FEDERAL COURT OF AUSTRALIA
Patel v Ruhe [2016] FCA 520
File number(s): NSD 989 of 2015 Judge: BUCHANAN J Date of judgment: 13 May 2016 Catchwords: BANKRUPTCY – application by bankrupt for an inquiry into the conduct of the trustees pursuant to s 179 of the Bankruptcy Act 1966 (Cth) – creditors voted to replace the original trustee – whether conduct of new trustee sufficient to necessitate an inquiry – no basis on which to order an inquiry – application dismissed Legislation: Bankruptcy Act 1966 (Cth), ss 6A, 6A(2), 6A(3), 19, 55, 77, 77(1), 139ZA, 179, 272, 272(1), 272(1)(c) Cases cited: Boensch v Pascoe [2007] FCA 1977
Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589
Clyne v Deputy Commissioner of Taxation (1984) 52 ALR 657
Coshott v Burke [2013] FCA 553
Deputy Commissioner of Taxation v Andrew (1984) 52 ALR 701
Ferella v Official Trustee in Bankruptcy (No 2) [2011] FCA 619
Fuller, A Bankrupt v Wily (unreported, Sheppard, Spender and Hill JJ, 28 June 1996)
Macchia v Nilant (2001) 110 FCR 101
Maxwell-Smith v Donnelly [2006] FCAFC 150
Date of hearing: 17 and 18 February 2016 Date of last submissions: 25 February 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 108 Counsel for the Applicant: Mr D C Eardley Solicitor for the Applicant: PMF Legal Limited Counsel for the Respondents: Mr C R Brown Solicitor for the Respondents: Cornwall Stodart ORDERS
NSD 989 of 2015 BETWEEN: CHANDRASHEKAR PATEL
Applicant
AND: ALICE FAY RUHE AND KENNETH STEWART SELLERS (AS TRUSTEES OF THE BANKRUPT ESTATE OF CHANDRASHEKAR PATEL)
Respondents
JUDGE:
BUCHANAN J
DATE OF ORDER:
13 MAY 2016
THE COURT ORDERS THAT:
1.The application under s 179 of the Bankruptcy Act 1966 (Cth) for an inquiry be dismissed.
2.The applicant pay the respondents’ costs, as taxed if not agreed.
3.The matter be listed for directions on 3 June 2016 at 9.30 am.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
BUCHANAN J:
Introduction
The applicant (Dr Patel) is a bankrupt.
This judgment considers an application under s 179 of the Bankruptcy Act 1966 (Cth) (“the Act”) that an inquiry be ordered into the conduct of the respondents, who are the trustees of the bankrupt estate of the applicant. The question of whether an inquiry should be ordered is being considered as a separate question, which is a conventional approach to the issue and one I directed in pre-trial hearings.
Dr Patel was made bankrupt on his own petition on 14 May 2014. Mr Schon Condon agreed to act as trustee. Dr Patel had a good relationship with Mr Condon but Dr…
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CaseChat Overview and Summary
The case of Patel v Ruhe involved Chandrashekar Patel, a bankrupt, who filed an application under section 179 of the Bankruptcy Act 1966 (Cth) for an inquiry into the conduct of the trustees of his estate. The trustees, Alice Fay Ruhe and others, were alleged by Dr Patel to have acted unreasonably in various respects, including in denying him permission to travel overseas, making allegations of his financial obligations, and investigating his assets and income. The central legal issue before the court was whether the conduct of the trustees was sufficient to warrant an inquiry under section 179 of the Bankruptcy Act.
The court examined the allegations made by Dr Patel against the trustees and considered the evidence presented by both parties. Dr Patel argued that the trustees had acted unreasonably by making false allegations and causing unnecessary expense to the bankrupt estate. The trustees, on the other hand, asserted that their actions were reasonable and in the best interest of the creditors.
In its decision, the court found that Dr Patel had not established grounds for an inquiry into the conduct of the trustees. The court noted that the allegations made by Dr Patel were largely speculative and lacked substantial evidence to support claims of unreasonable conduct. The trustees' decisions, including the denial of travel permission and the investigation of assets, were deemed to be within their reasonable discretion and in line with their duties under the Act.
