Re Lever, Allen John Ex Parte The Official Trustee in Bankruptcy v Lever, Allen John

[1997] FCA 72

IN THE FEDERAL COURT OF AUSTRALIA         No QB 2298 of 1991

GENERAL DIVISION  
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND

RE:ALLEN JOHN LEVER

A Bankrupt

EX PARTE:THE OFFICIAL TRUSTEE IN BANKRUPTCY

Applicant

ALLEN JOHN LEVER

First Respondent

ROBERT ARTHUR WOOD and

MARJORIE WOOD

Second Respondents

ESANDA FINANCE CORPORATION LTD

Third Respondents

CARL EDWARD STEPHAN and

HEATHER MAUREEN STEPHAN

Fourth Respondents

MINUTES OF ORDERS

CORAM:  Drummond J
DATE OF ORDER:  10 February 1997
WHERE MADE:  Brisbane

THE COURT ORDERS THAT:

1. Pursuant to s 109 (10) the Bankruptcy Act 1966 (Cth) the applicant set aside one half of the funds available for distribution to creditors for distribution amongst the second, third and fourth respondents rateably according to their debts admitted to proof.

2.  The applicant distribute the remaining funds in the estate available for distribution amongst all the creditors in the estate, including the second, third and fourth respondents for the balance of their claims.

3.  The costs of and incidental to this application be costs of the Official Trustee in Bankruptcy in the administration of the estate.

NOTE:Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA                 No QB 2298 of 1991

GENERAL DIVISION  
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND

RE:ALLEN JOHN LEVER

A Bankrupt

EX PARTE:THE OFFICIAL TRUSTEE IN BANKRUPTCY

Applicant

ALLEN JOHN LEVER

First Respondent

ROBERT ARTHUR WOOD and

MARJORIE WOOD

Second Respondents

ESANDA FINANCE CORPORATION LTD

Third Respondents

CARL EDWARD STEPHAN and

HEATHER MAUREEN STEPHAN

Fourth Respondents

CORAM:Drummond J

DATE:10 February 1997

PLACE:Brisbane

REASONS FOR JUDGMENT

This is an application on behalf of the Official Trustee, as trustee of the property of Allen John Lever, for an order under s 109(10) the Bankruptcy Act 1966 (Cth) to the effect that the second, third and fourth respondents be given priority in the distribution of the assets of the bankrupt realised by the trustee.

The trustee was concerned about the renouncement by the bankrupt of his interest in the estate of his father in favour of other beneficiaries, notably his brothers.  The Official Trustee proceeded to have various members of the bankrupt's family examined.  He did this with the assistance of funds totalling $2,000, $1,305 of which was provided by the present second respondents, almost all the balance being provided, roughly equally, by National Mutual Life Association and LA Farry Pty Ltd, two other creditors of the bankrupt.

On the basis of information obtained in the examination, the Official Trustee formed the view that the bankrupt’s renouncement was likely to be void as against him pursuant to either s 120 or s 121 the Bankruptcy Act.  He therefore invited creditors of the estate to contribute to the costs of voidance proceedings.  He had in mind to secure for the benefit of the creditors an amount equal to the bankrupt's interest in the estate which he had renounced.  Only three creditors responded:  the present second respondents, who have proved for a little over $80,000; Mr and Mrs Stephan, the present fourth respondents, who have proved for about the same sum; and Esanda Finance Ltd, which has proved for about $50,000.  The total amount of debts admitted to proof is nearly $530,000. 

The response of the second, third and fourth respondents to the trustee's request for assistance to fund the action he contemplated bringing was that each provided an indemnity, pro rata in amount to the amount of each’s debt admitted to proof.  The second respondents provided the trustee with an indemnity of approximately $5,200; the third respondent an indemnity of approximately $3,300; and the fourth respondents with an indemnity to the extent of approximately $5,200.

Advice was taken by the trustee, after receiving these promises of indemnity, from counsel, who advised that there were good prospects of recovery, although it is fair to say the advice was a cautious one reached after detailed consideration of the facts then available.  While expressing the view that a good case was available by the trustees, it could not by any means be said that counsel was of the view that the litigation would be risk free.  Action was commenced; the application was set down for hearing and practically on the eve of the hearing a settlement was reached.  The trustee never had to call on the respondents to make good their offers of indemnity.

The Official Trustee has now sold the bankrupt's interest in the estate for an amount of approximately $140,000 and there will be, he estimates, approximately $90,000 available for distribution to creditors, after allowing for the Official Trustee's costs of the sale and for his remuneration and costs and expenses of the administration.

It seems to me that, given their action in being prepared to provide the trustee with costs indemnities, without which the trustee says he would not have issued proceedings and would not, in consequence, have recovered the sum of approximately $90,000 net, which is now available for distribution to creditors, they should have some recognition for the part they played in procuring this substantial sum for the benefit of the bankruptcy administration by being accorded priority in respect of distribution of the net proceeds of realisation.  They ran a real risk that their indemnities would yield nothing, but were prepared to support the trustee in the way they did.

It has been suggested by the solicitor appearing on behalf of the Official Trustee that it would be appropriate recognition, in all the circumstances of this case, that one half of the net proceeds realised by the Official Trustee in the administration of the estate be set aside and that the second, third and fourth respondents share rateably according to their debts in that moiety of the proceeds and that they, with the other creditors, share rateably in the other moity of the proceeds of realisation.

That seems to me, in the circumstances of this case, to be an appropriate approach, in order to give due recognition to the respondents who offered the trustee indemnities which were instrumental in producing a fund for distribution.  The trustee points out that there are no other assets of the bankrupt that have been realised so that, in effect, the risk run by the indemnifying creditors has resulted in there being a substantial sum for distribution to creditors when there would not otherwise have been any distribution.

I will make the following orders: 

(1)Pursuant to s 109 (10) the Bankruptcy Act 1966 (Cth) the applicant set aside one half of the funds available for distribution to creditors for distribution amongst the second, third and fourth respondents rateably according to their debts admitted to proof; 

(2)The applicant distribute the remaining funds in the estate available for distribution amongst all the creditors in the estate, including the second, third and fourth respondents for the balance of their claims; 

(3)The costs of and incidental to this application be costs of the Official Trustee in Bankruptcy in the administration of the estate.

I certify that this and the preceding four
pages are a true copy of the reasons
for judgment herein of the Honourable
Justice Drummond.

Associate:

Date:  10 February 1997