Re Slaven and Kazar (Trustees in Bankruptcy)

[2019] FCCA 2733

FEDERAL CIRCUIT COURT OF AUSTRALIA

RE SLAVEN AND KAZAR (TRUSTEES IN BANKRUPTCY) [2019] FCCA 2733

Catchwords:
BANKRUPTCY – The applicants are trustees of several different bankrupt estates – registered trustees in bankruptcy – impractical to be joint trustees – administration of the estates – proposal for formal division of bankrupt estates – dispense with service – matter allowed to proceed without service – trustees will bear their own costs for application – no reason to refuse to accept resignations of trustees – application allowed.

Legislation:

Bankruptcy Act 1966 (Cth), s.180, Sch.2, 90-15(1)

Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), r.8.02(4)(b)

Federal Circuit Rules 2001 (Cth) r.1.06, 16.05

Cases cited:

Condon v Watson [2009] FCA 11

Nixon (Trustee) [2018] FCA 720

In the matter of Shanahan [2014] FCA 1080

First Applicant: MICHAEL EDWARD SLAVEN

Second Applicant: HENRY KAZAR

File Number: MLG 2365 of 2019

Judgment of: Judge Riethmuller

Hearing date: 23 July 2019

Date of Last Submission: 23 July 2019

Delivered at: Melbourne

Delivered on: 23 July 2019

REPRESENTATION

Solicitors for the Applicants: CLH Lawyers

ORDERS

1. Pursuant to rule 1.06 of the Federal Circuit Rules 2001 (Cth) (‘the Rules’) compliance with the requirements of rule 8.02(4)(b) of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (‘the Bankruptcy Rules’) be dispensed with.

2. Pursuant to section 180 and Schedule 2, 90-15(1) of the Bankruptcy Act 1966 (Cth) (‘the Act’):

   (a)The resignation of Henry Kazar (‘the Second Applicant’) as Joint and Several Trustee of the estates in Schedule 1 be accepted, effective from 29 March 2019; and

   (b)From the acceptance of the Second Applicant's resignation, Michael Slaven (‘the First Applicant’) be the sole trustee of the estate and be entitled to act as such.

3. In respect to each of the estates set out in Schedule 2 of this Application:

   (a)Pursuant to Rule 1.06 of the Rules compliance with the requirements of Rule 8.02(4)(b) of the Bankruptcy Rules be dispensed with.

   (b)Pursuant to Section 180 and Schedule 2, 90-15(1), of the Act:

   (i)The resignation of the First Applicant as Joint and Several Trustee of the estates in Schedule 2 be accepted, effective from 29 March 2019; and

   (ii)From the acceptance of the First Applicant's resignation, Henry Kazar be the sole trustee of the estate and be entitled to act as such.

4. The trustees bear the costs of this application personally.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 2365 of 2019

MICHAEL EDWARD SLAVEN

First Applicant

And

HENRY KAZAR

Second Applicant

REASONS FOR JUDGMENT

1. The applicants are the trustees of several different bankrupt estates. The applicants came to be the joint trustees of each of the estates in their roles as partners of ‘Ernst & Young’, a major accounting firm. On 29 March 2019, the first applicant, Mr Slaven, resigned from the company, effective that day. He then entered into a partnership agreement with members of the firm ‘Slaven Torline’, an accounting firm specialising in insolvency. The second applicant remains a partner of Ernst & Young.

2. Both applicants were, and continue to be, registered trustees in bankruptcy. It is obviously now impractical for them to be joint trustees of the various bankrupt estates, given that they are working in different accounting firms. I note that it is not impossible for them to continue as joint trustees, however, the expense involved in them working as joint trustees from two different firms would be out of all proportion to the work to be carried out. In the circumstances, it is apparent that steps need to be taken to rationalise the administration of the estates.

