FEDERAL COURT OF AUSTRALIA

Pekar v Holden (Trustee) [2019] FCA 442

ORDERS

THE COURT ORDERS THAT:

1.    The matter be listed for mention on a date to be fixed.

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

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    This matter relates to an agreement (the Agreement) made on 27 June 2017 between the applicant, Mr Pekar, and the respondent, the trustee of Mr Pekar’s bankrupt estate (the Trustee).

2    Mr Pekar and his wife, Mrs Pekar, had been the joint proprietors of a residential property in East St Kilda (the Property). On 16 July 2012, Mr Pekar transferred his interest in the Property to Mrs Pekar.

3    On 2 October 2014, a Registrar of the Federal Circuit Court of Australia made a sequestration order against the estate of Mr Pekar. The Trustee was appointed as one of two trustees of Mr Pekar’s estate. He was subsequently appointed as the sole trustee of Mr Pekar’s estate.

4    On 30 April 2015, the Trustee applied to the Federal Circuit Court seeking a declaration that the transfer was void, pursuant to s 120 or 121 of the Bankruptcy Act 1966 (Cth) (the Act), and consequential orders for possession and sale of the Property.

5    On 20 January 2017, Judge Burchardt made the orders sought by the Trustee: Holden in his Capacity as Trustee of the Bankrupt Estate of Pekar v Pekar [2017] FCCA 22.

6    Mrs Pekar appealed the orders of the Federal Circuit Court. On 30 May 2017, Tracey J made orders dismissing the applicant’s appeal: Pekar v Holden (Trustee) [2017] FCA 596. Although Mrs Pekar’s appeal was dismissed, his Honour varied the terms of the orders to recognise Mrs Pekar’s pre-existing half-interest in the property. The orders made by Tracey J included orders that Mr and Mrs Pekar deliver vacant possession of the Property to the Trustee and that they remove personal possessions from the Property.

7    On 27 June 2017, Mr Pekar and the Trustee made the Agreement, under which:

(a)    the sum of $200,000 would be paid into an interest bearing account in the name of the Trustee, for the payment of creditors and the remuneration and expenses of the Trustee;

(b)    the Trustee agreed: to call for and adjudicate on proofs of debt; to tax the legal costs (of the Trustee); and for his fees to be reviewed (in each case, in accordance with the Act);

(c)    if there was any shortfall, the bankrupt would cause the money in the account to be topped up within 21 days to meet such shortfall, failing which the Trustee could immediately enforce the orders of Tracey J for possession and sale of the Property;

(d)    if there was an excess of funds, they would be returned to the bankrupt within 21 days; and

(e)    the order for possession of the Property would be stayed in order to give effect to the above arrangement.

8    On or about 30 June 2017, the sum of $200,000 was deposited by or on behalf of Mr Pekar into a bank account of the Trustee.

9    On 7 July 2017, the Trustee gave notice to creditors that he intended declaring a first and final dividend to creditors. The notice stated that if the addressee wanted to be included in the forthcoming dividend, he or she was required to lodge a proof of debt in the approved form with the Trustee on or before 8 September 2017.

10    On 18 July 2017, Tracey J made a consent order, staying the order that Mr and Mrs Pekar deliver vacant possession of the Property and the order that the Pekars remove their possessions from the Property.

11    Three proofs of debt were received by the Trustee by 8 September 2017, being the date specified in the Trustee’s letter. However, the Trustee did not make a decision to admit or reject the proofs of debt in the weeks or months after 8 September 2017. Indeed, in a letter to Mr Pekar dated 26 March 2018, the Trustee stated that he had not admitted any of the proofs of debt.

12    On 7 November 2017, Mr Pekar was discharged from bankruptcy.

13    On 14 August 2018, Mr Pekar commenced the present proceeding. By his originating application, Mr Pekar seeks an order that the Trustee release back to Mr Pekar the $200,000 held in the Trustee’s account plus $22,000 in interest, totalling $222,000. In summary, Mr Pekar contends that his bankrupt estate is free of debt and, accordingly, the $200,000 should be repaid (plus interest). In the course of submissions, Mr Pekar also sought a number of ancillary or consequential orders.

14    For the reasons set out below, Mr Pekar’s contention that his bankrupt estate is free of debt is rejected. It follows that the basis upon which Mr Pekar contended that the $200,000 should be returned to him has not been established.

15    However, although not fully explored at the hearing, an issue arises as to whether Mr Pekar is entitled to return of the $200,000 on the basis that the Trustee has breached the Agreement by failing to admit or reject the proofs of debt in accordance with the Act and/or within a reasonable time. As this was not the basis upon which Mr Pekar sought the return of the $200,000, I propose to list the matter for mention to ascertain whether Mr Pekar seeks the return of the money on this basis, and whether the parties wish to make any further submissions.

Mr Pekar’s claims

16    By his originating application in this proceeding, Mr Pekar seeks an order that the Trustee “[release] back to [Mr Pekar] $200,000 [held] in his trust account plus $22,000 in interest [totalling] $222,000”.

17    In addition, Mr Pekar raised a number of claims in his affidavits and written and oral submissions. In addition to seeking an order for release of the $200,000 plus interest, Mr Pekar sought:

(a)    $12,200 in financial losses, as a result of capital gains tax paid by Mr Pekar’s daughter, who sold a share portfolio to provide Mr Pekar with the $200,000;

(b)    an order that the orders made by Tracey J on 30 May 2017 be set aside, struck out or removed from the Court’s files;

(c)    an order that the Property be vested in Mrs Pekar or Mr Pekar;

(d)    a declaration that his bankrupt estate has no debt provable in bankruptcy;

(e)    an order ‘annulling’ a payment made by the Trustee to Rickards Legal on 15 October 2018;

(f)    an order preventing the Trustee from threatening to seek possession and sale of the Property;

(g)    an order dismissing the Trustee’s claim for remuneration;

(h)    damages of $54,302.73 from the Trustee, relating to a civil proceeding commenced by Mr Pekar in the Magistrates’ Court of Victoria, which the Trustee chose to discontinue;

(i)    legal costs of $20,218.00; and

(j)    penalty interest of $35,200.

18    While some of these claims are ancillary to or consequential upon Mr Pekar’s claim for release of the $200,000 (or the contentions underlying that claim), others are not. The claims that I consider to be ancillary to or consequential upon the claim for release of the $200,000 (or the contentions underlying that claim) are those set out in paragraphs (a), (b), (c), (d) and (f). I propose to deal with these claims as they are based on essentially the same arguments as Mr Pekar’s claim for release of the $200,000. However, the other matters raised by Mr Pekar go beyond the scope of this proceeding, and I do not propose to deal with them. In respect of these other matters, the Trustee did not have a proper opportunity to respond, and the issues were not examined in sufficient detail to enable me to deal with them.

The hearing

19    The hearing commenced on 15 October 2018. Mr Pekar represented himself and the Trustee was represented by a solicitor. During the hearing, I raised a number of questions with the solicitor for the Trustee. In particular, the material that had been filed did not set out details of the proofs of debt, including the amounts of the proofs of debt, who had lodged them, and whether they had been admitted or rejected. I gave the Trustee an opportunity to file further affidavit material and submissions, and for Mr Pekar to file responding affidavit material and submissions, and adjourned the hearing until 7 November 2018.

20    By 7 November 2018, the parties had filed the following affidavits:

(a)    Mr Pekar had filed four affidavits sworn by him, dated 14 August 2018, 24 August 2018, 1 October 2018 and 30 October 2018; and

(b)    the Trustee had filed two affidavits sworn by him, dated 26 September 2018 and 25 October 2018.

21    There was no cross-examination.

22    In addition to his affidavit evidence, Mr Pekar relied on certain “exhibits” attached to the submissions that he handed up during a hearing on 21 September 2018 and his submissions dated 1 October 2018. The authenticity of these documents was not challenged by the Trustee and I have had regard to these documents.

23    The parties filed a number of outlines of submissions. Mr Pekar’s contentions were set out in the following documents:

(a)    submissions handed up by Mr Pekar at the hearing on 21 September 2018;

(b)    submissions of Mr Pekar dated 1 October 2018;

(c)    submissions handed up by Mr Pekar at the hearing on 15 October 2018; and

(d)    submissions handed up by Mr Pekar at the hearing on 7 November 2018.

24    The Trustee filed submissions dated 12 October 2018 and further submissions dated 7 November 2018.

Factual findings

25    In this section of my reasons, I set out my factual findings, based on the affidavit evidence and the documents attached to Mr Pekar’s submissions. In some cases, I have referred to and relied on court decisions that were not in evidence, in relation to facts and matters that did not appear to be controversial.

26    The affidavit evidence and documents relied upon by the parties detail a long history of litigation involving Mr and Mrs Pekar, including proceedings in the Victorian Civil and Administrative Tribunal, the Magistrates’ Court of Victoria, the Supreme Court of Victoria, the Federal Circuit Court and this Court. The history of litigation is summarised at [9]-[15] in the judgment of Judge Hartnett in Pekar v Rickards Legal (No 3) [2017] FCCA 1196. In particular:

(a)    since at least 2008, Mr and Mrs Pekar have commenced a number of proceedings against Gough Partners Pty Ltd (Gough Partners), the owners’ corporation of the Property;

(b)    Mr Pekar has commenced a number of proceedings against Rickards Legal, a law firm that acted for the Pekars in relation to their litigation against Gough Partners, the principal of Rickards Legal, and Karen Katz, an employee of Rickards Legal; and

(c)    Mr and Mrs Pekar have also been involved in a number of proceedings related to Mr Pekar’s bankruptcy.

27    For present purposes, it is not necessary to examine the proceedings referred to in (a) and (b) in any detail. It is sufficient to note that Mr and Mrs Pekar were unsuccessful in each of the proceedings, resulting in a number of cost orders being made against Mr Pekar (and Mrs Pekar).

28    On 16 July 2012, Mr Pekar transferred his half interest in the Property to Mrs Pekar. The consideration for the transfer was expressed to be “desire to make a gift”. Following the transfer, Mrs Pekar became the sole registered proprietor of the property: Pekar v Holden (Trustee) [2017] FCA 596 at [2].

29    On 2 October 2014, a Registrar of the Federal Circuit Court made a sequestration order against the estate of Mr Pekar on the basis of a creditor’s petition presented by Rickards Legal. The Trustee was appointed as one of two trustees of Mr Pekar’s estate. He was subsequently appointed as the sole trustee of Mr Pekar’s estate.

30    On 12 February 2015, Judge Burchardt of the Federal Circuit Court affirmed the order of the Registrar and dismissed Mr Pekar’s application for review: Pekar v Rickards Legal [2015] FCCA 217.

31    Separately, on 28 October 2015, the Federal Circuit Court dismissed an application by Mr Pekar to annul the sequestration order: Pekar v Rickards Legal [2015] FCCA 2888. On 29 August 2016, the Federal Circuit Court also dismissed an application by Mr Pekar to re-open the decision not to annul the sequestration order: Pekar v Rickards Legal (No 3) [2016] FCCA 2198.

32    On 30 April 2015, the Trustee applied to the Federal Circuit Court seeking a declaration that the transfer of Mr Pekar’s interest in the Property on 16 July 2012 was void, pursuant to s 120 or 121 of the Act, and consequential orders for possession and sale of the Property.

33    On 20 January 2017, the Federal Circuit Court made the orders sought by the Trustee: Holden in his Capacity as Trustee of the Bankrupt Estate of Pekar v Pekar [2017] FCCA 22.

34    Mrs Pekar appealed the orders of the Federal Circuit Court.

35    On 30 May 2017, Tracey J made orders dismissing the appeal: Pekar v Holden (Trustee) [2017] FCA 596. Although Mrs Pekar’s appeal was dismissed, his Honour varied the terms of the orders to recognise Mrs Pekar’s pre-existing half-interest in the property. His Honour made orders in the following terms:

THE COURT ORDERS THAT:

1.    The interlocutory application, filed by the appellant on 18 April 2017, be refused.

2.    The appeal be dismissed.

3.    Paragraphs 2, 3, 4, 5, 9, 10 and 11 of the declarations and orders made by the Federal Circuit Court on 20 January 2017 be set aside.

 4.    In lieu thereof it be declared and ordered that:

(2)    The Bankrupt’s interest in the Property vests in the Applicant (the trustee of the bankrupt estate of Mr Fima Pekar).

(3)    The Respondent (Mrs Ida Pekar) and the Bankrupt (Mr Fima Pekar) deliver vacant possession of the Property to the Applicant on or before 30 June 2017. If the Respondent and the Bankrupt fail to comply with this order, a warrant of possession issue forthwith in favour of the Applicant.

(4)    The Respondent and the Bankrupt remove all personal possessions from the Property on or before 30 June 2017. Any personal property remaining at the Property after that date be deemed to have been abandoned and be disposed of in any manner as the Applicant sees fit.

