Hughes v Holbrook
[1999] FCA 665
•20 MAY 1999
FEDERAL COURT OF AUSTRALIA
Hughes v Holbrook [1999] FCA 665
BANKRUPTCY – sequestration order - creditors special resolution requiring execution of deed of arrangement - whether sufficient cause for non-execution - debtors allege that proposal put forward without their authority - debtors allege that terms of deed unable to be complied with - whether controlling trustee has standing to make application - trustee’s remuneration - whether discretion should be exercised in any event
Bankruptcy Act 1966 (Cth) Part X, ss 188, 189A, 204, 216, 221(1)(b), 236(1)(b), 257
Vaccaro v Mann (1991) 30 FCR 214
Re Morris; Ex parte Kelly (1939) 11 ABC 152
Sandell v Porter (1966) 115 CLR 666
DEREK HUGHES and SANDRA ANNE HUGHES v KIM DAVID HOLBROOK
WG 7138 of 1998
WG 7139 of 1998
BOON JR
20 MAY 1999
PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WG 7138 of 1998
WESTERN AUSTRALIA DISTRICT REGISTRY
WG 7139 of 1998
BETWEEN:
DEREK HUGHES and SANDRA ANNE HUGHES
Applicants (Respondents)AND:
KIM DAVID HOLBROOK
Respondent (Applicant)JUDGE:
BOON JR
DATE OF ORDER:
20 MAY 1999
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
A sequestration order be made against the estate of Derek Hughes and Sandra Anne Hughes.
Mr Holbrook be appointed as trustee of the estate of Derek Hughes and Sandra Anne Hughes subject to a consent to act being filed today.
Mr Holbrook’s costs of and incidental to both applications including reserved costs be taxed and paid out of the estate.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
WG 7138 of 1998
WESTERN AUSTRALIA DISTRICT REGISTRY
WG 7130 of 1998
BETWEEN:
DEREK HUGHES and SANDRA ANNE HUGHES
Applicants (Respondents)AND:
KIM DAVID HOLBROOK
Respondent (Applicant)
JUDGE:
BOON JR
DATE:
20 MAY 1999
PLACE:
PERTH
REASONS FOR JUDGMENT
The applicants (respondents) Derek Hughes (“Mr Hughes”) and Sandra Anne Hughes (“Mrs Hughes”) have made an application against the respondent (applicant) Kim David Holbrook (“Mr Holbrook”) as follows:
That the Deed of Arrangement proposed to be entered into between the applicants and the respondent be not proceeded with pursuant to s 236(1)(b) of the Bankruptcy Act.
Provision be made for the costs of this application.
Such further or other order as shall be appropriate.
Mr Holbrook has made a separate application as follows:
An order for the time for the service of this application to be abridged.
A sequestration order be made against the estate of Derek Hughes and Sandra Anne Hughes.
Mr Holbrook’s costs of and incidental to the application be taxed and paid out of the estate of Derek Hughes and Sandra Anne Hughes.
Various other orders were sought by way of interlocutory relief but those matters were dealt with prior to or at the hearing of the substantive matters. As the applications by Mr and Mrs Hughes on the one hand and Mr Holbrook on the other hand essentially concern the same substratum of facts, it was agreed that as a matter of convenience they be heard together.
Background
It is not at issue between the parties that on 11 August 1998 Mr and Mrs Hughes signed controlling trustee authority forms appointing Mr Holbrook as controlling trustee. The forms gave Mr Holbrook authority to call a meeting of the creditors for the purposes of Part X of the Bankruptcy Act 1966, and to take control of the property of Mr and Mrs Hughes in accordance with Part X of the Act. On 12 August 1998, Mr Holbrook consented to act as controlling trustee of the debtors’ affairs.
Several things happened before a meeting of creditors was held on 30 October 1998. Those matters will be set out further on in these reasons for decision. It is not at issue that at an adjourned meeting of the creditors on 30 October 1998 the creditors passed resolutions including that Mr and Mrs Hughes enter into a Deed of Arrangement and that Mr Holbrook be appointed as trustee for the purposes of administering the Deed of Arrangement. It is also not at issue that Mr and Mrs Hughes did not sign the Deed of Arrangement.
Although there are a number of matters at issue between the parties, the primary argument at the hearing of this matter before me concerned the provisions of s 221 of the Bankruptcy Act 1966, pursuant to which Mr Holbrook has brought his application.
Section 221 of the Act states in part as follows:
“221.(1)Where:
(a)a debtor has failed, without sufficient cause, to attend a meeting of creditors called under an authority signed by him or her under section 188;
(aa)a debtor has contravened subsection 189(2);
(b)a debtor, having been required by a special resolution of a meeting of creditors called in pursuance of such an authority to execute a deed of assignment or a deed of arrangement, has failed without sufficient cause to execute the deed within the time prescribed by this Act; or
(c)a meeting of creditors called in pursuance of such an authority has not, within 4 months from the date for which the meeting was called, passed one of the special resolutions referred to in subsection 204(1);
the Court may, if it thinks fit, on the application of the Inspector-General, a creditor or the controlling trustee, forthwith make a sequestration order against the estate of the debtor.
(2)The Court may, if it thinks fit, dispense with service on the debtor of notice of an application under this section, either unconditionally or subject to conditions.
(3)Subject to subsection (4), the making of an application under this section in respect of a debtor shall, for the purposes of this Act, be deemed to be equivalent to the presentation of a creditor’s petition against the debtor.
(4)The provisions of subsection 43(1), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply in relation to an application under this section, but, on the hearing of such an application, the Court shall require proof (which may be given by affidavit) of the matters stated in the application and, unless service has been dispensed with by the Court, of service of the application on the debtor.”
In essence, Mr and Mrs Hughes argue that they did not agree to the terms of the Deed of Arrangement and that Mrs Hughes protested about those terms at the meeting of creditors. Further, they say that they had sufficient cause not to execute the Deed within the words of sub-paragraph 221(1)(b) of the Act in that they could never have been able to meet the level of repayments required by the terms of the Deed. It is argued on behalf of Mr and Mrs Hughes, amongst other things, that the provisions of sub-paragraph 221(1)(b) therefore do not apply, and the Court should in any event not exercise its discretion to make a sequestration order in all of the circumstances.
Mr Holbrook maintains that as Mr and Mrs Hughes have failed to execute the Deed of Arrangement after being required by a duly passed resolution at a meeting of creditors to do so, a sequestration order should be made.
