Lahood v Ernst & Young; In the Matter of Dave Lahood Pty Ltd

The Precise Claims for Relief 11 In proceeding NSD 1211 of 2014, Mr Lahood articulated his claims against Mr Leroy in an Amended Originating Process filed on 14 November 2014 in the following terms: This application is made under s 19 of the Bankruptcy Act 1966 and is a complaint that the trustee has not faithfully performed their duties. On the facts stated in the supporting affidavit(s), the plaintiff claims: l. The trustees, being the First, Second, Third and Fourth Defendants, are dishonest, acted secretly and illegally transferred all of the Plaintiff's shares into PAUL LEROY's name and are now blackmailing the Plaintiff to give him $450,000-00 stating it is for remuneration charges and creditors' charges when all that is owed to the creditors is $9,077-00. 2. The trustees, being the First, Second, Third and Fourth Defendants should not be in charge of the Plaintiff's estate because of the enormous charges that HALL CHADWICK has already taken out of the Plaintiff's estate while has agreed and said in writing his charges from the start of David Lahood's bankruptcy until finalization of the bankruptcy to be annulled $100,000-00 capped while he has now proposed to my creditors to have a further remuneration charge of another maximum amount of $95,000-00 while they have sold all my vehicles for under-valuation amount of $103,322-00 and took trustees' fees and agents' commissions and costs and legal fees. AND 3. The trustees, being the First, Second, Third and Fourth Defendants, are to re-emburse the Plaintiff for all monies misappropriated. 4. The trustees, being the First Second, Third and Fourth Defendants, pay costs and damages to the plaintiff as the Court sees fit. 12 The reference in Mr Lahood's claims for relief to s 19 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) is misconceived. Counsel for Mr Leroy submitted that, in truth, Mr Lahood intended to seek relief pursuant to s 179 of the Bankruptcy Act which is in the following terms: 179 Control of trustees by the Court (1) The Court may, on the application of the Inspector General, a creditor or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following: (a) remove the trustee from office; and (b) make such order as it thinks proper. (2) The Inspector General or a creditor may at any time require a trustee to answer an inquiry in relation to the bankrupt's estate or affairs. 13 It does seem to me that Mr Lahood wishes to invoke s 179 in order to have Mr Leroy removed as his trustee and also in order to have the Court order an inquiry into certain actions carried out by Mr Leroy in the administration of Mr Lahood's bankrupt estate. In addition, he wishes to have his estate reimbursed such moneys as the Court might consider were wrongfully expended in the course of the administration of his bankrupt estate. 14 I propose to address the claims made by Mr Lahood in proceeding NSD 1211 of 2014 upon the basis which I have outlined at [13] above. 15 In proceeding NSD 999 of 2014, Mr Lahood has made clear that he makes his claims for relief in that proceeding pursuant to s 536 of the Corporations Act 2001 (Cth) (Corporations Act). In an Amended Originating Process filed by him on 14 November 2014, Mr Lahood set out his claims in the following terms: This application is made under s 536 of the Corporations Act 2001 and is a complaint that the liquidator has not faithfully performed their duties. On the facts stated in the supporting affidavit(s), the plaintiff claims: 1. The liquidators, being the First, Second, Third, Fourth and Fifth Defendants, are dishonest, deceiving and secretly and illegally working out to empty the estate of David Lahood PTY LTD. 2. The liquidators, being the First Second, Third, Fourth and Fifth Defendants, should not be in charge of the money from the Plaintiff's estate. AND 3. The liquidators, being the First Second, Third, Fourth and Fifth Defendants, are to re-emburse the Plaintiff for all monies misappropriated and secretly worked out between the creditors and trustees to burden all the plaintiffs estate through illegal charges and professional and legal fees. 4. The liquidators, being the First Second, Third, Fourth and Fifth Defendants, pay costs and damages to the plaintiff as the Court sees fit. 16 Mr Lahood's claims against the liquidators raise similar considerations as are raised by his claims against Mr Leroy. 17 In proceeding NSD 1211 of 2014, Mr Lahood has named as additional respondents Hall Chadwick, John Jolly and Girija Shivanna. Hall Chadwick is the firm of which Mr Leroy is a member. The other two persons are (or were) employees of Hall Chadwick acting under the direction of Mr Leroy in respect of the administration of Mr Lahood's bankrupt estate. As I have already made clear, Mr Lahood's complaints in proceeding NSD 1211 of 2014 are complaints against Mr Leroy. Mr Leroy is the sole trustee of Mr Lahood's bankrupt estate. It is Mr Leroy alone who has statutory and other duties and responsibilities in respect of the administration of that estate. None of Hall Chadwick, Mr Jolly or Ms Shivanna is a proper party to proceeding NSD 1211 of 2014 and I propose to order that they all be removed as parties to that proceeding. 