FEDERAL COURT OF AUSTRALIA

Kerr (Trustee), in the matter of Cross (Bankrupt) v Bechara [2015] FCA 284

IN THE MATTER OF THE BANKRUPT ESTATES OF GABRIEL CROSS AND ROSABELLE CROSS

THE COURT:

1.    Dismisses the interim application of Maria Bechara and Feridun Akcan dated 16 March 2015 seeking, inter alia, leave to re-open (the leave application).

2.    Orders that Maria Bechara and Feridun Akcan pay the costs of David John Kerr and Mark Petrucco of and in connection with the leave application, as agreed or taxed.

3.    Pursuant to s 33(1) of the Bankruptcy Act 1966 (Cth) extends the time specified in s 178(2) of that Act to permit the filing of the interim application dated 9 December 2014 by Maria Bechara and Feridun Akcan (the interim application).

4.    Orders that paragraphs 4(a), 4(c), 6, 7, 8 and 10 of the interim application be dismissed.

5.    Declares that at the meeting of creditors on 27 June 2014 the applicant, David John Kerr, was validly appointed as Trustee of the Bankrupt Estate of Gabriel Cross.

6.    Declares that at the meeting of creditors on 27 June 2014 the applicant, David John Kerr, was validly appointed as Trustee of the Bankrupt Estate of Rosabelle Cross.

7.    Declares that the mortgage dated 7 March 2013 between Gabriel and Rosabelle Cross, as mortgagors, and Argyle Lawyers Pty Ltd, as mortgagee, presently secures the repayment of any amount which it is established, to the reasonable satisfaction of the Trustee of the bankrupt estates of the mortgagors, was owed by the mortgagors to the mortgagee for or in respect of legal services supplied or invoiced from 7 March 2013 and which remains unpaid together with costs and expenses, including legal costs, incurred by the third respondent in these proceedings and interest on the outstanding amount calculated in accordance with the retainer agreements dated 21 October 2011 and 24 October 2011.

8.    Orders that Maria Bechara and Feridun Akcan pay the costs of the applicant, David John Kerr, of and in connection with paragraphs 1, 4(a), 4(c), 6, 7, 8 and 10 of the interim application and paragraphs 2 and 3 of the application filed by Mr Kerr dated 29 October 2014 as amended on 10 November 2014 (the application), as agreed or taxed.

9.    Costs of and in connection with paragraph 6 of the application and the involvement of Mark Petrucco in the proceeding be reserved on the basis that:

(a)    any party seeking an order for costs in that regard is to notify the other parties within 14 days of the terms of the order sought;

(b)    a party seeking costs is to file and serve a short written outline in support of their claim for costs within a further 7 days thereafter;

(c)    any party against whom costs are sought is to file and serve a short written outline in reply within a further 7 days thereafter; and

(d)    the outlines are to advise whether any party objects to the issue being determined on the papers.

10.    Lists the balance of the proceedings for a directions hearing at 9.30am on 12 May 2015.

11.    Directs the first and second respondents to file and serve any further evidence in respect of any outstanding issue in the proceeding by 30 April 2015.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF THE BANKRUPT ESTATES OF GABRIEL CROSS AND ROSABELLE CROSS

REASONS FOR JUDGMENT

THE ISSUES

1    This matter involves two principal issues. The first issue concerns the validity of the appointment of the applicant, David John Kerr, as the trustee of the bankrupt estates of Gabriel and Rosabelle Cross (referred to collectively as the Crosses below). The second issue concerns the entitlement of Mark Petrucco, solicitor, to amounts owed by the Crosses for legal services and said to be secured by a mortgage dated 7 March 2013 executed by the Crosses and Mr Petrucco’s predecessor in title, Argyle Lawyers.

2    Both issues arise as a result of the contentions of two creditors of the bankrupt estates, Maria Bechara, a solicitor who previously acted for the Crosses, and Feridun Akcan, a relative of the Crosses who was a party to other litigation against them. Ms Bechara and Mr Akcan contend that Mr Kerr’s appointment as trustee of the bankrupt estates is invalid because of the way in which the previous trustee, Geoffrey Reidy, dealt with the voting entitlements of creditors at the meeting which removed Mr Reidy as trustee and appointed (or purported to appoint) Mr Kerr as trustee.

3    The way in which the issues have arisen should be identified. From shortly after his appointment (or purported appointment) on 28 June 2014 Mr Kerr was aware that Ms Bechara and Mr Akcan contended his appointment was invalid due to the way in which Mr Reidy had calculated the voting entitlements of creditors. As a consequence of the uncertainty about the validity of the appointment Mr Kerr has not progressed with his investigations into the circumstances of the bankrupt estate. Ultimately, Ms Bechara and Mr Akcan having taken no action to resolve their contentions, Mr Kerr decided it was necessary to obtain certainty by commencing proceedings seeking declarations. He did so on 30 October 2014. Insofar as the question of the validity of his appointment is concerned, by his amended application dated 10 November 2014, Mr Kerr sought relief as follows:

2.    A declaration that the Applicant Trustee was validly appointed as Trustee of the Bankrupt Estate of Gabriel Cross;

3.    A declaration that the Applicant Trustee was validly appointed as Trustee of the Bankrupt Estate of Rosabelle Cross;

4    Insofar as the entitlements of Mr Petrucco are concerned, Mr Kerr sought relief in these terms:

4.     A declaration that the net proceeds of the sale of the property at 7 Birdwood Avenue, Lane Cove in the state of New South Wales after payment of the secured creditor’s debts and expenses (and the payment of $242,376.63 in accordance with these orders) form part of the property divisible amongst the creditors of the Bankrupt Estates of Gabriel Cross and Rosabelle Cross; and

5.     A declaration that neither Maria Bechara nor Feridun Akcan have any interest in the said proceeds other than as ordinary unsecured creditors in the Bankrupt Estates of Gabriel Cross and Rosabelle Cross.

6.     A declaration that the sum of $242,376.63 currently being held in the controlled monies account in the name of ‘Rockwell Olivier (Sydney) Pty Ltd ITF Mark Petrucco and Stephen Mullette’, is charged in favour of Rockwell Olivier (Sydney) Pty Ltd, pursuant to the agreements contained in letters dated 21 October 2011 and 24 October 2011 from Argyle Lawyers Pty Ltd to Rosabelle Cross and Gabriel Cross.

5    The terms of this relief are explained by the fact that, in correspondence, Ms Bechara and Mr Akcan had claimed a priority to the funds of the sale of the property at Lane Cove. Rockwell Olivier (Sydney) Pty Ltd (Rockwell Olivier) is another predecessor in title to Mr Petrucco.

6    Subsequently, when it became apparent during the hearing that the calculation of Mr Petrucco’s entitlement (assuming for the present purpose he has such an entitlement, which is disputed by Ms Bechara and Mr Akcan) required further investigation by Mr Kerr, Mr Petrucco (who, by order, had been substituted as the third respondent to Mr Kerr’s application in place of Rockwell Olivier) proposed an alternative form of declaration to that initially sought by Mr Kerr in these terms:

The Court declares that the mortgage dated 7 March 2013 between Gabriel and Rosabelle Cross, as mortgagors, and Argyle Lawyers Pty Ltd, as mortgagee, presently secures the repayment of any amount which it is established, to the reasonable satisfaction of the Trustee of the bankrupt estates of the mortgagors, was owed by the mortgagors to the mortgagee for or in respect of legal services supplied or invoiced from 7 March 2013 and which remains unpaid together with costs and expenses, including legal costs, incurred by the third respondent in these proceedings and interest on the outstanding amount calculated in accordance with the retainer agreements dated 21 October 2011 and 24 October 2011.

7    I understand that Mr Kerr does not press for the form of relief he proposed in para 6 of the amended application, Mr Petrucco being the real protagonist in respect of the issue of his entitlement, if any, under the mortgage.

8    For their part, Ms Bechara and Mr Akcan, in various documents filed in the Court but not necessarily served on the other parties, also sought relief which, in many respects, simply articulated the contrary proposition to that put by Mr Kerr. In the most recent manifestation of their claim, a document styled as an interim application dated 9 December 2014, Ms Bechara and Mr Akcan sought relief as follows (noting that there is no para 5 in the document):

1.    That pursuant to Section 33(1) of the Bankruptcy Act 1966 (“the Act”) that such time limits as would otherwise prevent the filing of this Application be extended.

2.    An order that Geoffrey Reidy in his former capacity as Trustee of the Bankrupt Estate of Gabriel Cross and Trustee of the Bankrupt Estate of Rosabelle Cross be joined as Second Respondent to these proceedings.

3.    An order that Rockwell Olivier Pty Ltd be joined as Third Respondent to these proceedings.

4.    Declaration that Westpac Banking Corporation Limited was not an unsecured creditor of the Bankrupt Estates of Gabriel Cross and Rosabelle Cross and that in consequence:-

a.    was not entitled to vote at any creditors’ meeting; and

b.    was not entitled to participate in the distribution of the assets of the Bankrupt Estates of Gabriel Cross and Rosabelle Cross; and

c.    was not entitled to participate in any vote to approve the fees of the Second Respondent.

6.    Pursuant to Section 178 of the Act, the decision of the Second Respondent as to voting entitlements at the creditors’ meeting in respect of the Bankrupt Estates of Gabriel Cross and Rosabelle Cross on 27 June 2014 be set aside.

7.    Declaration that the approval by the creditors of the Bankrupt Estates of Gabriel Cross and Rosabelle Cross of the fees of the Second Respondent [on 27 June 2014] in respect of his administration of such Bankrupt Estates was invalid.

8.    Declaration that the First Respondent was not validly appointed as Trustee of the Bankrupt Estates of either Gabriel Cross or Rosabelle Cross.

9.    Declaration that the Applicants are entitled in respect of the net proceeds of sale of the property at 7 Birdwood Avenue, Lane Cove after payment of secured creditors’ debts and expenses to rank in preference to any other unsecured creditors.

10.    Declaration that the sum of $242,376-63 in the controlled monies account in the name of Rockwell Olivia (Sydney) Pty Ltd in trust for Mark Petrucco and Stephen Mullette is not charged in favour of Rockwell Olivia (Sydney) Pty Ltd and forms part of the assets of the Bankrupt Estates of each of Gabriel Cross and Rosabelle Cross.

