Translawcom Pty Ltd trading as Brander Smith McKnight Lawyers v Oracle Insolvency Services
[2025] FedCFamC2G 531
•14 April 2025
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Translawcom Pty Ltd trading as Brander Smith McKnight Lawyers v Oracle Insolvency Services [2025] FedCFamC2G 531
File number(s): SYG 2378 of 2024 Judgment of: JUDGE CAMERON Date of judgment: 14 April 2025 Catchwords: BANKRUPTCY – Application to remove respondent as the trustee of bankrupt estate – applicant sought to replace the trustee with another trustee – relevant considerations Legislation: Bankruptcy Act 1966 (Cth) s 19, sch 2, Insolvency Practice Schedule, s 90-15
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) r 8.01
Insolvency Practice Rules (Bankruptcy) 2016 (Cth) rr 42-30, 42-40, 42-130, 42-135)
Cases cited: Yan v Spyrakis [2024] FCA 768
Mokhtar v Piscopo [2024] FCA 493
AMP Music Box Enterprises Ltd v Hoffman [2002] EWHC 1899 (Ch)
Division: General Number of paragraphs: 25 Date of hearing: 25 February 2025 Place: Sydney Counsel for the Applicant: Mr D Parish Solicitor for the Applicant: Brander Smith McKnight Lawyers Counsel for the Respondent: Mr J Hynes with Mr S Powrie Solicitor for the Respondent: LK Law ORDERS
SYG 2378 of 2024 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF SHARON BUSHRA ALBAROUKI
BETWEEN: TRANSLAWCOM PTY LTD TRADING AS BRANDER SMITH MCKNIGHT LAWYERS
Applicant
AND: NICHOLAS DAVID COOPER AS TRUSTEE FOR THE BANKRUPT ESTATE OF SHARON BUSHRA ALBAROUKI
Respondent
ORDER MADE BY:
JUDGE CAMERON
DATE OF ORDER:
14 APRIL 2025
THE COURT ORDERS THAT:
1.The application be dismissed.
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 CAMERON
INTRODUCTION
By an amended application, Translawcom Pty Ltd trading as Brander Smith McKnight Lawyers (BSM), seeks to remove the respondent, Nicholas David Cooper (Trustee) as trustee of the bankrupt estate of Sharon Bushra Albarouki pursuant to s 90-15(3)(b) of the Insolvency Practice Schedule, which is sch 2 to the Bankruptcy Act 1966 (Cth) (Act). BSM seeks to replace the Trustee with Manuel Hanna of Romanis Cant Services Pty Ltd.
BSM contends that the Trustee should be removed because he has:
a.Failed to diligently and in a timely manner recover, secure, and distribute the corpus of the bankrupt estate;
b.Failed to diligently satisfy the claims of the creditors of the bankrupt estate;
c.Failed to communicate effectively and in a timely manner with the applicant as creditor;
d.Depleted the corpus of the bankrupt estate with his own remuneration for not [sic] appreciable return or result for creditors.
e.Contravened his duties under s 19(1)(k) of the Bankruptcy Act 1966 and otherwise failed to exercise and perform his functions in a commercially sound way.
f.Contravened his duties under s 19(1)(j) of the Bankruptcy Act 1966 and otherwise failed to administer the estate as efficiently as possible by avoiding unnecessary expense.
The hearing of this application took place on 25 February 2025 during which it became apparent that a creditor, the Australian Taxation Office, may not have been served in accordance with r.8.01(4) of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth). It was later determined that the ATO had not been served and so, by consent orders made 3 March 2025, a timetable was set to afford it an opportunity to be heard on the present application. The timetable provided:
1… the requirement pursuant to r 8.01(4) of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 for the applicant to notify the Australian Taxation Office (ATO) as a creditor at least 14 days before the date fixed for hearing be dispensed with.
2. … the applicant serve on the ATO the amended application, particulars of claim, all affidavits filed and documents tendered in the proceedings and all written submissions served by the parties within 3 working days of the making of these orders.
3. … a copy of these orders be served with the documents in accordance with order 2.
