Augustyn, Re Bronislaw (Bruno), & Ors Putnin, Ex parte Bernard, & Ors (Applicant) & Augustyn, Ex parte M.E. (Respondent)
[1988] FCA 337
•7 Aug 1988
IN THE FEDERAL COURT
OF AUSTRALIA ) GENERAL DIVISION 1 BANKRUPTCY DISTRICT
OF THE STATE OF
WESTERN AUSTRALIA 1 No. 55 of 1987X RE: BRONISLAW (BRUNO) AUGUSTYN,
MICHAEL EDWARD AUGUSTYN AND RICHARD FELIX AUGUSTYN EX PARTE: BERNARD PUTNIN The Trustee of the Property of BRONISLAW (BRUNO) AUGUSTYN, MICHAEL EDWARD AUGUSTYN AND
RICHARD FELIX AUGUSTYN
Applicant
and
MICHAEL EDWARD AUGUSTYN
Respondent
. CORRIGENDUM
Amendment to the Reasons for Judgment of his Honour M r . Justice Lee delivered 8 July 1988: Page 17 line 4 after the word "bankrupt" insert "or other persons
able to give information concerning his affairs" and after the Date: 3 August 1988 words "pursuant to 6.81, the" insert the word "latter".
6't.l.i
Associate to MC. Justice Lee
C A T C H W O R D S
BANKRUPTCY - deed of aseignment - application by trustee to
declare deed void - meeting of creditors - failure of bankrupt
to disclose item of property in statement of affairs - whether bankrupt gave false and misleading information in answer to a
question put to him with respect to his conduct in trade dealings, property or affairs at meeting of creditors - whether bankrupt
omitted a material particular from statement of affairs - what constitutes "a material particular" - whether in interests of creditors to declare deed void - whether sequestration of estate should be ordered.
Bankruptcy Act 1966 66.81, 116, 120, 190, 195, 230, 231,
sub-ss. 31(2), 187(1), 195(3), 204(4), 222(4), 222(5),
222(7),5'1:i5(:l, 229(1), 229(2), 31(2), paras.l88(l)(e), 195(2)(a), 204(l)(b) Bankruptcy Rules r.78
RE: BRONISLAW (BRUNO) AUGUSTYN, MICHAEL EDWARD AUGUSTYN A N D RICBARD CELIX AUGUSTYN; EX PARTE BERNARD PUTNIN The Trustee of the m AND RI- n PELIX AUGUSTYN v. MICHAEL EDWAFID AUGUSTYN NO. 55 0 P 1987X LEE J.
PERTH -
8 JULY 1908
, IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF
WESTERN AUSTRALIA No. 55 of 1987X RE: BRONISLAW (BRUNO) AUGUSTYN,
MICHAEL EDWARD AUGUSTYN AND
RICHARD PELIX AUGUSTYN
EX PARTE: BERNARD PUTNIN The Trustee of the Property of
BRONISLAW (BRUNO) AUGUSTYN,
MICHAEL EDWARD AUGUSTYN ANDRICHARD FELIX AUGUSTYN
Applicant
and
MICHAEL EDWARD AUGUSTYN
Respondent
MINUTE OF ORDER
JUDGE MAKING ORDER: LEE J. DATE OF ORDER: 8 JULY 1988 W E R E W E : PERTH THE COURT ORDERS THAT:
1. The deed of assignment executed by the applicant and
respondent on 1 May 1987 be declared void.
-
2. A sequestration order be made against the estate of the respondent. 3 . Bernard Putnin be appointed trustee of the respondent's sequestrated estate.
4.
The respondent pay the applicant's costs including costs reserved.
Note: Settlement and entry of orders is dealt with
in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT
- OF AUSTRALIA ) GENERAL DIVISION
BANKRUPTCY DISTRICT
OF THE STATE OF
WESTERN AUSTRALIA ) No. 55 of 1987X
RE: BRONISLAW (BRUNO) AUGUSTYN, MICHAEL EDWARD AUGUSTYN AND
RICHARD FELIX AUGUSTYNEX PARTE: BERNARD PUTNIN
The Trustee of the Property of
BRONISLAW (BRUNO) AUGUSTYN,
MICHAEL EDWARD AUGUSTYN AND
RICHARD FELIX AUGUSTYNApplicant
and
MICHAEL EDWARD AUGUSTYN
Respondent
CORAM: LEE J.
8 July 1988
REASONS FOR JUDGMENT
This is an application by the trustee ("the applicant") appointed under a deed of assignment executed
by the respondent on
1 May 1987 seeking an order declaring the deed to be void pursuant to sub-s.222(4) of the Bankruptcy Act 1966 ("the Act").
On 8 April 1987 the respondent executed an authority in
favour of the applicant authorising the applicant to call a
meeting-of the respondent's creditors and take control of his
property pursuant to para.l88(l)(e) of Pt.X of the Act.
' , I, , .
2 .
The respondent, with his father and brother, carried on
business in partnership at Roebourne under the firm name "Roebourne Supply Mart".
The authority authorising the applicant to call a meeting
respondent and
his
partners
jointly
signed
an
of their
joint and separate creditors.
The applicant consented to exercise the powers conferred
by the authority and pursuant to 6.190 of the Act, he proceeded to
call a meeting of the respondent's creditors and caused enquiries
to be made as to the state of the respondent's property and affairs.
The meeting of creditors was held on 1 May 1987 at
Perth. At that meeting the respondent submitted, as required by 6.195 of the Act, a statement in writing of his affairs specifying
his assets and liabilities verified by a statutory declaration made on 27 April 1987.
The respondent declared that the statement contained, to
the best of his knowledge and belief, a true and complete
statement of his affairs as at 8 April 1987.
The respondent's statement of affairs did not disclose
-
the respondent's beneficial ownership of, or interest in, the property on which the house in which he resided was situated, Lot
., , .
3.
107 fleares Drive, Point Samson ("Lot 107"). The statement did
- list household furniture and effects situated at that address as property of the respondent. At the meeting of the respondent's creditors held in
conjunction with the meeting of the joint creditors of the
partners the respondent did not disclose that he held a beneficial interest in Lot 107.
Pursuant to para.204(l)(b) of the Act, the creditors
resolved to require the debtor to execute a deed of assignment of his property and further resolved that the applicant be nominated as trustee of the deed as required by sub-s.204(4).
On the day of the meeting the respondent executed a deed
of assignment in a form provided by Form 36A of Schedule 1 to the
Bankruptcy Rules ("the Rules"). The applicant signified his
consent to act as trustee of the deed of assignment by executing the deed. Pursuant to the deed all the respondent's divisible property was conveyed and assigned to the applicant.
Sub-section 187(1) of the Act defines "divisible
property" in the following terms:
"'divisible property', in relation to a deed of
- assignment executed by a debtor, means the property, other than property that was acquired
by, or devolved on, the debtor on or after the dayon which he executed the deed, that would be
divisible amongst his creditors under Part VI if he had become a bankrupt on that day."
The property divisible amongst creditors of a bankrupt
under Pt.VI of the Act is defined in sub-s.l16(l) as follows:
"Subject to this Act-
all property that belonged to, or was vested
in, a bankrupt at the commencement of the
bankruptcy, or has been acquired or is
acquired by him, or has devolved or devolves on him, after the commencement of the bankruptcy and before his discharge; and
the capacity to exercise, and toake
proceeding6 for exercising, all such powers in, over or in respect of property as might have been exercised by the bankrupt for his
own benefit at the commencement of the
bankruptcy or at any time after the commencement of the bankruptcy and before his
discharge,
is property divisible amongst the creditors of the bankrupt. "
Sub-section 116(2) excludes certain property from the above
definition but none of those exclusions is material in the present case.
Pursuant to sub-ss.229(1) and (2) of the Act upon due
execution of the deed of assignment by both the respondent and the
applicant all the divisible property of the respondent vested in the applicant forthwith.
