Muir, Brian, Registrar in Bankruptcy v Bradley, David Geoffrey

[1984] FCA 184

Re: BRIAN MUIR, REGISTRAR IN BANKRUPTCY
And: DAVID GEOFFREY BRADLEY
No. T886
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Beaumont J.

CATCHWORDS

Bankruptcy - Trustees - Application for cancellation of registration under s. 155(5) of the Bankruptcy Act, 1966 - Principles applicable.

Re Alafaci (1976) 9 ALR 262 - con.

Re Hodgekiss (1962) SR (NSW) 340 - con.

Bankruptcy Act, 1966 s. 155(5)

HEARING

SYDNEY

#DATE 6:7:1984

ORDER

That the registration of the respondent as trustee be cancelled pursuant to s. 155(5) of the Bankruptcy Act, 1966.

That liberty be reserved to the applicant to apply on three days' notice for further relief, if necessary.

That the applicant pay the costs of the respondent of the preliminary point decided on 16 November 1983; and that, save as aforesaid, the respondent pay the costs of the applicant of the application, including reserved costs.

JUDGE1

The background to this application, seeking the cancellation of the registration of the respondent's registration as a person qualified to act as trustee, is described in the Reasons for Judgment (No. 2) herein dated 27 April 1984 which should be treated as part of these reasons. The matter has now proceeded to a final hearing. The applicant called no further evidence. The respondent adduced certain further evidence including an affidavit sworn by himself, upon which he was cross-examined.

1. In his affidavit evidence, the respondent endeavoured to explain his default in the administration of the estates concerned by referring to a number of matters which had distracted him from professional duties. One such matter was that in 1978 - 79, he was engaged in disputes with his partner in their accountancy practice. This led to the dissolution of the partnership which he described as "acrimonious". The litigation which ensued is still not resolved. In 1979, the respondent commenced practice on his own account at North Parramatta, seeking to specialise in insolvency work. However, because of the lack of qualified and experienced professional staff, the respondent was compelled to employ the services of junior staff and sub-contracted staff to a large degree. The applicant then began to experience matrimonial difficulties which led to litigation in the Family Court between May 1980 and October 1981 with respect to questions of maintenance and the custody of and access to, the children of the marriage. The applicant said, and this was not challenged, that during the proceedings in the Family Court, he was subjected to severe and distressing emotional strain.

2. The difficulties encountered by the respondent in the period from the end of 1981 until the middle of 1983 were described in his affidavit sworn herein on 14 June 1984:
   
   

"33. After the settlement of my divorce

proceedings in 1981, I realised that I

had neglected my practice to a

substantial degree. I was aware that I was

substantially behind with the filing of

returns in various matters in which I

had been appointed Trustee and that this

had been caused substantially by the

emotional pressure which I had been

under due to my divorce and other

problems.

34. My financial position was such, at

the time, that I could not afford to

employ expensive qualified experienced

staff and I was dependant (sic) upon the

assistance of a Public Accountant who

worked for me on a contract basis when

he was not working in his own practice,

and upon a University graduate who was

completing his professional year through

the Institute of Chartered Accountants.

35. I had borrowed substantial sums of

money from my bankers, to complete the

terms of my Family Law settlement with

my wife, in April 1982. I was very

distressed by the fact that I had lost

contact with my children.

36. During July, 1982, I met Miss

Lesley Adams, who is a Chartered

Accountant, and discussed with her, at

length, what I should do to endeavour to

restructure my practice. Miss Adams

suggested to me that I should lease a

computer and employ more qualified staff

and seek to move to larger premises at

Parramatta.

37. At this time I was the only

registered Trustee in Bankruptcy in the

Western Suburbs and Parramatta district

and was consulted extensively by many

local solicitors and Chartered and

Public accountants who had clients with

insolvency problems. On hindsight, I

believe that I accepted more work than I

could handle and I accepted appointments

in estates in which there was little

prospect of substantial return. I was

working seven days a week to fulfil my

obligations and I was working long hours

each day.

38. During this period I continued to

be under severe financial strain and was

assisted by a personal loan of $32,000,

from Miss Adams.

39. I began to notice that I was very

tired and when I went to sleep, I would

sleep for long hours.

40. I have been informed by many of my

friends that when I went to sleep I

appeared to be in a comatose condition.

