Bunnings Forest Products PL v Bullen, E.g

BUNNINGS FOREST PRODUCTS PTY LIMITED v. EDMUND GERALD BULLEN, SUSANNE LEE
BULLEN and DAVID JOHN FROST
No. WAG92 of 1994
FED No. 816/94
Number of pages - 15
Bankruptcy
(1994) 125 ALR 429
(1994) 53 FCR 438

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
GUMMOW, LEE AND CARR JJ

CATCHWORDS

Bankruptcy - meeting of creditors called pursuant to authority under s.188 - debtor's proposal to creditors under Part X failed to be passed as a special resolution - meeting adjourned - whether another proposal can be submitted at adjourned meeting.

Acts Interpretation Act 1901 para.23(b)
Bankruptcy Act 1869 (UK)
Bankruptcy Act 1924 Parts XI and XII
Bankruptcy Act 1966 Part X (ss.187-243A); sub-ss.5(1), 40(1), 188(1), 188(2), 204(1); paras.188(1)(e); 204(1)(a), (b), (c), (d)
Bankruptcy Amendment Act 1987 sub-s.194(2A)
Deeds of Arrangement Act 1887 (UK)
Deeds of Arrangement Act 1914 (UK)

Australian Law Reform Commission, General Insolvency Inquiry, Report No. 45
Irlicht, Assignments, Arrangements and Compositions (2nd Ed)
Lewis, Australian Bankruptcy Law (10th Ed)

Re Appleton; Ex parte Arc Engineering Pty Limited (1985) 6 FCR 328
Borck v Williamson (1994) 49 FCR 16
Re De Kantzow; Ex parte De Kantzow (1992) 35 FCR 74
Eastern Resources of Australia Ltd v Glass Reinforced Products (G.R.P.) Pty Ltd (1987) 2 QdR 31
Neuschild v British Equatorial Oil Co Ltd (1925) 1 Ch 346
Re Palmer; Ex parte Taylor, Unreported (Federal Court of Australia, Spender J, 4 March 1988)
Pretorius v Daltons Carpet Tiles Pty Limited (1984) 1 FCR 346
R. v Grimshaw (1847) 10 QB 747 (116 ER 284)
Re Henry Ratcliffe; Ex parte Till (1875) LR 10 Ch App 631
Re Rinquet; Ex parte Knight (1986) 11 FCR 45
Re Saheed; Saheed v The Official Receiver (1993) 41 FCR 148
Re Turner; Ex Parte Official Receiver in and for the Bankruptcy District of the State of Western Australia (1992) 39 FCR 528

HEARING

PERTH, 20 October 1994
#DATE 4:11:1994

Counsel for the Appellant: K.L. Christensen

Solicitors for the Appellant: Phillips Fox

Mr E.G. Bullen appeared in person for the First Respondents.

Counsel for the Second Respondent: M.E. Frichot

Solicitors for the Second Respondent: Kott Gunning

ORDER

THE COURT ORDERS AND DECLARES THAT:

1. The appeal be allowed.

2. The deed of arrangement executed by the respondents on 8 July 1994 is void.

3. The respondents pay the appellant's cost of the appeal and of the application.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

GUMMOW, LEE AND CARR JJ The matter of general importance raised by this appeal concerns the practical operation of the system providing for arrangements with creditors without sequestration pursuant to Part X (ss. 187 - 243A) of the Bankruptcy Act 1966 ("the Act").

In Re De Kantzow; Ex parte De Kantzow (1992) 35 FCR 74 at 75-76, Lockhart J pointed out that Part X has a long history in previous legislation of Australia and the United Kingdom which was designed to enable the property of debtors to be dealt with for the benefit of creditors in an insolvency short of bankruptcy. His Honour said of Part X:

"It makes provision for deeds of arrangement, deeds of assignment and compositions with respect to the administration of the affairs of an insolvent debtor. But these various administrations are preceded by the holdings of meetings of creditors for the purpose of enabling them to determine the course to be taken with respect to the debtor and his property."

Parts VI and VII of the Bankruptcy Act 1869 (UK) ("the 1869 Act") gave statutory sanction respectively to "liquidations by arrangement" and compositions between the debtor and his creditors. The system established by that statute was replaced by the Deeds of Arrangement Act 1887 (UK) and the Deeds of Arrangement Act 1914 (UK). The provisions of this later legislation, with certain additions and alterations, were incorporated into the Australian law by the Bankruptcy Act 1924, Parts XI and XII.
Put broadly, the issue before us concerns the consequential effects of the failure, at a meeting of creditors called in pursuance of an authority under s. 188 of the Act, to pass any special resolution of the nature specified in sub-s. 204 (1) of the Act.
Division 2 of Part X comprises ss. 188 - 212B. It is headed "Meeting of Creditors and Control of Debtor's Property".
In De Kantzow (at 76) Lockhart J described the operation of s. 188 as follows:

"Section 188 is the section which triggers Pt X; and it enables a debtor, who desires that his affairs be dealt with under Pt X, without his estate being sequestrated, to sign an authority in accordance with the prescribed form, either authorising a registered trustee to call a meeting of his creditors and to take over control of his property or authorising a solicitor to call a meeting of his creditors. Part X then makes provision for the holding of the meeting and the presentation to creditors of documents which reveal the financial affairs of the debtor. There is a marked difference between an authority given by a debtor to a registered trustee and one to a solicitor. The authority to the solicitor is simply to call a meeting of his creditors. The solicitor is not given authority to control the property of the debtor. No one is in control of the debtor's property except himself during the currency of a s. 188 authority to a solicitor to call a meeting. When a registered trustee is appointed by a debtor to call a meeting of his creditors, the property of the debtor automatically becomes subject to control under Div 2 of Pt X and continues to be so subject until one of the six events specified in s. 189 (1) of the Act occurs. Unless and until one of those events occurs, the registered trustee continues to remain the registered trustee and to be in control of the debtor's property."

The judgment in the course of which these observations were made is authority for the proposition that a debtor who has authorised a solicitor, pursuant to s. 188, to call a meeting of his creditors, may later sign a second authority to a solicitor or registered trustee. It was followed in Re Saheed; Saheed v The Official Receiver (1993) 41 FCR 148.
Sub-section 204 (1) is an important provision. It states that which may be effected by a special resolution passed at a meeting of creditors in pursuance of an authority under s. 188. The sub-section provides:

"204(1) The creditors may, at a meeting called in pursuance of an authority under section 188, by special resolution:

(a) where the debtor's property is subject to control under this Division, resolve that the debtor's property be no longer subject to control under this Division;

(b) require the debtor to execute a deed of assignment or a deed of arrangement under this Part;

(c) accept a composition; or

(d) require the debtor to present a debtor's petition within seven days from the day on which the resolution was passed."

The term "special resolution" is defined in sub-s. 5 (1) as follows:

"'special resolution' means a resolution passed by a majority in number and at least three-fourths in value of the creditors present personally, by attorney or by proxy at a meeting of creditors and voting on the resolution."

Section 197 deals with adjournments. It states:

"197(1) A meeting may, by resolution, be adjourned from time to time.

(2) Where a meeting is adjourned, the adjourned meeting shall, unless it is otherwise provided by the resolution by which it is adjourned, be held at the same place as the original meeting."

A resolution, as distinguished from a special resolution, requires a majority in value of the creditors present personally, by attorney or by proxy and voting on the resolution. This follows from the definition of "resolution" in sub-s. 5 (1).

If there is delay, s. 208 may operate to release the debtor's property from control. Section 208 states:

"208 The Court may, by order, on the application of an interested person, release a debtor's property from control under this Division if -

(a) a meeting of creditors called in pursuance of an authority under section 188 has not, within four months from the date for which the meeting was first called, passed one of the special resolutions referred to in subsection 204 (1); or

(b) the Court is satisfied that there are special circumstances that justify its so doing."

Where a special resolution has been passed as described in para. 204 (1) (b), requiring the debtor to execute a deed of assignment or deed of arrangement, and a creditor's petition is pending when the resolution is passed, or is presented after the passing of the resolution but before execution of the deed, the Court may adjourn the hearing of the petition for such period as it considers necessary to allow for execution of the deed; if the deed is duly executed within that period the Court shall dismiss the petition. Section 206 so provides. It serves to emphasise the scheme of the legislation to provide for the making of arrangements with creditors for administration of their affairs without sequestration.
However, it is important to bear in mind that the taking of various steps by a debtor who seeks to utilise the provisions of Part X may involve the commission of acts of bankruptcy. Sub-section 40 (1) of the Act relevantly provides:

"40(1) A debtor commits an act of bankruptcy in each of the following cases:-

. . .

