FEDERAL COURT OF AUSTRALIA

Leroy (Trustee), in the matter of Vitale and Vitale (Bankrupts) [2016] FCA 999

ORDERS

THE COURT ORDERS THAT:

1.    A direction pursuant to s 134(4) of the Bankruptcy Act 1966 that Mr Paul Leroy, in his capacity as trustee of the bankrupt estates of Mr Anthony Vitale and Mrs Giuliana Vitale, would be justified in entering into the written agreement with Anthony Vitale, Giuliana Vitale and Allianz Australia Insurance Limited, a copy of which is annexed to the applicant’s affidavit sworn 13 July 2016 and marked “A”.

2.    Pursuant to s 37AE of the Federal Court of Australia Act 1976 (Cth), the contents behind Tab 9 (pages 151 to 166) to exhibit PL-Y to the affidavit of Paul Leroy sworn 25 July 2016 not be available for inspection by any person except with the leave of the Court.

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

REASONS FOR JUDGMENT

(Delivered ex tempore, revised from transcript)

WIGNEY J:

1    Mr Paul Leroy is the trustee in bankruptcy of the bankrupt estates of Mr Anthony Vitale and Mrs Giuliana Vitale. In that capacity he has been embroiled in somewhat complex litigation against Mr and Mrs Vitale, and various companies that are, or have been, associated in some way with them. The proceedings were initially commenced in the Supreme Court of New South Wales, but were subsequently transferred to this Court. The principal relief sought in those proceedings included declarations that both a purported loan by one of the companies to Mr and Mrs Vitale, and a purported mortgage over a property owned by Mrs Vitale to secure the loan to her, were void. If successful in those proceedings, Mr Leroy would be able to sell the property unencumbered for the benefit of the creditors of Mrs Vitale, and the company would not be able to prove as a creditor in her bankruptcy.

2    In this separate proceeding, Mr Leroy applies to the Court, pursuant to s 134(4) of the Bankruptcy Act 1966 (Cth), for a direction in respect of a matter arising in connection with the administration of the bankrupt estates of Mr and Mrs Vitale. The specific direction sought by Mr Leroy is that he would be justified in entering into a written agreement with Mr Vitale, Mrs Vitale and Allianz Australia Limited. Allianz is far and away the largest creditor of Mr and Mrs Vitale. The effect of entry into the agreement would be to settle the proceedings between Mr Leroy, Mr and Mrs Vitale, and the associated companies. It would also effectively lead to the approval of schemes of arrangements of the affairs of Mr Vitale and Mrs Vitale pursuant to s 73 of the Bankruptcy Act.

3    For the reasons that follow, this is an appropriate case for a direction under s 134(4) of the Bankruptcy Act. The direction sought by Mr Leroy should be given in the terms sought.

Factual background

4    The factual background to the proceedings between Mr Leroy and Mr and Mrs Vitale, and the associated companies, and the proposal to settle those proceedings, is summarised in an affidavit filed by Mr Leroy in support of his application for directions. Mr Leroy's initial affidavit has also since been supplemented by a further affidavit that provides some more detail concerning his reasons for deciding to settle the proceedings.

5    Mr Vitale was, and perhaps still is, a builder. He was a director and shareholder of a pair of companies that were involved in land development and building, including for the residential market. Those companies were called Avcon (NSW) Pty Ltd, and Avcon Property Group Pty Ltd. Allianz provided home warranty insurance for the Avcon companies. Mr and Mrs Vitale had agreed to indemnify Allianz for any claims made on Allianz under the home warranty insurance.

6    One of the Avcon companies was involved in the construction of a strata unit development at Sylvania. Sometime between the completion of that development in 2004, and about November 2007, Mr Vitale received a number of complaints about building defects in that development. Those complaints culminated in Allianz receiving a claim under the home warranty insurance policy in November 2007. As indicated earlier, Mr and Mrs Vitale indemnified Allianz in relation to claims made under the policy. In July 2007, some months before the November 2007 claims on Allianz, but probably at around the time that such claims appeared likely, Mr and Mrs Vitale signed a series of documents that sought to settle two trusts and cause some loan and other transactions to take place with the companies that were to be trustees of the trusts.

