Dunwoody v Jefferson; In the matter of Dunwoody

Submissions 13 Mr Peter Dunwoody and McDonald Murphy submit : (a) the Trustees were obliged under s 64(1) of the Act to call a meeting of creditors when the required number of creditors requisitioned a meeting; (b) having regard to the mandatory nature of s 64(1), the application for directions was totally unwarranted; (c) Heerey J directed that a meeting be called unless the Trustees obtained an injunction to restrain the holding of the meeting; (d) the Trustees were removed at the meeting of creditors when it was ultimately held; (e) the conduct of the Trustees was not reasonable and they ought to be denied their costs and indemnity out of the bankrupt's estate; (f) application Q7233 of 1999 was necessary because of the conduct of the Trustees and their attempt to proceed ex parte, in private and without notice to the creditors that an application, Q7218 of 1999 had in fact been made by the Trustees; (g) they submit that the Trustees should pay their costs of Q7233 of 1999, their appearance before Heerey J on 1 July 1999 and also their costs of this application for costs on an indemnity basis because the conduct of the Trustees was in clear breach of s 64(1) of the Act and was contumelious. 14 The Trustees submit : (a) they were justified in seeking directions because the creditors were acting in concert with the bankrupt to seek their removal, in the Trustees' belief, to avoid the proper investigation and pursuit of the bankrupt's property. This they stated was not in the best interests of the creditors; (b) the offer of settlement was reasonable and should have been accepted by Mr Peter Dunwoody and McDonald Murphy to avoid the costs of a further hearing; (c) application Q7233 of 1999 was unnecessary because the creditors were aware that the Trustees intended to seek directions from the Court and the creditors should have awaited the outcome of that application when it was made; (d) no circumstances had been made out to deprive the Trustees of their costs or their indemnity from the bankrupt's estate and no basis had been shown to justify the making of an order against them for costs.

Conclusion 15 Section 64 of the Act provides : "SECTION 64 TRUSTEE TO CONVENE MEETINGS 64(1) The trustee must convene a meeting of the creditors of a bankrupt: (a) whenever the creditors so direct by resolution; and (b) whenever so requested in writing by at least one-fourth in value of the creditors; and (c) whenever so requested in writing by less than one-fourth in value of the creditors, being a creditor who has, or creditors who together have, lodged with the trustee sufficient security for the cost of holding the meeting. 64(2) The trustee may convene at any time a meeting of the creditors of a bankrupt." 16 The obligation cast on the Trustees by s 64(1) of the Act was mandatory. It is to be contrasted with s 64(2), which is permissive. 17 The ability of a trustee under s 134(4) of the Act to approach the Court for directions is not a section designed to alleviate the obligation of a trustee to make decisions which he or she ought to make in the proper administration of a bankrupt's estate, or to do acts which the Act requires the trustee to do. The creditors are given a statutory right under s 64(1) to requisition a meeting of creditors if the statutory number requisition such a meeting. 18 Absent some compelling reason that the calling of the meeting would be improper or against the public interest, application Q7233 of 1999 would inevitably have led to the Trustees being directed to call the meeting. Indeed, Heerey J appears to have made the order on that application. The transcript indicates as follows : "MR CONOMOS: Well, if the Court - given what your Honour said, if it is that the application for directions will not lead to directions because it is too hypothetical, then my friend has made an application for an order compelling the trustees to convene the meeting. If necessary, the trustees can file an application for an injunction restraining the holding of the meeting, and the very same issues as my friend may have to argue on his application factually, will need to be raised in that application. ..... HIS HONOUR: What is your application? Do you say there should be a date fixed for the meeting now? MR LYONS: Yes, your Honour." The reason given by the Trustees for failing to call a meeting was that many of the requisitions were in similar form and therefore indicative that the creditors were acting in concert with the bankrupt to procure their removal. This reason was rejected in argument by Heerey J : "I was told by the solicitor for the trustee that he was reluctant to call the meeting because of doubts as to the bona fides of the creditors. He said that creditors had - the request for the meeting had been 'manoeuvred or created' by the bankrupt himself. It was said that the requests were on identical forms and contained the bankrupt's fax number and that some of the - at least some of the creditors are represented by the bankrupt's solicitors. I do not doubt that under the general power conferred by section 30 the Court has power to restrain meetings of creditors or to prevent the removal of a trustee if that would be in any way improper or contrary to the public interest. See generally re Crawford (1943) 13 ABC 201 at 201 and the Carse cases therein cited. However, apart from what I was told from the Bar Table there is, at the moment, no evidence at all to support the concerns advanced by the trustee. It is important, particularly in the light of the delay which has occurred to date, that the process mandated by the Act be complied with, reserving the right of the trustee to make such application on proper material as he sees fit. So I will direct that not early [sic] than 15 July 1999 the trustee give notice of the meeting of creditors to be held pursuant to section 64.1 of the Bankruptcy Act and I order that any application by the trustee to restrain the holding of the meeting or the passing of any resolution thereat be filed together with affidavits in support on or before 8 July . ..." 19 The form of the letter to which the Trustees referred was : "I am a creditor in the estate of Mr Dunwoody and my details appear below. In early February I wrote to you and expressed my concern about your administration of Mr Dunwoody's estate. I asked you to convene a meeting of creditors to consider a motion whether or not you should continue as trustees of his estate. Following reassurances from you that you would promptly attend to administering the bankrupt's estate, I agreed to rescind my request for the meeting to consider your continued management of the estate. Your third report to creditors claimed fees of $145,990. Your latest statement to the 30th of April claims additional fees of $37,530.30 bringing your total claimed fees to $183,520.30. In addition you have incurred legal fees in excess of $79,650 to March 7, bringing the total charges in the administration to over $263,170.03. It is apparent to me that there is no clear end to your administration and your charges and legal fees. The Committee of Inspection also expressed its concern to you about the cost of your administration and the level of fees. I am particularly concerned that you have not been prepared to negotiate a fixed fee and that these costs continue to accumulate at a rate of more than $37,595.75 /month. It is now quite clear that under your administration my position as a creditor has been severely eroded. There will be no funds available for dividends whether Mr Dunwoody's current Section 73 proposition is approved or you continue to pursue Mr Dunwoody. Pursuant to Section 64(1) of the Bankruptcy Act I now call upon you to convene a meeting of creditors to consider a resolution that you be removed forthwith from your position as trustee of this estate. The minimum period of notice under Section 181 is seven days and consequently there seems to be no reason why the meeting could not be convened by Friday 21 May or Monday 24 May at the latest. I request immediate confirmation from you that you will promptly arrange this meeting failing which we will have to apply to the Federal Court for an injunction to compel you to comply with your obligations under the Act. Your early response in writing is requested." 20 It is clear from the terms of the letter what the principal concern of the creditors was in requisitioning the meeting; it was the costs and expenses incurred to date in the administration of the estate and the question of whether, with fees being incurred at such a rate, there was going to be anything left by way of dividend to the creditors. 21 The response of the Trustees to these concerns was contained in their solicitor's letter to Bennett and Philp of 24 May 1999. They said : "As to your advice that the intentions of creditors in the estate clearly appear from the enclosed requisitions, my clients have instructed me to make the following comments : · The comments made by creditors in their requisitions are identical; · The comments relating to fees are identical; · The comments, insofar as they relate to my clients' last statement to 30 April 1999, were not provided to creditors or to the committee. That information was provided to your Mr Bennett in representing the bankrupt with a view to my clients negotiating an outcome in relation to fees; · The comments are misleading in that they state that my clients are not prepared to negotiate a fixed fee. My clients note the wishes of creditors and are clearly concerned by the comments the creditors have made." 22 Heerey J left it open to the Trustees to seek injunctive relief if they wished to make good their allegations. However this did not occur. The creditors were unanimous in their resolution to remove the Trustees. 23 In my view, the application for directions by the Trustees was totally unnecessary and was unreasonable. In these circumstances the Trustees must bear the costs of it personally and without entitlement to be indemnified out of the bankrupt's estate because the costs, charges and liabilities referrable to the application were not properly incurred: Re Beddoe; Downes v Colfam [1893] 1 Ch 547 at 560; Re Bryant; Ex parte Gordon (1889) 6 Morrell 262 at 266; Re Dusseck; Ex parte The Trustee v Australian Mosaic Flooring Ltd (1964) 20 ABC 159; Adsett v Berlouis (1992) 37 FCR 201 at 211. 24 Application Q7233 of 1999 was the direct result of the conduct of the Trustees, although it was later in time than the Trustees' application for directions. Contrary to what was said in the letter of 24 May 1999, the Trustees did not take steps to enable any creditor who was interested to intervene and be heard on the application. To the contrary, the Trustees attempted to have the matter dealt with in Chambers, privately, and to the exclusion of the creditors. Ultimately, Heerey J made orders for the calling of the meeting in terms of the relief sought by Mr Peter Dunwoody and McDonald Murphy. 25 The Trustees were respondents to Q7233 of 1999. After service of the application on them, they persisted in their refusal to call a meeting as required by s 64(1) of the Act. The grounds of their refusal were found to be without substance. In my view the Trustees must pay the costs of Mr Peter Dunwoody and McDonald Murphy of and incidental to Q7233 of 1999 and of their intervention and appearance in Q7218 of 1999 to be taxed if not agreed. 26 I am not persuaded that the offer of settlement in any way alters the situation. The object of the offer was to protect the position of the Trustees, by preserving their right to costs and indemnity, and by avoiding a personal liability for costs to Mr Peter Dunwoody and McDonald Murphy. In any event, in the circumstances I have found, the offer was neither reasonable nor proper, in the interests of the creditors. 27 The refusal of the Trustees to call the requisitioned meeting was unjustified and was to seek to maintain their position as Trustees of the estate, in the face of substantial support for a meeting to remove them. To fail to call the meeting when proceedings were initiated by application Q7233 of 1999 and to thereafter resist such a course was so unreasonable, that it warrants the making of an order that the costs of Mr Peter Dunwoody and McDonald Murphy Machinery Pty Ltd be taxed on an indemnity basis: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper.

Counsel for the Applicant: A Lyons Solicitor for the Applicant: Bennett & Philp as town agents for Barry Beaverson & Stenson

Counsel for the Respondent: D Savage Solicitor for the Respondent: Bowdens

Date of Hearing: 1 October 1999 Date of Judgment: 11 April 2000