Trustee failed to exercise due care: judge

A trustee in bankruptcy has been denied remuneration and will be required to disgorge funds from his trust account in respect of a dodgy petition, acceptance of which rightly embarrasses multiple parties, from the duplicitous debtor, to the trustee, a member of the trustee’s staff, and the Official Receiver.

” a trustee’s pre appointment conduct will be a reason for denying the remuneration and expenses of a trustee in bankruptcy if the trustee engaged in pre appointment conduct that is causally connected to a debtor presenting, and the Official Receiver accepting, a debtor’s petition which ought not to have been presented to, or accepted by, the Official Receiver, where such conduct is dishonest, reckless, or negligent.” NSW Circuit Court judge Nicholas Manousaridis.

In this matter, the debtor – a Ms Liyan Liang – persuaded Ms Yan (Leann) Li of CrossRoads Insolvency, an offshoot of Danny Vrkic’s DV Recovery Management (DVDO), to lodge a bankruptcy petition with the Official Receiver on Liang’s behalf that contained false information, including in respect of Liang’s presence in Australia when she was in fact in China and had no residence in Australia.

The details of this example of naked misrepresentation are contained in the matter of iNova Pharmaceuticals (Australia) Pty Ltd v Vrkic [2024] FedCFamC2G 721 and while Circuit Court judge Nicholas Manousaridis wasn’t required to make any findings as to misconduct in respect of Vrkic, he did order that Liang’s bankruptcy be annulled and that Vrkic be refused any entitlement to remuneration in respect of his appointment as Liang’s trustee.

Further, the judge granted the plaintiff the right to a charging order in respect of its judgment debt against $30,000 sitting in the DVDO Client Trust Fund.

On the question of inferences, his honour was also moved to comment.

” ….. by the time she assisted Ms Liang to complete the Bankruptcy Form, and arranged to present it to the Official Receiver, Ms Li knew that Ms Liang did not have a residence or place of business in Australia; Ms Liang was in China; and Ms Liang had not determined if and if so when she would return to Australia,” the judge said.

“If such inferences are drawn, the necessary consequence would be that Ms Li assisted Ms Liang to prepare and to present to the Official Receiver a debtor’s petition that Ms Li knew falsely represented Ms Liang had a place of residence and a place of business in Australia.

“It is not necessary to draw any of these inferences; and that is because, in the absence of any evidence from Ms Li or Mr Vrkic, the evidence comfortably supports a finding, and I find, that Ms Li and Mr Vrkic failed to take reasonable care to ensure that the statements contained in the Bankruptcy Form, and in particular, the statements that Ms Liang has a residence or a place of business in Australia, were true; and that, had they taken reasonable care, Ms Li and Mr Vrkic would have become aware of the fact that Ms Liang did not have a residence or business in Australia and, therefore, they would not have assisted Ms Liang to present a debtor’s petition that falsely represented that she did have a residence or business in Australia.

“That, in turn, would mean that, had Mr Vrkic exercised reasonable care, he would not have been appointed trustee in bankruptcy, and he would not have undertaken any work purportedly pursuant to his obligations as a trustee in bankruptcy in relation to Ms Liang’s estate. In those circumstances, Mr Vrkic should not be entitled to remuneration and reimbursement of expenses he incurred and purported to earn.”