Cross, Re J.M.

[1988] FCA 298

IN THE FEDERAL COURT	)	LIMITED DISTRIBUTION
OF AUSTRALIA	)
GENERAL DIVISION	1
BANKRUPTCY DISTRICT	1
OF THE STATE OF	)
WESTERN AUSTRALIA	)	NO. 81 of 1986 RE: JOHN MICHAEL CROSS

Bankrupt

EX PARTE: JOHN MICHAEL CROSS

Applicant

MINUTE OF ORDER

JUDGE MAKING ORDER:	FRENCH J.
DATE OF ORDER:	15  June 1988
WHERE MADE:	PERTH
THE COURT ORDERS	THAT:

1. The composition proposed by the applicant and accepted

by a meeting of	his creditors held on 11 December 1987
is approved.

2.          The applicant's bankruptcy be annulled.

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

I

IN THE FEDERAL COURT ) LIMITED ISTRIBUTION

OF AUSTRALIA

GENERAL DIVISION )

BANKRUPTCY DISTRICT

OF THE STATE OF )

WESTERN AUSTRALIA No. 81 of 1986

RE: JOHN MICHAEL CROSS

Bankrupt

EX PARTE: JOHN MICHAEL CROSS

Applicant

CORM:  FRENCH J .
15 June 1988

REASONS FOR JUDGMENT

On 12 February 1986 John Michael Cross became a bankrupt

on his own petition. His statement of affairs disclosed assets of

$30,000 by way of a book debt, since found to be irrecoverable.

His disclosed liabilities totalled $199,650. However, six

creditors not shown on the statement have lodged claims amounting

to $34,753. Altogether 15 proofs of debt totalling $108,577 have

been received and admitted. Nine known creditors who have not

lodged proofs are owed $160,718. There have been no realisations

and there are no unrealised assets. On 11 December 1987 a general

meeting of creditors passed a special resolution accepting a

proposal for a composition under which the bankrupt would pay to

the Official Trustee $50,000 to be raised by loan from his

prospective employer. That sum has now been paid to the Trustee

and is held in his common investment fund. The bankrupt applies

to the Court for approval of the composition and annulment of the
bankruptcy.

L.

Circumstances of the Bankruptcy

As appears from the report of the Official Trustee the

bankrupt was born in the United Kingdom. In the ten years prior

to 1981 he lived in South Africa and operated a ready-mixed

concrete and earth-moving company.	He sold his interest in that
business in 1979 for what, he says, was a net return of	$150,000.

In 1981 he migrated to Western Australia. An initial business

venture in oil and gas exploration in 1982 saw him bought out

within the year for what he had invested, namely, $240,000. In

February 1983 he bought a house in Dalkeith through his family

trustee company for $310,000. He and his wife contributed $50,000

and borrowed a like amount from Churchill Energy Pty Ltd. The

rest was borrowed from Perth Building Society	and	secured by	a
mortgage over the land.

The bankrupt's financial difficulties seem to date from

the time he tried to enter the video tape production and

distribution business. In December 1982 he incorporated Prestige

video Productions Pty Ltd with his brother as a co-director to

carry on a business of acquiring film rights, producing video

cassettes from master tapes and distributing them. The company's

borrowings were secured by personal guarantees given by the

bankrupt and his brother. Another company, Prestige Video NSW Pty Ltd, was set up to distribute video tapes in New South Wales.

Silverscreen Promotions Pty Ltd was incorporated to purchase film

rights and sell them to Prestige Video Productions Pty Ltd. The

New South Wales company failed. Its financier, a merchant banker,

F.J. Hawkes, had taken security over its assets and those of the

bankrupt's	corporate family trustee. Hawkes appointed a receiver
and subsequently the	bankrupt's house in Dalkeith was sold for

$285,000. The New South Wales company went into liquidation and

the Western Australian company was an unsecured creditor in that

liquidation for $112,000. The straw that seems to have broken the

camel's back was a demand for sales tax in the amount of	$740,000
which sent Prestige Video Productions Pty	Ltd into liquidation.

