Official Receiver, in the matter of Costas (Bankrupt)

[1999] FCA 1050

FEDERAL COURT OF AUSTRALIA

Official Receiver, in the matter of Costas (Bankrupt) [1999] FCA 1050

BANKRUPTCY – appointment of trustee – consent to act as trustee filed in relation to creditor’s petition – debtor’s petition accepted by Official Receiver – whether Official Receiver or registered trustee appointed as trustee of bankrupt’s estate

Bankruptcy Act 1966 (Cth), s156A(1), s156A(3)(a), s156A(4), s160, s55, s157
Bankruptcy Regulations, reg 4.11(1)(d)
Federal Court Rules, Order 77 rule 19

Re Close (t/as FB Close Transport); ex parte Abbott (1983) 50 ALR 571, followed

Re Agostino; ex parte Jackson (1983) 78 FLR 142, considered

OFFICIAL RECEIVER

(IN THE MATTER OF THE BANKRUPT ESTATE OF HARRY COSTAS)

N7801 OF 1999

EMMETT J

23 JULY 1999

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N7801 OF 1999

IN THE MATTER OF THE BANKRUPT ESTATE OF HARRY COSTAS
BETWEEN:	OFFICIAL RECEIVER Applicant
JUDGE:	EMMETT J
DATE OF ORDER:	23 JULY 1999
WHERE MADE:	SYDNEY

THE COURT DECLARES THAT:

1.        The Official Trustee is the trustee in bankruptcy of Harry Costas.  

THE COURT ORDERS THAT:

2.        The application be otherwise dismissed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N7801 OF 1999

IN THE MATTER OF THE BANKRUPT ESTATE OF HARRY COSTAS
BETWEEN:	OFFICIAL RECEIVER Applicant

JUDGE:	EMMETT J
DATE:	23 JULY 1999
PLACE:	SYDNEY

EX TEMPORE REASONS FOR JUDGMENT

1. I have before me an application by the Official Receiver for an order and a direction determining whether, on the filing of acceptance of a debtor's petition by Harry Costas (“the Debtor”), the trustee in bankruptcy of the Debtor should be the Official Trustee or a registered trustee who had consented to act in connection with a creditor’s petition.

2. On 13 May 1999, a consent to act as trustee by Scott Darren Pascoe (“Mr Pascoe”) was filed with the Official Receiver in accordance with section 156A(1) of the Bankruptcy Act 1966 (Cth) (“the Act”).  That section relevantly provides as follows:

   “(1)     A registered trustee may, by instrument signed by him or her and filed with the Official Receiver consent to act:

   (a)as the trustee of the estate of the debtor specified in the instrument in the event of the debtor becomes a bankrupt.

   …………

   (3)      Where:

   (a) at the time when a debtor becomes a bankrupt, a registered trustee has, under subsection (1), consented to act as the trustee of the estate of the debtor and the consent has not been revoked, the registered trustee becomes at that time by force of this subsection, the trustee of the estate of the bankrupt.”

3. On 2 June 1999, a petition for the sequestration of the estate of the Debtor was presented by the Commonwealth Bank of Australia (“the Bank”).  The petition (“the Bank’s Petition”) was based on an act of bankruptcy consisting of the failure, on or before 20 May 1999, to comply with the requirements of a bankruptcy notice.  The Bank’s Petition was returnable on 14 July 1999.  On that day, the hearing of the Bank’s Petition was adjourned to 9.15 am on 20 July 1999.

4. In connection with the Bank’s Petition, there was filed an affidavit of service in respect of a consent to act as trustee.  By that affidavit, it was proved that, on 8 July 1999, the Debtor was served with a sealed copy of the consent to act as trustee of Mr Pascoe dated 12 May 1999.  Service was effected by delivering that document to a Mr Peter Costas, a male apparently over the age of 16 years residing at the Debtor's residential address in New South Wales.

5. If a sequestration order had been made by the Court on the Bank’s Petition, there would be little doubt but that Mr Pascoe would, by force of section 156A(3), have been the trustee of the estate of the Debtor upon such bankruptcy. However, on 16 July 1999, the Debtor presented a debtor's petition to the Official Receiver pursuant to section 55 of the Act. That petition was accepted on 19 July 1999.

6. Debtors' petitions are dealt with in Div. 3 of Pt IV of the Act. The scheme of Div. 3 may be summarised as follows:

   ·Section 55(1) provides that a debtor may present to the Official Receiver a petition against himself or herself. Under section 55(2)(a), a petition presented by a debtor must be in accordance with the approved form.

   ·Section 55(3) authorises the Official Receiver to reject a debtor's petition if the petition does not comply with the approved form, or if it is not accompanied by a statement of affairs, or if the Official Receiver thinks that the statement of affairs is inadequate.

   ·Section 55(4), however, provides that the Official Receiver must accept a debtor's petition, unless it is rejected under subsection (3) or unless the Official Receiver is directed by the Court to reject it.