9    On 9 December 2014 I made orders, the effect of which was to list for hearing certain common issues between the parties and to defer for later hearing other issues. Accordingly, the hearing and these reasons for judgment concern only paras 2, 3 and 6 of Mr Kerr’s amended application and paras 1, 4(a), 4(c), 6, 7, 8 and 10 of the interim application of Ms Bechara and Mr Akcan.

10    It is convenient to deal separately with the issues of the validity of Mr Kerr’s appointment and the entitlements of Mr Petrucco, if any, under the mortgage. The validity of Mr Kerr’s appointment is raised in paras 2 and 3 of Mr Kerr’s amended application and paras 1, 4(a), 4(c), 6, 7 and 8 of the interim application of Ms Bechara and Mr Akcan, the sole basis of the alleged invalidity of Mr Kerr’s appointment being the voting entitlements which Mr Reidy, the former trustee, determined at the meeting of creditors on 27 June 2014.

VOTING ENTITLEMENTS

Statutory framework

11    It is first appropriate to note the relevant statutory provisions.

12    By s 33(1) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act):

(1)    The Court may:

…

(c)    extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act, or any time fixed by the Court or the Registrar under this Act (other than the time fixed for compliance with the requirements of a bankruptcy notice), for doing an act or thing or abridge any such time.

13    Division 5 of Pt IV of the Bankruptcy Act concerns meetings of creditors. By s 63A(1), in Div 5 unless the contrary intention appears:

creditors and their representatives, in relation to a meeting, means:

(a)    the creditors who are entitled to vote at the meeting and are participating in person or by telephone in the meeting; and

(b)    the persons participating in person or by telephone in the meeting as proxies or attorneys of any other creditors who are entitled to vote at the meeting.

14    Section 64 of the Bankruptcy Act provides for the convening of meetings of creditors by a trustee. By s 64D the notice of meeting must state that:

… each creditor must give to the trustee at or before the meeting a written statement setting out:

(a)    the amount in respect of which the creditor claims that the bankrupt is indebted to the creditor; and

(aa)    if the creditor has been assigned a debt that the bankrupt owes to the creditor - the value of the consideration that the creditor gave for the assignment of the debt; and

(b)    if the meeting is the first meeting of the bankrupt's creditors:

(i)    whether the creditor holds a security in respect of the debt and, if so, the value of the security as estimated by the creditor and the amount of the creditor's debt after deducting that value; and

(ii)    brief particulars of the transaction and circumstances that gave rise to the debt.

15    Sections 64J(1) and (2) of the Bankruptcy Act are in these terms:

(1)    The trustee must prepare an attendance record in accordance with subsection (2) for the purposes of the meeting and must keep the record in his or her possession after the conclusion of the meeting.

(2)     The attendance record must include 5 columns and must indicate that particulars of creditors are to be entered as follows:

(a)     the name of each creditor participating in person or by telephone, or represented by a proxy or attorney participating in person or by telephone, is to be entered in the first column;

(b)     if a creditor is so represented by a proxy or attorney, the name of the proxy or attorney is to be entered in the second column opposite to the name of the creditor in the first column;

(c)     in respect of each creditor whose name is entered in the first column:

(i)     the value of the creditor's debt is to be entered in the third column; and

(ii)     if the debt is secured in whole or in part:

(A)    the nature, and the value as estimated by the creditor, of the security is to be entered in the fourth column; and

(B)    the balance of the creditor's debt after deducting that value is to be entered in the fifth column.

16    Section 64Z provides as follows:

(1)    It is the duty of the minutes secretary of a meeting to take minutes in accordance with this section recording the business transacted at the meeting.

(2)    The minutes may, but need not, record full particulars of statements made, questions asked and answers given at the meeting but must contain sufficient particulars to show that the meeting dealt with all matters that are required by this Division to be dealt with.

(3)    Without limiting the generality of subsection (2), the minutes must record:

(a)    the name, and the address of a place of residence or business, of the minutes secretary or, if there were different minutes secretaries at different times during the meeting, of each minutes secretary; and

(b)    the votes cast for each nominee at an election of a person to preside at the meeting (other than an election at which voting took place on the voices); and

(c)    the name, and the address of a place of residence or business, of the President or, if there were different Presidents at different times during the meeting, of each President.

(4)    The minutes must record the precise words of each motion proposed at the meeting and of any amendment proposed to such a motion.

(5)    If a resolution or a special resolution is passed at the meeting:

(a)    the minutes secretary must prepare a certificate recording the precise words of the resolution or special resolution; and

(b)    the President and the minutes secretary must each sign the certificate; and

(c)    the minutes secretary must give the certificate:

(i)    to the trustee; or

(ii)    in the case of a resolution passed under section 181 removing the trustee - to the trustee appointed in place of the trustee removed and to the Official Receiver; and

(d)    the trustee to whom the certificate is given must keep it and allow the bankrupt, a creditor or an authorised employee to inspect it at any reasonable time.

(6)    If a motion is passed or defeated on the voices, the minutes must record that fact and, if a person who voted against a motion that was passed on the voices asks that the person's dissent be recorded in the minutes, that dissent must be so recorded.

(7)    The minutes must record the value of each creditor's debt and the total value of the debts of all the creditors.

(8)    If a poll is taken on a motion, the minutes must record:

(a)    the number and names of the creditors (if any) who voted in favour of the motion and the total value of their debts; and

(b)    the number and names of the creditors (if any) who voted against the motion and the total value of their debts; and

(c)    the number and names of the creditors (if any) who abstained from voting on the motion and the total value of their debts.

(9)    A reference in this section to the value of a creditor's debt is, if the creditor is a secured creditor, a reference to the value of that debt after deducting the value of the security as estimated by the creditor in the statement given by the creditor to the trustee under section 64D.

(10)    The minutes must be dated, and be signed by the President and the minutes secretary, not later than 14 days after the date of the meeting.

17    Sections 64ZA(1) – (8) provide that:

(1)    This section applies to voting:

(a)    at an election under section 64P of a person to preside at a meeting; and

(b)    on any motion proposed at a meeting or an amendment proposed to such a motion.

(2)    In this section:

creditor means a creditor who, or whose proxy or attorney, participates in the meeting in person or by telephone.

(3)    A person other than a creditor is not entitled to vote.

(4)    Subject to subsections (5) and (6), each creditor is entitled to vote and has one vote.

(5)    If a creditor is a secured creditor, the creditor is not entitled to vote unless the debt, or the total amount of the debts, owed to the creditor exceeds the amount estimated by the creditor in the statement given to the trustee under section 64D to be the value of the security.

(6)    A creditor who has failed to give to the trustee a statement in accordance with section 64D is not entitled to vote.

(7)    A creditor is not disqualified from voting merely because the creditor is the President or the minutes secretary.

(8)    The trustee may determine any question that arises as to the entitlement of a person to vote.

18    Section 82(1), relating to debts provable in bankruptcy, is as follows:

(1)    Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.

19    Sections 84(1) and (2) provide that:

(1)    Subject to this Division, a creditor who desires to prove a debt in a bankruptcy shall lodge, or cause to be lodged, with the trustee a proof of debt in accordance with this section.

(2)    A proof of debt:

(a)    shall set out particulars of the debt;

(b)    shall be in accordance with the approved form;

(c)    shall specify the vouchers, if any, by which the debt can be substantiated; and

(d)    shall state whether or not the creditor is a secured creditor.

20    By s 102(1):

(1)    The trustee shall examine each proof of debt and the grounds of the debt sought to be proved and, subject to the power of the Court to extend the time, shall, not later than 14 days after the expiration of the period specified in the notice of intention to declare a dividend as the period within which creditors may lodge their proofs of debt, either:

(a)    admit the proof of debt in whole;

(b)    admit it in part and reject it in part;

(c)    reject it in whole; or

(d)    require further evidence in support of it.

21    Section 178, concerning appeal rights, is in these terms:

(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.

22    Section 181 provides that:

The creditors may, by resolution, at a meeting of which not less than 7 days' notice has been given, remove a registered trustee appointed by them, or a registered trustee who is, by virtue of subsection 156A(3), the trustee of the estate of the bankrupt concerned, and may at the same or a subsequent meeting appoint another registered trustee to be trustee in his or her place.

23    Section 258 is as follows:

Subject to this Act, unless the contrary is shown:

(a)    a meeting of creditors or of a committee of inspection in respect of which minutes of proceedings have been signed by a person describing himself or herself as, or appearing to have been, chair of the meeting shall be deemed to have been duly convened and held; and

(b)    all resolutions passed or proceedings taken at such a meeting shall be deemed to have been duly passed or taken.

Facts

24    The estate of Gabriel Cross was made subject to a sequestration order on 9 October 2013, the date of the act of bankruptcy being 8 July 2013.

25    The estate of Rosabelle Cross was made subject to a sequestration order on 9 October 2013, the date of the act of bankruptcy being 13 July 2013.

26    Mr Reidy was appointed the trustee in bankruptcy of the Crosses.

27    On 22 November 2013 Ms Bechara lodged a proof of debt and statement of claim. The amount claimed was $351,765.30 which consisted of a verdict and judgment in the District Court of New South Wales against the Crosses and in favour of Ms Bechara for $198,397.16 and an itemised, but not taxed or assessed, bill of costs for $153,968.14 relating to an order of the District Court that the Crosses pay Ms Bechara’s costs on an indemnity basis from 19 October 2012, being the date on which a settlement offer had been made.

28    On 26 June 2014 Ms Bechara lodged her third (and, for the purpose of this hearing, final) amended proof of debt claiming $669,866.80. By this time, Ms Bechara had obtained a judgment in her favour in the Court of Appeal of New South Wales in respect of the costs order made by the District Court. On 3 June 2014, after the sequestration orders against the Crosses had been made, the Court of Appeal made orders in her favour the effect of which was to order the Crosses also to pay her costs on a party-party basis for the period before 19 October 2012. Those orders (to the extent relevant), made on 3 June 2014, were in the following terms:

(4)    Set aside costs order (1) made on 31 May 2013.

(5)    In lieu thereof, order that the Defendants pay on the party/party basis Ms Bechara’s costs incurred by her up until 19 October 2012, save for those the subject of costs orders made on 26 March 2012, 20 July 2012 and 7 March 2013 which costs orders are to remain operative.

(6)    Order the Defendants to pay Ms Bechara’s costs of the application for leave to appeal and appeal.

