Marshall v Clarke - [2003] FMCA 473

FEDERAL MAGISTRATES COURT OF AUSTRALIA

MARSHALL & ANOR v CLARKE & ORS

[2003] FMCA 473

BANKRUPTCY – Application for declaration.

Bankruptcy Act 1966, ss.5(1), 33, 33(1)(c), 63A(1), 64A(1), 64N, 64N(1)-(7), 187(1), 187(A), 188(1)-(6), 194, 196, 204(1), 213(1)-(3), 218(2)-(3), 222, 222(1)-(4), 227(7), 239, 239(1)-(2)
Bankruptcy Regulations, r16.01(2)

Re Beames Ex Parte Beneficial Finance Co Ltd (1985) 7 FCR 216
Re Forbes Ex Parte Industrial Acceptance Corporation Ltd (1974) 24 FLR 87
Huynh v Pascoe [2002] FCA 309 (FC)
Troy & Co v Cameron [2002] FMCA 42
Drake v Stanton [1999] FCA 1635
Re Cufari; Ex Parte Commissioner of Taxation v Huppatz (1992) 34 FCR 544
ReKukler; Ex Parte National Australia Bank v Kukler (1998) 87 FCR 352
Re Edwards Ex Parte Edwards (1987) 14 FCR 113
Re Brown Ex Parte Humes Ltd (1987) 74 ALR 611
Bendeich v Anderson (2000) FCA 90
Jones v Dunkel (1959) 101 CLR 298
Khera v NAB (1996) 141 ALR 416
QBSA v Ball & Anor [2001] FMCA 47
Re Williams; Ex parte Official Trustee in Bankruptcy (1990) 26 FCR 191

Applicants:

PETER NEIL MARSHALL and RENA MARIE MARSHALL

First Respondents:

ROBERT MICHAEL CLARKE and NARELLE LOUISE CLARKE

Second Respondent:

CHRISTOPHER MICHAEL WILLIAMSON

File No:

WZ 193 of 2002

Delivered on:

31 October 2003

Delivered at:

Perth

Hearing Date:

13 November 2002

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicants:

Mr G Mohen

Solicitors for the Applicants:

Friedman Lurie Singh

First Respondents:

No appearance

Counsel for the Second Respondent:

Mr C McLeod

Solicitors for the Second Respondent:

Deacons

ORDERS

(1)Pursuant to s.222 of the Bankruptcy Act 1966 the First Respondent’s Composition under Part X dated 19 December 2001 is declared void.
(2)The time for making Application pursuant to section 239 of the Bankruptcy Act be extended to 17 June 2002.
(3)Pursuant to s.239 of the Bankruptcy Act 1966 the Composition under Part X of the Bankruptcy Act 1966 of Robert Michael Clarke and Narelle Louise Clarke dated 19 December 2001 be set aside.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

WZ 193 of 2002

PETER NEIL MARSHALL AND RENA MARIE MARSHALL

Applicants

And

ROBERT MICHAEL CLARKE AND NARELLE LOUISE CLARKE

First Respondents

And

CHRISTOPHER WILLIAMSON

Second Respondent

REASONS FOR JUDGMENT

In this Application the Applicants Peter Neil Marshall (the First Applicant) and Rena Marie Marshall (the Second Applicant) by an Application filed 17 June 2002 seek orders against Robert Michael Clarke and Narelle Louise Clarke (the First Respondents) and Christopher Michael Williamson (the Second Respondent) pursuant to ss.222 and 239 of the Bankruptcy Act 1966 (the Bankruptcy Act).
The Application seeks an order pursuant to s.222 of the Bankruptcy Act 1966 to declare that the First Respondents’ composition under Part X of the Bankruptcy Act 1966 dated 19 December 2001 (the composition) is void. The Applicants further seek an order pursuant to s.239 of the Bankruptcy Act 1966 that the composition be set aside.
The Applicants then seek an order pursuant to s.222(7) and s.239(1) of the Bankruptcy Act for summary sequestration in respect of the First Respondents’ estates and an order for costs.
In the original Application interlocutory relief was claimed by way of an injunction against the Second Respondent as trustee of the First Respondents’ to effectively refrain from dealing with the Second Respondents estate pursuant to the composition. At the hearing, upon an appropriate undertaking being given it was not necessary for the Court to make any interlocutory order against the Second Respondent of the kind referred to in the Application.
When the matter was before the Court for hearing the Applicants sought to rely upon an amended Application which provided for a further order that the time for making an Application pursuant to s.239 of the Bankruptcy Act be extended. That Application was opposed. Leave was granted by the Court after hearing argument to permit the Applicants to file and serve the Amended Application.
In a notice of intention to oppose the Application filed 12 July 2002 the Second Respondent asserted that the Applicants could not rely upon s.222(1) of the Bankruptcy Act as there is no challenge to the validity of the special resolution passed at a meeting of creditors on

19 December 2001. Further, it was asserted in the notice that the Applicants could not rely upon s.239(1) of the Bankruptcy Act to seek to set aside the composition as the Application has not been made within 21 days of 19 December 2001 being the date on which the special resolution accepting the composition was passed.
In the alternative the Second Respondent in its notice claimed that the Court should not set aside the composition as its terms were not unreasonable and it was calculated to benefit the creditors of the First Respondents generally. It is not necessary in my view to draw any inferences based upon the principles of Jones v Dunkel (1959) 101 CLR 298. I am satisfied that I am able to make findings of facts which in the present case are substantial in the form of the background summary unless otherwise stated and the other facts set out further in my findings.
The Applicants relied upon an affidavit of the First Applicant sworn on 14 June 2002 and an affidavit of the former solicitors Robert John Nash sworn 20 June 2002. The Second Respondent relied upon an affidavit of Michelle Louise Dart sworn 10 July 2002.
The Application was transferred by order of the Federal Court on

2 September 2002 to the Federal Magistrates Court. The Applicant has relied upon an affidavit of Peter John Marshall sworn 14 June 2002 together with a further shorter affidavit sworn by Mr Marshall on

16 September 2002 which corrected a number of typographical errors in the first affidavit. The Applicant further relied upon an affidavit of Robert John Nash sworn 20 June 2002. The Second Respondent in opposition to the Application relied upon an affidavit of Michelle Louise Dart sworn 10 July 2002.
When the matter proceeded to hearing on 13 November 2002 the parties relied upon written submissions and made further oral submissions to the Court. The Applicants relied upon submissions filed 21 October 2002. An order was made by the Court that the minutes of the meeting of creditors said to have occurred on