(5)    The Applicant be appointed trustee for the sale of the Property. The Applicant is to have the sole conduct of the sale of the Property and be authorised to instruct an agent and/or an auctioneer for that purpose.

(9)    The costs of the sale be met from the proceeds of the sale.

(10)    The Applicant pay 50% of the proceeds of the sale to the Respondent.

(11)    The remaining proceeds of the sale, less the costs of the sale, vest in the Applicant.

5.    The appellant (Mrs Ida Pekar) pay the costs of the respondent (the trustee of the bankrupt estate of Mr Fima Pekar) of the appeal in this Court and of the proceeding in the Federal Circuit Court.

I note that the costs order made by Tracey J was made against Mrs Pekar (who was the appellant in the proceeding) rather than Mr Pekar (who was not a party to the appeal).

36    On 23 June 2017, Tracey Rothwell of Rothwell Lawyers, the solicitors acting for the Trustee, sent an email to Andrew Ball of KCL Law, the solicitors acting for Mr and Mrs Pekar at the time. The email was in the following terms. (This email was attached to submissions handed up by Mr Pekar at the hearing on 21 September 2018).

I refer to our conversation this morning.

I confirm your client requires:

The Trustee to call for an adjudicate on [proofs of debt];

1.    Legal cost to be taxed;

2.    The Trustee’s fees to be reviewed.

3.    These matters are acceptable to my client.

My client will consent to a stay [of] the order for three months on the proviso that:

1.    The sum of $200k is paid to him. He will open an account as Trustee for the Bankrupt Estate of Fima Pekar;

2.    These funds are required to be paid by 30 June. Failure to do so will result in my client enforcing the order;

3.    At the expiration of the stay period, assuming the matters referred to above are estimated (i.e bills in taxable form drafted and [proofs of debt] adjudicated upon), the Bankrupt will have 21 days in which to “top up” the amount required;

4.    If the Bankrupt fails to “top up” the amount within 21 days, the Trustee will immediately seek to enforce the orders.

[In] another matter, my client has orders for taxation against Mrs Pekar. In theory there would be three bills for taxation:

 1.    The taxed costs at first instance;

 2.    The taxed costs at appeal;

3.    The taxed costs over and above costs recovered pursuant to Court order (solicitor/client costs).

I would propose one bill be prepared encompassing the above three aspects. The result should be the same as whatever is not picked up by Court order forms part of the solicitor/client component. I would think the costs of taxing one bill would be cheaper than taxing three bills, which would be borne by either Mrs Pekar or your client in any event. However this is a matter for your client.

Note this is a one off offer due to the time for certain matters to be undertaken pursuant to Tracey J.

Please confirm your client’s consent to the above conditions.

37    On or about 27 June 2017, Mr Ball wrote to Ms Rothwell as follows:

I refer to your email dated 26 June 2017.

The bankrupt’s proposal for resolution of this matter can be summarised as follows:

1.    Payment of the sum of $200,000 into an interest bearing account in the name of the Trustee for the Bankrupt Estate of Fima Pekar by 30 June 2017.

2.    The money paid into the account is for payment of creditors and remuneration and expenses of the trustee (including legal costs and disbursements).

3.    The trustee agrees to:

a.    call for and adjudicate on proofs of debt;

b.    tax the legal costs; and

c.    for his fees to be reviewed,

all in accordance with the Bankruptcy Act 1966 (Cth).

4.    If there is any shortfall, the bankrupt cause the money in account to be topped up within 21 days to meet such shortfall, failing which the trustee can immediately enforce the order of Tracey, J for possession and sale.

 5.    If there is an excess of funds, they be returned to the bankrupt within 21 days.

6.    The order for possession be otherwise is stayed in order to give effect to the above arrangement (with liberty to apply to either party).

Can you please confirm that the above arrangement is acceptable to the trustee by return and provide the bank account details for payment of the sum of $200,000.

(Errors in original.)

Paragraph 3(b) of the letter refers to the trustee agreeing to “tax the legal costs”. The context suggests that this was referring to legal costs incurred by the Trustee.

38    On 27 June 2017, Ms Rothwell sent an email to Andrew Ball stating:

I have just attempted to call you.

The matters set out in your letter are acceptable.

My client is in the process of setting up the Trustee's account and I will advise details in due course.

39    The Agreement was formed by the sending of that email. The express terms of the Agreement were set out in the letter dated 27 June 2017 from Mr Ball to Ms Rothwell, which Ms Rothwell accepted by her email dated 27 June 2017. It is possible that Mrs Pekar was also a party to the Agreement because KCL Law seems to have acted for both Mr and Mrs Pekar (see, eg, the second letter within exhibit 1 to Mr Pekar’s 14 August 2018 affidavit), and the terms of the Agreement include the stay of orders to which Mrs Pekar was a party. On the other hand, the letters refer to “the bankrupt’s proposal”. It is not necessary to resolve this issue.

40    On or about 30 June 2017, the sum of $200,000 was deposited by or on behalf of Mr Pekar into a bank account of the Trustee.

41    On 7 July 2017, the Trustee issued a notice to creditors of an intention to declare a first and final dividend (the dividend notice), expressed to be under s 140(3) of the Act. The notice was in the following terms:

Vic 2919 of 2014/3

Fima Pekar (Bankrupt Estate)

TO CREDITORS AS ADDRESSED

TAKE NOTICE THAT I am the trustee of the abovenamed bankrupt having been appointed on 2 October 2014 and I intend declaring a first and final dividend to creditors.

You claim or might claim to be a creditor of the bankrupt but have not yet lodged a proof of debt. If you wish to be included in the forthcoming dividend, you are required to lodge a proof of debt in the approved form with me on or before 8 September 2017.

I advise that any creditor who has a cost order(s) against the Bankrupt which will form part of their claim will be required to have their costs taxed if the order provides for same.

The taxation process can be timely and I urge creditors to commence this process as soon as practicable. Creditors are strongly encouraged to seek their own legal advice in this regard.

Supporting documentation must be provided with any Proof of Debt submitted. Creditors are informed that only a completed Proof of Debt will be accepted if they wish to be considered for participation in the dividend.

42    On 18 July 2017, paragraphs 4(3) and (4) of the orders of 30 May 2017 (ie, the orders requiring Mr and Mrs Pekar deliver vacant possession of the Property to the Trustee and remove personal possessions from the Property) were stayed by consent. Although the stay order was not in evidence, both parties agreed at the hearing that the orders were stayed.

43    As at 8 September 2017 (the date for lodgement of proofs of debt), the following proofs of debt had been lodged with the Trustee:

(a)    on 11 February 2015, AIG Australia Limited lodged a proof of debt for $60,254.79, relating to various costs orders dated 12 July 2010, 15 July 2010, 22 December 2011 and 17 August 2012 made in favour of Gough Partners;

(b)    on 31 August 2017, Karen Katz lodged a proof of debt for $5,318.18, relating to a costs order in her favour made on 18 June 2013 plus penalty interest; and

(c)    on 6 September 2017, Michael Rickards lodged a proof of debt for $32,202.29, relating to costs orders in his favour plus interest.

44    On 7 November 2017, Mr Pekar was discharged from bankruptcy. This was confirmed in a letter from the Australian Financial Security Authority to him of 11 December 2017. The letter relevantly stated:

You became a bankrupt on 02 October 2014 and were discharged from this bankruptcy on 07 November 2017.

Upon discharge you are released from the majority of the debts you owed at the time of your bankruptcy.

…

You should also note that, unless otherwise advised by your trustee, any property that vested in your trustee upon bankruptcy (such as real estate) remains vested even if the trustee has not dealt with the property by the time you are discharged. You cannot deal with such property without your trustee’s permission.

45    By March 2018, the Trustee had not admitted any creditor claims or returned any surplus funds to Mr Pekar.

46    On 20 March 2018, Mr Pekar wrote to the Trustee demanding release of the $200,000. (The letter does not seem to be in evidence, but is referred to in exhibit 3 to Mr Pekar’s 14 August 2018 affidavit.)

47    On 26 March 2018, the Trustee responded to that letter, indicating that he had not yet admitted any creditor claims, and that creditors needed to be provided with sufficient time to facilitate the taxation process.

48    On 2 August 2018, Mr Pekar sent a further letter to the Trustee demanding release of the $200,000.

49    The Trustee responded on 8 August 2018. In this letter, the Trustee stated that he had admitted the claim of Ms Katz. I note that, inconsistently with this, at the hearing on 7 November 2018, the solicitor for the Trustee submitted that the Trustee had not yet admitted any proofs of debt (transcript, p 12, lines 1-15).

50    On 14 August 2018, Mr Pekar commenced this proceeding.

51    On 18 September 2018, the Trustee wrote to Mr Pekar advising that he had determined that there was a “shortfall” and demanding an additional payment of $150,000 (which represents the difference between half of the value of the Property and the $200,000 already paid by Mr Pekar), failing which he would take steps to enforce the order of Tracey J for possession and sale of the Property.

