Re Tummon, N.E.J v Ex parte Official Trustee in Bankruptcy

[1994] FCA 224

PO BOX 84. BRISBANE ROMA ST 4003

2 2 9 , S v .

JUDGMENT NO. ........ ........ .. ........ cut

IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	1

NO. QB 405 of 1986

BANKRUPTCY DISTRICT OF THE	1
STATE OF OUEENSLAND	1

RE:  NEVILLE ERNEST JAMES TUMMON

EX PARTE: OFFICIAL TRUSTEE IN BANKRUPTCY

Applicant

AND :  NEVILLE ERNEST JAMES TUMMON

First Res~ondent

AND :  AUSTRALIAN GUARANTEE CORPORATION LTD

Second Respondent

AND:  MARAC FINANCE AUSTRALIA LTD

Third Respondent

MINUTES OF ORDER

JUDGE MAKING ORDER:	Spender J.
DATE OF ORDER:	21 April 1994
WHERE MADE:	Brisbane
THE COURT ORDERS THAT:

1.  The sum of twelve thousand five hundred dollars

($12,500.00) be paid to Australian Guarantee Corporation

Ltd from the funds held by the Official Trustee in
Bankruptcy.

2.  A sum of twelve thousand five hundred dollars

($12,500.00) be paid to Marac Finance Limited from funds

held by the Official Trustee in Bankruptcy.

3.   The claims by the companies referred to in orders 1 and

2 be reduced by a like amount.

4.   The balance of monies held or to be held by the Official Trustee in Bankruptcy be distributed firstly in payment of costs and expenses of the administration and the fees and remuneration of the Official Trustee in Bankruptcy.

5 .   The balance of monies thereafter be distributed pro rata to the creditors in the estate, including the reduced amounts of the creditors referred to in orders 1 and 2.

6.  That the costs of this application be costs of the Official Trustee in Bankruptcy in the administration.

NOTE:	Settlement and entry of orders is dealt with in r. 124
of the Bankru~tcv  Rules.
IN THE FEDERAL COURT OF AUSTRALIA	1
GENERAL DIVISION	1  No. QB 405 of 1986
BANKRUPTCY DISTRICT OF THE STATE OF OUEENSLAND

RE:  NEVILLE ERNEST JAMES TUMMON

EX PARTE: OFFICIAL TRUSTEE IN BANKRUPTCY

Applicant

AND :  NEVILLE ERNEST JAMES TUMMON

First Respondent

AND :	AUSTRALIAN GUARANTEE CORPORATION LTD Second Respondent
AND :	MARAC FINANCE AUSTRALIA LTD

Third Respondent

-:	Spender J.
PLACE :	Brisbane

m: 21 April 1994

REASONS FOR JUDGMENT

This is an application filed 7 April 1994 on behalf of

the Official Trustee in Bankruptcy, who is the trustee of the

became bankrupt on 19 May 1986 when a sequestration order was	property of Neville Ernest James Tummon ('the bankrupt') who
made.
The application by the Official Trustee is for such orders pursuant to S. 109(10) of the Bankru~tcv Act 1966 ('the Act') as the court thinks just and equitable as to the distribution of proceeds of property recovered by the Official Trustee pursuant to an indemnity provided by Australian Guarantee Corporation Ltd ('AGC') and Marac Finance Australia Limited. The

Official Trustee also seeks an order that the costs of this application be taxed and paid out of the estate of the bankrupt.

Section 109(10) provides:

" Where in any bankruptcy:

fa)	property has been recovered, realized or preserved under an indemnity for costs of litigation given by a creditor or creditors; or
fb)	expenses in relation to which a creditor has, or creditors have, indemnified a trustee have been recovered;

the Court may, upon the application of the trustee or a creditor, make such orders as it thinks just and equitable with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving the indemnifying creditor or creditors, as the case may be, an advantage over others in consideration of the risk assumed by creditor or creditors. "

Mr Tummon claimed in his statement of affairs that he had had some connection with a company, Tummon Investments

Proprietary Limited ('Tummon Investments'). A search on behalf

of the Official Trustee showed that of a total issued capital of

share. That company was the registered proprietor, free of	400 shares, Mr Tummon held 399 and his former wife the other
encumbrance, of a house property situated at Carseldine in Brisbane.
There were claims by the bankrupt that he had disposed of most, if not all, of his shares in having transferred some of them to his wife absolutely, and some to hls wife on trust for their son. This claim was doubted by the Official Trustee.

A meeting of creditors was arranged to discuss, inter alia, the question of provision of an indemnity for the costs of the Official Trustee in pursuing the entitlement of the estate in respect of the shares of Tummon Investments. A quorum did not attend that meeting and subsequent to that, the Trustee approached the two largest creditors of Mr Tummon.

As a result of those approaches, Marac agreed to contribute the sum of $3000.00 towards costs, and agreed to indemnify the Official Trustee for any costs which may be awarded against it. The sum in fact was never called upon. AGC did not execute an indemnity. However, it submitted a sum of $2500.00 in respect of costs. A specific indemnity was sought from that company but no response was received.

In the light of what had been offered by these companies, the Official Trustee made an application to the Federal Court on 15 May 1992 and a consent order was made on 27 July 1992 declaring that the property belonged to the Trustee.

Subsequently, Mr Jefferson, as liquidator of that company, took possession of the house and which has now been sold by the liquidator who has made one distribution totalling $90,000.00 to the Official Trustee, and in addition has advised that a final distribution of approximately $19,000.00 will be released to the Official Trustee when a final tax clearance in respect of the company is received. It is anticipated that this final distribution will be received about the middle of 1994.

