Federal Court of Australia

Pioneer Australia Pty Ltd v Bettles as Trustee of the Bankrupt Estate of Quinn [2020] FCA 1788

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy), Schedule 2 of the Bankruptcy Act 1966 (Cth), Jason Walter Bettles be removed as the trustee for the bankrupt estate of Rory Ann Quinn.

2.    Pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy), Schedule 2 of the Bankruptcy Act 1966 (Cth), Mark William Pearce and Andrew John Heers as registered trustees be appointed as joint trustees of the bankrupt estate of Rory Ann Quinn.

3.    The Interveners pay the applicants’ costs of the application.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    On one view, this application ought to be somewhat straightforward. The named applicants secured judgment in the Supreme Court of Queensland against the bankrupt, Mrs Rory Ann Quinn (Mrs Quinn), for an amount of $7,146,275 plus interest at the rate of 20% per annum (the judgment debt). Before judgment could be executed, Mrs Quinn was made bankrupt on her own petition and Mr Jason Bettles (of the firm Worrells from the Gold Coast, Queensland), was appointed as her trustee in bankruptcy. The ostensible judgment creditors seek to replace Mr Bettles with an alternative trustee whom they are prepared to fund to investigate the availability of assets which might be available to meet the creditors’ claims. They are not prepared to fund Mr Bettles to undertake that task. In the ordinary course, such an application might not be of great moment, particularly so in circumstances where nearly all the other creditors are related to Mrs Quinn. However, those related creditors, who were given leave to intervene in these proceedings and are referred to as “the Interveners”, oppose the replacement of the trustee. They do so on two main grounds. First, that the applicants are not creditors and, second, that there are a number of factors which prevent the exercise of the discretion in the applicants’ favour.

Background facts

2    On 26 March 2019, Bond J of the Supreme Court of Queensland, handed down a judgment in Pioneer Australia Pty Ltd v Quinn [2019] QSC 72. In those proceedings, his Honour gave judgment for “Pioneer Australia Pty Ltd (ACN 073 498 905)” and Spa Investments Pty Ltd (Spa Investments) against Mrs Quinn in the sum of $7,146,275 plus interest at the rate of 20% per annum. In that action, the plaintiffs had pursued Mrs Quinn as guarantor of a loan facility which the plaintiffs claimed to have made to YIC Industrial Pty Ltd (YIC). The loan had been made on 21 October 2009 in an amount of $3,000,000. Default in repayment of the loan occurred, although subsequent deeds extending its terms were entered into. Ultimately, it was not repaid. The plaintiffs realised the real property security which had been given to support the loan and sought to recover the remaining debt. YIC and Mrs Quinn alleged the property had been sold at undervalue and that was the substantial issue before the Court. Bond J determined that it had not and judgment was given to the plaintiffs for the amount of the debt found to be owing.

3    The difficulty which arises is that Pioneer Australia Pty Ltd (ACN 073 498 905) (which is referred to in these reasons as “Pioneer Australia old”) had, in fact, been deregistered in 2008, some time prior to the making of the loan. A different company, Pioneer Australia Pty Ltd (ACN 128 784 725) (which is referred to as Pioneer Australian new), was registered on or around 5 December 2007 and was, therefore, the only company called “Pioneer Australia Pty Ltd” which existed as at October 2009, when the loan facility to YIC and the supporting guarantee from Mrs Quinn were entered into.

4    Nevertheless, on 24 December 2019, Spa Investments and Pioneer Australia new caused a bankruptcy notice to be issued and served on Mrs Quinn.

5    On 14 January 2020 the applicants’ solicitors were informed by Mr John Quinn, the husband of the bankrupt, that Mr Bettles had been appointed as the trustee in bankruptcy of Mrs Quinn’s estate. At the time of its making, that statement was untrue.

6    However, a short time thereafter, on 21 January 2020, Mr Bettles wrote to the applicants’ solicitors and informed them that Mrs Quinn had been declared bankrupt on 20 January 2020 on her own petition and that he had been appointed as her trustee in bankruptcy.

7    By an email of 31 January 2020, Mr Bettles provided the applicants’ solicitors with the public section of the Bankruptcy Form submitted by Mrs Quinn. It identified the existence of 12 unsecured creditors with debts totalling $17,053,359 (albeit including the applicants’ debt of around $8.2 million twice).

8    The Bankruptcy Form also identified that Mrs Quinn’s property included a house at 108 Commodore Drive, Surfers Paradise, Gold Coast (the Commodore Dr property) which had an estimated current value of $3.6 million. A number of mortgages were referred to as existing on the title to that property, including one to Rails Stripe Pty Ltd, securing the sum of approximately $5.2 million and one to CCH Stradbroke Pty Ltd, securing payment of approximately $20.4 million.