   ·Under section 55(4A)(b), where the Official Receiver accepts a petition presented under section 55, the debtor who presented the petition becomes a bankrupt by force of the section and by virtue of presentation of the petition.

7. Section 160 provides as follows:

   “If at any time there is no registered trustee who is the trustee of the estate of a bankrupt, the Official Trustee shall, by force of this section, be the trustee of the estate.”

8. The question before me is whether the effect of section 156A(3) is that Mr Pascoe is the trustee of the estate of the Debtor or whether the Official Trustee is the trustee. On the face of it, there appears to be an anomaly in the drafting of section 156A. The literal effect of section 156A(3)(a) appears to be inconsistent with assumptions that underlie the Regulations made under the Act and the Rules of Court made in connection with proceedings under the Act.

9. Section 55(3A) provides as follows:

   “Before accepting a debtor's petition, the Official Receiver must give the debtor the information prescribed by the regulations.”

   Regulation 4.11(1)(d) provides that, for the purposes of sub section 55(3A), the information which is prescribed includes:

   “information about a debtor's right to choose whether the bankruptcy is administered by a registered trustee or the official trustee.”

   That regulation certainly assumes that a debtor who presents a debtor's petition has a right of choice. 

10. If section 156A(3)(a) is given its literal effect, there is no choice, and there would be no choice in circumstances such as the present where a registered trustee had already filed a consent to act. Indeed, given its literal effect, section 156A(3)(a) could also operate to preclude any choice on the part of a petitioner. That is to say, once a consent has been filed and remains unrevoked, section 156A(3)(a) would have the effect that that trustee becomes trustee of the estate of the bankrupt, irrespective of when the sequestration order may be made and even if such an order were made many years after the filing of the consent.

11. Order 77, rule 19 of the Federal Court Rules provides that, before the hearing of a creditor's petition, the applicant-creditor must file certain affidavits.  Under Order 77, rule 19(2)(c), the applicant must file an affidavit stating, inter alia, that the following documents have been served and how they were served:

    “(c) Any consent to act as trustee lodged under section 156A of the Act.”

12. Thus, whether or not the petitioning creditor had been a party to the filing of a consent by a registered trustee, the petitioning creditor would be under an obligation, by reason of that provision, to serve and file an affidavit showing how that document had been served.  That would be an anomalous circumstance where, for example, a consent had been filed by or at the behest of some other petitioner or even by an opportunistic registered trustee who had no invitation from any creditor or debtor at all.

13. The problem thrown up by the literal effect of section 156A(3)(a) was considered by Fisher J in Re Close (t/as FB Close Transport); ex parte Abbott (1983) 50 ALR 571 and in Re Agostino; ex parte Jackson (1983) 78 FLR 142. Re Close involved, in effect, competition between two registered trustees. Two petitions had been presented in respect of the same debtor. Each was accompanied by a consent to act as trustee, signed by different registered trustees. A sequestration order was made upon one of the petitions. The other was dismissed. The question was the effect which section 156A(3)(a) had in those circumstances. One possibility would have been that both trustees were to be appointed. That is probably the literal effect of the provision.

14. Fisher J examined the Regulations and Rules then in force, which in their general effect are similar to those to which I have briefly referred. His Honour referred to the practical difficulties which would arise on the contention that, by force of law, all registered trustees who have consented, and whose consents have been served, are appointed trustees of the bankrupt’s estate. His Honour considered that there were many indications in the Act which can be seen as pointing to the fact that section 156A(3) contemplates the appointment by force of the sub section of only one trustee. It contemplates that the appointed trustee was to be the trustee who had consented in the proceedings on which the sequestration order was ultimately made.

15. His Honour concluded that the difficulties to which he adverted would be overcome if section 156A(3)(a) were construed so that the trustee whose consent "has been filed in and served with the proceedings on which the sequestration order is made" is appointed sole trustee of the estate of the bankrupt. 

16. It may not be strictly correct to refer to a consent being filed “in the proceedings on which a particular sequestration order is made”.  At the time when Fisher J was considering the matter, a consent was filed with the Registrar of the Court who was the Registrar in Bankruptcy.  Under the current scheme, of course, the consent is filed with the Official Receiver.  In neither case, however, could one say that the consent was filed “in a particular proceeding”, except to the extent that it was the subject of an affidavit under a provision such as rule 19(2)(c) to which I have already referred.  Only to the extent that an affidavit that exhibits a copy of a consent is filed in compliance with that rule, may it be possible to say that the consent has been filed in the proceeding.

17. Nevertheless, notwithstanding that faint quibble with the language used by his Honour, I am disposed to conclude that the approach which his Honour adopted is the correct one. That is to say, section 156A(3)(a) must be construed as referring to a consent which has been adopted by the petitioner in the proceeding upon which a sequestration order is made. Thus, in the circumstances before his Honour in Re Close, the relevant consent was the consent filed at the behest of the petitioner on whose petition the sequestration was made and who, in that proceeding, adopted the consent.

