Chiragakis, J.E. v Deputy Commissioner of Taxation

CATCHWORDS

Bankruptcy - Deed of arrangement

- Applicatlon to termlnate

deed or declare It void - Whether meeting of creditors called

in accordance with statutory requirements

Whether major

creditor given notice of meetinq of creditors

- Sufficiency of

minutes of meeting

of creditors -

"hether material particular

omitted from statement of affalrs

- Whether Court satisfied

that deed cannot be proceeded

mth without inlustice

to the

creditors - "hether for "any other reason" the deeO ought to be

terminated.

Eankruptcv Act

1966. s s . 2 2 2 ,

236

JOHN EMMANUEL CHIRAGAKA v .	W T Y COMMISSIONER OF TAXATION
No. NSW 303 of 1985'X

Meaves

J .

5 February 1986

Canberra

Counsel for the applicant

Mr C. Darvall. Q.C.

and Mr P. Urquhart

Sollcitor for the applicant

Australian Government Solicitor

Counsel for the debtor

I .B .

Ward. Q.C.

and Mr S.L. Walmsley

Solicitors for the debtor

Elrinqtons

Date of hearinq

19 December 1985

/n-

IN THE FEDERAL COURT OF AUSTRALIA

) )

DIVISION

GENERAL

)

BANKRUPTCY DISTRICT OF THE STATE

)	No. NSW 303 of 1985X

)

OF NE55 SOUTH	WALES	AND	THE	)
)

AUSTRALIAN

CAPITAL

TERRITORY

)

Re :	JOHN	EMMANUEL	CHIRAGAKIS
A Debtor

Ex parte:	DEPIJTY COMMISSIONER OF
T-MATION

A Credltor

MLNTJTE OF ORDER

JUDGE MAKING ORDER : Neaves J.

DATE OF ORDER	: 5 February 1986
WHERE MADE	: Canberra
THE COURT:

1. Orders

that

the

deed

of arrangement

executed by

John Ernmanuel Chiragakls, the debtor, on	23 October
1985 is terminated.

2.	Makes a sequestration order against the estate	of
the debtor.

3 .

Declares

that

Richard

Campbell

Erien.

reqlstered trustee, is the trustee	of the estate of
the debtor.

4. Orders

that

the

costs

of the

applicant of and

incidental to the application be taxed and paid out

of the estate

the debtor

as if they were the

costs of a petltioning creditor.

m e : Settlement and entry	of	orders is dealt with in rule	124
of the Bankruptcy Rules.

'l'

IN THE FEDERAL COURT OF AUSTRALIA

) )

DIVISION	GENERAL	) )
BANKRUPTCY DISTRICT OF THE STATE	) No. NSW 303 of 1985X )
OF NEW SOUTH WALES AND THE	)
)

AUSTRALIAN

CAPITAL

TERRITORY

)

Re :	JOHN	EMMANUEL	CHIRAGAKIS
A Debtor

Ex parte:

DEPUTY

COMMISSIONER OF

TAXATION

A Creditor

m:	Neaves J.
m:	5 February 1986

REASONS FOR JUDGMENT

The Deputy Commissioner

of Taxation ("the applicant").

a creditor of John Emmanuel Chiragakls ("the debtor"). has agplled to the Court for an order that a deed of arrangement executed by the debtor on 23 October 1985 pursuant to Part X of

the Bankruptcv Act

1966 (Cth) ("the Act")

be declared void

under s.222

of the Act or be terminated under s.236 thereof.

The applicant also seeks a summary sequestration order against

the

state

of the

debtor

pursuant

sub-s.222L7)

sub-s.236(3), as the case may be.

2 .

The grounds of the application

are -

that there is

a doubt whether the deed

arrangement

was

entered

Into

accordance with Part

X or complies with

requirements

the

tha

Part

(sub-s.222(1)):

that the Court should be satisfied that the debtor omltted a material particular from the statement of his affairs under

s.195 (sub.s.?22(41(b));

that the deed of arrangement cannot be proceeded wlth wlthout injustice to the creditors (sub-s.236(l)(b));

that there are "other

reasons"

within

the

meaning

that

expression in

sub-~.236(1)(~) why

the

d ed

arrangement ouqht to be

terminated.

The deed of arrangement was executed in the followinq

circumstances. On

18 September 1985 the debtor, pursuant to ,

s.188 of the Act. signed

an authority authorising Mr Brian

Henry Kahlefeldt, a registered trustee, to call

meeting of

his credltors for the purposes of Part

X of the Act and to take

over

control of his property.

23 September 1985 Mr

Kahlefeldt

consented.

writing,

exercise

the

powers

conferred by the authorlty. Pursuant thereto. arrangements

were made for the holding on 16 October 1985 of

a meeting of

the debtor's creditors.

wlll be necessary to consider In

some detail the arrangements that were in fact made as one of

the contentions of the applicant

that no notice

of the

meeting

was

received.

However,

it is

convenient

defer

consideration of that subject until later in these reasons.

On 16 October 1985 the

debtor

made

a statutory

declaration in accordance wlth Form 35 in Schedule 1 to the Bankruptcy Rules verifying an annexed statement of affairs in

accordance wlth Form 11.

The debtor declared that the annexed

statement of

affairs contained. to the best

h1s knowledge

and belief, a true and complete statement of his affairs as at

1 6 October 1985.

The statement disclosed an amount of $489,882

owing to four unsecured credltors and assets wlth an estimated

value of

$20,946 resulting in

a deficiency of $468,936.

The

assets disclosed consisted of cash at bank

( $ 7 2 0 ) .

household

furniture and effects situated at 11

Torres Street. Red Hill,

A.C.T. ($13,000) and a share in E.E. Goldtraders Partnership

($7,226).

The creditors dlsclosed, and the amounts

of their ,

respective debts. were:

Deputy Commissioner of Taxation

tax)

(income

$437,139.00

Elringtons (professional services)

1,513.80

Plaza Clinic Pty. Limited	(Loan)	50,505.00
Rolfe. Hall and Hollands

(professional services)

725.00

$489,882.80

The amount shown as

due to the Deputy Commissioner of Taxation

was described as an estimate only. There is, however, evidence

before the Court that on

1 8

September 1985

the debtor was

indebted

to the Commissioner

of Taxation

the

sum of

$459.658.85

and there

1s no evldence of any payments having

been made by

the debtor between that date and 16 October

1985.

The meetmu

of creditors took place at

12 noon on 16

October 1985.

Those present were the debtor,

Mr Kahlefeldt. Mr

T.M. Clarke of the firm of Elringtons, Solicitors,

Mr G.G.A.

Hollands of the firm of Rolfe, Hall and Hollands, Accountants,

and Mrs Louise Chlraqakis, the wlfe

the debtor.

Bccordmg

to the attendance sheet attached

to the minutes of the meeting

Mr Clarke was present

"in person and proxy for partners" of

Elringtons, Mr

Hollands was present

"In person and proxy for

partners" of

Rolfe, Hall and Hollands and Mrs Chiraqakis was

present "in person and by proxy

for" Plaza Clinic Pty. Limlted.

Again, according

to the minutes, resolutions in the following

terms were moved by

Mr Clarke, seconded by

Hollands, and

carried -

"That the debtor be required

to enter into

a Deed of

Arrangement identical to the

precedent presented to

the meeting wlth clause (b) to read:

'the debtor

further agrees that over a period of three years he

will pay to the Trustee the sum of $30,000 (thirty annual instalments of $lO,OCO (ten thousand dollars) on the 16th October 1986, 16th October 1987 and 16th

thousand

dollars)

such sum to be paid by

three

October 1988

except that the debtor shall have the

right to accelerate the rate

of such payments."

"That Brian Henry Kahlefeldt be appointed Trustee of

the Deed of Arrangement and

his remuneration be

fixed in respect

of himself and

his employees at the

hourly rates applicable

grades

classifications set out in the scale

of fees issued

from time to time by the Insolvency Practitioners

Association of Australia

plus

o t-of-pocket

expenses.

"That the remuneration of the Controlling Trustee be

fixed in respect of himself and his employees

at the

hourly

rates

applicable

grades

classifications set out in the scale of fees issued

from tlme to tlme by the Insolvency Practitloners

Association

Australia

plus

o t-of-pocket

expenses.

"Pursuant to the provisions of Section 116(2)(b) of

the Bankruptcy Act the divisible property of the

debtor shall not include the following three Icons:-

i) One Madonna Kazan

ii)	One Russian St Nlcholas

iil) One Greek Cosmos & Damien."

Neither the resolutions set out above

document

referred

m the

first

the

as	a precedent nor a copy thereof 1 s

in evidence,

The minutes do not record who voted in favour of

each of the resolutions.

