Young v Thomson

In Young v Thomson, the Full Court of the Federal Court of Australia considered an appeal against the dismissal of an application to set aside a litigation funding agreement and an application for an inquiry into the conduct of the trustee of the bankrupt's estate. The primary judge had found that the trustee's conduct, while not ideal, did not warrant an inquiry into her conduct. The court was required to determine whether the primary judge had erred in exercising her discretion under section 178(1) of the Bankruptcy Act 1966 (Cth) in dismissing the application to set aside the funding agreement and in failing to order an inquiry into the trustee's conduct under section 179 of the Act. The court also needed to consider whether the trustee's conduct breached her statutory and fiduciary duties under the Act, including her duty to administer the estate efficiently and to disclose information to creditors.

The Full Court found that the primary judge had erred in exercising her discretion by failing to consider additional facts that had arisen after the trustee's decision to enter into the funding agreement. The court held that the primary judge had required the applicant to establish the preferable course of conduct in the circumstances, which was not the appropriate approach. The court also found that the trustee's conduct was not negligent or in breach of her statutory and fiduciary duties. However, the court expressed concern about the trustee's limited disclosure of information to creditors and her failure to seek directions from the Court. The Full Court held that the preferable course was to order the trustee to apply to a judge of the Court to pass all accounts for her remuneration and expenses prior to making any further payments to her. The court set aside the orders made by the primary judge and made new orders, including that the funding agreement be set aside subject to the applicant undertaking to repay the funder, that the trustee apply to a judge of the Court to pass her accounts, and that the respondents pay the appellant's costs.