29    This third proof of debt and statement of claim involved the following amounts:

    $198,397.16 for the verdict and judgment in the District Court against the Crosses;

    $153,968.14 for the claim for indemnity costs from 19 October 2012 ordered by the District Court;

these two totalling $352,365.30 (a figure which appears in the proof of debt)

    $62,667.83 relating to the costs of compliance with a subpoena and/or notices to produce in the Supreme Court of New South Wales proceedings between Mr Akcan and the Crosses;

    $173,428.86 being an amount representing Ms Bechara’s claim for the further costs ordered to be paid by the Court of Appeal in respect of the District Court proceedings; and

    $81,404.81 representing Ms Bechara’s claim for the costs of the Court of Appeal proceedings.

30    On a date which is unclear, but before the meeting of creditors on 27 June 2014, Mr Akcan lodged a proof of debt and statement of claim. By the time of the meeting his claim was for $1,623,286.10 of which $400,000 represented Mr Akcan’s one third share in the business Rosabelle’s Bistro, $244,678.72 represented the verdict in Mr Akcan’s favour pursuant to the judgment of the Supreme Court proceedings against the Crosses, and the balance an itemised (but not taxed or assessed) bill of costs representing Mr Akcan’s costs in the Supreme Court proceedings. On 4 July 2013 in proceedings between Mr Akcan as plaintiff and the Crosses as defendants the Court ordered that “the defendants pay the plaintiff’s costs of the proceedings to date on the ordinary basis”.

31    On 25 June 2014 Westpac Banking Corporation (Westpac) lodged a proof of debt and statement of claim. Annexed thereto was a table as follows:

Annexure – Details of debt and securities in relation to the bankrupt estate of Rosabelle Cross (NSW5395 of 2013/0)

32    The proof of debt also annexed documents described as follows:

33    The annexed documents are consistent with the above description.

34    On 26 June 2014 Rockwell Olivier lodged a proof of debt and statement of claim for an amount of $170,828.01 representing the amount of its claim after deducting the value of a security interest said to be held by it (and now asserted by Mr Petrucco as successor in title to Rockwell Olivier). The $170,828.01 claim relates to a schedule of legal costs and disbursements charged by Rockwell Olivier to the Crosses in Rockwell Olivier’s capacity as the lawyers for the Crosses which pre-date a deed of agreement between Argyle Lawyers (the predecessor in title to Rockwell Olivier) and the Crosses which, as noted, is alleged to secure further legal costs owing by the Crosses to Mr Petrucco incurred thereafter.

35    On 27 June 2014 meetings of the creditors of each of Gabriel Cross and, immediately thereafter, Rosabelle Cross were convened.

36    The minutes of the meeting of the creditors of Gabriel Cross include the following statements:

…

37    The minutes are signed by Mr Reidy as trustee and Ms Foo as minute secretary and are dated 11 July 2014.

38    The minutes of the meeting of the creditors of Rosabelle Cross are in largely the same terms as the minutes of the meeting of the creditors of Gabriel Cross except that one creditor, AADD Investments Pty Ltd, was admitted as to a lesser amount, $4,778.45. Further, a different result was reached in respect of the trustee’s past remuneration, the minutes recording that:

39    On 3 July 2014 Ms Bechara sent a letter to Mr Kerr which included the following:

I note that following a Creditors Meeting conducted on 27 June 2014, you have been appointed as Trustee of the above Bankrupt Estate in place of the previous Trustee.

I and Feridun Akcan put you on notice that we object to any distribution at this point of monies which you control or are entitled to control.

The reasons for this are as follows:-

1.    We say that the poll which resulted in your appointment was improperly conducted by your predecessor for the following reasons:-

a.    He permitted Westpac to vote as unsecured creditors notwithstanding that they held security;

b.    That he arbitrarily reduced the value of the debt which I was entitled to vote by excluding the costs of a subpoena and also a costs order made on 4 June 2014 by the Court of Appeal;

c.    He arbitrarily reduced the value of the debt which could be utilized by Mr Akcan for voting purposes by reducing the costs order which constituted part of his debt by a factor of some 25%, which he alleged was the proper reduction that should be made for party/party costs.

Having regard to the above, I am of the view that you have not been properly appointed.

The second issue is that we say that Mr Akcan and I are entitled as a matter of law to receive the entire surplus funds in preference to all other unsecured creditors from the sale of a property at 7 Birdwood Avenue Lane Cove. The reason we say that we are entitled to such priority is that both Westpac and the First Trustee were initially minded to honour an agreement for sale of such property entered into by the Bankrupts shortly prior to their Bankruptcy for a price of $1.8M. It was only as a result of work undertaken by myself and Mr Akcan and our objections to this course of action that your predecessor ultimately refused to honour such agreement for sale and Westpac appointed its own Receiver who sold the property for $3M, which was the amount we had alleged it had been worth.

Both Mr Akcan and I are happy to discuss these issues with you and other creditors to see if a satisfactory commercial resolution can be achieved. However, if you do not by close of business on Friday 4 July 2014 confirm that you will not distribute funds held by the Estate pending such a discussion taking place, Mr Akcan and I will make an application to the Supreme Court seeking an injunction and will present this letter to the Court on the question of costs.

Further, if you do make a distribution of such funds after today’s date but before any conference between us has taken place, Mr Akcan and I will hold you responsible for any loss received and will take action against you personally. In such event, this letter would be presented to the Court both on the substantive case and on the issue of costs.

40    On 12 August 2014 the solicitors for Mr Kerr responded to Ms Bechara saying, amongst other things:

Appointment of Mr Kerr

1.    Our client has now had an opportunity to consider the minutes of the meetings of creditors of both bankrupt estates and attendance records from 27 June 2014 together with our client’s predecessor’s calculations in respect of the value for which creditors were admitted to vote at the meeting.

2.    There do not appear to be any irregularities in our client’s appointment.

3.    You appear to ground your assertion that our client has been ‘improperly appointed’ in the value for which three creditors were admitted to vote at the meeting dated 27 June 2014. Please let us know if this is incorrect.

4.    In respect of the value for which the three creditors were admitted to vote at the meeting dated 27 June 2014:

(1)    Westpac – Westpac were admitted to vote for the full value of a guarantee and indemnity provided by the bankrupts. Westpac do not hold any security over any of the bankrupts’ assets in respect of that debt.

(2)    Bechara & Company Lawyers – Behcara & Company Lawyers were admitted to vote for the full value of all debts for which the bankrupts were liable to Bechara & Company Lawyers as at the date of their bankruptcy.

(3)    Feridun Akcan – Mr Akcan was admitted to vote for an amount reflective of the value of all debts for which the bankrupts were liable to Mr Akcan as at the date of their bankruptcy with adjustments made to remove double billing, Mr Akcan’s joint and several liability for a debt and a party/party costs order.

5.    We understand that the former trustee has previously provided you with the amounts by which Mr Akcan’s debt was reduced for the purposes of voting. Please let us know if our understanding is incorrect.

6.    It is clear from the minutes of the meetings and attendance records from 27 June 2014, that the majority in value voted in favour of our client’s appointment.

7.    Should you hold a different view, please let us know. If you do hold a different view, please:

(1)    Provide us with full details and particulars on which you rely to assert that our client has been improperly appointed;

(2)    If your contrary assertion remains grounded in the value for which the three creditors mentioned above were admitted to vote, please specifically identify:

(a)    the value for which you say each creditor should have been admitted to vote; and

(b)    the breakdown of any amounts that you say Bechara & Company Lawyers and Mr Akcan ought to have been admitted together with supporting reasons; and

(3)    identify any authority or legal basis on which you and Mr Akcan rely to support your position.

8.    Our client will consider your position further upon and receipt and review of that information.

…

15.    We look forward to receipt of the requested information by no later than 4pm Monday, 18 August 2014, to enable our client’s administration of the estates to progress without unnecessary delay.

41    Despite Ms Bechara’s assertions to the contrary she does not appear to have replied to this letter and, as noted, took no action until Mr Kerr commenced this proceeding.

Discussion

42    The first issue concerns ss 33(1) and 178(2) of the Bankruptcy Act and para 1 of Ms Bechara’s interim application, each of which is set out above.

43    By s 178(2) of the Bankruptcy Act Ms Bechara and Mr Akcan had 60 days from 27 June 2014 to apply to the Court under s 178(1) for orders relating to Mr Reidy’s determination of voting entitlements. This is because, on the evidence, there is no doubt that Ms Bechara and Mr Akcan became aware of Mr Reidy’s decisions to which they object on that day. Accordingly, their application is out of time.

44    For Mr Kerr it was submitted that the period of 60 days in s 178(2) may not be extended under s 33(1) because, in its terms, s 178(2) expressly provides to the contrary of any such extension. I disagree. Section 178(2) does not provide to the contrary of s 33(1). Section 178(2) merely provides a time limit of 60 days which is then amenable to extension under s 33(1). The submissions for Mr Kerr did not point to any authority to support the proposition that s 178(2) provides to the contrary for the purposes of s 33(1) and I am unable to see how the provisions can be construed in this manner.

45    Accordingly, the Court is vested with discretion to extend time to enable Ms Bechara and Mr Akcan to apply to the Court for the orders they seek.

46    The second issue is whether the discretion ought to be exercised in favour of Ms Bechara and Mr Akcan to extend time. It was submitted for Mr Kerr that no extension of time should be granted, in effect, because Ms Bechara and Mr Akcan had taken no action about their complaints for many months, and had acted only when Mr Kerr sought confirmation of his appointment to enable the substantive management of the bankrupt estates. But for the fact that Mr Kerr chose to commence this proceeding, prompting the filing of the interim application by Ms Bechara and Mr Akcan, it is likely I would have accepted these submissions. However, the present position is that Mr Kerr has chosen to obtain certainty (as is appropriate) by commencing this proceeding. In these circumstances it is not inappropriate, to do justice between the parties, to enable Ms Bechara and Mr Akcan to act as contradictors. To act as effective contradictors, however, it is necessary to extend the time limit for the making of an application prescribed by s 178(2) of the Bankruptcy Act. If that time is not extended, Ms Bechara and Mr Akcan would not be able to act as effective contradictors because of the operation of s 258 of the Bankruptcy Act, the issue to which I now turn. Accordingly, an order to the general effect of order 1 in the interim application of Ms Bechara and Mr Akcan should be made.