19 December 2001 should be produced to the Court. Those minutes were produced and marked as exhibit R1 (the minutes). Attached to those minutes was a copy of the trustees abstract of receipts and payments for the period 19 December 2001 to 12 November 2002 which I have marked exhibit R2. Upon receipt of those minutes the Applicants made further submissions in writing filed 26 November 2002.
The Second Respondent relied upon written submissions filed

11 November 2002 together with further submissions filed

27 November 2002 which followed the filing with the Court as ordered of the minutes.

Background

It is useful to set out the background in this matter essentially taken from the affidavit of the First Applicant sworn 14 June 2002. It should be noted that witnesses were not called to give evidence and the parties were content to rely upon affidavit evidence albeit that at times that evidence contained contradictory assertions of fact.
In February 1998 the Applicants were shareholders and directors of Broome Hardware Pty Ltd which had operated a hardware store trading as “Broome Hardware” (the business) at Broome in the State of Western Australia.
Broome Hardware Pty Ltd sold the business to Jarcarn Pty Ltd (Jarcarn) for an amount of $410,000 pursuant to an agreement to purchase a business dated 9 January 1998. The agreement for sale was subject to Jarcarn obtaining finance. At all material times the First Respondents were directors of Jarcarn. The First Respondents held 75% of the shares in Jarcarn which comprised 150 ordinary shares at $1.00 each and Gordon Bleachmore and Christine Bleachmore held the remaining 25%.
The Applicants lent the First Respondents $200,000 to enable Jarcarn to purchase the business (the vendor finance). A loan agreement was duly executed between the parties and dated 17 February 1998.

The vendor finance was secured over the First Respondents’ 75% shareholding in Jarcarn. A mortgage of shares between the Applicants and First Respondents dated 17 February 1998 was duly executed.
On 20 February 1998 the Applicants received upon settlement of the sale of the business $210,000 being $10,000 by way of deposit paid by Jarcarn and $200,000 pursuant to an ANZ bank mortgage over the First Respondents’ house situated at 23 Balmoral Street Victoria Park WA (the Balmoral property).
Up until December 1999 (incorrectly referred to as December “2000” in the affidavit of the First Applicant) the First Respondents kept regular payments to the Applicant and thereafter payments ceased.

By July 2001 the principal and interest of the vendor finance balance was said to be approximately $120,000. The payments between April 1999 and December 1999 were all made by cheque posted by the First Respondents to the First Applicant’s business address “Marylands Park Lottery Centre and Newsagency Shop, Shop 13, 238 Guildford Road Marylands 6051” (the Perth business address). The First Applicant at the time of swearing his affidavit continues to operate that business.
On 7 May 2001 M J Kitay of Grant Thornton was appointed administrator of Jarcarn and subsequently appointed liquidator on

1 June 2001.
The First Applicant deposed that as a result of non payment of money by the First Respondents the Applicants engaged solicitors, namely Robert Nash of Broome to negotiate to secure the debt against the First Respondents home. It is common ground that a deed of acknowledgment and debt and charge for the First Respondents to sign was duly prepared by Mr Nash though never executed. The First Applicant deposed that he last gave instructions to Robert Nash on

5 July 2001 when he instructed his then solicitor to “hold off doing anything further”.
A letter dated 27 June 2001 from Robert Nash to the First Applicant advised that he had received a telephone call from the Second Respondent who had advised the First Respondents and in particular Mr Robert Clarke not to sign the deed of acknowledgment and debt and charge on the basis that it could constitute a preference over other unsecured creditors. The letter advises that ‘Mr Clarke’ – and I interpolate was meant to include ‘Mrs Clarke’ – “are likely to go into bankruptcy or into Part X arrangement and accordingly it would be inappropriate for him or her to be granting security in respect of past debts according to Mr Williamson.”
According to the First Applicant’s affidavit he moved to Perth from Broome on 30 August 2001. At the time he had arranged for mail to be re-directed from Post Office Box 3562 in Broome for a period of time to the Perth business address. The First Applicant states in his affidavit that he could not recall for how long the re-direction was effective.

He had also advised the liquidator of Jarcarn of the Perth business address. The First Applicant and the Second Applicant had separated in February 2001 with the Second Applicant in August 2001 residing at 23 Red Road Broome.
On 22 November 2002 the Second Respondent had consented to act as controlling trustee of the First Respondents estates. The First Applicant deposes that in November 2001 after moving to Perth he spoke by telephone with the first named First Respondent Robert Michael Clarke. Mr Clarke is alleged to have said that he was going bankrupt though according to the First Applicant’s affidavit no mention was made of anything regarding a meeting of creditors.
The First Applicant in his affidavit refers to the claim by the Second Respondent that on 6 December 2001 the notice of meeting of creditors (the notice) was sent to Robert Nash. According to the First Applicant at that date Mr Nash was not then in receipt of instructions from the Applicants and that neither Applicant had received the notice. It is claimed the first time that the Applicants saw the notice was when their current solicitors obtained a facsimile copy from the Second Respondent on 10 May 2002.
Reference was made then to a file copy of a letter addressed by

