Smith (Bankrupt), in the matter of Smith v Joiner (Trustee)
[2024] FedCFamC2G 219
•6 March 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Smith (Bankrupt), in the matter of Smith v Joiner (Trustee) [2024] FedCFamC2G 219
File number(s): MLG 1686 of 2023 Judgment of: JUDGE SYMONS Date of judgment: 6 March 2024 Catchwords: BANKRUPTCY – interim application – where Trustee seeks an order under s 90-15(1) of the Insolvency Practice Schedule (Bankruptcy) authorising the sale of vehicles in his possession – where insurance on vehicles has ceased and no alternative option to insure the vehicles has been identified – where orders necessary to preserve the value of assets of the bankrupt estate – where orders operate pre-emptively to prevent a breach of the Trustee’s obligations under statute and general law Legislation: Bankruptcy Act 1966 (Cth) ss 19, 153B, sch 2 (Insolvency Practice Schedule (Bankruptcy)) s 90-15
Insolvency Practice Rules (Bankruptcy) 2016, s 42-180
Cases cited: Hacker v Weston [2015] FCA 363
Mehajer v Weston [2020] FCA 924
Division: Division 2 General Federal Law Number of paragraphs: 23 Date of last submissions: 1 March 2024 Date of hearing: On papers Place: Melbourne The Applicant: Did not participate Solicitor for the Respondent: Hall & Wilcox Solicitor for the First & Second Interested Persons HWL Ebsworth Third Interested Person Did not participate ORDERS
MLG1686 of 2023 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF WADE DARCY SMITH, BANKRUPT
BETWEEN: WADE SMITH
ApplicantAND: MATTHEW LESLIE JOINER
RespondentAND: CATCH.COM.AU PTY LTD ACN 149 779 939
First Interested PersonBUNNINGS GROUP LIMITED ACN 008 672 179
Second Interested PersonJOSHUA SANDS
Third Interested Person
ORDER MADE BY:
JUDGE SYMONS
DATE OF ORDER:
6 MARCH 2024
THE COURT ORDERS THAT:
1.The Respondent is justified in immediately selling the following items (Items) by way of public auction:
(a)2022 Cannon Great Wall Ute registration number WAD3;
(b)2022 H6 GWM Haval Station Wagon (Red) registration number JOSHN;
(c)2022 H6 GWM Haval Station Wagon (Grey) registration number W4DE.
2.The Respondent is justified in deducting from the proceeds of sale of the Items (Sale Proceeds) his reasonable fees, costs and expenses incurred in selling the Items.
3.Once the Respondent has deducted from the Sale Proceeds his fees, costs and expenses incurred in selling the Items in accordance with paragraph 2, the Respondent must hold the balance of the Sale Proceeds pending the outcome of the hearing scheduled in this proceeding for 17 April 2024, or until further order.
4.The Respondent’s reasonable costs of this interim application be paid with priority from the Applicant’s estate.
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 SYMONS:
INTRODUCTION
By an application in a proceeding filed on 23 February 2024, the respondent Trustee seeks orders pursuant to s 90-15(1) of the Insolvency Practice Schedule (Bankruptcy) (IPS) to authorise a sale of property of the bankrupt estate of the applicant, Mr Smith. Mr Smith was declared bankrupt on 5 February 2021.
The application concerns three motor vehicles - two GWM Haval 2022 H6 Station Wagons purchased by Mr Smith on 10 December 2022 and 10 January 2023, and one GWM 2022 Cannon vehicle purchased by Mr Smith on 10 December 2022 (the vehicles). The Trustee collected the vehicles on 1 March 2023, and they have since been kept in secure storage, and until recently covered by an insurance policy, at an auctioneer’s yard (Grays Auction in Hamilton, Queensland).
Although this matter is back before the Court on 17 April 2024 to hear Mr Smith’s annulment application and a directions application filed by the Trustee on 19 December 2023, the Trustee seeks orders on an urgent basis because he has been unable to obtain a new insurance policy for the vehicles; the original insurance policy expired on 20 February 2024. The Trustee submits that it is reasonable and necessary to discharge his duties as Trustee, to sell the vehicles immediately by public auction to remove the risk of them being damaged or destroyed whilst uninsured.
The Trustee’s application is supported principally by his affidavit sworn on 23 February 2024. He also relies on his affidavit sworn on 5 December 2023, the affidavit of Joshua Elias Sands sworn on 20 November 2023 and written submissions filed on 1 March 2024.
I have also received a joint written submission from Bunnings Group Limited (Bunnings) and Catch.com.au Pty Ltd (Catch) in their capacity as Interested Persons in the proceeding.
Mr Smith has not filed any written submission, despite being ordered to do so by 4pm on 5 March 2024. His attitude to the application is therefore unknown.
BACKGROUND
As noted earlier, Mr Smith commenced this proceeding on 3 October 2023, seeking the annulment of his bankruptcy pursuant to s 153B(1) of the Bankruptcy Act.
On 9 November 2023 I made orders including that the Trustee not take any steps to dispose of assets in Mr Smith’s bankrupt estate until the annulment application was determined.
On 19 December 2023, the Trustee filed an interim application seeking directions in relation to the administration of Mr Smith’s bankrupt estate, including directions as to how various items, including the vehicles, should be characterised at law, and consequently dealt with by the Trustee. It is this application that is listed to be heard with the annulment application on 17 April 2024.