23 October 1985 the debtor executed

a deed of

arrangement in the following terms

"THIS DEED made the 23rd day of October One thousand

nine hundred and elghty five in pursuance of Part

the

Bankruptcy

Act

1966 BETJEEN

John

Chiragakis of 11 Torres Street, Red Hill in

the

Australian Capital Territy Csicl (hereinafter called 'the Debtor') of the one part and Brim Henry

Kahlefeldt

the

State

New

South

Wales

Registered Trustee of the other part (hereinafter called 'the Trustee'):

WITNESSETH that -

(a)

the debtor conveys

and assigns to the

Trustee

all

his

divlsible

property

within the meaning of Part X of the Bankruptcy Act 1966 UPON TRUST to deal

with the same in accordance with Part

of that

Act

for the benefit of the

I '

creditors of the Debtor and

as to any

surplus after paying in

full the several

debts

and

liabilities

the

Debtor

proved under this Deed together

with the

costs

charges

and

expenses

incidental to the

execution

the

trusts

this Deed

(including the

remuneration

a d

expenses

the

Trustee) UPON

TRUST for the Debtor his

executors adminlstrators or assigns;

the Debtor further agrees that over

period of three years

he will pay to the

Trustee

the

sum

$30,000 (thirty

thousand dollars) such sum to be paid by

three annual Instalments of

$10,000 (ten

thousand dollars) on the 16th October

1986, 16th October 1987 and

16th October

1988 except that the debtor shall

have

the right to accelerate the rate of such

payments :

upon fulfilment

of the provisions of

this deed the debtor is to be released

from all his debts;

this deed is binding

on the credltors in

accordance

wlth

Section

233 of the

Bankruptcy Act;

this

deed is to

terminate

upon

the

fulfilment

of Its provislons

the

debtor

and

the

distrlbution

accordance with the Bankruptcy

Act, by

the

Trustee.

all funds

collected

pursuant to this deed:

the Trustee accepts appointment as trustee of this Deed and the conveyance and assignment of the said property upon

the trusts herembefore set out."

The deed was executed by Mr Kahlefeldt

on 31 October 1985.

Against that general background it is convenient to

turn to the first

of the grounds upon which the applicant

relies, that based on sub-s.222(1) of the Act.

The essence of

the applicant's argument under this ground is

that the meeting

of the debtor's creditors

was not called in accordance

with the

requirements of s.194 in that the applicant	was not given
notice of the meeting.

Having consented to exercise the powers conferred by

the authorlty under 5.188 slgned by the

debtor, Mr Kahlefeldt

was obliged to "proceed

to call

a meeting of the debtor's

creditors In accordance wlth" Dlvlsion

2 of Part X of the Act

(sub-s.190(1)). Sub-section 19412) provides:

"The controlling trustee

or solicitor callrng the

meeting shall give to each person who

is stated by

the debtor to be a

creditor and whose business or

residential

address

is known

to the trustee or

solicitor notice of

the meeting by dellverlng or

sending

post to

that person a notice

accordance with the prescrlbed form."

The prescribed form is set out as Form 34 in Schedule 1 to the

Bankruptcy Rules.

Sub-section 194(3) provides:

""he controlling trustee or solicitor shall also

cause notice of the calling of the meetlng to

publlshed, not less than

7 days before the meeting

is held, in a newspaper circulating In the locality

in which the meeting is to be held and in such other

manner (if any) as is prescribed."

. .

1 -

No other manner has, in fact, been prescribed.

In hls

affidavit

sworn

13 December

1985

Kahlefeldt

states

that

on 25 September

1985

signed

correspondence and documents concernlng the proposed meetlng.

The correspondence comprised

a letter to Elringtons confirming

the booking of

a room for the meetlnq, a

letter to the editor

of the "Sydney Mornlng

Herald" newspaper setting out the text

of an advertisement with a request for publication,

a letter to

the editor of the Australian Government Gazette

with a similar

request, a

letter to the debtor enclosing a

notice requiring

him to attend the meeting and circular letters addressed "Dear

SirIMadam" reading as follows:

"Re: Dr John Chiraqakis

Attached

hereto,

respect

the

meetlng

creditors

the

abovementioned

debtor,

are

the

following:-

1. Notlce

meeting

of creditors

(Form

34).

2 . Proof of Debt (Form 15).

3 . Appointment of Proxy (Form 4 3 ) .

Should you wish to contact this office in reference

to this matter please

ask for

Mr Michael Jones."

The documents signed were the notice to the debtor requiring him to attend the meeting and forms of notice in accordance

with Form

34.

far as

appears from the evidence the forms of

notice in accordance with Form

34 were not.

their face.

addressed to any person.

Nor were

the circular letters under

cover of which those notlces were to be sent.

The notice

of the calling of the meeting appeared in

the issue of the "Sydney Morning Herald" published

on 4 October

1985 but,

as appears from the affidavit of Lloyd Neil Masters

sworn 21 November	1985, that notice, through inadvertence, was
not seen by him	as the officer of the Australian Taxation

Offlce charged with the duty of checking for such notlces.