4. … the Court is otherwise reserved unless the ATO files a notice of appearance within 21 days of these orders, in which case the matter will be relisted for directions.
An affidavit of service of the order and the documents cited in it has been filed and, as at the delivery of these reasons, no notice of appearance has been filed by the ATO.
BACKGROUND
The general background to the proceeding was set out in the following terms in the Trustee’s written submissions, which summary I adopt:
2.The Applicant (BSM Lawyers) is a law firm that has represented both Ms Albarouki and her ex-husband Mr Nidal Albarouki, who is also an undischarged bankrupt. BSM Lawyers has filed a proof of debt for outstanding professional fees in the estate in the amount of $93,950.13. This debt represents approximately 6.9% of the overall creditor claims. BSM Lawyers seek an order for the removal of Mr Cooper as trustee of the bankrupt estate, and an order that Mr Manuel Hanna be appointed as the replacement trustee.
…
7. Ms Albarouki declared bankruptcy on 31 August 2020. The petitioning creditors were Robert Naudi and Stuart Reid as joint and several trustees of the bankrupt estate of Mr Nidal Albarouki (Joint and Several Trustees).
8. The basis for the petition was the non-payment of a judgment debt of approximately $1.2 million arising from Federal Circuit Court proceedings determined on 19 August 2019. In that case, Judge Heffernan ordered that three property transfers from Mr Albarouki to Ms Albarouki were void and that Ms Albarouki was liable to re-pay the Joint and Several Trustees funds representing the proceeds of sale of those two properties.
9. BSM Lawyers represented Ms Albarouki (the bankrupt the subject of this proceeding) in the Federal Circuit Court proceedings described above, and appears to have been retained by her to provide advice following that decision.
10. There are three creditors that have lodged proofs of debt:
(a) the Joint and Several Trustees, who have lodged a proof of debt on behalf of the estate to which they were appointed in the sum of $1,218,951.50;
(b) the ATO, who has lodged a proof of debt for $25,613.39; and
(c) BSM Lawyers, who on 14 March 2024 amended its proof of debt from $93,950.13 to $91,655.35 to remove legal work done for Ms Albarouki after the sequestration order was made.
LEGISLATIVE PROVISIONS
The Act provides:
19 Duties etc. of trustee
(1) The duties of the trustee of the estate of a bankrupt include the following:
…
(j) administering the estate as efficiently as possible by avoiding unnecessary expense;
(k) exercising powers and performing functions in a commercially sound way;
…
The Insolvency Practice Schedule provides:
90-15 Court may make orders in relation to estate administration
Court may make orders
(1) The Court may make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate.
…
Examples of orders that may be made
(3) Without limiting subsection (1), those orders may include any one or more of the following:
(a) an order determining any question arising in the administration of the estate;
(b) an order that a person cease to be the trustee of the estate;
(c) an order that another person be appointed as the trustee of the estate;
(d) an order in relation to the costs of an action (including court action) taken by the trustee of the estate or another person in relation to the administration of the estate;
…
Matters that may be taken into account
(4) Without limiting the matters which the Court may take into account when making orders, the Court may take into account:
(a) whether the trustee has faithfully performed, or is faithfully performing, the trustee’s duties; and
(b) whether an action or failure to act by the trustee is in compliance with this Act and the Insolvency Practice Rules; and
(c) whether an action or failure to act by the trustee is in compliance with an order of the Court; and
(d) 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; and
(e) the seriousness of the consequences of any action or failure to act by the trustee, including the effect of that action or failure to act on public confidence in registered trustees as a group.