Mr Nash to the Applicant dated 8 January 2002 from Mr Nash to the First Applicant enclosing a letter and proof of debt sent to Mr Nash from the Second Respondent. The First Applicant claimed that he did not receive that letter or the enclosures and asserts that it is probable that the mail re-direction had lapsed by that time.
The First Applicant claims that he and the Second Applicant only became aware of the First Respondents composition when he telephoned the Second Respondent on 6 May 2002. On that occasion he claims to have telephoned the Second Respondent to determine what had been happening with the First Respondents affairs and upon being told of the composition asked for a copy from the Second Respondent of the notice.
The First Applicant received a letter dated 17 May 2002 from the Second Respondent which sets out the relevant history as follows:
“I advise that I was appointed Trustee of a Composition under Part X of the Bankruptcy Act 1966 in respect of the above debtors on 19 December 2001.
The terms of the Composition provide for the net proceeds of sale of the debtors’ property situated at 17 Biddles Place Broome to be paid to their Trustee for the benefit of creditors.
I confirm that a Circular to Creditors dated 6 December 2001 outlining the Composition proposal and convening a meeting of creditors to consider the proposal was posted to your solicitor, Mr Robert Nash, Locked Bag 4002, Broome on 6 December 2001. I further confirm that the address was verified with Mr Nash on 17 December 2001.
Please find enclosed copies of all Circulars to Creditors of the estate to date.
I advise that the debtors’ property has been sold. I am holding Mrs Clarke’s net equity in the property in the sum of $42,205.43 whereas Mr Clarke’s net equity ($42.205.44) is currently being held in trust as Co-operative Purchasing Services Ltd (“Co-operative”) believe they are secured against the proceeds. Upon resolution of Co-operative’s claim, I will distribute the funds to creditors.”
After receipt of that letter dated 17 May 2002 the Applicant’s solicitors endeavoured to obtain an undertaking from the Second Respondent not to distribute the First Respondents property.
The affidavit of Robert Nash relied upon by the Applicants sets out the chronology which in part had already been recited. Mr Nash has no recollection of receiving anything from the Second Respondent other than a circular to creditors dated 20 December 2001, notice to creditors dated 20 December 2001 and proof of debt forms. He claims to have forwarded the circular to creditors dated 20 December 2001, notice to creditors dated 20 December 2001 and proof of debt form together with a letter dated 8 January 2002 to the last postal address that he had for the Applicants which was the post office address in Broome. Mr Nash deposes that had he received the notice of meeting dated 6 December 2001 that he would have followed normal office practice with a copy of the notice on file and a letter from him to the Applicants also on file. There is no copy of the notice nor any file copy of a letter relating to that notice on the file. He has no recollection of receiving a copy of the notice or of forwarding it to the Applicants.
Mr Nash refers to the letter dated 17 May 2002 from the Second Respondent to the Applicants which refers to the address of the Applicants namely “Locked Bag 4002 Broome” being “verified with Mr Nash on 17 December 2001”. On that date Mr Nash deposes that he was appearing as Counsel before the Supreme Court of Western Australia sitting in Broome. He deposes that it is more likely that the Second Respondent would have spoken to someone else in the office though notes that there is no record of any such contact taking place. Mr Nash otherwise confirms that as at 20 December 2001 he had no current instructions to act for the Applicants and merely forwarded the documents to the last known address for them “as a courtesy”. At no time did Mr Nash tell the Second Respondent that his office was “instructed to accept service of any document on behalf of the Applicants”.
The Second Respondent relied upon the affidavit of Ms Dart to which I have referred. In her affidavit Ms Dart refers to a list of five creditors of the First Respondents, which was set out in the statement of affairs which had been filed on behalf of the First Respondents. The five creditors included the Applicants. In her affidavit Ms Dart deposes that she relied upon the address for the Applicants provided by the First Respondents when sending out to all creditors including the Applicants when sending out the notice on or about 6 December 2001.

The address to whom the notice was sent for the Applicant was care of their former solicitors, “Nash Chilvers, Locked Bag 4002, Broome WA 6725”. Ms Dart deposes that on 17 December 2001 she spoke to Mr Nash and not a secretary and asked “to confirm that his postal address was Locked Bag 4002, Broome WA 6725”. And he did so. Significantly Ms Dart deposes that she, “did not make any reference to the 6 December notice being sent to him on behalf of Mr and Mrs Marshall”. Ms Dart states in her affidavit, “It was not until May 2002 that I became aware that Mr Clarke contended that he had not received the 6 December notice”. Presumably the reference to “Mr Clarke” is meant to be a reference to Mr Marshall.
Ms Dart prepared calculations as to the estimated dividend that would be received by the creditors of the First Respondents from the Composition on the basis of costs and charges incurred to date and costs and charges estimated to yet be incurred and to compare that calculation with one on the same basis as if a sequestration order were now made against the estates of the Respondent as sought by the Applicant.
On the basis that Co-operative Services which had claimed to be a secured creditor of Mr Clarke did not pursue or succeed in that claim to the proceeds of $42,205.03 held in a joint account, the estimated return under the Composition to the creditors according to Ms Dart was 18 cents in the dollar. If a sequestration order was now made she estimated that the creditors of Mr Clarke would receive a dividend of

8 cents in the dollar and the creditors of Mrs Clarke would receive a dividend of 24 cents in the dollar.
Ms Dart further made a calculation that the estimated dividend of the creditors in the event that a claim by Co-operative Purchasing over Mr Clarke’s interest in the net proceeds of sale was wholly successful. The estimated distribution of creditors under the Composition would be 8 cents in the dollar whereas if a sequestration order was made Ms Dart estimates the return to creditors of Mr Clarke as nil with the estimated return to the creditors of Mrs Clarke being 23 cents in the dollar.

