News Limited, in the matter of Ormond v Ormond

[2001] FCA 1118

FEDERAL COURT OF AUSTRALIA

News Limited, in the matter of Ormond v Ormond [2001] FCA 1118

BANKRUPTCY – creditor’s petition – where act of bankruptcy under Bankruptcy Act 1966 (Cth) s 40(1)(i) by debtor signing authority under s 188 – where court satisfied of matters in Bankruptcy Act 1966 (Cth) s 52(1) – whether purported deed of arrangement has effect that creditor not competent under Bankruptcy Act 1966 (Cth) s 233(2)(a) to proceed with creditor’s petition – where purported deed of arrangement under Bankruptcy Act 1966 (Cth) Pt X disclosed on face not executed in accordance with Bankruptcy Act 1966 (Cth) s 216(1) – whether purported deed of arrangement not executed in accordance with Bankruptcy Act 1966 (Cth) s 216(1) invalid on its face – whether purported deed of arrangement valid for purposes of Bankruptcy Act 1966 (Cth) s 233(2)(a) until declared void under s 222 – whether purported deed of arrangement only so valid where valid on its face – whether purported deed of arrangement to be treated as valid because debtor’s and creditors’ wishes not to be frustrated by trustee’s negligence – whether Musolino v Sidiropoulos (1991) 101 ALR 235 affects present case.

Bankruptcy Act 1966 (Cth) ss 5(1), 33(1)(c), 40(1)(i), 52(1), 188, s 188A, 189A(1), 190(1), 204, 213(1), 216, 222, 228(1), 228(2), 233(1), 233(2)
Federal Court Rules (Cth) O 14 r 9(3)

Re Dawson; Ex parte Dawson and Arthur Andersen and Co (1985) 5 FCR 133 discussed
Re Lawrence; Ex parte Burns (1985) 9 FCR 9 followed
Burns v Lorac Mining Pty Ltd (1985) 4 FCR 301 followed
Re Gagliardi; Ex parte Mount (1984) 5 FCR 52 considered
Musolino v Sidiropoulos (1991) 101 ALR 235 considered
Re Leeb (1972) 20 FLR 384 referred to
Re Migliorini; Ex parte Silk Bros (Interstate Traders) Pty Ltd (1974) 22 FLR 491 referred to
Gee v Schmutter (1971) 123 CLR 503 referred to

IN THE MATTER OF WAYNE RODNEY ORMOND

NEWS LIMITED v WAYNE RODNEY ORMOND
N 7250 of 2001

IN THE MATTER OF WAYNE RODNEY ORMOND

WAYNE RODNEY ORMOND v GEOFFREY DAVID McDONALD & ANOR
N 7346 of 2001

KATZ J
15 AUGUST 2001
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 7250 of 2001

IN THE MATTER OF WAYNE RODNEY ORMOND

BETWEEN:	NEWS LIMITED APPLICANT
AND:	WAYNE RODNEY ORMOND RESPONDENT
JUDGE:	KATZ J
DATE OF ORDER:	15 AUGUST 2001
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1         A sequestration order be made against the respondent’s estate.

2The respondent pay the applicant’s costs of the proceeding, those costs to be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 7346 of 2001

IN THE MATTER OF WAYNE RODNEY ORMOND

BETWEEN:

WAYNE RODNEY ORMOND
APPLICANT

AND:

GEOFFREY DAVID McDONALD
FIRST RESPONDENT

NEWS LIMITED
SECOND RESPONDENT

JUDGE:

KATZ J

DATE OF ORDER:

15 AUGUST 2001

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1         The application be dismissed.

2The applicant pay the second respondent’s costs of the proceeding, those costs to be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 7250 of 2001

IN THE MATTER OF WAYNE RODNEY ORMOND

BETWEEN:

NEWS LIMITED
APPLICANT

AND:

WAYNE RODNEY ORMOND
RESPONDENT

N 7346 of 2001

IN THE MATTER OF WAYNE RODNEY ORMOND

BETWEEN:

WAYNE RODNEY ORMOND  
APPLICANT

AND:

GEOFFREY DAVID McDONALD
FIRST RESPONDENT

NEWS LIMITED

SECOND RESPONDENT

JUDGE:	KATZ J
DATE:	15 AUGUST 2001
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. There is before me a creditor’s petition which has been presented by News Limited (“the creditor”).  That petition, which was presented on 21 May 2001, seeks the making of a sequestration order against the estate of Mr Wayne Rodney Ormond (“the debtor”).

