Cervantes Pty Ltd v Moutidis; and Moutidis v Horne
[2005] FMCA 555
•3 May 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CERVANTES PTY LTD v MOUTIDIS & MOUTIDIS v HORNE | [2005] FMCA 555 |
| BANKRUPTCY – Creditors meeting – trustee assessment of debts and voting rights – supervisory power of court – sequestration order. |
Bankruptcy Act 1966 (Cth), ss.27, 30, 52, 64ZA(8), 82(4), 84, 104, 178, 188, 189AAA
Cervantes Pty Ltd v Moutidis [2004] FMCA 1023
Dingle & Cockerill, Re; Westpac Banking Corporation v Worrell (1993) 47 FCR 478; (1993) 119 ALR 265
Hooper vEwins (1997) 79 FCR 389
Roberts (1998) 218 FCA (Unreported 3 March 1998)
| Applicant: | CERVANTES PTY LTD |
| Respondent: | ELIAS MOUTIDIS |
| File No: | MLG 1122 of 2004 |
| Applicant: | ELIAS MOUTIDIS |
| Respondent: | STIRLING L HORNE (IN HIS CAPACITY AS CONTROLLING TRUSTEE) |
| File No: | MLG197 of 2005 |
| Delivered on: | 3 May 2005 |
| Delivered at: | Melbourne |
| Hearing date: | 8 March 2005 |
| Judgment of: | McInnis FM |
REPRESENTATION
MLG 1122 of 2004
| Counsel for the Applicant: | Mr M Sanger |
| Solicitors for the Applicant: | Daly & Kernahan |
| Counsel for the Respondent: | Mr D O’Haire |
| Solicitors for the Respondent: | O’Haire Tanner Legal |
| Counsel for the First Supporting Creditor: | Mr R Zozula |
| Solicitors for the First Supporting Creditor: | Property and Business Commercial Lawyers |
| Second Supporting Creditor in person: | Mr R Jimenez |
| Counsel for the Third and Fourth Supporting Creditors: | Mr P Fary |
| Solicitors for the Third and Fourth Supporting Creditors: | Lewenberg & Lewenberg |
MLG197 of 2005
| Counsel for the Applicant: | Mr D O’Haire |
| Solicitors for the Applicant: | O’Haire Tanner Legal |
| Solicitor for the Respondent: | Ms D McCredden |
| Solicitors for the Respondent: | White Cleland Pty |
ORDERS
Application MLG1122/2004
The date of the act of bankruptcy referred to in paragraph 4 of the Creditors Petition be amended to 25 August 2004 and reverification and reservice be dispensed with.
A sequestration order be made against the estate of Elias Moutidis.
The Applicant’s and Supporting Creditors’ costs (including reserved costs) be taxed in accordance with the Federal Court Rules and be paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.
Liberty to apply is granted.
The Court notes that the date of the act of bankruptcy is 25 August 2004.
Application MLG197/2005
The Application be dismissed.
The costs, charges and expenses properly incurred by the Respondent in relation to this proceeding be paid from the Respondent’s estate with the same priority accorded by s.109(1)(b) of the Bankruptcy Act 1966 as if those costs were incurred while the Respondent was the Applicant’s controlling trustee.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1122 of 2004
| CERVANTES PTY LTD |
Applicant
And
| ELIAS MOUTIDIS |
Respondent
MLG197 of 2005
| ELIAS MOUTIDIS |
Applicant
And
| STIRLING L HORNE (IN HIS CAPACITY AS CONTROLLING TRUSTEE) |
Respondent
REASONS FOR JUDGMENT
There are two matters before the Court. The first is a creditors petition filed by Cervantes Pty Ltd (the Petitioning Creditor) seeking a Sequestration Order against the estate of Elias Moutidis (the Debtor) in Application number MLG1122/2004 (the petition). The petition was presented on 30 August 2004.
By an application MLG197/2005 filed on 18 February 2005 (the Debtor’s Application) the Debtor has sought review of a decision of Stirling L Horne in his capacity as Controlling Trustee (the Trustee).of a proposed personal insolvency agreement lodged by the Debtor at a meeting of creditors held on 28 January 2005 In the absence of objection there is no reason why both applications should not be heard together noting that if the Debtor’s application fails the creditors petition proceeds. No specific issues are raised in opposition to a sequestration order by the Debtor. That is hardly surprising given the fact that the Debtors application arises from a creditors meeting convened by the trustee who had been authorised by the Debtor pursuant to s.188 of the Bankruptcy Act (“the Act”).
The Debtor’s Application purports to rely upon s.104 of the Act seeking certain orders in relation to an authority signed by the Debtor on 14 December 2005 and a meeting of creditors held on 28 January 2005. It should be noted at the outset that reliance upon s.104 of the Act is misconceived for reasons which I shall refer to in due course. Specifically the application provides as follows:-
“The Applicant seeks a review pursuant to the provisions of S104 of the Bankruptcy Act 1996 of the Respondent’s decisions in respect of proofs of debt lodged at the meeting of creditors held 28 January 2005 to consider the Applicant’s proposal under S188A of the said Act.
