Beames, Re I.R. Commissioner of Taxation

[1986] FCA 440

Re: IAN ROBERT BEAMES
Ex Parte: DEPUTY COMMISSIONER OF TAXATION
No. QLD P917 of 1986
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Pincus J.

CATCHWORDS

Bankruptcy - very large indebtedness alleged - proposed composition - little benefit to creditors - whether creditor's petition should be heard before creditors' meeting.

Bankruptcy Act, 1966 Part X

HEARING

BRISBANE

#DATE 10:10:1986

ORDER

The adjournment be refused.

NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

This is a contested application for adjournment of a creditor's petition under the Bankruptcy Act, in rather unusual circumstances. The petition is based on service of a bankruptcy notice. The judgment debtor has executed an authority pursuant to s. 188 of the Bankruptcy Act, and notice of a meeting of creditors, to be held on 13 October 1986, has been forwarded to all creditors. The hearing of the creditor's petition, which was served on 25 September 1986, has come on before the meeting and it has been argued on behalf of the judgment debtor that the Court should not hear the petition until the wishes of the creditors are known.

1. A considerable quantity of material has been filed with respect to the application for adjournment. The essential facts are as follows. On 3 January 1984, the petitioning creditor issued a writ out of the Supreme Court of Queensland claiming $820,842.82 in respect of assessments relating to the years ended 30 June 1979 and 30 June 1980, and judgment was obtained against the judgment debtor for default of defence on 22 October 1984. It appears likely that the obtaining of judgment was prompted by the debtor's failure to carry out an arrangement made on 3 August 1984 to pay certain sums by instalments.

2. On 26 February 1986 the Australian Taxation Office wrote a letter to the judgment debtor partially allowing an objection lodged in respect of the year ended 30 June 1980, and on 5 March 1986 a notice of amended assessment in respect of that year was issued, reducing the judgment debtor's liability by $140,313.57. An objection in respect of the assessment for the year ended 30 June 1979 was wholly disallowed. No appeal has been instituted in respect of tax for that year, nor, as I infer, has any objection been made to the amended assessment in respect of the 1980 year. It was said on behalf of the judgment debtor that those circumstances might be able to be explained, in that the judgment debtor was in prison when the relevant letters were written, and they were sent to a former address of his.

3. On 18 April 1986, the bankruptcy notice on which the petition is based was issued in respect of the reduced sum, namely $680,760.15. That notice was served on the judgment debtor in prison, and he wrote a letter from the prison dated 1 June 1986 referring to it and to some proposed negotiations which, he said, might result in payment of a large part of the debt. The judgment debtor asked in the letter that the Taxation Office proceed no further for six weeks after his release from prison. On the same day, the judgment debtor wrote to the Australian Government Solicitor to similar effect.

4. On 16 June 1986, the Australian Government Solicitor replied to the judgment debtor's letter referring to some further sums said to be due for tax, and asking that full details of the debtor's proposal be sent.

5. The Australian Government Solicitor, in his letter of 16 June 1986, also said that unless such details were received by 26 June 1986 a bankruptcy petition would be presented without further notice. The petition was issued on 15 August 1986. The judgment debtor was released from prison on 1 September 1986, and he then discussed with associates the possibility of a deed of composition. On 24 September 1986, he instructed his solicitor that he wished to sign an authority pursuant to s. 188 of the Act and that was effected on the same day, as was the sending of the notice of meeting. The petition was, as I have mentioned, served on 25 September 1986.

6. By letter dated 1 October 1986, the solicitors for the judgment debtor informed the Australian Government Solicitor that at that stage the best that the debtor could offer would be payment of $10,000 per annum for the benefit of creditors for the next five years. A copy of a statement of affairs was enclosed. That statement disclosed negligible assets and liabilities of $5,162,679. The proposal, then, was for payment of a total of one cent in the dollar over five years; not surprisingly, it did not attract the petitioning creditor. Subsequently, the judgment debtor's solicitor received instructions to offer a payment of $30,000 within 90 days, together with further payments of $10,000 per annum for the following two years, with the majority of the money being applied towards sums due to the petitioning creditor.

7. The largest creditor shown in the statement of affairs is Althaus Nominees Pty. Ltd., to which company a sum of $4,200,000 is said to be due under a guarantee. Apart from that debt and the sums said to be due for tax, the statement of affairs mentions unsecured creditors amounting to $127,052.

8. The petitioning creditor does not admit that $4.2 million is due to Althaus Nominees Pty. Ltd. and has placed much evidence before me on that question. Although counsel for the judgment debtor suggested that I should not come to a view on the issue, I must say that the material placed before me by the petitioning creditor is such as to at least throw doubt upon the genuineness of the debt.

9. According to the evidence of the solicitor for the judgment debtor, proxies have now been received from Althaus Nominees Pty. Ltd. and Miller Street Investments Limited (to which company $35,000 is said to be due) with instructions to vote in favour of the composition proposed. The debtor's solicitor also holds powers of attorney from certain other creditors to vote in favour of the composition. It seems that most, if not all, of the creditors who have given instructions to vote in favour of the composition are not at arm's length with the judgment debtor.

10. It is said on behalf of the judgment debtor that on the instructions so far received there will be a sufficient majority in favour of acceptance of the composition. That will apparently be so if the Althaus Nominees Pty. Ltd. debt ($4.2 million) is in fact due; if not, and the petitioning creditor votes against the motion for acceptance of the composition, it will of course be defeated. The question whether the proposed composition will take effect thus depends on the $4.2 million debt, and also on whether the petitioning creditor applies to set the composition, if accepted, aside.

11. It was argued by Miss Wadley on behalf of the petitioning creditor that the decision of the Full Court in Field v. Commercial Banking Co. of Sydney Ltd (1978) 22 ALR 403 gives guidance on the question whether an adjournment should be granted in circumstances of this sort. Mr. Sapsford for the judgment debtor, while conceding the relevance of Field's case, argued that it is distinguishable on the facts, because there no step was taken under Part X until the day before the hearing of the petition. That appears to me to be a distinction which is in favour of the present judgment debtor, but not one of great moment; it is not in question that, here, steps were taken under Part X because of an anticipation that bankruptcy proceedings were to be pursued. The bankruptcy notice was, as mentioned above, served in June.

12. Field's case is authority for the view that there is no practice of adjourning bankruptcy proceedings in circumstances of this kind, but that the execution of an authority under Part X is "one relevant circumstance" without "any decisive effect". In the judgment of Sweeney J., with whom Franki J. agreed, there are to be found examples of circumstances which might influence the exercise of the Court's discretion, certain of which are relied upon by counsel for the petitioning creditor. It is not necessary to set them out in full; the second is:
    
    

"The attitude to the application of the petitioning creditor, as prima facie, on proof of the matters mentioned in s. 52(1) of the Bankruptcy Act 1966, the Court will proceed to make an order for sequestration (see Rozenbes v. Kronhill (1956) 95 C.L.R. 407)."

I have also noticed that in Re Richards; Ex parte: Beneficial Finance Corporation Limited (unreported, 17 March 1986) Jackson J., on an application to set aside a composition accepted by creditors, remarked:

"The amount offered pursuant to the composition in settlement of the debts is so trivial when compared to the total of the debts that in the circumstances of the particular case I would regard that fact alone as a sufficient "other reason" in terms of s. 239(2) for setting the composition aside. I take that view because it seems to me that in a case where a debtor having gross assets amounting to only $2,500 has been prepared to incur debts amounting to a hundred times that amount, the case is better dealt with by way of bankruptcy (thereby giving rise to such matters as public examination of the bankrupt and other persons under s. 81) than pursuant to the rather more bland provisions of Part X dealing with compositions."

There, the composition accepted was one cent in the dollar, the sum originally offered here. Mr. Sapsford points out, however, that if the improved terms are accepted, although the sum paid will only be one cent in the dollar in respect of the whole indebtedness, the petitioning creditor may receive several cents in the dollar.

1. It is of course unnecessary to reach a conclusion that if the proposed composition were accepted, it would be set aside. However, it is within the principles set out in Field's case to consider whether administration under Part X would be for the advantage of the creditors. The only creditor said to be likely to gain any other than a trifling advantage by administration under Part X is the present petitioning creditor and it is firmly opposed to a composition. One of the reasons for that is no doubt that the financial affairs of the debtor, at least in the past, were complex, as is illustrated by the evidence given with respect to the alleged $4.2 million debt.

2. In the circumstances, it seems to me plain that the considerations laid down in Field's case point towards the conclusion that the application for adjournment should be refused and that I should hear the petition, which I now propose to do.