The Evidence
(a)Affidavits filed on behalf of Mr Holbrook
In an affidavit sworn on 1 December 1998 after he consented to act as controlling trustee of Mr and Mrs Hughes’ affairs on 12 August 1998, Mr Holbrook states that he received a copy of the debtors’ proposal statement on 28 August 1998. He then sent to Mr and Mrs Hughes’ creditors a circular dated 28 August 1998 advising them of the date of the creditors meeting on 11 September 1998; the debtors’ proposal; and his opinion of the debtors’ proposal. In that proposal, Mr and Mrs Hughes proposed to make available to the trustee the sum of $16,200, by way of monthly payments of $450. Mr and Mrs Hughes had creditors in the order of approximately $37,000 (not including Mr Holbrook’s costs and charges), although the precise amount of some of the debts is being challenged by Mr and Mrs Hughes.
Mr Holbrook’s affidavit states that the meeting of 11 September 1998 was adjourned so that the debtors with the assistance of their financial planner, Mr Kim Stedman, could re-evaluate their financial position and revise their proposal by taking into account the creditors’ position as highlighted at the first meeting. The minutes of the meeting of 11 September 1998, which are annexed to Mr Holbrook’s affidavit, show that Mr Holbrook advised the meeting that he had concerns about Mr and Mrs Hughes’ current proposal, as the creditors were likely to obtain 100 cents in the dollar if certain real estate property belonging to Mr and Mrs Hughes was sold. Mr and Mrs Hughes were to revise their proposal with a view to increasing the return to creditors and thus reducing the period over which creditors were to be paid.
It is also minuted that Mr Hughes did not attend the meeting on 11 September 1998. Mrs Hughes attended and asked that her husband be excused as Mr Hughes was working in Kalgoorlie and was unable to attend. It should be noted that Mr Hughes did not attend any of the subsequent meetings with creditors and, apart from signing the authority for Mr Holbrook to act as controlling trustee, took no part in the matter at all, other than authorising Mrs Hughes to act on his behalf.
Mr Holbrook states in that affidavit that he received a facsimile on 16 October 1998 from Mr Stedman advising him of the debtors’ amended proposal. Mr Holbrook sent a circular dated 17 October 1998 to the creditors detailing Mr and Mrs Hughes’ amended proposal which included a proposed repayment of no less than $2,100 per month and the payment to creditors of 100 cents in the dollar.
Mr Holbrook states that on 21 October 1998, he met with Mrs Hughes and Ms Christine Hughes (the debtors’ daughter). At this meeting Mrs Hughes advised Mr Holbrook that she and her husband could only afford periodic payments of $1,500 per month rather than $2,100 per month. As a result of this meeting with Mrs Hughes, Mr Holbrook prepared a debtors’ amended proposal statement and forwarded under cover of letter dated 21 October 1998 a copy to Mr and Mrs Hughes for their execution, and a further circular dated 23 October 1998 advising the creditors of the further amendment to the debtors’ amended proposal.
The adjourned meeting of the creditors was held on 30 October 1998. The minutes of the meeting show that the creditors were present or represented by proxy, Mr Holbrook was in the chair and Mrs Hughes and her daughter attended. Mrs Hughes advised the meeting that Mr Hughes was working in Kalgoorlie and was unable to attend. A quorum was present for the joint and two separate estates. The minutes show that Mrs Hughes advised the meeting that she only wanted to make a contribution of $1,500 per month. Paying $2,100 per month would mean that the horses owned by Mr and Mrs Hughes would need to be placed elsewhere or put up for sale, which Mrs Hughes did not want to do. Mrs Hughes advised the meeting that Mr Hughes was happy to follow her decisions. Mrs Hughes told the meeting that a Part X arrangement was expensive and that she may lose the property if they defaulted on the payments. She said that she would prefer to have a legal document drawn up to pay all creditors outside a Part X arrangement. Mr Stedman then stated that the secured creditors would not accept any other arrangement and the property would be sold by necessity, at a devalued price.
The meeting was adjourned for five minutes for Mrs Hughes to consult with Mr Stedman as to the contribution amounts. The meeting reconvened, and Mr Holbrook enquired of Mr Stedman acting for the debtors, as to the terms of the debtors’ amended proposal. Mr Stedman asked Mr Holbrook to explain how the amount of the trustee's fees and costs had been calculated, and Mr Holbrook replied. The minutes show that a special resolution was passed at the meeting as follows:
1.The debtors enter into a Deed of Arrangement pursuant to s 189A of the Bankruptcy Act 1966 incorporating terms as follows:
That the debtors pay to the trustee the sum of $70,200 as follows:
1.Commencing in January 1999, and within the first seven days of each calendar month, the following payments:
· for the first six calendar months, monthly payments of $1,500 each;
· for the next six calendar months, monthly payments of $1,950 each;
· for the next twenty-three calendar months, monthly payments of $2,100 each; and
· a payment in the final calendar month of $1,200.
It was also resolved that Mr Holbrook be appointed as trustee for the purposes of administering the Deed of Arrangement. The meeting also approved payment of Mr Holbrook’s fees and disbursements.
Mr Holbrook’s affidavit goes on to state that he instructed his solicitors on 3 November 1998 to prepare a Deed of Arrangement. On 16 November 1998, Mr Holbrook sent by courier to Mr and Mrs Hughes’ residence copies of the Deed of Arrangement and asked that the Deed be executed and returned to him by no later than 5.00 pm Friday 20 November 1998. Mr Holbrook did not receive the signed Deed nor any other response from the debtors by Friday 20 November 1998.
On 23 November 1998, Mr Holbrook received a facsimile transmission of a letter dated 22 November 1998 from Mrs Hughes confirming that the Deed had not been signed by her husband or herself. In her letter to Mr Holbrook, Mrs Hughes stated that the Deed had not been signed as it was incorrect in several places, including that the amount owing was incorrect as he had not removed a claim by Challenge Bank, that various other claims were incorrect, and that Mr Holbrook’s charges were too high. Mrs Hughes states in conclusion in that letter “as soon as these matters are clarified and the deed of arrangement corrected we will be happy to sign the corrected copy.”
Mr Holbrook provided a response dated 23 November 1998 to Mr and Mrs Hughes. However, Mr and Mrs Hughes did not at any stage sign the Deed of Arrangement.