…
The Insolvency Practice Rules (Bankruptcy) 2016 (Cth) provide:
42-30 Preliminary inquiries and actions
A registered trustee must undertake preliminary inquiries and actions at the start of each administration, including the following:
(a) informing the regulated debtor (or legal personal representative in the case of a deceased debtor) of the debtor’s obligations under the Act and the penalties for failing to comply with those obligations;
(b) obtaining and reviewing the statement of affairs of the regulated debtor;
(c) if necessary, interviewing the regulated debtor (or legal personal representative in the case of a deceased debtor) to clarify any matters in the statement of affairs;
(d) identifying and making an assessment of realisable assets that could be expected to:
(i) provide, on a cost-benefit basis, a return to creditors; or
(ii) contribute to the payment of the costs and fees of the administration;
(e) assessing the contribution that the regulated debtor is liable to pay in respect of a contribution assessment period, calculated in accordance with section 139S of the Act;
(f) determining the likelihood of whether the estate of the regulated debtor includes property that can be realised to pay a dividend to creditors;
(g) if the trustee has a genuine reason for believing that the regulated debtor (or legal personal representative in the case of a deceased debtor) may not have disclosed an interest in real or other registered property—conducting appropriate searches for such property
(h) if information obtained from a search mentioned in paragraph (g) shows that the regulated debtor (or legal personal representative of the deceased debtor) has not made full and true disclosure of his or her interest in property:
(i) making inquiries of third parties about the information; or
(ii) if further inquiries are not made, explaining to the creditors why further inquiries were considered unnecessary;
(i) if the trustee considers that there may have been antecedent transactions— making inquiries of third parties to identify those transactions;
(j) cooperating with the Inspector-General by, for example, responding to reasonable requests for information.
…
42-40 Realising assets
A registered trustee in relation to an administration must realise only those assets:
(a) that will give a cost-effective return to creditors; or
(b)that contribute to the payment of the costs of the administration; or
(c) that may be realised in accordance with a personal insolvency agreement.
…
42-130 Creditors’ views to be considered
A registered trustee must consider the views of creditors in relation to whether money held by the trustee should be:
(a) applied to conduct further investigations in relation to the administration; or
(b) distributed as a dividend.
42-135 Distribution of estate funds
A registered trustee must distribute estate funds in a timely manner, having regard to:
(a)the complexity of the administration and the claims of creditors; and
(b) the amount of funds available for distribution; and
(c) the need to retain funds in the estate to meet existing or expected commitments.
…
EVIDENCE
In support of its application BSM relied on four affidavits affirmed by its principal, Mark Smith. Mr Smith deposed that:
(a)the estate of Ms Albarouki was sequestrated on 31 August 2020 at which time BSM had been acting for her in family law proceedings with her former husband and in relation to the bankruptcy proceeding;
(b)on 28 June 2021, he wrote to the Trustee advising that BSM was a creditor of Ms Albarouki and requesting an update on the status of the bankruptcy. BSM received no correspondence from the Trustee in relation to the estate until 20 March 2023 when he wrote again to the Trustee advising that BSM was a creditor of the estate for $91,655.35 and a Ms Petrenko responded by emailing a copy of the second report to creditors, dated 14 June 2022. Ms Petrenko’s email also enclosed a proof of debt form. On 12 May 2023 he returned the executed proof of debt form. Between 21 July 2023 and 4 December 2023 he requested information from the Trustee concerning the progress of his administration but received no substantive response until 7 December 2023 when Ms Petrenko advised that BSM was not listed as a creditor of the estate and that BSM’s proof of debt could not be located. The same day, Mr Smith sent a further copy of the proof of debt to the Trustee’s office. On 11 December 2023 Ms Petrenko confirmed BSM's status as a creditor and on 19 December 2023 Mr Smith provided copies of documents that had been requested by the Trustee;
(c)on 12 March 2024 he emailed Ms Petrenko advising that previous correspondence of his had gone unanswered. He noted that in March 2023 BSM had received the second creditors’ report which had stated that an interim dividend would be paid by 27 July 2023, however, no distribution had been received;
(d)on 27 June 2024 the Trustee issued his third report to creditors which sought their views concerning the merit of further investigations. It also invited votes on two resolutions concerning the Trustee’s remuneration and enclosed for completion “Proposal without a Meeting” forms as the method of voting on the proposed remuneration resolutions; and
(e)as at 6 February 2025 he had heard nothing from the Trustee since 27 June 2024 concerning the status of the estate and had received no indication of progress towards distribution of the estate.
