent of another trustee (either a registered trustee or the Official Trustee), nominate the other trustee as the new trustee of the estate.
(2) The current trustee must give notice of the nomination to all the creditors who are entitled to receive notice of a meeting of creditors.
(3) The notice must:
(a) specify a date (at least 10 days after the notice is given) from which it is proposed that the new trustee will become the trustee of the estate; and
(b) state that any creditor may, by written notice to the trustee at least 2 days before the specified date, object to the nomination taking effect without there being a meeting of creditors.
(4) If no creditor lodges a written notice of objection with the current trustee at least 2 days before the specified date, then the new trustee replaces the current trustee as trustee of the estate, on the date specified in the notice.
(5) For the purposes of this Act, the new trustee is treated as having been appointed by the creditors.
(6) A certificate signed by the new trustee stating any matter relating to the replacement of the former trustee under this section is prima facie evidence of the matter.
There is no evidence the Trustees consented in writing to their being specifically appointed trustees of the bankrupt’s estate. At the hearing on 18 October 2021, however, Mr Hundy gave evidence that there “is a standing consent to act that is signed for all matters that get transferred from AFSA or the official trustee”.[6] Pursuant to an order I made at the end of the hearing Mr Hundy filed an affidavit annexing a document titled “Consent to Act as Trustee” dated 23 May 2014 and signed by Mr Hundy.[7] That document states:
I,
Mr Stephen John Hundy
Being a registered trustee, give my consent to act as trustee for estates transferred to me by the Official Trustee in bankruptcy pursuant to section 181A or s 157(1) of the Bankruptcy Act 1966.
Until such time as I formally revoke my consent, I agree to be listed on AFSA’s national panel of trustees, and to have estates transferred to me in accordance with the terms and conditions attached to being a member of AFSA’s national panel.
I confirm that once I have received a brief summary of issues in the estate from the Official Trustee, that I will confirm that I have no actual or perceived conflict of interest, as well as any other conditions that may restrict my ability to accept the transfer, within 24 hours of receipt.
I understand that should I decline a transfer outside the terms and conditions of my consent or of the national panel generally, I may not be eligible for another transfer until the next round of offers is made.
[6] T27.25
[7] Affidavit S J Hundy 21.10.2021
On 3 March 2021 I vacated the hearing that had been fixed to commence on 22 March 2021.
Progress after directions made on 25 May 2021
At a directions hearing on 25 May 2021 counsel for the Lee parties indicated they intended to apply for an order dismissing the Proceedings for want of prosecution. I was also informed, this time by counsel who had previously represented Mr Macks, that Mr Macks and the Trustees had reached an in-principle agreement for the assignment of the causes of action that are the subject of the two proceedings, including the causes of action based on s 120 and s 121 of the Act. (I will refer to those causes of action that rely on s 120 and s 121 of the Act as the “Causes of Action”.) I directed that by 16 June 2021 the Lee parties file an application in a case for orders dismissing the proceedings to be made returnable for hearing on 2 July 2021. I also directed that Mr Macks file an application in a case by 16 July 2021, if any, for Court approval of any proposed assignment of the Causes of Action.
The Lee parties filed an application in a case in each of the Proceedings seeking orders that the proceedings be dismissed for want of prosecution. On 16 June 2021 Mr Macks also filed an interim application. Mr Macks did not, however, seek an order for the approval of any assignment; Mr Macks instead sought an order that within seven days of the Trustees obtaining approval of the assignment of the Causes of Action pursuant to s 100-5(2) of the Insolvency Practice Schedule (Bankruptcy), being Schedule 2 to the Act (IPS), Mr Macks file an affidavit annexing the order giving approval of the assignment of the Causes of Action and, on the filing of such affidavit, Mr Macks be substituted as the applicant in each of the Proceedings.
In an affidavit he filed in support of his interim application, Mr Macks deposed he had “agreed terms with” the Trustees and that a “deed of assignment will shortly be executed” that would be conditional on a court giving approval under s 100-5(2) of the IPS; and the Trustees were “applying to a competent court to obtain” approval. Mr Macks further deposed that he intended to receive the assignment of the Causes of Action as trustee for the Macks Lee Trust of which Mr Macks said he is “the individual trustee”; and that, because of his removal as trustee, it would not be appropriate for Mr Macks to continue as the applicant in the Proceedings “as currently framed”. Mr Macks also said:
The Current Trustees do not consider it is appropriate to bring the Application for the Court Approval in the Proceedings as the matters the court would be required to consider may prejudice the prosecution of the actions and therefore the intended benefit of the assignment.
25 June 2021 – execution of deed of assignment
On 25 June 2021 the Trustees and Mr Hundy executed what Mr Hundy described as a “confidential, conditional assignment deed” (Deed).[8] Clause 2 of the Deed provided:[9]
In consideration of the matters set out in this Deed, the Assignor:
(a)Assigns (and agrees to assign) to the Assignee all the Assignor’s rights, title and interest in the Property:
(i) On the Effective Date:
(ii) Free from all Encumbrances; and
(iii) On the terms set out in this Deed; and
(b)Agrees to perform and observe all the other obligations on the part of the Assignor to be performed or observed under this Deed.
[8] Affidavit S J Hundy 24.09.2021, [13]; annexure “B”
[9] I speak in the past tense because, as will be explained later, the Deed no longer has effect.
“Property” was defined in cl 11(x) to mean “the property and rights described in Item 1 of The Schedule”. Item 1 of the Schedule to the Deed stated:
All right, title and interest in and under the Actions and all Claims forming the subject of the Actions, including but limited to all rights to sue accruing under the Bankruptcy Act and in any way relating to the transfer by the Bankrupt of the properties located at . . . Croydon Park NSW 2133.
“Actions” was defined in cl 11(c) to mean the Proceedings.
Clause 3 of the Deed specified the consideration the Assignee was to provide for the assignment of the Causes of Action. That included the payment on execution of the Deed of a non-refundable amount; and, on the “Effective Date”, the provision of the “Consideration”. Clause 11 defined “Consideration” as the consideration “specified in item 4 of the Schedule to the Deed”. Item 4 provided as follows:
On receipt of the assignment of the Property under this Deed, the Assignee and Former Trustee will provide the following as consideration:
(a) The Former Trustee releases the Bankrupt Estate and (to the extent necessary) the Assignor from all liability to pay any unpaid remuneration and disbursements the Former Trustee would otherwise be entitled to by virtue of his acting as trustee of the Bankrupt Estate;
(b) The Former Trustee releases the Bankrupt Estate and (to the extent necessary) the Assignor from all liability to pay the Action Costs and indemnifies the Assignor from and against any costs awarded against the Former Trustee directly or indirectly relating to or in connection with the Actions;
(c) The Assignee and Former Trustee will procure that the Action Representatives release the Bankrupt Estate and (to the extent necessary) the Assignor from all liability to pay the Action Costs (the Action Releases);
(d) If the Former Trustee cannot procure the Action Releases on or before the Effective Date, the Former Trustee
(i)Personally indemnifies, and agrees to keep indemnified, the Bankrupt Estate from any obligation to pay the Action Costs; and
(ii) May assume the conduct of the negotiation or defence of any claim against the Bankrupt Estate for payment of the Action Costs by the Action Representatives;
(e) On receipt of any Net Proceeds, the Assignee must pay to the Assignors:
(i) If the Net Proceeds are less than $100,000, the first $20,000 of the Net Proceeds;
(ii) If the Net Proceeds are between $100,001 and $400,000, 20% of the Net Proceeds;
(iii)If the Net Proceeds are between $400,001 and $800,000, the amount of $80,000; and
(iv) If the Net Proceeds are above $800,001, 10% of the Net Proceeds,
with any amount previously paid by the Assignee to the Assignor from Net Proceeds credited against future amounts to be paid. For example, if the Net Proceeds are $150,000 received in two tranches of $75,000 each, $20,000 would be paid from the first tranche and $10,000 from the second tranche.
The expression “Net Proceeds” was defined to mean any amounts received in or converted to cleared funds from “Realisations”, including any order for costs, less the amount of the “Action Costs”. “Realisations” was defined to mean any return received by the “Assignee” (that is, Mr Macks) in the “Actions”; and “Action Costs” was defined to mean “all legal costs and disbursements the Former Trustee [that is, Mr Macks] incurred with the Action Representatives [that is, the lawyers and counsel who had previously represented Mr Macks] at any time, determined on a full indemnity basis without taxation or any similar process”.
Clause 1 of the Deed provided that it was subject to the satisfaction or waiver of the “Conditions Precedent” specified in Item 2. These were the success of the “Approval Application”, being the application for approval under s 100-5(2) of the IPS of the assignment of the Causes of Action, and the “Actions”, namely, the proceedings by means of which the Causes of Action are being pursued. Clause 1.3 of the Deed, however, provided that the Deed will be void (apart from the obligation to pay the “Non-Refundable Amount”) if the conditions precedent were not satisfied by the “Cut-off Date”, which was defined in cl 11(m) to mean 1 September 2021.
There are two observations that it would be convenient to note at this point. First, the “Assignee” assumed no obligation under the Deed to pursue the Causes of Action after the Effective Date. Second, the expression “Action Costs”, being an essential element in the calculation of “Net Proceeds”, which, in turn, is the amount which triggers an obligation by the Assignee to pay any part of the “Realisations” to the Trustees, was defined broadly. It included all legal costs and disbursements charged by the lawyers and counsel who had previously represented Mr Macks. The legal costs would appear not to have been limited to legal costs those lawyers and counsel charged Mr Macks in connection with the Proceedings.
30 June 2021 – Trustees commence Approval Proceeding
On 30 June 2021 the Trustees filed an application in the Canberra Registry of this Court (Approval Proceeding) for an order under s 100-5(2) of the IPS approving the assignment of the Causes of Action. The application was supported by an affidavit made by Mr Hundy in which he deposed to his opinions on the potential benefits of the assignment of the Causes of Action. These included the following:[10]
The potential return to creditors with the benefit of the proposed assignment (potentially between $20,000 and >$80,000) is significantly higher than the potential return to creditors of the bankrupt estate without the assignment (zero dollars). If the proposed assignment is not approved Mr Cvitanovic and I will have no choice but to abandon the Proceedings, due to lack of funds, and the Proceedings will be dismissed either for want of prosecution or lack of standing or by negotiated agreement.
[10] Affidavit S J Hundy 30.06.2021, [16(d)]
2 July 2021 – hearing of application for dismissal
On 2 July 2021 I heard the Lee parties’ applications for orders that the proceedings be dismissed. The Trustees did not appear at that hearing. In reasons for judgment I published on 16 July 2021 I found that Mr Macks, through lack of capacity, failed to prosecute with due diligence the Proceedings; and the Trustees, who have had the capacity to prosecute the Proceedings since 1 April 2021, failed to do so by applying to substitute themselves as applicants.[11] I did not, however, dismiss the Proceedings. Instead, I listed each of the Proceedings before me at 10:00 am on 30 July 2021 for the purpose of receiving evidence and submissions from the Trustees on the following questions:
(a)why I should not dismiss each proceeding pursuant to r 13.03B(1)(a) of the Federal Circuit Court Rules 2001 (Cth) (FCC Rules) on the ground specified in r 13.03A(1)(e) of the FCC Rules; and
(b)assuming the proceedings are not dismissed, why the Approval Proceeding should not be transferred to the Sydney Registry of this Court, and for that application to be heard by me.
[11] Macks as Trustee of the Bankrupt Estate of Lee v Lee [2021] FCCA 1614
30 July 2021 – further hearing for dismissal
On 30 July 2021 I heard submissions from the Trustees why the Proceedings should not be dismissed for want of prosecution. I also heard an application by the Trustees that they be joined as applicants in the Proceedings. The Trustees indicated that if the Court did not approve the assignment of the Causes of Action, the Trustees would be the most appropriate applicants in the Proceedings, and the Trustees consented to being substituted as applicants. After the hearing, with the consent of the parties, I made an order transferring the Approval Proceeding to the Sydney Registry of the Court, and an order that that proceeding be docketed to me.
In reasons for judgment I published on 6 August 2021,[12] I concluded I would not be in a position to determine whether I should dismiss the Proceedings before giving the Trustees’ an opportunity to adduce evidence and make submissions about the interests of the creditors of the bankrupt estate. I also concluded that it might be appropriate if I hear further submissions on the Lee parties’ application to dismiss the Proceedings at the same time I hear the Approval Proceeding. I ordered that the Proceedings be listed for directions on 11 August 2021 for the purpose of making directions for the further conduct of the Proceedings and the Approval Proceeding, including orders in relation to an application the Lee parties filed in the Approval Proceeding on 3 August 2021 for leave to be heard in that proceeding.
[12] Macks as Trustee of the Bankrupt Estate of Lee v Lee (No 2) [2021] FCCA 1800
Further procedural steps
On 11 August 2021 I ordered that the balance of the applications to dismiss the Proceedings be adjourned for directions on 15 September 2021, and that the Trustees file evidence of the benefits the Trustees expect the creditors of the bankrupt estate to receive, assuming the Trustees succeed on the Causes of Action. I also directed that the Lee parties’ application for leave to be heard in the Approval Proceeding be listed for hearing on 16 August 2021. The hearing of that application did not proceed on that day, but was instead listed for hearing on 27 August 2021. I heard that application on 27 August 2021 and, on 15 September 2021, I made orders granting the Lee parties leave to be heard in the Approval Proceeding.[13] I also set down for hearing on 18 October 2021 the balance of the Lee parties’ applications for dismissal of the Proceedings, and the Approval Proceeding.
[13] Cvitanovic [2021] FedCFamC2G 47
Agreement executed
On 24 September 2021 the Trustees and Mr Macks “as trustee for Macks Lee Trust” executed an agreement (Agreement).[14] This occurred because the “Cut-off Date” of 1 September 2021 provided for by the Deed had passed, thus rendering the Deed void by operation of cl 1.3 of the Deed.
[14] Affidavit S J Hundy 24.09.2021; annexure “C”
The Agreement provides for the assignment by the “Assignors” (namely, the Trustees) to the “Assignee” (Mr Macks “as trustee for Macks Lee Trust”) the “Statutory and Other Claims” (being all causes of action pleaded in the Proceedings, including the Causes of Action) for the consideration specified in cl 1.2 of the Agreement. The assignment is conditional on this Court approving, before the “Sunset Date”, the assignment of the “Statutory Claims” (that is, the Causes of Action) pursuant to s 100-5 of the IPS. “Sunset Date” is defined in item 8 of the Reference Schedule to mean 31 January 2022 or such later day as the parties may before that date agree.
The consideration comprises two classes of amounts. The first is the “Initial Fee” referred to in cl 1.2(a) of the Agreement, being a non-refundable amount of $25,000, payable within 5 business days of the date of the Agreement. The second class of amounts is the “Future Fee”, being the amounts identified in item 7 of the “Reference Schedule” to the Agreement:
(A) If the Net Proceeds are less than $100,000, zero dollars.
(B) If the Net Proceeds are between $100,000 and $500,000, 25% of the Net Proceeds.
(C) If the Net Proceeds are above $500,001, the amount of $125,000 plus 10% of the amount exceeding $500,001.
The expression “Net Proceeds” is defined as “the amount determined by the following formula: Realisations minus Former Trustee’s Legal Costs”. “Realisations” is defined in cl 8.1 to mean “all amounts received . . . in connection with the Statutory and Other Claims”;[15] “Former Trustee’s Legal Costs” means “all Legal Fees properly and reasonably incurred by the Former Trustee directly in relation to the Actions and with the Action Representatives”; “Legal Fees” means “legal fees, costs and disbursements calculated on the higher of a full indemnity basis or a solicitor and own client basis, determined without taxation, assessment, or similar process”; and “Former Trustee” appears to be intended to be a reference to the “Former Bankruptcy Trustee” specified in item 7 of the Reference Schedule, and is there defined to mean Mr Macks.
[15] Terms are defined in cl 8.1 of the Agreement
Clause 1.2(b) of the Agreement provides that the “Assignee” must pay the “Assignors” the Future Fee within 30 business days after either of the later of two things occurring: “Realisations are received”, or there is a resolution of “any Financial Dispute in accordance with clause 5” of the Agreement. Clause 1.5 of the Agreement requires the “Assignee” to apply the “Realisations” in the order there stated, namely, to pay or reimburse the “Former Trustee” for the “Former Trustee’s Legal Costs”; to pay to the Assignors the Future Fee; and, finally, to retain any balance “to the absolute exclusion of the Bankrupt Estate and Assignors”.
The Agreement provides a number of other consequences if this Court approves the assignment of the “Statutory Claims”. One is cl 1.2(c) of the Agreement, which provides that the “Former Trustee” will release the bankrupt estate of “all Claims and Liabilities directly or indirectly connected with the Former Trustee’s Remuneration and Former Trustee’s Legal Costs”, and any costs ordered against the “Former Trustee directly or indirectly relating to or in connection with the Actions”.
The Agreement also provides for consequences if the Court does not approve the assignment and, therefore, the conditions provided for by cl 1.1(b) are not satisfied. Two are relevant:
(a)One relates to the “Former Trustee’s Remuneration” (FTR). Clause 1.3 provides that the “Former Trustee” must provide to the “Assignors” all information they require to seek creditor approval of the FTR, and the “Assignors” must issue a notice of meeting of creditors at which it is proposed to seek approval of the FTR and the Assignor’s remuneration, and the “Former Trustee” must at his cost apply to the Inspector-General for approval of his remuneration.
(b)The other consequence relates to the “Former Trustee’s Legal Costs”. Clause 1.4 of the Agreement provides that the “Former Trustee” must provide information in relation to costs agreements he made with his former lawyer and invoices and, subject to legal costs to which s 37(4) of the “Legal Profession Act 1981 (SA)” applies, the “Assignors” may require the “Former Trustee” at his cost to apply for adjudication of those costs under Part 7 or s 30 of the “Legal Profession Act 1981 (SA)”.[16]
[16] I have found no South Australian Act by the name of “Legal Profession Act 1981 (SA)”. There is an Act called the Legal Practitioners Act 1981 (SA), but that Act does not contain a section 37, or a section 30; and Part 7 deals with the appointment of Senior Counsel and Queen’s Counsel
On 14 October 2021 the Trustees and Mr Macks executed a deed amending the Agreement (Amending Deed). The Amending Deed varies a number of terms of the Agreement, including the day by which the “Initial Fee” was to be paid, and the “Sunset Date”.
Evidence of notice to creditors
In his affidavit of 24 September 2021 Mr Hundy deposes that on 16 August 2021 Mr Hundy “issued a circular to all creditors of the bankrupt estate”, that circular being as follows:[17]
[17] Affidavit S J Hundy 24.09.2021, [47]; annexure “H”
I refer to the appointment of Daniel Cvitanovic and I as Trustees of the bankrupt estate of Unju Lee in place of the Official Trustee on 1 April 2021.
Status of proceedings – ADG512/2019 and ADG513/2019
As creditors may be aware, Mr Peter Ivan Macks was previously the trustee of the bankrupt estate until his removal on or around 22 February 2021.
While trustee of the bankrupt estate, Mr Macks filed two applications in the Federal Circuit Court of Australia seeking declarations that the transfer of certain real properties by the bankrupt to family members prior to bankruptcy were void pursuant to sections 120 and 121 of the Bankruptcy Act 1966.
The above proceedings initiated by Mr Macks were on foot as at the date of our appointment. Following our appointment we reviewed the files provided to us and communicated with Mr Macks, his solicitors and Counsel regarding the proceedings.
Notice of Assignment of Right to Sue
After ongoing discussions we reached an agreement to assign our rights as Trustees in the causes of actions to Mr Macks as trustee for the Macks Lee Trust under rule 100-5 of the Insolvency Practice Schedule (Bankruptcy) (Schedule 2 to the Bankruptcy Act 1966 (Cth)) (“IPS”).
We subsequently entered into a Deed of Assignment with Mr Macks on 25 June 2021, with the assignment being conditional upon approval by the Court as required by rule 100-5 of the IPS.
On 30 June 2021, we applied to the Court for an order that an assignment of the causes of action which are the subject of the proceedings be approved on the terms described in the conditional Deed of Assignment entered into with Mr Macks.
The application is currently before the Court and creditors will be advised of the outcome of the Court’s decision in relation to the approval of the assignment once the matter has been heard.
In the event that you have any queries regarding this matter, please do not hesitate to contact . . . on . . . [phone number] or . . . [email address]
Stephen Hundy
Trustee
Mr Hundy also deposed that on 24 September 2021 he “issued a further circular to all creditors of the bankrupt estate”, that circular being as follows:[18]
I refer to previous correspondence issued to creditors in relation to the above bankrupt estate and in particular, our advice to creditors dated 16 August 2021 advising of the status of proceedings ADG512/2019 and ADG513/2019 in the Federal Circuit Court (now the Federal Circuit and Family Court of Australia).
Assignment of Causes of Action
As previously advised, on 25 June 2021 we entered into a conditional Assignment Deed to assign our rights as Trustees in the above proceedings to Mr Peter Macks as trustee for the Macks Lee Trust under rule 100-5 of the Insolvency Practice Schedule (Bankruptcy) (Schedule 2 to the Bankruptcy Act 1966 (Cth)) (“IPS”).
On 30 June 2021, we applied to the Court for an order that an assignment of the causes of action which are the subject of the proceedings be approved on the terms described in the conditional Assignment Deed entered into with Mr Macks.
The Assignment Deed included a cut-off date of 1 September 2021 by which time the application for approval of the assignment by the Court was required to be obtained. As the approval had not been obtained by the Court by the cut-off date, pursuant to the terms of the Assignment Deed it became void.
New Assignment Agreement
We advise that on 24 September 2021 we entered into a new conditional assignment agreement with Mr Macks and we have instructed our solicitors to seek leave to amend the application to Court to seek approval of the assignment of the causes of action.
The application is due to be heard by the Court on 18 October 2021 and creditors will be advised of the Court’s decision once it has been handed down.
[18] Affidavit S J Hundy 24.09.2021, [48]; annexure “I’
QUESTIONS ARISING
From this recital of the background, three questions arise:
(a)Should the Proceedings be dismissed for want of prosecution, given the findings I made in two earlier judgments,[19] and the additional evidence the Trustees have filed?
(b)Assuming (a) is answered in the affirmative, should I approve the assignment of the Causes of Action under s 100-5(2) of the IPS?
(c)Assuming (b) is answered in the affirmative, should I grant the relief Mr Macks seeks in the interim applications he filed on 16 June 2021?
[19] Macks as Trustee of the Bankrupt Estate of Lee v Lee [2021] FCCA 1614; Macks as Trustee of the Bankrupt Estate of Lee v Lee (No 2) [2021] FCCA 1800
DISMISSAL OF PROCEEDINGS FOR WANT OF PROSECUTION?
In my judgment published on 6 August 2021 I granted the Trustees leave to file evidence of the benefits the creditors of the bankrupt estate may receive if the Trustees were to successfully prosecute the Causes of Action, noting that this evidence may also be relevant to whether the assignment of the proposed Causes of Action should be approved.[20]
[20] Macks as Trustee of the Bankrupt Estate of Lee v Lee (No 2) [2021] FCCA 1800, at [42]
Mr Hundy described the state of the bankrupt estate in his affidavits made on 25 August 2021 which he filed in each of the Proceedings. Mr Hundy estimated the bankrupt estate has ten creditors whose claims total $705,043. Mr Hundy also estimated the amounts that would be recovered on the Causes of Action if they are pursued to a successful conclusion (including actual recovery of money and of one of the Croydon Park properties), and the amounts that may be available for distribution to creditors of the estate. Mr Hundy estimated the creditors may receive up to $00.60 cents in the dollar.[21] Mr Hundy repeated this analysis in an affidavit he made on 24 September 2021 which he filed in the Approval Proceeding. Mr Hundy confirmed his estimate that, if the Causes of Action are pursued to a successful conclusion, assuming the Trustees do not assign them and they are funded, the creditors may receive up to $00.60 cents in the dollar.[22] Mr Hundy also estimated the return creditors may receive if the Causes of Action are assigned on the terms of the Agreement, and the Causes of Action are prosecuted to a successful conclusion. Mr Hundy estimates the creditors may receive up to $00.18 cents in the dollar.[23]
[21] Affidavit of S J Hundy 25.08.2021, [20]; annexure SJH-1
[22] Affidavit S J Hundy 24.09.2021, [36]; annexure “F”
[23] Affidavit S J Hundy 24.09.2021, [38]; annexure “G”
For reasons that I set out later, I am satisfied there would be significant tangible benefits to the creditors if the Causes of Action were prosecuted by the Trustees, assuming they obtain funding to do so; and I am not satisfied that if I do not approve the assignment of the Causes of Action the Trustees will abandon them. In those circumstances I am not satisfied it would be appropriate to dismiss the Proceedings for want of prosecution. Any question of prejudice the Lee parties wish to submit they have suffered because of the delay, or because of their response to such delay, are matters to be addressed when I consider the question of costs.
I therefore propose to order that the applications brought by the Lee parties to dismiss the Proceedings be dismissed, and to reserve the question of costs of those applications.
SHOULD ASSIGNMENT BE APPROVED?
The need for Court approval of the assignment the subject of the Agreement arises from s 100-5 of the IPS, which provides:
(1)Subject to subsections (2) and (3), the trustee of a regulated debtor's estate may assign any right to sue that is conferred on the trustee by this Act.
(2)If the trustee's action has already begun, the trustee cannot assign the right to sue unless the trustee has the approval of the Court.
(3)Before assigning any right under subsection (1), the trustee must give written notice to the creditors of the proposed assignment.
Before I set out the competing submissions made by the Trustees and the Lee parties, it would be necessary to construe s 100-5(2) of the IPS, and attempt to identify the purpose and scope of the discretion it confers on a court when an application is made to it to approve an assignment.
Construction of s 100-5(2)
“any right to sue that is conferred on the trustee by this Act”
Subsection 100-5(2) of the IPS applies to “any right to sue that is conferred on the trustee by this Act” referred to in s 100-5(1). This invites attention to two things. The first is the person on whom “any right to sue is conferred by the Act”, that person being the “trustee” of a “regulated debtor’s estate”. When used in relation to a “bankrupt”, “regulated debtor’s estate” is defined in s 5-16 of the IPS as “the estate of the bankrupt, other than any estate of the bankrupt administered under Part XI because the bankrupt is a deceased person”. A “bankrupt” is defined in s 5 of the Act to include a person against whose estate a sequestration order has been made. When used in relation to a “bankrupt”, a “trustee” of a “regulated debtor’s estate” is defined in s 5-20(a) of the IPS as the trustee of “the bankrupt’s estate”.
The second thing to which the expression “any right to sue that is conferred on the trustee by this Act” invites attention is the rights to sue to which the expression applies. The IPS does not identify these rights to sue, or otherwise define the expression “any right to sue that is conferred on the trustee by this Act”. It is clear, however, that the expression is intended to include any cause of action which, by the operation of any one or more provisions of the Act, accrues in the hands of the person who holds the office of “trustee” in relation to a particular bankrupt estate, and the associated right to pursue by action such causes of action.[24] An example of such rights to sue are those that accrue by the operation of s 120 and s 121 of the Act.
[24] An “action” is “the form of a suit given by law for recovery of that which is one’s due; or is a legal demand of a [person’s] right” - Jacob, G., The Law Dictionary, P Byrne, Philadelphia, 1811, Vol I, page 30
Sections 120 and 121 of the Act render void “as against the trustee in the transferor’s bankruptcy” the transfer of property made in the circumstances specified in those sections. Although the sections do not expressly confer on the trustee any cause of action in relation to transfers to which s 120 and s 121 of the Act apply, such causes of action and the associated right to pursue them by action are necessarily implied by the legal consequences the sections provide for in relation to transfers to which they apply; and such causes of action and the right to pursue them are assumed by s 127(3) and s 127(4) of the Act, which refer to “an action” under s 120 and s 121 of the Act respectively.
Rights to sue “conferred on the trustee” by the Act are to be distinguished from causes of action that had accrued in the hands of the bankrupt before he or she became a bankrupt. Under s 58(1)(a) of the Act, on a person’s becoming a bankrupt “the property of the bankrupt”, not being after acquired property, vests in a trustee in bankruptcy. “Property” is defined in s 5(1) of the Act to mean “real or personal property of every description . . . and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property”. The expression “the property of the bankrupt” is defined in s 5(1) to mean “the property divisible among the bankrupt’s creditors” and “any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt”. The “property divisible among the bankrupt’s creditors” is specified in s 116 of the Act.
The definition of “the property of the bankrupt” is broad enough to include many classes of causes of action (estate causes of action) that had accrued in the hands of the bankrupt before he or she became bankrupt so that, on a person’s becoming a bankrupt, such causes of actions are transferred to the trustee in bankruptcy. Sir George Jessel MR made that observation in Seear v Lawson when speaking of an equivalent provision to s 58(1)(a) of the Act:[25]
Now the word “property,” as defined by the 4th section of the Bankruptcy Act, includes things in action. The trustee obtains the bankrupt's property under the 17th section on his appointment. The words are, “on the appointment of a trustee the property shall forthwith pass to and vest in the trustee appointed,” and he gets the property in no other way. The first question to be decided is, does he get such a right of action as this under the 17th section? I should say it is quite clear that he does. It would be impossible to hold that it remained vested in the bankrupt so that he could after his discharge recover the estate for his own benefit. Therefore, under the word “property,” it vests in the trustee and is now in the trustee. It is in the trustee by a statutory transfer, and for this purpose I assume that such a right could not have been transferred apart from the statute.
[25] Seear v Lawson (1880) 15 Ch. D. 426, at pages 432-433
One consequence of estate causes of action being transferred to a trustee in bankruptcy on a person’s becoming bankrupt is that the trustee in bankruptcy may, pursuant to the power conferred by s 134(a) of the Act, sell the estate causes of action just as the trustee in bankruptcy may sell any other property that is divisible among the bankrupt’s creditors. Sir George Jessel MR so held in Seear v Lawson in relation to an equivalent provision of s 134 of the Act: [26]
Then the 25th section enables the trustee “to sell all the property of the bankrupt including,” &c. It is suggested that the word “property” in the 25th section is to have a different meaning from that which it has in the 17th section. I cannot see why. It is the same word and under the same definition clause. If the trustee gets a right of action, why is he not to realize it? The proper office of the trustee is to realize the property for the sake of distributing the proceeds amongst the creditors. Why should we hold as a matter of policy that it is necessary for him to sue in his own name? He may have no funds, or be may be disinclined to run the risk of having to pay costs, or he may consider it undesirable to delay the winding-up of the bankruptcy till the end of the litigation. Considering these things, it seems to me to be a priori probable that he would be entitled to sell it, but I prefer to rest my decision upon the plain words of the statute. The words are, “all the property,” and it does not appear to me that we have any right to exclude from the plain provision of the 25th section anything which has passed to the trustee under the 17th section.
[26] Seear v Lawson (1880) 15 Ch. D. 426, at pages 433
This represents the position in Australia, as Branson J observed in Re Cirillo; Ex parte Official Trustee in Bankruptcy.[27]
It is, in my view, no longer seriously open to question that a transaction of the kind here proposed is to be regarded as a sale of property of a bankrupt within the meaning of ss 134(1) and 135(1 )(a) of the Act. The property of the bankrupt within the meaning of ss 134 and 135 may include a chose in action: Seear v Lawson (1880) 15 Ch D 426; Guy v Churchill (1888) 40 Ch D 481; Ramsey v Hartley [1977] I WLR 686; [1977] 2 All ER 673; Re Nguyen;Ex parte Official Trustee in Bankruptcy (1992) 35 FCR 320; Cotterill v Bank ofSingapore (Australia) Ltd (1995) 37 NSWLR 238. Sections 134 and 135 of the Act authorise the trustee to sell a chose in action in circumstances which would otherwise attract the rule against maintenance and champerty: Guy v Churchill; Ramsey v Hartley; Re Nguyen; Ex parte Official Trustee in Bankruptcy. See also as to similar provisions in companies legislation: Re Park Gate WaggonWorks Co (1881) 17 Ch D 234 and Grovewood Holdings Plc v James Capel &Co Ltd [1995] Ch 80. The power of sale created by ss 134 and 135 of the Act extends to a power to sell to the bankrupt: Kitson v Hardwick (1872) LR 7 CP 473; Ramsey v Hartley; Re Nguyen; Ex parte Official Trustee in Bankruptcy;Stein v Blake [1995] 2 WLR 710; [1995] 2 All ER 961.
[27] Re Cirillo; Ex parte Official Trustee in Bankruptcy [1996] FCA 1443; (1996) 65 FCR 576, at page 583. On appeal the Full Federal Court referred to this passage from her Honour’s judgment, and noted the appellants did not dispute her Honour’s view: Citicorp Australia Ltd & Ors v Official Trustee in Bankruptcy & Anor [1996] FCA 1115; (1996) 71 FCR 550, at page 558
“If the trustee’s action has already begun”
Subsection 100-5(2) of the IPS does not apply to all rights to sue which the Act confers on a trustee in bankruptcy; it applies to such rights of action only “[i]f the trustee’s action has already begun”. This expression is premised on the distinction between a cause of action, namely, a set of asserted factual premises, proof of which would entitle the person asserting them to a remedy, and an “action”, namely, the acts by which the person asserting the cause of action invokes the procedure a court with jurisdiction makes available to persons who seek to pursue asserted causes of action. In short, “[i]f the trustee’s action has already begun” refers to rights to sue the Act has conferred on the trustee in bankruptcy which the trustee has exercised by commencing a proceeding in a court to vindicate the causes of action the trustee asserts the Act conferred on him or her.
It is not apparent from the text of s 100-5 of the IPS why it permits the trustee in bankruptcy to assign rights to sue conferred by the Act in relation to which the trustee in bankruptcy has not commenced an action, yet prohibits a trustee from assigning such rights in relation to which the trustee had commenced an action unless the Court approves the assignment. One possible explanation is that the Court’s approval is required to facilitate the orderly conduct of the proceeding. That explanation, however, does not sit well with the absence of a requirement of court approval in relation to the assignment by a trustee in bankruptcy of estate causes of action after the trustee has commenced proceedings in relation to any such cause of action.
The different treatment by s 100-5 of the IPS of rights to sue the Act confers on the trustee in bankruptcy in relation to which the trustee has not commenced an action, and rights to sue in relation to which the trust has commenced an action, is not relevant to determining the considerations the Court must or may take into account when considering whether to exercise the power conferred by s 100-5(2) to permit the trustee assigning a right to sue the Act confers on his or her in relation to which the trustee has commenced an action. As should become apparent later, an application for approval under s 100-5(2) of the IPS is premised on the trustee in bankruptcy having exercised the power conferred by s 100-5(1) to assign a right to sue conferred on the trustee by the Act; and whether approval should be given to a trustee’s deciding to exercise such power turns on the same principles that govern the lawful exercise of any power the Act confers on the trustee in bankruptcy.
Considerations relevant to determining whether to grant approval
Subsection 100-5(2) of the IPS does not expressly identify the matters the Court must or may consider when determining whether to approve an assignment to which s 100-5(2) applies. Those matters, however, are to be identified by considering the subject-matter, scope, and purpose of s 100-5(2), viewed in its statutory context. That follows from the principle High Court has stated on a number of occasions, including in R v Australian Broadcasting Tribunal; Ex parte 2hd Pty Ltd:[28]
In the absence of some positive indication of the considerations on which a grant or refusal of consent is to depend, the discretion is “unconfined except in so far as the subject matter and the scope and purpose of the statutory enactments may enable the Court to pronounce given reasons to be definitely extraneous to any objects the legislature could have had in view”, to use the words of Dixon J. in Browning (1977) 74 CLR, at p 505.
[28] R v Australian Broadcasting Tribunal; Ex parte 2hd Pty Ltd [1979] HCA 62, at [11]; (1979) 144 CLR 45, at page 49
In their lawyer’s written submissions, the Trustees refer to the explanatory memorandum to the Insolvency Law Reform Bill 2015 and to its mentioning two government papers.[29] There is, however, a more direct source that identifies the context by reference to which the conditional power s 100-5(2) of the IPS ought to be assessed by a Court; and that context is the general principles that identify the functions and duties of trustees in bankruptcy. That is the approach the Full Federal Court applied in Citicorp Australia Ltd & Ors v Official Trustee in Bankruptcy & Anor.[30]
[29] [Trustees’] Outline of Submissions, [17]
[30] Citicorp Australia Ltd & Ors v Official Trustee in Bankruptcy & Anor [1996] FCA 1115; (1996) 71 FCR 550
The question in Citicorp was whether the Court should approve an assignment by the Official Receiver of two bankrupt estates to the bankrupts of causes of action the bankrupts asserted they had against a mortgagee, and against receivers and managers of a company of which the bankrupts were directors and shareholders. Approval was required because of (the now repealed) s 135(1)(b) of the Act, which provided that the trustee “may . . . with the leave of the Court . . . sell by private contract, any property of the bankrupt having a net value exceeding $20,000”. The mortgagee opposed the Court granting leave to the assignment. The mortgagee also applied under s 178 of the Act for a review of the Official Trustee’s decision to assign the causes of action. The mortgage opposed the granting of leave, and supported its application for review under s 178 of the Act, on the following grounds:[31]
Counsel for the appellants contended that the duties which rest on a trustee in bankruptcy require the trustee, before selling or assigning a cause of action, to be satisfied that the cause of action can be identified as one vested in the trustee and its value estimated so that the trustee can, and then does, consider whether it can and should be pursued for the benefit of the estate. Comprehended in the performance of this duty is the need, once the cause of action is identified, to assess the prospects of success of the cause of action. There is a twofold purpose in this requirement; one purpose goes to the assessment of the adequacy of the consideration being offered, and the other to the question whether the proposed assignment would visit a mischief or injustice on the community, including creditors in the bankrupt estate. A mischief or injustice would relevantly arise, so it is contended, if the alleged cause of action had no reasonable prospect of success or is not at least arguable. It would be vexatious or oppressive to the proposed defendant if an attempt were made by the proposed assignee to enforce such a cause of action. The alternative notions that a cause of action has no reasonable prospect of success and that it is not arguable convey the same meaning, and we shall treat the contention as being simply that the cause of action proposed to be assigned must have a reasonable prospect of success.
[31] Citicorp Australia Ltd & Ors v Official Trustee in Bankruptcy & Anor [1996] FCA 1115; (1996) 71 FCR 550, at pages 558-559
In considering these grounds, the Full Federal Court held that the general principles relating to the functions and duties of a trustee in bankruptcy “provide the background setting in which the manner of the exercise of the powers of a trustee under . . . s 135 must be judged”.[32] The general principles the Full Federal Court held[33] were relevant are those stated by the Full Federal Court in Adsett v Berlouis:[34]
The trustee has a dual function: first, to administer the estate in the interests of the creditors and the bankrupt; second, to exercise, as a public duty and for the public welfare, certain powers given, and duties imposed, under the Act: see Re Campbell; Ex parte Official Trustee (1987) 13 FCR 326 at 329. The conduct of the trustee is subject to the supervision of the court (eg Div 4 of Pt VIII of the Act) and a trustee in bankruptcy has historically been regarded as an officer of the relevant court: see Ex parteJames; Re Condon (1874) 9 Ch App 609 at 614; Scranton's Trustee vPearse [1922] 2 Ch 87; Downs Distributing Co Pty Ltd v Associated BlueStar Stores Pty Ltd (In liq) (1948) 76 CLR 463 at 482; Re Henderson;Ex parte Tonkin (1934) 7 ABC 273 at 277-278. A trustee in bankruptcy who acts for remuneration is under a duty of care greater than that of a gratuitous trustee: see Re Silver Valley Mines (1882) 21 Ch D 381 at 386, 392. The trustee is required to bring reasonable skill to the performance of his or her duties: see Silver Valley Mines at 392; Re Alafaci; Registrar inBankruptcy v Hardwick (1976) 9 ALR 262 at 284.
[32] Citicorp Australia Ltd & Ors v Official Trustee in Bankruptcy & Anor [1996] FCA 1115; (1996) 71 FCR 550, at page 560
[33] Citicorp Australia Ltd & Ors v Official Trustee in Bankruptcy & Anor [1996] FCA 1115; (1996) 71 FCR 550, at page 560
[34] Adsett v Berlouis [1992] FCA 368, at [26]; (1992) 37 FCR 201, at page 208
The Full Federal Court paraphrased,[35] but did not set out, the following passage from the judgment in Adsett:[36]
A trustee under the general law must exercise judgment so as to save the estate unnecessary expenditure of money: see Re Grimthorpe (Dec'd) [1958] 1 Ch 615 at 623; Re Whitley; Lloyds Bank Ltd v Whitley [1962] 1 WLR 922 at 931; [1962] 3 All ER 45 at 53. A trustee in bankruptcy is in no different position. The discharge of a public duty imposed by the Act is to be performed conformably with the requirements of that duty, but also conformably with the trustee's obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors' claims and any possible surplus for the bankrupt.
