FEDERAL COURT OF AUSTRALIA

Fielder v Cooper (Trustee), in the matter of Dunham (Bankrupt) [2017] FCA 357

ORDERS

THE COURT ORDERS THAT:

1.    The amended application filed 5 January 2017 is dismissed.

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

REASONS FOR JUDGMENT

WHITE J:

1    Peter Mark Dunham, a chartered accountant, became bankrupt on his own petition on 5 October 2016. The respondent (Mr Cooper) was appointed as his trustee in bankruptcy. Earlier, on 26 August 2016, Mr Cooper had been appointed as Mr Dunham’s controlling trustee, pursuant to Pt X of the Bankruptcy Act 1966 (Cth).

2    Some of Mr Dunham’s creditors, including the present applicants, were dissatisfied with the appointment of Mr Cooper as trustee and sought his removal and replacement. They had issued a creditors’ petition against Mr Dunham on 29 July 2016 and had at that time sought to have Mr John Sheahan and Mr Ian Lock appointed as his trustees in bankruptcy. This attempt was thwarted when Mr Dunham became bankrupt on his own petition. The applicants’ later attempt to achieve the replacement of Mr Cooper by Mr Sheahan and Mr Lock at a meeting of creditors held on 13 December 2016 also failed.

3    The applicants now seek a declaration that the proof of debt of one creditor “should not have been admitted for voting purposes” at the 13 December meeting and, in the event that that declaration is made, a further declaration with respect to the outcome of the vote at the meeting if that creditor had not been permitted to vote.

4    In my opinion, the application fails. My reasons follow.

Factual setting

5    By the Originating Application which they filed on 18 November 2016, the applicants sought an order pursuant to s 178(1) of the Bankruptcy Act that Mr Cooper be replaced as trustee by John Sheahan and Ian Russell Lock or, in the alternative, an order that Mr Cooper be directed to call a meeting of creditors within 14 days.

6    The applicants did not pursue that application because Mr Cooper did, on 13 December 2016, conduct a meeting of creditors which considered two proposed resolutions:

(a)    That the remuneration of the Trustee from 5 October 2016 to the finalisation of the administration of the Estate [be] determined at a sum equal to the costs of time spent by the Trustee and his partners and staff, calculated by applying Worrells Simplified Solvency Management Rates currently set by the firm and detailed in the report to creditors of 30 November 2016, up to a capped amount of $125,000, inclusive of GST, and that the Trustee can draw the remuneration on a monthly basis or as required (the First Resolution);

(b)    that pursuant to s 181 of the Bankruptcy Act 1966, Mr Nicholas David Cooper be removed as Trustee of the Bankrupt Estate of Peter Mark Dunham, and that Mr John Sheahan and Mr Ian Lock be appointed replacement trustees (the Second Resolution).

7    The First Resolution was carried and the second failed. The creditors who voted in favour of the First Resolution were those who voted against the second. Those in favour of the first, and against the second, included Mr Christopher Dunham, the son of the bankrupt. His debt was admitted for voting purposes in the sum of $2,721,862. This was the amount claimed by Christopher Dunham in a proof of debt provided to Mr Cooper on 2 November 2016 and to which he had deposed in a statutory declaration made on 12 December 2016. As will be seen shortly, the proof of debt provided on 2 November 2016 was the second such proof provided by Christopher Dunham and the statutory declaration was the second which he had provided to Mr Cooper.

8    The total of the debts of the creditors who voted in favour of the First Resolution, and against the second, was $2,938,949. The total amount of the debts of the creditors who voted against the First Resolution, and in favour of the second, was $2,386,663. As is apparent from these figures, had Christopher Dunham’s debt been excluded, or allowed for an amount which was at least $550,000 less than the $2,721,862 which he claimed, the outcome of the resolutions considered by the meeting would have been different.

9    Christopher Dunham lodged his first proof of debt (the First PoD) on 11 September 2016 and his first statutory declaration (First SD) on 28 September 2016. In each case, this was in the period after Mr Dunham had appointed Mr Cooper as his controlling trustee under Pt X of the Bankruptcy Act and before he had become bankrupt on his own petition on 5 October 2016.