On behalf of Mr Holbrook an affidavit by Mr Charles Duncan Noble sworn 13 January 1999 was filed in these proceedings. Mr Noble attended the meeting of creditors on 30 October 1998 as a representative of one of the creditors of Mr and Mrs Hughes. Mr Noble states in his affidavit that it became clear that Mrs Hughes did not wish to agree to the repayment schedule of $2,100 per month which had previously been suggested by her financial adviser, Mr Stedman, and that Mrs Hughes did not believe this proposal was realistic. After some discussion amongst the creditors, it was suggested that a ramped repayment schedule might be a solution to allow the debtors to make small repayments which would increase over time. Mr Holbrook presented the creditors’ suggestion to Mrs Hughes for consideration. Mrs Hughes, together with her financial adviser and her daughter, left the meeting to discuss the suggestion. Upon their return, Mrs Hughes or Mr Stedman on Mrs Hughes’ behalf returned the suggestion as a workable proposal. Mr Noble states that it was clear the proposal was given grudgingly on the part of Mrs Hughes. The creditors then voted on and accepted the proposal.
Mr John Peter Torrens swore an affidavit dated 20 January 1999. Mr Torrens also attended the meeting on 30 October 1998 as a representative of one of the creditors. Mr Torrens states that the meeting was adjourned to allow Mrs Hughes time to develop a new proposal. When the meeting reconvened Mr Holbrook addressed both Mr Stedman and Mrs Hughes and asked if they had come up with a new proposal. Mr Stedman replied “yes” and then proceeded to outline the proposal. Mr Holbrook took details of the totals as read out by Mr Stedman and made sure they were correct. Mrs Hughes was talking to her daughter, although it was not audible enough to be heard by those present at the meeting. Mrs Hughes’ demeanour was defiant and angry. Mr Holbrook then asked Mrs Hughes “Is this your proposal?” Mrs Hughes replied “Yes. (pause) it looks like I have no option”. The proposal was then passed by the meeting. Mr Torrens said that Mrs Hughes remained silent.
An affidavit sworn 25 January 1999 by Ms Margaret Andrews states that she attended the meeting on 30 October 1998 as the representative of a creditor. Ms Andrews confirmed in her affidavit that the meeting adjourned to allow Mr Stedman, Mrs Hughes and her daughter to discuss proposals. According to Ms Andrews, after the adjournment, Mr Stedman spoke to the meeting and put forward an amended proposal. Mrs Hughes told the meeting she could pay in staggered amounts, and then elaborated by saying she could not make the first payments until shortly after Christmas because her husband’s work and therefore income would be reduced just before and after the Christmas period. Ms Andrews states that after Mr Holbrook summarised the proposal to the meeting, Mrs Hughes was mumbling quite a bit and made complaints to her daughter along the lines that she could not afford it. Mr Holbrook told the meeting and Mrs Hughes that it would be hard on Mrs Hughes to meet the payments but that it could be done. Ms Andrews states that she was quite sure that Mrs Hughes agreed to the proposal. Mr Holbrook asked if everybody agreed and nobody said anything. Mrs Hughes appeared resigned when the motion was put to the vote.
In an affidavit sworn 28 January 1999 Mr Colin Andrews states that he attended the meeting on 30 October 1998 as a creditor of Mr and Mrs Hughes. Mr Andrews’ affidavit is in substantially the same terms as those outlined in respect of Mrs Andrews’ affidavit.
In a further affidavit sworn 14 April 1999 Mr Holbrook states that after the short adjournment of the meeting of creditors of 30 October 1998, he asked Mr Stedman “Are you representing the debtors?” He replied “Yes I am”. Mr Stedman then asked how the amount of trustee’s fees and costs had been calculated and Mr Holbrook replied in general terms. Mr Holbrook then asked: “What is the debtors current proposal?” Mr Stedman replied: “The debtors have some concerns in view of Derek’s uncertain income over the next few months. They would like the payments to be deferred for a short while. If that can be done, they will pay $1,500 for six months, $1,950 for the next six months and $2,100 for a further twenty-three months and a final payment of $1,200.”
Mr Holbrook goes on to state in his affidavit that whilst Mrs Hughes made some passionate and forceful comments prior to the adjournment of the meeting, none of those comments was made after the adjournment and during the discussion of the proposal that was ultimately put to the meeting and accepted.
Mr Holbrook states further in that affidavit that when he originally met Mrs Hughes he explained to her in general terms the procedure upon taking control of Mr and Mrs Hughes’ property.
(b)Affidavits filed on behalf of Mrs and Mrs Hughes
In relation to the minutes of the meeting of 11 September 1998, Mrs Hughes states in her affidavit that although the minutes state that she agreed to make a contribution of $1,500 per month, this was put forward purely as a possibility if her husband’s contracting income increased, but this did not happen. Mrs Hughes states that she said at that meeting that she could not afford $2,100 per month.
Mrs Hughes states in the affidavit that at the first meeting Mr Holbrook suggested that she and her husband liaise with Mr Stedman as to putting forward a revised proposal. She states that as a result, they made every effort to contact Mr Stedman but a meeting could not be arranged until late October 1998.
In relation to the facsimile Mr Holbrook received from Mr Stedman advising of the debtors amended proposal, Mrs Hughes states that if the circular emanated from any communication from Mr Stedman to Mr Holbrook the same was without the authority, knowledge or approval of her husband or herself. Mrs Hughes states that she discussed with Mr Stedman the possibility of reducing their expenditure so that more could be paid to creditors. She said that she stated to Mr Stedman that there was a possibility, but definitely not a certainty, that extra work could be available to her husband. She did tell Mr Stedman that they had cut their expenses by $400 per month by placing six mares elsewhere free of agistment charges. Mr Stedman stated that he would make a statement which he believed to be viable available to Mr Holbrook. Mr Stedman later advised her that he had forwarded such a statement but it was not sent to her. Mrs Hughes says that the first time she saw such a statement was on Tuesday 27 October 1998 and she immediately asked Mr Holbrook not to circulate the proposal to the creditors as it was unworkable. Mr Holbrook advised that he had already circulated it.
Mrs Hughes states that because of her concerns, she called on Mr Holbrook with her daughter Christine Hughes the same afternoon, and in her daughter's presence she stated to him that the proposal was unworkable as it was based on “ifs, buts and maybe’s”, and that none of the avenues of further cost cutting or improved income had materialised or were likely to materialise. Mrs Hughes says that she stated to Mr Holbrook that $2,100 per month was not viable for them and was not approved by them.
Mrs Hughes states further in her affidavit that at the meeting with Mr Holbrook on Tuesday 27 October 1998 she had told him that his fees were excessive.
