Bankrupt’s legal payments an assessable benefit

It’s a sorry day when a judge, in assessing the credit of three lawyers, finds them to be at best satisfactory witnesses and in respect of one part of their testimony concludes their responses should be treated with caution.

Sorry indeed, though iNO can report that the lone accountancy professional in this South Australian tale more than compensated for his legal counterparts’ shortcomings, with the judge describing him as “an impressive witness” who “answered questions directly, succinctly and made appropriate concessions”.

“The Trustee made no error of law and/or fact in his conclusion that the applicant received a benefit within the meaning of s 139L(1)(a)(v). I do not consider the Trustee acted unreasonably or irrationally in assessing the value of the benefit in accordance with that provision. Further, the Trustee was entitled to proceed under s 139X.” Justice Patrick O’Sullivan.

The varying assessments as to credit were made public last Friday in Bertram v Naudi (No 2) [2024] FCA 1239, a judgment delivered by Federal Court judge Patrick O’Sullivan after, ahem, quite some time.

His honour had been asked by Adelaide property developer David Morton Bertram – who is a discharged bankrupt – to find that three contribution assessments issued by Bertram’s trustee in bankruptcy and totalling almost $180,000 should be set aside on the basis that they are void or invalid.

Rogers Reidy South Australia executive director Rob Naudi had made the assessments on the basis that legal fees Bertram’s brother Richard Bertram paid constituted a benefit received by the bankrupt during the relevant period. As respondent to the application Naudi cross claimed.

The legal fees were for work performed for the bankrupt and his brother by CCK Lawyers.

Bertram’s counsel Richard Whittington KC argued that based on the information available to him, Naudi could not be satisfied that the payment of the legal fees represented a benefit for which his client was liable.

As his honour explained “Pursuant to Division 4B of Part VI of the Act, there were three contribution assessment periods (CAP)” during the course of Bertram’s bankruptcy.

“The first ran from 16 December 2017 to 15 December 2018 (CAP 1); the second from 16 December 2018 to 15 December 2019 (CAP 2); and the third from 16 December 2019 to 15 December 2020 (CAP 3).

“After a long series of interactions between Mr Naudi, the applicant and CCK, on or about 14 July 2020 Mr Naudi applied to this Court for an examination summons to be issued, directed to Richard, Chaya Bertram (Mother of David and Richard), Mr Lachlan Paterson, the applicant, and Mr James Cudmore, who is a partner at CCK.

“On 1 September 2020, the Court ordered that the examination summons be issued.

“The Bertram family applied to set aside the examination summons. That application was resolved as between the Bertram family on the one part and Mr Naudi on the other part, by the parties entering into a Settlement Memorandum.

“One of the conditions of the Settlement Memorandum was that the Trustee would agree to the examination summons against each of Mr Paterson, Richard and Chaya being discharged and would not object at any time to the discharge of the bankrupt on 17 December 2020.

“As a part of the obligations under the Settlement Memorandum, CCK wrote to Mr Naudi on 7 December 2020 providing documentation, including an electronic file comprising an Excel spreadsheet setting out by reference to dates, narrative description and other data, time entries for work performed by CCK on David’s file and Richard’s file.

“On 11 February 2021, Mr Naudi wrote to the applicant informing him he had made 3 CAP assessments in which he had assessed the applicant as being in receipt of income during each of the three CAP periods and enclosing the CAP assessments.

“Following correspondence from CCK dated 4 March 2021, on 18 March 2021 Mr Naudi wrote to the applicant informing him that pursuant to s 139W of the Act, he had made a revised assessment of the applicant’s income for CAP 1, CAP 2 and CAP 3 in the amounts of $23,804.75, $86,480.67 and $77,537.84 respectively.”

You’ll have to read the judgment in its entirety – almost 400 paragraphs – to drill down into why the judge sided with the trustee, and it wasn’t simply because Naudi impressed in the witness box while the defensiveness of two current members of CCK – Cudmore and Hamish John Gillis, and former partner Adam Rosser – did not.