Roberts v Carrafa (Trustee), in the matter of Roberts (Bankrupt)
[2023] FedCFamC2G 463
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Roberts v Carrafa (Trustee), in the matter of Roberts (Bankrupt) [2023] FedCFamC2G 463
File number(s): MLG 146 of 2023 Judgment of: JUDGE TAGLIERI Date of judgment: 1 June 2023 Catchwords: BANKRUPTCY – whether the Second Respondents have a conflict of interest or perceived conflict of interest from acting as the bankruptcy trustee for the First Applicant – finding that there is no conflict of interest Legislation: Bankruptcy Act 1966 (Cth) pt IV, sch 2, ss 19, 58, 82
Insolvency Practice Rules (Bankruptcy) 2016 (Cth) pt 2, rr 75-115(5), 75-265(2)
Cases cited: Bank of Queensland Ltd & Anor v Ross Auto Auctions Pty Ltd (in liq) (receivers and managers appointed) & Anor [2016] QSC 19
BC39 Pty Ltd v Rambaldi, in the matter of Wharington (Bankrupt) [2014] FCA 1076
Cameron v Cole (1943) 68 CLR 571
Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337
Health Insurance Commission v Trustee in Bankruptcy of the Estate of Ioakim Alekozoglou [2003] FCA 848
Hughes Aircraft Systems International v Air Services Australia [1997] FCA 558
Division: Division 2 General Federal Law Number of paragraphs: 59 Date of hearing: 4 April 2023 Place: Hobart Counsel for the Applicants: Ms Davis, ZD Legal Counsel for the First Respondents: Mr Tatti, Aitken Partners Counsel for the Second Respondents: Mr Segal Solicitor for the Second Respondents: KCL Law For the Third Respondent: No appearance ORDERS
MLG 146 of 2023 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
In the Matter of Veronica Roberts, Bankrupt
BETWEEN: VERONICA ROBERTS
First Applicant
QUINTON SHEPHARD
Second Applicant
AND: MR MICHAEL CARRAFA AND MR FABIAN KANE MICHELETTO OF SV PARTNERS
First Respondents
MR INNIS ANTHONY CULL AND MR GESS MICHAEL RAMBALDI OF PITCHER PARTNERS
Second Respondents
MR NICHOLAS GIASOUMI OF DYE & CO
Third Respondents
order made by:
JUDGE TAGLIERI
DATE OF ORDER:
1 June 2023
THE COURT ORDERS THAT:
1.The discrete question, being whether the Second Respondents have a conflict of interest or perceived conflict of interest from acting as the bankruptcy trustee for the First Applicant, is answered in the negative.
2.This matter is listed for further directions to 18 July 2023 at 10:00am in person in Melbourne (“the directions hearing”).
3.Within 14 days, the parties are to confer and reach agreement in respect of any orders that can be made by consent consequent to the finding of the discrete question in the negative.
4.If agreement is reached pursuant to Order 3 of these Orders, a minute of consent orders is to be prepared and signed, and further sent to Chambers by email at least 7 days prior to the directions hearing.
5.The first respondent file and serve by 4:00pm 22 June 2023:
(a)A Response to the Amended Application filed 12 April 2023; and
(b)Any submissions relied upon regarding costs in respect of the discrete question hearing
6.The second respondent, having orally foreshadowed an application for costs, file and serve by 4:00pm on 22 June 2023:
(a)Affidavit material relied upon with respect to the orders sought, identifying clearly the terms of the orders sought, and
(b)Any submissions relied upon concerning the question of costs
7.In the event that any party seeks to make a non-party costs application, such Application in a Proceeding and supporting affidavit material be filed and served by 4:00pm on 22 June 2023.
8.The applicants file and serve any affidavit material concerning the costs applications made by the first and second respondents in respect of the discrete question hearing by 10:00am on 14 July 2023.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
Judge Taglieri
By Application filed on 1 February 2023, the Applicants seek various declarations and orders concerning the First Applicant’s bankruptcy. The Second Respondents are the current Trustees of the bankrupt estate. The First Respondents are the former Trustees of the bankrupt estate.
For present purposes, it is unnecessary to set out the entire basis of the application because, on 20 February 2023, an order was made that a discrete question be determined first. That question is whether the Second Respondents have a conflict of interest or perceived conflict of interest in acting as Trustees in the First Applicant’s bankruptcy (“the discrete question”).
This judgment provides the Court’s determination in relation to the discrete question following a hearing that was conducted on 4 April 2023. All parties were represented at the hearing and no party gave notice to cross-examine in respect of the affidavit material each party relied upon.
By order of 20 February 2023, the Applicants had been given narrow leave to file and serve an Amended Application to particularise the alleged conflict of interest or perceived conflict of interest and to correct any errors in the original application. On 20 February 2023, the First Respondents indicated they did not seek to be heard on the discrete question, providing that the Amended Application related to issues concerning the Second Respondents only.