2. In that petition, there is alleged against the debtor, among other things, the commission by him of an act of bankruptcy consisting of the signing by him, on 6 December 2000, of an authority under s 188 of the Bankruptcy Act 1966 (Cth) (“the Act”). (The signing of such an authority by a debtor is made an act of bankruptcy by par 40(1)(i) of the Act.)

3. At the hearing before me of the creditor’s petition, the debtor conceded that, as alleged in that petition, he had committed an act of bankruptcy by signing, on 6 December 2000, an authority under s 188 of the Act. More generally, he conceded that, on the evidence before me, I was entitled to be satisfied of all of those matters of which I am required, by subs 52(1) of the Act, to be satisfied before I am apparently empowered by that subsection to make a sequestration order against a debtor’s estate. I mention now that the creditor’s evidence has satisfied me of all of those matters.

4. However, despite his concessions to which I have just referred, the debtor relied before me on par 233(2)(a) of the Act as providing him with a defence to the creditor’s petition. Paragraph 233(2)(a) of the Act should be read together with subs 233(1) of the Act. That subsection and paragraph provide:

   “233(1) A deed of arrangement that is entered into in accordance with this Part [that is, Pt X] and complies with the requirements of this Part is, upon being duly executed by the debtor and the trustee, binding on all the creditors of the debtor.
   (2) … where a deed of arrangement has become binding on the debtor’s creditors, it is not competent for a creditor, so long as the deed remains in force:

   (a) to present a creditor’s petition against the debtor, or to proceed with such a petition presented before the deed became so binding, in respect of a provable debt….”

5. Fundamental to the debtor’s reliance on par 233(2)(a) of the Act as providing him with a defence to the creditor’s petition was a purported deed of arrangement, said on its face to have been made on 15 June 2001 between the debtor and Mr Geoffrey David McDonald, a registered trustee. The debtor submitted before me that, for the purpose of determining the creditor’s petition, I was required, by reason of the existence of that document, to proceed on the basis that, on 15 June 2001, a deed of arrangement had been entered into in accordance with Pt X of the Act, that that deed had complied with the requirements of that Part and that that deed had been duly executed both by the debtor and by the trustee. In consequence, for the purpose of determining the creditor’s petition, I was required to proceed on the basis that that deed had become binding on the debtor’s creditors. The debtor further submitted before me that, for the purpose of determining the creditor’s petition, I was required to proceed on the basis that that deed remained in force. In consequence, for the purpose of determining the creditor’s petition, I was required to proceed on the basis that it had not been competent for the creditor, since 15 June 2001, to proceed with the creditor’s petition presented by it on 21 May 2001 and I was therefore required to dismiss that petition.

6. There exist, as the debtor acknowledged before me, three difficulties with the purported deed of arrangement on which he relied as giving him a defence, under par 233(2)(a) of the Act, to the creditor’s petition. It is convenient to mention now those three difficulties, foreshadowing, before I do so, that the debtor denies that those three difficulties prevent him from relying successfully on that purported deed as giving him a defence, under par 233(2)(a) of the Act, to the creditor’s petition.

7. It appears from the report of the debtor’s controlling trustee, prepared under subs 189A(1) of the Act, that the debtor claimed to have assets totalling $550,200 and liabilities totalling $898,666.32, $351,666.32 of the latter being liabilities to unsecured creditors and the remaining $547,000.00 being liabilities to secured creditors. The debtor thus claimed that his total liabilities exceeded his total assets by $348,466.32.

8. It also appears from the controlling trustee’s report that the debtor held four real estate agency franchises from Raine & Horne Qld Pty Ltd (“the franchisor”) and that the debtor claimed to have fallen into financial difficulties because, contrary to his agreement with the franchisor, the franchisor had granted to other persons additional franchises in the geographic areas covered by the debtor’s franchises.  The debtor had commenced proceedings against the franchisor, seeking approximately $700,000 in damages as a result of its alleged unlawful conduct in that respect.