Mrs Hughes says that she stated to the meeting of creditors on 30 October 1998 that the proposal put forward did not have the sanction of Mr and Mrs Hughes and that it was unworkable. When this was stated Mr Holbrook suggested an adjournment for the purpose of discussing matters with Mr Stedman. Prior to the adjournment her daughter Christine spoke and stated that it would be appropriate, in her view, for the creditors to have an informal arrangement because they could receive immediate payment rather than the proposed payment to Mr Holbrook prior to any payment to the creditors. Mrs Hughes said that when the adjournment took place she and her daughter left the meeting and spoke personally and privately to Mr Stedman, and she expressed her annoyance at the fact that he had put forward a proposition which had not been approved by them. She said that she also stated to Mr Stedman that she believed he was being irresponsible in putting it forward and that they would be placed in an untenable position. Mr Stedman said “I think you can meet this”, and Mrs Hughes had said “There is no way we can meet this”. She also told Mr Stedman that the proposed extra contract for her husband had not materialised. Mr Stedman then concluded by saying “Just sign it – something will turn up”.
Mrs Hughes states that after the adjournment Mr Stedman moved a resolution calling for six monthly payments of $1,500 each, six monthly payments of $1,950 each, and twenty-four monthly payments of $2,100 each. Mrs Hughes said that she stated loudly in the hearing of the meeting “It is impossible to find this amount of money per month”. Mr Holbrook then said “If you get rid of the horses you could meet the repayments”. Mrs Hughes said that Mr Holbrook also stated to the meeting on several occasions “I can sell these people up and I will sell them up.” Mrs Hughes said that whenever she tried to object to any of the propositions being put forward by Mr Holbrook at this meeting, he spoke over her.
In her affidavit Mrs Hughes acknowledges that the resolutions were passed. She states that she objected to the fees being claimed by Mr Holbrook.
Mrs Hughes acknowledged sending the letter dated 22 November 1998 by facsimile. She states that she did not mention in this letter the previously known and relevant factor that the particular sums claimed were not affordable by the applicants as she had made this well and truly known at the meeting, and as she had telephoned Mr Holbrook subsequent to 30 October 1998 and told him that they simply could not afford the proposal which had been approved by the creditors. She states that in one of such telephone calls Mr Holbrook told her that they had no choice but to sign the Deed and stated that if they did not he would just sell them up.
Mrs Hughes states in her affidavit that her involvement with Mr Holbrook came about when she had difficulty maintaining water supply to her property because of non-payment of Water Corporation’s fees. Because of this difficulty, she contacted Mr Stedman by telephone and advised him that they had been put under pressure by the Water Corporation. He told her that the time had come to enter into a Part X arrangement. She told Mr Stedman that she did not understand what a Part X arrangement was, and he replied that it would consolidate their debts and give them the means of paying them off over a period of time and stop the creditors from putting pressure on them individually. She enquired of Mr Stedman what costs this would incur and he said “It would not be an expensive exercise”. Mr Stedman recommended that they dealt with Mr Holbrook as he was a friend of Mr Stedman.
Mrs Hughes states in her affidavit that she attended on Mr Holbrook on 11 August 1998, and when she first met him she stated that she was unsure of this procedure and was uneasy about it as she did not know a great deal about it. Mr Holbrook said “I will be working for you”. Mr Holbrook denies making this statement.
Mrs Hughes said that there was no mention at this meeting of Mr Holbrook’s fees. She did not enquire about it because she had been assured by Mr Stedman that it would not be expensive.
Mrs Hughes states that Mr Holbrook stated that a Part X arrangement would consolidate their debts, allow for them to adequately deal with their creditors and that it was the most efficacious way to proceed in the circumstances. Mrs Hughes said that no advice about the alternatives to formal bankruptcy was given.
Mrs Hughes said that at the meeting of 30 October 1998 she disputed the amounts claimed by some of the creditors as owed. Mr Holbrook said that they would have to pay the amount stated and if they were found to be incorrect they would be reimbursed at the end of the Part X arrangement.
An affidavit of Ms Christine Victoria Hughes sworn 25 March 1999 was filed in these proceedings. Ms Hughes states in her affidavit that she attended at the office of Mr Holbrook on 27 October 1998 with her mother. In her presence, Mrs Hughes had stated to Mr Holbrook that the proposal was not workable and there was insufficient income to fund the proposal. Mr Holbrook then stated “I don’t care, you will have to make it work”. Ms Hughes stated to Mr Holbrook that Mr Stedman had produced the proposal without consulting Mr and Mrs Hughes. Mr Holbrook then stated “To make it work, you will have to make some sacrifices”. Mr Holbrook also further stated that the way to do it would be to get rid of the horses. (Mr Holbrook denies that he said that he did not care or that he said “You will have to make it work”.) Ms Hughes says that she recalled her mother stating that if her father’s proposed new contract went through they may be able to manage $1,500 per month but there was no definite promise made. According to Ms Hughes, Mr Holbrook stated that he would change Mr and Mrs Hughes’ input to $1,500 per month and that was the only concession he made. In her presence, Mrs Hughes objected to this proposal. Mr Holbrook denies this, and states that at no time did he do anything other than to encourage Mrs Hughes to make the best proposal within her means so as to maximise her chances of a proposal being accepted by creditors. Mr Holbrook further states that he has no interest in the debtors putting a proposal that is unachievable by them as it would almost certainly fail.
Ms Hughes goes on to state in her affidavit that at this meeting her mother discussed with Mr Holbrook the matter of his fees, and the fact that the fees claimed were totally unexpected. Mr Holbrook agrees with the effect of this paragraph, although he states that he did explain to Ms Hughes and Mrs Hughes the basis on which his fees and costs and those imposed by the Bankruptcy Act were calculated.
In relation to the creditors’ meeting on 30 October 1998, Ms Hughes states that they were handed a revised proposal which included extra fees being claimed by Mr Holbrook. The fees had increased by the sum of $12,000. Ms Hughes and her mother were both dismayed at this.
Ms Hughes states that she addressed the meeting and said that she did not agree with the Part X arrangement, and that it was not proper for Mr Holbrook to be paid before the creditors were paid. Ms Hughes also states that Mr Holbrook told the meeting that he can and will sell the property of Mr and Mrs Hughes.
Ms Hughes goes on to state in her affidavit that when the point was made at the meeting that the proposal was unworkable Mr Stedman requested an adjournment so that he could have a discussion with Mrs Hughes and Ms Hughes. The three of them went outside and Mrs Hughes told Mr Stedman that the proposal was unworkable. Mr Stedman stated “Just sign this and something will come up”. After the adjournment, they went back into the meeting. Ms Hughes said that her mother protested to the meeting about the fact that the proposal was unworkable and she could recall her mother saying that they couldn’t even make the first month’s payment. Mr Holbrook then asked the meeting what they wanted to do. Ms Hughes said that she could particularly recall her mother attempting to talk over Mr Holbrook at this stage of the meeting to put her point across that her parents could not afford the payments required and saying “It will not work”. Mr Holbrook would not accept or recognise her mother's protestations and said “It is not up to you, I believe you can.”
A further affidavit was filed on behalf of Mr and Mrs Hughes, sworn by Mr Justin George Coppin sworn 27 April 1999. Mr Coppin is a certified practising accountant and has been qualified for seven years. Mr Coppin states that he has been preparing the annual accounts and taxation returns for Mr and Mrs Hughes for a period of 1½ years. He has prepared the income tax returns for Mr and Mrs Hughes and their partnership for the year ended 30 June 1998. The returns indicate that the partnership business loss was $102,577, Mr Hughes’ taxable income was $8,004 and Mrs Hughes taxable income was a loss of $51,288. Mr Coppin states that on instructions from Mr and Mrs Hughes, he has prepared an interim profit and loss statement for the period 1 July 1998 to 31 March 1999, a copy of which was annexed to his affidavit. Based on those figures, it was anticipated that Mr and Mrs Hughes could make monthly repayments of $250 or thereabouts after taking into account living expenses. Mr Coppin states that the requirements for Mr and Mrs Hughes to make payments of $1,500 per month from and including the month of January 1999 was not possibly achievable at that time. I note that the profit and loss statement and financial statements contain a disclaimer stating that the estimate was provided without warranty of any kind, and further that the financial statements do not purport to be prepared in accordance with any particular laws, regulations or specific accounting principles, and that the financial statements were not general purpose financial statements, nor has their content been audited by an independent person.
A further affidavit sworn by Mr Stanley Frederick Robson on 27 April 1999 was filed on behalf of Mr and Mrs Hughes. Mr Robson is a chartered accountant. He has practised in the area of insolvency for thirty-five years. He states that he has dealt with numerous Part X Bankruptcy Act proceedings leading to Deeds of Arrangement. He has been the controlling trustee or joint controlling trustee in thirty-five Part X arrangements per year for the past twenty years. Mr Robson states that he has had made available to him copies of the debtors’ proposal statement, the controlling trustee’s report pursuant to s189A of the Act and to the statutory statement of affairs purported to be signed by Mrs Hughes. Mr Robson states in his affidavit that after having perused these documents he forwarded a letter of report to Messrs B W Duckham & Co, the solicitors for Mr and Mrs Hughes. That report is annexed to Mr Robson’s affidavit. Mr Robson states that he has no reason to depart from the matters set out in the letter. In that letter, which is dated 26 March 1999, Mr Robson refers to various papers Mr Duckham had furnished to him. It is not clear what those papers are. Mr Robson then proceeds in the letter to make general statements about Part X arrangements and specific statements about the matter of Mr and Mrs Hughes. For example, Mr Robson states:
“It is my opinion, formed across the period of many years of very active involvement in the theatre of Part X of the Bankruptcy Act, that very considerable inquiries should be undertaken by an insolvency practitioner prior to the formalities associated with Part X of the Bankruptcy Act being initiated.”
Mr Robson also stated:
“It is my opinion that as creditors in the matter were few in number and as the aggregate of debts outstanding and due to creditors was a reasonably confined sum, the formal reversion toward Part X of the Bankruptcy Act could be considered premature, given the costs etc that are involved in formal administrations, notwithstanding the quantum of liabilities outstanding etc.”
Mr Robson comments in his letter that Mr Hughes should have been spoken to. He states in his letter:
“I am not certain that a debtor agreement proposal pursuant to s 185 of the Bankruptcy Act may not have been more applicable and economical in the circumstances prevailing in the case of the debtors Hughes.”
Mr Robson also concludes:
“It is apparent to me that the terms of the Deed of Arrangement advanced to creditors at the reconvened meeting on 30 October, 1998 were beyond the servicing capacity of the debtors given their existing mortgage commitments of $19,000 per annum and given normal household and personal expenses.”
In conclusion Mr Robson stated that it was his opinion that it is unrealistic to expect Mr and Mrs Hughes to contribute $70,000 across a period of three years in order to deal with outstanding liabilities aggregating $37,000.
Discussion of Evidence
The parties in this matter relied on affidavit evidence. No notices requiring the cross-examination of any of the witnesses were issued, and no verbal evidence was given. In the circumstances, it is left to me to make findings based on the affidavit evidence before me. To the extent that the evidence in the affidavits conflicts, I do not have the advantage of assessing the credibility of the witnesses based on having their testimony tested by cross-examination. I have also been unable to observe the demeanour of any of the witnesses. In this case, therefore, I have to assess credibility and the weight to be given to the evidence based on all of the circumstances of the case.
There is a conflict of evidence as to what occurred at the meeting of creditors on 30 October 1998. The minutes of that meeting, which are annexed to Mr Holbrook’s affidavit of 1 December 1998, show that Mr Stedman was representing Mr and Mrs Hughes, and that on behalf of the debtors he put forward a proposal which was similar in terms to the proposal made in August 1998 but incorporated some amendments. The minutes also show that while there was some discussion in which Mrs Hughes and her daughter were involved prior to the adjournment, Mrs Hughes did not state either before or after the adjournment that Mr Stedman had no authority to represent her husband and herself, and did not raise an objection to the proposal which was eventually adopted by resolution at that meeting. Mr and Mrs Hughes now maintain that Mr Stedman did not have authority to act for them, and that Mrs Hughes voiced her objection to the proposal which was eventually accepted by resolution at the meeting.
The minutes of the meeting have been signed by Mr Holbrook and by the secretary. Pursuant to the provisions of s 257 of the Act, the minutes of proceedings at a meeting of creditors under the Act, signed by a person describing himself or herself as, or appearing to have been, chair of the meeting is prima facie evidence of those proceedings. The prima facie evidence contained by the minutes can of course be displaced by other evidence. In this case, Mr Holbrook and four other people who were present at the meeting have sworn affidavits containing evidence which are consistent with the minutes. Mrs Hughes and her daughter Christine Hughes have sworn affidavits which are more consistent with Mrs Hughes’ claim.