It transpired that the Applicants filed and sought to rely upon an Amended Application that went beyond the terms of the Court’s order of 20 February 2023, and so the First and Second Respondents participated in the hearing on 4 April 2023.
Before deciding the discrete question, I determined that the Amended Application filed 7 March 2023 was struck out for failing to accord with the terms of the Court’s order of 20 February 2023. However, the First Applicant was permitted to rely on amendments to the extent that they did particularise the allegations of conflict and genuinely corrected errors of a clerical nature. The First Applicant was given leave to file a Further Amended Application in terms consistent with my ruling, and the hearing of the discrete question proceeded on the basis of the Further Amended Application, which was emailed to the Court and all parties and which has since been filed on 12 April 2023.
THE APPLICANT’S CASE
The Applicants relied on the following affidavits that were read in evidence unopposed:
(a)Affidavit of the First Applicant (“the bankrupt”) filed 31 January 2023;
(b)Affidavit of the Second Applicant filed 31 January 2023; and
(c)Affidavit of the Second Applicant filed 6 March 2023.
In addition, the Applicants relied on written submissions filed on 31 March 2023 and those have been considered, together with the oral submission made during the hearing. The Applicants had sought to rely on further submissions filed on 4 April 2023, but I ruled that I would not have regard to those, except to the extent that they addressed the discrete question. I gave brief oral reasons for this approach, namely that the submissions:
·Were extensive and went beyond the scope of the discrete question; and
·Had been filed without the Court’s permission or directions.
The Applicants contend by their written submissions that the conflict of interest or perceived conflict arises, in summary, because:
(a)The Second Applicant cannot act independently for the bankrupt where they were nominated for appointment as trustees by CC Investments, also a creditor in the bankrupt estate of Mason Roberts (“Mr Roberts”), who is the estranged spouse of the bankrupt. This submission relies on a factual premise that CC Investments had obtained judgment in the Supreme Court of Victoria against Mr Roberts only, for a debt secured jointly and severally by both the bankrupt and Mr Roberts;[1]
(b)Information about CC Investment’s prior dealings with the First Applicant and Mr Roberts was “withheld” by the First and Second Respondents and not disclosed to the creditors for the purpose of voting on the appropriateness of the Second Respondent to act as Trustee of the bankrupt. Specifically, the information that ought to have been disclosed to creditors is said to be that CC Investments had “failed in pursuing the [bankrupt] in proceedings brought against both her and Mr Roberts”.[2] It is further said that if this information had been disclosed, the creditors would have likely required additional information to be satisfied the Second Respondents could act without bias in favour of CC Investments;[3]
(c)The Second Respondents improperly used their position as Trustee of Mr Roberts’ bankrupt estate to conduct inquiry and investigations about the bankrupt’s affairs to seek recovery of a debt not ruled against her;[4]
(d)There was a failure to address the actual conflict of the Second Respondents prior to their appointment, and the attempts to address it upon commencement of these proceedings were too late to allow for proper and fair voting by the creditors at the time the First Respondents were replaced;[5]
(e)Appointment of an alternate Trustee with total independence would cause absolutely no prejudice to any party and is $10,000 less costly than the Second Respondents’ fees;[6]
(f)Concerning the conduct of the First Respondents, they have not acted appropriately in accepting the nomination by CC Investments of the Second Respondents to replace them. Further, the First Respondents wilfully misled creditors about potential conflicts of interest of the Second Respondents acting in the bankrupt estates of both the bankrupt and Mr Roberts;[7] and
(g)There is something sinister or demonstrative of conflict or bias because the Second Respondents have sought to retain control of the bankrupt’s bankrupt estate and are opposing their removal.[8]
[1] Written submissions of the Applicants filed 1 March 2023 at [10] to [12].
[2] Written submissions of the Applicants filed 1 March 2023 at [11] to [14].
[3] Written submissions of the Applicants filed 1 March 2023 at [15].
[4] Written submissions of the Applicants filed 1 March 2023 at [16].
[5] Written submissions of the Applicants filed 1 March 2023 at [17] to [20].
[6] Written submissions of the Applicants filed 1 March 2023 at [21] to [26].
[7] Written submissions of the Applicants filed 1 March 2023 at [24] to [26].
[8] Written submissions of the Applicants filed 1 March 2023 at [27] to [28].
THE FIRST RESPONDENTS’ CASE
The First Respondents contend that while the answer to the discrete question impacts on allegations and relief sought against them, it does not strictly concern the First Respondents. Despite this submission, by way of assistance to the Court, the First Respondents directed the Court to the evidence of compliance with r 75-265(2) of the Insolvency Practice Rules (Bankruptcy) 2016 (Cth) (“the Rules”). In particular, to the provision of the declaration of relevant relationships and independence circulated to the creditors dated 28 October 2022 (“the DIRRI”).[9]
[9] Affidavit of Innis Anthony Cull filed 17 February 2023 at Annexure IAC-12.
