FEDERAL COURT OF AUSTRALIA

Frost v Sheahan [2005] FCA 1014

BANKRUPTCY – application to be discharged from bankruptcy – objections to discharge – whether any objections to discharge remained outstanding – utility in the continuation of the bankruptcy – Court’s power to review an act, omission or decision of a trustee.

Bankruptcy Act 1966 (Cth) ss 149(1), 149(2), 149(3), 149A(2), 149A(3)(a), 149A(3)(b), 149B(2), 149D(1), 149G, 149H(1), 149H(3), 149H(4), 149J(1), 149J(2), 149K(1), 149K(2), 149K(3), 149K(4), 149N(1), 149N(1A), 149P(1), 178

McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547 cited

Adsett v Berlouis (1992) 37 FCR 201 cited

Cummings v Claremont Petroleum NL (1996) 185 CLR 124 cited

Re Wheeler; Ex parte Wheeler v Halse (1994) 54 FCR 166 cited

Re Tyndall (1977) 30 FLR 6 cited

Macchia v Nilant (2001) 110 FCR 101 cited

Inspector-General in Bankruptcy v Nelson (1998) 168 ALR 340 cited

Re Weiss; Ex parte Official Trustee in Bankruptcy (unreported, Burchett J, 27 June 1986) cited

ALLEN GORDON FROST v JOHN SHEAHAN, TRUSTEE OF THE BANKRUPT ESTATE OF ALLEN GORDON FROST

SAD 266 of 2004

LANDER J

28 JULY 2005

ADELAIDE

IN THE MATTER OF THE BANKRUPT ESTATE OF ALLEN GORDON FROST

THE COURT ORDERS THAT:

1.         The application is dismissed.

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

IN THE MATTER OF THE BANKRUPT ESTATE OF ALLEN GORDON FROST

REASONS FOR JUDGMENT

THE APPLICATION

1                     On 13 December 2004 the applicant brought this application under s 178 of the Bankruptcy Act 1966 (Cth) (the Act) for the applicant ‘to be discharged from his bankruptcy’.

2                     The ‘grounds’ of the application are:

‘1.        An order that the decision of the Applicant’s Trustee dated the 30^th day of November 2004 by which he refused to release the Applicant from Bankruptcy be set aside.

2.         A declaration that the trustee’s objections to discharge have been fully complied with by the Applicant and have ceased.

3.         An Order that the Applicant be discharged from his bankruptcy.

4.         That the Respondent pays the Applicant’s costs of this Application.’

3                     Section 178 of the Act provides:

‘178(1)            If the bankrupt, a creditor or any other person is affected by any 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.

178(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.’

the history

4                     Both before and since the sequestration order the applicant has practised as an accountant under the name ‘Ambrose Baker & Partners’ and similar names.  The applicant is the sole practitioner in that practice which carries on business at 252 Angas Street, Adelaide.

5                     On 4 September 2000 a sequestration order was made against the applicant’s estate.  The respondent was appointed the trustee of the bankrupt’s estate.

6                     The day after his appointment, the respondent wrote to the applicant requesting that the applicant complete a statement of affairs and produce records relating to his examinable affairs.  The respondent also sought production of all records of Ambrose Baker & Partners for the period 1 July 1995 to 4 September 2000.

7                     On 7 September 2000 the respondent wrote to the applicant requesting further information and that the applicant attend at an interview at the respondent’s offices.  On 10 September 2000 the applicant replied in writing declining to attend an interview.

8                     In response to the above requests the applicant produced a limited quantity of documentation.

9                     On 11 September 2000 the Official Receiver, at the respondent’s request, caused a notice, pursuant to s 77AA of the Act, to be served upon the applicant requesting access to the applicant’s premises and production of the applicant’s books and records, and the books and records of entities related to the applicant.

10                  On 13 September 2000 the respondent wrote to the applicant advising that the respondent required full access to all of the business records of entities conducted by the applicant or through a service trust or a company.

11                  On 9 October 2000 the respondent wrote to the applicant reminding him that he had still not completed a statement of affairs and also again requesting access to the books and records of businesses in it and entities associated with the applicant.

12                  On 12 December 2000 the respondent applied for an order to summons the applicant to give evidence pursuant to s 81 of the Act.  An order was made and the examination of the applicant commenced on 7 February 2001.  It continued on 20 February 2001 and concluded on 13 March 2001.

13                  The applicant did not produce any documents relating to his examinable affairs at his public examination, except a statement of affairs.  That statement of affairs was forwarded to the Official Receiver but rejected because either it was written in pencil or was incomplete.

14                  During his examination, the applicant accepted that he was the sole proprietor of an accountancy firm, Ambrose Baker & Partners.

