Condon v Watson

Schedule 2 Appointment Appointment Type Sole/joint Date of Appointment Continental Cafe Albert Park Pty Ltd CVL Sole 08/01/2018 B & C Steele Investments Pty Ltd CVL Sole 29/01/2018 Ortrox Pty Ltd OL Sole 09/03/2018 Mobile One Australia Pty Ltd CVL Sole 08/02/2018 Tau Moemai Pty Ltd CVL Sole 16/02/2018

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

Background 1 Before the Court is an ex parte application made under the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) and the Corporations Act 2001 (Cth) (the Corporations Act) by Brendan Nixon (Mr Nixon) and Leon Lee (Mr Lee), registered trustees in bankruptcy and registered liquidators. In his affidavit, Mr Lee provided lists of 54 bankrupt estates for which he is a joint trustee in bankruptcy with Mr Nixon (Bankrupt Estates) and five liquidations for which he is the sole liquidator of the companies (Companies). 2 Mr Lee was employed as a partner at a firm of accountants specialising in insolvency and resigned from his employment effective from 16 March 2018. In their comprehensive written submissions, the applicants submitted through their lawyer that it would be undesirable and impractical for Mr Lee to remain in those capacities. Consequently, the applicants seek orders that Mr Lee's resignation as a trustee in bankruptcy from the Bankrupt Estates be accepted and that he be removed as the liquidator of the Companies.

Service and power to dispense with service 3 Ordinarily, rr 8.02(4)(a) and (b) of the Federal Court (Bankruptcy) Rules 2016 (Cth) (the Bankruptcy Rules) require the application and supporting affidavits (Originating Documents) the subject of these proceedings to be served on, at the very least, the Official Receiver and the bankrupts of the estates from which Mr Lee seeks to resign as trustee. 4 In addition to the Bankruptcy Rules, the Federal Court Rules 2011 (Cth) (the Federal Court Rules) apply to these proceedings: r 1.04(2)(a) of the Bankruptcy Rules. Rule 1.34 of the Federal Court Rules provides that: The Court may dispense with compliance of any of these Rules, either before or after the occasion for compliance arises. 5 Rule 8.02(4)(a) of the Bankruptcy Rules was satisfied when the Originating Documents were served on the Official Receiver, whom I note has not provided a position on the application. 6 The Originating Documents were not, however, served on any, much less all, of the bankrupts; hence r 8.02(4)(b) of the Bankruptcy Rules was not complied with. Mr Nixon deposed at [11] of his affidavit that it would cost approximately $10,000 to personally serve each of the bankrupts. To this issue, the applicants submitted that: (a) personal service on the bankrupts would be a waste of money in the circumstances; (b) the removal of Mr Lee as a trustee of the Bankrupt Estates does not affect the bankrupts - their remaining trustee, Mr Nixon, still has the same name, address and contact details; … 7 In Shanahan, in the matter of Shanahan [2014] FCA 1080, Rangiah J held at [7] that in circumstances where there is a significant number of bankrupts and the Official Receiver has been served, the "inconvenience and expense to the estates" is a relevant consideration for the Court (see also Condon v Watson [2009] FCA 11; (2009) 174 FCR 314 at [15]). His Honour noted at [8]: It is also relevant that there is no likely prejudice to the creditors, bankrupts and members. The applicants have agreed to accept a condition that they will not charge any professional fees to any of the estates for work done by them to familiarise themselves with the prior conduct of the estates. They have also agreed that they should bear their own costs of this application. His Honour determined at [9] that it was appropriate for the Court to make orders, inter alia, dispensing with service.

Power and process for Mr Lee to resign as a trustee in bankruptcy 8 In the present matter, I note the applicants are joint trustees for all of the Bankrupt Estates and Mr Nixon has consented to continuing as the sole trustee (per his affidavit at 10). It is within the ambit of the Court's discretion to accept the resignation of a registered trustee from the office of trustee of an estate: s 180 of the Bankruptcy Act. In Condon, Lindgren J held at [33] that: … on the basis that multiple trustees are permissible, s 180 allows the Court to accept the resignation of one of them. The alternative and narrower construction is that the Court can accept the resignation, whether of one trustee or of multiple trustees, only if no registered trustee would be left in office. I cannot think of any sensible purpose that would have been intended to be served by this narrower construction. (Emphasis added.) The approach taken by Lindgren J was endorsed by Edelman J in Nixon, in the matter of Nixon [2015] FCA 976 at [22]. 9 The applicants also sought "for the sake of clarity" a direction authorising and regularising any action of Mr Nixon as the sole trustee in bankruptcy of the Bankrupt Estates, similar to that which was made in Shanahan. 10 I am satisfied in the circumstances where: Mr Lee has resigned from his employment; serving the individual bankrupts would be of considerable expense; Mr Nixon, one of the joint trustees, will continue as the sole trustee; and the Official Receiver was given notice of the application and has not raised any opposition that there would be no prejudice against any of the Bankrupt Estates by: dispensing with the usual requirements for service of this application under the Bankruptcy Rules; accepting Mr Lee's resignation as a trustee in bankruptcy from the Bankrupt Estates; and making a direction as to Mr Nixon's entitlements and obligations as the sole trustee of the Bankrupt Estates.

Service and power to dispense with service 11 Rules 2.7(1) and 2.8(1) of the Federal Court (Corporations) Rules 2000 (Cth) (the Corporations Rules) ordinarily require the Originating Documents in these proceedings to be served on the Companies, and on the Australian Securities and Investments Commission (ASIC). Rule 1.34 of the Federal Court Rules also applies to applications made under the Corporations Act, allowing the Court to dispense with compliance with any of the Rules: r 1.3(a) of the Corporations Rules. 12 The applicants submitted that the Companies have not been served in accordance with r 2.7(1) of the Corporations Rules because Mr Lee is the current liquidator of the Companies. This would effectively mean that the applicants would have to serve one of themselves.

Power and process for Mr Lee to be removed as liquidator 13 At [28] of their written submissions, the applicants observed that Mr Lee could resign without leave of the Court; however, his resignation as the sole liquidator would lead to an interregnum in that office. They submit further that their application under s 90-20 of Sch 2 of the Corporations Act to have Mr Nixon appointed as the liquidator would avoid such an issue from occurring. Indeed, in his affidavit Mr Nixon consented to being appointed as the liquidator of the Companies, gave evidence that he will retain the same accountants with the day-to-day conduct of the liquidations and gave undertakings not to charge for "reading in" on to the liquidations. 14 In Nixon, Edeleman J cited at [38] a passage in Emerton Pty Ltd v Referral Marketing Services Pty Ltd & Ors [2009] NSWSC 738 where Brereton J said: 19 … If a liquidator wishes to resign and can do so out of court, but instead approaches the Court … in order to avoid a gap in the administration, it is in the interests of the administration that the liquidator be removed … in order that he or she might be replaced without delay and interruption to the administration. 15 For present purposes, s 90-15 of Sch 2 of the Corporations Act relevantly provides: 90-15 Court may make orders in relation to external administration Court may make orders (1) The Court may make such orders as it thinks fit in relation to the external administration of a company. Orders on own initiative or on application (2) The Court may exercise the power under subsection (1): (a) on its own initiative, during proceedings before the Court; or (b) on application under section 90-20. Examples of orders that may be made (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 external administrator of the company; (c) an order that another registered liquidator be appointed as the external administrator of the company; … … Section does not limit Court's powers (7) This section does not limit the Court's powers under any other provision of this Act, or under any other law. 16 I am satisfied in the circumstances where: Mr Lee has resigned from his employment; there is no utility in requiring the applicants serve one of themselves with this application; Mr Nixon has consented to being appointed the liquidator, will retain the file accountants presently overseeing the liquidations and will not charge for familiarising himself with the liquidations; and ASIC was given notice of the application and has not raised any opposition that there would be no prejudice to any of the Companies by: dispensing with the usual requirements for service of this application under the Corporations Rules; removing Mr Lee as the liquidator; and appointing Mr Nixon as the liquidator.

Conclusion 17 Having considered the material provided in the application and supporting affidavits filed by the applicants, it is appropriate for the Court to make the orders sought. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier.