OneSteel Trading Pty Limited v D'ARRIGO
[2013] FCCA 1019
•9 August 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| ONESTEEL TRADING PTY LIMITED & ORS v D'ARRIGO & ORS | [2013] FCCA 1019 |
| Catchwords: BANKRUPTCY – Application to set aside the personal insolvency agreements of the First, Second and Third Respondents – application granted – agreements set aside and sequestration orders made – trustee in bankruptcy appointed. |
| Legislation: Bankruptcy Act 1966, ss.222(1), 222(10) |
| AMEV-UDC Finance Ltd v Austinand Anor (1986) 162 CLR 170 Bay Bon Investments Pty Ltd v Selvarajah [2008] NSWSC 1251 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd and Anor [1915] AC 79 Hingston v Westpac Banking Corporation [2012] FCAFC 41 Osborne v Gangemi [2011] FCA 1252 Re Codrington; Ex parte Don Mackay Tourist and Chartered Pty Ltd [1989] FCA 349 Re Doukidis; Ex parte Consolidated Constructions Pty Ltd [1985] FCA 224 Re Emmett; Ex parte Beneficial Finance Corporation [1991] FCA 632 Re Khera; Ex parte National Australia Bank [1996] FCA 470 Re Mills; Ex parte Lloyd’s (1997) 73 FCR 551 Ringrow Pty Ltd v BP Australia Pty Ltd [2005] 224 CLR 656 Ward v Zozi [2012] FMCA 898 |
| First Applicant: | ONESTEEL TRADING PTY LIMITED (ACN 007 519 646) |
| Second Applicant: | INDUSTRIAL PROGRESS CORPORATION PTY LTD (ACN 008 775 442) |
| Third Applicant: | SOUTHERN STEEL (WA) PTY LTD (ACN 125 188 409) |
| First Respondent: | NUNZIO PLACIDO D'ARRIGO |
| Second Respondent: | GIOVANNI IULIANO |
| Third Respondent: | FILOMENA IULIANO |
| Fourth Respondent: | BENJAMIN PIGGOTT AS CONTROLLING TRUSTEE OF THE ESTATES OF NUNZIO PLACIDO D’ARRIGO, GIOVANNI IULIANO AND FILOMENA IULIANO |
| File Number: | PEG 298 of 2012 |
| Judgment of: | Judge Whelan |
| Hearing date: | 13 May 2013 |
| Date of Last Submission: | 13 May 2013 |
| Delivered at: | Melbourne |
| Delivered on: | 9 August 2013 |
REPRESENTATION
| Counsel for the Applicants: | Mr Ko |
| Solicitors for the Applicants: | Trinix Lawyers |
| Counsel for the First, Second and Third Respondents: | Mr Harrison |
| Solicitors for the First, Second and Third Respondents: | Tottle Partners |
| Counsel for the Fourth Respondent: | Mr Robson |
| Solicitors for the Fourth Respondent: | Wilson and Atkinson |
ORDERS
Pursuant to s.222(1) of the Bankruptcy Act 1966 (Cth) (“the Act”) the Personal Insolvency Agreements entered into by the First, Second and Third Respondents dated 24 September 2012 be set aside.
A sequestration order issue against the estate of the First, Second and Third Respondent under s.222(10) of the Act.
Mr Paul Leroy of Hall Chadwick be appointed as Trustee of the bankrupt estates.
The Applicants’ costs of the application including any reserved costs be paid out of the estate of the First, Second and Third Respondent with the same priority as the costs of a petitioning creditor.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
PEG 298 of 2012
| ONESTEEL TRADING PTY LIMITED (ACN 007 519 646) |
First Applicant
| INDUSTRIAL PROGRESS CORPORATION PTY LTD (ACN 008 775 442) |
Second Applicant
| SOUTHERN STEEL (WA) PTY LTD (ACN 125 188 409) |
Third Applicant
And
| NUNZIO PLACIDO D'ARRIGO |
First Respondent
| GIOVANNI IULIANO |
Second Respondent
| FILOMENA IULIANO |
Third Respondent
| BENJAMIN PIGGOTT AS CONTROLLING TRUSTEE OF THE ESTATES OF NUNZIO PLACIDO D'ARRIGO, GIOVANNI IULIANO AND FILOMENA IULIANO |
Fourth Respondent
REASONS FOR JUDGMENT
Background
This is an application to set aside Personal Insolvency Agreements (“PIAs”) pursuant to s.222 of the Bankruptcy Act 1966 (“the Act”).
