Chase, in the Matter of Chase v Donnelly

REASONS FOR JUDGMENT 1 This is an application under s 178 of the Bankruptcy Act 1966 (Cth) (the Act) by Peter Joseph Chase, a bankrupt, to set aside a notice given by the respondent, who is the trustee in bankruptcy of Mr Chase's estate, under s 149B of the Act, objecting to the discharge of Mr Chase from bankruptcy under s 149 of the Act. 2 The application was heard at the same time as proceedings number N7280 of 2001, Permfox Pty Ltd v Official Reciever. These reasons should be read together with the reasons for judgment of N7280 of 2001 ([2002] FCA 1564). 3 The notice under s 149B contained a number of grounds upon which the trustee relies. Some, but not all the grounds, are the subject of litigation in matter N7280 of 2001. 4 No attempt has been made by Mr Chase to seek a review of the trustee's objection notice by the Inspector-General or the Administrative Appeals Tribunal (AAT) under s 149K or s 149Q of the Act, respectively. 5 The nature of the supervisory jurisdiction conferred on the Court by s 178 of the Act has been discussed in Cummings v Claremont Petroleum NL (1996) 185 CLR 124, 133, Re Tyndall (1977) 30 FLR 6, 9-10, Re Dingle; Westpac Banking Corporation v Worrell (1993) 47 FCR 478, McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547, Re Wheeler; Ex parte Wheeler v Halse (1994) 54 FCR 166 and Macchia v Nilant (2001) 110 FCR 101, 112-16 [30] to [40]. 6 I do not propose to restate what is said in the above cases. From and assisted by them, the following considerations relevant to this application can be expressed There is a discretion to embark upon a supervisory review of a decision of the trustee. If there is an available review to an administrative body (as there is under ss 149K and 149Q), that is a relevant consideration. Due weight should be given to not interfering with the day to day administration of the estate. If, from otherwise hearing matter N7280 of 2001, I am able to pass conveniently upon questions of fact and law raised in both proceedings, then I should do so. I am not obliged to attempt to resolve the underlying factual and legal matters raised by the grounds of the notice. This is especially so where there is an alternative remedy available and, as I have found, the applicant for review under s 178 has manifested questionable reliability in his evidence in matter N7280 of 2001. However, where issues are straightforward or otherwise able to be taken up, it may not be inappropriate to deal with them, especially since some grounds of the notice (the matters covered by N7280 of 2001) have been ventilated in full. 7 The trustee took the course of not seeking to debate factual material underlying the notice and the complaints of Mr Chase about the notice. The notice and supporting documents were admitted into evidence, but only for the purpose of identifying the fact and terms of the notice and of the supporting material. 8 I propose to analyse the notice. To the extent that my views from matter N7280 of 2001 are germane, I will draw conclusions. I also propose to examine the balance of the grounds, though bearing in mind the availability of factual review in the AAT. 9 The first, second and third grounds concerned the allegation that Mr Chase continued to manage three corporations. The grounds were stated as follows: 1. The Bankrupt, after the date of the bankruptcy, namely, 8 April 1998, continued to manage the corporation known as Freechase Pty Limited, ACN 000 025 212, without having been given leave to do so under Section 206G(1) (formerly Section 229) of the Corporations Law. … 2. The Bankrupt, after the date of the bankruptcy, namely, 8 April 1998, continued to manage the corporation known as WN Bull Holdings Pty Limited, ACN 000 514 349, without having been given leave to do so under Section 206G(1) (formerly Section 229) of the Corporations Law. … 3. The Bankrupt, after the date of the bankruptcy, namely, 8 April 1998, continued to manage the corporation known as Peter J Chase Pty Limited, ACN 001 777 199, without having been given leave to do so under Section 206G(1) (formerly Section 229) of the Corporations Law. … 10 The notice contained evidence which was said to support these propositions. The material which was not admitted into evidence as to its truth, but as indicating the basis of the notice relied upon by the trustee, included Mr Chase's evidence at his examination, his statement of affairs and company searches. 11 Mr Chase gave the following evidence about these matters. He was not cross-examined on these paragraphs of his affidavit of 12 June 2001: 16. Mr Donnelly asserts that I have "continued to manage" Peter J Chase Pty Limited, Freechase Pty Limited and W.N. Bull Holdings Pty Limited whilst bankrupt without the leave of the Court. 