FEDERAL COURT OF AUSTRALIA Piggott (Trustee), in the matter of Hodgkinson (Bankrupt) v Hodgkinson [2013] FCA 598 Citation: Piggott (Trustee), in the matter of Hodgkinson (Bankrupt) v Hodgkinson [2013] FCA 598 Parties: BENJAMIN PETER PIGGOTT AS THE TRUSTEE IN BANKRUPTCY OF THE BANKRUPT ESTATE OF KEVIN ARTHUR HODGKINSON v KEVIN ARTHUR HODGKINSON File number: WAD 135 of 2013 Judge: BARKER J Date of judgment: 10 May 2013 Catchwords: BANKRUPTCY AND INSOLVENCY – application by trustee in bankruptcy to be appointed receiver and manager of trust assets – bankrupt former trustee of trust – no present trustee of trust – whether Court has power under s 30(1) Bankruptcy Act 1966 (Cth) or s 23 Federal Court of Australia Act 1976 (Cth) to make orders sought Legislation: Bankruptcy Act 1966 (Cth) s 30(1), s 116(2)(a) Federal Court of Australia Act 1976 (Cth) s 23 Trustees Act 1962 (WA) s 77 Cases cited: Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 Chief Commissioner of Stamp Duties v Buckle [1998] HCA 4; (1998) 192 CLR 226 Coates v McInerney (1992) 7 WAR 537 Hingston v Westpac Banking Corporation [2012] FCAFC 41; (2012) 200 FCR 493 In Re Suco Gold Pty Ltd (In Liq) (1983) 33 SASR 99 Jennings v Maher [1902] 1 KB 1 Keith Hercules & Sons v Steedman (1987) 17 FCR 290 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 Ramsay v McElroy [2003] QCA 208; [2004] 1 Qd R 667 Re Bilen; Ex Parte Sistrom (unreported, Federal Court of Australia, Neaves J, 11 April 1985) Re Matheson; Ex parte Worrell (1994) 49 FCR 454 Date of hearing: 10 May 2013 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 22 Counsel for the Applicant: Ms F Xue Solicitor for the Applicant: Gadens Lawyers IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 135 of 2013 BETWEEN: BENJAMIN PETER PIGGOTT AS THE TRUSTEE IN BANKRUPTCY OF THE BANKRUPT ESTATE OF KEVIN ARTHUR HODGKINSON Applicant AND: KEVIN ARTHUR HODGKINSON Respondent JUDGE: BARKER J DATE OF ORDER: 10 MAY 2013 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Leave be granted to amend the originating application by adding the words "and section 23 of the Federal Court of Australia Act 1976" after the words "section 30 of the Bankruptcy Act 1966". 2. Benjamin Peter Piggott of Ground Floor, 237 Adelaide Terrace, Perth WA 6000 (Receiver) be appointed as receiver and manager of the assets of Hodgkinson Accountants Trust (Trust) established by a deed of trust entered into on 31 January 2006 by Peter Geoffrey Lark as the settlor and Kevin Arthur Hodgkinson as the trustee (Trustee). 3. The duties to be performed by the Receiver are as follows: (a) to take possession of, collect and protect all assets of the Trust; (b) to receive and collect the debts due to the Trust; (c) to carry on the business of the Trust until the realisation of the Trust's business; (d) to realise the Trust's business; (e) generally to exercise such of the powers as might otherwise have been conferred on a receiver or manager of property by section 420(2) of the Corporations Act 2001 had the Trust been a corporation. 4. The Receiver is given the power to do all things (including the signing of any documents) necessary for the realisation of the Trust's business. 5. The Receiver is allowed remuneration as fixed by: (a) resolution of the creditors of the respondent's bankrupt estate; or (b) if no such resolution is passed – by the Court. 6. The Receiver file accounts of receipts and payments verified by affidavit as at each six month anniversary after the date of these orders within one month after each such date and seek any further directions of the Court as may then appear appropriate. 7. The applicant's costs of this originating application be paid from the estate of the respondent. 8. The parties and the Receiver have liberty to apply on 48 hours notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 135 of 2013 BETWEEN: BENJAMIN PETER PIGGOTT AS THE TRUSTEE IN BANKRUPTCY OF THE BANKRUPT ESTATE OF KEVIN ARTHUR HODGKINSON Applicant AND: KEVIN ARTHUR HODGKINSON Respondent JUDGE: BARKER J DATE: 10 MAY 2013 PLACE: PERTH REASONS FOR JUDGMENT overview 1 On 10 May 2013, I made orders appointing Benjamin Peter Piggott, the trustee of the bankrupt estate of the respondent, as the receiver and manager of the assets of Hodgkinson Accountants Trust (Trust). I also made orders regarding the duties, powers, remuneration and obligations of Mr Piggott in his capacity as receiver and manager, as well as ancillary orders. These are my reasons for the making of the orders. background 2 By affidavits sworn on 3 May 2013 and 9 May 2013, Mr Piggott provides a background to the current proceeding. 