Relevant legislation

The following sections of the Bankruptcy Act 1966 are relevant:
“5 Interpretation
(1) In this Act, unless the contrary intention appears:
…
‘special resolution’ means a resolution passed by a majority in number and at least three-fourths in value of the creditors present personally, by telephone, by attorney or by proxy at a meeting of creditors and voting on the resolution.
33 Adjournment, amendment of process and extension and abridgment of times
(1) The Court may:
…
(c) extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act, or any time fixed by the Court or the Registrar under this Act (other than the time fixed for compliance with the requirements of a bankruptcy notice), for doing an act or thing or abridge any such time.
63A Definitions
(1) In this Division, unless the contrary intention appears:
…
‘meeting’ means a meeting of the creditors of a bankrupt or a meeting of the creditors of any one or more of the bankrupts who were made bankrupt in a joint bankruptcy.
64A Persons to whom notice of meeting to be given
(1)If:
…
(b) the trustee is aware of one or more of the following:
(i) the address of a place of business of the person;
(ii) the address of a place of residence of the person or, in the case of a company, the address of its registered office;
(iii) an address to which notices may be sent to the person;
(iv) a document exchange number to which notices may be sent to the person;
(v) a facsimile transmission number to which notices may be sent to the person;
the trustee must give notice to the person of any meeting of the bankrupt's creditors.
64N Quorum
(1) The trustee must then determine whether a quorum is present.
(2)A quorum is constituted by:
(a)the presence in person of the trustee (or the trustee’s representative); and
(b)a creditor, or a proxy or attorney of a creditor, participating in person or by telephone.
Note: A meeting requires at least 2 persons. Therefore the person covered by paragraph (2)(a) cannot also be the proxy or attorney of the creditor covered by paragraph (2)(b).
(3) If a quorum is not present within 30 minutes after the time fixed for the meeting, the meeting is adjourned to a time, date and place fixed by the trustee.
(4) The date of the adjourned meeting must be not earlier than 7 days nor later than 14 days from the date of the original meeting.
(5) The time and place of the adjourned meeting need not be the same as the time and place of the original meeting.
(6) The following provisions of this Division apply to any meeting at which a quorum is present within 30 minutes after the time fixed for that meeting.
(7) To remove any doubt, but without limiting by implication the application of subsection 63B(2) to other references in this Division to the trustee, the reference in subparagraph (2)(a)(ii) of this section to the presence in person of the trustee includes a reference to the presence in person of a person appointed under subsection 63B(1) to represent the trustee.
Part X- Arrangements with creditors without sequestration
DIVISION 1 Interpretation
187 Interpretation
(1) In this Part, unless the contrary intention appears:
‘composition’ means an arrangement (not being an arrangement entered into for the purposes of a proclaimed law) by which the creditors of a debtor:
(a)   agree to accept payment of the debts due to them by instalments; or
(b)   agree to accept, in full satisfaction of the debts due to them, less than the full amount of those debts, whether in the form of money or other property and whether by instalments or otherwise.
187A Application of Part to joint debtors
This Part applies, with the prescribed modifications (if any), in relation to joint debtors, whether partners or not.
188 Debtor may authorize trustee or solicitor to be controlling trustee
(1) A debtor who desires that his or her affairs be dealt with under this Part without his or her estate being sequestrated and:
(a) is personally present or ordinarily resident in Australia;
(b) has a dwelling-house or place of business in Australia;
(c) is carrying on business in Australia, either personally or by means of an agent or manager; or
(d) is a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
may sign an authority in accordance with the approved form naming and authorising a registered trustee, a solicitor or the Official Trustee to call a meeting of the debtor's creditors and to take control of the debtor's property.
(2) An authority signed by a debtor under this section is not effective for the purposes of this Part unless:
(a) if the person authorised is a registered trustee or solicitor—the person has consented in writing to exercise the powers given by the authority; and
(aa) if the person authorised is the Official Trustee—an Official Receiver has given the debtor written approval to name the Official Trustee in the authority; and
(b) the signature of the debtor to the authority and the signature of the trustee or solicitor to the consent are each attested by a witness.
…
(3) An authority under this section that is effective for the purposes of this Part is not revocable by the debtor.
(4) Subject t subsection 192(1), a debtor cannot give an authority within 6 months of giving another authority, unless the Court grants leave to do so.
(5) A registered trustee or solicitor who consents to exercise the powers given by an authority must, within 14 days of consenting, give a copy of the authority to the Official Receiver for the District in which the debtor resides.
(6) When an authority becomes effective, the person authorised by it becomes the controlling trustee.
194 Time for calling meeting
The meeting that is to be called under an authority under s.188 must be held:
(a) not more than 35 days after the debtor signed the authority; or
(b) if the debtor signed the authority in December—not more than 42 days after the debtor signed the authority.
196 Procedure for calling and holding meeting
Division 5 of Part VI applies, with any modifications prescribed by the regulations, in relation to a meeting called under an authority under s 188 as if:
(a)the debtor who signed the authority were bankrupt; and
(b)the controlling trustee were the trustee in the bankruptcy.
204 Resolution for deed of assignment etc.
(1) The creditors may, at a meeting called in pursuance of an authority under s 188, by special resolution:
(a) where the debtor's property is subject to control under this Division, resolve that the debtor's property be no longer subject to control under this Division;
(b) require the debtor to execute a deed of assignment or a deed of arrangement under this Part;
(c) accept a composition; or
(d) require the debtor to present a debtor's petition within 7 days from the day on which the resolution was passed.
213 Arrangements by debtor with creditors otherwise than in accordance with this Part etc. to be void
(1) Subject to this Part, a deed of assignment or a deed of arrangement executed by a debtor after the commencement of this Act is void unless:
(a) it is entered into in accordance with this Part; and
(b) it complies with the requirements of this Part.
(2) An instrument not under seal executed by a debtor after the commencement of this Act which, if it had been under seal, would have been a deed of assignment or a deed of arrangement is void.
(3) Subject to this Part, a composition made by a debtor after the commencement of this Act, not being a composition accepted by a special resolution of a meeting of creditors under s 204, is void.
218 Notice of execution of deed or acceptance of composition
(1) …
(2) As soon as practicable after a special resolution accepting a composition is passed under s 204, the trustee of the composition must notify each creditor of the debtor that the special resolution has been passed.
(3) A trustee must notify creditors under paragraph (1)(a) or subsection (2) in the way prescribed by the regulations.
222 Power of the Court to declare deed or composition void
(1) …
(2) Upon the hearing of an application made under subsection (1), the Court may, subject to this section, make an order:
(a) declaring that the deed or composition is void, or that it is not void, on the ground specified in the application; or
(b) declaring that a provision of the deed is void, or is not void, on the ground specified in the application.
(3) …
(4) Where the Court, on the application of the Inspector-General, the trustee or a creditor, is satisfied that the debtor:
(a) has given false or misleading information in answer to a question put to him or her with respect to any of his or her conduct or examinable affairs at the meeting of creditors at which the resolution requiring him or her to execute the deed or accepting the composition was passed; or
(b) has omitted a material particular from the statement of the debtor's affairs given under sub-s.188(2) or included an incorrect and material particular in that statement;
the Court may make an order declaring the deed or composition to be void or declaring any provision of the deed or composition to be void.
239 Court may set aside composition
(1)     A creditor may, within 21 days from the date on which the special resolution accepting a composition under this Part was passed, apply to the Court for an order setting aside the composition and may also apply for the making of a sequestration order against the estate of the debtor.
(2)     If the Court, on such an application, considers that the terms of the composition are unreasonable or are not calculated to benefit the creditors generally or that for any other reason the composition ought to be set aside, it may make an order setting it aside and, if it thinks fit, may forthwith make the sequestration order sought.
(3)     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.
(4)     The making of an application for a sequestration order against the estate of a debtor under this section shall, for the purposes of this Act, be deemed to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of subsection 43(1), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply in relation to such an application.”

