Wong and Inspector-General in Bankruptcy and Ors
[2008] AATA 487
•12 June 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 487
ADMINISTRATIVE APPEALS TRIBUNAL )
) No V 200600930
GENERAL ADMINISTRATIVE DIVISION ) Re LOKE CHING WONG Applicant
And
INSPECTOR-GENERAL IN BANKRUPTCY
First Respondent
And
PAUL PATTISON
Second Respondent
And
SUSAN COCHRANE
Third Respondent
DECISION
Tribunal Mr B.H. Pascoe, Senior Member Date12 June 2008
PlaceMelbourne
Decision The Tribunal affirms the decision under review.
(sgd) B.H. Pascoe
Senior Member
BANKRUPTCY – registered trustee – cancellation of registration – breaches of Act in number of administrations over several years – whether suspension appropriate – whether suspension available under the Act
Bankruptcy Act 1966
Muir v Bradley (1984) 57 ALR 155
REASONS FOR DECISION
12 June 2008 Mr B.H. Pascoe, Senior Member 1. This is an application to review a decision of the Inspector-General in Bankruptcy (the first respondent), which gave effect to a decision of a Committee convened pursuant to s 155H of the Bankruptcy Act 1966 (the Act) that the applicant should cease to be registered as a trustee under the Act. The second and third respondents, Mr P. Pattison and Ms S. Cochrane, constituted that Committee together with the Inspector-General.
2. At the hearing, the applicant, Mr Loke Ching Wong (Mr Wong) was represented by Mr G. Bigmore, QC and the respondents by Mr C. Gunst, QC. No evidence was led at the hearing.
3. In 2004, the Bankruptcy Regulation Branch of the Insolvency and Trustee Service Australia (ITSA) undertook an inspection of 23 files relating to bankruptcy administrations conducted by Mr Wong. By letter of 5 April 2005, Mr Wong was advised that a number of errors had been identified and he was requested to respond by 2 May 2005. After an interview and his letter of response, Mr Wong was advised by letter of 14 October 2005 that the Inspector‑General had formed a belief that he had failed to exercise the powers, or carry out the duties of a registered trustee properly. He was requested to provide a written explanation of why he should continue to be registered as a trustee. The Inspector-General did not accept the written explanation and pursuant to s 155H of the Act, convened a Committee to consider his registration. After four days of hearing between June and August 2006. The Committee provided a report dated 5 September 2006 in which it decided that Mr Wong should cease to be registered as a trustee under the Act.
4. The relevant provisions of the Act are s 155H and s 155I which state:-
(1) The Inspector-General may ask a registered trustee to give the Inspector-General a written explanation why the trustee should continue to be registered, if the Inspector-General believes that:
(a)the trustee no longer has a qualification or ability that is prescribed by the regulations made for the purposes of paragraph 155A(2)(a); or
(aa)the trustee no longer has the ability (including knowledge) to perform satisfactorily the duties of a registered trustee; or
(b)the trustee has been convicted of an offence involving fraud or dishonesty since registration as a trustee; or
(c)the trustee is not insured against liabilities that the trustee may incur, or has incurred, working as a registered trustee; or
(d)the trustee is no longer practising as a registered trustee; or
(e)the trustee has contravened any conditions imposed by the committee on the trustee’s practice; or
(f)the trustee has failed to exercise powers of a registered trustee properly or has failed to carry out the duties of a registered trustee properly; or
(fa)if the trustee is or was the administrator of a debt agreement—the trustee has failed to properly carry out the duties of an administrator in relation to a debt agreement; or
(g)the trustee has failed to comply with a standard prescribed for the purposes of subsection (5).
(2) If the Inspector-General does not receive an explanation within a reasonable time, or is not satisfied by the explanation, the Inspector-General must convene a committee to consider whether the trustee should continue to be registered.
