Re Abouav, David Michael ex parte Wilbourne, David
[1996] FCA 422
•29 MAY 1996
CATCHWORDS
BANKRUPTCY - application for declaration that deed of assignment is void - adequacy of notice of meeting of creditors - minimal dividend to creditors - insufficient grounds to support declaration - flawed bankruptcy notice.
Bankruptcy Act 1966 (Cth)
Re Emmett; Ex Parte Beneficial Finance Corp Ltd -v- Emmett (O'Loughlin J, 16 December 1991, unreported)
Re Segal; Lensworth Finance Ltd v Segal and Ward (1975) 45 FLR 85
Re Beames; Ex parte Beneficial Finance Corporation Ltd (1985) 7 FCR 216
Re Stephenson; Ex parte Cintee Nominees Pty Ltd (1988) 18 FCR 375
No VX 1 of 1996
Re: DAVID MICHAEL ABOUAV Creditor
- and -
Ex Parte: DAVID WILBOURNE Debtor
O'Loughlin J
Melbourne
29 May 1996
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY )
)
GENERAL DIVISION ) No VX 1 of 1996
)
BANKRUPTCY DISTRICT OF THE )
)
STATE OF VICTORIA )
BETWEEN:
Re: DAVID MICHAEL ABOUAV
Creditor
- and -
Ex parte: DAVID WILBOURNE
Debtor
MINUTES OF ORDER
CORAM: O'Loughlin J
PLACE: Melbourne
DATE: 29 May 1996
THE COURT ORDERS THAT:
The application be dismissed.
The applicant pay the costs of the debtor of and incidental to the application.
The creditor's petition be dismissed with no order as to costs.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY )
)
GENERAL DIVISION ) No VX 1 of 1996
)
BANKRUPTCY DISTRICT OF THE )
)
STATE OF VICTORIA )
BETWEEN:
Re: DAVID MICHAEL ABOUAV
Creditor
- and -
Ex parte: DAVID WILBOURNE
Debtor
REASONS FOR JUDGMENT
CORAM: O'Loughlin J
PLACE: Melbourne
DATE: 29 May 1996
Application to set aside Deed of Assignment.
On 20 November 1995 David Wilbourne ("the applicant") applied for the issue of a Bankruptcy Notice directed to David Michael Abouav ("the debtor"). In support of his application, the applicant produced certified copies of certain orders that he had obtained against the debtor in the Magistrates' Court of Victoria on 5 December 1994 and 15 November 1995 in sums totalling $28,360.54. The relevant Bankruptcy Notice was issued on 21 November 1995 and served on the debtor on 6 December 1995. It required the debtor to pay the amount claimed within fourteen days of service of the Notice or, within that period, to secure or compound payment of the
amount due to the satisfaction of the Court or the applicant. The Notice also informed the debtor of his right to set up a counter-claim, set-off or cross demand within the same fourteen day period.
The debtor failed to comply with the several requirements of the Bankruptcy Notice; he therefore allegedly committed an act of bankruptcy on 20 December 1995: par 40(1)(g) of The Bankruptcy Act 1966 (Cth) ("the Act").
A creditor's petition, based on this supposed act of bankruptcy was served on the debtor on 25 January 1996. The hearing of that petition, which was returnable on 12 March 1996 has since been adjourned by consent to await the outcome of these proceedings.
Meanwhile the debtor had decided to offer a Composition under Part X of the Act to his creditors. The debtor's proposal was that he would procure a payment of $10,000.00 from a third party and after payment of trustee's remuneration, costs and disbursements, the balance would be distributed between the creditors rateably. In a statement of affairs, verified on oath, the debtor disclosed that he owed (to eleven unsecured creditors) a total in excess of $1.1m with cash on hand and in the bank of $140.00 as his only assets.
A meeting of creditors was duly convened and held on 25 January 1996. The minutes of that meeting disclosed that
the debtor changed his proposal from a Composition to a Deed of Assignment. Under the proposed Deed the $10,000.00 was still to be available for the creditors. The following extract is taken from the minutes:-
"In particular, the debtor felt that as he had no assets the offer of $10,000.00 to creditors was a better result than would be obtained under bankruptcy. The debtor also explained that he felt that an Assignment was a better option for creditors than a composition as the fees of the trustee would be considerably less. Further, the debtor noted that, if any of the creditors believed that he had not declared assets, any assets held by the debtor would be automatically made available to creditors."
Ten of the eleven creditors listed in the debtor's Statement of Affairs attended at the creditor's meeting. Nine of them, whose votes were admitted for voting in sums totalling $1,016,599.00, voted in favour of accepting the Deed of Assignment. In value their debts amounted to about 97.3%. The applicant (with a debt of $28,360.54) alone voted against the proposal. The eleventh creditor, the only one who did not attend the meeting in person or by proxy, was owed $35,050.00 for accountancy fees.
In an application dated and filed in Court on 14 February 1996 the applicant applied for an order that the special resolution of the meeting of creditors of Thursday 25 January 1996 "be set aside". The relevant provision of the Act with respect to the "setting aside" of a Deed of Assignment is section 222. That provision allows a creditor to apply for a declaration that a deed is void if there is doubt whether the deed was entered into in accordance with the Act or does not comply with the requirements of the Act (subs 222(1) and (2)).
The Court can make such a declaration where, in general terms:-
(a)the debtor has given false or misleading information in answer to questions put to him with respect to his conduct or examinable affairs at the meeting of creditors at which the resolution was passed (par 222(4)(a)); or
(b)the debtor has omitted a material particular or included an incorrect material particular in his Statement of Affairs (par 222(4)(b)).
The Court, however, shall not make an order under subs 222(2) if the deed complies substantially with the requirements of the Act (subs 222(3)). Furthermore, the Court shall not declare a deed void on the grounds specified in subs 222(4) unless it is satisfied that it would be in the interests of the creditors to do so (subs 222(5)). In support of the order sought, the applicant swore an affidavit in which he raised two issues; first he complained that the notice convening the meeting of creditors was incorrectly addressed. It appears that his address is 20 Jacobs Drive Clayton South 3169 but the relevant envelope was addressed to him at 20 Jacobs Drive Glen Waverley 3150. As to this he deposed:-
"I did not receive the notice I would otherwise of (sic) had of the Meeting of Creditors."
I do not consider that the applicant can advance his cause on this information. Although there is no evidence as to the date on which he received the notice, the fact is that he did receive it in time to attend the meeting with his solicitor who (on the applicant's behalf) addressed the meeting informing those present that the applicant would be voting against the debtor's proposal.
Furthermore, it could be said that the applicant was the party responsible for this mistake in the debtor's address. Mr Lewis O'Brien, a solicitor in the employ of the debtor's solicitors, deposed that he forwarded the Notice of Meeting and accompanying documents to the applicant's solicitor on about 4 January 1996. According to Mr O'Brien, on about 10 January 1996 Mr Chisholm, the applicant's solicitor, informed him that "he did not have instructions to accept service of the letter of 4 January 1996". This was a surprising turn of events in view of the fact that Mr Chisholm's firm had been instrumental in issuing the Bankruptcy Notice and the Creditor's Petition. As a result of Mr Chisholm's advice, Mr O'Brien sent the papers to the applicant at the address stated in correspondence by the applicant's previous solicitors. In a letter dated 10 November 1993 those solicitors had written to Mouldex Industries Pty Ltd, a company with whom the debtor had an association saying:-
"We act for Mr David Wilbourne of 20 Jacobs Drive, Glen Waverley."
In my opinion, there is no substance in the complaint that the applicant received inadequate notice of the Meeting of Creditors.
The second ground of complaint was that the Deed of Assignment meant that creditors would only receive a dividend of "approximately .009 cents in the dollar". In fact that should have been "approximately .9 cents in the dollar". But that calculation made no allowance for trustee's remuneration and costs which were estimated at about $2,000.00 to $2,500.00. This would reduce the likely dividend to somewhere in the vicinity of .67 to .72 cents in the dollar. In making these calculations I have, in each case, for consistency, treated creditors as totalling the amount of $1,109,956.00, the total of the figures shown in the Statement of Affairs.
Although the applicant had not asserted in his application or his supporting affidavit to the contrary, the debtor, on 26 February 1996, filed a Notice of his intention to appear at the hearing of the application claiming that he:-
"... did not omit from his Statement of Affairs dated 21 December 1995 any material particular nor did he at the meeting of his creditors held on 25 January 1996 give false or misleading information in answer to a question put to him with respect to any of his conduct or examinable affairs."
The applicant filed a further affidavit on 20 March 1996. In par 11 he deposed that at the meeting of creditors on 25 January 1996, the debtor had stated that he had not "for the preceding ten years owned assets of the description of car, house, real estate, money in the bank, insurance or shares with the exception of one share". This statement accords, to a reasonable degree, with the contents of the minutes of the meeting. They contain the following passage:-
"The debtor stated that he had not, in the past 10 years, owned any real estate, motor vehicles, shares (other than as nominee) or insurance policies."
