IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA No. 15 of 1980 Part xX Ex Parte: REGISTRAR IN BANKRUPTCY Applicant Re: ERIC AMBROSE GIBSON Respondent CORRIGENDA Amendment to the judgment of His Honour Mr. Justice McGregor of 25 July 1983 - Line 2 at page 13 should read - paragraphs 8 and 9 (Portions underlined were omitted in Reasons published) AM le hvala (M. McAuslan) Associate to McGregor J. 25/7/83 memerepneeererer a= eremniwe manpen AY — CATCHWORDS Bankruptcy ~- Registered Trustee - composition proposed by attorney acting pursuant to Power of Attorney - Registered trustee appointed - possible involvement of trustee vorior to appointment in e.g. compiling Statement of Affairs and preparing Minutes of meeting - denial by trustee - application by Registrar in Bankruptcy to examine trustee - whether certain debts paid by trustee were properly payable whether composition can be entered into other than by debtor personally - whether entering into composition authorised by the Power of Attorney - whether examination should be ordered - considerations relevant thereto. Bankruptcy Act 1966 s.155, s.176, s.179, s.183. Ex Parte:REGISTRAR IN BANKRUPTCY Re: ERIC AIMBROSE GIBSON No. 15 of 1980 Part X McGregor J. 25 July 1983 Sydney IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA No. 15 of 1980 Part X Ex Parte: REGISTRAR IN BANKRUPTCY Applicant Res ERIC AMBROSE GIBSON Respondent ORDER JUDGE MAKING ORDERS: McGregor J. DATE ORDERS MADE: 25 July 1983 WHERE MADE: Sydney THE COURT ORDERS THAT: The application is dismissed Each side is to pay its own costs. Exhibits may be returned. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA No. 15 of 1980 part x Ex Parte: REGISTRAR IN BANKRUPTCY Applicant Re: ERIC AMBROSE GIBSON Respondent REASONS FOR JUDGMENT McGregor J. Date: 25 July 1983 THE REGISTRAR IN BANKRUPTCY (the Registrar) has applied to this court pursuant to s.179(3) of the Bankruptcy Act 1966 (the Act) to examine ERIC AMBROSE GIBSON (respondent) in relation to his administration as Trustee of the Estate of Robert Kenneth Major. That sub-section reads - "The Registrar or a creditor may apply to the Court to examine a trustee or any other person in relation to the bankruptcy." The respondent is a registered trustee within the meaning of s.5(1) of the said Act, aged 79 and has been in practice as a chartered accountant in Adelaide since May 1933. He has been a registered trustee since 1934. it appears from the evidence that the said ROBERT KENNETH MAJOR (to whom I shall refer hereafter as the debtor) onI15 April 1980 executed a Power of Attorney in favour of his father KENNETH FRIEDERICK MAJOR (the attorney). Reference will be made later to the powers entrusted to the attorney by that document. Both the debtor and the attorney had been clients of the firm of Chartered Accountants, Messrs Parkhill Lithgow & Gibson (Parkhill) for some fifteen years prior to the month of May 1980. In that month the attorney consulted Mr. Mead of that firm in connection with the affairs of his son, informing Mr. Mead that the debtor had left Australia leaving his financial affairs in great disorder. The evidence of Mr. Mead, not disputed or questioned in this hearing, is that he introduced the attorney to the respondent and to a Solicitor, John Francis Treloar, of Messrs John Treloar & Co. The offices of both the latter gentlemen adjoined that of Parkhill; further, according to Mr. Mead, the attorney instructed Mr. Treloar to call a meeting of creditors of the debtor and to place before such meeting a proposal for a composition, for which the said attorney would provide $95,000. It has not been suggested that the attorney had any obligation in that regard. I note that at least one company with which the attorney was associated will benefit from the composition; so that the attorney may not be out of pocket for the total amount of that sum. On 2 May 1980, and in the presence of Mr. Treloar, the attorney signed an authority to Mr. Treloar to call a meeting of creditors, purportedly pursuant to 5.188 of the Act. It was expressed to be by Robert Kenneth Major (i.e. the debtor) and was signed by the attorney as I read the signature, and is agreed anyway, With the initials "K.F." Major. At the moment of signing or some time later there was added above that signature the words :- "Robert Kenneth Major By his attorney" Thus the complete signature then read - "Robert Kenneth Major By his attorney K.F. Major". It is possible that "K.F." is really, as written, "Ken F." No suggestion has or could be made that there was any concealment or misrepresentation as to the execution of this document. If there might be said to be shortcomings in the process of execution they do not affect my task. Mr. Treloar endorsed his consent to call the meeting. It seems clear, and subsequent events confirm, that at all times the actions which followed were those of the attorney purportedly acting pursuant to the Power of Attorney on behalf of his son. A circular (undated) was then prepared and sent to creditors expressed to he with a Notice of Meeting of Creditors. Tts opening paragraph set out that Parkhill had been consulted by Mr. Ken Major, the father of the debtor in connection with the latter's affairs. There followed some explanation related to the departure of the debtor and his leaving suddenly for overseas, abandoning his business when the amount owing to creditors significantly exceeded the value of the assets of the debtor and with a statement that the debtor had "seemingly no plans to return", There was outlined the actions which