In response to the Applicants seeking to rely on further written submissions dated 3 April 2023, the First Respondents sought to respond to the same and submitted written submissions filed 3 April 2023. As the Court will only have regard to the Applicants’ further submissions in the limited sense relevant to the discrete question, it is unnecessary to consider the First Respondents’ submissions filed 3 April 2023 in any detail.
SECOND RESPONDENTS’ CASE AND CONTENTIONS
The Second Respondents relied on two affidavits of Innis Anthony Cull, a Trustee of the bankrupt’s estate. His affidavits filed 17 February 2023 and 17 March 2023 were read in evidence unopposed.
Written submissions filed on behalf that the Second Respondents on 31 March 2023 were also relied upon and have been considered.
In summary, the Second Respondents submit that there is no conflict of interest or perceived conflict of interest in the same Trustees administering the bankrupt estate of the bankrupt and her estranged husband Mr Roberts. In particular, they say that the affidavits of the Applicants contain unsupported allegations and misconceptions about a conflict of interest based on:
(a)There being debts owed between the bankrupt and Mr Roberts or related entities of which they were directors;[10] and
(b)Mr Roberts having a claim as an unsecured creditor in the bankrupt’s bankrupt estate for 50 per cent of the guarantee sought by CC Investments.[11]
[10] Eg affidavit of the bankrupt filed 31 January 2023 at [18].
[11] Affidavit of the Second Applicant filed 4 March 2023 at [24].
The Second Respondents’ written submissions challenged facts upon which the Applicants’ contentions were premised and referred to authorities to rebut their claims. It is not necessary to repeat their written submissions.[12]
[12] Written submissions of the Second Respondents filed 31 March 2023 at [11] to [16].
FINDINGS OF RELEVANCE TO THE DISCRETE ISSUE
On the basis of unchallenged affidavit evidence, I make the following findings:
(a)On 27 May 2020, the bankrupt made a voluntary petition for bankruptcy and on that date the First Respondents were appointed Trustees of her bankrupt estate;[13]
[13] Affidavit of the bankrupt filed 31 January 2023 at [6].
(b)On 29 May 2020, summary judgment was entered in favour of CC Investments against the First Applicant and Mr Roberts in respect of a joint and several liability;[14]
[14] Affidavit of the Second Applicant filed 31 January 2023 at Annexure QS-1 on page 15.
(c)On 8 December 2021, the Second Respondents were appointed as the Trustees in bankruptcy to the bankrupt estate of Mr Roberts upon an amended creditor’s petition by CC Investments;[15]
[15] Affidavit of Innis Anthony Cull filed 17 February 2023 at [8]; and affidavit of the Second Applicant filed 6 March 2023 at Exhibit QS-1.
(d)On 5 September 2022, the Second Respondents conducted an initial interview with Mr Roberts. The Second Applicant attended the interview on behalf of Mr Roberts (“the Interview”);[16]
[16] Affidavit of Innis Anthony Cull filed 17 February 2023 at [12].
(e)The Second Applicant has provided consultancy services to the bankrupt, Mr Roberts, and the Roberts Group of companies for a number of years;[17]
[17] Affidavit of Innis Anthony Cull filed 17 February 2023 at [13].
(f)The financial affairs of the Roberts Group and related individuals are exceedingly complex;[18]
[18] Affidavit of Innis Anthony Cull filed 17 February 2023 at [14] to [17].
(g)On 19 October 2022 (approximately six weeks after the Interview), the Trustees provided a DIRRI in respect of a potential appointment as the Second Respondents as Trustees for the bankrupt’s estate;[19]
[19] Affidavit of Innis Anthony Cull filed 17 February 2023 at [22].
(h)On 20 October 2022, the bankrupt hand-delivered a proposal for composition to the First Respondents;[20]
[20] Affidavit of the bankrupt filed 31 January 2023 at [7], where the reference to Second Respondent is an error as by other evidence they had not replaced the First Respondent.
(i)On 2 November 2022, the Applicants were advised of the request from CC Investments to replace the First Respondents with the Second Respondents as Trustees of the bankrupt’s estate. At the same time, notice was given that a creditors meeting would take place at 11:00am on 15 November 2022 to consider, amongst other things, replacement of Trustees;[21]
[21] Affidavit of the bankrupt filed 31 January 2023 at [10].
(j)On 2 November 2022, the Applicants met and discussed the replacement proposal and formed the view it would be inefficient to replace the Trustees and by delaying and avoiding dealing with the composition, the First Respondents were not acting in the bankrupt’s best interests;[22]
[22] Affidavit of the bankrupt filed 31 January 2023 at [13] to [16].
