Young, In the matter of Macryannis - [2011] FCA 1272

FEDERAL COURT OF AUSTRALIA
Young, In the matter of Macryannis [2011] FCA 1272

Citation: Young, In the matter of Macryannis [2011] FCA 1272

Parties: GEOFFREY DAVID MCDONALD AS TRUSTEE OF THE BANKRUPT ESTATE OF THE LATE CHRISTOPHER JOHN MACRYANNIS AND KATHRYN ANNE YOUNG

File number: NSD 1955 of 2006

Judge: STONE J

Date of judgment: 8 NOVEMBER 2011

Catchwords:
BANKRUPTCY – application under s 179 Bankruptcy Act 1966 (Cth) for enquiry into Trustee’s conduct in administering deceased estate – administration under Part XI Bankruptcy Act– Trustee appointed by Court order – delay in distributing assets – application for enquiry brought by creditor of estate – whether creditor has standing to bring application – whether issues identified by creditor warrant an enquiry being ordered – consideration of principles relevant to exercise of Court’s discretion under s 179 – consideration of principles governing the duties of trustees in bankruptcy – Court has high degree of supervision and control over trustees’ conduct – powers of Inspector-General in Bankruptcy – reasons referred to Inspector-General for consideration

BANKRUPTCY – administration under Part XI Bankruptcy Act – whether Trustee entitled to deal with non-divisible assets as part of administration – reference to bankrupt’s assets or estate to be read as reference to whole of deceased person’s property – Trustee required to administer whole of estate which includes non-divisible assets

BANKRUPTCY – application by Trustee to have remuneration fixed – whether Trustee entitled to be remunerated for dealing with exempt assets – consideration of mechanism by which remuneration to be calculated – consideration of s 162(4) Bankruptcy Act and reg 8.08 Bankruptcy Regulations and relevant authorities – whether Trustee entitled to costs, charges and expenses of administration – remuneration and any costs, charges and expenses to be drawn from divisible assets

Words & phrases: “in relation to”

Legislation: Bankruptcy Act 1966 (Cth) ss 5, 30 (1), 109(1)(a) 155H, 162(4), 178, 179, 244, 248, 249(6)(a)-(g), 249(7)(a)-(e) and 249(8)(a)-(d)

Bankruptcy Legislation Amendment Act 1996 (No 44) (Cth)
Bankruptcy Legislation Amendment Act 2010 (Cth) s 162(4)
Evidence Act 1995 (Cth) s 185
Probate and Administration Act 1898 s 18A
Wills, Probate and Administration Act 1898 (NSW)

Bankruptcy Regulations 1996 regs 6.01, 8.08, Divisions 2.4, 2.5 and 2.7 of Sch 4A
Bankruptcy Amendment Regulations 2010 (No 2) reg 4(2)

Cases cited:
Adsett v Berlouis (1992) 37 FCR 201
Brake v Townsend [2006] FCA 1156
Dare v Doolan [2003] FCA 1451
Doolan v Dare (2005) 142 FCR 287
Ferella v Official Trustee in Bankruptcy (No 2) [2011] FCA 619
Freeman v National Australia Bank Limited [2003] FCA 1233
Hatsatouris v Hatsatouris [2001] NSWCA 408
Macchia v Nilant (2001) 110 FCR 101
Mayne v Jaques (1960) 101 CLR 169
McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547
Official Receiver in Bankruptcy v Todd (1986) 70 ALR 119
Pattison v Bellin (2000) 103 FCR 590
PMT Partners Pty Limited (in Liquidation) v Australian National Parks and Wildlife Service (1995) 184 CLR 301
Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262
Re Dingle; Westpac Banking Corporation v Worrell (1993) 47 FCR 478
Re Tyndall; Ex parte Official Receiver (1977) 30 FLR 6
Re Walker (2005) 221 ALR 320
Trkulja v Morton [2005] FCAFC 259
Wilson v Commonwealth of Australia [1999] FCA 219
Wilson v Official Trustee in Bankruptcy [2000] FCA 1251

Halsbury’s Laws of England (3^rd ed), Vol 38, p967
M Murray and J Harris, Keay’s Insolvency: Personal and Corporate Law and Practice, 7^th edition 2011

Date of hearing: 3, 18 November and 9 December 2010

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 172

Counsel for the Applicant: T Alexis SC

Solicitor for the Applicant: Rockliffs Solicitors

Counsel for the Trustee:
B Skinner

Solicitor for the Trustee: Parry Carroll

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 1955 OF 2006

IN THE MATTER OF THE BANKRUPT ESTATE OF THE LATE CHRISTOPHER JOHN MACRYANNIS

KATHRYN ANNE YOUNG
Applicant

GEOFFREY DAVID MCDONALD
Trustee

JUDGE:

STONE J

DATE OF ORDER:

8 NOVEMBER 2011

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.The costs of the application made by the petitioning creditor, Kathryn Anne Young, for an order for the administration of the estate of the late Christopher John Macryannis under Part XI of the Bankruptcy Act 1966 (Cth) be taxed and paid out of the Bankrupt Estate of Christopher John Macryannis in accordance with s 109(1)(a) of the Bankruptcy Act.
2.The application for the Court to inquire into the conduct of the Trustee, Geoffrey David McDonald, in relation to the administration of the Bankrupt Estate of Christopher John Macryannis be dismissed.
3.The Registrar forward to the Inspector-General in Bankruptcy a copy of these reasons for judgment drawing to his attention the comments in paragraph 142 of these reasons.
4.The Trustee, Geoffrey David McDonald, pay to Kathryn Anne Young, or at her direction, the total amount of the exempt assets of the Bankrupt Estate of the late Christopher John Macryannis recovered by him including interest and without deduction for costs, expenses or remuneration whether or not previously deducted.
5.The Interim Application filed on 3 December 2009 by Geoffrey David McDonald as Trustee of the Bankrupt Estate of the late Christopher John Macryannis be dismissed.
6.Kathryn Anne Young and Geoffrey David McDonald, as Trustee of the Bankrupt Estate of the late Christopher John Macryannis:
(a)exchange draft orders for the costs of the application referred to in order 2 and the application referred to in order 5 as well as draft written submissions limited to a maximum of 3 pages each, in support of the draft orders for costs for which each contends by no later than 22 November 2011; and
(b)provide draft orders and final written submissions to the chambers of Stone J by 30 November 2011.

THE COURT DECLARES THAT:
7.In the absence of consent by the creditors or a committee of inspection, the remuneration of the Trustee, Geoffrey David McDonald, in relation to dealing with the exempt assets of the Bankrupt Estate of the late Christopher John Macryannis be assessed in accordance with s 162(4) of the Bankruptcy Act and regulation 8.08 of the Bankruptcy Regulations as in force immediately prior to 1 December 2010.
8.Any payment to the Trustee, Geoffrey David McDonald of costs incurred and remuneration in respect of dealing with exempt assets be paid only out of the divisible assets of the Bankrupt Estate of the late Christopher John Macryannis.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 1955 of 2006

IN THE MATTER OF THE BANKRUPT ESTATE OF THE LATE CHRISTOPHER JOHN MACRYANNIS

KATHRYN ANNE YOUNG
Applicant

GEOFFREY DAVID MCDONALD
Trustee

JUDGE:

STONE J

DATE:

8 NOVEMBER 2011

PLACE:

