IN THE FEDERAL COURT OF AUSTRALIA No QB 1273 of 1988
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND
RE: GREGORY DOUGLAS SMITH and
CHRISTINE ANNE SMITH
Bankrupts
EX PARTE: INSPECTOR-GENERAL IN BANKRUPTCY
Applicant
AND: EDWARD JOHN BROWN
Respondent
MINUTES OF ORDERS
JUDGE MAKING ORDER: Drummond J
DATE OF ORDER: 5 December 1996
WHERE MADE: Brisbane
THE COURT DECLARES THAT:
1. The condition of the respondent’s bond entered into by him under s 155 the Bankruptcy Act 1966 (Cth) has been contravened.
THE COURT ORDERS THAT:
1. The respondent pay to the Official Trustee the sum of $53,524.78 to be disbursed by the Official Trustee for the benefit of the estates listed in schedule A to Mr Carrick's affidavit filed 11 September 1996 and to be disbursed in accordance with that schedule, save that $9,087.50 only is to be disbursed for the benefit of the Flynn estate.
2. The respondent pay to the Commonwealth of Australia the sum of $100,000, being the amount of the bond entered into by him under s 155 the Bankruptcy Act 1966 (Cth).
3. The costs of and incidental to this application be paid by the respondent.
NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA No QB 1273 of 1988
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND
RE: GREGORY DOUGLAS SMITH and
CHRISTINE ANNE SMITH
Bankrupts
EX PARTE: INSPECTOR-GENERAL IN BANKRUPTCY
Applicant
AND: EDWARD JOHN BROWN
Respondent
CORAM: Drummond J
DATE: 5 December 1996
PLACE: Brisbane
REASONS FOR JUDGMENT
This is an
application by the Inspector-General in Bankruptcy for orders against the
respondent, who was formerly a registered trustee in bankruptcy. The orders are sought on the grounds that the
respondent committed various breaches of duty as trustee. The respondent did not seek to renew his
registration as a trustee in bankruptcy once it expired in September 1991. No material has been filed by the respondent,
although he is represented today by his solicitor, who has made submissions on
his behalf. There are, however, in the
affidavit material filed on behalf of the applicant, reports of certain
self-serving statements made to the
applicant's representative by the respondent.
The proceedings were commenced as long ago as 22 October 1991. On 8 April 1992, Spender J made three orders, the first of which required the respondent to deliver to the Official Receiver all books, documents, papers and accounts in his possession, in connection with his administration of certain identified estates. The second was an order that the Official Receiver conduct an audit of all such records received from the respondent for the purpose of identifying payments of money in respect of the said estates from his trust account without proper authority or contrary to the provisions of the Bankruptcy Act 1966 (Cth). Thirdly, an order was made that, where it appears to the Official Receiver that fees have been taken without authority in the administration of any such estate, the matter be referred to the Registrar in Bankruptcy for the purpose of fixing the proper fees payable to the respondent as trustee.
The Official Receiver completed this audit, directed by Spender J, and sent the files to the Registrar in Bankruptcy on 26 February 1993. The Registrar completed his inquiry on 23 May 1995. In the next month, the files were returned to the Official Receiver.
Mr Carrick,
a Deputy Official Receiver, in schedule A to his affidavit of 11 September
1996, shows that an amount of $58,024.78 has been in effect wrongly taken by
the respondent from nine estates that were under his administration while he
was a registered trustee. This amount is
made up of fees overcharged by the
respondent and other unauthorised withdrawals made by the respondent from
various of these estates.
It is agreed, however, that in respect of the Flynn estate, in relation to which schedule A shows an amount of $13,587.50 as repayable by the respondent, the respondent has, in fact, repaid, in respect of that estate, the sum of $4,500. The total amount therefore payable by the respondent to the Official Trustee, in respect of these nine estates, totals $53,524.78. The solicitor for the respondent does not dispute that it is this figure that is repayable by the respondent.
The grounds
on which the application is brought include that the respondent maintained only
one bank account, a cheque account styled the “E. John Brown Trust Account”, in
respect of all bankruptcy, Part X and company liquidation administrations that
he had control of, rather than a separate trust account in respect of each
bankruptcy administration, which he is required by s 169(1) the Bankruptcy Act to maintain. Examination of the respondent's records
showed that, because only one bank account was maintained for all these
administrations, he was able to and did overdraw the accounts in respect of
individual administrations. This should,
of course, never occur and is highly unlikely to occur if the Bankruptcy Act is complied with in
relation to bankruptcy administrations.
While the amount of unauthorised overdrawings, including unauthorised
fees, once exceeded the $53,524.78 that I have referred to, certain repayments
were made by the respondent for the benefit of the various estates overdrawn
which reduced the original total overdrawings to the figure now
outstanding. In some administrations,
the respondent drew on account of fees more than that fixed by the Registrar as
appropriate in the course of his inquiry conducted pursuant to the order of
Spender J.
Further, in some estates, the respondent has drawn remuneration for work done as controlling trustee prior to a bankruptcy when there was a priority claim by the Deputy Commissioner of Taxation for unpaid tax instalment deductions. I accept that in those circumstances he was only entitled to lodge a proof of debt as an unsecured creditor for those fees in the insolvency administration. The respondent's solicitor points out that the respondent, in so acting, contends he relied upon a statement in the CCH Australian Insolvency Management Practice current at the time to the effect that there was doubt as to whether a trustee's remuneration had priority in repayment over the Commissioner of Taxation's claim for unremitted wage and withholding taxes and unremitted prescribed payments and which went on to say that, in practice, the Commissioner defers his claim. The evidence before me shows that the CCH comment appears to be quite inconsistent with what the Australian Taxation Office said was at the relevant time the Taxation Office's practice.
Further, in
relation to the estate of Fedrick, whilst controlling trustee the respondent
withdrew an amount of $3,000 in cash from takings of the debtor's business to
pay for services performed mainly before he had become controlling trustee. He was only entitled to lodge a proof of debt
as an unsecured creditor in relation to those fees. Further, in the administration of Flynn, the
respondent drew a
cheque for $10,000 on the funds of the estate to meet his remuneration for
assisting with the creditors' voluntary winding up of a company associated with
the debtor on the basis of a letter from the debtor undertaking that the
respondent's costs would be borne by the shareholders of the company. It is submitted, and I accept the correctness
of the submission, that, even if the respondent was entitled to bill an amount
of $10,000 for performance of his duties as liquidator of the company in
question, this amount should have been taxed, or, if not taxed, approved by a
meeting of creditors in accordance with the requirements of s 167 the Bankruptcy Act, which the respondent
thus breached.
Further, in relation to the Allen administration, the respondent received from the proceeds of the sale of a property owned by the debtors, which was subject to a mortgage to the ANZ Bank, $7,000 for his fees in connection with the sale. The solicitor for the respondent points out that the respondent claims that he was entitled to receive this amount as agent for the bank, in effect, for work done by him in realising the bank's security by way of that sale. I do not accept that submission on behalf of the respondent. The contract of sale which the respondent signed describes him as selling in his capacity as trustee of the estates of the debtors, Mr and Mrs Allen. There is other evidence in the form of correspondence from the bank to the respondent at the time which gives the lie to the respondent's claim as to the capacity in which he says he was acting in that regard.
I am
satisfied, by reason of these various defaults, that, in terms of s 176(1)
the Bankruptcy Act, the respondent,
who has been a trustee of various
estates in bankruptcy, has been guilty of various breaches of duty in relation
to those estates or affairs. The bond
which the respondent entered into pursuant to s 155, dated 28 October 1986
and which remains undischarged, is in these terms:
"The condition of this Bond is that this Bond is to be void if the trustee at all times well and sufficiently performs and executes all the duties required of him in any office of:
(a) trustee of the estate of a bankrupt;
¼
(ba) controlling trustee in relation to a debtor whose property is subject to control under Division 2 of Part X of the Bankruptcy Act 1966;
(c) trustee of deed of assignment, a deed of arrangement or a composition under Part X of the Bankruptcy Act 1966;
¼
to which he is duly appointed, otherwise it shall remain of full force and effect."
I am satisfied, by reason of the facts to which I have made reference, which show breaches of duty within s 176(1) the Bankruptcy Act by the respondent while he was a registered trustee, that he has also, in effect, breached the requirements of the bond whereunder he undertook to properly perform the duties of trustee, particularly in the three capacities that I have referred to. It is therefore appropriate to grant the applicant relief.
I certify that this and the preceding five pages are a true copy of the reasons
for judgment herein of the Honourable Justice Drummond.
Associate:
Date: 5 December 1996