47    The third issue concerns the operation of s 258 of the Bankruptcy Act, which is set out above. It was submitted for Mr Kerr, and disputed on behalf of Ms Bechara and Mr Akcan, that Mr Kerr could rely on s 258(b) and the minutes of the meetings of creditors of the bankrupt estates on 27 June 2014 to prove, unless the contrary is shown, that Mr Kerr had been validly appointed. The basis on which this submission was disputed on behalf of Ms Bechara and Mr Akcan remains unclear. Plainly, Mr Kerr was appointed the trustee of the bankrupt estates on 27 June 2014. Given the terms of s 258(b), which provides that all resolutions passed or proceedings taken at such a meeting shall be deemed to have been duly passed or taken, Mr Kerr’s appointment is taken to have been the subject of a valid resolution unless the contrary is shown. It is a matter for Ms Bechara and Mr Akcan, who assert to the contrary, to show by admissible evidence why the resolutions passed at those meetings are not valid and, in such an event, why it is also just and equitable that an order be made in consequence.

48    The fourth issue concerns Mr Reidy having admitted Westpac to vote in the amount of its claim of $1,602,168.69. One basis on which Ms Bechara and Mr Akcan objected to the admission of Westpac for voting purposes, as set out in the minutes, relates to the allegation that the value of security should be deducted. Insofar as this related to the residential loan agreement, it is apparent from Westpac’s proof of debt that no claim was made for the amount received on sale of the property, being $218,574.31. The claim was only for the claimed balance, being an unsecured amount, of $57,655.69. Insofar as this related to any security over the property of Gabrielle and Rosabelle Pty Ltd, as pointed out in the minutes, that is an entity separate from the bankrupts. Gabrielle and Rosabelle Pty Ltd as trustee for The Cross Group Trust was the customer under the facility which was the subject of a guarantee and indemnity by Gabriel and Rosabelle Cross, the bankrupts. There was no requirement that Westpac deduct from its claim against the Crosses the value of any security it held as against Gabrielle and Rosabelle Pty Ltd as trustee for The Cross Group Trust, which is a third party. Further, under the guarantee and indemnity the guaranteed money was $1,510,000. Westpac was entitled to demand payment of that amount in the circumstances set out in cl 3.1 which included the customer being unable to pay. By cl 19.2 Westpac was entitled to claim against each of the Crosses before enforcing any rights it might have against, amongst others, the customer. Gabrielle and Rosabelle Pty Ltd had been placed in receivership on 10 December 2013. Accordingly, by the terms of the guarantee and indemnity provided, Westpac was entitled to claim the full amount guaranteed from each of the Crosses, being $1,510,000. Consistently with this approach, in Bechrose Pty Ltd v Jefferson (1999) 94 FCR 494; [1999] FCA 1153 Drummond J observed that:

[45] But it appears to be a settled rule of bankruptcy law that where a creditor proves in the bankruptcy of a guarantor and (as here) the guarantor is only responsible for the amount in fact owing by the principal debtor, any payment by or on behalf of the principal debtor received by the creditor before proof must be taken into account by the trustees in valuing the creditor's proof; a creditor claiming in a guarantor's bankruptcy is not, however, obliged to bring into account, in reduction of the amount of the debt sought to be proved, payments received from the principal debtor after submission of proof, let alone an estimate of what it may be able to obtain by realising the principal debtor's security. This rule is subject only to the qualification that the creditor is not entitled to recover more than 100 cents in the dollar. If the creditor who has proved in the guarantor's bankruptcy ends up with more than 100 cents in the dollar, it must account to the bankrupt guarantor or, more accurately, to his trustee, for the excess. See Re Blakeley (1892) 9 Morr 173; Re Houlder [1929] 1 Ch 205 at 209 - 210; Re Amalgamated Investment & Property Co Ltd [1984] 3 All ER 272 at 287 - 292 and Re Hunter; Ex parte Bank of New South Wales [1982] Qd R 131 and O’Donovan and Phillips, The Modern Contract of Guarantee (3rd ed, 1996) pp 471 – 473.

49    Another basis on which the argument for Ms Bechara and Mr Akcan was put in respect of Westpac concerns the fact that ss 64ZA(3) and (4) use the word “creditor”. Accordingly, a person other than a creditor is not entitled to vote and each person who is a creditor is entitled to vote. The case put for Ms Bechara and Mr Akcan is that merely annexing a loan agreement and guarantee and indemnity does not prove that Westpac is a creditor. In support of this argument, reliance was placed on evidence from Mr Kerr that the proof of debt was not supported by any vouchers (see s 84(2)) substantiating the shortfall of $57,655.69 from the proceeds of sale or that $1,544,513 was owed by Gabrielle and Rosabelle Pty Ltd and thus claimable under the guarantee and indemnity. Mr Kerr said that, as part of his management of the bankruptcy, he would in the ordinary course seek further supporting documents for the claim of guarantee and indemnity but not for the $1,544,513 on the basis that the full guaranteed amount could be claimed from the Crosses until the whole debt to Westpac owed by Gabrielle and Rosabelle Pty Ltd was satisfied.

50    These submissions overlook the fact that it is Ms Bechara and Mr Akcan who challenge the decision of Mr Reidy to admit Westpac for voting purposes. It is for them to prove that Westpac was not a creditor. Insofar as the conduct of Mr Reidy is concerned, the submissions are also contrary to the structure of the Bankruptcy Act and the approach taken in the authorities to the issue of voting entitlements.

51    The first point to make is this. On 27 June 2014 Mr Reidy did nothing more than determine questions about voting entitlements in accordance with s 64ZA(8) of the Bankruptcy Act. He did not admit any proof of debt in accordance with s 102. Ms Bechara did not appear to appreciate this distinction in the evidence she gave.

52    The second point is this. A person whose proof of debt is ultimately rejected under s 102 is nevertheless a creditor within the meaning of Div 5 of Pt IV. This is because of the definition of “creditors and their representatives” in relation to a meeting set out in s 63A(1). These are the people entitled to vote at the meeting; and by s 64ZA(8) it is the trustee who determines any questions about entitlements to vote. Within the scheme of the Bankruptcy Act it is incorrect to assume, as the submissions for Ms Bechara and Mr Akcan did, that a person who claims to be a creditor is not a creditor for the purposes of Div 5 of Pt IV merely because that person has not provided vouchers by which the claimed debt can be substantiated as set out in s 84(2). To the contrary, for the purposes of a meeting (in contrast to adjudication of a proof of debt), as s 64D discloses, what is required is a written statement setting out the amount in respect of which the creditor claims that the bankrupt is indebted to the creditor. Westpac’s proof of debt constituted such a written statement and thus Westpac was not precluded by s 64ZA(6) from voting. For this reason Mr Kerr’s evidence that he would require the claim to be substantiated as part of his management of the bankrupt estates is immaterial. No doubt he would in order to adjudicate on the proof of debt; but that is not the function Mr Reidy was performing on 27 June 2014.

53    In Starkey v Rondo Building Services Pty Ltd (2005) 145 FCR 423; [2005] FCA 1081 (Starkey) French J (as he then was) explained as follows:

[46] The admission by the trustee of a person to vote does not involve a final determination of that person’s proof of debt. The Act requires only that, at the time of the first meeting, a creditor is required to have submitted a written statement setting out the amount which the creditor says is owed (s 64D(a)) and ‘brief particulars of the transaction and circumstances that gave rise to the debt’ (s 64D(b)(ii)). No doubt a statement of particulars that discloses on its face a frivolous or baseless claim or a debt not provable in bankruptcy would lead to the trustee refusing entitlement to vote. To that extent the particulars may be seen as providing a procedural protection against frivolous or baseless claims: Re Zantiotis; Ex parte Andrew (unreported, Federal Court, Beaumont J, 17 May 1998). But generally speaking the section contemplates the trustee acting in a summary way on the information available and does not require him or her to determine the matter finally: Re Spanney; Ex parte Holtzmann (1936) 38 WALR 13. Cooper J pointed out in Staples v Milner (1998) 83 FCR 203 that the trustee’s decision is not final and only relates to the right to vote at the meeting. Against this background the objections raised by Rondo to the four creditors can be considered.

…

[49] In my opinion, having regard to the summary character of the trustee’s decision-making on entitlements to vote, his decision to allow Mrs Olsen to vote cannot be impugned. There may not have been sufficient information to justify finally admitting the proof of debt but there was enough for the purpose of the decision whether to permit Mrs Olsen to vote at the meeting. The material provided did not exclude the possibility of an agreement for repayment at a particular date nor indeed did it necessarily exclude the possibility of a written agreement. These were matters which might have been the subject of further inquiry relevant to the question of the application of the limitation period. It was not necessarily a matter for determination at the creditors meeting.

54    To the extent that reliance was placed on Re McLean; Ex parte Friends' Provident Life Office (1992) 36 FCR 502 (Re McLean) to support any contrary proposition, the submissions are misconceived. Starkey concerns the trustee’s functions. Re McLean concerns the function of the court on a challenge to voting entitlements, in which it is the challenger who must prove the asserted fact of a person being or not being a creditor in a specific amount. In Re McLean a creditor excluded from voting brought the proceeding seeking a declaration that a deed executed pursuant to a resolution passed at the meeting was void. The proceeding was founded on s 222 of the Bankruptcy Act which provided that:

(1)    Where there is a doubt, on a specific ground, whether … a deed of arrangement was entered into in accordance with this Part … a creditor … may apply to the Court for an order under subsection (2).

(2)    Upon the hearing of an application made under subsection (1), the Court may, subject to this section, make an order –

(a)    declaring that the deed … is void, or that it is not void, on the ground specified in the application …

(b) …

55    Heerey J said at 511:

The issue of entitlement to vote at the meeting has to be decided once and for all. There is no later occasion on which the issue may fall to be decided. So the situation is not truly analogous to that which arises on a summons for final judgment or application for interlocutory injunction where the possibility of a subsequent full hearing on the merits is in contemplation. Likewise the alleged "counter-claim, set-off or cross demand" considered in Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 and Re Brink; Ex parte Commerical Banking Co of Sydney Ltd (1980) 44 FLR 135 was one which, according to the claim of the debtor in the bankruptcy court, could be raised at a future date in another court. The Act confers a right to vote on creditors, not persons who have an arguable case that they are creditors. It may be that complex issues of fact and law are raised, but that is a matter to be dealt with by appropriate procedural directions and cannot be determinative of the nature of the jurisdiction conferred on the court.