The

notice was not, apparently, drawn to attention	by	any other
means.

It may

also be mentioned that publication of the

notice, the text of which accompanled the appropriate letter , signed on 25 September 1985, did not appear in the Commonwealth

of Australia Gazette until the issue thereof dated

15 October

1985 which was, in fact, not published until

17 October 1985.

the day after the meeting was held.

This, however, appears to

be of no significance as there I s no requirement that notice of

a meeting of creditors called pursuant to Part	X of the Act be
published in the Gazette.

Evidence

was

adduced

behalf

of the

debtor

establish

that

one

the

circular

letters,

with

its

10.

attachments, was sent

post to the applicant. That evidence

is contained in the

idavits of Maree Ann Reardon sworn 13

and 18 December 1985

the affldavlt of Jennifer Maree Durham

sworn 18 December 19 Both deponents are, and were at the relevant time, emplo S of B.H. Kahlefeldt & Co. In her

earlier affidavit Mar

n Reardon states:

"On instructio

om Mr Brian Kahlefeldt I did on

the 26th day gf September, 19R5 enclose

envelope

not4ce to the Deputy Commissioner of

Taxation, Benjagin Offices, Belconnen.

A.C.T..

copy of whlch

ik annexed hereto and marked with the

letter	' B ' . "	-9	1..
:$
2
8

The annexure marked	"A'"	is a copy of the circular letter to
.#

which reference has salready been made and

copy of its

attachments.

Neither'$the copy of the circular letter nor the

jt:,

form of notice

of the $eetlng annexed to the affidavit identify

-^j

any person

the add,$essee.

The affidavlt also states that

the deponent -

...

The deponent further states that she placed the notice in the

mailing drawer on

26 September 1985.

In her affidavit, Jennifer Maree Durham, states

that

on 26

September 1985 she was

the mailing clerk on duty.

The

affidavit continues -

" 3 .

practlce as

maillnq

clerk

collect all mail for posting from

mailing drawer and to frank all mail for

posting on any one day and then to post

the mail through the post office	at
Temora.

4. The mail placed in the malllng drawer on

the 26th September. 1985

was

posted by

me on that day.

5. All envelopes in

which mall is placed

and posted have the address

B.H.

Xahlefeldt

& Co. printed

on the front

for return If unclaimed.

6. I have made a search and the letter has

not been found to have been returned to

the office of

B.H. Kahlefeldt & Co."

The letter referred to in

par.6 is not otherwise identified but

it may be taken that the reference is to the circular letter

and its attachments referred to	in the affidavits of Maree Ann
Reardon.

Evidence was adduced on behalf of the applicant to

establish that no notice of the meeting had been received in

his office

at Belconnen

In the Australian Capital Territory.

LL.

It appears that no written record is made of the receipt of correspondence or documents relating to matters arising under

the Bankruptcy Act 1966.

Such correspondence and documentation

is referred, on receipt, to the Bankruptcy Section of the

office. It is directed to

an officer called the bankruptcy

clerk whose duty it is

to locate the relevant file and deliver

the correspondence or documentation to the officer having

custody and control of that

file or, alternatively, to give the

matter the necessary attention himself. Karenne Lee Holland,

who occupies the office of Assistant Recovery Manager in the

Belconnen Office of the applicant, gave evldence that she had

the custody and control of the relevant file at the time and

that the notice of the meeting, if it had been received, would

have been referred to her.

She said she did not receive the

notice and that

a search of the Belconnen office of the

applicant had failed to discover it.

I	accept the evidence of the witnesses called on

behalf of

the applicant that

no trace can be found of the

notice of

the meeting of the debtor's creditors. However, to

comply with sub-s.194(2) it was only necessary that the notice

be sent by post to the applicant

and, notwithstanding that the

evidence adduced

behalf of the debtor is not entirely

satisfactory in that it does

not clearly establish that the

notice itself, or the envelope in which it was placed, was

addressed

the

Deputy

Commissioner

Taxation

at his

13.

Belconnen address,

I am not prepared to

find

that the notice

was not properly posted so as to comply with the requirements of sub-s.194(2). The fact that the notice was not received by

the applicant

19, however, a matter proper to be taken into

account in considering whether the deed should be terminated

under s.236.

I turn to the

other

grounds

relled

upon

the

applicant but,

order to consider those

grounds, further

factual matters must be stated.

The debtor is

a medical practitioner,

a specialist

obstetrician and gynaecologlst. For some years before the year

of income which commenced on 1 July l080 he carried on a medical practice in his own name and on his own account. The practice was carried on at Phillip in the Australian Capital

Territory

from premises which he leased during the earlier

years from his wife, Louise Chiragakls, and in later years from

a company,

Luristan

Pty.