A. DETAILS OF CLAIM
On the grounds stated in the accompanying affidavit or statement of claim (or, if applicable, Claim of Unlawful Termination of Employment in accordance with Form 5A) the applicant claims:
1.In respect of the decisions made by the Respondent at a meeting of Creditors held on 28 January 2005 to consider the Applicant’s proposal under S188A of the Bankruptcy Act 1996, the Applicant seeks:
1.1A declaration that the Respondent erred in allowing or admitting to vote the following creditors:
(a)Australian Shell Company for the sum $1.00;
(b)VWE for the sum of $1.00;
(c)Konstruct Pty Ltd for the sum of $1.00;
(d)Cervantes for $154,251.71.
1.2A declaration that the Respondent erred in refusing to allow the following Creditors to vote for the full value of the debt claimed:
(a)George Moutidis for $26,000.00
(b)Kim Moutidis for $250,000.00
(c)Nick Kourtidis for $15,000.00
(d)Lee Michael for $37,000.00
2.The Applicant further seeks a declaration that the Respondent failed to exercise his power to adjourn the said meeting of creditors pursuant to S642A(9) of the Act.
3.An order that the Applicant be enabled to execute a fresh authority pursuant to S188 of the Act within six months of a previous authority.”
The petitioning creditor and other creditors namely Blackstone Cement Pty Ltd (Blackstone) and VWE Enterprises Pty Ltd (VWE) oppose the debtors application and rely upon usual affidavits of proof of debt and searches. VWE relies upon an affidavit sworn by Chin Peng Lok sworn 16 February 2005 and Blackstone relies upon the affidavit of Sacha Marie Raman on 17 February 2005
The debtor has relied upon an affidavit of Denis O’Haire sworn
18 February 2005 (the third O’Haire affidavit) which exhibits affidavits of the same deponent sworn 11 February 2005 (the first O’Haire affidavit) and one sworn on 16 February 2005 (the second O’Haire affidavit).
The trustee has relied upon affidavits sworn by Stirling Horne on
4 March 2005 and an affidavit of James Stuart Robinson also sworn on 4 March 2005.
Background
The Applicant was served with a Bankruptcy Notice issued on 19 July 2004. Service was effected on 4 August 2004. On 25 August 2004 the debtor failed to comply with the Bankruptcy Notice and thereby committed an act of bankruptcy. The petitioning creditor filed the Creditors Petition on 30 August 2004 as indicated earlier in this judgment. On 12 October 2004 a registrar of the Court adjourned the petition to 22 November 2004. On 22 November 2004 the petition was further adjourned to 14 December 2004 and other orders made in relation to the filing and service of affidavits to be relied upon by the parties. When the matter came before the Court on 14 December 2004 the debtor produced a document purporting to be an authority signed pursuant to s.188 of the Act. I decided on that day that the purported authority was void and of no effect (see Cervantes Pty Ltd v Moutidis [2004] FMCA 1023). On the same day the Applicant signed a further authority pursuant to s.188 of the Act authorising the trustee to call a meeting of the creditors and take control of the property of the debtor.
The delegate provided the trustee with a statement of affairs dated 13 December 2004 ("statement of affairs") and what is described as a draft personal insolvency agreement headed "Proposed Part X".
The statement of affairs named Mr Dennis O'Haire as solicitor for the debtor. The statement of affairs annexed to the affidavit of the trustee sworn 4 March 2005 (exhibit SLH2) identified assets of the bankrupt totalling $3250 comprising tools of trade with an estimated value of $3000 and personal bank accounts totalling $250. It is noted in passing that the debtor claims to have had cash of $50 and in referring to the sale, transfer or gift of assets in the last five years claims to have transferred in May 1999 a gross amount of $375,000 or net of $75,000 to his wife. Under the heading "What did you sell, transfer or give away?" he has inserted "love and affection". The asset details could only be described as sparse. In the statement of affairs the debtor identifies 15 unsecured creditors claiming a total amount of $532,953.17 listed as follows:-
Creditor Debt
Del Mar Timber Pty Ltd $65,000.00
Denis O'Haire $12,000.00
Agora Group Pty Ltd $68,000.00
Kim Moutidis $250,000.00
Cervantes Pty Ltd $46,000.00
Australian Taxation Office $16,673.39
Nick Kavadias $14,283.50
Simon Conquest Lawyers $2045.03
D.A. & A.F. Amos c/ Falcone & Adams Unstated
Moorland Hire $6946.25
Nick Kourtidis $15,000.00
Chris Moutidis $20,000.00
Apollo Glass $10,000.00
Dan Flynn $6000.00
Lovegroves $1005.00
TOTAL $532,953.17
According to the trustee's affidavit sworn 4 March 2005 he received a facsimile from Dennis O'Haire on 13 December 2004 which included a list of creditors of the debtor. That list included two creditors with claims totalling $32,946.25 which had not been shown in the statement of affairs. One was George Moutidis, with an estimated claim of $26,000, and the other Lewis Holdway, claiming an amount of $6946.25.
Consistent with the trustee's obligations, upon being appointed pursuant to s.188 of the Act, he forwarded to all creditors of whom he was aware a notice of meeting of creditors to take place on 28 January 2005, together with a copy of his report to creditors. That notice was forwarded on or about 17 January 2005 and the report highlighted the result of the investigation which the trustee claims "differed from information provided in the statement of affairs". It is relevant to set out an extract from the trustee's affidavit where he states the following:-
“5.…. In particular I stated that:
(a) I had identified three additional creditors of the Applicant with claims totalling $49,826.00.
