Michael Brennan.
Dennis Offerman.
What’s the world come to when trustees have to provide explicit and detailed reasons for refusing a bankrupt’s request for documents?
If trustees say complying with such a request could prejudice the interests of creditors and third parties and is unreasonable to boot then courts should bloody well accept them at their word. They’re officers of the court are they not, or near enough?
“The Court finds that the reasons of the Trustees for non-compliance with the Notice, as advanced in their letter of 13 October 2021 and in the affidavit of Mr Offermans, were so general, lacking in precision, formulaic and non-specific as to be of insufficient weight to justify non-compliance with the Notice. The non-compliance with the Notice requiring production was accordingly unreasonable.” Circuit Court Judge Greg Egan.
Well sadly the world, or at least the courts and judges that loom so large in every insolvency practitioner’s world, are not always inclined to accept reasons offered ungarnished, as two of North Queensland’s finest recently discovered.
In the February 6, 2023 judgment of Federal Circuit judge Greg Egan, his honour ruled that Offermans partners Dennis Offermans and Michael Brennan couldn’t refuse a request for a copy of a notice to produce that the pair had sent to the Commissioner of the Queensland Police Service as part of their investigations into the bankrupt, one Daniel Ivan Rutherfurd of Mount Isa.
As judge Egan discloses in Rutherfurd v Offermans [2023] FedCFamC2G 60 that notice for production yielded no less than 600,000 documents, and after the bankrupt’s lawyer became aware of the notice, his client sought a copy in circumstances where he has been charged with certain criminal offences but has at this time been convicted of no crime.
The trustees declined on the basis that their own investigation into the bankrupt’s affairs was ongoing but as the judge reasoned, without elaboration this justification was insufficient.
“Under r. 70-17(2)(a) of the Insolvency Rules, an essential criteria which must be satisfied in order for a trustee to justifiably refuse a request to produce a document was that the decision to refuse was made in good faith,” the judge said.
“Another essential criteria under r. 70-17(2)(a) was that complying with the request would substantially prejudice the interests of one or more creditors or a third party.
“A third essential criteria which must be satisfied was that such prejudice to a creditor or third party outweighed the benefits of complying with the request.”
His honour then went on to school readers of his judgment on the meaning of the word “substantially, explaining that it “means “very much”, or “a lot”.
“It has otherwise been accepted as meaning “to a great or significant extent”. Clearly, substantial prejudice is prejudice of a greater extent than prejudice simpliciter, and it must be inferred that the legislature well appreciated the distinction when enacting the Rules.”
The suggestion that his honour should infer that the trustees were acting in good faith and reasonably was also given short shrift.
“The Court did not accept the submission advanced on behalf of the Trustees that the Court ought to infer that the Trustees were indeed acting in good faith and reasonably when failing to comply with the Notice, such submission being based in part on the fact that the Trustees were duly conducting an ongoing investigation into the affairs of the applicant in circumstances where the period of bankruptcy had been extended, and in part because the applicant had been charged with a number of criminal offences.
“Neither of such factual scenarios justified the Trustees failing to give to the applicant a copy of the Notice so that he could receive advice as to whether or not there had been any unacceptable over-reach by the Trustees as to the type of documents which had been sought” he said.
Then, after referencing various authorities on the topic of reasonable refusal Judge Egan dealt the hammer blow, declaring: “The Court finds that the reasons of the Trustees for non-compliance with the Notice, as advanced in their letter of 13 October 2021 and in the affidavit of Mr Offermans, were so general, lacking in precision, formulaic and non-specific as to be of insufficient weight to justify non-compliance with the Notice. The non-compliance with the Notice requiring production was accordingly unreasonable.”
He ordered the trustees to provide Rutherfurd with a copy of the notice and for good measure ordered them to pay the bankrupt’s costs.
iNO was unable to determine at time of writing whether the trustees will appeal. It’s not like Judge Egan isn’t used to it.
Generally speaking, one would have thought that to the extent that any of the 600,000 documents provided to the trustees were relevant to the criminal proceedings they would have been referred to and made available to the bankrupts/accused as part of the Crown Brief.
It is clear that the Crown in general terms would not have been a creditor and the only basis capable of being relied upon is that the disclosure of the documents produced would have had an impact on the investigation into the examinable affairs – it is difficult to see how this would arise in the absence of some assertion of that fact. This is reinforced by the fact that it might be inferred that the 600,000 documents have been provided in an electronic format and would generally be readily available for inspection.