It is anticipated that from the funds received from the liquidator, the Trustee's legal expenses of $16,738.07, petitioning creditors taxed costs of $875.70, the official fees under r. 181 of $2875.00, and the Official Trustee's fees under r. 122 of $14,629.00 have to be met, leaving a balance held of the $90,000.00 of $54,882.00.

The creditors admitted to prove in the estate of Mr

Tummon are:

Australian Guarantee Corporation Ltd 60,376.00

Marac Finance australia Ltd	31,660.00
N R Barbi	7,550.00
P S Churven	11,177.00
Westpac Banking Corporation	554.00

The present application seeks orders to provide the
indemnifying creditors with a benefit over and above what they

would ordinarily share in the distribution of the estate. In

whom service was required until, in the case of the creditors,	this case, the application was not served on all the persons on
14 April, less than the 8 days required under r. 104(l) (b); and on the bankrupt, not until 19 April.
Having regard to the nature of the application, no injustice in my opinion will be caused to the bankrupt by the late service, and in respect of the late service on the creditors, a response to the court has been placed before it by counsel for the Official Trustee. They can be said not to be particularly happy as to the nature of the application, and in
particular Churven and Company express disappointment that they were not given the opportunity to join the other creditors in respect of providing an indemnity as to costs of the action against the bankrupt.
The view of Churven and Company is indicated in the penultimate paragraph of the letter of 20 April 1994 to the solicitors for the trustee which states:

" We will not be appearing on the above applications. We confirm our previous advice that this matter should be finalised as soon as possible without further expense. We ask that our position be placed before the court for

consideration . "

In all the circumstances, it seems to me that in respect of the short service I ought make orders pursuant to r. 195(2) (b) and relieve the Official Trustee of the consequences of non- compliance with the rules as to time of service.

As to what is just and equitable in the circumstances that have occurred, Marac provided a written indemnity and provided for the costs of the Official Trustee to the extent of $3000.00 in respect of its debt of $31,660.00. AGC provided $2,500.00 for a debt of $60,376.00, but they did not provide a written indemnity.

I have acknowledged the fact that the other creditors were not afforded the opportunity given to AGC and Marac, but the fact is that each of those creditors should have their efforts

recognised and they should stand in a higher position to other ordinary, unsecured creditors. In an application such as this the facts have to be considered. The facts will vary from case to case and it is for the Court to consider all of the particular circumstances of any such application, including the amount of risk run by the indemnifying creditors, the amount recovered as a result of the action which had been so indemnified, the apportionment between the debts of the indemnifying creditors and other, non-indemnifying creditors and any other circumstance that might touch on the justice or equity of any order that might be made.

Here it seems to me that, realistically, the degree of risk borne by the indemnifying creditors was not very great.

Nonetheless, it seems to me that each of Marac and AGC should be

rewarded by orders which give them some priority for the steps

that they did take, in an acknowledgment of the fact that those

steps permitted a significant sum to be recovered for the benefit

of the creditors generally of the estate. The circumstances here

are quite dissimilar to those which I considered in R -

m y ,

(an unreported judgment given 20 March 1992).

Having regard to the facts of the present case, Marac has provided a greater exposure to risk than AGC because it provided a greater proportion of funds as compared to its debts than AGC did compared with its debt. I propose to order that an amount of $25,000 be set aside from the funds held by the Official Trustee, and that both Marac and AGC are to be paid from

that sum $12,500 each. From the balance of the estate I will direct that the creditors be paid pro rata and the effect of that will be as follows: The debt of AGC of $60,367.00 will be reduced by $12,500.00 payment I have indicated, leaving a balance of $47,876.00 to rank pro rata with the other creditors; in Marac's case the debt of $31,660.00 will be reduced by $12,500.00 as I have indicated, leaving a balance of $19,160.00 to rank pro rata with the debts of the other creditors, which are set out above.

On the expectation that an amount of approximately $69,000.00 will ultimately be available for pro rata distribution to the creditors, the amounts which the creditors will receive will be as follows: AGC $37,443.00, Marac $22,842.00, Barbie $3933.00, Churven $5791.00 and Westpac $288.00. This represents a dividend rate of approximately .71 cents in the dollar to Marac, .62 cents in the dollar to AGC, and .52 cents in the dollar to the other creditors.

This, in my opinion, is an order which reflects what is

just and equitable, having regard to the circumstances to which
I have referred.

I will make the orders that:

1.      The sum of twelve thousand five hundred dollars ($12,500.00) be paid to Australian Guarantee Corporation Ltd from the funds held by the Official Trustee in Bankruptcy.

2.       A sum of twelve thousand five hundred dollars ($12,500.00) be paid to Marac Finance Limited from funds held by the Official Trustee in Bankruptcy.

3 .       The claims by the companies referred to in orders 1 and

2 be reduced by a like amount.

4 .       The balance of monies held or to be held by the Official Trustee in Bankruptcy be distributed firstly in payment of costs and expenses of the administration and the fees and remuneration of the Official Trustee in Bankruptcy.

5 .       The balance of monies thereafter be distributed pro rata to the creditors in the estate, including the reduced amounts of the creditors referred to in orders 1 and 2.

1. That the costs of this application be costs of the Official Trustee in Bankruptcy in the administration.

   I certify that this and the preceding seven (7) pages are a true copy of the reasons for judgment herein of the Honourable Mr Justice Spender.

   Date: 21 April 1994

Counsel for the Official Trustee:  Mr Eleftheriou

Solicitors for the Official Trustee: Bennett & Philp

Date of Hearing:  21 April 1994