(b)Cervantes Pty Ltd had claimed that its debt in fact exceeded $150,000 rather than the $46,000 shown in the statement of affairs;
In addition I advised that it had come to my attention that a number of contingent creditors may also have claims in the estate. My report to creditors recommended that it was in the best interests of creditors to adjourn the 28 January 2005 meeting for a period of 28 days to allow for further investigations into the affairs of the Applicant. ...
6.In the course of my investigations of the affairs of the Applicant, I identified a number of additional companies and individuals who claimed to be creditors of the Applicant. I invited all creditors who were known to me to submit Statements of Claim for the purpose of participating in the creditors meeting on 28 January 2005.”
By way of background it is also appropriate, in my view, to set out extracts from the trustee's affidavit where he makes reference to individual creditors and his determination of the claims by those creditors. It was somewhat unusual in this case for the debtor's representative to appear despite having filed affidavits sworn by him and which raised issues which may be regarded as contentious. To the extent that there is any inconsistency between the affidavits of the representative of the debtor and the trustee's affidavit and the affidavit of James Stuart Robinson, I prefer the trustee affidavit and the affidavit of Mr Robinson. Where lawyers seek to represent a party and also provide affidavit material, there is a considerable risk that as advocate it is difficult for the representative to then become a witness. It is my conclusion in any event that there is sufficient corroboration between the Robinson affidavit and the affidavit of the trustee to encourage me to rely upon those affidavits where there is any inconsistency between the facts in those affidavits and those asserted for and on behalf of the debtor by Mr O'Haire.
Hence, it is appropriate to refer to the extracts from the trustee's affidavit concerning individual creditors as follows:-
“Cervantes Pty Ltd ("Cervantes")
7.I refer to paragraph 5 of O'Haire's First Affidavit in relation to the claim made by Cervantes. Mr O'Haire states that a debt which forms the basis of Cervantes' creditors’ petition against the Applicant is a judgment debt in the sum of $40,699.35. I was provided with a Statement of Claim and proxy form prepared on behalf of Cervantes dated 26 January 2005. The Statement of Claim claimed debts totalling $196,761.70, including the sum of $80,116.28 of judgment debts. The balance related to debts claimed pursuant to invoices rendered to the Applicant by Cervantes. Copies of the relevant judgments and invoices were provided to me and I was satisfied that a debt existed for more than the amount referred to in the creditors petition. I determined that a number of the claims were duplicated and determined that a debt in the sum of $154,261.71 was substantiated by the claim. ... For the reasons set out above, I admitted Cervantes as a creditor in the sum of $154,261.71 for the purposes of voting at the January 28 meeting.
Housing Guarantee Fund Ltd
8....
9.... I admitted the Housing Guarantee Fund as a creditor in the sum of $13,700.80 for the purpose of voting at the January 28 meeting.
Australian Shell Co Pty Ltd
10. ... I admitted the Australian Shell Co Pty Ltd as a creditor in the sum of $1.00 for the purpose of voting at the January 28 meeting.
11.... I refer to paragraph 5 of O'Haire's First Affidavit in which he states that the claim of Australian Shell Co Pty Ltd is a duplication of a claim by Mr Malcolm Hall. I received a statement of claim dated 27 January 2005 completed by Mr Hall claiming a total of $780,138.47 for monies loaned to the Applicant by Mr Hall. ... In any event, Mr Hall chose not to vote at the creditors’ meeting on 28 January 2005. ...”
VWE Enterprises Pty Ltd ("VWE")
12.I refer to paragraph 5 of O'Haire's First Affidavit in relation to the claim lodged by VWE in which he states that the claim was lodged at the meeting and that a "proof of debt was not lodged before the meeting". I assume that Mr O'Haire's reference to a proof of debt is intended to refer to a Statement of Claim. In fact, I received a Statement of Claim completed by VWE at approximately 9.55 am on 28 January 2005 by facsimile transmission. The Statement of Claim stated that the claim was for approximately $2.6 million and was consistent with the counterclaim filed in VCAT proceeding number D29/2004. The counterclaim seeks damages against the Applicant for breach of contract.
I determined that the claim lodged by VWE was a contingent claim, the value of which was impossible to determine. However, I noted that the amount of the claim exceeded the amount of the claim filed by the Applicant in the proceeding, stated in paragraph 5 of O'Haire's First Affidavit to be $108,652.85 plus interest plus consequential damages. ... For the reasons set out above, I admitted VWE as a creditor in the sum of $1.00 for the purpose of voting at the January 28 meeting.
Konstruct Pty Ltd ("Konstruct")
I refer to paragraph 5 of O'Haire's First Affidavit in relation to the claim lodged by Konstruct, in which he states that the claim appears to have been made at the meeting. In fact, I received a Statement of Claim completed by Konstruct at 9.53 am on 28 January 2005 by facsimile transmission. The claim is for debts for work and labour done or alternatively for accounts stated. A Statement of Claim included a copy of amended particulars of claim filed by Konstruct in Magistrates Court of Victoria Proceedings number QO1565536, QO1565693, QO1565456 and QO1565398. The amounts claimed in the proceedings total $121,011.50. On the information available to me the proceedings are defended by the Applicant and no determination of Konstruct's entitlements has been made. Accordingly, I determined it was impossible to assess the value of the claim. ... For the reasons set out above, I admitted Konstruct as a creditor in the sum of $1.00 for the purposes of voting at the January 28 meeting. I entirely reject the implications that Konstruct was admitted to vote without any enquiry as to the validity or foundation of the claim.
Blackstone Cement Pty Ltd
14....
15.I refer to paragraph 5 of O'Haire's First Affidavit in relation to the claim lodged by Blackstone Cement Pty Ltd which states that the claim was only produced at the meeting. I in fact received a Statement of Claim completed by Blackstone Cement Pty Ltd dated 27 January 2005 claiming a total debt of $17,513.68 pursuant to a judgment of the Magistrates Court of Victoria dated 15 July 2003. The Statement of Claim was supported by a copy of the relevant order in the total sum of $42,762.68. The Statement of Claim specified that payments had indeed been received from the debtor in the sum of $25,249.00 and the claim represented the balance outstanding pursuant to the order. ... For the reasons set out above I admitted Blackstone Cement Pty Ltd as a creditor in the sum of $17,513.68 for the purposes of voting at the January 28 meeting.
The Related Party Debts
16.On or about 27 January 2005 I forwarded correspondence to Mr D O'Haire by facsimile transmission seeking further information in relation to claims lodged by related party creditors. … I received no response to the 27 January fax from Mr O'Haire and I received no further documentation from any of the creditors as requested.
The trustee further in his affidavit analyses the material which he had received in relation to claims lodged by related party creditors. In my view, after appropriately analysing the material, he admitted Mr N. Kourtidis, Mr Lee Michael, Mr George Moutidis, Mr Kim Moutidis as creditors each in the sum of $1.00 for the purpose of voting at the January 28 meeting.
The 28 January 2005 meeting
As indicated earlier, the trustee had advised creditors that it may be in their best interests to adjourn the 28 January 2005 meeting. However, correspondence from solicitors acting on behalf of VWE, Konstruct and Blackstone suggested that further investigation may be unwarranted and the proposal for the personal insolvency agreement should be rejected. The debtor had been advised of the view of creditors indicating they did not wish to adjourn the meeting and according to the Robinson affidavit, he told Mr O'Haire that he expected the meeting would not be adjourned. In his affidavit Mr Robinson states, "Mr O'Haire stated that he and the applicant wanted the proposal put to the vote and not adjourned."
On the day of the proposed meeting the trustee conducted an analysis of the claims lodged at the date of the meeting and the likely outcome of the vote on the proposed personal insolvency agreement based on his assessment of the statements of claim. After making due allowances for those who were granted a vote to the value of $1.00, he concluded that the proposal for the personal insolvency agreement would not be passed by the meeting of creditors. He prepared a summary of the claims lodged which were based on that assessment (exhibit SLH19). A summary entitled "Summary of Claims Lodged - Based on Trustee's Assessment of Claims to Date" revealed a total amount of creditors of $5,116,533.75, of which $61,288 were for the proposed Part X agreement, with $306,006.29 against, being respectively 16.69 per cent for and 83.31 per cent against.
The trustee conducted a further analysis of the claims lodged and the likely outcome on what he describes as a "best‑case scenario" for the debtor, that is, if the claims were adjudicated "in the manner most likely to favour the passing of the resolution for the personal insolvency agreement". His analysis was claimed to be based on assumptions as follows:-
·George Moutidis, Nick Kourtidis, Kim Moutidis and Lee Michael were all admitted to vote for the full amount of their respective claims; and
·Stefan Electrics Pty Ltd, Australian Shell Co, Malcolm Hall, MAS Investments, VWE and Konstruct were admitted to vote for $1.00 only.
On the basis of that analysis and the assumptions made, a summary (exhibit SLH20) showed a total of 67.24 per cent of the value of creditors would have voted in favour of the resolution with 14 and 21 creditors voting against the resolution. Hence, the trustee notes:-
“Even if Australian Shell Company, Malcolm Hall, MAS Investments, VWE and Konstruct were not admitted to vote at all, a majority in number of the creditors would oppose the resolution.”
In his affidavit the trustee states the following:-
“25.Upon my analysis, therefore, the only purpose to the benefit of the Applicant in adjourning the meeting would have been for me to investigate and admit the related party creditors for their full claimed debts. However, on my analysis, even if so admitted, the proposal would have failed. Therefore, it was not in the interest of creditors to adjourn the meeting.”
The meeting of creditors was held on 28 January 2005 commencing at 2.30 pm. The minutes of that meeting verified as being true and correct by both the trustee and Mr Robinson (exhibit SLH21), set out the following:-
“SPECIAL
RESOLUTION - It was Proposed that ‘the proposed Personal Insolvency Agreement be adopted’.
AGREEMENT:
Proposed: Emmanuel Sfendourakis
(Agora Group Pty Ltd)
Seconded: Kim Moutidis
For: $61,288 (7)
Against: $232,503.05 (12)
The proposed Personal Insolvency Agreement was rejected.”
Whilst the trustee accepts and acknowledges that he had the right to adjourn the meeting but elected not to exercise that right, he claims to have done so for reasons fully set out and which I accept in his affidavit. He also notes that none of the creditors in attendance at the meeting requested the meeting be adjourned and neither did the Debtor nor his solicitor request an adjournment of the meeting. In his affidavit he states the following:-
“32.… I elected not to adjourn the meeting because
(a) there was no request by any creditor or the Applicant to adjourn the meeting;
(b)some of the creditors and the Applicant had indicated their desire that the meeting not be adjourned; and
(c)my analysis of the likely outcome of a meeting suggested that an adjournment would not alter the outcome of a vote on the Applicant's proposal.”
The trustee notes that in the first O'Haire affidavit, exhibit "DOH4", is a true record of the creditors who voted on the applicant's proposal and the amount for which they are admitted to vote and the manner in which they exercise the vote and goes on to state the following:-
“34I believe that the failure to adjourn the meeting did not prejudice to the Applicant, because even if the claim set out in O'Haire's First Affidavit were established, then a majority in number of creditors would in any event have voted against the proposal.”
Relevant legislation
As stated earlier that the application, relying as it does on s.104, is misconceived. I accept that section relating as it does to an appeal against a decision of a trustee in respect of proof of debt is not relevant for the present purposes. I further accept that in relation to the court's power to review a decision of a trustee presiding over the vote of creditors on a proposal under Part X of the Act, that the court has a discretionary power to review the trustee's decision to exclude a party from the vote by reason of ss.27, 30 and 178 of the Act (see Dingle & Cockerill, Re; Westpac Banking Corporation v Worrell (1993) 47 FCR 478; (1993) 119 ALR 265) (“Dingle”). There is no express power of review of a decision of a trustee in these circumstances. As
I understood it, the debtor's representative conceded that the reliance upon s.104 was therefore misconceived and chose to pursue the review based upon the provisions to which I have referred. The relevant provision which deals with the rights of creditors to vote at meetings is found in s.64ZA(8) of the Act. That provides that the Trustee may determine any question that arises as to the entitlement of a person to vote. Section 64ZA further provides that each creditor is entitled to vote and has one vote. It is significant to note in the present case that no proofs of debt were called for or indeed lodged and hence clearly s.104 of the Act cannot apply.
Hence, the relevant legislative provisions include the following:-
“Section 5
special resolution means a resolution passed by a majority in number and at least three-fourths in value of the creditors present personally, by telephone, by attorney or by proxy at a meeting of creditors and voting on the resolution.
Section 27
Bankruptcy courts
(1) The Federal Court and the Federal Magistrates Court have concurrent jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts other than the jurisdiction of the High Court under section 75 of the Constitution.
Section 30
General powers of Courts in bankruptcy
(1) The Court:
(a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and
(b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.
(2) The Court may direct such inquiries to be made and accounts to be taken for the purposes of any proceeding before the Court as the Court considers necessary and may, when directing an account to be taken, or subsequently, give special directions as to the manner in which the account is to be taken or vouched.
(3) If in a proceeding before the Federal Court under this Act a question of fact arises that a party desires to have tried before a jury, the Federal Court may, if it thinks fit, direct the trial of that question to be had before a jury, and the trial may be had accordingly in the same manner as if it were the trial of an issue of fact in an action.
(5) Where:
(a) a bankrupt, a debtor or any other person has failed to comply with an order or direction of a Registrar, or with a direction or requirement of an Official Receiver or trustee, under this Act; or
(b) a trustee has failed to comply with an order, direction or requirement of a Registrar, or with a requirement or request of the Inspector-General, under this Act;
the Court may, on the application of the Registrar, Official Receiver, trustee or Inspector-General, as the case requires:
(c) order the person who has failed to comply with the order, direction, requirement or request, as the case may be, to comply with it; or
(d) if it thinks fit, make an immediate order for the committal to prison of that person.
(6) The power conferred on the Court by subsection (5) is in addition to, and not in substitution for, any other right or remedy in respect of the failure to comply with the order, direction, requirement or request, as the case may be.
Section 52
Proceedings and order on creditor's petition
(1) At the hearing of a creditor's petition, the Court shall require proof of:
(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b )service of the petition; and
(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
(1A) If the Court makes a sequestration order, the creditor who obtained the order must give a copy of it to the Official Receiver for the District in which the order was made.
(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;it may dismiss the petition.
(3) The Court may, if it thinks fit, upon such terms and conditions as it thinks proper, stay all proceedings under a sequestration order for a period not exceeding 21 days.
(4) A creditor's petition lapses at the expiration of:
(a) subject to paragraph (b), the period of 12 months commencing on the date of presentation of the petition; or
(b) if the Court makes an order under subsection (5) in relation to the petition—the period fixed by the order;
unless, before the expiration of whichever of those periods is applicable, a sequestration order is made on the petition or the petition is dismissed or withdrawn.
(5) The Court may, at any time before the expiration of the period of 12 months commencing on the date of presentation of a creditor's petition, if it considers it just and equitable to do so, upon such terms and conditions as it thinks fit, order that the period at the expiration of which the petition will lapse be such period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order.
Section 64ZA
(1)This section applies to voting:
(a) at an election under section 64P of a person to preside at a meeting; and
(b) on any motion proposed at a meeting or an amendment proposed to such a motion.
(2) In this section:
creditor means a creditor who, or whose proxy or attorney, participates in the meeting in person or by telephone.
(3) A person other than a creditor is not entitled to vote.
(4) Subject to subsections (5) and (6), each creditor is entitled to vote and has one vote.
(5) If a creditor is a secured creditor, the creditor is not entitled to vote unless the debt, or the total amount of the debts, owed to the creditor exceeds the amount estimated by the creditor in the statement given to the trustee under section 64D to be the value of the security.
(6) A creditor who has failed to give to the trustee a statement in accordance with section 64D is not entitled to vote.
(7) A creditor is not disqualified from voting merely because the creditor is the President or the minutes secretary.
(8) The trustee may determine any question that arises as to the entitlement of a person to vote.
(9) If the trustee needs a period in which to determine a question referred to in subsection (8), the meeting is to be adjourned to such time, date and place as the meeting resolves, being a date not later than 14 days after the date of the original meeting, for the purpose of enabling the trustee to determine the question.
Section 82(4)
The trustee shall make an estimate of the value of a debt or liability provable in the bankruptcy which, by reason of its being subject to a contingency, or for any other reason, does not bear a certain value.
Section 84(3)
Where the trustee is of the opinion that it is desirable that all the matters, or some of the matters, contained in a proof of debt lodged with him or her by a creditor should be verified by statutory declaration, the trustee may serve on the creditor a written notice informing the creditor that he or she is of that opinion and that, unless the creditor lodges with the trustee a statutory declaration verifying the matters contained in the proof of the debt or such of those matters as the trustee specifies in the notice, the trustee will administer the estate as if the proof of debt had not been lodged.
Section 178
Appeal to Court against trustee's decision etc.
(1) If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.
(2) The application must be made not later than 60 days after the day on which the person became aware of the trustee's act, omission or decision.
Subsection 188(4)
Subject to subsection 192(1), a debtor cannot give an authority within 6 months of giving another authority, unless the Court grants leave to do so.
Section 196
Procedure for calling and holding meeting
Division 5 of Part IV applies, with any modifications prescribed by the regulations, in relation to a meeting called under an authority under section 188 as if:
(a) the debtor who signed the authority were bankrupt; and
(b) the controlling trustee were the trustee in the bankruptcy.”
In considering the power of the court, I accept and apply the Full Court of the Federal Court decision in Dingle referred to earlier where in that case the court states the following:
“18.…. the powers conferred by s.30(1) and s.178 are discretionary. It should not be thought that the Court will always intervene. We adopt, and apply to s.64ZA, what Lockhart J said in Forshaw v Thompson at 342 about a Part X meeting:
‘I respectfully agree with his Honour that it is generally undesirable that there be undue delay in the convening and holding of meetings of creditors under Pt X; and that, if there is to be a composition or arrangement or assignment of the debtor's property under Pt X, the necessary steps must be taken to bring that result about as quickly as possible. Hence it is a fairly rare case, in my opinion, in which the court would exercise the power which it has under s.30 and intervene to determine whether a creditor is in truth a creditor or whether his debt is contingent or otherwise with respect to his entitlement to vote at meetings under Pt X."
19. We think that the Court should be equally reluctant to intervene in cases where the vote has already been taken. Section 64ZA(8) commits to the trustee the question whether a person is entitled to vote. Finality is important. Where the complaint is that a person has been erroneously excluded from voting, we agree with Drummond J that the Court should at least insist upon proof that the excluded person is in fact a creditor and that his or her vote would have affected the fate of the proposal.”
I further accept as a matter of law that a chairman of a meeting under Part X is required to make an estimate of the value of unliquidated, contingent or unascertained debts provided they would otherwise be provable in a bankruptcy (see s.82(4)).
The chairman is required to make what is described in the context of voting provisions under the Corporations Act and Corporations Regulations a "just estimate" of the value of creditors' claims to vote, which may in some circumstances be nil or a nominal value, as in the present case of $1.00 (see Selim v McGrath BC200306113 (2003) NSWSC 927).
Submissions
Debtor’s Submissions
The Debtor in support of declarations concerning the alleged errors made by the trustee in admitting the creditor’s claims for the sum of $1.00 or in the case of Cervantes $154,251.71 made specific submissions in relation to each of those creditors.
The Australian Shell Company debt was criticised on the basis that further enquiries should have been made though it was noted there is insufficient time. Perhaps it should further be noted that in the present case where the Debtor has taken advantage of the new provision in the Act namely s.189AAA that all parties would no doubt be conscious of the fact that if the meeting had been adjourned then sub-s.189AAA(1)(d) would operate so that the petition otherwise stayed would then be enlivened. In any event the criticism of this creditor’s claim and conclusions drawn by the Trustee arose out of the conclusion by the Trustee that the claim against the Debtor was a contingent claim and it was not possible to assess the value of the claim. As
I understand the Debtor’s submission, he had asserted that this is a duplication of a claim made by Mr Malcolm Hall and the Trustee concludes that there is “no indication this claim is a duplication of the claim lodged by Australian Shell Company Pty Ltd”.
The Debtor’s representative referred to s.84 of the Act and claimed that that section had not been followed. It was conceded that the requirement to provide a notice under s.84(3) was not obligatory though in this case should have been prepared. That notice under the sub-section is simply a notice on a creditor in circumstances that the trustee is of the opinion that it is desirable on all matters or some matters containing the proof of debt be verified by statutory declaration. Otherwise similar criticisms were raised in relation to VWE and Konstruct which were admitted for $1.00. In relation to Cervantes, as I understand the argument for the Debtor, it was claimed that there was no supporting material at all to lead the Trustee to conclude that the debt was in the sum of $154,261.71 being an amount greater than the amount referred to in the creditors petition.
