Federal Court of Australia

Gadd v Piscopo (Trustee), in the matter of Kozlowski (Bankrupt) [2026] FCA 1167

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 109(10) of the Bankruptcy Act 1966 (Cth) that, from the balance of the funds held by the Trustee of the Bankrupt Estate of Wlodzimierz Antoni Kozlowski, arising from the settlement of the proceeding brought by the respondent against Louis Christopher Baker and Paul Andrew Cox concerning the estate of Margaret Mary Kozlowski in the Supreme Court of New South Wales (the Fund), the sum of $103,562.68, being the amount of the applicant’s debt, be paid to the applicant in priority over the admitted debts of all other unsecured creditors.

2.    Pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth), the respondent pay the applicant his costs of the application, as agreed or assessed.

3.    Pursuant to s 109(10) of the Bankruptcy Act, the amount payable under Order 2 be paid from the Fund in priority to the admitted debts of the other unsecured creditors.

4.    Until 5.00pm on 21 August 2026, the respondent must not pay to the applicant, or otherwise distribute, any amount pursuant to Orders 1 to 3.

5.    Unless the Court otherwise orders, Order 4 expires at 5.00pm on 21 August 2026 without further order.

THE COURT NOTES THAT:

A.    The restraint in Order 4 is imposed to permit Mr Kozlowski to file and serve any originating process and interlocutory application upon which he seeks to rely concerning the matters identified in a document styled as a proposed Form 12 (urgent application before commencement of proceeding) emailed to the Court on 12 August 2026.

B.    A copy of the applicant’s detailed written submissions relied upon in this application are on the Court’s file.

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

REASONS FOR JUDGMENT

CHEESEMAN J:

INTRODUCTION

1    This morning I heard an application by Mark Lawrence Gadd in which he sought an order under s 109(10) of the Bankruptcy Act 1966 (Cth) giving him priority over the other unsecured creditors of the bankrupt estate of Włodzimierz Antoni Kozlowski for $103,562.68 and for the costs of this proceeding. He also sought an order that those costs be paid from the bankrupt estate of Mr Kozlowski. I granted Mr Gadd’s application and pronounced orders in Court. These are my reasons for doing so.

2    The application arises because Mr Gadd funded and indemnified the respondent, Samuel Piscopo as trustee of Mr Kozlowski’s bankrupt estate, to pursue litigation which produced a recovery for the bankrupt estate of Mr Kozlowski. Mr Piscopo supported the application.

3    Shortly before the hearing, Mr Kozlowski sought to stay the proceeding. I address that application below as a preliminary matter.

NOTICE TO POTENTIAL CREDITORS AND INTERESTED PERSONS

4    Mr Gadd’s solicitor, Nicholas Hayes, identified creditors and potential creditors from the bankrupt’s Statement of Affairs, proofs of debt recorded in the trustee’s report to creditors, and further schedules supplied by the trustee. Between 24 December 2025 and 9 March 2026, he sent the application and supporting affidavits to those persons by email or post. Mr Hayes deposed that, to the best of his knowledge and belief, every person who had claimed a debt in the estate had been notified of the application.

5    After the hearing was fixed for 18 August 2026, Mr Hayes sent the relevant orders to all interested persons for whom an email address was available. Corporate Services Pty Ltd was notified by post. No creditor applied to be joined.

6    At the commencement of the hearing at 10.15am, and after calling the matter outside Court, the Court Officer confirmed that there were no appearances on behalf of any other creditor. Accordingly, and apart from Mr Kozlowski’s attempt to stay the proceeding, there was no opposition at the hearing.

MR KOZLOWSKI’S APPLICATION

7    Monika Lama of Lama Family Lawyers acts for Mr Kozlowski. At the commencement of the hearing, Ms Lama applied on Mr Kozlowski’s behalf for an adjournment or stay of the hearing of Mr Gadd’s application. I refused that application for the reasons that follow. It is necessary first to explain its procedural course that led to that application being made.

8    On 12 August 2026, Ms Lama first sought on behalf of Mr Kozlowski to apply on an urgent basis to stay the hearing. She emailed to the Court a Form 12 (urgent application before commencement of proceeding), written submissions, three affidavits from Mr Kozlowski and an affidavit from Louis Christopher Baker.

9    Mr Baker is the executor of the deceased estate of Mr Kozlowski’s late mother, Margaret Mary Kozlowski. Mr Kozlowski was the sole beneficiary named in the will. Mr Baker was a respondent to the trustee’s proceeding concerning Ms Kozlowski’s estate. Mr Gadd provided the trustee with funding and an indemnity to conduct that proceeding.

