Polczynski as Trustee of the Polczynski SPC Trust v Burrows
[2022] FedCFamC2G 700
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Polczynski as Trustee of the Polczynski SPC Trust v Burrows [2022] FedCFamC2G 700
File number(s): SYG 412 of 2022 Judgment of: JUDGE GIVEN Date of judgment: 18 August 2022 Catchwords: BANKRUPTCY – competing Trustees in bankruptcy – debtor’s petition accepted with Trustee appointed – whether s 156A of the Bankruptcy Act 1966 (Cth) has effect of automatically appointing Trustee in circumstances where bankruptcy not the result of sequestration order Legislation: Bankruptcy Act 1966 (Cth) ss 30, 43, 156A, cl 90-15,
cl 90-20
Bankruptcy Regulations 2021 (Cth) reg 21
Cases cited: Boral Montoro Pty Ltd v McLachlan [2007] FMCA 533
HP Mercantile Pty Ltd v Turco (No 2) [2010] FMCA 149
Re a Debtor; Ex parte Debtor v Allen [1967] Ch 590
Re Mottee; Ex parte Mottee and Official Receiver (1977) 16 ALR 129
Rondo Building Services Pty Ltd v Starkey [2005] FMCA 275
Division: Division 2 General Federal Law Number of paragraphs: 28 Date of hearing: 18 August 2022 Solicitor for the Applicants: Mr D Dragicevic of Polczynski Robinson ORDERS
SYG 412 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: STEPHEN POLCZYNSKI AS TRUSTEE OF THE POLDZYNSKI SPC TRUST
First Applicant
DAJANA MALNERSIC AS TRUSTEE OF THE MALNERSIC FAMILY TRUST
Second Applicant
JULIE BRISCOE AS TRUSTEE OF THE BRISCOE FAMILY TRUST
Third Applicant
AND: SAMANTHA BURROWS
Respondent
ROSE LITIGATION LAWYERS PTY LTD
Supporting Creditor
ORDER MADE BY:
JUDGE GIVEN
DATE OF ORDER:
18 AUGUST 2022
THE COURT ORDERS THAT:
1.Upon the applicant creditors, by their solicitor, undertaking to pay the requisite filing fee, leave is granted leave to them to file the following in Court:
(a)application in a proceeding dated 18 August 2022 (application); and
(b)the Affidavit of Dominic Dragicevic made on 18 August 2022.
2.The application be returned instanter.
3.The application in a proceeding filed in Court today is dismissed.
4.By 4:00pm on 19 August 2022, the applicant creditors are to serve sealed copies of the following on the respondent and the Trustee, Liam Thomas Bailey:
(a)the application; and
(b)Affidavit of Dominic Dragicevic made on 18 August 2022; and
(c)these orders.
5.There be no order as to costs.
THE COURT NOTES THAT:
A.The sole Trustee of the bankrupt estate of Samantha Burrows is Liam Thomas Bailey in accordance with the certificate issued on 15 August 2022 by the Official Receiver.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
EX TEMPORE REASONS FOR JUDGMENT
(revised from transcript)JUDGE GIVEN:
I have before me an application in a proceeding which was brought forward urgently this afternoon in my capacity as the duty judge (application). By that application the first applicant (applicant) (seemingly on behalf of all the applicant creditors) seeks an order that pursuant to s 30 of the Bankruptcy Act 1966 (Cth) (Act) or in the alternative, clause 90-15 of Schedule 2 to the Act, the Court direct that the Trustee who was sought to be appointed for the applicant creditors take control of, and administer, the bankrupt estate of Ms Burrows, pending any further action in relation to the consent of another Trustee.
Background
The following background is derived from the Affidavit of Dominic Dragicevic made today and filed and read in Court this afternoon (Dragicevic Affidavit), together with submissions made by Mr Dragicevic who appeared before me at the hearing of the application.
On 22 March 2022, a creditor’s petition was filed in this Court which had the effect of commencing these proceedings, in which a sequestration order was sought against the respondent. The matter was given an initial return date of 12 May 2022. Ultimately there have been five return dates in the matter, culminating in the matter coming before a Registrar of this Court this morning, at which time orders were made dismissing the petition against the respondent debtor, together with an order that the applicant creditor’s costs of the petition be paid from the bankrupt estate.
On 19 May 2022 an instrument pursuant to s 156A of the Act was signed by Mr Andrew Scott and filed with the Australian Financial Security Authority (AFSA). A copy of that consent was also filed with the Court on 27 May 2022.
On 15 August 2022 the debtor presented a debtor’s petition to AFSA which appears to have been accepted and resulted in the respondent being made a bankrupt and the appointment of Mr Liam Thomas Bailey as the sole Trustee of her bankrupt estate. A copy of the Certificate of Appointment of Trustee forms Annexure 4 to the Dragicevic Affidavit (Certificate of Appointment). The Certificate of Appointment indicates that Mr Bailey was appointed by AFSA effective as of 15 August 2022.
As noted above, 3 days after the acceptance of the debtor’s petition, the creditor’s petition was dismissed by a Registrar of this Court.
Relevant legislation
Section 30(1) of the Act provides the following in relation to the powers of the Court:
30 General powers of Courts in bankruptcy
(1) The Court:
(a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and
(b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.
(2) The Court may direct such inquiries to be made and accounts to be taken for the purposes of any proceeding before the Court as the Court considers necessary and may, when directing an account to be taken, or subsequently, give special directions as to the manner in which the account is to be taken or vouched.
(3) If in a proceeding before the Federal Court under this Act a question of fact arises that a party desires to have tried before a jury, the Federal Court may, if it thinks fit, direct the trial of that question to be had before a jury, and the trial may be had accordingly in the same manner as if it were the trial of an issue of fact in an action.
(5) Where:
(a) a bankrupt, a debtor or any other person has failed to comply with an order or direction of a Registrar, or with a direction or requirement of an Official Receiver or trustee, under this Act; or
(b) a trustee has failed to comply with an order, direction or requirement of a Registrar, or with a requirement or request of the Inspector‑General, under this Act;
the Court may, on the application of the Registrar, Official Receiver, trustee or Inspector‑General, as the case requires:
(c) order the person who has failed to comply with the order, direction, requirement or request, as the case may be, to comply with it; or
(d) if it thinks fit, make an immediate order for the committal to prison of that person.
(6) The power conferred on the Court by subsection (5) is in addition to, and not in substitution for, any other right or remedy in respect of the failure to comply with the order, direction, requirement or request, as the case may be.
The consent to act as a Trustee in a bankruptcy is governed by s 156A of the Act which relevantly provides:
156A Consent to act as trustee
(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 that the debtor becomes a bankrupt; or
(b) as the trustee of the joint and separate estates of such of the debtors specified in the instrument, being members of a partnership or joint debtors who are not in partnership with one another, as may become bankrupts, or, if only one of those debtors becomes a bankrupt, as the trustee of the estate of that debtor.
(2) An instrument under subsection (1) shall be in accordance with the approved form.
(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; and
(b) at the time when 2 or more debtors, being members of a partnership or joint debtors who are not in partnership with one another, become bankrupts, a registered trustee has, under subsection (1), consented to act as the trustee of the joint and separate estates of those debtors and the consent has not been revoked, the registered trustee becomes, at that time, by force of this subsection, the trustee of the joint and separate estates of those bankrupts.
Clause 90-20 of Schedule 2 to the Act provides:
90‑20 Application for Court order
(1) Each of the following persons may apply for an order under section 90‑15:
(a) a person with a financial interest in the administration of the regulated debtor’s estate;
(b) if the committee of inspection (if any) so resolves—a creditor, on behalf of the committee;
(c) the Inspector‑General.
(2) If an application is made by a person referred to in paragraph (1)(b), the reasonable expenses associated with the application are to be taken to be expenses of the administration of the estate.
Clause 90-15 of Schedule 2 to the Act states:
90‑15 Court may make orders in relation to estate administration
Court may make orders
(1) The Court may make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate.
Orders on own initiative or on application
(2) The Court may exercise the power under subsection (1):
(a) on its own initiative, during proceedings before the Court; or
(b) on application under section 90‑20.
Examples of orders that may be made
(3) Without limiting subsection (1), those orders may include any one or more of the following:
(a) an order determining any question arising in the administration of the estate;
(b) an order that a person cease to be the trustee of the estate;
(c) an order that another person be appointed as the trustee of the estate;
(d) an order in relation to the costs of an action (including court action) taken by the trustee of the estate or another person in relation to the administration of the estate;
(e) an order in relation to any loss that the estate has sustained because of a breach of duty by the trustee;
(f) an order in relation to remuneration, including an order requiring a person to repay to the estate of a regulated debtor, or the creditors of a regulated debtor, remuneration paid to the person as trustee.
Matters that may be taken into account
(4) Without limiting the matters which the Court may take into account when making orders, the Court may take into account:
(a) whether the trustee has faithfully performed, or is faithfully performing, the trustee’s duties; and
(b) whether an action or failure to act by the trustee is in compliance with this Act and the Insolvency Practice Rules; and
(c) whether an action or failure to act by the trustee is in compliance with an order of the Court; and
(d) whether the regulated debtor’s estate or any person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the trustee; and
(e) the seriousness of the consequences of any action or failure to act by the trustee, including the effect of that action or failure to act on public confidence in registered trustees as a group.
