Re The Parties Named in the Schedule to the Application Ex Parte Rangott, W.B. and Sistrom, D.W

[1992] FCA 1045

Re: THE PARTIES NAMED IN THE SCHEDULE TO THE APPLICATION
Ex Parte: WILLIAM BALFOUR RANGOTT and DAVID WILLIAM SISTROM
No. NT 0915 of 1991
FED No. 1045
Number of pages - 10
Bankruptcy
(1992) 39 FCR 573

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
Einfeld J.(1)

CATCHWORDS

Bankruptcy - application by registered trustee in charge of large number of estates to resign because of ill health - Rule 66A states that preconditions to resignation being accepted are notifying the Official Receiver, bankrupts and creditors of intention to resign 3 days before hearing of application and providing a status report on realisation and distribution of the estates - whether these preconditions should be waived in public interest - resigning trustee wishes to appoint partner as replacement - whether Court can substitute trustee or whether Official Trustee must become trustee of the estates upon resignation of former trustee and call meetings of creditors - like resignation from Part X trusteeships - appropriate conditions for appointment of replacement trustee

Bankruptcy Act 1966 sections 159, 159(3), 160, 179(1)(b), 180, 220(1),(2),(4), rule 66A(1)(b), (c), (2)

Muir v. Bradley (1984-5) 57 ALR 155

HEARING

SYDNEY, 15 December 1992

#DATE 15:12:1992

For the applicants : Mr C Hogg of Counsel

instructed by Mr J Pappas, Attorney

For the Official Receiver: Mr M Murray

ORDER

The Court orders that

1. On the application under section 180 of the Bankruptcy Act for the Court to accept the resignation of David Sistrom as a registered trustee from the office of trustee of the estates in question:

(a) The provisions of rules 66A(1)(b) and (c) and 66A(2) as pre-requisites to the application for acceptance of the resignation are waived.

(b) The resignation of Mr Sistrom from the office of trustee of the various estates is accepted on the following conditions: i) that at the earliest possible time and in any event in not less than six weeks from the signing and sealing of these orders, the relevant bankrupts and creditors be notified by Mr Rangott of the resignation; ii) that they be further notified that they have general liberty to apply to the Court in respect of any objection to this order within 28 days of notification.

2. On the concomitant application for a replacement trustee, William Balfour Rangott is appointed as trustee of the estates concerned in place of Mr Sistrom.

3. There will be a general liberty to apply in case there is any disputation over the actual estates which had been entrusted to Mr Sistrom.

4. These orders are not to take effect until they are signed and sealed so that at the present time there is no vacancy in the office of trustee of these various estates.

5. With respect to the Part X arrangements, deeds or compositions of which Mr Sistrom has been the trustee, declare that following Mr Sistrom's resignation, there are vacancies in the offices of trustee therein. I appoint Mr Rangott to the vacant offices on conditions:

(a) that at the earliest possible time, and in any event in not less than six weeks from the signing and sealing of this order, Mr Rangott is to notify the relevant debtors and creditors under such arrangements, deeds or compositions of his appointment by the Court; and

(b) that they have liberty to object to this order within 28 days of notification.

Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules.

JUDGE1

EINFELD J. This application comes before the Court under section 180 of the Bankruptcy Act. David William Sistrom, a registered trustee, to whom has been entrusted a large number of bankrupt estates and Part X arrangements or deeds as set out in the evidence, asks the Court to accept his resignation from the office of trustee of all these estates and deeds on the grounds of his ill health, and to appoint his partner, William Balfour Rangott, in his stead. The evidence is that this will enable the firm of which both Mr Sistrom and Mr Rangott are members to continue the work of administering these estates and arrangements with the same or basically the same staff as has been operating on them up to now.

1. The firm of which both Mr Sistrom and Mr Rangott are members is described in evidence as a member of a network of specialist insolvency firms known as the Natsol Australia Group. I am informed that the network provides the firm with ready access to specialist insolvency practitioners, support staff and resources in other capital cities in Australia and in New Zealand and the United Kingdom. Mr Rangott is himself a registered trustee. Mr Sistrom retired from the firm under a deed dated 28 October 1992 under which the continuing partners, including Mr Rangott, agreed subject to the Court's approval that they would accept liability for the estates and presumably for the Part X arrangements and their continuing management.

2. The continuing partners of the firm have agreed that Mr Rangott should make or support the application to the Court for his appointment as trustee of the relevant estates and arrangements in lieu of Mr Sistrom, thereafter to have responsibility for the continuing management of the estates. Mr Rangott accordingly consents to being appointed as such trustee. The acting Official Receiver appears today by one of his officers on behalf of the Official Trustee to consent to and approve both the resignation of Mr Sistrom and the appointment of Mr Rangott. So far as reported law is concerned as it has been researched by those appearing in this proceeding, there seems to be no case directly on the duties and powers of the Court in these circumstances.

