Perpetual Trustee Company Limited v George - [2010] FMCA 329

FEDERAL MAGISTRATES COURT OF AUSTRALIA

PERPETUAL TRUSTEE COMPANY LIMITED v GEORGE

[2010] FMCA 329

BANKRUPTCY – Leave to take further steps in proceedings against bankrupt – complex Supreme Court proceedings against multiple defendants – possibility of insurance cover – no adverse consequence for administration of estate – conditional leave granted.

Bankruptcy Act 1966 (Cth), s.58(3)(b)
Corporations Act 2001 (Cth), s.1318

Allanson v Midland Credit Ltd (1977) 16 ALR 43
Pucar v Grubb [2004] FMCA 42

Applicant:

PERPETUAL TRUSTEE COMPANY LIMITED

Respondent:

PETER ALEXIS GEORGE

File Number:

SYG 531 of 2010

Judgment of:

Smith FM

Hearing date:

4 May 2010

Delivered at:

Sydney

Delivered on:

4 May 2010

REPRESENTATION

Counsel for the Applicant:

Mr G Ng

Solicitors for the Applicant:

Corrs Chambers Westgarth

Counsel for the Respondent:

No Appearance

Solicitors for the Respondent:

Sparke Helmore

ORDERS

The applicant has leave pursuant to s.58(3)(b) of the Bankruptcy Act to continue Supreme Court of New South Wales proceedings 4148 of 2008 as against Peter Alexis George, and to take any step against Peter Alexis George in those proceedings, upon the following terms:
(a)such leave does not extend to the taking of any step to enforce any judgment obtained in such proceedings against the person or property of the said Peter Alexis George without the prior leave of this Court or of the Federal Court of Australia; and
(b)the applicant shall not, without such prior leave, prove in respect of the whole or any part of any such judgment in the bankruptcy of the said Peter Alexis George.
The parties and the trustee in bankruptcy of the estate of Peter Alexis George have liberty to apply for any orders in relation to costs.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 531 of 2010