The Applicants in the proceedings are creditors in the estates of the First, Second and Third Respondents (“the Debtors”). The First and Second Respondents were directors of G and G Steelworks Pty Ltd
(“G and G Steelworks”) which entered into a Deed of Company Arrangement (“DOCA”) in December 2011. G and G Steelworks ceased to trade some time in 2012. The liabilities of the Debtors to the Applicants arise from personal guarantees given in relation to debts owed to them by G and G Steelworks. In the case of the Second Applicant, the liability of the First Respondent arises pursuant to a District Court judgment.
On 10 June 2012, the Fourth Respondent was appointed Controlling Trustee by each of the Debtors. On 23 August 2012, creditors were notified that a meeting would be held on 5 September 2012. At that meeting a Special Resolution was passed for each of the Debtors to execute a PIA. The Special Resolution was passed by a majority of creditors representing:
·76.84% of the dollar value of the voting creditors’ debts in the case of the First Respondent;
·78% in the case of the Second Respondent; and
·78% in the case of the Third Respondent.
The largest unsecured creditor of the Debtors is Walthamstow Pty Ltd (“Walthamstow”) with an unsecured debt of in excess of $7,000,000.00. This debt arose from an initial loan to G and G Steelworks in 2009 of $1,000,000.00 which was subject to default interest of $50,000.00 per week. Creditors were not provided with the details of the Walthamstow debt until the meeting on 5 September 2012. Walthamstow voted in favour of the Special Resolution.
At the time that the Fourth Respondent was appointed Controlling Trustee of the Debtors’ estate, it was proposed that the funding for the PIAs would be in the sum of $500,000.00 from the trading operations of G and G Steelworks. At the time of the creditors meeting on 5 September 2012, the funding of the PIAs was proposed to come from the trading operations of Highlight Holdings Pty Ltd (“Highlight”), a newly formed entity that carries on the business formerly conducted by G and G Steelworks.
Since executing the DOCA in December 2011, G and G Steelworks has not made any payments under the DOCA. The DOCA has been the subject of two variations. It would now appear that while the initial DOCA offered 100 cents in the dollar to all creditors, the best case for unsecured creditors is now a return of $0.028 cents in the dollar.
The Administrators of G and G Steelworks brought an application in the Supreme Court of Western Australia seeking a direction that the debt to Walthamstow included a penalty, in which case Walthamstow could not have been approved to vote for the full amount of its claim. On 7 March 2013, the Supreme Court dismissed the application on the basis that it was not appropriate for the Administrator to seek guidance from the Court on what was a substantive issue.
The Applicants’ submissions
The Applicants provided written submissions supported by an affidavit of the Credit Manager of the First Applicant, MS DENISE RILEY
(“Ms Riley”).[1]
[1] Affidavit of Denise Alexandra Riley sworn 20 December 2012.
The Applicants rely on the provisions of s.222(1) of the Act and in particular, ss.222(1)(d) and (e).
222 Court may set aside personal insolvency agreement
Setting aside on grounds of unreasonableness etc.
(1) If a personal insolvency agreement is in force, the Court may, on application by:
(a) the Inspector General; or
(b) the trustee; or
(c) a creditor;
make an order setting the agreement aside if the Court is satisfied that:
(d) the terms of the agreement are unreasonable or are not calculated to benefit the creditors generally; or
(e) for any other reason, the agreement ought to be set aside.[2]
[2] Bankruptcy Act 1966, ss.222(1)(d)-(e).
The Applicants also rely on s.222(5)(e) of the Act:
Setting aside on grounds of false or misleading information etc.
(5) If a personal insolvency agreement is in force, the Court may, on application by:
(a) the Inspector‑General; or
(b) the trustee; or
(c) a creditor;
make an order setting the agreement aside if the Court is satisfied that:
(d) the debtor has given false or misleading information in answer to a question put to the debtor with respect to any of the debtor’s conduct or examinable affairs at the meeting of creditors at which the resolution requiring the debtor to execute the agreement was passed; or
(e) the debtor has:
(i) omitted a material particular from the statement of the debtor’s affairs given under subsection 188(2C) or (2D); or
(ii) included an incorrect and material particular in that statement.