(3)The committee must consist of:
(a) the Inspector-General; and
(b) an APS employee; and
(c) a registered trustee chosen by the Insolvency Practitioners’ Association of Australia (A.C.N. 002 472 362).
(4) In considering whether the trustee should continue to be registered, the committee must take into account the matters mentioned in paragraphs (1)(a) to (g).
Note: The regulations may provide for the way in which the committee must do its work: see section 315.
(5)The regulations may prescribe standards applicable to the exercise of powers, or the carrying out of duties, of registered trustees.
Section 155I;
(1)The committee must:
(a)decide that the trustee should continue to be registered; or
(b)decide that the trustee should cease to be registered.
(2)The committee may decide under paragraph (1)(a) that:
(a)the trustee should continue to be registered unconditionally; or
(b)the trustee should continue to be registered on the condition that:
(i)the trustee meets specified conditions; or
(ii)specified conditions are imposed on the trustee’s practice; or
(iii)specified modifications are made to conditions on the trustee’s practice.
Note:See the definition of modifications in subsection 5(1).
(3)The committee may decide under paragraph (1)(b) that:
(a)the trustee should cease to be registered unconditionally; or
(b)the trustee should cease to be registered if the trustee fails to meet specified conditions.
(4)The committee must give the trustee and the Inspector-General a report of its decision relating to the application, and the reasons for the decision.
(5)The trustee may apply to the Administrative Appeals Tribunal for review of the committee’s decision.
(6)The Inspector-General must give effect to the committee’s decision.
Note:Sections 176 and 182 specify other circumstances in which a trustee may involuntarily cease to be registered.
Under s 155A a person cannot be re-registered as a trustee within 10 years of having his registration cancelled under s 155I.
5. In its report, the Committee made a number of specific findings detailing breaches under various sections of the Act including sections 19, 109, 139W, 140, 162, 165, 168, 169 and 189A. The report was lengthy but the breaches found can be summarised as follows:
· Eight matters in which estimated remuneration and costs of Mr Wong in his report to creditors was lower than the amount in his work in progress at the time and lower than his actual final fees. The final fees varied from 11 percent to 244 percent in excess of the estimate.
· Taking remuneration in excess of that fixed by creditors in five administrations.
· Banking estate monies in Mr Wong’s firm’s bank account instead of a required special interest-bearing account on six occasions.
· Use of proxies to pass a creditors’ resolution relating to Mr Wong’s remuneration in wording different to that previously sent to creditors.
· Systematic and unnecessary registration of estates for GST involving unnecessary work and incorrect banking of GST refunds.
· Failure to disclose a second and higher valuation of a property in a report to creditors.
· Failure to disclose to creditors a possible valid claim of a creditor and likely invalid claims of three creditors.
· Failure to investigate validity of claim for lien.
· Representing that a petitioning creditor’s taxed costs had been paid at the date of the report when they had not been so paid.
· Failure to properly calculate the income contribution by a bankrupt.
· Incorrect classification of interest earned as a charge.
· Failure to put resolution to appoint a committee of inspection notwithstanding a clear majority of creditors seeking to have such a committee appointed.
6. Mr Wong did not dispute or challenge the findings of fact by the Committee. The primary argument submitted by Mr Bigmore on Mr Wong’s behalf was that the effective penalty of de-registration for ten years was too severe. It was accepted that some penalty was appropriate. An effective suspension of twelve months was proposed by varying the decision to allow Mr Wong to remain registered on condition that he hand over any existing appointments to another trustee and not undertake any new appointments for the suspension period.
7. It was submitted that the matters identified by the committee were either errors of judgement or simple mistakes. It was argued that, as trustee under Part X arrangements, there was limited time and ability to make full enquiries. It was suggested that the legislation in relation to these arrangements contemplated the need to make a judgement call within a limited time frame. Mr Bigmore submitted that there was no evidence of dishonesty or personal gain, only possible negligence. It was said that there was no evidence of Mr Wong taking fees in excess of the appropriate amount for the work performed being only fees taken in excess of those estimated or capped by creditors. It was argued that the effect of the decision has been that Mr Wong has been unable to act as trustee since September 2006 and has been penalised for a period in excess of twelve months already. The Tribunal was urged to accept that Mr Wong has learned by his mistakes and the possibility of any further lapses is most unlikely.