41. In November, 1982, after a weekend

in which I remained asleep for something

in excess of thirty hours, I sought

medical advice.

42. I was advised by my doctor that I

was exhausted and that I should not

return to work for two weeks.

43. It was during this period that I

had planned to move my office across the

street to new premises at Parramatta.

44. On 8th December, 1982, I collapsed

and I was taken to hospital. I was

advised by the medical practitioner

there that I was suffering from overwork

and was severely stressed. I was

further advised to take a long holiday

over the Christmas period, which I did.

45. In January and February, 1983, I

employed two experienced Chartered

Accountants who were experienced in the

field of bankruptcy and liquidation,

respectively. I paid these men

substantial salaries to assist me in bringing

the arrears of work up to date.

46. At this time I was most concerned

that many of my returns in many of the

estates of which I was Trustee were not

being filed and that I was aware that I

was under constant pressure.

47. I had received a number of

requisitions from the Registrar in

Bankruptcy and I was concerned that

these requisitions be answered as soon

as possible.

48. My accounts had been inspected by a

Deputy Official Receiver of the New

South Wales Official Receiver's Office

in April 1982 and he had found no

irregularities in the accounts

whatsoever.

49. Whilst in my employ, the two

Chartered Accountants I employed did

reduce the arrears of work to some

degree. However, they did not achieve

the results that I had expected.

50. Both left my employ on extremely

short notice in May and June 1983

without completing a number of jobs

delegated to them.

51. I have since been informed that the

reason for their abrupt leaving was that

they had heard that these proceedings

were to be instituted against me. They

did not tell me this reason when they

left.

52. In July, 1983 I, once again, felt

severe signs of stress and I consulted a

medical practitioner in Parramatta. I

was informed by him that I was suffering

from severe hypertension and that in his

view this hypertension was caused by the

emotional and professional stress which

I had suffered. It was apparent that I

had suffered from hypertension for some

time, without knowing it.

53. He further informed me that in his

opinion it was necessary that I enjoy a

holiday for at least two months. He

further informed me that if I did not

obtain some relief from the workload

that I had, I might well suffer a

collapse. He further informed me that

the tiredness from which I suffered was

symptomatic of the hypertension and

prescribed a drug called Tenormin in a

quantity of 50 milligrams per day to

contain my blood pressure. He told me

that if I felt stressed or weary, I

should go walking or, alternatively, go

home for a sleep."

1. However, the respondent's position, both in terms of his professional activities and of his health, seems to have improved considerably from the middle of 1983 although he is still receiving medical treatment. With assistance from Miss Adams, steps were taken to improve the level of professional efficiency of the practice, especially by computerisation. Further, in the middle of 1983, Mr. Thomas was employed. His significant role in the practice has already been described in the reasons for judgment herein dated 27 April 1984.

2. In about October 1983, the respondent commenced negotiations with a large firm of accountants for the sale of his practice. In the negotiations, the respondent disclosed the pendency of these proceedings, which were commenced on 22 September 1983. The negotiations were broken off in February 1984. The respondent said that he believed that the negotiations, which had reached an advanced stage, were broken off by the other party because of the disclosure of this application.

3. In his oral evidence in this application, the respondent disclosed to the Court some other matters. In March 1983, the respondent pleaded guilty to twenty seven charges of failing to hold general meetings of companies of which he was liquidator in contravention of s. 271 of the Companies Act, 1961 (N.S.W.). Mr. Simpson, S.M. was of the view that, in the circumstances, considerable leniency was justified and fined the respondent $20.00 on twenty six of the charges and $5.00 on the remaining charge.

4. In June or July 1983, the respondent was charged with professional misconduct by the Institute of Chartered Accountants in respect of his convictions for contraventions of the Companies Act. Although the position did not clearly emerge, it would appear that the Institute convicted the respondent of this charge, reprimanded him and ordered him to pay costs in an amount of approximately $1,000.00.

5. Further, the cancellation of the registration of the respondent as a liquidator under Division 2 of Part II of the Companies (N.S.W.) Code is presently under consideration by the National Companies and Securities Commission.