10    A Form 12 is not an originating process. Rule 7.01 of the Federal Court Rules 2011 (Cth) is a confined procedure by which a prospective applicant may seek specified urgent interim relief before commencing the proceeding in which final relief will be sought. The prospective applicant must intend to commence an identifiable proceeding, the matter must be urgent, and the relief sought must fall within r 7.01(1). The application must be supported by an affidavit stating the facts relied upon and an undertaking to commence a proceeding concerning the same subject matter within 14 days after its determination.

11    The procedure does not permit a prospective applicant to obtain final relief that must be sought by originating process supported by an identified jurisdictional and statutory basis. Nor does it displace the requirements of procedural fairness where relief is sought against an identified person or in relation to an existing proceeding.

12    In his proposed Form 12, Mr Kozlowski sought relief extending beyond a stay of this proceeding. The relief sought extended to a claim for annulment of his bankruptcy, alternative relief concerning the trustee’s appointment, an account and restoration of estate assets, substituted service, and costs. Mr Kozlowski also sought leave said to arise under s 58(3)(b) of the Bankruptcy Act. The statutory basis of several of the proposed orders was not apparent from the Form 12.

13    Although the proposed relief included a stay of Mr Gadd’s application and orders concerning the trustee, neither Mr Gadd nor the trustee was named as a prospective respondent. The proposed Form 12 did not identify as prospective respondents the persons directly affected by material parts of the relief sought.

14    Mr Kozlowski did not explain why relief challenging his bankruptcy which began in August 2024 was not sought until shortly before the 18 August 2026 hearing, notwithstanding prior notice of this proceeding and its hearing date. That circumstance weighed against the claim of urgency. Further, Mr Kozlowski did not give the undertaking required by r 7.01 or explain how the substantive relief in the proposed Form 12 fell within that rule.

15    Those matters prevented the proposed Form 12 from providing a proper basis for the substantive relief identified in it. Moreover, the proposed Form 12 was not lodged for filing with the Registry and self-evidently the Registry had not considered whether it should be accepted for filing.

16    Ms Lama’s request was not accompanied by the certificate of urgency required by the Duty (Urgent) Applications Interim Practice Note during 3 Region Trial (GPN-DUTY). It was referred to my Chambers because it sought, amongst other things, to stay this docketed proceeding.

17    Through my associate, I informed Ms Lama that the foreshadowed urgent application would not be considered until she supplied a certificate of urgency complying with the GPN-DUTY. I also directed Ms Lama to serve the application materials on the parties to this proceeding. Ms Lama confirmed on 13 August 2026 that she acted for Mr Kozlowski and informed the Court that she would file a notice of appearance.

18    Ms Lama provided a certificate of urgency on 14 August 2026. I was not satisfied that the proposed application warranted an urgent duty hearing. The parties were informed that this proceeding remained listed for 18 August 2026 and that I would hear from Ms Lama for Mr Kozlowski in relation to any application at the commencement of the hearing at 10.15am on Tuesday, 18 August 2026. I now turn to the oral application made at the hearing which sought to adjourn or stay Mr Gadd’s application.

19    This proceeding concerned the priority to be given to Mr Gadd’s debt in the distribution of Mr Kozlowski’s bankrupt estate. Mr Kozlowski’s proposed application concerned anterior questions about the commencement and administration of the bankruptcy. Determination of Mr Gadd’s priority did not decide those questions or prevent their later determination in a properly constituted proceeding. The proposed challenge therefore did not, without more, require Mr Gadd’s application to be deferred.

20    To the extent that Mr Kozlowski sought merely to oppose the priority claimed by Mr Gadd, he had no standing to do so. Section 109 of the Bankruptcy Act is concerned with priority among creditors, and Mr Kozlowski is not a creditor of his own estate: Grandsky Pty Ltd v Horne in his Capacity as Trustee for the Bankrupt Estate of Van Oost [2014] FCA 119 at [3] (Jagot J). That conclusion does not determine whether he may seek interlocutory relief in a properly constituted proceeding concerning the commencement or administration of his bankruptcy.

21    I was not satisfied that there was any sufficient reason to defer determination of Mr Gadd’s application. It was commenced in December 2025, interested persons were notified, and the hearing date was fixed in June 2026. Any risk that determining priority might cause practical prejudice to Mr Kozlowski was capable of being addressed by temporarily restraining payment under the priority orders. That course would preserve the position while allowing Mr Kozlowski a short opportunity to commence a properly constituted proceeding and seek any interlocutory relief for which he contends.

22    That course was also consistent with the trustee’s statement at the hearing that, if priority orders were made, he did not anticipate making any distribution that week. For this reason, the short temporary restraint will not prejudice Mr Gadd.

23    I therefore restrained the trustee from making any payment pursuant to the priority orders until 5.00pm on 21 August 2026. The brief restraint is imposed only to preserve the position while Mr Kozlowski has a short opportunity to commence and serve any properly constituted proceeding and seek interlocutory relief. I express no view about the merits of his proposed claims or whether they are capable of being pursued. Unless the Court otherwise orders, the restraint will expire at the stated time.

MATERIALS RELATING TO MR GADD’S APPLICATION

24    Mr Gadd relied on the following evidence:

(1)    the affidavit of Mr Gadd sworn 22 December 2025 and the annexures to that affidavit;

(2)    the document described on its face as an affidavit of Mr Piscopo sworn 24 December 2025 and Exhibit SP-1 to that purported affidavit. At the hearing Counsel for Mr Gadd properly drew my attention to the fact that the purported affidavit had not been witnessed by an “authorised person” within the meaning of the Oaths Act 1900 (NSW). For this reason, Mr Gadd also relied on the affidavit of Mr Piscopo sworn 28 July 2026 which states that the contents of the purported affidavit of 24 December 2025 are true to the best of his knowledge and belief;

(3)    the affidavit of Mr Hayes, Principal Solicitor at N.G. Hayes & Associates, sworn 16 March 2026 and the annexures to that affidavit; and

(4)    the affidavit of Mr Hayes sworn 22 July 2026 and the annexures to that affidavit.

25    In addition, Mr Gadd also relied in this application on the following additional affidavits (that were prepared after receipt of the materials supplied by Ms Lama):

(1)    the affidavit of Mr Hayes sworn 14 August 2026 and the annexures to that affidavit; and

(2)    the affidavit of Mr Piscopo sworn 14 August 2026 and the annexures to that affidavit.

BACKGROUND TO MR GADD’S APPLICATION

26    Mr Gadd is a former client of Mr Kozlowski, who practised as a solicitor. Costs disputes between them resulted in judgments in Mr Gadd’s favour. After allowance for payments and post-judgment interest, Mr Gadd’s present claim in the bankruptcy is $103,562.68.

27    Mr Gadd subsequently presented a creditor’s petition, which was listed for hearing on 27 August 2024. On the preceding day, he was informed that Mr Kozlowski had presented a debtor’s petition. Mr Piscopo was appointed trustee. Mr Gadd was awarded petitioning creditor’s costs of $8,970, payable from the estate with the same priority as if a sequestration order had been made. Those costs have since been paid.

28    Mr Kozlowski’s Statement of Affairs did not disclose an expected distribution from the estate of his late mother. Mr Gadd’s solicitor obtained probate material concerning that estate, which identified Mr Kozlowski as the sole beneficiary and that Mr Baker, a solicitor, was the executor. The estate included land at Winmalee in New South Wales. In September 2024, Mr Gadd’s solicitors informed the trustee of that interest and later provided information questioning a claim exceeding $1.1 million made by Mr Paul Cox for building work said to have been undertaken for the deceased.

29    The trustee investigated the deceased estate and became concerned that the proceeds of the Winmalee property might be distributed before his inquiries were completed. The bankrupt estate lacked funds for recovery proceedings. On 15 May 2025, the trustee entered into an indemnity and funding agreement with Mr Gadd and retained Somerset Ryckmans to act. Mr Gadd advanced $50,000 and assumed indemnity exposure capped at $200,000 under that agreement. In return, the trustee agreed to bring proceedings on behalf of the bankrupt estate against Mr Baker seeking proper administration of the deceased’s estate, including by preventing any payment to be made to Mr Cox. Relevantly for this application, by the agreement, the trustee also agreed to this application to give Mr Gadd priority over other creditors under s 109(10) of the Bankruptcy Act.

30    After Mr Baker, as executor, advised that settlement of the Winmalee property sale was imminent, the trustee commenced proceedings against him and Mr Cox and secured interim preservation of the sale proceeds. The proceeding involved contested evidence concerning Mr Cox’s claim and an asserted assignment or disclaimer of Mr Kozlowski’s interest in the deceased estate.

31    On 1 October 2025, Mr Baker and Mr Cox accepted a Calderbank offer made by the trustee. The proceeding was resolved by consent and $397,834.35 was recovered for the bankrupt estate.

32    Mr Gadd’s $50,000 advance and the costs of the recovery proceeding have been paid. By this application he sought priority for his debt of $103,562.68 and the costs of this proceeding.