Submissions

Applicants’ submissions

The Applicant claims an order pursuant to s.222 of the Bankruptcy Act to declare the First Respondents’ Composition void.
In written submissions the Applicant relied upon the following in support of his Application:-
(a)the fact that the Applicant did not receive notice of the proposed Part X composition of the joint debtors or the meeting at which it would be considered;
(b)the fact that the Applicants did not receive notice of the proposed Part X composition of the debtors separate estates or the meeting at which it would be considered;
(c)the meeting when held of Mrs Clarke’s estate, was held concurrently with the joint meeting and no differentiation was made between the individual and joint estates when voting on the composition;
(d)there were only 2 creditors listed for the estate of Mrs Clarke, the Broome Shire (who were to be paid out in full on the sale of the joint real estate due to a statutory charge), and the applicants for a debt of $120,000.00. The absence from the meeting of the applicants meant that in any event no quorum was present to vote on the composition for Mrs Clarke’s estate;
(e)the meeting of Mrs Clarke’s estate should have been adjourned as no quorum was present;
(f)both the calling of the meeting and the conduct of the meeting accordingly did not comply with section 204 and the resolution should be declared void.
Counsel relied upon the decision of re Beames Ex Parte Beneficial Finance Co Ltd (1985) 7 FCR 216. It was submitted that s.222(1) could not normally be used to avoid a deed where notice had not been given to one creditor even though it was a substantial creditor. The Applicant’s case can be differentiated, it was submitted, from the Beames decision on the basis that as a result of the failure of the notice no quorum was in attendance at the meeting for Mrs Clarke.
Reference was made to the decision of re Forbes Ex Parte Industrial Acceptance Corporation Limited (1974) 24 FLR 87 as authority for the proposition that where there are joint creditors of husband and wife and also significant separate debts, it is necessary to call separate meetings in respect of each of the estates although such meetings may be concurrent. Where a composite resolution was passed by the creditors of all classes voting indiscriminately on a composite resolution the Court held in that case that the composition was void as not complying with s.204.
The Court was reminded that the trustee has a duty to adjourn in accordance with s.64N(3) where no quorum exists (see Huynh v Pascoe [2002] FCA 309 (FC)). In relation to the issue of service reference was made to Troy & Co v Cameron [2002] FMCA 42 where it was held that a bankruptcy notice could be served upon solicitors who had indicated in writing that they had instructions to accept service of proceedings. The “last known address” should be the address which has been made known to the person being served as at the time closest to the date in question. See Drake v Stanton [1999] FCA 1635. It was submitted that in the present case no advice was given by Robert Nash that he would accept service for and on behalf of the Applicants. The last known address of the Applicants would have been the business address at Maylands to which the debtors had made payments. The address of the solicitors Robert Nash had never been the address of the Applicants for the purpose of service of notices.
It was submitted that the case referred to by the First Respondent of Drake v Stanton (1999) FCA 1635 does not apply to the present case as that case involved clear evidence that the notice had been delivered to the residential address of a debtor and there was evidence from a process server of delivery to that address. In the present case

Mr Clarke was aware of various residential addresses of the Applicants and no attempt was made to serve them personally. In addition he had the business address where likewise no attempt was made to effect service. Instead a decision was made to forward if it had been forwarded, the notice to a solicitor who had not indicated a willingness to accept service. Any notion of deemed service is rebutted by the evidence of Mr Nash indicating the notice had never arrived.

The evidence of Ms Dart relates to normal procedure and does not establish that the document was received.
In support of the Application pursuant to s.33(1)(c) of the Bankruptcy Act to enable the Application under s.239 to be brought out of time, Counsel relied upon the defects relating to the calling and conduct of the meeting referred to earlier. It was submitted the Court should exercise power to extend the time in the present case as the delay was explained by the trustees failure to notify the Applicants of either the meeting or the resolution. The resolution suffers from formal defects which have been previously referred to and it was submitted the Applicants would suffer significant prejudice under the composition by not having an opportunity to vote on the resolution. The resolution should not be binding in any event on the estate of Mrs Clarke as no quorum of creditors for her separate estate was present at the meeting.
The notice is allegedly sent to a solicitor who previously acted for the Applicants and as indicated he had no instructions to accept service. It was further submitted that the Respondents do not allege that such authority was given. In any event it was submitted it was never received by the solicitor. As I understood the submissions, both in writing and before the Court, it was further submitted in any event that no attempt was made to ascertain whether the notice had been received by the solicitor but rather all that occurred was ascertaining the correct address. This much appears clear on the affidavit material and does not appear to be in dispute.
At best, it was submitted, the then former solicitors of the Applicants received notice of outcome of the resolution and merely forwarded that notice to the last post office address for the First Applicant albeit that the First Applicant claims never to have received that notice.
In dealing with the power of the Court to extend time for bringing Application pursuant to s.33 the Court was referred to the decision of re Cufari; Ex Parte Commissioner of Taxation v Huppatz (1992) 32 FCR 544. It was submitted that the Court is not limited to the adequacy of the explanations of delay but is entitled to have regard to all of the circumstances surrounding the composition sought to be set aside.
It was submitted that the Application had been brought as soon as practicable after the Applicants became aware of the meeting having been held and the resolution made. The Court was invited to find that the Applicants did not become aware of the composition until after making enquiries after the sale of the debtors property and this occurred in May 2002.
It was noted that there is a significant claim which may be dealt with under s.239(2) based upon the grounds of “any other reason”.

The Court can proceed to make an order setting aside a composition under that provision even though it may refuse to exercise its discretion under s.222 of the Bankruptcy Act.
By way of rebuttal of the submissions made for and on behalf of the Second Respondent reference was made on behalf of the Applicants to the case of Re Kukler; Ex Parte National Australia Bank v Kukler (1998) 87 FCR 352 and it was submitted that in the present case there was no delay of a kind similar to that found in the Kukler case. In that case there was a delay from October 1996 to May 1997. In the present case there was a six week delay from the date when the Applicants claimed to have discovered the composition and the filing of the Application. In explaining the delay it is relevant for the Court to consider the method by which the Second Respondent claims to have served the notices in the first place and then to look at what the Applicants did after becoming aware of the composition. Further the Court should rely upon the fact that upon becoming aware of the composition an undertaking was sought from the trustee not to distribute the funds from the estates.
In general terms it was submitted that in the absence of any request for deponents to be available for cross examination the Court should accept the affidavit evidence of the first Applicant and Mr Nash.

The affidavit of Ms Dart deposed to normal practice.
As indicated earlier in this judgment an order was made that the minutes of the meeting held on 19 December 2002 should be produced and the parties were given an opportunity to make submissions in relation to those minutes. The Applicants submitted that those minutes clearly show that no separate meeting of the bankrupt estate of

Mrs Clarke had been held. Instead of two separate meetings being held concurrently the trustee purported to hold a meeting of joint and several creditors of both First Respondents. In circumstances where:-
·The creditors were not common creditors
·There were significant debts of Robert Michael Clarke which were not joint debts
·The only creditors present were creditors of Robert Michael Clarke
·No creditor of Narelle Louise Clarke was present at the meeting either in person or by proxy.
Accordingly the Applicants submitted that the meeting as recorded in the minute did not comply with s.204 of the Bankruptcy Act (see re Forbes Ex Parte Industrial Acceptance Corporation Limited (1974) 24 FLR 87).
It was submitted that in a case where the bankrupts have some joint and some separate creditors it would be inappropriate to submit the separate creditors to a binding composition on which they may have been out voted by the joint creditors with totally different interests. Similarly it was submitted it would be appropriate to omit to vote on a joint composition the separate creditor whose interest might conflict with those of joint creditors (see Re Edwards Ex Parte Edwards (1987) 14 FCR 113, Re Brown Ex Parte Humes Ltd (1987) 74 ALR 611).
It was further submitted in any event there was no quorum present for the estate of Narelle Louise Clarke and in the circumstances the composition should be declared void ab initio with all payments made by the trustee to be refunded to the bankrupt estate (See Bendeich v Anderson (2000) FCA 90).
The minutes provide further confirmation for a submission made that if the meeting had been held simply in relation to Mr Clarke then it is noted that there are seven other creditors that on the face of it appear to have a quorum. This could not be the case for Mrs Clarke and it is noted in the minutes that “Mrs Clarke’s only creditor is P & R Marshall”. In the circumstances it was submitted that this is not a case where it was appropriate to hold a joint meeting.
There was only one joint debt and a raft of separate creditors for

