Re Power, Janette Mary & Anor v Ex Parte Melcal Pty Ltd t/as Melco Timber & Hardware

[1996] FCA 840

IN THE FEDERAL COURT OF AUSTRALIA                 No. QP 457 of 1996
GENERAL DIVISION  
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND

RE:JANETTE MARY POWER and

JOHN LAING WOOD

Debtors

EX PARTE:MELCAL PTY LTD (ACN 055 063 057)

trading as MELCO TIMBER & HARDWARE

Creditor

MINUTES OF ORDERS

JUDGE MAKING ORDER:  Drummond J
DATE OF ORDER:  16 September 1996
WHERE MADE:  Brisbane

THE COURT DIRECTS THAT:

1.  The District Registrar not accept debtors’ petitions numbered QP 551/96 and QP 552/96.

THE COURT ORDERS THAT:

2.  A sequestration order be made against the estates of the debtors.

3.  Jay Arscott Stevenson and Phillip Gregory Jefferson be the trustees in bankruptcy of each of the debtors.

4.        The petitioning creditor’s costs of and incidental to the petition in this

matter be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

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

IN THE FEDERAL COURT OF AUSTRALIA                 No. QP 457 of 1996
GENERAL DIVISION  
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND

RE:JANETTE MARY POWER and

JOHN LAING WOOD

Debtors

EX PARTE:MELCAL PTY LTD (ACN 055 063 057)

trading as MELCO TIMBER & HARDWARE

Creditor

CORAM:Drummond J

DATE:16 September 1996

PLACE:Brisbane

REASONS FOR JUDGMENT

I have before me a creditor’s petition founded on allegations that each debtor committed an act of bankruptcy by signing an authority under s 188 of the Bankruptcy Act 1966 (Cth). It appears each authority was defective for want of proper attestation: see s 188(2). However, on the authority of Re Donovan (1972) 20 FLR 50, I accept that each debtor committed the act of bankruptcy relied on.

The creditor’s petition was presented on 15 July last.  Each debtor subsequently presented their own petition on 16 August.  The substantial issue is whether Mr Clout, the creditor’s nominee, or the person nominated by the debtors
should be the trustee in charge of the bankruptcies of the debtors, which will commence as from today.

The circumstances in which this dispute has arisen are somewhat unusual.  The background to the bankruptcies is the failure of a company, Aspen Homes, which was involved in the building industry.  This company was, in essence, an incorporated partnership between Mr and Mrs Gehrig, on the one hand, and the debtors, on the other.  At the instigation of the accountant to Aspen Homes, a Mr Horne, Mr Clout was appointed administrator of the company in early May.  The debtors agreed to his appointment.  His administration, however, has not been without controversy.

Complaints by the debtors at the way Mr Clout handled the administration are well documented in evidence in detailed written complaints by the debtors to Mr Clout since late May.  The accountant, Mr Horne, supports in a number of respects their professed concerns at Mr Clout's administration of the company's affairs.  The complaints made include a lack of proper care in realising company assets to the detriment of the debtors and the creditors of Aspen Homes.  This is an attitude which, if exhibited by a trustee in bankruptcy, would involve him in breach of his duties to creditors and the bankrupt.

Complaints also include allegations of partiality to the Gehrigs, which has resulted, so it is said, in Mr Clout failing in his duties to the company, the debtors and creditors of the company to pursue the Gehrigs for assets allegedly
misappropriated from the company by them.  This is another allegation which goes to Mr Clout's fitness to act as trustee in the bankruptcy.  The second complaint of unfitness takes on added significance since it is common ground that Mr Clout is already trustee in the Gehrigs’ bankruptcies.

Although serious allegations as to Mr Clout's unfitness to act as the debtors’ trustee have been raised, albeit at the last moment, the petitioning creditor’s solicitor did not seek an adjournment to have an opportunity to put evidence before the Court on behalf of the creditor demonstrating the lack of substance in what are now the unanswered allegations of the debtors and their accountant, Mr Horne, against Mr Clout.

Given that the allegations going to Mr Clout's fitness are unanswered and given that they have a history that includes documentary evidence of their having been made to Mr Clout, not only by the debtors but also by the accountant, who appears to be in a position of some independence from the debtors, I am not prepared to appoint Mr Clout trustee if a sequestration order is made on the creditor’s petition.  It seems to me that, given that history as shown by the evidentiary material before me, it is highly likely that, if Mr Clout were to be appointed trustee in the debtors’ bankruptcies, that administration would be characterised by expensive disputes as to his administration which could only be to the detriment of the creditors.  I also observe that I am by no means persuaded that there is no possibility of conflict of interest arising if Mr Clout were to administer the debtors’ bankruptcies, as well as the Gehrigs’ bankruptcies.

It was pointed out that the major creditor of each of the debtors is the petitioning creditor.  But given the history I have referred to, I do not think that is a consideration sufficient to outweigh the others I have mentioned, which have led me to the conclusion that Mr Clout should not be appointed to administer these particular bankruptcies.

In reaching this conclusion it is necessary to state explicitly that I make no finding as to Mr Clout's fitness to act as trustee in the instant bankruptcies.  I have only allegations against him which, although unanswered, he personally has had no real opportunity to deal with.  The creditor has the conduct of the proceedings.  Although it has pressed for Mr Clout's appointment, an inference plainly open from the creditor’s decision not to seek an adjournment to deal with the allegations so lately made against Mr Clout is that it is concerned with keeping its own costs of bankrupting the debtors to a minimum and not so much with vindicating Mr Clout.  It would do a serious injustice to Mr Clout if I were to express any findings adverse to him and I make no such findings.

The question now arises:  should the inevitable bankruptcy of the debtors be on their own petitions or on the creditor’s petition?  The creditor’s petition was filed a month before the debtors’.  In theory that can have an impact on the returns ultimately found to be available to creditors.  The petitioning creditor, albeit with reluctance, produced authorities obtained in the course of the hearing from alternative trustees, Mr Stevenson and Mr Jefferson, who are accountants unconnected with Mr
Clout.  Mr Wood, on his own behalf and I gather on behalf of Ms Power, sought to assert that there were good reasons why neither gentleman should be a trustee.

However, there is no evidence at all bearing upon the question of whether it is inappropriate to make them trustees, if a sequestration order is made on the creditor’s position.  Their situation stands in sharp contrast to that of Mr Clout.  In relation to him, I have summarised the evidence before me bearing upon the appropriateness of his being appointed to administer the bankruptcies.

Given the possibility, albeit theoretical, that one month may make a difference to returns to creditors, if the bankruptcy proceeds on the creditor’s petition rather than the debtors’ petition, I propose to direct that the District Registrar not accept the debtors’ petitions and I will make a sequestration order on the creditor’s petition and I will appoint Mr Jay Arscott Stevenson and Mr Philip Gregory Jefferson to be trustees in each bankruptcy.

Taking into account the fact that the material upon which the debtors relied successfully to lead me to the view that Mr Clout should not be appointed trustee in their bankruptcies was only delivered this morning in the course of the hearing, I consider that there should be a costs order in terms of paragraph 3 of the draft.

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:  16 September 1996