6. In the Reasons for Judgment dated 27 April 1984, I concluded (at p.5) that Mr. Thomas' evidence established, prima facie at least, that the respondent lacks the capacity to discharge with professional competence the obligations inherent in the assumption of the office of trustee under the Act. The failure by the respondent to administer with any reasonable degree of diligence the estates catalogued in the schedule to those Reasons only confirms that view. And nothing which has since emerged in this proceeding displaces the provisional view which I had earlier formed. It is significant in this regard, that the respondent failed to respond to the many requests made by the Registrar for an explanation of the delays which had occurred in the administration of the estates in question. In the period 1980 - 1983, in most of the subject estates, requisitions were sent by the Registrar to the respondent seeking information and requesting action to be taken. In the great majority of cases, the requisitions failed to achieve any response in the short or even medium term. In a handful of cases, a reply was given but even then delays of many months were not uncommon: in this regard, the schedule annexed to the earlier Reasons speaks for itself.

7. An important feature of the case is the failure of the respondent to make any attempt to explain to the Registrar the difficulties he was experiencing in the period 1979 - 1983. For example, on 7 October 1981, the Registrar wrote to the respondent as follows:
   
   

"ROBERT WILLIAM DOLE - N.S.W. 21 of

1978/X

TRUSTEES' ACCOUNTS

SECTIONS 175 and 211 (RULES 73 & 80)

OF THE BANKRUPTCY ACT 1966

--------------------------------------

The abovenamed debtor executed a Deed of

Assignment to you as Trustee on 15

February 1978.

Your Controlling Trustees Account for

the period 31 January 1978 to 15

February 1978 was received on 8 March

1978. No further Trustees Accounts have

been received to date.

Your first Trustees' Account of Receipts

and Payments was due on 1 September

1978, the second Trustees' Account on 1

September 1979, third Account on 1

September 1980 and fourth Account on 1

September 1981. These Accounts are all

overdue.

Please attend to the matter forthwith

and I expect these Accounts to be filed

within 7 days of receipt of this letter.

Failure to do so will lead to the matter

being referred to the Court."

1. The respondent did not answer the letter. No accounts were filed until 15 April 1982 (see the schedule to the earlier Reasons). The filing of those accounts (and others) can be explained by reference to the letter written by the Registrar to the respondent on 29 January 1982 as follows:
   
   

"TRUSTEES ACCOUNTS : SECTIONS 175 and

211 (RULE 73, 80) OF BANKRUPTCY ACT 1966

--------------------------------------

Examination of my records discloses that

accounts in respect of the estate/s

mentioned below are overdue:

ESTATE NO. PERIOD ACCOUNTS FILED E.M. DOUGLAS 7/78/X 27.1.78 Controlling Composition Trustees a/c filed. No other a/c's have been filed.

I.A. DOUGLAS 8/78/X 27.1.78 " " Composition

R.W. DOLE 21/78/X 15.2.78 " " Assignment

R.W. 28/78/X 10.3.78 " " HETHERINGTON Composition

P.J. 29/78/X 10.3.78 " " HETHERINGTON Composition

M. FULLER 50/78/X 12.4.78 " " Composition

P.M. DALEY 183/78/X 16.11.78, s. 188 No A/c.s filed Authority

C. DALEY 184/78/X 16.11.78, s. 188 " " Authority

A.B. AMOS 68/79/X 20.4.79, Deed of Controlling Assignment Trustees a/c filed, 16.9.81. A/c for 20.10.80 filed. No other a/c.s filed.

R.B. BOWMAN 69/79/X 26/4/79 Deed of no a/c.s Assignment filed.

C.R. JONES 95/79/X 10.5.79 " " Composition

V.A. CLEARY 179/79/X 25.10.79 no a/c.s filed Assignment

B.E. CLEARY 180/79/X 25.10.79 " " Assignment

B.A. KEARNS 205/79/X 29.11.79 " " Assignment

R.A. KEARNS 206/79/X 29.11.79 " " Assignment

F.W. VINCENT 207/79/X 30.10.79 Not all a/c.s Composition filed

D.L. 208/79/X

WEATHERBURN

R.L. 209/79/X

WEATHERBURN

L.K. GEORGE 13/80/X 13.10.80, s. 188 No a/c.s filed J.M. GEORGE 14/80/X 18.1.80, s. 188 " "