10    By the First PoD, Christopher Dunham asserted that he was owed $1,362,000 pursuant to the First Loan Agreement, $125,575 pursuant to the Second Loan Agreement and $115,431 by way of interest and costs, but, by the first statutory declaration, he asserted that his father was indebted to him for a greater amount, being $1,787,081, comprising principal of $1,135,790 and interest of $651,291.

11    On 2 November 2016, Christopher Dunham submitted a second proof of debt (Second PoD) asserting on this occasion that his father was indebted to him for an even greater amount, $2,721,862. Subsequently, he provided a second statutory declaration (Second SD) made on 12 December 2016 by which he asserted that he was owed $2,721,862 by his father, with that sum comprising principal of $1,229,092, and interest of $1,501,598 (after allowing for a repayment of $8,828).

12    It is evident that in the period between 11 September 2016 and 12 December 2016, considerable correspondence had ensued between Christopher Dunham and Mr Cooper’s office. It seems that, on a date or dates unspecified, Christopher Dunham provided to Mr Cooper a number of spreadsheets containing particulars of the amounts which he claimed to have advanced to his father together with various calculations of interest. It is fair to say that there are some inconsistencies in the material provided by Christopher Dunham and that the way in which he has made his claims has given rise to confusion.

13    Following the meeting on 13 December 2016, the applicants sought and were granted leave to amend their Originating Application to claim the following relief:

1.    A declaration of the amount for which the proof of debt of Christopher Dunham should have been admitted for voting purposes at the creditors meeting on 13 December 2016.

2.    A declaration that the outcome of the votes on the following two resolutions at the creditors meeting on 13 December 2016 be overturned and replaced with the outcome that would have occurred had the proof of debt of Christopher Dunham been admitted for the amount that the Court determines in paragraph 1:

a.    That the trustee’s remuneration be approved;

b.    That the trustee be replaced.

14    The Statement of Claim which the applicants filed on 16 January 2017 indicated that the basis on which the applicants sought this relief was quite confined. They pleaded that the proof of debt of Christopher Dunham should not have been admitted for voting purposes because he did not have a proper basis on which to claim the amounts advanced under two loan agreements dated 16 October 2015 and 16 August 2016 respectively (together the Loan Agreements) until payment of each loan was “due and payable” pursuant to cl 3.2 of the Loan Agreements. Clause 3.2 in each Loan Agreement is identical. For convenience, I will set out cl 3 in full:

3.    Interest on the Loan

3.1    Interest

The Borrower shall pay interest on the Loan at the Interest Rate.

3.2    Capitalised Interest

The Parties agree that all interest payable under Clause 3.1 shall accrue and shall be due and payable but shall not be paid until payment of the Loan is due and payable. Such interest shall be added to and form part of the Loan from time to time and interest shall accrue on that amount as principal in accordance with this Agreement. The Borrower may in its discretion prepay any such capitalised interest.

3.3    Default Interest

Without prejudice to any discretion exercisable by the Lender under any other term of this Agreement, any amounts due to the Lender and unpaid or any other payments made by the Lender in default of payment by the Borrower under this Agreement shall be regarded as cash advances made on the due date or the date of payment by the Lender respectively, repayable on demand and shall, until repayment to the Lender bear interest calculated on the daily balances of such advances at a rate equal to 12% per annum calculated daily and paid on written demand or as instructed by the Lender.

15    As to the date referred to in cl 3.2 on which payment of the loan would be “due and payable”, the applicants referred to the defined terms in Sch 2. The term “Final Loan Payment Date” is defined to be “[w]ithin 3 Business Days of written demand by the Lender to the Borrower”.

16    In the light of cl 3.2 and this definition, the applicants pleaded that a written demand by Christopher Dunham was necessary in order to make the loans, including capitalised interest, due and payable. It was common ground that there had been no such written demand. This had the consequence, so the applicants pleaded, that Mr Cooper should not have admitted Christopher Dunham’s Second PoD relating to the loan for any amount at all, or, alternatively, should have admitted it for only one dollar.

17    By his Defence, Mr Cooper denied this basis for the claim. He pleaded a number matters which were said to indicate that Mr Christopher Dunham’s claim was a debt within the meaning of s 82 of the Bankruptcy Act which did not depend upon it being due and payable in order to be so characterised. The defence also pleaded that it was for Mr Cooper, acting in a summary way, to determine which debts ought to be admitted for voting purposes (as distinct for the purposes of determining an entitlement to a share in the distribution of the bankrupt’s estate).

