CATCHWORDS Bankruptcy - qualification to act as trustee - whether a person who is an employee is for that reason necessarily not qualified to act as a trustee within the meaning of s.155 of the Bankruptcy Act 1966 - employees not aclass of persons expressly excluded by s.155 from registration as a trustee - the fitness of a person to hold the office of a trustee in each case must depend on its own facts. Bankruptcy Act 1966; ss.155 and 179 KENNETH WAYNE LAMB v. THE REGISTRAR IN THE BANKRUPTCY FOR THE STATE OF VICTORIA Ka \ A </> VG No. 168 of 1984 ay AS, wed eH on TICs Smithers ACJ, Northrop and Jenkinson JJ. 7% 5 OCT ives acl Sse con OF an SUQTRALD '\ POV iCiPAL VON 3 October 1984 Melbourne. IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG No. 168 of 1984 ) GENERAL DIVISION ) ON APPEAL from the Federal Court of Australia Between: KENNETH WAYNE LAMB (Appellant) And: THE REGISTRAR IN BANKRUPTCY FOR THE STATE OF VICTORIA (Respondent } Judges Making Order: Smithers ACJ, Northrop and Jenkinson JJ. Date of Order: 3 October 1984 Where Made: Melbourne. ORDER THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The Orders and Declaration of the Court below be set aside and in lieu thereof the application be dismissed. 3. The question of the appellant's costs of the application and of the appeal be reserved. IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG No. 168 of 1984 ) ) GENERAL DIVISION ON APPEAL from the Federal Court of Australia Between: KENNETH WAYNE LAMB (Appellant) B THE REGISTRAR IN BANKRUPTCY FOR THE STATE OF VICTORIA (Respondent) Coram: Smithers ACJ, Northrop and Jenkinson JJ. 3 October 1984 1984 REASONS FOR JUDGMENT SMITHERS J.: This is an appeal from a judgment of the trial judge that in exercise of the power contained in s.155(5) of the Bankruptcy Act Act (the Act) , an order should he made cancelling the registration of the appellant Kenneth Wayne Lamb as a person qualified to act as a trustee pursuant to Part VIII of the the Act and declaring that the appellant is no longer qualified to be a person registered pursuant to Part B of the Act. The appeliant was registered under s.155 of the Act as a person qualified to act as a Trustee on 18 March 1983 pursuant to an order made by the Court on 9 February 1983. At that time the appellant was carrying on practice asa public accountant in partnership with a Mr. Scott under the style "Scott & Lamb". It appears that this partnership was eventually dissolved and on 6 June 1983 the appellant became an employee of the firm of chartered accountants known as Duesburys. He was employed by that firm on the basis that he would be responsible for, and retain, clients which he introduced to the firm. The firm intended to consider the possibility of admitting the appellant into partnership once he obtained membership of the Institute of Chartered Accountants. In July 1983 a Deputy Registrar in Bankruptcy informed the appellant that he was concerned that the respondent had acquired the status of an employee, this concern arising out of the decisions of Re Dawes (1934) 7 ABC 190 and Re Hickman (1943) 13 ABC 138. Tt has been sworn on behalf of the appellant in these proceedings by the senior insolvency partner of Duesburys that: "3. ---- During his employment, the Trustee -- Ethe appellantidhas complete independence in respect of the administrations in which he acts as trustee or as liquidator. I am able to assure the Court on behalf of my partners that they do not interfere or do they intend to interfere or direct the Trustee in the conduct of those administrations. 4. That my partners and I, some of whom are also Trustees in Bankruptcy and Registered Or Liquidators, are very much aware of the need for independence of trustees in this regard." In the judgment under appeal many important powers and discretions vested ina trustee by the Act are referred to. Thus, there is the exercise of discretion as vested in the trustee both in bankruptcy and under Part X of the Act. In the course of his duties a trustee must decide questions affecting the interests of creditors, debtors and bankrupts. Such questions may be time consuming and relatively unrewarding to the trustee and, if he is an employee, to his employer. A trustee must decide whether to apply for a public examination of a bankrupt or for the examination of other parties. He must decide whether to challenge antecedent transactions. All these decisions may involve many hours of preliminary investigation and detailed preparation. Examinations or legal proceedings may then be of considerble length and in the end prove to be unfruitful. Problems will arise in relation to the admission or rejection of proofs of debts. Questions will arise as to whether an objection to the discharge of a bankrupt shall be lodged. The preparation of the trustee's report concerning the conduct of a bankrupt, possibly adverse, and which may be challenged by the bankrupt and the possibility of participation by the trustee in an opposed application for discharge may make considerble calls upon the time and judgment of the trustee. Similarly, in relation to deeds of assignment he has many decisions to make affecting the interests of creditors and a bankrupt. As is pointed out by the learned trial Judge :- "The examples given are not to be regarded as exhaustive. Suffice it to say that a trustee plays a central role in the administration of estates under the Act and is under a general duty to exercise the powers committed to him in such a fashion that the objects of the Act, including those of equality between creditors and fairness to bankrupts and debtors, are served. The objects of the Act are of public importance and it is of great importance to the community that the role given by the legislature to a trustee, is fulfilled only by persons who are, and who are seen to be, completely independent." It is said that a trustee who is an employee and subject to the control of his employer in deciding what work should be done by him, the manner in which it should be done, when it should be done, the time within which it should be completed, and the staff which he may use to do it, may well find that he is unable to carry out the required diligent performance of his duties as a trustee because of his desire to he more productively employed in the eyes of his employers so as to advance the prospects of promotion and admission to partnership. It is apparent that if a trustee is also an employee the requirement of independence and impartiality in the performance of his duty as a trustee may come into conflict with his duty to his employer. And in that situation the possibility of a trustee being subject to influence that may make it difficult for him to act in particular cases with impartiality in the interests of creditors generally is Po inevitably present. In so saying in Re Dawes (supra) Lukin J. refused the application of a Managing Clerk for a solicitor to be qualified to act as a trustee. In Re Hickman (supra) Clyne Jd. said at pp.138 and 139:- "In my opinion, however, a person desirous of becoming registered as a trustee should be independent in the sense that he can carry out his duties as a trustee whenever required to do so and free from any such control as may debar him from giving his time and attention to the duties and responsibilities of a trustee. If he has not that independence and as an employee is subject to the control of another, there is always the risk of a conflict of duties, and in particular, the risk that his duties as an employee might be prejudicial to his duties as a trustee. Moreover, it is not satisfactory or expedient that an officer of the Court should be under the more or less continuous control of an employer. The applicant at the present time has not that independence, which is, I think, an essential qualification for any person who