17. At the time of my bankruptcy my wife and I were directors of three companies: (a) Peter J Chase Pty Limited; (b) Freechase Pty Limited; (c) W.N. Bull Holdings Pty Limited. 18. The only assets of these companies were: (i) 4219 (out of 4220) shares owned by W.N. Bull Holdings Pty Limited in Freechase Pty Limited; (ii) a debt owed by my bankrupt estate to Freechase Pty Limited in the sum of approximately $4,220 (although this money may have been share capital rather than director's loan account as I had believed when I completed my statement of affairs); and (iii) a debt owed by my bankrupt estate to W.N. Bull Holdings Pty Limited in the sum of approximately $307,086. (iv) a debt owed to Peter J Chase Pty Limited by a T.J. Freebody. 19. At no time during my bankruptcy did any of these companies operate a bank account, undertake any business activity or enter into any business transaction. 20. During the period of my bankruptcy, Mr H.W. Triglone, an accountant, prepared annual returns for each of these companies which I signed as a director of the company. I paid Mr Triglone for this service. I did this without thinking whether I was thereby contravening any legal prohibition. After these facts were canvassed during my public examination on or about 29 May 2000, and the propriety of my conduct there called into question, I instructed Mr Triglone to have W.N. Bull Holdings Pty Limited and Freechase Pty Limited removed from the Register of Companies. Both these companies have now been de-registered. I have resigned as a director of Peter J Chase Pty Limited. 21. I instructed Mr Triglone to have W.N. Bull Holdings Pty Limited removed from the Register of Companies, despite W.N. Bull Holdings Pty Limited having lodged a proof of debt in my bankruptcy for $307,086 because I am sure that there will not be any material benefit derived from that proof of debt and the cost and trouble of keeping W.N. Bull Holdings Pty Limited in existence was not warranted. (I am advised that the effect of what I have done is that the proof of debt is now vested in the Australian Securities and Investments Commission. If my belief that the proof of debt is worthless proves incorrect, then I will take advice as to what action to take at that time). 12 There appears to be a contest about the honesty of Mr Chase's conduct. He says he did what he did without thinking whether he was thereby contravening any legal prohibition. The trustee's notice contains an assertion of a contumelious disregard of his obligations. These matters were not taken up in cross-examination before me. However, they are factual matters which could (absent other considerations) be readily dealt with by the AAT. Whilst I am loathe to rely on Mr Chase's evidence alone, given that the present position of these companies seems clear, and in the absence of cross-examination, I would tend not to maintain the notice on this ground alone. 13 The fourth ground alleged that Mr Chase continued to manage Permfox: 4. The Bankrupt, after the date of the bankruptcy, namely, 8 April, 1998, continued to manage the corporation known as Permfox Pty Limited, ACN 052 096 796, without having been given leave to do so under Section 206G(1) (formerly Section 229) of the Corporations Law. … 14 The notice contained evidence from Mr Chase's public examination, company records and his statement of affairs. 15 Mr Chase gave the following evidence, upon which he was not cross-examined. 22. Mr Donnelly asserts that I have "continued to manage" Permfox Pty Limited whilst bankrupt without the leave of the Court. 23. I deny that I have continued to "manage" Permfox Pty Limited. I refer to paragraphs 8, 9, 11 and 12 above. … 8. …and, in my opinion, I have no interest, manifest or concealed, in the assets and income of either Permfox Pastoral Company or Permfox Pty Limited. 9. Since my bankruptcy I have resided with my wife, Shirley Margaret Chase, on a farming property named "Tangaratta" near Cassilis, N.S.W. and acted as farm manager of the property. Most of the land on which the farm stands is owned by my son Peter Damien [sic] Chase. The balance of the land, formerly part of an adjoining property called "Yarrawonga", is owned by Permfox Pty Limited (Doc J). The farming business is conducted by Permfox Pastoral Company (i.e. my son, Peter Damien [sic] Chase). ... 