In the matter of Peck, P.F. Ex parte Peck, P.F. v Marchesi, B.J

No judgment structure available for this case.

PETER FRANCIS PECK
Ex parte: PETER FRANCIS PECK v. BRENDAN JOHN MARCHESI
No. VX116 of 1993
FED No. 501
Number of pages - 9
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
GENERAL DIVISION
Olney J(1)

CATCHWORDS

Bankruptcy - Part X - controlling trustee appointed - entitlement to vote at meeting of creditor - review of decision of chairman - onus on claimant to establish debt due by debtor.

Bankruptcy Act, Part X, section 188

Forshaw v Thompson and another 106 ALR 633

Re Tregonning; ex parte Friends' Provident Life Office (1983) 74 FLR 327

Zantiotis v Andrew (No. 2) (1988) 80 ALR 299

Re McLean; ex parte Friends' Provident Life Office 108 ALR 360

HEARING

MELBOURNE, 14 July 1993

#DATE 23:7:1993

ORDER

The Court orders that:

1. The application filed on 23 June 1993 be dismissed;

2. The applicant pay the respondent's costs, to be taxed, and in the event that the applicant becomes bankrupt on the petition in proceedings VP 178/1993, such costs be costs in the bankruptcy.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

BACKGROUND

OLNEY J On 30 September 1992 Cyril Joseph O'Shaughnessy (the petitioning creditor) obtained judgment in the County Court of Victoria at Melbourne against Crux Investments Pty Ltd (Crux) and Peter Francis Peck (the debtor) in the sum of $106,000 plus interest in the sum of $14,061, being a total judgment of $120,061, together with costs to be taxed.

The judgment debt not having been paid, the petitioning creditor caused a bankruptcy notice to be issued against the debtor on 16 October 1992. Service was effected on 5 November 1992. The debtor did not respond to the bankruptcy notice within the time provided for in the notice. On 18 February 1993 the petitioning creditor presented a bankruptcy petition. The petition was issued on 22 February 1993 and served on 4 March 1993. Upon the return of the petition on 3 May 1993 the debtor appeared by his solicitor and filed in Court an affidavit sworn the same day in which he deposed to having on 1 April 1993 signed an authority pursuant to section 188(1) of the Bankruptcy Act appointing Brendan John Marchesi (the respondent) as controlling respondent of his affairs. He further deposed that the respondent had called a meeting of creditors which was held on 30 April 1993 but that due to uncertainty as to the validity of a debt claimed by one of the creditors the meeting was adjourned to 31 May 1993. On the basis of these facts the debtor sought the adjournment of the creditor's petition until a date shortly after the adjourned meeting of creditors. Whether by consent or otherwise does not appear from the Court record, but on 3 May 1993 the creditor's petition was adjourned until 3 June 1993.
On 3 June 1993 further affidavits were filed on behalf of the debtor. Of most relevance is an affidavit of Raymond Francis Moore (Moore) who deposed to being a director of Morco Investments Pty Ltd (Morco) which claimed to be a creditor of the debtor in the sum of $486,309 by reason of a guarantee dated 20 December 1990 given by the debtor. The thrust of Moore's affidavit was that at the adjourned meeting of creditors on 31 May 1993, the respondent (as chairman of the meeting) disallowed the claim of Morco to vote at the meeting as a creditor notwithstanding 2 affidavits provided to the respondent. A motion to adjourn the meeting to enable Morco to seek legal advice was defeated. No creditor present at the meeting was prepared to move the acceptance of the proposal put by the debtor. Moore's affidavit was filed in support of an application by the debtor to adjourn the hearing of the creditor's petition to enable him (Moore) to investigate the legal options open to Morco. The debtor's adjournment application was not granted but on the motion of the petitioning creditor the hearing was adjourned to 24 June 1993. On the latter date directions were given for the filing of further affidavit material and the hearing of the petition was adjourned to 14 July 1993.
The proposal made by the debtor pursuant to section 188(2)(c) of the Act was that his affairs be dealt with as follows:

1. A Deed of Arrangement executed in accordance with Part X of the Act, such Deed to provide for the payment of the sum of $15,000 upon acceptance of the Deed.

2. A covenant from Ray Moore to not rank in competition with other creditors.

3. The monies received by the Trustee to be distributed as follows: A. In payment of the controlling trusteed remuneration and expenses.

B. In payment of the costs of administering the Deed of Arrangement including the remuneration of the Trustee. C. Rateably amongst creditors proved in accordance with the provisions of the Bankruptcy Act.

4. A release of the debtors upon the terms of the Deed of Arrangement being carried out.

The debtor's statement of affairs made pursuant to section 188(2)(c) discloses unsecured creditors amounting to $615,533 and assets of $3,180. The largest single creditor is shown in the statement as:

Ray Moore

Circuit Finance

PO Box 1147

Geelong Vic. 3220

The amount of the debt is shown as $325,209, the year 1992 and the nature of the debt "Services rendered".
At the meeting of creditors held on 30 April 1993 the respondent was appointed chairman. The minutes record, inter alia, as follows:

Mr Marchesi advised that a proxy had been received from Mr Moore claiming the sum of $486,309.00 which comprised principal of $325,209.00 and interest of $161,100.00. Creditors were advised that details of this claim including a handwritten guarantee had only been received approximately one hour prior to the meeting and that the Chairman was unable to verify the validity of the claim for voting purposes. Mr Marchesi stated that as Chairman he would be seeking to adjourn the meeting pursuant to Section 201 of the Bankruptcy Act to seek further details in relation to the claim of Mr Moore.

In the end, the meeting was adjourned until 31 May 1993 by a resolution of the creditors.
At the adjourned meeting on 31 May 1993 the respondent continued to act as chairman. Apart from the respondent, who held proxies (either in his own name or as chairman) for 14 creditors, 5 creditors attended in person. Moore did not attend.
The minutes reveal, inter alia, as follows:

Creditors were advised that certain documents and affidavits had been provided to support the claim of Mr Moore or alternatively Morco Investments Pty Ltd. All available information had been forwarded to solicitors representing the controlling trustee and it was their opinion that Mr Moore or alternatively Morco Investments Pty Ltd was not entitled to vote at the meeting. Mr Marchesi advised creditors that he would follow this determination.

After some debate concerning Moore's claim, a creditor (who happened also to be Moore's solicitor) moved that the meeting adjourn for 28 days. The motion was lost, there being 3 creditors (representing $218,504) voting against it, and one creditor ($11,532) in favour. After recording details of the voting on the adjournment motion, the minutes continue:

Mr Marchesi advised that the proxies he was holding would be used to support the views of the majority of creditors attending personally as detailed above. It was noted that the chairman was holding proxies totalling $62,215.00 in value excluding the claim of Morco Investments Pty Ltd.

Mr Marchesi then referred to the debtor's proposal and briefly explained the avenues available to creditors under Part X of the Bankruptcy Act and advised that in the circumstances either a Deed of Arrangement or a Debtors Petition appear the main alternatives. Creditors were also informed that a creditors petition issued by Mr O'Shaughnessy had been adjourned until later this week. Mr Marchesi then read out the debtor's proposal for a Deed of Arrangement and asked if anyone was prepared to move the special resolution. No-one in attendance was prepared to move the special resolution. Mr Marchesi noted that he was holding a number of proxies requiring him to vote for the Deed of Arrangement and requested a short adjournment to allow him to seek an opinion as to whether the Chairman could move the special resolution. Upon returning to the meeting Mr Marchesi advised that he would not be moving the special resolution.

Mr Marchesi then enquired whether anyone wanted to move a special resolution requiring the debtor to execute (sic) a debtors petition. No-one in attendance was prepared to move the resolution and Mr Marchesi advised that he was holding proxies requiring him to ote for the special resolution but he would not be moving the special resolution.

There being no further business the meeting concluded.

THE APPLICATION
12. On 23 June 1993 the debtor filed an application seeking orders:

1. That the determination of the respondent as Chairman of a meeting of creditors of the applicant on 31 May, 1993 that Morco Investments Pty Ltd or alternatively Raymond Moore not be permitted to vote at the meeting of creditors be set aside.

