Re Agushi, P. Ex Parte Farrow Mortgage Services P/L & anor Re Calabro, D.J. Ex Parte Farrow Mortgage Services P/L & anor
[1992] FCA 659
•09 SEPTEMBER 1992
Re: PETER AGUSHI and DOMINIC JOSEPH CALABRO
Ex parte: FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) and PYRAMID
BUILDING SOCIETY (IN LIQUIDATION) And: ROBERT MOLESWORTH HOBILL COLE (as
Trustee of the Deed of Arrangement of PETER AGUSHI and DOMINIC CALABRO)
Nos. V X508 and 511 of 1991
FED No. 659
Bankruptcy
(1992) 8 ACSR 549
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
GENERAL DIVISION
Olney J.(1)
CATCHWORDS
Bankruptcy - Part X meeting of creditors - appointment of proxy by liquidator of company in liquidation - authority of liquidator to delegate power to appoint proxy - capacity in which proxy document signed not stated - proxy not witnessed - decision of chairman to reject proxy - discretion to adjourn meeting not exercised - whether discretion miscarried - whether Deed of Assignment executed pursuant to resolution of meeting should be terminated as unjust, unreasonable and not in the interests of the creditors.
Bankruptcy - Part X meeting of creditors - failure of debtor to disclose contingent liability in statement of affairs - whether debtor omitted a material particular or included incorrect facts in statement of affairs.
Bankruptcy Act 1966, ss. 188, 200, 201, 204, 222, 236
Bankruptcy Rules, forms 43, 44
Corporations Law, s. 477(2)
Re Levy; ex parte Scholefield Goodman and Sons Ltd (1980) 50 FLR 99
Zantiotis v Andrew (1987) 80 ALR 23
In re Parrott; ex parte Cullen (1891) 2 QBD 151
HEARING
MELBOURNE
#DATE 9:9:1992
Mr M. Sifris (instructed by Madgwicks) appeared for the applicants in each application.
Mr O.P. Holdenson (instructed by Irlicht and Broberg) appeared for the second respondents in each application.
ORDER
THE COURT ORDERS THAT:
1. The application be dismissed;
2. The costs of the second respondent including any reserved costs be
taxed and paid by the applicants.
Note: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.
JUDGE1
These two applications were heard together pursuant to an order of the Deputy Registrar made on 29 April 1992. In each application orders are sought in relation to a Deed of Arrangement entered into pursuant to Part X of the Bankruptcy Act 1966 by the debtor. For the most part, the facts and issues are common to both applications although in the Calabro application an additional issue has been raised which does not arise in the Agushi application.
The following facts are not in issue. Farrow Mortgage Services Pty Ltd (in liquidation) (FMS) and Pyramid Building Society (in liquidation) (Pyramid) have at all relevant times been in the process of being wound-up and Anthony George Hodgson (Hodgson) is the duly appointed liquidator of both. The applicants (as co-plaintiffs by counter-claim) obtained a judgment in the Supreme Court of Victoria against Peter Agushi (Agushi), Dominic Joseph Calabro (Calabro) and others on 13 June 1991 for the sum of $7,937,790.05. It is a matter of record that Mr Euan Luff (Luff) appeared in the Supreme Court on 13 June 1991 as solicitor for the plaintiff in the proceedings (a company associated with the debtors) and sought, and was granted, leave to file a notice that Messrs Wilmoth Field and Warne no longer represented the plaintiff. On 8 November 1991 Agushi and Calabro each signed an authority pursuant to section 188(1) of the Bankruptcy Act authorising Robert Molesworth Hobill Cole (Cole), a registered trustee, to call a meeting of his creditors and to takeover the control of his property. Cole duly consented to act and each debtor gave him a statement of his affairs and made a statement indicating how he proposed that his affairs be dealt with under Part X of the Bankruptcy Act (s. 188(2)). In each case the proposal was that the creditors deal with the debtor's affairs by requiring him to execute a Deed of Arrangement in full settlement and satisfaction of his joint and several debts upon the terms that he pay a lump sum of $5,000, assign his divisible property and do all things necessary to obtain a Certificate of Occupancy for a building in Coburg. Agushi's statement of affairs disclosed a total deficiency of $13,561,290 and in Calabro's statement the deficiency was $12,850,870. In Agushi's statement FMS is shown as an unsecured creditor for $7,937,790 whereas in Calabro's statement "Farrow/Pyramid" is shown as an unsecured creditor for the same amount. The wives of both debtors also signed similar authorities and made similar proposals, but I do not understand the applicants to have been creditors of either wife.
