Butler, J.H. v Ex parte Taylor, A.R. [1995] FCA 420

Parties

Procedural Posture

Bankruptcy Application / Post Litigation Distribution of Proceeds

Legal Issues

1. 1 Whether an offer to fund litigation by creditors to a trustee amounts to an indemnity for costs within the meaning of s.109(10) of the Bankruptcy Act 1966 (Cth)
2. 2 Whether and to what extent the creditors providing such indemnity should receive an advantage over other creditors in distribution of proceeds recovered from litigation
3. 3 Whether it is just and equitable to make such an order in light of the risks assumed and notice to other creditors

Ratio Decidendi

A limited indemnity for costs (promise to fund trustee's litigation to recover shares) given by specific creditors is sufficient to trigger the discretion under s.109(10) of the Bankruptcy Act 1966 (Cth), but due to the modest risk assumed, the limited notice to other creditors, and the proportionality of debts, it is only just and equitable that indemnifying creditors receive a capped advantage ($15,000 per estate, shared rateably), with the balance distributed according to ordinary statutory priorities.

Court Disposition

Indemnifying creditors to receive a specified sum in priority, balance distributed to all creditors as per statutory priorities. Costs of both trustee and Bank of New Zealand to be paid out of the estates.

Orders

• In the administration of each bankrupt estate (James Harkness Butler and Noel Braithwaite Eustace), upon realisation of the relevant share in Transborder, after payment of costs and expenses incurred in recovering the share, Abermere Pty Ltd, North Pine Motors Pty Ltd, and Sungold Petroleum Pty Ltd are paid $15,000...
• The costs of Alan Richard Taylor (trustee) and Bank of New Zealand Limited of and incidental to the applications be costs in the administration of the estate and paid out of the estate.