52    On 25 September 2018, the Trustee sent a further letter to Mr Pekar advising him that he withdrew his demand for payment of $150,000 pending a decision in this proceeding. However, the letter indicated that, depending upon the outcome of the proceeding, the Trustee intended to issue a further demand.

Applicable provisions

53    The following provisions of the Act are relevant to Mr Pekar’s contentions:

102    Admission or rejection of proofs

(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.

…

109    Priority payments

(1)    Subject to this Act, the trustee must, before applying the proceeds of the property of the bankrupt in making any other payments, apply those proceeds in the following order:

(a)    first, in the order prescribed by the regulations, in payment of the taxed costs of the petitioning creditor and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee and the costs of any audit carried out under section 70-15 or 70-20 of Schedule 2;

…

140    Declaration and distribution of dividends

(1)    The trustee of the estate of a bankrupt shall, subject to this section, with all convenient speed, declare and distribute dividends amongst the creditors who have proved their debts.

(2)    Subject to the retention of such sums as are necessary to meet the costs of administration or to give effect to the provisions of this Act, the trustee shall distribute as dividend all moneys in hand.

(3)    Before declaring the first dividend, the trustee must give written notice of the trustee’s intention to declare the dividend to anyone the trustee knows of who claims, or might claim, to be a creditor but has not lodged a proof of debt.

(4)    The trustee shall, in a notice published or sent in pursuance of subsection (3), specify a reasonable period within which creditors may lodge their proofs of debts.

(5)    The trustee shall, before declaring a dividend (other than the first dividend or the final dividend) send notice of his or her intention to do so to each person who, to his or her knowledge, claims to be, or might claim to be, a creditor but has not lodged a proof of debt and has not been sent a notice under this section in relation to the declaration of a previous dividend.

(6)    The trustee shall, in a notice sent in pursuance of subsection (5), specify a reasonable period within which creditors may lodge their proofs of debts.

(7)    Where the trustee has sent a notice in pursuance of subsection (3) or (5) of this section in relation to the declaration of a dividend, the trustee shall not declare the dividend until after the expiration of 21 days after the expiration of the period specified in the notice.

(8)    Subject to subsections (9) and (10), where the trustee declares a dividend, he or she shall pay each creditor who has proved his or her debt the amount due to the creditor and send the creditor a statement in accordance with the approved form in relation to the realization and distribution of the estate.

(9)    Where, but for this subsection, the amount due to a creditor in respect of a dividend would be less than $10 or, if a greater amount is, as at the beginning of the day on which the dividend is declared, prescribed by the regulations for the purposes of this subsection, that greater amount, the trustee need not pay that dividend to the creditor.

(10)    Where a creditor has furnished to the trustee an authority in writing to pay a dividend due to the creditor to another person, the dividend payable to the creditor may be paid, and the statement to be sent to the creditor in pursuance of subsection (8) may be sent, to that person.

(11)    This section has effect subject to an order under section 90SS or 114 of the Family Law Act 1975 (which deal with interlocutory injunctions).

145    Final dividend

(1)    Subject to this section, when the trustee of the estate of a bankrupt has realized all the property of the bankrupt, or so much of it as can, in his or her opinion, be realized without needlessly protracting the trusteeship, he or she shall declare and distribute a final dividend.

(2)    The trustee shall distribute as the final dividend all moneys realized and not previously distributed and shall distribute the final dividend without regard to any debt that had not been proved at the time when he or she declared the final dividend.

(3)    The trustee shall, before declaring the final dividend, give notice, in the manner prescribed by the regulations, to each person who to his or her knowledge, claims to be, or might claim to be, a creditor but has not proved his or her debt that, if the person does not prove his or her debt within the period specified in the notice, the trustee will proceed to declare a final dividend without regard to his or her claim.

(4)    The trustee shall, in a notice sent to a person in pursuance of subsection (3), allow a reasonable period within which the person may prove his or her debt.

(5)    The Court may, on the application of a person claiming to be a creditor, extend the period within which the person may prove his or her debt.

(6)    Where the trustee has sent a notice in pursuance of subsection (3) in relation to the declaration of the final dividend, the trustee shall not declare the dividend until after the expiration of 21 days after the expiration of the period specified in the notice or, if the Court, under subsection (5), extends the period within which a person may prove his or her debt, until after the expiration of 21 days after the expiration of that extended period.