Consequently, the court dismissed Dr Patel's application for an inquiry. It ordered that Dr Patel pay the trustees' costs and listed the matter for further directions. This decision underscores the high threshold required for establishing grounds for an inquiry into the conduct of bankruptcy trustees and reaffirms the importance of demonstrating unreasonable or improper conduct in such applications.
The court examined the allegations made by Dr Patel against the trustees and considered the evidence presented by both parties. Dr Patel argued that the trustees had acted unreasonably by making false allegations and causing unnecessary expense to the bankrupt estate. The trustees, on the other hand, asserted that their actions were reasonable and in the best interest of the creditors.
In its decision, the court found that Dr Patel had not established grounds for an inquiry into the conduct of the trustees. The court noted that the allegations made by Dr Patel were largely speculative and lacked substantial evidence to support claims of unreasonable conduct. The trustees' decisions, including the denial of travel permission and the investigation of assets, were deemed to be within their reasonable discretion and in line with their duties under the Act.
Consequently, the court dismissed Dr Patel's application for an inquiry. It ordered that Dr Patel pay the trustees' costs and listed the matter for further directions. This decision underscores the high threshold required for establishing grounds for an inquiry into the conduct of bankruptcy trustees and reaffirms the importance of demonstrating unreasonable or improper conduct in such applications.
Orders
Orders of the court
1. The application under s 179 of the Bankruptcy Act 1966 (Cth) for an inquiry be dismissed.
2. The applicant pay the respondents’ costs, as taxed if not agreed.
3. The matter be listed for directions on 3 June 2016 at 9.30 am.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
I am not satisfied that grounds for an inquiry have been established. Background matters Dr Patel has lived in Australia for over 30 years, since 1984. He is a plastic and reconstructive surgeon. At the time of his bankruptcy, his practice was located in the Australian Capital Territory. As I mentioned earlier, Dr Patel was made bankrupt on his own petition on 14 May 2014, and Mr Condon was appointed the trustee of his bankrupt estate. Dr Patel’s evidence was that he was introduced to Mr Condon by Mr Bakous Makari, Dr Patel’s accountant. Mr Condon made a report to creditors on 14 August 2014 in which, based on the statement of affairs completed by Dr Patel, Mr Condon reported that Dr Patel’s liabilities exceeded his assets by $642,617. Section 55 of the Act requires a bankrupt to file a statement of affairs with a debtor’s petition for bankruptcy. Section 6A(2) and (3) provide: 6AStatement of affairs for purposes other than Part XI… (2)A reference in a provision of this Act referred to in subsection (1) to a statement of affairs is a reference to a statement that: (a)is in an approved form; and (b)includes a statement identifying any creditor who is a related entity of the debtor or bankrupt; and (c)contains a declaration that, so far as the debtor or bankrupt is aware, the particulars set out in the statement are correct. (3)If the trustee has reasonable grounds to suspect that: (a)any particulars set out in a statement of affairs that was filed by a person are false or misleading in a material respect; or (b)any material particulars have been omitted from that statement; the trustee may, by written notice given to the person, require the person, within a specified period of not less than 14 days, to provide such information or to produce such books as are specified in the notice for the purpose of enabling the trustee to decide whether the particulars set out in the statement are correct. Section 77(1) of the Act provides: 77Duties of bankrupt as to discovery etc. of property(1)A bankrupt shall, unless excused by the trustee or prevented by illness or other sufficient cause: (a)forthwith after becoming a bankrupt, give to the trustee: (i)all books (including books of an associated entity of the bankrupt) that are in the possession of the bankrupt and relate to any of his or her examinable affairs; and (ii)any passport or document issued for the purposes of travel held by the bankrupt; and (b)attend the trustee whenever the trustee reasonably requires; and (ba)give such information about any of the bankrupt’s conduct and examinable affairs as the trustee requires; and (bb)as soon as practicable after becoming a bankrupt, advise the trustee of any material change that occurred between the time the bankrupt lodged his or her statement of affairs and the time the bankrupt became a bankrupt; and (bc)if a material change occurred later, advise the trustee of that change as soon as practicable after the change occurs; and (c)attend a meeting of creditors whenever the trustee requires; and (d)at each meeting of creditors at which the bankrupt is present, give such information about any of the bankrupt’s conduct and examinable affairs as the meeting requires; and (e)execute such instruments and generally do all such acts and things in relation to his or her property and its realization as are required by this Act or by the trustee or as are ordered by the Court upon the application of the trustee; and (f)disclose to the trustee, as soon as practicable, property that is acquired by him or her, or devolves on him or her, before his or her discharge, being property divisible amongst his or her creditors; and (g)aid to the utmost of his or her power in the administration of his or her estate.
