Macks as trustee of the Property of Balnaves v Ardalich [1999] FCA 679 (21 May 1999)

Last Updated: 26 May 1999

FEDERAL COURT OF AUSTRALIA

Macks as trustee of the Property of Balnaves v Ardalich [1998] FCA 679

BANKRUPTCY - removal of trustee by creditors under s 181 Bankruptcy Act 1966 (Cth) - whether seven days' notice required of resolution.

BANKRUPTCY - application to set aside resolution of creditors' meeting to remove trustee - scope of Court's power under s 30 Bankruptcy Act 1966 (Cth) - test to be used whether to exercise power under s 30 - whether impropriety on the part of certain creditors.

Bankruptcy Act 1914 (UK) s 105

Bankruptcy Act 1966 (Cth) ss 30, 64(1), 64(2), 64B, 64G, 64T, 64W, 156A(4), 159(1), 160, 177(1), 178, 179 and 181

Myer Queenstown Garden Plaza Pty Ltd v Corporation of the City of Port Adelaide (1975) 11 SASR 504 considered

Re Burn; ex parte Dawson, McClellan and The Trustee [1932] 1 Ch 247 considered

Re Crawford (deceased); Ex parte The Trustee, The Official Receiver and Autoterms Ltd (1943) 13 ABC 201 applied

In the matter of PETER JOHN BALNAVES

PETER IVAN MACKS as trustee of the Property of PETER JOHN BALNAVES and

THE INSPECTOR GENERAL IN BANKRUPTCY v ALEXANDER ARDALICH, ALLAN THOMAS, JOHN PARSONS, JANE TERESA CUMMINGS as trustee for the BALNAVES FAMILY TRUST and JEAN MAVIS BALNAVES

S 7071 OF 1999

MANSFIELD J

ADELAIDE

21 MAY 1999

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S 7071 OF 1999

In the matter of PETER JOHN BALNAVES

BETWEEN:	PETER IVAN MACKS as trustee of the Property of PETER JOHN BALNAVES A Bankrupt First Applicant THE INSPECTOR GENERAL IN BANKRUPTCY Second Applicant
AND:	ALEXANDER ARDALICH First Respondent ALLAN THOMAS Second Respondent JOHN PARSONS Third Respondent JANE TERESA CUMMINGS as trustee for the BALNAVES FAMILY TRUST Fourth Respondent JEAN MAVIS BALNAVES Fifth Respondent
JUDGE:	MANSFIELD J
DATE OF ORDER:	21 MAY 1999
WHERE MADE:	ADELAIDE

THE COURT DECLARES THAT:

1. The resolution passed at the meeting of the creditors of the bankrupt Peter John Balnaves on 12 April 1999 to dismiss Peter Ivan Macks as trustee of the Property of Peter John Balnaves is invalid and of no effect.

2. Peter Ivan Macks is, and presently remains, trustee of the estate of the bankrupt Peter John Balnaves.

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	S 7071 OF 1999

In the matter of PETER JOHN BALNAVES

BETWEEN:	PETER IVAN MACKS As Trustee of the Property of PETER JOHN BALNAVES A Bankrupt First Applicant THE INSPECTOR GENERAL IN BANKRUPTCY Second Applicant
AND:	ALEXANDER ARDALICH First Respondent ALLAN THOMAS Second Respondent JOHN PARSONS Third Respondent JANE TERESA CUMMINGS As Trustee for the BALNAVES FAMILY TRUST Fourth Respondent JEAN MAVIS BALNAVES Fifth Respondent

JUDGE:	MANSFIELD J
DATE:	21 MAY 1999
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

1 The first applicant Peter Ivan Macks ("the applicant") was appointed trustee of the bankrupt estate of Peter John Balnaves ("the bankrupt") on 30 October 1998.

2 On 24 March 1999, pursuant to s 64(2) of the Bankruptcy Act 1966 (Cth) ("the Act"), the applicant issued to twenty creditors of the bankrupt's estate notice of a meeting to be held on 12 April 1999. They were the creditors or potential creditors of the bankrupt's estate of which the applicant was then aware.