9    On 14 February 2020, Mr Bettles made a Report to Creditors of Mrs Quinn’s estate. In it he advised that, on the basis of the then known position, the estate had a nett deficiency of liabilities over assets of some $36 million and that there were no assets which would be available for distribution amongst creditors. He also advised that there was little in the way of cash in the estate. The report referenced the Commodore Dr property and the existence of mortgages to the related entities, Rails Stripe Pty Ltd and CCH Stradbroke Pty Ltd. It was stated that the trustee had obtained information about the alleged mortgages which was currently being reviewed. On the information then known it was said that there appeared to be no equity in the property.

10    It was in this context that on 16 March 2020, Mr Bettles telephoned Mr Reynolds of the applicants’ solicitors. During that call he suggested that the applicants fund him to undertake a review of the mortgage documents which created the related party securities over the Commodore Dr property. In that conversation, Mr Reynolds advised Mr Bettles that his clients were suspicious of the mortgages and considered that they warranted further and better investigation. In that respect, they were considering requesting that Mr Bettles step aside in favour of a trustee of the applicants’ choosing on the basis that they were concerned that Mr Bettles had been the administrator of an arrangement under Part X of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) which had been entered into by Mr Quinn some years previously. Mr Reynolds further said that it was likely that if the creditors were to get any return there would be litigation in relation to the related party mortgages and that the circumstances would become very fractious between Mrs Quinn and her related creditors on the one hand and the trustee in bankruptcy on the other. Mr Reynolds further advised that, as the applicants had already expended substantial sums on recovery proceedings, they would prefer to have a trustee of their choosing pursue the matter. Mr Bettles indicated that he did not believe that he would have any conflict or that there was anything which suggested that he could not act independently.

11    On 2 April 2020, the applicants’ solicitors wrote to Mr Bettles and formally advised him that the applicants wished to appoint a new trustee in bankruptcy of their choosing and requested that he step aside.

12    On 19 May 2020, Mr Bettles informed the applicants’ solicitors that he intended to call a meeting of creditors to vote on the appointment of an alternative trustee. At that time, Mr Mark Pearce and Mr Andrew Heers signed a consent to act as trustees in bankruptcy and provided a declaration of Independence, Relevant relationships and Indemnities.

13    On 27 May 2020, YIC and Mrs Quinn commenced proceedings in the Supreme Court of Queensland seeking to set aside the judgment of Bond J. The applicants and their solicitors, Gall Standfield & Smith Solicitors, were all defendants to that action.

14    On 24 July 2020, Pioneer Australia new, Spa Investments and Gall Standfield & Smith Solicitors commenced an application seeking summary judgment against YIC and Mrs Quinn in relation to the proceedings to set aside the judgment of Bond J. Mrs Quinn appears to acknowledge that the proceedings brought by her are irregular to the extent that, as a bankrupt, she does not have standing to bring the action in her own name.

15    A notice of a creditors’ meeting for the purposes of determining whether an alternative trustee should be appointed was sent to the parties on 18 June 2020. It nominated a meeting date of 7 July 2020. The notice observed that only creditors who had lodged proofs of debt were entitled to vote. It further identified that there were nine creditors who had lodged proofs with a total aggregate value of approximately $9.3 million. The vast bulk of that amount was claimed by the applicants.

16    Shortly prior to the creditors’ meeting on 7 July 2020, the list of creditors was updated. The number of creditors had increased from nine to eleven and the aggregate value of the proofs of debt had increased. Most relevant was the inclusion of a debt of approximately $4 million allegedly owed to Rails Stripe Pty Ltd.

17    At the creditors’ meeting of 7 July 2020, Mr Standfield attended as proxy for the applicants. He was informed that no proxies were provided for any of the proofs of debt from Mr Quinn or any of the other creditors who had submitted proofs (all of which were related to the bankrupt) and that in the absence of an attendance of at least two creditors the meeting would lack the necessary quorum. No other creditor attended the meeting, as a consequence of which, the meeting was adjourned for one week.

18    On 14 July 2020, the creditors’ meeting was again opened by Mr Bettles. However, again, there was no quorum and the meeting lapsed. At around this time, Mr Bettles advised that the debt claimed by Rails Stripe Pty Ltd had been removed from the list of creditors because the amount was, in fact, not owing to it.

19    On 20 July 2020, YIC made an offer to purchase the chose in action comprising Mrs Quinn’s right to set aside the decision of Bond J.

20    On 4 August 2020, Mr Bettles reported to the creditors that the offer had been received and invited creditors, stakeholders and defendants to submit their best offers to purchase the chose in action by 7 August 2020.

21    On 6 August 2020, the present application to remove Mr Bettles as trustee was filed.

22    On 7 August 2020, YIC submitted an offer to Mr Bettles to purchase the chose in action, the terms of which were that YIC would pay a purchase price of $5,000 and would provide 100% of all the monies received by it in the annulment proceedings to the trustee.

23    On 11 August 2020, Mr Bettles advised the stakeholders that he would not proceed to consider the offer to purchase the chose in action, as he had received a notice from the applicants indicating that they considered it inappropriate for him to sell it given the existence of the present application.

24    The application in the Supreme Court for summary judgment in relation to the proceedings to set aside judgment was heard on 12 August 2020 and judgment was reserved.

25    The sole director of Spa Investments, Mr Steven Anderson, has deposed that should Mr Pearce and Mr Heers be appointed as the trustees of the bankrupt, Spa Investments would be prepared to provide funding to allow them to carry out investigations in respect of the mortgages registered on the title of the Commodore Dr property in favour of Rails Stripe Pty Ltd and CCH Stradbroke Pty Ltd. It is apparent that Mr Anderson is not prepared, either directly or through his company, to fund Mr Bettles.

Consideration

Legislative provisions and principles

26    There is no doubt as to the existence of the Court’s power to remove and replace a trustee in bankruptcy. Section 90-15 of the Insolvency Practice Schedule (Bankruptcy), Schedule 2 to the Bankruptcy Act, provides:

90-15    Court may make orders in relation to estate administration

Court may make orders

(1)    The Court may make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate.

…

(3)    Without limiting subsection (1), those orders may include any one or more of the following:

…

(b)    an order that a person cease to be the trustee of the estate;

(c)    an order that another person be appointed as the trustee of the estate;

…

(4)    Without limiting the matters which the Court may take into account when making orders, the Court may take into account:

(a)    whether the trustee has faithfully performed, or is faithfully performing, the trustee’s duties; and

(b)    whether an action or failure to act by the trustee is in compliance with this Act and the Insolvency Practice Rules; and

(c)    whether an action or failure to act by the trustee is in compliance with an order of the Court; and

(d)    whether the regulated debtor’s estate or any person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the trustee; and

(e)    the seriousness of the consequences of any action or failure to act by the trustee, including the effect of that action or failure to act on public confidence in registered trustees as a group.

27    The entitlement of a person to make an application under s 90-15 is found in s 19-20, which provides, inter alia:

90-20 Application for Court order

(1) Each of the following persons may apply for an order under section 90-15:

(a)     a person with a financial interest in the administration of the regulated debtor’s estate;

…

28    The concept of a person with “a financial interest in an administration” is dealt with by s 5-30, which provides:

5-30 Persons with a financial interest in the administration of a regulated debtor’s estate

A person has a financial interest in the administration of a regulated debtor’s estate:

(a)     if the person is one of the following:

(i)    the regulated debtor;

(ii)     a creditor;

(iii)     the trustee; or

(b)     in any other circumstances prescribed.

29    Also relevant to the following discussion is s 82 of the Bankruptcy Act, which relevantly provides:

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.

Principles relating to the removal of trustees

30    The process for the removal of a trustee in bankruptcy is now consistent with that for the removal of liquidators of insolvent companies. Assistance may therefore be garnered from authorities concerning the removal of liquidators: Borg v de Vries (Trustee); Re the Bankrupt Estate of David Horton Bertram [2018] FCA 2116 (Borg v de Vries (Trustee)) [24] – [28], followed in Pekar v Holden (Trustee) (No 3) [2019] FCA 1928 and in Glenfyne International Holding Ltd v Glenfyne Farms International Au Pty Ltd (in Liq) (2019) 101 NSWLR 358.

31    Generally speaking, the Court’s power to replace a trustee in bankruptcy or liquidator is not confined to cases where error or default is shown to have occurred. Rather, it is exercised by reference to the interests of the administration or liquidation. Ultimately, the touchstone to the power’s exercise is whether it would be for the general advantage of persons interested in the winding up for a replacement to occur. In Borg v de Vries (Trustee), White J observed at [33] that:

The Court should exercise the power to remove and replace a trustee in bankruptcy in a manner which best advances the interests of the bankruptcy, having regard to the objects of the Bankruptcy Act. Having regard to s 1-1(2)(b) of the Bankruptcy Schedule, the proper interests of the creditors of the bankrupt will be an important consideration.

32    In that case, his Honour identified a number of factors which were relevant to the exercise of the power. They included, that the existing trustee had indicated that their investigations were at an end but there existed matters from which it might be inferred that further investigation was required, that a new trustee was willing to undertake such an investigation and that there were creditors willing to fund him, and that the existing trustee did not oppose the making of the order.

