David Keith Grant v Ford Co-Operative Society Ltd

[1991] FCA 865

IN THE FEDERAL COURT OF AUSTRALIA	) )
VICTORIA DISTRICT REGISTRY	1 No. VX 459 of 1991
)
BANKRUPTCY DIVISION	1
BETWEEN:

DAVID KEITH GRANT

Debtor

Ex Parte: FORD CO-OPERATIVE SOCIETY LIMITED

(Formerly Commercial Credit

JUDGE : Heerey J.

m: Melbourne

DATE : 11 December 1991

EX TEMPORE REASONS FOR JU~XENT -

This is an application brought under s.222(1) of the Bankru~tcv Act 1966 seeking an order that a composition be declared void and, consequentially upon that, a sequestration order; see s.222(7).

The case of the applicant turns on a series of meetings. A meeting of the creditors of the debtor was called for 29 August 1991. That meeting was adjourned to 9 September 1991. One of the issues in this case was whether that adjournment was valid, and in particular, whether there was a resolution for the adjournment as may be requ~red by s.197(1). This issue involved a dispute of fact as to whether a resolution for the adjournment was proposed and carried at the meeting or whether the chairman simply adjourned the meeting himself. The onus on the lssue is on the debtor. I prefer the evidence tendered on behalf of the applicant, and in particular a detailed memorandum compiled by a Mr Matthew Harrington, who was present at the meeting, and which noted	Mr Lloyd Felman, a solicitor, gave evidence before me to the	that a vote was taken. The chairman of the meeting,
effect that there was no resolution and produced minutes to that effect. However, the force of his evidence was substantially diminished by the fact that the minutes which the Act requires to be lodged within 14 days of the meeting (see s.203(3)) were not signed by him until four months later. He claims to have taken some notes of the meeting but did not bring them to court with him. I find that there was a resolution for adjournment and thus the point dependent on the adjournment of the meeting need no longer be considered.
At the adjourned meeting on 9 September, the composltion was put to the meeting. On its face it was not a very appealing one, since it involved payment by the debtor of only $25,000 over a period of four months in full satisfaction of unsecured debts of approximately $2.5 million. However, the proposal very nearly obtained the required statutory majority, being supported by 74.6% in value of the creditors present.
One of the creditors votlng against the composition was the present applicant who was admitted to vote for a debt of $527,516. However, it emerged subsequently, and this is now common ground, that the correct amount of the debt was $493,785. If that amount of debt had been known at the meeting there would have been a majority of 75.319% in favour
of the composition, thus satisfying the statutory requirement.
Following the rejection of the composltion, by letter dated 11 October 1991 a second meeting of creditors was called for 25 October and at that meeting the composition was accepted.
The applicant's primary contention is that the provisions of Part X of the Act only contemplate one meeting of creditors and consequently the meeting on 25 October was invalid and ineffective to approve a composition under Part X. There is clear authority for that proposition in the decision of the Full Court in Pretorius v Daltons Carvet Tiles Ptv Ltd (1984) 54 ALR 743 at pp.749-750.
However, as the Full Court in Pretorius pointed out, that does not finally determine the matter because there remains the discretion to refuse a sequestration order in a proper case; see 54 ALR at p.750, and s.52(2)(b) which expressly confers on the Court the power to dismiss the petition if for other sufficient cause, that is to say other than the debtor belng able to pay his debts, a sequestration order ought not to be made. That statutory formula is not to be read down so as to be confined to any particular state of facts; see Cain v Whvte (1933) 48 CLR 639 at p.645.
In the present case there were affrdavits tendered on behalf of a number of creditors all of which were generally to the effect that they placed great reliance on the debtor as a financial adviser and wished to continue to seek his advice in that capacity but would practically speaking be unable to do so were a sequestration order made against him. The debtor was for many years a practising chartered accountant and the cause of his insolvency was his involvement in a business venture for the franchising of French bakeries.
The evidence of these creditors was also to the effect that the debtor's business failure was due to the economic pressures of the times and not to mismanagement on his part.
difficult to accept in these times. It was frankly conceded That evidence was not challenged and regrettably is not on behalf of the debtor that he was "hopelessly insolvent".
In approximate terms his assets amounted to $1,600 and his liabilities $2.5 million. However, the express terms of s.52(2) make it clear that insolvency in itself does not necessarily prevent the exercise of the discretion against the making of a sequestration order and indeed the whole purpose of Part X assumes that the debtor will be insolvent and that he may nevertheless be saved from bankruptcy notwithstanding that up to 25% in value of his creditors would seek to take that course.
I have come to the conclusion that I should exercise my
discretion against the making of a sequestration order. The main factor which influences me is the fact that had it not been for what is admitted to be an error, albeit an innocent one, the composition would have been approved at the first meeting.
That error having been made by the applicant itself, it would not seem to me fair to make an order which would in effect allow the applicant to rely on its own error and prevent the policy of the Act operating. That policy is, broadly speaking, that if 75% of a debtor's creditors accept a composition, however small, no sequestration order should be made.
There was some criticism of the fact that the amount of the debts had increased between the meeting of 29 August and that of 25 October but it was not put that any sinister inference could be drawn from that. It was also said that there was a large debt owed to a lady with whom the debtor had a previous de facto relationship for many years and that this debt was "dubious". However, this matter seems to have been known to the creditors and no doubt would be taken into consideration by them in exercising their vote.
25 October 1991 is void on the ground that an earlier meeting I declare that the composition accepted at the meeting of
had already been held under Part X of the Bankru~tcv Act at which the composition had been rejected. I order that the application for a sequestration order under s.222(7) is dismissed.
I make no order as to costs.

I certify that this and the

preceding four (4) pages are a true copy of the Reasons for Judgment of the Honourable Mr Justice Heerey

pt+l-J!

Ass c' te

Counsel for the Debtor:	Mr K Baker
Solicitors for the Debtor:	Harvey Bruce & CO
Solicitors for the Applicant:	Mr R L Moore
Counsel for the Applicant:	Phillips Fox