7    Mr Vitale was a director of each of the trustee companies. One of those companies was called Vitale Future Generations Pty Ltd. Vitale Future Generations was appointed trustee for the Vitale Future Generations Trust, which purported to be a unit trust. The other company involved in these arrangements was a company called AV Guardian Pty Ltd. That company was appointed trustee of another discretionary trust, the Vitale Family Trust. There was no provision in the Vitale Future Generations Trust trust deed for the trustee to issue any units in that trust. Notwithstanding the absence of any such provision, Vitale Future Generations, as trustee, purported to issue 2,250 units at $1000 each to Mrs Vitale.

8    The units purportedly issued by Vitale Future Generations were issued on the condition that, if Mrs Vitale was sued for $50,000 or more, the voting and participation rights in the units would be forfeited. Vitale Future Generations also purportedly loaned Mrs Vitale the purchase price of $2,250,000 for those 2,250 units. In return, Mrs Vitale purportedly agreed to grant Vitale Future Generations a mortgage over her real property as security for the loan. Vitale Future Generations also purported to issue two units to AV Guardian Pty Limited, the trustee for the Vitale Family Trust.

9    In 2010, Allianz commenced Supreme Court of New South Wales proceedings against Mr and Mrs Vitale. Allianz sought to recover from Mr and Mrs Vitale amounts that Allianz had expended in settling the claims on the home warranty insurance in respect of the strata unit development at Sylvania..

10    In 2012, while the Supreme Court proceedings were still on foot, Mr and Mrs Vitale sold their matrimonial home. From the net proceeds of that sale, Mrs Vitale purchased a property in Caringbah. Mrs Vitale apparently still lives at that property with her children. She has since separated from Mr Vitale.

11    On 14 April 2014, Sackar J delivered a judgment in favour of Allianz in the Supreme Court proceedings. The judgment debt was $1.87 million, plus costs.

12    In or about mid-June 2014, about two months after that judgment was handed down, Mrs Vitale granted a registered mortgage over the Caringbah property to Vitale Future Generations, purportedly to secure repayment of the loan of $2,250,000 made by Vitale Future Generations in 2007. Three days after that mortgage was granted, freezing orders were made in the Supreme Court against Mr and Mrs Vitale on the application of Allianz. Allianz also brought bankruptcy proceedings against Mr and Mrs Vitale for the unpaid judgment debt.

13    On 30 January 2015, Mr Leroy was given authorities under s 188 of the Bankruptcy Act by Mr and Mrs Vitale. Mr Leroy was appointed trustee in bankruptcy of the estates of Mr and Mrs Vitale on 5 March 2015.

14    Following his appointment as trustee, Mr Leroy commenced investigations into the affairs of Mr and Mrs Vitale. Mr Leroy's investigations revealed that Allianz was far and away the most substantial creditor of Mr and Mrs Vitale. The only other major creditor was Vitale Future Generations. The other creditors of the two bankrupt estates were owed, or claimed to be owed, relatively small amounts of money. They included a firm or firms of lawyers, some apparent relatives of Mr and Mrs Vitale (Paul Vitale and Francis Vitale) and the Australian Taxation Office.

15    In 2015, Mr Leroy commenced Supreme Court proceedings against Mr and Mrs Vitale and six other parties in relation to the amounts said to be owing by Mr and Mrs Vitale to Vitale Future Generations. The other parties to the proceedings were the two Avcon companies, Vitale Future Generations, AV Guardian Pty Ltd, Paul Vitale and Gary Lee. Those proceedings were ultimately transferred to this Court and were allocated to the docket of Jagot J.