(i) if he signs an authority under section 188;

(j) if a meeting of his creditors is called in pursuance of such an authority;

(k) if, without sufficient cause, he fails to attend a meeting of his creditors called in pursuance of such an authority;

(l) if, having been required by a special resolution of a meeting of his creditors so called to execute a deed of assignment or a deed of arrangement or to present a debtor's petition, he fails, without sufficient cause -

(i) to comply with the requirements of this Act as to the execution of the deed by him; or

(ii) to present a debtor's petition within the time specified in the resolution;

as the case may be;

. . ."

At a meeting of creditors called in pursuance of an authority under s. 188, one or more special resolutions dealing with subjects identified in paras. (a), (b), (c) or (d) of sub-s. 204 (1) may be put but fail to carry. Are the statutory functions of the meeting of creditors then spent? May the meeting, by resolution, be adjourned and at the adjourned meeting a fresh special resolution, apparently complying with sub-s. 204 (1), be put and validly carried?
In the case the subject of this appeal the debtors, Mr and Mrs Bullen, the present first respondents, executed an authority pursuant to s. 188 on 30 March 1994. The separate statements of affairs of the debtors stated that neither debtor had separate assets or liabilities. A joint statement of affairs prepared by the debtors showed, however, that the debtors had joint liabilities of $1,576,468 which exceeded their joint assets by $1,340,219. The debtors proposed that they enter a deed of arrangement to assign their property to the trustee of the deed and arrange for a sum of $140,000 to be paid to the trustee for the benefit of creditors.
The meeting of creditors convened pursuant to the authorities signed by the debtors was held on 31 May 1994. Two special resolutions were put to the meeting, the first, to accept the proposal that the debtors enter a deed of arrangement and, the second, to require the debtors to file their own petition in bankruptcy within seven days. Both resolutions failed to carry. The meeting was then adjourned until 7 June 1994. In the interim, on 3 June 1994, Bunnings Forest Products Pty Limited, the appellant, presented a creditor's petition.
On 7 June 1994 a special resolution for the execution by the debtors of a deed of arrangement in terms substantially similar to those of the previous proposal, failed to carry. A subsequent special resolution requiring the debtors to present their petition in bankruptcy within seven days was defeated. The meeting then was adjourned to a date to be fixed by the trustee.
On 6 July 1994, a special resolution was passed calling for the execution by the debtors of a deed of arrangement in terms substantially similar to those of the original proposal but with certain changes. The deed was executed on 8 July 1994. The second respondent, Mr D.J. Frost, is a party to the deed, as trustee.
The appellant then brought an application under s. 222 of the Act seeking a declaration that the deed is void. The application was dismissed by the primary Judge (French J) and the appellant now appeals against that decision.
The primary Judge said that the core of the appellant's case was the contention that s. 188 authorises the calling of only one meeting at which the options available under s. 204 of the Act can be put. After detailing the events leading to the adjournments on 31 May and 7 June 1994, his Honour continued:

"In my opinion, however, there was at all times only one meeting. There is nothing in the authorities and no reason of principle or policy why the one meeting of creditors cannot consider variations of proposals for deeds of arrangement, assignment or compositions under Pt. X of the Act. To hold otherwise would be to impose a requirement for a restrictive all or nothing approach to whatever proposal was first put forward by debtors. Such an approach cannot be in the interests of the creditors or in the public interest. That is not to say that the Court would tolerate a situation in which an ordinary majority of creditors achieved successive adjournments for the purpose of 'wearing down' the balance of creditors necessary to make up a special majority for the purpose of accepting a proposal. There is no suggestion in this case that such a technique or tactic was employed. In my opinion therefore the objection raised by (the appellant) on the basis that the meeting held on 6 July was invalidly constituted fails."

As the primary Judge indicated, two decisions of this Court were relevant to, although not determinative of, the issue. They are the decision of the Full Court in Pretorius v Daltons Carpet Tiles Pty Limited (1984) 1 FCR 346, and that of Pincus J in Re Appleton; Ex parte Arc Engineering Pty Limited (1985) 6 FCR 328.
Before considering the propositions for which these decisions are authority, it is appropriate to turn to the text of s. 188. This states:

"188(1) A debtor who desires that his affairs be dealt with under this Part without his estate being sequestrated and -

(a) is personally present or ordinarily resident in Australia;

(b) has a dwelling-house or place of business in Australia;

(c) is carrying on business in Australia, either personally or by means of an agent or manager; or

(d) is a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager; may sign an authority in accordance with the prescribed form:

(e) authorising a registered trustee to call a meeting of his creditors and to take over the control of his property; or

(f) authorising a solicitor to call a meeting of his creditors.

(2) An authority signed by a debtor under this section is not effective for the purposes of this Part unless:

(a) the trustee named in it has consented, in writing, to exercise the powers conferred by the authority or the solicitor named in it has consented, in writing, to call the meeting of creditors, as the case may be;

(b) the signature of the debtor to the authority and the signature of the trustee or solicitor to the consent are each attested by a witness; and

(c) within 10 days before signing the authority, the debtor gave to the trustee or solicitor:

(i) a statement of the debtor's affairs; and

(ii) a statement indicating how the debtor proposes that his or her affairs be dealt with under this Part.

(3) An authority under this section that is effective for the purposes of this Part is not revocable by the debtor.

(4) Where a trustee consents to exercise the powers conferred on him by an authority under this section or a solicitor consents to call a meeting of creditors in pursuance of an authority under this section, the trustee or solicitor, as the case may be, shall within 14 days after so consenting, file a copy of the consent, a copy of the authority, and a copy of each Statement given under paragraph (2) (c), in the office of the Registrar."

The prescribed forms for authorities under sub-s. 188 (1) are forms 33A (registered trustee) and 33B (solicitor).

In the present case, each of the debtors executed an authority to a registered trustee, the second respondent. The authorities were executed by Mr and Mrs Bullen respectively on 30 March 1994 and by Mr Frost on 5 April 1994. In each case the debtor authorised Mr Frost in the following terms:

"to call a meeting of my creditors for the purposes of Part X of (the) Act and to take over control of my property in accordance with (the) Act."

We now turn to consider Pretorius. In that case the appellant had signed an authority in favour of a registered trustee, pursuant to para. 188 (1) (e), and at a meeting held on 20 September 1983 a proposal by the appellant for a composition was rejected. A resolution was passed that the debtor "be requested to lodge his own petition in bankruptcy within seven (7) days of the passing of this resolution". No such petition was presented. On 18 October 1983, the trustee sent a notice to creditors of a meeting to consider rescission of the resolution passed 20 August 1983 requesting the debtor to lodge his own petition, and to reconsider the composition proposed by the debtor. At this second meeting both resolutions were passed.
The Full Court dismissed an appeal against orders declaring void the composition accepted at the second meeting and making a sequestration order in respect of the estate of the debtor. Their Honours said that as a matter of language it was clear enough that para. 188 (1) (e) contemplated the calling of a single meeting. They continued by referring to para. 23 (b) of the Acts Interpretation Act 1901 but rejected the submission that the use of the singular in relation to a "meeting" should be read as including the plural. They said at 352:

"In our opinion, the evident purpose or object of the legislation here does indicate a contrary intention . . . In our view, the scheme provided by this Part of the Act contemplates that only one meeting of creditors may be called pursuant to an authority under s.188 for the purpose of considering a composition proposed by their debtor, subject, of course, to the possibility that such a meeting may be adjourned pursuant to section 197. In any event, in the present case, only one authority under s.188 was signed and it is clear from its terms that it authorised only one meeting to be called (cf Re Amadio (1978) 46 FLR 147 at 151-154)."

The Full Court went on to consider whether this construction accorded with the apparent policy of the legislation. Their Honours said:

"We find nothing offensive to the policy of Pt X in the conclusion we have reached as to its construction. On the contrary, we think that such a result accords with the evident policy of the Act. In other words, we think it is possible to discern from the general structure of Pt X a legislative intention that if a debtor cannot carry the meeting of creditors summoned for the purpose of considering the composition he proffers, then he should not be permitted to call meeting after meeting even ad infinitum in the hope that, by a process of attrition, inconvenience or added expense, he will eventually achieve acceptance of his proposal. It is significant in this regard that the debtor is assumed to be insolvent: the signing of an authority under s. 188 is an Act of bankruptcy (s. 40 (1) (i)). It should not, therefore, be presumed that such a debtor should have the luxury of calling any number of meetings until he achieves his purpose.

This is not to say that the matter of the proposed composition need be immediately resolved: as has been said, the meeting may be adjourned under s. 197. Further, even if the meeting of creditors were to reject the composition proffered by the debtor, a sequestration order is by no means inevitable: the court has a discretion to refuse such an order in a proper case (cf s. 206; see also McDonald, Henry and Meek's Australian Bankruptcy Law and Practice (5th ed), par. 1039)."

(Emphasis supplied)

The reasoning in this passage was relied upon by the present appellant. The submission is that, consistently with what was explained by the Full Court, the scheme of the legislation is not to permit an admittedly insolvent debtor whose proposed composition is rejected to seek further time to reformulate a proposal for a composition, by the passage of an ordinary resolution of creditors under s. 197 to adjourn the meeting. It is, it is submitted, no answer to construe the legislation so as to permit adjournments for resubmission of proposals, whether in their initial or amended form, but to qualify this by a limitation on the use of the power of adjournment so as to "wear down" those creditors who will not supply sufficient support for a special resolution.
The primary Judge was not referred to De Kantzow supra. The judgment of Lockhart J (at 76-77) contains the following helpful passage:

"I see nothing in the Act in general, or Pt X in particular, either in its language or spirit, which would operate to prevent a debtor in these circumstances signing a second authority to a solicitor or a registered trustee pursuant to s. 188. Indeed, the section should be construed quite to the contrary. It would be odd if, faced with the facts of this case, a debtor was not entitled to invoke again the procedure of s. 188 when it is plain his creditors wished him to do so and plain that detriment had not been sustained in the meantime by his creditors. This conclusion is supported by the fact that Pt X is an enabling provision designed in appropriate cases to allow the administration of the affairs of insolvent persons without bankruptcy.

This is a different question from the question whether only one meeting and not a plurality of meetings can be called by a debtor pursuant to the one authority given under s. 188. Unaided by authority it would be plain that this could not be done, but it is clear from the judgment of a Full Court of this Court in Pretorius v Daltons Carpet Tiles Pty Ltd (1984) 1 FCR 346 especially at 351 and 352 that that is the law in this country. Nothing said by the Full Court in Pretorius (supra) touches the question presently before the Court."

His Honour went on to note that the Full Court had referred to Re Amadio, in which there was an obiter dictum that a debtor could not in the absence of special circumstances validly give more than one authority to a solicitor pursuant to Part X of the Act. Lockhart J concluded that this decision should not be followed if it was authority for the proposition a debtor could not give more than one authority pursuant to Part X of the Act for the holding of a meeting of creditors. Of course, a debtor would not be able to give such authority to a registered trustee if the debtor's property was still in the control of a controlling trustee pursuant to a prior authority.

Reference was made before the primary Judge to Re Appleton supra. That case may be authority for the proposition that once a special resolution to accept a composition under Part X of the Act is put to a meeting of creditors and fails to pass, such a resolution in respect of the same composition cannot be put again at that meeting. Pincus J said of Pretorius (at 330):

"That concerned a rather different question, namely, whether a second meeting could be held, the first one having rejected the proposal for a composition; however, it seems to me that in principle the question before me is rather similar."

His Honour also referred to the decision of the Court of Appeal in Chancery in Re Henry Ratcliffe; Ex parte Till (1875) LR 10 Ch App 631. This was a decision concerning the refusal of an offer of compromise pursuant to Part VII of the 1869 Act. An examination of that statute and of the General Rules, 1870, made thereunder (particularly rr. 252-315 which dealt with proceedings for liquidation by arrangement and compositions with creditors) discloses no provision for adjournment of meetings, as is now found in s. 197.

