Re Smith, Gregory Douglas & Anor Ex Parte Inspector-General in Bankruptcy & Anor [1996] FCA 1076

the respondent has, in fact, repaid, in respect of that estate, the sum of $4,500. The total amount therefore payable by the respondent to the Official Trustee, in respect of these nine estates, totals $53,524.78. The solicitor for the respondent does not dispute that it is this figure that is repayable by the respondent. The grounds on which the application is brought include that the respondent maintained only one bank account, a cheque account styled the "E. John Brown Trust Account", in respect of all bankruptcy, Part X and company liquidation administrations that he had control of, rather than a separate trust account in respect of each bankruptcy administration, which he is required by s 169(1) the Bankruptcy Act to maintain. Examination of the respondent's records showed that, because only one bank account was maintained for all these administrations, he was able to and did overdraw the accounts in respect of individual administrations. This should, of course, never occur and is highly unlikely to occur if the Bankruptcy Act is complied with in relation to bankruptcy administrations. While the amount of unauthorised overdrawings, including unauthorised fees, once exceeded the $53,524.78 that I have referred to, certain repayments were made by the respondent for the benefit of the various estates overdrawn which reduced the original total overdrawings to the figure now outstanding. In some administrations, the respondent drew on account of fees more than that fixed by the Registrar as appropriate in the course of his inquiry conducted pursuant to the order of Spender J. Further, in some estates, the respondent has drawn remuneration for work done as controlling trustee prior to a bankruptcy when there was a priority claim by the Deputy Commissioner of Taxation for unpaid tax instalment deductions. I accept that in those circumstances he was only entitled to lodge a proof of debt as an unsecured creditor for those fees in the insolvency administration. The respondent's solicitor points out that the respondent, in so acting, contends he relied upon a statement in the CCH Australian Insolvency Management Practice current at the time to the effect that there was doubt as to whether a trustee's remuneration had priority in repayment over the Commissioner of Taxation's claim for unremitted wage and withholding taxes and unremitted prescribed payments and which went on to say that, in practice, the Commissioner defers his claim. The evidence before me shows that the CCH comment appears to be quite inconsistent with what the Australian Taxation Office said was at the relevant time the Taxation Office's practice. Further, in relation to the estate of Fedrick, whilst controlling trustee the respondent withdrew an amount of $3,000 in cash from takings of the debtor's business to pay for services performed mainly before he had become controlling trustee. He was only entitled to lodge a proof of debt as an unsecured creditor in relation to those fees. Further, in the administration of Flynn, the respondent drew a cheque for $10,000 on the funds of the estate to meet his remuneration for assisting with the creditors' voluntary winding up of a company associated with the debtor on the basis of a letter from the debtor undertaking that the respondent's costs would be borne by the shareholders of the company. It is submitted, and I accept the correctness of the submission, that, even if the respondent was entitled to bill an amount of $10,000 for performance of his duties as liquidator of the company in question, this amount should have been taxed, or, if not taxed, approved by a meeting of creditors in accordance with the requirements of s 167 the Bankruptcy Act, which the respondent thus breached. Further, in relation to the Allen administration, the respondent received from the proceeds of the sale of a property owned by the debtors, which was subject to a mortgage to the ANZ Bank, $7,000 for his fees in connection with the sale. The solicitor for the respondent points out that the respondent claims that he was entitled to receive this amount as agent for the bank, in effect, for work done by him in realising the bank's security by way of that sale. I do not accept that submission on behalf of the respondent. The contract of sale which the respondent signed describes him as selling in his capacity as trustee of the estates of the debtors, Mr and Mrs Allen. There is other evidence in the form of correspondence from the bank to the respondent at the time which gives the lie to the respondent's claim as to the capacity in which he says he was acting in that regard. I am satisfied, by reason of these various defaults, that, in terms of s 176(1) the Bankruptcy Act, the respondent, who has been a trustee of various estates in bankruptcy, has been guilty of various breaches of duty in relation to those estates or affairs. The bond which the respondent entered into pursuant to s 155, dated 28 October 1986 and which remains undischarged, is in these terms: "The condition of this Bond is that this Bond is to be void if the trustee at all times well and sufficiently performs and executes all the duties required of him in any office of: (a) trustee of the estate of a bankrupt; Ľ (ba) controlling trustee in relation to a debtor whose property is subject to control under Division 2 of Part X of the Bankruptcy Act 1966; (c) trustee of deed of assignment, a deed of arrangement or a composition under Part X of the Bankruptcy Act 1966; Ľ to which he is duly appointed, otherwise it shall remain of full force and effect." I am satisfied, by reason of the facts to which I have made reference, which show breaches of duty within s 176(1) the Bankruptcy Act by the respondent while he was a registered trustee, that he has also, in effect, breached the requirements of the bond whereunder he undertook to properly perform the duties of trustee, particularly in the three capacities that I have referred to. It is therefore appropriate to grant the applicant relief. I certify that this and the preceding five pages are a true copy of the reasons for judgment herein of the Honourable Justice Drummond. Associate: Date: 5 December 1996