The Trustee swore two affidavits. He deposed that:
(a)the petitioning creditors who had sought the sequestration order were the joint and several trustees (Joint and Several Trustees) of the bankrupt estate of Ms Albarouki’s former husband, Nidal Albarouki. The judgment debt was approximately $1.2 million arising out of 3 void property transfers. The trial judge found that they had been transfers for no consideration within five years of the commencement of bankruptcy and were also void as being intended to prevent or delay the properties’ availability for division amongst creditors, despite the transfers being purportedly in accordance with Family Court orders obtained by Mr and Mrs Ms Albarouki after the properties had been transferred. The trial judge had observed:
The overall impression of Ms Albarouki's evidence was that quite apart from any genuine difficulties she had in recalling the relevant events, she was evasive, selective in her memory, and when she believed it to be in her best interests, was prepared to make false denials. Specifically, I found her to have been at the very least disingenuous as detailed above. Taking her evidence as a whole, I did not regard it as both honest and reliable.
(b)proofs of debt had been lodged as follows:
(c)his first report to creditors was made on 10 November 2020 and advised that while a dividend payment to creditors was possible it was dependent on further investigations;
(d)in about November 2020 he commenced inquiries in relation to a potential claim against the ANZ bank. A mediation was held on 17 December 2021 and again on 25 March 2022. As a result of that mediation the Trustee recovered for the estate $390,104.29 (net of legal costs) which was received on 29 April 2022;
(e)on 28 June 2021 he received an email from Mr Smith stating:
We are creditors of the bankrupt. Please advise status of the estate of the bankrupt.
No reply was made to that inquiry because Ms Albarouki had not listed BSM as a creditor in her bankruptcy form and so BSM had not, at that time, been entered into the creditors’ register. The Trustee deposed that experience had taught him to be cautious about providing information concerning the extent of investigations in an insolvency administration as doing so can prejudice investigations and claims;
(f)on 27 July 2021 he received a letter from the liquidator of Starlink International Services Pty Limited (in liq) (Starlink) advising that as Ms Albarouki was a 50% shareholder in that company, a matter she had failed to disclose in her bankruptcy form, and there was a possibility that Starlink might make distributions to shareholders, including the estate. The liquidator advised that this was dependent on the dividend that might be received from Starlink’s claim in Mr Albarouki’s bankruptcy;
(g)the second report to creditors was issued on 14 June 2022 and attached a Notice of Intention to Declare a Dividend in the Estate, the estimated date for payment being 27 July 2022. No interim dividend was paid because it was decided to await the outcome of investigations into Ms Albarouki’s affairs;
(h)BSM’s proof of debt with supporting documentation was sent to the Trustee on 12 May 2023 but, through oversight, was not at that time recorded as received;
(i)because Ms Albarouki had sought permission to travel overseas, on 17 July 2023 the Trustee wrote to her asking her to provide details about certain transactions which had been identified for comment in the second report to creditors of 14 June 2022. Ms Albarouki’s response was received on 17 August 2023 and relevantly indicated that she had transferred sums totalling $500,000 to a bank account in Dubai. She asserted that the recipient of the transfers was an Australian company, Australian Medical Centre Group Pty Limited of which her son was the director and sole shareholder. She had also transferred $172,169 to an Australian bank account for the benefit of her daughter but the money had been returned;
(j)he proceeded on the basis that Ms Albarouki’s explanations needed to be viewed with scepticism and could not be accepted at face value;
(k)after Ms Albarouki had provided her responses to the inquiry about documents but before the Trustee had had a proper opportunity to consider her answers and conduct further investigations, BSM wrote 2 emails, on 15 August 2023 and 4 December 2023, threatening to apply to have him removed as trustee. Ms Petrenko responded on 7 December 2023 saying that the Trustee's office could not locate a proof of debt from BMS. A proof of debt was emailed the same day;
(l)the third report to creditors was issued on 25 June 2024. In it the Trustee reported on Ms Albarouki’s explanation of the transactions that the Trustee had queried and noted that if the estate’s creditors did not wish him to investigate those transactions, then he would proceed to pay a dividend. Neither BMS nor the ATO responded.Initially, the Joint and Several Trustees doubted the value of pursuing the queried transactions, saying in an email dated 27 June 2024:
Unless there is some foundation to suspect the likelihood of a recovery is strong, I do not support examinations and would seek you proceed to pay a dividend...