In Appleton the motion to approve the composition had been put but not passed. Argument then followed that the motion should have been declared passed because a wrong value had been ascribed to the debt of one of the creditors. The alternative value was accepted, the motion was put again and passed. Speaking of Appleton, Einfeld J said in Re Turner; Ex Parte Official Receiver in and for the Bankruptcy District of the State of Western Australia (1992) 39 FCR 528 at 531:

"In view of the apparent position that the motion would have been passed if what were ultimately accepted as proper values had earlier been ascribed to the debt of one of the creditors, I would respectfully question the conclusion. There seems to be nothing in the Bankruptcy Act to prevent the resubmission or recount of a resolution which may have been the subject of a chairman's or even the meeting's erroneous assessment of permitted voting strength. I would certainly agree that once the creditors had clearly resolved at one meeting to reject a proposed composition, and to release the property of the debtor from control, the debtor was obliged to file his petition and it was not open to have a second meeting convened for creditors to consider again exactly the same composition. However, as I read (Pincus J's) judgment, it seems that the decision was not based on this consideration."

In Turner itself, a motion that the debtor execute a deed of assignment was opposed by some major creditors and the meeting was adjourned for seven days, without a vote being taken. At the resumed meeting, the motion was put and lost, a motion that the debtor be required to file a petition also was lost, and the meeting was adjourned for a further seven days. On the adjourned date, both motions again were lost. There were two further adjournments and at each resumption the issue was postponed. All adjournments were unanimous. Finally, at the sixth assembly, the deed was accepted and entered into by the debtor on the same day. An application under s. 222 of the Act that the deed be declared void failed. His Honour said (at 532):

"The power to adjourn Part X meetings 'from time to time' in s. 197 (1) is not qualified and must be given a full meaning. There is nothing in the Act or the cases to prevent creditors from voting to reject a deed of assignment for the time being and voluntarily adjourning to consider other possibilities or options, including the acceptance of the same or a modified deed at a later meeting if nothing better emerges. That may well be what was done here. A court should be hesitant to read into the Act terms which would impose a permanent result on creditors who did not once vote for bankruptcy, always voted unanimously for adjournments, and eventually voted strongly for a deed."

In the present case, the primary Judge summed up the effect of the decisions to which he had been referred (which included Turner) as follows:

"The cases establish that when a meeting of creditors has rejected a proposal and the meeting has been concluded there is no power to call a second meeting. Nor is there a power to recommit a proposal, once rejected, for reconsideration at the same meeting. There is, however, a general discretion in the creditors to resolve to adjourn a meeting but this may not be used by an ordinary majority to wear down the opposition of the balance of creditors needed to support a special resolution in favour of a proposal."

The appellant submits that, upon a proper reading, Pretorius is Full Court authority that, although a meeting may be adjourned under s. 197 up until the point in time at which a proposal by the debtor is voted upon, once the vote has taken place, the meeting is at end and there is no further power of adjournment. The consequence, it submits, is that in the present case the motion to adjourn put at the conclusion of the convened meeting was ineffective and as a consequence the second and third adjournments of the meeting were also not in accordance with the terms of Part X of the Act.

Further, and in the alternative, the appellant submits that even if the reasoning in Turner be correct, so that a meeting of creditors may be adjourned notwithstanding the rejection of the terms of the proposal by the debtor, it does not save the present deed from attack. This is said to be because the purpose of the adjournment must be to enable the creditors to consider the other options lawfully available to them under the Act. It is submitted that in the present case, the primary Judge should have held that this was the purpose of the second adjournment of the meeting. This occurred after a revised offer had been put to the meeting and lost, and a motion to require the debtors to file petitions had been put and lost.
It is submitted that the primary Judge should have found that the purpose of the second adjournment was to enable the bankruptcy of the debtors to follow upon the appellant's petition.
In that regard, the appellant submits that if the clear line drawn by Pretorius is not followed, the reasoning in Turner, and that adopted by the primary Judge, as to the "wearing down" of creditors involves a process of statutory construction leading to great practical difficulty. Such reasoning, the appellant submits, involves a judicial inquiry into the purposes underlying an adjournment. Determining the purpose for which an adjournment is acceded to by a majority of creditors present at a meeting will be cumbersome and difficult, particularly because the creditors may have different or mixed motives. Further, it is submitted that the lawfulness of any reconvened meeting would depend upon the outcome of such a judicial inquiry on a later application to the Court under s. 222. Such an element of uncertainty in the operation of the procedures created by Part X of the Act is said to be contrary to its apparent legislative purpose.
In construing a provision in Part X of the Act it is to be remembered that the object of the Part is to encourage a debtor to make early disclosure to creditors of the debtor's inability to pay debts and to provide a procedure under which the debtor may call the creditors together to consider whether the debtor may be able to discharge those debts if the creditors permit the debtor to continue to trade, or alternatively, whether the debtor is able to offer an arrangement acceptable to the creditors under which the creditors would receive the benefits that would accrue to them from the bankruptcy of the debtor without incurring the expense of such a proceeding. (See: Lewis, Australian Bankruptcy Law (10th Ed) pp.16-18, pp.248-249; Irlicht, Assignments, Arrangements and Compositions (2nd Ed) para.202.)
If utilized, the provisions of Part X may provide substantial advantages to a debtor including the binding of all creditors (ss. 228, 233, 238) and release from all provable debts (ss. 230, 234, 240) but if abused or manipulated the same provisions may be the source of detriment to creditors. (See: Australian Law Reform Commission, General Insolvency Inquiry, Report No. 45, ("Harmer Report") Vol. 1, 1988, paras. 477 and 479.)
As a result of the recommendations arising out of discussion papers leading to the Harmer Report, Part X of the Act was substantially amended by the Bankruptcy Amendment Act 1987 ("the Amending Act") to inter alia, restrict the opportunity for debtors, or others, to use the provisions of Part X to disadvantage creditors. The Amending Act thus was passed after the decision in Pretorius. The tenor of the amendments are consistent with the thrust of that decision. Part X, as amended, now requires a debtor who has signed an authority under s. 188 to give to the person authorized by the authority a statement of the debtor's affairs and a statement indicating how the debtor proposes that his, or her, affairs be dealt with under Part X. (See: sub-s. 188(2)).
Sections 189A and 189B were also inserted by the Amending Act. They are important for the issues on this appeal. These sections provide that a registered trustee who has consented to act on the debtor's authority, must prepare a report which summarizes the debtor's affairs; provide such information as will give a true and fair view of the debtor's affairs; and include a statement of the trustee's opinion as to whether or not it would be in the best interests of creditors to deal with the debtor's affairs in the manner proposed by the debtor. The trustee must prepare also a statement in writing containing the information prescribed in r.75 "about each matter that may reasonably be expected to be dealt with or specified in a resolution by the debtor's creditors under s.204".
Sub-section 194 (2A), also inserted by the Amending Act, is another important provision. It obliges the trustee to provide to each creditor, together with the notice convening the meeting of creditors, a copy of the statement of affairs provided by the debtor, a copy of the debtor's statement proposing how the debtor's affairs are to be dealt with, a copy of the trustee's report referred to above, and a copy of the trustee's statement containing the prescribed information about matters that may be dealt with, or specified, in a resolution under s. 204.
It is apparent that the amended provisions of Part X are directed to requiring the debtor to make full and early disclosure of the debtor's financial affairs and of the proposal the debtor intends to put to creditors and to requiring the trustee to take responsibility for analyzing the information disclosed by the debtor and for providing relevant information and advice to creditors before the date of the convened meeting.
The tenor of these provisions is antithetical to a view that the convened meeting of creditors is the commencement of an undefined bargaining procedure to be undertaken by the debtor and the creditors. The signing of an authority is the debtor's acknowledgment of inability to pay debts and is an act of bankruptcy. Whether or not a creditor issues a petition based on that act of bankruptcy, it is the intent of the Act that any procedure commenced under Part X to make arrangements with creditors without sequestration, be conducted promptly without diminishing the property that would be available to creditors upon sequestration of the debtor's estate.
The vice in a construction that would allow a majority of creditors to adjourn the meeting from time to time for the purpose of stimulating another proposal from the debtor after the debtor's proposal has been put to the meeting and not accepted by a special resolution, is well illustrated in the present case. The following costs were incurred in conducting this matter under Part X of the Act, namely, the fees of the controlling trustee ($68,000), fees paid to "insolvency consultants" employed by the controlling trustee ($15,000), and fees to be paid to the controlling trustee as trustee of the deed (up to $15,000).
Incurring fees of that magnitude does not meet the purpose or intent of Part X.
It is plain, as accepted by the primary Judge, that a debtor's proposal put to the meeting and not passed by the meeting by special resolution, cannot be resubmitted to the meeting. In such a circumstance the will of the meeting has been ascertained and recorded upon that proposal, being the purpose for which the meeting was convened. (See: Re Henry Ratcliffe at p 634; Re Ringuet; Ex parte Knight (1986) 11 FCR 45 per Spender J at 49; Re Palmer; Ex parte Taylor, Unreported (Federal Court of Australia, Spender J, 4 March 1988).) We understand the reasons of Einfeld J in Turner to accept that principle, but if his Honour was of the view that such a meeting could be adjourned for the purpose of resubmitting to the meeting for determination a matter already determined by the meeting, we would respectfully disagree.
The resumption of an adjourned meeting is not a new meeting but the continuation of the original meeting and unless the Act provides otherwise the business to be disposed of at an adjourned meeting is the unfinished business of the original meeting. (See: Neuschild v. British Equatorial Oil Co. Ltd. (1925) 1 Ch 346; Eastern Resources of Australia Ltd v. Glass Reinforced Products (G.R.P.) Pty. Ltd. (1987) 2 Qd R 31 at 37; R. v. Grimshaw (1847) 10 QB 747 per Coleridge J at 755-756 (116 ER 284 at 287).)
We have set out the text of s. 208 of the Act. It provides ample opportunity for the proposal of the debtor to be considered by creditors and for support to be canvassed. Although, in part, the power provided by the section becomes available if a meeting of creditors "has not...passed" one of the special resolutions referred to in s. 204 within four months from the date for which the meeting was first called, the section in its terms does not purport to alter the existing law and permit a failed resolution to be resubmitted to such a meeting, either on the day of the meeting or on a later day to which the meeting is adjourned.
The will of the meeting will be expressed on the debtor's proposal for execution of a deed of assignment, or deed of arrangement, or a composition, by the passage of the special resolution or its failure to carry. That part of the conduct of the meeting, as provided for in ss. 188 and 204 of the Act, will be concluded. The remaining business of the meeting would be restricted to motions under para. 204 (1) (a), (b) or (d) of the Act to release the debtor's property from the control of the controlling trustee, to require the debtor to execute a deed of assignment if the debtor's proposal to execute a deed of arrangement has not been accepted, or to require the debtor to present a petition in bankruptcy, and to a motion under s. 193 of the Act to fix the remuneration of the controlling trustee. (See: Borck v. Williamson (1994) 49 FCR 16.)