desires to become registered as a trustee." There is, however, authority in which a less strict view of the requirements of the Act was taken. Thus, in Re Robson (unreported) 11 November 1980 Wickham J. acceded to an application by an employee of a firm of chartered accountants to be registered as qualified to act as a trustee. However, the decisions in Re Dawes and Re Hickman were not referred to. In 1983, in Re Totterdell unreported 14 June 1983 Burt C.J. heard an application for registration by a person who had previously worked in the office of the Official Receiver and whose appointment was strongly supported by the Official Receiver. The decision in Re Hickman (supra) was quoted to the learned Chief Justice. In an affidavit filed in support of the application a partner in the firm which employed the applicant deposed that there would be no interference by the firm with the applicant in the performance of his duties if he became registered as a person qualified to act as a trustee. Burt C.J. said:- "Well this is an application which I intend to grant. The only point that might lead me to the contrary arises out of the decision of Mr. Justice Clyne, in re Hickman, which was decided in 1943, and in that case his Honour appears to have held that a public accountant, who is employed by another public accountant - the relationship between them being, as appears from the reasons, that of employer and managing clerk - was not thought toa be a satisfactory person to be appointed to this position, or office, because it may well be that he could not, while being so employed, bring to his job, an independent judgment, and that he might be subject to the control of his employer, which would not enable him properly to carry out his duties. Well that in the end really 1s a question of fact, I think, that is decided in each particular case. It is not amatter which arises directly out of the Statute. I think perhaps in 1983 where firms of accountants have become far larger, and it may be, in certain cases, incorporated for all TI know, that the relationship between the so-called employer - I can't say he is the legal employer - and the person who may be said, and in fact is, a servant, is not one out of which there is any real possibility of the employer exerting any degree of control over the employee in the carrying out by that employee, of his duties. He is employed as a professional man, and he has a status which enables him, in the carrying out of his professional work, to exercise an unfettered professional judgment, in the same way, I expect, as a - I mentioned a surgeon might exercise his judgment, although technically he is employed by either a layman or a board - hospital board. This particular applicant appears to be in every respect a very competent, experienced, professional man, well trained to carry out the duties of the appointment which he is seeking, and I think the application should be granted." In Re Partridge (unreported) 22 September 1982 Lockhart J. said of a trustee:- "He must be scrupulously careful to ensure that he never allows himself to be placed in a position of conflict between various duties or between duty and interest; nor must he ever allow the situation to arise where he may be seen to be in that position of conflict or potential conflict. A registered trustee must not only be impartial; he must be seen to be impartial." It is apparent therefore that there are grounds upon which it might be thought incompatible with the nature of the office of trustee that an employee should be registered as a trustee. The question is, however, whether according to law a person who is an employee is for that reason necessarily a person not qualified to act as a trustee within the meaning of s.155 of the Act. In this case the learned Judge has ordered that the registration of the appellant as trustee be cancelled, not because of any impropriety on his part as a trustee but on the ground that his employer/employee relationship with his employer renders him a person whom the Court should not think qualified to act as a trustee. The order was made under s.155 and not s.179. These sections provide as follows:- "155(1) Each Registrar shall keep, as prescribed, a register in which shall be entered the names and such other particulars as are prescribed of persons whom the Court directs to be registered under this section as qualified to act as trustees and who have given security in the prescribed amount and manner. (2) A person may apply to the Court to be registered as qualified to act as a trustee and, subject to this section, the Court may, if it thinks fit, by order direct that he be _ s0 registered upon his entering into a bond in the prescribed amount and manner with such surety or sureties as the Registrar approves. (3) A person who is registered under this section is entitled, upon request, and upon payment of the prescribed fee, to be issued with a certificate of his registration. (4) Nothing in this section authorizes the registration as a trustee of a company, partnership, corporation or association. (5) The Court may, at any time, cancel the registration of a person under this section. (6) ... (7) ... " "179 (1) The Court may, on the application of the Registrar, a creditor or the bankrupt, inquire into the conduct of a trustee in relation toa bankruptcy and may do one or both of the following: - (a) remove the trustee from office; and (b) make such order as it thinks proper. (2) The Registrar or a creditor may at any time require a trustee to answer an inquiry in relation to the bankrupt's estate or affairs. (3) The Registrar or a creditor may apply to the Court to examine a trustee or any other person in relation to the bankruptcy. (4) ..." There seem to me to be different situations requiring separate consideration. First, an employee who pursuant to his agreement of employment is entitled to carry on the business of acting as a trustee and keep the fees for his own benefit. Second, an employee who pursuant to his agreement of employment does the work attached to his duties of being a trustee as part of and subject to the control of his employer including the decisions he makes and how and when he performs the work attached to his trusteeship as though the performance of that work stood in no different a class from his ordinary work as an employee, with the fees being paid to the employer and his remuneration being at a fixed salary or wage. In the first case some adjustment might be made against salary or otherwise for use made of the employer's staff, premises and equipment. But of course, whichever of these employment agreements are made there remains the inevitable fact that the employee is closely bound to the employer, and looks to advancement in the firm and perhaps to partnership. In that position he would naturally desire to please his employer and, with all the goodwill and honesty in the world, might find it easier to favour the firm or its clients in matters arising out of his trusteeship. However, of course, even a man in business for himself may no doubt have business dealings of commercial importance with various persons and be subject to actual or unconscious influence in making decisions in a trusteeship favourable or unfavourable to those persons. It is to be observed that by s.155(4) neither a company, a partnership, nor a corporation or association may be registered as a trustee. However, there is no. statutory provision that a member of a partnership may not be so 10. registered. The Court has been informed that it is common for members of a partnership to be so registered. It is clear, therefore, that for the Court to act upon the view that because of the mere fact that an applicant for registration is an employee he is not qualified to act asa trustee is to exclude from registration a class of persons not