9. It further appears from the controlling trustee’s report that among the debtor’s unsecured creditors were said to be his wife, Ms Kerryn Ormond (said to be owed $4,200 for what were described as “application fees”), his brother-in-law, Mr Grant Chambers (said to be owed $20,000 for wages), and two other persons not being relatives of his, namely, Mr Lance English and Ms Vicki Johns.  The former of those two other persons was said to be owed $121,500 for wages and loans, while the latter was said to be owed $10,000 for wages.  The total of the claimed liabilities to those four named persons was $155,700, or about 45% of the debtor’s claimed total liabilities to unsecured creditors, with $195,966.32 being claimed to be owed to the debtor’s remaining unsecured creditors.  According to the controlling trustee’s report, those four named persons were “prepared to forgo their entitlement to a dividend for the benefit of other creditors in the event creditors vote for the Debtor’s proposal”.

10. It appears from the debtor’s proposal for dealing with his affairs, prepared pursuant to s 188A of the Act, that what he was proposing to his creditors was his entering into a deed of arrangement, with his “pay[ing] (or arrang[ing] for someone to pay) a total of $50,000 to the Trustee of the deed”.  That sum “would (after administration costs) go to creditors”.  The proposal continued,

    “1a. In addition to the above, I shall assign to the Trustee of my Deed 25% of the proceeds (after payment of legals [sic] costs and outlays[)] of my litigation claim against Raine and Horne Qld. Pty. Ltd. to the extent [presumably, ‘intent’ was meant] that any monies [sic] received as a result of that claim shall go to satisfy the debts of my provable unsecured creditors [presumably, ‘the provable debts of my unsecured creditors’ was meant] and any surplus proceeds of successful claim shall be remitted to me.
    …
    4. I will ensure that Vicki Johns, Grant Chambers, Lance English and Kerryn Ormond who may otherwise may [sic] be entitled to a dividend from this proposal shall not claim a dividend unless all provable unsecured creditors[’] debts are satisfied.”

11. It appears from the minutes of a meeting of the debtor’s creditors, which meeting had been called by the controlling trustee under subs 190(1) of the Act, that that meeting was held on 20 December 2000. It appears further from those minutes that:

    “The [debtor’s] proposal was amended to include a paragraph 1.A, ‘In addition to the above I shall assign sufficient proceeds from my action against Raine & Horne to the Trustee and cause International Property Investment Corp. Pty. Ltd. to assign sufficient proceeds from the claim against Raine and Horne to the Trustee to meet payment of all provable claims in full’.”

    (International Property Investment Corp Pty Ltd was, according to the controlling trustee’s report, a company of which the debtor was a director and shareholder.  Further, the minutes of the meeting of the debtor’s creditors recorded that there existed a franchise agreement between the franchisor and International Property Investment Corp Pty Ltd, with the debtor being a guarantor pursuant to that agreement.  I infer that the latter company was the vehicle through which the debtor conducted his real estate agency franchises.)

12. The minutes continued,

    “A Motion was moved that the debtor be required to execute a Deed of Arrangement incorporating the terms of the debtor’s proposal as circulated to creditors including the one amendment read into the minutes by the President.”

13. That resolution was passed, as appears from the minutes of the meeting.  The debtor’s wife and Mr English were among the creditors voting in favour of it; however, Mr Chambers, the debtor’s brother-in-law, and Ms Johns did not vote on the resolution, not being present at the meeting.  Indeed, it may be that Mr Chambers had not actually received notice of the meeting from the controlling trustee, since the minutes recorded that “a letter to a creditor by the name of Grant Chambers was returned marked ‘insufficient address’”.

14. Further, it appears from a certificate of the resolutions passed at the meeting that the resolution concerned was passed as a special resolution. (See s 204 of the Act for the special resolutions which may be passed at a creditors’ meeting and subs 5(1) of the Act for a definition of the term “special resolution”.)

15. I turn now to the terms of the purported deed of arrangement itself.

16. I have already mentioned above that that purported deed was said on its face to have been made on 15 June 2001, while the minutes of the creditors’ meeting show that meeting as having occurred on 20 December 2000.  However, the meeting’s having occurred on 20 December 2000 is apparent, not only from those minutes (as well as from the certificate of the resolutions passed at the meeting, to which certificate I have already referred above); it is also apparent from the face of the purported deed itself, being recited in it.

17. Section 216 of the Act provides:

    “216(1) A deed of assignment or a deed of arrangement shall be executed by the debtor and the trustee within 21 days from the day on which the special resolution requiring the debtor to execute the deed was passed.
    (2) The execution of the deed by the debtor and by the trustee shall be attested by a witness.”