the attorney proposed to take on the advice of that firm, including action to preserve the assets of the debtor, to assess the value of stock and plant, of creditors' claims and to provide a sum of money which might offer to them a figure between 50 cents and 60 cents in the dollar; and, if this was accepted, to realise the assets accepting any inevitable losses which ensue from forced realisations. A form of an advertisement of the meeting was sent to a newspaper, purporting to come from Parkhill; but under their name was typed, "E.A. Gibson". This has been the subject of some criticism by counsel for the Registrar. At some stage a document dated 5 May 1980 headed "Offer of Composition" was drawn up and executed by the attorney. It is possible to read this document as an offer by the attorney himself or the attorney acting for the debtor. I consider nothing turns on this. On 20 May 1980 there was such a Meeting. Minutes of this meeting are in evidence. Some evidence suggests these were prepared by the respondent. This will be referred to later. It was resolved that the debtor be excused from attendance. Such an excusing is not unknown. See Re Schweitzer (1963) 19 A.B.C. 267. A statement of affairs was tabled. A question arises to which I. shall return as to who prepared this. There is no criticism of its form or content. At the meeting there was, it seems, reference to the offer to creditors of the proposed contribution of $95,000 to be distributed amongst them. Some questions were asked. A special resolution for composition was duly passed which included that the respondent be appointed trustee and that the debtor pay to him the sum of $95,000 to be distributed by way of dividends amongst unsecured creditors who have proved their debt. There was also reference to remuneration to be paid to the trustee. No submissions have been made critically as to this remuneration; I do not refer to it further. The Trustee's Report was filed on 7 August 1980. It appears from it that certain payments had been made by hin, including payment to John Treloar & Co., Parkhill and for accounting assistance, typing service and the cost of producing and sending out the circulars. It is contended and conceded that these payments should not have been made; that they were not payable out of the composition fund since incurred before the composition was accepted by the creditors. On 7 August 1980 the Trustee's report, pursuant to s.175 of the Act setting out an account of receipts and payments, was filed, On 3 March 1981, the Registrar wrote to the respondent stating that he had received the "Estate records" which, he said, disclosed several "disquieting matters" and seeking answers to various questions. I understand that the records referred to included the whole of the respondent's file; but it does not appear whether he retained a copy of it. In this letter the Registrar sought certain information. This was provided at least in part by a letter from the respondent dated 12 March 1981. The first enquiry in the letter from the Registrar was as to who had prepared the authority pursuant to s.188 of the Act; it was suggested that it was prepared by the respondent. The respondent's answer implies that he did not prepare it. The second question asked who purported to sign the authority on behalf of the debtor; the respondent answered and it is common ground now that this was signed by the attorney. The third question appears to offer criticism of the execution of the authority in that it may be, as I have already said, that words were added indicating that K.F. Major signed as attorney. The respondent's answer in his said letter gave information as to this, referring to information he had received. Iam not persuaded at the time of signature there was any involvement of the respondent in this process of execution. For reasons which he advanced in his letter of 3 March 1981 the Registrar pointed out that the Minutes of the meeting indicated that the respondent prepared the Statement of Affairs which was submitted to the creditors. In the letter certain questions were put to the respondent. In his said answering letter, the respondent denied that he had prepared the Statement of Affairs. I have noted that the existence of draft Minutes in respondent's own handwriting and the wording of the official Minutes of the meeting, suggest that he did, in fact, prepare the Statement of Affairs. An enquiry was also made as to why the Statement of Affairs was not verified; yet one might have expected that this enquiry could more accurately be answered by others. The respondent's reply was that perhaps he should have "reminded that no statutory declaration was attached". Megarry J. in Re Rolls Razor Ltd. (No. 2) (1969) 3 All E.R. 1386 (Rolls Razor) at p.1400 referred toa similar ciircumstance. However, according to respondent's letter dated 12 March 1981 there was a verification of which he offered to supply or copy to the Registrar. I need not refer further to this aspect of the proceeding. The Registrar in his letter then asked by what authority the respondent had attended the meeting of creditors; to which the respondent replied that Mr. Treloar had invited him to be in attendance in case any matter might be overlooked. Counsel conceded that nothing now turned on this detail. The Registrar further said that the Minutes apparently were drafted by the respondent and asked who instructed him to draft and prepare these Minutes. The respondent, in his letter earlier referred to, replied that he merely in part assisted the Chairman to prepare the