Don’ts add up to an ousting for incurious trustee

A couple of don’ts for bankruptcy trustees. Don’t ignore a substantial creditor’s request to call a meeting. And don’t appoint a related party to the bankrupt as a director of a company you’ve told creditors was insolvent and which the same substantial creditor is seeking to have wound up.

As Federal Court judge Melissa Perry showed this week, doing either of these don’ts can you get you relieved of your appointment, and the trustee in question in this matter did both.

“Accordingly, considered in isolation, these unusual decisions by the Trustee would not suffice to substantiate an application for his removal. However, when these decisions are considered together with the other factors which I have set out above, they lend further support to the orders sought by the Applicant.” Justice Melissa Perry.

Details of the decisions taken by the trustee – which the judge took pains to point out weren’t strictly conduct breaches – are contained in her honour’s judgment in the matter of Yan v Spyrakis (Trustee), in the matter of the bankrupt estate of Liu [2024] FCA 768.

The upshot of the application brought before her honour and heard on June 27 was that Advanced Insolvency’s Sarandos “Sandy” Spyrakis has been removed as the trustee in bankruptcy of Mr Wensheng Liu and Fort Restructuring’s Mark Robinson has been installed as his replacement.

The application to remove Spyrakis was brought by Mr Jianhua Yan, a substantial creditor in Liu’s bankruptcy who in 2017 loaned $20 million to two company’s connected to Liu, both of which were involved in the development of the troubled The Won residential tower in Hurstville in Sydney’s south.

As the judgment shows, Yan commenced proceedings in the NSW Supreme Court to recover his money in 2019.

In 2021 Liu filed his debtor’s petition, Spyrakis was appointed his trustee and on March 21, 2022 Spyrakis produced his one and only report.

Other than saying his investigations were ongoing, Spyrakis had little comfort for creditors, advising that there were no unencumbered assets available to meet creditor claims. But Yan wasn’t easily deterred.

In July of 2022 he won a grant of leave to continue his proceedings in the NSW Supreme Court, despite Liu being bankrupt.

Then on August 14, 2023 Denton’s, acting on instructions from Yan, wrote to Spyrakis pointing out that Yan held more than 25 per cent of the debt in Liu’s estate and that their client wanted the trustee to call a meeting so creditors could consider the removal and replacement resolutions.

By way of reply Spyrakis said he would provide a “formal response in due course” but according to Justice Perry no formal response was ever received, nor any meeting convened.

Then on August 24, Denton’s wrote to Hughes & Associates Lawyers, the solicitors for the bankrupt and his wife Lan Liu, advising of their client’s intention to have The Won Pty Ltd wound up.

The basis for the proposed application was that the company’s sole director Mr Liu was a bankrupt and the bankrupt estate was in essence the company’s sole shareholder so there was little likelihood of another director being appointed. Or so they thought.

One week later Spyrakis signed a shareholder’s resolution appointing Lan Liu as the sole director of The Won, despite him previously concluding in his lone report that The Won was insolvent.

According to her honour Spyrakis signed the resolution “at the request of Hugh & Associates”.

“On the same day, Hugh & Associates wrote to Dentons advising of the appointment and seeking confirmation that, in those circumstances, Mr Yan would not proceed with any application to wind up The Won.”

Whilst Yan’s application did not seek to have any adverse conduct findings made against Spyrakis, Justice Perry concluded “that it is in the best interests of the bankruptcy that the Trustee be replaced by Mr Robinson as the trustee of the Estate”.

This was because the evidence showed at least three substantive matters worthy of investigation that Yan had agreed to fund if Spyrakis was removed.

“I accept the Applicant’s submission that the Trustee has made decisions which may not necessarily have been in the best interests of the bankruptcy. In this respect, I make two preliminary observations,” the judge said.

“First, the Applicant did not submit that these decisions by the Trustee were beyond power or improper, nor do I make any such findings.

“Second, as noted above, the Court should not unduly interfere with the administration of a bankrupt’s estate by a trustee.

“Accordingly, considered in isolation, these unusual decisions by the Trustee would not suffice to substantiate an application for his removal. However, when these decisions are considered together with the other factors which I have set out above, they lend further support to the orders sought by the Applicant.”

It should also be noted that Spyrakis spent seven years working at ITSA as a compliance manager and bankruptcy fraud investigator yet never engaged with the removal proceedings. One might suspect that AFSA will seek an explanation.