Limited.

That company

was

incorporated in the Australian Capltal Territory

17 March

1976, Its only shareholders and directors being the debtor and

his wlfe. The debtor, of course,

vacated

the

office

director upon the execution

of the deed

of arrangement by

virtue of the operation of

s.222 of

the Companies

Act 1981

.. (Cth)

14.

The debtor earned substantial

fees

from his practice

and at 30 June 1980 a sum in excess of $285,000 was due and payable by him to the Commissioner of Taxation for Income tax assessed under the Income Tax Assessment Act 1936 in respect of

the financial years ended

June 1975, 1976,

1977, 1978 and

1979. The debtor

had

lodged

objections

against

those

assessments which were subsequently disallowed and, at

the

debtor's request, referred to a Board of Review. The debtor subsequently withdrew the objections and the assessments were confirmed on 12 J u l y 1985.

On	5 June 1980 the debtor travelled to the United

States

America

for

three

weeks

attend a medical

conference and, as he sald, to investigate

mployment

opportunities.

On his return, a situation was brought about in

which the debtor continued to attend to patients but as

a .

salaried employee of

a company called Ardyowan Pty. Limited

(which had its name changed to Plaza Clinic Pty. Limited on

July 1980). Australian

That company

had

been

incorporated

the

Capital

Territory

31 August

1976.

Its

sole

shareholders and directors at 30 June 1980 were the debtor's

wife and Mr T.M. Clarke, a member of the firm of solicitors who at all material times acted for the debtor.

The arrangements involved the execution of

(a)

a deed between Ardgowan Pty. Limited and

Luristan Pty. Limited establishing

the

Clinic Unit Trust; and

15.

(b) a

deed between Timothy Mlchael Clarke

and Luristan Pty. Limited establishing

the T.M. Clarke Settlement,

and the

utilisation

the

Cherry

Trust which had

been

established by a deed dated 15 February 1976, the settlor being

William Coyle and the trustee Luristan Pty. Limited.

Luristan Pty. Limited

is, and was at all relevant

times, the holder of all the issued units (ten) in the Cllnic

Unit Trust. Accordlnq to the evidence

of Mr G.G.A. Hollands.

the company held those units

trustee for the

T.M. Clarke

Settlement. Ardgowan Pty. Limlted

(Plaza Clinlc Pty. Limited)

is the trustee of the Cllnic Unit Trust.

Luristan Pty. Limited

is, and was at all relevant

times, the trustee and the

"nominator" of the T.M.

Clarke *

Settlement. The beneficiaries of that settlement are expressed in the deed to be The Smith Family, The New South Wales State Cancer Council, the Australian Red Cross, the debtor, any

company

of which the debtor is

shareholder, any trust of

which the debtor is a beneficiary and such persons or limited

liability

companies (with some exceptions

which

unnecessary to refer) as the nominator shall appoint. Clause 3 of the deed provides for the application of the income of the

trust and is in the following terms

' l

16.

" 3 .

(a)

stand possessed of the trust fund upon

trust as to the income derived therefrom

Until the vesting date the trustee shall the beneflclaries living or existing at the t m e the of determinatlon heremafter mentioned to the exclusion of the other or others of them and in

such

and

proportlons

as the

trustee in his absolute discretlon shall

at any time during the year determine

and to the intent that any beneficiary

in whose

favour such determination is

made shall

be absolutely and presently

entitled to the

income

allocated to

h m her or it pursuant to

such determination.

(b) In the

event

that

the

trustee

shall

determine prior to the 30th June in any

financial year that the power given by sub-clause (a) of this Clause should not

be exercised in respect

of the income

derived by the trust fund In the then current financial year and that the said

income

should be accumulated then the

trustee shall accumulate the said income and it shall form part of the capital of the trust fund.

(c)

In the event that the trustee shall fail

make

any

the

determinations

referred to In sub-clauses (a) or (b) of this Clause as to the distribution of the income derived from the trust fund

for any year or any part of that income

prior to midnight

on the last day

that year the trustee shall hold that

income or that part thereof

(as the case

may

be)

upon trust for each

the

beneficiaries then living

or exlsting in

equal shares as tenants in common to the

intent that

such beneficiaries shall be

absolutely

and

presently

entitled

thereto.

Luristan Pty. Limited is also given power by the deed to remove

the trustee and appoint

a new trustee (c1.19(a)) and to vary or

amend any of the provlsions of the deed

(~1.25).

17.