It was argued that the allowance of $1.00 for each of the related party creditors was not a proper exercise of the discretion of the Trustee who had available to him the opportunity to provide a notice under s.84 and power to adjourn the meeting. It was argued the meeting should have been adjourned. Specifically it was claimed that the Trustee has simply thrown his “hands up in the air” and gave “every one a dollar to vote with”. It was argued that this did not reflect the affairs of the Debtor. It was further argued that irrespective of what the parties indicated in relation to an adjournment, the Trustee had the power to adjourn the meeting and should have done so. A further argument was sought to be raised that the Trustee in making the assessment on the day of the meeting should have pursued the prospect that there were other creditors who may have been available apart from those who attended the meeting.
On behalf of the Debtor some emphasis was placed upon other possibilities presumably open to the Trustee upon adjournment which may have resulted in values apportioned to creditors of amounts either greater than $1.00 or nil. For example it was speculated that a significant finding may be made in favour of a related creditor Kim Moutidis. It was claimed that the Court has a role in adjudicating the debts rather than simply assessing whether the Trustee was correct. The basic complaint of the Debtor however was that the Trustee did not go through the steps available to him and make a “reasoned and balanced judgment in relation to the value of the debts and for how much they should be admitted to vote for at the meeting.”
Creditors submissions
Counsel for the Trustee after dealing with the relevant legislation and noting the general supervisory powers of the Court under ss.27, 30 and 178 of the Act which permit the Court to consider a decision by a Trustee under s.64ZA as to the entitlement to vote submitted that the analysis of the Trustee should not be challenged and even if it were challenged the outcome for the proposal would not alter. The affidavit of the Trustee sets out in great detail the information available for the consideration of the Trustee and that is the only real evidence before the Court as to the existence or otherwise of the debts. It was argued that the Debtor has not put any other substantial evidence before the Court to demonstrate that the creditors he claims to be creditors are in fact creditors in a particular amount and nor has he put any other evidence before the Court to suggest why creditors he claims should not have been admitted should in fact have been considered creditors of the Applicant at all. It was submitted that the Trustee has set out the reasons for the exercise of his discretion in not electing to adjourn the matter namely that the creditors were not in favour of the adjournment and nor indeed was the debtor in favour of an adjournment and in any event an analysis of the numbers showed that it would not make a difference. It was submitted that it is a proper exercise of the Trustee’s jurisdiction not to adjourn the meeting and that the information set out in his affidavit provides the basis upon which he determined that creditors were or were not creditors to the best of his knowledge on the information before him and were or were not entitled to vote in various amounts.
Reliance was placed upon the extract from the Full Court decision of Dingle referred to earlier in this judgment.
On behalf of the Creditors Blackstone and VWE the Debtor’s application was opposed. Reliance was placed upon the extracts from the decision in the Dingle case referred to earlier in this judgment.
It was specifically submitted that the Chairman of the meeting under Part X is required to make an assessment of the value of unliquidated, contingent or unascertained debts provided that they would otherwise be provable in a bankruptcy (See s.82(4) of the Act).
It was argued and I accept as stated earlier that the Chairman is required to make what is described as a “just estimate” of the value of a creditor’s claim to vote which in some circumstances may be nil or of a nominal value of $1.00 (see Selim v McGrath BC200306113 (2003) NSWSC 927).
Counsel referred to the principles to be applied when considering leave which may be granted under s.188(4) of the Act which restricts the Debtor from giving an authority within six months of giving another authority. The intention of that provision was to limit a Debtor in giving successive authorities under s.188 of the Act (see Hooper vEwins (1997) 79 FCR 389). Reference was made to the decision in the matter of Roberts (1998) 218 FCA (Unreported 3 March 1998) where Emmett J held:-
“Section 188(4) is designed to prevent a debtor from frustrating the enforcement of debts by creditors by continually renewing authority under s.188 so as to place control of his or her property in the hands of the trustee”.
In the present case it was argued the Court should refuse the Debtor’s application to review the Trustee’s decision on entitlement to vote for the following reasons:
·The Debtor has not demonstrated that the vote sought to be challenged would have affected the fate of the proposal.
·If the votes of Australian Shell Company, VWE, Konstruct and Cervantes had not been allowed the resolution would not have achieved a majority in number of votes (seven votes for, eight votes against).
·In respect of the Debtor’s contention that certain creditors ought to have been allowed to vote for more than they were, the Debtor has not adduced any proof that the excluded persons were in fact creditors for the amounts they claim.
·Both the Debtor and the Creditors indicated that they did not want the meeting to be adjourned and for the Trustee to deal with claims to vote on the material before him. The Debtor ought to be bound by that course.
·The Debtor would appear to concede that the Trustee sought further information in relation to the claims of related creditors but this was not provided.
·The circumstances deposed to in the Trustee’s affidavit justify him in taking the course that he did which was to deal with the claims of creditors in a practical manner and having regard to the summary nature of the task given to him.
It was submitted that the Debtor had not otherwise discharged a burden of proving that Creditors allowed to vote should not have been in fact allowed to vote or that the values attributed were inappropriate. Failure to either give evidence himself or provide evidence in support of the Debtor’s claim should lead the Court to the conclusion that that evidence would not have assisted the Debtor’s case. After analysing the voting both in terms of the number of votes and the values attributed to the votes, it was submitted and I accept that on any assessment the resolution concerning the proposal would have failed even if some allowance was made for the related party creditors. In the alternative in any event on the material then available before the Trustee he has according to the submissions done the best job that he could in the circumstances.
In relation to whether the Debtor should be given a fresh authority under s.188 of the Act, it was submitted by Counsel as follows:-
·The Debtor had already attempted to use the provisions of Part X of the Act on two occasions without success.
