ivy w IN THE COURT OF INSOLVENCY OF THE } STATE OF SOUTH AUSTRALIA, ADELAIDE. EXERCISING FEDERAL JURISDICTION IN BANKRUPTCY. No. 13 of 1979 BANKRUPTCY DISTRICT OF THE STATE OF 5 SOUTH AUSTRALIA. Re: JOHN LADYMAN a debtor APPLICATION FOR EXAMINATION OF TRUSTEE JUDGMENT. WEDNESDAY, 23RD DECEMBER, 1981 Part X JUDGE ROGERSON This is an application by the Registrar for the examination of a trustee pursuant to Section 179 (3) of the Bankruptcy Act, 1966. On 1st June, 1979, a meeting of the creditors of John Ladyman (hereinafter referred to as "the debtor") accepted a proposal for a Composition put to it by the debtor's solicitor. As recorded in the minutes of that meeting the terms of the Composition which was accepted by special resolution were as follows:- ""That in pursuance of the provisions of paragraph (c) of sub-section (1) of Section 204 of the Bankruptcy Act 1966, the joint and several creditors of John Ladyman (hereinafter referred to as "the debtor") do hereby accept a proposal for a Composition in full satisfaction of the debts due to each of them by the debtor, the said proposal being; that the joznt and several creditors accept the total of the monies following that it is to say:- An amount equal to the net proceeds of the sale of the debtor's interest in the land and fixed improvements located at 6 Alma Road, Fullarton in the State of South Australia being the whole of the land described in Certificate of Title Register Book Volume 1333 Folio 178 which net proceeds shall be the sum ascertained by deducting from the amount for which the property is sold the amounts due by the debtor to the Australian & New Zealand Banking Group Limited and which are secured by mortgages numbered 43263407 and 4326339 together with the selling agent's commission, 22/2. «./3. all arrears in rates and taxes as at the date of settle- ment and fees payable in respect of the settlement such amount to be paid to the Trustee hereof on or before the 30th day of November 1979; and that the total of such monies be applied in payment of the following amounts or charges in the order herein- after specified; that 1s to say:- 1. In payment of the remuneration and expenses of the Trustee (to whom reference is made hereunder) such remuneration to be determined from time to time by resolution of the creditors in the manner prescribed by Section 162 of the said Bankruptcy Act. 2. in payment to the Commissioner of Taxation of an amount equal to the sum of all amounts, which have been deducted from the wages or salary of any employee of the debtor or of either of them for the purposes of Division 2 of Part VI of the Income Tax Assessment Act 1936-1975, which have not been dealt with in the manner required by that division. 3. In payment of a pro rata distribution from time to time amongst the several unpreferred creditors of the debtor who shall have proved their debts in accordance with the appropriate provisions of the said Bankruptcy Act. and that the creditors accept this Composition on the under- standing that Mrs. Keera Ladyman of Port Lincoln in the State of South Australia will within 14 days of the passing of the resolution accepting the Composition, deliver to the Trustee an undertaking to refrain from making any claim in respect of the mortgage numbered 4355234 registered on the debtor's property in her favour and to discharge that mortgage without further consideration at settlement of the sale of the debtor's house and to refrain from ranking for any dividend in respect of any debt due to her by the debtor in competition with other creditors of the estate. and that the Trustee of this Composition shall be a person nominated by the creditors of the debtor in pursuance of sub-section (4) of Section 204 of the said Bankruptcy Act. and that this Composition 1s made in pursuance of the provisions of Part X of the said Bankruptcy Act."" It is clear from the minutes of the meeting, and 1t is not disputed, that it was the debtor himself who was to arrange the sale of the land in question, and that the net proceeds of the sale, after he had made the payments specified in the Composition, were to be paid by the debtor to the trustee. The duties of the trustee were thus of a limited nature, and can have required little more of him than the ascertainment of the creditors of the debtor, the examination of proofs of debt, and the distribution, when he had received the net proceeds of sale from the debtor, of the proceeds among the creditors whose proofs of debt had been accepted. The debtor's statement of affairs disclosed 25 creditors, including the Corporation of the City of Unley, which was said to be owed $142.78 1n respect of rates, and the State oe /4, Taxation Office, to which $46.04 was said to be owed by way of Land Tax. The two last-named bodies lodged proofs of debt which were sub- sequently withdrawn. Eighteen other creditors lodged proofs of debt, all of which were admitted. On 14th February, 1980, a further meeting of creditors was held, which was attended by the representatives of only two creditors, though the trustee, in his capacity as chairman of the meeting, held a proxy for a third creditor. The minutes of that meeting, under the heading "Trustee's Remuneration" read as follows:- "The Chairman then tabled a calculation of the Trustee's costs of administering the affairs of the Estate to date including time anticipated to finalise the administration. Mr. Jackson pointed out that as indicated in the circular to creditors a dividend of approximately 38 cents in the dollar would be declared and paid by the end of February 1980. The schedule of costs that had been tabled included the Trustee's costs of finalising the administration. Mr. Hayes commented that the Trustee's costs were $2051.00. He thought that at the first meeting of creditors of the debtor, the estimated costs of the administration was approximately $1000.00. Mr. Jackson viewed the minutes of the first meeting of creditors and indicated that there was no mention of estimated costs in the minutes. Mr. Jackson commented that in an administration of this size he would estimate that the costs would be approximately $1500.00. There were a number of reasons for the increased costs in this 20/56 administration. Firstly, the brokers preparing the settlement had failed to deduct arrears of Council rates and water rates from the gross proceeds of the sale. This had lead to un- necessary haggling between the Trustee, the Unley Council and the Engineering & Water Supply Department. There had also been problems with a number of creditors! claims and one creditor had placed a caveat on the property at Fullarton,. Mr. Jackson commented that had the administration gone smoothly the costs would not have been as high, however, tne problems of the administration had increased the costs of the administration, Moved: Mr, Verco Seconded: Mr. Hayes "That the Trustee be paid the sum of $2051.00 as remuneration for services rendered as Trustee of