Abrahams, S.

[1990] FCA 542

Re: STEVEN ABRAHAMS
No. NB290 of 1982
FED No. 542
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
Wilcox J.(1)

CATCHWORDS

Bankruptcy - Application by creditor for preferential payment - Creditor put up funds necessary for public examination of bankrupt and for successful action by trustee to avoid mortgages given by bankrupt as preference - Value of recovery approximately $198,000 but only about $142,000 available for creditors - Preferential order made in sum of $120,000.

Bankruptcy Act 1966, s.109(10)

HEARING

SYDNEY

#DATE 4:9:1990

Counsel for the Applicant: M R Aldridge

Solicitors for the Applicant: Bush Burke and Company

ORDER

1. In the distribution by the trustee to creditors of the bankruptcy there be paid to the applicant by way of a preferential payment pursuant to s.109(10) of the Bankruptcy Act the sum of $120,000.

2. The amount payable to the applicant by way of dividend in the estate be calculated by deducting from the debt as admitted to proof viz. $804,437.94 the sum of $120,000; so that the applicant would rank for dividend in the sum of $684,437.94.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. (See also Order 37 rule 2(3)).

JUDGE1

This is an application for an order under s.109(10) of the Bankruptcy Act 1966 in respect of the estate of Steven Abrahams. The evidence shows that Mr Abrahams became bankrupt on 10 May 1982, at which time Hugh Charles Thomas, a registered trustee, was appointed as the trustee of his estate. Shortly after that day proofs of debt were received from various creditors.

1. A meeting of creditors was held on 14 December 1983. The position of the estate was discussed. Mr Thomas drew to the attention of the creditors present the possibility that certain mortgages, which had been given by Mr Abrahams, might be void against him, as preferences. There was discussion about the possibility of a public examination of the bankrupt with a view to legal action; but no decision was taken at that time. Apparently, there was no enthusiasm amongst the creditors for putting up the funds necessary for Mr Thomas to take any action.

2. Subsequently, however, on 20 December 1983, one of the creditors, Balfour Williamson Australia Pty Limited, the present applicant, arranged with Mr Thomas to indemnify him in respect of the costs of a public examination. Accordingly, Mr Thomas made application to the Court for a public examination and, as a result of information which was gathered at that time, an application was made against AGC Factors Limited for orders declaring void two mortgages. These applications were contested, but the trustee succeeded. As a result of the orders which were made on that application, property to the value of about $198,000 was recovered for the benefit of the estate.

3. The costs outlaid by the present applicant in relation to the public examination and the action against AGC Factors was some $32,000. The applicant also exposed itself to the possibility that if the application had failed and the trustee had been ordered to pay the costs of AGC Factors, the indemnity would have operated requiring the present applicant to pay those costs. I do not know what those costs might have amounted to; but I am told that the taxed or assessed costs payable by AGC Factors is some $8,000. If that figure is any guide, it seems that the present applicant risked having to pay some $40,000 pursuant to the arrangement which it made with the trustee in December 1983. As it happens, of course, the order for costs will operate in the other way; so that the total costs which have been incurred will be reduced by about $8,000 upon recovery of the costs ordered to be paid by AGC Factors.

4. Unfortunately, the full amount of $198,000 is not available for the creditors. There are certain other payments which have to be made. Apparently, the trustee received certain payments by way of rental of a property. But he has received more than is properly payable and a refund has to be made to another party. Also, there is an income tax liability which, of course, has preference. Mr Thomas has estimated that the total amount available for a dividend to creditors, leaving aside any order under s.109 (10) of the Act, would be some $142,000. Upon the basis of the proofs of debt which have been lodged and assuming an even distribution amongst all creditors, this would enable a dividend of some 9.28 cents in the dollar.

5. Mr Thomas has indicated that he supports the present application. It seems to me that this is a case where an order ought to be made under s.109(10). It is clear from the evidence that, in the absence of a willingness by the present applicant to support the trustee by way of the provision of money for legal costs and an indemnity, the action which has been successfully taken would not have been taken. It is also clear from Mr Thomas' calculations that, in the absence of the successful application against AGC Factors, there would have been no dividend whatever for the creditors. Accordingly, the other creditors stand to lose nothing by an order under s.109(10); in the sense that, absent the initiative of the present applicant, they would have got nothing. The other creditors had the opportunity to contribute to the fund but none was prepared to do so.

6. On the basis of these facts the submission has been put to me on behalf of the applicant that the applicant should receive preference to the extent of the whole amount available for dividend to creditors. There is force in that submission. Nonetheless, the other creditors are creditors in the estate. Even though the amount may be of token proportions, it seems to me reasonable to recognise that fact by allowing some small distribution in their favour of moneys that belong to the estate as a whole.

7. The determination of what is a proper proportion is very much a matter of impression. Factors favouring a very large proportion in this case are: that this applicant was the only party willing to take a risk and to put up any money; that the costs exposure of the applicant was a high one, both in absolute terms and having regard to the amount likely to be recovered; and the frank acknowledgment by the trustee, that without that support, there would have been no dividend whatever.

8. On the whole I think that the appropriate order is to grant to the applicant preference in the sum of $120,000. The balance available, when the exact amount is worked out, will be distributed in the usual way, the applicant ranking for a dividend on that part of its debt which remains after the payment of the $120,000.

9. The formal order that I make is that, in the distribution by the trustee to creditors, there be paid to the applicant by way of a preferential payment pursuant to s.109(10) of the Bankruptcy Act, the sum of $120,000 and, in calculating the dividend to be paid to creditors, the amount paid to the applicant be calculated upon the basis of the amount owing to the applicant as shown in its received and accepted proof of debt, less $120,000. The debt has been admitted in the sum of $304,437.94, so this would mean that the applicant would then rank for dividend in the sum of $684,437.94. I make no order in respect of the costs of the application.