Trustee awarded costs of enforcing PIA

Cooper (Trustee) in the matter of Bobos v Bobos (No 2) [2023] FedCFamC2G 1229
Is a trustee entitled to the costs of bringing proceedings to terminate a PIA following non-payment of his remuneration?

Overview

In this case, the court considered whether a trustee was entitled to be reimbursed for his costs in bringing proceedings against the debtor who had defaulted on his obligations to pay the trustee’s remuneration under a personal insolvency agreement (“PIA”), but ultimately paid the amounts owing. The case was considered by two separate judges, since the first judge retired after making his order. Both judges concluded that the trustee was entitled to his costs, finding that the Trustee was subject to professional and statutory responsibilities to ensure compliance with the PIA and ultimately to seek its termination if breached. The Trustee incurred significant legal costs in bringing the proceedings which ultimately led to the payment of the amounts owing under the PIA and was entitled to be reimbursed for those costs.

Background

The proceedings related to a PIA between Nicholas David Cooper of Oracle as trustee (the “Trustee”) and Nicholas Bobos, the debtor (“Mr Bobos”). The terms of the PIA required Mr Bobos to remunerate the Trustee for his time and expenses, to be paid in instalments. The proceedings, which were brought by the Trustee, were directed towards terminating the PIA on the basis that Mr Bobos had breached his obligations under the PIA by failing to pay these instalments when due on a number of occasions. The proceedings involved multiple court attendances and required the Trustee to prepare five affidavits.

Ultimately, some 12-18 months after the payments were due and without the provision of interest, the terms of the PIA were satisfied after Mr Bobos paid all of the instalments. The issue was whether the Trustee was entitled to be compensated for the costs of the proceedings brought to terminate the PIA.

The Trustee relied on section 32 of the Bankruptcy Act 1966 (the "Act”), which provides a wide power on the court to make an order for costs in bankruptcy proceedings. The Trustee argued that there were sufficient circumstances to justify an award of costs in the Trustee’s favour – namely Mr Bobos’s consistent delays in meeting his obligations under the PIA. This had been the precipitating factor in the Trustee commencing the proceedings, which ultimately achieved their desired outcome – the payment of amounts due under the PIA. In achieving this outcome, the Trustee had been put to significant expense.

Mr Bobos opposed any award of costs, arguing that the full amount of the trustee’s remuneration (approximately $115,000) was ultimately paid. Mr Bobos stated that his business had been impacted by COVID lockdowns and that it was clear that he had an intention to pay, but just needed extra time. Mr Bobos took issue with the Trustee bringing legal proceedings to terminate the PIA.

Mr Bobos also pointed out that the total amount of funds administered by the Trustee arising from the PIA totalled $205,000. Of this sum, $115,000 had been utilised to pay his approved remuneration; $48,000 had been used for legal fees relating to the current proceedings; and $16,324.65 had been incurred in other costs and disbursements; leaving a balance of $25,307.20. From Mr Bobos’s perspective, the entire exercise of the PIA could be characterised “as an exercise in absurdity”, given the extent of the costs involved when balanced against the return to creditors.

The Earlier Order

Judge Young, who originally ruled on the matter, determined that the Trustee was entitled to costs. However, difficulties subsequently arose regarding whether the orders made properly reflected the intention of the court.

The order provided that Mr Bobos was to pay the Trustee’s costs with such costs if not agreed to be taxed, and further that “any taxation of those costs shall not proceed until the Personal Insolvency Agreement (PIA) between the parties is terminated and it clear what remuneration the applicant is to receive from the funds held by the applicant”.

Mr Bobos sought an order seeking the termination of the PIA, but the Trustee was concerned that, if such an order were made, it may have the unwitting consequence of nullifying what was intended by both the Trustee and Mr Bobos in entering the PIA in the first place - namely that Mr Bobos would be released from all his provable debts by the agreement.

In the alternative, Mr Bobos sought an order that the order of Judge Young be set aside and no order for costs made, arguing that the costs already approved by the creditors were “eye-watering” in their quantum.

The Court’s Decision

The Court was satisfied that the order made by Judge Young did not reflect his intent that Mr Bobos would continue to have the protection afforded to him of the PIA but, at the same time, the Trustee would have the costs of bringing the proceedings against Mr Bobos. As such, the order lacked precision and required amendment.

The Court was sympathetic to Mr Bobos’s perspective as to the PIA so far as it pertained to his affairs and the ultimate return to creditors. However, the recovery of debts is not the sole objective of the Act, which is directed toward regulating Australia’s personal insolvency system by allowing individuals, such as Mr Bobos, to discharge their unmanageable debts and ultimately move on in a financial sense. When viewed from this perspective, the PIA achieved one of its main objectives to the personal benefit of Mr Bobos.

A PIA involves the appointment of a trustee, who owes obligations to the creditors of the debtor concerned. As a consequence, such a trustee has an entitlement to be remunerated for the performance of the obligations entailed in administering a PIA.

The Trustee was subject to professional and statutory responsibilities to ensure compliance with the PIA and ultimately to seek its termination if its obligations were breached. Clearly Mr Bobos did breach the conditions on many occasions.

The Trustee was entitled to bring the proceedings due to the dereliction of Mr Bobos, whose continued late payments caused the proceedings to become protracted, leading to greater legal costs. The Trustee incurred significant legal costs in bringing the proceedings, which ultimately led to the payment of the instalments owing under the PIA. The Trustee was entitled to be reimbursed for those costs.

Accordingly, the order was amended to provide that Mr Bobos pay the Trustee’s costs, without any proviso regarding the termination of the PIA.

Judge: Judge Brown

Counsel: Solicitor for the Trustee: Arnie Narayan, Travancore Legal & Advisory