11. …I can engage contractors to do this work because I am employed by my son and the farm does not pay me a salary. … 12. In or about June 1998 I thought it would be a good idea for Permfox Pty Limited to acquire a small part of a neighbouring property named "Yarrawonga" then on the market for sale. …I negotiated with the vendors for the purchase of approximately 500 acres out of the total Yarrawonga 8000 acres. The funding of the purchase was procured by borrowing the purchase price on the security of Timothy and Helen Lonergan's Terrigal unit. All formal documents for the purchase and financing thereof were signed by Peter Damien [sic] Chase and Helen Genevieve Lonergan as directors of Permfox Pty Limited and by Timothy John Lonergan and Helen Genevieve Lonergan as owners of the Terrigal unit. 16 Managing assets (the land) owned by Mr Chases's son, Peter Damian Chase (who I refer to without disrespect as Peter), and by Permfox Pty Ltd (Permfox) (the business) is not necessarily, it seems to me, managing the corporation. However, there may be a substantial question as to whether what Mr Chase does amounts to running the farm or managing the corporation. The material before me is somewhat inadequate upon which, confidently, to draw conclusions. That, in significant part, may be because the trustee has not sought to justify the notice. 17 The fifth ground was in the following terms: The Bankrupt failed to disclose any particulars of income or expected income as required by a provision of the Bankruptcy Act, 1966 referred to in sub-section 6A(1) or by Section 139U. 18 Mr Chase gave the following evidence which was not the subject of cross-examination: 24. Mr Donnelly asserts that I failed to disclose to him "particulars of income or expected income" namely the fact that, as part of the benefits my wife and I derive from managing the farm at "Tangaratta" we receive free accommodation, free electricity and the right to slaughter cattle for food. 25. I did not consider these "valuable benefits" (Mr Donnelly's description) to constitute "income" which I had to disclose to Mr Donnelly. 26. At the commencement of the bankruptcy I said to Mr Melluish (Mr Donnelly's assistant in the bankruptcy) words to the effect "I manage "Tangaratta" which is a farm owned by my son." I assumed that Mr Melluish would convey this information to Mr Donnelly. At the meeting of creditors I explained my role as farm manger of "Tangaratta". I assumed that Mr Donnelly would read the minutes of the meeting taken by his employees an/or discuss the proceedings at the meeting with them. 27. I have never heard of a farm manager who did not live rent-free on the farm he managed and have the benefit of free electricity, free water, the right to grow and harvest fruit and vegetables on the farm, and consume farm produce for food. I assumed that everyone interested in my bankruptcy would take for granted that these benefits are usual if not universal perquisites [sic] for farm managers. I assumed that if Mr Donnelly wanted to know whether my wife and I received free accommodation, free electricity and any right to consume farm produce for food he would have mentioned the matter to me at some time during the three years of my bankruptcy, probably at or soon after the first meeting of creditors or when he was considering the question of income contribution. 19 The income referred to was identified in the notice as the aged pension and free accommodation and food at "Tangaratta" from his work as resident manager. 20 The claim for remuneration under s 139E of the Act for his services as a farm manager was abandoned in matter N7280 of 2001. It was abandoned because of the late supply of evidence and the fact that to proceed on the issue would have caused an adjournment of the hearing of that matter. 21 In the circumstances, I do not think it appropriate to require Mr Chase to deal with those matters at another hearing. 22 The sixth ground was as follows: At any time during the period of 5 years immediately before the commencement of the bankruptcy or at any time during the bankruptcy, the Bankrupt disposed of property but failed to explain adequately to the Trustee why no money was received as a result of the disposal or what the Bankrupt did with the money received as a result of the disposal. 23 The notice directed itself to a number of pieces of property. The first was the yacht "Adamant" which it was said was sold by Mr Chase in 1996. I have already dealt with the subject. Not without hesitation, I have concluded that Peter owned half the boat from the time of its construction, and Mr Chase's half share was given to Peter in 1991. Thus, this ground cannot stand to support the notice. 