PERPETUAL TRUSTEE COMPANY LIMITED

Applicant

And

PETER ALEXIS GEORGE

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

The Perpetual Trustee Company Limited (“Perpetual”) applies under s.58(3)(b) of the Bankruptcy Act for leave to take further steps in proceedings pending in the Supreme Court of New South Wales against Mr George and other defendants. Leave is required, since Mr George became bankrupt on 23 December 2009 upon the acceptance of a debtor’s petition. I am satisfied that the application has been duly served on Mr George, and that his trustee in bankruptcy has also been given an opportunity to participate. There was no appearance by either of these persons, nor any other person, to oppose the application today.
The Supreme Court proceedings were commenced by the filing of a statement of claim on about 11 August 2008. Prior to Mr George’s bankruptcy, the pleadings had closed and affidavits had been filed by those of the parties who have decided to go in to evidence. Some of the pleadings and affidavits are before me in support of the present application.
I shall not attempt to detail the issues raised in the litigation. It involves a complex financial background, in which Perpetual is trustee of two trusts for the benefit of note holders. In its capacity as trustee, it acquired rights to receivables and related securities under an agreement with three companies, two of which are the first and second defendants in the Supreme Court proceedings, that is, Elderslie Finance Corporation Limited and Australian Integrated Finance Pty Ltd. The other two defendants in the Supreme Court proceedings are Mr George, who was a director of the first and second defendants, and another director, Mr Vaughan. Perpetual’s pleadings allege that the corporations misappropriated receivables which they were obliged to ensure were paid to Perpetual for other purposes, and that this occurred in circumstances in which Mr George and Mr Vaughan were so intimately involved, as to make them liable under equitable principles for breach of trust and other wrongs committed by the corporate defendants.
Mr George’s defence filed on 12 November 2008 denied his liability, and also alleged acquiescence by Perpetual in the relevant events. Mr Vaughan has filed an amended defence of a similar nature, and also seeking to be excused under the provisions of s.1318 of the Corporations Act 2001 (Cth). Mr Vaughan’s affidavit in support of his defence is in evidence before me. In it, he seeks to suggest that Mr George was the person principally liable for the corporate defendants’ actions. Perpetual’s pleadings were verified, and there is also an affidavit in support which appears to confirm many of its factual allegations.
I am satisfied that the claims of Perpetual in the Supreme Court proceedings are of substance, and were properly brought against all four defendants. I accept that they raise issues of considerable intricacy of fact, if not of law, and that prior to Mr George’s bankruptcy they had reached an advanced stage of preparation involving discovery, filing of evidence, etc. Shortly before the filing of his debtor’s petition, Mr George’s solicitors indicated to Perpetual’s solicitors that their client would not be serving any evidence in response to its allegations.
Mr George’s statement of affairs is not in evidence before me, but a report of his trustee in bankruptcy to creditors dated 28 January 2010 confirms the trustee’s awareness of the Supreme Court proceedings, and that Perpetual’s claim against Mr George has been quantified in the sum of $7,285,785.41. The report’s summary of Mr George’s statement of affairs shows this as his principal potential liability to unsecured creditors, and quantifies his total potential liabilities as $9,762,133.17. The summary shows total assets of $90,013.
In his report to creditors, the trustee referred to Perpetual’s claim, and said:
I will not be adjudicating on this and other claims until required.
I understand that the bankrupt’s company effected insurance cover for the bankrupt as a Director of the company. However, at this stage, I am uncertain whether it covers the above claim against him and, if so, who is entitled to any funds recovered if the action succeeds.
For the legal action to proceed against the bankrupt, Court approval is required. I am awaiting a reply from the plaintiff’s solicitors if their client will be seeking such approval.
Later correspondence confirms that the trustee was made aware of Perpetual’s intention to bring the present application. He advised: “I neither consent nor oppose the application”. In all the circumstances, it did not seem necessary for me to order the joinder of the trustee to the application.
Mr George was served with the present application. His solicitors, who formerly were also his solicitors in the Supreme Court proceedings, have filed a notice of appearance, but have not attended court today. I am satisfied that they were aware that it was listed for hearing today. They previously filed, on behalf of Mr George, a notice of intention to oppose the application on the ground:
Leave to proceed pursuant to section 58(3) should not be granted as it would not further the objectives of the Bankruptcy Act 1966.
No particulars were given in the notice, and no affidavit in support was filed.
Mr George’s solicitors recently wrote a letter to Perpetual’s solicitors, which said:
We refer to your letter of 28 April 2010, and note that you intend to convey this letter to the Court.
It is not correct to say that our client neither consents to nor opposes your client’s application. If (as your letter suggests) the conversation between our Mr Liistro and your Mr Cessario (conducted on Mr Cessario’s mobile telephone from court on Wednesday) left any different impression, that impression was inaccurate.
Our client’s position remains that leave ought not be granted, however he does not intend to appear at the hearing of the application.
Against that background, it is necessary for us to identify a number of matters that should be drawn to the Courts attention at the hearing of the application to ensure that an accurate and complete picture is presented.
1.An email from Josh Taylor (an employee of the trustee in bankruptcy) to Mark Cessario dated 29 January 2010 is exhibited at tab 10 of affidavit of Mark Wilks affirmed 11 March 2010. That email wrongly suggests that we act for an insurer. As we said in our letter to you dated 20 April 2010, that is not correct. We act only for Mr George. It would not be appropriate for the inaccurate information in Mr Taylor’s email to be left uncorrected in the evidence.
2.Mr George’s statement of affairs is exhibited at tab 7 to Mr Wilks’ affidavit. The most up to date statement of the position of Mr George’s bankruptcy is not that document, but rather the trustee’s circular to creditors dated 28 January 2010, which is in your client’s hands. That document sets out the asset and liability position of the estate in a more accurate and complete way than the statement of affairs. It would not be appropriate for the asset and liability position of the estate to be dealt with as an issue on the basis of the statement of affairs in circumstances where more accurate, complete and independent evidence of those matters is available in the form of the trustee’s circular.