3 The notice of the meeting included the agenda required by s 64G of the Act. The applicant in the notice of meeting identified particular matters for consideration as including his report to creditors and the fixing of his remuneration. The applicant also proposed that the creditors consider whether they would in some way provide funds, or an indemnity for costs he might incur, to investigate whether there were further possible assets of the bankrupt available to meet the creditors' claims. Item (l) was: "proposal of any other motions (if any)", reflecting s 64G(k). The agenda also included the following: "Additional matters may be dealt with should the meeting agree to consider them".

4 The applicant had not, by the time of the meeting, decided to admit or reject any of the proofs of debt lodged in the bankrupt's estate. Those proofs of debt now total $1,055,834. They include proofs of debt from the first respondent in the sum of $703, the second respondent in the sum of $500, the third respondent in the sum of $70,000, the fourth respondent in the sum of $49,073, and the fifth respondent in the sum of $184,000.

5 Only seven creditors attended the meeting, namely the respondents (the fourth and fifth respondents by proxies given to the second and first respondents respectively), the Child Support Registrar as a creditor for $42,677, and the Deputy Commissioner of Taxation as a creditor for $24,774. The applicant and one of his officers, the bankrupt and two observers also attended.

6 The first respondent was elected chairperson of the meeting.

7 After the applicant's statement and report to creditors (s 64G(h)) and questions to the applicant and the bankrupt (s 64G(i)), the first respondent invited any other motions. The second respondent moved, and the third respondent seconded, that the applicant be dismissed as trustee. A motion to adjourn the meeting and that motion for seven days was defeated. Each of the respondents voted against it. The motion to dismiss the applicant as trustee was then passed, with each of the respondents supporting it. The Child Support Registrar and the Deputy Commissioner of Taxation opposed it, as well as supporting the adjournment of that motion.

8 There had been no notice of any motion to dismiss the applicant as trustee of the bankrupt's estate in the notice of meeting, or otherwise given to the creditors of the bankrupt's estate prior to the meeting.

9 The applicant seeks an order that the resolution dismissing him as trustee was null and void. That is because, he contends, s 181 of the Act requires that seven days' notice of any such motion is necessary. The second applicant Inspector General in Bankruptcy ("the Inspector General") supports that contention. Section 181 provides:

"The creditors may, by resolution, at a meeting not less than 7 days' notice has been given, remove a registered trustee appointed by them, or a registered trustee who is, by virtue of subsection 156A(3), the trustee of the estate of the bankrupt concerned, and may at the same or a subsequent meeting appoint another registered trustee to be trustee in his or her place."

10 The respondents (other than the fifth respondent, who did not participate in the hearing) submitted that s 181 requires seven days' notice of the meeting only, and not of the resolution to remove a trustee, so that the resolution is valid.

11 The applicant alternatively contends that, even if the resolution dismissing him as trustee were valid and did not require that notice of it be given, the Court should set aside that resolution and restore him as trustee under s 30 of the Act. In the event of his dismissal as trustee, s 160 provides that the Official Trustee in Bankruptcy ("Official Trustee") becomes trustee of the bankrupt's estate. Official Trustee has considered the events of the meeting of 12 April 1999, and is not concerned (as the respondents assert that they were) at the applicant's conduct during that meeting. Further, Official Trustee recognises that there would be significant delays and increases in costs in having to assume the role of trustee, because of the need to become familiar with the bankrupt's estate and the administration of it so far conducted by the applicant. The applicant also relies upon the fact that eight other creditors, whose claimed debts total $623,186, have each given evidence that they would have attended the meeting and opposed the motion to dismiss the applicant if they had had notice of such a motion. Those creditors also express concern at the delay, and duplication of costs, if Official Trustee now is, and remains, trustee of the bankrupt's estate. The applicant also relies upon the fact that each of the respondents is in some way associated with the applicant, that each opposed the adjournment of the motion to dismiss the applicant as trustee, and upon their conduct at the meeting. He contends that, on the evidence, the conclusion should be reached that there is "the strongest suspicion" that the respondents' reason for supporting his removal as trustee is a desire to assist the bankrupt or the fourth respondent rather than any genuine concerns about the applicant's conduct as trustee. The Child Support Registrar and the Deputy Commissioner of Taxation were given leave to intervene in the hearing. They support the applicant's claim in all respects.

12 At the conclusion of the hearing, the applicant indicated that he no longer pursued the third of his claims, namely for injunctive orders against the respondents restraining them from procuring or seeking to procure any one of them as chairperson of any subsequent creditors' meeting or from moving for, or supporting any motion for, the dismissal of the applicant as trustee of the bankrupt's estate.

Is notice of the resolution required?

13 Part IV Div 5 of the Act deals generally with meetings of creditors. Those provisions do not specify a period of notice required, but it is clear from those detailed provisions that it is intended that the notice be sufficient that those to whom notice must be given (s 64A) have an opportunity to attend and participate in the meeting. A creditors meeting may be called by the trustee under s 64(2), but the trustee must convene a creditors meeting when the creditors so resolve: s 64(1). In calling a meeting, the trustee must provide an agenda: s 64B(4), and s 64G sets out the form of that agenda. As noted earlier, it includes an item for the proposal of any other motions: s64G(l).

14 It was contended by the Child Support Registrar and the Deputy Commissioner of Taxation that s 64G(l) required proposed motions to have been notified in the agenda, whether moved by the trustee or by a creditor. Thus, because there were no motions specifically proposed by the agenda for the meeting (except as elsewhere specified in the notice of meeting), no motions at all could be addressed by the creditors at the meeting, including any motion to dismiss the applicant. It is not necessary to decide whether that submission is correct in view of the decision I have reached on the principal issue. However, I indicate that I have some reservations about it. Section 64T entitles a creditor to propose any relevant motions. It is not expressed to be an entitlement able to be exercised only by proposing the motion prior to the meeting, or by adopting a particular procedure prior to the meeting. There may be motions appropriately dealt with at a creditors' meeting of which no particular notice was given. Section 64W obviously permits other matters to be raised at the meeting, even without notice prior to the meeting. The proximity of s 64T and s 64W, and the similar way in which they are expressed, do not support the contention that s 64T should be limited in a way which s 64W is not. In addition, the Act otherwise specifies certain resolutions of which notice must be given before the creditors' meeting. To that extent, s 64T would have to be submissive. There is no especial reason to think that the legislature expressly provided for those instances, but also intended that in all other cases the creditors may not propose or pass any other motions at all unless prior notice was given so that those motions were each specified in the agenda for the meeting.

15 Section 71(3) provides that a member of a committee of inspection may be removed from office only by resolution at a creditors' meeting "of which 7 days' notice, stating the object of the meeting, has been given". Similarly, s 109(j) permits the creditors, by special resolution, to apply proceeds of realisation of a bankrupt's estate in certain preferential payments to a creditor or creditors. Section 109(2) provides that any special resolution is validly passed only if the notice concerning the meeting "contained a copy of the proposed resolution". Clearly, the Act addresses certain types of resolutions of which the creditors must be given notice in advance of the meeting. The drafting technique to achieve that objective under those two provisions is a little different. Because it is a little different, the fact that s 181 is also expressed in somewhat different terms does not point strongly to the conclusion that the same objective is not also sought to be achieved by it.

16 The significance of a resolution to remove a trustee is self-evident. Section 181 is in Pt VIII Div 5 of the Act, concerning the vacation of office of trustees, containing six sections only. Part VIII deals generally with the registration of trustees and their appointment, their duties and entitlements, and their relationship to the creditors and to the Courts, as well as the vacation of office of trustees. Section 156A(4) gives an individual creditor the right to apply to the Court to have a trustee removed on limited grounds. Section 179 gives an individual creditor that right more generally, and s 178 gives an individual creditor the right to apply to the Court to have a trustee's decision reviewed. Clearly, the removal of a trustee was not regarded by the legislature as a routine matter.

17 The removal of a trustee by the creditors is a matter in which the creditors generally have an interest. Part IV Div 5 deals generally with creditors meetings. It provides for notice of such meetings to be given, but does not expressly provide that the notice be given seven days or more before the meeting. The common law requires proper notification of the business of a meeting. In Myer Queenstown Garden Plaza Pty Ltd v Corporation of the City of Port Adelaide (1975) 11 SASR 504, Wells J at 528 said that the notice must afford the recipient

"... a reasonable opportunity of reaching the place of the meeting at or before its commencement, and of adequately preparing himself for the business to be transacted; and [the notice conveys to the recipient] with reasonable particularity and accuracy, the nature of the business to be transacted. ... In order to determine what is "reasonable" or "adequate" regard must be had to all the circumstances of the case."

18 In the absence of a time for notice to be given of a meeting under Pt IV Div 5, one could readily infer that the time required is such as to meet the requirements of the common law. There is then no apparent reason why, for the purposes of dismissing or removing a trustee, seven days rather than reasonable notice be given of the meeting but the creditors not be entitled to know that one of their number intends to move for the removal of a trustee. No mischief emerges to which s 181 might be directed if that is its effect.

19 I do not consider that s 181 unambiguously states that it is only the meeting, and not the proposed resolution, of which seven days' notice is required. On the contrary, in my view, it contemplates that a meeting has been called for the purpose, or having as one of its purposes, the considering of a motion to remove a trustee. That is the tenor of the section. The words "by resolution" then serve to identify the means whereby that purpose may be achieved by the creditors at the meeting. There is no particular or special majority required.

20 For those reasons, it is my judgment that s 181 requires notice of a motion to remove a trustee at a creditors' meeting to be given seven days before that meeting. That did not occur on this occasion. Accordingly, I consider that the resolution to dismiss the applicant was invalid and of no effect. He remains as trustee of the bankrupt's estate.

Should the resolution be set aside?

21 The applicant contends that, even if the resolution dismissing him were a valid resolution, the Court should nevertheless under s 30 of the Act set it aside and restore him as trustee of the bankrupt's estate. In the event that a different view is taken of the proper construction of s 181, it is appropriate to express my views on that alternative contention.

22 Section 30 is expressed in very broad terms. In Re Burn; ex parte Dawson, McClellan and The Trustee [1932] 1 Ch 247, Luxmore and Farwell LJ at 257 said of s 105 of the Bankruptcy Act 1914 (UK) - which is in much the same terms as s 30 of the Act - that it provided the Court with complete control over the administration of a bankrupt's estate for the benefit of all persons interested, including on a trustee's application to overcome a resolution of the creditors which the trustee thought would not be beneficial. In Re Crawford (deceased); Ex parte The Trustee, The Official Receiver and Autoterms Ltd (1943) 13 ABC 201, Clyne J was confronted with a trustee's application to restrain the calling and holding of a meeting to consider his removal. His Honour found that the Court had power (again, under a legislative ancestor of s 30 of the Act) to make such an order. The ultimate conclusion of Clyne J as to why the order sought should be made is expressed in the following passage (at 205):

"There is probably no reason why, when a trustee who is honestly and properly carrying out his duties, should not be removed from his office if the creditors so desire, but, when creditors make improper and unfounded allegations against a trustee to secure or justify his removal, and the conduct of these same creditors leads to the strongest suspicions that their reason for having the trustee removed is a desire to help an important shareholder of a company which is a creditor, the Court should interfere."

23 I am prepared to accept that the Court has power under s 30 to make the order sought.

24 The applicant accepted that the observations of Clyne J quoted above set out appropriate considerations for the exercise of the power.

25 I do not think that the evidence leads to the "strongest suspicions" that the resolution supported by the respondents to dismiss the applicant was to help the bankrupt or the fourth respondent (who is apparently an alternative claimant to assets which might be assets of the bankrupt's estate), at the expense of the creditors of the bankrupt's estate.

26 The applicant had been trustee of the bankrupt's estate for some five months. There is no evidence to indicate that the respondents had participated in any inappropriate way in his administration up to the meeting, including any earlier attempts to remove him as trustee or to impede him in the performance of his duties as trustee. There is no reason to think, on the evidence, that they expected to be able to resolve successfully to remove him as trustee at the meeting. They were not a majority of creditors in number or value. They did not seek to have an alternative trustee of their nomination appointed as they might have done: s 159(1). The resolution to remove the applicant, if valid, led to Official Trustee becoming trustee: s 160. Any benefit to the bankrupt or to the fourth respondent of Official Trustee becoming trustee is not apparent to me; there would be some delay, and some additional expense, but there is no especial reason to think that Official Trustee could not have been effectively briefed to pursue the administration of the bankrupt's estate in much the same way as the applicant if that were the proper course. In particular, if there were assets which might be assets of the bankrupt's estate and to which the fourth respondent might also claim to be entitled, there is no reason to think that Official Trustee would not equally pursue proper claims to those assets. The fact that each of the respondents has a personal relationship to the bankrupt does not support the conclusion contended for; it may provide a circumstance from which other conduct might be given a colour or perspective relevant to the question in issue. The applicant contends principally that the conduct which best informs the motives of the respondents is what occurred at the meeting. I have carefully considered the course of the meeting. In my judgment, it does not lead to the strong suspicions for which the applicant contends. The early contentious issue at the meeting concerned the admission, for the purposes of the meeting, of a debt claimed by the bankrupt's former wife. There was also prolonged, and apparently vigorous, discussion about the trustee's actions and proposed actions. The respondents pressed him for particular information. He was reluctant to provide it. That information included whether he had legal advice upon which he had taken certain of the actions discussed at the meeting to recover assets which he claimed to be assets of the bankrupt's estate. There seems to have developed a momentum among the respondents of dissatisfaction with the applicant from that discussion leading to the resolution complained of. It was clearly an unpleasant meeting. But I do not think its course gives rise to strong suspicions that the respondents' motivation was to assist the bankrupt or the fourth respondent rather than, or at the expense of, the creditors generally. In reaching that conclusion, I am not to be taken as expressing any view on whether there was any impropriety in the applicant's responses at the meeting. His perspective in responding to questions may well have been different to that of the respondents and reasonably so. In particular, there may have been sound reasons why he was reluctant to provide the information they were requesting lest it prejudice his prospects of recovering further assets in the bankrupt's estate.

27 I have not overlooked the applicants' contentions, and those of the Child Support Registrar and the Deputy Commissioner of Taxation, that other material also tends to give rise to the suspicions referred to. They referred to the size of the claimed debts of the first and second respondents, the fact that they were not among the creditors notified of the meeting (apparently their proofs of debt were received after that notice was given), the fact that they had each received proxies from the fifth and fourth respondents respectively, and the fact that they had not previously made complaints to the applicant nor did they take up his offer of a private briefing instead of pursuing his removal. I do not consider those matters, nor matters concerning the conduct of the bankrupt, as relevantly informing their motives. That material, in my mind, does not tend to give rise to the suspicion which was said to arise, either alone or in conjunction with the course of the meeting.

28 Those matters, in my view, are capable of providing background factual material from which other conduct might be given a colour which it would not otherwise be given. I do not think that, of themselves, they tend to point to the reasons why the respondents or any of them supported the motion to dismiss the trustee. One or more of them might have had that tendency if it had more specificity, eg. a demand to be shown particular legal advice, the disclosure of which could be of positive assistance to the bankrupt, or to the fourth respondent. I have reviewed each of those matters to see whether that may have been the case, but in my view any such additional feature is not shown to have been present.

29 There were two particular matters which the applicant relied upon in the course of the meeting. The first is that the `arms length' creditors, namely the Child Support Registrar and the Deputy Commissioner of Taxation opposed the motion. That fact does not, in my view, convey as a corollary that there is reason to suspect that the respondents who each had some connection with the bankrupt supported the motion for improper reasons. The relationship of itself does not lead to such a suspicion, and the fact that other creditors took a different view does not change my assessment of the significance of the relationships. The second is that the respondents opposed the adjournment of the motion for seven days. Their attitude might indicate a determination to proceed with the motion before other creditors could have an opportunity to participate. It might indicate simply that they had become so dissatisfied with the applicant's responses at the meeting that they wished to remove him as trustee whilst they had the opportunity to do so. It might indicate that, by then, they had determined to act in concert to secure the applicant's removal as trustee. There are doubtless other possible factors playing a part in their attitude to that proposal.

30 I have had regard to each of the matters referred to in the preceding paragraph. I have considered those matters separately, and together, and also in the context of the other matters referred to in submissions. I have sought to step back and look at the entire picture which the applicant urged. I am not of the view that there is a strong suspicion arising from that material that the respondents' motivation in supporting the motion to dismiss the applicant as trustee of the bankrupt's estate was an improper one.

31 Accordingly, I would decline to make the order sought under s 30 if it were necessary finally to address that issue.

32 There is another ground upon which I would decline to make an order under s 30 in any event. As Mr Kourakis QC for the fourth respondent pointed out, the evidence shows that a majority of the creditors of the bankrupt's estate in number and value wish the applicant to continue as trustee. Even if the resolution removing him were valid, they have it in their power under s 159 of the Act to achieve his restoration, notwithstanding that Official Trustee may be acting as trustee by default. It is not necessary for the Court, in the interests of the creditors, to intervene to make the order sought, even if the Court were satisfied that the respondents supported the resolution for the applicant's renewal for improper reasons. Subject to the ultimate control of the Court, the oversight of a trustee in the administration of a bankrupt's estate is committed to the creditors of that estate; s 177(1). If the creditors have validly removed the applicant as trustee, as a group they have the legal capacity to restore him. The evidence shows that their majority would support such a resolution. This is not a case where there is a minority creditor or creditors concerned about the conduct of a trustee, but powerless to do anything about that concern. Subject to the right provided by s 178 to apply to have a trustee's decision reviewed by the Court and to the rights provided by ss 156A(4) and 179(1)(a) to apply to have a trustee removed, a minority creditor must abide by the decisions of the creditors. There is no reason why the Court should presently intervene in the creditors' decisions.

Orders

33 In the light of the above reasons, I declare that the resolution passed at the meeting of creditors of the bankrupt's estate on 12 April 1999 to dismiss the applicant as trustee of the bankrupt's estate is invalid and of no effect. I further declare that the applicant is, and presently remains, trustee of the bankrupt's estate.

I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Associate:

Dated: 21 May 1999

Counsel for the First Applicant:	Ms S Maharaj
Solicitors for the First Applicant:	Gretsas Chrzaszcz Solicitors
Counsel for the Second Applicant:	Mr G Gretsas
Solicitors for the Second Applicant:	Gretsas Chrzaszcz Solicitors
Counsel for Deputy Child Support Registrar and Deputy Commissioner of Taxation:	Mr F Brohier
Solicitors for Deputy Child Support Registrar and Deputy Commissioner of Taxation:	Australian Government Solicitor
First, Second and Third Respondents appear in person
Counsel for the Fourth Respondent:	Mr C Kourakis QC
Solicitors for the Fourth Respondent:	von Doussas Solicitors
Counsel for the Fifth Respondent:	Mr J White
Solicitors for the Fifth Respondent:	Thomson Playford
Date of Hearing:	14 May 1999
Date of Judgment:	21 May 1999