Cole called a meeting of the creditors of each debtor and his wife for 29 November 1991 and the 4 meetings were held concurrently. Cole was elected as chairman of the meeting. The meeting carried special resolutions accepting the proposals of Mrs Agushi and Mrs Calabro and other resolutions relevant to the affairs of Mrs Agushi and Mrs Calabro were also carried. FMS was represented at the meeting by one Andrew Foster (Foster) who indicated that FMS did not support the proposals made by Agushi and Calabro. The proposals were not put to the meeting, but instead, on Foster's motion, both meetings were adjourned to 5 December 1991. When the adjourned meeting convened Cole informed those present that Calabro had been involved in a motor accident and resolutions adjourning both meetings to 10 December 1991 were carried.
On 10 December 1991 Foster attended as proxy for FMS in respect of both debtors. Messrs Wilmoth Field and Warne (who were creditors of both debtors) were represented by Luff. Cole initially took the chair but after a vote, was replaced by Luff. The minutes of the meeting which Luff signed on 23 December 1991 (s. 203(1)) and filed (s. 203(4)) record, inter alia:
Mr Luff assumed the Chair.
Mr Luff asked if there was any objection to Mr Cole's presence. There were no objections.
Mr Luff stated that the meeting would commence as at 10.25a.m. Mr Luff noted that attendance registers for both debtors were prepared and that both debtors were present.
Mr Luff read through the proxies which were attached to the previous attendance registers.
Mr Foster indicated his presence and that he was attending as proxy on behalf of Farrow Mortgage Services Pty. Ltd.
Mr Luff asked Mr Foster whose signature appeared on the proxy. Mr Foster replied that it was Mr Andrew Cornell, a partner of Ferrier Hodgson and Co., and that Mr Cornell had power to sign on the liquidator's behalf.
Mr Luff asked Mr Foster whether that had been noted on the proxy form. Mr Luff stated it was a requirement of the Bankruptcy Act for such notes. Mr Luff stated he also relied on the Section 377(2)(d) of the Corporations Law.
Mr Luff claimed also to rely upon general principles of law regarding a liquidator's powers to delegate.
Mr Foster requested an adjournment.
Mr Luff stated it would be appropriate to put the issue of an adjournment to a vote and added that a general resolution was required not a special resolution.
Mr Luff requested a seconder for an adjournment motion. There was not a seconder and the Chairman declared that the motion had lapsed. Mr Luff declared that the Farrow Mortgage Services Pty. Ltd. proxy was void.
Mr Foster asked Mr Cole whether the procedural aspects were in order. Mr Cole replied he was prepared to discuss these matters with Mr Foster outside the meeting room.
Mr Luff stated that a quorum was present there being in excess of two persons in each matter.
Mr Foster queried Mr Luff on his declaration and enquired whether he was relying on Section 377(2)(d) of the Corporations Law. Mr Luff stated that as the Farrow proxy was not lodged by the liquidator the Farrow proxy was void.
Mr Foster requested Mr Cole's assistance.
Mr Foster and Mr Cole left the meeting at 10.35a.m. Mr Luff stated that the resolution (re: the proposals) should be put to the vote.
Deed of Arrangement - Dominic Calabro.
It was moved by Robert McLauchlan and Associates represented by Mr Robert McLauchlan seconded by Mr Mark Assetta
"That the debtor execute a Deed of Arrangement" Carried unanimously. Deed of Arrangement - Peter Agushi.
It was moved by Robert McLauchlan and Associates represented by Mr Robert McLauchlan seconded by Mr Mark Assetta
"That the debtor execute a Deed of Arrangement." Carried unanimously.
Other resolutions concerning the appointment of a trustee and the trustee's remuneration were also carried. On 31 December 1991 each debtor and Cole (as trustee) entered into a Deed of Arrangement pursuant to Part X of the Bankruptcy Act which (in each case) contained provisions consistent with the debtor's proposal.