enumerated; a class of persons not excluded from registration by the Act. And the question arises why the legislature refrained from including employees in the classes of persons not eligible to be registered. This question has to be considered alongside the non-exclusion by the statute of individual partners. It is clear that considerations of the same class as those which are thought to disqualify an employee can relate to a partner. His interests are to support the partnership and preserve and promote his own position therein. Clearly, albeit he be an honest man, the scope for influence in particular cases is present. The thrust of the question gathers weight if one refers to the statutory provisions relating to the registration of company liquidators. The Companies (Victoria) Code s.17 provides that a natural person may make an application to the Commissioner for Corporate Affairs for registration as a liquidator. Section 18(2) provides that the Commission shall grant the application if: (a) the applicant is : (i) a member of the Institute of Chartered Accountants in Australia, the Australian Society of Accountants or any other prescribed body; (ii) holds a degree, diploma or certificate from a prescribed University or Institution and has passed examinations in specified subjects or has other qualifications and experience that in the opinion of the Commissioner are equivalent to the qualifications last mentioned. (b) the Commissioner is satisfed as to the experience of the applicant in connection with the winding up of corporations; and (c) the Commissioner is satisfied that the applicant is capable of performing the duties of a liquidator and is otherwise a fit and proper person to be registered as a liquidator, but otherwise the Commissioner shall refuse the application. It is provided by s.20(3) in relation to an applicant to be registered as the liquidator of a specified corporation that the applicant shall be so registered if the Commissioner is satisfied that the applicant has sufficient experience and ability and is a fit and proper person to act as liquidator of the corporation having regard to the nature of the property or business of the corporation, the interests of its creditors and contractors but otherwise the Commissioner shall refuse the application. Section 20(4) provides that the Commissioner shall not register as a liquidator persons who have suffered a ~ 12. prohibition under a law from acting as a director or being concerned in the management of a corporation. It is to be observed that in relation to the registration of a liquidator the somewhat elaborate provisions of the Act do not contain any suggestion that the status of the applicant as an employee, whether an accountant or some other class of employee nor that his status as a partner in an accounting firm, or in any other firm is a disqualifying factor. It is not to be thought that either in relation to the registration of a trustee in bankruptcy or of a company liquidator the legislature was unaware that where the trustee or liquidator was an employee or a partner, especially where the employer was an accountant and the partner's firm that of accountants, there was a possibility that the trustee who was an employee might be controlled or influenced by his employer and that a trustee who was a partner might be influenced by his interests in the partnership. But these factors notwithstanding, the legislature has seen fit not to exclude from registration as a trustee an employee or a partner either absolutely or conditionally. It is of course to be expected that a trustee who is an employee or a partner will perform his duties to the creditors and other parties concerned in the performance of the trusteeship hhonourably and independentiy free from fear, favour or affection in relation to the interests of his 13. employer or partners. Nevertheless to my mind it is incompatible with the performance of those duties that the work done in the estate in respect of which a trustee who is an employee should be performed as part of the duty of the trustee to his employer in which, as is usual in duties so performed, the employer is entitled to control the performance of the work involved so that he may direct when and in what manner the work shall be done and to direct the employee as to the decisions he shall make in the exercise of his discretion. If, on an application for registration as a person qualified to act as trustee the applicant had, in relation to the anticipated future performance of his duties as trustee, surrendered his independence to an employer to that extent, he could hardly be regarded as qualified to act as a trustee. And should it appear that an employee already registered as a trustee should thereafter become an employee who had so surrendered his independence and intended so to perform his duties, including the exercise of his discretion, there would be ground for the cancellation of his registration as a trustee. But it is not essential to the relationship of employer and employee that it should involve such a surrender. In the present case it appears to be understood by the employers of the appellant that they have no entitlement under the agreement for his employment to interfere in the exercise of any of his duties as a trustee. The evidence is that the firm would not interfere in the performance of those duties against the wishes of the appellant. If this is thought less of a 14. declaration of his independence than is desirable it has to be recognised that the trustee has the advantage of the use of the premises of his employers and of members of the staff and of their office equipment. These factors must be allowed for in the financial terms of the trustee's employment. They assist him to run his affairs as trustee. At one stage of this hearing the Court was informed by counsel that the agreement between the appellant and his employers was that remuneration earned by him as a trustee was paid directly to his employers. Later this was withdrawn and the Court was informed that since the appellant became an employee he had not become trustee of any estate and no arrangement had been made as to the financial consequences as between himself and his employer of his becoming a trustee and desiring to use the firm's premises, staff and equipment. An arrangement under which the employer's trusteeship fees were paid by him to his employers would appear to me to be evidence of loss of independence and accordingly likely to raise questions as to the propriety of his conduct as a trustee. Clearly a trustee who was an employee would require to be alert to the possibility of conflict of interest between his duties as trustee and those as an employee. In any case in which his duty as a trustee might be influenced or thought to be influenced by the interests of the firm in its relationship with, for instance, a creditor or possible creditor of a bankrupt estate, the employee who is a trustee should refrain from accepting a trusteeship in that estate. If he fails to do so he would be in danger of removal under s.179 of the Act. a If he fails to do so, and certainly if such failure were ~ 15. repeated, the inference might be that he was not a fit and proper person to be registered as a trustee and in that sense not qualified to act as a trustee and possibly be liable to have his registration cancelled under s.155(5). As was said by the learned judge at first instance in Re Hetherington & Ors 14 December 1982 (unreported) at pp.37 and 38:- "He should earnestly consider whether by becoming controlling trustee he may be exposing himself to a conflict between interest and duty, or to any conflict between any existing duties flowing from any relationship with a debtor or a creditor, or any duties attaching to any office or post already held by him, and the duties involved in the proposed office of controlling trustee. He should not rely upon what he conceives to be his own ability to reconcile any such conflict but should rather ensure that the conflict does not arise. A controlling trustee should not be in a position where it may reasonably appear to those who are entitled to the benefit of his impartial discharge of the duties of his office that such a conflict exists. As the office is a statutory one, there is also a public interest that the holder of it should not be, or reasonably appear to be subject to a conflict." It is to be observed, however, that in relation to the appointment of a trustee of a person who is adjudged bankrupt the English provision is as follows:- "19, (1) Where a debtor is adjudged bankrupt, or the creditors have resolved that he be adjudged bankrupt, the creditors may by ordinary resolution appoint some fit person, whether a creditor or not, to fill the office of trustee of the property of the bankrupt; or they may resolve to leave his appointment to the committee of inspection hereinafter mentioned. A person shall be deemed not fit to act as trustee of the property of the bankrupt where he has been previously removed from the office of trustee of a bankrupt's property for misconduct or neglect of duty.. ~ 16. (2) The person so appointed shall give security an the manner prescribed to the satisfaction of the Board of Trade and the Board, if satisfied with the security, shall certify that his appointment has been duly made, unless they object to the appointment on the ground that it has not been made in good faith by a majority in value of the creditors voting, or that the person appointed is not fit to act as trustee, or that his connection with or relation to the bankrupt or his estate or any particular creditor makes ait difficult for him to act with impartiality in the interests of the creditors generally." For present purposes it is important to observe that in these provisions the fact that the person appointed a trustee is an employee of or partner in a firm is not referred to as a ground of disqualification for the office. And in the provision for the removal of a trustee from office the stated grounds of removal are:- "that his connection with or relation to the bankrupt, or his estate, or any particular creditor might make it difficult for him to act with impartiality in the interest of the creditors generally." Having regard to the foregoing it would seem that the legislature did not intend to exclude from registration a person otherwise qualified for registration but who is the employee of some other person or persons. The inference to be drawn from the statute is that such persons are not as employees disqualified to act as trustees. The question relates to the fitness of the person to hold the office of trustee and each case must depend on its own facts: see Brian Muir ov. David Geoffrey Bradley (unreported decision of Beaumont J. dated 6 July 1984 No. T8B6). If it were shown in relation to any particular estate that the trustee's ~ 17. relationship to his employer involved a surrender of his freedom to perform his duties as a trustee properly without fear, favour or affection then his appointment as trustee in any estate would be subject to question. The surrender of his freedom would be conduct to be inquired into and which would support proceedings for his removal and for such other order as might be thought fit. And in this case if it were shown that the employee had made such a surrender and intended to conduct any trusteeship subject thereto and as the creature of his employer that would support an application for cancellation of his registration as a person qualified to act as a trustee or removal from office under either ss.155(5) or 179 of the Act. In this case it would appear that the employee and the employer have failed to grasp the real issue of the employee's independence in the performance of acting as a trustee in any estate. They have approached the matter only in the most general manner. However, on the evidence it does not appear that the employee will not have the necessary independence. Until or unless it does appear that the trustee has surrendered his independence he still remains a person qualified to act as trustee within the meaning of s.155(1) and (2). Problems arising froma trustee's relationship with particular persons which may bear upon the faithful and proper performance by him of his duties as a trustee are significant when he accepts any particular trusteeship. The onus is on the trustee to avoid acceptance of any trusteeship where, in the words of Sweeney J. he may be exposing himself to a ~ 18. conflict between interest and duty. It is not clear that the applicant has surrendered his freedom or that, if he has, he will accept any trusteeship while that situation obtains. Iam unable to resist the conclusion that the decision of the learned judge proceeded on the basis that if a person registered as a trustee enters into a relationship of employer and employee with an employer he thereupon ceases to bea person qualified to act as a trustee and that his registration should be cancelled on that ground. However, having regard to the foregoing I am forced to conclude that so to proceed is to introduce into the legislative provisions a condition of registration which cannot be found in the Act. To this extent, therefore, the decision involved an error of law and cannot stand. Accordingly, the appeal should be allowed. iI cer para ory eat the 7 . : ect cere GE tra ¢ Ye 24 . cop ue C2 LE! snour , Fa .¢ 3 yt 4 ~ - - ' j ex. Tus <= Snthras 1 t \ AL OOTE 1 r & j Detes 3prefeg 4 { = IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V No. G168 of 1984 we GENERAL DIVISTON ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: KENNETH WAYNE LAMB (Appellant) and THE REGISTRAR IN BANKRUPTCY FOR THE STATE OF VICTORIA (Respondent) CORAM: Smithers ACJ, Northrop and Jenkinson JJ. DATE: 3 October 1984 PLACE: Melbourne REASONS FOR JUDGMENT NORTHROP J.: In this appeal I have had the advantage of reading the reasons for judgment prepared by the Acting Chief Judge. I agree with those reasons and the orders proposed by him. I certify that this end—the preceding—papes—are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice R-M- NoemHreP , Lo Associaté J Dated: 3 October 84 IN_THE_FRRERAL COURT OF AUSTRALIA } VICTORIA WISTRICT REGISTRY ) No. VG168 of 1984 GENERAL TIVISTON > ON_APPEAL from the judgment of the Honourable Mr. Justice Sweeney mm the Eankruptey Nistrict of the State of Victoria delivered at Melbourne on the Sth day of June 1984 Appellant ~ ANI: THE REGISTRAR _IN__BANKRUPICY * Respormdant _ - «a @ a - +s _ ~e "_ CORAM: Smathers, Northrop and denkinson Jd. we. PLACE: - Halbourre WATE ¢ 3 October, J984 Appeal against cancejJlation of the registration of the appellant as qualified ta act a5 atrustee of the estates of bankrupts. The application, of the Regostrar in Bankruptey for the Rankruptcy District of the State of Victoria, for cancellation, and the order far cancellation made by Swoeney J. on thai application, were grounded upon the circumstance that, after the appellant had been registered under section 155 of the Hankruptey 2. Act 1966 as qualified to act as a trustee, he had taken, and had thereafter continued in, employment under a contract of service. The grounds upon which the Registrar based his application were:- "(a) that the Trustee is not and/or does not In his observed: have the appearance of being an independent person able to exercise his own independent judgment; (b) that the Trustee's duty may, and/or will be likely to, come into conflict with his duty as an employee of the firm of Messrs. Duesbury's; (c) that the Trustee has insufficient independence to remain qualified as a Trustee registered under Part VIII of the Bankruptcy Act." reasons for acceding to the application Sweeney J. "The status of the respondent as an employee is in my opinion fatal to his continved registration as a person qualified to act as a trustee. A diligent employee, even with understanding employers who are sensitive to his obligations as a trustee, does not have the freedom which a self-employed trustee enjoys. A trustee should be master of his ow time [ree to decide for himself in relation to any estate where he goes, what he does and when he does it, free from any possible direction by employers and free from any thought that he may be prejudicing his chances of advancement or of a partnership by devoting time to carrying out his duty as a trustee. He must enjoy that freedom and must be seen by the court, by creditors, and by debtors and bankrupts, to enjoy it." Neither the Registrar nor any scintilla of evidence suggested that the appellant or any of his employers or any person with whom his employment brought him into association was not of good character, 3. er that the appellant's professional competence as a trustee could be questioned in any way. In concluding his reasons for judgment Sweeney J. observed:- "Nothing in these reasons is intended in any way to reflect upon the character or competence of the respondent or of his employers." Nor was the decision under appeal grounded, as I "infer from the learned judge's reasons, upon any particular term of the appellant's contract of service or upon any circumstance which might attend the appellant's performance of that contract, but not the performance of all or some other contracts of similar service. The grounds of the decision derived from considcrations which any unremarkable contract of service during ordinary business hours as an accovatant in employment by a chartered accountant would suggest. (That is not to say that the evidence concerning the appellant's contract of service, which will be discussed later, was unremarkable. ) Everything turned, in reaching the decision under appeal, upon a consideration of what might be involved, so far as the servant is concerned, in the performance of a commonplace contract for such employment of any accountant who was registered as a trustee. - Section 155 of the Bankruptcy Act 1966 provides: "155(1) Each Registrar shall keep, as prescribed, a register in which shall be entered the names and such other particulars as are prescribed of persons whom the Court directs to be registered under this section as qualified to act as trustees and who a. have given security in the prescribed amount and manner. {2) A person may apply to the Court to be registered as qualified to act asa trustee and, subject to this section, the Court may, if it thinks fit, by order direct that he be so registered upon his entering into a bond in the prescribed amount and manner with such surety or sureties as the Registrar approves. (3) A person who is registered under this section is entitled, upon request, and upon payment of the prescribed fee, to ~ be issued with a certificate of his . registration. (4) Nothing in this section authorizes the registration as a trustee of a company, partnership, corporation or association. {5) The Court may, at any time, cancel the registration of a person under this section. (6) A person, not being the Official Trustee or a person registered under this section, who acts as a trustee of the estate or affairs of an insolvent person or a bankrupt is liable, on conviction by the Court or by a court of summary jurisdiction, to a fine not exceeding $20 for each day on which he has so acted, not being a day on which his acting as a trustee was confined to taking such steps as were necessary for the protection of the property of the insolvent person or bankrupt. (7) It is a defence to proceedings brought against a person under sub-section (6) in respect of his having acted asa trustee of the estate or affairs of an insolvent person if he proves that his acting as a trustee was confined to taking such steps as were necessary for the protection of the property of the insolvent person pending the taking of proceedings under this Act." Such differences as there are between that section and the similar $.126 of the Bankruptcy Act 1924 afford no ground for distinguishing decisions under the former Act upon applications for registration, or upon applications [or cancellation, if there have been any. Wor can any such a ground be found, in my opinion, in a comparison of other provisions of the two Acts. It was upon an application to be registered under s.126 of the 1924 Act that Clyne J. gave the following reasons for refusing to order the registration of an accountant: "The applicant at the present time has not that independence, which is, I think, an essential gualification for any person who desires to become registered as a trustee. He is at present employed as a managing clerk, and, although he has a right of private practice, and, although his employer is apparently willing to grant him unusual liberty, his employer nevertheless has the right, whenever he desires to exercise it, to direct what work should be done by him, the manner in which and when such work should be done. I consider, therefore, that the applicant ought not to be permitted to be registered as a trustee under the Act." (Re Hickman (1943) 13 A.B.C. 138.) The report of the case affords no other information about the evidence adduced, except that it is stated in the headnote that both the applicant and his employer were public accountants. In Re Dawes (1934) 7. A.B.C. 190 Lukin J. had refused to order the registration of an applicant who was a solicitor employed as the managing clerk of a solicitor practising in Broken Hill. Lukin J. observed (7 A.B.C. at 191): "No question arises as to his honesty and good repute; that is sufficiently established. There is, however, the further objection that he is not an independent person able to exercise his own independent and uninfluenced judgment. His duty as trustee may, and will be likely to, come into conflict with his duty as Managing clerk for his employer, ¢.g., when acting under s.105(4), and otherwise. Section 153(2) of the Act indicates the legislature's opinion as to the necessity for having a trustee free from any influence that may 'make it difficult for him to act with impartiality in the interests of the creditors generally.'" Section 105(j) of the 1924 Act, re-enacted es s.134(j) of the 1966 Act, authorised the trustee to "bring , institute or defend any action or other legal proceeding relating to the administration of the estate". It was by virtve of s.153(2) of the 1924 Acta ground of removal of a trustee from his office "that his connexion with or relation to the benkrupt, or his estate, or any particular creditor, might make it difficult for him to act with impartiality in the interests—of the creditors generally." That provision was not re-enacted in the 1966 Act. The circumstances in which the applicant in Re Dawes would have executed the office of trustee were singular, and very dikely to have given rise, in Broken Hill in the fourth decade of this century, to the impression that his judgment was subject to the influence of his employer and the employer's clients. It is possible that Lukin gd. was adverting to those particular circumstances, not to the mere fact of employment under a contract of service. 7. In Re Robson (Supreme Court of Western Australia : unreported : judgment 11 November 1980) Wickham J. made an order under s.155(2) of the Act for the registration of an employe of a firm of two chartered accountants, each of whom was himself registered under the section. The transcript of the hearing of the application discloses that Wickham J. enquired whether it was an obstacle to the granting of the application that the applicant was in employment under a contract of service. He was then informed that two applications for registration by employes had been recently granted by the Supreme Court of Western Australia. Reference was not made to Re _ ilickman or to Re _ Dawes. The application was supported by the Official Receiver in Bankruptcy for the Bankruptcy District of the State of Westcrn Australia. The transcript does not indicate whether the terms of the contract of employment were in evidence. Wickham J. did not give reasons for granting the application. in Re Totterdell (Supreme Court of Western Australia : unreported : judgment 14 June 1983) the application of an-employe of a firm of chartered accountants to be registered under s.155 as a trustee was granted by Burt C.J. The transcript of the hearing of the application does not indicate whether the terms of the contract of employment were in evidence. It does appear that one of the partners employing the applicant had given, in an affidavit read in support of the application, for himself and on behalf of his partners an undertaking that there would be no interference with the applicant in the performance of his duties 1f the applicant were accorded the status of a registered trustee. This application wes also supported by the Official Receiver and the 8. learned Chief Justice was informed that three applications for registration by employes had been recently granted by the Court. Burt C.J. observed: ' "Well this is an application which I intend to grant. The only point that might lead me to the contrary arises out of the decision of Mr. Justice Clyne, in re Hickman, which was decided in 1943, and in that case His Honour appears to have held that a public accountant, who is employed by another public accountant - the relationship between them being, as appears from the reasons, that of employer and managing clerk - was not thought tobe a satisfactory person to be appointed to this position, or office, becavse it may well be that he could not, while being so employed, bring to his job an independent judgment, and that he might be subject to the control of his employer, which would not enable hin properly to carry out his duties. Well that in the end really is a question of fact, I think, that is decided in each particular case. It is not a matter which arises directiy out of the Statute. I think perhaps in 1983 where firms of accountants have become far larger, and it may be, in certain cases, incorporated for all I know, that the relationship between the so-called employer - I can't say he is the legal employer - and the person who may be said, and in fact is, a servant, is not one out of which there is any real possibility of the employer exerting any degree of control over the employee in the carrying out by that employee, of his duties. He is employed as a professional man, and he has a status which enables him, in the carrying out of his professional work, to exercise an unfettered professional judgment, in the same way, I expect, asa ~ I wwentioned a surgeon might exercise his judgment, although technically he 1s employed by either a layman or a board - hospital board. This particular applicant appears to be in every respect a very competent, experienced, professional man, well trained to carry out the duties of the appointment which he is seeking, and I think the application should be granted." It was submitted on behalf of the appellant by Mr. Guest 9. Q.C., who appeared with Mr. Beaumont, that the reasons of Sweeney d., and particularly the passage from those reasons which 1 first quoted, expressed a conclusion that in no circumstances ought an employe to be registered under s.155. It was further submitted that such a conclusion demonstrated a failure to exercise the discretionary judgment which 5.155(5) required. The reasons of the learned judge are to be considered as a whole.and with reference to the evidence adduced. So regarded, those reasons in my opinion express the conclusion, not that no employe ought to be registered, but that no employe ought to be registered, the terms of whose employment place him in the situation which Steeney J. adumbrates in the passage T have quoted. No doubt it would be a rare contract of service under which an employe would be wholly free of the constraints to which the learned judge referred. But he is not to be understood, in my opinion, as asserting that the mere fact of employment under a contract of service precludes registration under s.155. The evidence as to the terms of the appellant's employment is contained in an affidavit sworn, by one of the members of the firm ("Duesburys") by whom he is employed, "with the knowledge and concurrence | of" the other partners. The deponent, Warwick Allen Leeming, swore: "2. KENNETH WAVNE LAMB ("The Trustee") is and has been since June 1983, employed by my firm as a Senior Insolvency Manager. He is highly regarded as an extremely well qualified and competent insolvency Accountant, particularly in the area of the bankruptcy practice. I believe that his future prospects with the firm are 10, xniremely good and at 15 proposed that we wtll have discussions with him cancernang tne prospects of 3 parinership, after he has become qualified as 3a Chartered Accountant. Jo telyeve that 2b as the intenlion of tne Trusten ta apply ta the Institute for Admission on the basis of his present qualifications and experience and, af that 1s mot seceptlable, he will underbake the Institube's profess1anal year os training. 3. THAT untal his Admission as a partner, the Trustee will continue an the enployment of my firm upon the terms and cornditiange a3 set ont ium a letter of 11th ~ fpril 1983 (annexure Poa" +o the &ffidavits of KENNETH WILLIAM WILTSHIRE sworm the 26th January 1984) including 3 right of private practice as set out in that letter. During his employment, the Trustee has complete aundependence an respect of the admanistrataons am which he aclbs a5 trustee or as liquidator. I am stile io assure the Court on benalf of my pariners hat they do moi iunterfere or do they intend to interfere ar direct the trustee uw the conduct of those aAdminisirablions.« . 4 THAT my partners and 3, some of whom are also Truelees its Tankruptey and Kkegislered Or Lagquidators, are very much aware of the need for independence of LrusblLees im this regard." the letter dated llth April 19893, addressed by Duesburys ta the appeJiant, »5 in these terns: "Following aur recent discussions regarding enploymant with Our firt, we confirm arrangements with rogard to your pasition, }. The commencing salary wiJl be #€deleted Per ammume a. Axpenses relatunq to the provision of a moalor vehicle and/or car parking ebtc., Lo a maximum cost to our fuirw of *Cdeletedd per antium wall be provided to enable your professianal duties Lo be attiendod to ain a proper manner. the aetual division of lL. these expenses can be determined in future discussions. 3. Superannuation is available to you after one year of service. (bh) Introduction of Clients We understand that there is a high probability that you will introduce clients of your own to the firn. If this does eventuate, we advise that the firm will pay to you a fee equal to of the billings in one year, less any write-offs for bad debts. These clients will remain yours at all times. {c) Career Advancement In order that your advancement in the firm is not restricted in any way, we would strongly encourage you to obtain membership of the Institute of Chartered Accountants. As a menber oF the Institute, your progression to partnership could be considered in the future. In light of such considerations, your personal client portfolio would be taken into account in assessing the capital cost of admission. We look forward to your commencement with us in the near future, and await your advice as to the propable dates. Should you have any queries in relation to the foregoing, please contact Mr. Michael Humphris." Counsel for the appellant were asked by members of the Court hearing the appeal whether there was agreement, between the appellant and his employers, either to be found in the letter or constituted in some other way, as to whether the appellant should be entitled to retain for himself remuneration for his work as trustee. (See Division 2 of Part VIII of the Bankruptcy Act 1966.) It was not submitted, nor could it in my opinion have been successfully argued, that paragraph (b) of the letter provided any indication of the answer to that enquiry : neither a bankrupt (or a debtor under Part X or a legal personal representative under Part XI) nor his creditors could in my opinion be regarded as 12. "clients"" of the 'trustee, within the meaning of that word in paragraph (b). The response of Mr. Guest to the enquiry was that it could not be answered, because the appellant had not since he took employment earned any remuneration as a trustee. The court was left to infer that agreement had not been reached between the appellant and his employers on the subject of its enquiry. The question, whether an agreement for bringing the amount of the appellant's remuneration for his work as trustee under the Bankruptcy Act to account in the calculation of his remuneration for his service as an employe of Dvesburys would involve a contravention of 5.165(1)(b) of the Bankruptcy Act, was not addressed by counsel for either party to the appesl. Section 165 provides: "(1) A trustee of the estate of a bankrupt shall not - {a) make an arrangement for receiving, or accept, from the bankrupt or any other person, in connexion with the bankruptcy, any gift, remuneration or pecuniary or other consideration or benefit beyond the remuneration fixed in accordance with this Act; (b) make an arrangement for giving up, Or give up, a part of his remuneration to the bankrupt or any other person; (c) except as provided by this Act, directly or indirectly derive any profit or advantage from a transaction, sale or purchase for or on account of the estate or any gift, profit or advantage from a creditor; or (da) except with the leave of the Court, directiy or indirectly become the purchaser of any part of the estate. (2) A trustee who contravenes sub-section (1) 13. is guilty of contempt of court." See also ss. 231(4), 237(4) and 243(3). Another letter from Duesburys was in evidence, written to the Deputy Registrar in Bankruptcy, who had made enquiry of the appellant concerning the terms of his employment. That letter reads: "This is to confirm that Wayne Lamb has joined the firm of Duesburys as an employee, but as you are aware, up until that time, he had been in public practice as a partner in his own firm. The basis upon which we have engaged Wayne is thet he is to pursue his role as a registered auditor and as a registered liquidator and attract work in his own right and carry out that work using the trained insolvency stalf employed by Duesburys. It is unfortunate that Wayne is not a member of the Institute of Chartered Accountants and because of that reason, he cannet be admitted to the Partnership. I wish to confirm on behalf of Duesburys that the Partners have no intention of, and would not interfere with or direct Wayne in any way against his wishes in the conduct of administrations taken in his own name. If we were not confident that Wayne could carry out such appointments, we would not have engaged him. The same situation is involved in a firm like ours even on a Partner to Partner basis wherein any engagements taken on by any of the trustees in our firm are completely handled by them in their own right without any interference from any other Partner in the firm for any reason whatsoever. We do not believe that an insolvency practice can operate under any other method. We would be more than happy to discuss this matter further with you and give you any other undertakings that you require in this regard. If you wish to discuss the matter, would you please contact Warick Leeming." 14. The evidence to which I have referred may be thought to justify a finding that the appellant's employers will abstain, not only from giving him directions, and from seeking by other means to influence him, as to his conduct in exercise of his functions as a trustee under the Bankruptcy Act, but also from giving him directions, as to the performance of duties of his employment, by compliance with which he would be deprived of the time required for the proper performance of those functions. Or it may be that terms would be implied, in a contract of service made in the circumstances which the evidence in this case discloses, that the servant be not subjected by the master to directions of either of those kinds. Let it be assumed that both the findings and the "implication of terms were made by this Court. They are not findings which will be known, or implications obvious, to the persons who will deal with the appellant in his capacity cf trustee under the Bankruptcy Act. Most of those who know the appellant to be an employe of Duesburys will know no more of the relationship than that. It was submitted on the appellant's behaif that at the present time persons dealing with, or affected by the actions of, a trustee under the Bankruptcy Act would not think his independence diminished by his status of employe, nor doubt his impartiality on the ground that his employer had for a client one who was, or claimed to be, a creditor of the bankrupt, or of the debtor who had invoked provisions contained in Part X of that Act or of whose estate administration under Part XI had been ordered. That is a submission which I cannot accept. Suspicion that a business association may have diminished the independence of the associates or of one or other of them, and that such an id. assoclation may have resulted in partiality, is in my opinion as readily excited now as at any time since the Bankruptcy Act 1924 was enacted. The subservience of servant to master may be less readily imagined now than when Re Dawes - or when Re Hickman - was decided, but, in the professions from which trustees in bankruptcy are drawn, not so much less readily. In his reasons for judgment Sweeney J. drety attention to a number of provisions in the Bankruptcy Act requiring the exercise by a trustee in bankruptcy of functions which are difficult or time consuming or call for a judicially formed conclusion about conflicting claims or For a prudent commercial judgment. Not a few of those functions demand for their proper exercise a substantial period of time and complete impartiality and sound legal and conmercial judgment. Many of the decisions taken by a trustee in the course of administration will adversely affect the interests of one or more of those concerned, and other decisions of the trustee will be conceived by some of those concerned to affect their interests adversely. Their reactions cannot reasonably be expected to be always limited to animadversion on the knowledge and skill and good judgment of the trustee <: some of then will in some, not very uncommon, circumstances be human enough to doubt the trustee's integrity. If they know him to be in the employment of persons who practise in accountancy or in law, that knowledge will tend, in my opinion, to stimulate dovbt and suspicion. If they know, or form a belief, that another person concerned is a client of the employer, there will be a greater risk that the trustee's integrity will be doubted. ar 16. As Sweeney J. pointed out, with ample quotation of high authority, the appearance no less than the reality of independence and impartiality in a trustee is required by the law. A trustee in the employment of a firm of accountants is in my opinion exposed to a greater risk than a trustee in practice on his om as an accountant that circumstances which he cannot prevent occurring will impair the appearance of his independence or the appearance of his impartiality inthe eyes of persons affected by the performance of his duties as a trustee. It was submitted on the appellent's behalf that a trustee''s association with others in a partnership could be said, on much the same grounds as those on which a trustee's employment by others could be said, to diminish, or appear to diminish, the trustece's independence and impartiality. 