the administration of the Estate from the date of the Composition, viz. the ist of June 1979, and including his costs to finalise the administration," Carried The Chairman abstained from voting." It will be apparent that the distinction, which was specifically made in the terms of the Composition, between the remuneration of the trus- tee, (which was to be determined from time to time by the creditors, aS prescribed by Section 162 of the Bankruptcy Act, 1966), and the ---/6, expenses of the trustee, was not made at the second meeting of cred- itors, where the trustee's remuneration and the costs of administration have, apparently, been lumped together at the sum of $2,051. There is, of course, a vital distinction between remuneration of trustees and their right to indemnity in respect of the costs or expenses which they have incurred in performing their duties, to which I shall here- after advert. For the moment, however, I will treat the matter as it was treated by the trustee, and will not attempt to differentiate the elements of remuneration and of costs or expenses. The Registrar likewise, and no doubt perforce, adopted the terminology of the second meeting of creditors wnen making this application that the trustee be examined as to the amount of remuneration drawn by hin. From the Registrar's affidavit 1t appears that he felt some concern, on perusing the minutes, and the trustee's account of receipts and payments, at the amount sought, and awarded,as "remuneration", bearing in mind the very limited duties 1mposed on the trustee under the terms of the Composition, and at the fact that the trustee had paid certain legal fees for which the necessity was not in the circum- stances apparent. The Registrar therefore instructed the Deputy Regis- trar to audit the account of the trustee. This was done, the books, documents and records of the trustee having been submitted by him. The Registrar states in his affidavit that a perusal of these documents led him to believe that there might have been irregularities in the circumstances leading to the appointment of the trustee. The Registrar has applied to the Court to examine the trustee under Section 179 (3) of the Act (as I shall refer to the Bankruptcy Act, 1966), on four matters, viz:- "(a) The circumstances leading to the appointment of the Respondent as trustee of the Estate of the «2/7. (a) (Cont.) said John Ladyman aforesaid. (b) The circumstances leading to the referral by the Respondent of the said John Ladyman to Leon Peter Mczvoy and the subsequent acceptance by Leon Peter McEvoy of an authorisation to call a meeting of the creditors of the said John Ladyman pursuant to Section 188 of the said Bankruptcy act 1966. (c) The arrangements if any, between the Respondent and the said Leon Peter McHvoy tne said John Ladyman and any other person or persons concerning the payment of the costs of the Respondent and Leon Peter McEvoy occasioned by the calling of the meeting of the creditors of the said John Ladyman, (ad) The amount of remuneration drawn by the Respondent from the Estate of the said John Ladyman." The Registrar's cause for concern on matters (a), (b) and (c) seems largely to emanate from a letter written by Mr. J.A. Rawson, a partner of the trustee, to Mr. McEvoy, the solicitor who was authorised by the debtor to call the meeting of creditors. The letter, wnich is dated 9th May, 1979, is as follows:- (see page 8.) .-./8, 22/9 "Ref: &.R. Harvey 9th May 1979 L.P. Mckvoy Esq., Solicitor, Harriman & McEvoy, 5th Floor, T. & G Building, 82 King William Street, ADELAIDE. S.A. 5000 Dear Sir, Re: John Ladyman and Proposed Part X Bankruptcy Administration We are enclosing four copies of the Section 188 Authority duly executed by the debtor. Please sign all copies, return three to our office and retain one for your own records. On receipt of the authorities executed by yourself we shall proceed to call the meeting of creditors. We confirm that the meeting will be held in our Boardroom on Friday, the 1st day of June 1979 at 11 a.m. We further confirm that the debtor's father, Mr. K. Ladyman, has provided a guarantee that the costs of this firm, together with your costs, in relation to the calling of this meeting will be met by him. We shall forward to you a complete set of the relevant notices etc. as soon as the documents are prepared. Yours faithfully, WILSON, BISHOP, BOWES & CRAIG (Signed) JOEN A. RAWSON - PARTNER Encls." It appears from affidavits filed by the trustee that Mr. McEvoy did no more towards calling the meeting of creditors than to sign the authority signed by the debtor. The authority was not, in fact, an effective authority, as the signature of Mr. McEvoy was not, contrary to the requirement of Section 188 (2) (b) of the Act, attested by a witness. Quite apart from this, although it seems plain that the Act requires the solicitor who has been authorized to call a meeting of creditors to be responsible for the performance of the functions referred to in Sections 190 (1), and 194 (2) and (3), those tasks were in fact performed by the firm of accountants of which both Rawson and the trustee were partners, and of which the debdtor was a client. Although the Registrar states 1n his affidavit that the meeting was called by Mr. McEvoy, and that Mr. McEvoy had been authorised to call it, it is the case that Mr. McEvoy called the meeting, if at all, only in the most formal sense, and that he had no effective authority to call a meeting because of the failure to comply with Section 188 (2) of the Act. The fourth ground on which the Registrar seeks that the trustee be examined, namely the amount of remuneration drawn by the trustee, was to some extent particularised in the Registrar's affidavit, though not, as it appeared at the hearing, unambiguously. However, this ground of application was further defined and clarified at the hearing by Mr. Carey. It seems that the audit conducted by the Deputy Regist- rar had revealed payments to the partner and staff of the trustee in respect of their attendance at the meeting of creditors, and that in the Registrar's view such payments were not gustifiable. The audit had revealed that sums had been claimed in respect of work allegedly «2/10, done by the trustee and members of his staff, though at the time of audit certain relevant time sheets were stated to be missing. Again, 1t seems to have appeared to the Registrar that more time had been spent by the trustee and members of his staff than would prima facie appear to have been necessary, when the far from extensive duties of the trustee under the Composition were borne in mind. Lastly, the trustee's account made reference to the payment of legal fees although the need for the trustee to employ the services of a lawyer in performing his duties was not apparent and was not explained. The Registrar's application was opposed and the trustee filed an affidavit in support of his notice of intention to oppose. The question whether I should order the examination sought by the Registrar was first before the Court on 3rd September, 1981. The trustee's affidavit then before me did not set out any facts on which the trus- tee intended to rely at the hearing of the application, other than a statement that he had not at any time been required by the Registrar to answer any inquiry in relation to the debtor's estate or affairs. That is, of course, something wnich the Registrar or a creditor has the right to do under Section 179 (2) of the Act. The trustee claimed that he had been, and was, willing to answer any inquiries in relation to the debtor's estate or affairs, and that the Registrar should not have brought an application under Section 179 (3) of the Act without first having made such inguiries. Mr. O'Loughlin described this as the argument of "prematurity". He also made submissions of law on particular aspects of the application, which I will deal with here- under. However, during the course of his submissions Mr. O'Loughlin indicated that the trustee was able to give certain factual 22/11. : - 11 - information which might effectively counter at least some of the Registrar's grounds for examining him, but had not chosen to do so. As I was anxious to be as fully informed as possible I offered to the trustee, through Mr. O'Loughlin, the opportunity of submitting further affidavits as to fact and the trustee did in fact file further affi- davits, which were before me on the second day of the hearing. I will, however, before considering the matters raised therein, deal with the legal arguments earlier put forward by Mr. O'Loughlin and, first, with the argument of "prematurity". Neither counsel was able to find any authorities on the scope or interpretation of Sectzon 179 (3) of the Act and its relationship with Section 179 (2). Mr. O'Loughlin, however, cited three cases on Section &1 of the Act or on the comparable provisions (Sections 249 and 268 respectively) of the Companies Acts South Australia and the United Kingdom, namely, re Cside1; Ex parte Andrew, 28 A.L.R. 381, in re M.F.G. Boat Company Ltd., 4 S.A.S.R. 584, and re Rolls Razor, Ltd. (No. 2), (1969) 3 all E.R. 1386. Section 81 of the Act (and the sections of the Companies Acts) deal with cases where a trustee (or liquidator) is the applicant and not with cases in which a trustee is the respondent. Section 81 (1) of the Act provides for the trustee (or, indeed, a creditor) to apply to the Court or to the Registrar to summon for examination any person who is known or suspected to have in his possession any of the property of the bankrupt, or who 1s supposed to be indebted to the bankrupt, or to be able to give anformation concerning the bankrupt or his trade dealings, property or affairs. The sub-section is aimed at assisting the trustee by vroviding him with information as to the property of the bankrupt. The result of an examination under Section 81 may often be adverse to the person examined, who may be ordered to deliver up 22/12, property or who may be obliged to give information which may be used against him in subsequent legal proceedings by the trustee, and the Courts have on many occasions insisted that the powers given by the section are not to be abused. Section 179 (3) 1s not, of course, in- tended to allow a trustee to gain information, but empowers the Court to require him to give answers to questions. In the three cases cited the init1al applications had been made to a Registrar (under which title I shall include other officers in a comparable position) and not to the Court. In all three cases the respondent was seeking to upset the Registrars' orders, whereas in the present case the trustee 1s resisting the making of an order, The original applications in all three cases had been made ex parte and the Registrars had heard only the applicants' cases before granting the applications, whereas in the present case, at least after the trustee had filed the later affidavits, I was, as the person first hearing the application, as fully informed as to the facts as both parties wished me to be at that stage. The argument of "prematurity" is 1n essence an argument that 1t is or would be oppressive for the Registrar to seex, or the Court to grant, an order that tne trustee should be examined "in relation to the bankruptcy" without his first having been required by the Registrar to answer an inquiry "in relation to the Bankrupt's estate or affairs". I might in passing observe that the expression "in relation to the bankruptcy" seems to me to be capable of embracing matters which would not fall within the expression "in relation to the bankrupt's estate or affairs". If that 1s so there may be matters about which the Registrar is not empowered to require an answer to an inquiry, although in respect of such matters he might be empowered to «2/13. apply to the Court to examine a trustee. The conduct of the trustee might well be such a matter. However, I w11l not pursue that possibility, nor place any reliance on there being any such difference in the scope of the two sub-sections. In the case of In re M.F.G. Boat Company Ltd. (supra) Sangster J. agreed with the views expressed by Street J. in the case of Re Allebart Pty. Ltd., (1970) 2 N.S.W.R. 444, where, he said, Street J. expressly rejected the proposition that the liquidator ought to exhaust the other means of obtaining the information from the proposed examinees before having resort to Section 249, (of the Com- panies Act, S.A.). It is clear that the "other means" referred to were the less formal avenues of inquiry wnich the liquidator had not in that case followed. Sangster J. also appears to have agreed with observations of MegarryJd. in Re Rolls Razor Ltd. (No. 2) (supra), whicr I shall set out below, as to the general principles upon which Section 268 of the Companies Act (U.K.) ought to be applied. Before turning to that case, however, I should refer to Sangster J.'s further statement that he found some difficulty 1n accepting at face value the proposition that a proposed examinee 1s "quite prepared to give the liquidator whatever information he requires" about certain property and "ready to give whatever information may be required in connection with the winding-up of the Company", and was at the same time engaged in an application to discharge an order designed for the very purpose of providing such information. Sangster J. said that he would have expected a genuine willingness on the part of a proposed examinee to have produced the response "you need not have gone to all this trouble as I would have answered your questions voluntarily, but nevertheless I'll come and answer to the best of my ability". Now, an expression of oe /14, - 4 - his willingness to have answered the Registrar's enquiries is relied on by the trustee in this case. However, I do not myself think that in a case where it is sought to examine a trustee the trustee's allegation of willingness to answer is necessarily inconsistent with his opposition to the application. A trustee may fear that an examination by the Court would involve damaging publicity, or expense, or a reflection on his professional standing. However, if opposition is based on fears of being oppressively interrogated there is, I think, no cause for concern. Street J. pointed out in Re Hugh J. Roberts Pty. Ltd. (in liquidation) and Companies Act (1970) 91 W.N. (N.S.W.) 537, that the examination proposed in that case would be held before a Master in Equity, to whom objections to questions might be made, and who could intervene to prevent an examination being vexatious, oppres-— sive or harassing. Any Court would be no less concerned to see that an examination under Section 179 (3) of the Act should be properly, and not oppressively, conducted. In re Csidei (supra) Lockhart J. also agreed generally with the observations of MegarryJ. in Re Rolls Razor Ltd. (No. 2) (supra) on the question whether the person thought to be capable of giving information ought to be first asked written questions before an order for his examination could be made. MegarryJ. said "Counsel for the applicants has not sought to contend that there is any universal rule that written questions must be submitted first. But he has urged that in order to avoid oppression, and to focus the view of the examinee on the matters in 1ssue, this is the course which ought usually to be adopted. Oral examinations ought to be reserved for those cases in which satisfactory answers to the written questions are not given, or the rare 202/156 --/16, cases of conduct so atrocious as to require oral examination without the submission of any written questions first. That is the contention. In my judgment the exercise of the court's discretion ougnt not to be fettered in any such way. There may well be some cases 1n which it would plainly be oppressive or unreasonable not to submit written questions first. There will also be other cases in which there plainly ought to be an oral examination without the prior submission of any written questions. Between these two categories there may be many cases in which the court must determine which course 1s best suited to discover the relevant facts without being oppressive, vexatious or unfair. In order to do this, the court must, I think, look at the facts of the case as a whole, without yielding to pre- conceptions; and in doing this, the court should give all proper weight to the views of the liquidator without, of course, abandoning the proper exercise of its discretion, or treating the liquidator's views as being in any way decisive of the matter. The prior submission of written questions will some- times aid and speed the ascertainment of the relevant facts; but sometimes it may hamper or delay the process. There may be a marked difference between the information obtained from unsworn written answers which may have been drafted by lawyers and that obtarned from viva voce answers on oath. In all the circumstances of this case, in the exercise of my discretion I hold that there ought to be an oral examination without any prior submission of written questions being made requisite. I would have reached the same conclusion even if (contrary to my opinion) there were any rule, whether of law or of practice, that prama facie there should be no oral examination unless written questions had first been submitted." In re Cside1 (supra) Lockhart J. set aside the acts of the Registrar, and the summons, on the ground that, as a general rule, written or oral questions should first be submitted by the trustee, where the person from whom information is sought by the trustee is tne liquidator of a company in the course of being wound up. Lockhart J. gave as his reason the comity wnich ought to exist Letween persons, beth of whom are charged with the task of administering the affairs of insolvent persons, natural or artificial. Lockhart J., however, excepted from that proposition cases where, for example, the liquidator had a per- sonal pecuniary interest in the winding up or had unreasonably refused or deciined to co-operate with the trustee. Lockhart J. clearly felt that it was because of the inquisitorial nature of the power conferred by Section 81 of the Act that care should be taken before 1t 15 in- voked by the Court or the Registrar against persons who might be otherwise under no obligation to give information adverse to them- selves. He also re-iterated the view of Megarry J. that each case must be decided on its own merits, and that the views of the trustee seeking the order were not decisive, although proper weight ought to 00/176 - 17 - be given to the views of the trustee, The cases which I have mentioned have been cases where information was sought about the property or affairs of an insolvent person by the person charged with administering his estate for the benefit of creditors. The persons examined may, as I have above noted, often find the results of such examinations to be to their financial detrinent, and in many cases the Courts have disallowed examinations because the inquisitorial examination might have given to trustees or to liquidators advantages wnich they would not have enjoyed if they had been parties to civil proceedings against the per- sons sought to be examined. For example, an examination under Section 81 of the Act will usually be refused if its purpose is to avoid restrictions on the use of discovery or of interrogatories in civil proceedings. I discussed this question at some length earlier this =. year in re Kwok and Sweetman; Ex parte Rummel. a An application under Section 179 (3) of the Act has/purvose different from an application under Section 81. Trustees are not, I think, officers of the Court, unlike some liquidators, but they are nevertheless sudgect to the control of the Court which may, under Section 179 (1) of the Act, inquire into their conduct and remove them from office. In the case/applications under Section 179 (3) no such sanction exists. The purpose of this sub-section appears to be the more limited one of the ascertaining of facts known to the trustee and/or of requiring a trustee to explain his conduct in relation to a bankruptcy. (Section 179 is applied, as I might Lave said earlier, tc the trustees of compositions by Section 243 (3) of the Act.). Now, if the Registrar or a creditor merely wishes to ascertain facts from the trustee which would have little or no bearing on the question of the trustee's conduct, his proper course would be to make an inquiry «2/18, - 18 - of the trustee under Section 179 (2) of the act, and he should in such a case have recourse to an application under Section 179 (3) only if the trustee fails without reasonable cause adequately to answer his inquiry. Where, however, the Registrar or a crecitor has reasonable cause to believe from facts already within his knowledge that a trustee may in some way have failed to act in relation toa bankruptcy in the manner required of a trustee by the Act, or by the general law relating to trustees, then an application for an examination by the Court, or Zor an anquiry by the Court, may well be the proper course. The Registrar's views as to the desirability of an examination, if that 1s what he seeks, must be given due weight by the Court, for he 1s a person charged with a public duty, but they are not, of course, to be decisive. The decision whether or not to examine 1s tne Court's. If the trustee, 1n opposing an application fo: an examination, files affidavits which sufficrently adduce facts or adequately explain apparent or suspected breaches of duty the Court will no doubt refuse to order an examination. In such a case much the same result will have been obtainedeas if an inquiry under Section 179 (2) of the Act had been made of the trustee, though it is true that unnecessary expense 1n money and time may have been incurred. Now, while, in my view, tne Court snould not countenance the making of un- necessary or harassing applications for the examination of trustees, 1t has, on the other hand, a cuty to ensure that trustees maintain proper standards of conduct, standards which are often higher than those ordinarily required even of professional men. A person who chooses to seek, and who obtains, registration as a trustee ought to realise that in so doing he subjects hinself to the possibility of scrutiny of his conduct by the Court. If his conduct has in fact measured up to the standard required of trustees a trustee who is 020/19, ~ 19 - examined has nothing to fear. If it has not, then it may be that it 1s in his own ultimate best interests - as it clearly is in the in- terest of creditors and of the public -, that he should be made aware of the fact, For these reasons I do not think that I can regard the cases decided on Section 8&1 of the Act as being wnolly apposite to an application under Section 179 (3). The inquisitorial nature of the former may result in a respondent having to give infcrmation not other wise obtainable from him about nis title to property or his dealings with a bankrupt. In the case of Section 179 (3) an examination, in so far as 1t 1s directed to the maintenance of proper standards of conduct by trustees, does not affect private rights but 1s aimed at preserving the high standard of conduct required of trustees. I should add tnat in such a case there is no 'comity' between Registrar and trustee, as there will usually be when one trustee seeks information of another to help him better to perform his duty to the creditors. Iffacts are already known to/Registrar which appear sufficient to gustify examination of a trustee he would not, I think, particularly 1f the trustee was himself the source of such facts, be obliged to seek further facts from the trustee before seeking to have him examined. Nor should he, I think, be required always to give to the trustee the opportunity to explain his conduct. An examination under Section 179 (3), which deals with the control of trustees, would appear to be more strongly indicated when what 1s required is not so much information as to what was done or not done by a trustee, but an explanation of why something was or was not done by him. A trustee sought to be examined about his conduct might well feel relieved to have the oppor- tunity to explain his conduct, without being uncler the threat of immediate sanction, as he would be if his conduct was inquired into 120. - 20 - under Section 179 (1) of the Act. I turn now to the other legal arguments put forward by Mr, O'Loughlin, and first to nis argument,in respect of ground (d) of the application, that because the Registrar may, by Section 162 (5) of tne act, of his own motion review the amount of the trustee's remuneration, and may reduce the trustee's remuneration, he 1s en- titled, 1n a case where he believes that remuneration to be excessive, to proceed only under that sud-section, and may not apply for an examination under Section 179 (3) in respect of the amount of remuneration drawn by the trustee. I think that the short answer to that argument is that Section 179 (3) deals a matter of fundamental importance, namely, the contrel of trustees by the Court. The remuneration of trustees is governed by Section 162 of the Act. Even if the Registrar thinks that the remuneration of a trustee has been fixed at too high a figure by the creditors he would, I think, be unlikely unilaterally or of his own motion to reduce the trustee's remuneration unless he thought that the creditors nad fixed sc high a sum under a misapprehension. If such a inisapprehension had been brought about py the trustee's state- ments to creditors a Registrar might well taxe the view that the matter had gone beyond a mere question of reducing remuneration and might feel that it was proper that the conduct of the trustee, which led the creditors into fixing sucn a sum, oughe to be examined or in- quired into by the Court. Ctherwise a trustee might repeatedly misleed creditors into fixing an improperly high sum, with the only sanction being the reduction of that sum in such cases as were noticed by the Registrar. Apart from tnat consideration, I see tnat,1n the case now before me, the trustee tabled before the secona meeting of creditors "a calculaticn of the Trustee's costs of administering the affairs of the 2/21, - 21 - Estate". Although throughout the discussion which followed the sum of 42,051 was referred to as "costs", the resolution which was carrieG was "that the Trustee be paid the sum of $2,051.00 as remuneration (my emphasis) for services rendered as Trustee of the administration of the Estate from the date of the Composition, viz. the 1st of June, 1$79, and including his costs (my emphasis) to finalise the adnin- istration", The relevant passage of the minutes has the marginal note "Trustee's Remuneration} and the summary (1.e. the 'calculation! referred to above) put to the second meeting of creditors refers to the "Suggested rate of Remuneration", on an hourly basis. Now, I have to take it that trustees in bankruptcy are governed by the rules of the general law relating to trustees in general, except in so far as ther position is modified by the provisions of the Act or of other statutes. It cannot be argued that they are governed solely by the few relevant provisions of the Act: the gaps would be enormous. If a provision of the Act 1s clear it will be interpreted according to its terms, though if 1ts meaning 1s obscure or if 1t was clearly intended by Parliament merely to mocify in some way the exis- ting general law it may be necessary to ascertain the previsions of the general law. A trustee has under the general law the right to be reim- bursed or indemnified in respect of costs ana expenses properly in- curred by him in administering the trust. This gives him a first charge on the trust property, and, in some circumstances, personal rights against the beneficiaries. On the other hand, under the general law a trustee has no right to remuneration, 'The Act itself more than once distinguishes remuneration and costs e.3. in Section 109 (1) (a). In the case of a trustee in bankruptcy, Section 162 (1) authorises ../22. him to receive remuneration, but only such as is fixed by the cred- 1utors. Subject to sub-sections (4) and (5) of that section, a trustee who is den1red any, or sufficient, remuneration by the creditors is without remedy. It would seem, for that reason, to be very much in the unterests of trustees separately to state their proper costs and expenses (to whicn they are entitled as of right), but this was not done in this case. t appears, in fact, that most of the sum claimed by the trustee was in respect of work done by members of the staff of the trustee, and that this element of 1t should therefore be regarded as costs. The trustee, however, put to tne second meeting of credit- ors sums in respect of his own tire and efforts, and it may be that these sums ought to be classified as remuneration. As I have said, the composition itself did clearly distinguish between the Trustee's remuneration and his expenses, but as things stand I have no way of certainly knowing what sum, if any, was later fixed by the creditors as remuneration and what was attributed to costs or expenses. From the Registrar's affidavit, however, 1t appears that, although he follows the creditors motion and refers to the sum in question as "remuneration", his principal cause for seeking an examination in that respect 1s that certain payments were not justifrable, 1n that they were made in respect of matters with which the trustee had no power or authority to concern himself with under the composition. The sub- stantive ground of this part of the Registrar's application seems therefore not to be concerned with the trustee's remuneration but witn the sum claimed by him as reimbursement for costs and expenses. If that 1s so, the fact that the Registrar had power under Section 162 (5) of the Act to review the trustee's remuneration is pro tanto nothing to the point. The question of what sums might properly have been cherged to the estate 1s, of course, one on which it would be necessary to near much furtaer argument, both as to what work may be «../23. - 23 - charged for, and at what rate. Moreover, 1t 1s my belief that all the trustees registered in South Australia are in fact professional accountants. They, no doubt, employ staff who, uncer the control of the trustee, perform much of the clerical work done in the course or administering the estate. Costs and charges made by persons not ex- clusively employed by a trustee are with some exceptions not allowable in the trustee's account unless taxed. By inference from Section 167 (1) of the Act the trustee can claim to be reimbursed for the cost of services rendered by persons erployed exclusively by him. But neither the Act nor the Rules make any prevision in respect of the amount which may be so charged, and I have not myself been able to find any decided cases directly on the point. Hcwever, 1t has long been established that a solicitor who is a trustee can in matters arising from the ordinary business of the trust, and in the absence of special provision, charge only his costs out of pocket and not profit costs. See "Halsbury's Laws of England} 4th edition, Vol. 16, para 1249, and cases there cited. In the present case I note that the trustee made reference 1n putting his claim to the meeting of creditors, to a scale recommended by what he refers to as the "Bank- ruptcy Trustees' and Liquidators! Association of Australia", and that he charged hourly rates equal to or less than the rates recommended by the association. I have no information as to the authority of that association to set charges for bankruptcy work, or as to the compon- ents of the charges. There is no reference to any scale being used to quantify the trustee's expenses in the Minutes of the meeting cf creditors at which the trustee was appointed, so there was no express consent to its use by the creditors at that time. Now if I am correct in distinguisning between remuneration, for which a trustee must 062/24, - 2¢4 - depend on the decision of the creditors, and reimbursement for ex- penses, to which he 1s entitled as of right for work done within the boundaries of nis autnority, 1t seems desirable that the creditors be anformed of the distinction before they decide what sum should be given as remuneration. The separate question 2s to how much may properly be claimed by a trustee as expenses for work done is one which seems to me to be worthy of consideration by the legislature. Cne possible course, which I think might meet the case, would be for Parliament to lay down official scales of charges to cover both the elements of the remuneration of the trustee and of his costs in using his own exclusively employed staff, leaving the question of the costs of the services of other persons to be dealt with separately under the head of reimbursement, along with other disbursements. I have aired the matter at this stage only because it seems to me to afford a second reason for not accepting Mr. O'Loughlin's agreement. A power to alter remuneration 1s not, in my view, a power to alter reimbursement. Another argument put forward by Mr. O'Loughlin concerned a statement made by the Registrar in his affidavit, which 1s not reacily tied in with any of the four grounds set out in his application. The Registrar refers to the possibility of a breach cf Section 165 (1) of the Act having been committed. That possibility seems to stem from the fact that Rawson's letter of 9th May, 1979, clearly implies that the firm of which he and the trustee are members was to receive pay- ment from tne debtor or his father in relation to the costs of calling tne meeting. The registrar seeks that the trustee be examined as to whether from such payment he accepted remuneration or pecuniary consideration beyond remuneration fixed in accordance with the Act, and refers to a difference in the wording of sub-sections (1) and (3) o--/25. of Section 243 of the Act. As at present advised I snare Mr. C'Loughlin's doubts as to whether the receipt of part of the profits of a partnership earned in connexion with the calling of a meeting of creditors can, even 1f later paid over to a partner who has by then become trustee of a composition agreed to at that meeting of creditors, be said to be remuneration or consideration accepted in connexion with the composition. In any event, 1t seems to me that it was/"eenuneration drawn from the Estate of the said John Ladyman", for the money was apparently previously paid by the debtor or his father. The same answer may be given to the Registrar's statement that the referral of the calling of the meeting of creditors to Mr. Mcevoy "was unnecessary and may have incurred additional costs for the Estate of the said John Ladyman", for even if additional costs were incurred by the