Owens v CORRIGAN (No.2)
[2005] FMCA 1256
•23 August 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| OWENS v CORRIGAN (No.2) | [2005] FMCA 1256 |
BANKRUPTCY – Annulment application – application for adjournment – bankrupt proposing composition – whether annulment application should be adjourned – whether indemnity costs should be ordered.
| Bankruptcy Act1966 (Cth) Federal Magistrates Court Rules2001 |
| Applicant: | SUE OWENS |
| Respondent: | MICHAEL CORRIGAN |
| File Number: | MLG 1436 of 2004 |
| Judgment of: | Phipps FM |
| Hearing date: | 23 August 2005 |
| Date of Last Submission: | 23 August 2005 |
| Delivered at: | Melbourne |
| Delivered on: | 23 August 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr Galvin |
| Solicitors for the Applicant: | Bevan-Rhys James |
| Counsel for the Respondent: | Mr Cafari |
| Solicitors for the Respondent: | Davies Maloney |
ORDERS
The application is adjourned to a date to be fixed.
That the applicant, Sue Owens, pay the costs of John White Consultancy Pty Ltd and each supporting creditor occasioned by the adjournment on an indemnity basis.
Pursuant to Rule 21.15 of the Federal Magistrates Court Rules2001, the Court certifies that it was reasonable for each party to employ an advocate.
There be a stay on costs orders of 30 days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1436 of 2004
| SUE OWENS |
Applicant
And
| MICHAEL CORRIGAN |
Respondent
REASONS FOR JUDGMENT
This is an application for an adjournment of a part-heard application to annul a bankruptcy under s.153B of the Bankruptcy Act 1966 (Cth). The hearing has proceeded for two days so far. It commenced on
17 June 2005. It was anticipated that it would be dealt with within 1 day. It was then given a second date of hearing of 1 July 2005, and it was anticipated that it would finish then. It has still extended on. For reasons partly associated with my roster and partly associated with the availability of counsel, it did not come back for the part-heard hearing until 22 August 2005.
The application for adjournment was made yesterday by Mr Galvin who appears for the applicant in this proceeding, that is, the bankrupt. It was made on the basis that the bankrupt had made a proposal for a composition under s.73 of the Bankruptcy Act. That provides that a bankrupt may lodge with the trustee a proposal in writing proposing a composition. There is then provision for the trustee to call a meeting of creditors and if the creditors accept the proposal pursuant to s.74(5), the bankruptcy is then annulled.
The initial proposal that was put before the trustee was produced by the trustee giving evidence yesterday. The trustee has the right or the power to refuse to call a meeting in the circumstances set out in s.73(2)(b). He may refuse to call the meeting if the proposal does not make adequate provision for the payment to the trustee of accrued fees that are owing to him, in respect of the administration of the bankrupt's estate, but are not able to be taken out of the bankrupt's estate. The trustee is Mr Lofthouse and his evidence was that he was not satisfied with the security that was offered.
The original proposal dated 15 July 2005 proposed that the bankrupt pay to the trustee, who would be appointed trustee of the composition if it was accepted, an amount equal to the accepted debts, plus interest, plus the trustee's fees of the bankruptcy and of the composition. It then proposed a mortgage over one of the properties which had been the subject matter of considerable debate in this proceeding. The trustee was not satisfied that the security was adequate for any of the payments and since that included his fees, he was entitled to refuse to call the meeting under s.73(2)(b).
There was debate yesterday about whether there should be an adjournment or not. It became apparent that the basis of the application was that the proposed composition had to go to a meeting, and if it was accepted, there would be an annulment of the bankruptcy. This proceeding would be rendered nugatory and it would be a waste of time and money for it to continue. Yesterday, I adjourned the application until today because Mr Lofthouse said that he had put forward terms of a composition which he would be prepared to take to a meeting because it would meet the concerns about security. He gave evidence today and produced a proposal for a composition which he had received dated 23 August 2005. The payment proposed is the same, but security is offered over four properties: 94 Richardson Street, Albert Park; 78 Wattle Road, Hawthorn; 235 Richardson Street, Middle Park; and 24 Hill Street, Hawthorn.
It contains a proposal from the bankrupt that, insofar as she is able to assert that the real estate, the property the subject of the mortgages, is property held by her in a capacity as trustee of the Richardson Family Trust, she will execute whatever documents are required to ensure that security is given for the purpose of the composition.
The debtor's children, Clare McDougall and George McDougall, have signed acknowledgments that they will allow mortgages which are given, if any mortgages are given pursuant to the composition, priority over any rights they may have.
The significance is that the trustee now proposes calling a meeting on 15 September 2005.
There are a number of things put in opposition to the application by Mr Lapirow, who appears for the substituted petitioning creditor and a number of supporting creditors, and Mr Cafari who appears for a number of other supporting creditors. First, that there is an inconsistency in what the bankrupt is doing. Secondly, there are matters of prejudice to be considered. It was submitted that the bankrupt is continuing to practice as a solicitor. It was put to me from the bar table that the regulatory authority, the Law Institute or the Legal Practice Board, permits that to occur because the bankruptcy is being contested. That is an assertion which is made from the bar table.
I have no way of knowing whether that is correct or not, but I record it as a submission that was put.
It is put that it is a matter of prejudice that the bankrupt, in the circumstances which it is alleged as disclosed by the evidence so far, has continued to practice as a solicitor. I do not consider that is a relevant consideration. The question of who practises as a solicitor and who does not is not something which is determined in Courts exercising bankruptcy jurisdiction.