Evidence
Evidence Before The Court
The grounds of complaint pressed at the hearing were expressed as follows: (a)That the trustees refused the applicant permission to travel overseas on 2 December 2014. (b)That the trustees acted unreasonably in making allegations that the bankrupt was behind in his income contributions and used this as a basis for not allowing him to travel on 2 December 2014 when in fact the bankrupt was ahead in meeting his obligations to the bankrupt estate. (c)That the trustees have acted unreasonably in the investigation of the property located at 67 Stonehaven Crescent, Deakin ACT alleged to be an asset in part of the bankrupt when such enquiries were made by the former trustee Mr Schon Gregory Condon, who was replaced by the current trustees, on 1 December 2014 and in consequence have caused the bankrupt estate unnecessary expense by way of proceedings commenced in the Federal Circuit Court. (d)That the trustees acted unreasonably in the calculation of income contribution for the period 14 May 2015 to 13 May 2016 by not allowing work-related business deductions for the purposes of the Contribution Assessment Period 2 (CAP 2). (e)That the trustees have acted unreasonably in the investigation of overseas assets alleged to be those of the bankrupt when such enquiries were made by the former trustee Mr Schon Gregory Condon, who was replaced by the current trustees, on 1 December 2014 and in consequence have caused the bankrupt estate unnecessary expense. (f)That the trustees have acted unreasonably in the investigation of the alleged artwork, and the sale of the Broulee property and investigation of the bankrupt’s business when such enquiries were made by the former trustee Mr Schon Gregory Condon, who was replaced by the current trustees, on 1 December 2014 and in consequence have caused the bankrupt estate unnecessary expense. (g)That the trustees have acted unreasonably in making further enquiry into the bankrupt’s superannuation fund in circumstances where the former trustee performed such investigations and in consequence of this caused unnecessary expense to the bankrupt estate. (h)As a large creditor Medici is influencing the discretion of the trustee about various investigations to the exclusion of consideration of the interests of smaller creditors. The evidence At the hearing I admitted into evidence, without objection, most of the contents of the following affidavits: For the applicant: (1)Affidavit of Chandrashekar Patel filed on 21 August 2015; (2)Affidavit of Chandrashekar Patel filed on 12 November 2015 (not paragraphs 3-14); (3)Affidavit of Chandrashekar Patel filed on 17 November 2015; (4)Affidavit of Chandrashekar Patel filed on 18 December 2015; (5)Affidavit of Lynette Margaret Patel filed on 25 September 2015 (not paragraphs 28-37); (6)Affidavit of Lynette Margaret Patel filed on 17 November 2015; (7)Affidavit of Bakous Makari filed on 14 October 2015; (8)Affidavit of Bakous Makari filed on 4 February 2016; (9)Affidavit of Brian Raymond Silvia filed on 18 December 2015; (10)Affidavit of David Raffman filed on 19 January 2016; (11)Affidavit of Douglas Paul Schirripa filed on 4 February 2016; (12)Affidavit of Robert Neil Brook filed on 4 February 2016; (13)Affidavit of Peter Gregory Vickers filed on 4 February 2016; (14)Affidavit of Aaron John Coonan filed on 4 February 2016;(15)Affidavit of Ramesh Patel filed on 4 February 2016; For the respondents: (16)Affidavit of Alice Fay Ruhe filed on 2 October 2015; (17)Affidavit of Alice Fay Ruhe filed on 10 December 2015 (not paragraphs 4-15); (18)Affidavit of Alice Fay Ruhe filed on 2 February 2016 (not paragraphs 5-11); (19)Affidavit of Alice Fay Ruhe filed on 17 February 2016.
Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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