3. By section 180:
   

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.

By the operation of the Acts Interpretation Act, the singular may be taken as including the plural so that it is clear that the Court can accept Mr Sistrom's resignation from his various trusteeships. By rule 66A(1), there is provided that the lodgment of such an application must be served upon the Official Receiver, the bankrupt and any creditor whose name and address are known to the trustee. By subrule (2) the application must be accompanied by a statement in the scheduled form of the realisation and distribution of the estate by the trustee.

1. The rule provides some difficulties in a case such as this. If the various estates have been realised and distributed, it is not clear what the point is of notifying the bankrupts and the creditors. If the estates have not been realised and distributed, it would seem from Form 21 which sets out the way in which the retiring trustee is to report, that the intention of the rule was that the trustee is to report on any realisation or distribution that has taken place. In this type of case, the rule seems to be difficult to achieve. It would be impossible for a trustee resigning through ill health in the midst of his administrations to accompany his application for resignation with an exact statement of the status of realisation and distribution of the estates in his care and the prospects for future progress in those regards.

2. Moreover, although where estates have not been entirely administered, it would be appropriate for the bankrupts and creditors to be notified, in this particular case that would be, because of the number of outstanding estates, an arduous task as a prerequisite to the resignation. A trustee who is too ill to administer so many estates should not have to notify or wait for the notification of all bankrupts and creditors before being permitted to resign. Obviously such notifications would not only be expensive, they would hold up the administrations of the estates while they were being done. According to the rules, the application only has to be served three days before the hearing. Presumably because the requirement for notification could not be an end in itself, administrations might also have to abide objections or comments by bankrupts and creditors as to whether the resignation should be accepted.

3. It seems to me that rule 66A needs reconsideration at least for contexts such as the present. No public interest can be served by holding a trustee to his or her trusteeship at the cost and delay to creditors of notifications of such extent. Moreover, the provisions of section 180 permit the Court to accept the resignation on terms and conditions. Presumably one of the terms and conditions might be that bankrupts and creditors be notified within a reasonable time but the provisions of rule 66A would only require them to be notified of the application for resignation rather than, as it seems to me ought to be the case, the accepted resignation itself. If rule 66A is taken literally, creditors could only object to the resignation before it is accepted and nothing more.

4. In my opinion it is clearly appropriate that a trustee who applies to resign on the ground of proven ill health should have the resignation accepted expeditiously. The provisions of section 180 which permit terms and conditions should be used so as to ensure that there is no injustice wrought by the resignation, that the public interest continues to be served and that the interests of the creditors in particular and bankrupts/debtors as well should not be impeded or interfered with by the resignation. I therefore order that on the application under section 180 of the Bankruptcy Act for the Court to accept the resignation of David Sistrom as a registered trustee from the office of trustee of the estates in question:
   

(a) the provisions of rule 66A(1)(b) and (c) and (2) as pre-requisites to the application for acceptance of the resignation be waived; and

(b) the resignation of Mr Sistrom from the office of trustee of the various estates be accepted on the following conditions: i) that at the earliest possible time and in any event in not less than six weeks from the signing and sealing of this order, the relevant bankrupts and creditors be notified by Mr Rangott of the resignation;

ii) that they be further notified that they have general liberty to apply to the Court in respect of any objection to this order within 28 days of notification.

1. The second matter to be considered is the concomitant application for the appointment of Mr Rangott to take over as trustee. Division 1 of Part VIII of the Act includes a number of provisions concerning trustees and vacancies in that office. The very context of the sections seems to envisage that the vacancy will come about through something other than the circumstances that exist here. There is, of course, provision in section 179(1) for the Court to remove a trustee from office. Without going into the matter in any detail, the implication of that provision is that the trustee will be removed through some misconduct or for other appropriate cause other than the incident or accident of ill health or something else beyond the trustee's control.

2. In a case involving the use of the powers under section 179(1)(b) Justice Beaumont in Muir v. Bradley (1984-5) 57 ALR 155 said that that section was limited to orders made with respect to a trustee whose conduct was being inquired into. It did not enable an order to be made on the application of a trustee whose conduct is under inquiry, that he be removed from office voluntarily and that another named person be appointed in his stead.

3. This ruling was based on the provisions of sections 159 and 160 of the Act. Section 159 operates in the event of a vacancy in the office of a trustee to enable the creditors in meeting to fill such a vacancy, the Official Receiver being empowered on the requisition of a creditor to summon a meeting for this purpose. By section 159(3) it is provided that "for the purposes of this section" an office of trustee shall be deemed to be vacant notwithstanding that it is for the time being filled by the Official Trustee by reason of the operation of section 160".