Mr Clarke which would require a quorum in respect of each of the creditors. Reliance was placed upon s.64N of the Bankruptcy Act whereby if there is one creditor then for a quorum there needs to be the creditor plus the trustee. The minutes show that Mrs Bonita Cory attended in person representing the trustee and Ms Dart assisting Mrs Cory together with Mr and Mrs Clarke. There were two proxies, one provided by Co-operative Purchasing Services in favour of

Ms Swankie with an amount of claim recorded as $21,517.00. The other by proxy for John Danks & Son Pty Ltd in favour of the trustee with an amount of claim said to be $162,767.83. It is noted in the minutes that on the issue of quorum the following appears:-
“Mrs Cory determined that, as there were two or more creditors entitled to vote at the meeting; either present personally, by attorney or by proxy, a quorum existed.”
It was submitted on behalf of the Applicants that the lack of quorum is a fatal flaw to the composition as without a quorum there could not be a special resolution. The correct procedure for the trustee would have been to adjourn the meeting in the circumstances where no creditors were present for Mrs Clarke.
It was submitted that if the Court were minded to set aside the composition on the basis of lack of quorum then there is no need for the court to take into account other factors under s.222(4) in respect of false or misleading information given to the meeting. Issues including whether the composition was fair to other creditors on the basis of a failure to give notice and a failure to have a quorum do not arise.
In a further evidentiary issue it was noted that neither Mr or Mrs Clarke had sworn affidavits and evidence was not relied upon by the Second Respondent in relation to the address for service. The absence of evidence from both Mr and Mrs Clarke was a matter which I was invited to infer could not have assisted the Second Respondent’s case. Hence I was asked to apply the principles set out in Jones v Dunkel (1959) 101 CLR 298. It was noted that the Second Respondent had indeed sought to strike out part of the affidavit of Mr Marshall on the grounds that he purports to give evidence of the knowledge of Mr and Mrs Clarke.
To allow the composition to stand in the absence of the Applicants who have lost half the amount they would have recovered in an ordinary bankruptcy from Mrs Clarke purely to the benefit of other creditors would be patently unjust. It was submitted that in terms of prejudice to other creditors, they are not in a better position in regard to the estate of Mr Clarke unless Mrs Clarke’s estates were combined into the composition. All that is occurring is taking the Applicants back to where they should have been whereas if the composition stands then the vote represents a windfall to other creditors at the expense of the Applicants who were not present.
Reference was made to the decision of Khera v NAB (1996) 141 ALR 416 which had been referred to by the Second Respondent. It was submitted that the Court should look at page 429 of that decision where it is stated,
“In our opinion, this ground, despite the width of its language, is confined to circumstances which relate to the terms of the composition itself or the circumstances in which the composition came to be accepted by special resolution of the creditors”.
It was submitted that it is inadequate to simply look at the terms of the composition and instead the second limb of that quotation applies and again reliance is placed upon the questionable delivery of the notice and the lack of quorum. In any event the Court would if necessary have power to set aside the composition pursuant to s.239 though it was confirmed that the lack of quorum means that the Applicants do not need to rely upon that section.
Finally reliance was placed upon the decision of this Court in the matter of QBSA v Ball & Anor [2001] FMCA 47 as authority for the proposition that if a quorum did not exist then the composition must fail.

First Respondents’ submissions

The First Respondents in relation to the issue of service of the notice relied upon the affidavit of Ms Dart to which reference has been made and in particular noted that the solicitor who formerly acted for the Applicants was said to be on behalf of the debtors the last known address of the Applicants. Relying upon that evidence it was submitted that the address for the solicitor representing a party is clearly within the terms of s.64A(1)(iii) of the Bankruptcy Act, that is it was the address made known at the time closest to the date in question. Reliance was placed upon Drake v Stanton (1999) FCA 1635. It was further submitted that it is not necessary for the person to live at an address for it to be possible to affect delivery of documents to that address (Troy & Co v Cameron [2002] FMCA 42).
The service by post to the Applicants care of their solicitors is deemed service upon the Applicants pursuant to Regulation 16.01(2)(a) of the Bankruptcy Regulations (the Regulations) in the absence of proof to the contrary. Arguments however relating to whether the notice has been given to the Applicants required by this part is irrelevant to the Applicants challenge to the appointment of the trustee based on s.222 of the Bankruptcy Act which in specific terms is a matter of construction. The only permissible challenge to the composition is if there is a challenge to the validity of the special resolution passed at the relevant meeting. Objection was taken to the Applicants seeking to raise grounds other than those referred to in submissions filed

22 October 2002.
It was submitted that in dealing with the validity of the resolution passed at the meeting the onus is on the Applicants to establish that the resolutions passed were invalid and that no evidence had been adduced by the Applicants to support submissions referred to as (b) to (f) in paragraph 37 of this judgment. An attack on the composition should fail.
As indicated earlier a challenge was made to the ability of the Applicants to rely upon s.239 and any extension of time beyond the

21 day period on which the resolution accepting the composition was passed was strongly opposed. Reliance was placed on the notice of opposition which indicated that an issue would be taken in relation to the time period and this had been made known to the Applicants on

11 July 2002 and no attempt was made to remedy the situation until October 2002 by reference to s.33(1)(c) in the Applicants’ submissions. The belated attempt to cure the defects should not be permitted.
In any event if an extension of time were to be considered it was argued that the Court should not exercise its discretion due to the length of the delay and prejudice to be suffered by other creditors and the trustee if the composition were now declared void.
After an analysis of the chronology to which reference has already been made it was submitted that there was a period of some six months elapsed after a circular to creditors had been sent by Mr Nash to the then only known address given to him by the First Applicant.