(k)On 2 November 2022, the Applicants agreed to first deal with the proposed change of Trustees at the 15 November 2022 creditors meeting;[23]
[23] Affidavit of the bankrupt filed 31 January 2023 at [17].
(l)On 15 November 2022, the creditors meeting to be held that day was adjourned to 22 November 2022 to permit other persons to lodge documentation seeking to prove debts in the bankrupt’s estate;[24]
[24] Affidavit of the bankrupt filed 31 January 2023 at [23].
(m)Stephen Dixon, the Second Applicant and Christopher Hodgers all lodged documentation seeking to prove debts owed by the bankrupt, with:
(i)that of Stephen Dixon being assessed at $1 in respect of an alleged debt of $9 million relating to Empire Constructions;
(ii)the debt claimed by the Second Applicant being unproven; and
(iii)the proof of debt of Mr Hodgers being accepted;[25]
[25] Affidavit of the bankrupt filed 31 January 2023 at [26] to [27]; Affidavit of the Second Applicant filed 31 January 2023 at [28] to [30].
(n)Between 20 and 21 November 2022, messages passed between Stephen Dixon and the Second Applicant regarding requesting adjournment of the 22 November 2022 creditors meeting so that Hamilton Murphy could prove a $9 million debt. Stephen Dixon advises “Caraf [sic] has agreed to an adjournment”;[26]
(o)
The Applicants believed the creditor’s meeting would not proceed on 22 November 2022 because of the communication from Stephen
Dixon, but it did proceed and they did not attend or cast a vote opposing appointment of the Second Respondents;[27]
(p)On 22 November 2022, at the creditors’ meeting, a resolution was passed pursuant to r 75-115(5) of the Rules that the Second Respondent replace the First Respondents as the Trustees of the bankrupt’s estate;[28]
(q)On 31 January 2023, this proceeding was commenced; and
(r)On 16 February 2023 the bankrupt’s composition proposal dated 27 September 2022, previously provided to the First Respondents, was lodged with Australian Financial Security Authority by Mr Cull. He advised the bankrupt of the Second Respondents’ preparedness to facilitate her composition proposal.[29]
[26] Affidavit of the bankrupt filed 31 January 2023 at [28] to [29].
[27] Affidavit of the bankrupt filed 31 January 2023 at [30] to [34].
[28] Affidavit of the bankrupt filed 31 January 2023 at Annexure VR-1; affidavit of the Second Applicant filed 31 January 2023 at [36] and [37].
[29] Affidavit of Innis Anthony Cull filed 17 February 2023 at [25] to [27].
The Second Applicant filed a further affidavit on 6 March 2023, at [4] to [24] of which he attests to details concerning his involvement in the financial and business affairs of the bankrupt and Mr Roberts and their associated corporate entities.
The Second Applicant states, amongst other things, that:
(a)He attended a meeting with Mr Roberts on 5 September 2022 with Mr Cull and describes Mr Cull, in summary, as interrogating, hostile and threatening;[30]
(b)He had a phone conversation with Mr Cull on 8 September 2022, again describing Mr Cull as extremely hostile. The Second Respondent stated that Mr Cull’s accusations about illegally amended MYOB data was untrue. He states that he considered Mr Cull’s investigations and enquiries about Regal Hire Proprietary Limited, a company of which Mr Roberts was the sole director and which operated until it went into external administration on 7 September 2022, to be a fishing expedition to identify further opportunities to act;[31]
(c)In effect, the nature and extent of questioning by Mr Cull of the affairs of the bankrupt and Mr Roberts are for improper purposes and that he believes information obtained from Mr Roberts cannot be honestly acted upon in the interests of both Mr Roberts and the bankrupt; and
(d)Further, he believes Mr Cull cannot equally administer the affairs of the bankrupt’s estate while seeking contribution from her for the benefit of Mr Robert’s bankrupt estate or other entities Mr Roberts operates.[32]
[30] Affidavit of the Second Applicant filed 6 March 2023 at [27] and [32].
[31] See generally the affidavit of the Second Applicant filed 6 March 2023 at [27] to [42].
[32] Affidavit of the Second Applicant filed 6 March 2023 at [43] to [44].
Mr Cull filed an affidavit on 17 March 2023 responding to the evidence referred to at [18] of these reasons. Mr Cull disputes much of the Second Applicant’s account of the meeting on 5 September 2022 and other matters. Further, he provides corroborative evidence about the conduct of his discussions with the Second Applicant and others on 5 and 8 September 2022, by way of transcript of the recorded meeting and file note made by a colleague.[33]
[33] Affidavit of Innis Anthony Cull filed 17 March 2023 at [37] and [42].
Mr Cull also makes statements detailing his understanding of and compliance with professional obligations relating to administering bankrupt estates.[34]
[34] Affidavit of Innis Anthony Cull filed 17 March 2023 at [16] to [23].
