Judge punts trustee but no misconduct alleged

The following tale, drawn from a recent Federal Court judgment, might be viewed as a handy guide on how to frustrate a bankruptcy trustee into an error, though the determining judge made a point of noting that her decision was not based on misconduct on the trustee’s part, or for that matter on the bankrupt’s undeniable recalcitrance.

No indeed. Irreconcilable differences are the culprit, as evidenced across the almost 100 pages of Justice Melissa Perry’s reasoning in the matter of Mokhtar v Piscopo [2024] FCA 493.

“It is also important to stress that this is not a case where it is said that the Trustee has engaged in misconduct. The Trustee has not acted negligently or otherwise in breach of duty in the administration of the bankrupt’s estate. A case to that effect was expressly disavowed by the applicant’s counsel.” Justice Melissa Perry.

The breakdown in the relationship between bankrupt Ahmad Mokhtar and his Sydney-based trustee Samuel Piscopo is perhaps best illustrated by the revelation that between December 2021 and October 2022 Piscopo issued 17 notices objecting to Mokhtar’s discharge.

The reasons for Piscopo’s frustrations are many. They include material transactions conducted by the bankrupt that came to light in 2021 and 2022 but weren’t disclosed in the bankrupt’s statement of affairs filed in 2018.

There was the transfer of a half interest in a residential property to the bankrupt’s cousin at undervalue which only came to light after Piscopo chased down the bankrupt’s ex-wife and obtained from her a copy of a “separation agreement”.

Or the employee stock options the bankrupt exercised which saw more than $80,000 transferred into his bank account four months after he entered bankruptcy.

Piscopo found out about the windfall because he obtained a copy of the bankrupt’s AMP deposit account statement and the judge was unconvinced by the evidence Mokhtar gave in respect of why receipt of the funds wasn’t disclosed.

“Mr Mokhtar gave evidence he never knew that he had to declare the money. This reflects, at best, a complete lack of appreciation of his obligations as a bankrupt, as does his explanation for what occurred to that money – namely, that he gambled the money away. At worst, it was a deliberate lie in an attempt to deflect or minimise responsibility for his conduct,” she said.

Another chock under the crumbling relationship was removed in November 2022 when Piscopo obtained records from the Australian Tax Office (ATO) showing the bankrupt received rental income from the property, a half share of which had been transferred to his cousin, Nabil.

Around $19,000 came in in the financial year ending June 30, 2019 and more than $22,000 in financial year in 2020.

The bankrupt’s misunderstandings about his interest in the property further eroded the increasingly fragile span of trust keeping the pair on civil terms and the bridge collapsed entirely after complaints Mokhtar made to AFSA about Piscopo’s “tone” in a various email exchanges saw the regulator make a number of adverse findings against the trustee, though it dismissed complaints made on other grounds.

“I have formed the view that the Trustee has developed a lack of objectivity during the course of administering the bankruptcy and that this has exacerbated the situation,” the judge said.

“That lack of objectivity is perhaps understandable in light of Mr Mokhtar’s conduct, including Mr Mokhtar’s completely inappropriate, and at times vicious, language and allegations in later correspondence with the Trustee,” her honour said.

“These matters show, respectfully, deficiencies in the Trustee’s judgement which have impacted adversely on the administration of the bankrupt estate. It is the combination of these factors in particular which have led me ultimately to the view that it would not, be in the best interests of the bankruptcy for the Trustee to continue.”

iNO will update readers on the progress of this torturous administration after a new trustee has had time to implement an appropriate strategy, if one exists.