Nixon (Trustee) v Lee

Federal Court of Australia|2024-12-20|Before: McEvoy J

Pursuant to r 1.34 of the Federal Court Rules 2011 (Cth), compliance with the requirements of rr 8.02(4)(a) and (b) of the Federal Court (Bankruptcy) Rules 2016 (Cth) be dispensed with.
Pursuant to s 180 of the Bankruptcy Act 1966 (Cth) (Act) and s 90-15 of Schedule 2 to the Act: (a) the resignation of Mr Peter Andrew Goodin as trustee of the estates of the regulated debtors as set out in the schedule to this application be accepted as and from the making of the orders herein; and (b) upon the acceptance of Mr Goodin's resignation, Mr Richard Moretti of Revive Financial be appointed trustee of the regulated debtors as set out in the schedule attached to the application.
A copy of these orders are to be served upon each of the regulated debtors in the schedule attached to the application as soon as practicable by way of email communication or alternatively by ordinary prepaid post. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MCEVOY J: 1 Before the court is an amended originating application dated 16 December 2024 by which the applicant applies under s 180 of the Bankruptcy Act 1966 (Cth) (the Act) for an order that the court accept his resignation as trustee of the regulated debtors' estates as set out in the schedule to the application (Estates). The applicant was appointed as the representative of these Estates through DCS Group Aust Pty Ltd (DCS). The applicant also seeks to have Mr Richard Moretti, a registered trustee in bankruptcy, appointed trustee of the Estates in his place. 2 In addition, the applicant seeks an order pursuant to r 1.34 of the Federal Court Rules 2011 (Cth) (Rules) that compliance with the requirements of r 8.02(4)(b) of the Federal Court (Bankruptcy) Rules 2016 (Cth) (Bankruptcy Rules) be dispensed with. Rule 8.02(4)(b) requires that the application and the affidavit in support be served upon the bankrupt. 3 The applicant relies upon the following affidavits: (a) his affidavit sworn 25 September 2024 (Goodin affidavit); (b) the affidavit of Ms Domenica McDonnell affirmed 26 September 2024; (c) the affidavit of Mr Sebastian Alexander Clarke sworn 16 December 2024; and (d) a further affidavit of Ms McDonnell affirmed 19 December 2024. 4 The application and supporting affidavit have been served upon the representative of the Inspector-General in Bankruptcy (IG). The solicitors for the IG have informed the court that the Australian Financial Security Authority (AFSA) has received a copy of the application and the affidavit in support, and that the IG does not intend to seek leave to participate in the proceeding. 5 Out of an abundance of caution, further to the relief sought from r 8.02(4)(b) of the Bankruptcy Rules, to the extent required the applicant seeks to amend the application further to seek relief that the requirements of r 8.02(4)(a) of the Bankruptcy Rules be dispensed with. This rule requires service of the application upon the Official Receiver. While the applicant has served a copy of the application and the supporting affidavit on the IG, and while the solicitors for the IG acknowledge that AFSA has received the material, there has apparently been no formal service on the Official Receiver. The role performed by the Official Receiver is a distinct statutory role to that of the IG. Rule 8.02(6) of the Bankruptcy Rules requires the applicant to give a copy of any orders made on such application to the Official Receiver within two days after the order is entered. 6 For the reasons that follow it is appropriate for the applicant to have the orders sought in the amended originating application, as well as dispensation from the requirements of r 8.02(4)(a) of the Bankruptcy Rules.

Background 7 In 2023 the applicant, a registered trustee in bankruptcy and registered liquidator, experienced a serious medical episode which left him in a coma for about 5 days. The applicant applied at the time to have special purpose appointees conduct his practice while he recovered. Those special purpose appointments were, for the most part, terminated several months later pursuant to liberty to apply, and the applicant resumed his practice. 8 On 31 July 2024 the applicant received a notice to show cause why, amongst other matters, he should not have his registration as a trustee cancelled by the IG (Notice). Following receipt of the Notice and further correspondence with delegates of the IG, the applicant decided to suspend his personal insolvency practice for a period of 12 months. In this regard, in a letter dated 27 August 2024 from Piper Alderman to the Delegate of the IG, the applicant responded to the Notice and provided various undertakings in furtherance of his determination to wind back his bankruptcy practice. A key aspect of these undertakings was the bringing of this application. 9 By letter dated 6 September 2024, AFSA acknowledged receipt of the applicant's letter dated 27 August 2024 and requested further information from him. By that letter AFSA also placed the applicant on notice of the IG's intentions moving forward. 10 The present application relates only to those administrations where the day-to-day conduct is administered by a third party, that being DCS. The applicant has described his involvement with DCS as follows: Although I run my own practice as a sole practitioner, I am also employed by DCS Group Aust. Pty. Ltd. (DCS). DCS provides debt management advice and solutions to individuals in financial distress. Solutions may include non-formal means such as informal agreements with creditors but also includes Part IX and Part X administrations under the Act as well as bankruptcy. DCS employs a large team that is supported by extensive software management systems that facilitates the efficient conduct of all of DCS's large volume of Part IX administrations overseen by the registered debt agreement administrators. Where a person in financial distress requires relief from creditor claims and a Part X Personal Insolvency Agreement is an available option to the person, DCS will offer an arrangement under Part X of the Act. DCS, with my input, has developed systems that permit me to recommend where appropriate and administer, with DCS support, Part X agreements at a cost that cannot be met elsewhere in the market. Where a person wishes to enter into a Part X arrangement I provide my consent through DCS and I am supported by DCS in preparing the report to creditors under section 189A of the Act together with all other documentation and communications with the debtor and creditors. In such cases the trustee remuneration is remitted by me to DCS which in turn pays me a salary. The day-to-day administration of such Part X arrangements as are accepted by creditors is undertaken by DCS staff under my authority and supervision. Similar arrangements also occur where DCS introduces to me debtors who wish to go bankrupt.