15                  He was directed by the Registrar to make inquiries and produce further documents relating to that business.

16                  After the first day of the public examination the respondent became aware, from inquiries other than with the applicant, that the applicant was the registered proprietor of an apartment in Cullen Bay in Darwin in the Northern Territory.  On the resumption of his examination on 20 February 2001 the applicant initially denied having any interest in any real property other than his family home in Hallett Cove until expressly asked whether he held any property in Cullen Bay.  The applicant said that he had forgotten about the Cullen Bay property until asked about it.

17                  During that examination, the applicant said that he had tried to search for documents the night before but had been unable to do so because he was suffering from sunstroke.

18                  The applicant also identified various documents which were in his possession or control and which fell within the terms of the summons, including bank statements and cheque books for accounts held in the name of companies associated him, statements in relation to a loan account in his name, documents relating to his dealings with clients, communications with the manager of the Cullen Bay property, documents relating to insurance of his personal effects and records relating to the transfer of a motor vehicle to his wife.  The applicant was directed by the Registrar to produce the documents identified during the examination as being relevant to his examinable affairs.

19                  On 28 February 2001 the respondent wrote to the applicant’s counsel seeking documents identified during his examination.  The applicant provided the respondent with some bank statements in relation to accounts held in the names of associated companies and certain records relating to insurance of his household contents.  The majority of the documents identified during the applicant’s examination on 7 and 20 February 2001 were not produced.

20                  The applicant’s public examination resumed on 13 March 2001.  The applicant did not produce any documents.  The applicant said that various documents belonging to him had been stolen in two separate thefts from his motor vehicle in 1997 and 1998.

21                  The bankrupt filed his statement of affairs on 29 June 2001.  He would have been entitled, in the ordinary course of events, to be discharged from his bankruptcy on 29 June 2004.

THE LEGISLATION

22                  Division 2 of Part VII of the Act provides for discharge of bankrupts from bankruptcy.  Section 149 provides for an automatic discharge in accordance with the terms of the section.  The period will vary depending on when the bankrupt became a bankrupt whether before or after the enactment of s 27 of the Bankruptcy Amendment Act 1991 (Cth).

23                  In this case, it is clear that the applicant would have been entitled to be discharged by operation of law from his bankruptcy three years after the date on which he filed his statement of affairs.  As I have already noticed, that statement of affairs was filed on 29 June 2001.

24                  Section 149A(1) of the Act provides:

‘           149A   (1)  If an objection to the discharge of a bankrupt has taken effect in accordance with section 149G, then, unless the objection is withdrawn or cancelled, the reference in whichever of subsections 149(2), (3) and (4) applies in relation to the bankrupt to the period of 3 years from the date on which the bankrupt filed his or her statement of affairs is taken to be a reference to the prescribed number of years from the prescribed date.’

25                  Insofar as this case is concerned, relevantly that section provides that if an objection to the discharge of the bankrupt has taken effect in accordance with s 149G then the date upon which the bankrupt will be discharged will be extended for a period depending upon whether the bankrupt was subject to subsection 149(2), (3) and (4).

26                  Section 149A(3) provides:

‘           (3)        If the objection is withdrawn or cancelled:

(a)   the objection is taken never to have been made; and

(b)   if:

                             (i)     the period specified in whichever of subsections 149(2), (3) and (4) applies in relation to the bankrupt has ended; and

                            (ii)     no other objection against the discharge of the bankrupt is in effect;

                           (iii)     [repealed]

the bankrupt is taken to be discharged under section 149 immediately the objection is withdrawn or cancelled.’

27                  Thus it is that s 149A contemplates that an objection might be made to the discharge of the bankrupt from bankruptcy by operation of law.  The section also contemplates that the objection can be withdrawn or cancelled and, in those circumstances, the bankrupt will be discharged in accordance with s 149A(3)(b).

28                  Subdivision B of Division 2 of Part VII of the Act provides for a code wherein a trustee in bankruptcy may file with the Official Receiver a written notice of objection: s 149B(1).

29                  Section 149B(2) provides:

‘           (2)  The trustee of a bankrupt’s estate must file a notice of objection to the discharge if the trustee believes:

(a) that doing so will help make the bankrupt discharge a duty that the bankrupt has not discharged; and

(b) that there is no other way for the trustee to induce the bankrupt to discharge any duty that the bankrupt has not discharged.’