LEGAL PRINCIPLES

33    Section 109(10) of the Bankruptcy Act permits the Court, where property has been recovered, realised or preserved under a creditor’s indemnity for litigation costs, to make such orders concerning distribution as it considers just and equitable, with a view to giving the indemnifying creditor an advantage over other creditors in recognition of the risk assumed. The provision permits departure from the ordinary priority regime in s 109(1) and confers a broad, fact-sensitive discretion.

34    The provision encourages creditors to fund recovery action and recognises those who assume its burden and risk. Its exercise depends upon the circumstances and is ultimately a matter of evaluative judgment: Low v Barnet (Trustee) [2017] FCAFC 60; 250 FCR 562 at [68] (Flick, Jagot and Gleeson JJ). The advantage authorised by s 109(10) is an advantage over other creditors. It does not permit the indemnifying creditor to appropriate a surplus otherwise payable to the bankrupt or to recover more than the creditor’s lawful entitlement: Low at [57], [69]-[72].

35    Relevant considerations include the risk and cost assumed by the indemnifying creditor, the complexity of the funded proceeding, the amount recovered, the opportunity afforded to other creditors to participate, the relative debts, creditor support or opposition, and the public interest in encouraging creditor funding: Woodgate, in the matter of Eaton (a Bankrupt) [2010] FCA 550; 8 ABC(NS) 65 at [5] (Nicholas J).

36    The power to order the costs of this application is conferred by s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act). Section 109(10) of the Bankruptcy Act enables the Court to determine the distribution of the property recovered under the creditor’s indemnity so as to give the indemnifying creditor an appropriate advantage over other creditors. In an appropriate case, that advantage may extend to giving priority in the recovered fund to the creditor’s costs of obtaining the s 109(10) order. Those costs are not a separate risk premium. They are costs properly incurred in obtaining the statutory distribution order.

CONSIDERATION

37    For the reasons that follow, the statutory condition was satisfied.

38    The trustee recovered $397,834.35 through the proceeding funded and supported by the indemnity given by Mr Gadd.

39    Mr Gadd’s contribution was necessary to that recovery. Mr Gadd advanced $50,000 and assumed liability under an indemnity capped at $200,000. No other creditor shared the risk. Without that funding and indemnity, the estate lacked funds and the trustee could not have pursued the claim, and the recovered funds would not have been available to creditors.

40    The risk was substantial when assumed. The trustee was required to act promptly to preserve the Winmalee sale proceeds. The proceeding involved contested evidence concerning Mr Cox’s claim and an asserted assignment or disclaimer of Mr Kozlowski’s interest in the deceased estate. The ultimate resolution of the proceeding by consent does not diminish the risk as it stood when Mr Gadd assumed it by entering into the agreement to fund and indemnify the trustee. I took into account, as a matter relevant to weighing whether it was just and equitable to grant the relief sought, that Mr Gadd had incurred legal costs of his own in investigating and seeking advice that he accepted he could not recover from the bankrupt estate.

41    All identified creditors and potential creditors were given notice of the application and hearing. None applied to be joined and no creditor sought to oppose the application at the hearing. The trustee supported the application.

42    The priority sought for Mr Gadd’s debt does not confer a separate commercial premium. His $50,000 advance has been repaid. Priority for the admitted debt of $103,562.68 gives him an advantage over competing creditors in recognition of the risk assumed, without enlarging the debt.

43    I was satisfied that Mr Gadd assumed a significant risk relative to the size of the debt owed to him by Mr Kozlowski. I was further satisfied that the evidence demonstrated that but for Mr Gadd’s tenacity the bankrupt estate would not have recovered the funds paid in settlement of the Supreme Court proceeding. This application was brought on notice, it was supported by the trustee and was not opposed. I was satisfied that it was just and equitable to give Mr Gadd priority for his admitted debt of $103,562.68.

44    It was necessary for Mr Gadd to bring this application in order to obtain the benefit of the priority available under s 109(10) of the Bankruptcy Act. He succeeded in this application and I saw no reason why costs should not follow the event as is the ordinary course. I was further satisfied that it was just and equitable that the amount of those costs be paid from the recovered fund in priority to the admitted debts of the other unsecured creditors under s 109(10).

CONCLUSION

45    Accordingly, I made the orders I described above, including the orders that restrain steps being taken under the priority orders for a brief period expiring at 5.00pm on 21 August 2026. Unless the Court otherwise orders, the restraint will then expire without the need for further order.

Associate:

Dated:    18 August 2026