16    Mr Leroy sought four broad categories of relief in the principal proceedings.

17    First, Mr Leroy sought a declaration to the effect that a transfer of about $600,000 by Mr Vitale to Avcon (NSW), made on about 30 January 2015, was done with intent to defraud Mr Vitale's creditors and was therefore void or voidable under s 121 of the Bankruptcy Act. That relief is no longer in issue. Jagot J ultimately made declaratory orders in relation to that transfer.

18    Second, Mr Leroy sought relief in relation to certain funds that had been paid into the Supreme Court of New South Wales as a consequence of the freezing orders. It is again unnecessary to say anything further about that relief. Jagot J also made the orders sought in relation to those funds.

19    Third, Mr Leroy sought declarations to the effect that the purported issue of units in the Vitale Future Generation Trust was beyond power and void, and that the purported loan by Vitale Future Generations to Mr and Mrs Vitale to fund the subscription for those units was therefore void, or failed because there was a total failure of consideration.

20    Fourth, Mr Leroy sought a declaration that the mortgage granted by Mrs Vitale, purportedly to secure the purported loan to Vitale Future Generations, did not secure any debt or obligation, and was accordingly void or should be set aside.

21    An important point to emphasise about Mr Leroy's case concerning the purported loan to Mrs Vitale and the mortgage of the Caringbah property is that, as originally pleaded, his case was not based on the contention that the loan and mortgage were entered into to defraud or defeat creditors. Rather, in simple terms, Mr Leroy's case was that the issue of the units was not provided for, or properly provided for, in the trust deed, and was therefore beyond power. As a result, the loan that was purportedly made to fund the subscription for those units failed for want of consideration, as did the mortgage that purportedly secured it.

22    Ultimately, Mrs Vitale was the only respondent to file a defence to Mr Leroy's proceedings. Her defence included some admissions and denials about certain matters, but also included a number of positive contentions or allegations in purported answer to Mr Leroy's case that the issue of units in the Vitale Future Generations Trust was beyond power. Mr Leroy’s response was to file an interlocutory application to strike out those parts of Mrs Vitale's defence, in part on the ground that Mrs Vitale did not have standing to advance the positive contentions in relation to the trust. In turn, Mrs Vitale filed her own interlocutory application seeking, amongst other things, orders that would enable her to represent AV Guardian in the proceedings. That order, if made, would effectively meet Mr Leroy’s case that Mrs Vitale did not have standing to raise matters concerning the issue of units in the Vitale Future Generations Trust. That is because AV Guardian was a unit holder. Mrs Vitale could advance the arguments and contentions concerning the trust deed on behalf of AV Guardian. Mrs Vitale’s interlocutory application also sought leave to file a cross-claim seeking rectification of the trust deed, and leave to file an amended defence alleging estoppel.

23    In simple terms, Mrs Vitale sought to defend Mr Leroy's proceedings on the basis that, on a proper construction of the trust deed, and contrary to Mr Leroy’s case, there was power to issue the units. If that argument failed, however, Mrs Vitale sought rectification of the trust deed on the basis that it was always intended that there would be such a power. Mrs Vitale claimed that she had standing to mount that argument on behalf of AV Guardian.

24    That somewhat simplistic description of Mrs Vitale's interlocutory application perhaps belies the complexity of the issues that it raised. The issues raised included whether Mrs Vitale, a bankrupt, should be permitted to represent AV Guardian, whether that would effectively give her standing to raise the construction arguments, or mount the rectification suit, in relation to the trust deed and the availability (to Mr Leroy) of the equitable defence of unclean hands.

25    The duelling interlocutory applications ultimately came on for hearing before Jagot J on 12 April 2016. The argument before her Honour apparently proceeded for a full day. The matter was then adjourned part-heard. In the course of the hearing, Jagot J indicated that it would be preferable to consider and decide the complex issues concerning standing and the prospects of success of the construction arguments and rectification suit in the context of a full hearing on the merits, including in the context of evidence concerning the circumstances in which the trust deed and other documents were entered into. Her Honour adjourned the matter to 3 August 2016.