- Prior to the meeting of creditors, the applicant
travelled to Roebourne and Point Samson to inspect properties
owned by the respondent and his partners.As a result of that inspection, the applicant initiated
some enquiries as to the history of ownership of Lot 107. Initial enquiries revealed that the property was owned by the respondent's
sister. Further respondent had been responsible for payment
enquiries
provided
the
information
that
the
of part of the cost of
construction of the house erected on the property. On or about 31
May 1987, the applicant again travelled to Roebourne and
interviewed the respondent about the ownership of the property in
question. The respondent that certain monies
applicant
received
an
acknowledgment
from
the
had been paid by him towards
construction costs, but apparently no more was stated by the
respondent at that time. Indeed, the respondent contended that the remainder of construction costs had been met by his sister.
On or about 11 June 1987, the applicant received a
telephone call from the respondent and, after the respondent was
advised by the applicant hat he intended to conduct an
examination of the respondent's sister pursuant to 6.81 of the
Act, the respondent stated that it was "all h i s money" that had
been inve6ted in the property and that his sister would be prepared to execute a transfer of the property to the applicant.
The respondent's sister transferred the property to the
applicant as trustee of the deed of assignment on or about 1 July -
In that transfer, the respondent's sister acknowledged,
- and confirmed by a statutory declaration, that consideration for the transfer to the applicant was contained in the following
facts:
the applicant had been appointed as trustee of a deed of assignment executed by the respondent; the respondent's sister had become registered as proprietor of the property on 3 July 1985 after the
respondent had made all payments to purchase the
land and had provided all funds to build the dwelling erected thereon;
the applicant claimed that the land had been
obtained by the respondent's sister by a settlement
of property to which sub-s.lZO(2) of the Act applied .
Sub-s.231(2) of the Act applies the provisions of s.120
relating to the avoidance of settlements of property made within
five years of the commencement of a bankruptcy to a deed of
assignment executed under Pt.X of the Act.
The reference in the transfer to a settlement of
property to which 6.120 applied appears to be erroneous. The respondent stated in an affidavit tendered as part of his case
that at all material times the property was beneficially owned by
him. It is clear that there was no disposition of the property for the benefit of the respondent's sister and that she held the
property for the respondent under resulting a trust. The -. respondent was entitled to call for a transfer of the property at
any time and apparently directed his sister to transfer the property to the applicant.
After the property was transferred to the applicant in
July 1987, the applicant made arrangements to sell the property by auction, but prior to the advertised day of auction, the property
was sold by private treaty for the price of $112,000.
In his affidavit in support of his application, the
applicant trustee expressed the opinion that enquiry into the separate affairs of the respondent and the joint estates of the
partners howed that he stablished profitability of the partnership was not reflected in the assets held by the partnership and the partners. The applicant also stated that
there would be insufficient moneys in the joint estate of the
partners and in the separate estate of the respondent to pay
creditors of the respondent in full. The deed of assignment
remains uncompleted in that a final dividend has not been paid in respect of the respondent's estate. The respondent's statement of affairs showed that after receipt of a sucplua from the realization
of properties provided
as security for debts and realization of other property of the respondent including the distribution to his estate of his share
in the anticipated surplus of the partnership assets remaining after discharge of the debts due to joint creditors, there would
be a deficiency in the respondent's estate of approximately -
$160,000. Except for two minor sums, the unsecured debts of the
respondent amounting to $485,806 are almost entirely due to a
single creditor, namely, the Deputy Commissioner of Taxation.
If the value of Lot 107 had been included in the
respondent's statement of affairs, it would have represented
approximately 25 percent of the estimated value of his total assets. Subsequent to the execution of the deed of assignment, the respondent acquired an interest as
co-owner in a house
and
land at Roebourne. The purchase price was met principally by borrowings secured against the property. The respondent alone is
discharging the mortgage liability by weekly payments of $130 per
week. The respondent and his co-owner are living together as man and wife and in addition to discharging the mortgage repayments
the respondent is maintaining both parties from his earnings which
amount to approximately $530 per week net.
On 14 October 1987, the applicant issued this
application seeking an order declaring the deed of assignment to
be void, pursuant to sub-s.222(4) of the Act.
The applicant has relied upon two grounds for his
application.