30                  Section 149D provides for the grounds upon which a notice of objection may be based: s 149D(1).  It is not necessary to set out all of the grounds of objection in s 149D.  Section 149N(1A) provides that some of the grounds in s 149D are ‘special grounds’.  The special grounds referred to in that subsection are subsections (ab), (d), (da), (e), (f), (g), (h), (ha), (k) and (ma) of s 149D(1), which provide:

‘The grounds of objection that may be set out in a notice of objection are as follows:

…

(ab) any transfer is void against the trustee in bankruptcy because of section 121;

…

(d) the bankrupt, when requested in writing by the trustee to provide written information about the bankrupt’s property, income or expected income, failed to comply with the request;

(da) after the date of the bankruptcy, the bankrupt intentionally provided false or misleading information to the trustee;

(e) the bankrupt failed to disclose any particulars of income or expected income as required by a provision of this Act referred to in subsection 6A(1) or by section 139U;

(f) the bankrupt failed to pay the trustee an amount that the bankrupt was liable to pay under section 139ZG;

(g) at any time during the period of 5 years immediately before the commencement of the bankruptcy, or at any time during the bankruptcy, the bankrupt:

(i)                 spent money but failed to explain adequately to the trustee the purpose for which the money was spent; or

(ii)               disposed of property but failed to explain adequately to the trustee why no money was received as a result of the disposal or what the bankrupt did with the money received as a result of the disposal;

(h) while the bankrupt was absent from Australia he or she was requested by the trustee to return to Australia by a particular date or within a particular period but the bankrupt failed to return by that date or within that period;

(ha) the bankrupt intentionally failed to disclose to the trustee a liability of the bankrupt that existed at the date of the bankruptcy;

…

(k) the bankrupt refused or failed to sign a document after being lawfully required by the trustee to sign that document;

…

(ma) the bankrupt intentionally failed to disclose to the trustee the bankrupt’s beneficial interest in any property.’

31                  An objection by the trustee takes effect on the beginning of the day on which details of the notice of objection are entered in the National Personal Insolvency Index: s 149G.

32                  The Act also allows a trustee to cease to object and provides a machinery for that procedure.  If prior to the discharge of bankruptcy the trustee ceases to object on a particular ground then he or she must give the Official Receiver a notice specifying the ground and also give the bankrupt a copy of the notice: s 149H(1).  If there is no longer an objection on any ground, the objection ceases to have effect at the beginning of the last day when details of such a notice are entered in the National Personal Insolvency Index: s 149H(3).  If one or more grounds of objection remain, the objection continues to have effect on the remaining ground or grounds: s 149H(4).

33                  Section 149J of the Act also permits the trustee to withdraw an objection to discharge.  If the trustee withdraws the objection prior to discharge the trustee must give the Official Receiver a notice of the withdrawal of the objection and give the bankrupt a copy of the notice: s 149J(1).  The withdrawal takes effect at the beginning of the day when details of such a notice are entered into the National Personal Insolvency Index: s 149J(2).

34                  The subdivision also provides a procedure for the review of an objection by the Inspector-General in Bankruptcy (the Inspector-General).  The Inspector-General may review a decision of the trustee to file a notice of objection either on the Inspector-General’s own initiative or, if requested to do so by the bankrupt: s 149K(1).  The Inspector-General must review such a decision if requested to do so by the Ombudsmen: s 149K(2).

35                  Sections 149K(3) and (4) provides a procedure for a bankrupt requesting a review by the Inspector-General of the trustee’s decision.

36                  Section 149N(1) provides for the circumstances in which the Inspector-General must cancel an objection.  It provides:

‘On a review of a decision, if the Inspector-General is satisfied that:

(a) the ground or grounds on which the objection was made was not a ground or were not grounds specified in subjection 149D(1); or

(b) there is insufficient evidence to support the existence of the ground or grounds of the objection; or

(c) the reasons given for objecting on that ground or those grounds do not justify the making of the objection; or

(d) a previous objection that was made on that ground or those grounds, or on grounds that included that ground or those grounds, was cancelled;

the Inspector-General must cancel the objection.

37                  On the other hand, s 149N(1A) sets out the circumstances in which an objection must not be cancelled.  It provides:

‘           (1A) An objection must not be cancelled under subsection (1) if:

            (a)        the objection specifies at least one special ground; and

(b)        there is sufficient evidence to support the existence of at least one special ground specified in the objection; and

(c)        the bankrupt fails to establish that the bankrupt had a reasonable excuse for the conduct or failure that constituted a special ground.

For this purpose, special groundmeans a ground specified in paragraph 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (k) or (ma).’

38                  The Inspector-General must give notice to the bankrupt, the trustee and the Official Receiver of the Inspector-General’s decision on the review or on the bankrupt’s request for a review: s 149P(1).

39                  A bankrupt is entitled to expect that he or she will be discharged from bankruptcy by operation of law unless, in the meantime, an objection has been filed by the trustee in accordance with the provisions of the Act.

40                  The objection can only be lodged by the trustee of the bankrupt’s estate on any of the grounds in s 149D of the Act.  If grounds exist and the trustee believes that filing a notice of objection will help make the bankrupt discharge a duty that the bankrupt has not discharged and that there is no other way for the trustee to induce the bankrupt to discharge any duties that the bankrupt has not discharged, the trustee must lodge an objection.

41                  Any objection lodged by the trustee must conform with s 149C and set out the grounds of the objection.

42                  The trustee is entitled to cease to object on any ground at any time before the bankrupt is discharged from bankruptcy.  Moreover, the trustee is entitled to withdraw the objection at any time before the bankrupt is discharged from bankruptcy.

43                  The Act provides a scheme whereby the Inspector-General may review any objection lodged by the trustee.  Such a review may be carried out on the Inspector-General’s own initiative or, if requested to do so, by the bankrupt for reasons that appear to the Inspector-General to be sufficient to justify such a review.

44                  The Inspector-General has the power to cancel the objection.

45                  If the trustee does not cease to object, or if the objection is not withdrawn or cancelled, then the objection will have the effect of extending the period of bankruptcy in accordance with the formula provided in s 149A(2).

46                  The purpose of the objection procedure is to provide the trustee with a power by which he can induce the bankrupt to act in accordance with the bankrupt’s obligations.

47                  The trustee should not use the power for the purpose of punishing the bankrupt for acts taken by the bankrupt which cannot be rectified.  Rather, the power should be used for the purpose of persuading the bankrupt to discharge the bankrupt’s duties under the Act.

48                  It is a power, however, which must be used sparingly and for the purpose of protecting the interests of creditors and in generally advancing the administration of the estate of the bankrupt.

49                  In a sense, it is a power of last resort when no other form of persuasion will assist to remind the bankrupt of the bankrupt’s obligations.

50                  Between 4 February 2002 and 14 July 2002 the respondent trustee filed four notices of objection to the applicant’s discharge of bankruptcy, on grounds set out in s 149D of the Act.

First Objection

51                  The first ground of objection was that the applicant had failed to provide the respondent with information in relation to his income and that his statement of affairs did not disclose his interest in the Cullen Bay property.

52                  In February 2002 the applicant applied pursuant to s 149K(1) to the Inspector-General for a review of the respondent’s decision to lodge the first objection to discharge.

53                  By letter dated 12 April 2002 the Inspector-General’s delegate advised that he had determined to uphold the respondent’s objection based on the failure of the applicant to disclose details of his income but to cancel the objection on the ground of the applicant’s failure to disclose his interest in the Cullen Bay property.  In respect of that second objection, the Inspector-General concluded that the bankrupt’s statement of affairs contained a reference to Cullen Bay on the reverse of one page.

54                  On 13 May 2002 the applicant lodged a completed income questionnaire with the Official Receiver in which he asserted that his income for the current and previous years amounted to $10, 000 per annum.

55                  On 4 June 2002 the respondent, pursuant to s 149J, filed a notice of withdrawal of the first objection to discharge.

56                  Because of the provisions of s 149A(3)(a), the objection which was withdrawn is taken never to have been made.

Second Objection

57                  On 14 June 2002 the respondent lodged a second objection to the applicant’s discharge from bankruptcy with the Official Receiver on the ground that the bankrupt had failed to make income contribution payments pursuant to s 139ZG of the Act.

58                  On 6 August 2002 the applicant sought a review by the Inspector-General of the trustee’s assessment of the bankrupt’s liability to make contributions.

59                  On 4 October 2002 the Inspector-General’s delegate advised that he had set aside the trustee’s assessment of the bankrupt’s liability for income contributions for the first two CAPs of the applicant’s bankruptcy and substituted an alternative assessment for which the bankrupt was liable.

60                  In due course, the bankrupt made an application to the Administrative Appeals Tribunal for a review of the Inspector-General’s decision but, in a decision delivered on 6 February 2004, the Inspector-General’s ruling was upheld.

61                  On 20 December 2002 the Official Receiver advised that the objection had been upheld and entered in the National Personal Insolvency Index.

Third Objection

62                  On 2 December 2003 the respondent’s third objection was filed with the Official Receiver.  The ground relied on by the respondent was that the applicant had diverted money from a savings account and thereby engaged in misleading conduct in respect of an amount that exceeded $3,000: s 149D(1)(c) of the Act.