SYDNEY

REASONS FOR JUDGMENT

On 6 October 2006 Kathryn Anne Young, pursuant to s 244 of the Bankruptcy Act 1966 (Cth), filed a creditor’s petition for an order of administration of the estate of the late Christopher John Macryannis who died on 17 June 2006. As well as being a creditor, Mrs Young is the sister of the deceased and is named as executor and trustee in his will. On 6 October 2006, Jacobson J ordered that the deceased estate of Mr Macryannis be administered under Part XI of the Bankruptcy Act and that Geoffrey David McDonald be appointed as trustee (Trustee).
TWO INTERIM APPLICATIONS
These reasons concern two interim applications made respectively by the Trustee on 3 December 2009 and by Mrs Young on 18 June 2010. They are not the only such applications. The administration of Mr Macryannis’s estate has engendered a good deal of ill feeling between Mrs Young and the Trustee, mainly centred on the Trustee’s dealing with the assets of the estate that were not available for distribution to creditors and his claims for remuneration for the work involved in dealing with those assets.
Added to that there has been significant antagonism between the Trustee and the solicitor for Mrs Young, Mr Stephen Rockliff. It appears that early in the administration Rockliffs Solicitors acted for the Trustee however they also acted for Mrs Young. This created a perceived conflict which led the Trustee to consult independent solicitors in relation to some aspects of administration. Whether this was the cause of, or exacerbated, the antagonism is not clear however the antagonism was such that it culminated in the Trustee filing a notice of motion seeking to restrain Mr Rockliff and Rockliffs Solicitors from acting any further in this proceeding.
The notice of motion was dismissed by Nicholas J on 27 July 2010 with the consent of the parties and without admissions. In his orders his Honour noted that the Trustee undertook that he would not seek any indemnity from the divisible or non-divisible assets of the bankrupt estate in respect of his costs or his remuneration incidental to the notice of motion.
The Trustee’s application
On 3 December 2009 the Trustee filed an interim application seeking, inter alia, an order fixing the amount of his remuneration “for the care, preservation, realisation and distribution of non-divisible assets comprising life insurance and self managed superannuation proceeds”. He sought orders that the remuneration be paid out of the non-divisible or exempt assets and that he be granted “a lien and first ranking priority by way of indemnity and charge” over the non-divisible assets for his costs and remuneration. In addition the Trustee sought orders for the payment of the balance of the exempt assets into court or, in the alternative, orders for their disbursement. As the matter proceeded the Trustee decided to press for hearing only paragraph 1 in which the Trustee seeks that:
The Applicant’s remuneration be fixed in the amount determined by the Court plus GST and disbursements, or such other sum as the court deems fit, for the care, preservation, realisation and distribution of non-divisible assets comprising life insurance and self managed superannuation proceeds (the “Assets”) and paid out of the Assets.
Mrs Young’s application
On 18 June 2010 Mrs Young filed a notice of motion seeking various orders only two of which are pressed at this time. Clause 1 of the notice seeks an order that Mrs Young be given her costs of the creditor’s petition for the order for administration of the estate of the late Christopher John Macryannis pursuant to Part XI of the Bankruptcy Act and that those costs be taxed and paid out of the bankrupt estate in accordance with s 109(1)(a) of the Act.
An order for the petitioning creditor’s costs of the application for administration or sequestration is usually requested at the time the order for administration or sequestration is made. In her affidavit of 18 June 2010, Ms Anthi Balafas, a solicitor who acted for Mrs Young in respect of that application, deposed that both she and the barrister who represented Mrs Young had overlooked the matter and that no application for Mrs Young’s costs had been made. The Trustee did not oppose the order and, in the circumstances, the order sought should be made.
Clause 5 of Mrs Young’s notice of notice seeks an order pursuant to s 179 of the Bankruptcy Act that the Court inquire into the conduct of the Trustee in relation to the administration of the Bankrupt Estate of Mr Macryannis. Clause 5 states that an enquiry should consider in particular:
5.1the deductions from the funds held in trust comprising the non-divisible assets of the Bankrupt Estate, including, in respect to amounts paid by the Trustee to Parry Carroll Lawyers;
5.2what is the reasonable remuneration to be paid to the Trustee for the care, preservation, realisation and distribution of the non-divisible assets of the Bankrupt Estate;
5.3whether the Trustee has been paid or received any part of his remuneration for the care, preservation, realisation and distribution of the non-divisible assets of the Bankrupt Estate;
5.4whether the Trustee is entitled to claim, as against the non-divisible funds, the storage charges for 15 years for storage of the 76 boxes of records of the Bankrupt Estate;
5.5whether the Trustee wrongly failed to comply with the directions of the Regulator, Insolvency & Trustee Service Australia, to pay the non-divisible funds into Court or alternatively, pay same to Ms Young and make available for inspection by Ms Young, the Trustee’s books and records relating to the administration of the Bankrupt Deceased, Christopher John Macryannis;
5.6whether Hall Chadwick, Accountants, of which the Trustee was a former partner, has in fact, as reported by Hall Chadwick’s Manager, Louise Thompson, written off the fees of Hall Chadwick relating to the administration of the Bankrupt Estate;
5.7the payment of $33,033.00 by the Trustee out of funds comprising the non-divisible assets of the Bankrupt Estate, in respect to the debt of the Child Support Agency;
5.8what is the reasonable remuneration to be paid to the Trustee in relation to the administration of the Bankrupt Estate.
LEGISLATION
Both of the above applications raise issues concerning the duties and obligations of trustees and the Court’s powers under the Bankruptcy Act and in particular its control over trustees in bankruptcy. The following provisions of the Act are central to these applications:
Section 30(1)
(1) The Court:
(a)has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and
(b)may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.
Section 178
(1)If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.
(2)The application must be made not later than 60 days after the day on which the person became aware of the trustee’s act, omission or decision.
Section 179
(1)The Court may, on the application of the Inspector-General, a creditor, or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following:
(a)remove the trustee from office; and
(b)make such order as it thinks proper.
(2)The Inspector-General or a creditor may at any time require a trustee to answer an inquiry in relation to the bankrupt’s estate or affairs.
Section 179 applies to the administration of a deceased estate under Part XI of the Bankruptcy Act by virtue of ss 248(1) and 3(b). Other provisions of the Act are relevant to one or both of the applications under consideration and will be discussed in the context of the relevant application.
APPLICATION FOR AN ENQUIRY UNDER SECTION 179
Because of the issues arising under Mrs Young’s notice of motion are relevant to the Trustee’s interim application, it is convenient to consider Mrs Young’s application first. Counsel for Mrs Young submitted that the concerns expressed in clause 5 of her application and which warrant an enquiry under s 179 of the Bankruptcy Act could be compressed into three matters of complaint. These are set out in the written submissions for Mrs Young as follows:
(a)the failure of the Trustee to pay the funds that are non-divisible in the bankrupt deceased estate to Mrs Young or into Court, with promptitude and soon after they were realised by the Trustee. The extraordinary and inordinate delay that is demonstrated by the evidence, can only be explained by the Trustee continuing to hold the funds, while Mrs Young maintained her objection to his claim for remuneration.
(b)the unauthorised use of the divisible and non-divisible funds in the bankrupt estate of the deceased, including the failure to account for the fees ‘written off’ by Hall Chadwick; and
(c)the failure to make the accounts and records of the bankrupt estate available for inspection to the Applicant, pursuant to Section 173 of the Bankruptcy Act.
The written submissions for Mrs Young also give an indication of the orders that the applicant would seek following an enquiry under s 179. They state:
Such orders would include the payment of all of the non-divisible funds into Court, the repayment of the unauthorised deductions/payments from these funds and the divisible assets, together with interest at 20% in accordance with Section 169(2) of the Bankruptcy Act, the making good of any losses caused by the Trustee’s breaches of duty, including the Applicant’s costs and those of the children of the deceased which have needlessly been incurred and an order referring the Court’s judgment to the Inspector-General with a direction to cancel the Trustee’s registration pursuant to Section 176(2)(b) of the Bankruptcy Act.
STANDING TO SEEK ENQUIRY UNDER SECTION 179
The Trustee has challenged Mrs Young’s standing to bring the application for an enquiry under s 179. The Trustee concedes that she is a creditor but states that she “has no interest in the exempt non-divisible assets” of Mr Macryannis’s estate. This claim requires some background explanation both of the factual background and of the distinction between divisible and exempt assets under the Bankruptcy Act.
Section 248 of the Act provides for the application to proceedings under Part XI and the administration of estates under Part XI, of provisions outside Part XI. Section 248(3) provides some general guidelines. These include that:
·a reference to “a sequestration order shall be read as a reference to an order for administration of an estate under this Part”; subsection (3)(a);
·a reference to “bankruptcy shall be read as a reference to administration under this Part”; subsection 3(b);
·a reference to “the property of the bankrupt shall be read as a reference to the divisible property of the estate as defined by subsection 249(6)”: subsection 3(c); and
·a reference to “a bankrupt shall be read as a reference to a deceased person in respect of whose estate an order for administration under this Part has been made and as including a reference to the estate of that deceased person”: subsection 3(e);
Under Part XI, divisible property is addressed in s 249 of the Bankruptcy Act. Section 249(1) provides:
Subject to this Act, where an order is made for the administration of the estate of a deceased person under this Part:
(a)the divisible property of the estate, not being after-acquired property, vests forthwith in the Official Trustee or, if when the order is made, a registered trustee is trustee of the estate of the deceased person under this Act, in that registered trustee; and
(b)after-acquired property of the estate vests, as soon as it is acquired by, or devolves on, the estate, in the Official Trustee or, if a registered trustee is trustee of the estate of the deceased person under this Act, in that registered trustee;
and is divisible amongst the creditors of the deceased person and of his or her estate in accordance with this Act.

