Facts
In Newman v Bain [2012] FMCA 629 Mr Newman, as trustee of the Bankrupt Estate of John Francis Desmond Keet, filed an application in the Federal Magistrates Court for an extension of time to make an election under section 60(3) of the Bankruptcy Act 1966 (Cth) (the “Act”).
The election related to Supreme Court proceedings in which Mr Keet was a defendant. Mr Keet cross-claimed against a third party, Mr Bain. The main proceedings had been determined and only Mr Keet’s claim, worth about $1 million, remained. Mr Keet’s creditors claimed about $3 million and his assets (excluding the potential benefit of the cross-claim) totalled approximately $2 million. The election was therefore quite significant.
The sequestration order was made on 19 September 2012 and Mr Bain’s solicitors gave notice to the Official Trustee under s 60(3) of the Act (“Notice”). In the time that the Official Trustee had charge of Mr Keet’s estate, an election was not made. Mr Newman was subsequently appointed on 31 October 2012, and became aware on 9 December 2012 that Mr Bain intended to apply to dismiss Mr Keet’s cross-claim. Despite this, Mr Newman did not make an election until 14 February 2012, some three months later. His application for an extension of time under s 60(3) of the Act was not made until 16 April 2012.
Discretion
Section 33(c) of the Act gives the Court a discretion to, “extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act, or any time fixed by the Court or the Registrar under this Act…for doing an act or thing or abridge any such time”.
The Court followed Abeyrante v Trkulja & Ors [1] in which the Court said “…the discretion the Court has is in respect of the extension of time is a broad discretionary power…[and] it highlights the unfettered nature of the discretion that is given to the Court under s33 of the Act” [2]
The Court found that the relevant matters for consideration when exercising its discretion include, but are not limited to;
- The reason for the delay;
- The need to do justice not only between the parties to the application but to the parties affected by the granting or refusal of an extension [3] - the Court noted that granting the extension may increase the return to creditors;
- The merits of the action - The Court concluded that Mr Keet had an arguable case and that was sufficient for its purposes;
- The conduct of the parties (and their legal representatives) – When the Official Trustee was appointed, Mr Keet’s solicitors corresponded with Mr Bain’s solicitors, inquiring if notice had been served. Mr Bain instructed his solicitors not to reply. Mr Keet’s solicitors did not make their own inquiries but the Court considered the conduct of Mr Bain and his solicitors relevant and was quite critical of it;
- The function of the time limit in the Act – the Court observed that it was likely that in modern conditions, 28 days is now an inadequate period of time for a trustee to make an election and noted that the time limit was there to provide a degree of certainty to the parties to litigation.
The Court determined that the most significant matter in this case was the delay.
Was the delay reasonable?
The Court looked at the conduct of both Trustees to determine whether the delay was reasonable.
The Official Trustee was aware of the Notice. However, he did nothing “which constituted a proper or adequate response…” [4]
The Court then considered the conduct of Mr Newman. Mr Newman had a reasonable explanation for part of the period of delay – in that there was an initial objection to his appointment. There was then a further delay as Mr Keet applied to review the sequestration order (which was dismissed). It was at this time that Mr Newman was made aware of the Notice and Mr Bain’s intention to apply to dismiss the cross-claim.
The initial delay was considered reasonable but Mr Newman’s subsequent conduct was fatal to the application. The Court held that it was quite inexcusable that, while on notice of Mr Bain’s impending dismissal application, Mr Newman thought it appropriate to go on annual leave without putting any remedial action into effect.
The application for an extension of time to make an election under s 60(3) of the Act was duly refused.
Conclusion
Trustees must act promptly on receipt of a notice under s 60(3) of the Act. If delay is unavoidable the trustee must be able to adequately and reasonably explain any delay in making an election and must make any application (to extend the time) expeditiously.
A Trustee’s failure to make an election can have a significant impact on the proper administration of a bankrupt estate. Although there is no indication of it having arisen in this case the action, or inaction, of the Trustee can leave him or her personally exposed to litigation by third parties detrimentally affected by their conduct.
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Footnotes:
1. (1998) 90 FCR 253 – The Court found that it was a relevant matter in the exercise of its discretion to take into account the circumstance of whether the bankrupt (who the trustee would assign the action if leave was granted) would be able to meet the costs of the defendant if unsuccessful in those proceedings.
2. Newman v Bain [2012] FMCA 629 at [30] to [31].
3. In Vince v Sellers & Ors (2004) FMCA 564, the Court held that the potential for creditors to receive a greater dividend would be lost should the extension not be given, is a legitimate matter to take into account.
4. Newman v Bain [2012] FMCA 629 at [11].
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