Firstly, the applicant contends that the respondent gave
false or misleading information in answer to a question put to him - with respect to his conduct in trade dealings, property or affairs at the meeting of creditors held on 1 May 1987, at which meeting a
resolution requiring a deed of assignment to be executed was
. passed. Secondly, the applicant contends that the respondent
omitted a material particular from the statement of his affairs submitted to that meeting of creditors.
The grounds substantially repeat the provisions of
sub-s.222(4) which are in the following terms:
"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 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 provisionof the deed or composition to be void."
Particulars of the question, answer and misleading
information, referred to in the first ground were neither provided
nor sought, but in the course of the hearing it was stated that
the elements relied upon in support of this ground were contained
in the following extract from the minutes of the meeting of creditors: -
"Mr. Bruno Augustyn asked what a Dead of Assignment
means and Mr. Putnin explained again the
difference between aDeed of Assignment and Bankruptcy proceedings..
Bruno Augustyn asked if once he and his sons
signed did that mean there would be no more claim from anyone. Mr. Putnin said that any properties belonging to
the Augustyns, no matter in whose name they are in (sic), belong to the estate and Michael replied
that Mr. Putnin is holding a list of all their properties."
It may be noted that at the time of the exchange between the applicant and the respondent recorded in the minutes, the meeting
had already resolved that the respondent be requested to execute adeed of assignment.
The applicant adduced no further evidence in support of
this ground to explain or amplify the record of the meeting contained in the minutes, nor was any evidence adduced to describe
any question put to the respondent and the answer thereto.
Without considering the videntiary limitations of
minutes of a meeting of creditors (see sub-s.225(4)), it is clear that in
the absence of any other evidence, this extract from the
minutes is incapable of sustaining the first of the applicant's grounds It is apparent on the face of the record of proceedings
of the meeting that no question was directed to the respondent by
the trustee or by a creditor and irrespective of whether the
volunteered comment of the respondent was capable of being
misleading, it was not information provided in answer to a question put to him with respect to his conduct, trade dealings,
property or affairs. The ground for setting aside the deed
contained in para.222(4)(a) is directed at the failure of the
debtor to comply with his duty to answer to the best of his knowledge and ability all questions put to him by the controlling
trustee or by a creditor with respect to his conduct, trade
dealings, property and affairs pursuant to sub-s.195(3) of the Act.
With regard to the second ground which relies upon the
provisions of para.222(4) (b), the particulars relied upon were the failure of the respondent , to disclose his beneficial interest in Lot 107 in the statement of his affairs submitted to the meeting of creditors. Pursuant to para.l95(2)(a) of the Act, the respondent in
providing a statement of his affairs was required to specify his assets including particulars of the asset and its estimated value.
The term "assets" is not defined in the Act, but the
term "property" used in sub-s.187(1), sub-s.229(2) and s.116 is
defined in sub-s.5(1) as follows:
"'property' means real or personal property of
every description, whether situate in Australia or elsewhere, and includes any estate, interest or
- profit, whether present or future, vested or
contingent, arising out of or incident to any such real or personal property."
. .
12.
Having regard to the purpose of 6.195, it may be
appropriate to conclude that the expression "asset" is intended to
refer to such part of the debtor's "property" as is capable of
having a value in order that the net worth of the debtor may be assessed after consideration of his liabilities.
The "Shorter Oxford English Dictionary" has the
following definition of "assets" - "l. ... Sufficient estate or
effects; 9. 'Goods enough to discharge that burthen, which is
cast upon the executor or heir, in satisfying the testator's or
ancestor's debts and legacies' ... 2. Extended to: Any property or
effects liable to be applied as in sense 1. 3. ... Effects of an insolvent debtor or bankrupt, applicable to the payment of his
debts; and by extension: All the property of a person or company which may be made liable
for his or their debts." Rule 78 of the Rules requires a statement of affairs to
be in accordance with Form 11 and the statutory declaration verifying the statement of affairs to be in accordance with Form
35.
In Pt.1 of Form 11, Item 1 of the column headed "Assets"
is described as "Property specified in Pt.V". Pt.V of the form
under the heading "Property" lists fifteen items of specific
property-and one item relating to "other property" and the Part is governed by the following note:
., . .
13.