It appears to me to be most unlikely that Mr Holbrook in his capacity as controlling trustee, and a meeting of creditors, would have passed the resolution if Mrs Hughes had clearly voiced her objection that Mr Stedman had no authority to speak on her behalf, and that she had not put forward the proposal in the terms that were eventually accepted by the meeting. Further, it is my view that if Mrs Hughes had seriously been of the view at the relevant time that Mr Stedman had acted without authority and that he had put forward a proposal contrary to her express instructions, she would have stated that clearly in her letter to Mr Holbrook of 22 November 1998. Instead, that letter raises some other concerns about the quantum of the claims by various creditors and goes on to state that as soon as those matters were clarified and the Deed of Arrangement corrected they would be happy to sign the Deed. I do not accept Mrs Hughes’ explanation that she did not raise her objection in that letter as she had voiced it already to Mr Holbrook. In all of the circumstances, on the balance of probabilities, I find that although Mrs Hughes may have preferred a proposal in different terms being passed at the meeting of 30 October 1998, Mr Stedman was acting on behalf of Mr and Mrs Hughes at the time, and Mrs Hughes did not voice publicly her opposition to the proposal. It appears to be likely that Mrs Hughes was resigned to the outcome, as stated by some of the creditors present at the time.
Mr Holbrook as controlling trustee
On behalf of Mr Holbrook it is submitted that he is a registered trustee in bankruptcy, and was at all material times the controlling trustee of Mr and Mrs Hughes’ estate pursuant to s 188 of the Bankruptcy Act. Mr and Mrs Hughes admit that Mr Holbrook is a registered trustee in bankruptcy, but deny that he was the controlling trustee of their estate. They admit executing a document purporting to be a s 188(1) authority on 11 August 1998. Mr and Mrs Hughes state that Mr Holbrook failed to properly advise them of such matters pertinent to their decision to execution a s 188(1) authority, particularly the legal consequences of their having executed such an authority; the legal consequences of any failure by them to reach an agreement with their creditors; whether their financial circumstances justified the execution of such an authority; what options were available to be pursued by them in relation to their creditors that did not attract the provisions of Part X of the Act and the expense of entering into a Part X arrangement, initially or eventually.
There is no suggestion that the formal requirements of s 188 of the Act in relation to the signing and registering of the authority have not been complied with. Mr Holbrook has deposed to the fact that he advised Mrs Hughes in relation to Part X arrangements in some detail. In all of the circumstances of the case, I am satisfied that the provisions of s 188 of the Act have been complied with, and that Mr Holbrook was properly authorised to become the controlling trustee of Mr and Mrs Hughes’ estate.
The passing of the special resolution on 30 October 1998
I have already indicated my finding on the balance of probabilities that Mrs Hughes did not voice to the meeting of creditors on 30 October 1998 in public that she did not give Mr Stedman authority to put forward the proposal which was eventually accepted.
Section 204 of the Act provides in subs (1) that the creditors may, at a special meeting called in pursuance of an authority under s 188, by a special resolution require the debtor to execute a Deed of Assignment or a Deed of Arrangement under Part X. Section 216 of the Act states that a Deed of Arrangement shall be executed by the debtor and the trustee within 21 days from the day on which the special resolution requiring the debtor to execute the Deed was passed.
It is my view on the evidence before me that the formal requirements of s 204 in relation to the passing of the special resolution have been complied with. In these circumstances, Mr and Mrs Hughes were required to sign the Deed of Arrangement within 21 days from 30 October 1998.
Whether Mr Holbrook has standing to make the application
Section 221(1) states that where one of the requirements of subparagraphs (a), (aa), (b) or (c) have been met, the Court may, if it thinks fit, on the application of the Inspector-General, a creditor or the controlling trustee make a sequestration order against the estate of the debtor.
Mr Holbrook’s controlling trusteeship commenced on 12 August 1998. The application herein was filed on 3 December 1998.
Section 189(1A) states that the controlling trusteeship continues until, inter alia, four months have passed since the authority under s 188 became effective. Mr Holbrook’s controlling trusteeship therefore ceased on 12 December 1998.
It is argued on behalf of Mr and Mrs Hughes that as Mr Holbrook is no longer a controlling trustee, he does not have standing to bring the application under s 221. Further, it is submitted that Mr Holbrook is not a creditor of Mr and Mrs Hughes for the purposes of s 221(1)(b) nor (c) in relation to the special resolution by reason that Mr Holbrook was not a creditor taking part in the creditors’ meeting; nor did he vote in relation to the special resolution to execute a Deed of Arrangement; he was the trustee of Mr and Mrs Hughes’ estate at the meeting, and he would have been in conflict with his duty as such trustee and his personal interest as an alleged creditor (for any fees claimed by him); Mr and Mrs Hughes do not admit that Mr Holbrook was entitled to any fees or disbursements as claimed by him against Mr and Mrs Hughes; insofar as Mr Holbrook relies on s 109(j)(ii) of the Act, no evidence has been made of compliance with s 109(7), and the applicant is Kim David Holbrook, while the firm to whom fees are claimed as a creditor is Holbrook & Associates.
In relation to the last argument, Mr Holbrook has filed an affidavit which shows that he is a person carrying on business under the name Holbrook & Associates and that he does so solely and on his own account.
In relation to the submission that Mr Holbrook has no standing as he is no longer the controlling trustee, this Court must apply the general rules of statutory interpretation, including evincing the intention of Parliament when it enacted s 221. Counsel for Mr and Mrs Hughes referred to the case of Vaccaro v Mann (1991) 30 FCR 214. In that case, an appellant signed an authority under s 188(1) on 24 November 1986. On 29 December 1986 the appellant executed a Deed of Arrangement under Part X of the Act. On 22 January 1988 a Judge declared the Deed void as not having been executed in accordance with the provisions of the Act. The parties had proceeded on the assumption that the respondent remained the controlling trustee, and the respondent had entered into a contract for the sale of property on 8 June 1988. In July 1988, the Judge made an order granting leave to the respondent as controlling trustee to sell the property in accordance with the terms of the agreement. It was held in that case that on the execution of the Deed of Arrangement, the authority of the controlling trustee ceased and control passed to the trustee under the Deed. The controlling trustee’s appointment did not revive upon the Deed subsequently being declared void. It was held that the intention of Parliament is that the term of office for controlling trustee be no longer than is necessary to enable the debtors’ property to be released from control or to put in place some final form of statutory administration, whether by way of sequestration order or one of the recognised private arrangements for which Part X provides. It is my view that this case does not assist Mr and Mrs Hughes. I have already found that Mr Holbrook was validly registered as a controlling trustee, and his appointment continued until it expired on 12 December 1998.