3 On 31 January 2006, the Trust was established by a trust deed made between Peter Geoffrey Lark as settlor and the respondent as trustee (Trust deed). The appointor of the trust was (and remains) Elizabeth Anne Hodgkinson, the wife of the respondent. Pursuant to cl 3.3(a) of the Trust deed, the appointor has the power to appoint and remove any trustee. 4 On 20 November 2012, the respondent was made bankrupt by a sequestration order under the Bankruptcy Act 1966 (Cth) (Act) and, pursuant to cl 3.2(c) of the Trust deed, his appointment as trustee of the Trust was automatically terminated. However, Mrs Hodgkinson has not appointed a replacement trustee. 5 On 21 February 2013, Mr Piggott was appointed as the trustee of the bankrupt estate of the respondent. 6 On 28 March 2013, the Australian Taxation Office lodged with Mr Piggott a proof of debt for $495,958.36 in respect of the respondent. 7 Prior to his bankruptcy, the respondent operated an accounting business in the name of Hodgkinson Accountants on behalf of the Trust (Hodgkinson Accountants). On 2 May 2013, the applicant received an offer to purchase Hodgkinson Accountants for $498,750 from In Front Business and Accounting Services Pty Ltd as trustee of In Front Trust (ACN 17 747 074 544) (In Front). By a notice signed on 3 May 2013, the respondent and Mrs Hodgkinson indicated that they agree to the sale of Hodgkinson Accountants. Further, Mr Piggott deposes that he considers In Front's offer to be reasonable for the following reasons: Hodgkinson Accountants was marketed by an independent business broker; In Front's offer is considered to be "fair value" by the broker; the respondent's registration as a tax agent expires on 6 May 2013; Hodgkinson Accountants will need to engage a replacement registered tax agent if it is not sold and wishes to continue to trade after 6 May 2013; the engagement of a registered tax agent in the circumstances would be costly and may render Hodgkinson Accountants unprofitable; and In Front's offer provides for ongoing employment of existing staff, priority to unpaid employee entitlements and preservation of the respondent's right of indemnity against the Trust's assets, the primary asset of the respondent's bankrupt estate. 8 However, Mr Piggott deposes that In Front informs him that it has concerns regarding whether or not the applicant can effect a valid sale of Hodgkinson Accountants and that he has received conflicting legal advice on the issue. As a result, the applicant now applies to the Court pursuant to s 30 of the Act for orders, inter alia, appointing the applicant as the receiver and manager of the assets of the Trust in order to facilitate the sale of Hodgkinson Accountants to In Front. 9 A clerk employed by the applicant's solicitors deposes that he served the respondent with the originating application and supporting affidavit of Mr Piggott sworn on 3 May 2013. The respondent has not entered an appearance. By a letter provided to the Court, Mrs Hodgkinson indicates that she neither consents nor objects to the orders sought by the applicant. consideration 10 Section 116(2)(a) of Act provides that property held by a bankrupt in trust is not divisible among creditors. However, trust assets which are used to pay trust debts pursuant to a trustee's right of indemnity are not assets which are entitled to the protection of s 116(2)(a): Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 (Octavo) at 369-370 (Stephen, Mason, Aikin and Wilson JJ); Re Matheson; Ex parte Worrell (1994) 49 FCR 454 (Matheson) at 458. Furthermore, to the extent that a bankrupt has a right of indemnity for liabilities incurred as a trustee, that right is a beneficial interest in the assets of the trust which passes to the trustee in bankruptcy: Octavo at 370; In Re Suco Gold Pty Ltd (In Liq) (1983) 33 SASR 99 (Suco Gold) at 102 (King CJ); Coates v McInerney (1992) 7 WAR 537 at 538; Matheson at 459; Ramsay v McElroy [2003] QCA 208; [2004] 1 Qd R 667 at [9] (White J). 11 Thus, in this case, upon the respondent's bankruptcy, the respondent's right of indemnity for liabilities incurred as trustee of the Trust passed to the applicant. The right of indemnity has first charge on the trust property: Jennings v Maher [1902] 1 KB 1 at 6 (Stirling LJ); Suco Gold at 102 (King CJ); Chief Commissioner of Stamp Duties v Buckle [1998] HCA 4; (1998) 192 CLR 226 at [48]. It would appear arguable, therefore, that the applicant is entitled to effect the sale of Hodgkinson Accountants in order to satisfy his right of indemnity, in relation to the Trust, without the need for any order by the Court: Suco Gold at 109 (King CJ). 12 Nonetheless, the applicant considers that there is some doubt regarding the applicant's ability in this regard, and so applies to the Court for orders confirming the appropriateness of this course of action. In the event, I am satisfied that it is appropriate for the Court to make orders which gives effect to the realisation of this right. 13 The applicant submits it is appropriate for Mr Piggott to be appointed as the receiver and manager, because: Mr Piggott is the registered trustee in bankruptcy of the respondent; Mr Piggott has past experience in the sale of accounting practices; it would be more cost effective for Mr Piggott to take control of the assets of the Trust and arrange for their proper realisation because Mr Piggott is already familiar with Hodgkinson Accountants as a result of providing supervision to the respondent in its operation, he is already familiar with In Front having dealt with it regarding the prospective sale, and he is already familiar with the assets of the Trust through prior investigations of the respondent's bankrupt estate; and thus, taking steps to appoint a new trustee lacks business and practical efficacy. 14 The applicant submits that s 30(1) of the Act supplies the Court with the power to make the orders sought. Section 30(1) provides: (1) The Court: (a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and (b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter. 15 Section 30(1) is a broad, facultative provision giving the Court full power, within the limits of its jurisdiction, to make such orders as the Court considers necessary for the purposes of carrying out or giving effect to the Act in any particular case or matter: Re Bilen; Ex Parte Sistrom (unreported, Federal Court of Australia, Neaves J, 11 April 1985); Hingston v Westpac Banking Corporation [2012] FCAFC 41; (2012) 200 FCR 493 at [125]. 16 The question arises, however, whether in this case what the applicant is seeking are orders to give effect to his right of indemnity in the shoes of the trustee of the Trust, rather than to give effect to the Act. 17 A similar question would arise under s 23 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) if it is relied on to support the making of the orders. Section 23 provides: The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate. 18 The power conferred by s 23 is also "a broad one": Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 at [56] (Gaudron, McHugh, Gummow and Callinan JJ), the only limitations being that there must be a matter in which the Court has jurisdiction and that the Court is restricted to the making of orders of such kinds "as the court thinks appropriate" in the exercise of its jurisdiction: Keith Hercules & Sons v Steedman (1987) 17 FCR 290 at 299 (Lockhart J). 19 The fact that the right of indemnity is a charge on the assets of the trust, and is held now by the applicant as trustee in bankruptcy suggests a sufficient nexus between the orders proposed and the proper administration of the Act, so that the orders may be considered to "give effect" to the Act under s 30 and provide "jurisdiction" for the purposes of s 23 of the FCA Act. 20 On balance, there being no contradictor, and the effect of the orders producing a sensible outcome in the course of the administration of the bankrupt estate, I consider it appropriate to make the orders sought. 21 If there are any remaining assets after Mr Piggott has completed his duties as receiver and manager of the assets of the Trust, it may be that he will need to make an application pursuant to s 77 of the Trustees Act 1962 (WA) to cause a trustee to be appointed to the Trust in order to complete the distribution of the Trust's assets to the beneficiaries: see Suco Gold at 109 (King CJ); Matheson at 460. On present indications this is unlikely to occur. This possibility, however, has been provided for in order 6, which states: 6. The Receiver file accounts of receipts and payments verified by affidavit as at each six month anniversary after the date of these orders within one month after each such date and seek any further directions of the Court as may then appear appropriate. conclusion and orders 22 For the reasons given, the orders proposed (as amended) should be made. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker. Associate: Dated: 18 June 2013