Condon v Watson

Dispensing with Notice 6 The requirement for notice in relation to the Bankrupt Estates derives from subrules 8.02(2)(b) and (c) of the Federal Court (Bankruptcy) Rules 2005 (Cth) which provide: Resignation or release of trustee (Bankruptcy Act ss 180, 183) (2) The application and supporting documents must be served on: (a) the Official Receiver; and (b) the bankrupt; and (c) anyone else (including a creditor) as ordered by the Court. 7 The requirement for notice in relation to the Liquidation Estates and CVL Estates derives from r 2.7(1) of the Federal Court (Corporations) Rules 2000 (Cth): Service of originating process or interlocutory process and supporting affidavit (1) As soon as practicable after filing an originating process and, in any case, at least 5 days before the date fixed for hearing, the plaintiff must serve a copy of the originating process and any supporting affidavit on: (a) each defendant (if any) to the proceeding; and (b) if the corporation to which the proceeding relates is not a party to the proceeding - the corporation. 8 In the absence of any contradictor, I proceed on the basis asserted by the applicants that there is power to dispense with any additional notice such as to the bankrupts. The reason why I am content for the purposes of this application to proceed in this way is as follows. 9 As to the Bankrupt Estates, r 1.03(2)(a) of the Federal Court (Bankruptcy) Rules 2005 (Cth) provides that the "other rules of the Court apply, to the extent that they are relevant and not inconsistent with these Rules … to a proceeding in the Court to which the Bankruptcy Act applies". In the case of the Liquidation Estates and the CVL Estates there is a very similar rule in r 1.3(2) of the Federal Court (Corporations) Rules 2000 (Cth). 10 In each case, these rules might pick up r 1.34 of the Federal Court Rules 2011 (Cth) which provides for the power for the court to dispense with compliance with any of the Rules, either before or after the occasion for compliance arises. 11 Similar circumstances to this case arose in Condon v Watson [2009] FCA 11; (2009) 174 FCR 314. In that case, Mr Condon, "in substance", employed Mr Watson. They were jointly trustees in bankruptcy of 33 estates, liquidators of nine companies the subject of court orders for winding up, and liquidators of eight companies that were the subject of creditors' voluntary windings up. When Mr Watson's "employment" ceased he agreed to resign all of his appointments in favour of Mr Condon. At 317 [15], Lindgren J said that he was satisfied on the evidence to which I have referred that it would be wasteful and inconvenient for the various groups of creditors to be consulted. The cost of ascertaining their wishes would be borne out of the assets constituting the various estates in bankruptcy or the assets of the various companies the subject of external administration, as the case may be. 12 Lindgren J observed that there was evidence that the Insolvency and Trustee Service of Australia and ASIC had been notified of the application but neither wished to be heard in opposition to it. 13 In this case, notice of this application was given to ASIC, the AFSA, and the Official Receiver, none of whom opposed the application. I am satisfied that it is not in the interests of justice to require the applicants to give notice to all the relevant parties including 85 estates and 71 bankrupts and at least 617 creditors. 14 However, this does not mean that the application should proceed without any bankrupt or any creditor being given notice or any steps being taken to bring the application to the attention of any creditors. In particular, I had three concerns prior to the oral submissions made by Mr Jiear on behalf of the applicants. 15 First, although there are aspects of the transition for which the costs will not be passed on to the estates (the costs of this application, and the costs of notifying the creditors of the change of trustee and liquidator), the evidence in this case fell short of any agreement by the applicants that they will not charge professional fees to familiarise themselves with the prior conduct of the estates: Re Shanahan [2014] FCA 1080 [8] (Rangiah J). Mr Jiear properly accepted that there was this deficiency but he submitted that orders could be made, imposing a condition restricting fees on this basis. Indeed, he suggested such orders. If the third concern that I express below had been addressed then I consider that the framing of orders in this way would have been sufficient. 16 Secondly, there has been no public notification of today's hearing which was initially listed only for case management: see Van Der Velde v Estate of Sweeney [2013] FCA 593 [4] (Logan J). 17 Thirdly, it is unclear why no notice has been given, or is prepared to be given, to the petitioning creditors of the five bankrupt estates who had insisted that only Mr Nixon be appointed as the trustee in bankruptcy. After oral submissions this has become my primary concern. It is appropriate that those petitioning creditors be given notice, and be given the opportunity of making any submissions in relation to the proposed two new replacement trustees. 18 Although this suffices to explain my reasons for adjourning this application, in light of the substantial submissions and evidence provided by the applicants on the legal issues concerning the resignation and replacement of Mr Nixon, I will provide these further oral observations concerning my preliminary views on the remaining matters in order to expedite the process when this hearing is resumed.

The Bankrupt Estates 19 In relation to the estates set out in Schedule 1 to 5, the applicants seek to have Mr Nixon resign as one of the joint and several trustees and be replaced by another trustee, who is one of the applicants in these proceedings. Ms Dunn will replace Mr Nixon in relation to the estates in Schedules 1, 3, 4, and 5, and Ms Trenfield will replace Mr Nixon in relation to the estates in Schedule 2. 20 As for the estates set out in Schedule 6, the applicants seek to allow Mr Nixon to resign as sole trustee and to be replaced by Ms Dunn and Ms Trenfield, who will act as joint and several trustees of the estates. 21 Section 180 of the Bankruptcy Act 1966 (Cth) provides that the court "may, subject to such terms and conditions as it thinks just, accept the resignation of a registered trustee from the office of trustee of an estate". 22 Mr Nixon has signed written resignations as trustee in relation to each of the Bankrupt Estates. In Condon v Watson, Lindgren J held that where there are multiple trustees (and on the basis that multiple trustees are permissible), s 180 of the Bankruptcy Act allows the court to accept the resignation of one of them (at 319 [33]). His Honour held that the terms of s 180 permit the court to subject the resignation to the condition that the other trustee consent to continue as sole trustee (at 320 [36]). 23 However, Lindgren J did not consider whether the "conditions as the court thinks just" under s 180 also include the appointment of an additional, second, trustee to the office. Nor did his Honour need to consider whether those conditions could permit the appointment of a new trustee where, as in the case of the estates in Schedule 6, the resignation of Mr Nixon would otherwise leave no trustee which, without further order, would make the Official Trustee the trustee under s 160 of the Bankruptcy Act. 24 In Coshott v Burke [2013] FCA 155 [9], Buchanan J said, obiter, and in the context of a proposed resignation of a single trustee that he did "not doubt that the court has power to appoint another trustee under s 180 of the Bankruptcy Act as a condition of [the] resignation". This reasoning would also apply to the appointment of a second trustee upon the resignation of one of two joint trustees. It is appropriate that I follow this approach: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89, 151-152 [135] (the Court). 25 In relation to the estates in Schedules 1 to 5, my preliminary view is that it is appropriate that, subject to satisfaction of the proper notice being given, the court accept the resignation of Mr Nixon on condition of the appointment of the proposed employee of FTI as a replacement trustee. Similarly, in relation to Schedule 6, it is appropriate that the court accept the resignation of Mr Nixon upon the appointment of the proposed two employees of FTI as replacements.

The Liquidation Estates 26 I turn then to my preliminary views about the Liquidation Estates. 27 The Liquidation Estates are set out in Schedule 7. There are four Liquidation Estates. Mr Nixon and Ms Dunn are joint and several trustees of these four estates. Mr Nixon seeks to resign from these estates and to have Ms Trenfield replace him. 28 A liquidator appointed by the Court who wishes to resign must file with the Registrar, and lodge with ASIC, a memorandum of resignation. The resignation takes effect on the filing and lodging of the memorandum: Corporations Act 2001 (Cth), s 473(1); Federal Court (Corporation) Rules, r 7(1). 29 Section 473(7) of the Corporations Act requires that a "vacancy in the office of a liquidator appointed by the Court must be filled by the Court". 30 In Re McGrath and Another (as liquidators of HIH Insurance Ltd (in liquidation)) [2005] NSWSC 506; (2005) 54 ACSR 55 at 57 [9], Barrett J held that: when s 473(7) refers to a "vacancy in the office of a liquidator appointed by the court" - with a "liquidator" being in the singular - it must comprehend the case where, as envisaged by s 473(8), more than one liquidator was appointed at the outset and a vacancy has arisen in the office of one only by reason of death, disqualification or, as here, resignation (emphasis added). 31 However, subsequent to the decision in Re McGrath, s 530 was introduced into the Corporations Act by the Corporations Amendment (Insolvency) Act 2007 (Cth). Section 530 of the Corporations Act provides: If 2 or more persons have been appointed as liquidators of a company: (a) a function or power of a liquidator of the company may be performed or exercised by any one of them, or by any 2 or more of them together, except so far as the order or resolution appointing them otherwise provides; and (b) a reference in this Act to a liquidator, or to the liquidator, of a company is, in the case of the first-mentioned company, a reference to whichever one or more of those liquidators the case requires. 32 In Condon v Watson at 323 [61]-[63], Lindgren J held s 530 had assimilated the position of multiple liquidators to that of multiple voluntary administrators and multiple administrators of deeds of company arrangement. This has the effect that upon the resignation of one liquidator, a remaining liquidator has the power to perform the functions and exercise the powers of "the liquidators". His Honour considered that the effect of s 473(7), when read with s 530, is that there is only a vacancy in the office of liquidator (which the Court must fill) if the resignation means that there remains no liquidator (ie where all liquidators have ceased to hold office). 33 The applicants did not submit that the reasoning of Lindgren J on this point was plainly wrong. My preliminary view is that in the absence of the applicants making such a submission, and it being accepted, there is no power for the court under s 473(7) to appoint a new co-liquidator to replace Mr Nixon. This reasoning would appear to apply whether Mr Nixon's departure arises from his resignation or from removal. In in the matter of Fluid Form Movement Pty Ltd and Other [2013] NSWSC 2007 [5], Brereton J stated that "[t]he wish of a liquidator to resign for reasonable cause in order to enable a replacement liquidator to be appointed is, even though the liquidator has not formally resigned, sufficient cause for a removal under s 473(1)". 34 For completeness, I record that there was no submission made concerning any power under s 30 of the Bankruptcy Act or any inherent power: see Official Trustee in Bankruptcy [2009] FCA 850 [7]-[9] (Emmett J).

The CVL Estates 35 Finally, I turn to my preliminary views concerning the CVL Estates. 36 The CVL Estates are set out in Schedules 8 and 9. Mr Nixon and Mr McIntosh are currently the liquidators of the estates in Schedule 8, while Mr Nixon and Ms Dunn are the liquidators of the estates in Schedule 9. The applicants are seeking to have Ms Dunn replace Mr Nixon in relation to the Schedule 8 estates, and Ms Trenfield to replace Mr Nixon in relation to the Schedule 9 estates. 37 Section 503 of the Corporations Act provides that the "Court may, on cause shown, remove a liquidator and appoint another liquidator". 38 In Emerton Pty Ltd v Referral Marketing Services Pty Ltd & Ors [2009] NSWSC 738 [19], Brereton J said that if "a liquidator wishes to resign and can do so out of court, but instead approaches the Court as in the present case, in order to avoid a gap in the administration, it is in the interests of the administration that the liquidator be removed under s 503, in order that he or she might be replaced without delay and interruption to the administration". 39 While Mr Nixon could have been replaced as the liquidator of these estates out of court, my preliminary view (subject to the issues raised above in the section of these reasons concerning notice) is that it is appropriate to maintain the efficient administration of the estates by removing Mr Nixon as liquidator in relation to the estates in Schedules 8 and 9 and appointing Ms Dunn and Ms Trenfield after Ms Dunn files a consent to act as liquidator in relation to the estates in Schedule 8 and Ms Trenfield files a consent to act as a liquidator in relation to the estates in Schedule 9.

Conclusion 40 For the reasons I have indicated in relation to notice, the application will be adjourned to a date which I will now fix after hearing from the applicants. My reasons concerning the processes of resignation and replacement of Mr Nixon are preliminary only but are designed to assist the parties, and to reduce costs, in circumstances in which substantial submissions and evidence has been filed and where I have formed the preliminary view that there are deficiencies in those submissions and that evidence. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edelman.