"Note: This part should contain full particulars
of every description of property in which the bankrupt has an interest, being property defined by
the sub-s.5(1) of the Bankruptcy Act 1966, except property of which particulars are set out in Part 111 or Part IV."
It may be concluded that a beneficial interest in
property of the nature of the interest that the respondent
conceded that he held in the land and buildings comprised in Lot
107 was property having a value and required to be included in the respondent's statement of affairs pursuant to 6.195. The question then arises as to whether this particular
item of property omitted by the respondent represented the
omission of a material particular from the statement of affairs of the respondent.
The facts relevant to this question are those that exist
at the time of completion of the statement of affairs and its verification by statutory declaration. The matter to be judged is the materiality of the omitted item in the totality of the
debtor's affairs. It is the materiality to the deliberations of
the creditors at the meeting of the item omitted from the
statement that is important and not the materiality of the fact
that the debtor is a person who failed to disclose such an item.
The latter circumstance may well be relevant to the question of
whether-it is in the interests of Creditors to declare void a deed
O K composition resulting from a resolution of the creditors at
that meeting, a precondition established by the provisions of s~b-S.222(5).
Furthermore, assignment operates to vest in the trustee forthwith all of the
the
fact
that
execution
of
a
deed
of
debtor's divisible property thereby including any property omitted from disclosure in his statement of affairs, will not render an
omitted material particular immaterial.
Indeed, the material particular omitted from a statement
of affairs may not cease to be material for the purpose of
sub-s.222(4) by reason of some explanation or further disclosure given at the creditors' meeting (see Re Morris; Ex parte Adams
(1980) 48 F.L.R. 341 per C.A. Sweeney J. at p.345) although, in
- Beard v. Prestige Baking Industries Pty. Ltd. (1981) 36 A.L.R. 307 at p.319 Fox J. states that it is plain that an inaccuracy would cease to be material if it were unambiguously corrected at a meeting of creditors.
The elements of materiality are expounded by Lockhart
J., with whose reasons Fisher and Davies JJ. agreed, in Chiragakis
v. Deputy Commissioner of Taxation (1986) 68 A.L.R. 527 at pp.533-534:
"I reject the submission that the materiality of
the omission is to be determined solely with reference to creditors who attended the meeting.
Section 195, which is the relevant section, is in plain terms. It requires a debtor to submit to
- the creditors at the Pt X meeting a statement in writing, verified by a statutory declaration, of
his affairs and it requires that the statement of
the affairs shall specify the debtor's assets and
liabilities and shall include certain particulars
in respect of each asset and liability. That is a
statutory obligation imposed upon a debtor to do
precisely what the section requires. It is also a statutory requirement as to the contents of the statement of affairs and compliance is determined by objective considerations. It is not limited to the subjective question of its effect or likely
effect upon creditors who happened to attend the
meeting and no others."
and by Fox J. in Beard v. Prestige Baking Industries Pty. Ltd. (supra) at pp.336-337: nAs to its materiality, I respectfully agree with
Riley J. in Re Se al; Lensworth Finance Ltd v
Segal and War &S) 9 ALR 154 at 157: 'The
statement of affairs required by 6.195 and the
answers which the debtor is required by that
section to give to questions put to him at the
meeting provide the basic information on which the creditors decide which of the courses available to
them under s.204(1) they should adopt. It is
essential that that information should be full and
correct: the creditors are entitled to all
available information about the debtor's 'conduct,
trade dealings, property (and) affairs' before they make their decision: compare s.224(4)(a).
Bearing in mind the purpose of the statement of
affairs I am of opinion that a particular is material within the meaning of s.222(4)(b) if it
is a particular which would be relevant to and
might be likely to affect the making of the
decision of the creditors under s.204(1).'
In some cases materiality may perhaps be
determined by reference to the statement of affairs itself without considering the evidence as
to what occurred at the meeting of creditors. In
cases such as the present, where there was a
considerable amount of discussion at the meeting on the respective claims of the appellant and the respondent against each other, it is necessary to
examine the events of the meeting to determine materiality."
In the present case there must be an overwhelming
argument that the omission of an asset equivalent to 25 percent of
...