153    Effect of discharge

(1)    Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his or her security for the benefit of creditors generally.

Note:    The operation of this section in relation to accumulated HEC debts and semester debts under the Higher Education Funding Act 1988 is affected by section 106YA of that Act.

…

Consideration

54    Mr Pekar claims that his estate is free from debt and, accordingly, the Trustee is required to return the $200,000 that Mr Pekar paid to the Trustee on or about 30 June 2017 pursuant to the Agreement. This claim is based on the following four contentions:

(a)    Mr Pekar claims that his estate is free from debt because: s 109 of the Act provides that costs orders must be taxed in order to be provable debts; the Trustee made a statement to this effect in the dividend notice; the costs orders were not taxed by the final date for lodging proofs of debt; no extension was sought to the final date; and it is now too late for the costs orders to be taxed and proved.

(b)    Mr Pekar claims that his estate is free from debt because: s 145 of the Act required the Trustee to declare and pay the final dividend 21 days after the final date specified in the dividend notice; and the Trustee did not do so (and has not done so since then).

(c)    Mr Pekar claims that his estate is free from debt because: debts are not proved until admitted; the Trustee did not admit any debts by the final date (ie, 8 September 2017); and on 26 March 2018, the Trustee wrote to Mr Pekar informing him that he had not admitted any proofs of debt, thereby informing him that his estate had no creditors.

(d)    Mr Pekar claims that his estate is free from debt because: he was discharged from bankruptcy in November 2017; and pursuant to s 153 of the Act, the discharge had the effect of releasing his estate from all debt.

55    Each of these contentions will be considered in turn.

First contention

56    Mr Pekar’s first contention is that his estate is free from debt because: s 109 provides that costs orders must be taxed in order to be provable debts; the Trustee made a statement to this effect in the dividend notice; the costs orders were not taxed by the final date for lodging proofs of debt; no extension was sought to the final date; and it is now too late for the costs orders to be taxed and proved. For the reasons that follow, I do not accept this contention.

57    On 7 July 2017, the Trustee issued the dividend notice. The notice (expressed to be under s 140(3) of the Act) stated an intention to declare a first and final dividend and specified 8 September 2017 as the final date for lodging proofs of debt. Contrary to Mr Pekar’s submissions, the dividend notice did not state that creditors were required to have their costs orders taxed prior to the final date. The dividend notice did state, however, that any creditor who had a costs order would be required to have the costs taxed if the order so required. It may be, however, that, as submitted by the solicitor for the Trustee at the hearing (transcript of hearing on 7 November 2018, p 10), it was open to the Trustee to estimate such debts pursuant to s 82(4) of the Act. In any event, the fact that such costs were not taxed prior to the final date does not mean that such debts cannot be admitted. No provision of the Act imposes such a requirement. This position is consistent with the discussion of costs orders in Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 at [67]. See also Jambrecina v Official Trustee in Bankruptcy [2005] FCA 236 at [12]; and Boensch v Pascoe [2007] FCA 1977 at [43].

58    I note that, for the petitioning creditor, costs orders need to be taxed before they are paid because s 109 provides that the petitioning creditor is entitled to receive his or her “taxed costs” as a priority payment. However, there is nothing in the Act to suggest that taxation must occur prior to the final date for lodging a proof of debt. Further, this provision does not apply to ordinary creditors.

59    It follows from the above that the fact that certain costs orders were not taxed by the final date specified in the dividend notice does not mean that those costs orders were not provable debts against Mr Pekar’s estate. I therefore reject Mr Pekar’s first contention.

Second contention

60    Mr Pekar’s second contention is that his estate is free from debt because: s 145 required the Trustee to declare and pay the final dividend 21 days after the final date specified in the dividend notice; and the Trustee did not do so (and has not done so since then). As I understand it, Mr Pekar’s contention is that the time for the Trustee to declare and pay a dividend has passed and it is now too late for him to do so. I do not accept this contention.

61    Section 145(6) provides that, where a trustee has issued a notice of intention to declare a final dividend under s 145(3), the trustee must not declare a dividend until 21 days after the period specified in the notice has expired. I note that the dividend notice is expressed to have been issued under s 140(3) (which deals with a first dividend rather than a final dividend), but I put this to one side because the letter in terms refers to a final dividend. The flaw in Mr Pekar’s contention is that s 145(6) provides that the dividend must not be declared until after the 21 day period; it does not provide that the dividend must be declared within the 21 day period. The contention is thus premised on a basic misunderstanding of the terms and effect of the provision.