The divisible property of the estate is listed in subsections 249(6)(a)-(g), 249(7)(a)-(e) or 249(8)(a)-(d) depending on whether the administration of the estate is deemed, under s 247A, to have commenced, respectively, before, at, or after the death of the deceased person. That which is not listed is exempt and beyond the reach of creditors. This approach may be compared with the approach in s 116 which, in relation to a living bankrupt, provides for all the property of the bankrupt to be divisible among the creditors other than that which is specifically exempted. In either case, however, the creditors of the deceased are entitled to be paid out of the divisible assets but have no claim on exempt assets.
The evidence before me is not sufficient to determine when the administration of Mr Macryannis’s estate commenced, however there is no dispute that the assets in question are comprised of life insurance and self managed superannuation proceeds, and that they are exempt assets.
As it is not in dispute that Mrs Young is a creditor in the bankruptcy, the challenge to her standing to seek an enquiry under s 179 concerns the scope of any such enquiry and whether the expression “conduct of a trustee in relation to a bankruptcy” extends to the conduct of the Trustee appointed under Part XI, in relation to exempt assets. Mrs Young makes no claim to any beneficial interest in the exempt assets and, for present purposes it may be accepted that she has no such entitlement. Such claim as she makes to those assets relate to her position as executor and trustee under the will of Mr Macryannis.
It was submitted, however, that in so far as Mrs Young’s application for an enquiry raises, in paragraph 5.8, an issue concerning the Trustee’s remuneration in relation to his dealing with divisible assets, it undoubtedly falls within the scope of s 179. This much may be accepted, however that paragraph raises a question at large, no evidence is presented in respect of that claim and no basis for an enquiry under s 179 on that ground is put forward. Indeed, senior counsel for Mrs Young, Mr Alexis, did not press the issue and accepted that the issue of standing should be considered independently of that claim.
Section 5 of the Act defines “bankruptcy, in relation to jurisdiction or proceedings” as meaning “any jurisdiction or proceedings under or by virtue of this Act”. Section 30 gives the Court full power to decide all questions of law or fact in any case of bankruptcy or any matter under, among others, Part XI, that comes “within the cognizance of the Court”. Despite the breadth of the power under s 30, it was submitted that an enquiry under s 179 into the conduct of a trustee “in relation to” a bankruptcy is limited to conduct of a trustee in dealing with the bankrupt estate or, in other words, the divisible property. In my view this submission cannot be accepted.
As pointed out above, s 248(3)(b) provides that in relation to proceedings under Part XI and the administration of the estates of deceased persons under Part XI, a reference to ‘bankruptcy’ is to be read as a reference to administration under Part XI. An order for administration under Part XI is for the administration of the “estate of a deceased person”. There is nothing in the Act that restricts the expression “estate of a deceased person” to the divisible assets of the deceased. While s 249 provides only for the divisible property (including after-acquired divisible property) to be vested in a trustee appointed under Part XI, it clearly contemplates the estate of the deceased person as comprising more than the divisible property: see for instance ss 249(1) and (4A). Similarly the listing in ss 249(6), (7) and (8) of those parts of the deceased estate that comprise divisible property implies that there is in the estate non-divisible or exempt property.
Given that the estate of the deceased person includes both divisible assets and exempt assets, it follows that an enquiry into the Trustee’s conduct in relation to exempt assets would be “in relation to a bankruptcy”. There is no occasion for confining the ambit of s 179 to an investigation into conduct relating only to divisible assets. For that reason I find that Mrs Young has standing to make the application under s 179.
Meaning of “in relation to”
Even if I were to be wrong in the above conclusion and, contrary to s 248, the reference to “a bankruptcy” in s 179 were to be construed as referring only to the divisible property, the phrase “in relation to” would be sufficient to create the necessary nexus between divisible and exempt property.
While the phrase, “in relation to” is a phrase of wide import the authorities recognise that the closeness of the relationship required by the expression “must be ascertained by reference to the nature and purpose of the provision in question and the context in which it appears”; PMT Partners Pty Limited (in Liquidation) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 at 313 per Brennan CJ, Gaudron and McHugh JJ. The issue before the High Court was the construction of s 48(1) of the Commercial Arbitration Act 1985 (NT) which gave power to extend the time fixed by an arbitration agreement for doing an act “in or in relation to an arbitration”.
Justices Toohey and Gummow commented, at 330, that s 48(1) was a remedial provision whose apparent object was “to mitigate the severity of harsh time limits” in an arbitration agreement. For that reason there was “no apparent call to read down the words used, or to give them any constricted operation”. Their Honours added that although interpretation of the phrase in other statutory contexts was of limited assistance, the authorities show “that the words are prima facie broad and designed to catch things which have sufficient nexus to the subject”. Having considered some examples of the interpretation of the phrase in different statutory contexts, Toohey and Gummow JJ commented, at 331:
The connection which is required by the phrase “in relation to” is a question of degree. There must be some “association” which is “relevant” or “appropriate”. The question of the relevance or appropriateness of the connection is a question which cannot be divorced from the particular statutory context.
In this case it is the connection between the conduct of the Trustee into which an enquiry is sought, that is the Trustee’s dealing with the exempt assets, and the bankruptcy (construed as applying only to divisible assets) that must be relevant or appropriate. The issue requires some consideration of the role and duties of a trustee in bankruptcy.
Duties of a trustee in bankruptcy
The duties of a trustee of the estate of a bankrupt include the steps in the administration of the bankrupt estate that are set out in s 19(1) of the Act. By force of s 248(3)(f) the nominated duties apply equally to the trustee of the estate of a deceased person in respect of whose estate an order for administration under Part XI has been made. The duties include, “determining whether the estate includes property that can be realised to pay a dividend to creditors”, “taking appropriate steps to recover property for the benefit of the estate” and “exercising powers and performing functions in a commercially sound way”: ss 19(1)(b), (f) and (k) respectively.
The principles governing the performance of those duties were summarised by the Full Federal Court in Adsett v Berlouis (1992) 37 FCR 201 at 208-9 (authorities omitted):
A trustee appointed in relation to a bankrupt becomes trustee of the bankrupt’s estate. The trustee is bound to administer that estate in accordance with the Bankruptcy Act and Bankruptcy Rules 1968 (Cth). The trustee has a dual function: first, to administer the estate in the interests of creditors and the bankrupt; second, to exercise, as a public duty and for the public welfare, certain powers given, and duties imposed under the Act. The conduct of the trustee is subject to the supervision of the court (eg Div 4 of Pt VIII of the Act) and a trustee in bankruptcy has historically been regarded as an officer of the relevant court. A trustee in bankruptcy who acts for remuneration is under a duty of care greater than that of a gratuitous trustee. The trustee is required to bring reasonable skill to the performance of his or her duties.
A trustee under the general law must exercise judgment so as to save the estate unnecessary expenditure of money. A trustee in bankruptcy is in no different position. The discharge of a public duty imposed by the Act is to be performed conformably with the requirements of that duty, but also conformably with the trustee’s obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors’ claims and any possible surplus for the bankrupt. We adopt, as a correct statement of the duty of a trustee and the property manner of its performance, the words of Smithers J in Mannigel v Aitken (1983) 77 FLR 408-409:
In the case of bankruptcy the trustee is in charge of the assets of the bankrupt and those assets are to be applied for the benefit of the creditors and if there be any surplus for the benefit of the bankrupt. It is clear that the minimum standard required of the Trustee is that he shall handle the assets with a view to achieving the maximum return from the assets to satisfy the claims of the creditors and to provide the best surplus possible for the bankrupt. Obviously a great deal of discretion and judgment is required to be exercised by the Trustee.
The Full Court, at 209, also referred with approval to the statements in Halsbury’s Laws of England (3^rd ed), Vol 38, p967, that “a trustee must take all reasonable and proper measures to obtain possession of the trust property and to get in all debts and funds due to the trust estate, and to preserve it, and to secure it from loss”: see also Freeman v National Australia Bank Limited [2003] FCA 1233 at [22] where Spender J commented that:
The duty of the trustee in bankruptcy is to exercise judgment so as to save the estate unnecessary expenditure of money. Further it is to discharge the public duty imposed by the Act conformably with his obligation to administer the estate in such a manner as to maximise the return from estate assets, thereby maximising satisfaction of the creditors’ claims and any possible surplus for the bankrupt.
Sections 178 and 179 combine to give the Court a high degree of supervision and control over the conduct of trustees however the roles of these two sections are different: Wilson v Commonwealth of Australia [1999] FCA 219 at [38]-[44]. The former section focuses on a particular “act, omission or decision of the trustee”; the scope of the latter is wider, being concerned with “the conduct of a trustee in relation to a bankruptcy”. Section 178 is an important element in the context in which s 179 must be construed. In Re Tyndall; Ex parte Official Receiver (1977) 30 FLR 6 at 9-10, Deane J described s 178 as conferring “the widest possible discretion as to the appropriate order which should be made in the particular case” albeit that the court should not “unduly interfere with the day-to-day administration of a bankrupt’s estate by a trustee”. His Honour’s views were approved by the Full Court in Re Dingle; Westpac Banking Corporation v Worrell (1993) 47 FCR 478 at 485 and in McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547 at 552-553.
In Macchia v Nilant (2001) 110 FCR 101 at [38] French J, as the Chief Justice then was, emphasised the importance of s 178 “in providing for wide ranging supervision by the Court of trustees who are appointed to administer the interests of bankrupts in the interests of creditors and, in so doing, to have regard also to the interests of the bankrupts”. Section 179 has been regarded as of similarly wide application and analogous to s 178: Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262; Official Receiver in Bankruptcy v Todd (1986) 70 ALR 119 at 122 per Fisher J; Macchia v Nilant at [43]-[46]. In that context the role of s 179 in providing for the Court to exercise that supervisory role, not just in respect of a specific act or omission but in relation to the trustee’s conduct as a whole should not be construed in the narrow sense advocated by the Trustee.
It can be seen from provisions of the Act and from statements in the authorities that the duties of a trustee in getting in and distributing the divisible property are comprehensive. Where, in the course of his administration of the estate a trustee also gets in some property which is not available for distribution to the creditors either because it was not, prior to the bankruptcy, the property of the bankrupt or is exempt under the provisions of the Act the assets in question have fallen into the hands of the trustee because of his or her status as trustee. In my view this fact would be sufficient to establish the appropriate and relevant connection between the impugned conduct of the Trustee and the bankruptcy and to give Mrs Young standing to make an application under s 179 for an enquiry into the Trustee’s dealing with the exempt assets.
THE WILL OF MR MACRYANNIS
Many of Mrs Young’s complaints about the conduct of the Trustee involved his failure to recognise her position as executor and trustee under the will of her brother and to transfer assets to her or at her direction. Accordingly, it is necessary to consider the status and terms of Mr Macryannis’s will.
Mr Macryannis died on 17 June 2006. On 6 October 2006 Mrs Young swore an affidavit in support of the application for an order that his estate be administered under Part XI of the Bankruptcy Act. Annexed to that affidavit was a copy of a signed but undated and unwitnessed will of Mr Macryannis. According to Mrs Young the original will had not been found. Also annexed to Mrs Young’s affidavit was a letter from Rockliffs Solicitors dated 11 February 2005 which, according to Mrs Young, “purported to enclose the fully executed and witnessed original Last Will of the Deceased to retain in his possession”. In fact this is not correct. The letter clearly states that it encloses copies of the will and a power of attorney granted in favour of Mrs Young. The letter refers to the original will and power of attorney being retained by the solicitors “for safe keeping pending your instructions”. Be that as it may, it is not in dispute that the original will has not been found.
The copy will appointed Mrs Young and Nicole Deanne Rockliff, solicitor, as executors and trustees. It provided for 25% of the estate, “after payment of all my debts and duties” to be given to “my stepdaughter Kirsty Jane Barker” and for the remaining 75% to be retained in a fund for the benefit of Mr Macryannis’s children. The will also set out the powers of the trustees in relation to the fund. In evidence at the hearing was a letter dated 6 October 2006, signed by Ms Rockliff renouncing her role as executor under the will.
As Mr Macryannis died in 2006 the Wills, Probate and Administration Act 1898 (NSW) (renamed the Probate and Administration Act 1898 from 1 March 2008) (WPA Act) applied to his will. Section 18A of the WPA Act allows the formal requirements for the execution of a will (set out in s 7) to be dispensed with “if the Court is satisfied that the deceased person intended the document to constitute the person’s will”.
By order made on 1 November 2010 the Supreme Court of New South Wales declared that pursuant to s 18A of the WPA Act the copy of the will referred to above constitutes the will of Mr Macryannis. The order also made declarations as follows:
2.Declares that under the Will, Kathryn Anne Young was appointed Trustee of the fund created pursuant to clause 4.2 of the Will, the beneficiaries thereof, as named in clause 4.2 of the Will, being:
2.1      Bryce Peter Macryannis;
2.2      Abby Renee Macryannis; and
2.3      Ryan Reece Macryannis,
in equal shares on the terms provided for in the Will.
3.Declares that Kathryn Anne Young validly appointed Kirsty Jane Barker and Bryce Peter Macryannis as replacement trustees of the Chris Macryannis Family Trust pursuant to Deed of Appointment of New Trustees dated 27 July 2010, Registered Book 4595, No 521 (“Deed”), a copy of which Deed is annexed hereto and marked with the letter “B”.
Section 46C of the WPA Act provided for an insolvent estate to be administered in accordance with the rules set out in Part 1 of the Third Schedule but “subject to the provisions of the Bankruptcy Act …”. Justice Jacobson’s order of 6 October 2006 provided that Mr Macryannis’s deceased estate be administered under Part XI of the Bankruptcy Act, consequently the provisions of that Act for the administration of the estate applied rather than the rules in Part 1 of the Third Schedule to the WPA Act. His Honour also made an order that Mr McDonald be appointed as the trustee of the deceased estate, which, as explained above at [21], comprised both the divisible and the exempt assets. The effect of these orders was to relieve Mrs Young of her obligations as executor under the will, including the necessity to obtain a grant of probate, and to vest “the divisible property of the estate” in the Trustee: s 249.
The Bankruptcy Act does not provide for vesting of exempt property in the trustee. In the absence of any such provision it may be that it vests in the trustee pursuant to s 44 of the WPA Act. Alternately it may be that in so far as the trustee takes control and possession of exempt assets he or she acquires a legal title to those assets. Certainly where the exempt assets consist, as here, in the proceeds of insurance and superannuation held in a bank account in the name of the trustee, the trustee has a legal title to the chose in action arising out of the bank deposit. It may be that nothing of importance depends on this because, in any event the administration of the exempt assets falls within the purview of the trustee by virtue of the order for administration of the deceased estate. As counsel for Mrs Young submitted:
Once the non-divisible assets were identified in the course of the Part XI administration, those quarantined assets became held by the Trustee pursuant to his appointment as Trustee under Order 2 [of the orders made by Jacobson J on 6 October 2006] for the benefit of those who have a lawful claim to those assets.
This much may be accepted but, in itself, the proposition does not answer the question who has a lawful claim to those assets. That question was answered conclusively by the declaration of the Supreme Court made on 1 November 2010. Mrs Young submits, however, that her entitlement to receive the exempt assets by virtue of her appointment as trustee of the fund created pursuant to clause 4.2 of the will predated that declaration. It was submitted her appointment as trustee “under the hand of the deceased was valid, whether contained in an informal will or not”. No authorities were cited in support of this proposition and, in the absence of binding authority on the point I do not accept the submission which, it seems to me, is inconsistent with the provisions of the WPA Act concerning the validity of wills.
The will contained the expression of the deceased’s testamentary intentions. The appointment of Mrs Young as trustee is such an intention. A will that does not comply with the formal requirements of s 7 of the WPA Act is not valid unless and until those requirements are dispensed with under s 18A. Exemption from the formal requirements requires that the court be “satisfied that the deceased person intended the document to constitute the person’s will”. Once the court has declared its satisfaction as to the testator’s intention the validity of the will dates back to the death of the testator. As Powell JA, with whom Priestley and Stein JJA agreed, observed in Hatsatouris v Hatsatouris [2001] NSWCA 408 at [56]-[57]:
It is, and has long been, my view that the questions arising on applications raising a question as to the applicability of s 18A are essentially questions of fact, to be answered being:
(a)was there a document,
(b)did that document purport to embody the testamentary intentions of the relevant Deceased?
(c)did the evidence satisfy the Court that, either, at the time of the subject document being brought into being, or, at some later time, the relevant Deceased, by some act or words, demonstrated that it was her, or his, then intention that the subject document should, without more on her, or his, part operate as her, or his Will?
The relevant fact being whether the relevant Deceased intended that the document in question operated as a testamentary instrument, and not whether the Court is satisfied that that was the intention of the relevant Deceased, it follows, in my view, that the document operates as a testamentary instrument as and from the date when the relevant intention existed and not from the date upon which the Court determines that the relevant intention existed.