63                  The respondent ascertained that the applicant had appropriated rental income earned from the Cullen Bay property.  It was alleged that the Cullen Bay property was the subject of an arrangement whereby a guaranteed rental income was paid into an account with the Australia and New Zealand Banking Group Limited (“ANZ”) in the applicant’s name.  The respondent claimed that funds in that account were then applied in reduction of a loan from ANZ to the applicant, which was secured by a first-ranking mortgage over the property.  When the respondent became aware of this arrangement, he arranged with ANZ for the applicant’s access to the account to be terminated.  Despite a letter from ANZ dated 9 February 2001 confirming that the account had been frozen, ANZ did not cancel the applicant’s authorisation to make withdrawals from the account by means of an online banking facility.  Between the period of 11 April 2003 and 13 October 2003 the applicant made withdrawals from that account totalling $10,560.  The withdrawals were effected by transfer of the funds into an account held at the Hutt Street branch of the Westpac Banking Corporation.  On 20 November 2003 the respondent wrote to the bankrupt demanding payment of the $10,560.  The respondent received no response to that letter.

64                  By letter dated 23 July 2004 the respondent was advised by a delegate of the Inspector-General in Bankruptcy, that the applicant’s application to overturn the third objection to discharge had been upheld on the basis that the applicant’s conduct did not constitute misleading conduct within the terms of the provisions of the Act.  The objection was cancelled.

Fourth Objection

65                  The trustee’s fourth objection was filed on 14 July 2004.

66                  The ground of this objection was that the bankrupt had failed to disclose any particulars of income or expected income as required by s 139U of the Act and that he had failed to make payments for which he was liable under s 139ZG.

67                  In relation to this objection the applicant said that, whilst he had not paid the contributions at the time that the objection was lodged, he subsequently paid those contributions on 28 November 2004.

68                  He said in his affidavit that the respondent had subsequently refused to credit those payments, notwithstanding that they were identified as being on account of income contributions.  Instead, the respondent had credited the payment against the $10,560 it alleged was owed as a result of the appropriation of the rent derived from the Cullen Bay property.  The applicant disputes that that debt which supported the fourth objection is owed.

69                  The respondent says that he was entitled to apply the contribution to the debt in fulfilment of its duty to take all reasonable steps to get in assets in the interests of the creditors: s 19 of the Act.

70                  The applicant sought a review of the fourth objection but the objection was upheld.

71                  The respondent says that of the four objections filed, the second and fourth have not been addressed and thus remain outstanding.

72                  The applicant said in his affidavit in support of his application that he has fulfilled the conditions of the outstanding objections and that unless the Court made an order discharging the applicant from his bankruptcy, the respondent would continue to object to his discharge from bankruptcy as a result of which he will remain a bankrupt forever.

THE COURSE OF THESE PROCEEDINGS

73                  When this matter came on before me on the first occasion the applicant sought an adjournment to file a further affidavit and provide further information.  That was not opposed.

74                  On the resumed hearing on 24 March, I was advised that the respondent had obtained a further order for the further examination of the applicant.

75                  The matter was further adjourned to enable that examination to take place.

76                  The applicant was further examined on 5 April 2005 and the transcript of the examination was tendered before me.

77                  That transcript discloses a continuing failure by the bankrupt to cooperate with the respondent to allow the respondent to obtain evidence of assets and income.

78                  At the conclusion of the examination the Registrar ordered that the examination be adjourned to a date to be fixed and that the applicant produce to the Court the following documents within 14 days:

‘7.1      a report by Mr Orfanos in relation to the affairs of Ambrose Baker Accounting Pty Ltd (“ABA”) and ABH;

7.2       documents relating to the application in the Supreme Court of South Australia by the applicant for leave to act as a director of Frost Taxation Pty Ltd (“Frost Taxation”) notwithstanding his status as an undischarged bankrupt;

7.3       documents relating to the application by Frost Taxation for registration as a tax agent in so far as those documents relate to financial information and not the applicant’s character;

7.4       documents relating to the affairs of Frost Taxation since October 2002.’

79                  On 12 May 2005 the applicant swore an affidavit to which he exhibited a report of Orfanos Corporate Services dated 12 May 2005 which addressed the applicant’s income in 2003 and 2004.  Apparently this is document 7.1 referred to above.  In that document the author offered the opinion that the applicant had no liability to make any income contributions under the Act.

80                  The respondent asserts in his affidavit that the documents have not been produced in response to the Registrar’s order.  Document 7.1, of course, has been exhibited to the applicant’s affidavit.

81                  The applicant’s examination resumed on 18 May 2005.

82                  The respondent requested the applicant to provide further documentation for the purpose of that examination.

83                  When the examination resumed the applicant produced no documents.

84                  During his examination on 18 May 2005, the applicant admitted that he was a beneficiary of the Frost Family Trust.  He said that he had not previously disclosed that he was a beneficiary because he did not understand that a person became a beneficiary until such time as a distribution was made from the Trust.

85                  He admitted that he had not obtained any documents relating to the ownership of the business premises at 252 Angas Street, Adelaide.  He said that those premises are owned by Ambrose Baker & Partners (Holdings) Pty Ltd.  He said that there are various documents in relation to the ownership of the premises but that he had made no effort to locate them in response to the summons.