18    Thus, on the basis of the Statement of Claim and Defence, it seemed that a relatively narrow point, being one essentially of construction, was raised for the Court’s determination.

19    The applicants’ Reply, to which I will refer shortly, had the effect of enlarging the matters in dispute.

Statutory provisions and principles

20    There was not really any difference between the parties as to the statutory provisions which are applicable to applications of the present kind or as to the relevant principles.

21    Section 82 of the Bankruptcy Act identifies the debts and liabilities which are provable in a bankruptcy. It provides (relevantly):

82 Debts provable in bankruptcy

(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.

…

(3B)    A debt is not provable in a bankruptcy in so far as the debt consists of interest accruing, in respect of a period commencing on or after the date of the bankruptcy, on a debt that is provable in the bankruptcy.

(4)    The trustee shall make an estimate of the value of a debt or liability provable in the bankruptcy which, by reason of its being subject to a contingency, or for any other reason, does not bear a certain value.

…

22    Sections 84(1) and (2) provide:

84 Manner of proving debts

(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.

23    Part IV Div 5 of the Bankruptcy Act (which division has now been repealed), concerned the holding and conduct of meetings of creditors. Section 64 specifies some circumstances in which a trustee must convene a meeting of creditors of a bankrupt and permits the trustee to convene a meeting in other circumstances. A trustee is to give notice of the meeting to persons who have told the trustee that they are creditors of the bankrupt. Section 64ZA governs the entitlement to vote at a meeting of creditors. As in force at the relevant time, it provided (relevantly):

(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.

…

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

…

24    Counsel for the applicants submitted that cl 5.6 of Sch 4A of the Bankruptcy Regulations 1996 (Cth) (as it then was) governed the exercise of a trustee’s power pursuant to s 64ZA(8). Clause 5.6 provides:

In deciding whether a creditor is entitled to vote at a meeting of creditors, the controlling trustee must:

(a)    have regard to the merits of the creditor’s claim; and

(b)    act impartially and independently, without regard to the debtor’s wishes.

However, cl 5.6 applies only to controlling trustees, namely, trustees who are controlling the property of a debtor under an authority given under s 188 of the Bankruptcy Act (Schedule 4A cl 1.2) and so can be no more than a guide to the exercise of a trustee’s power under s 64ZA(8).

25    It is well established that s 64ZA(8) does not require a trustee to determine a creditor’s entitlement to vote in anything other than a summary way. In this respect, the power in s 64ZA(8) differs from the trustee’s power under s 102 of the Bankruptcy Act to admit or reject a proof of debt for dividend purposes. The position was explained by French J in Starkey v Rondo Building Services Pty Ltd [2005] FCA 1081; (2005) 145 FCR 423:

[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 … . 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 … . Cooper J pointed out in Staples v Milne … that the trustee’s decision is not final and only relates to the right to vote at the meeting. … .

(Citations omitted)

26    Reference may also be made to the decision of the Full Court in Re Dingle; Westpac Banking Corporation v Worrell (1993) 47 FCR 478 at 483:

[W]here 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 meeting called to consider a Pt X proposal), the power is not “to make the final ruling on a debt … but to rule for the purposes of the meeting in a summary way avoiding technicalities and delays”.

27    The effect is that a trustee may conclude that there is sufficient information to justify permitting a person who has lodged a proof of debt to vote at a meeting even though the information provided would not be sufficient to justify the final admission of the proof of debt. Satisfaction that the creditor’s claim is plausible is sufficient.

28    The applicants have the onus of proving that the trustee should not have admitted Christopher Dunham as a creditor for voting purposes in the amount of $2,721,862: Kerr (Trustee) in the matter of Cross (Bankrupt) v Bechara [2015] FCA 284 at [50] and [57]. As the Full Court explained in Re Dingle at 485-6, the Court is cautious before intervening in cases of the present kind:

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.

29    Finally, it was common ground that the Court is not confined to the material which was before the trustee (Re Dingle at 486).

The contention that the debt claimed by Christopher Dunham was not “due and payable”

30    As noted, the applicants’ Statement of Claim pleaded that Christopher Dunham’s debt was not due and payable as no demand for repayment had been made.

31    In my view, this contention of the applicants does not succeed. The bankrupt’s debt to Christopher Dunham did not have to be “due and payable” in accordance with the terms of the Loan Agreements in order that the debt be provable in bankruptcy. That is a consequence of s 82(1) of the Bankruptcy Act. As already seen, that section makes all debts and liabilities, present or future, certain or contingent to which the bankrupt was subject, at the date of bankruptcy, provable in the bankruptcy. Further still, debts and liabilities to which the bankrupt may become subject before his or her discharge by reason of an obligation incurred before the date of bankruptcy are provable in the bankruptcy.

32    The position was explained by Pagone J in Sutherland v Jatkar [2014] FCA 532; (2014) 222 FCR 601:

[10]    … The object of s 82(1) is to capture and to have proved in the bankruptcy a broad range of debts and liabilities extending to past and future debts and liabilities whether certain or contingent. In Re Hide; ex parte Llynvi Coal and Iron Company (1871-2) LR 7 Ch App 28 Sir James LJ said at 31-2:

Then came the Act of Parliament, which – dealing in express terms with almost every one of the cases which had ever previously occurred, and excluding nothing but demands for damages for personal torts – provided that there should be nothing whatever for which a right to proof should not be given. Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the court itself or with the aid of a jury. The broad purview of this Act is, that the bankrupt is to be a freed man – freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind. On the other hand, all the persons from whose claims, and from liability to whom he is so freed are to come in with the other creditors and share in the distribution of the assets.

…

[13]    A debt or liability, to be contingent, requires that there be some existing right or liability before the contingency arises: … . In Lofthouse v Federal Commissioner of Taxation (2001) 48 ATR 63 Warren J, as the Chief Justice then was, held that the potential liability in the nature of a statutory indemnity arising under s 588FGA of the Corporations Law 1991 (Cth) was a contingent liability arising upon the contingency of “the effectuation of a legal liability on the part of the Commissioner to pay the liquidator”: [39]. In Ansett Australia Ltd v Travel Software Solutions Pty Ltd (2007) 214 FLR 203, Hargrave J said in relation to the existence of a contingency:

The issue arises as to what is required in order for a right or liability to “exist as contingent” at the relevant date. The effect of the cases is that a contingent right or liability will only exist where there is an existing right or obligation out of which, on the happening of a contingency (an event which may or may not occur) there will arise a right to be paid, or an obligation to pay, a sum of money, which sum of money may be liquidated or sounding only in damages.

(Emphasis in original)

…

(Citations omitted)

33    Accordingly, given the terms of s 82(1), a demand by Christopher Dunham for repayment was not necessary in order to make the claimed debt provable in the bankruptcy.

34    Mr Cooper advanced a second answer to this contention of the applicants. He drew attention to cl 7.1(c) in each of the Loan Agreements which provided that the occurrence of “an Insolvency Event” would be “an Event of Default”. By reason of the definition of “Insolvency Event” in cl 13.1, Mr Dunham’s bankruptcy constituted such an event.

35    However, neither loan agreement has the effect that the occurrence of an Event of Default made the loan and accrued interest then due and payable. Clause 7.2 in each case provided:

If an Event of Default has occurred the Lender may, by written notice to the Borrower:

(a)    declare the Loan, accrued interest and all other sums payable hereunder to be, whereupon they shall become, immediately due and payable without further demand, notice or other legal formality of any kind; and/or

(b)    declare the Facility terminated whereupon the discretion of the Lender to advance the Principle Amount (or any part of it) hereunder (if not yet made) shall immediately cease.

36    The difficulty for this alternative argument of Mr Cooper is that there is no evidence that Christopher Dunham has delivered a written notice of the contemplated kind to his father. Mr Cooper sought to avoid that difficulty by a submission that the respective proofs of debt and the respective statutory declarations could be regarded as such a written notice. However, those documents were provided to Mr Cooper and not to the bankrupt. I do not accept Mr Cooper’s submission that, for the purposes of cl 7.2, he is, because of his trusteeship in bankruptcy, to be equated with “the borrower”. Further, and in any event, neither the poofs of debt nor the statutory declarations contained declarations of the kind contemplated by cl 7.2.

37    However, for the reasons given, it is immaterial that the loans were not “due and payable” in accordance with the Loan Agreements as at the date of Mr Dunham’s bankruptcy.

The claim that the principal amount was not $2,721,862

38    The applicants sought to contend that the bankrupt was not indebted to Christopher Dunham for the principal sum of $1,229,092 on the basis, so they submitted, that this level of indebtedness was not supported by the two Loan Agreements.

39    I ruled, however, that this contention raised a matter which was outside the applicants’ pleadings and should not be permitted. The applicants did not seek then to amend their pleadings.

40    My reasons in brief for the ruling were as follows. The applicants’ Statement of Claim did not raise this contention as an issue. The applicants acknowledged that that was so but submitted that the issue had been raised by their Reply to paragraph [13] of Mr Cooper’s Defence which was as follows:

1.    As to paragraph 13, the Applicants:

a.    say that the $2,721,862 (Debt) comprised:

i.    a principal of $1,229,092 (Loan);

ii.    plus purported interest of $1,501 ,598 (Interest);

iii.    less $8,828 repaid to Christopher Dunham by the bankrupt;

Particulars

1.    Statutory Declaration signed by Christopher Dunham on 12 December 2016

b.    say that if (which is denied) the Loan was a debt owing from the bankrupt to Christopher Dunham, then:

i.    there was no, or in the alternative insufficient, evidence before the Respondent to justify the admission for voting purposes of the Interest component of the Debt in the amount of $1,501,598;

ii.    the Interest component should not have been admitted in the amount of $1,501,598;

iii.    the only reasonable basis upon which to calculate the Interest component was as follows:

…

(Emphasis added)

41    As can be seen, the effect of para 1(a)(i) was to admit that Mr Christopher Dunham’s debt comprised principal of $1,229,092. This was confirmed by the reference to “purported” interest in para 1(a)(ii). Further, the content of para 1(b) indicated that the applicants’ challenge was to the “interest component” only.

42    For this reason, the applicants’ challenge to the principal sum of $1,229,092 claimed by Christopher Dunham involved a matter outside their pleading.

The challenge to the computation of interest

43    As noted earlier, the way in which Christopher Dunham has presented his claim for the interest component has given rise to considerable confusion and uncertainty.

44    The debt of $2,721,862 claimed by Christopher Dunham is comprised as follows:

45    The figure of $1,229,092 was derived as follows:

46    The interest component of Christopher Dunham’s claimed debt had been calculated separately in respect of two tranches of these advances. Interest was charged at an annual rate of 12%, calculated monthly, on the first eight advances from the date of each advance to 30 September 2016. That totalled $1,068,126. In respect of the remaining 13 advances, interest was calculated at the rate of 12% per annum, charged monthly from the date of each advance until 15 November 2009; from that date until 18 October 2015 at the rate of 7%; and from that date until 30 September 2016 at the rate of 5%. The aggregate of these figures was the $1,501,598 claimed by Christopher Dunham.

47    The applicants made a number of criticisms of Mr Cooper’s acceptance of these calculations in determining the entitlement to vote of Christopher Dunham. These can be summarised as follows:

(a)    each of the Loan Agreements had been entered into only in retrospect, that is, well after the advances to which they were said to relate;

(b)    it is difficult to reconcile the “advances to date” specified in each Loan Agreement with the total now said by Christopher Dunham to be owing by his father. Clause 1.2 of the first Loan Agreement identified the advances, including Capitalised Interest, as being $1,362,000 and the second Loan Agreement identified the aggregate of the advances as being $125,575 (but this did not include any Capitalised Interest). It is apparent that some of the advances now claimed by Christopher Dunham are outside the Loan Agreements;

(c)    there is no ready explanation for an interest rate of 12% having been charged on the first eight advances throughout the period to 30 September 2016 when lesser interest rates of 7% and 5% per annum were charged from 15 November 2009 and 18 October 2015 respectively in respect of the remaining 13 advances;

(d)    the amounts now claimed are inconsistent with the total indebtedness of the bankrupt of $1,787,081 to which Christopher Dunham deposed in his First SD, comprising the principal of $1,135,790 and interest of $651,291;