However, on 13 November 2024 the Joint and Several Trustees wrote again, saying:
I am concerned that BSM are conflicted and their client may urge them to appoint a friendly trustee, who will not investigate what has happened to funds representing the proceeds of void property transfers to Mrs Albarouki (as found by the Court) with the appropriate vigour.
The Trustee deposed that the Joint and Several Trustees were supportive of his further investigations to determine the prospects of further recovery action;
(m)since receiving the email of 27 June 2024, the Trustee had been attempting to verify the likelihood of recovery without conducting a potentially futile examination of Ms Albarouki. This work was said to have included seeking legal advice and engaging investigators to undertake investigations in the United Arab Emirates regarding individuals and entities associated with the overseas transfers (Payments Overseas). The complicating factor had been that over $500,000 had been transferred to an overseas bank account and Ms Albarouki had provided incorrect information concerning the company said to have received the funds;
(n)the Trustee acknowledged delays in his administration. Most relevantly, he said:
Following receipt of the recovery from ANZ on 29 April 2022 it took a period of 14 months for me to request Ms Albarouki's explanations for the Identified Transactions and then a further 12 months to seek the creditors' views on further investigations, as I am required to do pursuant to s.42-130 of the Insolvency Practice Rules (Bankruptcy) 2016. Over this period there have been a number of staff changes in my office, which impacted continuity on the file. In the last year I have also been dealing with BSM's correspondence and threats to remove me as trustee, which have been a distraction. Finally, before seeking creditors' views I considered it preferable to await further information on the likelihood of the Estate receiving any dividend from the liquidation of Starlink, in which Ms Albarouki is a shareholder … . It only became apparent to me in June 2024 that there is circularity in the potential Starlink dividend, in that it may depend on recoveries made in my administration and any dividend paid to Mr Albarouki's Joint and Several Trustees. I therefore intend to progress my investigations so that these matters can be resolved.
(o)as at 22 November 2024, he had received remuneration of $111,108.89, excluding GST, in respect of the administration of the estate and had also sought approval for prospective remuneration of a further $112,081.51, excluding GST, from 8 August 2023, which he considered would be necessary to conduct further investigations and finalise the administration.
The Trustee also tendered a letter dated 18 February 2025 received from the Joint and Several Trustees in which they said:
Further to my letter dated 13 November 2024, for the avoidance of any doubt, I am supportive of you, as Trustee of the Bankrupt Estate of Sharon Bushra Albarouki, conducting further investigations to verify the likelihood of making a recovery in respect of the transactions identified in your third report to creditors dated 25 June 2024.
Both the Estate described above and the Bankrupt estate of Nidal Albarouki (Nidal's Estate) have proven to be intertwined and complicated by both bankrupts refusing to comply with their obligations under the Bankrupt [sic] Act 1966 (the Act). While it has been a slow process as a result and without waiving common interest privilege or legal privilege, we have continued to make inroads into significant missing funds as well as hold the bankrupts to account insofar as possible in difficult circumstances.
I again express my concerns regarding the attempt by Ms Albarouki's lawyers to replace you as Trustee. Should this occur there will be the loss of momentum between our firms and unnecessary cost burden placed upon both estates.
DISCUSSION
Applicant’s submissions
BSM’s case was based on three contentions, supported by particulars set out in a separate document. BSM asserted that there had been:
(a)a failure to make any material progress in investigating identified claims and therefore finalise the bankruptcy, particularised as:
(i)on and from at least June 2021, the Trustee had been aware that BMS was a creditor of Ms Albarouki;
(ii)on and from at least March 2023, the Trustee had maintained that an interim or final dividend would not be paid out “pending our further investigations”;
(iii)as at June 2024, the Trustee had made investigations into payments Ms Albarouki made to overseas bank accounts but had still not determined whether to pursue them;
(iv)the investigations referred to by the Trustee in June 2024 had not materially changed since those referred to in at least March 2023;
(v)on and from at least June 2024, the Trustee had maintained that he would pay out a final dividend depending on the direction of the creditors;
(vi)BMS did not know, and the Trustee had not communicated, what the direction of the Creditor [sic] was;
(vii)the Trustee had known since at least July 2022 the circumstances of the dispositions that might require further investigation and repeated [sic] without any evident progress between July 2022 to date; and
(viii)as at the commencement of this proceeding, some four years after his appointment, the Trustee had still not determined whether to pay a dividend, interim or otherwise, or undertake any further investigations;
(b)a failure to properly process and administer the proof of debt process at least in respect of BSM:
(i)the Trustee was first made aware that BSM was a creditor of the bankrupt on or about 28 June 2021;
(ii)the proof of debt was executed and provided to the Trustee on 12 May 2023 but the Trustee lost it and later sought another copy; and
(iii)the Trustee did not record BSM as a creditor until 11 December 2023 by which time Ms Albarouki had already been discharged from her bankruptcy upon the lapse of 3 years; and
(c)a failure to properly perform the Trustee’s dominant and guiding duty to recover and apply the estate “in the context of the time and cost incurred”:
(i)the remuneration claimed by the Trustee to June 2024 was $225,190.40, which amounted to over 50% of the recovered funds (being $398,414.54).
BSM argued that the administration had been characterised by lassitude on the part of the Trustee and an inability or unwillingness on his part to finalise the administration. It submitted that this was manifested by the following matters:
(a)by the time of the second creditors’ report in June 2022, the Trustee had only secured the ANZ Bank payment and had determined that more than $500,000 had been paid to accounts in other countries, with investigations into them being foreshadowed, for which he had charged fees of $33,108.99 with further fees being estimated at $30,000 when total available assets were $332,404 and possible future available assets were $482,404;
(b)the Trustee did not ask Ms Albarouki about the Payments Overseas until mid-2023; and
(c)a third report to creditors was not issued until June 2024 recording that the Trustee’s investigations into the Payments Overseas were in train, that the question of recoverability remained open, that total available assets were $218,804 and that possible future available assets were between $538,804 and $838,804.
BSM complained that between June 2022 and June 2024, the Trustee did little more than make some enquiries of Ms Albarouki and that in recent times only minimal work had been performed to investigate the Payments Overseas. It submitted that if those investigations were conducted at the cost foreshadowed by the Trustee, and before any recovery action was undertaken, the pool of distributable funds would fall from $251,000 and a return of 19.7 cents in the dollar to about $118,000 and a return of 8.71 cents in the dollar.
It also complained that the Trustee had been under-resourced, not efficient, opaque and had vacillated when confronted with the need to investigate the Payments Overseas. It said:
… it is in the best interest of the estate that it being [sic] promptly and efficiently finalised whether or not that includes investigations. There is nothing in the antecedent behaviour of the Trustee that should give the Court confidence this Trustee will do that.
Authorities
The question for the Court is whether removal of the Trustee would be in the best interests of the bankruptcy: Yan v Spyrakis [2024] FCA 768 at [34]; Mokhtar v Piscopo [2024] FCA 493 at [42]. The following principles relevant to matters such as the present can be distilled from the judgment of Perry J in that latter case, although not all are relevant to this particular matter:
(a)the Trustee’s duty is to recover, secure and duly apply the trust fund and there is no discretion to do otherwise;
(b)the Court should not unduly interfere with a trustee’s day-to-day administration of a bankrupt’s estate;
(c)although the power to remove and replace a trustee is not made subject to conditions such as proof of error, misfeasance, negligence or other poor conduct on his or her part, the Court will normally not interfere unless it is clear that some maladministration of the estate has occurred or is likely;
(d)the trustee is exercising a fiduciary power and has a duty to act upon genuine consideration, and not to act irresponsibly, capriciously, wantonly or for some ulterior purpose;
(e)the trustee must administer the estate as efficiently as possible by avoiding unnecessary expense;
(f)the trustee must exercise his or her powers and perform his or her functions in a commercially sound way;
(g)it is open to the applicant for removal to point to any conduct or inactivity on the trustee’s part that provides a basis for the conclusion that he or she should be removed, ranging from moral turpitude, to bias or partiality, lack of independence, incompetence or other unfitness for office;
(h)an order for removal should be made only if it is demonstrated that such an order would be for the better conduct of the administration;
(i)where the relationship between the trustee and the bankrupt “has totally broken down” that, in many but not all cases, is a sufficient reason for the trustee to be removed; and
(j)the duties of the bankrupt under s.77 of the Act, and the extent of their discharge, are relevant to consider.