86                  The applicant and his former wife are the registered proprietors of real property at 29 Mayflower Crescent, Hallett Cove.  The Lands Title Office records show that the property is subject to two mortgages to the applicant’s solicitor, Mr Paul Richardson, in the sum of $50,000 (the Richardson mortgages).

87                  During the applicant’s most recent examination, the applicant maintained that monies were still owed under the Richardson mortgages even though he was shown a copy of a Memorandum of Discharge of each of those mortgages signed by the mortgagee.

88                  At the conclusion of the examination of the applicant on 18 May, the applicant was ordered to produce the following documents by 27 May 2005:

‘20.1    all documents in relation to the Frost Family Trust;

20.2     documents in relation to Angas Street;

20.3     any documents in relation to shares in Santos Limited previously registered in the name of the applicant;

20.4     documents relating to the application by the applicant for approval to act as a director of Frost Taxation; and

20.5     documents relating to the affairs of Frost Taxation since October 2002.’

89                  The examination was adjourned until 14 July 2005.

90                  On 18 May 2005 two delegates of the Official Receiver and the respondent and his nominees exercised the powers given to the Official Receiver under s 77AA of the Act and entered the premises at Angas Street and, pursuant to the further powers given under s 77AA(1)(b), removed a quantity of documents which have not previously been produced by the applicant.  The respondent asserts that those documents fall within the description of documents required to be produced by the applicant in the summons for his examination on 5 April 2005.

91                  On 23 May 2005 the respondent swore an affidavit in which he deposed that he intends to make further inquiries and to obtain the documents not already produced.  Such documents are said to include those not produced in response to the Registrar’s orders as well as documents relating to the conduct of the accounting practice conducted at Angas Street and documents relating to the affairs of Ambrose Baker and Partners (Holdings) Pty Ltd and Ambrose Baker Accounting Pty Ltd.

92                  The respondent said that he intends to further investigate the following matters:

‘28.1 the applicant’s financial affairs in so far as they relate to the accounting practice operated from Angas Street;

            28.2 the Richardson mortgages; and

            28.3 the existence and financial position of the Frost Family Trust.’

The applicant’s contentions

93                  The applicant claimed that he had attended to the two objections raised by the respondent.  He contended that the respondent was not entitled to set-off the amount paid after the fourth objection against the sum of $10,560, but should have recognised that sum as payment of the amount outstanding in relation to the fourth objection.

94                  He argued that because he had now attended to both outstanding objections the respondent should have withdrawn his objection, pursuant to s 149(1) of the Act, so as to allow the applicant to be discharged from bankruptcy.

95                  He contended that the omission of the respondent to withdraw the objections under s 149J allowed him to apply to the Court pursuant to s 178.  In the circumstances of the case, he argued that I should make an order directing the respondent to withdraw the two objections because it was just and equitable to do so.

The respondent’s contentions

96                  The respondent contends that investigations in relation to the Richardson mortgages and the Frost Family Trust will be relevant to his determination of the applicant’s interest in the Angas Street and Mayflower Crescent properties.  In this regard, the respondent said that the following investigations may include:

‘30.1 the examination of the documents removed from Angas Street by the delegates of the Official Receiver on 18 May 2005;

30.2 the further examination of the applicant;

30.3 the examination of Mr Richardson;

30.4 the inspection of documents produced by the applicant in response to the orders of the Registrar made on 18 May 2005.’

97                  The respondent says that the applicant’s present application ought to be summarily dismissed.  He says that he has refused to withdraw the objection to the discharge pursuant to s 149J and contends that I should not exercise my discretion to make an order pursuant to s 178 effectively requiring him to withdraw the objection.

98                  The respondent put his argument two ways.  First, the respondent asserts that the applicant has not complied with two of the four objections to discharge and therefore there is no basis for him withdrawing his objections under s 149J.  Secondly, the respondent argues that even if there has been compliance with the objections, there are good reasons for the administration continuing.

99                  The fourth objection was brought under the new regime under ss 149D(1)(e) and (f) and is thus based on “special grounds”: see s 149N(1A).

100               I have already mentioned the dispute in relation to whether the fourth objection has been satisfied.  Although the applicant paid money to trustee, that money was applied by the trustee to the $10,560 debt allegedly owed as a result of misappropriation of rental income from the Cullen Bay property.  Thus, according to the respondent, the fourth objection remains outstanding and as such, there is no basis for withdrawing the objection pursuant to s 149J.

101               The respondent says that even if he were wrong to apply the monies to the sum of $10,560, which he says was then outstanding, there are good reasons for not withdrawing the objection and allowing the bankruptcy to continue.

THE PRINCIPLES

102               The respondent did not seek to argue that s 178 did not apply in circumstances where the trustee had not exercised the power to withdraw an objection.

103               It was not argued that because the Inspector-General had the power to review objections made by the trustee that therefore s 178 had no part to play in relation to a decision under s 149J.

104               Probably it was assumed that, whilst the Inspector-General has the power to review and cancel objections of a trustee, the Inspector-General does not have the power to review a decision of a trustee not to withdraw an objection in the exercise of the trustee’s discretion under s 149J: cf McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547.

105               In any event, the point was not argued for whatever reason.

106               A trustee is properly to be regarded as an officer of the Court: Adsett v Berlouis (1992) 37 FCR 201 at 208.

107               The purpose of s 178 is to empower the Court to exercise a supervisory role over the trustee of a bankrupt estate: Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 133.  Section 178 allows a bankrupt to seek the Court’s assistance to judicially review acts of the trustee in the carrying out of the administration.  The power exercised by the Court must be judicial.

108               That does not mean that the Court puts itself in the position of the trustee and assumes the task of the trustee in making administrative decisions: Re Wheeler; Ex parte Wheeler v Halse (1994) 54 FCR 166 at 169.

109               Rather, it empowers the Court to judicially review the trustee’s administrative decision.

110               The Court is given the widest discretion to review any act, omission or decision of a trustee.  The only bounds to the exercise of that discretion are that the Court must act judicially and be satisfied that it is just and equitable to make the order sought.

111               In Re Tyndall (1977) 30 FLR 6, Deane J said at 9-10:

‘Once the matter is properly before the court, the court is empowered – and obliged – to make such order in this matter as “it thinks just and equitable”. 

It was strongly submitted by Mr Urquhart for the Official Receiver that, notwithstanding the variation in wording, the authorities on the English legislation and the statements by Clyne J to the effect that those authorities were applicable to the provisions of s 148 of the Bankruptcy Act 1924, should lead me to conclude that, in an application under s 178, the court should only interfere with a relevant act, omission or decision of the trustee if it appeared that the trustee had acted absurdly or unreasonably or in bad faith.  I have reached the conclusion that this submission cannot be accepted.  In my view, the wording of s 178 of the Act is such as to confer upon the court the widest possible discretion as to the appropriate order which should be made in the particular case and is quite inconsistent with the approach that, upon an application made pursuant to the section by a bankrupt, creditor or other person affected by an act, omission or decision of the trustee, the court is only empowered to interfere with the trustee’s act, omission or decision if he is of the view that the trustee has acted absurdly or unreasonably or in bad faith.  Once the matter is properly before the court, the court is, by the express words of s 178, empowered (and, as I have said, obliged) to make such order in the nature as it thinks just and equitable.’

112               The applicant is obliged to establish that there are grounds for reviewing the decision of the trustee and, if those grounds can be established, that it is just and equitable for the trustee to be directed to withdraw the objection: Re Wheeler; Ex parte Wheeler v Halse (1994) 54 FCR 166 at 170.

113               In considering whether it would be appropriate to withdraw an objection where the objection has been attended to by the bankrupt and thereby bring the administration to an end, the trustee must have regard to the interests of creditors, the interests of the bankrupt and the wider public interest in maintaining confidence in the system of administration of bankrupts’ estates generally: Macchia v Nilant (2001) 110 FCR 101.

114               The respondent conceded that it would not be appropriate for him to refuse to withdraw an objection to punish the applicant for the applicant’s failure to fully co-operate in the administration.  The respondent further conceded that there needs to be some ongoing utility in maintaining the administration.  Both concessions were rightly made:  Inspector-General in Bankruptcy v Nelson (1998) 168 ALR 340 at 356.

115               It would not be appropriate for a trustee to refuse to withdraw an objection under s 149J where the bankrupt had attended to the matters which gave rise to the objection and there was no other utility in continuing the administration.

116               To refuse to withdraw an objection in those circumstances might indicate that the trustee wrongly was punishing the bankrupt for the circumstances which gave rise to the objection or for some other reason.

117               It follows, in my opinion, that where the bankrupt has attended to the objections and dealt with them, ordinarily, there must be some utility and therefore some purpose in continuing the administration of the bankrupt’s estate for the trustee to refuse to exercise the power to withdraw under s 149J of the Act.

118               The purpose must ordinarily be the same purpose for the bankruptcy itself.

119               When a person becomes a bankrupt that person’s property, both real and personal, vests in the trustee of the bankrupt’s estate.  It vests for the purpose of dividing the whole of the property between the debtor’s creditors.  When a person becomes a bankrupt the bankrupt’s creditors lose the right to proceed to recover their debts from the bankrupt.