26    In his affidavit in support of the application for directions, Mr Leroy deposed as follows in relation to the present state of the proceedings before Jagot J :

The result of Mrs Vitale's application was to be a watershed in Mrs Vitale's bankrupt

estate, as:

(a)    If Mrs Vitale were to fail then I would proceed with little, if any, opposition to recover the Land unencumbered;

(b)    If Mrs Vitale were to succeed then I would amend the Statement of Claim to have the Unit Trust and The Discretionary Trust and the loan of $2,250,000 and mortgage on the Land declared void under s37A Conveyancing Act 1919 and under ss120 and 121 Bankruptcy Act 1966, and would have to adduce evidence of the status of the complaints and claims made about the defective residential building work at the time the trust deed and other transactions were made in 2007 by the Vitales. In that event I estimate at least $200,000 more in legal costs would be expended by me on the Proceedings with the risk, however small, of an unsuccessful outcome. I would also be required to perform more work in instructing my lawyers and investigating factual matters of some nine years ago, with a resultant increase in my remuneration of over $100,000 (I estimate). The chance of recovering any legal costs ordered to be paid by Mrs Vitale would be small - as she is still an undischarged bankrupt.

27    Mr Leroy's main point was that, if Mrs Vitale’s interlocutory application was successful, he intended to seek leave to amend his application to include a challenge to the 2007 loan on an additional and alternative basis, being that it was made with the intention of defrauding creditors. To make out such a case, however, he would effectively have to prove that, at the time of the making of the loan in 2007, Mr and Mrs Vitale were aware of a real possibility that significant claims were about to be made on the Avcon home warranty insurance with Allianz. As a result, they were aware that it was likely that they would be called upon to indemnify Allianz in the near future.

28    Mr Leroy was of the view that it might turn out to be difficult to prove those matters. In that regard Mr Leroy annexed a letter to his supplementary affidavit which, at least on its face, purported to show that the trust arrangements entered into by Mr and Mrs Vitale in 2007, including the purported loan, were motivated by a "legitimate estate planning strategy" upon which they had received advice from a lawyer in April 2007. That letter tended to support Mr Leroy’s view that he might well have some difficulties in proving that Mr and Mrs Vitale’s intention in entering into the 2007 arrangements was to protect their assets from the anticipated claim by Allianz.

29    Following the appearance before Jagot J on 12 April 2016, Mr Leroy, Allianz and Mr and Mrs Vitale conferred or engaged in discussions to endeavour to settle the proceedings. Those discussions, it seems, bore fruit. An agreement was reached to resolve not only the proceedings before Jagot J, but also to end Mr and Mrs Vitale's bankruptcy by having them enter into schemes of arrangements. The essential terms of the agreement struck between Mr Leroy, Mr and Mrs Vitale and Allianz, was summarised by Mr Leroy in his affidavit in the following terms:

Following 12 April 2016 the Vitales, Allianz and I negotiated an agreement the substance of which is as follows:

(a)    The Vitales would make written proposals for consideration by their creditors under s73 of the Bankruptcy Act 1966;

(b)    Under those proposals the Vitales would pay $750,000 to me to be held for Mrs Vitale's creditors and Mrs Vitale would retain the Land (or if the money could not be raised I would sell the Land and take $750,000 of the proceeds the balance to go to Mrs Vitale [sic]);

(c)    The Vitales' bankruptcies would be annulled;

(d)    The loan owing by Mrs Vitale to the Unit Trustee and the mortgage over the Land securing it would be declared void;

(e)    Allianz would vote in favour of the proposals;

(f)    The Proceedings would be at an end;

(g)    The Vitales would be released from their pre-bankruptcy debts;

(h)    Any related creditors of the Vitales would not prove in distributions made from either estate.

30    The written agreement between Mr Leroy, Mr and Mrs Vitale and Allianz, was annexed to Mr Leroy's affidavit, along with associated documents such as the proposals to enter into schemes of arrangement. The agreement has been signed by Mr and Mrs Vitale. It has not yet been executed by Allianz. Nor has Mr Leroy signed it. It would appear that he is awaiting the outcome of this application for a direction of the Court effectively approving the agreement before signing it; though the agreement itself does not expressly state that it is conditional on Mr Leroy obtaining a direction from the Court that it would be reasonable for him to enter into the agreement.

31    In his supplementary affidavit, Mr Leroy refers to and annexes an opinion he has received from experienced counsel in relation to the settlement of the principal proceedings. Mr Leroy's counsel, Mr Marshall, has been involved in the conduct of the proceedings before Jagot J. He also appeared for Mr Leroy on the application for directions. Mr Marshall's advice was, understandably and for good reasons, tendered on a confidential basis. It contained, amongst other things, Mr Marshall's advice about the prospect of success of the proceedings before Jagot J. It is sufficient to say that Mr Leroy has deposed to the fact that he accepts Mr Marshall's advice. Mr Marshall's advice has been read and considered for the purposes of deciding whether it is appropriate to make the direction sought by Mr Leroy.

32    Mr Leroy's evidence on this application is that he believes that it is in the best interests of the creditors of Mrs Vitale's bankrupt estate that he accept the compromise of the proceedings before Jagot J for a payment of $750,000 upon the terms set out in the written agreement. As already indicated, the terms also include the proposed schemes of arrangement pursuant to s 73 of the Act. Mr Leroy deposed as follows in relation to the arrangements:

I believe that it is in the interests of the creditors of Mrs Vitale’s bankrupt estate that I accept that compromise of the proceedings for a payment to me of $750,000 upon the terms set out on the proposed Court orders and the proposed s73 arrangement annexed to the arrangement and the proposed s73 arrangement [sic]. In particular I believe it is in the best interest of creditors that they receive a prompt dividend based on receipt of the sum certain of $750,000 rather than await the outcome of complicated commercial litigation, with attendant appeals, and have the possibility of achieving an outcome that would likely see a further $400,000 or so become available to the estate, I say possibility because I take stock of the risks and unknown evidence I may seek to rely upon at a hearing on the merits.

I intend to recommend to creditors of both estates that the Vitale’s s73 proposals be accepted.

33    Mr Leroy’s statement that the potential upside of the litigation, if successful, was no doubt based in part on Mr Leroy’s belief or understanding about the value of the Caringbah property and the costs of the litigation. Mr Leroy's evidence was that the Caringbah land had been valued and that he believed it was worth about $1.6 million.

34    There is no doubt that Mr Leroy has the power to enter into the agreement with Mr and Mrs Vitale and Allianz to settle the proceedings before Jagot J. He also has the power to recommend to creditors that Mr and Mrs Vitale's proposal for the schemes of arrangements be accepted. Mr Leroy’s opinion was that the settlement of the proceedings and the schemes of arrangements were in the interests of the creditors. That opinion was no doubt based, at least in part, on legal advice he had received from experienced counsel in relation to, amongst other things, Mr Leroy’s prospects of success in the litigation.

35    In these circumstances it might perhaps be queried why he needs to obtain the Court's direction under s 134(4) of the Bankruptcy Act. In his supplementary affidavit, Mr Leroy provided his answer to that question in the following terms:

I am also concerned to obtain the Court’s directions as the circumstances in which the proposed compromise are unusual [sic] and could be easily viewed with suspicion by creditors of either estate, with the exception of Allianz. I understand that my role is to remain independent and I have a duty to administer the estates for the benefit of the creditors as a whole.

I believe from my investigations into the conduct of Mr Vitale that one or more creditors of the estates have good reason not to trust him, and am concerned that allegations that I have colluded with him and his major creditor should not be made against me.