The contrary view would create an anomalous position. If all a creditor had to show under s 222(1) was an arguable case that the alleged debt was owing, it would logically follow that a debtor complaining of the inclusion of a disputed debt by the chairman would only have to show an arguable defence to make out a claim under the same provision. Since there might be an arguable claim and an arguable defence in respect of the same debt, the court would face a dilemma if arguability is the test. The creditor would say "I should have been allowed to vote because I have an arguable claim" and the debtor would say "the creditor should have been excluded because I have an arguable defence."

56    Similarly, in Re Dingle & Cockerill; Westpac Banking Corporation v Worrell (1993) 47 FCR 478, the Full Court made these points:

•    “… where there is a question whether a particular person is entitled to vote, that is a matter for the trustee: see subs (8). If the trustee needs time to determine the question, the meeting must be adjourned for a period not exceeding 14 days: see subs (9). The trustee's decision, of course, determines only the person's right to vote at that meeting. As Bowen CJ said in Re Levy; Ex parte Scholefield Goodman & Sons Ltd (1980) 50 FLR 99 at 112, in relation to s 201 of the Act (which confers a similar power on the chairman of a meeting called to consider a Part X proposal), the power is not "to make a final ruling on a debt … but to rule for the purposes of the meeting in a summary way avoiding technicalities and delays” (at 483).

•    “We think that the Court should be equally reluctant to intervene in cases where the vote has already been taken. Section 64ZA(8) commits to the trustee the question whether a person is entitled to vote. Finality is important. Where the complaint is that a person has been erroneously excluded from voting, we agree with Drummond J that the Court should at least insist upon proof that the excluded person is in fact a creditor and that his or her vote would have affected the fate of the proposal” (at 485 – 6).

•    “We also agree with Drummond J that, when the court is called upon to determine whether a person is entitled to vote as a creditor, it must act on the material before it; it is not limited to the material before the trustee or chairman: see Re Tregonning; Ex parte Friends’ Provident Life Office (1983) 74 FLR 327 at 330 and Re McLean; Ex parte Friends' Provident Life Office (1992) 36 FCR 502 at 510” (at 486).

57    This does not mean that, in the present case, Mr Kerr must prove Westpac is a creditor. Mr Kerr is entitled to rely on s 258. It is for Ms Bechara and Mr Akcan, who claim that Westpac is not a creditor, to prove to the contrary. That is not proved merely by pointing to the lack of vouchers substantiating Westpac’s claim. Consistently with the reasoning in Re McLean, the contentions of Ms Bechara and Mr Akcan simply fail at the first hurdle because they have not attempted to prove that, in fact, Westpac was not a creditor of the bankrupts in the claimed amount at the time of the meeting on 27 June 2014.

58    Westpac had complied with the requirements of s 64D of the Bankruptcy Act. The fact that Westpac’s claim was not substantiated by vouchers in accordance with s 84(2) did not mean that Mr Reidy was bound to exclude Westpac from voting. Westpac’s claim was cogent on its face. Nothing in the circumstances gave rise to any obligation on the part of Mr Reidy to consider excluding Westpac from exercising its voting entitlements. Ms Bechara and Mr Akcan have not discharged their onus to prove Westpac was not a creditor. It follows that the challenge of Ms Bechara and Mr Akcan to Mr Reidy’s decision to admit Westpac in the amount of $1,602,168.69 for the purposes of voting at the meeting on 27 June 2014 is unsustainable. Accordingly, para 4 of their interim application must be dismissed.

59    The fifth issue is Mr Reidy’s treatment of Mr Akcan’s claim. Mr Akcan had claimed in the amount of $1,623,286.10. The amount of $400,000 (representing Mr Akcan’s one third share in the business Rosabelle’s Bistro) and $244,678.72 (representing the verdict in Mr Akcan’s favour pursuant to the judgment of the Supreme Court proceedings) were allowed in full. The balance of about $978,607, representing Mr Akcan’s estimate of the value of the costs order in his favour, were discounted in part, so that Mr Akcan’s entitlement to vote was decided to be $1,261,514.35. This equates to a discount of about 37% of the claim for costs.

60    The submission for Mr Akcan is that his claim should have been accepted in full for voting purposes.

61    There are a number of difficulties which this submission confronts. First, the annexure to the minutes of the meeting of creditors discloses what discounts Mr Reidy made and why he made them. Some are based on the fact that the claims included costs in respect of different proceedings in which Mr Akcan did not have a costs order against the Crosses. It was proper for Mr Reidy to disallow these amounts. One was a claim for 100% of the cost of a report for which Mr Akcan had paid half only. Allowing 50% of this claim was also proper. Some claims related to amounts post-dating the sequestration order and were thus not debts provable in the bankruptcy. In respect of some otherwise appropriate claims Mr Reidy allowed 75% representing his estimate of what Mr Akcan would be likely to recover on taxation or assessment of the costs. All of these adjustments were proper. No cogent submission has been put forward as to why Mr Reidy’s decisions about Mr Akcan’s voting entitlements should be impugned. In this regard, authority supports Mr Reidy’s approach. In Conway v Insolvency & Trustee Service Australia [2003] FCA 943 Allsop J (as he then was) dealt with a liability under an order for costs, explaining that:

[21] The legal right held by McDonalds in this case derived from the order of the District Court that Mr Conway pay McDonalds' costs. The provisions of the District Court Act 1973 (NSW) and the Legal Profession Act 1987 (NSW) to which Mr Fury has made reference in his submissions make it plain that the legal nature of that liability is one which can only be estimated by reference to the agreement of the parties or the assessment of the costs pursuant to those statutes.

62    In the present case, there is nothing to suggest that Mr Reidy’s estimate might be incorrect. To the contrary, examination of the documents supporting Mr Akcan’s claim indicate that, if anything, Mr Reidy erred in Mr Akcan’s favour as to the costs likely to be recovered pursuant to any agreement or on taxation or assessment of his costs. It must be recalled that Mr Akcan’s entitlement arose under an order for costs on the ordinary (that is, a non-indemnity) basis. He is not entitled to recovery of 100% of his costs incurred in the proceedings against the Crosses. Nor is his entitlement comparable to that of Mr Petrucco whose claim is based on solicitor-client costs, the Crosses having been Mr Petrucco’s (and his predecessors in title’s) clients. Mr Akcan’s claim plainly included costs in other legal proceedings not covered by the costs order. It also plainly included costs after the date of the sequestration orders. Further, Mr Akcan changed lawyers a number of times. Substantial costs were incurred in work which would be unlikely to be recoverable on taxation or assessment due to the multiplicity of lawyers involved and the resulting duplication of work which is apparent on the face of the supporting documents. Mr Reidy’s adjustments, as noted, if anything erred in Mr Akcan’s favour as to the amount he was likely to recover, having regard to these circumstances.

63    For these reasons, the challenge to Mr Reidy’s treatment of the voting entitlements of Mr Akcan at the meeting on 27 June 2014 must fail.

64    The sixth issue is Mr Reidy’s treatment of Ms Bechara’s claim. Ms Bechara’s claim was for $669,866.80. Mr Reidy disallowed a part of this as a post-bankruptcy liability. As noted, the disallowed amount consisted of $62,667.83 relating to the costs of compliance with a subpoena and/or notices to produce in the Supreme Court of New South Wales proceedings between Mr Akcan and the Crosses, $173,428.86 being an amount representing Ms Bechara's claim for the further costs ordered to be paid by the Court of Appeal in respect of the District Court proceedings, and $81,404.81 representing Ms Bechara’s claim for the costs of the Court of Appeal proceedings.

65    In Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56 (Foots) the High Court dealt with a case in which, before bankruptcy, judgment against the bankrupt had been made and, after bankruptcy, a costs order against the bankrupt was made. The issue was whether the costs under the costs order, made after the bankruptcy, were a debt provable in the bankruptcy. The majority held that the debt under the costs order was not provable in the bankruptcy. In the majority judgment it was said that:

[10] Section 82 limits provable debts both by subject-matter, in that they must answer the statutory descriptions, and temporally, in that they must arise before (not after) bankruptcy. At first glance, neither criterion is fulfilled in the present case: this particular costs order was incurred after bankruptcy, and the appellant was under no obligation to pay those costs beforehand.

[11] A second aspect of s 82 flows from the first. Contrary to the appellant's submissions, there is no express or implied textual support for the notion of a debt being provable if it is incidental to, or consequent upon, a debt which is itself provable. Those debts which are provable are spelled out by the section: matters falling outside those categories are not provable.

66    Insofar as the costs of the Court of Appeal proceedings are concerned, the reasoning in Foots is indistinguishable. The order of the Court of Appeal that the Crosses pay Ms Bechara’s costs of the appeal was made on 3 June 2014, after the making of the sequestration orders in October 2013. No debt in respect of that costs order arose before the bankruptcy. It follows that Mr Reidy was undoubtedly correct to exclude $81,404.81 representing Ms Bechara’s claim for the costs of the Court of Appeal proceedings.

67    The $173,428.86 representing Ms Bechara's claim for the further costs ordered to be paid by the Court of Appeal in respect of the District Court proceedings is not on all fours with Foots. This is because the orders of the District Court were made on 31 May 2013 before the date of the bankruptcy. These were orders requiring the Crosses to pay Ms Bechara’s costs on an indemnity basis from 19 October 2012 but each party to pay their own costs up to that date subject to three exceptions (where Ms Bechara had been ordered to pay the Crosses’ costs). Consistently with the reasoning in Foots, the costs payable under the indemnity costs order constituted a debt provable in the bankruptcy, the obligation of Mr Reidy being to estimate the costs that would be recoverable under that order to the best of his ability. In fact, Mr Reidy accepted that the whole of that amount ($153,968.14) was provable in the bankruptcy, a conclusion which gave Ms Bechara a benefit in terms of voting entitlements. The issue is whether the order for party-party costs relating to the period before 19 October 2012 which the Court of Appeal made after the bankruptcy is also provable in the bankruptcy. The argument in favour of Ms Bechara is that the Court of Appeal set aside the order of the District Court and in lieu thereof ordered the Crosses to pay Ms Bechara’s costs on a party-party basis for the relevant period. In other words, it is said that the Court of Appeal’s costs order operates on and from the date of the District Court’s costs order because it is, in fact and law, a substituted order.

68    The Uniform Civil Procedure Rules 2005 (NSW) (the UCPR), r 36.4, provides that:

(1)    A judgment or order takes effect:

(a)    as of the date on which it is given or made, or

(b)    if the court orders that it not take effect until it is entered, as of the date on which it is entered.

