Birdseye v Sheahan [2005] FCAFC 60 (20 April 2005)

BANKRUPTCY – validity of appointment of registered trustee as trustee of bankrupt estate under s 157 of the Act – certificate of appointment issued where registered trustee not notified in writing of appointment and registered trustee did not inform the Official Trustee in writing of consent to act – whether failure to comply with subs 157(2) and (3) of the Act is a formal defect or irregularity within s 306(1) of the Act.

Bankruptcy Act 1966 (Cth)

O’Brien v Sheahan [2005] FCAFC 59 applied
Birdseye v Sheahan [2004] FCA 609 referred to

NICHOLAS BIRDSEYE v JOHN SHEAHAN and THE OFFICIAL RECEIVER IN RESPECT OF THE STATE OF SOUTH AUSTRALIA

SAD 126 of 2004

MARSHALL & MANSFIELD JJ
20 APRIL 2005
ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 126 of 2004

BETWEEN:	NICHOLAS BIRDSEYE APPELLANT
AND:	JOHN SHEAHAN FIRST RESPONDENT THE OFFICIAL RECEIVER IN RESPECT OF THE STATE OF SOUTH AUSTRALIA SECOND RESPONDENT
JUDGES:	MARSHALL & MANSFIELD JJ
DATE:	20 APRIL 2005
WHERE MADE:	ADELAIDE

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD.126 OF 2004

BETWEEN:	NICHOLAS BIRDSEYE APPELLANT
AND:	JOHN SHEAHAN FIRST RESPONDENT THE OFFICIAL RECEIVER IN RESPECT OF THE STATE OF SOUTH AUSTRALIA SECOND RESPONDENT
JUDGES:	MARSHALL & MANSFIELD JJ
DATE:	20 APRIL 2005
PLACE:	ADELAIDE

1 This appeal concerns ss 157 and 306 of the Bankruptcy Act 1966 (Cth) (the Act). It was heard at the same time as the appeal in O’Brien v Sheahan [2005] FCAFC 59. The hearings at first instance of the two matters also took place together, as the issues argued were much the same, although separate judgments were delivered. The judgment appealed from in this matter is Birdseye v Sheahan [2004] FCA 609.

2 The appellant became bankrupt on 9 November 1998. By operation of s 160 of the Act, the Official Trustee became the trustee of his estate. On 14 January 1999, the appellant filed his statement of affairs. Consequently, subject to any notice of objection to discharge, his bankruptcy was automatically to discharge with the effluxion of time at midnight on 14 January 2002: s 149(4).

3 There were some communications between the Official Trustee and John Sheahan. It is convenient hereafter to call Mr Sheahan ‘the respondent’ and to refer to the second respondent as the Official Receiver. As a result, on 26 April 2000, the respondent signed a ‘Consent to Act as Trustee’ of the appellant’s estate (the consent). As the appointed agent of the Official Trustee, the respondent then convened a meeting of the creditors on 16 May 2000, amongst other purposes, for the purpose of resolving to appoint the respondent as trustee of the appellant’s estate in place of the Official Trustee. There was no quorum present on that occasion. A further meeting of the appellant’s creditors took place on 13 June 2000. The Official Trustee was represented by an agent, duly authorised pursuant to s 63B(1) of the Act, and dated 9 June 2000. Among the resolutions then passed was one that the respondent be appointed as trustee of the bankrupt estate of the appellant in place of the Official Trustee. Both the respondent and the Official Trustee were therefore aware of the appointment made by the creditors under s 157(1) of the Act at the time it was made.

4 On 7 July 2000 a certificate of appointment apparently pursuant to s 157(3) of the Act was issued by the Official Receiver showing the respondent as trustee of the bankrupt estate of the appellant as at 13 June 2000. However, no notification in writing was given in terms of s 157(2) of the Act following the meeting of creditors on 13 June 2000 by the Official Trustee to the respondent advising him of his appointment as trustee of the bankrupt estate of the appellant. There was also no communication in writing from the respondent following the creditor’s meeting accepting appointment as trustee of the estate of the appellant. In their terms, subs 157(2) and 157(3) were not complied with.

5 On 7 November 2000 the respondent lodged an objection to the appellant’s automatic discharge from bankruptcy. That objection was withdrawn on 17 July 2001. On 19 July 2001 the respondent lodged a second notice of objection to discharge from bankruptcy, but it was not received by the Official Receiver. A further objection to the discharge of the appellant from bankruptcy was given on 18 February 2002. However, as the Official Receiver took the view that the appellant had been discharged by operation of s 149(4) of the Act on 14 January 2002, it was of no effect.

6 The appellant was therefore automatically discharged from bankruptcy on 14 January 2002, in accordance with s 149(4) of the Act.

7 The appellant contended at first instance and on appeal that the respondent was not the trustee of his bankrupt estate at any time, and in particular between 13 June 2000 and the date of his discharge on 14 January 2002. In that period of time the respondent nevertheless acted as the trustee of his estate. The respondent caused the appellant to be examined under s 81 of the Act on a number of occasions, and brought proceedings against the appellant in his capacity as trustee of the Nicholas Birdseye Family Trust and proceedings against the appellant’s wife, and further proceedings seeking to appoint a receiver to the assets of the Nicholas Birdseye Family Trust. Following 14 January 2002, the respondent persisted in efforts to recover for the benefit of the creditors assets which the respondent claims are part of the bankrupt estate of the appellant.

8 As the findings above indicate, following the creditors’ resolution of 13 June 2000, the Official Trustee did not notify the respondent in writing of his appointment in accordance with s 157(2) of the Act. Nor did the respondent write to the Official Trustee after that meeting that he accepted the office as trustee of the estate of the appellant. Consequently, it was contended, the respondent is deemed by s 157(5) to have declined the appointment on or about 23 June 2000 (10 days after the creditors’ resolution), so that the certificate of appointment issued by the Official Receiver on 7 July 2000 apparently pursuant to s 157(3) on 7 July 2000 is void.

9 The learned judge at first instance noted that the Official Trustee chose not to take the step specified in s 157(2) or to require a specific response in terms of s 157(3). That was because, as the Official Receiver indicated, the practice when an administration is to be transferred to a registered trustee is to obtain the consent of the trustee in anticipation of the creditors’ resolution, and to engage the trustee as the agent of the Official Trustee in the calling of the creditors’ meeting. The respondent was so engaged, and completed the consent on 26 April 2000. The Official Receiver would then (as occurred in this instance), upon being informed of the creditors’ resolution, issue the certificate of appointment.

10 For the reasons given in O’Brien v Sheahan [2004] FCA 608, his Honour rejected the appellant’s contentions. He concluded that the respondent was appointed trustee of the estate of the appellant on 7 July 2000.

11 In addition, his Honour concluded that even if the appellant’s contentions were correct, s 306(1) operated so as not to invalidate the appointment of the respondent. The appellant had presented a case of substantial injustice because the conduct of the respondent as trustee of his estate had (he claimed) prolonged his bankruptcy and increased the costs of ‘defending my and my family’s interests’, including by the extent of his dealings with the trustee and others and the time and costs involved in doing so, and (he further claimed) caused ‘me and my family ... great emotional stress over an extended period’ and damaged his professional reputation. The appellant also complained of the ‘non-commercial’ approach of the respondent to various offers apparently put to him by or on behalf of the appellant, and of unfair pressure on him and his family by (alleged) threats of him being kept in bankruptcy for eight years. The learned judge at first instance did not determine the accuracy of those allegations. He said that, even accepting them to be correct, the complaint of substantial injustice could not be made out for the reasons given in dealing with the application in O’Brien v Sheahan [2004] FCA 608 at [100].

12 As noted this appeal was heard together with the appeal in O’Brien v Sheahan [2005] FCAFC 59 (O’Brien Full Court). The facts upon which the appellant’s contentions were based were similar in both matters, although in this instance there was neither written notification from the Official Trustee to the respondent under s 157(2) of the Act nor any written consent from the respondent to the Official Trustee under s 157(3) of the Act following the creditors’ meeting on 13 June 2000. The contentions regarding the proper construction and operation of s 157(2)-(5) and as to the unavailability of s 306(1) to validate any defects were the same.

13 As is apparent from the reasons for judgment of the learned judge at first instance, the consent given by the respondent on 26 April 2000 was intended by the respondent, and understood by the Official Trustee, to have effect following the creditors’ resolution. That is amply demonstrated by the respondent’s conduct of the creditors’ meeting on 13 June 2000 on behalf of the Official Trustee, and his conduct following that meeting acting or purporting to act as trustee of the estate of the appellant. The judge at first instance proceeded on the basis that at all material times, but in particular following the creditors’ resolution, the respondent consented in fact to his appointment as trustee of the estate of the appellant and the Official Trustee was aware of that consent.

14 For the reasons given in O’Brien Full Court [27]-[38] in our judgment the Official Trustee was required by s 157(2) of the Act to give notice of appointment to the respondent in writing following the creditors’ resolution. No such notice was given. The respondent was also required by s 157(3) to indicate in writing his acceptance of the appointment made by the creditors. However, as we there indicated, the respondent cannot be deemed at any time following the creditors’ resolution to have declined to accept the appointment made by the creditors by reason of s 157(5) because, in the absence of notice under s 157(2), that time limit did not commence to run. It does not run from the date of the creditors’ resolution. Consequently, the certificate of appointment issued on 7 July 2000 was not issued in the face of a deemed declining of the appointment by the respondent. It was issued where, clearly, the respondent was prepared to accept the appointment and the Official Trustee was aware of that attitude.

15 In those circumstances, for the reasons given in O’Brien Full Court, we regard the issue of the certificate of appointment on 7 July 2000 as being validated by s 306(1) of the Act. In our judgment, having regard to the purpose to be served by subs 157(2)-(5), the failure to comply with subs (2) and (3) are defects or irregularities in the proceeding under s 157 of issuing the certificate of appointment. The critical features of s 157 are:

In this matter, each of these events occurred in fact. There is no ambiguity or doubt about the existence of the consent. The reasons in that decision addressed in particular s 157(2). In our view, s 157(3) is also not intended by the legislature to impose an essential pre-condition to the issue of a certificate of appointment. Section 157(3) is also simply part of the procedural means of ensuring firstly that the Official Receiver and the Official Trustee know whether to issue a certificate of appointment or whether to call a further meeting of the creditors to appoint another trustee respectively. It is also part of the procedure to ensure that the resolution of the creditors is effected unless the trustee appointed by them does not wish to accept the appointment, or does not do so in a timely manner. Where both the respondent and the Official Trustee knew of the appointment from the time of the creditors’ resolution, and each clearly understood that the respondent did consent to that appointment, it would frustrate the parties generally to construe s 157(3) in the way in which the appellant contends.

16 Consequently, in our judgment, although those provisions should have been complied with, the fact that they were not complied with does not invalidate the perfecting of the appointment made by the creditors by resolution of 13 June 2000 by the issue of the certificate of appointment on 7 July 2000. It is unclear whether the appellant in this matter also contended that the consent was invalid or ineffective in any event because it was expressed as referring to s 158 rather than s 157, and because it was addressed to, and given to, the Official Receiver rather than the Official Trustee. To the extent to which those matters were put on behalf of the appellant, we consider that they do not entitle the appellant to the relief claimed. The operative consent in this matter was an oral one conveyed obviously following the creditors’ meeting and by conduct. It did not have those alleged defects. To the extent to which the consent given on 26 April 2000 was part of the operative consent, those defects in it are defects which by reason of s 306(1) did not invalidate the issue of the certificate of appointment.

17 Accordingly, we consider that the appeal should be dismissed. The appellant should pay to the respondent and the Official Receiver costs of the appeal.

I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Marshall & Mansfield.

Counsel for the Appellant:	ML Abbott QC with G Feary

Solicitors for the Appellant:	Iles Selley

Counsel for the Respondents:	G Gretsas

Solicitors for the Respondents:	Gretsas Chrzaszcz

Date of Hearing:	3 November 2004

Date of Judgment:	20 April 2005

1.	The appeal be dismissed.
2.	The appellant pay to the respondents their costs of the appeal.

(1)	the creditor’s appointment;
(2)	the trustee’s consent; and
(3)	the certificate of appointment.

Federal Court of Australia - Full Court Decisions

Birdseye v Sheahan [2005] FCAFC 60 (20 April 2005)