Re Burton, Leslie Ross (Bankrupt) E E Emmett & Sons Pty Ltd & Ors v Wily, Hugh Jenner [1996] FCA 558

IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) NB 2172 of 1993 ) GENERAL DIVISION ) Re LESLIE ROSS BURTON Bankrupt E E EMMETT & SONS PTY LIMITED LAURENCE WILLIAM EMMETT ALAN BERESFORD EMMETT Applicants HUGH JENNER WILY Respondent Coram: Whitlam J Place: Sydney Date: 10 July 1996 MINUTES OF ORDER THE COURT ORDERS THAT: 1. The respondent refund to the applicants the amount of $15,000 deposited on 2 July 1993. Note: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NB 2172 of 1993 ) GENERAL DIVISION ) Re LESLIE ROSS BURTON Bankrupt E E EMMETT & SONS PTY LIMITED LAURENCE WILLIAM EMMETT ALAN BERESFORD EMMETT Applicants HUGH JENNER WILY Respondent Coram: Whitlam J Place: Sydney Date: 10 July 1996 REASONS FOR JUDGMENT The applicants are the creditors upon whose application Leslie Ross Burton was made bankrupt. The respondent is the trustee of his estate. The present application seeks an order for the refund of an amount deposited by the applicants with the respondent and a declaration as to the priority for payment of certain costs. The essential background may be shortly stated. On 12 March 1993 Einfeld J dismissed an application by Mr Burton to set aside a bankruptcy notice served upon him by the applicants. The question of costs was reserved. On 28 April 1993 the applicants filed an application under s 221 of the Bankruptcy Act 1966 ("the Act") for a sequestration order against Mr Burton's estate. Before that application was heard, the applicants sought an order under s 50 of the Act, which I made on 25 May 1993, appointing the respondent receiver of Mr Burton's assets.

Unfortunately the document filed by the applicants was not in the form prescribed by the Bankruptcy Rules ("the Rules") for an application under s 50 of the Act. This meant that attention was not drawn to the respondent's fees and expenses of taking control of Mr Burton's property. The respondent, therefore, filed on 3 June 1993 an application for a "Direction that the Applicants deposit with the Court as security for [the respondent's] costs and fees incurred as Receivers the sum of $15,000.00, such sum to be deposited forthwith". The applicants indicated initially that they intended to oppose this application by the respondent, and a timetable was fixed for the filing of affidavits. However, on 29 June 1993 the applicants notified the respondent that they would not oppose his application. On 2 July 1993 the applicants deposited an amount of $15,000 with the respondent (but not, it should be noted, with the Court). Both applications came on for hearing before Einfeld J on 8 July 1993. In view of the payment by the applicants, the respondent's application for a "direction" was not pressed. The application under s 221 of the Act was heard and a sequestration order made against Mr Burton's estate. On 30 July 1993 Einfeld J gave judgment on a number of outstanding applications for costs. In the course of delivering those reasons, his Honour pronounced an order dismissing the respondent's application relating to his costs and fees as receiver. In relation to the question of the applicants' costs reserved on 12 March 1993, his Honour ordered that they be paid on an indemnity basis. On 22 February 1994 the applicants' solicitors filed a bill of their costs in respect of Mr Burton's application to set aside the bankruptcy notice. This bill was taxed and allowed at $11,683.65 on 31 May 1994. The taxing officer certified that the costs were incurred by the applicants in the capacity of "petitioning creditor". The respondent currently holds the sum of $15,000 received from the applicants in the bank account of the bankrupt's estate. He has declined to refund that amount to the applicants because it was not deposited with him "in accordance with an order made under Section 50 or an application under Rule 18 of the Bankruptcy Rules". (This is the language of par (c) in r 40 of the Rules.) The respondent has also evidently declined to treat the costs the subject of the certificate of taxation issued on 31 May 1994 as "taxed costs of the petitioning creditor" for the purpose of par 109(1)(a) of the Act and r 40 of the Rules. So far as relevant, s 109 of the Act provides: 109.(1) Subject to this Act, the trustee must, before applying the proceeds of the property of the bankrupt in making any other payments, apply those proceeds in the following order: (a) first, in the order prescribed by the rules, in payment of the taxed costs of the petitioning creditor and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee and the costs of any audit carried out under section 175, not being an audit carried out by the Auditor-General;" The order referred to in par 109(1)(a) of the Act is prescribed by r 40 of the Rules, which provides: 40. For the purposes of paragraph 109(1)(a) of the Act, the trustee shall apply the proceeds of the property of the bankrupt in the following order: (a) first, in payment of the expenses incurred by the trustee in protecting the assets, or any part of the assets, of the bankrupt, and the expenses (if any) incurred by him or by his authority in connexion with the carrying on, in accordance with the Act, of a business of the bankrupt; (b) second, in payment of the fees, percentages and charges payable under subrules 179(2) and 181(1) and (2) and any other fees, costs, charges and expenses payable by the trustee in the course of the administration of the bankruptcy; (c) third, in payment to a creditor who has deposited an amount in accordance with an order made under section 50 of the Act or upon application made under rule 18 of an amount equal to so much of the amount so deposited as has been used for meeting the expenses referred to in that rule; (d) fourth, in payment of the taxed costs of the petitioning creditor, the taxed costs of the person administering the estate of a deceased person or the taxed costs of the applicant for a sequestration order under Part X of the Act; (e) fifth, in payment of the remuneration of the trustee; (f) sixth, in payment of the reasonable out-of-pocket expenses incurred by a member of the committee of inspection, as allowed by the Court; (g) seventh, in payment of the costs of any audit carried out under section 175 of the Act, not being an audit carried out by the Auditor-General." The refund of an amount deposited in accordance with a direction of the Court under s 50(1) of the Act is expressly provided for in subrule 18(2) of the Rules. It is true, as the respondent contends, that no such direction was given in the present case. However, the amount that was, in fact, deposited with the respondent remains intact. No part of it has been used for meeting expenses incurred by the respondent as a result of the order made under s 50 of the Act. Even if that amount were to be notionally treated as deposited in accordance with such an order, there would be no expenditure that qualifies for reimbursement under par (c) of r 40 of the Rules. The amount deposited on 2 July 1993 does not, of course, form part of the "proceeds of the property of the bankrupt" within the meaning of subs 109(1) of the Act, even if the respondent holds it in the estate account. In my opinion, it does not matter at all that there was no direction of the Court for the deposit of the subject moneys, the applicants are now entitled to have them refunded. The applicants also seek a "declaration" that the costs ordered to be paid by Einfeld J on 30 July 1993 in respect of the dismissal of Mr Burton's application to set aside the bankruptcy notice issued at their request "form part of the costs of the petitioning creditor within rule 40(d) of the Rules". I decline to make such a "declaration". The only order made by his Honour was that such costs be paid on an indemnity basis. I do not doubt that an order could have been made to the effect stated, but it was not. In any event, as I have mentioned, these costs have since been taxed as costs of the petitioning creditor (though not, curiously it would seem, on an indemnity basis). Whilst the certificate of taxation remains unaltered, the applicants are entitled by virtue of s 221(3) of the Act to rely upon the terms of that certificate for the purposes of par 109(1)(a) of the Act. In saying that, I am not expressing any view as to whether such costs should be allowed in an application under s 221 of the Act. I shall make an order that the respondent refund the amount of $15,000. This proceeding may be relisted by arrangement with my Associate, should any party seek any further order in the light of these reasons. I certify that this and the preceding 5 pages are a true copy of the reasons for judgment herein of the Hon. Justice A.P. Whitlam Associate: Date: 10 July 1996 Counsel for the applicants: F.P. Donohoe Solicitors for the applicants: Caldwell Martin & Cox Counsel for the respondent: J.K. Chippindall Solicitors for the respondent: Magney & Rhodes Date of hearing: 21 May 1996