3. The applicants propose a formal division of the bankrupt estates, whereby the estates set out in Schedule 1 will continue to be administered by Mr Slaven, with respect to which Mr Kazar proposes to resign as joint trustee. The converse applies with respect to the estates set out in Schedule 2 to the application, which it is proposed will remain with Mr Kazar, and from which Mr Kazar will resign as a joint trustee.

4. Section 180 of the Bankruptcy Act 1966 (Cth) (‘the Act’) makes provision for the court to accept a resignation of a registered trustee from the office of trustee of an estate, providing:

   Resignation of trustee

   The Court may, subject to such terms and conditions as it thinks just, accept the resignation of a registered trustee from the office of trustee of an estate.

5. Rule 8.02(4) of the Federal Court (Bankruptcy Rules) 2016 (Cth) (‘Bankruptcy Rules’) provides for service of such an application on the Official Receiver, the bankrupt and anyone else, including creditors, that may be so ordered by the Court.  The Court has power to dispense with this rule. At the time of making the application, the trustees had not served the application upon the bankrupts or creditors involved, although had notified the official receiver (the Australian Financial Securities Authority), who has confirmed in writing that the Inspector-General in Bankruptcy has no objection to the separation of the joint appointments in the manner proposed.

6. The applicants point out that the cost of serving 70 different bankrupts, and the numerous creditors involved in each estate, would be considerable and ask that the Court exercise the discretion under rule 8.02 of the Bankruptcy Rules to dispense with service on the bankrupts and creditors, in the particular circumstances of this case. Such dispensation has been granted on a number of occasions in the past: for example see, In the matter of Shanahan [2014] FCA 1080, Nixon (Trustee) [2018] FCA 720, and Condon v Watson [2009] FCA 11.

7. There are a number of relevant considerations that must be borne in mind in determining whether or not to dispense with service in the circumstances of this case. The more significant considerations are:

   a)that there will be considerable cost if all of the bankrupts and creditors must be served, costs which will inevitably be borne by the estates in each case, effectively reducing the prospects of the creditors receiving a return (or the amount of the return);

   b)that this case does not involve the substitution of a different trustee, merely the approval of the resignation of one of two joint trustees, so as to enable a trustee familiar with the case to continue with the administration; 

   c)it remains open to any of the creditors or the bankrupts to apply to the court to have the remaining trustee removed if there is some proper basis for such an application;

   d)whilst there are possibly some basis for proper objection to the course, it is difficult to conceive of what basis would be available; 

   e)if there were a proper basis for opposing this course or seeking the removal of a trustee, an application can be subsequently made by the creditors or bankrupt in a given estate, and such application can be brought on the basis that these orders were made in the absence of the aggrieved person under rule 16.05 of the Federal Circuit Court Rules 2001 (Cth);

   f)the effect of the Orders is largely administrative, relating to the administration of the estate, and in a form simply seeking the Court’s approval before the steps are to be taken; and finally

   g)it would require most unusual circumstances for a Court to force a trustee to continue to administer an estate when the trustee had chosen to resign.

8. Bearing all of these matters in mind, I am persuaded that it is an appropriate exercise of the discretion to allow the matter to proceed without service upon the bankrupts or the creditors but only with service upon the Official Receiver, the consent of whom has been obtained to the application.

9. I note that the trustees will bear their own costs in respect of this application, as it has been brought about by a change in their business arrangements and therefore is not a cost that should be borne by the various estates.

Conclusion

1. In the circumstances of the case, I see no reason why it is inappropriate that one of the two trustees in each of the estates should be permitted to resign. To refuse to accept the resignations would cause considerable expense to the estates for no apparent benefit. Indeed, the practical reality is that, from time to time, trustees move from one firm to another, fall ill, or retire, showing the good sense in appointing joint trustees as a general practice, so that, when these eventualities occur, a trustee can resign and a joint trustee familiar with the matter continue to administer the estate in the most efficient mode possible.

2. In the circumstances I am persuaded that it is appropriate to make the Orders sought.

I certify that the preceding eleven (11) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller

Associate:

Date: 25 September 2019