Bundaberg Brewed Drinks Pty Ltd; v Parr and Anor

[2002] FMCA 206

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BUNDABERG BREWED DRINKS PTY LTD
v PARR & ANOR [2002] FMCA 206

BANKRUPTCY – Contested creditors petition – whether act of bankruptcy committed – debtors signed mortgage voidable under section 122 – sequestration ordered.

Bankruptcy Act 1966 – s.41(b); s.122
Corporations Law – s.473; s.477(1)(d)
Land Titles Act (Qld) 1994 – s.176

Sutherland v O’Brien (1999) 149 FLR 321
Burns v Stapleton (1959) 102 CLR 97
Douglas ex parte Starkey (1987) 75 ALR 97

Applicant: BUNDABERG BREWED DRINKS PTY LTD

Respondents: ROBERT KEAY PARR and GAEL DOROTHY PARR

File No: SZ 192 of 2002

Delivered on: 26 June 2002

Delivered at: Brisbane

Hearing Date: 25 June 2002

Judgment of: Baumann FM

REPRESENTATION

Counsel for the Applicant: Mr Reilly

Solicitors for the Applicant: Tucker & Cowen as Town Agents for
Gray & Perkins

Solicitors for the Respondents: Mr Allen of Whitman & Co.

ORDERS

1. A sequestration order be made against the estates of the respondents, Robert Keay Parr and Gael Dorothy Parr. 

2. The applicant's costs of and incidental to the petition, including reserve costs, be taxed and paid from the estates of the respondents in accordance with the Bankruptcy Act 1966.

3. I order that such costs be taxed on the Federal Court scale and that order 62 of the Federal Court Rules apply.

4. I direct that the subpoenaed documents be returned to the persons who produced them. 

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

SZ 192 of 2002

BUNDABERG BREWED DRINKS PTY LTD

Applicant

And

ROBERT KEAY PARR and GAEL DOROTHY PARR

Respondents

REASONS FOR JUDGMENT

Introduction

1. This matter concerns a contested creditor's petition presented by Bundaberg Brewed Drinks Pty Ltd, (“the creditor”), against Robert Keay Parr and Gael Dorothy Parr, (“the debtor”).  At the hearing of this matter leave was given without objection from the debtors to amend paragraph 4 of the creditors petition presented 21 March 2002 so that the alleged act of bankruptcy is now described as follows:

   “The respondent debtors granted a mortgage over their property being Lot 27 in Registered Plan 880138 in the State of Queensland in favour of a creditor being Frank's Vendors Pty Ltd (in liquidation) and that such conveyance would, if he or she became bankrupt, be void against the trustee or alternatively the mortgage bearing date 10 October 2001 was a transfer of property which would, if he or she became bankrupt, be void against the trustee.”

2. Although initially some extensive objections on the basis of admissibility to affidavits relied on by the creditor were raised, the oral testimony of Mr Khatri, one of the appointed liquidators and prior administrators, made the objections futile in that it was properly conceded that the various documents were then before me. 

Issue

1. The amended notice of opposition filed 31 May 2002 raised a number of grounds of opposition to the petition however, ultimately, it was one ground only upon which the debtor relied; namely, that section 41(b)(i) of the Bankruptcy Act had not been made out as the mortgage was ineffective to create an enforceable obligation against debtors, and as such without and until rectification the Act of Bankruptcy is incomplete.

Background

1. The factual issues were not seriously in dispute and may be summarised as follows:

   a)the debtors were the sole directors of Frank's Vendors Pty Ltd, (“the company”), a company which acted as an intermediary between manufacturers of various drinks and retailers of those products;

   b)Mr Parr, who was subject to cross-examination admitted that:

   i)he and his wife entered into a personal guarantee dated 4 October 2000 in favour of the creditor to support the company's trading arrangements with the creditor.  At least two other personal guarantees were entered into, one with Cascade Brewery Company Limited;

   ii)the company experienced trading difficulties and the directors of the company unanimously resolved on 5 September 2001 to appoint a voluntary administrator to the company under the Corporations Law. Messrs Raj, Khatri and Ivor Worrell were so appointed;

   iii)as a result of investigations undertaken by the administrators of the company's records, and after discussions with the debtors as directors:

   (a)it was established that the debtors and associated entities owed the company on an unsecured loan account a sum "in the order of $1,247,431 after allowance for offsets";

   (b)the debtors acknowledge they did not have the capacity to repay the loan; and

   (c)they admitted by document dated 24 September 2001 that they owed the company approximately $1.3 million.  In order to secure the interests of the administrators they were agreeable to grant a second mortgage over their Fernvale property;

   iv)the administrators reported to creditors of the company in writing on 24 September 2001 and recommended liquidation of the company.  At a meeting of the creditors of the company held on 2 October 2001 the meeting resolved to appoint the administrators as liquidators.  The liquidators instructed solicitors to prepare a second ranking bill of mortgage over the Fernvale property which was executed on or about 10 October 2001, which I will call the mortgage.

2. A copy of the mortgage was in evidence before me and it is clear the instrument was subsequently stamped and registered against the title of the Fernvale property.  Subsequently, the creditor made a demand under the guarantee and has commenced proceedings against the debtors in the Supreme Court of Queensland which proceedings have not proceeded to judgment.  No submissions were made on behalf of the debtors to the effect that they have a sustainable defence against the action under the guarantee. 

3. Mr Parr also admitted that an action against him and his wife by Cascade Brewery Company Limited claiming approximately $48,000 under a personal guarantee has proceeded to judgment and that that judgment founds another bankruptcy notice which has been duly served.  Mr Parr said under cross-examination that he has no capacity to pay that judgment. 

Principles to be applied

1. Section 41(b) of the Bankruptcy Act 1966 provides inter alia that:

   “A debtor commits an act of bankruptcy in each of the following cases:

   (a)if in Australia or elsewhere he or she makes a conveyance or assignment of his or her property for the benefit of his or her creditors generally that would, if he or she became bankrupt, be void against the trustee.”

Submissions by the creditor

1. In extensive written submissions, Mr McQuade for the creditor raised certain propositions and save for the remaining issue identified by the debtor, the debtor did not cavil with them.  For completeness in this ex tempore reasons I note the conceded propositions to be that:

   b)within six months of the presentation of the petition the debtors had executed the mortgage and that a mortgage is "a transfer or conveyance" of property within the broad definition contained in section 5 of the Bankruptcy Act, (see Sutherland v O'Brien (1999) 149 FLR 321 at 325). The granting of a mortgage is also a conveyance (see Burns v Stapleton (1959) 102 CLR 97 at 104)”;

   c)the "transfer or conveyance" of property effected by the mortgage if the debtors became bankrupt would be void as against the trustee either under section 120 or section 122;

   d)at the time of execution of the mortgage the debtors were unable to pay their debts (evidenced by the acknowledgment signed by them coupled with their statement of affairs contained in a statutory declaration signed 9 October 2001 which appears to be the only statement of affairs completed by them);

   e)no consideration was given by the liquidators for the mortgage so as to secure any protection under section 122 of the Act.  All the mortgage did was to secure an antecedent debt purportedly for the benefit of the creditors of the company. 

Submissions by the debtor

1. The debtors say that the mortgage is ineffectual and unenforceable because:

   a)the moneys said to have been "loaned" were not advanced, (see paragraphs 1.2 of the covenants of the said mortgage);

   b)at the time the mortgage was entered into, the persons described as mortgagees in item 4 of the instrument were no longer the administrators but were in fact at that time the liquidators;

   c)that any interest sought to be secured cannot vest in the liquidators but ought, in the absence of a vesting order under section 473 of the Corporations Law, properly to have been in the name of Frank's Vendors Pty Ltd (in liquidation).

2. I acknowledge ingenuity of the arguments initially raised by the notice of opposition, and persisted with valiantly by Mr Allen in the face of responding assertions that:

   a)the debtors entered into the mortgage which upon registration became a deed under section 176 of the Land Titles Act 1994 Queensland with the clear intent of better securing the position of creditors of the company;

   b)the mortgagees were acting as agents for the company (whether as administrators when they negotiated the arrangement: or as liquidators when they perfected the security and could hold the title in the mortgage in that capacity as reflected in the covenants of the mortgage, although erroneously described as administrators).

Conclusions

1. I am satisfied that I am entitled to look at all the evidence of events leading up to and culminating in the registration of the mortgage rather than to restrict myself to the strict literal interpretation of the terms of the instrument, (see Douglas ex parte Starkey (1987) 75 ALR 97).

   
   

   To do otherwise would be to not understand the true effect and intention of the parties to an arrangement which could cause the intended relief under the Bankruptcy Laws to be avoided.  Whilst it is often said that the quasi-penal consequences of bankruptcy are such that strict compliance and technical observance is usually necessary, in this case I am satisfied that:

   a)the mortgage was entered into for the purpose of better securing the interests of certain creditors of the company in a way which may cause a preference over some creditors of the debtors such that the mortgage is voidable under section 122;

   b)that the conduct of the debtors is the conduct under scrutiny for the purpose of seeking to establish that they committed an act of bankruptcy under section 41(b). It was certainly their intention, in my view, to perfect a mortgage over their property. I am far from satisfied that the liquidators would not be entitled to act on their security as asserted by the debtor. Entering into the mortgage is a power available to the liquidator it seems to me, under the wide powers contained in section 477(1)(d) of the Corporations Law. Registration under the Land Title Act affords the mortgage some prima facie rights to exercise various powers. It is not necessary for me to find whether any difficulties in enforcing the mortgage will be encountered. In this case as a result of the orders I propose to make that is unlikely to be tested;

   c)as a result I am satisfied that the debtors in Australia made a conveyance transfer settlement or other disposition of a part of their property that would, if they became bankrupt, be void against the trustee. Before sequestration may be ordered I am required (pursuant to section 52(1)) to have proof of:

   i)the matters stated in the amended creditor's petition including the fact that an act of bankruptcy has been committed;

   ii)service of the petition;

   iii)the debt remaining outstanding; and

   iv)the results of a search of the appropriate National Personal Insolvency Index.

   v)The requirements of section 52(1) have been satisfied as a result of the affidavits filed in this matter.  I therefore propose to pronounce the order set out at the beginning of these reasons. 

I certify that the preceding eleven (11) paragraphs are a true copy of the reasons for judgment of Baumann FM

Associate: 

Date: