Re Challen, Peter Leslie Ex Parte Brown, Andrew Edward & Anor

[1996] FCA 345

CATCHWORDS

BANKRUPTCY - conduct of trustee - application under s.179 of the Bankruptcy Act 1966 for an inquiry into his conduct and for his removal - whether trustee partial - discretion - applicant creditor appointed to committee of inspection.

Bankruptcy Act 1966, ss.30, 179

Re John Ramsay Paul Partridge, unreported, 22 September 1982,     Lockhart J. - followed.

RE:  PETER LESLIE CHALLEN (a bankrupt);  EX PARTE ANDREW EDWARD BROWN (Applicant),  GRAHAM ROSS BENDEICH (Respondent)

No. QB1548 of 1993

BEAUMONT J.

BRISBANE

23 APRIL 1996

IN THE FEDERAL COURT OF AUSTRALIA  )
  )  No. QB1548 of 1993
GENERAL DIVISION                 )
  )
BANKRUPTCY DISTRICT              )
  )
OF THE STATE OF QUEENSLAND       )

RE:  PETER LESLIE CHALLEN (a bankrupt)

EX PARTE: ANDREW EDWARD BROWN

Applicant

GRAHAM ROSS BENDEICH

Respondent

CORAM:    BEAUMONT J.
PLACE:    BRISBANE
DATE :    23 APRIL 1996

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The applicant be appointed a member of the committee of inspection.

1. The application otherwise be dismissed.

1. There be no order for costs.

Note:Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA  )
  )  No. QB1548 of 1993
GENERAL DIVISION                 )
  )
BANKRUPTCY DISTRICT              )
  )
OF THE STATE OF QUEENSLAND       )

RE:  PETER LESLIE CHALLEN (a bankrupt)

EX PARTE: ANDREW EDWARD BROWN

Applicant

GRAHAM ROSS BENDEICH

Respondent

CORAM:    BEAUMONT J.

DATE :    23 APRIL 1996

REASONS FOR JUDGMENT

This is an application by a creditor under s.179 of the Bankruptcy Act 1966 ("the Act") seeking several orders, including an order that an inquiry be made into the conduct of Graham Ross Bendeich, the trustee of the estate of Peter Leslie Challen, and an order that the trustee be removed from that position. The whole matter has been fully argued, and in these circumstances, it is my view that I should proceed now to examine the question of removal, rather than to proceed along the two-stage process which is often encountered in applications under s.179, that process usually being (1) deciding whether there are indeed sufficient grounds in support of an application to hold an inquiry; and then (2) proceeding with the inquiry itself (cf. Re Alafaci;  Registrar in Bankruptcy v Hardware (1976) 9 ALR 262; see also Re Gault;  Gault v Law (1981) 57 FLR 165 (per Ellicott J at 173) where the broad character of the Court's discretion in this area is discussed; and see Registrar in Bankruptcy v Bradley (1983) 72 FLR 231).

It is well established that, although the Court is given a broad discretion under s.179 of the Act, that discretion must be exercised in the interests of the orderly administration of the bankrupt's estate.

Mr Bell QC, on behalf of the applicant, has, in a carefully written submission, indicated the basis of the claim now made for the relief sought.  Given the length and detail of that submission I will not attempt to summarise it.  However, the principal basis of the application is that in this case, there is, if not an actual conflict of interest, at least a perceived one.  That conflict is said to arise from a history of relationships which Mr Bendeich has had with a number of other parties, including the State Bank of New South Wales, namely:  (1) this relationship as receiver and manager (appointed by the State Bank jointly with Mr. Knight) of the assets and business of the former legal practice of the bankrupt and his former partner, Mr. Jans;  and (2) his relationship with Mr. Adcock, the original trustee, by whom Mr. Bendeich was employed from April 1994 until June 1995. It is also said on behalf of the applicant that a potential  conflict could further arise out of any loyalties which Mr. Bendeich might hold to Mr. Adcock as his former employer.  In this  connection,  it is submitted on behalf of the applicant that although Mr Bendeich's receivership was formally terminated by the State Bank on 6 December 1993, there are still aspects of that receivership which, in the due course of its evolution, remain to be worked out. 

It must, of course, be accepted that a trustee of a bankrupt estate, or a liquidator of a company, must not only act impartially in the interests of all creditors, but also must be seen so to act.  The authorities in this area were recently discussed by Sundberg J in Dallinger v Halcha Holdings Pty Ltd (1995) 134 ALR 178 at 183-184 and by Branson J, more recently, in Commonwealth of Australia v Irving, unreported, 3 April 1996, and need not be restated here.  As their Honours point out, the Court will not countenance a situation where there are grounds for a reasonable apprehension on the part of a creditor that a trustee (or a liquidator) might be impeded or inhibited from acting impartially in the interests of all creditors.  As Branson J put it in Irving's case, where the relationship between the trustee (or a liquidator) and the bankrupt is shown to be such that a fair-minded person informed of the facts could reasonably entertain a doubt as to his or her capacity to be independent in circumstances in which he or she was required to investigate the bankrupt's past conduct, it is not appropriate for the trustee (or liquidator) to continue to act in the administration of the estate (see, e.g., Re National Safety Council of Australia, Victorian Division [1990] VR 29 at 34 and Lamb v The Registrar in Bankruptcy (Vic.) (1985) 4 FCR 269 per Smithers ACJ at 276-277).

Reference should, however, also be made to the decision of Lockhart J in Re John Ramsay Paul Partridge, unreported, 22 September 1982 where, in order to avoid a possible conflict of interest, his Honour accepted a personal undertaking given by Mr Partridge to the Court that Mr. Partridge would not, until further order and whilst he was a registered trustee in bankruptcy, practice as an accountant, whether on his own account, in partnership, as an employee, or otherwise. On that undertaking being given, the Court ordered that Mr Partridge be registered as qualified to act as a trustee according to the provisions of Part VIII of the Act.
I think that, in principle, a similar approach should be adopted in the present case. That is to say, whilst I do not propose to order the removal of the trustee, it seems to me appropriate, as it did to Lockhart J, that some other step should be taken to ensure that, in practical terms, machinery is put in place which will ensure that, so far as practicable, any possible conflict is avoided. In the particular circumstances of this case, I am of the view that the best way to achieve that position, and to ensure an orderly administration of what remains of the term of this bankruptcy, is to order that, in the exercise of the Court's powers under s.30 of the Act, the applicant be added to the committee of inspection, and I propose so to order.

The applicant, who is the brother-in-law of the bankrupt and his present employer, has expressed an apprehension that Mr Bendeich will not act impartially in the interests of creditors as a whole.  It appears that this fear arises, in a significant measure, from the composition of the membership of the committee of inspection. That committee, established at the commencement of the bankruptcy, consists of the Queensland Investment Company (the former landlord of the bankrupt), the State Bank, and the Australian Taxation Office. 
         Although no challenge is sought to be based on the position that the Australian Taxation Office has in this matter, it is, however, contended on behalf of the applicant that complications arise with respect to the position of both the State Bank and the Queensland Investment Corporation.  In my view, there is some force in the contention. 

I have already referred to the position of the State Bank. 

With respect to the Queensland Investment Corporation, whilst I do not propose to make a conclusive decision, it does appear that there is also some apparent room for concern here, at least in terms of the ongoing dealings which appear, at the moment, to be required to be undertaken  with respect to the potential liability of the bankrupt under an outstanding guarantee in respect of the premises occupied by the bankrupt in the Riverside Centre.  In that aspect of the administration of the estate of the bankrupt, I think there is merit in the applicant, who is himself a solicitor, having the opportunity of providing useful input to the committee of inspection when that aspect is being considered by the committee. 

The position of the State Bank is, in principle, the same. Again, it would assist in the orderly administration of this estate if the applicant's views were known and expressed to the committee of inspection. The Court has power under s.30 of the Act to appoint the applicant to the committee and it is appropriate that it be made.

I have, however, come to the view, in the light of all the circumstances, that it would not assist the general body of creditors if I were to remove the trustee at this stage.  I have reached this opinion for several reasons. 

First, I take into account the fact that I will now add the applicant to the committee of inspection.  Secondly, I take into account that, at the meeting of creditors held on 24 October 1995, there was drawn specifically to the attention of creditors the potential conflict of interests upon which, in substance, the applicant now relies.  It is true that the areas of potential conflict now appear to be wider than were brought to the attention of the meeting.  Nonetheless, it must be accepted that those creditors who were present at the meeting had drawn to their attention the potential difficulty now adverted to, and it was their decision, notwithstanding this, and after discussion, to proceed.  No doubt the creditors had in mind, as I now bear in mind, that there is a third consideration and, I think, an important consideration, that is, the circumstance that Mr Bendeich had already acquired some knowledge of the administration of this estate by dint of his earlier roles.  True, from one point of view, those activities might have, at least in terms of their external perception, placed the trustee in a difficult position.  But it must also be accepted by the applicant that, in terms of time and cost, Mr Bendeich has the advantage over any new trustee coming to the administration.

The minutes of the meeting held on 24 October 1995 indicate that Mr Adcock's remuneration, as claimed, was approximately the sum of $100,000.  Mr Bendeich has given evidence today that already further, not insubstantial, expenditure has been incurred on his own account in the performance of his present function.  There is evidence also before the Court from Mr Bendeich that there are no funds presently available to further this administration.  Moreover, it is common ground that, unless there is an objection to discharge, the term of this bankruptcy will expire in August this year.

In those circumstances I think there are strong, almost overwhelming, practical reasons for not disturbing the status quo, except to the extent of appointing the applicant to the committee of inspection, where I am sure he will play a most useful role.  For these reasons, I order that the application otherwise be dismissed.  On costs, it seems to me that each of the parties has had some measure of success in this application;  in those circumstances, there should be no order for costs.

I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Beaumont.

Associate

Dated:    3 May 1996 

Counsel and Solicitors      J. Bell Q.C. with Mr. P.M.

for Applicant:              McQuade instructed by

Purvis Duncan

Counsel and Solicitors      Mr. P. Dutney Q.C. instructed

for Respondent:             by Bain Gasteen

Date of hearing:            23 April 1996

Date Judgment delivered:         23 April 1996