Kerr, Re D.A. Bannon, Ex Parte R.A.

Re: DAVID ARMSTRONG KERR
Ex Parte: RODERICK ALFRED BANNON; BRIAN JOHN BANNON; GABELLE PTY LTD; TANTA
PTY LTD; TOULON PTY LTD and ROBERT JAMES SEMMENS
No. 33 of 1984 Part X
S.104 Bankruptcy Act

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
Forster J.

CATCHWORDS

S.104 bankruptcy Act - Creditors dissatisfied with decision of scheme trustee - power of court to reverse, change the trustee's decision - review by way of hearing de novo - review after termination of deed of arrangement by trustee - proof of debts - proof of interest.

Bankruptcy Act

Re: Hanifin ex parte Britcher (1955) 17 A.B.C. 24

HEARING

ADELAIDE

#DATE 24:7:1986

ORDER

1. The proof of debt submitted by Gabelle Pty Ltd for $30,000 plus $5,000 interest shall be admitted.

2. The proofs of debt lodged by Roderick and Brian Bannon for the respective sums of $2,000 and $1,790 shall be admitted.

3. The proofs of debt recited to be of three companies, Carnsome Pty Ltd, Tanta Pty Ltd and Toulon Pty Ltd shall be amended so as to delete Carnsome Pty Ltd.

4. The proof of debt submitted by Tanta Pty Ltd and Toulon Pty Ltd shall be admitted for $50,000. The further amount claimed for interest, $15,830-48 and for costs, $1,440 shall be rejected.

5. The proofs of debt submitted by Robert James Semmens for the following sums - (a) $10,000, (b) $5,000, (c) $4,250 and (d) $650, totalling $18,900 shall be admitted. The remaining amounts and the interest claimed shall be rejected.

Note: Settlement and entry of order is dealt with in

Bankruptcy Rule 124.

JUDGE1

These applications for review heard together are brought pursuant to s.104 of the Bankruptcy Act by creditors dissatisfied with the decision of a scheme trustee to reject their respective proofs of debt. Upon such an application the court has power to confirm, reverse or vary the decision of the trustee. Section 104 is made applicable in the case of a scheme by s.237(2) of the Bankruptcy Act. The review is by way of rehearing and further evidence was adduced orally and by affidavit (re Hanifin ex parte Britcher (1955) 17 A.B.C. 24).

The background to these matters is as follows. David Armstrong Kerr on 27 September 1984 entered into a deed of arrangement under Part X of the Bankruptcy Act and one Mathews was appointed trustee of the scheme. The scheme was a somewhat complicated one into the details of which it is not necessary to go. It provided for the assignment to the trustee of all property which could have been divisible amongst Kerr's creditors had he become bankrupt on the date of the execution of the deed. Prior to the termination of the deed Kerr was required to cause to be incorporated a company which was to be the trustee of a unit trust. This company was incorporated. The issued capital of the company was to be allotted to such of Kerr's creditors whose proofs of debt were accepted for proof. These creditors whose proofs were accepted were to have allotted to them units in the unit trust in proportion to their respective debts.
The four creditors concerned lodged proofs of debt with the trustee which were rejected by him on 14 June 1985. Each creditor filed and served an application for review on 3 July 1985 within the period of 21 days limited by s.104(3) of the Bankruptcy Act. On 7 July 1985 the trustee terminated the deed pursuant to the powers given to him by clause 7 of it.
I am informed that neither shares in the company have been allocated to creditors nor units in the unit trust, both allocations awaiting the outcome of these proceedings. Notwithstanding that the deed has been terminated by the trustee in the sense that his appointment has come to an end the provisions of the deed as to allotment of shares and units have not been carried out and to this extent implementation of the deed is not complete. There is no provision in the Bankruptcy Act which precludes a review of a trustee's decision after the termination of the deed. The termination no doubt releases the debtor from his obligations with respect to provable debts but it does not as it seems to me prevent the subsequent carrying into effect of the provisions of the deed as to the allocation of shares and units. Nor does it nor should it preclude the applicant creditors from having a rehearing with respect to their proofs of debt. If the shares and units had been allotted the position might have been different but nothing has been done which might need to be undone if all or any of the proofs in question are admitted. In the circumstances I have decided to deal with the applications. The facts regarding each are different and they will need to be examined separately.
First, the application of Gabelle Pty Ltd (Gabelle), a director of which is Frank Kopka. Evidence relating to this proof of debt was received by way of three affidavits and the oral evidence of Kerr and Semmens. I believe the affidavits of Kopka and that they set out the true position which is to a large extent corroborated by evidence from other sources.
Gabelle Pty Ltd lent $30,000 to Kerr who agreed to repay $35,000, $5,000 being for interest. The problem is that the cheque was made out to Auscoteng Pty Ltd (Auscoteng), a company directed and administered by Kerr and now in liquidation. I am prepared to accept Kopka's affidavit evidence regarding this, that is to say that the loan was always intended by him to be a personal loan to Kerr. Kopka, being a quadriplegic, has limited hand and arm movement. Upon his agreeing to lend this sum a cheque form was presented to him for his signature, the remainder of the cheque details being completed by somebody else. It was reasonable for a man with Kopka's disabilities to leave the filling out of the cheque to someone else, although it was foolish of him not to have had the cheque completed before signing. The cheque was later made out to Auscoteng by someone unknown to Kopka.
In light of Kerr's financial straits at the time it is more than likely and indeed admitted by him that the bank would have seized any money paid into his account and therefore for the sole purpose of protecting himself the personal loan to Kerr was conveniently put in the name of Auscoteng. Evidence was lead from Craddock, the official liquidator of Auscoteng who, after examination of the company's books and balance sheets, could find not even a hint of a loan for $30,000 or $35,000 to that company by Gabelle. Further he says that Kerr indicated in conversations with him that all loans were personal loans to him and in turn lent to the company. There are among Auscoteng Pty Ltd's papers no records of a loan account of Kerr but the records are incomplete in many respects.
More support is lent to Kopka's claim by the undated cheque made out to him by Kerr for $35,000. Unfortunately this cheque has never been dated and remains dishonoured. It would seem to me to lend greater support to a personal loan rather than a company loan. There is also the letter of Martens of 24 December 1982 guaranteeing the repayment of the loan of $35,000 by Kerr to Kopka. I reverse the trustee's decision to reject this proof of debt for $35,000 which should be admitted.