(2)    Despite subrule (1), if an order of the court directs the payment of costs, and the costs are to be assessed, the order takes effect as of the date when the relevant cost assessor’s certificate is filed.

(3)    Despite subrules (1) and (2), the court may order that a judgment or order is to take effect as of a date earlier or later than the date fixed by those subrules.

69    For reasons not made clear, the submissions for Mr Kerr relied only on r 36.4(1) not r 36.4(2). I do not propose to deal with r 36.4(2) in consequence. Under r 36.4(1) the order of the Court of Appeal setting aside the order of the District Court and making an order for costs in lieu thereof took effect on the date that order was made, which was after the bankruptcy. On this basis, the reasoning in Foots leads to the conclusion that any costs pursuant to that order are not provable in the bankruptcy. Mr Reidy was thus correct to also disallow the amount of $173,428.86.

70    This leaves the amount of $62,667.83 relating to the costs of compliance with a subpoena and/or notices to produce in the Supreme Court of New South Wales proceedings between Mr Akcan and the Crosses. One problem with this claim is that the scheme for dealing with the costs of compliance with a subpoena or a notice to produce is regulated by the UCPR, rr 33.11 and 34.3. A notice to produce issued by the Crosses against Ms Bechara was tendered. Ms Bechara was also served with a subpoena from Mr Akcan and a subpoena by the Crosses. It goes without saying that Ms Bechara cannot prove in the bankruptcy of the Crosses the costs of complying with a subpoena from Mr Akcan, yet this is what she has tried to do (as discussed below). Mr Akcan is responsible for those costs, not the Crosses.

71    In respect of the notice to produce issued by the Crosses r 34.3 of the UCPR is applicable. It provides that:

(1)    The court may order the party requiring production to pay the amount of any reasonable loss or expense incurred by the party required to produce in complying with a notice to produce.

(2)    If an order is made under subrule (1), the court must fix the amount or direct that it be fixed in accordance with the court’s usual procedure in relation to costs.

72    It is not apparent that Ms Bechara has applied for her costs and expenses of complying with the notice to produce to be paid. I do not accept that Ms Bechara had a right to have her costs paid which gave rise to a debt on service of the notice to produce. Rule 34.3 is a statutory scheme for costs recovery which depends on the making of an order for payment. The making of the order and the amount required to be paid are in the discretion of the court. Unless and until such an order is made there is no debt. The same result would apply in the case of the subpoena.

73    Although r 33.6(1) provides that “[a]n addressee need not comply with the requirements of a subpoena to attend to give evidence unless conduct money has been handed or tendered to the addressee a reasonable time before the date on which attendance is required”, conduct money under the UCPR is not necessarily the costs of compliance with the subpoena. Any application for those costs is to be made under r 33.11. The case is not analogous to the observations in Re McLean at 512 that a debt is not contingent merely because it is the subject of incomplete litigation. Nor do I find the observations in Foyster v Foyster Holdings [2003] NSWSC 881 helpful to the case for Ms Bechara. Campbell J was dealing with a rule different from the UCPR which provided that:

A subpoena shall not require the person named to attend or produce any document or thing on any day on which his attendance or production by him is required unless a sum sufficient to meet the reasonable expenses of the person named of complying with the subpoena in relation to that day is paid or tendered to him at the time of service of the subpoena or not later than a reasonable time before that day

74    In that context, Campbell J said:

[10] … The rule requires, it seems to me, that the person tendering the subpoena make an estimate of what are the reasonable expenses of the person named of complying with the subpoena, and to tender that amount at the time of service…

75    There is no equivalent requirement in the UCPR. Instead, under the UCPR the requirement for conduct money and the capacity to apply for an order for costs and expenses of compliance to be paid are separate.

76    In any event, and as noted, while Ms Bechara said the Crosses had issued a subpoena requiring her to attend Court so, however, had Mr Akcan. Ms Bechara has not allocated any of her expenses for complying with that subpoena to Mr Akcan. Instead, she has included all such costs in her claim against the Crosses in the bankruptcy. That is untenable. For example, it is evident that while the notice to produce is dated 18 March 2013 many of the costs claimed date from 2012 and, on their face, concern the subpoena Mr Akcan issued. The itemised account shows also that the subpoena to attend on behalf of the Crosses was not served until February 2013. In other words, it is obvious that a large part of this claim concerns costs payable, if at all, by Mr Akcan. Further, despite her evidence that she made a discounted offer on costs to the Crosses for her compliance with their subpoena, her itemised account indicates that she in fact served a bill of costs in respect of that subpoena for only $8,577.55. Yet her claim in the bankruptcy for this subpoena (to attend) and a notice to produce some documents is $62,667.83. It cannot be that the balance relates to the notice to produce documents, compliance with which could not have cost more than compliance with the subpoena to attend.

77    It is not possible to work out what proportion was rightfully claimable against the Crosses (leaving aside the fact of the bankruptcies). However, it is Ms Bechara who asserts Mr Reidy erred and thus it is for her to prove, by admissible evidence, the amount in respect of which she was entitled to be admitted to vote. The rolled up claim she lodged, unsupported by any further evidence, means that Ms Bechara has not proved she was a creditor of the Crosses for any amount in respect of the subpoena and notice to produce.

78    For these reasons Mr Reidy was also correct to disallow the claim for $62,667.83. Alternatively, although she is the person challenging Mr Reidy’s ruling Ms Bechara has not proved she is a creditor in any such amount and her challenge must fail.

79    Some further observations should be made.

80    Insofar as there was any reference to the unsecured claim of Rockwell Olivier for $170,828.01 nothing suggested any error by Mr Reidy in admitting Rockwell Olivier for this amount for voting purposes. Again, Ms Bechara and Mr Akcan certainly did not prove anything to the contrary. Nothing was said either about the claims of AADD Investments Pty Ltd.

81    If I am incorrect about any aspect of Ms Bechara’s claim then it should be noted that this does not necessarily mean it is just and equitable for an order to be made in her favour. The other creditors controlled voting entitlements of $1,806,868 in the Gabriel Cross bankruptcy and $1,777,775 in the Rosabelle Cross bankruptcy. Mr Akcan, as noted, controlled $1,261,514.35. Any disallowance which took Ms Bechara’s voting entitlements below $545,354 in the Gabriel Cross bankruptcy or $516,261 in the Rosabelle Cross bankruptcy would have meant that the voting outcomes would remain unaffected. A person challenging the meeting outcomes must prove that the alleged errors would have made a difference (Re Dingle & Cockerill; Westpac Banking Corporation v Worrell (1993) 47 FCR 478). Not every permutation of Ms Bechara’s case would have made a difference.

82    On the basis of the material before me, there are sound reasons for concluding that Ms Bechara was not a creditor of the bankrupt estates in the full amount claimed or anything like it, which provides further support for the quantum of adjustments Mr Reidy made.

83    In respect of the subpoena and notice to produce costs, I refer to my observations above. If anything was properly claimable, then the claim could not reasonably have exceeded $8,577.55.

84    In respect of the costs under the orders of the District Court and the Court of Appeal, those orders excluded “costs orders made on 26 March 2012, 20 July 2012 and 7 March 2013 which costs orders are to remain operative”. These were orders in favour of the Crosses against Ms Bechara. Ms Bechara said she did not claim any amount the subject of the costs orders against her, but the documents suggest to the contrary and she could not identify what, if anything, had been excluded. As such, I do not accept her evidence to this effect. It is not possible to ascertain exactly what should have been excluded but, again, the result of this inadequacy is that Ms Bechara has not proved she was a creditor of the Crosses in the amount claimed.

85    In respect of the Court of Appeal costs, for the reasons given no such costs were provable in the bankruptcy.

86    On this basis, it is apparent that Ms Bechara has not only failed to prove any error by Mr Reidy but has also failed to prove that it would be just and equitable to make any order in respect of Mr Reidy’s decisions on voting entitlements.

87    For these reasons, the declarations in paras 2 and 3 of Mr Kerr’s application should be made, and paras 6, 7 and 8 of the interim application filed for Ms Bechara and Mr Akcan should be dismissed.

THE MORTGAGE

Facts

88    The debate in respect of this issue, as discussed, was essentially between Mr Petrucco (on the one hand) and Ms Bechara and Mr Akcan (on the other hand). Mr Petrucco sought a declaration in respect of his rights under the mortgage of 7 March 2013, as set out above. Ms Bechara and Mr Akcan sought a declaration that money held in a trust account on account of rights under that mortgage was not secured by it and, instead, is available for distribution to unsecured creditors of the bankrupts.

89    Rockwell Olivier was formerly called Argyle Lawyers. Mr Petrucco was a principal of Rockwell Olivier. He is now the principal of Petrucco & Associates Pty Ltd which, like Rockwell Olivier, provides legal services. Rockwell Oliver carried out legal work on behalf of the Crosses pursuant to retainer agreements dated 21 October 2011 and 24 October 2011.

90    Voluntary administrators were appointed to Rockwell Olivier on 16 January 2015. On the same date, but before the appointment of the administrators, Mr Petrucco entered into a sale of business agreement with Rockwell Olivier. Under the business sale deed, certain terms were defined as follows:

Business Assets means the Business and the following assets owned by the Seller and used exclusively in the Business:

(a) the Plant and Equipment;

(b) the rights and benefits of the Seller under the Business Contracts;

(c) Intellectual Property;

(d) Business Records;

(e) the Receivables;

(f) the Work in Progress;

(g) subject to the approval of the relevant client, the Trust Monies;

(h) the Goodwill; and

(i) any other assets used in the Business (including without limitation the library books, electronic subscriptions, other educational resources, the pull up banners, banner stands and stationary),

…

Business Contracts means all agreements (including those set out in Schedule 5) made by the Seller with its clients or third parties or otherwise in connection with the Business and also includes the benefits of arrangements with those third parties, clients or customers of the Business;

…

Receivables means any amount payable or owing to the Seller in relation to goods or services sold or provided by the Seller in connection with the Business up to, and including, the Effective Date (as set out in Part 2 of Schedule 2) (whether or not the Seller has issued an invoice for the amount, and includes debts written off or otherwise provided for by or in the accounts of the Seller);

91    Clause 2 is in these terms:

Sale of Business Assets

The Seller agrees to transfer, and the Buyer agrees to accept the transfer of, the Business and the Business Assets:

(a) free and clear of any Encumbrances;

(b) for the Consideration;

(c) with effect from Completion; and

(d) otherwise subject to the terms and conditions of this Deed.