Consideration
I agree that the Trustee’s administration could have been speedier in some respects and note the particular delay addressed by the Trustee’s evidence quoted earlier at [10(n)]. However, I also note what the Joint and Several Trustees said in their letter of 18 February 2025 concerning the interlocking nature of the two bankruptcies and the lack of co-operation the trustees have received from Mr and Ms Albarouki. It is apparent to me that the administration is not without its complexities. I accept the Trustee’s submission that the reasons of Neuberger J in AMP Music Box Enterprises Ltd v Hoffman [2002] EWHC 1899 (Ch), unreported, at pp 15 and 16 are apposite to the present situation:
… if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. So to hold would encourage applications … by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.
The fact that the Trustee mislaid the first copy of BSM’s proof of debt and was not forthcoming with information the distribution of which he was concerned, based on the information he had access to, might have been harmful to his administration are not matters of great moment, even if irritating to BSM. Those matters reflect an administrative error but are no more serious. Specifically, they do not reflect incompetence or an inability to undertake the tasks necessary for the proper administration of the estate.
Given that overseas recovery action may be necessary, it is hardly surprising that the estate funds currently held are not distributed at this point as they may be required to support further recovery expenses. That is a prudent and reasonable precaution.
In that connection, it appears that the only significant matter remaining to be addressed is whether the funds transferred by the Payments Overseas can be recovered. While I appreciate that BSM is keen to receive any dividend from the estate and surmises that the prospects of further recovery are “tiny” it has much less at stake than the Joint and Several Trustees who do want that issue investigated before any decision to abandon recovery attempts is taken. It does seem prudent and reasonable to investigate the prospects of recovery of the $500,000 that was sent overseas before concluding the administration. The sum is material in size and, if received into the estate, would presumably be the most significant recovery of the administration. Additionally, the amount that is likely to be applied to investigating the merits of recovery action is not unreasonably large. It would not be a wasteful expenditure.
On the other hand, the appointment of a new trustee would involve wasteful expenditure in that the new trustee and his staff would have to familiarise themselves with the matter, at undoubted expense to the estate of which BSM is only a small claimant. BSM has not undertaken to bear those costs which would otherwise ultimately be borne principally by the Joint and Several Trustees, who do not support the present application.
Further in connection with the Joint and Several Trustees, their lack of support of the present application is significant and of note given that they are themselves trustees and, presumably following a professional assessment, have concluded that no change in the administration of the estate is presently warranted. Because they are the primary creditors of the estate and sophisticated actors, I place weight on their support of the Trustee, as expressed in their correspondence quoted earlier.
Finally, I am not persuaded that the Trustee has depleted the corpus of the bankrupt estate with his own remuneration for no appreciable return or result for creditors. His historical fees, as particularised in the most recent report to creditors, seem not unreasonable and, so far as can be judged, proportionate to the functions he has performed. Further, the fees estimated for the future are principally comprised of expenses related to the investigation of the Payments Overseas and possible recovery action and so will depend on what needs to be undertaken in fact. On that basis, they too do not seem unreasonable.
CONCLUSION
Overall, I conclude that the best interests of the bankruptcy do not lie in replacing the Trustee.
Consequently, the application will be dismissed.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Cameron. Associate:
Dated: 14 April 2025
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