Having put those matters on record, we are instructed to withdraw from these proceedings and file a notice of withdrawal. As a result of rule 9.03 of the Federal Magistrates Court Rules 2001, however, we will not be in a position to file a notice of withdrawal prior to the hearing on 4 May 2010. We nevertheless confirm that we are instructed to not appear at the hearing, and understand that Mr George will also not appear in person.
No notice of withdrawal has yet been received by the Court. In the absence of an appearance today by or on behalf of Mr George, I have not found in his notice of opposition any meaningful contention against a grant of leave under s.58(3)(b). Nor does it appear to me that the points taken in his solicitor’s letter advance any material ground of opposition.
Counsel for Perpetual has filed an outline of his submissions which is detailed. In the absence of any contrary evidence or argument, I accept that it accurately details the nature of the proceedings in the Supreme Court, and I accept its arguments as to why leave should be granted. It is unnecessary for me to set out the contents of that submission in this judgment.
Counsel referred to considerations relevant to the exercise of the Court’s discretion under s.58(3)(b), citing Allanson v Midland Credit Ltd (1977) 16 ALR 43 at 48. The Full Court’s discussion has often been treated as identifying important considerations, in the following discussion of the creditor’s proceedings against the bankrupt in that case:
The facts are complex. The claim of Midland Credit is not only against Mr Allanson but against other current defendants who, in some respects, may be jointly and severally liable with him. There is also the question of the defences, some of which form the basis of the cross-claim. It would seem that all of these issues would be better and more comprehensively dealt with by a contested trial of the action in the Supreme Court than could possibly be the case if Midland Credit were required to lodge a proof of debt in respect of its claim against Mr Allanson alone. Such a proof of debt would be in the form of an affidavit and determined by the Official Receiver at such time as the stay ceased to operate. If the Official Receiver disallowed the claim in whole or in part, an appeal on this isolated issue could be brought to the Bankruptcy Court. But in these circumstances, the issues would have been determined in a less satisfactory way and questions between Mr Allanson and the other parties to the action would not be resolved.
Most of these considerations are, in my opinion, present in the present matter, particularly, in relation to its complexity and the multiplicity of parties. Clearly, in my opinion, it is in the interests of justice that the complex issues between the parties in the present case should be determined in one proceeding in the Supreme Court, without a stay in relation to the liability of one of them by reason of bankruptcy administration and the necessity for Mr George’s trustee in bankruptcy to separately determine that liability.
I am told from the bar table that the two corporate defendants might be in the course of external administration, but their legal and financial position in this respect is obscure, as is the extent to which they might in the future actively defend the proceedings in the Supreme Court. As I have noted above, it appears that Mr George might have lost interest in actively defending the proceedings, at least, unless assisted by somebody to fund his defence. Mr Vaughan’s position is obscure, but there is no evidence that he is insolvent.
However, the real possibility that the proceedings could fruitfully continue in the Supreme Court is pointed to by the trustee’s reference in his report to the existence of directors’ liability policies. The terms of these policies have not been shown to the Court, and have not been revealed to Perpetual. It is, therefore, speculative whether insurance cover has been claimed by Mr George, and whether it has been denied or accepted by the insurer. Inferences favouring Perpetual might, however, arise from the absence of evidence from Mr George and his solicitors, since they have a manifest capacity to elucidate these matters.
As McInnis FM discussed in Pucar v Grubb [2004] FMCA 42, the existence of insurance cover for a creditor’s claim in pending litigation is a very pertinent consideration in considering an application for leave. In that case, the granting of leave was contested, and various uncertainties appear to have been raised whether insurance cover would be forthcoming. His Honour arrived at the conclusion that “there is an insurance policy in existence, which may or may not respond to a claim made against the (debtor)” and that “at least, potentially, there is insurance which may respond to the claim” (at [43]-[44]). These findings significantly influenced his decision to grant leave. In my opinion, the evidence before me, while speculative, points to similar conclusions in the present case.
As McInnis FM accepted, the effect of s.117 of the Bankruptcy Act would be to require the trustee in bankruptcy to hold the benefit of any insurance payments covering Mr George’s liability to Perpetual for the benefit of Perpetual. An insurance recovery achieved with or without litigation might thereby benefit all creditors in Mr George’s bankrupt estate by eliminating or reducing its claim on the estate, without any risk of additional expense to the estate. Where, as in the present case, the nature of insurance cover has not yet been clearly disclosed and acknowledged to Perpetual in the course of the litigation against Mr George, the continuance of the Supreme Court proceedings to determine judicially the existence of Mr George’s liability to Perpetual, and thereby expose any liability of his insurers to Mr George, would seem to be clearly in the benefit of all creditors of the estate. Even if, eventually, no insurance monies were recoverable, Mr George’s estate would be spared the trustee’s expenses of investigating and determining these issues (compare Pucar at [54]).
The evidence before me, therefore, points to a prospect that the litigation, if pursued to judgment against Mr George, could recoup some or all of Perpetual Trustee’s losses in a real way. This would be the position whether or not Mr George continues to defend the proceedings, with or without the assistance of the insurers.
As I have noted, the continuance of the litigation has prospects of improving the financial position of all creditors in Mr George’s estate in bankruptcy, and of not adding to, if not easing, the expenses of its administration. I have considered whether granting leave might unduly protract that administration. However, no evidence of this, nor any other objection by the trustee, has been raised. Accepting the highly provisional nature of the trustee’s report, nothing emerges from it to suggest that his administration would be hampered or unduly protracted by reason of the continuation of the proceedings against Mr George. Moreover, to protect the estate, I propose to impose terms on the grant of leave similar to those imposed in Allanson.
Taking into account all the above considerations, and including the points raised in counsel’s submissions, I have decided that it is appropriate to grant leave upon those terms.
The situation in relation to the costs of the parties and the trustee in relation to this application is unclear, and I shall grant liberty to apply in the event that in the future the necessity to make an application for a costs order becomes apparent.

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Smith FM

Associate: Michael Abood

Date: 19 May 2010