Counsel for Mr Holbrook submitted that the Court must look at the provisions of s 221(1)(c) which is one ground on which, on the application of the controlling trustee, the Court may make an order. Section 221(1)(c) refers to a meeting of creditors called in pursuance of such an authority which has not, within four months from the date for which the meeting was called, passed one of the special resolutions referred to in subsection 204(1). If the submission of the applicant was correct, and the controlling trustee has no standing to make or continue an application once his or her trusteeship has expired, then a controlling trustee could never bring an application under subsection 221(1)(c). This could not be what Parliament intended. For this reason, I am of the view that although Mr Holbrook’s controlling trusteeship has expired, he, having brought the application as controlling trustee, has sufficient standing to maintain it. To interpret s 221(1) in the way that I have, means that the intention of Parliament in enacting s 221 and in providing for a legislative scheme regulating cases such as this has been given effect to.
I must now consider whether Mr Holbrook was in any event a creditor of Mr and Mrs Hughes.
Mr and Mrs Hughes rely on s 109(7) which states that:
“A special resolution shall not be deemed to have been duly passed for the purposes of paragraph (1)(j) unless the notice convening the meeting at which it was passed contained a copy of the proposed resolution.”
Section 109(1) states in part:
“(1)Subject to this Act, the trustee must, before applying the proceeds of the property of the bankrupt in making any other payments, apply those proceeds in the following order:
. . .
(j)ninth, in payment of:(i)such preferences, priorities or advantages in favour of any creditor or group of creditors as regards any other creditor or group of creditors; and
(ii)such costs, charges and expenses incurred in the interests of creditors before the date of the bankruptcy;
as a meeting of the creditors, by special resolution, resolves.”
It is conceded that the notice convening the meeting did not contain a copy of the proposed resolution relating to Mr Holbrook’s fees in that it did not set out every item of expenditure claimed by Mr Holbrook. He did however give notice that a special resolution would be called in relation to Mr Holbrook’s fees and charges generally. It appears unnecessary that the resolution passed should be in the exact terms of the proposal of which notice is given to the creditors provided that it is substantially consistent therewith (Re Morris; Ex parte Kelly (1939) 11 ABC 152). The creditors were given notice of Mr Holbrook’s charges and it is my view that the special resolution passed is not void simply because Mr Holbrook’s fees and charges were not set out fully in the notice. Further, it is my view that Mr Holbrook was by virtue of s 210 entitled in any event to remuneration under s 162(1) as fixed from time to time by resolution of the creditors. That does not require a special resolution. It is my view that Mr Holbrook has standing as a creditor to bring the application under s 221.
Whether Mr and Mrs Hughes failed without sufficient cause to execute the Deed
It is submitted on behalf of Mr and Mrs Hughes that they had sufficient cause to refrain from executing the Deed within the meaning of s 221(1)(b) in that:
· Mr Holbrook failed to adequately advise Mr and Mrs Hughes. In relation to this submission it is stated that it is common ground that Mr Holbrook has not met Mr Hughes.
· The proposed payments contemplated by the Deed of Arrangement were incapable of being met by Mr and Mrs Hughes to the knowledge of Mr Holbrook.
· The passing of the special resolution was against the express objection of Mr and Mrs Hughes.
· The costs of $32,417 are excessive when compared with the total admitted claims of $37,703.
I have already indicated that I accept Mr Holbrook’s evidence that he did advise Mr and Mrs Hughes about the consequences of entering into a Part X arrangement.
As to the point made on behalf of Mr and Mrs Hughes that Mr Holbrook has not met Mr Hughes, the minutes and the affidavits filed clearly show that Mrs Hughes at all times represented to Mr Holbrook and the creditors that Mr Hughes was content to let her deal with their creditors and make such arrangements as she thought fit. The minutes also show that Mrs Hughes was advised that it would be desirable to have Mr Hughes present at the meeting of creditors. It is my view that Mr and Mrs Hughes cannot now use the failure of Mr Hughes to attend any of the relevant meetings as a ground for opposing the application. If it were otherwise, debtors could defeat duly passed resolutions of creditors’ meetings simply by sending someone along in their place to say that they acted on behalf of them. This cannot have been the intention of Parliament.
It is further submitted that Mr Holbrook has failed to comply with Mr and Mrs Hughes’ wishes. In this respect, Mr Holbrook as controlling trustee is bound to take such action as he thinks appropriate. His duty is not simply to act solely in the interests of the debtors. Further, I have already indicated above that I do not accept Mrs Hughes’ evidence in relation to what happened at the meeting of creditors on 30 October 1998.
A substantial amount of time was spent at the hearing of this matter in relation to the alleged inability of Mr and Mrs Hughes to meet the payment schedule. In this respect, Mr and Mrs Hughes rely in part on the affidavits of Mr Robson and Mr Coppin.
Mr Coppin concludes in his affidavit that based on the monthly figures contained in his profit and loss statement, Mr and Mrs Hughes could make monthly payments of $250 or thereabouts after taking into account living expenses. There are a number of comments which must be made about this affidavit. First, the income tax returns and profit and loss statements contain disclaimers. There is no evidence before me as to the information used or the material upon which these statements have been prepared. Further, it is clear from the minutes of the creditors’ meeting of 30 October 1998 and from the affidavits filed herein that one of the options for Mr and Mrs Hughes was to rearrange their holdings of horses, so that they would have more income and less expenses. None of this has been canvassed by Mr Coppin.
Mr Robson’s affidavit contains a statement that he has no reason to depart from the matters set out in his letter to Mr and Mrs Hughes’ solicitor dated 26 March 1999. Some of the contents of that letter have already been set out. Some of the opinions expressed therein are very general and by no means unequivocal. Further, it is not clear what information Mr Robson had available to him when he prepared his opinion. The opinion does not canvass alternative methods of dealing with the horses which are such a drain on the expenses of Mr and Mrs Hughes. Mr Robson also bases his opinion on the fact that tax payable upon a taxable income of $60,000 is approximately $18,802. Some of the material contained in the affidavits before me indicate that in fact Mr Hughes had not paid tax on his income for some time because of the losses associated with the racehorses.