The Applicants refer to the decision of the Full Court of the Federal Court in Hingston v Westpac Banking Corporation [2012] FCAFC 41 (“Hingston”) and in particular to paragraph 58 of that judgment where the Court sets out the principles to be applied when considering an application under ss.222(1)(d) and (e) of the Act:
[58] As to those principles, the primary judge considered that in assessing whether the composition is unreasonable, or not calculated to benefit creditors generally, the court has regard to the amount of the composition as compared with the debts owing by the debtor (at [68]); in making that comparison the relativity between the amount of the debts incurred and the proposed composition might suggest that the proposal is so trivial or so disproportionate (as, for all practical purposes, the creditors are receiving nothing or a negligible amount) that the administration of the estate is “better dealt with by way of bankruptcy” (Re Richards) with an investigation by the Trustee in bankruptcy exercising relevant powers: Re Richards: Ex parte Beneficial Finance Corporation Ltd [1986] FCA 74; Re Brennan: Ex parte Stokes (Australasia) Ltd (unreported FCA 31 May 1988, per Morling J); ; Re Codrington: Ex parte Don McKay Tourist and Charter Pty Ltd [1989] FCA 349; Palazzolo v Ex parte Discusso [1991] FCA 317; NZI Capital Corporation Ltd v Lancaster (1991) 30 FCR 441 (see [69] to [74] of the principal judgment); the relativity of the amount of the debts owing, to the proposal made, is relevant but not determinative: Re Lockett: Ex parte Northern Equity Ltd [1992] FCA 142; whether any payments have been made to creditors or to the Trustee of the bankrupt estate is also relevant (at [77]); and, the nature of the relationship between the debtor and those creditors who voted in favour of the composition is relevant (at [77]).[3]
[3] [2012] FCAFC 41 at paragraph 58.
The Applicants also took the Court to the decision of Barnes FM (as she was then) in Ward v Zozi [2012] FMCA 898 (“Ward”) where her Honour referred to a number of relevant authorities including Hingston, and Osborne v Gangemi [2011] FCA 1252 and Re Mills; Ex parte Lloyd’s (1997) 73 FCR 551 (“Re Mills”).
First, the Applicants submit that there is in essence zero return to creditors under the PIAs. The estimated return ranges from $0.001 to $0.03 in the dollar. With respect to the First Respondent, the best case scenario is $0.002 cents and the worst case is $0.001 cents in the dollar. With respect to the Second and Third Respondents, the best case is $0.03 and the worst case is $0.001 cents in the dollar. The return is essentially nil and totally disproportionate to the debts owing which range from $13,700,000.00 to $56,000,000.00. There is no prejudice to the creditors in setting aside the PIAs because they will not see a cent either way. In the case of Ward, the estimated dividend was 7.6 cents in the dollar and the debts owed to unsecured creditors totalled $281,000.00, which Barnes FM considered to show a negligible return when compared to the total debts.[4]
[4] [2012] FMCA 898 at paragraph 135.
Further factors relied upon by the Applicants include the fact that the Trustee accepted a number of related party debts, which in some circumstances were based solely on statutory declarations with no supporting documentation. The Applicants referred to cash loans from the debtor’s mother, brother-in-law and sister supported by statutory declarations made just before the meeting. The statutory declarations were not made at the time the loans had been given and raise questions about whether they may have, at the time, been gifts. If some of these related party creditors had been excluded from voting, the special resolution would not have been passed.
The Applicants point out that under the PIAs, the Respondents are not liable to make any income contributions. If they are made bankrupt they may become liable to pay income contributions for the benefit of the creditors. Further, a Trustee in Bankruptcy would have wider and more coercive powers to investigate the estates of the Respondents, powers which go beyond the capacity of the current Trustee to investigate antecedent transactions. The Applicants are prepared to fund a Trustee in Bankruptcy to conduct such investigation. The Applicants submit that there are certain matters which require such investigations as it appears that the PIAs do not reflect a fair and honest attempt by the Debtors to address their debts and disclose their true financial position.