18. Thus the purported deed discloses on its face that it was not executed by the debtor and the trustee within twenty-one days from 20 December 2000, as subs 216(1) of the Act requires shall be done, but was instead executed almost six months from that date.

19. (I note that if a question had arisen before me as to whether the debtor and trustee had substantially complied with subs 216(1) of the Act by executing the purported deed when they did, then it would have been difficult for me to conclude that they had, given the delay involved.)

20. Clause 3 of the purported deed provided, “The debtor hereby conveys and assigns to the Trustee the right, title and interest in property specified in item 4 of the Schedule hereto”.  Item 4 of the Schedule to the purported deed consisted only of the notation “N/A”, which I infer meant “not applicable”.

21. Thus, in spite of the resolution of the debtor’s creditors, requiring the debtor to execute a deed of arrangement incorporating the terms of (relevantly) par 1.A of the debtor’s proposal, the purported deed contains no assignment by the debtor of the type which had been referred to in that paragraph of the debtor’s proposal as being intended to be made by him.  (Presumably, par 1.A of the debtor’s proposal had been intended to replace par 1a thereof, although the minutes of the creditors’ meeting did not make that explicit.)  Nor did the deed contain any provision by which the debtor obliged himself to cause International Property Investment Corp Pty Ltd to make an assignment of the type which had been referred to in par 1.A of the debtor’s proposal as being intended to be made by it.

22. Clause 5 of the purported deed provided, “The Trustee shall apply any moneys received by him pursuant to this Deed at such time as he shall in his absolute discretion think fit in accordance with and in the order prescribed by Part VI, Division 5 of the Act”.  There was no restriction expressed, whether in cl 5 or in any other provision of the purported deed, on the trustee’s ability to pay dividends pursuant to the purported deed to the debtor’s wife or brother-in-law or to Mr English or Ms Johns.  Nor did the deed contain any provision by which the debtor obliged himself to prevent those four persons from claiming a dividend until the provable debts of all other unsecured creditors had been paid.

23. Thus, in spite of the resolution of the debtor’s creditors, requiring the debtor to execute a deed of arrangement incorporating the terms of (relevantly) par 4 of the debtor’s proposal, the purported deed contains no provision seeking to give effect to that paragraph of the debtor’s proposal.

24. Before me, as I have already mentioned, the debtor acknowledged the existence of the three difficulties with the purported deed which I have discussed above, but took the position that those three difficulties did not prevent him from relying successfully on the purported deed as giving him a defence, under par 233(2)(a) of the Act, to the creditor’s petition.

25. In taking that position, the debtor relied primarily on the decision of Pincus J in Re Dawson; Ex parte Dawson and Arthur Andersen and Co (1985) 5 FCR 133.

26. In that case, Dawson had applied for the setting aside of a bankruptcy notice which had been served on him by Arthur Andersen and Co (“Andersen”). He had done so in reliance on par 228(2)(c) of the Act. Paragraph 228(2)(c) of the Act should be read together with subs 228(1) of the Act. That subsection and paragraph provide:

    “228(1) A deed of assignment that is entered into in accordance with this Part [that is, Pt X] and complies with the requirements of this Part is, upon being duly executed by the debtor and the trustee, binding on all the creditors of the debtor.
    (2) … where a deed of assignment has become binding on the creditors of the debtor, it is not competent for a creditor, so long as the deed remains valid:

    …
    (c) to commence any legal proceedings in respect of a provable debt or take any fresh step in such a proceeding.”

27. It will be seen that subss 228(1) and 233(1) of the Act are materially identical, apart from dealing with different types of deed under Pt X of the Act.

28. Before the date of service on Dawson of the relevant bankruptcy notice, a deed of assignment had purportedly been entered into in accordance with Pt X of the Act, which deed had purportedly complied with the requirements of that Part and had purportedly been duly executed by Dawson and a trustee. Andersen had disputed the validity of that purported deed and had sought, under s 222 of the Act, a declaration of its invalidity. However, Pincus J chose to hear Dawson’s application in advance of Andersen’s application.

29. Among the questions with which Pincus J dealt on Dawson’s application (see at 135-36) was “whether the condition mentioned at the outset in s 228(2) subsists, namely that ‘a deed of assignment has become binding on the creditors of the debtor.’” His Honour’s answer to that question was dictated by his conclusion that, “Unless and until a declaration is made under s 222 that a Pt X deed [of assignment] is void, it must be treated as valid for the purposes of s 228(2)”.  That being the case, his Honour said, “It follows, in my view, that at present the deed, which is on the face of it valid, must be treated as good, for the purposes of s 228(2)”.  His Honour therefore set aside Andersen’s bankruptcy notice.

30. Before me, the debtor submitted, in reliance on Dawson, that, in the same way that a purported deed of assignment under Pt X of the Act must be treated as valid for the purposes of subs 228(2) of the Act, unless and until a declaration is made under s 222 of the Act that it is void, a purported deed of arrangement under Pt X of the Act must be treated as valid for the purposes of subs 233(2) of the Act, unless and until a declaration is made under s 222 of the Act that it is void. Since there had been no earlier declaration under s 222 of the Act that the purported deed of arrangement of 15 June 2001 was void and, further, since there was before me no application by the creditor for such a declaration, it followed that I must treat that purported deed, for the purpose of determining the creditor’s petition, as valid for the purposes of subs 233(2) of the Act, with the consequence that I must dismiss that petition.

1. While I accept that a purported deed of arrangement should be treated for the purpose of subs 233(2) of the Act in the same way as a purported deed of assignment should be treated for the purpose of subs 228(2) of the Act, I do not accept that such similarity of treatment assists the debtor in the present case. That is because the approach taken by Pincus J in Dawson must be understood as being subject to a qualification, as Pincus J himself afterwards acknowledged, which qualification prevents that approach from operating in the debtor’s favour in the present case.  That qualification is that it is only a purported deed which is valid on its face (as was the purported deed under consideration in Dawson, as Pincus J pointed out in that case) which must be treated as valid for the purposes of either subss 228(2) or 233(2) of the Act (whichever is appropriate), unless and until a declaration is made under s 222 of the Act that it is void. On the other hand, a purported deed which is invalid on its face is to be treated as invalid for the purposes of either subss 228(2) and 233(2) of the Act (whichever is appropriate), unless and until that invalidity is cured in some way, assuming that that can be done.

2. Pincus J acknowledged the existence of the relevant qualification in Re Lawrence; Ex parte Burns (1985) 9 FCR 9.

3. In Lawrence, Pincus J was concerned with the validity of a purported deed of assignment, the execution of which by the debtor had been attested by one of the two trustees under it.  In an earlier proceeding, Burns v Lorac Mining Pty Ltd (1985) 4 FCR 301, in which there had been a collateral attack on the purported deed’s validity by a person sued by the two trustees in their capacity as trustees, Beaumont J had held that the purported deed was void because of its non-compliance with subs 216(2) of the Act, already set out (see [17] above). Then, in Lawrence, the two trustees sought, under s 222 of the Act, and despite Beaumont J’s earlier decision, a declaration that the purported deed was valid. Pincus J held that he was not precluded by Beaumont J’s earlier decision, given in a collateral attack on the purported deed’s validity, from considering, under s 222 of the Act, the question of the purported deed’s validity. However, he reached the same view as had Beaumont J about the purported deed’s invalidity because of its non-compliance with subs 216(2) of the Act.

4. In the course of his reasons for judgment, Pincus J (at 11-12) referred to a submission made in argument before him that Beaumont J’s decision in Burns was inconsistent with Pincus J’s own earlier decision in Dawson.  Pincus J, however, rejected that submission.  (I note, incidentally, that if the decision in Burns had been inconsistent with the decision in Dawson, then it would appear that the reasoning in the former case should have been preferred to that in the latter, since the former had been decided before the latter, but the latter, having made no reference to the former, would have been decided per incuriam.)

5. In rejecting the submission of inconsistency between Beaumont J’s decision in Burns and Pincus J’s own earlier decision in Dawson, Pincus J first drew attention to the fact that he had held in Dawson that “unless and until a declaration is made under s 222 that a Pt X deed [of assignment] is void, it must be treated as valid for the purposes of s 228(2)”.  He then summarised the two provisions just mentioned and continued,

   “The Dawson case, however, concerned a deed which was not void on the face of it; here, an examination of the document shows that it was not attested as the statute requires. … I do not think I should differ from the view of Beaumont J; his Honour’s opinion was the rule that such a deed is valid until declared void under s 222 has no application where there is not such attestation as is required by s 216(2).
   It follows that I accept, with respect, the correctness of the decision of Beaumont J and will not make the declaration sought.”