In his further affidavit of 20 March 1996 the applicant then highlighted that of the eleven creditors listed in the debtor's Statement of Affairs, six of them, under the heading "Nature of Debt", were said to be either "consulting fees & loan", "loan" or "loans and guarantees". If this information constituted an allegation by the applicant that the debtor, by obtaining loans, should have matching assets, that issue could have been raised by the applicant at the meeting of creditors. In addition, it could also have been the subject of an express allegation in the applicant's affidavit. If, indeed, it was a cause for concern, it should not have been ignored. The minutes of the meeting record that the applicant's solicitor questioned the debtor about "his past ownership of assets" and received the reply to which reference has already been made. That was the time to challenge the debtor about these loans. Instead according to the minutes:-
"Mr Chisholm concluded by noting that he remained opposed to the Part X and intended to proceed to Bankruptcy.
The remaining creditors declined the opportunity to make statements or ask questions."
In Re Emmett; Ex parte Beneficial Finance Corp Ltd v Emmett (O'Loughlin J, 16 December 1991, unreported) I had to consider an application pursuant to s239 of the Act for an order setting aside a composition that had been proposed by a debtor and accepted by the requisite majority of his creditors. In that case the debtor had been the principal controlling party in a group of companies that had carried on business as property developers. The group collapsed and the companies were place in receivership. Payment of many of the group's debts had been guaranteed by the debtor with the result that provable debts in the administration were in excess of $17m. The debtor's only asset of any worth was a boat said to be worth $130,000.00. Under the composition the boat was offered to the creditors in full satisfaction of the debtor's liabilities.
The creditors divided with a majority in number, representing 76.4% in value, accepting the composition. Three of the dissentient creditors applied to the Court to have the composition set aside; their main complaint was that the anticipated dividend to creditors would only be about one cent in the dollar. They also complained that creditors would be denied the opportunity to examine the debtor and the opportunity to seek recoveries pursuant to ss 120, 121 and 122 of the Act (the provisions dealing with the avoidance of settlements, fraudulent dispositions and avoidance of preferences). However, the dissentient creditors led no evidence to suggest that there might be cause to examine the debtor nor was evidence led that pointed to the possibility of settlements, dispositions or preferences that might be susceptible to attack. In the proceedings presently before the Court there is, likewise, no evidence on any of those matters.
In Re Emmett (supra) I expressed the view that an applicant who seeks to set aside a Part X proceeding has to satisfy the Court that he or she is entitled to obtain orders that countermand the wishes of a majority of the creditors whose debts equal or exceed 75% in value of all debts; the applicant must put before the Court sufficient material to establish that grounds exist for granting the relief sought. Absent such material, the Court would be entitled to proceed upon the premise that the compromise was prima facie reasonable and was prima facie for the benefit of the creditors generally. I adhere to those views. See also Re Segal; Ex parte Lensworth Finance Ltd v Segal and Ward (1975) 45 FLR 85 at 89 and Re Beames; Ex parte Beneficial Finance Corporation Ltd (1985) 7 FCR 216 at 229.
There are several cases where adverse comments have been made about compositions that have offered minimal dividends to creditors. In setting aside those compositions the Court has said, against the interests of the debtor, that the dividend has been derisory or only a token. Those cases, which have been referred to and discussed in Re Emmett (supra), had however, in each case, additional adverse factors such as material omissions by the debtor, unsatisfactory answers, secret arrangements with chosen creditors and so on. None of those factors are present here.
Despite the paucity of the dividend, I see no cause for the Court to intervene. The applicant has not advanced any information that would justify interference with the wishes of the overwhelming majority of creditors. The application is dismissed. The applicant is to pay the debtor's costs of and incidental to the application. Those costs are to be taxed in default of agreement.
That leaves for determination the question of the creditors' petition. The failure of the present application and the creditors' decision to accept a Deed of Assignment is sufficient to warrant an order dismissing the petition. In addition, I accept the submission of counsel for the debtor that the petition is flawed because there is a fundamental mistake in the Bankruptcy Notice. No more than one final judgment or final order may be the subject of a Bankruptcy Notice: Re Stephenson; Ex parte Cintee Nominees Pty Ltd (1988) 18 FCR 375. In the Bankruptcy Notice in the present proceedings, the applicant had included reference to two separate orders and the sum of money that was stated in the Bankruptcy Notice was the aggregate of the sums of the two orders. It was agreed by counsel that if I came to the conclusion that the application should be dismissed, it would be appropriate to dismiss the creditor's petition with no order as to costs. There will be an order accordingly.
I certify that this and the preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice O'Loughlin.
Associate:
Dated:
Appearing for the Applicant : Mr J Chisholm
Solicitors for the Applicant : Fraser Chisolm & Co
Counsel for the Debtor : Ms S Horovitz
Solicitors for the Debtor : Herbert Geer & Rundle
Date of Hearing : 15 May 1996
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