Pascoe v Prentice
[2003] FMCA 198
•20 May 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| PASCOE v PRENTICE | [2003] FMCA 198 |
| BANKRUPTCY – Creditors – meeting of creditors – determination of voting entitlements – motions for adjournment and for removal of trustee – whether corporate creditor entitled to vote in person or only by proxy. WORDS AND PHRASES – In person. |
Bankruptcy Act 1966 (Cth), ss.30, 64Y, 64ZB, 181
Bankruptcy (Amendment) Act 2003 (Cth)
Corporations Act 2001 (Cth)
Donnelly v Prentice [2003] FMCA 50
Hunyh v Pascoe [2002] FCA 309
In re Duomatic Ltd [1969] 2 Ch 365
Re Dingle; Westpac Banking Corporation re Worrell & Anor (1993) 47 FCR 478
Re Spanney; ex parte Holtzmann (1936) 38 WALR 13
Smiles; ex parte Inspector General in Bankruptcy (unreported, 9 July 1997); (1998) 82 FCR 194
Staples v Milner (1998) 83 FCR 203
| Applicant: | SCOTT DARREN PASCOE as trustee of the bankrupt estate of Delcie Joan Schipp |
| Respondent: | MAXWELL WILLIAM PRENTICE as trustee of the bankrupt estate of George Harrison |
| File No: | SZ338 of 2003 |
| Delivered on: | 20 May 2003 |
| Delivered at: | Sydney |
| Hearing date: | 20 May 2003 |
| Judgment of: | Driver FM |
REPRESENTATION
| Counsel for the Applicant: | Mr B Skinner |
| Solicitors for the Applicant: | William Oates Lawyers |
| Counsel for the Respondent: | Mr R Newlinds |
| Solicitors for the Respondent: | Deacons |
ORDERS
The application is dismissed.
The applicant is to pay the respondent’s costs and disbursements of and incidental to the application, to be assessed under the Federal Court Rules and paid in accordance with the Bankruptcy Act 1966 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ338 of 2003
| SCOTT DARREN PASCOE as trustee of the bankrupt estate of Delcie Joan Schipp |
Applicant
And
| MAXWELL WILLIAM PRENTICE as trustee of the bankrupt estate of George Harrison |
Respondent
REASONS FOR JUDGMENT
Introduction and background
Scott Pascoe, as trustee of the property of Delcie Joan Schipp, a bankrupt, applied under ss.30, 64ZB(3) and 181 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) on 13 March 2003 for orders that would have the effect of removing Maxwell William Prentice as trustee of the property of George Harrison, a bankrupt. Specifically, Mr Pascoe claimed:
a)a declaration that Havenbeat Pty Limited was not entitled to vote at a meeting of Mr Harrison’s creditors held on 28 August 2002 against a motion that Max Christopher Donnelly be appointed trustee of Mr Harrison’s estate in place of Maxwell William Prentice;
b)an order that Max Christopher Donnelly be appointed trustee of the bankrupt estate of George Harrison in place of Maxwell William Prentice;
c)such further order or other relief as the nature of the case may require;
d)costs.
On 20 May 2003 I dismissed the application with costs. I reserved my reasons for doing so and now give those reasons.
The background to this matter, as set out in written submissions prepared by Mr Skinner, for the applicant, is as follows:
George Harrison (“the bankrupt”) presented a debtor’s petition on 25 July 2002 and thereby became bankrupt on that date. Mr Max Prentice of Prentice Parberry Barilla, Chartered Accountants, consented to act as trustee and, thereby was appointed the trustee of the bankrupt estate.
The bankrupt was formerly a solicitor and mayor of Wollongong. The only creditor in the bankrupt estate who is not related or was a professional adviser to Mr Harrison is Ms Delcie Joan Schipp. Ms Schipp was involved in litigation with the bankrupt. Ms Schipp invested a portion of a divorce settlement in business ventures and as a consequence, lost substantial sums of money.
Following lengthy proceedings, Einstein J held that she had established various breaches of fiduciary duty and in the case of Mr Harrison, breaches of his duty as a solicitor as well as breaches of his common law duty of care. The principal judgment was given on 17 June 1998. Strong adverse findings as to the credibility of Mr Harrison were made.
Thereafter an appeal was lodged to the New South Wales Court of Appeal seeking to overturn or modify orders for payment of equitable compensation and as to compound interest, and to overturn an order as to indemnity costs.
The appeal was allowed in part in respect of the costs order but was otherwise dismissed. Thereafter, a further application was made to set aside the orders of Einstein J and obtain a new trial. The matter was resolved in the Court of Appeal, which dismissed the proceedings on the grounds that the Court had no power to grant the relief sought in the proceedings and, in any event, the evidence relied upon was not fresh.