16.
the value of all the debtor's assets is the omission of a material
particular from the statement of the debtor's affairs,
particularly when the omission is not sought to be corrected at
the meeting of creditors. The fact that the omission of the
particular and the resolution of the creditors may not have occasioned the creditors any actual disadvantage, will not affect the materiality of the omission. It was, nonetheless, relevant to the making of any decision by the creditors. Accordingly, grounds exist for the exercise of the discretionary power to declare the deed of assignment void under sub-s.222(4) of the Act.
However, that power may not be exercised unless the
Court is satisfied that it would be in the interests of the creditors to do so (sub-s.222(5)).
In the present case, it is significant that the debtor
was not prepared to volunteer the existence of his interest at the
meeting of the creditors and only acknowledged this substantial
item of his property when confronted by the applicant. Furthermore, the nature of the undisclosed property was
significant in that it was an interest in property cloaked by a
bare trust and may have remained undetected but for the diligent
work of the applicant. Such organisation of his affairs by a
debtor may properly alert a creditor to the prospect that other -
undisclosed interests may exist. If creditors were denied
knowledge of the fact that the debtor held such an interest and
had failed to disclose it, it may be appropriate to relieve the
creditors of their commitment to a deed of assignment and to allow
them to move for sequestration with the concomitant right to further examine the debtor as a bankrupt pursuant to s.81, the
provisions of which are not applicable to a deed of assignment pursuant to 6.231 of the Act.
In addition, the creditors now wish to challenge the
respondent's assertions concerning his ability to contribute to
his estate from his regular income. If a sequestration order were made, the trustee in bankruptcy may obtain an order pursuant to
sub-s.131(2) of the Act requiring the bankrupt to make
contribution to his estate from his income. It is not necessary
for this Court to assess the prospect of such an order being made. It is a matter to be considered along with other relevant matters.
Similarly, a sequestration order made after the deed of
assignment had been declared void, would bring into the bankrupt's
estate property acquired by the bankrupt after the execution of the deed of assignment and, in particular, the land and residence
at Roe Street, Roebourne. Again, although it would be necessary
to consider whether such property would have any value in the bankrupt's estate, it is not necessary for the Court to speculate on the amount of that value. -
It was also suggested in argument by counsel for the
applicant that a sequestration order would allow the trustee in
m . . m '
18.
bankruptcy to examine any regular outgoings the respondent may
have in gambling pursuits. I have not regarded the limited
material placed before me as sufficient to justify any finding
that pursuing this course may be in the interests of creditors and I have disregarded it in arriving at my findings.
I am satisfied that it would be in the interests of
creditors to declare the deed of assignment to be void to provide the creditors with the opportunity of probing the respondent's
affairs and of assessing his ability to make contribution to his estate from his income.
The remaining question is whether I should exercise the
discretion that is, therefore, available to me pursuant to sub-s.222(4).
Pursuant to 6.230, a provable debt is released by
completion of the assignment, notwithstanding that the debt may not be satisfied, and creditors should be given the opportunity to make a fully informed decision before binding themselves to such a consequence. Furthermore, there is an element of public interest
to be considered when a debtor fails to comply with an express
statutory direction and the protection of that interest may
require that some sanction be imposed upon the delinquent debtor to preserve the integrity of the provisions of Pt.X which are - intended to provide benefits for debtors, and which are consensual
and take place outside the direct supervision of the Court.
, . .', V
V 19 I
I have concluded that in this case it is appropriate to order that the deed of assignment be declared to be void pursuant
to sub-s.222(4) of the Act and that the application for a sequestration order against the estate of the respondent be
granted pursuant to sub-s.222(7). The applicant's costs are to be paid by the respondent including costs reserved.
. I . . ,
I 1 20 .
I certify that the preceding
. nineteen (19) pages are a true copy of the
Reasons for Judgment of his Honour
Justice Lee.
Counsel for the Applicant: Mr. J. Robertson Solicitors for the Applicant: Mr. J. Robertson Counsel for the Respondent: Mr. R. Cullen Solicitors for the Respondent: Messrs. McManus, Cullen 6, Clements Date of Hearing: 21 March and 6 April 1988 Date of Judgment: 8 July 1988
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