Brander Smith McKnight Lawyers v Oracle Insolvency Services - Case Update

The Federal Circuit and Family Court of Australia has dismissed an application by a creditor to replace a trustee in bankruptcy despite finding that the administration could have been speedier in certain respects.

The trustee was appointed to the bankrupt estate of Sharon Albarouki in August 2020. Ms Albarouki had three creditors: the ATO, which lodged a proof of debt for just over $25 thousand; the joint and several trustees appointed to Ms Albarouki’s ex-husband’s estate, owed approximately $1.2 million; and BSM Lawyers, a law firm that has represented both Ms Albarouki and her ex-husband, which has lodged a proof of debt for approximately $91 thousand.

In June 2021, BSM wrote to the trustee advising that BSM was a creditor of Ms Albarouki and requesting an update on the status of the bankruptcy. BSM received no correspondence from the trustee in relation to the estate until March 2023, when it wrote again advising that BSM was a creditor of the estate for $91,655.35. BSM was then sent a proof of debt form, which it completed.

Between July and December 2023, BSM requested information from the trustee concerning the progress of the administration but was advised that BSM was not listed as a creditor of the estate and that BSM’s proof of debt could not be located. BSM resubmitted its proof of debt and in late December 2023 was confirmed as a creditor.

In March 2024, BSM inquired about an interim dividend which the second creditors’ report had stated would be paid by July 2023. A third report was issued in June 2024, but BSM had not heard anything further by early February 2025. Accordingly, it sought the trustee’s removal and replacement on grounds of delay, mismanagement, and failure to communicate effectively. BSM alleged that the trustee had failed to diligently administer the estate, had not communicated in a timely fashion with creditors, and had depleted the estate’s funds with little to show for it. A significant part of the complaint related to the trustee’s handling of BSM’s proof of debt and delays in investigating overseas transfers made by Ms Albarouki.

The trustee acknowledged that there had been administrative delays, attributing them to staffing changes, the complex and intertwined nature of the bankruptcies of both Mr and Ms Albarouki, and a cautious approach to investigating potentially fraudulent transactions. He detailed steps taken, including securing a significant recovery from the ANZ bank and investigating over $500 thousand transferred abroad under suspicious circumstances.

The Court found that, while the administration could have been quicker, the trustee had not acted improperly or incompetently. His delays were explained and did not reflect an inability to fulfill his duties. The fact that the trustee mislaid the first copy of BSM’s proof of debt and was not forthcoming with information regarding the interim distribution were not matters of great moment to the estate, even if irritating to BSM. These were administrative errors and no more serious than that.

Moreover, replacing the trustee would incur unnecessary costs and disrupt progress, particularly given that the primary creditors (the joint and several trustees of Mr Albarouki’s bankruptcy), supported the current trustee and opposed his removal.

Accordingly, the Court dismissed the application, underscoring that minor administrative errors and creditor dissatisfaction alone are insufficient to displace a trustee who is otherwise acting within a commercially reasonable and diligent framework.

Read the decision HERE.

Professionals involved: 

• Jack Hynes with Sefton Powrie of Ninth Floor Selborne Chambers (instructed by LK Law) for the trustee

• David Parish of 9 Wentworth Chambers (instructed by Brander Smith McKnight Lawyers) for Brander Smith McKnight Lawyers