FEDERAL COURT OF AUSTRALIA

Ambrose (Trustee), in the matter of Little (Bankrupt) v Little [2002] FCA 877

COLIN LOUIS AMBROSE (TRUSTEE), IN THE MATTER OF PAULINE ANNE LITTLE (BANKRUPT) v PAULINE ANNE LITTLE

S 7008 of 2002

von DOUSSA J

ADELAIDE

3 JULY 2002

THE COURT ORDERS THAT:

1.           The application in par 1 of the notice of motion to set aside the summons dated 14 June 2002 is dismissed. 

2.           Direct the bankrupt, Patricia Anne Little, to file affidavit material in admissible form identifying the conduct of the trustee which it is alleged constitutes ground for an inquiry under s 179 of the Bankruptcy Act 1966 within 21 days.

3.           Direct the trustee, if so advised, to file affidavit material in admissible form in response within 21 days of receiving the affidavits of the bankrupt.

4.           Adjourn consideration of the s 179 application to 2.15 pm on 13 September 2002.

5.           Otherwise adjourn generally the notice of motion to a date to be fixed with liberty to either party to apply on short notice. 

6.           Costs of today reserved. 

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     A notice of motion issued by the respondent Pauline Anne Little (the “bankrupt”) has been specially returned this morning for hearing in advance of the return of a summons for the bankrupt’s examination before the Registrar under s 81 of the Bankruptcy Act 1966 (Cth).  That examination is listed for 10 am. 

2                     The notice of motion seeks a number of orders which fall into the following categories: 

(a)                orders that the summons requiring the bankrupt to attend for examination this morning and to produce documents be set aside;

(b)               an order that there be an inquiry under s 179 of the Bankruptcy Act into the conduct of Colin Louis Ambrose (the trustee) as trustee of the bankrupt's estate;

(c)                an order pursuant to s 178 of the Bankruptcy Act that the applicant remove a caveat over certain property which was formerly the matrimonial property of the bankrupt and one Gregory Martin Little, and

(d)               orders restraining the trustee from further acting as trustee until the s 179 application has been dealt with. 

3                     The papers before the court indicate that the trustee wishes to investigate a transfer of the former matrimonial property from the bankrupt to Gregory Martin Little, and to that end the trustee has already lodged a caveat over the title of the property.  The caveatable interest is based on a claim under ss 120 and 121 of the Bankruptcy Act, to have the transfer of the property declared void. 

4                     The central ground upon which it is contended that the summons should be set aside relies on s 123 (6) of the Bankruptcy Act, which provides:

“Subject to section 121, nothing in this Act invalidates, in any case where a debtor becomes a bankrupt, a conveyance, transfer, charge, disposition, assignment, payment or obligation executed, made or incurred by the debtor before the day on which the debtor became a bankrupt under or in pursuance of a maintenance agreement or maintenance order.”

5                     Mr Brook, who appears for the bankrupt, argues that s 123(6) has the effect of protecting the matrimonial property from inquiry by the trustee unless and until the trustee has actually commenced proceedings under s 121 to have the transfer declared void.  Mr Brook argues that the present summons has been improperly issued because any s 81 examination of the bankrupt, touching matters relating to that transfer, should not occur until proceedings are already on foot under s 121.  It is argued that the trustee has proceeded in a back-to-front manner, by seeking to investigate the facts surrounding that transfer under s 81 before having commenced proceedings under s 121 to have the transfer set aside. 

6                     In my opinion that argument is wrong.  I think it is the clear intent of the Bankruptcy Act that the power to investigate circumstances surrounding a transaction under s 81 is available to be exercised in advance of taking any proceedings, whether under s 121 or otherwise to have a transaction declared void.  With respect to Mr Brook's argument, I think commonsense indicates that the obvious course in any matter like this is to inquire as to the facts first and then, if the facts justify action, to take action subsequently to enforce whatever legal rights the trustee believes follow from the facts as discovered. 

7                     In my opinion the application based on s 123(6) to set aside the summons is misconceived. 

8                     The summons not only requires attendance of the bankrupt for examination under s 81, but also requires her to produce books relating to matters identified in the summons, including documents relating to a bill of sale and the transfer of the former matrimonial property.  Insofar as it is said that the requirement to produce books about the matrimonial property is premature, or inappropriate because proceedings under s 121 have not been issued, the reasons I have already given indicate that I consider the argument is erroneous. 

9                     Insofar as it is said that the summons to produce other books and documents is unnecessary because the books and documents have already been produced, that is not a ground for setting aside the summons.  Rather, the fact that the papers have been produced is an answer to the summons, and that is a matter that can be raised before the Registrar upon the return of the summons. 

10                  Accordingly I dismiss the application to set aside the summons. 

11                  The request for an inquiry under s 179 raises substantial matters regarding the conduct of the trustee.  The normal procedure in an application under s 179 is to conduct the hearing in two stages.  The first stage is to require the person seeking the inquiry to put on file evidence as to the conduct which is said to warrant the inquiry.  The trustee then has an opportunity to respond.  The court then considers whether there is sufficient material to warrant there being an inquiry which is likely to involve a major hearing and be a substantial invasion on the time of the trustee.  If there is, the second stage follows.  The court will consider the scope of the inquiry, and give directions as to the conduct of the inquiry that will follow:  see re Alafaci;  Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262 at 267 – 268.

12                  I propose therefore to make directions on the s 179 application requiring further material from the bankrupt and a response from the trustee.  Then there will be a hearing to see whether a full-scale inquiry should take place.  In the meantime I am not satisfied on the material that has been put before me that the trustee should be restrained from pursuing his duties and activities as trustee.  In particular, it seems to me quite appropriate that the trustee proceed with the examination under s 81 to ascertain the facts about the transfer of the former matrimonial property to enable him to decide whether it is appropriate to take proceedings under s 121 and, if so, to seek whatever consent he may wish to obtain from the creditors before doing so.

13                  The application regarding the removal of the caveat will stand adjourned.  It is a matter that will require further consideration at a later point in time when the trustee has had the opportunity of deciding whether he wishes to proceed with an application under s 121.  If he does, the request to remove the caveat will have to await the outcome of those proceedings. 

14                  I make the following orders:

1.           The application in par 1 of the notice of motion to set aside the summons dated 14 June 2002 is dismissed. 

2.           Direct the bankrupt, Patricia Anne Little, to file affidavit material in admissible form identifying the conduct of the trustee which it is alleged constitutes ground for an inquiry under s 179 of the Bankruptcy Act 1966 within 21 days.

3.           Direct the trustee, if so advised, to file affidavit material in admissible form in response within 21 days of receiving the affidavits of the bankrupt.

4.           Adjourn consideration of the s 179 application to 2.15 pm on 13 September 2002.

5.           Otherwise adjourn generally the notice of motion to a date to be fixed with liberty to either party to apply on short notice. 

6.           Costs of today reserved. 

Associate:

Dated:              12 July 2002