The same fate was hared by Silverscreen Promotions. The

deficiency in Prestige Video was over $ h . The shortfall in the

liquidation of Silverscreen Promotions is estimated at $60,000.

Undeterred by these failures, the bankrupt incorporated

a new company, Kingston Hughes Marketing Ltd, in New Zealand,	to
carry on a business of marketing and distribution of video	tapes.

He and his brother each had	a 25% interest in that company.	He
provided to	it	certain master tapes acquired by Silverscreen

Promotions. On that company's liquidation, however, film rights

acquired by it reverted to their vendors. The bankrupt's claim for $30,000 is in respect of the debt allegedly owed to him by

Kingston Hughes. That company is, however, no longer trading and

has no assets. There is apparently no possibility of recovering

the $30,000 even if the claim could be established.

The Composition Proposal

The proposal as put to a general meeting of creditors

was, in substance, as follows:-

"1.	That payment of all the proper costs, charges	and
expenses of and incidental to the proceedings	and

all fees payable to the Official Trustee in

Bankruptcy shall constitute a first charge on the

moneys referred to in paragraph 3 hereof.

2. That payment of all priority debts directed to be

so paid under the Act in	the distribution of the
property of a	bankrupt shall constitute a second
charge on the moneys referred to in paragraph	3
hereof.

3 . That the Composition shall be paid on all proved

debts from the following funds:

(a) From all moneys in my estate held by the

Official	Trustee	in the	Common	Investment
Fund.

(b) From the sum of $50,000 to be provided as set

out in paragraph 4 hereof.

4 .	That the payment of the composition	be secured	in
the following manner:

By Loan to J.U. Cross

From Prospective Employers."

Those voting in favour of the proposal were two representatives of

creditors voting in person, and four creditors voting by proxy.

The value of the assenting creditors' claims amounted to $11,531.

Post-Bankruptcy Conduct

As the Official Trustee reports, Hr Cross' conduct since

becoming a bankrupt has not been satisfactory. In March 1988 he was convicted in the Perth Court of Petty Sessions of 8 counts of imposition for claiming unemployment benefits while actually

employed. The offences were said to have been committed between

January and March 1986. He was found guilty, fined $2,000 and

ordered to pay restitution and $1.380 costs. He has also, since

the bankruptcy, travelled overseas without the written consent of the Trustee as required by s.272(c) of the Act. The Trustee's

report referred to some four occasions namely, September 1986,

November 1986, March 1987 and April	1987.	On 15 January 1988	he
was convicted of	a breach of	s.272(c) of the Act and was	fined

$300 and ordered to pay costs of $441.

In his oral evidence Mr Cross told this Court that he

had travelled overseas on	a number of occasions, without knowing
that he was in breach of	the Act by doing so without the consent
of the Trustee.	The trips were funded by a company called Codica
Pty Ltd whose directors are his brother and his	wife. The company
carried on	the business of boat broking and was acting under a

consultancy agreement with Marine and Leisure Ltd in Fremantle.

That agreement was discontinued in 1987.	It was evidently during
the first few months of his employment	by Codica that he continued

to claim unemployment benefits, as that company did not receive

its first commission cheque until April 1986.

The bankrupt is now employed by a company called

Assurance Management Pty Ltd and has been employed by it since

October 1987. The directors are his wife and brother.

The sum of $50,000 comprising the composition has been

advanced to him by Westmark Group Ltd. This company desires to

engage him as managing director of a subsidiary called Satcorn Pty

Ltd, in which Assurance Management Ltd has a 49% share. AS

managing director of Satcorn, the bankrupt will receive $4,000 per

month plus bonuses. In his affidavit in support of the

application, he says that he will	repay the $50,000 out of his
earnings. However he	also says:-

"If my bankruptcy is not annulled then I shall not be

able to act as managing director of Satcom (sic) of the Westmark Group and nor shall I be able to repay the

$50,000 loan. I would respectfully ask this Honourable

Court, if it was mindful not to annul my bankruptcy, to

not approve the composition proposal. To do otherwise

would mean that my responsibilities to my creditors

would be transferred to the Westmark Group,	my employer.
I would have	no prospect of ever repaying my employer
and could not continue	in its employ".