The last step is, as his Honour points out, the satisfaction of the court. The Supreme Court declaration in relation to the will of Mr Macryannis is proof that the Court was satisfied as to his intention: Evidence Act 1995 (Cth) s 185. This requirement having been met compliance with s 7 is not necessary and, pursuant to s 18A, the document constitutes Mr Macryannis’s will. Therefore, in accordance with s 21 of the WPA Act, the will must be “construed with reference to the real and personal estate comprised in it, to speak and take effect as if it had been made immediately before the death of the testator, unless a contrary intention appears” and takes effect from the testator’s death.
ADMINISTRATION UNDER PART XI OF THE BANKRUPTCY ACT
The history of the tensions and disputes between the Trustee and Mrs Young is replete with misconceptions about the nature of administration of deceased estates under Part X1 of the Bankruptcy Act. In discussing Mrs Young’s standing to seek an enquiry under s 179 and the will of Mr Macryannis, I have addressed some of these misconceptions however, it may be helpful to repeat those points along with other observations.
In the main, the rules and procedures that apply to the administration of a deceased estate under Part XI of the Bankruptcy Act, are the same as those that apply to bankruptcies under Part IV of the Act. In each case the divisible property of the relevant estate, including the after-acquired property as soon as it is acquired by or devolves on the bankrupt or the deceased estate, vests in the trustee: s 58(1) and s 249(1). In neither case does the exempt property vest in the trustee however while a Part IV trustee may have some obligations in respect of the exempt property in the nature of things they are less extensive than those of a trustee of a deceased estate. The difference, of course, is attributable to there being, in the former case, a living ‘bankrupt’ who largely retains control of the exempt property.
A bankrupt is defined in s 5 as meaning a person against whose estate a sequestration order has been made; or who has become a bankrupt following a debtor’s petition. Section 116(1) defines the divisible property of a bankrupt and expressly excludes from that category property referred to in the following subsections.
It does not follow from this exclusion that the trustee has no responsibilities in respect of exempt property. For example, s 116(2B) contemplates property vested in the trustee ceasing to be divisible among creditors because of a resolution of creditors or an order of the Court to that effect. It provides that such property revests in the bankrupt and the trustee’s liabilities in respect of that property are transferred to the bankrupt. Depending on the nature of the property and other factors such as whether the trustee has taken possession of it, there may be steps required of the trustee to ensure that the bankrupt has practical control of the property. Similarly, ss 116(2C) and (4) may require the trustee to make a payment to the bankrupt in the circumstances contemplated in each subsection. It may also be that in the course of taking control of and realising divisible property the trustee may acquire control of property that is properly categorised as exempt under s 116. This hypothesis does not presuppose any breach of duty by the trustee however it certainly requires the trustee to remedy the situation.
As I have observed, at [21] above, an order for administration under Part XI is for the administration of the “estate of a deceased person”. It is the duty of the trustee to administer the whole of this estate which includes divisible and exempt property. The position is summarised in M Murray and J Harris, Keay’s Insolvency: Personal and Corporate Law and Practice, 7^th edition 2011 at [6.495]:
On an order being made under Pt XI of the Act, on the petition of either the creditor or the deceased estate, the executor or administrator of the estate is divested of all powers and duties in favour of the trustee (s 249), the divisible property of the estate passes to the trustee (s 249) and creditors’ claims against the estate become rights to prove in the administration of the deceased estate.
The executor or administrator of a solvent deceased estate is required to administer the estate according to law which will include getting in the estate, paying the debts of the estate and distributing the balance in accordance with the will or in accordance with the rules of intestacy. The trustee of a deceased estate which is to be administered under Part XI may have the same obligations but in doing so must have regard to the requirements of the Bankruptcy Act, including the distinction between divisible and exempt property as provided in s 249.
In so far as the duties imposed on a trustee by the Act require him or her to deal with exempt property the costs and expenses incurred in so doing, and the remuneration to which the trustee may become entitled (as to which see below at [145] et seq), are as much costs of the administration as are the costs and expenses incurred and the entitlement to remuneration in respect of dealing with divisible property. Nevertheless, it is only divisible property that is available to meet the costs of administration and to remunerate the trustee. By definition, exempt property is not available for distribution to creditors.
Section 108 provides that the order in which “the proceeds of the property of the bankrupt” are to be paid is as provided under the Act. Section 109 specifies the order in which payments to which it refers are to be made, commencing as stated in s 109(1)(a):
First, in the order prescribed by the regulations, in payment of the taxed costs of the petitioning creditor or the trustee of the deceased person’s estate and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee and the costs of an audit carried out under section 175.
Section 109 applies in relation to the administration of deceased estates under Part XI of the Act pursuant to s 248(1). Regulation 6.01 provides that the order of payment referred to in s 109(1)(a) is that set out in Sch 3 of the Regulations. Only Items 2, 3, 5 and 6 are presently relevant. They list the following payments:
(2)expenses reasonably incurred by or on behalf of the trustee:
(a)in protecting all or part of the bankrupt’s assets; or
(b)in carrying on, in accordance with the Act a business of the bankrupt; or
(c)by way of an advance made to the trustee of the bankrupt’s estate for payment of properly incurred expenses of the estate for any proper purpose (other than remuneration of the trustee).
(3)Other fees, costs, charges and expenses payable by the trustee in administering the bankrupt’s estate;
(5)The taxed costs of the petitioning creditor, the administrator of the estate of a deceased person or the applicant under Part X of the Act for a sequestration order and, if a petitioning creditor under Part X of the Act also applied for an order under Division 5 or 6 of Part IX of the Act, any taxed costs of the creditor in respect of the application.
(6) the trustee’s lawful remuneration.
As can be seen from the above, Sch 3 refers to a bankrupt’s assets or estate not to “the property of the bankrupt”. The latter term is to be read as a reference to “the divisible property of the estate as defined by subsection 249(6)’: s 248(3)(c). It follows that a reference to the bankrupt’s assets or the bankrupt’s estate is to be read as a reference to the whole of the deceased person’s property including exempt property. This is consistent with other directions in s 248(3), in particular subsection 3(e) – reference to a bankrupt is to “a deceased person” whose estate is subject to an order for administration under Part XI and includes a reference to that person’s estate: see also s 248(3)(f).
It follows from the above that the assumption that costs incurred in dealing with exempt property must be paid out of that property is incorrect, as is the similar assumption in relation to remuneration in respect of dealing with exempt property. There is only one fund from which those payments may be met; it is the fund constituted by the divisible property.
With this conclusion in mind I now turn to consider the application for an enquiry into the trustee’s conduct. Before discussing the three aspects of the trustee’s conduct that Mrs Young alleges warrant an enquiry under s 179 a brief consideration of the relevant principles is in order.
ENQUIRY INTO THE CONDUCT OF THE TRUSTEE
Just as the intervention of the Court under s 178 is discretionary, so is its intervention under s 179. In Ferella v Official Trustee in Bankruptcy (No 2) [2011] FCA 619 in passages with which I respectfully agree, Yates J recently identified six considerations relevant to the exercise of that discretion. His Honour said at [14]-[19]:
First, the discretion “must be exercised in the interests of the orderly administration of the bankrupt’s estate”: Re Challen (a Bankrupt); Ex parte Brown v Bendeich (unreported, Federal Court of Australia, Beaumont J, 23 April 1996); Macchia at [50].
Secondly, the person seeking the inquiry should normally be required to establish “substantial grounds for believing that the trustee erred in the administration” or has engaged in “misconduct”: Re Gault; Gault v Law (1981) 57 FLR 165 at 173; Wilson at [44]. In this connection “(t)rustees acting honestly, with ordinary prudence and within the limits of their trust, are not liable for mere errors of judgment”: In re Chapman; Cocks v Chapman [1896] 2 Ch 763 at 776; see also at 778; Alafaci at 285.
Thirdly, before exercising the discretion, the Court should be mindful of the “well-established policy in bankruptcy legislation that the court should not unduly interfere with the day-to-day administration of a bankrupt’s estate by a trustee”: Re Tyndall (1977) 30 FLR 6 at 9; Turner at 3. …
Fourthly, the discretionary considerations to be taken into account when considering whether an inquiry should be ordered include the likely utility to be derived from an inquiry. In this connection, the ultimate question to be kept in mind is whether there is a likelihood that “the trustee should be held to account for conduct in the administration of the estate which has affected the bankrupt in some way”: Macchia at [50]. This does not mean, however, that it is necessary that there be “a financial aspect” to the complaint that is brought forward as justifying an inquiry: Maxwell-Smith v Donnelly [2006] FCAFC 150 at [63].
Fifthly, s 179 is not a vehicle for pressing general law claims (such as claims for damages in tort) even though conduct invoking the remedial objectives of the provision may be based upon the breach of general law rights and obligations: Macchia at [44] and [50].
Sixthly, the availability of general law causes of action and remedies at the suit of the person seeking the inquiry may be a sound discretionary reason why an inquiry should not be ordered under s 179: Gault at 173.
Section 179 is a powerful tool in the Court’s supervisory armoury. Although the section does not provide for the Court to commence an enquiry on its own initiative, it is possible for the Court to draw matters or proceedings which raise concern to the attention of the Inspector-General with a view to the Inspector-General considering if an enquiry is warranted. This was done by the Full Federal Court in Trkulja v Morton [2005] FCAFC 259. The Court said, at [20], that the mutual hostility of the bankrupt and the trustee was such that “it would be desirable for an independent third party to consider the matter and take such steps as may be appropriate in the circumstances”. The Court in Trkulja directed the Registrar to forward to the Inspector-General copies of the application and all affidavits filed in the matter, a transcript of evidence at first instance; transcript of contents of the tape recording; the trial judge’s reasons for judgment, the notice of appeal and the Full Court’s reasons.
There are three aspects of the Trustee’s conduct that Mrs Young claims warrant an enquiry under s 179. They are: (1) the Trustee’s delay in disbursing exempt funds; (2) the Trustee’s use of divisible and exempt funds; and (3) the Trustee’s alleged failure to make accounts and records available to Mrs Young. I shall deal with each in turn.
The Trustee’s delay in disbursing exempt funds
Ultimately, the applicant’s submission was that the Trustee had retained control of exempt funds when he should have paid those funds to the persons entitled to them and, if necessary, he should have taken whatever steps were necessary to identify the persons entitled. Alternately it was submitted that the Trustee should have paid the funds into court although no court was specified. More particularly, senior counsel for Mrs Young, Mr Alexis, placed considerable emphasis on the alleged motive of the Trustee, namely that his claim for remuneration was behind his failure to transfer the funds to Mrs Young.
Having reviewed all the evidence and heard the submissions of both parties I am satisfied that there was confusion on both sides as to their entitlements. The misconceptions about the nature of administration of a deceased estate under Part XI of the Act to which I have earlier referred as well as about Mrs Young’s standing under the will of Mr Macryannis were largely responsible for the seemingly intransigent attitudes of the parties. The parties were not helped by the legal advice they received. This was not a case where one side was correct and the other, however innocently, was wrong. Rather there was something to be said for the claims made by Mrs Young and by the Trustee.
One fundamental misconception was as to the position of Mrs Young under her brother’s will. I have addressed that issue at [33] to [41] above. The declaration of the Supreme Court establishes that Mrs Young is validly appointed as the trustee created under clause 4.2 of the will and is able to give a good discharge to the Trustee on transfer to her of the exempt assets. It is also the case that a discharge given to the Trustee by Mrs Young prior to the Supreme Court declaration would, as it turns out, have been a good discharge because, by virtue of the declaration, the appointment of Mrs Young as trustee would relate back to the death of Mr Macryannis.
Prior to the declaration, however, the Trustee did not know that this was so and could not have been confident that this would be the case. In my opinion, it is not a duty of the Trustee to anticipate a declaration by the Court; indeed it may well be quite imprudent for a trustee to do so. Accordingly, the Trustee would have been entitled to refuse to transfer the exempt assets until satisfied, by a declaration of the Supreme Court, that Mrs Young was entitled to receive them.
The whole issue of Mrs Young’s right to receive the exempt property could have been resolved early in the administration by seeking such a declaration. This would also have resolved the question of whether the reservations about Mrs Young’s entitlement expressed by the Trustee were genuine or merely a device to force payment of his remuneration. It was not submitted that the Trustee should have applied for such a declaration however, it is extraordinary that the solicitors who acted for Mrs Young, and initially for the Trustee, did not take the initiative to do so until 2010. In fact the Court was first advised of the existence of the declaration only on the first day of the hearing which was also the first time that counsel for the Trustee, Mr Skinner had been told anything about it. Surprisingly, it seems to have been obtained only as an afterthought and only two days before the commencement of the hearing. The slight importance that those advising Mrs Young attached to the Supreme Court declaration is evident from the submission made on her behalf that the declaration of trust in the will was effective irrespective of the validity of the will; that submission is addressed and rejected at [39] above.
Mrs Young submits that once the Trustee had control of the exempt assets, which for the bulk of the assets was in late 2006 he should have distributed them to her promptly; if he was in doubt of her ability to give a good discharge for the assets, he should have paid them into court. Moreover she submits that the Trustee did not have genuine doubts about her ability to give a good discharge for the assets but retained them for the purpose of having his remuneration approved. She submits that it was not until the regulator got involved that any question of her right to receive them arose.
In support of her submissions the applicant relied on, among other things, advice that Mr McDonald received from his solicitors, Parry Carroll. In a letter to the Trustee dated 7 December 2006 Parry Carroll provided advice “as to whether the proceeds of the life assurance policy is [sic] divisible amongst creditors of the bankrupt estate”. The letter advised that the proceeds of a life insurance policy with MLC amounting to $315,326.02, held by Mr Macryannis were exempt property. The letter also advised that a small refund of the premium in respect of the policy was divisible property and it is not necessary to say any more about this amount. The letter concluded with the advice that, after deduction of any costs and disbursements, the trustee should remit the balance of the proceeds to the executors of the estate. It added that the executors could then apply for probate of the will.
It was not in contention, and I accept, that the advice as to the proceeds of the life insurance policy being exempt property and that the premium was divisible property was correct. For reasons given below, however, the advice that the Trustee was entitled to deduct costs and disbursements from exempt property does not seem to me to be correct.
Finally, the letter of 7 December 2006 addressed the deficiencies in the formalities of the will and advised the Trustee as to the provisions of s 18A of the WPA Act. It clearly stated that “it would be necessary for the executors of the Estate to file a Summons in the Supreme Court of NSW seeking relief …”. The letter concluded with a broad outline of what would be involved and expressed the opinion that such an application would be likely to be successful. Mr Alexis submitted that the advice to pay the proceeds of insurance to the executor was quite independent of the advice concerning s 18A and persisted in his submission that the Trustee should have taken that advice. On being asked to assume that advice was incorrect, as for instance because the Trustee could not give a good discharge, he said that if the Trustee was in any doubt he should have paid the money into court.
A further letter of advice from Parry Carroll, dated 2 February 2007, addressed the question of remuneration and expenses. The Trustee’s claim for remuneration and expenses issue is discussed in detail in connection with the Trustee’s application: see below at [143]. For the present it is sufficient to note that the Trustee had requested his solicitors for advice as to his entitlement “to draw his remuneration costs and expenses from the two pools of funds, namely divisible funds and non-divisible funds and any apportionment of the fees from these two pools of funds”. In the letter of 2 February, the Trustee’s solicitors expressed some uncertainty as to the law on the point but concluded:
As such, there is no relevant caselaw directly addressing this issue and it remains a grey area of the law. However, on a strict reading of the sections of the Bankruptcy Act it suggests that subject to approval of your remuneration by the creditors, you are entitled to withdraw the whole or any part of your remuneration once approved by creditors from either pool of funds.