24 The second piece of property was the $9m worth of property said to have been sold in America between 1988 and 1992. This was referred to by Mr Chase in the trustee's examination. However, he admitted on oath before me that this evidence was false. The hearing proceeded before me largely on the basis of his evidence that the moneys sent to Australia in 1991 came substantially from option fees totalling USD 500,000. I do not repeat here my findings about these matters in matter N7280 of 2001. In any event, matter N7280 of 2001 proceeded without any real investigation of this alternative source of funds. I am left with his disavowal of his evidence at the examination. In all the circumstances, I do not think it appropriate to continue to have the notice founded on this ground. 25 The third piece of property were dividends paid by Permfox of $30,000 prior to 30 September 2000. Reference was made in the particulars of this ground to evidence of Mr Houston, Permfox's and Mr Chase's accountant. 26 Mr Chase said the following in evidence, upon which he was not cross-examined: 33. Mr Donnelly asserts that I have failed to account for a dividend of $30,000 paid on the dissolution of Permfox Pty Limited on 30 September 2000. 34. Permfox Pty Limited was not dissolved. It still continues in existence. I am not a shareholder of Permfox Pty Limited. I did not receive $30,000 from Permfox Pty Limited either on 30 September 2000 or at any other time. 27 Neither Peter nor Mr Chase's daughter, Helen Genevieve Lonergan, was asked about this. The continued existence of Permfox was demonstrated by it being a party to these proceedings. 28 In circumstances where no questions were asked of these people who could give evidence about the subject matter, I do not think it appropriate to continue to have the notice founded on this ground. 29 The seventh ground was as follows: The Bankrupt failed (whether intentionally or not) to disclose to the Trustee his beneficial interest in any property. 30 Various pieces of property were identified. The first was a Nissan motor vehicle. Reference was made in the notice to evidence given that such a motor vehicle was registered in Mr Chase's name. 31 Mr Chase gave the following evidence, upon which he was not cross-examined: 35. Mr Donnelly asserts that I did not disclose to him that I was the registered owner of Nissan motor vehicle QBN 593. 36. I am the registered owner of Nissan motor vehicle registered number QBN 593. 37. I am not the legal owner or the beneficial owner of that vehicle. The vehicle was purchased and paid for by my son Peter Damien [sic] Chase through Permfox Pastoral Company as a vehicle for the farm. I have no interest in the vehicle. 38. The vehicle is registered in my name because I reside on the farm whereas my son does not and the vehicle is entitled to Primary Producer registration fees. 32 Peter was not asked about this. 33 In these circumstances, I do not think it appropriate to continue to have the notice founded on this ground. 34 The second and third pieces of property were an "effective 50% control of the shareholding of a company called Freechase Pty Limited". The control was through his shareholding in W N Bull Holdings Pty Limited, the shareholding in which was also said not to have been disclosed. Reference was made to company searches, his public examination and his statement of affairs. 35 Mr Chase gave the following evidence about this, on which he was not cross-examined: 39. Mr Donnelly asserts that I did not disclose to him my shareholdings in Freechase Pty Limited and W.N. Bull Holdings Pty Limited. 40. I agree that I did not disclose those shareholding in paragraph 4 of my statement of affairs (Doc. K) (though I did disclose them at paragraph 39). 41. I refer to paragraphs 18 and 21 above. [to which paragraphs, see par 12 above]. 36 I do not think, in all the circumstances, that it is appropriate for this to continue as a ground for the sustaining of the notice. 37 The fourth, fifth, sixth and seventh pieces of property referred to are the Terrigal unit, the proceeds of sale of the yacht "Adamant", the proceeds of sale of the Manly unit and the properties "Tangaratta" and "Yarrawonga". 38 On the facts as found none of these pieces of property was owned beneficially by Mr Chase; nor did he have a beneficial interest in them. 39 The orders available under s 178 of the Act are wide and flexible. I see no reason why, in the light of the views expressed above, that the notice should not be set aside to the extent that it relies on the grounds which I have indicated should not remain. 40 I will hear the parties on the question of relief in those circumstances, in particular, whether the notice should remain extant on the remaining grounds, and on the question of costs. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop.