Re Strachan, G.F.

[1991] FCA 849

BANKRUPTCY - administration of deceased estate - application by the Official Trustee in Bankruptcy for directions - whether certain debts are trade debts or estate debts - priority of trade debtors as against estate debtors.

Bankruntcv Act 1966 - s 134(4)

Bankruptcy Rules - r 90(f)

Ee Ruffy (1956) 18 ABC 8Q

REOlBTRY

R y Y FIN Y TRA IN

BANKRUPTCY

FOSTER J

28 OCTOBER 1991

SYDNEY

3 0 DEC 1991

PRINCIPAL

IN THE FEDERAL COURT OF AUSTRALIA	)
)
NEW SOUTH WALES DISTRICT REGISTRY )	No. NB 404 of 1989

)

GENERAL DIVISION 1

RE: GRAY FINDLAY STRACHAN

Deceased

EX PARTE: THE OFFICIAL TRUSTEE IN BANKRUPTCY

Respondent

C O M :	FOSTER J
DATE :	28 OCTOBER 1991
PLACE :	SYDNEY

MINUTE OF ORDERS

In relation to the applicant's application for directions of

14 June 1991:

- the Court directs the following answers to the

questions enumerated therein:

1.    answer no longer sought

2.    answer no longer sought

3.   yes

5. yes

6. no longer relevant

7.    yes, insofar as the debts were incurred by the deceased prior to the date of his death

8.    yes, insofar as the debts were incurred by the executors of the deceased in carrying on his business after his death.

-	the Court orders that the costs of this application, including reserved costs, be paid out of the estate.
-:	Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA	)
1
NEW SOUTH WALES DISTRICT REGISTRY )	NO. NB 404 of 1989

)

GENERAL DIVISION )

RE: GRAY FINDLAY STRACHAN

Deceased

EX PARTE: THE OFFICIAL TRUSTEE IN BANKRUPTCY

Applicant

CORAn:	FOSTER J
DATE :	28 OCTOBER 1991
PLACE :	SYDNEY

REASONS FOR JUDGMENT
Extempore

HIS HONOUR: This estate is being administered in bankruptcy as a result of an order of the Court made on 15 March 1989. The deceased, Gray Findlay Strachan, died on 11 March 1988. In his life time he had carried on the business known as

transport by buses. He left a will under which two persons,	"A & S Transport" along with certain businesses involving
John Wilson and Janet Lake were appointed as his executors and trustees. Those persons carried on the deceased's business after his death until 30 September 1988. At that time the business ceased trading, it having become obvious to the executors and their professional advisers that the business was insolvent.
AS a result of that realisation, a petition was presented to the Court by the executors upon which the order to which I have already made reference was made. Problems having arisen in the administration of the estate in bankruptcy, the Official Trustee made application to the Court for certain directions in an application dated 14 June 1991. This application was supported by the affidavit of James Bradley Brown which set out matters relevant to the estate and to the problems which had arisen.
As the directions sought in the application involved considerations of possible personal liability of the executors in relation to their operation of the business after the death of the deceased and up to the period when the business ceased trading, the matter was stood over so that they could direct any evidence they wished to put before the Court to the resolution of that question. The evidence that they have placed before the court is accepted by the Official Trustee as satisfactorily establishing that the operations and
transactions entered into by the executors after the death of the deceased were properly done for the purpose of carrying on
the business with a view to it being would up in a reasonable manner. That being so, a number of the difficulties otherwise attendant upon the application for directions have disappeared.
It was also considered at the commencement of this application that matters arising in respect of the first two

questions asked could be of significance in the administration of the estate. Those questions were directed to the timing of commencement of the administration; specifically, did it commence on the date of the deceased's death, 11 March 1988, or at the date upon which the petition for an order for administration of the estate in bankruptcy was presented, 15 March 1989. It was considered that the selection of one or the other date would be of significance in categorising certain debts as either estate debts, being debts incurred prior to the death of the deceased, or trade debts, being debts occurring after that time, but as a result of the operation of the deceased's businesses by the executors.

The Court is no longer asked to provide answers to these questions, it having been decided that the matter is the subject of provision in r 90(f) of the Bankruptcy Rules. It has also considered, correctly in my view, that the categorisation of the relevant debts into estate or trade debts is adequately made by determining whether the debts were

whether in fact the debts were incurred by the deceased in the	incurred by the executors in the conduct of the business or
conduct of the business prior to his death. The categorisation of the debts in this way is a simple question of fact which can be undertaken by the trustee without any assistance from the Court.
I turn then to the questions that remain to be answered. Questions 3 and 4 are in fact answered by the concession that is made in these proceedings based upon the affidavit evidence which has now been placed before the court. As to question 3 which asks whether the executors carried on the deceased's business after his death for the purpose of winding up that business, that question as a result of the evidence to which I have referred must be answered "yes".
As to the fourth question, there is no suggestion made in the proceedings that the executors carried on the deceased's business in any way on their own behalf or in their own interests. Accordingly, that question will be answered "no".
Question 5 seeks guidance as to the priority of trade creditors over estate creditors. As I have already ind~cated, the categorisation of these creditors is a task to be performed by the trustee and in respect of which no guidance is sought from the Court. Insofar as the question of pr~ority is concerned, however, I am satisfied that that is
determined by the application of the case Re Ruffv (1956) 18
ABC 80. The relevant principle is stated at page 83 in the
judgment of Kline J as follows:

"In my opinion the widow in carrying on this business had a right of indemnity out of the assets of the deceased and the creditors whose debts were contracted by her in carrying on this business are entitled to stand in her place and thus accordingly to be paid in priority to the creditors whose debts were contracted by the deceased."

The application of that principle in the present case necessarily produces the result that the creditors described as trade creditors have priority over the estate creditors whose debts were incurred by the deceased prior to his death.

As to question 6, in view of the answer given to question 4, this question does not arise.

As to questions 7 and 8, the only answer that the Court can return after full discussion of the matter in the context of the material placed before it and the submissions made by counsel appearing on behalf of the Official Trustee is

as follows: question 7 - yes, insofar as the debts were

incurred by the deceased prior to the date of his death;

question 8 - yes, insofar as the debts were incurred by the

executors of the deceased in carrylng on his business after

his death.

I order that the costs of this application, including reserved costs, be paid out of the estate.

I certify that this and the preceding

copy of the

reasons herein of the

Associate: /- Date: ~~FCTOBER 1991

A P P E A R A N C E S

COUNSEL FOR THE OFFICIAL TRUSTEE: R.D. WILSON

INSTRUCTED BY:	LOBBAN McNAJJLY & HARNEY
DATE OF HEARINGS	28 OCTOBER 1991
DATE OF JUDGMENT:	28 OCTOBER 1991