THE TRUSTEE’S EVIDENCE AND SUBMISSIONS
The Trustee’s affidavit dated 23 February 2024 describes how for the period 20 February 2023 to 20 February 2024, he maintained an insurance policy in respect of the vehicles through Arthur J Gallagher (AJG) which policy identified the “Use class” of the vehicles as “Static Use” being a reference under the policy to items “in storage/not in use”. The Trustee caused the insurance policy to be renewed every three months, for a three-month coverage period on each occasion.
The Trustee explains that when it came time to renew the policy again in early February 2024, he instructed AJG to renew the insurance policy for an additional three months. However, the response that came back from AJG on 19 February 2024 was that due to changes to retail insurance policies instigated by insurers industry wide, they were no longer able to secure insurance for the vehicles because they were designated “static” rather than “operational”.
The Trustee deposes that efforts to obtain insurance coverage by changing the policy to “operational” were ultimately unsuccessful and that AJG were unable to provide any alternative insurance options for the vehicles.
The Trustee made inquiries of Shannons Insurance but was advised that they did not provide insurance for business purposes. The Trustee’s team also inquired about whether Grays Auction’s insurance cover might extend to a claim made by the Trustee but was advised that the insurance policies maintained by Grays would not extend to cover the Trustee’s interest for any damage or loss to the vehicles while stored at the Grays yard.
The Trustee seeks the following orders:
1.The Respondent is justified in immediately selling the following items (Items) by way of public auction:
i)2022 Cannon Great Wall Ute registration number WAD3;
ii)2022 H6 GWM Haval Station Wagon (Red) registration number JOSHN;
iii)2022 H6 GWM Haval Station Wagon (Grey) registration number W4DE;
2.The Respondent is justified in deducting from the proceeds of sale of the Items (Sale Proceeds) his reasonable fees, costs and expenses incurred in selling the Items;
3.Once the Respondent has deducted from the Sale Proceeds his fees, costs and expenses incurred in selling the Items in accordance with paragraph 2, the Respondent must hold the balance of the Sale Proceeds pending the outcome of the hearing scheduled in this proceeding for 17 April 2024;
4.The Respondent’s reasonable costs of this interim application be paid with priority from the Applicant’s estate.
The Trustee submits that such orders and directions are necessary to ensure that he discharges:
(i)his duty under s 19(1)(f) of the Act to take appropriate steps to recover property for the benefit of the bankrupt estate; and
(ii)his obligation under s 42-180(a) of the Insolvency Practice Rules (Bankruptcy) 2016 (IPR) to take appropriate steps to protect assets with a commercial value that have vested in him or her, including to ensure that the assets are adequately insured.
The Trustee submits that the Court is empowered to make such orders and directions pursuant to s 90-15(1) of the IPS which provides that “the Court may make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate”, which includes making “an order in relation to the costs of an action” (s 90-15(3)(d)).
The Trustee observes that the power “is at large” and must be exercised “in the particular circumstances of each case” (referring to Mehajer v Weston [2020] FCA 924 at [21]).
As far as s 90-15(4) lists a series of non-exhaustive matters that the Court may consider when making orders under that provision, the Trustee places emphasis on:
(i)whether the trustee has faithfully performed, or is faithfully performing, the trustee’s duties: s 90-15(4)(a);
(ii)whether an action or failure to act by the trustee is in compliance with the Act and the IPR: s 90-15(4)(b); and
(iii)whether the regulated debtor’s estate or any person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the trustee: s 90-15(4)(d).
THE SUBMISSIONS OF THE INTERESTED PERSONS – BUNNINGS AND CATCH
There are three interested persons to the proceeding; Bunnings, Catch and Mr Joshua Sands.
Bunnings and Catch both claim monies owing to them from Mr Smith and have lodged separate proofs of debt that together claim an amount in excess of $1.7 million. Mr Sands’ interest in the proceeding reflects his evidence that he contributed an amount of $3,000 to the purchase of one of the vehicles.
As noted earlier, Bunnings and Catch filed a joint written submission directed at the Trustee’s interim application. In this submission they clarify that they are prepared to consent to all four of the Trustee’s proposed orders on the proviso that orders two and four both condition the recovery of the Trustee to respectively, his fees, costs and expenses incurred in selling the vehicles and his costs of the interim application, to those which are “reasonable”. The proposed orders set out at [14] above adopt this qualification.
THE ORDERS SOUGHT BY THE TRUSTEE SHOULD BE MADE
Having regard to the material filed and submissions made by the Trustee, I am satisfied that this is an appropriate case for the making of orders in the terms proposed by the Trustee and consented to by interested persons, Bunnings and Catch. Neither Mr Smith nor Mr Sands has chosen to weigh into the debate and so my decision has not been informed by any views they might have about the making of such orders.
It seems in any case that this is a clear situation where relatively simple measures can and should be taken to prevent the value of assets of the bankrupt estate from being diminished or depleted entirely due to a foreseeable event for which insurance coverage is not presently available and/or ascertainable in the foreseeable future. The making of orders in the terms proposed by the Trustee will pre-emptively avoid a situation that would potentially put the Trustee in breach of his obligations, which, in addition to those identified by the Trustee in his written submissions, include the duty under the general law to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditor’s claims and to provide the best surplus possible for the bankrupt.[1]
[1] Hacker v Weston [2015] FCA 363 at [11], referring to Adsett v Berlouis (1992) 37 FCR 201 at 208.
I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Symons. Associate:
Dated: 6 March 2024
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