Chu v Lin, in the matter of Lin [2026] FCA 152

Federal Court of Australia|2026-02-24|Before: Thawley J

The Federal Court replaced the Official Trustee with a private trustee, Mr Tonks, to correct an administrative error that had prevented his appointment when the bankruptcy order was made. The change was necessary because the estate's main asset—a property being sold for $4.59 million—was about to settle, and there were questionable legal claims (caveats) on the property that needed urgent investigation. The Court found that replacing the trustee served the best interests of the estate and creditors, even though the Official Trustee had done nothing wrong. The petitioning creditors were awarded $5,000 in costs from the estate, reduced from their actual costs because the application was only needed due to their own filing oversight.

Solicitor advocate for the Official Trustee in Bankruptcy

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

On 19 February 2026, a sequestration order was made against Ms Lin on the petition of the applicants, Ms Chu and Mr Xu. By administrative oversight, the Official Trustee became trustee of the bankrupt estate. Although the applicants' nominated private trustee, Mr Bradley Tonks, had signed a consent to act, it had not been lodged with the Official Receiver as required - see: s 156A(1) of the Bankruptcy Act 1966 (Cth). Accordingly, by operation of s 160, the Official Trustee became trustee upon the making of the sequestration order.
The applicants are owed more than $8 million. They always intended that Mr Tonks be appointed as trustee. They now seek urgent interim relief under s 90‑15(1) of the Insolvency Practice Schedule (Bankruptcy) (IPSB), being Sch 2 to the Bankruptcy Act, to replace the Official Trustee with Mr Tonks, together with an order that the costs of this application be treated as part of the costs of the petition.
The application is urgent because settlement of the sale of the principal asset of the estate, a residential property at Castlecrag, is scheduled for 26 February 2026. The property was sold at auction in December 2025 for approximately $4.59 million. Two caveats are recorded on title, lodged by companies associated with Ms Lin, claiming secured debts totalling about $2.1 million.
The applicants submit that the bona fides of those claims are doubtful. One caveat relates to a mortgage which had previously been discharged. The caveat was lodged by a company associated with Ms Lin, the company was then deregistered, reinstated, the original caveat was withdrawn, and a new one was lodged in its place: Dewan at [42] to [50], [55] to [61]. The other relates to a loan made within six months of the petition and which the evidence suggests is arguably voidable under s 122 of the Bankruptcy Act. The applicants contend, and I accept, that these matters require urgent investigation and, if necessary, challenge by an active trustee.
Yesterday, I made orders abridging time and permitting service by email to ensure this interim application could be heard before settlement of the Castlecrag property. Those orders were made because of the imminent settlement. The evidence indicated that service by email would bring the application promptly to the respondents' attention.
The issue today is whether to make an order removing the Official Trustee and appointing Mr Tonks.
Ms Lin did not appear. The Official Trustee did not oppose the relief sought and has indicated a willingness to facilitate Mr Tonks' appointment. Mr Tonks has provided a written consent to act and confirmed his readiness to assume immediate control of the estate.

REMOVAL OF THE OFFICIAL TRUSTEE AND APPOINTMENT OF MR TONKS

The Court has power under s 90‑15(1) of the IPSB to make such orders as it thinks fit in relation to the administration of a bankrupt estate, including orders that a trustee cease to hold office and that another be appointed. The applicants, as substantial petitioning creditors, have standing: s 90‑20(1)(a). Mr Tonks is a registered trustee and has consented in writing. The question is whether the discretion should be exercised.
The overriding consideration is the welfare of the estate and the interests of creditors as a whole. Section 90‑15 does not require proof of misconduct or default by the incumbent trustee: - see: Borg v de Vries [2018] FCA 2116 at [24]. In my view, the overriding consideration points in favour of replacing the Official Trustee for several reasons.
First, the order replacing the Official Trustee would correct a purely procedural irregularity. The applicants had chosen Mr Tonks from the outset. But for a filing oversight, he would have been trustee upon sequestration. There is no suggestion of fault on the part of the Official Trustee, nor of prejudice to any interested party. Giving effect to the creditors' original choice accords with the policy of the Bankruptcy Act that technical defects not causing substantial injustice should not frustrate proper administration - see, for example: s 306(1) of the Bankruptcy Act.
Secondly, the timing of the Castlecrag settlement supports immediate appointment of a trustee able to act expeditiously. In circumstances where the settlement is to occur in two days' time, and there is a question about the bona fides of the registered caveats, any delay is undesirable. A private trustee is better placed to act promptly.
Thirdly, although alternative statutory mechanisms exist for replacing a trustee, none can reasonably be implemented before settlement, including by reason of mandatory notice periods.
In summary, the removal of the Official Trustee and appointment of Mr Tonks will best advance the interests of the estate and its creditors.
The order gives effect to the creditors' intended choice of trustee and enables prompt investigation of the registered caveats on the estate's principal asset. Ms Lin suffers no relevant prejudice.

The applicants seek an order that their costs of this interim application be paid out of the estate as part of the costs of the petition. The Court has power to make such an order under s 32 of the Bankruptcy Act.
This present application, although necessitated by administrative error by the applicants, may be seen as brought for the benefit of the estate as a whole. On the other hand, absent administrative error, this application would have been unnecessary. These kinds of errors can occur in cases of this kind, and I accept that some costs were reasonably incurred.
I was informed that the costs of this application approached $20,000. In my view, costs in this amount would not be appropriate given the history to which I have referred and the circumstances more generally. In my view, the applicant's costs, fixed at the amount of $5,000 should be paid out of the estate with the priority afforded by s 109(1)(a) of the Bankruptcy Act.

I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Thawley.

Outcomedefendant

Disposition:

The Court ordered: (1) pursuant to s 90-15(1) of the Insolvency Practice Schedule (Bankruptcy), the Official Trustee in Bankruptcy be removed as trustee and Mr Bradley Tonks be appointed in his place; and (2) pursuant to s 32 of the Bankruptcy Act, the applicants' costs of the interim application, fixed at $5,000, be paid out of the bankrupt estate as part of the costs of the creditor's petition with priority under s 109(1)(a).

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