18 In proceeding NSD 999 of 2014, Mr Lahood has named as additional defendants Ernst & Young, Matt Goodrick and Demetria Kanagasabai. He has done so for reasons which are similar to the reasons for his joinder of Hall Chadwick and the other individuals in proceeding NSD 1211 of 2014. The liquidators are members of the accounting firm Ernst & Young. The other two persons are employees of that firm. None of Ernst & Young, Mr Goodrick or Ms Kanagasabai is a proper party to this proceeding and, for reasons which are substantially the same as those given in respect of proceeding NSD 1211 of 2014, I propose to make an order removing them as parties. 19 By a document styled "Application in a Case" filed in the Federal Circuit Court on 31 October 2014 in proceeding SYG 2749 of 2014 in that Court, Mr Leroy sought the following orders: 1. A direction pursuant to section 134(4) of the Bankruptcy Act 1966 that the respondent, Paul Leroy, would be justified in bringing proceedings by Interlocutory Process in Supreme Court of New South Wales, Equity Division, Corporations List proceedings numbered 2013/145558 to claim an order that the Official Liquidators of Dave Lahood Pty Limited (in Liquidation) have special leave under s.488(2) of the Corporations Act 2001 to distribute the amount of $450,000 to Paul Leroy as an interim payment of surplus. 2. The substantive application in these proceedings brought by the applicant, David Lahood, be dismissed with costs. 20 Counsel for Mr Leroy explained to me at the hearing that the second prayer for relief in his client's Application in a Case was intended to be an application that the whole of Mr Lahood's proceeding be summarily dismissed. Given that I have now heard Mr Lahood's claims on a final basis, Mr Leroy's claim for an order summarily dismissing Mr Lahood's case is otiose. In any event, it was abandoned at the hearing. In addition, Mr Leroy did not press his claim for a direction pursuant to s 134(4) of the Bankruptcy Act at the hearing before me. He wished to reserve his position in respect of that application. I indicated to Counsel for Mr Leroy at the hearing that, were I to dismiss Mr Lahood's proceeding, his client's Interlocutory Application would also stand dismissed. Although Counsel did not necessarily agree with that proposition, I nonetheless think that it must be right. Of course, any dismissal of Mr Leroy's Application for a direction at this stage would not prevent Mr Leroy from making a further application for a direction to the same effect at some appropriate time in the future.

The Present Case 48 Mr Lahood alleges that Mr Leroy has acted secretly, dishonestly and illegally in taking steps to procure the transfer into Mr Leroy's name of the share in the corporation previously held by Mr Lahood. In addition, Mr Lahood has accused Mr Leroy of overcharging fees and disbursements against his bankrupt estate. Finally, Mr Lahood criticises Mr Leroy in selling the 25 motor vehicles seized by him for $103,195.02. 49 Mr Lahood accuses the liquidators of dishonest conduct by secretly and illegally working to empty the estate of the corporation. As is the case with Mr Leroy, he also accuses the liquidators of overcharging fees and expenses in the liquidation. Mr Lahood suggests that Mr Leroy and the liquidators have colluded and conspired to pillage his estate. 50 At various points in his evidence, Mr Lahood also accuses Bankwest of fraud in connection with the taking of its second mortgage over the property. He also complains that certain charges in respect of water and sewerage services to the property ought not to have been paid when settlement of the sale of the property took place. Further, at times he goes so far as to suggest the property was sold at an undervalue. 51 None of the complaints and accusations which I have summarised at [50] above is supported by any admissible evidence. In any event, it cannot avail Mr Lahood at all in the applications which he is currently making to attack the transaction with Bankwest into which he entered in 2008. The simple fact is that he has never taken any steps to challenge that transaction. He has never applied to set aside the judgment which Bankwest obtained against him. He has never attacked the Bankruptcy Notice which was founded upon that judgment. Even if I were satisfied that there was some basis for these serious allegations to be made against Bankwest (which I am not), such allegations cannot be taken into account in support of the relief which Mr Lahood now seeks in the current applications. The alleged fraud of Bankwest cannot be attributed to Mr Leroy or to the liquidators. Second, the property was sold by ING as mortgagee in possession. It was not sold by the liquidators. That sale has never been challenged by Mr Lahood. Neither Mr Leroy nor the liquidators were in control of that sale. Third, all expenses paid out at the time of settlement of that sale were supported by appropriate invoices. In particular, the amount of $3,059 (approx) paid to Sydney Water in respect of water and sewerage charges was amply supported by appropriate documentation. 52 For the reasons which I have given at [51] above, I do not consider that any of the matters to which I have referred at [50]-[51] above (whether considered individually or cumulatively) justify granting to Mr Lahood the relief which he now seeks. 53 There is no evidence to support the very serious allegations of collusion and impropriety made by Mr Lahood against Mr Leroy and the liquidators. I reject those allegations. 54 In a judgment delivered on 2 September 2013 (Re David Lahood Pty Ltd [2013] NSWSC 1244), Brereton J not only ordered that the corporation be wound up but also made a declaration that Mr Leroy was entitled to be registered as the owner of all shares in the corporation held in the name of Mr Lahood. His Honour made that declaration in order to give effect to a transfer signed by Mr Leroy both as transferor and transferee pursuant to s 1072C(4) of the Corporations Act. His Honour held that that transfer gave effect to the sequestration order previously made against Mr Lahood's estate by causing the legal title in the one share previously held by Mr Lahood to be vested in Mr Lahood's trustee in bankruptcy, Mr Leroy. Mr Lahood appeared at the hearing of the proceeding before Brereton J to which I have referred. There was no appeal from the orders made by his Honour. In those circumstances, there is no basis upon which Mr Lahood can now seek to challenge the processes by which Mr Leroy came to be registered as the holder of Mr Lahood's share in the corporation. The investigation of the circumstances in which Mr Leroy came to be so registered would not properly be a matter of inquiry either under the Bankruptcy Act or under the Corporations Act. 55 Mr Lahood challenges the sale of the motor vehicles seized by the trustee in early March 2013. He asserted that the value of the motor vehicles seized on that occasion was of the order of $330,000 whereas the gross proceeds of sale achieved when the vehicles were sold was only $103,195.02. 56 The only evidence on this point comprised a list of vehicles with their VINs and Mr Lahood's assertion that the vehicles were worth as much as $330,000. The list of vehicles in evidence is very general and does not contain any detail as to the model, type and year of manufacture of each of the motor vehicles in question. Nor has Mr Lahood provided any real detail as to the reasoning process by which he arrived at the figure of $330,000. No attempt was made by him to attribute a market value to any individual motor vehicle in the list. 57 In the circumstances, I do not think that the evidence is sufficient to justify an order under s 179 of the Bankruptcy Act that there be an inquiry into the sale of these motor vehicles. Although I accept that Mr Lahood may well be qualified by experience to attribute market values to these vehicles, I am not satisfied that his assertion of a global market value of $330,000 is a sufficient basis for ordering an inquiry. For those reasons, I am not prepared to accede to his application insofar as it concerns these motor vehicles. 58 There remains for consideration Mr Lahood's allegations that both Mr Leroy and the liquidators have overcharged fees and disbursements. 59 There is no doubt that Mr Lahood has been the real cause for the incurring of fees and expenses by Mr Leroy and by the liquidators by unsuccessfully prosecuting various pieces of litigation. It is apparent that a substantial part of the disbursements incurred by Mr Leroy and by the liquidators comprised fees paid to barristers and solicitors in connection with that litigation. 60 As at 1 March 2014, it appears that the liquidators had incurred fees and disbursements totalling $136,000 (approx). It would appear from some materials in evidence that Mr Leroy has incurred substantially more. However, the evidence is not at all clear as to the total fees and disbursements incurred by Mr Leroy. 61 According to the evidence filed on behalf of Mr Lahood, at least some (if not all) of the fees and expenses claimed by the liquidators have been approved by the Supreme Court of New South Wales which, of course, is the Court which made the winding up order against the corporation. The precise position was not made clear in the evidence. In those circumstances, I am not satisfied that I should order an inquiry into the fees and expenses charged and sought to be charged in the liquidation of the corporation. 62 As far as the fees and expenses rendered and sought to be rendered by Mr Leroy against Mr Lahood's bankrupt estate are concerned, there are mechanisms under the Bankruptcy Act and the Bankruptcy Regulations 1996 (Cth) for Mr Lahood to apply to the Inspector-General in Bankruptcy for a review of Mr Leroy's decision to withdraw funds in payment of such fees and expenses and, after review by the Inspector-General, for an appeal to this Court. 63 The evidence does not disclose whether Mr Lahood has sought to involve the Inspector-General in a review of Mr Leroy's fees and expenses. 64 While the evidence tends to suggest that Mr Leroy's fees and expenses are rather high, I do not think that the evidence justifies the making of an order for inquiry in respect of those matters pursuant to s 179 of the Bankruptcy Act at the moment. In any event, it would be more appropriate for Mr Lahood to seek to challenge those fees and expenses by referring them and the decisions to charge them made by Mr Leroy to the Inspector-General. Accordingly, I am not prepared to make an order for inquiry into Mr Leroy's fees and expenses. 65 For all of the above reasons, I am not prepared to remove Mr Leroy from his position as the trustee of Mr Lahood's bankrupt estate nor am I prepared to remove the liquidators from office. Similarly, I am not prepared to order those persons to cease work, as suggested by Mr Lahood.

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