Minutes. The Registrar referred to the Notice of Meeting which was inserted in "The Advertiser"; that it was so inserted by the firm with which respondent was "associated". He asked who instructed this firm to insert the advertisement. The respondent stated that it was probably agreed with John Treloar & Co. that they should type the Notice and despatch it. The Registrar referred to the Trustee's account of receipts and payments filed on 7 August 1980 disclosing a payment of $135.00 to John Treloar & Co. He asked what this payment represented and by what authority it was made. The respondent replied that that firm had done all the necessary work for this proceeding; that he had not any recent challenge to paying Solicitor's costs in such a matter; and he referred the Registrar to a letter the latter had written dated 23 April 1968. That letter, when produced, referred to some consideration the Registrar had given to payment of such amounts and that' the Registrar had forwarded to the Department a recommendation that the Act be amended to make provision for payment of such costs in Part X proceedings. The Registrar referred to other payments of other amounts which the respondent's account disclosed. The Registrar's concern was that it was not appropriate that the funds provided for the creditors as the basis for the composition should have then been used for expenses incurred prior to the passing of the resolution accepting the composition. It is beyond argument and the respondent in effect, as I understand his counsel, concedes that the amounts were paid by the respondent out of the amount provided for the creditors. In these proceedings the respondent has filed affidavits. In that dated 14 April 1983 he denied he prepared the authority pursuant to 5.188, the Minutes of the meeting or the Statement of Affairs though in affidavit of 17 May 1983 he stated that he saw this " before it was stapled. His earlier affidavit, in effect, also supports his statements made in the letter of 12 March 1981. If he did not prepare the Minutes and the Statement of Affairs, the argument that by reason of actions for which he is responsible false information was conveyed to the meeting largely disappears; his said affidavit states the minutes are not correct in stating they were prepared by him. In his affidavit of 17 May 1983 the respondent made some further comments as to how the Minutes of this meeting came into existence, asserted that he had never been a partner in the firm of Parkhill; and that he had not prepared the circular to creditors which he said had been prepared by Mr. Mead; and he denied that he signed the letter sending a copy of a notice to appear in "The Advertiser" giving as part of that denial an explanation as to how this might have occurred. Counsel for the Registrar submitted that a question arose as to what advice or assistance the respondent gave to the debtor or his solicitor, as I understand him, before the composition was adopted. He suggested that on the evidence there had been some involvement by the respondent in the preparation of the minutes of the meeting; these conveyed that the respondent 10. had prepared the Statement of Affairs whereas it now appears he did not do so; or claims not to have done so, so that what was put before the meeting was incorrect; thus the persons present were given false information as to who prepared the Statement of Affairs. I take these contentions to be or include a suggestion that the parties were not at arms length. He argued that an enquiry could ascertain the knowledge the respondent had concerning the manner, date and execution of the authority. It may appear, he submitted, that respondent had some hand in setting up the scheme which he had not disclosed; an enquiry on oath would enable the Registrar to ascertain the true position with regard to the preparation of the scheme. He argued that in the estate the final payment had not been made, inasmuch as some monies were paid to persons not entitled; that an enquiry might indicate that respondent's registration should, pursuant to s.155(5) of the Act, be cancelled; the Registrar may form the opinion which s.176(1) allows, and thereafter make application to the court which, ain turn, could make the order envisaged by s.176(2) that the trustee make good the loss sustained by the estate by breach of trust. The release of the respondent in terms of s.183(3) could be the subject of objection. He referred to Re Ladyman 38 A.L.R. 631; Ex_parte Shaw; Re Howard and Gibbs; (1822) 1 GL. & J. 127; Ex parte Blain Re Sawers (1879) 12 Ch. 522; Re J.A. Bagley 29 S.R. (N.S.W.) 333. He submitted that there was a failure to disclose to the creditors that the absent debtor had not personally authorised the meeting. Counsel for the respondent opposed the application. He submitted that il. having regard to the information already given and the facts about which there is no issue, an enquiry would serve no purpose. I have not attempted to recite all the arguments offered by counsel. It will have been noticed that some six months elapsed before the Registrar wrote to the respondent on 3 March 1981 following filing on 7 August 1980 of the Trustee's account as trustee. The latter, then possibly without records to assist, replied on 12 idem i.e. within about a week. The information he gave explained, or gave information concerning, many of the matters which had concerned the Registrar. A further two years elapsed before the present application was filed on 21 March 1983. In these proceedings the respondent has given additional information in his affidavits to which I have already referred. He has also tendered an affidavit by Mr. Mead which corroborates his own contentions. Neither deponent was cross examined on these affidavits. The statements in them are by no means inherently improbable and since not challenged as they could have been by cross examination, I am entitled and should accept the evidence there offered. By a very few questions which would have been admissible cross examination, there could have heen explored the areas in respect of which the Registrar still had some misgivings. 