As I pointed out to counsel for Mr and Mrs Hughes, the affidavits of Mr Coppin and Mr Robson do not comply with this Court’s practice directions relating to expert evidence. I indicated at the hearing that although I would allow the affidavits into evidence, it was on the basis that they would be given such weight as I saw fit. Because of the matters I have already raised herein, and because it is apparent from the face of the affidavits themselves that Mr Coppin and Mr Robson have not been apprised of all of the information relevant to this case, I am not prepared to make a finding that Mr and Mrs Hughes were unable to meet the payment schedule. I also do not accept that Mr Holbrook knew that the proposed payments contemplated by the Deed were incapable of being met as alleged by Mr and Mrs Hughes. It was not in Mr Holbrook’s interest, and neither was it in the interests of the creditors, for such a resolution to have been passed if it was apparent that Mr and Mrs Hughes could not meet the repayment schedule. Further, Mr and Mrs Hughes did not put this forward as a reason for failing to execute the Deed when they wrote a letter to Mr Holbrook within weeks of the passing of the resolution.
In all of the circumstances of this case, I am not satisfied that Mr and Mrs Hughes had sufficient cause to fail to execute the Deed as alleged.
Mr Holbrooks’ fees
The question of Mr Holbrook’s fees also occupied a lot of time at the hearing of this matter. As at 1 December 1998 when Mr Holbrook swore his affidavit, it referred to his costs and expenses of $32,417, when compared with a total admitted claims of Mr and Mrs Hughes of $37,703.
Mr and Mrs Hughes have argued that the high level of Mr Holbrooks’ fees constitutes a sufficient reason for not signing the Deed of Arrangement.
It is true that the fees claimed by Mr Holbrook in relation to the Part X arrangement seem high when compared with the quantum of the claim. Mr Holbrook in his affidavits has set out in detail the basis upon which his fees have been charged, with reference to the IPAA rate. Mr Holbrook’s charges are at a level of 85% of the recommended rate. Section 162(4) states that where the remuneration of the trustee is not fixed by the creditors or the committee of inspection, the trustee is to be remunerated as prescribed by the regulations. In this case, the minutes show that Mrs Hughes requested an explanation of the basis on which Mr Holbrook’s fees were calculated at the meeting of 30 October 1998. The minutes do not show that Mrs Hughes, once the basis of the fees had been explained, challenged the level of those fees.
It is in any event open to Mr and Mrs Hughes to use the mechanisms for challenging the fees set out in the Act and regulations. There is no suggestion that Mr Holbrook is not entitled to any remuneration for the work he has done.
On the basis of these considerations, I am not satisfied that the level of Mr Holbrook’s fees provides a sufficient reason for Mr and Mrs Hughes to not sign the Deed of Arrangement.
Whether the Court’s discretion should be exercised
It is submitted on behalf of Mr and Mrs Hughes that because of the considerations put forward in relation to whether there was sufficient cause to not sign the Deed, the Court should not exercise its discretion pursuant to s 221 to make a sequestration order.
Further or alternatively, it is submitted on behalf of Mr and Mrs Hughes that the circumstances of this application are not sufficient to justify the exercise of discretion in favour of granting a summary sequestration order as sought by Mr Holbrook. It is submitted that the application is not a matter of such urgency warranting summary determination, nor do the circumstances warrant a summary order by reason of the matters already referred to.
It is further submitted that as Mr and Mrs Hughes have a net surplus of $75,000 of assets over liabilities, they are solvent and a sequestration order should not be made.
On behalf of Mr Holbrook it is submitted that the discretion should be exercised for the following reasons:
· Mr and Mrs Hughes were unable to pay their debts as and when they fell due when they approached Mr Holbrook for financial assistance under the Bankruptcy Act. On Mr and Mrs Hughes’ own evidence contained in the affidavit of Mrs Hughes, they were having trouble paying the debts to the Water Corporation and generally could not pay their debts as and when they fell due.
· Mr and Mrs Hughes have led no evidence that they are now solvent or that they were solvent at the time they appointed Mr Holbrook as their controlling trustee.
· The criteria in both ss 221(1)(b) and 221(1)(c) have been satisfied.
A consideration of whether or not to exercise a discretion in a case such as this involves balancing a number of competing factors. On the side of Mr and Mrs Hughes, there is no doubt that they do not wish a sequestration order made. Their assets exceed their liabilities to the extent that if their real property were sold, there would be sufficient money to pay each of their creditors in full. On the side of the creditors, Mr and Mrs Hughes were unable to pay their debts at the time that they saw Mr Holbrook in August 1998, and no further attempt to pay the outstanding debts has been made since that time.
On behalf of Mr and Mrs Hughes it has been urged that I consider the factors raised in relation to the submission that they had sufficient cause not to sign the Deed of Arrangement. I have already dealt with those factors, and I have indicated on balance I am not satisfied of the matters put forward in relation thereto.
In addition, a decision whether or not to exercise the discretion in this case involves the consideration of whether Mr and Mrs Hughes are solvent. Solvency is defined in the Bankruptcy Act as the ability to pay debts as and when they fall due. All of the evidence points to Mr and Mrs Hughes not being able to pay their debts as and when they fell due. The fact that their assets exceed their liabilities does not mean that they are solvent. In the case of Sandell v Porter (1966) 115 CLR 666 at 670 Barwick CJ stated:
“Insolvency is expressed in s 95 [of the Bankruptcy Act 1924 Cth] as an inability to pay debts as they fall due out of the debtor’s own money.But the debtor’s own moneys are not limited to his cash resources immediately available.They extend to moneys which he can procure by a realization by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor.The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity.It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.”
On the basis of this test, it appears that Mr and Mrs Hughes are insolvent. They claim that they are unable to meet the cash repayments each month as required by the terms of the Deed of Arrangement. It was precisely because they could not pay their debts as they fell due which caused them to seek Mr Holbrook’s assistance.
For these reasons, I am satisfied that it is appropriate to make the order sought by Mr Holbrook. In the original application Mr Holbrook sought an order that the time for the service of the application be abridged. That point was not subsequently argued and the matter has proceeded by consent to a hearing on affidavit. In the circumstances, as a sequestration order is to be made, the relief sought in the application filed by Mr and Mrs Hughes is no longer relevant. The parties agreed at the outset of the hearing that if Mr Holbrook was successful in his application, Mr and Mrs Hughes’ application falls away.
The Court orders:
A sequestration order be made against the estate of Derek Hughes and Sandra Anne Hughes.
The respondent’s costs of and incidental to the application be taxed and paid out of the estate of Derek Hughes and Sandra Anne Hughes.
I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment of Boon JR
A/g Associate:
Dated: 20 May 1999
Counsel for the Applicants/Respondents: Mr B W Duckham Solicitors for the Applicants/Respondents: B W Duckham & Co. Counsel for the Respondent/Applicant: Mr R A Zilkens Solicitors for the Respondent/Applicant Zilkens & Co Date of Hearing: 29 April 1999 Date of Judgment: 20 May 1999
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