As the Act now stands, it is clear that if the debtor's proposal to creditors under Part X is not accepted by a special resolution and the debtor desires to submit another proposal to creditors, that proposal must be put to a meeting of creditors convened under another authority signed by the debtor, pursuant to s.188, if the debtor is able to do so. (See: Pretorius; De Kantzow; Saheed.) This will bring again into play provisions such as sub-s. 194 (2A) which require provision of current information to creditors.
Accordingly, with respect to the primary Judge, we are unable to agree that it is within the contemplation of the provisions of Part X of the Act that after the debtor's proposal has been put to a meeting in the manner permitted by para. 204 (1) (b) or (c) and failed to be passed as a special resolution, the meeting may be adjourned to allow another proposal under those paragraphs to be prepared and submitted to the meeting.
Therefore, the deed executed by the debtors and the trustee was not grounded upon a valid resolution. It follows that the deed has not been entered into in accordance with Part X, and pursuant to sub-s. 213 (1) of the Act, is void.
It is unnecessary to consider the appellant's further submissions that the deed was not entered into in accordance with Part X in that some terms included in the deed were not terms which reflected the content of the special resolution.
There will be a declaration pursuant to s.222 of the Act that the deed is void and an order that the respondents pay the appellant's costs of the appeal and of the application.
In the absence of any information to the contrary, it is assumed that the appellant's petition in bankruptcy against Mr and Mrs Bullen has not been dismissed pursuant to sub-s. 206 (1) of the Act and now may be relisted for hearing.

[1994] FCA 816

04 NOVEMBER 1994