Wily v Official Receiver

[2015] FCCA 425

FEDERAL CIRCUIT COURT OF AUSTRALIA

WILY v OFFICIAL RECEIVER [2015] FCCA 425

Catchwords:
BANKRUPTCY – Registered trustee signs a consent to act as trustee as required by s.156A(1) of the Bankruptcy Act 1966 (Cth) (Act) for each of 251 estates – documents signifying the trustee consented to act as trustee for each of the 251 estates, not being the consents to act the registered trustee in fact signed which s.156A(1) of the Act required be sent to the Official Receiver, are sent by email to the Official Receiver – the registered trustee is purportedly appointed trustee for each of the 251 estates – whether the registered trustee’s not having sent to the Official Receiver the consents to act he actually signed constitutes a formal defect or irregularity within the meaning of s.306(2) of the Act in the appointment of the registered trustee as trustee for each of the estates for which the registered trustee signed a consent to act as trustee – whether the applicant exercised in good faith the powers and functions purportedly as trustee of each of the estates – whether declaratory relief should be granted to confirm that the defects or irregularities in the appointment of the registered trustee does not invalidate the powers and functions the registered trustee purportedly exercised as trustee for each of the 251 estates – declaration granted.

Legislation:

Bankruptcy Act 1966 (Cth), ss.52(1), 55, 55(4), 55(4A), 57A, 58(1), 156A,

156A(1), 156A(3), 306, 306(1), 306(2)

Bankruptcy Regulations 1996 (Cth), regs.4.12, 8.06(1), 8.06A

Applicant: ANDREW HUGH JENNER WILY

Respondent: OFFICIAL RECEIVER

File Number: SYG 1764 of 2014

Judgment of: Judge Manousaridis

Hearing date: 21 July 2014

Delivered at: Sydney

Delivered on: 27 February 2015

REPRESENTATION

Counsel for the Applicant: Mr B Skinner

Solicitors for the Applicant: Sally Nash & Co Lawyers

No appearance by or on behalf of the respondent.

DECLARATIONS

1. There was a defect or irregularity in the applicant’s appointment as trustee in relation to each of the 251 bankrupt estates identified in annexure “O” to the affidavit of the applicant sworn on 25 June 2014 (Estates), such defect or irregularity consisting in the applicant’s not having communicated to the Official Receiver in the manner required by s.156A(1) of the Bankruptcy Act 1966 (Cth) the consents to act as trustee the applicant did sign for each of the 251 estates as required by s.156A(1) of the Bankruptcy Act 1966 (Cth).

2. By reason of s.306(2) of the Bankruptcy Act 1966 (Cth) the defects or irregularities referred to in paragraph 1 do not invalidate the exercise by the applicant of any power or function the applicant purported to exercise as trustee for any of the Estates.

3. The applicant is not entitled to be reimbursed from any of the Estates for any of the costs the applicant has incurred or may incur in relation to this application.

ORDERS

1. The applicant has liberty to apply.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 1764 of 2014

ANDREW HUGH JENNER WILY

Applicant

And

OFFICIAL RECEIVER

Respondent

REASONS FOR JUDGMENT

Introduction

1. The applicant, a registered trustee in bankruptcy, seeks relief in relation to what he submits is a defect or irregularity in the manner in which he has been appointed trustee for each of 251 bankrupt estates.[1] The trustee was purportedly appointed trustee for each of these estates following the Official Receiver’s accepting a debtor’s petition presented by the debtor.

   [1] Notice of this application has been given to the Official Receiver. By letter dated 10 July 2014, the Official Receiver stated the Official Receiver did not intend to appear or object to the application.

2. Before I identify the claimed irregularity, it would be useful to set out the relevant statutory provisions that govern the appointment of a trustee when the Official Receiver accepts a debtor’s petition.

Appointment of trustee when person become bankrupt on a debtor’s petition

1. A person may become a bankrupt in one of two ways. One is by the Court making a sequestration order against the estate of the debtor under s.52(1) of the Bankruptcy Act 1966 (Cth) (Act); the other is by the debtor presenting to the Official Receiver a petition against himself or herself.

