Star Poultry Pty Ltd v Ryan

REASONS FOR JUDGMENT 1 This application is brought by two creditors of Ramadan Alievski, a bankrupt. By the application, the two creditors seek to remove the respondent as trustee in bankruptcy of the bankrupt estate of Mr Alievski and to appoint another trustee in his stead. The applicants also seek an order that the respondent pay their costs of the application. The application has been served on the respondent, although the respondent has not filed a notice of appearance. He has, however, signed minutes of consent orders and the applicants seek orders in those terms. The terms of the consent orders are that: 1) Pursuant to Section 179 of the Bankruptcy Act 1966 (Commonwealth), the Respondent is removed as Trustee in Bankruptcy of the Bankrupt Estate of Ramadan Alievski. 2) Pursuant to Section 179 of the Bankruptcy Act 1966 (Commonwealth), Gess Rambaldi of Level 19, 15 William Street, Melbourne, Victoria be appointed as Trustee in Bankruptcy of the Bankrupt Estate of Ramadan Alievski in place of the Respondent. 3) That the Respondent pay the Applicants' costs of this Application in the amount of $7,000.00.

4. That the costs payable by the Respondent under Order 3 herein must not be reimbursed by the Bankrupt Estate of Ramadan Alievski. 2 Section 179(1) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") provides: 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. 3 The application has been referred to me, as duty judge, by the registrar dealing with the bankruptcy list, on the basis that, although the orders sought are sought by consent, an inquiry by the Court into the conduct of the respondent as trustee in bankruptcy appears to be a prerequisite to the making of any order for the removal of the respondent from the office of trustee in bankruptcy. It is, therefore, necessary to examine the material before the Court, to determine, by way of inquiry, whether the removal and the consequential orders are justified in the circumstances. 4 The first applicant petitioned for the bankruptcy of the bankrupt in April 2007. The second applicant was a supporting creditor. Ultimately, on 2 October 2007, a sequestration order was made against the bankrupt. By that time, the respondent had signed a consent to act as trustee in bankruptcy, and made the necessary declaration. He was duly appointed as the trustee in bankruptcy. On 2 October 2007, the solicitor for the applicants notified the respondent that the sequestration order had been made. On the same day, the applicants' solicitors advised the respondent that the bankrupt was the registered proprietor of a property in Dandenong. On 8 October 2007, a sealed copy of the sequestration order was served on the respondent. 5 It appears that there was already in existence a signed transfer of land relating to the Dandenong property, by which the bankrupt transferred it to Rustem Alievski. That transfer of land was not lodged with the registrar of titles until 24 October 2007. In the meantime, however, two caveats were lodged. The first was on behalf of Pepper Finance Corporation Limited, as mortgagee. It was dated 9 October 2007. The respondent, as trustee in bankruptcy, did not lodge his caveat until 22 October 2007. On 24 October, as well as the transfer of land, there were lodged a discharge of an earlier mortgage, and a new mortgage to the Pepper Finance Corporation Limited. 6 The principal complaint of the applicants against the respondent was that he did not take action sufficiently early to lodge a caveat to prevent further dealings with the property, or to take possession of the property in his capacity as trustee in bankruptcy, and to deal with it. His dilatoriness and disregard certainly enabled the prior caveat of Pepper Finance Corporation Limited to be lodged, and may well have contributed to the office of the Registrar of Titles accepting for registration the transfer and the new mortgage on 24 October. Immediate steps may have secured the position of the respondent as trustee in bankruptcy and therefore have entitled or enabled the creditors, including the applicants, to obtain a greater benefit than they might otherwise obtain. The immediate lodgement of the respondent's caveat might well have alerted the Pepper Finance Corporation Limited, as a prospective mortgagee, of the fact of the bankruptcy, and caused it not to enter into any transaction with the transferee of the property. 7 In addition to this crucial issue, there seems to have been some dilatoriness generally on the part of the respondent in dealing with the estate, and it is apparent that there could have been more prompt action in a number of respects. Despite having written a letter seeking to exculpate himself, the respondent has, as I have said, consented to the making of the orders for his removal. In many respects, his exculpatory letter is inaccurate. In some respects, it glosses over the actual historical order of events, perhaps in order to present his conduct in a better light. I am satisfied, however, that the failure to lodge an early caveat, and to take other action to assume control of the Dandenong property, amounts to a sufficient breach of duty or negligence to justify the removal of the trustee in bankruptcy from office. Accordingly, I am prepared to make the orders sought by consent. 8 I inquired of counsel for the applicants as to the source of the power to make the order sought in para 4 of the orders by consent. The effect of that order, in conjunction with para 3, would be to cast upon the respondent personal liability for the costs of this proceeding by preventing him from reimbursing himself from the bankrupt estate. In my view, it is appropriate that the respondent assume personal liability for the costs of the application. Counsel for the applicants referred me to the judgment of Wilcox J in Oayda v Mercantile Mutual Life Insurance Co Ltd (unreported, Wilcox J, 20 February 1995) in which his Honour made an order the effect of which was to require a trustee in bankruptcy to pay costs personally, when the trustee in bankruptcy had acted wrongly in relation to a proof of debt. On considering the question, I think that s 179(1)(b) of the Bankruptcy Act provides me with sufficient authority to make an order ensuring that the respondent will bear the costs personally. 9 For these reasons, I make the following orders by consent, that: