FEDERAL COURT OF AUSTRALIA
Mango Boulevard Pty Ltd v Whitton [2015] FCA 1169
Citation: Mango Boulevard Pty Ltd v Whitton [2015] FCA 1169 Parties: MANGO BOULEVARD PTY LTD (ACN 101 544 601) and BMD HOLDINGS PTY LIMITED (ACN 010 093 349) v ROBERT WILLIAM WHITTON, RICHARD WILLIAM SPENCER and SILVANA PEROVICH File number: VID 1183 of 2010 Judge: RANGIAH J Date of judgment: 2 November 2015 Catchwords: BANKRUPTCY AND INSOLVENCY – application to review trustee’s decision – consideration of ss 149B and 178 of the Bankruptcy Act 1966 (Cth) – where trustee objected to discharge of bankruptcies – where objections extended bankruptcies and allowed bankrupts to put deed of compositions to creditors – whether review of trustee’s decision available – whether objection made for improper purpose – where objection advanced purpose of bankruptcy law – application dismissed
BANKRUPTCY AND INSOLVENCY – application to set aside creditors’ resolution to replace trustees – whether resolution made for an improper purpose – alleged that creditors replaced trustee to object to discharge of bankruptcies to enable bankrupts to put compositions – evidence unable to sustain definite inference – no improper purpose – application dismissed
PRACTICE AND PROCEDURE – application to reopen case to adduce further evidence – whether reopening in interests of justice – where evidence concerns events after judgment reserved – where leave to reopen would cause delay – where delay would render proceeding nugatory – where new evidence not dispositive of proceeding – application dismissed
Legislation: Bankruptcy Act 1966 (Cth) ss 64, 73, 73A, 82, 86(1), 139U, 139W, 149, 149A, 149B, 149C, 149D, 149N, 153, 178 and 181
Bankruptcy Legislation Amendment Act 2002 (Cth)
Federal Court of Australia Act 1976 (Cth) ss 37M and 37N
Explanatory Memorandum for the Bankruptcy Legislation Amendment Bill 2002Cases cited: Adsett v Berlouis (1992) 109 ALR 100 cited
Allan v Transurban City Link Ltd (2001) 208 CLR 167 applied
Ample Source International Ltd v Bonython Metals Group Pty Ltd(No 6) (2011) 285 ALR 488 cited
Arthur Yates & Co Pty Ltd v The Vegetable Seeds Committee (1945) 72 CLR 37 cited
Cummings v Claremont Petroleum NL (1996) 185 CLR 124 cited
Dare v Doolan [2004] FCA 461 cited
Frost v Sheahan (2005) 220 ALR 733 cited
Frost v Sheahan (as Trustee of the Bankrupt Estate of Frost) (2008) 249 ALR 538 distinguished
Gye v McIntyre (1991) 171 CLR 609 applied
Healey v Prentice (No 2) [2000] FCA 1598 cited
In re The Mayor & c. of the City of Hawthorn; Ex parte Co-Operative Brick Co. Ltd [1909] VLR 27 cited
Inspector-General in Bankruptcy v Nelson (1998) 86 FCR 67 applied
Macchia v Nilant (2001) 110 FCR 101 cited
Prentice v Wood (2002) 119 FCR 296 distinguished
Quinn v Official Trustee in Bankruptcy (1996) 63 FCR 136 cited
Re Ansett; Ex parte Ansett v Pattison (1995) 56 FCR 526 cited
Re Crawford (Deceased); Ex parte the Trustee of the Official Receiver and Autoterms Limited (1943) 13 ABC 201 cited
Re Hall (1994) 14 ACSR 488 cited
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Details
- AGLC
- Mango Boulevard Pty Ltd v Whitton [2015] FCA 1169
- Case
- [2015] FCA 1169
- Decision Date
CaseChat Overview and Summary
The proceeding Mango Boulevard Pty Ltd v Whitton involves a dispute between Mango Boulevard Pty Ltd and Spencer and Perovich, who were formerly directors of companies involved in a property development joint venture at Mango Hill, Queensland. The applicants sought to review a trustee's decision to object to the discharge of Spencer and Perovich from bankruptcy and to set aside a creditors' resolution to replace trustees. Additionally, they sought to reopen their case to adduce further evidence. The legal issues the court needed to address included whether the trustee's objections were made for an improper purpose, whether the applicants had standing to apply to the Court under s 178, and whether the Court's discretion should be exercised in their favour.