Luristan Pty. Limited

is, and was at all relevant

times, also the trustee

of the Cherry Trust.

The debtor is

described as

"the principal" in the relevant trust deed.

The

beneficlaries thereunder are the debtor, his wife and their

three children, Alexandra, Georgina and Timothy. The trustee

may pay

or apply the whole or any part of the income of the

for advancement or benefit of all or such one

towards

the

maintenance,

education,

trust

fund

or	more of the

beneflciaries to the exclusion of the other or others of them

and in

such shares as

the trustee in its absolute discretion

may determine

(~1.2). With the consent

of the principal, the

trustee may

alter, modify or revoke any of

the trusts and

appoint such new trusts in such manner or form

as the trustee

shall in

its absolute discretlon think fit (cl.l6(iii)).

The

principal may require the trustee to resign (c1.17(4)) and may ,

appoint a new trustee (c1.17(4)).

Since 1 July

1980

the

medical

practice

has

been

carried on under

the

business

name

"Plaza

Clinic", that

business name having been registered in the name of Luristan

Pty. Limited on 18 June 1980 and transferred to Ardgowan Pty.

Limited (Plaza Clinic Pty. Limited) on 30 June 1980. The

practice has been carried on from the same premises

a before,

the debtor providing the same medical services and using the

same patients' records as previously.

18.

During each

of the financial years ended 30 June 1981,

1982, 1983 and 1984 the fees resulting

from

the treatment of

patients by the debtor have been treated as

h ving been paid to

Plaza Clinic Pty. Limited as trustee of the Clinic Unit Trust.

Some details of the financial affairs of the Clinic Unlt Trust

in each

of the financial years mentioned

are as follows

Year

nded

June

1981

1982

1983

1984

Fees received

215,892 237,954 276,042 326,141

Other income

3,840 2.012

9,281

Gross income	215,892 241,794 278,054 335,422
Less expenses	121,445 145,060 178,740 185,133

Net income

94,447 96,734 99,314 150,289

In each of the financial years mentioned, the total net income

of the Clinic Unit Trust was distributed to the	T.M.	Clarke
Settlement.

In each

of the financial years ended 30 June 1981 to

30 June 1984 inclusive the amounts received from the Clinic

Unit Trust by the

T.M.

Clarke Settlement were distributed as

follows -

1981

1984

1983

1982

Cherry Trust

94,147

96,433

99,014 150,289

The Smith Family	100	100	100
The New South Wales

Cou il

100

Cancer

100

' Australian

Cross

Red

100

94,447 96,733

99,314

50,289

19.

Some details of the financial affairs of the Cherry

Trust in each

of the financlal years ended 30 June 1981 to 30

June 1984 are as follows

Year

ended

June

1981

982

1984

1983

Amounts received from

T.M. Clarke Settle-

150.28

99,015

96, 34

94,147

ment

Service fees received

from Clinic Unit

39,757

39, 44

35, 40

33,453

Trust

Other Income

4,840

4,639

1,602

Gross income

127,600 135,614 143,198 191,648

Less expenses

26,751 26,868 31,066 41.028

Net income

100,849 108,746 112,132 150,620

each of those years the

net income

the trust was

distributed as

follows.

Year

nded

June

1981

1982

1983

1984

The debtor

10,849

74 7 6

20,000

Louise Chiragakis

10,000

9,000

24,120

Alexandra Chiragakis 30,000

8,000

34,377

35,500

Georuina

Chirauakis 30.000

8,000

34,377

35,500

Timothy

Chiragakis

;OOO 8;OOO 34;377

35,500

100,849

108.746

112,131

150,620

The amounts shown as having been distributed to

the children

have been credited to their respective accounts in the trust

but only

a part thereof has in fact been paid to them or for

their benefit.

The balance sheet of

the Cherry Trust at 31

October 1984 shows as a liability

"Unsecured Loans (Chiragakis Family

except J. Chiragakis)

$249,555"

20.

Thls amount, as Mr Hollands explained, represented the amounts

allocated but not paid over to

the

children. That balance

sheet also shows as an asset

"Unsecured Loans - (Related Parties)

$215,335"

That asset represents moneys lent

back, through the T.M. Clarke

Settlement, to the Clinic Unit Trust.

As at

31 October 1984 the assets of

the Clinic Unit

Trust included unsecured loans to the debtor ($50,554) and his wife ($59,511) totalling $110,065.