2. That the decision of the creditors at the meeting of the applicant's creditors held 31 May, 1993 not to adjourn the meeting be set aside.

3. That the respondent be directed to forthwith call a further meeting of the creditors of the applicant for the purpose of considering the applicant's proposal pursuant to Part X of the Bankruptcy Act 1966.

4. That the respondent be directed to allow Morco Investments Pty Ltd or alternatively Raymond Moore to vote as a creditor at a meeting of creditors of the applicant in the sum of $486,000.

5. That the respondent pay the costs of this application.

The application and the creditor's petition were both listed for hearing on 14 July 1993. Although the two matters were heard at the same time it was agreed that the questions raised by the application should be resolved before the petition was dealt with. After hearing argument on the merits of the application I decided to reserve my decision. The creditor's petition was adjourned, by consent, to 16 August 1993. These reasons relate only to the issues raised on the application.

THE EVIDENCE
14. In an affidavit sworn by the debtor on 23 June 1993 and filed in support of the application the debtor says (in paragraphs 5 and 6 thereof):

5. In my Statement of Affairs I list at unsecured creditor number 13 Ray Moore as a creditor for $325,209.00. I have subsequently reconsidered the precision of this information and can say that a company controlled by Mr. Moore namely Morco Investments Pty. Ltd. is the creditor to which I intended to refer and that I am indebted to Morco Investments Pty. Ltd. in the sum of $486,309.00. This liability arises pursuant to the a (sic) Guarantee given by me on or about 20 December, 1990 whereby I guaranteed investment funds advanced by Morco Investments Pty. Ltd. to a company controlled by me Crux Investments Pty. Ltd. The funds advanced totalled $325,209.00. Annexed to this my Affidavit and marked "PFP 3" is a copy of a written acknowledgment of my guarantee dated 20 December, 1990. I say the following in relation to that written document and the guarantee given by me:-

(a) It was agreed by me and was my intention that I guaranteed repayment of the sum of $325,209.00 together with a return of at least 50% on that sum making a total of $486,309.00.

(b) That the monies advanced were advanced by Morco Investments Pty Ltd, a company controlled by Mr. Moore and my guarantee was given to that company.

6. No part of the sum of $486,309.00 referred to in paragraph 5 above has been repaid to either Morco Investments Pty. Ltd. or Raymond Moore. A demand for repayment was made on me on 4 March

1993. Annexed to this my affidavit and marked "PFP 4" is a copy of the demand.

The document marked "PFP 3" is handwritten, presumably in the debtor's own writing, and is as follows:

To Ray Moore,

Moorabool St

Geelong

I acknowledge receipt of your moneys, totalling $325,209.00 entrusted to me for investment into the markets at my absolute discretion.

Further, I will personally undertake to guarantee these funds will provide to you a return of at least 50%, after which we will participate equally in the profits.

Dated 20th December 1990.

Peter Peck

PETER FRANCIS PECK

47 MILLBANK DRIVE

The document marked "PFP 4" (referred to in paragraph 6 of the debtor's affidavit) is type-written, except for the figures and words "4th" and "March" and the signature "Ray F. Moore", all of which are in handwriting. The full text of the document is as follows:

Mr P. Peck

320 Collins Street

MELBOURNE VIC. 3000

I, Raymond Moore of Circuit Finance Ltd, Geelong, demand that you satisfy the terms of the personal guarantee which you undertook when trading funds on my behalf. I give you formal notice that unless you pay to me the amounts set out in the Schedule within 14 days, action will be taken to recover same, and additional interest will accrue.