Delcie Schipp filed a petition and became bankrupt in December 2002. The applicant is the trustee of her bankrupt estate and therefore has the standing to bring the present application.
On 25 February 2003 Driver FM gave the applicant liberty to seek the same relief as sought in an earlier application filed on 18 November 2002 in the name of Mr Donnelly: Donnelly v Prentice [2003] FMCA 50.
The damages proceedings between Ms Schipp and Mr Harrison were ultimately unfortunate for both parties. Mr Harrison was bankrupted, apparently because of his inability to pay the damages and costs awarded against him. Ms Schipp has been unable to recover the fruits of her court victory. She has also been bankrupted, apparently because of her inability to recover those fruits of victory, and pay her own legal costs. The law may not be an ass but she can be a harsh mistress.
The evidence
Mr Pascoe relies upon two affidavits of Max Donnelly made on 13 March 2003 and 9 May 2003. A substantial folder of documents detailing the administration of Mr Harrison’s estate by Mr Prentice and the conduct of meetings of creditors was exhibited to Mr Donnelly’s first affidavit. Mr Pascoe also relied upon an affidavit of Delcie Joan Schipp made on 12 March 2003. Both were cross-examined on their affidavits.
Mr Prentice relied upon affidavits by Deborah Ann Yates, Harry Haraalamides, Vania Harrison (the wife of Mr Harrison) and Mark Charles Buchanan, all made on 9 May 2003. None of those deponents were required for cross-examination. Mr Newlinds, for Mr Prentice, also tendered the memorandum and articles of association of Havenbeat: exhibit R1.
I was assisted by written submission filed by Mr Newlinds and by Mr Skinner, for Mr Pascoe prior to the trial of this matter and by their oral submissions on 20 May 2003.
Consideration and findings
The evidence discloses that on 5 August 2002, Mr Prentice, following a request from the solicitor for Ms Schipp, issued a report to creditors and a notice of meeting to creditors of Mr Harrison to be held on 14 August 2002. The purpose of the meeting included a proposal for a motion under s.181 of the Bankruptcy Act that Maxwell Prentice be removed as trustee and Max Donnelly be appointed instead.
The meeting of creditors was held on 14 August 2002 but was adjourned in what Mr Skinner described as “controversial circumstances” to 28 August 2002 by an ordinary resolution passed by creditors entitled to vote at the meeting. The minutes of the meeting of creditors held on 14 August 2002 was signed by the President, Mr Prentice and the minutes secretary, Ms Salonie Varma.
The minutes of the meeting on 14 August 2002 disclosed that Havenbeat had lodged a proxy. However, the transcript of the meeting shows that this was an error. The transcript shows that during the course of that meeting the entitlement of Havenbeat to vote was challenged by Mr Donnelly, who attended the meeting to assist Ms Schipp. The President, Mr Prentice, accepted that no proxy had been lodged by Havenbeat at the time of Mr Donnelly’s challenge and ruled that Havenbeat was not entitled to vote on the adjournment motion. Havenbeat had lodged a proof of debt in the sum of $979,174 and its vote was critical to the outcome of any motion proposed by Ms Schipp, given that the shareholders of Havenbeat were Mr Harrison and his wife, who was also a director of the company. The other director was Mr Haralambides. All four were present at the meeting of creditors. The adjournment motion, which was supported by Ms Schipp, was passed, noting that Havenbeat was not permitted to vote by the President. Accordingly, Ms Schipp’s motion to replace Mr Prentice with Mr Donnelly was not put on that day. However, Ms Schipp’s motion to replace the trustee was put at the adjourned meeting on 28 August 2002. At the adjourned meeting, notwithstanding that Havenbeat was not permitted to vote on 14 August 2002, the President, Mr Prentice, ruled that Havenbeat was permitted to vote on Ms Schipp’s motion. The President ruled that Havenbeat should be permitted to vote on the basis that a proxy had been lodged before the adjournment of the meeting on 14 August 2002. The consequence was that Ms Schipp’s motion to replace the trustee was defeated.
Mr Skinner submits that the decision by the President on 28 August 2002 to permit Havenbeat to vote against Ms Schipp’s motion was irregular because Havenbeat had failed to lodge a proxy prior to the announcement of proxies on 14 August 2002. Mr Skinner submits, and I accept, that the Court has jurisdiction to review the decision of the trustee pursuant to s.178 of the Act. The Court also has jurisdiction to remove the trustee pursuant to s.179. However, in this case there is no application under s.178, nor under s.179. There is no allegation of misconduct by the trustee, nor indeed of any conduct by the trustee meriting an inquiry by the Court pursuant to s.179. Mr Skinner bases the application upon ss.30, 64ZB(3) and 181 of the Bankruptcy Act. Those sections state as follows:
Section 30 relevantly states that:
(1) The Court:
(a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and
(b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.