FURTHER FINDINGS AND RESOLVING DISPUTED FACTS
By virtue of the First Applicant’s debtor’s petition being accepted two days prior to the judgment in favour of CC Investments, enforcement of a remedy in respect of the subject of the judgment cannot proceed directly against her personally or her property by virtue of s 58 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”). At that time her property vested in the First Respondents as her Trustees in bankruptcy.
There is no evidence before the Court to suggest that the fact of the bankrupt’s bankruptcy was known to the court who entered the default judgment. I accept that on its face the judgment is valid until otherwise set aside,[35] though not personally and directly enforceable because of the terms of s 58 of the Bankruptcy Act.
[35] Cameron v Cole (1943) 68 CLR 571 at 598 to 599.
None of the above detracts from the separate issue, of whether the debt claimed to be owed to CC Investments by the bankrupt is capable of being proved in her bankruptcy and whether it is proved is a matter for the Trustees pursuant to Part VI of the Bankruptcy Act. That is, if the guarantee was a debt and liability, present or future, certain or contingent at the date of the bankruptcy, or to which she may become subject before her discharge by reason of an obligation incurred before the date of the bankruptcy. Consequently, the factual assumption that the debt claimed by CC Investments was “not provable” is erroneous at law.
There is no dispute on the evidence that the request by CC Investments to replace the Trustees was made on 6 September 2022, being the day after the meeting between the Second Respondents, Mr Roberts, and the Second Applicant.[36] I so find.
[36] See [16] of these reasons
I find on the basis of the unchallenged evidence that the composition proposal was made on 20 October 2022, after the request to replace the Trustees and before the meeting of creditors held on 22 November 2022 which voted on the replacement.[37]
[37] See [16] of these reasons
Having carefully considered the affidavits of the Second Applicant and Mr Cull in the context of other findings, I find that Mr Cull is properly cognisant of his legal duties and responsibilities as a Trustee. This finding is based on:
·His unchallenged statements about experience and qualifications, meaning it is unlikely he would fail to comply with the required duties and responsibilities; and
·The Second Applicant’s evidence constitutes mere assertion based on personal speculation and is unsubstantiated with any probative evidence, and the Applicants did not seek to cross-examine Mr Cull to challenge his evidence.
In addition, based on the content of the record of interview referred to in Mr Cull’s affidavit filed 17 March 2023,[38] I accept Mr Cull’s characterisation of the nature of the discussions and conduct of the Second Applicant, Mr Mason and Mr Khoda relating to the affairs of Regal Hire.[39]
[38] Affidavit of Innis Anthony Cull filed 17 March 2023 at [37(d)].
[39] Affidavit of Innis Anthony Cull filed 17 March 2023 at [32] to [50].
Mr Cull’s evidence about the nature of the discussions is detailed and corroborated, and I prefer his evidence where it is conflict with that of the Second Applicant. I find that Mr Cull’s investigations into the financial affairs of Mr Roberts demonstrates a detailed and thorough approach to ascertaining Mr Robert’s liabilities and making proper enquiry as he is obliged to do as a Trustee.
Further, the evidence of Mr Cull in his affidavit filed 17 February 2023 at [13] to [16] has not been challenged or disputed, and I accept that the financial affairs of Mr Mason and the bankrupt are exceptionally complex, inter-related and that there is no reliable evidence that one owes money to the other. Accordingly, I accept that there is likely to be a saving of time and costs if the necessary investigations and then administration are not duplicated by two different sets of Trustees and there are joint debts capable of being the subject to proof in each bankruptcy.
Based on the varying accounts of Mr Cull and the Second Applicant about the meeting, I infer that the Second Respondents would have regarded the discussions as not productive of advancing the interests of all the creditors whose debts had been proved in Mr Roberts’ bankruptcy.
I also accept that CC Investments were likely to have been motivated, at least in part, to seek to recover the joint and several debt owed to it, but there is nothing improper or illegal about that.
CLOSING SUBMISSIONS ABOUT ALLEGED CONFLICT OR PERCEIVED CONFLICT
The Applicants’ solicitor placed emphasis in her closing submissions on what she described as “subjective facts” about the circumstances leading to the appointment of the Second Respondents as Trustees. It was contended that collectively these subjective facts demonstrate a conflict of interest or perceived conflict which was real when the legal test was applied to those facts.
Her submissions were voluminous and difficult to follow at times. Nevertheless, the Applicants’ case was eventually elicited and appear to be encapsulated in my summation as follows:
(a)The Applicants accept that the test about conflict is that set out in the Second Respondents’ submissions by reference to BC39 Pty Ltd v Rambaldi, in the matter of Wharington (Bankrupt) [2014] FCA 1076 and Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337. In particular, the conflict required needs to be more than merely theoretical, instead actual or perceived;[40]
[40] Transcript of proceedings on 4 April 2023 (“Transcript”) on page 43 at lines 16 to 22.
