Shepard v Ireland
[2011] FMCA 187
•21 March 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SHEPARD v IRELAND | [2011] FMCA 187 |
| BANKRUPTCY – Appointment of controlling trustee under Part X – duty to call creditors’ meeting within 25 working days – ex parte application by trustee for extension of time – discretionary considerations – notice should be given to a creditor with a pending petition – application adjourned with only a short extension. |
| Bankruptcy Act 1966 (Cth), ss.33(1)(c), 64N, 64Y, 188, 188(2C)(b), 189(1A)(d), 189AAA, 189A, 194, 194(1)(a), 204, 294 Bankruptcy Regulations 1996 (Cth), reg.10.04 |
| Commonwealth Bank of Australia v Toma [2009] FMCA 846 Prentice v Gore [2010] FMCA 737 Re Application of Melvyn Malcolm Posner [2007] FMCA 610 |
| Applicant: | ADAM SHEPARD |
| Respondent: | WILLIAM EDWARD IRELAND |
| File Number: | SYG 508 of 2011 |
| Judgment of: | Smith FM |
| Hearing date: | 21 March 2011 |
| Delivered at: | Sydney |
| Delivered on: | 21 March 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr Rosenblatt |
| Solicitors for the Applicant: | Somerset Ryckmans |
| Counsel for the Respondent: | No appearance by or on behalf of the Respondent |
ORDERS
Pursuant to s.33(1)(c) of the Bankruptcy Act 1966 (Cth) the time provided in s.194(1)(a) is extended by 4 working days.
The application for a longer extension is adjourned for hearing on 24 March 2011 at 10.15am.
The applicant must serve electronic copies of the application, the affidavit in support, and this order on the respondent and the solicitors for the petitioner in proceedings SYG144/2011 no later than 5pm on 21 March 2011.
Any person seeking to appear at the hearing to oppose the application must file and serve on the applicant a notice of appearance and any affidavits relied upon, no later than 3pm on 23 March 2011.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 508 of 2011
| ADAM SHEPARD |
Applicant
And
| WILLIAM EDWARD IRELAND |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
Mr Shepard applies today for an ex parte order extending time for the holding of a creditors’ meeting, at which a personal insolvency agreement proposed by Mr Ireland under Part X of the Bankruptcy Act 1966 (Cth) can be voted upon. Mr Shepard is the controlling trustee of Mr Ireland’s estate, after accepting an appointment under s.188. Under s.194 the creditors’ meeting must be called “not more than 25 working days after the relevant consent or approval was given”, and in the present case that period expires on 1 April 2011.
A creditors’ meeting may be adjourned if a quorum is not present or if a resolution for adjournment is passed (see ss.64N and 64Y). Otherwise, creditors may vote upon one of the resolutions provided under s.204, which include ending the control of the trustee, requiring the execution of the proposed agreement, or requiring the debtor to present a debtor’s petition within 7 days. The control of the trustee terminates 4 months after his or her appointment, if no resolution is passed within that period or if the trustee’s control is not otherwise terminated (see s.189(1A)(d)).
Under reg.10.04 of the Bankruptcy Regulations 1996 (Cth), the controlling trustee must give all creditors notice of the creditors’ meeting, together with copies of his report under s.189A and other documents “at least 10 days before the first meeting of creditors”. Mr Shepard’s calculations show that to comply with this obligation he must despatch all his documents today.
Mr Shepard has filed an affidavit which gives the Court no information as to Mr Ireland’s proposed insolvency agreement, which was required to be given to Mr Shepard under s.188(2C)(b) prior to his accepting his appointment. Nor has he provided to the Court a full copy of Mr Ireland’s statement of affairs. His affidavit attaches only some newspaper reports concerning Mr Ireland’s insolvency, and parts of the statement of affairs which have been available to journalists and creditors. These documents disclose almost no assets available to creditors, and unsecured creditors totalling $72,692,181.71. Major creditors include the Australian Taxation Office for amounts exceeding $37 million, the Prospect Superannuation Fund for a very large amount, and other creditors including banks for large sums. Among the unsecured creditors is the National Australia Bank for an amount identified as $228,448.
On the evidence presented today, it is impossible for the Court to form any view as to the contents and merits of the proposal which will be put to the creditors, and their possible responses to it. It is impossible for the Court to gauge the urgency for creditors being called together to consider Mr Ireland’s insolvency.
Mr Shepard’s affidavit deposes to the complexity of Mr Ireland’s financial affairs, and the difficulties he has investigating them and writing a report giving his opinions to creditors about the merits of the proposal, whatever it might be. I am ready to accept that there is considerable complexity facing a controlling trustee of this estate in preparing a report to creditors, although I note that Mr Shepard is reported as having been advising Mr Ireland in relation to Part X proceedings since “October last year”, according to one newspaper report attached to his affidavit.
