Sam Pos (trading as Debt Cutter) - Case Update

The Federal Court has rendered a key ruling on the obligations of the Official Trustee as the replacement administrator of debt agreements where the former administrator misappropriated debtor funds.

Sam Pos (trading as Debt Cutter) was a registered debt agreement administrator pursuant to Part IX of the Bankruptcy Act 1966 (Cth). Simone Hildebrand was a director and described herself as the CEO of Sam Pos. In its capacity as a debt agreement administrator, Sam Pos’ obligation was to receive funds from debtors into its trust account and pay that money out in accordance with the terms of various debt agreements, as well as to pay a realisation charge.

In February 2023, the Inspector-General in Bankruptcy conducted an investigation into the trust account records of Sam Pos and discovered that substantial payment had been made out of the trust account for purposes unrelated to the administration of the debt agreements. On 8 March 2023, the Inspector-General cancelled Sam Pos’ registration as a debt agreement administrator, and the Official Trustee became the replacement administrator of 234 debt agreements pursuant to s 185ZB(3) of the Act.

n June 2023, the Inspector-General and the Official Trustee commenced a proceeding against Sam Pos, Ms Hildebrand, and Geekseat Australia, alleging that over $1 million was improperly paid by Sam Pos to Geekseat. On 6 December 2023, the Court gave judgment for the sum of $1,130,877.63 against Sam Pos and Ms Hildebrand. They have not paid the judgment, and Sam Pos has been placed in liquidation. There is a shortfall of approximately $1 million available for distribution to creditors.

The debt agreements were at different stages when they were taken over by the Official Trustee. This included agreements where debtors had paid all amounts due under the agreement but creditors had not been paid because of the misappropriation of funds. For some of these agreements, fewer than six months had passed since the end date of each agreement, and for others, more than six months had passed.

The Official Trustee was unsure whether the debt agreements had ended under s 185N of Pt IX given that the debt agreement administrator’s obligations, including the payment of dividends in respect of the provable debts, had not been discharged. The Official Trustee was also unsure whether it was required under s 185LC(1) to notify the Official Receiver that a designated six-month arrears default of a debtor had occurred given that the debtors had discharged all their obligations under the agreements and the default was caused by the misappropriation.

The Court reviewed the relevant statutory provisions and found that the clear language of s 185N(1) provides that a debt agreement ends when all the obligations that it created have been discharged, including the obligations upon a debt agreement administrator created by the debt agreement. Accordingly, the Court ruled that the agreements had not come to an end under s 185N.

On the other hand, the Court found that the phrase “the obligations created by the debt agreement have been discharged” in s 185LC(3)(b)(i) refers only to obligations upon a debtor, and does not encompass obligations of a debt agreement administrator. As a result, the Official Trustee was not required under s 185LC(1) to notify the Official Receiver of the defaults of the former debt agreement administrator, Sam Pos.

The decision can be found here.

Professionals involved:

• Counsel for The Official Trustee in Bankruptcy: Paul McQuade KC of Level 27 Chambers

• Solicitor for The Official Trustee in Bankruptcy: Australian Government Solicitor

• Solicitor for the Interested Party (a debtor): Christian Marcus of Olivine Lawyers