Ms Riley deposes that at the creditor’s meeting, the Controlling Trustee stated that the books and accounts of the First Respondent were not
up-to-date and there were questions as to their veracity. There were numerous advances to directors, complex family trust structures, ledgers which did not pinpoint where money had gone and the financial records provided only went up to 30 June 2010.[5]
[5] Affidavit of Denise Alexandra Riley sworn 20 December 2012 at paragraph 39.
The First Respondent has continually failed to provide books and records as required under the DOCA. There is at least a better prospect of a better return to creditors if these things can be investigated and the creditors are not going to suffer any disadvantage if the PIAs are set aside. There is certainly a question mark as to the information provided to the creditors.
The Applicants further submit that there is a high likelihood that the PIAs will be defaulted on. The history of the DOCA with respect to
G and G Steelworks is one of variation and default. There have been no payments made under the DOCA.
The entity which is now proposed to fund the PIAs is a new entity. It has no history. The Controlling Trustee himself has expressed reservations about the likelihood of the PIAs succeeding.
Finally, the Applicants submit that the largest unsecured creditor of the First, Second and Third Respondents is Walthamstow. Walthamstow should not have been approved to vote for the amount of its claim because the clause providing for the interest to be charged by Walthamstow should be deemed a penalty. It is clearly exorbitant and not a genuine pre-estimate of the damages actually flowing from the default by G and G Steelworks.
The Applicants refer to a number of cases in support of the proposition that an amount payable in the event of a default will be held to be a penalty if the sum stipulated is extravagant and unconscionable in amount and would produce for the finance provider advantages significantly greater than the advantages that would flow from a genuine pre-estimate of damage.[6]
[6] AMEV-UDC Finance Ltd v Austinand Anor (1986) 162 CLR 170; Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltdand Anor [1915] AC 79; Ringrow Pty Ltd v BP Australia Pty Ltd [2005] 224 CLR 656; Bay Bon Investments Pty Ltd v Selvarajah [2008] NSWSC 1251
In Bay Bon Investments Pty Ltd v Selvarajah [2008] NSWSC 1251(“Bay Bon Investments”), a clause in the loan agreement allowed the lender, in the event of failure by the borrower to pay the loan, to charge interest at the rate of 15% per month plus a further one month’s interest for each month or part of the month that the loan was overdue which equated to interest being calculated at the rate of 180% per annum. The Court held that the interest rate was a penalty because it was out of proportion to the damage likely to have been suffered by the lender. The interest in this case equates to an interest charge of 260% per year on the initial amount of $1,000,000.00 borrowed. The Applicants submit that Walthamstow should only have been approved for its original loan amount plus reasonable interest. In that event, the PIAs would not have passed.
It is in the public interest, given the financial history of this matter, that the Respondents be prevented from being directors of a company and given the opportunity to cause the financial loss to creditors occasioned by the default of G and G Steelworks.
The Respondents’ submissions
The First, Second and Third Respondents submit that substantially the debt to creditors in this matter arise out of the collapse of G and G Steelworks and the guarantees given by the directors. There are otherwise mainly only a few small personal loans. Given the total debts owing it is unlikely that these small loans from relatives would have made the difference between acceptance and rejection of the PIAs. They are relatives and when you lend money to family there is a certain amount of trust involved. It would not be unusual for there to be no documentation of such loans. They have made statutory declarations which were accepted by the Controlling Trustee.
The Applicants submit that if the PIAs were set aside, there would be the ability to examine the possibility of the Debtors making contributions from income. The evidence shows however that the Controlling Trustee looked at the threshold for contribution and estimated that the amount available from the Debtors after tax income was nil.
There is a contribution in the order of $85,000.00 for each of the PIAs. If this is not contributed then the PIAs do not work. If the PIAs do not work they will be set aside by the vote of the creditors themselves. The sum of $85,000.00 may not be a lot, given the debts involved, but when you look at what each of them can contribute it is more than could be obtained from either their personal assets or their ability to contribute income. While the return in terms of cents in the dollar is small, there is just not a lot available for the Respondents to make the sort of contribution which would get them to five or 10 cents in the dollar.
In relation to Walthamstow, the Respondents agree that the amount of interest seems pretty amazing. The world of finance has been deregulated and the amount of interest charged by fringe lenders can be staggering.
There was no material misrepresentation about the source of funding for the PIAs. Originally it was thought that G and G Steelworks might get back on track. That has not happened. The only change has been the source of the funding for the PIAs.
On the public interest issue, the Respondents submit that it is not the role of the creditors to police company directors. That is what ASIC does. There are other means of dealing with directors who have incurred debts they should not have incurred. This is a family business that sold steel and got out of control. The Respondents are trying to get their lives back on track and to make them bankrupt as some form of punishment is not justified.
The Fourth Respondent neither opposed nor supported the application.
Conclusions
In this matter, the Applicants seek orders that:
·The PIAs entered into by the First, Second and Third Respondents be set aside and a sequestration order be made against each of their estates;
·Paul Leroy of Hall Chadwick be appointed as Trustee in Bankruptcy; and
·The Applicants’ costs be paid out of the bankrupt estates.
The first ground relied upon by the Applicants is that the terms of the PIAs are unreasonable or not calculated to benefit creditors generally. It is difficult to dispute that, in the context of the amount owing to unsecured creditors, the estimated dividend could only be described as derisory.
The Applicants referred to a number of cases dealing with the provisions of s.222(1)(d) of the Act. Similar principles have also been applied by this Court and the Federal Court in Re Emmett; Ex parte Beneficial Finance Corporation [1991] FCA 632; Re Doukidis; Ex parte Consolidated Constructions Pty Ltd [1985] FCA 224 and Re Codrington; Ex parte Don Mackay Tourist and Chartered Pty Ltd [1989] FCA 349.
Section 222(1)(d) of the Act recognises that there may be circumstances where despite the vote of the requisite proportion of the creditors, the administration of the estate might be better dealt with by way of bankruptcy. The relativity of the amount of debt owing to the proposal made is one indicator that the terms of the agreement may not be calculated to meet the needs of the creditors generally. Where, as here, the amount which might be released by bankruptcy appears to offer no advantage to the creditors, the paucity of the offer might not, in itself, be sufficient to determine that the PIA should be set aside.
The Applicants offer two other basis upon which the Court might consider the PIAs should be set aside under ss.222(1)(d) or (e). These relate to the lack of information before the creditors and the capacity of a trustee in bankruptcy to properly examine the debtor’s affairs; and the composition of the voting creditors which would have impacted on whether the motion to accept the PIAs would have been passed by the requisite majority.
It is clear that any benefit to creditors in terms of a return could only be at best marginal under the PIA. The Respondents point to the $85,000.00 contribution by Highlight which would not have been available under a sequestration order. The Controlling Trustee in his report however considered that the cash flow projections for Highlight were “possibly optimistic” and it was too early to judge whether the future trading of Highlight would be adequate to fund the PIAs.[7] At best the $85,000.00 could provide funding to further investigate antecedent transactions.
[7] Affidavit of Denise Alexandra Riley sworn 20 December 2012, Annexure DAR-2, page 33 at 9.2.
Against this, the Applicants point to the wider investigative powers of a trustee in bankruptcy and the willingness of the Applicants to fund such an investigation.
The extent to which the creditors are able to ascertain the true financial position of the Debtors is also an important consideration. In this case, the First Respondent:
·failed to disclose property to the Controlling Trustee;
·failed to disclose an interest in a race horse disposed by him prior to the Trustee’s appointment;
·failed to disclose indirect shareholdings in listed companies; and
·was unable to deliver proper records or any financial statements and tax returns after 30 June 2010.[8]
[8] Affidavit of Denise Alexandra Riley sworn 20 December 2012, Annexure DAR-2, at pages 22-31.
The Controlling Trustee himself admitted the need for further investigation of the First Respondent’s position. Similar comments were made with respect to the Second and Third Respondents.
Two issues are raised with respect to the voting creditors. One relates to the status of proofs of debt lodged by relatives of the Debtors. The nature of the relationship between the Debtors and those creditors who voted in favour of the composition is relevant. Merkel J in Re Mills also refers to “the validity or enforceability of “loans” from associated parties and in particular, whether any “friendly” debts were intended to create legal relations”[9] as matters which might weigh in favour of a sequestration order rather than a composition being more appropriate.
[9] 73 FCR 551 at 560.
It may well be that in this matter, the related party debts would not give rise to any significant concern given the small amounts involved. Of greater significance however is the issue of the debt to Walthamstow. It is clear that because Walthamstow was such a large creditor that its vote was crucial to the acceptance of the PIAs.
Walthamstow was admitted to vote on a proof of debt of some $7,098,596.00. This was said to be based on a loan to G and G Steelworks, guaranteed by the Debtors, in the sum of $1,000,000.00 which was subject to default interest of $50,000.00 per week. No further details of the terms of the contract or of the circumstances of the loan were before the Court. The default interest on the loan on that basis would however amount to some 260% annualised.
In Ringrow Pty Ltd v BP AustraliaPty Ltd (2005) 224 CLR 656 (“Ringrow”) at paragraph 11, the High Court considered that the proper basis for determining whether a payment of money is a penalty remain as set out by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Anor [1915] AC 79:
[11] The starting point for the appellant was the following passage in Lord Dunedin's speech in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd:
2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage …
3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach …
4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:
(a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach …
(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid …
(c) There is a presumption (but no more) that it is penalty when 'a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage’.[10]
[10] (2005) 224 CLR 656 at paragraph 11.
In considering that decision in Bay Bon Investments, White J commented:
The agreement to pay interest as damages for late repayment attracts the doctrine of penalties if, as a matter of substance, the sum payable is not a genuine pre-estimate of the loss the plaintiff may suffer by being kept out of its money, but is in the nature of a punishment.[11]
[11] [2008] NSWSC 1251 at paragraph 47.
His Honour also referred further to the High Court at paragraph 32 of Ringrow, where the Court expressed the view that the propounded penalty must be ““extravagant and unconscionable in amount”. It is not enough that it should be lacking in proportion. It must be “out of all proportion”.”
On the face of it, the amount claimed by Walthamstow would appear to be out of all proportion to the loss they might suffer from the Debtors’ default. I am satisfied, however, that for the purposes of these proceedings, it is not necessary for me to make a definitive finding that the sum stipulated was a penalty and on the basis of the paucity of the information before me it would be unsafe to do so. It is sufficient, in my view, that on the face of it a Court might find the sum charged to be so.
I have reached the conclusion that there is sufficient material for me to conclude that the PIAs in this matter should be set aside on the basis of ss.222(1)(d) and (e) of the Act. In Re Khera; Ex parte National Australia Bank [1996] FCA 470, Keifel J considered the application of s.222(1)(e) and opined as follows:
Other decisions of the Full Court of this Court have assumed the existence of a wide power to terminate: see Chiragakis v Deputy Commissioner of Taxation (1986) 68 ALR 527 and Paton v Campbell Capital Ltd (990) 46 FCR 30. In the former case the factor which influenced both the primary Judge and the Full Court and led to an order being made to terminate the arrangement was the feeling of “disquiet” about disclosures, in the background of a substantial alteration in the debtors’ fortunes. In Paton’s case there were three factors which led to a similar conclusion: a return to the creditors which could scarcely be of interest to them; some matters which called out for inquiry; and special arrangements that had been made with some creditors. In the present case there are, I consider, serious concerns about stated liabilities and assets, and with respect to the latter, a substantial asset is said to be effectively beyond the reach of the creditors. To this may by added as relevant in my view the fact that the resolution was carried by creditors not formerly disclosed and who either appear to have some connection with Mr Khera or are the creditor whose transaction is sought on serious grounds to be impugned. All these matters highlight the need for proper inquiry.[12]
[12] [1996] FCA 470 at page 8.
It is a combination of a number of factors which have lead me to the view that the PIAs should be set aside:
·The estimated return to the creditors under the PIA is almost zero and significantly disproportionate to the debts owed;
·There is at least a prospect of a better return to creditors under bankruptcy given the need for further investigation of the position of the Debtors and the greater powers of a Trustee in Bankruptcy, funded by the Applicants to conduct such an investigation;
·The creditors are unlikely to be disadvantaged and there is no real assurance that the funding will be available for the PIAs; and
·There is a serious question that Walthamstow was admitted to vote for an amount in excess of what could be regarded as an amount which could flow from a genuine estimate of its damages. Without that amount the PIAs would not have been approved by the creditors.
For these reasons, the application is granted. As the insolvency of the Debtors is not in issue, it is appropriate that sequestration orders be made against each of the First, Second and Third Respondents under s.222(10) of the Act.
I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of Judge Whelan
Associate:
Date: 9 August 2013
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