Alleged lack of standing

33    Before considering the merits of the application it is necessary to deal with the Interveners’ submission that the applicants lack any standing to bring this application.

34    In this respect, Mr O’Brien for the applicants pressed the application only on behalf of Spa Investments. For the purposes of this application only, he conceded that there was insufficient material before the Court from which it could be established that Pioneer Australia new was, in fact, the litigant before the Supreme Court which had secured judgment, albeit under the incorrect descriptor of its ACN. He was prepared to argue the matter on the basis that Spa Investments was entitled to pursue the application on its own.

35    To the contrary, Mr Jurth for the Interveners submitted that Spa Investments is a joint-creditor along with Pioneer Australia old and it is not entitled to bring this application in the absence of that party. As that entity is not a party because it no longer exists, he submits that the application must fail.

36    The applicants conceded that Spa Investments was a joint judgment creditor. Although all the relevant circumstances are not known on this application, that conclusion would appear to be correct. The form in which judgment was given against Mrs Quinn appeared to accept that Pioneer Australia old and Spa Investments were joint creditors and the proof of debt was lodged on the basis that the debt was owed jointly. The proof does not, however, specifically identify by reference to an ACN whether the entity claiming to be the creditor was the old or new Pioneer Australia.

37    On the basis of the above concession, Mr Jurth submitted that Spa Investments was not entitled to make or pursue the present application in the absence of the joint creditor. He submitted that “[j]oint creditors can only act together, and anything done without the authority and agreement of all of them is invalid.” In support of this he relied upon the observations of the High Court in Australian Workers’ Union v Bowen (1946) 72 CLR 575. That decision provides undoubted support for the proposition that a single joint creditor cannot, by itself, present a bankruptcy petition. As Latham CJ said at 583:

The Bankruptcy Act 1924-1933, s. 52 (j), provides that a bankruptcy notice may be issued upon the application of a creditor who has obtained a final judgment. A judgment creditor can issue a bankruptcy notice only if he is in a position to issue execution (Ex parte Woodall; In re Woodall; Ex parte Ide; In re Ide). Only one writ of execution can be issued for the one judgment debt to which joint judgment creditors are entitled, and a bankruptcy notice in the case of such creditors can be effective only when issued by or on behalf of all the judgment creditors. So also a bankruptcy petition must be presented by all the joint judgment creditors: Ex parte Owen; In re Owen; Brickland v. Newsome and see Re Tucker; Ex parte Tucker. The decision in Re Darby that one of a number of joint judgment creditors was entitled to obtain the issue of a bankruptcy notice in the name of all the creditors cannot be supported as against the authorities to which I have referred.

(Footnotes omitted).

38    Dixon J similarly stated at 590:

But in the Federal Bankruptcy Court that question was gone into upon the hearing of the petition without objection, and the facts then appearing showed that the bankruptcy notice was not authorized by all the persons who were for the time being entitled to enforce the order for the payment of the debt relied on; see s. 52 (j) of the Bankruptcy Act 1924-1933. The right to enforce the judgment was vested in those persons jointly, and not severally, and, therefore, it was necessary that it should be obtained in the names of all of them by a person authorized either in fact or in law so to obtain it. As the authority of Miller and of Dalton was not given in fact and the appropriate steps were not taken to secure an authority in law, or rather equity, for the use of their names, the bankruptcy notice could not stand.

39    Williams J also identified that under s 52(j) of the Bankruptcy Act a Bankruptcy Notice could only be issued upon the application of a person who has obtained a final judgment. This was construed to mean a person entitled to enforce a judgment such that a joint judgment creditor could not issue a notice without the agreement and authority of the other joint creditors.

40    This general principle, that a joint judgment creditor cannot enforce judgment alone, was referred to by Robson J in Re Kevin McNamara & Sons Pty Ltd (2014) 287 FLR 96 at 120 [99] where it was said:

The rationale for this rule requiring all joint creditors to sign the statutory demand is that, at law, a joint creditor cannot sue for the entire debt without the consent of the other joint creditors. This is so despite the fact that payment to one joint creditor discharges the debt. If a single joint creditor cannot sue for the debt, he/she should not be able to issue a statutory demand in respect of the debt.

41    With respect to the careful and thoughtful submissions of Mr Jurth, the principle identified above has little to do with the existing circumstances. The above authorities are concerned only with the statutory right of joint creditors to act to enforce their claim. Whether in respect of the issuing of a bankruptcy notice or a statutory demand, the entitlement to take either step is vested in a person or entity which is entitled to enforce the claimed debt. This must be so, as the nature of the debtor’s liability is that of a single obligation owed to each of the joint creditors such that one of them has no ability to enforce it on their own.