18. The circumstances of Re Agostino are even closer to the present circumstances than Re Close. A registered trustee had given, to a judgment creditor, a consent to act as trustee of the estates of such of three debtors as might become bankrupt. That consent was filed with the Registrar, as was then contemplated by section 156A(1) of the Act and the Rules then in existence under the Act. The consent was filed at the time when the judgment creditor presented a petition in respect of one of the three debtors.

19. However, neither the creditor's petition nor the consent of the registered trustee was ever served on the bankrupt.  Subsequently, the debtor presented to the Registrar a debtor’s petition, which was accepted by the Registrar.  The result, under the provisions then in force, was that the debtor became a bankrupt by virtue of the presentation of the petition.  The question before his Honour was whether the registered trustee who had consented was the trustee of the bankrupt's estate. 

20. His Honour referred to the same sorts of practical difficulties to which he had adverted in Re Close. Those practical difficulties could arise equally in such a case if all trustees, whether in one State or elsewhere and whether in petitions which were current or had lapsed and who had given consents, became by force of section 156A(3)(a) trustees of the estate. His Honour observed that such difficulties were compounded when the debtor lodges his own petition and no order is made in open court. His Honour therefore declared that the registered trustee was not the trustee of the estate of the bankrupt and that the Official Trustee was the trustee of the estate.

21. While the current Rules and current Regulations made under the Act are in different form from those considered by Fisher J, I do not consider that the differences are material. I am satisfied that section 156A(3) must be construed in the manner I have indicated. That is to say, there must be some element of consensus on the part of the petitioner as to the identity of the trustee. I do not consider that section 156A(3) was intended to require the appointment of a registered trustee contrary to the intention of a petitioning creditor or of a debtor who presents his or her own petition.

22. It is clear that, in the present case, the Debtor did not in any way promote or adopt the appointment of Mr Pascoe as trustee. There may well be good reason why a debtor would prefer not to have a trustee nominated by a petitioning creditor as the trustee of his estate, including possible partiality as referred to in section 156A(4).

23. If the creditors are not satisfied with the Official Trustee, there is scope in the Act by the operation of section 157, coupled with sections 64 and 64A relating to meetings of creditors, for the creditors to appoint a registered trustee in the place of the Official Trustee. However, there is no reason to think that the intention of the legislature was that a debtor who presented his or her own petition should be bound to have as a registered trustee a person who, in whatever circumstances, happened fortuitously to have filed a consent which was still current at the time of presentation of the petition.

24. It may be, of course, that the effect of the construction of the section that I prefer is that greater scope is afforded for a debtor to pre-empt the appointment of the registered trustee nominated by the creditor. However, the scheme of the Act is that a debtor’s petition prevails over a creditor's petition. Whatever the policy considerations may be, and I make no comment about them, a debtor is given the right to present his or her own petition while a creditor’s petition is current and, if the debtor’s petition is accepted, his estate is sequestrated by the presentation of the debtor’s petition itself.

25. It would be possible for a debtor to have a registered trustee of his choice file a consent to act under section 156(A)(1).  In those circumstances, under regulation 4.12, the debtor’s petition when presented must have with it the original or a clear, legible photocopy of the instrument of consent.  It would be anomalous if regulation 4.12 required a debtor to attach to his debtor's petition, a consent filed by a creditor being the consent of a registered trustee whom the debtor may prefer not to have as trustee. 

26. Section 156A(4) contemplates that a creditor may file an application for the removal by the Court of a trustee on the grounds therein specified. Those grounds are:

    “(a)     that the trustee is not fit to act as trustee, or

    (b)that the connection of the trustee with or the relation of the trustee to the bankrupt is likely to make it difficult for him or her to act with impartiality in the interests of the creditors generally.”

    Section 156A then provides for removal and replacement if the grounds are made out. 

27. It would be anomalous if a creditor other than the petitioning creditor, for example, were given the power under section 156A(4) to apply for removal on the ground that the connection of the trustee with or the relation of the trustee to the bankrupt is likely to affect his impartiality, but a petitioning creditor is bound to accept the appointment of a registered trustee, the existence of whose consent was unknown to the petitioning creditor.

28. Given that the debtor’s petition is to prevail and given that there is provision in section 156A(4) for removal, at the behest of a creditor, of a registered trustee in respect of whom there is doubt about impartiality, it would be anomalous to conclude that a debtor must accept any registered trustee whose consent, fortuitously, happened to have been filed prior to the time of his filing a debtor’s petition. The position could be even more complicated where, for example, there were several petitions current at the time when the debtor’s petition was presented.

29. For all of those reasons, I conclude that, in the present circumstances, the Official Trustee is the trustee of the estate of the bankrupt by the operation of section 160 of the Act.

I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:             23 July 1999

Solicitor for the Official Receiver:	Sally Nash
Solicitor for the Bank:	Lesley Anderson
Date of Hearing:	20 July 1999; 23 July 1999
Date of Judgment:	23 July 1999