H.M. BONE 15/80/X

J.K. BONE 16/80/X 18.1.80, s. 188 " "

G.T. BRISTOW 27/80/X 1.2.80, s. 188 " "

S. BRISTOW 28/80/X 1.2.80, s. 188 " "

W.M. 29/80/X 1.2.80, s. 188 " " COVERDALE

A.T. 30/80/X 1.2.80, s. 188 " " COVERDALE

J.P. TENNANT 49/80/X 1.2.80, s. 188 " "

J.A. SCOLES 67/80/X 31.3.80, s. 188 " "

M.D. SCOLES 68/80/X 31.3.80, s. 188 " "

L.J. JENKINS 76/80/X 16.4.80, s. 188 " "

B.L. JENKINS 77/80/X 16.4.80, s. 188 " "

L.A. RIGGS 120/80/X 12.6.80, s. 188 " "

T.J. FORBES 122/80/X 12.6.80, s. 188 " "

J.R. WALKER 121/80/X 12.6.80, s. 188 " "

G.C. GENNAOUI 244/80/X 19.1.81 " " Composition

B.J. NELSON 245/80/X 18.12.80, s. 188 " "

L.M. MAKIN 246/80/X 18.12.80, s. 188 " "

E.J. MAKIN 247/80/X 18.12.80, s. 188 " "

P.J. & J.W. W 1159/80 (Date of " " O'ROURKE Bankruptcy)

8.12.80

P.E. COLLINS 3/81/X 19.2.81, No a/cs filed Composition

R.W. SWITZER 40/81/X 5.3.81, s. 188 " "

J.D. SHARP 41/81/X Assignment " "

D.X. SHARP 42/81/X Assignment " "

J. McQUADE 43/81/X 6.3.81, s. 188 " "

N.G. HATTON 44/81/X Deed of " " Assignment

3.4.81

M.L.F. 88/81/X Composition " " BODENDORF 29.1.81

B.J. DEAN 106/81/X Composition " " 6.8.81

H. DEAN 107/81/X Composition " " 5.8.81

D.E. GILL 140/81/X Composition " " 3.9.81

You will notice from the above list that

the accounts in the majority of estates

are seriously in arrears. I hereby

require you to file the accounts due in

each of the above estates on or before 5

March 1982. Failure to do so will

result in my applying to the Court to

examine you under section 179(3) of the

Bankruptcy Act 1966 and to remove you

from the office of trustee under section

179 of the Bankruptcy Act 1966. I also

intend to request the Auditor-General to

audit the accounts in the above estates.

This notice is a final notice."

1. It is surprising, to say the least of it, that the respondent made no attempt to reply to this letter. It is true that, by April 1982, the respondent had made arrangements for the preparation of many of the accounts the subject of complaint although well beyond the time prescribed pursuant to s. 175(1) of the Act. Nonetheless, no attempt was made by the respondent to explain to the Registrar the virtually insurmountable personal and other difficulties he had experienced and was continuing to experience. Indeed, until these proceedings were instituted, no attempt was made by the respondent to communicate the nature of his many problems to the Registrar or to the Court. This must reflect poorly upon the capacity of the respondent to continue to act as a trustee.

2. In my opinion, default in the form of failure by the respondent to take any step towards the filing of proper accounts in a significant proportion of the estates of which he was trustee extending, as it did, over a period of some three years in many cases, thus constituting a serious breach of Division 3 of Part VIII of the Act, and, in particular, s. 175(1), coupled with the failure by the respondent to ensure that the Registrar or the Court was informed of his incapacity to accept fresh appointments as a trustee, constitutes misconduct sufficiently serious to warrant the cancellation of the registration of the respondent as a trustee pursuant to s. 155(5) of the Act on the ground that the respondent is not "a fit and proper person to be entrusted with the important duties and grave responsibility which belong to a trustee" (of. Re Humphreys and Walter (1931) 3 ABC 254 at p 258).