Given the uncertainty expressed in this letter the writer recommended that the Trustee obtain the approval of the creditors and the “executor of the estate” and that attendances relevant to the life insurance policy should be charged to the “non divisible amount” and all other attendances to the “divisible amount”. Finally it was recommended that the Trustee “obtain the consent of the executor of the estate to your fees to be deducted from the life insurance policy sum”. For reasons given above at [59]-[60], at that time Mrs Young was not able to give a good discharge for payment by the Trustee or, for reasons given at [52], for payment of his remuneration out of the exempt funds. It follows that this advice was incorrect and, while the Trustee may not have been entirely aware of this he clearly had some doubts and was within his right to hesitate in accepting it.
In a report to creditors dated 15 June 2007 the Trustee summarised the legal advice he had received on 7 December 2006 in relation to the life insurance proceeds. At the time of this report the Trustee was still a partner of the firm Hall Chadwick. He resigned from that firm in August 2008 In his report the Trustee states:
I have provided creditors with a break up of the fees and disbursement specifically incurred as a result of caring for, preserving and realising the life insurance funds (including fees incurred in obtaining legal advice). I will be seeking creditor approval and I have endeavoured to obtain consent from the executrix of the Estate to withdraw the amount from the insurance funds.
In his report the Trustee also described the steps taken to claim under a life assurance policy with Australian and New Zealand Banking Group Limited as a result of which ANZ forwarded the amount of $62,792 to him. The Trustee also received a cheque in the amount of $36,832.44 in respect of Mr Macryannis’s superannuation fund portfolio account.
In the report the Trustee sought the approval of creditors for the payment of costs and remuneration by way of a circular resolution in order to save the cost of calling a meeting of creditors. In relation to this claim the report states:
I seek approval of my fees incurred by the staff of Hall Chadwick and its related entities … for the period of 6 October 2006 to 29 June 2007 in the amount of $210,000 plus GST. …
As noted previously in this report, the legal fees incurred to date will be given the same priority as my fees, as they are part of my Trustee’s disbursements.
…
I advise that I engaged the services of Parry Carroll Lawyers with respect to obtaining legal advice regarding assets that may be considered as non-divisible property. … I note that their legal fees incurred to date are in the amount of $11,853.33 and I intend to pay that amount as a disbursement.
The Trustee provided a breakdown between the Parry Carroll fees attributable to the MLC life assurance policy and the fees attributable to the superannuation fund and the CMA Investment Fund. He stated that $16,000 (plus GST) of the $210,000 claimed for his remuneration related to the life assurance policies and that amount would be drawn from the proceeds of those policies. He also said that in addition to seeking creditor approval he intended “to obtain authority from the executrix for these payments to be drawn direct from the proceeds”. Finally the Trustee said in his report:
The issues surrounding the advice provided in respect of the Self Managed Superannuation Fund and the CMA Investment Trust Assets remain unresolved. As such, it is difficult to establish from which asset realisations the legal fees could be drawn from. It is my intention to draw the balance of the Parry Carroll Lawyers legal fees from the greater pool of funds at this point in time. An adjustment for this payment can be made if it is so required in the future.
In a notice to creditors dated 22 June 2007 the Trustee issued a new “Circular of Resolution for Approval of Trustee’s Remuneration” to be returned by 6 July 2007. The new resolution put to the creditors was for payment of Trustee’s remuneration in the amount of $198,000 (plus GST) to be paid out of the divisible assets. This is $12,000 less than the amount of remuneration for which approval was previously sought. The notice explained the change saying creditors’ approval for fees and disbursements to be drawn from non-divisible property of the estate was not required. Apparently, the resolution was passed by the statutory majority despite Rockliffs Solicitors voting against it.
Mrs Young claims that in seeking this approval the Trustee must have included amounts in respect of the exempt assets because the amount of $12,000 is less than the amount of $16,000 which the Trustee in his report claims for remuneration in respect of the exempt assets. This issue is discussed below at [95] et seq.In oral submissions Mr Alexis argued that the Trustee could get approval in relation to the care of non-divisible assets only from the executor under Mr Macryannis’s will. As explained below, this submission is based on a misconception and must be rejected.
According to affidavit evidence of Mrs Young, which was not challenged by the Trustee, Mrs Young and Mr Rockliff met with the Trustee in Rockliffs’ offices on 27 September 2007. At that meeting the Trustee said, referring to the exempt proceeds, that he would send a cheque made out to Rockliffs’ trust account. Mrs Young deposed that she was expecting to receive approximately $506,000 from the Trustee. After the meeting Mrs Young gave instructions to Mr Rockliff that these funds were to be invested with Westpac Private Bank. She said that she undertook to engage an accountant to prepare tax returns and set up trusts in accordance with Mr Macryannis’s will.
On 4 October 2007 Mr Rockliff wrote to the Trustee confirming the arrangement that the Trustee would forward a cheque to Rockliffs “representing the proceeds of the insurance policies and superannuation, together with interest earned on the investment of those funds, together with a Statement of Account”. In his response, dated 10 October 2007, the Trustee raised the issue of Mrs Young’s standing under the will but said “I do not need to resolve this issue”. This appears to be the first time that the Trustee raised this concern even though Parry Carroll raised the issue in their letter to him of 7 December 2006.
Nevertheless, the Trustee said that instead of paying the exempt funds to Mrs Young he intended to pay the funds to Rockliffs’ Trust Account in trust for the executor of the deceased estate. He added:
Your client can then determine whether or not she could or should undertake that role.
Therefore, the funds are being paid to your firm ‘without admission’ by your client that she is or has been the Executor of the Estate.
The Trustee referred to a claim being made by the Child Support Agency and appeared to indicate that this should be paid out of exempt funds although he added that the executor should obtain her own advice on the point. This claim is discussed below at [91]. The Trustee then set out the amount that he asserted was payable which, he said, could be calculated as follows:

1. Funds from Self-Managed Superannuation Fund $36,832.44

2. Funds from MLC Limited Life Assurance Policy $315,326.02

3. Funds from ING Life Limited $62,792.60

4. Interest earned and allocated to 19 October 2007 $11,861.05

5. Less Trustees Fees applicable to these matters $16,000.00

6. Less Legal Fees (Life Assurance Policy – MLC) $3,903.00

Total Payable to your Client

$406,909.11

On 15 October, in a letter addressed to the Trustee, Mr Rockliff took issue with the total amount that the Trustee said was payable. He noted that at the meeting on 27 September 2007 the Trustee had said that he “had a cheque available … for approximately $506,000.00”. He alleged that Mrs Young had “justifiable concerns” relating to the contents of the report to creditors of 15 June 2007, the Trustee’s failure to respond to correspondence and his inability to provide relevant information at the meeting of 27 September. According to the Trustee the discrepancy between the two amounts was caused by him deciding not to include the amount of $74,037.80 (plus interest earned on that sum) derived from the BWA Cash Management Trust Account held with BWA Management Investments until he could resolve the uncertainty as to whether these funds were divisible or exempt assets.
In a letter dated 22 November 2007 the Trustee provided a more comprehensive response to the issues raised by Mr Rockliff. He confirmed that $315,326.02 received from the MLC Limited Life Assurance Policy and $62,792.60 from the ING Life Limited policy had been retained in the Hall Chadwick Trust Account from 24 November 2006 and 16 May 2007 respectively. In addition $36,832.44 from the self-managed superannuation fund of Mr Macryannis had also been held in that account from 16 January 2007. He stated that the trust account is an interest-bearing account that complies with s 169 of the Act. The Trustee said that he would be guided by the advice he received from Parry Carroll Lawyers and added: “Accordingly, your client has been paid the amount of $315,326.02 in her capacity as Executrix of the Estate”. This is a rather puzzling error as it was not in dispute that no such payment had been made. Indeed the assertion is inconsistent with other comments in the letter, in particular the statement that a cheque representing the balances of the life assurance policies and the superannuation fund would be drawn once he had received approval of his letter of 10 October 2007. Presumably the Trustee was referring to the request in that letter for approval of his fees of $16,000 and the fees payable to Parry Carroll of $3,903.00.
It would appear that the approval requested was not obtained as, in a letter to Rockliffs dated 21 January 2008, the Trustee referred to his letter of 10 October and again requested approval of his fees. He said:
I have provided you with over 50 pages of my firm’s time cost records to explain the fees which have been incurred. I have not received a reply.
I request that as a matter of urgency, you provide your client’s approval for the amount of $16,000 to be paid on account of Trustees fees.
After I receive this approval, I will then arrange for an immediate cheque to be drawn and forwarded to your office …
According to Mr Alexis following that letter the Trustee (and, it seems, Mrs Young) did nothing to resolve the issue before them until September 2009 when Mrs Young complained to the Insolvency and Trustee Service Australia (ITSA). ITSA is the government agency responsible for the administration and regulation of the personal insolvency system in Australia. Pursuant to a subpoena issued at the request of Mrs Young, Mr Mark Findlay, who holds the position of NSW Business Manager, Regulatory Unit with ITSA gave oral evidence.
Mr Findlay holds a delegation under s 11(4) from the Inspector-General in Bankruptcy of “most of the powers under s 12” of the Act. He said that after he received Mrs Young’s letter of complaint he sought access from the Trustee to the files of the administration. He was particularly interested to see if the disputed funds were banked and accounted for, and the reasons why funds that had been received some years earlier had not been distributed and whether any remuneration that had been drawn down had been properly approved. By letter dated 2 November 2009 Mr Findlay advised Mr Rockliff as to the results of his inspection.
In relation to the delay in disbursing the exempt funds, Mr Findlay said that the main reason seemed to be that Mrs Young had not approved the deduction of the trustee’s remuneration. He referred to the sum of $36,832.44 held in an Macquarie Cash Management Account in the debtor’s (presumably Mr Macryannis’s) own name and stated that it was unsatisfactory that it was still not resolved whether the sum was exempt from distribution to creditors.
Mr Findlay noted that there was no evidence that Mrs Young’s costs of obtaining the administration order or her costs of proper funeral and testamentary expenses had been reimbursed. His letter continued:
As the payment of the taxed costs of the executor of the deceased estate has priority over payment of the trustee in bankruptcy’s remuneration, under Schedule 3 to the Bankruptcy Regulations, a copy of which is attached, this is of some concern. The trustee should have addressed this and invited you to have costs taxed, in anticipation of payment, before drawing his remuneration.
Mr Findlay added that he would be writing to Mr McDonald “in the next week” requiring him to remit “the funds that are clearly non-divisible property” within 28 days “or in the alternative pay the monies to the Court within 28 days, if the status of the funds is in doubt”. Mr Findlay noted, however, that he understood the Trustee to have already instructed Parry Carroll Lawyers to make an application to pay the monies into court and to seek approval for his remuneration and costs. As mentioned in [2] above, that application was filed on 3 December 2009.
In his oral evidence Mr Findlay said that he had given the Trustee a written reprimand by letter dated 5 November 2009. He did not wish to produce the letter as he felt it should remain confidential to the Trustee and the Inspector-General. He admitted however that his letter of 8 December 2009 to Parry Carroll contained a summary of (at least part) of the letter of 5 November. The letter took issue with some aspects of Mr McDonald’s affidavit of 3 December 2009 which had been filed in connection with the Trustee’s interim application. Mr Findlay objected to a statement in the affidavit that he had suggested the Trustee obtain the advice of the Court concerning issues in relation to payment of a claim made by the Child Support Agency, the priority of claims under s 109(1) of the Act, whether Mrs Young’s claim for payment of her costs was barred by reason of her delay, aspects of Mrs Young’s conduct, and her rights as a creditor to inspect the files of the Macryannis estate. Mr Findlay said that “at no stage” had he suggested that any of these issues needed the Court’s directions. He said:
The only matter in which I did suggest the Court’s intervention was the ownership of the non-divisible property in the estate. My letter of 5 November 2009 to Mr McDonald said “either remit the funds that are non-divisible property to Ms Young or if in genuine doubt about the ownership of the funds pay the funds into Court”.
Mr Findlay confirmed that his letter of reprimand had contained three directions to the Trustee. They were that that the Trustee (a) report to creditors on the administration of the estate; (b) invite Mrs Young to have her costs in obtaining the administration order taxed; and (c) remit the non-divisible funds as indicated above. On cross-examination Mr Findlay agreed that these directions were more in the nature of strong recommendations rather than mandatory instructions. He also agreed that the Trustee had, in fact, followed each recommendation.
Mr Findlay also expressed the view that the Bankruptcy Act is silent on the question whether the Trustee is entitled to remuneration for his work in relation to the exempt assets. Mr Findlay also referred to the code of the Insolvency Practitioners Association of Australia which, he said, holds that it is inappropriate for trustees to charge for work done outside the scope of the appointment of a trustee in bankruptcy. In making this point Mr Findlay was clearly assuming that the work for which Mr McDonald was seeking remuneration was outside the scope of his appointment however that, in the true sense of the phrase, begs the question. It assumes the proposition on which it depends. It is necessary, as explained below, to determine the scope of Mr McDonald’s appointment before that conclusion can be logically reached.
In his evidence on cross-examination Mr Findlay commented that he was being careful not to express an opinion as to the Trustee’s conduct. It was none the less clear that he had formed adverse opinions about the Trustee’s conduct on a number of issues. It appears that fundamental to these adverse opinions was his view that it was at least doubtful that the Trustee had any right to remuneration in respect of the exempt funds and that the Trustee had been dilatory in disbursing those funds in order to strengthen his claim to remuneration. He brushed off questions about Mrs Young’s right to receive the funds and said several times that if the Trustee was in doubt about this he should have paid the money into court. In regard to payment into court he also appeared to be under some misapprehension as to what is required for this.
In response to questions put by Mr Skinner, counsel for the Trustee, Mr Findlay admitted that he was aware Mr McDonald had made an application under the Bankruptcy Act, for the fixing of his remuneration in respect of non-divisible assets and that order 3 sought in that application was that subject to order 5, the balance of the assets be paid into court within 14 days. When Mr Skinner put to Mr Findlay that this was what he wanted the Trustee to do, Mr Findlay said, “No, I wanted him to remit the moneys to the court immediately”. This answer seems to imply that the Trustee only had to front up to the Court and hand over the funds, however, the Court is not a deposit taking institution. The basis on which it is requested to receive and hold funds and the terms on which it will do so must be established. The correct approach is for a party, in this case the Trustee, to apply to the Court for an appropriate order. This is what the Trustee has done. The fact that he also applied for orders in respect of his remuneration does not detract from this.
That being said, it is clear that Mr Findlay was deeply and appropriately concerned about the delay and the accumulation of costs incurred in the course of that delay. The issue of costs can be resolved in conjunction with the issue of the Trustee’s remuneration. The Trustee’s delay is a separate issue. The history outlined above shows a high degree of confusion on all sides as well as inadequate legal advice and unwarranted delay. Had the declarations in relation to the will of Mr Macryannis been sought earlier much of the delay may have been avoided. More importantly, however, it is clear that the Trustee did not act with the initiative and diligence that it was reasonable to expect. Given that he was not able to resolve the confusion in relation to the exempt assets he should have sought the intervention of the Court at an earlier stage.
Had it not been for the uncertainties surrounding Mrs Young’s ability to give a good discharge he could have made a partial distribution of the exempt funds and, granting that he had a genuine belief that he was entitled to remuneration to be paid out of the exempt assets, retained only a reasonable estimate to cover his costs and remuneration. The delay in resolving that issue has kept the legitimate beneficiaries out of the funds for much longer than was necessary.
Nevertheless, as Mr Findlay admitted, the Trustee did act on the recommendations made by Mr Findlay. There are apparently no complaints about the Trustee’s dealing with creditors other than Mrs Young or about his dealings with divisible assets. In the circumstances I do not believe that an enquiry under s 179 in respect of the Trustee’s delay in dealing with the exempt assets would be of any benefit to Mrs Young or the beneficiaries under the will of Mr Macryannis. In my view it would only prolong further the winding up of the estate. The duty of the Trustee is clear. The exempt assets must be distributed in accordance with the will. No amount in respect of the trustee’s costs or remuneration may be taken out of the exempt assets.
The Trustee’s use of divisible and exempt funds

A trustee’s right to remuneration is also recognised in the current provisions of the Bankruptcy Act although the process of claiming it differs from that described in Mayne and Jaques and in Adsett v Berlouis. Subject to s 161B, which provides a minimum entitlement for remuneration, s 162 provides for the trustee’s remuneration to be fixed by resolution of the creditors or, if the creditors so resolve, by the committee of inspection: s 162(1). Section s 162(4) in its current form (that is as amended by the Bankruptcy Legislation Amendment Act 2010 (Cth) commencing on 1 December 2010) provides that if the trustee’s remuneration is not fixed by the creditors or the committee of inspection, the trustee, “in the circumstances prescribed by the regulations” may apply to the Inspector-General for the Inspector-General to decide the trustee’s remuneration. Two new subsections in the following form were added,
(4A)If an application is made to the Inspector‑General under subsection (4), the Inspector-General must, by writing, decide the trustee’s remuneration, having regard to the matters prescribed by the regulations.
(4B)The Inspector‑General must give written notice of his or her decision under subsection (4A) to the trustee and to the bankrupt and creditors: cl 12, Sch 1.
The circumstances in which a trustee may make an application to the Inspector-General are set out in reg 8.09 of the Bankruptcy Regulations 1996 as follows:
For subsection 162 (4) of the Act, the following circumstances are prescribed:
(a)       the creditors or the committee of inspection:
(i)fail to vote on a motion relating to remuneration put forward by the trustee at a meeting of creditors under section 64U of the Act; or
(ii)reject a motion relating to remuneration put forward by the trustee at a meeting of creditors under section 64U of the Act;
(b)        the creditors or the committee of inspection:
(i)fail to vote on a proposal relating to remuneration put forward by the trustee at a meeting of creditors under section 64ZBA of the Act; or
(ii)reject a proposal relating to remuneration put forward by the trustee under section 64ZBA of the Act;
(c)        it is not cost effective to seek the approval of creditors for the trustee’s remuneration;
(d)        it is not practicable to seek the approval of creditors for the trustee’s remuneration.
Prior to 1 December 2010 when the present form of s 164(4) commenced there was no provision for the trustee to make such an application. Section 164(4) merely provided that if neither the creditors nor the committee of inspection fixed the trustee’s remuneration “the trustee is to be remunerated as prescribed by the regulations”. At that time the regulations, relevantly, regs 8.08 and 8.09(1), provided:
8.08For the purposes of subsection 162(4) of the Act, the remuneration of a trustee is to be:
(a)in accordance with the scale of charges that is:
(i)set out in the IPPA Guide to Hourly Rates published by the Insolvency Practitioners Association of Australia; and
(ii)applicable to the work to be remunerated; and
(b)at the level of 85 percent of those charges.
8.09 (1)Where the trustee of the estate of a bankrupt claims remuneration under section 162 of the Act, the bankrupt or creditor who is dissatisfied with the amount of the claim may, by notice in writing lodged within 28 days of being notified in writing or becoming aware of the amount of the claim, request a taxing officer to tax the claim.
Under the transitional provisions these earlier regulations apply to the claims for remuneration made by the Trustee: reg 4(2) of the Bankruptcy Amendment Regulations 2010 (No 2). Although the earlier regulations provide an objective standard by which a trustee’s remuneration can be assessed, they do not provide for that assessment to be done by any particular person. In particular as Goldberg J, in considering these earlier regulations, commented in Pattison v Bellin (2000) 103 FCR 590 at [27], there is “no specific provision in the Act which entitles or empowers the Court to fix or determine the remuneration of a trustee”.
This was not always the case. As originally enacted, s 162 of the Act gave the Registrar power to fix the trustee’s remuneration where it was not fixed by the creditors or the committee of inspection. In addition the Registrar had power “on the application of a creditor or the trustee or of his own motion [to] review the amount of the trustee's remuneration and … confirm, reduce or increase” it.
In Adsett v Berlouis (1992) 37 FCR 201, the Full Federal Court at 210, applied Mayne v Jaques and summarised the process for fixing the remuneration of a trustee at that time:
Where a trustee in bankruptcy is appointed in the expectation that he or she will be remunerated, and there is no prior agreement to act gratuitously, the Act assumes the existence of a right to be remunerated. Section 162 provides a mechanism for fixing the quantum of the remuneration: see Mayne v Jaques (1960) 101 CLR 169 at 172-173, 175, 180-181. The right to remuneration for work done is enforceable by the trustee by calling a meeting of creditors to fix the remuneration by resolution or, if the creditors so resolve, to have the remuneration fixed by the committee of inspection, if any: s 162(1). Where remuneration is not fixed by the creditors or the committee of inspection, the Registrar may fix the remuneration: s 162(4). The remuneration to which the trustee is entitled is to be just and proper (Mayne v Jaques (supra) at 183), or reasonable remuneration in all the circumstances (Re Palmer; Ex parte Taylor (1988) 18 FCR 271 at 283-284), for the work carried out by the trustee. The right to payment is only lost for a specific reason, as, for example, if no work was done or needed to be done or misconduct by the trustee: see Mayne v Jaques at 171,180.
In 1996, the provision that “the Registrar may fix the remuneration” in s 162(4) was deleted, and the words, “the trustee is to be remunerated as prescribed by the regulations” substituted: cl 296, Sch 1 Bankruptcy Legislation Amendment Act 1996 (No. 44). Section 162(5), which allowed the Registrar to review the trustee’s remuneration on the application of a creditor, the trustee or on the Registrar’s own motion, was also repealed. Thus the default position that applied where remuneration was not fixed by the creditors of the committee of inspection was that the trustee’s remuneration was determined in accordance with the regulations.
In Pattison v Bellin (at [25] Goldberg J quoted the following explanation from the relevant explanatory memorandum:
Where the remuneration of a registered trustee is not fixed by resolution of creditors or by the committee of inspection, the Registrar is empowered to determine the trustee’s remuneration. Item 301 proposes an amendment to subsection 162(4) so that it will provide that where the trustee's remuneration has not been fixed by resolution of the creditors or by the committee of inspection, then the trustee is to be remunerated in accordance with the regulations. The regulations could, for example, provide for the trustee to be remunerated in accordance with the scale of fees payable to the Official Trustee, or could provide for a separate scale of remuneration for registered trustees.
Item 302 also proposes the omission of subsection 162(5) which enables the Registrar to review the remuneration of the trustee. Section 178 of the Act enables a person who is affected by any act, omission or decision of a trustee to appeal to the Court. It is considered that a person who considered that the remuneration taken by a trustee was excessive could make an application under section 178 for an order relating to the remuneration.
In Pattison v Bellin his Honour had to consider whether the Court was entitled to fix a trustee’s remuneration pursuant to s 162 of the Act. In that case the trustee had made an application to the court for orders fixing additional remuneration pursuant to s 162, either under the Bankruptcy Regulations, by resolution of the creditors or by order of the Court. His Honour said at [22]:
It is not disputed that the Trustee is entitled to be reimbursed from, or indemnified out of, the trust estate in respect of the costs and expenses properly incurred by him administering the estate and that he is ordinarily entitled to receive remuneration: Re Ladyman (1981) 55 FLR 383 at 397; 38 ALR 631 at 643; Mayne v Jaques (1960) 101 CLR 169 at 173, 178, 180; Adsett v Berlouis (1992) 37 FCR 201 at 210; 109 ALR 100 at 109-110.
Justice Goldberg set out the relevant parts of s 162 and of the regulations and, as mentioned above, concluded, at [27], that the Court has no power to fix or determine the remuneration of a trustee. His Honour added:
The nature of the amendments to s 162 in 1996 confirms the conclusion that there was not a legislative intention that the Court would, in any situation, fix the remuneration of a trustee. Rather, the fixing or determination of a trustee’s remuneration is to be made by the creditors, the committee of inspection or by reference to the IPAA scale.
Pattison v Bellin was considered by Kiefel J in Dare v Doolan [2003] FCA 1451. In Dare v Doolan a trustee sought a declaration from the Court that she was entitled to claim remuneration at the rate prescribed by the regulations. Her Honour said at [17]-[18]:
Section 162 in its present form refers only to remuneration being fixed by creditors or by regulation. Goldberg J in Pattison v Bellin (2000) 103 FCR 590 observed that there remains no express provision involving the Court in fixing or determining the trustee’s remuneration. Mr Doolan relies upon the decision as confirming that it is for the creditors alone to consider and determine remuneration. I do not consider the decision goes that far.
It is of some importance that the new statutory regime provides for the automatic application of the rates of remuneration prescribed by regulation where creditors have not fixed remuneration and, it would follow, where it is not intended to seek such a resolution. The new regime involves creditors where the basis for remuneration is to be different from the rates prescribed by the regulations …
Justice Kiefel discussed provisions of the Act that provided for details of the trustee’s proposals to be given to the creditors and for the creditors to move amendments to the trustee’s proposal. Her Honour noted that these provisions of the Act did not address the position of the trustee faced with an unacceptable resolution and continued, at [19]:
In Jefferson v Official Trustee in Bankruptcy (2000) 175 ALR 671 at [21] Dowsett J observed that there was no mechanism provided for the resolution of any bona fide disagreement between creditors and a trustee, but that it seemed unlikely that creditors were intended to be the arbiters of it. I respectfully agree. His Honour did not have to resolve the difficulty. There the creditors had resolved to fix the trustee’s remuneration on a commission basis when the trustee had wished to be remunerated in accordance with the regulations. The wide powers of s 30 were considered sufficient, in his Honour’s view, to resolve the dispute which had arisen. It was appropriate to use those powers where there was no other statutory mechanism provided. His Honour’s earlier observation, that it was not open to the creditors to compel the trustee to accept remuneration on some basis other than s 162(4) for work performed (at [20]), is also relevant to these proceedings.
Justice Kiefel considered that the removal of review by the registrar and the provision of an alternative rate by the regulations appeared to be designed to promote efficiency and reduce the likelihood of dispute. Her Honour concluded that there was nothing in the statutory provisions that would entitle a creditor to take issue with the trustee’s decision to seek remuneration pursuant to the regulations. That was a matter entirely for the trustee. In such circumstances the regulation would simply apply and there would be no room for debate or negotiation between the trustee and the creditors.
On appeal the Full Federal Court (Lee, Merkel and Hely JJ) took a different view of the provisions: Doolan v Dare (2005) 142 FCR 287. Their Honours expressed the view that s 162(4) did not prevent the creditors from fixing the trustee’s remuneration at a rate less than the prescribed rate. They observed, at [20], that the trustee’s entitlement to a minimum level of remuneration is fixed by s 161B and that it does not flow by implication from s 162(4) “which is concerned with a different subject matter”. Importantly, the Full Court held, at [21]:
In the event that the trustee and the creditors dispute the basis on which the trustee is to be remunerated and the trustee contends that the remuneration so fixed is not reasonable in the circumstances, the dispute between the parties would be a matter arising under the Act in respect of which the Court has jurisdiction under s 39B(1A) of the Judiciary Act 1903 (Cth), or under s 30 of the Act, and may make such orders as are necessary to resolve the dispute and determine the rights of the parties.
In Re Walker (2005) 221 ALR 320 at [6], Barrett J, citing among others, the Full Court decision in Doolan v Dare, held that the position of a liquidator in any winding up is, as to remuneration, the same as that of a trustee in bankruptcy. His Honour, at [20]-[31], referred to a number of Federal Court decisions, including Jefferson, as authority for the broad proposition:
that where the prescribed statutory mechanism for deciding quantum proves unworkable in practice, the court’s general power (also statutory) to determine any question arising in the particular administration extends to deciding the question of quantification.
In Brake v Townsend [2006] FCA 1156 Greenwood J considered an appeal from a decision of a Federal Magistrate to fix a trustee’s remuneration. His Honour found that the Federal Magistrate’s discretion miscarried because he failed to have regard to the evidence in the proceeding. For that reason there was no proper foundation for the exercise of the power to fix the remuneration however Greenwood J observed at [98]:
The discretion has miscarried but to the extent that the source of the power might need to be identified, it seems to me that s 178(1) may well confer a power to determine or fix the quantum of the costs (both expenses and remuneration) in respect of an administration. In addition, s 30(1)(b) of the Act confers a power upon the court to make such orders as the court considers ‘necessary for the purposes of carrying out or giving effect to the Act in any case or matter’. The intersection, however, between the exercise of such powers directed to the subject matter of the trustee’s remuneration and the proper application of s 162 of the Act which specifically addresses the mechanisms by which the trustee’s remuneration is to be determined, must be carefully considered in any particular case.
His Honour added:
The trustee’s remuneration might be determined by resolution of the creditors or, by a committee of inspection. Where the remuneration of the trustee is not so determined, the trustee is to be remunerated as prescribed by the regulations (s 162(4)). The making of an order to fix or otherwise determine the remuneration of the trustee in the exercise of a power which properly comprehends such subject matter, notwithstanding the preparation of an itemised Bill of Costs and the taxation of those costs, could only arise out of an exposed process of reasoning identifying a proper basis for recourse to such power. There is no such process of exposed reasoning identified.
In this case I see no reason why the Court should have resort to general powers such as are provided in s 30(1)(b) or to s 178(1). While I do not exclude the possibility that there may be circumstances in which those powers might be used, in my view the structure of the legislation that applies to the present claim contemplates that the Trustee will follow the procedures laid down in the Act and regulations. It is not for the Court to adopt some other procedure when the statutory procedure is open to the Trustee.
In circumstances where a trustee’s remuneration is not fixed by the creditors or a committee of inspection, the trustee may prepare a bill of costs calculating the remuneration payable in accordance with reg 8.08 and advise the creditors accordingly. The obligation to advise the creditors follows from s 162(6A) and reg 8.12. Regulation 8.12(c) requires the trustee to advise the creditors of their right to request that the trustee’s claim for remuneration be taxed.
Regulation 8.09 sets out the procedure to be followed where a creditor disputes the amount of the trustee’s claim:
(1)Where the trustee of the estate of the bankrupt claims remuneration under section 162 of the Act, the bankrupt of a creditor who is dissatisfied with the amount of the claim may, by notice in writing lodged within 28 days of being notified in writing or becoming aware of the amount of the claim, request a taxing officer to tax the claim.
(2)The taxing officer must, promptly after receiving a request in accordance with subregulation (1), give notice in writing to the trustee to lodge a detailed bill of costs, in accordance with regulation 8.10, with the taxing officer within 28 days or such further period as the taxing officer may, in writing, allow.
(3)On receiving the bill of costs, the taxing officer must give notice in writing of the date, time and place for the taxation, at least 5 days before the taxation, to the trustee and the person requesting the taxation.
(4)Subject to subregulation (5), if the trustee fails to comply with a notice given under subregulation (2):
(a)the trustee forfeits his or her right to disbursements and expenses; and
(b)any amount that, apart from this subregulation, would have been applied as the trustee’s remuneration is to be applied for the benefit of the creditors.
(5)A trustee who is aggrieved by the operation of subregulation (4) in respect of his or her claim, or intended claim, for costs may apply to the Court for relief, and the Court may:
(a) grant such relief; and
(b) grant the relief on such terms, if any;
as it thinks fit.
Once the trustee’s remuneration has been settled by taxation, or the statutory period for requesting a taxation has passed, the trustee is entitled to retain from the divisible property of the bankrupt estate the amount of the remuneration giving it the statutory priority accorded in Sch 3 of the regulations: see [50] above.
Applying the statutory procedures to the present case
Because the Trustee and his advisors assumed that remuneration and expenses in dealing with exempt assets must be paid out of the funds constituted by those assets, the Trustee’s claims in relation to exempt assets have not been put to creditors. In this case it is not clear whether there are divisible funds remaining from which the Trustee’s remuneration can be drawn. Assuming, however, that there are some divisible funds, the proper approach for the Trustee is as outlined in [146]-[147] above.
Costs
I shall give both Mrs Young and the Trustee leave to provide the Court draft orders as to costs in respect of each of the applications the subject of these reasons and submissions in support of their respective orders. I shall allow time for them to exchange draft orders and submissions before providing them to the Court. I propose to decide the issue on the papers unless either Mrs Young or the Trustee wishes to make oral submissions.

I certify that the preceding one hundred and seventy-two (172) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.

Associate:
Dated: 8 November 2011

Citation:		Young, In the matter of Macryannis [2011] FCA 1272
Parties:		GEOFFREY DAVID MCDONALD AS TRUSTEE OF THE BANKRUPT ESTATE OF THE LATE CHRISTOPHER JOHN MACRYANNIS AND KATHRYN ANNE YOUNG
File number:		NSD 1955 of 2006
Judge:		STONE J
Date of judgment:		8 NOVEMBER 2011
Catchwords:		BANKRUPTCY – application under s 179 Bankruptcy Act 1966 (Cth) for enquiry into Trustee’s conduct in administering deceased estate – administration under Part XI Bankruptcy Act– Trustee appointed by Court order – delay in distributing assets – application for enquiry brought by creditor of estate – whether creditor has standing to bring application – whether issues identified by creditor warrant an enquiry being ordered – consideration of principles relevant to exercise of Court’s discretion under s 179 – consideration of principles governing the duties of trustees in bankruptcy – Court has high degree of supervision and control over trustees’ conduct – powers of Inspector-General in Bankruptcy – reasons referred to Inspector-General for consideration BANKRUPTCY – administration under Part XI Bankruptcy Act – whether Trustee entitled to deal with non-divisible assets as part of administration – reference to bankrupt’s assets or estate to be read as reference to whole of deceased person’s property – Trustee required to administer whole of estate which includes non-divisible assets BANKRUPTCY – application by Trustee to have remuneration fixed – whether Trustee entitled to be remunerated for dealing with exempt assets – consideration of mechanism by which remuneration to be calculated – consideration of s 162(4) Bankruptcy Act and reg 8.08 Bankruptcy Regulations and relevant authorities – whether Trustee entitled to costs, charges and expenses of administration – remuneration and any costs, charges and expenses to be drawn from divisible assets
Words & phrases:		“in relation to”
Legislation:		Bankruptcy Act 1966 (Cth) ss 5, 30 (1), 109(1)(a) 155H, 162(4), 178, 179, 244, 248, 249(6)(a)-(g), 249(7)(a)-(e) and 249(8)(a)-(d)
Bankruptcy Legislation Amendment Act 1996 (No 44) (Cth) Bankruptcy Legislation Amendment Act 2010 (Cth) s 162(4) Evidence Act 1995 (Cth) s 185 Probate and Administration Act 1898 s 18A Wills, Probate and Administration Act 1898 (NSW) Bankruptcy Regulations 1996 regs 6.01, 8.08, Divisions 2.4, 2.5 and 2.7 of Sch 4A Bankruptcy Amendment Regulations 2010 (No 2) reg 4(2)
Cases cited:		Adsett v Berlouis (1992) 37 FCR 201 Brake v Townsend [2006] FCA 1156 Dare v Doolan [2003] FCA 1451 Doolan v Dare (2005) 142 FCR 287 Ferella v Official Trustee in Bankruptcy (No 2) [2011] FCA 619 Freeman v National Australia Bank Limited [2003] FCA 1233 Hatsatouris v Hatsatouris [2001] NSWCA 408 Macchia v Nilant (2001) 110 FCR 101 Mayne v Jaques (1960) 101 CLR 169 McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547 Official Receiver in Bankruptcy v Todd (1986) 70 ALR 119 Pattison v Bellin (2000) 103 FCR 590 PMT Partners Pty Limited (in Liquidation) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262 Re Dingle; Westpac Banking Corporation v Worrell (1993) 47 FCR 478 Re Tyndall; Ex parte Official Receiver (1977) 30 FLR 6 Re Walker (2005) 221 ALR 320 Trkulja v Morton [2005] FCAFC 259 Wilson v Commonwealth of Australia [1999] FCA 219 Wilson v Official Trustee in Bankruptcy [2000] FCA 1251 Halsbury’s Laws of England (3^rd ed), Vol 38, p967 M Murray and J Harris, Keay’s Insolvency: Personal and Corporate Law and Practice, 7^th edition 2011
Date of hearing:	3, 18 November and 9 December 2010
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	172
Counsel for the Applicant:	T Alexis SC
Solicitor for the Applicant:	Rockliffs Solicitors
Counsel for the Trustee:	B Skinner
Solicitor for the Trustee:	Parry Carroll

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1955 OF 2006

KATHRYN ANNE YOUNG Applicant GEOFFREY DAVID MCDONALD Trustee
JUDGE:	STONE J
DATE OF ORDER:	8 NOVEMBER 2011
WHERE MADE:	SYDNEY

1. Funds from Self-Managed Superannuation Fund	$36,832.44
2. Funds from MLC Limited Life Assurance Policy	$315,326.02
3. Funds from ING Life Limited	$62,792.60
4. Interest earned and allocated to 19 October 2007	$11,861.05
5. Less Trustees Fees applicable to these matters	$16,000.00
6. Less Legal Fees (Life Assurance Policy – MLC)	$3,903.00
Total Payable to your Client	$406,909.11