(b)The Second Respondents’ submissions should fail because they did not address how the application of the test to the facts of this case demonstrated the absence of a conflict of interest. Instead, they rely on the provision of the DIRRI to establish the absence of conflict;[41]
[41] Transcript on page 43 at lines 24 to 32.
(c)The Applicants agree that concurrent appointments in themselves are not prohibited or demonstrative of a conflict of interest, but it depends on the factual circumstances;[42] and
[42] Transcript on page 43 at lines 34 to 44.
(d)The material facts and circumstances to be considered by the Court in applying the test in this case are that:
(i)The bankrupt became bankrupt before the Court proceedings relating to the guaranteed debt owed to CC Investments was proved and it was only proved against Mr Mason because of that;[43]
(ii)It was only soon before the bankrupt may be discharged from bankruptcy that an application was made by the same creditor, CC Investments, to replace the First Respondents as Trustees with the Second Respondents. In the context that the only reason given for replacement was that there would be benefit in sharing of duties and costs meaning efficiency, there is no benefit to the replacement which will only incur unnecessary costs and delays;[44]
(iii)The composition was placed before the First Respondents in October 2022 and there was no reason why it was not presented to the creditors. Because it was not, there is possible or real perceived bias as there was prioritisation of replacement of the Trustees over administration of the bankrupt estate;[45]
(iv)The request by CC Investments to replace the Trustees was made on 5 September 2022, coincidentally the same day that Mr Roberts and the Second Applicant attended a meeting with the Second Respondents about Mr Roberts’ bankruptcy and somewhat related financial affairs, and there was little progress. Therefore the request by CC Investments was an attempt to “obviously pursue more vigorously” their recovery and obtain contribution from the bankrupt;[46]
(v)A Trustee pushing to recover a joint debt from one bankrupt over another of itself is a consideration and, further, the Trustees need to be impartial and not favour the interests of a single creditor (implying CC Investments) because they have to pursue administration properly and honestly;[47]
(vi)There was bias because no information was provided to the other creditors for them to determine the potential conflict of the Second Respondents. There was a failure to mention the subjective circumstances and relationship between Mr Mason and the bankrupt, which has now become extremely hostile and estranged, noting that “one is not offering up something of theirs in favour of the other”. This in the circumstances of there being a “ruling” for recovery of the guaranteed debt owed to CC Investments only against the solvent guarantor, Mr Mason;[48]
(vii)There was a failure to address the objections of the Applicants about replacement of the Trustee at the request of CC Investments, who were incorrectly portrayed as a secured creditor;
(viii)The creditors meeting on 22 November 2022 proceeded in the absence of the Applicants and others who had objected to the replacement of the First Respondents with the Second Respondents;[49]
(ix)When the bankrupt did not see the Second Respondents as impartial, there was a push by the Second Respondents for a meeting and if she did not comply they stated she would be subject to a full public examinable search of her affairs and they did not “deal with the proposed composition”.[50]
[43] Transcript on page 46 at lines 1 to 10.
[44] Transcript on page 46 at lines 12 to 27.
[45] Transcript on page 46 at lines 29 to 41.
[46] Transcript on page 46 at line 43 to Transcript on page 47 at line 39; and Transcript on page 49 at lines 41 page 50.
[47] Transcript on page 47 at line 41 to page 48 at line 3.
[48] Transcript on page 48 at lines 5 to 19 and page 50; affidavit of the Second Applicant filed 6 March 2023 at [12] to [16] and Annexure QS-1 on page 14 of 33.
[49] Transcript on page 48 at line 21 to page 49 at line 39.
[50] Transcript on page 51.
The Court sought a clear and succinct summary of the contentions relied upon by the Applicants to persuade it that there was a real or perceived conflict of interest because the submissions above seemed to suggest that the Applicants alleged a conspiracy between CC Investments and all the Respondents. The following submission was then made:[51]
MS DAVIS: Well, to the extent that I wouldn’t – yes. So to the extent that I wouldn’t frame it as somewhat almost unbelievable or out of this world as a conspiracy, I would say it wouldn’t have to go to that extent to be plausible or real and that the request or requirement by a creditor who is the – for all intents and purposes, the only creditor that would be in consistent contact, given it’s – the other creditor is the ATO of Mason with the trustee, who would obviously have a close discussion and working relationship with that trustee for the administration of Mason Roberts’ estate, given it is only the ATO and CC. It is not so difficult or so wild where – as even the second respondent, Mr Segal, had said, referrals do happen, and those things do happen, and there are some referrals that are worthy, and there are other referrals which are lesser so.
