Weiss, Re Z. Ex Parte Official Trustee in Bankruptcy

[1986] FCA 395

Re: ZDENEK WEISS
Ex parte: OFFICIAL TRUSTEE IN BANKRUPTCY
No. 293 of 1978
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Burchett J.

CATCHWORDS

Bankruptcy - application by Official Trustee for relief under s.77(e) and s.78 - Adjournment application based on allegedly impending change of trustee and possible compromise between the bankrupt and his creditors - Trustee's function under the Act is wider than merely protection of the interests of the creditors - Court control of administration in bankruptcy - Whether creditor entitled to intervene on trustee's application under s.77(e).

Bankruptcy Act 1966, ss.19, 69, 77(e), 78, 134, 157, 160, 177, 178, 179

Bankruptcy Rules Rule 93

Re Crawford (Dec'd) Ex parte The Trustee (1943) 13 ABC 201

In Re Hester; Ex parte Hester (1889) 22 QBD 632

Re Buildmat (Australia) Ltd (1983) 1 NSWLR 291

In re Lord Thurlow; Ex parte Official Receiver (1895) 1 QB 724

Re Carson Ex parte Carson (1960) 19 ABC 108

Re Mineral Securities Australia Ltd (in Liq.) (1973) 2 NSWLR 207

HEARING

SYDNEY

#DATE 29:8:1986

JUDGE1

An application has been made by the Official Trustee in Bankruptcy for relief pursuant to s.77(e) and s.78 of the Bankruptcy Act 1966. At the outset, two matters have been raised which are the subject of these reasons. The first is an application for adjournment which has been made by Mr Strasser, who appears for the bankrupt. The second is an application for leave to appear in the proceeding which has been made on behalf of one Zinaida Gorelick, who claims to be a creditor by virtue of an assignment taken from Amev Finance Limited (formerly United Dominions Corporation Limited), a creditor in an amount of approximately $400,000-00. An affidavit has been filed in which she says that she has been living in a de facto relationship with Mr Weiss for approximately two years, and that she has purchased, for the sum of $12,000-00, the assignment of the debt to which I have referred.

1. I shall deal first with the application for adjournment. Mr Strasser began by putting this upon the basis that the Official Trustee has been removed from office by virtue of a resolution passed by the creditors on 22 August 1986 that a Mr Walker, who is a registered trustee, be appointed trustee. However, as the argument proceeded, Mr Strasser accepted that this could not really be the position. For he conceded that Mr Walker had declined to accept the proffered appointment, on the basis that no sufficient notice had been given of the purported meeting of creditors. The notice which had been given was one day, and the meeting was purportedly called, not by the trustee (see s.177(2), rule 93 and form 42), the Official Trustee, but by Miss Gorelick. Section 157 provides for the appointment by resolution of a registered trustee to the office of trustee of an estate of a bankrupt in place of the Official Trustee "at the first or a subsequent meeting of creditors" (sub-section (1)). But the following sub-sections make it clear that any such appointment, if validly made, will take effect, not from the date of the meeting, but from the date of the issue of a certificate of appointment to be issued by the Registrar. It is accepted that this has not happened and, in view of Mr Walker's attitude, will not happen pursuant to the purported resolution referred to. In the meantime, even if there has been a valid decision to remove the Official Trustee as trustee, s.160 operates to confer on him the office of trustee by force of that section.

2. After the argument had concluded, I was informed by Mr Strasser that the Official Trustee has himself convened a meeting of creditors for 9 September 1986. The bankrupt, through his counsel, stated to the Court that if a new trustee is appointed at the meeting who, with full knowledge of the circumstances, asks the bankrupt to sign an authority, the bankrupt will not then resist the request. Whatever the meeting may decide on 9 September, I understand it is now accepted, and in any case I hold, that the Official Trustee is presently the trustee of the estate of the bankrupt, and he continues to oppose any adjournment.

3. But Mr Strasser fell back upon a second ground. He contended that as a matter of discretion I should not deal with the application at present, and should adjourn it for approximately one month, in order to permit the bankrupt to engage in negotiations with his creditors with a view to a composition, and the meeting to be held, before the application is concluded. It was pointed out that Miss Gorelick's assignment of a debt of approximately $400,000-00, the largest debt, and the possibility of her taking further assignments by purchasing further debts, offered a real prospect that a compromise might be agreed to. The Court would then be asked to exercise its discretion in respect of a discharge or annulment. Mr Strasser further asserted that "the trustee's only function is to protect the interests of the creditors", and that the Official Trustee, or another trustee appointed pursuant to some resolution validly passed at the meeting to be held, would have no basis to pursue the present matter if a compromise were reached. Alternatively it was put that they should not do so.

4. I am not of course concerned at this stage to decide whether the Official Trustee's application is well founded. Nothing in these reasons determines that question. But the proposition that the trustee's only function is to protect the interests of the creditors is contrary both to the Act and to authority. The Act makes it clear that the trustee has statutory duties which include duties with reference to the ascertainment of the assets and liabilities of the bankrupt, and his conduct, dealings and transactions, and with reference to any public examination pursuant to an application under s.69 by the Official Receiver: s.19. The trustee has a discretion under s.19(1)(c) whether or not in a particular case to investigate the conduct, dealings and transactions of the bankrupt, but provision is made for the case where he exercises that discretion against conducting an investigation. In such a case sub-section (1C) of s.19 empowers the Official Receiver to conduct an investigation. The terms of ss.19 and 69 make it clear that the Official Receiver has also an independent power, by virtue of his office, in respect of the public examination of a bankrupt, whether or not there is a private trustee. Having regard to these provisions, it seems clear both that the trustee has statutory functions to perform of a much wider nature than those suggested by the submission, and also that the statute ensures the performance of those wider functions by empowering the Official Receiver to act where the trustee does not. Furthermore, the actions of the trustee are ultimately under the control of the Court: ss.134(4), 178, 179. As well, the Court will, in an appropriate case, control an attempt by creditors to remove a trustee: Re Crawford (Dec'd) Ex Parte The Trustee (1943) 13 ABC 201.

5. It is true that by s.177(1) it is provided:
   
   

"Subject to this Act, in the administration of the estate of a bankrupt, the trustee shall have regard to any lawful directions given by resolution of the creditors at a general meeting or by the committee of inspection."

But this is a carefully limited provision. It will be observed that it does not require the trustee to act upon such a direction, though lawful, but only to "have regard to" it. (See the note in Australian Bankruptcy Law and Practice, 5th ed., para. 942, and see s.134(3).)

1. When one turns to the authorities, it is at once clear that even a compromise approved by all the creditors would not tie the hands of the Court. In my view, neither would it tie the hands of the trustee or the Official Receiver under the provisions to which I have referred.

2. It has been repeatedly laid down that the Court, in exercising discretions reposed in it in respect of matters of bankruptcy, generally has regard to the interests of commercial morality and the public interest. A leading authority is In Re Hester; Ex parte Hester (1889) 22 QBD 632. There it was held that the Court's jurisdiction to rescind a receiving order involved the exercise of such a discretion, and that the order would not be rescinded as a matter of course because all the creditors consented to the rescission. The Court of Appeal was unanimous and emphatic. Fry L.J. at p.641 said:
   
   

"It is an idle notion that the Court is bound by the consents of the creditors. The Court has far larger and more important duties to perform than merely to consider whether the creditors have consented to the rescinding of the order. We are bound in the exercise of our discretion in such a matter, and I think I might almost say in all matters under this Act, to take a wider view. We are not only bound to regard the interests of the creditors themselves, who are sometimes careless of their best interests, but we have a duty with regard to the commercial morality of the country."

See also per Lord Esher M.R., at 639.

The passage I have cited from the judgment of Fry L.J. was referred to by Needham J. in Re Buildmat (Australia) Ltd (1983) 1 NSWLR 291 at 295-6 and applied by him to the Companies (New South Wales) Code. He declined to make an order with a view to the calling of a meeting of creditors, to consider a proposed compromise, on the ground that even if the creditors were to approve of the scheme the Court would not do so.

1. In the present case, the Official Trustee opposes any adjournment, claiming that certain matters require investigation. Whether his claim is right or wrong will not be finally determined by the identity of the trustee, or by a compromise between the bankrupt and his creditors, but by the decision of the Court. As Lord Esher M.R. said in In re Lord Thurlow; Ex parte Official Receiver (1895) 1 QB 724 at 729 (a passage cited by Clyne J. in Re Crawford (supra, at 202):
   
   

"It is not for the creditors in the case to decide how the bankruptcy law shall be administered; the Court constantly overrules their views, if it thinks they have been persuaded to agree to some course which the Court thinks an improper one; nor is it for the official receiver to decide how the bankruptcy law shall be administered, except subject to the control of the Court."

In my opinion, the Court should determine the matter, which is properly before it. Accordingly, I refuse the application for adjournment.

1. The application by Miss Gorelick for leave to appear raises the question of her standing, as assignee of a creditor's debt, in the proceeding brought by the Official Trustee. The Official Trustee is acting under an express statutory power conferred by s.77(e); there is no right there stated of a creditor to intervene. Generally, the Court does not, at the instance of a creditor, interfere with a trustee's exercise of his discretion: Re Carson Ex parte Carson (1960) 19 ABC 108 at 122; Re Mineral Securities Australia Ltd (in Liq.) (1973) 2 NSWLR 207 at 230-2.

2. In the present case, the applicant is not in a position comparable to that of a trustee proceeding to exercise unsupervised a power, such as a power of sale, contrary to a creditor's wishes; he is bringing a matter concerning the exercise of his powers with respect to the bankrupt before the Court, having made the bankrupt, as the person directly affected, a respondent. Assuming it is within my discretion to give leave to Miss Gorelick to intervene, I do not think it is appropriate that I should do so. Accordingly, I refuse her application.