I have been involved in the negotiations between Allianz and the Vitales to try to ensure that a reasonable outcome for the benefit of the creditors of each estate is achieved. I have not involved other creditors in this confidential process, as to do so would, in my experience, delay the process. I have been concerned to keep my independence form Allianz. In circumstances where Allianz has indemnified me in regard to the proceedings. At the same time I realised that there was no point in trying to negotiate a resolution of the proceedings that Allianz opposed, particularly where arrangements under s 73 were sought by the Vitales. I believe I have achieved a sensible and fair balance in the agreement I seek the Court’s direction to sign.

Relevant principles

36    Section 134(4) of the Bankruptcy Act provides as follows:

The trustee may at any time apply to the Court for directions in respect of a matter arising in connexion with the administration of the estate.

37    In Reidy (Trustee), in the matter of Hawksford (Bankrupt) (2015) FCA 432, a case in which a trustee in bankruptcy sought a s 134(4) direction in not dissimilar circumstances to this matter, I summarised the applicable principles in the following terms (at [44] – [45]):

Section 134(4) is in similar terms to various provisions in the Corporations Act 2001 (Cth) (Corporations Act), which provide that external administrators of companies, such as liquidators, may approach a court for directions. One such provision is s 479(3) of the Corporations Act. There is much to be said for the view that s 134(4) should be construed in the same manner as those provisions of the Corporations Act: Sutherland (in the matter of Scutts) [1999] FCA 147 (Scutts) at [14].

A review of the authorities relating to s 134(4) of the Act and cognate provisions in the Corporations Act suggests that the following principles apply to applications for directions by trustees in bankruptcy and external administrators of companies:

(1)    A court is not bound to give direction simply because a trustee or external administrator asks for them: Re Driller (1972) 21 FLR 159.

(2)    An application for directions is not an appropriate vehicle of itself to determine the substantive rights of creditors as against the trustee or administrator, or of creditors amongst themselves: Scutts at [14].

(3)    Historically, at least, it was said that the court will not typically give a direction to a trustee or administrator in respect of matters which involve no more than the exercise of his or her discretionary powers in relation to business or commercial decisions; Gisborne v Gisborne (1877) 2 App Cas 300 at 307; In re Pilling; Ex parte Salaman [1906] 2 KB 644 at 647.

(4)    It would appear, however, that the approach taken by this and other courts is now somewhat more flexible: Re Pasminco Ltd (No 2) (2004) 49 ACSR 470 at [3]. In an appropriate case, the court will give a trustee or external administrator advice regarding the manner in which he or she might exercise a discretionary power.

(5)    In Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 at 201, Lord Oliver said:

A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper professional advice and, if so advised, to protect his position by seeking the guidance of the court.

Likewise, in Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117 Young J said that:

… it is usually only proper to exercise that power where the matter involves guidance to the liquidator on matters of law or principle or to protect him against accusations of acting unreasonably.

(6)    It is, however, insufficient to attract an order giving directions that the liquidator or administrator has a feeling of mere apprehension or unease about the decision, and wants reassurance. There must be some legal issue that arises in relation to the decision. As Goldberg J put it in Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 (Ansett) at [65]:

There must be an issue calling for the exercise of legal judgment.

(7)    It may be appropriate to give a trustee directions concerning the commencement, continuation or compromise of legal proceedings, even where that decision involves commercial judgment and the exercise of the trustee’s discretion, where a legal issue or an attack on the propriety of the decision is raised, or is likely to be raised: Re G B Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 677-680, Ansett at [46], Re Addstone Pty Ltd (in liq) (1997) 25 ACSR 357 at 363, Re Tietyens Investments Pty Ltd (in liq) (rec and mgr apptd) (1999) 31 ACSR 1 at 28-29, Re Lemon Tree Passage & Districts RSL and Citizens Club Co-operative Ltd (1987) 11 ACLR 796 (Lemon Tree Passage) at 799; cf Shiraz Nominees (in liq) v Collinson (1985) 10 ACLR 7.