It doesn’t mean that they are conspiring against – for the utmost bringing down of an organisation, but it can be done so where it is to the – or to the detriment but not to the betterment of the bankrupt estate but to the betterment and favour of – or preference of either the second respondent in obtaining the fee for the administration or the increased potential recovery to CC with the – with their trustee of choice, who have a longstanding, you know, relationship on other – on another appointment, where there is no perceivable reason to explain otherwise why suddenly, the creditor has requested this specific respondent, this specific trustee, and that trustee has attended the office of the first respondent. This has been placed on affidavit, that the second respondent has sought to pursue the recommendation for appointment by CC to the first respondent. It has been effected - - -
[51] Transcript on page 54 at lines 14 to 36.
The solicitor for the Applicants reiterated the chronology and the fact that:
(a)The request to replace the Trustees of the bankrupt’s estate was made on the same day and following the meeting between Mr Cull, the Second Applicant and Mr Roberts; and
(b)A number of objections had been made to the replacement proposal, but notwithstanding that, the creditors meeting on 22 November 2022 proceeded and there was no good reason for the replacement given other than costs and efficiency.[52]
[52] Transcript on page 54 at line 39.
EVALUATION AND CONSIDERATION OF CONTENTIONS
In view of the above factual findings, I reject the contentions that there was improper action, co-operation, unfair advantage or, at worst, some form of collusion between CC Investments and any of the Respondents to ensure the question of replacement of the Trustees was determined either:
(a)Before creditors voted about the composition proposal the bankrupt presented; or
(b)In the absence of the Second Applicant, Mr Dixon, Mr Hodgers or the bankrupt.
Indeed, the Applicants agreed to first address the question of replacement of the Trustees because they were unsatisfied with the administration by the First Respondents.[53]
[53] Affidavit of the bankrupt filed 31 January 2023 at [14]; at [16(k)] of these reasons.
Further, although there is a text message purporting to represent that the First Respondents had agreed to adjourn the creditors meeting to be held on 22 November 2022,[54] there is no credible evidence to that effect. Given the nature and frequency of the written communication by the First Respondents about the creditors meeting and how they communicated previous adjournments, I am satisfied that if the First Respondents had agreed to adjourn the meeting, they would have communicated that in writing as they had done previously. No such written communication is in evidence and the Applicants plainly relied on an unsubstantiated representation from Mr Dixon.
[54] Affidavit of the bankrupt filed 31 January 2023 at Annexure VR-1.
I have not been persuaded that Mr Carrafa had agreed to adjourn the meeting.
The Applicants asserted that there was no satisfactory reason given for the replacement of Trustees and, consequently, this was one of a number of facts indicative of some kind of conflict of interest. However, there is no evidence before the Court about what, if anything, was said at the creditors meeting on 22 November 2022 for replacement of the Trustees. Even if, as the Applicants assert, the only reason given to them and other creditors was “benefits of sharing duties and costs, meaning efficiency”:
·There is nothing improper or misleading or untruthful about this given my reasoning below at [41]; and
·It was for the creditors at the meeting to assess that reason and the DIRRI and then vote on whether there should be a replacement, and they did just that.
I do not accept that replacement of the First Respondents with the Second Respondents will incur unnecessary costs because:
(a)No work will be duplicated about the proposed composition as the First Respondents did not action this and the Second Respondents are now doing so;
(b)Although Mr Giasoumi has purportedly given a lower cost estimate than the Second Respondents,[55] the asserted saving is not likely to be real in my view as there is no reliable evidence demonstrating that he has a full understanding of the complexity and inter-relations of the financial affairs between the bankrupt and Mr Roberts; and
(c)There is no evidence that Mr Giasoumi will only charge a fixed fee regardless of the work subsequently required and he has only provided an estimate.[56]
[55] There does not appear to be evidence of what the Second Respondents are charging.
[56] Declaration of Independence, Relevant Relationship and Indemnities of the Third Respondent filed 3 March 2023.
I reject the contention that there was “no reason” why the composition proposal was not presented in October 2022,[57] and that this somehow contributes to demonstrating a real or perceived conflict because:
(a)The Applicants did not request that it be dealt with before the question of replacement and agreed it should wait until the issue of replacement of the First Respondents was voted upon;
(b)Any delay in dealing with the composition before the Second Respondents were appointed cannot relate to the Second Respondents; and
(c)The Second Respondents did not deal with the composition proposal for about two and a half months.[58] This period in part included the Christmas/New Year vacations and this application was made relatively soon after. Notably, the application sought stay orders, but this has not been pressed.
[57] At [32(d)(iii)] of these reasons.
[58] See [16(p)] to [16(r)] of these reasons.
I reject that the Second Respondents are seeking to pursue recovery for CC Investments against the bankrupt “over” Mr Roberts.[59] This is subjective speculation or belief based on unsubstantiated evidence and contrary to my findings. There is absolutely no evidence of lack of impartiality or dishonesty by the Second Respondents.
[59] See submissions referred to at [32(d)(iv)] and [32(d)(v)] of these reasons.