Costs orders
(5) Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that:
(a) the trustee or another person is personally liable for some or all of those costs; and
(b) the trustee or another person is not entitled to be reimbursed by the regulated debtor’s estate or creditors in relation to some or all of those costs.
Orders to make good loss sustained because of a breach of duty
(6) Without limiting subsection (1), an order mentioned in paragraph (3)(e) in relation to a loss may include an order that:
(a) the trustee is personally liable to make good some or all of the loss; and
(b) the trustee is not entitled to be reimbursed by the regulated debtor’s estate or creditors in relation to the amount made good.
Section does not limit Court’s powers
(7) This section does not limit the Court’s powers under any other provision of this Act, or under any other law.
As the applicant seeks relief under either of s 30 of the Act or clause 90-15 of Schedule 2, I will treat the application as including an application pursuant to clause 90-20 of Schedule 2.
In the matter of Boral Montoro Pty Ltd v McLachlan [2007] FMCA 533, Wilson FM (as his Honour then was) considered the circumstances in which he had found that a particular Trustee was unsuitable and considered whether s 30(1) of the Act entitled the Court to decide whether a particular Trustee should be appointed: see also Rondo Building Services Pty Ltd v Starkey [2005] FMCA 275 per Rimmer FM.
There is no suggestion made that either of Messrs Scott or Bailey would be an unsuitable Trustee or that either has any conflict of interest in relation to the estate of Ms Burrows. Rather, on the applicant’s case, there is a surfeit of Trustees in relation to the bankrupt estate of Ms Burrows and they contend that their preferred Trustee be confirmed by the Court, by reference to what they say is the automatic effect of s 156A upon Ms Burrows having been made bankrupt.
As noted, the alternative relief sought by the application is an order pursuant to clause 90-15 of Schedule 2 to the Act which specifically empowers the Court to make orders in relation to the administration of a bankrupt estate, examples of which are said to include that the Court may make orders that a person cease to be a Trustee of the estate (see clause 90-15(3)(b)) and that another person be appointed as a Trustee of the estate (see clause 90-15(3)(c)).
However, it is not necessary to make any such orders because Mr Scott has not at any time been appointed as the Trustee in the estate of Ms Burrows such that there are not two Trustees in respect of which it necessary to determine who is earlier in time and/or who should remain and who should cease to be a Trustee.
The applicant contends that by operation of s 156A of the Act, by reason of the fact that Mr Scott had completed the consent form which is the relevant “instrument” for the purposes of that section, upon Ms Burrows’ bankruptcy on 15 August 2022 Mr Scott was automatically made the Trustee of her bankrupt estate.
The “instrument” referred to in s 156A of the Act is required, pursuant to s 156A(2), to be in the approved form. The consent form before me annexed to the Dragicevic Affidavit is, it seems, in accordance with that approved form. That instrument was completed by the ticking of several boxes and being signed by Mr Scott as the Trustee whom the creditors sought to appoint. By that instrument, Mr Scott consents to act as sole Trustee of the bankrupt estate of the debtor named below and “in the creditor’s petition if they become a bankrupt pursuant to a court sequestration order”. The instrument is signed by Mr Scott and dated 19 May 2022.
As indicated, on 15 August 2022 Ms Burrows presented a debtor’s petition. The debtor’s petition appears to have been accepted by the Official Receiver and, on that same date, a Certificate of Appointment of Trustee was issued to Mr Liam Thomas Bailey.
Where a debtor becomes a bankrupt by a presentation of a debtor’s petition, they are bankrupt from the acceptance of it by the Official Receiver and, generally, there is no need for the Court to make a sequestration order: see Re Mottee; Ex parte Mottee and Official Receiver (1977) 16 ALR 129 at 135 per Riley J.
In this matter the applicant contends that there have been two Trustees appointed because, they say, in reliance on s156A(3) of the Act, that Mr Scott having completed the instrument which forms exhibit “A” to the Dragicevic affidavit, he consented by that instrument to become a Trustee upon the estate of Ms Burrows becoming bankrupt and they say this because s 156A(3) says:
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; …
In support of that argument, I was directed to reg 21 of the Bankruptcy Regulations 2021 (Cth) which provides that:
If:
(a) a debtor presents, or 2 or more debtors present, a petition to the Official Receiver under section 55, 56B or 57 of the Act; and
(b) there is in force under subsection 156A(1) of the Act an instrument of consent of a registered trustee to act as the trustee of:
(i) the estate of the debtor; or
(ii) in the case of 2 or more debtors—the separate estates, the joint estates, or the joint and separate estates, of the debtors or any of them;
the petition must include the original, or a clearly legible copy, of the instrument of consent.
It was initially advanced for the applicant, but then withdrawn, that the Court should infer from the fact that Mr Scott was not appointed as the Trustee by the Official Receiver upon the acceptance of the debtor’s petition, that Ms Burrows must have omitted to include on her debtor’s petition the original or a clearly legible copy of the instrument of consent of Mr Scott. As I note, that submission was withdrawn although it was later said that if it would assist the Court, the matter should adjourn notwithstanding it had been brought on urgently and ex parte, in order that a copy of the debtor’s petition could be obtained and analysed for the purposes of perfecting the submission that was made in respect of regulation 21. However, in my view, that would not resolve the issue in part for the reasons set out above at [15]. If, as contended by the applicant, the creditor’s petition was invalid and Ms Burrows’ debtor’s petition is invalid to the point where she is not bankrupt, then even on their case, Mr Scott would not yet be the Trustee and the creditor’s petition has been dismissed.
The solicitor for the applicant also took me to the decision of HP Mercantile Pty Ltd v Turco (No 2) [2010] FMCA 149 per Driver FM (as his Honour then was). In that matter, upon the making of a sequestration order there were two valid consents extant such that there were two Trustees appointed. As such, that case is of somewhat limited application because the situation which confronted his Honour is materially different to the present case, other than the fact that the applicant contends there are two Trustees in place. Of relevance though in that case is his Honour’s observation at [18] that:
Leaving aside section 157(7) of the Bankruptcy Act, the Court does not appoint trustees upon the making of a sequestration order. A registered trustee who consents becomes the trustee in bankruptcy by force of the operation of the Bankruptcy Act.
(emphasis added)
That comment has work to do in this matter because the manner in which a person becomes bankrupt will also be relevant to the manner, and mechanisms, by which a Trustee is appointed and will turn on the operation of the Act.
The bankrupt in this matter has not become bankrupt by the making of a sequestration order. Rather, she has become bankrupt by the presentation and acceptance by AFSA of a debtor’s petition on 15 August 2022.
In those circumstances and in circumstances where the consent which was signed by Mr Scott pursuant to s 156A of the Act on 27 May 2022, to becoming the Trustee in Ms Burrows’ estate if she became a bankrupt pursuant to a court sequestration order, the condition by which his appointment inures has not come to pass. The mechanism by which s 156A(3) would operate in which to perfect the appointment of Mr Scott as the Trustee did not actually come to fruition. When I raised this issue with the solicitor who appears for the creditors in this matter and gave him some time to consider that matter during a brief adjournment, upon reascending the bench the submission was made that there are two alternatives posed in the consent in the s 156A instrument. Namely, that Mr Scott was consenting to become the sole Trustee of Ms Burrows’ estate generally and the use of the word “and” in the statement:
I/We… being a registered trustee(s), consent to act as: [sole trustee] of the: bankrupt estate(s) of the debtor(s) named below and in the creditor’s petition if they become bankrupt pursuant to a court sequestration order.
meant that he consented to become the Trustee of Ms Burrows’ bankrupt estate, by whatever method she became bankrupt including, but not limited to, her becoming bankrupt by virtue of the creditor’s petition and the making of a Court sequestration order. However, I do not accept that to be so. The “and” in that sentence seems to ensure that there is a correlation and consistency of the person identified in the instrument as being the same person referred to in the creditor’s petition.
This is not a situation where are two competing Trustees who have been appointed. Rather, it appears that, as of 15 August 2022, Mr Bailey was appointed as the Trustee in the bankrupt estate of Ms Burrows, pursuant to her having presented the debtor’s petition. Mr Scott would only have become the Trustee if the estate had proceeded to become bankrupt pursuant to the making of a sequestration order under s 43 of the Act. In those circumstances, the relief that is sought by the applicant is not available, in particular given no application has been formally made seeking to annul the bankruptcy as an abuse of process: Cf Re a Debtor; Ex parte Debtor v Allen [1967] Ch 590 at 596.
The application must be dismissed. In the circumstances in which this application was brought forward, its dismissal and the fact that there was no contradictor because the applicant’s solicitor insisted the matter be returned urgently, it is not appropriate that the costs of that application should be taken from the estate of Ms Burrows, and accordingly I make no order as to costs. I will make a notation with the Orders as to the validity of Mr Bailey’s appointment as the Trustee of Ms Burrows’ Estate, in the interests of clarity.
I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Given. Associate:
Dated: 24 August 2022
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