42    However, that says nothing of the right of a person described as a “creditor” in s 5-30 of Sch 2 of the Bankruptcy Act to make a relevant application under s 90-20. It is clear enough, at least for the purposes of the present case, that the application by Spa Investments is not one by which the claimed judgment debt is sought to be enforced in any way. Whilst it is possible that if it were to take such a step it would need the support of the joint creditor, there is nothing in the Act which suggests that the making of an application to ensure the proper administration of the bankrupt estate is one which cannot be made by it alone.

43    Mr O’Brien for the applicants submitted that the concept of “creditor” in s 5-30 is very wide and referred to the statement of Vaughan Williams J in Re Paine; Ex Parte Read [1897] 1 QB 122, 124, that “the word ‘creditor’ means any person who, at the date of the payment to him, would have had to come in and prove and rank with the other creditors in the bankruptcy”. That statement has been referred to with approval on many occasions, including in the High Court: see for example Federal Commissioner of Taxation v Jaques (1956) 95 CLR 223, 230; and in this Court: Commissioner of Taxation v Lane [2020] FCAFC 184 [133]. Mr O’Brien further submitted that this is supported by the scope of the definition of “debt” in s 82 of the Bankruptcy Act, which includes contingent and future debts. From this, he submitted that Spa Investments is a “creditor” within the meaning of s 5-30 and entitled to make the application.

44    There is nothing in the scope or purpose of s 5-30, or of ss 90-15 and 90-20, which suggests that the word “creditor” should be given any narrow construction. On the contrary, s 90-1 suggests that to give the word such an interpretation would be inconsistent with the purpose of Division 90 of Sch 2. That section, which provides a simplified outline of the division states, inter alia:

Review by the Court

The Court may inquire into the administration of a regulated debtor’s estate either on its own initiative or on the application of the Inspector-General or a person with a financial interest in the administration of the regulated debtor’s estate.

The Court has wide powers to make orders, including orders replacing the trustee or dealing with losses resulting from a breach of duty by the trustee.

45    The above indicates that the purpose of the Division includes protecting the integrity of the administration of debtors’ estates and that can be secured by the making of applications by creditors: see in particular s 90-10 where the Court is empowered to undertake an inquiry of an administration on the application of a “person with a financial interest” in it. There is no apparent reason for the scope of persons who might make that application to be narrowed to only those who are entitled, by themselves, to enforce their claimed debt. It is not to be supposed that a creditor or creditors should not be entitled to pursue a legitimate complaint merely because one of a number of joint creditors is unwilling to authorise the making of the application. The same reasoning applies to s 90-15.

46    In the circumstances, where Division 90 is concerned with the proper administration of estates, and applications to the Court for that purpose are not concerned with the enforcement of debts or judgments, there is no reason for reading it down such that the expression “a person with a financial interest in the administration of the regulated debtor’s estate” does not include a creditor whose claim is joint with another entity. On that basis, Spa Investments is a judgment creditor, albeit jointly with another party, and has the necessary standing to bring the present application.

Alternative status as a creditor

47    Spa Investments submitted in the alternative that it retained its status as a creditor by reason of the debt owed to it by Mrs Quinn under the guarantee. Given the above, there is no need to reach any conclusion about that submission. However, it is more than likely that any rights which it had under the guarantee have merged in the judgment and it is to the judgment which it must look to derive its standing as a creditor. It can be added that, as the transactional documents through which Mrs Quinn became indebted are not before the Court, it cannot be assumed that if the judgment was set aside, any indebtedness to Spa Investments would be several or joint and several.

Whether the current trustee ought to be replaced

The purpose sought to be achieved by the replacement of Mr Bettles

48    The applicant’s interest in replacing the trustee in bankruptcy is concerned with the recovery of assets which may be used to make a distribution to creditors. In particular, it is concerned that substantial equity may exist in the residential premises at Commodore Dr, despite the existence of mortgages over that property in favour of the related entities, CCH Stradbroke Pty Ltd and Rails Stripe Pty Ltd. It seeks to fund an independent trustee to consider the veracity of those mortgages.

The circumstances of the granting of the mortgages

49    On the limited facts which are available on this application the circumstances of the granting of the mortgages to the related parties are sufficient to raise a prima facie concern as to their veracity. The recitation of facts as they appear in the reasons of Bond J disclose that Mrs Quinn was facing severe financial difficulties when she granted the mortgages. She had guaranteed YIC’s loan in 2009, which was not repaid on the due date, being 21 October 2010. The parties to the financial arrangements entered into a deed by which the date for repayment was extended to 21 April 2011, subject to certain conditions. Whilst YIC complied with a requirement to make an immediate repayment, it failed to repay the loan on the agreed extended date, as a result of which default interest of 20%, which was capitalised monthly, commenced to accrue. A default notice and notice of exercise of power of sale under s 84 of the Property Law Act 1974 (Qld) was issued on 3 May 2011, however, the default was not remedied.

