Final orders were made recently in Federal Court proceedings brought on behalf of Fabian Micheletto and Michael Carrafa, the replacement trustees of the second bankrupt estate of former Health Services Union official Katherine Jackson. The orders mark a major milestone in a long-running matter involving serious misconduct by former registered trustee Paul Leroy.
Background to the Jackson Estate (No.2)
Katherine Jackson, once a senior HSU official, was found liable to repay compensation for breaches of workplace legislation. Facing significant judgments for interest and costs, she filed a debtor’s petition, appointing Paul Leroy — then a Sydney-based sole practitioner—as her trustee in bankruptcy. Further claims by the HSU forced Ms Jackson to lodge a second bankrupt estate, with Leroy again appointed as trustee.
During the administration, Ms Jackson became entitled to a share of the deceased estate of the late David Rofe QC. Once her entitlement was confirmed, the inheritance was paid to Leroy in his capacity as trustee. Instead of administering the funds for the benefit of creditors, Leroy misappropriated the money, withdrawing it from the estate’s account before fleeing Australia.
Federal Court Orders Against Leroy
With funding support from the Australian Financial Security Authority (AFSA) under s 305 of the Bankruptcy Act 1966, Micheletto and Carrafa pursued claims against Leroy for breach of duty. The Federal Court has now made orders to the effect that Leroy:
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- Breached his duties and obligations to the second bankrupt estate;
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- Must repay the misappropriated inheritance, all remuneration taken from the estate (even amounts previously approved by creditors), interest, and indemnity costs.
Written reasons will be published in due course.
Cases of such blatant misconduct by a registered trustee are rare. This is one of the clearest examples in which breach of duty entirely disentitles a trustee to remuneration.
Australian Financial Security Authority (AFSA) Commences Broader Regulatory Action
In addition to the Jackson estate litigation, the Inspector-General in Bankruptcy has commenced separate proceedings in the Federal Court against Paul Leroy—an unprecedented regulatory action.
Following extensive investigations, AFSA alleges that Leroy misappropriated more than $4 million across at least five bankrupt estates between 2021 and 2023. AFSA is seeking wide-ranging relief, including:
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- Declarations that Leroy breached his statutory and fiduciary duties
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- A declaration that he is not fit and proper to act as a bankruptcy trustee
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- An order prohibiting any application for re-registration for 15 years
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- Repayment of allegedly misappropriated funds to estates now administered by the Official Trustee and to an individual whose bankruptcy has been annulled
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- Orders requiring Mackay Goodwin, Leroy’s former firm, to account for and potentially repay remuneration received in connection with the relevant estates
This is the first application of its kind by the Inspector-General and reflects AFSA’s strengthened regulatory stance.
Close Coordination With Trustees of the Jackson Estate
AFSA’s regulatory proceedings complement the trustees’ own recovery actions regarding the Jackson estate (No. 2). AFSA has supported those investigations through:
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- Section 305 funding;
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- Commissioning forensic accounting work to trace misappropriated funds; and
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- Ongoing coordination with government regulators and law enforcement.
Together, the Court’s orders in the Jackson estate and AFSA’s broader action against Leroy represent a significant step toward recovering misappropriated funds and strengthening regulatory protections for creditors and stakeholders.
Article by Gillian Wright (Manager) – Melbourne