The Schedule

Principal Amount $325,209.00

Guaranteed return 161,100.00

$486,309.00

Dated at Geelong this 4th day of March

Signed

Ray Moore Ray F. Moore

The debtor supports his application with a second affidavit sworn by him on 13 July 1993 to which is annexed what are said to be "extracts from the accounting records of Morco giving details of the investment transactions between that company and Crux Investments Pty Ltd which traded as 'Comm-Check'". The debtor says that he is able to verify the accuracy of those accounts in so far as they relate to dealings with Comm-Check from his knowledge of the books and records of Comm-Check. The document attached to the affidavit is a single page headed "General Ledger as at 30th June 1991" and at the foot of the document there is the name "Morco Investments Pty Ltd". Only one of the items on the page appears relevant. The item is shown thus:

DETAILS DEBIT CREDIT TOTAL 700 Comm-Check - Futures Market

Opening Balance 325208.92 325208.92 TOTAL 700

The only other evidence in support of the application is an affidavit sworn by Moore on 12 July 1993 in which he says he is a director of Morco which is a creditor of the debtor in the sum of $486,309 by reason of a guarantee given by the debtor dated 20 December 1990. He further verifies paragraphs 5 and 6 of the debtor's affidavit sworn 23 June 1993 and says:

(a) Morco Investments Pty. Ltd. advanced sums to Crux Investments Pty. Ltd. over a period of time prior to 20 December 1990 and the balance standing to the credit of Morco Investments Pty. Ltd. totalled $325,209.00.

(b) Shortly prior to 20 December, 1990 the Applicant guaranteed the return of those funds together with an additional amount of not less than 50% of that fund. The Applicant signed the document annexed to the Affidavit of the Applicant and marked "PFP 3" in support of that Guarantee.

(c) A demand for repayment of the total sum of $486,309.00 was made on 4 March, 1993 and the document annexed and marked "PFP 4" to the Affidavit of the Applicant is a copy of the demand.

(d) No part of the sum of $486,309.00 has been repaid to Morco Investments Pty. Ltd.

Moore also says that if Morco had been permitted to vote at the meeting of creditors on 31 May 1993 it would have voted in support of the proposal pursuant to Part X and in support of the motion for adjournment of the meeting.
An affidavit sworn by the respondent on 12 July 1993 was filed in answer to the application. For the most part the respondent's affidavit refers to matters already mentioned and exhibits documents referred to above. There is however annexed to the affidavit a bundle of papers which is said to comprise copies of all Forms 44 received by the respondent prior to the second meeting of creditors.
An analysis of these documents reveals that the following creditors had given proxies in favour of either the chairman or the respondent personally and that in accordance with section 200(3A) the creditors had indicated their respective voting instructions in relation to a resolution requiring the debtor to execute a Deed of Arrangement in the manner shown below:

National Australia Bank Ltd $9,788.51 against American Express International Inc. 10,628.56 against Robert John Spicer 200.00 for Earle W. Peck 600.00 for Phillips Fox 1,000.00 for Sheila Durkin 480.00 for Waverley Credit Union 5,082.30 against David Hindle 650.00 for Morco Investments P/L 486,309.00 for Alan Fryday 4,000.00 for Mark G. McSweeney 17,500.00 for Challenge Bank Limited 5,111.90 against Australia and New Zealand Banking Group 2,627.69 against Citibank Savings Limited 7,176.10 against

From the above it appears that the respondent held 6 proxies representing creditors of a total value of $40,415.06 whose instructions were to vote against a resolution for a Deed of Arrangement, and 8 proxies representing $24,430 authorising a vote for such a resolution.
It is not clear whether the respondent held any general proxies in the form of Form 43. No such proxies are annexed to his affidavit but the reference in the minutes of 31 May 1993 to his statement that the proxies he was holding would be used to support the views of the majority of creditors attending personally suggests that he did in fact hold such proxies.
In his affidavit the respondent says that assuming Moore or alternatively Morco had been admitted to vote, the resolution in favour of the debtor's proposal would not have been passed. According to his calculations (which are not challenged) there would have been 9 creditors representing $522,271 (or 66.84%) for and 9 creditors ($259,095) against.
The respondent has also exhibited to his affidavit two affidavits sworn by Moore dated respectively 18 May 1993 and 24 May 1993. These are the affidavits which were submitted to him prior to the adjourned meeting of creditors on 31 May 1993 and to which reference is made in the first extract quoted above from the minutes of that meeting.
In the affidavit dated 18 May 1993 Moore said that over a period of years he had invested through Comm-Check (a business which he understood was controlled by Crux Investments Pty Ltd of which the debtor was the principal) for the purpose of dealings on commodity markets. In December 1990, by which time the amount invested had by reason of profits increased to $325,209, he held discussions with the debtor during which he expressed satisfaction with the performance of the investment but also expressed concern at the lack of security. He said that he and the debtor agreed that in consideration of him leaving his money with Crux, the debtor would personally guarantee the investment and that the investment would grow by at least 50% so that it would become worth at least $486,000. The debtor was said to have guaranteed repayment of that sum when demanded provided that no demand was made for 2 years. In consideration of those promises and guarantee Moore said he agreed that he and the debtor would share equally all profits earned above the return of 50% on his capital. The document dated 20 December 1990 was signed as the debtor's acknowledgment of the agreement.

In the affidavit of 24 May 1993 Moore said that when he struck the agreement with the debtor in December 1990 (and also in his affidavit of 18 May 1993) the reference to the money being his was intended to be a reference to money invested by Morco, a company of which he was the major shareholder and which he controlled.
In neither of the affidavits just referred to did Moore refer to the demand referred to in paragraph 6 of the debtor's affidavit of 23 June 1993 in which he claimed $486,309. The debtor did not seek to rely upon the affidavits of 18 and 24 May 1993. In particular it was not part of the debtor's case that Morco had the right to demand payment of the capital plus 50% after 2 years.

THE ISSUES
29. It is common cause that the Court has jurisdiction to examine the decision of the chairman of a meeting of creditors called under Part X of the Bankruptcy Act. The question of the Court's jurisdiction and powers in such a context was examined by the Full Court of the Federal Court in Forshaw v Thompson and another 106 ALR 633. Both counsel accept that the decision in Forshaw v Thompson applies in the present case.

It is also conceded that in considering the decision of the chairman of the meeting, the Court is to determine whether the chairman's decision was correct having regard to all the facts in evidence before the Court and not merely to the material before the chairman at the time (re Tregonning; ex parte Friends' Provident Life Office (1983) 74 FLR 327; Zantiotis v Andrew (No. 2) (1988) 80 ALR 299).
The primary issue that falls for decision in this case is whether Morco was entitled to vote in respect of the debt claimed or some other debt. The onus lies upon the debtor, as the applicant in these proceedings, to establish that Morco is a creditor of the debtor (re McLean; ex parte Friends' Provident Life Office 108 ALR 360).
The debtor's case is based upon what is said to be the true construction of the document dated 20 December 1990. It is said first that the document evidences an argument between the debtor and Morco and second, that the words "I will personally undertake to guarantee these funds will provide to you a return of at least 50%" mean that the debtor undertook a personal liability to pay Morco on demand the sum of $325,209 together with a further sum equal to 50% of that sum. The debtor says that upon demand being made on 4 March 1993, he became personally liable to Morco.
If on the proper construction of the document the debtor did become personally liable to Morco then the respondent, as chairman of the meeting, erred in not admitting Morco's claim for the purpose of voting at the meeting held on 31 May 1993. Whether or not such an error would justify the granting of the relief sought is a matter that would need to be considered in the context of all of the facts and circumstances.
In re McLean; ex parte Friends' provident Life Office, after reviewing several relevant authorities Heerey J said at p 369:

The issue of entitlement to vote at the meeting has to be decided once and for all. There is no later occasion on which the issue may fall to be decided. So the situation is not truly analogous to that which arises on a summons for final judgment or application for interlocutory injunction where the possibility of a subsequent full hearing on the merits is in contemplation. Likewise the alleged "counter-claim, set-off or cross-demand" considered in Ebert and Re Brink was one which, according to the claim of the debtor in the bankruptcy court, could be raised at a future date in another court. The Act confers a right to vote on creditors, not persons who have an arguable case that they are creditors. It may be that complex issues of fact and law are raised, but that is a matter to be dealt with by appropriate procedural directions and cannot be determinative of the nature of the jurisdiction conferred on the court.