·The Debtor has not adduced any evidence to show that a different outcome would be achieved if a further meeting were called.
·The Debtor committed an act of bankruptcy in August 2004.
·A Creditors Petition has been on foot since August 2004 and adjourned on numerous occasions.
·The Debtor’s conduct in relation to the Creditors Petition has been characterised by last minute adjournment applications.
·The Debtor’s conduct in relation to the Creditors Petition has been characterised by last minute adjournment applications and resort to the use of provisions of Part X of the Act.
·The creditors of the Debtor have been substantially prejudiced by the Debtor’s manoeuvrings to avoid bankruptcy and would be further prejudiced if the Applicant were allowed to give a fresh authority.
·It is appropriate that the Debtor’s affairs be dealt with by a Trustee in bankruptcy and investigated as soon as possible.
On behalf of the creditors in general it was submitted that the Debtor’s application should be dismissed with costs and the Court should proceed to make a sequestration order on the Creditor’s Petition.
Reasoning
In my view this Court in the exercise of the discretion should be extremely careful in reviewing the conduct of the Trustee. Whilst
I am satisfied that there is a residual supervisory power available to the Court pursuant to ss.27, 30 and 178 of the Act that power is discretionary. This Court should be reluctant to intervene in cases where a vote has already been taken. I accept the submissions made on behalf of the trustee and creditors that in this instance it is essential that at the very least the Court should insist upon proper proof of the matters now sought to be advanced for and on behalf of the Debtor.
On the material before me I do not detect any error in the decision made by the Trustee which would encourage this Court to exercise its discretion to intervene in the determination of voting at the meeting. The Trustee was entitled to make an assessment on the best evidence then available and it is not sufficient in my view for a Debtor, particularly having regard to the chronology of events in this case, to simply assert in general terms that the exercise of the Trustee’s power was so erroneous as to attract the intervention of the Court in the exercise of its discretion pursuant to its supervisory powers under the Act.
Although the Court is not limited to the material before the Trustee in determining whether a person is entitled to a vote as a creditor, it is required to act on the material before it according to the authorities to which reference has been made earlier in this decision. However, on the material before me I accept the evidence of the Trustee and Mr Robinson and further accept submissions made for and on behalf of the Trustee that in any event on my assessment of the material before me the outcome of the meeting would not be any different.
As to the issue of whether or not the meeting should have been adjourned, in my view it is clearly open to the Trustee to act upon not only his own assessment of the possible outcome in relation to the proposal before the meeting if the matter were to be adjourned but also to take into account and act upon the views then expressed by both the Debtor and the Creditors that an adjournment was not appropriate.
I see no error in the decision of the Trustee in failing to elect to adjourn the meeting.
In relation to the leave sought by the Applicant to provide a fresh authority under s.188 of the Act, it is my view that in this instance the submissions made by Counsel for and on behalf of Blackstone and VWE are correct. It would be artificial for the Court not to have regard to the chronology of events including what I would regard as ‘eleventh hour’ attempts by the Debtor to delay what now might be regarded as the inevitable consequences of the Creditors Petition.
The Debtor has at the very least made use of the opportunity to effectively require a meeting to be held before a sequestration order is made and by use of s.189AAA has managed to stay the Creditors Petition. The opportunity has now been given to the Debtor to put a proposal to a Creditors meeting convened under authority and the proposal has failed to meet with the approval of the creditors. For reasons given earlier I am satisfied on the evidence before me that the Trustee’s assessment of the voting was correct and in the circumstances I am not inclined to exercise my discretion to interfere with the outcome in relation to that assessment. The opportunity having presented itself to the Debtor, both at the meeting and indeed before this Court to provide further material in my view leads to the conclusion that to grant an application for leave to provide a fresh authority would be an inappropriate exercise of the Court’s discretion.
As indicated earlier, I otherwise accept that the chronology of events and the issues raised for and on behalf of the Creditors, Blackstone and VWE are correct. I am satisfied that a proper analysis of the chronology of events demonstrates what could be described as an attempt by the Debtor to delay the process and in doing so I am satisfied that any further delay would be prejudicial to creditors.
I accept that it is appropriate in the circumstances that the Debtor’s affairs now be dealt with by a Trustee in Bankruptcy.
Accordingly it follows that in Application MLG197/2005 the appropriate orders are as follows:
(1)The Application be dismissed.
(2)The Applicant (Debtor) pay the Respondent’s (Trustee) costs.
Application MLG1122/2004 – Creditor’s petition
It was made clear during the course of the hearing that should the Debtor’s application be dismissed that the Court should proceed to consider the petition and no formal objections were taken to proofs required in order to proceed to a sequestration order.
I am satisfied that the requirements of s.52 of the Act have been complied with by the Petitioning Creditor and having regard to the chronology of events and in particular the authority executed to require the Trustee to conduct the meeting referred to earlier in this judgment, that that meeting having been properly conducted and the proposal rejected, it is appropriate that the Court proceeds to make a sequestration order based upon the affidavit material filed by the Petitioning Creditor in this Court.
I can see no basis upon which the Court should resist and/or refuse to make a sequestration order. Accordingly the following orders are appropriate:-
(1)A sequestration order be made against the estate of Elias Moutidis.
(2)The Applicant’s and Supporting Creditors costs be taxed in accordance with the Federal Court Rules and be paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.
I certify that the preceding fifty-four (54) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 3 May 2005
12
2
0