A further six weeks elapsed after the First Applicant admitted he had been advised of entry into the composition. No attempt was made it was submitted in the First Applicant’s affidavit to discharge the onus cast upon the affidavit of the Applicants to explain the delay in filing the Application (see re Cufari; Ex Parte Commissioner of Taxation v Huppatz (1992) 34 FCR 544). The failure to provide an explanation is unacceptable. The period of 21 days stipulated in s.239(1) of the Bankruptcy Act indicates how serious the Act views an Application to set aside a composition and there is a need to ensure that if Applications are to be made they are made expeditiously (see Re Kukler; Ex Parte National Australia Bank v Kukler (1998) 87 FCR 352).
Reliance was placed on the schedules attached to the Dart affidavit and it was submitted that those schedules disclosed that in either scenario the creditors of Mr Clarke are in a better position than if a sequestration order were now to be made. It was noted that the creditors of Mrs Clarke would be in a less preferable position but not to a significant degree. It is not therefore an instance where it could be said that the composition should be set aside because the liability of the Applicants was not disclosed or that the majority of creditors would be better off under the composition as opposed to their position if a sequestration order was made. The terms of the composition are reasonable and calculated to benefit creditors generally according to the Second Respondents submissions. The debtors did not have any separate property or assets that would have been available in the event of bankruptcy. Despite the breadth of s.239 of the Act its operation is confined to circumstances which relate to the terms of the composition itself (see Khera v NAB (1996) 141 ALR 416 at 429).
It was submitted that there is no evidence the greater opportunity to enquire into the debtor’s affairs or a more comprehensive explanation by the debtor is called for so as to justify a sequestration order being made. Accordingly due to the Applicants delay, the reasonableness of the terms of the composition and the prejudicial impact of unwinding steps taken in good faith to implement the terms of a composition approximately ten months after the process began the Court should not exercise its discretion to make the orders sought by the Applicants.

In its supplementary submissions arising out of the filing of the minutes the First Respondents noted that the minutes revealed that

Mr Clarke did have separate creditors to Mrs Clarke. However,

Mrs Clarke’s creditors were joint creditors of both her estate and the estate of Mr Clarke. No irregularity occurred in conducting the concurrent meeting of the creditors. The reference by the Applicant to re Forbes Ex Parte Industrial Acceptance Corporation Limited (1974) 24 FLR 87 pre dates the introduction of s.187A of the Act and the other cases cited by the Applicants submissions all pre date the 1996 amendments to the Bankruptcy Act and Regulations. It was submitted there is no authority on the points since the amendments commence.
Each of the debtors it was submitted signed separate authorities and have principally joint creditors signed as a single proposal. A single resolution was put and passed at the meeting. The proposal to offer up all of the assets which would have been available to creditors of both joint and several estates in the event of a bankruptcy was appropriate.
The First Respondents’ submitted that s.222(3) relevantly provides the Court should not make an order in declaring a deed to be void on the ground that it does not comply with s.204 of the Bankruptcy Act if the deed complies substantially with those requirements. In the circumstances it was submitted there has been substantial compliance with the Act and it is not appropriate for the Court to declare the deed void.
A discrepancy was highlighted between submissions made at the commencement of the hearing and submissions in writing filed by the Applicants on 26 November 2002. It was noted that during opening remarks Counsel for the Applicants submitted that even if the challenge to the composition was successful there would not be any issue with the expenses properly incurred by the trustee since

19 December 2001 and deducted from the estate and consistent with that position reference was made by Counsel for the Applicants that if successful in setting aside the composition the order for costs sought was that they be paid out of the bankrupt estate. The Court should not permit the Applicants to resile from the previously stated position by relying upon a submission that the composition should be declared void ab initio with all payments made by the trustee to be refunded to the bankrupts’ estate. To allow that it would be relevant to take into account further the issue of whether the Applicants were permitted to amend the Application and whether an extension of time should be granted. The quorum issue had never been raised by the Applicants prior to the filing of its written submissions and was not formally sought to be considered by the Court by way of an amendment until the hearing on 13 November 2002. Having regard to the late assertion of the issue concerning quorum there should be no entitlement to costs in favour of the Applicants should they succeed on the quorum issue.

It was submitted the trustees acted in good faith at all times and arranged for the sale of the debtor’s property and made payments and incurred costs and expenses in the absence of knowledge that there was to be any complaint as to the validity of the composition. In the event that the composition were to be set aside (which is denied) and a sequestration order made then the appropriate order would be that the fees and expenses reasonably incurred by the trustee up to the date of the Court’s order be deducted and paid from the bankrupt estate. In the alternative it was submitted that the trustee be indemnified for those fees and expenses out of the bankrupt estate.
A further alternative is that no sequestration should be made and the matter be determined afresh by relevant creditors having regard to the present circumstances.
It was submitted by the Respondents during the course of the hearing that in the present case through an improper arrangement of his own affairs the First Applicant has put himself in a position whereby he could not receive the notice provided by his solicitors. It was submitted that the service of the notice should not be compared to the service of a writ or summons where it is required that a solicitor should expressly advise that he has instructions to accept service. The Court only needs to be satisfied that service occurred at the last known address in accordance with Regulation 16.01. Reference was made to the chronology of events whereby it appeared that Mr Nash for the period May and June had contact in respect of recovery of moneys owing to the Applicants by the First Respondents. In all the circumstances it was submitted that it is reasonable to regard the address of Mr Nash as being the address which was the address for service at the time closest to the date in question. The Court was asked to find that the solicitors address even in circumstances where he has expressly advised he has no authority to accept service satisfies the obligations for service under the Bankruptcy Regulations. The issue of service, it was submitted, is only relevant in relation to s.239 of the Bankruptcy Act.
During the course of submissions it was conceded that at least in relation to the estate of Mrs Clarke the Applicants would be better off with a sequestration order than under the composition. The Court however was invited to look at the interests of the creditors generally to set aside and in weighing up all those issues it was submitted the Court should have regard to the fact that there has been a delay which to some extent was the responsibility of the Applicants. The reasonableness otherwise of the terms of composition it was submitted are beyond doubt. All the assets were offered by the First Respondents which otherwise would be available had a sequestration order been made. Accordingly the s.222 claim should fail.

Reasoning and findings

As indicated earlier in this judgment the facts which are set out and are not significantly in dispute. But to that extent I accept the affidavit evidence by the Applicant.
I find that the Applicants did not receive the notice of the proposed Part X composition. I further find that the lack of notice at least in so far as it relates to the purported meeting of Mrs Clarke is fatal to that meeting and the composition arising out of the meeting. To that extent I accept that in the present circumstances that the Application under s.222(1) of the Bankruptcy Act can be distinguished from the decision in

re Beames Ex Parte Beneficial Finance Co Limited
(1985) 7 FCR 216. I am satisfied that in the circumstances in the absence of specific instructions to receive service it cannot be assumed that a solicitor that may have acted for a party should continue to be the appropriate address for service. The notice sent to Mr Nash on 6 December 2001 was sent at a time when Mr Nash was not in receipt of instructions to act for the Applicants. I am further satisfied that accepting the evidence of Mr Nash he did not verify the address of the Applicants namely “Locked Bag 4002 Broome” as alleged on 17 December 2001. It is also noteworthy that he was not asked to confirm receipt of the notice dated 6 December 2001 and I accept that had he received that notice he would have provided a copy to the Applicants and retained a file copy as part of his normal office practice. In my view the deeming effect of Regulation 16.1(2)(a) of the Bankruptcy Regulations does not apply to the circumstances in the present case.
I am further satisfied that on a proper reading of the minutes of meeting held on 19 December 2001 that it was as described in the minutes “a meeting of joint and several creditors of Robert Michael Clarke and Narelle Louise Clarke”. I accept that in those circumstances where on the evidence referred to earlier in this decision there appear to be significant separate debts of the debtors it is necessary to call a separate meeting in respect of each of the estates albeit that those meetings may be held concurrently. I am satisfied that the meeting of the creditors of all classes voting on the composition resolution may be regarded as being void as not complying with s.204 of the Bankruptcy Act (see re Forbes Ex Parte Industrial Acceptance Corporation Limited (1974)