2. The second manner in which a person may become a bankrupt is provided for and regulated by s.55 of the Act. If the Official Receiver is satisfied a debtor has presented a petition that complies or substantially complies with the requirements of s.55 of the Act, then, subject to a number of exceptions, the Official Receiver must accept the debtor’s petition.[2] Under s.55(4A) of the Act, if the Official Receiver accepts the petition, the Official Receiver must endorse the petition accordingly and, on endorsing the petition, the debtor who presented the petition becomes a bankrupt by force of s.55 of the Act, and by virtue of the presentation. Under s.57A of the Act, a debtor whose petition has been accepted by the Official Receiver under s.55 of the Act is deemed to become a bankrupt at the first instant of the day on which the petition is accepted by the Official Receiver.

   [2] S.55(4) of the Act

3. Where a debtor becomes a bankrupt, the property of the bankrupt, not being after-acquired property, vests either in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of s.156A, in that registered trustee.[3] Subsection 156A(1) provides that a registered trustee may, by instrument in writing signed by him or her and filed with the Official Receiver, consent to act as the trustee of the estate of the debtor specified in the instrument in the event the debtor becomes a bankrupt. A trustee who signs an instrument under s.156A(1) of the Act in relation to a debtor must file the instrument with the Official Receiver as soon as practicable after signing it.[4] Further, reg. 4.12 of the Bankruptcy Regulations 1996 (Cth) provides:

   [3] S.58(1)(a) of the Act. Under s.58(2)(b), after-acquired property of the bankrupt vests, as soon as it is acquired or devolves on the bankrupt, in the Official Trustee or the registered trustee (if appointed).

   [4] Reg. 8.06(1) of the Bankruptcy Regulations 1996 (Cth) (Regulations)

   Where:

   (a) a debtor presents, or 2 or more debtors present, a petition to the Official Receiver under section 55, 56B or 57 of the Act; and

   (b) there is in force under section 156A of the Act the consent of a registered trustee to act as the trustee of:

   (i) the estate of the debtor; or

   (ii) in the case of 2 or more debtors—the separate estates, the joint estates, or the joint and separate estates, of the debtors or any of them;

   the petition to the Official Receiver must have with it the original, or a clearly legible photocopy, of the instrument of consent.

4. Where at the time a debtor becomes a bankrupt a registered trustee has, under s.156A(1) of the Act, consented to act as the trustee of the estate of the debtor, and the consent has not been revoked, the registered trustee becomes, at that time, by force of s.156A(3), the trustee of the estate of the bankrupt.[5] Where a registered trustee becomes a trustee by operation of s.156A of the Act, the Official Receiver must notify the trustee of the bankruptcy and give the trustee a copy of the statement of affairs that accompanied the debtor’s petition.[6] The Official Receiver may also give the registered trustee a certificate to the effect that he or she has become the trustee of the estate under s.156A(3) of the Act.[7]

   [5] S.156A(3) of the Act

   [6] S.55(5) of the Act

   [7] Reg.8.06A of the Regulations.

5. It will be seen, therefore, that a registered trustee becomes the trustee of the estate of a bankrupt who becomes bankrupt on his or her petition if, before the Official Receiver accepts the debtor’s petition, the registered trustee has provided to the Official Receiver an instrument in writing by which he or she consents to act as trustee of the particular debtor’s estate.

The claimed defect or irregularity

1. For many years up to 2010 the applicant had been appointed trustee of the estates of debtors who had become bankrupt on the presentation of their own petition. That occurred as a result of the applicant’s following a particular practice that comprised of three elements. First, the applicant received from the debtor the debtor’s petition and statement of affairs the debtor proposed to present to the Official Receiver. Second, if the applicant decided he could and would act as trustee, he completed a Consent to Act, being a prescribed form. Third, the applicant arranged for an employee of his firm to file with the Official Receiver the debtor’s petition and statement of affairs completed and signed by the debtor, and the Consent to Act signed by the applicant.