The court found that the trustee's objections were made to allow the bankrupts the opportunity to make proposals for compositions to their creditors and to encourage the bankrupts to provide details of their income. The court also found that a trustee can object to a bankrupt's discharge from bankruptcy for reasons other than to induce the bankrupt to act in accordance with their obligations. The applicants had standing to apply to the Court under s 178, but the court found that the objections were made for proper purposes and dismissed the application. The court also found that the resolution to replace trustees was not made for an improper purpose and dismissed the application to set it aside. Finally, the court found that reopening the case to adduce further evidence would cause unnecessary delay and was not in the interests of justice, and so dismissed the application to reopen the case.
The court dismissed the originating application, the first respondent's application to reopen his case, and set aside orders made by Logan J and Rangiah J. The court's orders were in accordance with Rule 39.32 of the Federal Court Rules 2011.
The court found that the trustee's objections were made to allow the bankrupts the opportunity to make proposals for compositions to their creditors and to encourage the bankrupts to provide details of their income. The court also found that a trustee can object to a bankrupt's discharge from bankruptcy for reasons other than to induce the bankrupt to act in accordance with their obligations. The applicants had standing to apply to the Court under s 178, but the court found that the objections were made for proper purposes and dismissed the application. The court also found that the resolution to replace trustees was not made for an improper purpose and dismissed the application to set it aside. Finally, the court found that reopening the case to adduce further evidence would cause unnecessary delay and was not in the interests of justice, and so dismissed the application to reopen the case.
The court dismissed the originating application, the first respondent's application to reopen his case, and set aside orders made by Logan J and Rangiah J. The court's orders were in accordance with Rule 39.32 of the Federal Court Rules 2011.
Orders
Orders of the court
1. The originating application is dismissed.
2. The first respondent’s application to reopen his case is dismissed.
3. Order 1 of the orders made by Logan J on 29 April 2011 is set aside.
4. Order 1 of the orders made by Rangiah J on 22 October 2015 is set aside.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
The applicants also allege that resolutions passed at a joint meeting of creditors held on 5 November 2010 appointing Whitton as trustee in place of Spencer’s and Perovich’s former trustees in bankruptcy were made for an improper purpose. The improper purpose alleged is to have a trustee appointed who would lodge objections to discharge and thereby achieve extensions of the bankruptcies so as to allow the bankrupts to put forward proposals for compositions of their debts. BACKGROUND This proceeding arises out of a joint venture for the development of land at Mango Hill in Queensland. The first applicant, Mango Boulevard Pty Ltd (“Mango Boulevard”), Spencer and Perovich were parties to the joint venture. Mango Boulevard is a wholly owned subsidiary of the second applicant, BMD Holdings Pty Ltd (“BMD Holdings”). The joint venture was to be conducted through a company, Kinsella Heights Developments Pty Ltd (“Kinsella Heights”), which is not a party to this proceeding. The parties have engaged in a litany of proceedings, particularly in the Supreme Court of Queensland and the Court of Appeal. The litigation has involved not just the parties to the present proceeding, but has also involved a number of other parties associated with the joint venture. It should be noted that the history of the proceedings is not directly relevant to deciding any of the issues in dispute, but the parties seem to agree that an understanding of the background is necessary. Spencer and Perovich were formerly directors of a number of companies through which they conducted the business of property development. Those companies included Neo Lido Pty Ltd (“Neo Lido”), Neolido Holdings Pty Ltd (“Neolido Holdings”) and Neovest Ltd (“Neovest”). Those companies are not parties to this proceeding. In 2002, Neo Lido contracted to purchase land at Mango Hill, acting as agent for Kinsella Heights. On 4 July 2003, a number of agreements were entered into concerning the development, including:·a Share Sale Agreement between Spencer (as trustee for the Spencer Family Trust), Perovich and Mango Boulevard;·a Shareholders Deed between Spencer (as trustee for the Spencer Family