Were I satisfied that there is no creditor with an interest in moving immediately for insolvency administration on a creditor’s petition or otherwise, I might be prepared to allow the additional 17 working days [excluding the Easter and ANZAC day holidays], which are being sought in the application. This would extend the time for the first creditors’ meeting until the end of April.
However, the National Australia Bank is a creditor who currently has a petition pending in this Court. Its petition was filed on 31 January 2011 in proceedings SYG 144 of 2011, and appears to rely upon an indebtedness which has been admitted by Mr Ireland in his statement of affairs. The petition was listed on 3 March 2011, and was adjourned on the application of the creditor until 7 April 2011. I infer that the adjournment date was probably arrived at with an eye to the calculation of the statutory time for the first creditors’ meeting under s.194. I draw that inference because a statutory stay on the creditor’s petition applies only up to and including the first appointed date of a creditors’ meeting, and thereafter the further adjournment of the petition is a matter for the discretion of the bankruptcy court (see s.189AAA and my judgment in Commonwealth Bank of Australia v Toma [2009] FMCA 846).
The National Australia Bank therefore appears to me to be a creditor with a particular interest in the date when the first creditors’ meeting should be held, and in particular with a possible interest in opposing the exercise of the Court’s power to extend the time provided under s.194.
There are authorities which I shall cite below, establishing that the Court has its general power to extend that time pursuant to s.33(1)(c). However, such a discretion should only be exercised once the Court is satisfied that this is shown to be appropriate on the evidence before it, and if it appears consistent with the scheme and policies of the Bankruptcy Act.
My present understanding of the scheme of the Act in relation to the holding of creditors’ meetings under Part X, is that the relatively short time for the calling of the first creditors’ meeting is a deliberate policy of the legislature, with particular understanding of the effects of s.189AAA and the options available to creditors under s.204. There is in Part X an inherent expectation that a trustee will report to creditors at a meeting called promptly after the appointment of the trustee, even if his or her investigations might require more time, and even if he decides to recommend to creditors that they should allow more time for this to occur during adjournments of the creditors’ meeting for periods within the maximum 4 months period of control. It appears to me generally preferable for a decision about this to be made by the creditors themselves, rather than by the Court on an application such as the present which would postpone the calling of a creditors’ meeting.
It appears to me that it may often be the case in an insolvency such as the present, that a controlling trustee is unable to report more than inconclusive investigations of the debtor’s affairs, and unsettled opinions about them, to creditors at the first creditors’ meeting, leaving it to them to decide whether the creditors’ meeting should be further adjourned to allow the controlling trustee more time to conduct investigations and make recommendations, or whether one of the other options under s.204 should be adopted by the creditors.
As I have noted, the present application for extension of time is made ex parte by the controlling trustee, without any notice to any creditor. This was a matter of concern to me when I read the papers, however, the solicitor for Mr Shepard informed me, and I accept, that the solicitor for the National Australia Bank has been given informal notice around midday today of the intention to appear in front of me at 2.15 pm to make the application. I also accept that he has forwarded to the solicitor a copy of the application and the affidavit. I stood the matter down to allow him an opportunity to obtain their response, but understandably they were unable to convey any instructions from their client in relation to Mr Shepard’s application.
It appears to me possible that the National Australia Bank may consent to the requested extension of the time under s.194. However, in my opinion, it is appropriate to give it an opportunity to appear before the Court before a relatively long extension is granted, and, in particular, an extension which would preclude the Bank from moving on its pending petition on its present adjournment date or soon thereafter.
The solicitor for Mr Shepard drew my attention to authorities where extensions of time had been given on ex parte applications, including Re Application of Melvyn Malcolm Posner [2007] FMCA 610 and Prentice v Gore [2010] FMCA 737. The facts in the first matter appear very different to the present situation. The situation in Prentice v Gore has some similarity, but also appears to me to be different, in that Raphael FM was advised that a creditor’s petition had been adjourned until after the date of the extension which was sought.
On all the material before me, I am not persuaded that a proper exercise of the power to extend should involve today more than a very short extension of time to allow service on the National Australia Bank and an opportunity to hear its submissions.
I have considered whether I should also require notice to be given to other creditors. At present, I am inclined to think that I shall not need to do that, if I preserve liberty to them to apply to vacate any extension. However, I shall give further consideration to this on the adjournment date which I propose, which will be next Thursday.
Of course it will be open to any creditor of Mr Ireland who becomes aware of that listing to appear on that occasion, and to make submissions in relation to Mr Shepard’s application to extend time until the end of April. Any such person should file an appearance and any affidavits relied upon, before the next listing.
I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Smith FM
Date: 23 March 2011
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