[35] Citicorp Australia Ltd & Ors v Official Trustee in Bankruptcy & Anor [1996] FCA 1115; (1996) 71 FCR 550, at pages 560-561
[36] Adsett v Berlouis [1992] FCA 368, at [26]; (1992) 37 FCR 201, at page 208
It will also be relevant to refer to the grounds on which the Full Federal Court in Citicorp approved the Official Trustee’s proposed assignments of the causes of action. The Full Federal Court said that “as matter of practical and commercial reality the approach adopted by the trial judge is likely in many, if not most, cases to provide a straightforward and expeditious way for the trustee to administer the estate with the minimum of risk and expense to the estate, whilst at the same time retaining for the estate some prospect of a cost free gain for the creditors”.[37] The approach of the trial judge (Branson J) is contained in the following passage from her Honour’s judgment:[38]
I conclude that it is not the law that a trustee can only assign a cause of action if he or she is satisfied that it has a realistic chance of success. In circumstances in which insufficient funds are available to the trustee to allow a proper consideration of the likelihood of success of a cause of action asserted by the bankrupt to form part of his or her property, the appropriate course for the trustee to follow may well be to assign such causes of action to the bankrupt for a consideration which the trustee regards as appropriate in the light of such information as is available. Such a course may well result in some benefit to the creditors and will not place the estate at risk for legal costs. Similarly, where the trustee is unwilling to risk the funds of the bankrupt estate upon litigation with uncertain prospects of success, and no creditor is willing to fund such litigation, it may well be appropriate for the trustee to assign the relevant cause of action to the bankrupt, again for a consideration regarded by him or her as appropriate in all of the circumstances.
In my view, in considering the issue of sale of the property of a bankrupt, including any sale which involves the assignment of a cause of action, the principal duty of the trustee is to consider the interests of the creditors of the bankrupt estate in question as a whole. Consideration may also, in my view, properly be given to the legitimate interests of the bankrupt and to the legitimate interests of other parties likely to be affected by the trustee's decision.
It is not to be forgotten, however, that a trustee in bankruptcy, as an officer of the Court, is one from whom high standards of conduct are to be expected: Ex parte James; Re Condon (1874) 9 LR Ch App 609. In my view, it would not be proper for a trustee in bankruptcy to assign to any person a cause of action which demonstrably had no prospects of success. This would be even more strongly the case should he or she be alert to the possibility that such cause of action might be utilised to cause embarrassment to a third party.
[37] Citicorp Australia Ltd & Ors v Official Trustee in Bankruptcy & Anor [1996] FCA 1115; (1996) 71 FCR 550, at page 561
[38] Re Cirillo; Ex parte Official Trustee in Bankruptcy [1996] FCA 1443, at [23]-[25]; (1996) 65 FCR 576, at pages 585-586
In upholding the trial judge’s approach the Full Federal Court relied on a number of matters. These included the Official Trustee not being in a position to assess conflicts of evidence in a way that binds parties in later proceedings; a trial court would have the benefit of formulated claims, and the benefit of evidence adduced and tested according to the rules of evidence; and expenses are incurred in seeking preliminary investigations of the merits of the causes of action sought to be assigned in circumstances where there will be few cases where some decisive point exists on which the trustee or the Court can be satisfied the claim has no reasonable prospects of success.
In the light of the Full Federal Court’s judgment in Citicorp, some principles may be stated about the approach the Court should take when considering an application for approval under s 100-5(2) of the IPS.
(a)The question for the Court when considering an application for approval under s 100-5(2) of the IPS of an assignment of a right to sue under the Act is not whether the Court itself would or would not assign the right to sue in relation to which approval is sought; the question is whether the Court should approve a decision a trustee in bankruptcy has made to exercise the right conferred by s 100-5(1) of the IPS to assign such a right to sue.
(b)The question in (a) directs attention to the subject-matter, scope, and purpose of the power s 100-5(1) of the IPS confers on the trustee in bankruptcy. The Court must be satisfied that the decision the trustee in bankruptcy has made to assign the right to sue on the terms in which the trustee has agreed to so assign, is one that, in the particular circumstances of the case, falls within the subject-matter, scope, and purpose of s 100-5(2) of the IPS.
(c)The subject-matter, scope, and purpose of s 100-5(1) of the IPS turns on the trustee’s general powers and duties under the Act, these being to administer the bankrupt estate in the interests of the creditors and the bankrupt. More particularly, the trustee is under a general duty to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors' claims and any possible surplus for the bankrupt. The question, therefore, that a Court must address when determining whether to exercise the power under s 100-5(2) of the IPS to permit an assignment is whether, in the circumstances before the Court, the trustee has exercised, or proposes to exercise, the power conferred by s 100-5(1) of the IPS to assign the right to sue conferred by the Act conformably with his or her duties as a trustee in bankruptcy.
(d)When determining whether in any given case the trustee in bankruptcy has exercised or proposes to exercise the power under s 100-5(1) of the IPS to assign a right to sue conferred by the Act conformably with his or her duties as a trustee in bankruptcy, it would be relevant for the Court to consider, among other things, the financial state of the bankrupt estate in question, the expenses that would be incurred in undertaking a preliminary view of whether the right to sue is reasonably arguable; whether there is any decisive point that suggests the right to sue has no reasonable prospects of success, or that it would constitute an abuse of process; the benefit the estate will receive, and the probability of its receiving such benefit, if the assignment is permitted; and what efforts the trustees have made to obtain the best consideration for the assignment of the right to sue.
Parties’ submissions
In their counsel’s written submissions dated 30 September 2021 the Lee parties submit as follows:
(a)There is no evidence the Trustees consented in writing to being appointed trustees to the bankrupt estate.
(b)The “circulars” annexed to Mr Hundy’s affidavit do not constitute the giving of a “written notice to the creditors of the proposed assignment” as required by s 100-5(3) of the IPS. That is so because the circulars are not dated; they do not refer to the ability of any creditor who wishes to be heard on the application for approval, or to review the Trustees’ decision under s 90-15 of the IPS; they do not provide any material about the basis on which the Trustees considered it was appropriate to agree to assign the Causes of Action on the terms set out in the Deed and then the Agreement; and, for these reasons, the circulars do not provide “adequate explanation as to the nature of the assignment and the justification by the [Trustees] for the entry into the relevant assignments such that they do not satisfy the requirements of the section”.[39]
(c)The consideration provided for the Agreement is a “past consideration” and, for that reason, “there is no proper and effective consideration”. The Lee parties rely on there being no evidence the “Initial Fee” has been paid; the “Future Fee” is not payable until the Proceedings have been finalised; it is only where the Future Fee has been satisfied that any of the releases the Agreement contemplates by Mr Macks will become effective.[40]
(d)The applicants make a number of submissions and observations in relation to “the position of claims for remuneration by” Mr Macks in his capacity as the former trustee of the bankrupt’s estate.[41] These include the observations that if the Future Fee is not paid “as required by clause 1.1(b)” Mr Macks would be entitled to set in motion a claim for remuneration for work he performed as trustee, and the recovery of legal costs;[42] Mr Hundy has suggested Mr Macks’ claims for remuneration is in the vicinity of $700,000, but for the purposes of calculations Mr Hundy carried, Mr Hundy has assumed Mr Macks would be entitled to remuneration of $500,000.[43]
(e)There is no proper evidence of the value of the Croydon Park properties, the subject of the Proceedings.[44]
(f)The Trustees give no explanation of any communication with creditors other than “by uninformative notices with the creditors”.[45]
[39] Outline Submissions of the Lee Parties on Application filed 30 June 2021, [11]
[40] Outline Submissions of the Lee Parties on Application filed 30 June 2021, [15]
[41] Outline Submissions of the Lee Parties on Application filed 30 June 2021, [16]
[42] Outline Submissions of the Lee Parties on Application filed 30 June 2021, [16(a) (b)]
[43] Outline Submissions of the Lee Parties on Application filed 30 June 2021, [16(d)]
[44] Outline Submissions of the Lee Parties on Application filed 30 June 2021, [16(j)]
[45] Outline Submissions of the Lee Parties on Application filed 30 June 2021, [21]
The Trustees submit as follows:
(a)There is evidence the Trustees have consented to being appointed trustees of the bankrupt estate.
(b)The circulars the Trustees issued constituted notice for the purpose of s 100-5(3) of the IPS.[46] Section 90-15 of the IPS does not apply to applications for approval made under s 100-5(3) of the IPS.[47]
(c)The assignment should be approved because the Causes of Action are not frivolous or vexatious; the ultimate consequence of approval will merely be that a different party will be the applicant in the proceedings; and the assignment is in the interests of the creditors’ bankrupt estate.[48] It “is in simple terms a proposed change back to a trustee with ‘corporate knowledge’ of the administration of the bankrupt estate, essentially, from the start”.[49]
(d)Any current valuation of the properties the subject of the proceedings would not assist to remove the uncertainty that is inherent in assessing the benefits of the proposed assignment.[50]
(e)The Trustees accept that the calculation of any benefits to creditors, either with or without approval of the proposed assignment, is inherently speculative.[51] Nevertheless, the opinions Mr Hundy has expressed are probative, given he is an experienced chartered accountant and insolvency practitioner.[52]
[46] [Trustees’] Outline of Submissions (15 October 2021), [9], [10]
[47] [Trustees’] Outline of Submissions (15 October 2021), [17]
[48] [Trustees’] Outline of Submissions (24 September 2021), [21]
[49] [Trustees’] Outline of Submissions (24 September 2021), [23]
[50] [Trustees’] Outline of Submissions (15 October 2021), [32]
[51] [Trustees’] Outline of Submissions (15 October 2021), [37]
[52] [Trustees’] Outline of Submissions (15 October 2021), [41]
Issues
From these competing submissions, the following questions arise:
(a)Did the Trustees consent in writing to being appointed trustees of the bankrupt estate?