8. Mr Wong tendered three letters of support. Mr A.J. Kelly is a former Deputy Official Receiver and currently Manager, Personal Insolvency with Scott Partners Consulting. He has known Mr Wong for at least 12 years and has ongoing contact through the Melbourne Bankruptcy Discussion Group. Apart from this contact he has not dealt with Mr Wong in relation to specific administrations since 2000. Mr L. Green, a solicitor, has provided legal work for Mr Wong in a range of insolvency administrations from 1995 to 2006. He believed that Mr Wong’s conduct was exemplary and he had the highest standard of character. Mr R. Judson, an accountant, is an insolvency practitioner who has known Mr Wong since 1989 and worked with him between 1998 and 2000. He believed that Mr Wong had always conducted himself in an ethical, conscientious and professional manner in his approach to all administrations that he had conducted in the time that Mr Judson had known him. It must be said that the knowledge of Mr Wong’s work by both Mr Kelly and Mr Judson predates the administrations which were the subject of review by the Committee. In none of the references is there any indication that the author had any direct knowledge of the allegations of breach in relation to those administrations.
9. It was submitted for the respondents that an effective 10 year de-registration period was that chosen by Parliament in enacting s 155A of the Act. It was stressed that the breaches by Mr Wong were while acting in a capacity of trustee and involved regular, culpable and negligent conduct in that capacity over several years. It was argued that all Mr Wong’s errors of judgement or mistakes favoured him in taking remuneration in excess of that estimated or capped and no mistakes favoured creditors. Mr Gunst submitted that the retention of public confidence required the cancellation of registration. It was the view of the respondents that conditions contemplated in s 155I(2)(b) and 3(b) were matters such as undertaking a course of study but not an effective period of suspension of less than ten years.
10. In its conclusion and after summarising the findings of breaches, the Committee stated in its report:-
9.8Mr Wong submitted that the errors he has admitted were not deliberate nor was there any intention to mislead creditors or to gain any personal financial benefit or advantage. Mr Wong has advised that he has taken steps to rectify many of the identified breaches were possible and that his actions were not intentional, nor that he has not preferred his personal interests to those of creditors for his own personal gain or advantage. The Committee concludes that while there is a pattern of neglect to adhere to the legislation, a finding of intention on the part of the trustee in this regard has not been clearly established on the information put to the Committee.
9.9It is the Committee’s findings that dishonest intention or intentional breach of fiduciary duty are not prerequisites for cancellation of a trustee’s registration: see Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262 where Riley J states at p263:
“I emphasize at the outset that there is no suggestion whatsoever that the trustee acted in any way with a view to his own personal benefit. Nothing has been brought against him with the intention of impeaching, nor has anything in fact impeached, his personal integrity.
9.10However, misfeasance, negligence and wilful default are relevant factors for the Committee to consider, and cancellation can be warranted when losses are sustained by creditors resulting from the trustee’s inappropriate actions and breaches of a statutory requirement (Re: Alafaci).
…
9.12Mr Wong has, in the Committee’s view, made unauthorised payments and otherwise acted in contravention of his duties, over a period of three years in some cases, thus constituting a serious breach of Division 3 Part VIII of the Act, and, in particular, section 165, section 168 and section 169. In Re Humphreys and Walter (1931) 3 ABC 254, breaches of section 165 or its equivalent at the time, in paying secret commission, was considered conduct that warranted cancellation of registration.