1. The respondent confesses his default but seeks to attribute it to his partnership dispute, his matrimonial troubles and ill-health, none of which, the respondent submits, any longer apply. With regard to his health, the respondent points, for example, to the unchallenged evidence of Miss Adams to the effect that, in recent times, his health has to a large degree, apparently improved. However, the respondent is still receiving medical treatment and, made no attempt to call any expert medical evidence on this score; indeed, he successfully objected to the tender by the applicant of a report by the respondent's medical adviser. In these circumstances, I must assume that such adviser if called would not assist the respondent's case and am therefore unable to make a finding in favour of the respondent that he has fully recovered from his illness. In any event, the recency of the respondent's failures leaves open, as a real possibility, the unacceptable prospect of a relapse in performance on the part of the respondent. Moreover, the extent of the failure of the respondent to perform adequately or, in some cases, at all, his professional duties in the estates mentioned in the period from 1979 to early 1983 together with the failure of the respondent to inform the Court of his inability to act upon any fresh appointments in that period, cannot be entirely explicable as resulting from his partnership dispute, matrimonial troubles and ill-health.

2. The respondent further submits that the Court should take into account as favourable to his case the circumstance that no debtors and no creditors have sought to appear in and to support this application. However, a number of letters were written at the time to the Official Receiver of the Registrar on behalf of creditors complaining of the inaction of the respondent in some at least of the estates in question. In any event, it would be unrealistic to expect that creditors, either individually or collectively, would be sufficiently enthusiastic as to wish to appear in this application, since in the main, their only interest was a relatively small dividend. It follows, in my view, that the absence of debtors and creditors from these proceedings is no answer to the Registrar's claim.

3. Then the respondent submits that the Court should take into account in this application considerations of the kind which the Courts have taken into account in cases involving striking off for professional misconduct. Reliance was placed upon the decision of the New South Wales Supreme Court in Re Hodgekiss (1962) SR (NSW) 340. It was urged on behalf of the respondent that the reasoning in Hodgekiss, to the effect that "mere" negligence, even if of a serious character, is not misconduct sufficient to warrant striking off the practitioner (see at pp.350-2 per Hardie, J.).

4. It may be accepted that the striking off cases do provide a useful guide in an application under s. 155(5) of the Act, especially insofar as those authorities emphasise the protective, rather than the punitive, aspect of the matter. But, although the ultimate question is the fitness of the person in question to hold the particular office, it is trite law that each case must depend upon its own facts. Hodgekiss, although much relied on by the respondent, is far removed from the present case: the charge there levelled against the solicitor was based upon an alleged merely technical breach of the regulations governing the manner in which solicitors' trust accounts were to be kept. It was not a case of failure to file accounts at all or at least for lengthy periods and thus can provide no useful analogy to the facts of this case. Certainly, the decision of Riley, J. in Re Alafaci (1976) 9 ALR 262, whilst turning on its own facts, provides a closer analogy for present purposes (see especially at pp 283-4).

5. Finally, the respondent contends that the present application is satisfactorily dealt with by the Court's merely accepting the undertakings he now proffers as follows:
   
   

"1. That the respondent will use his

best endeavours to comply promptly and

efficiently with all obligations and

matters required of him by the Act.

2. That the respondent will notify the

Registrar of any event which may impede

him in the performance of his

trusteeships."

1. In my view, such undertakings, which are merely declaratory of the respondent's statutory obligations in any event, provide no answer to the strong case made by the Registrar against the respondent. More importantly, such undertakings provide no protection in any practical sense to those who, as debtors, creditors or otherwise, would depend upon the diligent discharge by the respondent of his functions as their trustee. Nor, in my view, is it reasonable to expect the Court or the Registrar to police the performance of such undertakings (see Re Fahey (1935) 8 ABC 171 at p 173).

2. In the circumstances, I am of the opinion that the registration of the respondent as trustee should be cancelled pursuant to s. 155(5). In the event that consequential relief in the form of delivery up of documents and the like is necessary, further application may be made pursuant to the liberty to apply which I propose to reserve. The respondent must pay the applicant's costs except that the applicant must pay the costs of the respondent of the preliminary point decided on 16 November 1983.

3. The Court orders:
   
   1. That the registration of the respondent as trustee be cancelled pursuant to s. 155(5) of the Bankruptcy Act, 1966.
   
   2. That liberty be reserved to the applicant to apply on three days' notice for further relief, if necessary.
   
   3. That the applicant pay the costs of the respondent of the preliminary point decided on 16 November 1983; and that, save as aforesaid, the respondent pay the costs of the applicant of the application, including reserved costs.