in- vocation of Mr. McEvoy they were not, 1t appears, paid out of the estate. However, the fact that the debtor was a client of the trus- trustee's partner Rawson at the time of the trustee's appointment does raise another matter which, 1n spite of its not being specifically adverted to by the registrar in his affidavit, may be pertinent in another respect to the question of the "circumstances leading to the appointment of the respondent as trustee" of the debtor's composition. I feel some unease about two malters. If a trustee is aware that his partner has been acting professionally in the interests of the debtor ought he, at least, without disclosing that fact to the cred- itors, to accept appointment as trustee for them' It appears that there is a possibility that duty and interest might, in such a case, conflict. The other matter is that in this case the creditors may have been given, as 1t were, "Hobson's Choice" of a trustee, in that the only name put before them was that of the trustee, which was put forward, with a statement that the trustee had consented to act, by «-./26. - 2 - the trustee's partner, who had previously been acting for the debtor. Now 1t 1s a fundamental and long established rule that the debtor may not chocse his own trustee - Ex parte Shaw: In re Howard and Gibbs (1621) 1G. and J., 127. I realise that the creditors were in fact free to choose a different trustee, but I wonder how wrany of them realised that they were? It seems desirable that creditors be specifically told that they are not bound to accept as a trustee the person put before him, even if he 1s, as 1s frequently the case, described to them as the "proposed trustee". This, of course, was not the case here. But, although I feel some disquiet at tne procedure adopted in respect of the selection of tne trustee 1t 1s not sufficiently plain to me that 1t would be productive to examine the trustee on it, for he was not at the meeting of creditors and would, I think, be unable to give any explanation of his own knowledge of what was done there. That consideration does not, however, apply to the question of disclosure of a possible conflict of duty, for 1t 1s the trustee's own duty to make that disclosure, after the meeting if necessary. Cf course, what 1s known need not be further disclosed, and Rawson did in fact tell tne first meeting of creditors tnat the person who had consented to act as trustee was his partner. However, there 1s nothing recorded abcut his having toid the creditors that the debtor was his, Rawson's, clrent and that the partnership was receiving payment from tne debtor, or on nis account. The consideration that the trustee has not been shown to be in a position to give information about the matter, and should not therefore be examined, seems to apply also to ground (b) of the Registrar's application. It seers on the evidence, including that of Rawson and McEvoy, that there were breaches of the rules governing 26/27. the effectiveness of the authority and the calling of the first meeting of creditors. However, on the evidence the responsibility for those breaches seems to lle elsewhere than on the trustee. Per- haps unfortunately, it appears that the Court has no power of its own motion to deal with failure to comply with the rules in respect of the giving of authorities or calling of meetings of creditors, though on the application of a creditor, or of the controlling trustee or solicitor by whom the meeting was called, it may declare the meeting incompetent to act for failure to comply with Section 194 (2) and (3). There 1s no suggestion in this case that the requirements of these sub-sections in respect of notices and publication were not complied with, If there 1s, as appears may possibly be the case, some question about the comprehensiveness of Rawson's affidavit the matter can be, and would be better, investigated through another channel. After considering the affidavits and the other documents ten- dered in evidence, and taking the above matters into consideration, I am not prepared to order the examination of the trustee on grounds (b) and (c) of the Registrar's application. The Registrar was, as Mr. O'Loughlin admitted, properly concerned by the contents of Rawson's letter of 9th May, 1979. Wh2rle I am not convinced that the matters which gave the Registrar cause for concern have been fully exnlained away I have to bear in mind that it is the trustee, and not some other persons, whom it is sought to examine, and I have no reason to believe 1. No that the trustee could give direct information on these matters. application was made to examine "any other person" under Section 179 (3) of the Act, and the Court's powers to inquire into conduct are, like the Registrar's power to require an answer to inquiries, confined to trus- tees. As for ground (a) I think it proper that the trustee should be examined about possible breaches of his fiduciary duty to disclosure, and in particular, the extent of his awareness at the time when he accepted appointment, or later, that the debtor was a client of the 1. Cf: Re Andrews 18 A.B.C. 1813; Ex. p. Goldstein (1917) 1 K.B. 58. .../28. - 28 - trustee's partner, and about what disclosure of that fact was made to the creditors. There may, of course, nave to be further legal argument as to the existence of any duty to disclose when the relevant facts are more fully known. In paragraphs 5 and 6 of tne Registrar's affidavit he suggests that the trustee may have been in breach of Section 165 (1) (a) of the Act in accepting remuneration otherwise than as fixed under the Act, by reason of the trustee's partner having received money from the debtor or his father for calling the meeting of creditors. Tnis suggestion does not fit comfortably into any of the four grounds in the application, tnough that 1s, I think, a defect which can be cured. The matter of whether Section 165 (1) (a) might have been broken in this way was not fully argued, and neither counsel nas since been able to furnish me with any authorities. I am zunelinec, I think, to regard this matter as being more relevant to the question of whether tne trustee had a duty to disclose his firn's previous relationship with the debtor, than as a question of a possible breach of Section 165 (1) (a), of which the main thrust, at least, is the unlawful receipt of money by a trustee after his appoint- ment. However, 1t may be that if the trustee, after his appointment, took part of the profit so earned by his firm before nis appointment he has been in breach of Section 165 (1) (a). I thank that the trus- tee ought to be examined as to wnether in fact he dic "accept" any such sum. If he did not, that 1s the end of the matter. If he did, then 1t would be necessary to hear fuller argument as to whether his doing so was a breach of Section 165 (1) (a) of the act. as at present advised, I am not persuaded that it is. There remains ground (d) of tne Registrar's application, and in this case 1t 1s necessary for me to express a view on the argument that 1t would be oppressive to order an examination of the - 24 - trustee, wken he had not first been given the opportunity to answer inquiries. as I have said, the cases relied on by Mr. O'Loughlin were cases decided on provisions which have whet seem to me a purpose sig- nificantly different from that of Section 179 (3) of the Act. They are, in my view, helpful but even if they were decisions of higher Courts, they would not, in my opinion, be binding on me. However, even if I regarded the principles expressed in those cases as binding I would, applying those principles, order that in the present case an examination be held. There 1s, 1n my opinion, sufficient indication that the trustee made payments to his partner and others for which, however wide his power under the composition, I am not at present able to perceive any justification, There is in my view reasonable ground for believing that the trustee may have exceeded his authority under the composition and that he charged the creditors for this unauthorised work. I cannot regard the agreement of only two of the creditors, even if they were alive to the situation, as amounting to ratification of the trustee's actions. Again, the employment of a solacitor by the trustee may in two ways be open to question. It may be that the work should have been done by the trustee himself, for a trustee should not employ solicitors as a matter of course. More fundamentally, the trus- tee may have had no authority under the composition even personally to undertake the tasks for which he employed a solicitor. It 1s clear law that the rights of a trustee to reimbursement and indemnity are confined to costs and expenses incurred in the execution of his duties under the trust, duties which in the present case are laid down by the composition. There are in respect of the above matters sufficient grounds in my view for ordering an examination even if no previous inquiry had been made about them. I think that the trustee should also be examined on the question of the missing time sheets and about the amount of time said by him to have been spent by his staff in perfor- ming various tasks, many of which are not clearly described in the "description of the work «+ ./30. - 30 - performed" which was provided by the trustee on the audit. I have mentioned the last two iatters separately, for the trustee has not, I think, had any specific enguiry made of him in respect of them. However, in respect of the other matters, althougn no inquiry has been made under Section 179 (2) of the Act, it must not be overlooked that the Registrar had previously scught information from the trustee by causing an audit of tne trustee's account to be made under Section 175 (2) of the act, in the course of which the trustee was recuired to produce to the auditor his books, documents and records. It is the results of tnat audit which gave to the Registrar tne information, supplied, of course, by the trustee himself, upon which he made his decision to apply for an examination of the trustee. To the extent that that 1s so, the basis of the plea of "prematurity" is removed. Again, it is the explanation by the trustee of known facts, rather than tne ascertainment from him of unknown facts, which would appear likely to occupy much of the examination. Apart from all other relevant considerations, an oral examination appears to me to be the most approp- rirate course in such a case. Moreover, in so far as there may be questions of law to be resolved, a hearing before the Court at wnich, no doubt, the trustee would have the right to legal representation, would appear to be in the interests of the trustee. As 1t 1s unlikely, because of the impending transfer of gurisdiction, that the examination will be held before the Court of Insolvency 1 will foroear from making any observations on the procedure which I would myself have been disposed to adopt at the examination, However, I think that it 1s desirable to say scriething about the scope of the order for examination and the matters on which I am ordering that the trustee be examined. An examination, like en inquiry, is in- tended to find things out. It is not, like an indictrent, based on things already believed to be known. Nevertheless, the trustee rust, 220/31. - 351 - in order that he may not be at a disadvantage, be given sufficient indication of the matters on which he is to be examined, and sufficient time in which to prepare himself. I have set out above the matters on which, on the information before me, it 1s my view that tne trustee should be examined. But it may be that, as Windeyer J. observed in Rees v. Kratzmann, 114 C.L.R., at page 79, (a case concerning a com- pany liquidation), "Something of importance may emerge as the 1nguiry proceeds. How far trails may ode followed cannot, I think, be laid down in advance, for the purpose of the inquiry 15 the discovery of facts", This question can, however, be left to the judge presiding at the examination. Fortunately, the administration of the composition was not a complicated one and the trustee should have no difficulty in familiarising himself with all aspects of 1t before his examination takes place. If he takes his files with him to the examination 1t 15s my belief that he ought to have little difficulty, 1f all was in fact properly done, in responding even to questions which ne may be asked about the amount of time spent by his staff on particular tasks, or as to what work was done in the periods for which tne time sheets are missing. If he 1s unable to answer such questions the Court, in considering the matter, will no doubt take account of the lapse of time and the detarled nature of the question. I trust that the delimiting of the subject-matter of the examination which, so far as it 1s possible, I have sought to make in the course of this Judgment 1s sufficient to give effect to Mr. O'Lougniin's request for the defining of such matters and to meet his criticism of the way 1n which in some respects statements in the Registrar's affidavit did not sufficiently elucidate or tie in with the grounds set out in his application. I order that the trustee be oe. /32, ae ee a examined pursuant to Section 179 (3) of the Act, at a date which 1s to be fixed having regard to what I have said about sufficient time being given to the trustee to prepare himself for the examination. The scope of that examination is, subject to what I nave said with reference to Rees v. Kratzmann (supra) to be restricted to the matters specified in the body of this judgment. Dates of Hearing : 3rd September 1981 1st October 1981 Counsel for Applicant P.V. Carey Solicitor for Applicant : B.Jd. O'Donovan Commonwealth Crown Solicitor Counsel for respondent M.F. O'Loughlin Solicitor for respondent O'Loughlin, Robertson & Co. "Y far ES Shee hse Msi we TF i Rite nie Se BS nee are t! die s Bre fe : . ARES Sy AE he ay Ree Pa ete had Me te pa ha : :