Pascoe v LEITE
[2005] FMCA 334
•1 April 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| PASCOE & ANOR v LEITE & ANOR | [2005] FMCA 334 |
| BANKRUPTCY – Creditor’s petition – where debtors executed an authority purporting to appoint a controlling trustee under Part X – where trustee called a creditors meeting and sought a stay of the petition pursuant to s.189AAA Bankruptcy Act – where the Form 13 was not fully completed – where petitioning creditor then sought to stop the holding of the creditors’ meeting and continue with the petition – where the debtors subsequently entered into a further and fully completed authority – whether the debtors were required to obtain leave of the Court before giving the second authority – whether the creditor’s petition remains stayed pursuant to s.189AAA. |
| Bankruptcy Act 1966 (Cth), s.188(1), (4); s.189AAA Bankruptcy Legislation Amendment Act 2004 Corporations Act 2001 (Cth), s.201M |
| Re De Kantzow; Ex parte De Kantzow & Anor (1992) 35 FCR 74 Re Saheed; Saheed v Official Receiver (1993) 41 FCR 148 Pretorius v Daltons Carpet Tiles Pty Limited (1984) 1 FCR 346 Hooper v Ewins (1997) 79 FCR 389 Brott v Grey & Anor (2001) 181 ALR 617 Project Blue Sky Inc & Ors v Australian Broadcasting Authority (1998) 194 CLR 355 Cervantes Pty Ltd v Moutdis (2004) 212 ALR 619 Brady v Stapleton (1952) 88 CLR 322 Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372 Issitch v Worrell (2000) 172 ALR 586 Trustee of the Property of O’Halloran, in the matter of O’Halloran v O’Halloran [2002] FCA 1305 Anscor v Clout [2004] FCAFC 71 Soar v Ashwell [1893] 2 QB 390 Saltwater Studios Pty Ltd v Hathaway [2004] QSC 435 Morris v Kanssen [1946] AC 459 Northside Developments Pty Ltd v Registrar-General (1990) 8 ACLC 611 Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1992) 10 ACLC 253 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1904] 2 QB 480 Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1976) 50 ALJR 203 Perkins v National Australia Bank [1999] SASC 280 Ford and Lee, Principles of the Law of Trust | ||
First Applicant: | SCOTT DARREN PASCOE IN HIS CAPACITY AS LIQUIDATOR OF GYPSET PTY LIMITED (IN LIQUIDATION) (ACN 061 840 275) | |
| Second Applicant: | GYPSET PTY LIMITED |
| First Respondent: | ANTONIO LEITE |
| Second Respondent: | LUIS LEITE |
| File Number: | SYG 522 of 2005 |
| Judgment of: | Raphael FM |
| Hearing date: | 11 March 2005 |
| Date of Last Submission: | 11 March 2005 |
| Delivered at: | Sydney |
| Delivered on: | 1 April 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr B Skinner |
| Solicitors for the Applicant: | Turks Legal |
| Counsel for the Respondent: | Mr T Hall |
ORDERS
Application dismissed.
Applicant to pay the respondent’s costs to be taxed if not agreed according to the Federal Court Act and Rules.
Orders made on 3 March 2005 to be vacated.
No meeting of the Respondent’s creditors shall be held pursuant to the s188 Authority prior to 11 April 2005.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 522 of 2005
| SCOTT DARREN PASCOE IN HIS CAPACITY AS LIQUIDATOR OF GYPSET PTY LIMITED (IN LIQUIDATION) |
First Applicant
And
| GYPSET PTY LIMITED (IN LIQUIDATION) ACN 061 840 275 |
Second Applicant
| ANTONIO LEITE |
First Respondent
| LUIS LEITE |
Second Respondent
REASONS FOR JUDGMENT
Introduction
The first applicant in these proceedings is the liquidator of the second applicant, a company of which the first and second respondents were directors. The first applicant has petitioned the court for sequestration orders against the first and second respondents relying upon their acts of bankruptcy being the failure to comply with bankruptcy notices claiming payment of approximately $55,000.00, the amount for which proceedings between the parties were settled. Before the application for a sequestration order could be heard the debtors, on or about 3 February 2005, executed an authority purportedly in accordance with s.188 of the Bankruptcy Act 1966 (Cth) (the “Act”) appointing Michael G Jones as their controlling trustee pursuant to Part X of the Bankruptcy Act. If that appointment was effective then s.189AAA which is in the following form would apply in respect of the petition:
(1) If:
(a) an authority signed by a debtor under section 188 has become effective; and
(b) either:(i) a creditor's petition was presented against the debtor before the authority became effective; or
(ii) a creditor's petition is presented against the debtor after the authority became effective but before the first or only meeting of the debtor's creditors called under the authority;
proceedings relating to that petition are, by force of this subsection, stayed until:
(c) the conclusion of the meeting; or
(d) the adjournment of the meeting;whichever is the earlier.
(2) This section does not limit subsection 206(1).
Mr Jones then proceeded on the basis that his appointment was valid and set about investigating the affairs of the debtors and called a meeting of creditors for the purposes of considering, and if thought fit passing, a resolution that their affairs be dealt with outside bankruptcy in accordance with a draft personal insolvency agreement that was distributed to the then known creditors. On 3 February 2005 Mr Jones wrote to the solicitors for the petitioning creditor advising them of his appointment and requesting that the creditor’s petition which was to come before the court on 7 February 2005 be adjourned pursuant to the provisions of s.189AAA for not less than sixty days. The petition was adjourned as requested. Mr Jones called a meeting of creditors for 3 March 2005 and dispatched a report to creditors on 16 February.
The petitioning creditor then commenced investigations into the appointment of Mr Jones and satisfied himself that there were defects in it. At this stage the defect was alleged to be the failure to give to the Official Receiver a “proposal for dealing with the debtor’s affairs which included a draft personal insolvency agreement in the form of a deed pursuant to the provisions of s.188A.” The petitioning creditor then applied to this court for urgent injunctive relief to restrain the holding of the meeting. Mr Jones consented to orders postponing the meeting until further order. It was later found that the Form 13 known as the “Controlling Trustee Authority and Trustee Declaration” had not been completed in that the name and address of the registered trustee/solicitor/official trustee had not been filled in by the debtors. It is accepted by the parties for the purposes of these proceedings that this failure meant that the appointment did not comply with the provisions of s.188(1) which requires a debtor to “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.”
On 3 March 2005 the debtors executed a further, and this time fully completed authority. The debtors argue that the first authority was void ab initio and there was no need to obtain leave of the court pursuant to s.188(4) before giving the second authority. The giving of the second authority has the effect of staying the petition proceedings. The creditors argue that although they accept that the first authority is not valid it was “effective” for the purposes of s.189AAA and does not become void until the court declares it to be void. The effect of this assertion is that the purported authority of the 3 March 2005 was given without leave of the court and is itself invalid. This would mean that the creditors may continue with their petition as no application for leave to issue another authority has been made. These assertions are expressed in the application as follows:
4. Declares that the purported appointment of Michael Jones as controlling Jones as controlling trustee to the insolvent estates of the Leites’ pursuant to s.188 of the Act is invalid and of no effect.
5. Declares that there is in effect no stay on the prosecution of the Creditor’s Petition.
6. A Sequestration order against the estates of the respondents and appoint Giles Geoffrey Woodgate as their Trustee in Bankruptcy.
In reply the debtors argue that their response to the application which is in the following form provides sufficient grounds for the court to give leave if it was required and permit the Part X proceedings to continue.
4. An order in accordance with s.30(1)(b) of the Bankruptcy Act, that this Honourable Court may make any such other procedural or consequential orders by way of adjournment of the current creditor’s petition as may reasonably be required by the respondents for the purposes of enabling them to put into place a part X arrangement that is valid and effective at law, and facilities the determination of their insolvent estates at a duly convened meeting of creditor’s by Mr Jones as the controlling Trustee of their respective Part X estates.
That in default of any of orders 1-4 above, and only in the event that this Honourable Court is not persuaded to make any of orders 1-3, above and proposes to make a sequestration order with respect to the estate of each of the Respondents.
Discussion
Section 189AAA was inserted into the Act pursuant to amendments effected by the Bankruptcy Legislation Amendment Act 2004 and commenced on 1 December 2004. In the Explanatory Memorandum to the Bill the legislative intention was discussed in the following way.
“Item 57 proposes to insert a new section 189AAA which provides for a stay of proceedings relating to a creditor’s petition where an authority signed by the debtor under s.188 has become effective. This is to ensure that the debtor has an opportunity to attempt to come to an agreement with his or her creditors without sequestration.”
There have been a number of cases in which the ability of a debtor to give a second authority when the first has been considered to be invalid were discussed. The first is Re De Kantzow; Ex parte De Kantzow & Anor (1992) 35 FCR 74. That was an application by a debtor and his proposed trustee for a declaration that an authority given under s.188 of the Act was not rendered invalid by reason of a previous authority given under the same section. Mr De Kantzow signed an authority on 18 September 1991 allowing Mr Newton, a solicitor, to call a meeting of his creditors for the purposes of having his affairs dealt with under Part X of the Act. The solicitor called the meeting of creditors which was adjourned twice before being reconvened. At the reconvened meeting either a resolution was put to the creditors to accept a composition proposed by Mr De Kantzow and was lost unanimously or it was put and failed for want of a seconder. But at the same meeting another resolution was passed and that was that the meeting be further adjourned to a later date and that Mr De Kantzow arrange for a trustee in bankruptcy to convene that meeting at the office of the trustee elect. As Lockhart J explained:
“The foreshadowed meeting was not held on 6 March or at all because the work that could be done under Part X and put in train by the signing of the authority by Mr De Kantzow to his solicitor on 18 September 1991 was then spent. The creditors of a debtor may resolve on various matters at a meeting called pursuant to an authority under Section 188 of Part X. They may resolve, for example, that the debtor’s property be no longer subject to control under Division 2 of Part X or require the debtor to execute a deed of assignment or a deed of arrangement under that part, to accept a composition or require the debtor to present a debtor’s petition within seven days from the day on which the resolution is passed: s.204. None of those events occurred.”
His Honour explained that it was plain from the evidence that the creditors, although rejecting the composition, wanted to have Mr De Kantzow’s affairs placed in the hands of the controlling trustee under Part X. The trustee could make enquiries as to Mr De Kantzow’s affairs so that the creditors could make an informed decision on any proposal. Mr De Kantzow then signed a further authority on 31 March 1991 under s.188 of the Act authorising Mr James a registered trustee in bankruptcy to call a meeting for the purposes of Part X and to take over control of his property in accordance with that Part. The question before Lockhart J was whether it was permissible for Mr De Kantzow to give the second authority under Part X and His Honour came to the conclusion that he could because of the marked difference between an authority given by a debtor to a registered trustee and one to a solicitor. He pointed out at [76]:
“The authority to the solicitor is simply to call a meeting of his creditors. The solicitor is not given authority to control the property of the debtor. No one is in control of the debtor’s property except himself during the currency of a s.188 authority to a solicitor to call a meeting.”
His Honour continued further down the page:
“At the conclusion of that meeting the result was that no one was in control of Mr De Kantzow’s affairs except himself, nor had anyone else been in control before that. Mr De Kantzow was therefore free if he wished to invoke again the procedure for which s.188 makes provision, that is, to call another meeting of his creditors by appointing either a solicitor or a registered trustee. He in fact chose the latter because it was plain from the resolution of the creditors that this was the course they preferred him to follow.”
Possibly because it was thought that this decision enabled a bankrupt to make a series of appointments even if the proposals contained in the resolutions failed the legislature passed s.188(4) prohibiting the giving of an authority within six months of giving another authority. The next decision on the matter Re Saheed; Saheed v Official Receiver (1993) 41 FCR 148 followed the decision in De Kantzow prior to the insertion of sub-s.188(4). Gray J noted the possibility first considered in Pretorius v Daltons Carpet Tiles Pty Limited (1984) 1 FCR 346 that it would be “undesirable to permit a debtor to continue ad infinitum giving authorities and calling meetings in the hope that by a process of attrition or inconvenience or added expense the debtor would eventually achieve acceptance of a proposal.”
In 1997 Branson J considered the matter with the benefit of s.188(4) in Hooper v Ewins (1997) 79 FCR 389. In that case in September 1997 the debtors had signed an authority authorising the Official Trustee to call a meeting of their creditors and take control of their property. But the Official Receiver had caused the debtors to be notified that the Official Trustee had not consented to act pursuant to the first authority. Thereafter, the debtors signed an authority pursuant to s.188 naming and authorising Mr Warren Pantzer a registered trustee to call a meeting of their creditors and to take control of their property. Her Honour discussed the distinction in s.188 between an authority naming the official trustee as controlling trustee and an authority naming either a registered trustee or a solicitor as controlling trustee. She concluded in that case the first authority:
“has never been effective for the purposes of Part X of the Act, not because the Official Trustee has not consented to act as controlling trustee under the first authority, but because the debtors did not obtain the written approval of an Official Receiver to name the Official Trustee in the authority.”
Her Honour then turned to consider whether the authority was nonetheless an authority given by the debtors within the meaning of s.188(4) and after considering the authorities which I have addressed said at [392]:
“I see no reason to conclude that s.188(4) is intended to limit the ability of a debtor to sign an authority naming a solicitor or registered trustee as controlling trustee merely because, within a period of six months from the signing of such authority, the debtor signed a similar authority which did not ever become effective. That is, in my view, s.188(4) is intended to limit the power of a debtor to give successive authorities; it is not intended to prevent a debtor who has failed to obtain the consent of a solicitor or registered trustee to exercise the powers given by the authority to seek such consent from another solicitor or registered trustee, or to prevent a debtor who has wrongfully signed an authority naming the official trustee without having obtained the approval of an official receiver to do so, from later signing an authority which is, or is capable of becoming, effective.
In this case, the authority first signed by the debtor named the official trustee as controlling trustee. The authority was not, nor could it ever be, effective as an official receiver had not given approval for the official trustee to be named in the authority. In such circumstances, in my view, s.188(4) did not operate to limit the power of the debtor to sign another authority naming Mr Pantzer, a registered trustee, as controlling trustee.”
The effect of signing two s.188 bankruptcy authorities was considered by Cooper J in Brott v Grey & Anor (2001) 181 ALR 617. The two authorities signed in that case were signed in 1992 and so the provisions of s.188(4) did not fall to be considered by His Honour. However, His Honour indicated at [12]:
“The authority signed by the debtor on 13 March 1992 was not an effective authority for the purposes of Part X of the Act. This follows because the debtor failed to give the statements required by s.188(2)(c) within the specified time: s188(2). Additionally, there is no evidence that the solicitor consented in writing to call a meeting which is a necessary requirement for there to be an effective authority: s.188(2)(a).”
The authority of 13 March 1992 was not acted upon to the extent that any meeting was called. This was called under the second authority which His Honour held was valid because the first was not effective. I do not think this case advances my consideration of whether the first authority signed in the instant case was effective and remains effective until I declare it to be invalid as sought by Mr Skinner.
In Cervantes Pty Ltd v Moutdis (2004) 212 ALR 619 Federal Magistrate McInnis considered s.189AAA Bankruptcy Act in the context of an authority that did not specify a name and address of a registered trustee, an almost identical situation to that which occurred in the instant case. His Honour held that the stay of the creditor petition is dependent upon the authority signed by a debtor under s.188 becoming effective. His Honour said at [8]:
“On a proper and clear reading of the authority, it is clear to me that there is indeed no person named as being authorised by the debtor. Section 188 of the Act, combined with the operation of s.189AAA clearly contemplates that the appropriate form would be duly completed. It is fundamental to that process, in my view, that the name of the person authorised be inserted in the authority, otherwise the authority must be void and of no effect as it does not authorise any one to do anything under the act.”
For the reasons outlined below I agree with the position taken by McInnis FM in Cervantes.
It is useful to consider whether an action in breach of a statutory requirement is invalid, or whether, as with transfers of property under ss.120-122 Bankruptcy Act, the action is valid until declared otherwise. In Project Blue Sky Inc & Ors v Australian Broadcasting Authority (1998) 194 CLR 355 McHugh, Gummow, Kirby and Hayne JJ considered whether an act done in breach of a condition regulating the exercise of statutory power is of no effect. Their Honours said at [91]:
“An act done in breach of a condition regulating the exercise of a statutory power is not necessarily invalid and of no effect. Whether it is depends upon whether there can be discerned a legislative purpose to invalidate any act that fails to comply with the condition. The existence of the purpose is ascertained by reference to the language of the statute, its subject matter and objects, and the consequences for the parties of holding void every act done in breach of the condition.”
Their Honours went on to discuss the distinction traditionally made between acts done in breach of a statutory power or authority and acts done in breach of a procedural condition for the exercise of a statutory power or authority. Their Honours after noting the difficulties that can result from an attempt to distinguish between mandatory and directory acts (the former resulting in invalidity of an act done in breach of a condition) went on to say at [93]:
“A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid. This has been the preferred approach of courts in this country in recent years, particularly in New South Wales. In determining the question of purpose, regard must be had to “the language of the relevant provision and the scope and object of the whole statute”.” (footnotes omitted)
It seems to me that it can be inferred that the Bankruptcy Act contemplates that a duly executed authority be a vital component of s.188 Bankruptcy Act. It should be viewed as imposing an “essential preliminary” to the exercise of power by the trustee over the bankrupt’s affairs. On this view it cannot be said that effective authority is bestowed on a person simply because they carry out actions in the role of a trustee in bankruptcy and that the failure to comply renders the appointment voidable. This is in contrast with the situation under ss120 and 121 where the authorities have made it clear that the transfer remains valid until set aside: Brady v Stapleton (1952) 88 CLR 322; Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372; Issitch v Worrell (2000) 172 ALR 586; Trustee of the Property of O’Halloran, in the matter of O’Halloran v O’Halloran [2002] FCA 1305; Anscor v Clout [2004] FCAFC 71 and where there are obviously good commercial and practical reasons therefor.
There are in law numerous situations in which persons who presume to act in a position which involves control of property are held to be accountable as if they had been properly appointed. Such is the position of trustees de son tort or executors de son tort. The remedies provided to third parties and beneficiaries who have dealings with these improperly appointed persons see eg; Soar v Ashwell [1893] 2 QB 390 and see the discussion generally on trustees de son tort in Ford and Lee, Principles of the Law of Trust at para [22910] are simply that, remedies. The existence of those remedies does not validate the actions of the intermeddler and elevate them to lawful status.
It is also useful to consider s. 201M of the Corporations Act 2001 (Cth) which deals with the effectiveness of acts done by invalidly appointed directors. Essentially the section validates acts that would be legally effective if carried out by a validly appointed director. In Saltwater Studios Pty Ltd v Hathaway [2004] QSC 435 Atkinson J considered s.201M of the Corporations Act and said at [51]:
“Such a rule does not however make the invalid appointment of a person as a director valid.”
In Morris v Kanssen [1946] AC 459 Lord Simmons said of a similarly worded provision in the Companies Act 1929 at 472:
“The point may be summed up by saying that the section and the article, being designed as machinery to avoid questions being raised as to the validity of transactions where there has been a slip in the appointment of a director, cannot be utilized for the purpose of ignoring or overriding the substantive provisions relating to such appointment.”
Companies, being fictitious persons, must act through natural persons eg; via directors acting within their powers or by agents duly appointed. There has been much judicial discussion about actual and apparent authority of agents and how this affects third parties: see for example Northside Developments Pty Ltd v Registrar-General (1990) 8 ACLC 611; Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1992) 10 ACLC 253; Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1904] 2 QB 480; Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1976) 50 ALJR 203. In Perkins v National Australia Bank [1999] SASC 280 the Articles of Association of the company required that there be at least two directors. The situation arose where the company was effectively left with only one director, who purported to enter into financial transactions on behalf of the company. It was argued that the director had been held out by the Company as having the authority to bind the company. Nyland J, with whom Olsson and Mullighan JJ agreed, referred to the trial judge’s comments in relation to ostensible authority at [25] and expressed his agreement. His Honour went on to say at [39]:
“An alleged agent cannot confer authority on himself or herself by his or her own acts.”
I am satisfied that the actions of this improperly appointed trustee do not have the effect of validating his appointment and thus the authority upon which it was based. In those circumstances there was no effective authority given within six months of giving another authority. This means that the second authority has become effective and s.189AAA of the Act applies to the creditor’s petition as from 3 March 2005. There is now a stay upon the petition and I am unable to make the sequestration order sought. The effect of this analysis is that the applicants have not succeeded in their application and the creditor’s petition must be adjourned until the procedures under s.189AAA are undertaken.
I would expect that Mr Jones should be able to complete these within six weeks.
The application dated 28 February 2005 is dismissed. The applicants shall pay the respondent’s costs as taxed or agreed pursuant to the Federal Court Act and Rules.
I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date: 1 April 2005
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