2. In early August 2009 the Australian Financial Security Authority (AFSA) commenced to offer an online lodgement program for registered trustees under which a trustee, once registered, could lodge or file electronically a progressively increasing range of documents that trustees had previously filed or lodged in hard copy. In 2010 the lodgement program was extended to allow the electronic lodgement of a debtor’s petition by a trustee on behalf of a debtor. Under that program, a trustee could create a PDF copy of the debtor’s petition, statement of affairs, and Consent to Act and forward by email to the Official Receiver the PDF copy of these documents.

3. Sometime in 2010 the applicant resolved to lodge by email the debtor’s petition, statement of affairs, and Consent to Act for each debtor the applicant consented he could act as a trustee in bankruptcy. The applicant, therefore, arranged for each debtor’s petition and statement of affairs to be made into a PDF copy and sent by email to the Official Receiver. The applicant also signed, as he had done before, a Consent to Act. The applicant believed that each Consent to Act that he had signed was also made into a PDF copy and sent by email to the Official Receiver. As a result of attending to inquiries made of the applicant by delegates of the Inspector-General, however, the applicant became aware that his belief was incorrect.

4. The applicant’s inquiries revealed the following. For each of 251 matters the applicant signed a Consent to Act. An administrative employee of the applicant placed each Consent to Act the applicant signed into a separate file in the applicant’s office that contained all original Consents to Act the applicant signed. The employee made, and sent to the Official Receiver by email, a PDF copy of a Consent to Act together with the debtor’s petition and statement of affairs. The copy of the Consent to Act the employee made and sent was not, however, a copy of the Consent to Act the applicant in fact signed. It was a document the employee created by:

   a)photocopying the second page of a Consent to Act the applicant had signed in relation to the estate of a different debtor;

   b)altering the date on the photocopied second page by “whiting out” the date that appeared on the photocopy, and writing a different date; and

   c)attaching the photocopied second page with the altered date to a duplicate first page of the Consent to Act for the debtor whose debtor’s petition and statement of affairs the employee proposed to email to the Official Receiver.

5. Thus, the actual Consent to Act as trustee the employee sent to the Official Receiver for each of the 251 estates is not the Consent to Act the applicant signed for each of those estates. That means that, for each of these 251 estates, the applicant did not comply with s.156A(1) of the Act. That, in turn, means that the applicant did not comply with a necessary step set out in the Act for the applicant’s being appointed trustee of these estates.

6. Even though the applicant did not comply with s.156A(1) of the Act for each of the 251 estates, I find that the trustee undertook the following tasks for each of those estates:

   a)Before each debtor became bankrupt, the applicant signed an original consent to act form by which he consented to act as trustee of the estate of the debtor if the debtor became bankrupt.

   b)Before he signed each consent to act, the applicant turned his mind to and considered whether there were any conflict of interest issues or other matters that may have prevented him from consenting to act as trustee.

   c)After signing the consent to act, the applicant instructed his employee to file the debtor’s petition, statement of affairs, and consent to act with the Official Receiver.

   d)The applicant received a certificate of appointment from the Official Receiver recording the applicant had been appointed trustee.

7. I also find the applicant was unaware of the employee’s manner of communicating to the Official Receiver the applicant’s consent to act as trustee for each of the 251 estates, and that, until he was first alerted to the employee’s practice, the applicant believed, and acted on the belief that the consent to act the applicant signed for each estate had been filed with the Official Receiver.

Consequences of claimed defect or irregularity

1. The question that arises is whether the applicant’s failure to comply with s.156A(1) of the Act invalidates any of the acts the applicant undertook purportedly as trustee of the 251 estates. That turns, in the first instance, on the application of s.306(2) of the Act, which provides:

   A defect or irregularity in the appointment of any person exercising, or purporting to exercise, a power or function under this Act or under a personal insolvency agreement entered into under this Act does not invalidate an act done by him or her in good faith.

2. Subsection 306(2) of the Act applies if the following matters are present.

   a)First, it must be shown that a person has been exercising or purporting to exercise a power or function under the Act.

   b)Second, the power or function the person has been exercising or purporting to exercise under the Act is one that can be exercised only by the class of persons whom the Act specifies as being authorised to exercise that power or function.

   c)Third, the Act contains provisions that must be satisfied before a person is appointed to be a member of the class of persons who under the Act are authorised to exercise the power or function in question.

   d)Fourth, the person who has been exercising or purporting to exercise the power or function in question was purportedly appointed a member of the class of persons who could exercise the power or function in question.

   e)Fifth, one of the conditions that must be satisfied under the Act before the person could be appointed to exercise the power or function in question has not been satisfied.

   f)Sixth, the person who has been exercising or purporting to exercise the power or function in question did so in good faith. At the very least, this requires that the person believed that he could lawfully exercise the power or function he purported to exercise.

3. I make the following findings.

   a)The applicant has purported to exercise powers and functions under the Act in relation to the 251 bankrupt estates, namely, powers and functions the Act authorises trustees in bankruptcy to exercise.

   b)The powers and functions the applicant has purported to exercise are those that, under the Act, can only be exercised by trustees in bankruptcy.

   c)Before a person can exercise the powers and functions of a trustee in relation to a particular estate, that person must be appointed as a trustee and, before a person can be appointed a trustee the person must have filed with the Official Receiver a consent to act as required by s.156A(1) of the Act.

   d)The applicant was purportedly appointed trustee of each of the 251 estates because he received from the Official Receiver for each of the estates a Certificate of Appointment of Trustee.

   e)One of the preconditions to the applicant’s being appointed trustee for each of the 251 bankrupt estates was not satisfied, that precondition being his filing with the Official Receiver of an instrument recording his consent to act as trustee as required by s.156A(1) of the Act.

   f)The applicant acted in good faith in purporting to exercise the powers and functions as trustee in relation to each of the 251 estates. He signed consents for each as required by s.156A(1) of the Act; he did so after considering whether there was any reason why he could not or should not consent to acting as trustee; he believed that the consents he did sign had been filed with the Official Receiver; and he was unaware that what his employee had in fact sent to the Official Receiver was a consent contained in a form that was different from the consent the applicant in fact signed in relation to each debtor.

4. For these reasons, s.306(2) of the Act applies to the exercise of the powers and functions the applicant purported to exercise as trustee for the 251 estates. That means that the applicant’s not having complied with s.156A(1) of the Act does not invalidate the exercise by the applicant of any power or function the applicant purported to exercise as trustee for any of the 251 estates.

5. The applicant submits that s.306(1) of the Act may also apply to the circumstances of the applicant’s purported appointment as trustee for each of the 251 estates. That sub section provides:

   Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.

6. The purported appointment of the applicant as trustee for each of the estates falls within the notion of “proceedings under the Act” as that expression has been interpreted in the cases; and the applicant’s appointment as trustee without his having complied with an element of s.156A(1) of the Act constitutes a “formal defect or an irregularity” as that expression has been interpreted in the cases. No substantial injustice has been caused by the applicant’s having purported to exercise the powers and functions of a trustee in relation to each of the 251 estates, even though he purported to do so without having complied with an element of s.156A(1) of the Act. The applicant did in fact give his consent to his acting as trustee, and the tasks he purported to carry out as trustee were the acts he would otherwise have carried out had there not been any defect or irregularity in his appointment as trustee.

Relief

1. Both subsections of s.306 of the Act apply by their own force without the need for any order of the Court to validate the trustee’s purported exercise of powers and functions as trustee. There is utility, however, in the Court granting a declaration that the defect or irregularity associated with the applicant’s appointment as trustee for each of the 251 estates does not invalidate the exercise by the applicant of any power or function the applicant purported to exercise as trustee for any of those estates. The defects or irregularities affect a large number of estates; and it is in the interests, both of the applicant and of persons with whom the applicant has entered or may have entered into legal relations in the course of his administering the bankrupt estates that there be no doubt about the legal efficacy of the acts the applicant carried out purportedly as trustee of those estates.

2. I propose, therefore, to grant a declaration to the effect that the defects or irregularities in his having purportedly been appointed trustee of the 251 estates do not invalidate the exercise by the applicant of any power or function the applicant purported to exercise as trustee for any of those estates. I also propose to declare that the trustee has no right to reimburse himself from any of the estates for the costs the applicant has incurred or may incur in relation to this application.

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis

Associate: 

Date: 27 February 2015