9.13Because the breaches, summarised above and detailed in this report, are apparent across so many of the administration investigated, the Committee is of the view that the trustee has demonstrated a pattern of indifference to the legislative requirements, a lack of knowledge of the law and a disregard for standards published as a guide to practitioners. The conduct on the part of the trustee, while not evidencing bad faith or dishonesty, is inconsistent with the high standard expected of a trustee. While the trustee has taken steps to rectify many of the problems identified in his practices, Mr Wong had previous opportunity to rectify problems with how he took remuneration approved by creditors, but failed to do so, instead repeating mistakes previously identified.
9.14In a number of the matters being considered by the Committee, loss to creditors was proven, and while undertakings have been given to recover amounts and redistribute to the creditors, the extent of breaches and the impact of these warrant cancellation of registration.
11. Unfortunately, perhaps, Mr Wong chose not to give evidence at the hearing by this Tribunal to explain how the errors identified were errors of judgement or simple mistakes and what steps, if any, he took prior to or since the cancellation of his registration to ensure such errors would not re-occur. It appears that Mr Wong was made aware of some errors before the inspection of his files. As a consequence of receiving no evidence at the hearing, the findings of the Committee remain unchallenged and it is the consequence of those findings on which the Tribunal is required to make the correct or preferable decision.
12. It is accepted that a trustee under the Act has an onerous duty. At times the estate will not have sufficient funds to provide an adequate remuneration. Particularly in Part X arrangements, the trustee has limited time and limited coercive powers. However, as stated in Muir v Bradley (1984) 57 ALR 155:
“a trustee in bankruptcy is a person who must command and retain the confidence of the Court, of the creditors and debtors in bankruptcy proceedings and of the general community. His competence must be, and remain, of a high order.”
13. Mr Wong has had a long career in insolvency practice. The references provided show that he was involved in insolvency work at least from 1989 as a supervisor with the accounting firm Panell Kerr Forster, then a manager with Meyrick Webster and finally a partner in what ultimately became Harrisons Insolvency. He was registered as a trustee in 1998. There is no evidence of whether any files of his were inspected prior to the inspection which led to the decision under review. However, it is of concern that he had been practising in insolvency work for some 15 years and had been a registered trustee for six of those years at the time of the inspection. Nevertheless, over the most recent years covered by the inspection he made many errors said to be errors of judgement or single mistakes. While there is no direct allegation of dishonesty, there are many and repeated breaches of trust.
14. Given that personal insolvency has been a significant part of Mr Wong’s income-producing work in the past and cancellation of his registration has had, and will continue to have, a detrimental effect on his income-earning capacity, it is tempting to consider a form of suspension of less than the statutory period of ten years. This could be done pursuant to s 155I(3)(b) by a decision that Mr Wong should cease to be registered as a trustee if he fails to meet specified conditions. Such conditions could include that he does not continue with or accept any appointment as trustee for two years and, for those appointments accepted in the third year, provide to the Inspector-General full details of remuneration including creditors resolutions, his reports to creditors showing estimated remuneration, work in progress records and invoice for payment. However, having fully considered the report of the Committee, the acceptance of the factual findings of that Committee and the number of breaches relative to the number of files inspected it would be inappropriate to allow Mr Wong to retain his registration. The only alternative is an effective suspension for a period of less than that provided in s 155A(4). Parliament has specifically provided for a 10 year period in that section and, unlike many other Acts of Parliament which have registration provisions, does not otherwise specifically provide the Committee with power to suspend.
15. Given the foregoing the decision of the respondents should be affirmed.
I certify that the fifteen (15) preceding paragraphs are a true copy of the reasons for the decision herein of
Mr B.H. Pascoe, Senior MemberSigned: Dianne Eva
ClerkDate/s of Hearing 6 December 2007
Date of Decision 12 June 2008
Counsel for the Applicant Mr G. Bigmore
Solicitor for the Applicant Mr N. Watson , TressCox Lawyers
Counsel for the Respondent Mr C. Gunst
Solicitor for the Respondent Mr G. Carroll, Australian Government Solicitor
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