Gold Ribbon (Accountants) Pty Ltd v Loane
[2003] FMCA 537
•25 November 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| GOLD RIBBON (ACCOUNTANTS) PTY LTD v LOANE | [2003] FMCA 537 |
| BANKRUPTCY – Application to annul composition – whether applicant is a creditor under a guarantee – applicant has standing – whether annulment will enable proper investigations to be made – composition annulled – sequestration ordered. |
| Applicant: | GOLD RIBBON (ACCOUNTANTS) PTY LTD ACN 081 156 078 |
| Respondent: | DARRYL JOHN LOANE |
| File No: | BZ 522 of 2001 |
| Delivered on: | 25 November 2003 |
| Delivered at: | Brisbane |
| Hearing date: | 17 December 2002 and written submissions 13 & 17 January 2003 |
| Judgment of: | Baumann FM |
REPRESENTATION
| Counsel for the Applicant: | Ms Downes |
| Solicitors for the Applicant: | Blake Dawson Waldron |
| Counsel for the Respondent: | Mr Collins |
| Solicitors for the Respondent: | Stephens & Tozer |
ORDERS
That the composition entered into on 9 August 2001, be annulled pursuant to section 75 (4) (b) (iii) of the Bankruptcy Act 1966.
A sequestration order be made against the estate of DARRYL JOHN LOANE.
The Applicant’s costs of and incidental to this application, including reserved costs (if any), be taxed and paid from the Estate of the Bankrupt in accordance with the Bankruptcy Act 1966.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BZ522 of 2001
| GOLD RIBBON (ACCOUNTANTS) PTY LTD ACN 081 156 078 |
Applicant
And
| DARRYL JOHN LOANE |
Respondent
REASONS FOR JUDGMENT
Introduction
GOLD RIBBON (ACCOUNTANTS) PTY LTD (“the Applicant”) seeks an order pursuant to s.75(4)(b) of the Bankruptcy Act 1966 (“the Act”) that the composition entered into on 9 August 2001, between DARRYL JOHN LOANE (‘the Respondent”) and his creditors, be annulled.
The Application was contested on behalf of the Respondent by a litigation guardian appointed by this Court on 20 August 2002. The litigation guardian’s appointment was necessitated by the severe depressive disorder suffered by the Respondent resulting in a serious and near fatal suicide attempt on 24 December 2001.
History
The Applicant’s single business activity was to provide loan funding to accountancy practices, and as a result of an application for funding made in May 1999, by VENOLA PTY LTD, a sum of $800,000 was lent to it. Venola Pty Ltd was a company of which the Respondent was Director, and traded at the relevant time of advance as Capital Assets Group from Nerang on the Gold Coast.
The Respondent signed a guarantee on or about 10 May 1999, to indemnify the Applicant against any loss arising from the advance made to Venola Pty Ltd under or pursuant to the Accountant’s Funding Programme. A copy of the stamped guarantee is in evidence before me, submitted after the hearing on 10 January 2003.
The Respondent filed a debtors Petition on 11 February 2000 and subsequently, after some adjournments, a Meeting of Creditors convened by the Trustee Gerald Collins on 9 August 2001, purportedly resolved to accept a proposal of the Respondent to pay $10,000 for a composition under s73 of the Act, in respect of creditors, who, for the purpose of the meeting, were admitted to total over $10 million. The minutes of the meeting were in evidence before me. It is this composition that the Applicant seeks to set aside.
The procedural history is, I am satisfied, correctly recited at Annexure “JMH 8” to the Affidavit of JOANNE MARIE HAGENSON filed
13 December 2002. Some delays were encountered because of the non-compliance of the Respondent with directions and further delays, not attributable to the parties (which I regret) have occurred in the delivery of these reasons.
The only evidence before me was offered by the Applicant, though Mr Grant Sparks, the liquidator of the Applicant, appointed on 8 August 2001. He was the subject of cross-examination.
I accept his evidence, parts of which are detailed later in these reasons. Some objections were raised by Counsel for the Respondent to parts of the Affidavit of Sparks. Where any evidence was sought to be relied on and was relevant to my analysis, I have ruled on such objection in these reasons. Generally I regarded Mr Sparks, as Trustee, and as an expert capable of offering many opinions he espouses in his Affidavit. Rather than call evidence to contradict the assertions, Counsel, for the Respondent, initially sought to have them ruled inadmissible, and then to weaken their effect by cross-examination. He was not generally successful in either pursuit. No evidence from any of the creditors supporting the composition (and who were either business associates or supporters of Mr Loane, personally) was offered to the Court.
In evidence, the efforts of Mr Collins for the Respondent were directed to testing the evidence and raising detailed and well considered submissions in response to those prepared by the Counsel for the Applicant Ms Downes. I do not propose to repeat all of those submissions in these reasons however I have carefully considered them, in formulating my decision.
The law
Section 75(4) of the Bankruptcy Act 1966 relevantly provides:-
(4) If:
(a)default is made in any respect under such a composition or scheme of arrangement; or
(b)it is made to appear to the Court that:
(i)the composition or scheme of arrangement cannot be proceeded with without injustice or undue delay to the creditors or to the bankrupt; or
(ii)the approval of the creditors was obtained by a misrepresentation by the former bankrupt; or
(iii)it is desirable that the affairs of the former bankrupt be investigated and administered under the provisions of this Act relating to bankruptcy; or
(iv)it is likely that the creditors will receive a greater dividend if the former bankrupt is again made a bankrupt;
the Court may, if it thinks fit, on application by the trustee or a
creditor, annul the composition or scheme of arrangement.
(5) The annulment of a composition or scheme of arrangement
does not affect the validity of any sale, disposition or payment duly
made, or things duly done, under or in pursuance of the
composition or scheme of arrangement before the annulment.
(6) The trustee or a creditor may include in an application under
subsection (4) an application for a sequestration order against the
estate of the debtor and, if the Court makes an order on the first-
mentioned application annulling the composition or scheme of
arrangement, it may, if it things fit, forthwith make the
sequestration order sought.
Because of the apparent inability of the Respondent to give evidence, coupled with the decision to not call any supporting creditors, it follows that many suggestions put to Mr Sparks by Counsel for the Respondent, and not accepted by the witness, are speculative and not supported by evidence. I see no reason why I should draw favourable inferences (even if reasonably open), where no attempt to offer evidence was made by the Respondent. As the Trustee observed in his report to creditors, and in his evidence, demands made for relevant information and documentation were not satisfied by the Respondent.
The complex web of business associates and entities (including some 11 companies of which the Respondent was either a director or shareholder and are now in liquidation receivership) was diagrammatically explained in the following drawing, attached to the Applicant’s submissions, appearing as Appendix One to these reasons.
The recommendation of the Trustee for creditors to vote against the Respondent’s proposal and that a public examination be conducted of the (then) Bankrupt and his associates to investigate the affairs of the companies, was rejected.
From the evidence, the following issues arise for determination:-
a)Is the Applicant a creditor capable of bringing the Application;
b)Was the composition obtained by misrepresentation by the Respondent;
c)Is it desirable that the Affairs of the Respondent be investigated and administered;
d)It is likely that the creditors will receive a greater dividend if the Respondent is again made Bankrupt;
e)Was the “true value” of the combined debts of the creditors that voted in favour of the composition 75% of the total value of the debts of the creditors.
Does the applicant have standing?
The Respondent argues, as a threshold question, I should find the Applicant has no standing to bring the Application as it is not a “creditor” of the Respondent.
I am satisfied that it was a feature of the facility taken up by Venola Pty Ltd (and guaranteed by the Respondent) that it was rolled over or extended every 90 days on approval. I accept that it was term of the loan that a request for extension was necessary by the borrower supported by a report so that the Applicant could, as Mr Sparks says:
“keep a hand on what the value of receivables were for the entity that borrowed the money.”
This was consistent with Clause 14 of the terms of the loan which constituted a request to the Applicant by Venola Pty Ltd to
“provide funding of up to a maximum of 80% of the receivables particularised…”
The Respondent relied on the Affidavit of the Respondent’s wife LINDA MANUELA CAERDINAEL (“Caerdinael”) filed with my leave at the hearing. She deposes to the following facts:
a)She was a director of Venola Pty Ltd from early 2000 and after her husband’s Bankruptcy, the Applicant issued new facility documents, dated 3 July 2000, directed to her;
b)She executed a personal guarantee on 15 August 2000 and had been subject of legal proceedings to recover the principal sum of $800,000;
c)Because of her inability to pay the sum, she filed a debtors petition on 4 November 2001.
It is relevant, in my view, that the Statement of Claim issued by the Applicant out of the Supreme Court of Queensland relies upon the principal “loan agreement” entered into between the Applicant and Venola Pty Ltd in May 1999.
The Respondent asserts that a new loan facility was negotiated and, through Caerdinael, that the:-
“effect of the new facility which was renegotiated is that the previous guarantee provided by my husband no longer was operative.”
I disagree. Nothing in the evidence persuades me that the guarantee entered into by the Respondent was varied or discharged. Caerdinael merely became a co-surety to ensure the continued availability of funds for Venola Pty Ltd after the Bankruptcy of her husband.
The obligations of the Respondent under the guarantee existed at the date of his Bankruptcy and continue. Such a contingent liability is a provable debt in Bankruptcy (see section 82(1)).
I find the Applicant has the standing to bring the Application.
Is it desirable for an investigation to take place?
The evidence of Mr Sparks at paragraphs 15-48 identify a number of concerns requiring explanation. The respondent has done nothing, either during the investigations by the Trustee Mr Collins, or in these proceedings to meet those concerns. I am reasonably able to infer that had such evidence been available to the Respondent to answer suspicions, then it would have been offered.
The Trustee recommended a public examination, and funds can be made available to conduct such further necessary investigations (see paragraph 51).
The return to creditors is only 0.00099 cents in the dollar. The majority of the creditors of the Respondent who voted in favour of the composition appear to be related to the Respondent or companies associated with him.
The Respondent submits that the:
“most compelling evidence in favour of not exercising the discretion is the fact that no obvious benefit can be derived from undertaking such a course”
It is true, on the evidence, that there is no certainty of an increased benefit to all creditors, but this is not fatal to the application. I am of the firm view that the Affairs of the Respondent should be properly investigated. He failed to properly assist the Trustee (according to the Trustees Report) and there is also the public interest to consider. Such considerations have been held to be relevant (see Re: Brennan; Ex parte Stokes (Australasia) Ltd; Chiragakis v DCT (1986) 68 ACR 527).
Because I am satisfied that I should exercise my discretion to annul the composition relying principally on section 75(4)(b)(iii), it is not necessary to consider in detail the remaining grounds argued by the Applicant. I chose not to do so.
I also believe it is appropriate to make an immediate sequestration order so that there will be a trustee in Bankruptcy who can investigate the matters raised in the evidence in the interests of the creditors as a whole.
I make the orders which appear at the commencement of these reasons.
I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
Date:
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