It is clear from the recitation of the above facts

that, when the debtor prepared the statement of his affairs	'
under s.195 of the Act on 16 October 1985, he was the owner of one share in Luristan Pty. Limited yet he omitted to disclose his ownership thereof in the statement of affairs. Having

regard to the degree of

control that is accorded to Luristan

Pty. Limited under the deeds establishing the Clinic Unit

Trust, the T.M. Clarke Settlement and the Cherry Trust, there can be no question but that the omission was

material one

though, on the evidence before me, I

accept that the omission

appears to have occurred through inadvertence and not as the

result of a deliberate attempt to mislead.

I am unable to

21.

accept the submission by counsel for the debtor that,

as all

the

persons

who

attended

the

meeting

creditors

- the

debtor's solicitor, his accountant and his wife

were aware

that the debtor owned the share, the omisslon was not materlal.

The ground based on sub-s.Z22(4)(b) of the Act	is, therefore,
established.

In support

his

submission

that the

deed of

arrangement cannot be proceeded with without injustice to the

creditors (sub-s.236(l)(b)) and that there are "other reasons"

why the deed ought to be terminated (sub-s.236(l)(c)), counsel

for the applicant referred to the circumstances in which the

arrangements for the carrying on of the medical practice were

changed at

the end of

the financial year ended 30 June 1980.

He referred

particularly

the

circumstance

that

arrangements involved the creation of the Clinic Unlt Trust and

the T.M. Clarke Settlement at a time when the debtor

was

indebted to the applicant in

a sum in excess of $285,000 and to

the manner in which the fees generated by the medical practlce have been dealt with under the new arrangements, some details of which are set out earlier in these reasons. To proceed with

the deed of arrangement was said to be unjust to the applicant

as the

major

creditor

because

do so would

preclude

proceedings

being

taken

under

sub-s.l21(1)

the

Act

declare the arrangements void on the basis that they involved

disposition

property

with intent to defraud creditors,

proceedings which could be brought by a trustee in bankruptcy

if he were so advised.

.'l'

' - ,

I , , . _

.. .

:...-L,

-. ;

2 2 .

Counsel for the debtor submitted

that

it was

not

sufflcient for the

applicant to suggest the possibility of

proceedings under sub-s.l21(1) of the Act

- the applicant had

to show that there was a real likelihood that such proceedings

would

succeed.

The

facts

put

before

the

Court,

was

submitted, did not provide

sound basis for suggesting that

the arrangements involved

a disposition of property

or that any

disposition Of

property that may

have been involved was made

with Intent to defraud creditors.

I agree that the material before the Court provides

basis upon which to express

opinion upon the question

whether there

is sufficient evidence available to justify the

instltution of proceedings under sub-s.l21(1)

or as

to thelr

likely outcome and it would be improper to

do so. But the

issue in this proceeding

1 s

whether the deed should be set

aside to enable the matter to be pursued. In the light of the matters to which reference has been made, I am satisfied that

a full investigation of all the circumstances

1 s warranted and

that this

can only be done to any effect if the deed

is set

aside and a sequestration order made.

Counsel

for

the

applicant

also

pointed

the

'availability, in the case of bankruptcy,

of the provisions of

sub-s.131(2)

of the Act which empowers the

Court, upon the

23.

application of the trustee, to order that all,

or such part as

the Court thinks

fit, of the income of

a bankrupt be paid to

the

trustee

for

the

benefit

the

bankrupt's

creditors.

Counsel submltted that the Court mlght well take the view

that

the debtor could make a greater contribution to his estate for

the benefit of his creditors than the sum

of $30,000 payable in

three annual instalments on 16 October 1986,

1987 and 1988 as

provided for in c1.3 of the deed of arrangement. It was

also

submltted that, even

it could be said

that there had not

been a disposition

of property with intent to defraud creditors

so as

to attract the operation of

sub-s.lZl(1). it would be

appropriate for the Court,

on the hearing of

an application

under sub-s.131(2),

to have regard to the extent to which the

debtor has benefited, and 1 s likely in the future to benefit, under the trusts to which reference has already been made. He

referred to Lvford v. Levit

(1984) 2 F.C.R. 264.

Counsel for the debtor submitted that there was no

reasonable basis to support the proposition that the Court

would be likely to make

order under sub-s.131(2) requiring

the debtor to make

greater contribution for the benefit of

his creditors than

that

already provided for

in the deed of

arrangement.

I do not agree.

It is sufficient for present

purposes to evidence are such that a trustee in bankruptcy might well take

say

that

the

circumstances

disclosed

the

the view that

an application under sub-s.131(2) should be made.

I think that appropriate orders should be made

so as to afford

him the opportunity to do

so if he be so advised.

. . .

. ' - , _ ,

_. - - -.

23.

application of the trustee, to

order that all, or such part as

the Court thinks fit, of the

income of a bankrupt be paid to

the	trustee for the benefit of the bankrupt’s creditors.