120               In those circumstances, it is important that the whole of the bankrupt’s estate be identified so as to be made available to the bankrupt’s creditors.  Because the creditors have lost their right to bring any action to recover their debts against the bankrupt himself or herself, the very least they can expect is that all of the bankrupt’s estate, which by definition will be less than the total amount of the debts of the bankrupt’s creditors, should vest in the trustee and be made available to the creditors.

121               The Act also contemplates that the bankrupt who derives income during the bankruptcy pay a contribution towards the bankrupt’s estate: Part VI, Division 4B.

122               Again, creditors can expect if the bankrupt has derived income during the bankruptcy which should be contributed to the estate in accordance with Division 4B that the bankrupt will make those contributions.

123               In the event that the bankrupt does not identify his or her assets at the date of the bankruptcy or the bankrupt’s income during the bankruptcy, the trustee has an obligation to remind the bankrupt of the bankrupt’s obligations.

124               Indeed, that is one of the purposes of s 149B of the Act.

125               Therefore, there is good reason that a bankruptcy continue where the trustee has not been able to identify all of the assets which should form part of the bankrupt’s estate and has not been able to identify all of the income which might be available for contribution to that estate.

126               Of course, in some cases, the failure to identify those assets and income may be the fault of the trustee.  In those circumstances, it may not be appropriate to continue the administration of the estate if the trustee has not discharged his or her obligations in a diligent manner: Re Weiss; Ex parte Official Trustee in Bankruptcy (unreported, Burchett J, 27 June 1986).

127               Where, however, the trustee has discharged his or her obligations diligently it may be appropriate to continue the administration if there is some prospect of identifying assets and income in the bankrupt’s estate.

CONCLUSION

128               I am satisfied that the objections when made by the respondent were appropriate.  I am satisfied that the second objection has been attended to by the bankrupt.  I am unable to find, on the evidence before me, whether or not the respondent was entitled to appropriate the monies paid by the applicant toward the sum of $10,560 alleged by the respondent to have been diverted from the applicant’s estate or whether those monies should have been applied in payment of the fourth objection.

129               On the evidence presently before me, I am unable to make a finding either way.

130               I therefore cannot find that the fourth objection has been attended to.

131               However, even if the respondent was wrong to apply that money against the amount of which the respondent said has been diverted and the monies should have been applied against the income contributions which supported the fourth objection, in my opinion, the respondent was not wrong to withdraw that objection.

132               Indeed, in my opinion, the respondent was not wrong not to withdraw the second objection even though the applicant had responded fully to it.

133               I consider that there are a number of reasons why there may be utility in continuing the administration of this estate.  First, there may be a possibility of recovering the $10,560 allegedly diverted from the estate.  Secondly, if the administration continues, there may be a chance of realising equity from the Hallett Cove property previously considered to be subject to two mortgages.  The evidence establishes that further inquiries are intended to be made in relation to this matter.  Thirdly, ongoing inquiries may be made into whether income contributions that have been made to date have been adequate.  Those investigations may reveal that increased contributions should have been made.  It follows that there is utility in continuing the administration of the estate for the purpose of recovering or potentially recovering assets or income for the benefit of creditors.

134               Moreover, I consider that the respondent has established that there is a need for further inquiries to be made to ascertain the applicant’s assets at the date of his bankruptcy.  The evidence establishes that those further investigations have been necessitated by the bankrupt’s continuing refusal to cooperate with the respondent in identifying the applicant’s assets and income since the sequestration order was made.  No fault, in my opinion, can be attributed to the respondent.  The respondent has done his best to ascertain the applicant’s assets at the date of the applicant’s bankruptcy.  The evidence clearly discloses a continuing refusal on the part of the applicant to cooperate with the respondent in identifying the applicant’s assets as at the date of his bankruptcy.  For these reasons, there is utility in continuing the bankruptcy.

135               In my opinion, it is in the creditors’ interests and in the interests of the administration of justice generally that the respondent be given an opportunity to make the inquiries which the respondent has identified in the recent examinations of the applicant and in the contentions to this Court.

136               I accept, of course, that the applicant has a strong interest in discharge from bankruptcy.  In the circumstances of this case, where the respondent’s attempts to investigate the applicant’s affairs in a timely manner have been met by non-cooperation on the part of the applicant, I do not consider that the applicant’s interest in being discharged outweighs the utility of continuing the administration.

137               The respondent has argued that if, in due course, when all of the examinations have been completed and the respondent refuses to cooperate in the applicant’s discharge, the applicant may, if so advised, then bring a further application of this kind.

138               In the meantime, however, because of the utility in the administration continuing and the importance of ongoing investigations, the application must fail.

Associate:

Dated:              28 July 2005