92    Part 2 of Schedule 2 to the deed lists Receivables as at the Effective Date, which includes as debtors subject to litigation “Cross, Rosabelle and Gabriel Sum of O/S balance”.

93    By a letter dated 4 February 2015 Mr Petrucco gave Mr Kerr notice in accordance with s 12 of the Conveyancing Act 1919 (NSW) (the Conveyancing Act) that on 16 January 2015 Rockwell Olivier assigned and transferred to Mark Petrucco its full legal and beneficial interest and all obligations under:

1.    Retainer dated 21 October 2011 between Argyle Lawyers Pty Ltd and Gabriel Cross and Rosabelle Cross;

2.    Retainer dated 24 October 2011 between Argyle Lawyers Pty Ltd and Gabriel Cross and Rosabelle Cross;

3.    Deed of Agreement dated 7 March 2013 between Argyle Lawyers Pty Ltd and Gabriel Cross and Rosabelle Cross;

4.    Mortgage dated 7 March 2013 between Argyle Lawyers Pty Ltd and Gabriel Cross and Rosabelle Cross; and

5.    The debt owed by Gabriel Cross and Rosabelle Cross to Argyle Lawyers Pty Ltd (now called Rockwell Olivier (Sydney) Pty Ltd).

94    Section 12 of the Conveyancing Act provides for the assignment of debts and choses in action in writing of which notice has been given being “deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor”.

95    On 10 February 2015 Mr Kerr gave notice to Mr Petrucco that for and on behalf of the bankrupt estates of the Crosses he consented to the assignment of the benefit of the agreements (defined in terms of Mr Petrucco’s notice).

96    The moneys claimed by Mr Petrucco to be secured by the mortgage are legal costs incurred after the date of the mortgage (noting, however, that the mortgage also purports to secure past indebtedness, a claim to be secured in that amount not being pressed by Mr Petrucco). The mortgage arises from dealings between Argyle Lawyers (as it then was) and the Crosses leading up to March 2013. Argyle Lawyers acted for the Crosses in, amongst other things, the Supreme Court proceedings taken by Mr Akcan against them. On 2 March 2013 Argyle Lawyers wrote to the Crosses about unpaid legal bills and its concerns about continuing to act. The unpaid legal costs were said to be $185,000. An estimate of likely future legal costs in the amount of $308,150 was also provided. The letter said that Argyle Lawyers was prepared to continue to act for the Crosses if certain conditions were met including that the Crosses grant to Argyle Lawyers mortgages over two properties (one being the Lane Cove property) to secure the debt and consent to the lodgement of caveats over those properties. A response by 4 March 2013 was required.

97    The deed, the veracity of which is challenged by Ms Bechara and Mr Akcan, is dated 7 March 2013 and is between Argyle Lawyers and the Crosses. The deed notes the Crosses full names as follows (a fact relevant to the questions raised about the deed by Ms Bechara and Mr Akcan):

GABRIEL GARABET ISSA CROSS (aka Garabet Issa Saliba) (“Gabriel”) AND ROSABELLE ESENGUL CROSS (aka Esengul Saliba) (“Rosabelle”)

98    The deed contains recital D in these terms:

Argyle and Cross have made an agreement whereby Argyle will continue providing legal professional services only if Cross provides security for the payment of the Debt together with any further fees, any accrued interest and costs which may be due in respect of legal and professional services supplied or invoiced from the date of this Deed.

99    The defined terms in cl 1.1 of the deed are as follows:

“Amount” means the amount referred to in recital D;

“Debt” means the amount referred to in the Schedule;

“Deed” means this deed and any document that varies or supplements it;

“Property” means the whole of the land contained in folio identifiers 1/651212, 1/221943 and 2/1071752 and known as 7 Birdwood Avenue Lane Cove and 99-101 Horton Street, Port Macquarie;

100    As the Debt is the existing unpaid amount of $185,250.89 it is apparent that the Amount is the amount of any costs supplied or invoiced from the date of the deed as referred to in recital D.

101    The operative clauses are cll 3 and 5 which provide that:

3. PAYMENTS, CAVEAT AND MORTGAGE

3.1 Cross shall make weekly payments of not less than $5,000 to Argyle commencing on the date of this Deed. Argyle shall apply such payments as it thinks fit towards reduction of the Debt and payment of ongoing disbursements including counsel’s fees.

3.2 Cross acknowledges that they have charged the Property with payment of the Debt and hereby charges the Property with payment of the Amount and on the making of this Deed and grants a caveatable interest to Argyle in the Property to secure the payment of all amounts due to Argyle from Cross for outstanding fees or on any account whatsoever.

3.3 Cross will take all steps reasonably open to them to enable Argyle to have the caveats registered on title of the Property and will consent to any court order sought by Argyle to that effect.

3.4 Contemporaneously with execution of this Deed the Cross shall provide to Argyle mortgages over the Property in registrable form and if requested by Argyle, at any time, provide the consent of any prior mortgagee and authorise the prior mortgagee to produce the title to the Property at Land and Property Management NSW to enable registration of the mortgage.

…

5. ARGYLE SERVICES

5.1    In consideration of Cross complying with clauses 3 and 4 of this Deed Argyle will continue to provide legal services to Cross.

102    The deed has been signed by Mr Petrucco on behalf of Argyle Lawyers and by each of the Crosses, a George Antonious having witnessed their signatures. It is clear from the evidence of Ms Bechara that Mr Antonious was known to her as the Crosses accountant.

103    There is in evidence a stamped registered mortgage also dated 7 March 2013 which shows the Crosses as mortgagor and Argyle Lawyers as mortgagee in respect of the Lane Cove property, also witnessed by Mr Antonious, whose address is recorded. The annexure to the mortgage which is also signed by the Crosses and Mr Petrucco and witnessed by Mr Antonious records that:

1.    The Mortgagor acknowledges and admits that the Mortgage:

1.1    is given pursuant to a Deed of Agreement between the Mortgagor and the Mortgagee dated 7 March 2013 (the “Agreement”) and in consideration of the Mortgagee having advanced certain funds, namely $185,250.89 to the Mortgagor.

1.2    is given for the purpose of securing to the Mortgagee the payment of monies now or hereafter owing and or contingently owing by the Mortgagor pursuant to the Agreement (all of which monies shall be deemed to form part of the mortgage debt as herein defined and as defined in Memorandum Q860000).

104    Clause 5 of the memorandum referred to and incorporated in the mortgage is as follows:

In addition to all costs and expenses which the mortgagor may be liable at law or in equity to pay in respect of this security, or otherwise in relation thereto, the mortgagor will upon demand pay all costs and expenses, including costs as between solicitor and client, incurred by the mortgagee in consequence or on account of any default on the part of the mortgagor hereunder or incurred by the mortgagee for the preservation of or in any manner in reference to this security, all of which costs and expenses shall from the time of payment or expenditure thereof respectively until repaid to the mortgagee by the mortgagor be deemed principal moneys covered by this security, and shall carry interest at such higher rate as may be shown in the schedule to the mortgage.

105    A stamped registered caveat over the Lane Cove property signed by the Crosses on 8 March 2013 and in favour of Argyle Lawyers is also in evidence.

106    It is also apparent from the common address that Mr Antonious is a solicitor who practices out of premises in San Souci.

107    During the hearing Ms Bechara and Mr Akcan cast doubt on the veracity of these documents by two methods. First, Mr Kerr had made no inquires about the execution of the documents because, given the uncertainty about the validity of his appointment, the substantive management of the bankruptcies had not yet commenced. Second, the signature of Rosabelle Cross on the various documents looks different on occasions. On some documents the signature looks to the untrained eye like a version of “R Cross” and on others it looks like a version of “E Saliba”. Mr Kerr said that, as a result, he would like to make further inquiries about the documents.

108    As a result of Mr Kerr’s evidence, at the conclusion of the hearing, I granted leave to Mr Kerr to file and serve a further affidavit concerning the result of any further investigation in respect of the agreement of 7 March 2013 and associated mortgage.

109    On 2 March 2015 Mr Kerr swore a further affidavit. That affidavit records that:

Inquiries of George Antonious

5. I instructed Norton Rose Fulbright Australia (NRFA) to make inquiries of George Antonious (Mr Antonious), the solicitor who witnessed each of the Bankrupts’ signatures on the Deed and Lane Cove Mortgage.

6.    I am informed by Alison McManus (Ms McManus), a solicitor in the employ of NRFA, and verily believe that she spoke with Mr Antonious who confirmed that:

(a) he has known each of the Bankrupts since 1991;

(b) each of the Bankrupts executed the Deed and Lane Cove Mortgage in his presence;

(c) he witnessed each of the Bankrupt’s signatures; and

(d) the signature which purports to be his on each of those documents is his.

7.    I am informed by Ms McManus that Mark Petrucco has a contemporaneous record of having spoken to the Bankrupts by telephone whilst they were at Mr Antonious’ office on the day they signed the documents.

Inquiries of the Bankrupts

8.    Mr Richard Lock, a member of my staff, exchanged emails with Gabriel Cross.

9.    Mr Cross confirmed that Mrs Cross signed the caveat “Esengul Saliba”, her former name. He did not suggest that either he or Mrs Cross had not signed both documents.

Leave to re-open

110    After judgment was reserved, Ms Bechara and Mr Akcan communicated to the Court and other parties their intention to seek leave to re-open in relation to, as I understood it, the validity of the documents executed by the Crosses. After some delay, the application seeking leave to re-open was filed on 19 March 2015. The application, insofar as material, sought an order that I receive “further evidence on the hearing of the substantive matter”. The application was accompanied by an affidavit of Mr Akcan sworn 16 March 2015 which dealt not with the validity of the documents executed by the Crosses but the quantum of Mr Petrucco’s claim, as set out in Exhibit 15.

111    The exhibit comprised ledgers and accompanying summaries of payments made into and out of Mr Petrucco’s trust account in respect of the proceedings in the Supreme Court between the Crosses and Mr Akcan. Exhibit 15 was intended to support the declaration as sought by Mr Kerr that “the sum of $242,376.63 currently being held in the controlled monies account in the name of ‘Rockwell Olivier (Sydney) Pty Ltd ITF Mark Petrucco and Stephen Mullette’, is charged in favour of” Mr Petrucco. I admitted Exhibit 15 into evidence over the objection of Ms Bechara and Mr Akcan. I indicated that, if necessary, Mr Petrucco could be recalled to be cross-examined on Exhibit 15. When counsel for Ms Bechara and Mr Akcan indicated that he did not know how much time he would need to prepare for such cross-examination, I adjourned the hearing to enable a forensic decision to be made about Exhibit 15. After this adjournment (of about 90 minutes), counsel for Ms Bechara and Mr Akcan said:

The last exhibit – I don’t have enough time today to deal with it, but that’s not to say they are giving me any more time that would make that would make my position any better, so I propose we just proceed.