It would be indeed surprising if the Westmark Group, having

advanced the sum of $50,000, had not made some arrangement with

the bankrupt's family to recover that amount in the event that he

was not able to take up the position.

Application for Approval of the Composition

The composition has been recommended by the Official

Truatee to the creditors as being for their benefit and the

creditors have resolved to accept it. The Court in deciding

whether to approve thb composition will need to	be satisfied that
the propoaal is reasonable,	is in accordance with the provisions

of the Act and will benefit the creditors generally and to a

greater extent han the continuing administration of the

bankruptcy: Re Lewia; Ex parte Lewis (1987) 77 ALR 165, 173; -Re rryda (1964) 6 FLR 144, 152; Ex parte Bischoffscheim. In re Aylmer

(1887) 19 QBD 33.	And	I refer generally to the criteria set out
by Deane J.	in	Re Clyne (1978) 44 Australian Bankruptcy Bulletin

3902 at 3901 as cited in Re Lewis (supra) at 173-174.

The coapoaition in this case offers the creditors, who

otherwise had little hope of any return, a recovery of between 16

and 20 centa in the dollar, depending upon the lodgment of proofs

of debt by any of the outstanding creditor.. One of the criteria

set out by	Deane J.	in Re Clyne (supra) as a basis upon which
approval of	a proposed composition may be refused	is that the

bankrupt has been guilty of such misconduct, that in all the

circumatancea it is neceasary in the public interest to refuse to
lend the COUCt'S	sanction to the arrangement which he has reached
with the creditor8 or that the circumstances	of the matter would

render any approval inconsistent with the general purposes of the
Bankruptcy Act.

. 8.

Although the bankrupt has in this case been guilty of

misconduct, I am not satisfied that	it impinges in any significant
way upon my discretion	in relation to this proposed composition.

To refuse to approve the composition would be to deny to the

creditors any relief at all. In the circumstances, the public

interest does not demand that drastic course. The composition as

proposed will therefore be approved.

Annulment of Bankruptcy

The bankrupt in his supporting affidavit has asked that

if the bankruptcy	be not annulled then the composition	be not
approved.	This linking of the approval of the composition to	the
annulment application	is misconceived. The question whether	a

bankruptcy should or should not be annulled arises in the exercise of a discretion which is separate and distinct from the discretion

to approve a composition. In the case of an application for

annulment, the Court must consider not only the interests of the

creditors and of the bankrupt but also those of the public and

commercial morality - Re Groom (a bankrupt); Ex parte The Bankrupt (1977) 16 ALR 278, 283-284. The conduct of the bankrupt in this

case has given cause for some disquiet about his readiness to

ascertain and obey the law as it applies to him. On the other

hand he has been punished for his breaches which were not the most

serious of their respective kinds. He has been a bankrupt for

some 2 1/2 years. The Official Trustee does not oppose the

proposed annulment and it will facilitate the discharge of his

obligation to Westrnark in respect of the $50,000 advance. In all

the circumstances I am prepared to order that	the bankruptcy	be
annulled.

The orders will be as follows:-

1. The composition proposed by the applicant and

accepted by a meeting of his creditors held on 11
December 1987 is approved.

2.    The applicant’s bankruptcy be annulled.

I certify that this and the preceding

eight (8) pages are a true copy of the

Reasons for Judgment of His Honour

Justice French.

Associate:	b”
Date:

Counsel for the Applicant: M C M. de Kerloy

Solicitors for the Applicant: Messrs. KOtt Gunning

Mr I.K. Campbell appeared for the Official Receiver

Date of Hearing:  13 June 1988

Date of Judgment: 15 June 1988