Baker, A.W. & K.E. Re v Baker, A.W. & K.E. Ex Parte

[1988] FCA 455

NOT FOR DISTRIBUTION

C A T C H W O R D S

BANKRUPTCY - Composition - approval - failed farming partnership	-	, .
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only prospect of return to creditors - annulment - to enable I ;

extension of activities as consultant - no reason of public ..:

interest or commercial cont ary. morality to -. ,

Bankruptcy Act 1966

RE:  ALAN WILLIAM BAKER and KERRY EMILY BAKER EX PARTE: ALAN

WILLIAM BAKER and KERRY EMILY BAKER

l No. 611 of 1986

8 AUGUST 1988

FRENCH J.
PERTH

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IN THE FEDERAL COURT ) NOT FOR DISTRIBUTION

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I	OF AUSTRALIA GENERAL DIVISION	I	I
BANKRUPTCY DISTRICT	' _

I OF THE STATE OF )

WESTERN	AUSTRALIA	)	No. 611 of 1986
RE: ALAN WILLIAM BAKER and KERRY EMILY BAKER

Bankrupts

EX PARTE: ALAN WILLIAM BAKER and

KERRY EMILY BAKER

Applicants

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MINUTE OF ORDER

JUDGE MAKING ORDER: FRENCH J.

DATE OF ORDER:	8 AUGUST 1988
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

In each case:-

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1.	The	composition	is approved.
2 .	The	bankruptcy	is annulled.

Note: Settlement and entry of orders is dealt with in

Rule 124 of the Bankruptcy Rules.

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l	IN THE FEDERAL COURT	NOT FOR DISTRIBUTION
OF AUSTRALIA
GENERAL DIVISION

BANKRUPTCY DISTRICT	i
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OF THE STATE	OF

WESTERN AUSTRALIA	NO. 611 of 1986	!
RE: ALAN WILLIAM BAKER and KERRY EMILY BAKER
t.,

Bankrupts I

EX PARTE: ALAN WILLIAM BAKER and

KERRY EMILY BAKER

Applicants

CORAM :	FRENCH J.	~
t
8 AUGUST 1988

EX TEMPORE REASONS FOR JUDGMENT

The Court has before it applications for approval of

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compositions accepted by the creditors of Alan William Baker and	I I
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his wife,	Kerry Emily Baker, respectively and cognate applications

under s.74(5) for orders annulling their bankruptcies.

Mr and Mrs Baker became bankrupt on 13 October 1986.

The Official Receiver's report, which is not disputed, indicates ' ,

that assets disclosed on the statement of affairs in the joint . .I

estate amounted to $541 and liabilities to $57,600. Proofs of

debt actually lodged came to $51,479 with a separate sum of $298

owed to the Commissioner for Taxation in the separate estate of	Mr
Baker. There were	no debts in the separate estate of Kerry Emily
Baker. Realisations amounted to	$2.

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I At the date of their bankruptcy, Mr and Mrs Baker were

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! 41 and 30 years of age respectively and had three children, then

aged 9, 7 and	18 months, all dependent on them for support. At
that time I-lr	Baker was in receipt of unemployment benefits, but

had occasional employment as a consultant to companies interested in doing business with Indian interests with whom he had contact

and of whom he had useful knowledge. At the time of his

bankruptcy that employment occurred only on an irregular basis and

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would last only two to three weeks at a time.

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The history of Mr and 13rs Baker's financial decline t

discloses that in 1977 they leased a farming property in the

Newdegate area. Machinery on the farm was very old and as they

developed the property and expanded their operation they entered
into a number of agreements with finance companies to acquire more

up-to-date equipment and vehicles.

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There were some five contracts, four lease agreements

and one hire purchase agreement, which they entered into with

Esanda Limited from January 1977 through to September 1979.

Although	it	is	unnecessary	to	set	out he	details	here,	! '
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substantial sums were involved In each case. On 31 July 1979

they entered into an agreement with the Australian Guarantee

Corporation to lease a Ford F250 utility with a total rent

amounting to $7,109.49. The amounts outstanding to Esanda and AGC

i at the date of bankruptcy totalled $38,512.18 and $2,045.61

respectively.

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3.

Mr and Mrs Baker also incurred debts through Wesfarmers

Rural by obtaining on credit such requirements as fertilisers and

fuel. They had	a lease agreement with Wesdelf Discount Co. Ltd,	i
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made on 22 June 1978, to obtain a Laverder header. That was later

repossessed and, after sale, left a shortfall of $11,559.33. The

debt was	assigned to Wesfarmers Rural under	a recourse arrangement
and that company	now claims a total debt	of $28,480.15.