I deal next with the proof of debt submitted by the Bannon brothers, Roderick and Brian. They claim with respect to a cash cheque drawn by R. & B. Bannon Investments Pty Ltd for $2,000 on the footing that this was a personal loan to Kerr. This allegation is supported by evidence given by Kerr. When R. & B. Bannon Investments Pty Ltd was sold the Bannons personally acquired this debt from that company. These people had already dealt with Kerr lending him $150,000, a debt accepted by the trustee. I believe proof of this debt is sufficient and it should be admitted.
Also claimed by the Bannon brothers is a debt of $1,790 being the monthly interest on a loan of $150,000, proof of which has been accepted. There had been two previous payments made to the Bannons of $1,790, the third cheque for this amount was dishonoured. Given that the debt for $150,000 has been accepted for proof there seems no reason not to allow the interest arising out of it and accordingly I reverse the decision of the trustee with respect to this proof of debt. I should say that the information provided to the trustee with the proof of debt as to the amount of interest was exiguous in the extreme and simply relied on a dishonoured cheque with no further particulars. Given what he was told the trustee was, in my opinion, right to reject this portion of the proof, but with the information which I now have I find that this portion of the proof should be accepted.
The third proof of debt is that of Tanta Pty Ltd (Tanta) and Toulon Pty Ltd (Toulon). The proof is recited to be that of these two companies and also Carnsome Pty Ltd (Carnsome) and claims with respect to a loan of $50,000, interest of $15,830-48, and "cost" of $1,440. Brian Bannon is a director and substantial controller of Tanta and his brother Roderick is a director and substantial controller of Toulon. The evidence of the Bannons corroborated by Kerr and to some extent by Semmens is that Kerr needed $50,000 urgently to repay a debt to one McCauley, the licensee of a hotel who in turn, owed money to Fricker Bros. Pty Ltd, a building company and also some other debts. The Bannons agreed to lend $50,000 to Kerr, obtained the money from their bankers and paid it to Semmens, Purdie & Co., their accountants, with instructions that it be released to Kerr or on his order when security was given by Kerr. The money was placed in the trust account of Semmens, Purdie & Co.
It was originally envisaged that Carnsome, another private investment company, would join in the loan to Kerr, but in the end it did not do so. In a careless way the original plan was perpetuated in the debenture I mention below and even in the proof of debt. When the non-involvement of Carnsome became clear I permitted the proof of debt to be amended so as to delete its name.
Kerr prepared a debenture charging the assets and undertaking of Lexel Pty Ltd (Lexel), a company of which he was a director. This document, executed by Lexel, Tanta, Toulon and Carnsome, instead of reciting a loan to Kerr, which I am satisfied is the true position, recited a loan to Lexel the company giving the debenture. The debenture was never stamped or registered and is thus void for most purposes. The money was not paid for Lexel's benefit but rather for Kerr's benefit and at his direction and the accounting records of Lexel record no loan to it. The matter is not free from doubt but I have decided that the proof of Tanta and Toulon for $50,000 should be admitted. As to the claim for interest the Bannons were sure that it was agreed that interest would be paid by Kerr and Kerr admitted this, but neither the Bannons nor Kerr could recall what the agreed rate might be. The only clue as to the rate is that the debenture provides for interest at 20%. The interest claimed in the proof of debt viz. $15,830-48 for a period of one year and 36 days, is calculated at a rate close to 30%. The drafting of the debenture was so carelessly done I cannot be satisfied that it was any more than a copy of some previous debenture with the names of the lenders altered. In view of this and the lack of oral evidence as to the rate I cannot be satisfied as to what rate was agreed and I must reject the claim as to interest. The claim for "cost" is intended to compensate the loss to the Bannons or their companies which occurred because securities had to be realised in order to provide $50,000. Neither the Bannons nor Kerr nor any other witness could remember how this sum of $1,440 was calculated and I must reject it.
In the result the proof of debt of Tanta and Toulon should be admitted as to $50,000.
There remains the proof of Robert James Semmens. He is an accountant and claimed to prove for $70,630 being the total of eleven loans said to have been made by him to Kerr over eighteen months from September 1982 to March 1984. Interest calculated at 15% amounting to $15,465-71 was also claimed. Before me a number of the items in the claim were abandoned reducing the total by $11,000 and no doubt the amount claimed for interest by an appropriate amount but this was not calculated. In view of the finding which I make later on the matter of interest the failure to assist by making this calculation is irrelevant.
It will be necessary to deal with each of the eight transactions remaining separately. Each is evidenced by a cheque, a photocopy of which has been tendered.

1. 13 September 1982, $10,000 paid to Kent Town Hotel from

R.J. Semmens client's account. Semmens says that Kerr borrowed $10,000 from the proprietor of the hotel who was a client of Semmens and that when repayment of this money was required Kerr could not make it and Semmens paid on Kerr's behalf and at his request. Kerr corroborated this. I have some doubts about this matter but I think that the proof should be admitted to this extent.

17 February 1983, $6,000 paid to J Pat Properties Pty

Ltd from Semmens, Purdie & Co. trust account. Semmens evidence was, and it was confirmed by Kerr, that he paid this money at Kerr's direction to J Pat Properties Pty Ltd, a company in which Kerr had a considerable interest. I asked for the production of some evidence of this transaction from the books of the payee company but none was forthcoming. I cannot be satisfied that this transaction was an advance on Kerr's behalf rather than an advance to J Pat Properties Pty Ltd simpliciter. The proof should be rejected to the extent of this payment.

16 March 1983, $17,630 paid to S.A. Brewing Co Ltd from

Semmens, Purdie & Co. trust account. Semmens said that Kerr had an interest in a hotel and that the brewing company would not supply it with beer until its accounts were paid. The licensee of the hotel was a company, Muret 1980 Pty Ltd of which Kerr was a director and a shareholder. Semmens and Kerr both say that Kerr asked for the money to be paid to the brewing company direct because of troubles with bankers. Kerr concedes that the debt to the brewing company was the debt of Muret 1980 Pty Ltd and that his loan account with that company was increased by the amount of the cheque as a result of this transaction. Once more I asked for evidence from the books of the company that this was so but it was not forthcoming. I cannot be satisfied that this debt was not owed by Kerr's company rather than by him and the proof to this extent should be rejected.

16 March 1983, $5,000 cash from Semmens, Purdie trust

account. Semmens and Kerr both say this was a loan by Semmens to Kerr who needed cash urgently for some purpose, probably to pay some interest on some of his many loans. I have doubts about this but in this instance there is no further documentary proof which I could reasonably acquire and the only evidence supports the allowance of this part of the proof which I consider should be allowed.

1 June 1983, $5,100 paid to S.F. Holder from R.J.

Semmens & Co. account. This was said by Kerr to be money borrowed from Semmens personally in order to pay some salary owed to Holder by Auscoteng, a company of which Kerr was a director. This payment was clearly made for the benefit of Auscoteng. Kerr said that his loan account with Auscoteng was credited with this $5,100 and also said that his loan account approximated $1,000,000, but no business records or any other documents were produced to substantiate the alteration to Kerr's loan account. I cannot be satisfied that this debt was owed by Kerr rather than Auscoteng and that proof will be rejected to this extent.

15 June 1983, $3,250 paid to cash from R.J. Semmens &

Co. account. This transaction has exactly the same characteristics as the transaction in para. 4 above and for similar reasons the proof should be allowed to this extent.

27 July 1983, $12,000 paid to Erawan Enterprises from

R.J. Semmens & Co. Kerr said that Erawan Enterprises was a company owned by him and his wife. Whether it was a limited company or a firm was never made clear. Kerr said that the money was borrowed in order that the "company" could pay an insurance premium with respect to a large policy on his (Kerr's) life owned by the company. This would appear at first sight to be a loan to "the company". In the absence of any evidence as to the status of the company and of any financial records of it I am unable to be satisfied that this was in substance a loan to Kerr. My doubts are increased by the evidence of Semmens that his understanding of this loan was that it was made in order to repay some importunate creditors in Sydney. Semmens said he did not know who might be the owners of the company or firm name. This proof should be rejected to this extent.

9 March 1984, $650 paid to cash from R.J. Semmens & Co.

account. This was said by Kerr to be an urgent loan so that he might pay one month's rent in order to avoid eviction. Semmens confirms this and in view of the frenetic nature of Kerr's commercial life I find no difficulty in accepting the truth of what was said. The proof should be admitted to this extent.

There remains the question of interest. It is claimed at 15%. There is no writing of any sort to support this claim. In particular the acknowledgements of debt which Kerr signed so freely make no mention of it. Semmens says that at some stage there was an oral agreement between him and Kerr that interest at 15% would be paid. Kerr on the other hand says that such an agreement was never made. "No specific agreement. I always had in mind giving Robert a part of the water project..." I cannot be satisfied that interest was ever agreed to be paid at 15% or any other rate and this part of the proof should be rejected.
In the result Semmens' proof should be admitted to the extent of $18,900 and should otherwise be rejected.
I will hear counsel as to costs.

[1986] FCA 296

24 JULY 1986