(e)    the concerns relating to Christopher Dunham’s claims are heightened in respect of the second Loan Agreement as it is shown to have been made on 16 August 2016, that is, after the first creditors’ petition against the bankrupt had been issued;

(f)    Mr Cooper had been provided, at his own request, with legal advice on 14 October 2016 that it was open to him to admit the First PoD for the following amounts:

(i)    the amount specified in first Loan Agreement ($1,362,000) which included Capitalised Interest;

(ii)    interest from the date of the first Loan Agreement onwards at 5% per annum;

(iii)    the amount specified in the second Loan Agreement ($125,575); and

(iv)    interest from the date of the second Loan Agreement onwards at 5% per annum.

However, Mr Cooper had not received any written legal advice following the Second PoD from Christopher Dunham claiming $2,721,862;

(g)    Mr Cooper (and presumably the bankrupt) had been aware throughout October, November and in the first part of December 2016 that the applicants were agitating for him to call a meeting of creditors and that they were seeking his replacement as trustee by Messrs Sheahan and Lock. It was reasonable to infer that Christopher Dunham was aware of these matters too, with the potential for the desire to assist his father having influenced the way in which he presented his proofs of debt;

(h)    Mr Dunham had provided Mr Cooper with a variety of spreadsheets containing interest calculations without any apparent explanation for the differences and inconsistencies between them;

(i)    there was evidence that there was some retrospectivity in the identification of the interest rates used by Christopher Dunham in his calculations. For example, in an email of 12 September 2016 to a member of Mr Cooper’s staff, Christopher Dunham said:

“In short what I have done is calculated back the interest properly, but conservatively so rounded down in months rather than the exact number of days (prior to Oct 15 we were 7% annually and post that 5% as per the agreement). Verbally on some amounts I know PD said would be short term loans at 20%, however I never had written confirmation and so have not calculated [it] that way. My understanding is that he did that also with other creditors and again my assumption is that they have charged at that rate, I however have not done so. Please let me know if I should do so.

    Similarly, in an email to Mr Cooper of 2 November 2016, Christopher Dunham said:

“I have calculated interest at 12% on all up until post GFC, (12% you can see from early faxed correspondence was set rate). On the new amounts (2017 onwards) not those we have in writing from the first lot, I then reduced to 7% as I believe that was agreed at the time verbally, however 12% remained the last written confirmation interest rate … several of the loans as well 20% was agreed verbally but they were on later amounts and I can’t remember specifics on which ones so prefer to stick to what we have in writing … I then reduced the interest rate to 5% which again was very late in the game as at the time frankly the rate of interest was less of a concern than the principal amount … to add I’m sure at these later stages other creditors would have worked on 20% interest rate basis, which obviously I have not.

(j)    although Mr Cooper acknowledged that it was curious that the bankrupt and Christopher Dunham had agreed to reduce the interest rate to 7% in respect of some loans but to maintain 12% with respect to others, he had not made any enquiry of the bankrupt or of Christopher Dunham on this topic. Nor had he enquired why spreadsheets provided by Christopher Dunham at different times used four different interest rates (12%, 10%, 7% and 5%);

(k)    Mr Cooper had admitted Christopher Dunham’s claim to its maximum extent, without making any deduction for the various uncertainties attaching to it;

(l)    these matters in combination gave rise to a concern that, in relation to the bankruptcy of Mr Dunham, Mr Cooper lacked the objectivity required of a trustee in bankruptcy.

48    There are other matters. It became apparent during Mr Cooper’s cross-examination that he had had relatively little personal involvement in the investigation of the proofs of debts admitted by Christopher Dunham. He had instead left it to a staff member and, in particular, to Mr Wolf, a junior accountant within his firm. He could not say, however, how Mr Wolf had made many of his investigations as no file note had been kept. Further, it was apparent that Mr Cooper had chosen to treat as significant those documents supplied by Christopher Dunham which supported his claim without considering the reliability of those documents in the light of other inconsistent documents which had also been provided by Christopher Dunham. However, at the same time, and in fairness to Mr Cooper, I note that he did not accept that Christopher Dunham had made a claimed advance of $130,000 with an interest rate of 10% in the circumstance that Christopher Dunham did not provide any confirmatory evidence of the advance having been made.