Section 64ZB(3) at the relevant time provided that:
(3) A creditor’s proxy or attorney is not entitled to cast the creditor’s vote at a meeting unless the instrument of appointment was received by, or the power of attorney was provided to, the trustee before the announcement about the appointment of proxies and attorneys is made at the meeting under section 64M.
Section 181 states:
The creditors may, by resolution, at a meeting of which not less than seven days’ notice has been given, remove a registered trustee appointed by them, or a registered trustee who is, by virtue of subsection 156A(3), the trustee of the estate of the bankrupt concerned, and may at the same or a subsequent meeting appoint another registered trustee to be trustee in his place.
In my view, s.30 of the Bankruptcy Act is sufficient to enliven the jurisdiction of the Court to grant the relief sought by the applicant. It is not necessary for application to be made under s.178 or s.179: Re Dingle; Westpac Banking Corporation re Worrell & Anor (1993) 47 FCR 478 at pp 484-486.
Mr Skinner submits that Havenbeat was not entitled to cast a vote at the adjourned meeting of creditors as no proxy had been received or produced to the trustee before the announcement of the appointment of proxies made at the meeting of creditors held on 14 August 2002. He relies upon s.64ZB(3) and the decision of the Federal Court in Smiles; ex parte Inspector General in Bankruptcy (unreported, 9 July 1997) and on appeal (1998) 82 FCR 294. It is a necessary part of these submissions, and it was not disputed, that there was only one meeting: s.64Y(1)(a) of the Bankruptcy Act. This was the meeting which commenced on 14 August 2002 and was adjourned until 28 August 2002.
Mr Skinner conceded that he could not contest the entitlement of Havenbeat to vote, subject to the timely submission of a proxy, at a future meeting of creditors and therefore also conceded that if the Court were minded to order a change in trustees, the position could be reversed back to the original position at a future meeting of creditors. The simple position is that Ms Schipp does not have the numbers if Havenbeat votes. However, Mr Skinner submits that as Havenbeat should not have been permitted to vote on Ms Schipp’s motion on 28 August 2002, the Court should enforce what should have been the will of a majority of creditors entitled to vote on that day to replace the trustee with one of Ms Schipp’s choosing. Mr Skinner made reference to the public policy underlying division 5 of part IV of the Bankruptcy Act. He submits that that public policy is to prevent stacking, or the appearance of stacking, at meetings of creditors. However, while Mr Skinner sought to make something of the relationship between Mr Harrison and virtually all creditors at the meeting, with the exception of Ms Schipp, he was not able to submit to me that the meeting was stacked. He was not able to submit to me that voting entitlements had been improperly decided in terms of the debts claimed.
In addition, Mr Skinner properly drew to my attention before the close of the trial that the Bankruptcy Act has been amended to repeal and replace s.64ZB(3) with effect from 5 May 2003: Bankruptcy Legislation Amendment Act 2002 (Cth). In particular, s.64ZB(3) has been amended so that a proxy may be allowed to vote at a meeting of creditors even though the appointing instrument is lodged after the announcement of proxies. The section now provides as follows:
(3) A person claiming to be the proxy of a creditor is not entitled to vote as proxy unless the instrument of appointment has been lodged with the President (or with the trustee, before the President was elected), either before or after the announcement is made under section 64M about the appointment of proxies and attorneys.
It is apparent, therefore, that the public policy in s.64ZB(3) has changed. If the same situation arose now there could be no objection.
Mr Newlinds submits that, apart from anything else, the application must fail because it is based on a fundamental, unstated but erroneous assumption that a company cannot participate in a meeting of creditors in person or by telephone for the purposes of s.64ZB of the Bankruptcy Act. It is plain from s.64ZA of the Bankruptcy Act that only creditors are entitled to vote at a meeting of creditors. Obviously, a company can be a creditor. Section 64ZB provides that a creditor who participates in a meeting may do so in person or by telephone or, relevantly, by proxy. There is nothing in the section that compels a company to vote by proxy rather than in person or by telephone. Obviously, a company can only act through a natural person: its officers, employees or agents. It may be convenient for a company to vote at a meeting of creditors by proxy but, in my view, a company wishing to attend and vote personally or by telephone is entitled to do so through a person having apparent capacity and ostensible authority. Such a person would ordinarily be an officer of the company. Normally this would be a director. Clause 66 of the memorandum and articles of association of Havenbeat (exhibit R1) places the general management of the company in the hands of the directors. Havenbeat has two directors (Mrs Harrison and Mr Haralambides) and both attended on 14 August 2002. To be entitled to vote in person at that meeting all Mrs Harrison had to do was to satisfy the President that she was a director of Havenbeat and that she had the concurrence of her co director. Section 250D of the Corporations Act 2001 (Cth) makes clear that a corporation may appoint an individual to act as its representative, and to exercise all or any of its powers, including at meetings of creditors of the corporation. There is no direct application of that section in bankruptcy administration but the section is consistent with the general principle that a corporation may act directly through an authorised natural person. I do not think that any meeting of members of the company was required for Mrs Harrison to be appointed to represent Havenbeat, any more than a meeting of members of the company would be required in order to give a proxy. Both shareholders of the company were present at the meeting on 14 August 2002 and both clearly intended that Mrs Harrison should represent Havenbeat. That mutual assent has the same force as a resolution of a general meeting of the company: In re Duomatic Ltd [1969] 2 Ch 365.
When a question arose during the course of the meeting on 14 August 2002 about the entitlement of Havenbeat to vote the President, Mr Prentice, initially took the view that Havenbeat was entitled to vote through Mrs Harrison. This view was challenged by Mr Donnelly who pressed the view that a company could only vote by proxy and no proxy had been lodged. This view was erroneous on the issue of law, although it was true that no proxy had been lodged. Mr Harrison sought to intervene in order to put the view that a company could vote in person through a director but the President ultimately accepted the opinion of Mr Donnelly and ruled that Havenbeat was not entitled to vote on the adjournment motion. Mrs Harrison had already voted on the adjournment but her vote was disallowed. Mrs Harrison then sought to present a handwritten document verifying that she was authorised by her co director to vote on behalf of Havenbeat but the President ruled that it was too late for the purposes of the adjournment motion. On 28 August 2002, however, the President accepted that document as a proxy permitting Havenbeat to vote at the adjourned meeting.
In my view, there were at least three irregularities in the conduct in the meeting of creditors. First, the minutes record a proxy as having been lodged on behalf of Havenbeat at the time proxies were announced on 14 August 2002. In fact, no proxy had been lodged. Secondly, the President ruled erroneously that a company could not vote at a meeting of creditors in person and could only do so by proxy. Thirdly, at the adjourned meeting on 28 August 2002 the President ruled that the document lodged by Mrs Harrison on 14 August 2002, following the adjournment of that meeting, was a proxy entitling her to vote for Havenbeat. In fact, the document was a document demonstrating the capacity and authority of Mrs Harrison to vote in person on behalf of Havenbeat.
Nothing turns on these irregularities because one way or the other Havenbeat was entitled to vote through Mrs Harrison. Indeed, Havenbeat should have been permitted to vote on the adjournment motion on 14 August 2002. The defeat of Ms Schipp’s motion to change the trustee was not irregular and the will of the majority of creditors expressed on that day should be respected.
If I am wrong on the question of the entitlement of a company to vote in person at a meeting of creditors, I would still not grant the relief sought by Mr Pascoe. First, the provisions of s.64ZB(3) are merely directory, not mandatory. A president of a meeting of creditors (if he or she is the trustee) is entitled to make his or her own ruling on matters arising relating to the operation of that section and the decisions made by the president are subject to review by the Court: Staples v Milner (1998) 83 FCR 203. The trustee, as president of the meeting, must decide questions about an entitlement to vote in a summary manner, on the best information available at the time: Re Spanney; ex parte Holtzmann (1936) 38 WALR 13. Secondly, the public policy which may have underlined s.64ZB(3) previously has changed and the approach taken by the president on 28 August 2002 would be permitted under the amended legislation. Thirdly, the provision of relief by the Court where an irregularity in the conduct of a meeting of creditors is demonstrated is discretionary. The bankruptcy court should be reluctant to intervene where the relevant vote has already been taken: Re Dingle at p.485, letter G. In Hunyh v Pascoe [2002] FCA 309, His Honour Carr J (who was in the minority in that case) found irregularity in the conduct in a meeting of creditors but stated that he would not grant relief. At paragraph 80 he said:
My principal reasons for that view are the absence of any improper conduct on the part of the respondent [trustee] and the fact that the creditors may, if they consider it to be in their interests, convene a meeting and remove the respondent as trustee. I can see no persuasive reason, in the absence of the creditors generally being so minded, for the Court to take such a step.
In this case, the will of a majority of creditors has already been expressed. The majority of creditors do not want a change in trustee. Even if Havenbeat should not have voted on Ms Schipp’s motion to bring about a change of trustee, she could not succeed on that motion at subsequent meeting of creditors. There was no improper conduct on the part of Mr Prentice and there was no challenge in these proceedings to his decisions on the calculation of voting entitlements. The intervention of the Court to bring about a change of trustee contrary to the will of the majority of creditors, although possible, is unwarranted.
I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 11 June 2003
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