(b)Did the Trustees comply with the obligation to give notice, as required by s 100-5(3)?
(c)Assuming (a) and (b) are answered in the affirmative, should approval be granted to the assignment of the Causes of Action?
Have the Trustees given written consent to act as trustees?
I am satisfied that the document titled “Consent to Act as Trustee” dated 23 May 2014 Mr Hundy signed is a consent for the purposes of s 181A(1) of the Act, and that such consent is sufficient consent to Mr Hundy’s having been appointed as trustee of the bankrupt estate.
There is no document that records Mr Cvitanovic having given consent to be trustee in bankruptcy of the bankrupt. There is in evidence, however, a “Certificate of Appointment of Trustee” that records that both Mr Hundy and Mr Cvitanovic were appointed trustees of the bankrupt estate on 1 April 2021.[53] That document represents that the information it records has been extracted from the National Personal Insolvency Index. Regulation 85 of the Bankruptcy Regulations 2021 (Cth) provides that an “extract of information in the Index is admissible in any proceedings as prima facie evidence of the matters in the extract”. There is no evidence that suggests Mr Cvitanovic has not done that which he was required to do to be that which the “Certificate of Appointment of Trustee” represents he is, namely, one of two trustees in bankruptcy of the bankrupt’s estate. I am therefore satisfied, on the basis of the “Certificate of Appointment of Trustee”, that Mr Cvitanovic has been validly appointed as one of the two trustees in bankruptcy of the bankrupt’s estate.
[53] Affidavit S J Hundy 24.09.2021; annexure “A”
Have the Trustees given the notice required by s 100-5(3)?
Subsection 100-5(3) of the IPS requires that “the trustee must give written notice to the creditors of the proposed assignment”. The text does not require that the notice be accompanied by any information of the sort the Lee parties contend should accompany such notice. I am satisfied that both circulars, assuming they have been sent to the creditors, would constitute written notice to the creditors of the proposed assignment of the Causes of Action for the purposes of s 100-5(3) of the IPS.
The Lee parties submit there is no evidence the Trustees have in fact sent the circulars to the creditors. In his affidavit Mr Hundy goes no further than deposing that the circulars have been issued to the creditors. Under cross-examination Mr Hundy said he believed that Ms Gargett from his office posted the circulars to the creditors, and that he could confirm that.[54] There is no evidence from Ms Gargett or from anyone else that the circulars were posted or otherwise sent to any creditor.
[54] T39.20-T40.15
I am not satisfied on the evidence before me that the circulars were posted or otherwise sent to the creditors.
Should approval be granted to assignment of Causes of Action?
Whether I should approve the assignment of the Causes of Action turns on whether, in the circumstances of this case, the Trustees’ decision to assign the Causes of Action on the terms set out in the Agreement (as amended by the Amending Deed) is one that falls within the subject-matter, scope, and purpose of s 100-5(2) of the IPS. More particularly, the question is whether, in the circumstances of this case, the Trustees’ decision to assign the Causes of Action on the terms contained in the Agreement is one that a trustee in bankruptcy, conformably with his or her duty as trustee in bankruptcy, could reasonably make. In assessing that question, the following matters are relevant.
First, there is no evidence that before the Trustees entered into the Deed on 25 June 2021 they undertook an analysis of the sort Mr Hundy sets out in his affidavits of 25 August 2021 and 24 September 2021. As I have already noted, in his affidavit of 24 September 2021 Mr Hundy assessed the returns to creditors on the alternative assumptions that the Causes of Action would be prosecuted by the Trustees (assuming funds are available to prosecute them), and the Causes of Action would be prosecuted by Mr Macks as assignee. On the former assumption Mr Hundy estimated the creditors could receive a return of up to $00.60 in the dollar whereas, on the latter assumption, Mr Hundy estimated creditors could receive a return of up to $00.18 in the dollar. It is open to infer, and I find, that Mr Hundy first undertook such analysis in response to the orders I made on 6 August 2021.
This inference is strengthened by what Mr Hundy deposed in his affidavit made on 30 June 2021:[55]
In my opinion, approval of the proposed assignment of the Causes of Action to the Proposed Assignee on the terms described in the Assignment Deed is in the best interests of creditors because:
(a) Mr Macks and/or the Proposed Assignee will provide funding for the Proceedings to continue in circumstances where Mr Cvitanovic and I, as current trustees of the bankrupt estate, are otherwise without funds;
(b) It is more cost effective for Mr Macks and his legal team to retain conduct of the Proceedings than it is for Mr Cvitanovic and I, as current trustees of the bankrupt estate, to come fully up to speed with the history of the Proceedings and start to make forensic decisions either with the existing or a new legal team;
(c) Enabling the respondents to the Proceedings to continue to deal with Mr Macks and his preferred legal team will mean that the Proceedings can continue to be prosecuted diligently and without undue further delay; and
(d) The potential return to creditors with the benefit of the proposed assignment (potentially between $20,000 and >$80,000) is significantly higher than the potential return to creditors of the bankrupt estate without the assignment (zero dollars). If the proposed assignment is not approved Mr Cvitanovic and I will have no choice but to abandon the Proceedings, due to lack of funds, and the Proceedings will be dismissed either for want of prosecution or lack of standing or by negotiated agreement.
[55] Affidavit S J Hundy 30.06.21, [16]
Mr Hundy does not depose that he considered what return the creditors might receive on the assumption that the Trustees would pursue the Cases of Action to a successful conclusion. That is so even though it appears, from his estimating a return of “potentially between $20,000 and >$80,000”, that Mr Hundy gave some thought to the potential amount that would be recovered on the successful prosecution of the Causes of Action.
Second, there is no evidence that before the Trustees entered into the Deed on 25 June 2021 they considered whether to approach any other creditor of the estate to ascertain whether such creditor would be interested in funding the prosecution of the Causes of Action. Mr Hundy confirmed in evidence given under cross-examination that he did not contact any creditor about the proposed assignment of the Causes of Action until 16 August 2021 when Mr Hundy says he issued the first of the two circulars:[56]
After 25 May and before the conditional deed of assignment of 25 June, is it correct that you had no contact with any of the creditors known to you in relation to the proposed assignment?‑‑‑Not – not that I can recall, or not that I’m aware of.
Prior to the commencement of the present application on 30 June – and this is after 24 September – is it correct that you had no contact with any of the creditors known to you in relation to the proposed assignment?‑‑‑Not that I .....
I’m sorry. You crackled a bit, Mr Hundy?‑‑‑So not – not that I can recall. Not regarding the assignment, no.
Did you speak to creditors on any other basis?‑‑‑No. I haven’t – personally, I haven’t spoken to any creditors.
Well, the first occasion on which you communicated with creditors about the intention to assign the causes of action was when you forwarded the notice dated 16 August 2021, which is annexure H to your affidavit of 24 September. That’s correct?‑‑‑That’s correct.
In the period prior to that notice, had you spoken to any of the creditors about the assignment?‑‑‑No. As I said, personally, I hadn’t spoken to any of the creditors about the assignment.
[56] T30.45-T3115
Third, even after Mr Hundy undertook the analysis set out in his affidavit of 24 September 2021, which discloses a potential return to creditors of up to $00.60 on the assumption the Trustees prosecute the Causes of Action to a successful conclusion (assuming funding is forthcoming) as against a potential return of up to $00.18 if the Trustees assign the Causes of Action on the terms set out in the Agreement, Mr Hundy has given no evidence that he approached any other creditor to ascertain whether such creditor would be interested in funding the prosecution of the Causes of Action on the basis of Mr Hundy’s assessment that the successful prosecution of the Causes of Action by the Trustees may result in creditors receiving up to $00.60 in the dollar, rather than up to $00.18 in the dollar. The absence of evidence is a basis for my inferring that the Trustees approached no creditor for this purpose. This inference is strengthened by the content of the circulars the Trustees issued. The circulars say nothing about the terms on which the Trustees have proposed to assign the Causes of Action, and they say nothing about the possibility that, on Mr Hundy’s own assessment, the creditors may be able to recover up to $00.60 in the dollar if funds are provided to the Trustee to prosecute the Causes of Action, as opposed to the creditors receiving up to $00.18 in the dollar if the Trustees assign the Causes of Action.
