Lancaster, R.l. v Ex parte NZI Capital Corporation Ltd

[1991] FCA 638

IN THE FEDERAL COURT OF AUSTRALIA	)
1
GENERAL DIVISION	) NO. P2688 of 1990

I

I BANKRUPTCY DISTRICT OF

i I 1

THE STATE OF NEW SOUTH WALES 1

RE :

- ROGER LONSDALE LANCASTER

EX PARTE:

I

CORAM: SHEPPARD J. I :

! :,

i	DATE : 3 SEPTEMBER 1991	i
I	FEDEPAL COURT OF	I
r

ReASONS FOR JUDGMENT I -

I

I	t
I

HIS HONOUR:  During the adjournment I have given this

I

good deal of consideration to determine what I should do.	The	1- 1
I

history of the matter is perhaps well known. There was	i
L .
entered into between the debtor and his creditors a compositon	1,.
I
i. .
I
i
under Part X of the Bankruptcv Act 1966. An application,	I
which was made to this Court and heard by Foster J. that the	1, I I -
composition be set aside was dealt with on 26 July last, that	1
!

is to say, a little over a month ago. Foster J. ordered that t

party to the composition, she being the debtor named in a petition issued by the Deputy Commissioner of

the composition be set aside, that the respondent, that is to	l
say the debtor, pay the applicant's (the petitioning	I I. I
l
creditor's) costs and that the applicant be granted leave to	I
I

seek a hearing date for a creditor's petition.	His Honour	i	'
concluded his judgment by saying:-

"The question of whether I should proceed to make se-questration orders against these two debtors [I should interpose to say that the debtor's wife was a

Taxation] if the compositions were set aside was discussed during the hearing. I have decided not to take that step immediately but merely grant leave to the applicant petitioning creditors to seek a hearing date for those petitions. I do so in the hope that there having been a not inconsiderable canvassing of the financial positions of these two people in these proceedings, it may still be possible for arrangements to be made which will avoid the consequences of their being made bankrupt."

This matter was put back into the list apparently yesterday before the Registrar. An application made by the debtor for an adjournment was refused. In support of the application made to the Registrar the debtor relied on an affidavit sworn by him last Friday, 30 August 1991, in which he attempted to set out the history of his financial problems. In paragraph 38 of that affidavit he explained why it is that he does not wish to become bankrupt. He said that his only experience and qualifications were in dealing in securities and capital raisings for corporations. His wish and intention is to resume business as a stockbroker from December 1991. He said that it was a requirement under the Corporations Law for the obtaining and keeping of a dealer's licence and an investment adviser's licence and membership of the Australian

Stock Exchange, that he be not "an insolvent under	administration", which, according to the debtor, is defined to
include an undischarged bankrupt or a person whose creditors have accepted a composition, the last payment under which has not been made.
In the affidavit the debtor proposed a composition under which there would be paid to the creditors of the debtor a sum I, I

!

I

After the refusal yesterday by the Registrar to grant an adjournment the debtor apparently rethought his position, and today has lodged a further proposal that his affairs be dealt with under Part X of the Bankru~tcv Act. The proposal is that the creditors accept a composition encompassing the following terms, namely, that an amount of $15,000 be paid to a trustee, $5,000 to be paid within seven days of the date of acceptance, and the balance prior to the day on which the trustee makes the first and final distribution to creditors. The funds received are to be distributed firstly in the payment of trustee's fees and expenses and, secondly, to all proven creditors on a pro rata basis.

This morning there was tendered a letter from an accountant who may be prepared to act as controlling trustee. The letter is dated today and says amongst other things:-

"We note that the current offer to creditors of

offer and would result in your creditors receiving a	$15,000 is three times the size of your previous
meaningful distribution (eg. the major creditor could expect to receive approximately $8,000). Our firm would be prepared to set a maximum amount for its fees thereby enabling creditors to receive a distribution of substance. It is also understood that should circumstances improve you may be in a position to increase the offer to creditors."

The debtor explained the discrepancy between the
composition providing for $50,000 referred to in his affidavit
sworn last Friday, and that currently proposed upon the basis

that he was having negotiations with Westpac which might lead to a situation in which he could provide a sum in excess of $15,000, hopefully $50,000.

