Arturi v Zupps Motors Pty Ltd

[1980] FCA 164

Re: MARA NOVACKIS
Ex parte: BANK OF NEW ZEALAND
And: BARRY KEITH TAYLOR and MARA NOVACKIS
No. 166 of 1980 X
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
C.A. Sweeney, J.

CATCHWORDS

Bankruptcy - composition under Part X - Chairman's Certificate under s.204 prima facie evidence by reason of s.225(3) as amended by s.122 of the Bankruptcy Amendment Act 1980 - displaced by evidence of wrongful exclusion of applicant creditor from voting - The Court declares pursuant to s.222(2) as amended, that the composition is void.

HEARING

MELBOURNE

#DATE 30:10:1980

ORDER

1. The Court makes an order declaring the composition, the subject of the application, to be void on the ground specified in paragraph 2(a) thereof.

2. It is further ordered that the respondents pay the applicant's costs of and incidental to the application, such costs to be taxed if not agreed.

3. Liberty to apply is reserved to all parties.

JUDGE1

In this application, as amended, the Bank of New Zealand (the applicant) sought the following orders: -

"1. An order under section 239 Bankruptcy Act 1966 setting aside a composition under Part X of the Act purportedly accepted on 14th July, 1980 by creditors of the debtor Mara Novackis on the following grounds:

(a) that the applicant was wrongly excluded from voting on the special resolution proposing the composition, which resolution would not have been passed had the applicant not been so excluded and that those circumstances constitute an 'other reason' for the purposes of sub-section 239(2) of the Act why the composition ought to be set aside; further or alternatively

(b) that the terms of the composition are unreasonable; further or alternatively that the terms of the composition are not calculated to benefit the creditors generally.

1. Further or alternatively an order under section 222 of the Act declaring the said composition void on the following grounds:

(a) that there is a doubt on the specific ground particularised below whether the composition has been accepted by a special resolution of a meeting of creditors under section 204 of the Act.

PARTICULARS

The applicant was wrongly excluded from voting on the special resolution proposing the composition, which resolution would not have been passed had the applicant not been so excluded.

(b) Further or alternatively that the debtor omitted a material particular from the statement of her affairs under section 195 of the Act and included an incorrect and material particular in that statement.

1. Further or alternatively an order under section 242 of the Act terminating the said composition on the following grounds:

(a) that the applicant was wrongly excluded from voting on the special resolution proposing the composition, which resolution would not have been passed had the applicant not been so excluded and that those circumstances constitute an 'other reason' for the purposes of paragraph 242(1)(c) of the Act why the composition should be terminated; further or alternatively

(b) that the composition cannot be proceeded with without injustice to the creditors.

1. Such further or other order as the Court thinks fit."

The respondent Barry Keith Taylor, the trustee of the composition, was represented by Mr. Irlicht, who also appeared for Mara Novackis (the debtor). The trustee offered no submission to the Court and indicated that he submitted to whatever order the Court thought fit.

The debtor based her opposition to the application on the following grounds: -

"1. The debtor will rely on the Chairman's Certificate dated the 14th July 1980 as prima facie evidence that a special resolution was duly passed at a meeting of her creditors held on the 14th July 1980 in the following terms: -

'That the creditors accept a composition pursuant to the provision of Part X of the Bankruptcy Act 1966-1973 in respect of the provable debts of the debtor in the following terms: -

1. That the trustee of the composition be Barry Keith Taylor of 576 St.Kilda Road, Melbourne.

2. That the debtor convenants to pay the trustee the sum of $14,000.00 for a period of two years.

3. That the composition is made pursuant to Part X of the Bankruptcy Act 1966- 73.'

2. The debtor denies that the terms of the composition are either unreasonable or are not calculated to benefit the creditors generally or that there is any other reason why the composition ought to be set aside.

3. The debtor says further that it would not be in the interests of the creditors to terminate the said composition.

4. The debtor denies that she has omitted any material particular from her statement of affairs and says further that if she did so omit a material particular from her statement of affairs it would not be in the interest of the creditors to declare the composition void.

5. The debtor denies that the composition cannot be proceeded with without injustice to the creditors."

It will be convenient to deal first with paragraph 2 of the application in which relief is claimed under s.222(1) and (4) of the Bankruptcy Act 1966, as amended by s.117 of the Bankruptcy Amendment Act 1980. Sub-sections (1) to (5) of the Section read as follows: -

"222. (1) Where there is a doubt, on a specific ground, whether a deed of assignment or a deed of arrangement was entered into in accordance with this Part or complies with the requirements of this Part, or whether a composition has been accepted by a special resolution of a meeting of creditors under section 204 of this Act, the Registrar, the trustee, a creditor or the debtor may apply to the Court for an order under the next succeeding sub-section.

(2) Upon the hearing of an application made under sub-section (1), the Court may, subject to this section, make an order -

(a) declaring that the deed or composition is void, or that it is not void, on the ground specified in the application, or

(b) declaring that a provision of the deed is void, or is not void, on the ground specified in the application;

(3) The Court shall not make an order declaring a deed to be void on the ground that it does not comply with the requirements of this Part if the deed complies substantially with those requirements.

(4) Where the Court, on the application of the trustee or a creditor, is satisfied that the debtor -

(a) has given false or misleading information in answer to a question put to him with respect to his conduct, trade dealings, property or affairs at the meeting of creditors at which the resolution requiring him to execute the deed or accepting the composition was passed; or

(b) has omitted a material particular from the statement of his affairs under section 195 of this Act or included an incorrect and material particular in that statement,

the Court may make an order declaring the deed or composition to be void or declaring any provision of the deed or composition to be void.

(5) The Court shall not make an order declaring a deed or composition, or a provision of a deed or composition, to be void on a ground specified in the last preceding sub-section unless it is satisfied that it would be in the interests of the creditors to do so."

The evidence in support of the allegation that the applicant was wrongly excluded from voting was contained in the affidavit of Roger Broomhall, Assistant Manager, who attended the meeting of creditors as proxy for the applicant. A statement of affairs by the debtor produced to the meeting showed the applicant as a creditor in the amount of $68,338.77. In his affidavit, Mr. Broomhall deposed that the chairman, who later became the trustee of the composition, ruled that the applicant "was not entitled to vote on the resolution unless it was willing to forfeit the said debenture. He asserted in support of that ruling that the debtor's liability to the applicant was merely contingent while the said debenture remained. I questioned the ruling but the said chairman would not alter it. The said special resolution proposed which provided for payment by the debtor of the sum of $14,000.00 by quarterly instalments over 2 years in full satisfaction of the debt was passed. After the said special resolution was passed I again queried the said ruling by the said chairman, legal advice having been taken in the meantime from the applicant's solicitors by telephone. Again, the said chairman refused to disturb the said ruling."

It is quite clear that the chairman mistakenly treated the applicant as a secured creditor under s.198(5) of the Act, when in fact the applicant held no security over the property of the debtor. Mr. Broomhall was not cross-examined upon his affidavit and no evidence was offered in opposition to it. I am satisfied that the applicant was wrongly excluded from voting, and as it is common ground that its debt amounted to 50.002% of the total liabilities disclosed by the debtor, its exclusion resulted in the passing of a special resolution which would have been defeated had the applicant been given its due right to vote.

The prima facie evidence in the form of the Chairman's certificate that the composition has been accepted by a special resolution of a meeting of creditors, has been displaced by the evidence of the wrongful exclusion of the applicant from voting on that resolution. In my opinion, this is a proper case for the exercise of the Court's discretion in favour of making an order, declaring that the composition is void, on the ground specified in paragraph 2(a) of the Application, that the applicant was wrongly excluded from voting on the special resolution proposing the composition, which resolution would not have been passed had the applicant not been so excluded. It is not necessary to consider the other grounds relied upon by the applicant.

The Court makes an order declaring the composition to be void, on the ground so specified. It is further ordered that the respondents pay the applicant's costs of and incidental to the application, such costs to be taxed if not agreed. It is true that the trustee made no submission and indicated that he submitted to whatever order the Court thought fit, but his conduct of the meeting as chairman was the prime cause of all the difficulties which followed, and he did not concede that he had been in error. Liberty to apply is reserved to all parties.