Trust), Perovich, Mango Boulevard and Kinsella Heights; and ·a Deed of Guarantee & Indemnity between BMD Holdings, Spencer (as trustee for the Spencer Family Trust), Perovich and Neolido Holdings. Spencer (as trustee for the Spencer Family Trust) and Perovich initially held all of the shares in Kinsella Heights. By operation of the Share Sale Agreement, Mango Boulevard came to own 50% of the shares in Kinsella Heights. Spencer and Perovich each retained 25% of the shares – which equated to 25 shares each. Following the declaration of Spencer’s bankruptcy, Mio Art Pty Ltd (“Mio Art”) replaced Spencer as trustee for the Spencer Family Trust. Under the Share Sale Agreement, the price for the sale of the shares in Kinsella Heights to Mango Boulevard was an amount of $5 million payable 7 days after the completion date and the balance, if any, within 2 days after the determination of the purchase price pursuant to cl 4. The determination of the purchase price required a market valuation of the property to be obtained in accordance with assumptions set out in cl 4.4.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
Whitton applied to this Court for directions regarding the proposed compositions. On 29 April 2011, Logan J directed Whitton not to hold a meeting of creditors pending the determination of this proceeding. On 22 October 2015, I varied that order to allow Whitton to prepare for, call and hold a meeting under s 73, but directed that such meeting was not to be called or held prior to the delivery of these reasons.REVIEW OF WHITTON’S DECISION TO OBJECT TO THE DISCHARGE OF THE BANKRUPTS FROM BANKRUPTCY The applicants’ challenge to Whitton’s decision to object to the discharge of Spencer and Perovich from bankruptcy is brought pursuant to s 178 of the Bankruptcy Act. That provision is, relevantly, in the following terms:(1)If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable. In Frost v Sheahan (as Trustee of the Bankrupt Estate of Frost) (2008) 249 ALR 538 at [34], Besanko J summarised the principles which govern an application under s 178: (1)Section 178 confers a “supervisory jurisdiction over the conduct of the trustee”.(2) It is not necessary for an applicant for relief under the section to show that the trustee’s decision was absurd, unreasonable or taken in bad faith. The court has a wide discretion to make such order as seems appropriate in the circumstances of the case. At the same time, the court will be slow to make orders which will have the effect of interfering in the day-to-day administration of a bankrupt’s estate and, in cases involving an exercise of business or commercial judgment, will place considerable weight on the trustee’s decision. Furthermore, a court will not intervene under s 178 simply because the judge forms a different view from that of the trustee.(3) An order may be made under s 178 even if the trustee’s decision was correct on the material before him, if, for example, additional material is put before the court.(4) The power to make orders under s 178 is not necessarily ousted by the presence of an alternative remedy… (Citations omitted.) In Healey v Prentice (No 2) [2000] FCA 1598, Madgwick J said at [21]:It would be enough to excite the court to intervene if it be shown that the impugned conduct of the trustee was incorrect or that other conduct was, or on the material before the Court would be, preferable and that justice and equity require the Court's intervention. An applicant no doubt carries the onus of establishing this. It is plain that the Court should not be too ready to intervene for fear of making the role and work of a trustee unmanageable. That the judge who hears a review application might have acted differently from the way a trustee did is not to the point. The question is whether it is just and equitable that the Court should afterwards intervene in some fashion. The applicants’ challenge to Whitton’s decision to object to the bankrupts’ discharge from bankruptcy raises four issues. They are:(a)Whether Whitton’s purpose in lodging the objections to discharge from bankruptcy was to allow the bankrupts the opportunity to make proposals for compositions to their creditors, or to encourage the bankrupts to provide details of their income, or a combination of both?(b)Whether a trustee can only object to the bankrupt’s discharge from bankruptcy for the purpose of inducing the bankrupt to act in accordance with the bankrupt’s obligations, on the proper construction of s 149B. (c)Whether the applicants have standing to apply to the Court under s 178(1).(d)Whether the Court’s discretion under s 178(1) should be exercised in favour of granting the applicants the relief they seek.
Ratio Decidendi
Legal Principle Established
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