112    The hearing proceeded without Mr Petrucco being recalled.

113    During closing submissions, an alternative form of declaration was sought on Mr Petrucco’s behalf, as set out above. As noted, the alternative declaration is confined to the present existence of a right under the mortgage and does not purport to quantify any amount said to be owed as a result. It leaves to Mr Kerr the function of deciding what amount, if any, is owed and the decision whether or not any payment to Mr Petrucco should be challenged as a preferential transaction. As put in oral submissions for Mr Petrucco, the alternative form of declaration meant that Exhibit 15 became immaterial, it being submitted that:

… the form of the declaration, whilst it occurs to me, means that your Honour need not be troubled by exhibit 15 and I don’t need to trowel through that and do the exercise of double checking whether payments came in were applied. It just won’t be necessary to resolve the issue in this case.

114    In response to these submissions, counsel for Ms Bechara and Mr Akcan said:

There’s only two issues that arise from my learned friend, Mr Golledge’s, submissions. If your Honour is satisfied that (1) that the deed of 7 March 2013 was executed by the bankrupts and satisfied that the court should make the declaration, it’s appropriate that the court make the declaration in the form provided by Mr Golledge. I say that the court should not make the declaration at this point in time.

115    In other words, no issue was raised at any time about the fact of admission of the Rockwell Olivier claim for voting purposes at the meeting on 27 June 2014.

116    Mr Akcan’s affidavit, accordingly, is immaterial to the resolution of the issues which were before me at least insofar as it purports to analyse and expose errors in Exhibit 15. No doubt, that affidavit will be relevant to Mr Kerr contributing to perform his functions as trustee. However, in terms of leave to re-open the immateriality of Exhibit 15 to the issues which were in dispute would ordinarily mean that it is not in the interests of justice for leave to be granted.

117    On the return of the application I raised these matters with counsel for Ms Bechara and Mr Akcan. Counsel agreed that the issue of Rockwell Olivier’s voting entitlements had not been raised before. He said that, Exhibit 15 having been admitted, Mr Akcan took the opportunity to examine the records and concluded that there were grounds to argue that Rockwell Olivier ought not to have been admitted as a creditor for voting purposes in the amount of $170,828.01. Counsel for Ms Bechara and Mr Akcan submitted that, if they failed in respect of the Westpac issue, then the admission of Rockwell Olivier for voting purposes in the amount of $170,828.01 could have affected the outcome of the meetings. In other words, a new issue was being sought to be raised.

118    I consider that the submissions for Mr Petrucco, that it would not be in the interests of justice to grant leave to re-open, are compelling. I adopt those submissions as my reasons, which I summarise below:

(1)    No concern was raised at the meeting of 27 June 2014 about the admission of Rockwell Olivier for voting purposes in the amount of $170,828.01.

(2)    By reason of paragraph 6 of Mr Kerr’s application, the issue of quantification of the debt owed to Rockwell Olivier (and thus Mr Petrucco) was alive throughout the hearing until the amended declaration was handed up. Ms Bechara, moreover, had addressed the debt owed to Rockwell Olivier in paragraphs 120 to 130 of her affidavit of 5 January 2015, which were not read. Ms Bechara and Mr Akcan thus had ample opportunity to adduce whatever evidence they wished about the quantum issue.

(3)    Counsel for Ms Bechara and Mr Akcan made a forensic decision not to require Mr Petrucco to be recalled and, on that basis, the hearing proceeded and was completed.

(4)    Counsel for Ms Bechara and Mr Akcan acknowledged that, given the amended declaration, the only issues relating to Mr Petrucco were the validity of the deed of 7 March 2013 and the appropriateness of any declaration being made.

(5)    The underlying invoices and trust account statements relating to the Rockwell Olivier claim were in evidence in any event. Yet no question was asked or submission made about quantum.

(6)    The explanation for now seeking leave to adduce evidence relating to the quantum of Rockwell Olivier’s claim is inadequate.

(7)    The issue of the quantum of Rockwell Olivier’s claim is a “red herring” in this proceeding. The amended declaration properly leaves it to the trustee to determine all issues of quantum.

(8)    Although a “red herring”, if leave to re-open is granted, Mr Petrucco would have no option other than to respond to the evidence. The parties would thereby be subjected to further expense and delay to deal with an issue which the amended declaration ensured would be left in the hands of the trustee where the issue should properly be resolved.

119    Of themselves, these reasons are sufficient to refuse leave to re-open.

120    I note also the fact that even if the whole of Rockwell Olivier’s claim of $170,828.01 was deducted, the majority vote would have remained the same ($1,636,040.68 as against $1,613,879.65). An alternative calculation provided by counsel for Ms Bechara and Mr Akcan, relating to a figure of $28,050 which they wish to dispute (apparently relating to an invoice for a costs consultant), deducts not only the whole of the Rockwell Olivier’s claim of $170,828.01 but then also deducts (from zero presumably) the $28,050. These calculations were said to support the fact that the treatment of Rockwell Olivier’s claim could have affected voting outcomes but depended on the dubious proposition, not apparent from the face of the evidence, that the one invoice had been paid twice and that, somehow, Rockwell Olivier’s claim should have been treated as deducting $28,050 from voting entitlements of other creditors. Assuming the treatment of Rockwell Olivier’s claim could have affected voting outcomes (which remains unclear to me), this attempt to re-open the case would have the effect of re-opening, on yet another basis, the votes taken at the meetings on 27 June 2014 in circumstances where no proper foundation for permitting that to occur has been established.

Discussion

121    It is apparent that the challenge to the validity of the deed of 7 March 2013 and associated mortgage is based on nothing more than speculation. Apart from this it was asserted for Ms Bechara and Mr Akcan that Mr Petrucco has not proved his entitlement to security as a successor in title or at all under the terms of the mortgage. The grounds supporting this assertion remained unexplained. On the basis of the evidence I can see no reason to conclude other than that Mr Petrucco is the lawful assignee of the interests of Argyle Lawyers under the mortgage and is entitled to assert his security interest over the proceeds of sale of the Lane Cove property in the amount which is ultimately determined to be proper by Mr Kerr.

122    It was also asserted for Ms Bechara and Mr Akcan that the inference can be drawn or is worth investigation by Mr Kerr that the Crosses were insolvent on 7 March 2013. Mr Kerr has not yet investigated the question of the Crosses’ possible entry into transactions which are voidable for that reason.

123    The declaration which Mr Petrucco seeks, as discussed, is in confined terms. It does not purport to exclude the capacity for Mr Kerr either to conclude that the mortgage constitutes a preferential transaction or to ascertain the amount secured under the mortgage. As put for Mr Petrucco ss 121 and 122 of the Bankruptcy Act the word “void” in those sections means “voidable” so that, unless and until Mr Kerr decides to take action under those provisions, the relevant transactions are taken to be valid. In Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372 at 426 Wilcox and Cooper JJ said:

Although s 121 states that a disposition to which it applies is void, the courts will treat the disposition as effective until impugned in proceedings brought by the trustee in bankruptcy. Thus, where there is a disposition of property to which s 121 of the Act applies, the title which the donee receives is a defeasible one: see Brady v Stapleton (1952) 88 CLR 332 at 332 - 335 per Dixon CJ and Fullagar J; Harrods Ltd v Stanton [1923] 1 KB 516 at 520 - 521 per Bailache J at 521 per McCardie J. Until the title is defeased by the trustee in bankruptcy calling for delivery up or revesting of the property to the trustee or by instituting proceedings to establish the trustee's entitlement to the property, the donee may deal with the property as owner and is not required to account for any profit made. If the property is sold and the proceeds of sale dissipated by the donee prior to defeasance the donee is not personally liable for the value of the property: Brady v Stapleton at 332 - 335. Upon defeasance, if the property remains in its original form or in some derivative form in the hands of the donee, title to the property revests in the trustee in bankruptcy and the donee thereafter continues to hold the property as trustee for the trustee in bankruptcy and will be ordered to do all necessary acts to revest the property in the trustee in bankruptcy. Once the property has revested, the donee thereafter becomes personally liable to account for the property and any profits made by or from the use of that property since the time of revesting of the property.

124    It was contended for Mr Petrucco that this confined declaration nevertheless has utility because it confirmed the present validity of the charge over the proceeds of sale of the Lane Cove property to secure whatever amounts are ultimately found to be owing.

125    In the circumstances of this case, I am persuaded that a declaration in the terms proposed properly reflects the current legal entitlement of Mr Petrucco and that this declaration would have utility. In particular, Ms Bechara and Mr Akcan have challenged the present entitlement of Mr Petrucco as set out in para 10 of the interim application. It is appropriate that, in the interests of justice, an order be made which quells this dispute insofar as possible at this stage, albeit without affecting the capacity of Mr Kerr as trustee (or any substitute trustee) from performing the functions required to be performed under the Bankruptcy Act.

126    For these reasons the declaration sought by Mr Petrucco should be made. Paragraph 10 of the interim application should be dismissed, as should the related para 6 in Mr Kerr’s application which was not pressed given the role taken by Mr Petrucco in the proceeding.

CONCLUSIONS

127    For the reasons set out above Mr Kerr has succeeded in respect of all parts of his application which he pressed. Orders to the general effect of paras 2 and 3 in his application will be made. Apart from obtaining the required extension of time to make the claims, Ms Bechara and Mr Akcan have failed in their application and paras 4(a), 4(c), 6, 7, 8, and 10 of that application should be dismissed.

128    It is appropriate in these circumstances that Ms Bechara and Mr Akcan should pay the costs of Mr Kerr and Mr Petrucco of and in connection with the proceeding thus far.

129    This leaves for future determination the claim in para 9 of the interim application, which is for priority for Ms Bechara and Mr Akcan after secured creditors have been paid in respect of the proceeds of sale of the Lane Cove property, and the related paras 4 and 5 in Mr Kerr’s application. The matter will be listed for directions to be made regarding this outstanding issue.

Associate:

Dated:    31 March 2015