One of the problems which confronts the debtor is the position revealed by the statement of affairs which was filed in Court this morning in relation to the new proposed composition and his application for an adjournment. It shows a total indebtedness of 5.496 million dollars, that amount including 1.496 million dollars said to be owing to secured creditors. No assets are brought to account so that not even the secured creditors, on the face of the statement of affairs, would receive 1 cent. In other words the deficiency is the total amount of indebtedness, namely, 5.496 million dollars. The debtor has emphasised that a majority of creditors on the last occasion agreed to a composition providing for the payment of $5,000. And he relies upon the passage quoted from the judgment of Foster J. in relation to the future, and emphasises that $15,000 is three times $5,000.

The problem I have about it is that it is offered in a case in which the deficiency is almost five and a half million dollars. The question of whether somebody should be made bankrupt involves questions that go beyond the immediate interests of creditors and debtors. There is a substantial public interest in bankruptcy, part of which concerns questions whether misconduct has occurred in the past which might suggest that there has been committed one or more of the

!

offences provided for in the Bankru~tcv	Act. That is a matter
which it is of vital public importance to ascertain.	i
$ .
Furthermore, in the absence of complete agreement by creditors, and the petitioning creditor which is owed a substantial sum does not agree, there is something which, if	L t .
I.
l
not shocking, is at least something which takes one aback	r .
about a suggestion that somebody who owes almost 5.5 million dollars can offer $15,000 and walk away without there being any appropriate investigation of his affairs. An examination of the relevant provisions of Part X shows that if a deed of composition is entered into neither the provisions of s.69 of the Act which provides for the public examination of bankrupts, nor the provisions of s.81 thereof, which gives trustees in bankruptcy wide powers to examine other persons and to compel the production of documents, will apply.
If all creditors were to agree, that may be one thing. But where they do not, even though a majority of them may perhaps do so, it seems to me that a composition in the
which may lead to there being no investigation of the way in	absence of a provision which requires a public examination and
which this quite enormous deficiency arose is quite
undesirable. To me that transcends the whole question. I
appreciate that the debtor's case is that his unfortunate	i ,
financial predicament was brought upon him solely by the 1.	?

. . ,
,

0ctobe; -1987 stock market crash. Most, if not all, of his	-	I
r

assets were in shares and he lost a great deal of money. That

. I

can all happen quite innocently, I understand, and one can	I
1 .

.. 1 -

only be sympathetic towards him and his family if that be the	!
I
case. But the question of commercial morality, of the
1 ..
standard of commercial affairs in this community, is of central importance and to endeavour to take a course which,	8 ,
8 .
even though not intentionally, may avoid the ordinary investigative procedures which are provided for in a very important Act of Parliament is something which should only be allowed in the clearest of cases. When one is faced with the opposition to this course with which this application is faced, then I do not think there can be any other course than to allow the ordinary processes of the bankruptcy law to take their course.
In all the circumstances I have reached the conclusion, therefore, that this application for adjournment should be refused.

[For ensuing discussion see transcript].

HIS HONOUR: In this matter I am satisfied that the debtor committed the act of bankruptcy alleged in the petition. I

I am

satisfied with the proof of the other matters of which subsec.	I
:

52(1) of the Act requires proof.	I make a sequestration order	I
, .
against the estate of the debtor.	I order that costs,	8 ,
m .
I

including reserved costs, be taxed and paid according to the	!, .,
! !
Act. I direct that a draft of this order be delivered to the Registrar within 7 days in accordance with subrule 124(2).	l i I .
L . ,
And I meant to say in what I said a moment ago, that the matter referred to by Mr. Newlinds this morning, of ss. 73 and 74 of the Bankru~tcv Act remains an available course. It is something that could be done perhaps to solve this problem. It would allow for the public examination that I have referred to to take place. And it would allow, provided the creditors of course approved it, of a composition which would have the effect of bringing the bankruptcy to an end, or might have that effect, assuming it were of a particular kind.

1 -;L: 1111s :.rid t h e 6 preceding

2 q E s arp a true copy of the reasons fcr