The contrary view would create an anomalous position. If all a creditor had to show under s 222(1) was an arguable case that the alleged debt was owing, it would logically follow that a debtor complaining of the inclusion of a disputed debt by the chairman would only have to show an arguable defence to make out a claim under the same provision. Since there might be an arguable claim and an arguable defence in respect of the same debt, the court would face a dilemma if arguability is the test. The creditor would say, "I should have been allowed to vote because I have an arguable claim", and the debtor would say, "the creditor should have been excluded because I have an arguable defence".

In my opinion Heerey J's comments are consistent with authority, and with respect, I adopt them as being apposite in the present context.

FINDINGS
36. Neither party sought to cross-examine any deponent. Accordingly, I can make no findings as to credibility of the deponents. However, even when the evidence is all one way, it has to have some intrinsic credibility to be probative of the facts asserted.

I am firmly of the opinion that the agreement said to be evidenced by the document of 20 December 1990 was made between Moore and the debtor. The document is addressed to Moore personally and the debtor obviously thought Moore to be the beneficiary of the agreement when he showed Moore as the creditor in his statement of affairs sworn on 1 April 1993. Further, his proposal to the creditors involved Moore (and not Morco) not participating in the proposed distribution. The notice of demand said to have been made on 4 March 1993 is signed by Moore without reference to Morco and is expressed in the first person. The minutes of the meeting of 30 April 1993 indicate that the trustee had received a proxy from Moore and no reference is made in those minutes to Morco. And the affidavit of 18 May 1993, which is the first comprehensive statement of the claim against the debtor is expressed unequivocally as a claim by Moore against the debtor. Moore's affidavit of 24 May 1993, and his affidavit filed in these proceedings are inconsistent with the earlier conduct of both Moore and the debtor, in particular, they are inconsistent with the terms of the document which is basic to the claim. The only corroborative evidence put to support Moore's assertion that Morco was the intended beneficiary of the agreement with the debtor is a page from what is said to be Morco's general ledger as at 30 June 1991. This document was produced by the debtor (and not Moore) without any explanation as to how he came by it. The debtor says of it that it gives details of the investment transactions between Morco and Crux. It does no such thing. It contains a single item which demonstrates nothing more than that at 31 June 1991 Morco's general ledger disclosed an investment of $325,208.92 with Comm-Check. What is significant is that although the debtor says that he can verify the accuracy of this information from his knowledge of the books and records of Comm-Check, he has not produced those books and records nor given any explanation for not producing them. Be that as it may, whatever information the books of Comm-Check may reveal, there is nothing improbable about the debtor entering into a personal arrangement with Moore of the type apparently contemplated by the document dated 20 December 1990 that demands that it be construed in a manner quite inconsistent with its terms.
Nothing in the evidence nor in any of the argument advanced is of sufficient weight or probative value to discharge the debtor's onus of establishing that, whatever obligations the debtor undertook on 20 December 1990, he thereby became committed to Morco rather than to Moore. If Morco's claim against the debtor were to be litigated on the basis of the evidence that has been put before this Court it would in my opinion fail. The alleged contractual basis for the claim does not create any entitlement in Morco to claim any sum whatever as a creditor of the debtor.
Even assuming (but without finding) that on 31 May 1993 the debtor was indebted to Moore in the sum claimed or some other sum Morco had no standing to vote at the meeting. The respondent could not exercise the proxy given by Morco and as he held no proxy from Moore (and as Moore was not present to vote in person) the question of whether or not the debtor was liable to Moore in the sum claimed or any other sum was not something that required the respondent's attention. The respondent had received legal advice that neither Morco nor Moore were entitled to vote. Only Morco sought to establish a claim as a creditor. In my opinion the respondent properly rejected that claim. Accordingly, the vote on the motion for adjournment cannot be challenged, nor can it be said that the respondent had any standing to move as proxy for Moore, the adoption of the debtor's proposal.
I have not found it necessary to explore the question of whether the document dated 20 December 1990 is capable of giving rise to an obligation on the debtor's part to both repay the capital sum invested and a 50% return thereon. I express no opinion on that question. It is sufficient for present purposes that it has not been shown that Morco is a creditor of the debtor. That being so it had no entitlement to vote at the meeting of creditors. There is no justification to grant any of the relief sought. The application will be dismissed.