Fourth, the Agreement contemplates at least as a substantial possibility that if the Court does not approve the assignment of the Causes of Action on the terms set out in the Agreement, Mr Macks or perhaps another creditor would provide funds to the Trustees to prosecute the Causes of Action. As I have already noted, the Agreement contains provisions in relation to claims Mr Macks makes for remuneration (which Mr Hundy has valued at $500,000), and in relation to legal costs Mr Macks has paid or incurred in connection with the Proceedings and, perhaps, in connection with the investigations Mr Macks conducted that led to his commencing the Proceedings. There is no evidence that in the course of the Trustees’ negotiation with Mr Macks, Mr Macks indicated that he would not provide funds to the Trustees to prosecute the Causes of Action if the Court were not to approve the assignment of the Causes of Action on the terms contained in the Agreement. It is reasonable to infer there is a tangible probability that Mr Macks would be willing to provide funds, if the Court does not approve the assignment, even if no other creditor would be willing to do so, to enable the Trustees to prosecute the Causes of Action to enable Mr Macks to recover amounts on account of the substantial claims for remuneration and legal costs it appears Mr Macks has made or would propose to make on the bankrupt estate.
In his affidavit made on 24 September 2021 Mr Hundy deposes that the assignment of the Causes of Action is “in the best interests of creditors” for the following reasons:[57]
(a) Mr Macks and/or Macks Lee Trust will provide funding for the Substantive Actions to continue in circumstances where Mr Cvitanovic and I, as current trustees of the bankrupt estate, currently lack sufficient funds to continue with Mr Thomas of counsel;
(b) It is more cost effective for Mr Macks and his legal team to retain conduct of the Substantive Actions than it is for Mr Cvitanovic and I, as current trustees of the bankrupt estate, to come fully up to speed with the history of the Substantive Actions and start to make forensic decisions either with the existing or a new legal team; and
(c) Enabling the respondents to the Substantive Actions to continue to deal with Mr Macks and his preferred legal team will mean that the Substantive Actions can continue to be prosecuted diligently and without undue further delay.
[57] Affidavit S J Hundy 24.09.2021, [39]
Mr Hundy has further deposed:[58]
If the proposed assignment is not approved Mr Cvitanovic and I will have to decide whether to continue or abandon the Substantive Actions. Currently, we lack sufficient funds to continue with Mr Thomas of counsel, and we are exploring alternative options. If we are unable to make appropriate arrangements, we may have to abandon the Substantive Actions, in which case the creditors of the bankrupt estate will receive $nil return.
[58] Affidavit S J Hundy 24.09.2021, [40]
I am not satisfied the opinion Mr Hundy has expressed is one that could reasonably be held by a trustee in bankruptcy in the circumstances in which Mr Hundy expressed his opinion. First, it is not apparent how a trustee in bankruptcy, being aware of his or her functions and duties as a trustee in bankruptcy, could reasonably conclude, as Mr Hundy has concluded, that it would be in the best interests of the creditors of the bankrupt estate for the Trustees to assign causes of action which, if prosecuted by the Trustees, might result in creditors receiving up to $00.60 in the dollar, for a consideration that may result in the creditors receiving up to $00.18 in the dollar, without the Trustees first giving the creditors an opportunity, or a proper opportunity, to consider whether they would be prepared to fund the Trustees to continue with the Causes of Action, and thus put themselves in the position where they could recover up to $00.60 in the dollar, rather than $0.18 in the dollar. In my opinion, a reasonable trustee in bankruptcy could not in these circumstances give such opinion conformably with his or her duties as a trustee in bankruptcy, and a reasonable trustee could not, conformably with such duties, agree to assign the Causes of Action on the terms contained in the Agreement, without first disclosing to the creditors the Trustees’ assessment that if the Trustees prosecute the Causes of Action, assuming they are funded, the creditors may receive up to $00.60 in the dollar, and explore with the creditors whether, in the light of such opinion, they would be prepared to provide the Trustees funding with which to prosecute the Causes of Action.
Second, Mr Hundy has deposed that if the Court does not approve the assignment the Trustees “will have to decide whether to continue or abandon” the Proceedings, the Trustees “currently lack funds to continue” with counsel who had been previously retained by Mr Macks, that “we are exploring alternative options”, and “[i]f we are unable to make appropriate arrangements, we may have to abandon the Substantive Actions”. Mr Hundy does not, however, identify the “alternative options” the Trustees are exploring; or identify whether one of the “alternative options” includes Mr Macks funding the Trustees to prosecute the Causes of Action; or give an estimate of the return creditors may receive if any one or more of the “alternative options” is or are put it place; or specify an assessment of the prospects of any one or more of the “alternative options” being put in place.
Particularly noticeable is Mr Hundy’s not addressing why the Agreement contains provisions in relation to Mr Macks’ remuneration and legal costs that will apply if the Court does not approve the assignment. Were these terms included in the Agreement because there were discussions between the Trustees and Mr Macks that have given rise to an understanding or mutual expectation that if the Court were not to approve the assignment of the Causes of Action Mr Macks would fund the Trustees prosecuting the Causes of Action? If so, that would have been information that would have been highly material to whether the Court should consent to the assignment of the Causes of Action. If the Trustees and Mr Macks have an understanding or mutual expectation that Mr Macks would fund the Trustees to prosecute the Causes of Action if the Court were not to approve the assignment, that would mean the Trustees would have been aware of a potential proposal that, if implemented, would have the prospect of delivering to the creditors of the bankrupt estate a substantially larger return than the potential return creditors would receive if the Court were to approve the assignment. That would be a reason for not approving the assignment. On the evidence, it is not open to find that the Trustees and Mr Macks have a mutual understanding or mutual expectation that Mr Macks would fund the Trustees to prosecute the Causes of Action if the Court does not approve the assignments of the Causes of Action. The evidence, however, is capable of supporting a finding that there would be a substantial incentive for Mr Macks to fund the Trustees prosecuting the Causes of Action, if the Court does not approve their assignment, given the significant amounts Mr Macks claims for remuneration and legal costs.
Third, although it may be accepted that it would be cost effective for Mr Macks’ legal team to retain the conduct of the Proceedings, there is nothing in the Agreement or in the evidence that suggests this could or would not be done if the Causes of Action are not assigned to Mr Macks. It may be that the maintaining of the Causes of Action by Mr Macks might reduce the amount of remuneration to which the Trustees will be entitled. Mr Hundy has estimated that the Trustees’ remuneration if the Trustees prosecute the Causes of Action to be $55,000,[59] and $44,000 if the Causes of Action are assigned on the terms of the Agreement.[60] On these estimates, the costs saving will be $11,000. That is a relatively insignificant amount, given the difference between a potential recovery for the creditors of up to $00.60 in the dollar if the Trustees prosecute the Causes of Action, and $00.18 in the dollar if the Causes of Action are prosecuted by Mr Macks as an assignee of the Causes of Action.
[59] Affidavit S J Hundy 24.09.2021, [36]; annexure “F”
[60] Affidavit S J Hundy 24.09.2021, [36]; annexure “G”
For these reasons, I do not propose to grant the Trustees permission under s 100-5(2) of the IPS to assign the Causes of Action to Mr Macks on the terms set out in the Agreement.
MR MACKS’ INTERIM APPLICATION
On 16 June 2021 Mr Macks filed an interim application in each of the Proceedings for orders that include an order that, on the Court approving the assignment of the Causes of Action, Mr Macks (as trustee for the Macks Lee Trust) be substituted as the applicant in the Proceedings. This success of that application depends on the Court approving the assignment of the Causes of Action. Given I do not propose to approve the assignment of the Causes of Action, I do not propose to make such an order. I will, however, make an order that leave be granted to Mr Macks that he be heard as an interested party.
DISPOSITION
In the Approval Proceeding I propose to order that the application be dismissed, and reserve the question of costs.
In each of the Proceedings I propose to make the following orders:
(a)The application for summary dismissal is dismissed.
(b)Pursuant to r 2.03 of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) Mr Macks be granted leave to be heard as an interested party.
(c)The interim application Mr Macks filed on 16 June 2021 is otherwise dismissed.
(d)Costs of both interim applications are reserved.
I will also list the Proceedings for a directions hearing at 9:30 am on 26 November 2021.
I certify that the preceding eighty-six (86) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Dated: 12 November 2021
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