Woodgate, in the Matter of Eaton (a Bankrupt)

In this matter, the trustee in bankruptcy of the estate of Stuart Alexander Eaton sought an order under s 109(10) of the Bankruptcy Act 1966 (Cth) that an indemnifying creditor be paid in priority over other unsecured creditors of the bankrupt. The trustee's application was not opposed by any creditor. The evidence relied upon in support of the application consisted of an affidavit of the trustee, Mr Woodgate, and an affidavit establishing service of a copy of the application and Mr Woodgate’s affidavit on the other creditors. The trustee also sought an order that the costs of this application be paid from the bankrupt’s estate in the priority fixed by s 109(1)(a) of the Act.

The court was required to decide whether it was appropriate to grant the order sought by the trustee. The court considered a number of matters relevant to the decision, including the risk run, and costs incurred, by the indemnifying creditor; the complexity of the proceedings in respect of which the indemnity was given; the sum recovered (or the value of the property recovered); the opportunity afforded to other creditors to provide indemnity; the failure of other creditors to provide indemnity; the proportions between the debts of the indemnifying creditor and the other debts; the opposition or support of other creditors to the application for priority; and the public interest in encouraging creditors to provide indemnities so as to enable assets to be recovered. The court found that the circumstances justified the making of an order under s 109(10) of the Act.

The court ordered that the property recovered by the trustee for the benefit of the estate of Stuart Alexander Eaton shall be applied in its entirety in payment of the admitted debt of Ilia Iliagouev in priority over the admitted debts of all other unsecured creditors. The court also ordered that the costs of this application be paid from the estate of the bankrupt in the priority fixed by section 109(1)(a) of the Act.