50    A further deed amending the terms of the loan facility was entered into on 5 February 2013, by which the date for the repayment of the loan was extended to 31 January 2014, albeit subject to a number of terms. YIC did not comply with all of the terms as required and it failed to repay the loan on the due date. On 11 March 2014, the debt owing by YIC to the lenders and which was guaranteed by Mrs Quinn was approximately $5.9 million. On that day, a contract of sale was entered into by the mortgagors to sell the land. It was completed on 21 March 2014, at which time the proceeds of sale of approximately $3.3 million were received and applied against YIC’s indebtedness. The amount then owing under the loan agreement was approximately $2.6 million.

51    The amount which remained owing under the loan agreement was not repaid and interest continued to accumulate. At the date of trial before Bond J, the indebtedness was approximately $6.4 million. It can be inferred that, prior to the commencement of proceedings, demands were made on Mrs Quinn in respect of her obligations pursuant to the guarantee. They were apparently not complied with and this resulted in the commencement of the recovery action in 2017.

52    The mortgages over the Commodore Dr property were given on 20 September 2016. Necessarily, that would have been at a time when Mrs Quinn was in default on her obligations under her guarantee in respect of a very substantial debt. There is no evidence before the Court as to the circumstances which gave rise to the granting of the mortgages. If they are genuine transactions, it can be assumed that there would exist substantial documentation supporting the underlying dealings. The mortgage granted to Rails Stripe Pty Ltd allegedly secured a debt of around $5.2 million and the mortgage granted to CCH Stradbroke Pty Ltd allegedly secured a debt of around $20.4 million. Both are significant amounts and, if real, afford the creditors substantial power in relation to what is to occur in relation to the property. Given Mrs Quinn’s default under the guarantee and, as revealed by the trustee’s report to creditors, her lack of any substantial assets outside of the Commodore Dr property, a question arises as to the type of transaction which justified her assumption of the further substantial liabilities.

53    It should be noted that CCH Stradbroke Pty Ltd is the second Intervener in these proceedings and, had it so chosen, it could have produced evidence as to the nature of the transaction through which it acquired its mortgage over the Commodore Dr property. It is likely that such information would be within its possession, power or control. In fact, Mr Quinn, under its authorisation, swore an affidavit in the proceedings, although he did not explain the circumstances in which the mortgage was granted. As he is its sole director, one might expect that he is acutely aware of them.

54    In this context, it is not irrelevant that, in his affidavit, Mr Quinn identifies himself as being the sole director of each of the eight corporate Interveners in these proceedings, all of which assert they are creditors of Mrs Quinn’s estate. Apart from the applicants and the Commissioner of Taxation, the Interveners are the only other creditors with an interest in Mrs Quinn’s estate.

55    This brief discussion of the circumstances surrounding the granting of the mortgages by Mrs Quinn are more than sufficient to give rise to a concern that they might have been granted for the purpose of protecting the Commodore Dr property from the claims of her creditors. They are circumstances which, in the ordinary course, would need to be considered by a trustee in bankruptcy acting properly in the discharge of their function. Although Mr Jurth for the Interveners sought to diminish any suggestion of impropriety, the fact that Mr Bettles raised the issue with Mr Reynolds, who was acting on behalf of the applicants, is suggestive that he held a concern as to their authenticity. Indeed, had he had no concerns, it would have been most inappropriate for him to be soliciting funding to undertake an investigation.

Should an independent person examine the mortgages?

56    Spa Investments is prepared to make funds available to Mr Pearce and Mr Heers if they are appointed as trustees to investigate the circumstances of the granting of the mortgages. However, for the reasons given by Mr Reynolds to Mr Bettles in the telephone conversation on 16 March 2020, it is not prepared to make such funds available to Mr Bettles.

57    Leaving aside the concerns of Spa Investments, the above conclusion, that the circumstances in which the mortgages were granted by Mrs Quinn requires investigation, has the consequence that it is preferable that a trustee be appointed who will have the resources to undertake the necessary inquiries. As it was put by Mr O’Brien, either the administration will proceed with Mr Bettles as trustee without an appropriate investigation or it will proceed with Mr Pearce and Mr Heers as trustees with one. It is to the benefit of the creditors and the administration if appropriate and necessary investigations can be undertaken in relation to a bankrupt’s affairs if, for no other reason, than that it maintains the integrity of the insolvency process.

58    Additionally, the circumstances before the Court support the replacement of Mr Bettles with new trustees to continue the administration.