The next is prejudice to creditors because the bankruptcy administration is not proceeding. There is the possibility of further litigation. There is the possibility of dispute over proofs of debt. That is clear from the evidence I have heard so far that there is a possibility of disputes over proofs of debt.
There is a possible matter of prejudice or difficulty which I did raise in the course of argument. That is, if I proceeded with the application and it finished and I was able to write a judgment prior to 15 September 2005 to annul the bankruptcy, the creditors would be deprived of the opportunity to consider this composition. Mr Lofthouse said that he had not yet decided what would be contained within his report under sub-s.73(2). He is obliged to send a copy of the proposal to each creditor accompanied by a report. He had not yet decided what would be in his report and whether or not he would make a recommendation in favour of the composition. But he did say that a benefit he saw was that it could eliminate the possibility of third parties making claims against the real estate of which the bankrupt is the registered owner.
Ms Owen's position in the case is that she is the registered owner and beneficial owner of the properties, subject of course to the mortgages which are registered over them. She has given some evidence about a trust. No documents evidencing the trust have been tendered so far, but she has given evidence about the possible existence of a trust. It is clear that in the past she has claimed that the trust did exist, but her current position is that whether or not the trust exists or did exist, she is the beneficial owner of the properties. It looms large in this case whether or not she is. The basic thrust of her case is that she owns the real estate which is referred to in the composition. The value of that real estate less the registered mortgages is some millions of dollars, well in excess of the total of debts.
The case being pursued by the creditors is that whether or not the applicant is the beneficial owner of the real estate and can prove that she was able to pay her debts, that is a significant consideration in the application for annulment of the bankruptcy. Nonetheless, beneficial ownership of the property is an issue. The applicant’s case is that the value of her assets far exceeds the total of her debts, and so the bankruptcy order ought not to have been made. Mr Lofthouse sees a possible benefit in the composition offer in that it deals with the potential third party claims against the real estate and allows it before the meeting of creditors.
If I was to proceed with this application, the creditors would not have the opportunity to consider the composition with the benefit of dealing with the third party claims that Mr Lofthouse has referred to. There is a potential for prejudice to creditors.
When a composition is proposed, it is for the creditors to decide whether or not they will accept it. It is not a matter for me on this adjournment application to decide whether it is beneficial or not.
I think the other significant matter is how much longer this proceeding might go on. It was suggested that the cross-examination of Ms Owens could finish tomorrow. I am not confident that is the case. It seems to be a case which keeps growing exponentially. I have not been told of any other witnesses who might be called by any parties, but there are potentially quite a number of witnesses who could be called, particularly about this question of who owns the real estate. Potentially, there might be some accountants called, there might be other people called. There is a possibility that the case could extend for several more days.
A matter which concerned me was what would happen to the costs of the petitioning creditor and other creditors if the composition was allowed. But that is a matter which the creditors will have in their hands. Sub-section 73(3) permits a bankrupt to amend the terms of a proposal at the meeting, and if the creditors put to the bankrupt at the meeting that they will accept the composition or that they will not consider the composition unless she adds to it their costs to date of this proceeding, then that is a matter for the bankrupt and the creditors.
So that is something that is in their hands. That deals with my concern about what might happen to the costs to date.
There are two considerations: a convenience question, the potential saving of costs if the composition is accepted, and possible prejudice to creditors if I was to proceed on, finish the application and deliver judgment by 15 September 2005. On balance, I consider that the application should be adjourned until after the meeting has been held.
I propose to adjourn the application to a date to be fixed. On the question of costs, Mr Galvin for Ms Owen has applied for costs on the basis that the other parties had notice of the proposed composition, since a letter was sent by the trustee on 21 July 2005 which referred to Ms Owens putting a proposal for a compromise to him. However, I have already described what happened with that proposal. The proposal for a composition, which is the basis for the adjournment, did not come into existence until this morning; it was not signed until this morning.
In those circumstances the respondents to this application, the petitioning creditor and the supporting creditors, were quite justified in taking the view that they might be obliged to proceed on with the hearing. Yesterday's application for adjournment started on the basis that there was a composition proposal, which the trustee had, which would then oblige him to call a meeting. As the evidence eventually showed, there was not going to be a meeting based on that composition and there would only be a meeting, if there was what Mr Galvin has described as an amended proposal but was in fact a fresh proposal, put forward. I adjourned the application until today.
If the fresh composition dated 23 August 2005 had not been signed by today, the basis for the application for adjournment would have been largely gone, although, as Mr Galvin says, the possibility of a composition being put forward may have been the basis for an application for an adjournment. The circumstances of this case, I think are extraordinary. The bankrupt has proceeded with an application to annul the bankruptcy in a hearing of two days. Part-way through the hearing she has put forward a proposal for a composition. The initial proposal did not go any further than the trustee because he refused to call a meeting because he was not satisfied with the security. It may be that there was no real security offered at all, because of the possibility of third party claims of ownership of the property and claims that the bankrupt, Ms Owens, was unable to give any security.
It is quite reasonable for the trustee to then say that is not a composition that I will proceed with and put forward a proposal for another composition. It was Ms Owens responsibility to get the proposal to the trustee and it did not arrive until this morning.
I consider those circumstances, in the context of this case, justify indemnity costs.
I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Phipps FM
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