Application of the principles to the facts

38    Applying those principles to the facts and circumstances of this matter, it is apparent that this is an appropriate matter for Mr Leroy to seek, and for the Court to give, a direction in relation to the proposed settlement. There is some substance to Mr Leroy's concerns that one or more of the creditors, other than Allianz, may attack the propriety or reasonableness of his decision to sign the agreement and settle the proceedings on the basis of an assertion that he has somehow colluded with Mr Vitale and Allianz. Mr Leroy's concern emanates from the fact that the settlement negotiations have involved not only Mr and Mrs Vitale, but also the major creditor, Allianz. They have not involved any other creditor.

39    Mr Leroy's concerns also emanate from what appears to be the inherent distrust that other creditors and, it would appear, Mr Leroy himself, have for Mr Vitale. That inherent distrust of Mr Vitale also appears to be reasonably based, and to extend back to some of Mr Vitale's conduct that gave rise to the freezing orders in the Supreme Court. In the circumstances, Mr Leroy's concern that the propriety or reasonableness of his actions might be questioned or attacked by other creditors amounts to more than a mere feeling of apprehension or unease.

40    The material before the Court is also sufficient to demonstrate that it would be reasonable for Mr Leroy to settle the proceedings before Jagot J on the terms set out in the written agreement. That includes putting Mr and Mrs Vitale's scheme of arrangement proposals to the creditors in circumstances where, because Allianz has agreed to approve them, the resolutions to approve the schemes will almost certainly pass. It was and would be open to Mr Leroy to reasonably form the belief and opinion that the settlement of the proceedings on the basis set out in the agreement was and is in the best interests of the creditors, and that the settlement is reasonable, appropriate and commercially sound.

41    It is readily apparent that Mr Leroy has conducted reasonable investigations, obtained and relied on appropriate legal advice, and carefully analysed the alternatives to settlement. He has also carefully considered whether the schemes of arrangement, which are inherent in the agreement to settle the proceedings, would be in the best interests of the creditors.

42    Of course, the settlement involves a compromise. Mr Leroy has indicated that he believes the property to be worth about $1.6 million. If Mr Leroy was wholly successful in the litigation, he would no doubt be able to sell the property unencumbered, and the proceeds of the sale would be available to the creditors of Mrs Vitale. That would secure, for the creditors, more than the $750,000 that Mr and Mrs Vitale have agreed to pay.

43    It is, however, well known that all commercial litigation involves an element of risk. Mr Leroy’s case against Mr and Mrs Vitale certainly involves some risk. Mr Leroy’s success is by no means assured. Regard must also be had to Mr Leroy's costs in pursuing the litigation and continuing to administer the bankrupt estates in the interim. Those costs may not ultimately be able to be recovered by Mr Leroy.

44    It should also be noted that the creditors of Mr and Mrs Vitale, other than Allianz, have all received notification of Mr Leroy's application for directions. No creditor has told Mr Leroy that they oppose the application for directions, or oppose him signing the written agreement and settling the proceedings on the basis contained within it. No creditor has appeared in opposition to Mr Leroy's application for directions.

45    In all the circumstances, Mr Leroy would be justified in entering into the written agreement with Anthony Vitale, Giuliana Vitale and Allianz Australia Insurance Limited, a copy of which is annexed to his affidavit sworn 13 July 2016.

46    The orders of the Court are as follows:

1.    A direction pursuant to s 134(4) of the Bankruptcy Act 1966 that Mr Paul Leroy, in his capacity as trustee of the bankrupt estates of Mr Anthony Vitale and Mrs Giuliana Vitale, would be justified in entering into the written agreement with Anthony Vitale, Giuliana Vitale and Allianz Australia Insurance Limited, a copy of which is annexed to the applicant’s affidavit sworn 13 July 2016 and marked “A”.

3.    Pursuant to s 37AE of the Federal Court of Australia Act 1976 (Cth), the contents behind Tab 9 (pages 151 to 166) to exhibit PL-Y to the affidavit of Paul Leroy sworn 25 July 2016 not be available for inspection by any person except with the leave of the Court.

Associate:

Dated:    25 July 2016