59    First, Mr Bettles was Mrs Quinn’s choice of trustee, appointed on the making of her petition for her own bankruptcy. That, of itself, is not a disqualification but, connected as it is with other matters, her selection of a person who has had a close involvement with the affairs of the person in control of her major creditors is significant. It is also not irrelevant that Mr Quinn has paid the sum of $7,700 to Mr Bettles firm for the purpose of meeting the expenses associated with his appointment as trustee.

60    Second, some years previously, Mr Bettles had been given authority by Mr Quinn to call a meeting of his creditors for the purposes of entering into a Personal Insolvency Agreement which Mr Bettles then administrated. It is most unlikely that Mr Bettles did not develop some form of relationship with Mr Quinn and acquire information about his property and interests. That probably included information about Mrs Quinn’s affairs given that an overwhelming number of her creditors are entities controlled by Mr Quinn. On the material available, it would appear that Mrs Quinn’s affairs are closely entwined with those of her husband. That must necessarily give rise to a question of whether Mr Bettles could properly fulfil the task of administering Mrs Quinn’s estate whilst maintaining his obligations arising from his earlier involvement with Mr Quinn. Although the Personal Insolvency Agreement was completed in January 2015, that is not terribly far removed in time from September 2016 when the impugned mortgages were executed.

61    Third, given the litigation history between Mr and Mrs Quinn and Mr Quinn’s companies, on the one hand, and Spa Investments, on the other, it is undoubted that any recovery from Mrs Quinn’s estate will result in litigation which will involve companies controlled by Mr Quinn. Absent his being replaced, this would put Mr Bettles in the position of participating in fractious litigation which will affect Mr Quinn’s interests. It is apparent that Spa Investments’ concern is that a person who has had a prior personal relationship with Mr Quinn would be less able to undertake that task than someone who is wholly independent. It has, to date, expended substantial sums pursuing Mrs Quinn and has indicated that it wishes to ensure that it achieves value for its expenditure on any investigation and recovery process and that that would be best achieved by the appointment of Mr Pearce and Mr Heers. This is not an unreasonable position to adopt.

62    Fourth, it is probable that it is not coincidental that Mrs Quinn subsequently sought out Mr Bettles as the trustee to undertake the administration of her bankruptcy. No explanation for that or how it came to be arranged was made clear on the application.

63    Overall, Mr Bettles prior relationship with, and knowledge of, Mr Quinn and his affairs carry the risk of hindering him were he to be required to investigate the circumstances of the granting of the mortgages and to engage in any subsequent litigation to set them aside.

64    The Interveners make much of the applicants’ concession that they have no issue with Mr Bettles’ integrity or professionalism. However, that is not to the point. Their concern remains with the closeness of Mr Bettles to the bankrupt and her husband and his prior involvement in the husband’s business affairs. The closeness of that relationship is, in the circumstances of the potential future events, sufficient to warrant his replacement.

Alleged ulterior motive for the application

65    It was submitted by the Interveners that this application was being pursued for the purposes of thwarting the assignment of the chose in action, being the right to set aside the decision of Bond J, to YIC. It is unfortunate that such an allegation was not put to Mr Reynolds who, in his affidavit, had set out the reasons as to why the application had been brought. Nevertheless, leaving that aside, the circumstances do not justify the inference which the Interveners ask the Court to draw.

66    It must be kept in mind that Spa Investments claims to be owed a substantial amount of money, being somewhere in excess of $7 million. On the material available it would appear that the only possible source of recovery lies in the setting aside of the mortgages over the Commodore Dr property and that can be best achieved by the replacement of Mr Bettles and the appointment of new trustees.

67    It is also to be kept in mind that, as early as 16 March 2020, Spa Investments expressed its concern that Mr Bettles would not be the best person to undertake a review of the documentation relating to the mortgages granted in favour of CCH Stradbroke Pty Ltd and Rails Stripe Pty Ltd. It follows that long before the proposed assignment was raised, the applicants had made it clear that they desired the replacement of Mr Bettles for the purposes of investigating the mortgages. That change was sought to be secured in the meeting of creditors, although that process failed due to the non-participation of Mr Quinn and the entities controlled by him.

68    It was shortly after the creditors’ meeting lapsed and when the only alternative to replacing Mr Bettles was the making of an application of the present nature, that YIC made the offer to take an assignment of Mrs Quinn’s rights to set aside Bond J’s decision. The timing of the offer might suggest that it was made so that the cause of action could be assigned prior to Mr Bettles’ removal.

69    There is, with respect, nothing in the facts of this matter which sufficiently raises any inference that the application now being pursued is for a purpose other than the replacement of the trustee so that Spa Investments might obtain payment of its debt or part thereof. Whilst there is a mere possibility that the timing of the application was prompted by YIC’s offer to purchase the chose in action, there is nothing to suggest that its making was intended to thwart that offer. Such an inference is not available given that the present application seeks the same relief which the applicants had sought to secure in March 2020, prior to the proposed assignment being raised. It follows that the Interveners’ submission that this application was made with the intention of defeating any proposed assignment must be rejected.