Consideration

49    In my opinion, the matters on which the Applicants rely have some cogency in showing that there are serious matters to be considered in relation to Christopher Dunham’s claimed debt. However, there are a number of countervailing factors given the context, namely, the admission of the claim for voting purposes only.

50    First, the decision as to the admission of a claimed debt was one for Mr Cooper, as trustee, to make. The Court exercises consideration caution before interfering with decisions of this kind.

51    Secondly, as already noted, in making his decision it was appropriate for Mr Cooper to act in a summary way. He was not required to evaluate all the evidence in order to reach the kind of considered decision which may be appropriate when he is determining whether Christopher Dunham’s debt should be admitted for dividend purposes and, if so, the amount for which it should be admitted.

52    Thirdly, despite the questions which arise from the manner in which Christopher Dunham has presented his claim, I do not consider that, on the material before this Court, the claim can be characterised as “frivolous or baseless”. On the contrary, Christopher Dunham has provided Mr Cooper with documentary evidence to support much of the debt he has claimed. In addition to the two proofs of debt and the two statutory declarations, this material includes copies of the two Loan Agreements, copies of letters dated 5 April and 3 May 2001 which evidenced the first two advances, cheque butts, evidence of electronic fund transfers, and bank statements which evidence several transfers of funds by him to his father’s account. Mr Cooper was entitled to act on this material without making a more detailed examination and investigation before doing so.

53    Fourthly, it is evident that Mr Cooper has not proceeded on the basis of mere assertions by Christopher Dunham. Instead, his office has actively sought out verification of the kinds to which I have just referred. I accept Mr Cooper’s evidence about this. It was plainly important for Mr Cooper to seek the verification given the developing nature of Christopher Dunham’s claim and that by December 2016 he was claiming that he had made more advances to his father than were encompassed by the two Loan Agreements. I mention in addition, that Mr Wolf sought verification in the form of a statutory declaration from Christopher Dunham given that he is not an arm’s length creditor from his father.

54    Fifthly, Mr Cooper testified that he had received oral legal advice as to the admission of the debt claimed by Christopher Dunham from a member of the firm Ezra Legal. This firm had also provided the earlier written advice of 14 October 2016. To my mind, it is surprising that Mr Cooper did not keep a written record of the oral advice, given its obvious importance. However, the respondent did not challenge the truthfulness of Mr Cooper’s account that he had been given the advice and it is pertinent that it had been preceded by a written request for the advice.

55    Finally, I note that the applicants disavowed any suggestion of impropriety on Mr Cooper’s part.

56    I agree with the applicants that the developing and inconsistent way in which Christopher Dunham presented his claim gives rise to a number of concerns about the reliability of the claim. However, I accept that Mr Cooper has not ignored those concerns. He has sought from Christopher Dunham written verifications, to which I have already referred. Another indication that Mr Cooper did not act in an uncritical manner is evident in his rejection of a further claim by Christopher Dunham that he had, on 1 April 2000, made a loan to his father of $130,000 at an interest rate of 10%. Mr Cooper did not admit that claim because, amongst other things, no substantiation of it had been provided.

57    There are undoubtedly further enquiries which Mr Cooper could have made and could now make. Some of those avenues of enquiry are evident in the criticisms which the applicants make of his decision summarised earlier in these reasons. It is reasonable to suppose that Mr Cooper will address these matters when making his decision concerning Christopher Dunham’s claimed debt for the purposes of s 102 of the Bankruptcy Act. However, given the summary nature of the determination under s 64ZA, the fact that Mr Cooper has not made those enquiries to date, is not an indication that he has failed to discharge his task under s 64ZA in an appropriate manner.

58    On my assessment, the force of these countervailing factors is persuasive. The applicants have not discharged the onus of establishing that Mr Cooper should not have admitted Christopher Dunham as a creditor for voting purposes in the amount of $2,721,862. Mr Cooper was entitled to regard Christopher Dunham’s claim as plausible. The applicants have not shown that he has failed to discharge his task under s 64ZA in an appropriate manner.

Conclusion

59    For the reasons given above, the amended application filed on 5 January 2017 is dismissed. I will hear from the parties as to costs.

Associate:

Dated:    7 April 2017

SCHEDULE OF PARTIES