There was a submission of bias because no information was provided to creditors before the meeting on 22 November 2022 about the “subjective circumstances between the [bankrupt] and Mr Roberts”.[60] Accepting as likely that there could well be acrimony and lack of co-operation between the bankrupt and Mr Roberts, it is not explained how there was a duty to inform the creditors of this and how it was relevant to their vote on replacing the Trustees.
[60] At [32(d)(iv)] of these reasons.
To the extent that it is suggested that there was a need or duty to disclose the above because the debt to CC Investments was only recoverable against Mr Roberts, the suggestion is wrong in law for the reasons at [21] to [23] of these reasons.
The Applicants also submitted that CC Investments were incorrectly portrayed as a secured creditor.[61] There is no evidence to demonstrate that this was the case. The disclosure of the judgment in favour of CC Investments was not tantamount to asserting that it was a secured creditor.
[61] Affidavit of the Second Respondent filed 6 March 2023 at Annexure QS-1 page 14 of 33.
As to the contention that there was a threat or impropriety in the request to meet with the bankrupt and refer to a public enquiry,[62] I reject that experienced and qualified professionals such as Mr Cull would act in the way alleged. More likely, it can be inferred that he would advise of the consequences of not cooperating with a Trustee. I am strengthened in this conclusion by having the benefit of the transcript of the meeting Mr Cull had with Mr Roberts, which does not bear out what was alleged about the nature of that meeting.[63]
[62] Referred to at [33](d)(ix) of these reasons
[63] Affidavit of Innis Anthony Cull filed 17 March 2023 at [37(d)].
Based on the findings I have made and all the above reasoning, there is no merit in the Applicants’ contentions. While the Applicants apparently may have a personal belief that the Second Respondents cannot act impartially in respect of the bankrupt estates of both the bankrupt and Mr Roberts, that belief is not objectively grounded by facts found by the Court or in legal principle.
The totality of the Applicants’ submissions reflect a misapplication of the established principles and test concerning conflict of interest.
Further, the Applicants’ submissions depend on their subjective interpretation of something sinister in the sequence of events and assertions of fact, which I have largely rejected. A reasonable, fair-minded observer would not objectively perceive a conflict of interest.
The findings and reasoning above do not even rise to a theoretical possibility of conflict. Further, in my view the authorities the applicants relied upon are clearly distinguishable from the facts found in this case as explained below.
The Applicants submissions relied on Hughes Aircraft Systems International v Air Services Australia [1997] FCA 558 (“Hughes”), without referring to any particular passage in the judgment that was of relevance. In Hughes, the Federal Court was determining issues concerning a tender process and whether the law recognised an implied term that there was an obligation to deal fairly in a tender process contract where a party is a public body. There is no comparable issue in this case as the duties of a Trustee are stipulated by the Bankruptcy Act[64] and Rules[65] made thereunder. The Applicants do not allege a breach of any of those duties, other than in relation to the bankrupt’s composition proposal and the various assertions about conflict of interest which have been rejected.[66]
[64] Section 19 and Schedule 2.
[65] Eg Part 2 generally.
[66] Amended Application filed 13 April 2023 at [2], on which the Applicants were given leave to rely.
To the extent that the Applicants may have sought to contend that the Second Respondents owed a duty to CC Investments which conflicted with their duties as Trustees in the two bankrupt estates, the submission was vague and lacked supportive evidence.
I was also referred to Bank of Queensland Ltd & Anor v Ross Auto Auctions Pty Ltd (in liq) (receivers and managers appointed) & Anor [2016] QSC 19 (“Bank of Queensland”) again without mention of any passage of the judgment that was said to be particularly relevant. I discerned from the submissions made that the Applicants relied on the case as an example of where a fiduciary who has a personal interest to promote was removed and found to have a conflict of interest.
The Applicants’ solicitor submitted that in Bank of Queensland:[67]
… the court accepted that the liquidator’s relationship there gave him a personal interest in maintaining the business relationship. That’s what was particular in that case and that while not finding any actual bias, the court considered that there was a reasonable apprehension of bias and removed the liquidator.
[67] Transcript on page 58 at lines 24 to 28.
Factually, as the headnote to the judgment in Bank of Queensland states, there was a history of frequent referrals of work by the insolvency advisors to the liquidator and the Court concluded this was sufficient to give him a personal interest in maintaining a good business relationship which could come into conflict with his duty as a liquidator. In the present case there is no evidence of history of frequent referrals and the circumstances are quite different to those considered by the Court in Bank of Queensland.
CONCLUSION
The discrete question is answered in the negative.
The essential reasons for arriving at this conclusion is that the Applicants have not demonstrated any of the contentions relied upon.
The proceedings are listed for further directions on 18 July 2023 at 10:00am.
I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Taglieri. Associate:
Dated: 1 June 2023
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