'Yet trustees in bankruptcy may, and many do, practise their professions as members of a partnership. Why, then, it was submitted, should not such trustees practise their professions in the employment of others. That submission may be coupled with another, advanced on the appellant's behalf, that a person aspiring to be a company liguidator is not denied registration on the ground of employment as another's servant. To the latter submission it may be a sufficient answer that for many years the legislation regulating the registration of company liquidators gave explicit direction as to the qualifications for registration, and to that extent absolved the ww Ht 17. ecourls, and others charged vith cantrol of registration, af t or e responsibilzty for determining the criteria upon waie)en mq regirstration should be granted i see White v. Conpanies Auditors Boarel €1964] VE. 743, espec. at 747, Section 2G of the Bankruptey Ack 1924 and seclion 155 of the Bankruptcy Act 196v cast Lhal responsibility antirely on the courts exerervsing bankrupiey jurisdiction. Todo mot thank that 8.15504), the substance of which originated im oan amendwent, by Act No. 31 of 1992, s.S3, of 5.1326 of the 19234 Act, cam be regarded as implying A statutory determination that memberehip of a partnership or omployment under a contract of service should mot he oo disqualiaficsztian from registratian as 2 trustee ain bani cuptcy. The object of Lhe provision may be soen to be Lhe exciusion, 2rem registration as qualitied to act 35 trusiees", af il aggregations at legal persons ('partnership we... or assot1ation') amd of alt leqal persons except nmsiural persans as such (company eone COPPOKALION').« There seems no basis for supposing that the enacting Farliament gave thought to any question tut whether or not esch registration should be of a singe matural person. There 15 im general a somevnab greater risk of rmparrment of a trustes's independence, and a greater pirsk of pariaality in the discharge af his duty, amd 2 greater rask that nis independence and his amparlralaty well be doubted, af he be the servant of another upon common terms of employment tian if he be another's partner wpon common -parinersnip terms. Those comsiderations may be sar1d to yuslify the decision of Sweeney J.. Why should the Court risk more than iat must gm fulfilling 2ts responsibility Lo maintain the due admanisbtration af the 18. bankruptcy laws and to maintain public confodence aim that administration? There 1s mo evidence in this case of 2 S$carerty of trustecs an bankruptcy, or of aspyrants to thal role, who are not employed under contract of service. Why, then, should not this Court accord registration only to those whe are not exposed Lo the risks attending service under such a conlract? If the employer understands what 18 required by Jaw of a trustee in bankruptcy and is walling to accept and maintain a relationship with his employe which leaves tne employe free to camply with those requirements, 'there will mot an my Opinisn be a wach greater risk of the apprehended evils under consideration than net ubich 2ettends a professional partnership between 4 trustee and another person. Amd 1t may reasanably oe Lhought that rocent legislation of the Commonwealth Parliament favours a carrsere ouverte aux talents. a The considerations are in my apinion finely balanced for and against permitting to be a trustee in banbruptey a man of undoubted integraty and competence who is engaged during normal business hours - 25 141 appears Lh2it the appellant may be engaged - im the service of omployers able (hecause of their professional bnovledge and experience) and willing to leave him free toa discharge properly the dublies af such a irustee. I think that in a particular case the conmstderalions ain favour of granting permission may outweigh the contrary considerations. The question whether this appellant ehouwld be permitted, vhile im his present employment, to remain a registered trustee 19. cannot in my opinion be determined satisfactorily on the evidence which was adduced on the hearing of the respondent's application. Reference has already been made to the lack of evidence, and even lack of an understanding by the appellant, as to whether the quantum of the appellant's remuneration in respect of his enployment by Duesburys will be affected by his receipt, or by his earning, of remuneration as a trustee in bankruptcy. That question would in my opinion have to be resolved by express agreement between the appellant and his employers if the Court were to contemplate continuance of his registration as a trustee. Further, the organization of the work of Duesburys, and in particular the organization, and any direction by another, of the appellant's work as an employe, would in my opinion have to be made clear to the Court by evidence of much greater particularitr than is afforded by the affidavit of Warwick Allen Leeming and the two letters I have quoted. It would be necessary also to address the question as to whether the appellant would be subject to any influence by his employers in deciding to give or withhold his consent to act as a trustee in bankruptcy in each, or in any, particular case. And provision would have to be made to give the court assurance that not only the present partners of Duesburys, but also those who should join the firm while the appellant remained a trustee in bankruptcy and in the firm's employment, would respect the appellant's independence in the discharge of his functions as trustee. No doubt other aspects of the appellant's relations with his employers would call for careful consideration upon a full disclosure in evidence of those relations. The order against which appeal was brought was: 20. "The Court Orders: 1. That the registration of Kenneth Wayne Lamb ("the respondent") as a person qualified to act as a trustee pursuant to Part VIII of the Bankruptcy Act 1966 ("the Act") be cancelled in exercise of the power contained in s.155(5) of the Act. 2. AND DECLARES that the respondent is no longer qualified to be a person registered pursuant to Part VIII of the Act, 3. Theat the respondent pay the taxed costs of the Registrar of and incidental to the Application. 4a, That the taxed costs of and incidental to the Application shall include the costs of this day. 5. That proceedings under the judgment be stayed until further order on the respondent undertaking by his Counsel that he would not accept an appointment as a trustee to any administration under Parts IV, X or XI of the Bankruptcy Act and further that he would not sign any consent pursuant to s.156A and further that he would not sign pursuant to s.188(2) any consent to exercise the power conferred by an authority given by a debtor pursuant to s.188(2). 6. That any notice of appeal be filed and served by 8 June 1984, 7. That any times or periods necessary to be abridged to enable the appeal to be heard on 22 June-1984 be so abridged." In my opinion paragraphs 1, 2, 3 and 4 of that order should be set aside and the application remitted for further hearing and determination by a judge exercising the original jurisdiction of the court in bankruptcy. | ai. The Respondent should be ordered to pay the costs of i ' this appeal. The costs of the hearing before Sweeney J. should be reserved to the judge who determines the application. , wee, De SE weno