62    It follows that the fact that the Trustee did not declare a dividend within the 21 day period after the final date specified in the dividend notice does not have the effect that Mr Pekar’s estate is free from debt.

Third contention

63    Mr Pekar’s third contention is that his estate is free from debt because: debts are not proved until admitted; the Trustee did not admit any debts by the final date in the dividend notice (ie, 8 September 2017); and on 26 March 2018, the Trustee wrote to Mr Pekar informing him that he had not admitted any proofs of debt, thereby informing him that his estate had no creditors. For the following reasons, I do not accept this contention.

64    First, the trustee was not required to admit debts by the final date in the dividend notice. Instead, pursuant to s 102 of the Act, subject to the power of the Court to extend the time, the Trustee was required to admit, reject or require further evidence in support of the proofs of debt within 14 days of the final date (ie, by 22 September 2017).

65    Secondly, the fact that the Trustee had not admitted any debts by 26 March 2018 does not indicate that Mr Pekar’s estate has no creditors. This conclusion would follow only if the Trustee had rejected all of the proofs of debt.

66    Notwithstanding these points, Mr Pekar’s submissions do raise a valid issue, namely the Trustee’s delay in adjudicating upon the proofs of debt. As noted above, pursuant to s 102, subject to the power of the Court to extend the time, the Trustee was required to admit, reject or require further evidence in support of the proofs of debt by 22 September 2017. However, the Trustee did not do so by 22 September 2017 (there is no evidence that he admitted, rejected or sought further evidence by that date). Moreover, save in respect of one proof of debt (that of Ms Katz), it does not appear that he has done so since then. Although the Trustee required the other creditors to have their costs orders taxed, it is doubtful that this constitutes requiring further evidence for the purposes of s 102, and there is no evidence that he has otherwise sought further evidence. In any event, there has been significant delay in pursuing the taxation of the costs orders in favour of the creditors.

67    In the course of submissions, the solicitor for the Trustee submitted that s 102 has no role to play here because the Trustee has not admitted or rejected any proofs of debt (transcript of hearing on 7 November 2018, p 12). Apart from the inconsistency with the evidence that the Trustee has admitted the proof of debt of Ms Katz, this submission does not appear to reflect the terms of s 102. It appears to me that s 102 is applicable here and, for the reasons set out above, the Trustee does not appear to have complied with it. However, it does not follow that the estate is free of creditors.

68    Although not fully explored at the hearing, an issue arises as to whether Mr Pekar is entitled to return of the $200,000 on the basis that the Trustee has breached the Agreement by failing to admit or reject the proofs of debt in accordance with the Act and/or within a reasonable time. The Agreement required the Trustee to “call for and adjudicate on proofs of debt … in accordance with the Bankruptcy Act 1966 (Cth)”. For the reasons given, the Trustee does not appear to have done so. Further, it may be that there is to be implied in the Agreement a requirement that the Trustee carry out these steps within a reasonable time. It is arguable that the Trustee has not done so. On these bases, it may be contended that the Trustee has breached the Agreement and Mr Pekar is entitled to the return of the $200,000. As this was not the basis upon which Mr Pekar sought the return of the $200,000, I propose to list the matter for mention to ascertain whether Mr Pekar seeks the return of the money on this basis, and whether the parties wish to make any further submissions.

Fourth contention

69    Mr Pekar’s fourth contention is that his estate is free from debt because: he was discharged from bankruptcy in November 2017; and pursuant to s 153, the discharge had the effect of releasing his estate from all debt. I do not accept this contention.

70    Section 153 operates to release the bankrupt from debts provable in insolvency, not the bankrupt’s estate. Any property vested in the Trustee continues to be so vested even once the bankrupt is discharged, and remains subject to the creditors’ provable and proved debts.

Conclusion

71    It follows that none of Mr Pekar’s contentions is made out and Mr Pekar is not entitled to release of the $200,000 on the basis he presented at the hearing. To the extent that Mr Pekar sought additional orders that were ancillary to or consequential upon these contentions (see [18] above), for the same reasons, Mr Pekar is not entitled to those orders.

72    For the reasons indicated above, I will list the matter for mention. The question of costs can also be addressed at the mention.

Associate:

Dated:    3 April 2019