Counsel submitted that the Court might well take the

vlew that

the debtor could make a greater contributlon to his estate for the beneflt of his creditors than the sum of $30,000 payable in three annual instalments on 16 October 1986, 1987 and 1988 as

provided for in c1.3

of the deed of arrangement. It was also

submitted that, even If it could be said that there had not been a dlsposition of properry with intent to defraud creditors so as to attract the operation of sub-s.l21(1), it would be appropriate for the Court, on the hearing of an application under sub-s.131(2), to have regard to the extent to which the debtor has benefited, and is likely in the future to benefit, under the trusts to whlch reference has already been made. He

referred to Lvford

v. Levit (1984) 2 F.C.R. 264.

Counsel

for the debtor submitted that there was

reasonable basis to support the proposition that

the

Court

would be likely to make an

order under sub-s.131(2) requiring

the debtor to make a greater contribution for the benefit of his creditors than that already provided for in the deed of arrangement. I do not agree. It is sufficient for present

purposes

say

that

the

circumstances

disclosed

the

evidence are such that a trustee in bankruptcy might well

take

the view that an application under sub-s.131(2) should be made. him the opportunity to do so If he be so advised.

24.

A further matter relied upon by the applicant involves

an examination of what took place at the meeting of creditors held on 16 October 1985. The minutes of the meeting are quite unsatisfactory in that they do not show that the resolution

requiring the debtor to enter into the deed of arrangement was

passed

as a special resolution as sub-s.204(1) of the Act

requires.	Mr Kahlefeldt, however, gave oral evidence that Mr
Clarke, Mr	Hollands and Mrs Chiragakis all voted in favour of

that resolution. He said that Mrs Chlragakis had voted

proxy for Plaza Clinic Pty. Limited though

he was unable to

produce the

form of proxy duly executed by that company. Mrs

Chiragakls gave evidence

that

when she went to the meeting she

handed in a document which she said had been prepared by the accountant and which she signed and to which she affixed the

seal of Plaza Clinic Pty. Limited.

She

agreed,

cross-examination, that there

had

been no meeting of the

directors

of the company to authorise the affixing of the

company's seal to any proxy document.

On the evidence

I am satisfied that Mrs Chlragakls was

not entitled to vote at the meeting of creditors held on

October 1985.

The consequence of this finding is that the

resolution

requiring

the

debtor

execute

the deed

arrangement was passed on the votes of the debtor's solicitors

and accountants whose debts totalled only

$2,039 out of a total

indebtedness of

over $489,000.

This is a most unsatisfactory

state of affairs.

25.

By reason of the various matters to which

I have

referred, I am of opinion that the applicant has established

grounds under pars(b) and (c) of sub-s.236(1) of the Act for

terminating the deed of arrangement.

An order may not be made

on the ground specified in par.(c)

of that sub-section unless

the Court is satisfied that it would

be in the interests of the

credltors to do

so but I have no doubt

on that score and I so

find. Although I have already expressed the m e w tnat the applicant has also established a ground for declaring the dee6 void under sub-s.Z22(4)(b), I think it is more approprlate, in the circumstances of this case, to proceed under s.236 than

under s.222.

I, therefore, order that the

deed of arrangement

executed by

the debtor on 23 October 1985

be terminated.

The ,

question then

arises whether a summary sequestration order

should be made

against the estate

of the debtor pursuant

sub-s.236(3) of the Act.

There is ample material before the

Court to justify the making of such an order and I propose to do so.

Sub-section 156A(3) of the Act provides, inter

alia,

that where, at the time when a debtor becomes a bankrupt, a

registered trustee

has, under sub-s.l56A(l), consented to act

as the trustee of the estate of the debtor

and the consent has

26.

not been revoked, the registered trustee becomes, at that time,

by force of the sub-section, the trustee of the estate of the

bankrupt. Mr Richard Campbell Brien, a registered trustee,

has, by instrument dated 18 December 1985 signed by him and

filed with the Registrar pursuant to sub-s.l56A(l). consented

to act as the trustee of the estate of

the debtor in the event

that he becomes a bankrupt.

Sub-section

156(3)

operates,

accordinq to its tenor,

to make Mr

Brien the trustee

of the

bankrupt estate and I so declare.

It is

appropriate to order that the costs of

the

applicant be taxed and paid out

of the estate of the debtor

if they were the costs

of a petitioning creditor.

I certify that this and	,
the preceding 25 pages are a true copy of the Reasons for Judgment herein of the Honourable Mr Justice

Dated:

5 February 1986

[1986] FCA 15

2 May 1986