Dispensing with Service 11 As has been mentioned, the applicant seeks an order that, pursuant to r 1.34 of the Rules, compliance with the requirements of r 8.02(4)(b) of the Bankruptcy Rules be dispensed with. This is to avoid the cost and delay which would result from the obligation to effect service on each of the approximately 282 debtors who would be required to be served were there not to be dispensation. 12 Ms McDonnell, on behalf of DCS, has deposed as follows in this respect: It would be possible to effectuate the transfer of administrations via section 181A of the Bankruptcy Act 1966 (Act). However this will result in an added cost in each appointment but equally may cause delays and uncertainty for creditors who may not appreciate the process involved. Mr Goodin is meeting the costs of this application himself. Upon any change DCS will provide notification to creditors of that change of trustee. Given the incoming trustee will be remunerated on a contract basis with DCS this means the incoming trustee will not need to incur costs in familiarizing himself with the matters and can simply adopt past fee resolutions as sought by Mr Goodin. In the premises I am satisfied that it is in the interest of all stakeholders in each of the administrations herein for the orders sought herein to be made. 13 It is not unusual for such an order to be made in circumstances where the obligation to effect service on each debtor would have been less onerous than is the case presently: Nixon (Trustee) v Lee [2018] FCA 720 at [1]-[6] (Collier J) (Nixon); de Vries, Re bankrupt estate of Cunningham [2021] FCA 188 at [7]-[18] (Nicholas J); Re Sellers [2023] FCA 370 at [8]-[20] (O'Sullivan J). In Nixon the trustee was retiring from the administration of 54 bankrupt estates and estimated that service of each would cost in excess of $10,000. That number can be taken to represent a fraction of the cost for personal service where the applicant is resigning from more than five times that number of estates. It is also to be noted that in proceeding VID 393/2023, in which the applicant applied for a special purpose trustee/liquidator to all of his administrations (including all DCS administrations), the court did not require service on all debtors in advance of making orders. 14 In Re White, Australia Phoenix Pty Ltd [2018] FCA 913 at [17] and [20], Steward J held: The fact that the creditors here have not been served with the originating process and supporting affidavits, and their consent has not been secured, does not preclude the making of the orders sought here. That is so for three reasons. First, neither ASIC nor AFSA opposed the proposed orders. Secondly, if the creditors are dissatisfied with the appointments they can take steps themselves to have their respective liquidator or trustee replaced… …. Thirdly, the presence here of each statutory power of appointment reflects Parliament's intention that this Court be able to appoint replacement liquidators/trustees in bankruptcy in addition to, and independently of, the power conferred on creditors to make the same appointments. 15 In the circumstances it may be accepted that requiring compliance with the requirements for service as contained in the Bankruptcy Rules would be uneconomic and not in the interests of justice. Nor is there any reason to suggest that the regulated debtors would have any objection to Mr Moretti's appointment in circumstances where the management of DCS on a day-to-day basis will be uninterrupted. 16 Noting the matters set out in paragraph [5] above, it is also appropriate in the circumstances for the applicant to have dispensation from compliance with the requirement of r 8.02(4)(a) of the Bankruptcy Rules.

Resignation 17 The applicant seeks orders that his resignation be accepted by the court under s 180 of the Act and the subsequent appointment of Mr Moretti, pursuant to s 90-15 of Schedule 2 to the Act. 18 Section 180 of the Act provides: 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. 19 Section 90-15 of Schedule 2 to the Act provides: (1) The Court may make such orders as it thinks fit in relation to the administration of a regulated debtor's estate. […] (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 trustee of the estate; (c) an order that another person be appointed as the trustee of the estate… 20 I accept that the words of s 180 of the Act are clear insofar as they give the court the power to accept a trustee's resignation, subject to terms and conditions imposed for that acceptance. This court has recognised that any terms and conditions imposed "should be used so as to ensure that there is no injustice wrought by the resignation, that the public interest continues to be served and that the interests of creditors in particular and bankrupts/debtors as well should not be impeded or interfered with by the resignation": Re Parties Named in Schedule to Application; Ex parte Rangott (1992) 39 FCR 573, 575-6 (Einfeld J). 21 Section 90-15 of Schedule 2 to the Act is recognised as the source of the court's power to appoint a replacement trustee in bankruptcy. Section 181A of the Act provides a process that allows the current trustee to nominate a replacement trustee, with that trustee's written consent, and to be replaced following notice to all creditors. 22 Mr Moretti, who regularly accepts appointments as trustee to regulated debtors' estates, has consented to his appointment as trustee to the Estates. This obviates the need for any such term or condition to be imposed on the applicant's resignation. Mr Moretti's consent has been filed with the court, and the applicant has no objection to the court making an order providing for the notification of each of the regulated debtors and their creditors. 23 While it may be accepted that the applicant could utilise s 181A of the Act to effect a transfer, in circumstances where there is to be a wholesale change of trustee from one person to another I accept that the most efficient and cost effective process to enable that transfer to occur is to make an application to the court. I also accept that there is no prejudice to any party evident to the applicant if such orders are made, and the IG, having been served with material, has declined to intervene. 24 For these reasons there will be orders as set out at the commencement of these reasons. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McEvoy.

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