12. There may well be a real question as to whether the power of attorney properly construed did authorise the attorney to set up the composition; or whether such an action can be taken without personal participation of the debtor; or, at least, explicit authorisation thereto. It is not suggested the particular powers or any of them provide authorisation to enter into the composition; and even the general words may not do so. However, both the method of execution first adopted and as expanded appear to me to be within the authority of the attorney. As to powers of attorney, see generally Comprehensive Powers of Attorney (1929) 3 ALJ 107; Halsbury's Laws of England 14th ed. 730-736, 744-747. An examination would not throw further light on those matters. Before the respondent was appointed to carry out the composition already there had been, as the circular indicates, advice given to the attorney by a legally trained person. It was then adopted by the creditors in the special resolution which appointed him. If there was conveyed to the meeting, incorrectly, that the Statement of Affairs was prepared by the respondent, then at least the respondent looked over it before it was stapled. So the difference between what the creditors may have been told as opposed to what happened is the difference between preparation and looking over a completed document. The evidence did not suggest he expressed any disapproval or recommended any amendment. The creditors had already been adequately informed that the debtor was absent and that meeting was called pursuant to a Power of Attorney. 13. It may not have been within respondent's power to make payments referred to in paragraph of the Registrar's letter of 3 March 1981. The relevant facts on these subjects are already largely common = ground. The procedure which s.176(2) allows applies whether an examination is held or not. I do not expect an enquiry would be likely to produce a materially different version of the facts. There is nothing to suggest any dishonesty or lack of probity by the respondent in this regard or, for that matter, elsewhere. That the so called composition was implemented is, however, a matter of history. The Act, including Part 8, indicates this court is concerned with the activities of Trustees. These proceedings are of the kind referred to by Megarry J. in Rolls Razor at p.1400 where - "The prior submission of written questions will sometimes aid and speed the ascertainment of the relevant facts;..." As his Lordship later remarked "there may be a marked difference between the information obtained from unsworn written answers which may have been drafted by lawyers than that obtained by viva voce answers on oath." In this case there is nothing to suggest that the letter written by the respondent, to which earlier I have referred, was other than his own drafting; and later his statements are supported by affidavits on oath. I find in this case there has been no failure adequately to attempt to assist and to answer the enquiries of the Registrar. The comments of Rogerson J. in Re Ladyman (supra) at p.641 are, with respect, apt., viz. - "The decision whether or not to examine is the court's. Tf the trustee, in opposing an application for an examination, files affidavits which sufficiently adduce facts or adequately explain apparent or suspected breaches of duty, the court will no doubt refuse to order an examination." Any enquiry now would be, in my view, "harrassing" in the sense used by him at p.642. This does not end the matter. The decision to order or to refuse an enquiry is, if a matter of discretion, ome to be decided on balancing competing issues. Delay which has occurred, the fact that respondent has retired from practice and his age and state of health are some of the factors to be borne in mind, albeit not the most important. The interests of the creditors and the public generally are most relevant. I do not attempt to list all the considerations which might affect the exercise of any discretion. I am persuaded that an enquiry would be an exercise in striving too hard for truth in a matter long since concluded and, having regard to what little significance might emerge, a waste of time and money. The refusal of an enquiry does not preclude other action by the Registrar if thought necessary. So much is known now about this matter that an enquiry would be otiose. 15. The opinion of the Registrar that an enquiry was necessary has to be given weight. Iam satisfied that as 5.179 of the Act implies, he has a duty to be concerned in some form of surveillance of the activities of Trustees. This application was prompted by that concern. Such considerations have influenced me in the orders I make as to costs. The application is dismissed. Each side is to pay its own costs. Exhibits may be returned. s cad the Poor yee cre a truc copy ci tea Lang for Judes.ent herein of nis Menour "MM ofuslor' Assoclaze . hve a, 1. dSnce Micureg Dated? 25 "71-8D ee ew aN LN TE NRE re ee RL et NNR