24 FLR 87). Whilst I accept that re Forbes predates the introduction of s.187A of the Bankruptcy Act the principles arising from re Forbes are still applicable in the present case. In my view a proposal should have been put to the separate creditors in respect of the debts owing to them and a proposal put to joint creditors in respect of the debts owing and a distinction should be made between joint creditors of the debtors and separate creditors and this did not appear to occur in the present case. (see re Williams; Ex Parte Official Trustee in Bankruptcy (1990)

26 FCR 191). The procedure adopted at the meeting therefore in my view constitutes a further basis for deciding that there has not been a compliance with Part X and that a declaration should be made under s.222 of the Bankruptcy Act.
I otherwise accept that in the present circumstances it is inappropriate to have a meeting of creditors of this kind given that there is an endeavour to achieve a binding composition where it is possible the creditors with entirely different interests may have the capacity to out vote the creditors of one debtor as against creditors of another debtor. The rights of individual creditors might well be in conflict with those of joint creditors.
In the circumstances I am also prepared to find in relation to the estate of Mrs Clarke there was no quorum present of the creditors for her separate estate at the meeting held on 19 December 2001. There is a duty in that situation of the Trustee to adjourn the proceedings in accordance with s.64N(3) (see Huynh v Pascoe [2002] FCA 309 (FC)).
I am satisfied that in the present case it is appropriate for the court to exercise its discretion under s.222 of the Bankruptcy Act to declare the composition void. I am not satisfied that there has been substantial compliance pursuant to s.222(3) of the requirements of Part X due to lack of notice and lack of quorum as stated.
In the alternative I am further satisfied that it is appropriate to permit the Applicants an extension of time pursuant to s.33(1)(c) of the Bankruptcy Act to enable the Application pursuant to s.239 to be brought out of time. The defects in relation to notice and quorum and the chronology of events leading to the discovery of the resolution at a later stage is sufficient in my view combined with any lack of significant prejudice to enable the court to exercise its discretion to permit the s.239 Application to be pursued. I accept that the Application has been brought as soon as practicable after the Applicants became aware of the meeting in December 2001 and resolutions made at that meeting. The delay in the present case is short delay of a period of approximately 6 weeks from the date when the Applicants discovered the composition and the filing of the Application. I do not regard that as an inordinate delay or delay of a kind similar for example to that in the case of re Kukler where that delay was, as indicated earlier in this decision, from October 1996 to May 1997.
It is significant in the present case in considering the exercise of the court’s discretion under s.222 or granting extension of time to pursue the Application under s.239 that the court should examine the reality of the different circumstances of the debtors. There is a distinction to be made in relation to the estate of Mrs Clarke and I accept the submission made that the composition in relation to that debtor should be declared void ab initio due solely to the lack of quorum. For the reasons advanced for and on behalf of the Applicants I am satisfied that it was not appropriate to hold a joint meeting in this instance. Certainly that lack of quorum in relation to Mrs Clarke is a fatal defect. A quorum is not as I have indicated in other decisions (see QBSA v Ball & Anor [2001] FMCA 47) to be regarded as a technical matter but is in my view fundamental to a creditors meeting. Having found the lack of quorum I accept that it is probably not necessary in the present Application to consider the other factors which are set out in s.222(4) of the Bankruptcy Act.
In summary I am satisfied that the lack of quorum in relation to Mrs Clarke is a fatal defect in relation to the present composition. Further I am otherwise satisfied that the failure to give proper notice and the terms of the composition which thereafter followed are sufficiently unreasonable and/or would not benefit the creditors generally to be set aside pursuant to s.239 of the Bankruptcy Act.
It is clear from the findings I have made that I reject the submissions made for and on behalf of the First Respondents that there has been adequate service upon the solicitors acting on behalf of the Applicant and I am satisfied in the present case can be distinguished from the decision of Troy & Co v Cameron referred to and relied upon by the Respondents.
I reject the submissions by the Respondents that the court should not extend the time within which to bring an Application under s.239 and ultimately there is sufficient material applying that section and to make an order that the composition be set aside.
I do not think it is possible in the present circumstances even having regard to the evidence of Ms Dart to include that the composition provides an outcome whereby the majority of creditors would be better off compared with their position if a sequestration order is made. I do accept the submission made by the Respondents that the issue of a quorum has been raised at late stage and having granted an extension of time it would be unfair to them to declare as void ab initio the conduct of the Trustee in relation to Mrs Clarke and to make an order that that composition relating to her should be declared void ab initio.
Whilst I have been prepared to declare the composition void and to set it aside there remains the issue the Trustee’s costs. I accept that the quorum issue had not been raised by the Applicants prior to filing written submissions and further note that in the circumstances an extension of time has been granted to the Applicants to pursue the s.239 claim. On all the material before me it would be unfair in the circumstances to make an order against the Trustee for costs. I will hear counsel however in relation any order against the Second Respondents and I am prepared to hear further submissions based on the reasons given in this judgment as to any order which should be made in favour of the Trustee.
Given the delay in time and the fact that there may be other creditors whose interests are affected, I accept further submissions on behalf of the Respondent that a sequestration order should not be made at this stage but should be determined upon fresh evidence of relevant creditors based upon the current circumstances of the First Respondents.
In all the circumstances I am satisfied for the reasons given that it is appropriate to set aside the composition.
Accordingly the orders of the court will be as follows:
(1)Pursuant to s.222 of the Bankruptcy Act 1966 the First Respondent’s Composition under Part X dated 19 December 2001 is declared void.
(2)The time for making Application pursuant to s.239 of the Bankruptcy Act be extended to 17 June 2002.
(3)Pursuant to s.239 of the Bankruptcy Act 1966 the Composition under Part X of the Bankruptcy Act 1966 of Robert Michael Clarke and Narelle Louise Clarke dated 19 December 2001 be set aside.
I will hear counsel in relation to the issue of costs.

I certify that the preceding ninety-three (93) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 31 October 2003