4. Section 160 makes provision that where there is no registered trustee who is the trustee of the estate of the bankrupt, the Official Trustee shall "by force of the section" be the trustee of the estate. Thus, in the event that there is a vacancy and pending the appointment of any new trustee by a meeting of creditors, the Official Trustee becomes the trustee of the estate.

5. If those provisions were appropriate and were applied in this particular case, it would mean that public funds would have to be applied, at least in those estates where there are no or inadequate funds, for the purpose of calling large numbers of meetings of creditors to secure what is in the overwhelming majority of cases highly likely if not certain to be their formal agreement to the appointment of Mr Rangott to take over the administrations of the estates from the office of the Official Trustee. There can, so far as I can see, be no public interest at all served by such a procedure, in a case where the Official Trustee appears before the Court to consent to or at least not to object to the appointment of Mr Rangott to replace Mr Sistrom.

6. Justice Beaumont in Muir held at 157 that in the context sections 159 and 60 when read together "constitute a code in this area". His Honour said:
   

These provisions were I think intended to govern exhaustively the point which has now arisen. Upon the office of trustee being vacated, unless the creditors at a general meeting otherwise resolve, the Official Trustee becomes the trustee subject to the possible operation of section 159(3).

As in the end his Honour accepted the application for the removal of the trustee under section 179, the observations concerning sections 159 and 160 were obiter, especially so far as concerns an application under section 180. His Honour was in fact careful to suggest that the code applied to a removal under section 179 and not to a resignation under section 180. He seems to have thought, as I think, that it would have no application to a case under section 180.

1. It is understandable as a matter of principle why a person removed for misconduct or other voluntary act ought not to be able to nominate a successor. It is less easy to see how such considerations would apply in the case of a person retiring from office due to ill health who wishes to nominate as successor a trusted partner who can have the benefit of the knowledge and expertise that has been built up in the same firm. In any event, the order I have foreshadowed under section 180 will not take effect until it is signed and sealed. Thus at the present time there is as yet no vacancy in the office of registered trustee of these various estates. I do not think that where there is an instantaneous substitution of one trustee for another, there is a true vacancy within the meaning of sections 159 and 160.

2. The Act does not expressly permit the Court to appoint a person to succeed a trustee whose resignation for ill health has been accepted but it seems to me to be implied in the structure which has been set up by the statute. I have said that rule 66A appears to need amendment. It also seems that the Act needs amendment to distinguish between cases where a person resigns in circumstances such as the present from those in which the person is removed by order of the Court after a hearing on evidence.

3. I appoint William Balfour Rangott as trustee of the estates concerned in place of Mr Sistrom. There will be a general liberty to apply in case there is any disputation over the actual estates which have thus been entrusted to Mr Rangott. All the creditors and bankrupts are to be informed and given the opportunity of making any objection within 28 days of notification.

4. None of these orders are to take effect until they are signed and sealed so that at the present time there is no vacancy in the office of trustee of these various estates.

5. That leaves to be determined the situation concerning the Part X arrangements, deeds or compositions of which Mr Sistrom has hitherto been the trustee. This is subject to clearer statutory provision. Subsection (1) of section 220 provides:
   

Where a vacancy occurs in the office of the trustee of a deed of assignment or a deed of arrangement entered into in pursuance of this Part or of a composition accepted under this Part, a meeting of creditors called for the purpose may, by resolution, appoint a registered trustee to the vacant office.

Subsection (2) provides:

Where, at any time, a vacancy exists in an office of trustee of such a deed of assignment or deed of arrangement or of such a composition, the Court may, on the report of the Registrar or on the application of the debtor, a creditor or an Official Receiver -

(a) appoint to the vacant office a registered trustee who is willing to accept the

appointment; or

(b) appoint the Official Trustee or a registered trustee who is willing so to act, to act as trustee until the vacant office is filled by a meeting of creditors

By subsection (4):

The appointment of a registered trustee to a vacant office of trustee by the Court shall be deemed to have taken effect as from the date on which the vacancy in the office occurred.

1. Hence, as soon as Mr Sistrom's resignation takes effect, the appointment of a successor may be arranged so as to take effect immediately. Accordingly, with respect to the Part X arrangements, deeds or compositions of which Mr Sistrom has hitherto been the trustee, I declare that following Mr Sistrom's resignation, there are vacancies in the office of trustee. I appoint Mr Rangott to the vacant offices on conditions that:
   

(a) at the earliest possible time, and in any event in not less than six weeks from the signing and sealing of this order, Mr Rangott is to notify the relevant debtors and creditors under such deeds or compositions of his appointment by the Court; and

(b) that they be further notified that they have general liberty to apply to the Court in respect of any objection to this order within 28 days of notification.