The applicants, creditors, contended that the majority of creditors in two bankruptcy estates resolved to remove the former trustees and appoint the present trustee on the basis that the resolutions were made for an improper purpose, namely to replace the former trustees under s 181 in order to have the new trustee lodge notices of objection to discharge from bankruptcy so that compositions of creditors may be put under s 73 of the Bankruptcy Act. The applicants’ case was founded upon inference.
The court found that the evidence did not give rise to a reasonable and definite inference that the majority of creditors had such a purpose. It was equally probable, the court found, that the majority of creditors voted in favour of the resolutions replacing the former trustees as they had lost confidence in those trustees.
It was also contended by the applicants that the reason notices of objection to discharge were lodged in each bankruptcy estate was that the trustee wished to allow the bankrupts to make proposals under s 73 of the Bankruptcy Act, which could only be achieved by extending the bankruptcies, and that such a purpose is not one for which a trustee is lawfully permitted to object under s 149B(1). The court found that while one of the reasons for the trustee lodging the notices of objections to discharge was to allow the opportunity of the s 73 proposals to be put to creditors the trustee had a genuine belief that extending the bankruptcies would encourage the bankrupts to provide income details in accordance with the bankrupts obligations under s 139U. That was a substantial purpose which was directed to inducing the bankrupts to discharge a duty which had not been discharge. Such a purpose was one within s 149B(1).
The court analysed the construction of s 149B(1) in the context of Div 2 of Pt VII of the Bankruptcy Act and the amendments introduced by the Bankruptcy Legislation Amendment Act 2002, which incorporated the ‘special grounds’ of objection. The court concluded that although it was no longer necessary for a notice of objection to state the reasons for the ‘special grounds’ of objection that as s 149B(1) requires the trustee to exercise a discretion and that must involve consideration of whether there are reasons that favour extension of the period of bankruptcy. The 2002 Amendments, it was said, did not remove the necessity to have reasons for objecting. Therefore, the court may under s 178 review the reasons for lodging a notice of objection founded upon a special ground. In exercising the discretion the trustee must have a purpose directed to achievement of a purpose of the law of bankruptcy. The purpose of allowing the bankrupts to propose compositions with creditors comes within that description.
The trustee, in any event, had a genuine belief that extending the bankruptcies would encourage the bankrupts to provide income details in accordance with s 139U of the Bankruptcy Act and that was a purpose directed to inducing the bankrupts to discharge a duty which had not been discharged and that was a substantial purpose.
Mango Boulevard Pty Ltd v Whitton  FCA 1169 (Rangiah J). Paul McQuade QC successfully appeared on behalf of the First Respondent, instructed by James Conomos Lawyers.