70    Mr O’Brien for the applicants submitted that the application would not have the alleged effect in any event. If replacement trustees are appointed, they will be obliged to give proper consideration to any offer from YIC to acquire the chose in action. In doing so they will have to consider the interests of the administration. There is nothing on the material to suggest that they will not do so.

Existence of proceedings in the Supreme Court to set aside the judgment of Bond J

71    In the written submissions made by the parties an issue was raised as to the relevance of the proceedings commenced by Mrs Quinn and YIC in the Supreme Court of Queensland to set aside the decision of Bond J. As previously mentioned, Spa Investments and Pioneer Australia new have sought summary judgment in those proceedings and a decision on the application is pending. To a large extent, the existence of those proceedings and their likely outcome was relevant to the issue of whether Pioneer Australia new could be regarded as the actual creditor of Mrs Quinn pursuant to the judgment. As that point was abandoned by the applicants and the application only pressed by Spa Investments, Mr Jurth for the Interveners accepted that the relevance of the Supreme Court proceedings dissipated for the purposes of the matters remaining in issue.

72    Absent the issue now abandoned, this Court need not speculate as to the likely outcome of those proceedings. The present application is merely for the change of trustee. No decision arising from the Supreme Court proceedings will alter the fact of Mrs Quinn’s bankruptcy for which she, herself, petitioned. The only issue is as to the identity of the trustee of the estate. It remains, as Mr O’Brien submitted, a choice between the existing trustee who is unfunded to undertake a necessary investigation and trustees who are able to.

Detriment to the administration

73    Spa Investments submitted that even if the decision of Bond J is set aside such that it is no longer a creditor, it will be the only party to suffer detriment as a result of the replacement of Mr Bettles. It will have funded the replacement trustees to undertake the investigation but will not benefit if it cannot consolidate its status as a creditor. There is force in that submission, to which it can be added that the administration will have had the benefit of a proper investigation having been undertaken in relation to transactions which, prima facie, require consideration.

74    On the other hand, if it transpires that there are grounds on which the mortgages might be set aside, a substantial benefit might ensue for the creditors in the form of recovered funds. Whilst it may well be that the Interveners, by their current actions, are not desirous of that occurring, it seems sufficiently clear that their desire does not arise from their capacity qua creditors, but in their capacity as entities related to Mrs Quinn.

75    The Interveners also submit that a new trustee will have to familiarise itself with the matter and repeat much of the work that has already been undertaken. Whilst there is always a concern of the duplication of costs, it is quite apparent in this case that very little has been done in the administration because there was no money for Mr Bettles to undertake any work. In any event, Mr Bettles has produced a substantial report as to the affairs of Mrs Quinn and there is nothing to suggest that new trustees could not take advantage of that.

76    The Interveners claim that the expenditure of funds advanced by Spa Investments by replacement trustees will have the consequence that it will become a priority creditor in the distribution of funds, if any. Whilst that may be true, on the information presently available, it will only occur if the investigations funded by Spa Investments are productive of some returns. Mr Bettles’ Report to Creditors discloses that, at present, there will be no dividend payable to any of the creditors and that is a not unreasonable assumption given the information which he has. Any benefit to Spa Investments as a priority creditor will only arise after it has funded the investigation and any subsequent recovery proceedings, in which case all the creditors will be better off than they are presently. There is no real detriment to the administration in this respect.

77    Overall, the Interveners’ claims that the administration will be prejudiced are exaggerated. The administration will benefit from an independent examination of transactions which require investigation. Any prejudice arising from the replacement of Mr Bettles will be outweighed by the benefits.

Conclusion

78    The necessary conclusion from the foregoing is that Spa Investments has demonstrated that it has standing and that an order should be made replacing Mr Bettles as the trustee in bankruptcy with Mr Pearce and Mr Heers. The impugned mortgages and the transactions underlying them require investigation which Mr Bettles cannot pursue. Conversely, there is an existing creditor who is prepared to fund the investigation by Mr Pearce and Mr Heers. Any such investigation will be for the benefit of the administration and, at least, will accord the insolvency process some legitimacy. Mr Bettles past involvement with Mr Quinn was sufficiently close as to make it inappropriate that he conduct the investigation and pursue any avenues of recovery arising from it.

79    The parties agreed that costs should follow the event with the consequence that it should be ordered that the Interveners are to pay the applicants’ costs of the application.

Associate:    

Dated:    14 December 2020

SCHEDULE OF PARTIES