6. Since I am unable to see any relevant difference for present purposes between subss (1) and (2) of s 216 of the Act, each of them prescribing something required to be done in connection with the execution of a deed under Pt X of the Act, and since (to paraphrase Pincus J in Lawrence) an examination of the relevant document in the present case shows that it was not executed as subs 216(1) of the Act requires, I conclude that the rule that a purported deed is valid until declared void under s 222 of the Act has no application to the document. That being so, the debtor’s attempted reliance on the document as providing him with a defence, under par 233(2)(a) of the Act, to the creditor’s petition fails.

7. I should add now that, as well as relying on Dawson in seeking to make out a defence under par 233(2)(c) of the Act, the debtor also relied before me on two other decisions, both of them being decisions of Full Courts of this Court, Re Gagliardi; Ex parte Mount (1984) 5 FCR 52 (Fox, Woodward and Davies JJ) and Musolino v Sidiropoulos (1991) 101 ALR 235 (Beaumont, Burchett and von Doussa JJ).

8. However, for reasons which I will explain below, neither of those two decisions causes me to doubt the correctness of the views which I have expressed in the next preceding paragraph of these reasons for judgment.

9. Gagliardi concerned a purported deed of assignment. A meeting of Gagliardi’s creditors had passed a special resolution requiring him to execute a deed of assignment and such a deed was purportedly subsequently executed. However, at the relevant times, the Act had required the chairman of the creditors’ meeting “forthwith” to certify that such a special resolution had been passed by the meeting and to cause that certificate to be filed; the Act had also required the trustee of the deed “forthwith” to publish notice that such a deed had been executed. It was common ground that those obligations of the chairman and trustee respectively had not been performed and the trustee (who had also been the chairman of the meeting) sought from the Court an extension of time for their performance. That application was rejected by the primary Judge, who considered that the general extension of time provision in the Act, par 33(1)(c), was not available in respect of obligations required under the Act to be performed “forthwith”. The sole question argued before the Full Court was whether, contrary to the view of the primary Judge, the Court did have power, under par 33(1)(c) of the Act, to extend the time for the performance of those obligations. The Full Court held unanimously that the Court did have such power and remitted the matter to the primary Judge to decide whether to exercise that power.

10. In obiter, however, Woodward J expressed the view (at 61) that, “It would be in accordance with the general spirit of the legislation that, when debtor and creditors have entered into [sic] a deed of assignment, their wishes should not be frustrated by the negligence of the trustee”. 

11. Treating that expression of view by Woodward J as having been intended to extend to negligence by a trustee in the performance of every function conferred or imposed on a trustee by Pt X of the Act, the debtor submitted before me that failure by the trustee in the present case to comply with subs 216(1) of the Act should not be held to have invalidated the purported deed of arrangement of 15 June 2001.

12. As to that submission, I make the following three points.  First, Woodward J’s obiter comments were directed specifically to a situation in which (see at 61) “the trustee has been dilatory in carrying out his obligations to publicise … the entry by the debtor into a deed of assignment”; they were not directed as well to a situation in which a trustee had been dilatory in carrying out the trustee’s obligation under subs 216(1) of the Act of entering into the deed. Secondly, even if, contrary to the view which I have just expressed, those comments were directed as well to the latter situation, I have no evidence before me which justifies a conclusion that the trustee’s omission in the present case to execute the purported deed of arrangement within twenty-one days from 20 December 2000 was due to his negligence or dilatoriness, as opposed to some other cause. Thirdly, even if, contrary to the view which I have expressed above, those comments were directed to the trustee’s obligation under subs 216(1) of the Act of entering into the deed, they have no relevance to the debtor’s own obligation under subs 216(1) of the Act of entering into the deed.

13. I turn now to Musolino.

14. That case involved purported deeds of arrangement entered into by two debtors. The debtors had entered into the purported deeds following meetings of their creditors at which it had purportedly been specially resolved that they should do so. However, as the primary Judge found, neither of those purported special resolutions had been passed by the proportion in value of creditors required by the Act. The sole dissenting creditor at each of the meetings had sought, under subs 222(1) of the Act, declarations of invalidity of the purported deeds, which declarations the primary Judge had, on jurisdictional grounds, refused to make. Subsection 222(1) of the Act conditions the entitlement to apply to the Court for a declaration of invalidity of a purported deed on the existence of a “doubt” whether the purported deed either has been entered into in accordance with Pt X of the Act or complies with the requirements of that Part and the primary Judge had held that he had no jurisdiction because there had been no such doubt in the matter before him; it had been plain at the commencement of the proceeding that the purported special resolutions had not been passed as required by the Act.