At one stage, M r Baker attempted to market an invention,

said to increase the efficiency of crop harvesting, which was

called the "Lakes Bin". He stablished company, a Lakes

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Engineering Pty Ltd, to act as wholesaler of the product and he	i
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and his wife became directors. Although they initially put their	!
own funds into that venture, finance was later obtained from the
Westpac Banking Corporation. The company employed	a manager to
effect the sale	of the product but, according to the Bakers, he

mismanaged the operation and left without notice. As a result,

they say, of these events and severe droughts affecting	the area
in which they hoped to sell the product, the company did not
operate profitably and went into liquidation on	1 May 1986.

In 1979-80, MT and Mrs Baker exercised an option to

purchase their farm property using finance from Westpac, who took

a first mortgage over the property. Due to the drought

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conditions, however, they were unable to meet their commitments ,.

and finance companies repossessed their leased machinery and

equipment. within three months of exercising their option to

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purchase the property, they were forced to sell it and pay out

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their debt to the Bank. For 12 months after that sale M r Baker

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was employed by his brother overseeing cropping and harvesting and

since then has been employed most of the time, occasionally

gaining short-term work as a consultant, as I have already

indicated. Their low income meant that the Bakers were earning

just enough to cover living expenses and to provide for their

children. They could not afford to repay their creditors when

action was commenced	by Esanda to recover their debt and they
filed their petitions	in bankruptcy.

On 4 Nay 1988 they each lodged with the Official Reciver

a composition proposal. The composition proposal in each case is

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to the same effect:-

"1. That payment of all proper costs, charges and

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expenses of and incidental to the proceedings and

all fees payable to the Official Trustee in

Bankruptcy shall constitute a first charge on the

moneys referred to in paragraph 3 hereof.

2.    That payment of all priority debts directed to be

so paid under the Act in the distribution of

the property of a bankrupt shall constitute a

second charge on the moneys referred to in

paragraph 3 hereof.

3 .    That the Composition shall be paid on all proved debts from the following funds:

(a)	From all moneys in my estate held by the Official Trustee in the Common Investment Fund.
(b) From the sum of $10,000.00 to be provided	as

set out in paragraph 4 hereof.

4 . That the payment of the Composition be secured in

the following manner:

MONIES ADVANCED BY A RELATIVE"

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The funds offered were made available by Mr Baker's

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i brother, Mr N. Baker. Mr and MrS Baker each advanced identical

composition proposals and a total of $20,000 has been lodged with

the Official Receiver in accordance with their terms.

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At a meeting of creditors called on 25 May 1988, a

resolution was passed initially to adjourn the matter	so	that	., ,
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certain inquiries could be made about the existence of	a	house
property previously owned	by	the bankrupts, but a reconvened

meeting held on 22 June 1988 was informed that the house had

reverted in 1981 to mortgagees who would not be making a claim in

the bankrupt estate. All creditors then represented assented

unanimously to the two compositions.

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The Official Receiver in his reports to the creditors

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indicated that in h i s opinion the proposals were for their !

benefit. They will result in a payment out of 11 cents in the

dollar in each estate, that is to say a total of	22 cents in the
dollar in the joint estate.

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In my opinion, the compositions offer probably the only

prospect that the creditors have of getting any return. There

being no reason of public interest or commercial morality to the

contrary, I propose in each case to approve them.

So far as the question of annulment 1 s concerned, that

arises from an independent discretion that the Court has, not

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necessarily tied to the approval of the composition. However, in

my opinion, having regard to the history of the matter, the

absence of any suggestion of misconduct o r the commission of any

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offences by the bankrupts, there is no reason of public interest l

or commercial morality why the bankruptcies should not be

annulled. Mr Baker wishes to continue and extend his activities

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in relation to the consultancy work with Indian businessmen that

he is presently doing f o r a group of companies headed by one

Majellan International, and that he would propose to do also with

a company or group of companies associated with his brother.

He wishes to be in a position to deal with his Indian

contacts as a member of the board	of those companies that	he
represents, and it is primarily for this reason that	he	seeks

annulment. He is presently earning $350 a week and paying rent

for a house in Applecross at	$230 per week. He has no other
liabilities. He has no assets.

It seems to me that in the circumstances, having

arranged with his brother the payment that has been offered to the

creditors, he should have the opportunity to make a	new start. It
is to be hoped that in this case he will show some greater
commercial judgment in relation to the undertaking	of commitments

than he did	in connection with the operation	of	the farming
properties.

In the circumstances, I propose to order the annulment

of each of the bankruptcies. In each case, the composition is

approved and the bankruptcy is annulled.

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I certify that the preceding six	i
(6) pages are a true copy of the

Ex Tempore Reasons for Judgment

of his Honour Justice French.	. -
Associate:

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Counsel for the Applicants:  Mr M. de Kerloy

Solicitors for the Applicants: Kott Gunning

Mr F.D. O'Driscoll appeared on behalf of the Official Receiver

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Date of Hearing:  8 August 1988

Date of Judgment: 8 August 1988

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