Hoskins v Repatriation Commission

[1991] FCA 559

Re: KATHLEEN FRANCES MURPHY and PETER DOUGLAS MURPHY
Ex Parte: GEOFFREY FRANK TOTTERDELL, HOME BUILDING SOCIETY and BRIAN DOUGLAS
MURPHY
No. X 98 of 1987
FED No. 559
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
French J.(1)

CATCHWORDS

Bankruptcy - deed of arrangement - failure to comply with terms - application to terminate and for sequestration - application by covenantor under deed of arrangement to be joined as respondent - application refused - deed of arrangement terminated - sequestration order made.

Bankruptcy Act 1966

HEARING

PERTH

#DATE 13:8:1991

Counsel for the Trustee : Ms. J.E. Bartlett

Solicitors for the Trustee : Jackson McDonald

Counsel for the Home Building Society : Mr D.R. Goodman

Solicitors for the Home Building Society : Phillips Fox

Counsel for Mr Brian Douglas Murphy, : Mr J. Hughes
Mr Peter Douglas Murphy and Mrs
Kathleen Frances Murphy

Soliciotrs for Mr B.D. Murphy, : Michell Sillar McPhee Meyer
Mr P.D. Murphy and Mrs K.F. Murphy

ORDER

On the Trustee's application:

1. The deed of arrangement entered into by the debtors on 16 November

1987 be terminated upon payment of a first and final dividend to creditors from the balance held by the Trustee after payment of the Trustee's taxed costs of the application and of the funds held under the deed.

1. Upon payment of the first and final dividend the Trustee be

relieved from the trusteeship under the deed of arrangement.

On the Home Building Society's application:

1. The estates of the debtors be sequestrated.

1. The applicant's costs of the application be taxed and paid out

of the estates of the debtors in accordance with the Bankruptcy Act 1966.

On the application of Brian Douglas Murphy:

1. The application be dismissed.

1. The applicant pay the Trustee's costs of the application to be

taxed.

NOTE: Settlement and entry of Orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

These three applications relate to a deed of arrangement which was entered into by Peter Douglas Murphy and Kathleen Frances Murphy, on 16 November 1987. The first application is that of the trustee appointed under the deed, Geoffrey Frank Totterdell. He seeks its termination and his release from the trusteeship subject to a payment of a first and final dividend to the creditors from the balance held by him after payment of his costs of this application.

1. Under the second application, one of the Murphys' creditors, the Home Building Society, also seeks an order for termination of the deed and a sequestration order against their estates. The third application is made by Brian Douglas Murphy who is the debtors' son and a covenantor under the deed of arrangement. He seeks to be added as a respondent to the first two applications and asks that the time permitted to him to bring this application be extended to enable that to happen.

2. The trustee's application was filed on 31 May and that of the Home Building Society on 21 June. There was an interlocutory hearing before the Registrar on 24 June, at which Mr Brian Murphy and the debtors were represented. Orders were then made by consent in relation to both the trustee's application and that of the Home Building Society in the following terms:
   

1. That the respondents file and serve a notice of opposition on or before 28 June 1991;

2. The respondents file and serve on or before 15 July 1991 any answering affidavit;

3. The applicants be at liberty to file and serve on or before 25 July 1991 any further affidavit;

4. There be liberty to the parties to apply on 48 hours written notice;

5. Costs be reserved;

6. The application be adjourned to 29 July 1991 at 9.30 am.

1. No notices of opposition have been filed, nor any affidavits in answer to those in support of the applications. It was suggested by counsel for the debtors when the matter came on for hearing yesterday, that it was not clear that it was then to proceed to a hearing. It is apparent however, from correspondence directed to the solicitors for the debtors from the Deputy Registrar that they were notified that all applications in this matter would be heard on Monday, 12 August 1991. I do not therefore propose to delay further in dealing with the matter.

2. The circumstances under which the application is brought are set out in the affidavit of the trustee. On 9 October 1987 the debtors signed an authority under s.188 of the Bankruptcy Act 1966 authorising him to call a meeting of their creditors. At a meeting held on 28 October 1987, the creditors resolved that a deed of arrangement be entered into with the debtors and the debtors' son, Brian Douglas Murphy, providing for payment into a trust fund of certain moneys for distribution among the creditors. The deed was dated 16 November 1987 and provided that the debtors and the covenantor pay to the trustee the sum of $350,000 during the period commencing on the date of the deed and expiring on 30 June 1989. The payments were to be made by the following instalments:
   

(a) $90,000 on or before 1 March 1988

(b) $50,000 on or before 31 May 1988

(c) 12 equal consecutive monthly instalments each of $17,500 to be made on the last day of each month - the first of such payments to be made on 30 June 1988.

There was a proviso that should the averages of prices for gold quoted on each business day by the Perth Mint during any period of 28 consecutive days fall below $A500 per ounce:

(a) during the period from the date of the deed to 30 June 1988 inclusive, then the debtors and the covenantor should be released from making the payments required by clause (c) above and in lieu thereof should pay the sum of $35,000 to the trustee on or before 30 November 1988;

(b) if the price should be below $A500 for the period from 1 to 31 July inclusive, then they should be released from making all payments required by clause (c) other than the payment due on 30 June and in lieu of the payments from which they are released would pay the sum of $17,500 to the trustee on or before 30 November;

(c) if the price should be below $A500 during the period from and including 1 August 1988 then the debtors and the covenantor should be released from making all payments required by clause (c) falling due after such period of 28 days.

The trustee was to apply any moneys received by him pursuant to the deed in making payments in the order prescribed by ss.108 to 114 of the Bankruptcy Act. Clause 4 related to remuneration. Clause 5 provided that no payment to the trustee of the sum of $350,000 or such lesser sum as may be payable by reason of the provisions of cl.2 on or before 30 June 1989, the debtors should be released from all provable debts. Clause 6 gave the trustee, in the event of default of any payment, the right to commence recovery proceedings against the covenantor, Mr Brian Murphy, for the amount of such payment in a court of appropriate monetary jurisdiction in Western Australia or Queensland and the covenantor thereby consented to the jurisdiction of the court. In clause 7 it was provided:

"Should the Trustee commence and prosecute proceedings against the Covenantor pursuant to clause 7 above

(sic) or otherwise pursuant to this deed, no judgment obtained in those proceedings shall affect the rights and obligations of the Debtors pursuant to this deed except insofar as and to the extent that payment to the Trustee is made pursuant to such judgment."

$90,000 was paid to the trustee under the deed but despite demand no further sum, apart from moneys held in a Wheat Board fund, was paid by the debtors or the covenantor pursuant to the terms of the deed. Between 31 May and 31 October 1988 further sums totalling $137,500 became due and owing.

1. The trustee says that between October and November 1988 the average prices for gold quoted on each business day by the Perth Mint fell below $A500 per ounce. According to the terms of the deed, the debtors and the covenantor were thereby relieved of liability in respect of any moneys falling due after 1 November. On 5 April 1989, a further meeting of creditors took place at which it was resolved that the deed remain in operation and that the trustee instruct solicitors to institute recovery action against the covenantor. Subsequently, a writ issued out of the Supreme Court of Queensland and the default judgment in the amount of $137,500 was obtained against Brian Murphy on 4 October 1989.

2. The trustee instructed his solicitors to ascertain what property was available for seizure to satisfy the judgment debt and in particular what, if any, mining tenements the covenantor had any interest in. Searches conducted in November 1989 indicated that Mr Brian Murphy had sold his interests in mining tenements previously owned by him. A bankruptcy notice issued in April 1990, but was unable to be served. The trustee was unable to obtain further information about Mr Brian Murphy's whereabouts.

3. A sum of $40,682.55 referred to in accounts prepared by the trustee as "debtor's contribution as per Deed of Arrangement" was paid to him under the terms of a settlement of a District Court action between the Australian Wheat Board, the debtors and the Home Building Society. The Home Building Society which was owed money on security by the debtors has realised its security and has lodged a proof of debt for the balance owing. Creditors who have lodged proof of debts have claims amounting to some $1,184,158. If the deed is terminated and leave granted to distribute a first and final dividend, the creditors may expect to receive a return of approximately 10 cents in the dollar.

4. On 7 May 1991, a meeting of creditors convened by the trustee resolved that he be authorised to make application to terminate the deed following a declaration and distribution of a first and final dividend. The trustee believes that no useful purpose will be served by prolonging the administration. The debtors' and Mr Brian Murphy's liability to continue payments pursuant to the deed ceased in November 1988 and all attempts to recover the moneys due under its terms have proved fruitless. I accept the trustee's evidence, which was not contradicted.

5. The Home Building Society has succeeded to certain debts owing by the debtors to the First Federal Building Society. The Home Building Society took over the management of that entity in July 1987 and an assignment of its assets and liabilities in June 1988. Without going into the detail of the succession of arrangements between the two societies and the debtors, it appears from the affidavit of Mr Stephen Martin, the Manager of Mortgage Loans of the Home Building Society, as at 31 October 1990, and after the realisation of all securities, the Murphys were indebted to the Society in an amount of $1,481,587.83 together with interest at the rate of 18% per annum from 1 November 1990 to the date of payment. If one were to omit interest since the date of execution of the deed of arrangement then after deduction of the net proceeds of realisation of securities, the Home Building Society is a creditor of the debtors in an amount of $716,066.58. Mr Martin contends that the terms of arrangement have not been complied with by the debtors, notwithstanding a considerable lapse of time and that the Home Building Society is prejudiced by their breach and the continuance of the deed which precludes the Society and all other creditors from taking any further steps against the debtors in relation to their considerable outstanding indebtedness.

6. In relation to Brian Murphy's application to be joined as a party, there is a supporting affidavit by his counsel, Mr Hughes, who deposes that he is instructed by Mr Murphy for him to be joined as a respondent to the applications on the basis that Murphy is a party to the deed of arrangement. Beyond that there is nothing to indicate how that joinder would be pursued in terms of any grounds for opposition to the applications of the trustee and the Society. Counsel adverted to the possibility that, having regard to fluctuations in the price of gold, the indebtedness under the deed of arrangement might not be that which was claimed, but was unable to go beyond that hypothetical possibility. Today he made a last minute submission by leave of the Court, contending that the judgment obtained against Mr Brian Murphy in the Supreme Court of Queensland may have effected a merger of the interests of the trustee and creditors under the deed but I am satisfied that the provisions of the deed exclude that possibility. In any event, judgment was given against Mr Brian Murphy only.

7. Section 236 of the Bankruptcy Act provides that:
   

"236(1) The Court may, upon application by the trustee, a creditor or the debtor, or, if the debtor has died, the person administering the estate of the debtor, if it is satisfied -

(a) that the debtor, or, if the debtor has died, the debtor or the person administering the estate of the debtor, has failed to carry out or comply with the provision of the deed of arrangement; .

.

.

make an order terminating the deed."

Under sub-ss.(2) and (3) it is provided that:

"(2) The Court shall not make an order terminating a deed on the ground specified in paragraph (1)(a) or

(c) unless it is satisfied tht it would be in the interests of the creditors to do so.

(3) The trustee or a creditor may include in an application under subsection (1) an application for a sequestration order against the estate of the debtor and, if the Court makes an order on the first-mentioned application terminating the deed of arrangement, it may, if it thinks fit, forthwith make the sequestration order sought."

1. I am satisfied on the materials before me that the debtors have failed to carry out or comply with the provisions of the deed of arrangement and that an order should be made terminating the deed. I am satisfied that it would be in the interests of the creditors to do so for the reasons adverted to in Mr Martin's affidavit. And I am satisfied also that in the circumstances it is appropriate to make a sequestration order against the estates of the debtors. The only question then is the form in which I should make those orders having regard to the various applications. I think the appropriate course to take is to make a termination order on the trustee's application, a sequestration order on the creditors' application and to dismiss the application brought by Mr Brian Murphy. Orders will be made accordingly.