15. On appeal, the Full Court held that the primary Judge had erred in holding that he had no jurisdiction in the matter, but it nevertheless dismissed the appeal. It dismissed the appeal because it considered both that there existed a discretion to refuse to make, under subs 222(2) of the Act, a declaration of invalidity of a purported deed of arrangement, even though a ground for the making of such a declaration had been established, and that it was appropriate to exercise that discretion in the case before it.

16. The dissenting creditor had argued on the appeal not only that the primary Judge had had jurisdiction in the matter, but also that, on the primary Judge’s being satisfied that the purported special resolutions had not been passed as required by the Act, he had had, under subs 222(2) of the Act, no discretion to refuse to grant the declarations of invalidity sought. In support of that argument, the dissenting creditor had relied on the terms of both subss 213(1) and 222(3) of the Act. However, the Full Court rejected the notion that either of those two provisions justified a construction of subs 222(2) of the Act as not conferring on the Court a discretion to refuse to make a declaration of invalidity of a purported deed, even though a ground for the making of such a declaration had been established.

17. As to the Full Court’s treatment of subs 222(3) of the Act (see at 245), it is unnecessary to say anything for present purposes. As to the Full Court’s treatment of subs 213(1) of the Act, I mention before going further that that subsection provides that, subject to Pt X of the Act, a deed of arrangement executed by a debtor is void unless it is entered into in accordance with that Part and complies with the requirements of that Part. According to the Full Court (see at 242-43),

    “The appellants contend that s 213 operates independently, as it were, of s 222 so that, upon the finding of the judge that the resolutions at the meetings on 4 August 1989 were not passed as special resolutions, the deed of compromise [sic] must be taken for all purposes to be void. This novel contention cannot be accepted. Section 213 lays down grounds which render a deed of assignment or a deed of arrangement void, but that section is expressed to be subject to Pt X of the Act. Section 213 is therefore subject to the provisions of s 222….”

18. It was the passage which I have just quoted from the Full Court’s reasons in Musolino on which the debtor relied before me. However, as I have already foreshadowed, I find nothing in that passage which casts doubt on my conclusion that the rule that a purported deed is to be treated as valid for the purpose of either subss 228(2) or 233(2) of the Act (whichever is appropriate), unless and until a declaration is made under s 222 of the Act that it is void, has no application to a purported deed which is invalid on its face. (I note that it might be thought somewhat curious if that passage did cast doubt on that conclusion, since that conclusion was derived from the reasoning of Beaumont J in Burns, while Beaumont J was also a party to the passage in Musolino.) Nor do I find anything in that passage which casts doubt on my conclusion that a purported deed which does not comply with the requirements of subs 216(1) of the Act is, just like a purported deed which does not comply with the requirements of subs 216(2) of the Act, invalid on its face.

19. So far in these reasons, I have been referring only to the existence before me of a creditor’s petition.  However, there is before me as well another application, one made by the debtor, to which application it is now necessary for me to refer.  That application was made in the circumstances which I describe below.

20. The creditor’s petition first came before me on 10 July 2001 in my capacity as duty Judge. On that day, the creditor sought to proceed with its creditor’s petition, but the debtor applied for an adjournment of the hearing of that petition. That adjournment application was put to me on the basis that there was in existence a purported deed of arrangement, but that there were difficulties with it which would prevent it from being relied on to resist the making of a sequestration order against the debtor’s estate. (It will be apparent from what I have already said above that the debtor afterwards resiled from that position.) The debtor therefore sought time within which to file and serve an application which would seek from me orders which, if made, would ensure that the debtor would be dealt with under Pt X of the Act rather than being made a bankrupt. Over the opposition of the creditor, I granted the debtor’s adjournment application and directed that the debtor’s foreshadowed application and any supporting affidavit evidence be filed and served by Wednesday, 25 July 2001. I also informed the parties that I proposed to hear their competing applications together as soon as possible after 25 July 2001 and, after consultation with the parties and within a day or two after the hearing on 10 July 2001, I fixed the competing applications for hearing on Monday, 30 July 2001.

21. On 25 July 2001, the last day on which I had permitted it to be done, the debtor filed the application the filing of which he had foreshadowed on 10 July 2001, naming as a respondent thereto not only the creditor, but also the trustee of the purported deed (who, however, took no active part in the proceeding).  The application as filed was supported by one affidavit only, that affidavit having been sworn by the debtor himself.  It is not in dispute between the parties that that application and supporting affidavit were served on the creditor late on Wednesday afternoon, 25 July 2001, and that early on Thursday morning, 26 July 2001, the creditor required the debtor’s attendance at the hearing on Monday, 30 July 2001 for the purpose of being cross-examined on his affidavit.

22. The debtor did not attend the hearing on Monday, 30 July 2001.  However, despite the debtor’s non-attendance, his advocate sought to read his affidavit in support of his application, a course to which the creditor objected because of the debtor’s non-attendance.  Order 14, subr 9(3) of the Federal Court Rules (Cth) provides that where the attendance of a deponent for cross-examination is required, but the deponent does not attend, the deponent’s affidavit shall not be used without the leave of the Court.  Accordingly, when the creditor objected to the debtor’s advocate’s reading of the debtor’s affidavit, the debtor’s advocate sought my leave to read the debtor’s affidavit despite his non-attendance.  That application for leave was not supported by any evidence.  Instead, the debtor’s advocate merely told me from the Bar table, without having available, for instance, any supporting documentation from the debtor’s employer, that his instructions were that, when the debtor had become aware on Thursday that the creditor had required him to attend Court on the following Monday, he had sought time off work from his employer for the purpose, but that his employer had refused him that time off work.

23. I refused the leave sought to use the affidavit, for reasons which I then gave and which will be apparent, given the facts which I have recited above, whereupon the debtor’s advocate acknowledged that the debtor’s application must fail.  

24. Given that acknowledgment, it is, strictly speaking, unnecessary for me to say anything further about the detail of that application. I do note, however, that if any question had arisen before me in the course of hearing that application as to whether the purported deed, leaving aside the problem of the date of its execution by the debtor and the trustee (see at [19] above), had substantially complied with the requirements of Pt X of the Act, then it would have been difficult for me to conclude that it had.

25. In Re Leeb (1972) 20 FLR 384 (Fed Ct of Bkpcy), Sweeney J held (see at 392) that a purported deed which omits an important term on which the debtor’s creditors have resolved cannot be said to comply substantially with the requirements of Pt X of the Act; and see also Re Migliorini; Ex parte Silk Bros (Interstate Traders) Pty Ltd (1974) 22 FLR 491 at 497 (Fed Ct of Bkpcy: Riley J). Of course, implicit in that holding was the qualification that the term on which the creditors had resolved could lawfully be included in a deed under Pt X of the Act.

26. Here, the purported deed omitted to seek to give effect to pars 1.A and 4 of the debtor’s proposal, the debtor’s creditors having resolved that the debtor should execute a deed giving effect to those paragraphs, among others, of the debtor’s proposal.  The importance of those paragraphs to the debtor’s proposal is obvious.

27. There can be no question that the deed could lawfully have included a term giving effect to par 1.A of the debtor’s proposal, at least in so far as that paragraph had contemplated the making of an assignment by the debtor himself: see Gee v Schmutter (1971) 123 CLR 503 (Barwick CJ and McTiernan and Windeyer JJ). Nor do I see any reason to doubt the lawfulness of a term by which the debtor obliged himself to cause International Property Investment Corp Pty Ltd to make an assignment of the type which had been contemplated in that paragraph to be made by it. As to the lawful inclusion within the deed of a term giving effect to par 4 of the debtor’s proposal, the matter is less clear to me, at least in so far as any such term would have purported to bind the trustee, rather than the debtor; however, it is unnecessary to pursue that issue in the present circumstances.

28. In the result, I will dismiss the debtor’s application, but will grant the creditor’s petition, making a sequestration order against the debtor’s estate. I will also order the debtor to pay the creditor’s costs of both the creditor’s petition and the debtor’s application, those costs to be taxed and paid in accordance with the Act.

I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katz.

Associate:

Dated:             15 August 2001

Solicitors for the Applicant in N 7250 of 2001 and for the Second Respondent in N 7346 of 2001:	Sally Nash & Co
Solicitors for the Respondent in N 7250 of 2001 and for the Applicant in N 7346 of 2001:	The Argyle Partnership
Date of Hearing:	30 July 2001
Date of Judgment:	15 August 2001