These proceedings were commenced on 17 December 1991. Initially FM S was the sole applicant and Luff was named as a third respondent. Pyramid was later added as an applicant and at the commencement of the trial the applications were discontinued in so far as they sought relief against Luff. Cole did not enter an appearance in respect of either application. On 10 August 1992 the applicants were given leave to further amend the applications and as a result, after the matters were part heard on that day, the debtors were granted an adjournment until 31 August 1992 on which day the trial was concluded.
The applications as amended on 10 August 1992 are identical and see k the following relief:
1. An order pursuant to s.222(4) of the Bankruptcy Act 1966 ("the
Act") declaring the purported Deed of Arrangement the subject of a special resolution passed at a meeting of creditors of (name) ("the Debtor) on 10 December 1991 to be void.
2. An Order pursuant to s. 236(1) of the Act setting aside the Deed
of Arrangement the subject of a special resolution passed at a Meeting of Creditors of (name) on 10 December 1991 on the grounds that :-
(a) the Debtor omitted a material particular or included incorrect facts in his statement of affairs given pursuant to s.188(2) of the Act;
(b) the terms of the Deed of Arrangement are unreasonable;
(c) the terms of the Deed of Arrangement are unjust;
(d) the terms of the Deed of Arrangement are not calculated to benefit the creditors generally;
(e) The Applicants were not permitted to vote at the Meeting of Creditors;
(f) The Chairman of the Meeting of Creditors failed to exercise his discretion properly by failing properly to investigate the proxy provided by the Applicants alternatively by failing to adjourn the Meeting of Creditors to enable the Applicants to consider their position and if so advised obtain fresh proxies to vote against the special resolution.
2A. An order pursuant to s.30(1) of the Act setting aside the Deed of
Arrangement the subject of a special resolution passed at a Meeting of Creditors of (name) ("the Debtor") on 10 December 1992 on the grounds that :
(a) The Applicants were not permitted to vote at the Meeting of Creditors;
(b) The Chairman of the Meeting of Creditors failed to exercise his discretion properly by failing properly to investigate the proxy provided by the Applicants alternatively by failing to adjourn the Meeting of Creditors to enable the Applicants to consider their position and if so advised obtain fresh proxies to vote against the special resolution.
3. A sequestration order pursuant to s.222(7) of the Act against the
estate of the Debtor.
4. Such further or other Orders as to the Court seem fit.
On 10 August 1992 counsel for the applicants indicated that in resp ect of Agushi the applicants no longer alleged the omission of a material particular or the inclusion of incorrect facts in his statement of affairs.
THE FMS PROXIESCentral to the applicants' claim for relief is the assertion that t he applicants were not permitted to vote at the meeting of creditors and that the chairman failed to properly exercise his discretion to adjourn the meeting. Before dealing with the chairman's role I propose to refer to the facts in more detail.
In affidavits sworn on 18 December 1991 and filed in each proceeding, after referring to the meeting of 10 December 1991, Hodgson says:
11. I have been informed by Foster (and refer to the Affidavit sworn
by him in this proceeding) that he was not permitted by the Chairman, Mr Euan Luff ("Luff"), to vote on behalf of Farrow on the grounds that the proxy submitted by him was not acceptable because the party executing the proxy on behalf of Farrow was not myself but my partner Andrew Cornell ("Cornell"). In this regard I state that Cornell has been authorised by me under Power of Attorney to provide Foster with the necessary authority to enable him to vote against the resolutions proposed by the Debtor. Now produced and shown to me and marked "AGH4" is the proxy form duly signed by Cornell.
12. ... 13. In the event that Farrow was permitted to vote at the meeting
Farrow would have voted against the resolution and the resolution would not have carried. The instructions given to Foster were that he was to oppose the resolution seeking approval of the Deed of Arrangement and vote in favour of a resolution requiring the Debtor to present a Debtor's Petition within seven days.
14. In my respectful submission Euan Luff was incorrect in not
allowing Foster to vote on behalf of Farrow. Cornell had my full authority to sign the proxy and in view of the nature and amount of Farrow's claim and effect that Farrow's vote would have on the outcome of the meeting Luff should have adjourned the meeting to make further enquiries.
The documents exhibited to Hodgson's affidavits and marked "AGH4" in each case comprise two documents, a general proxy (form 43 in the Bankruptcy Rules) and a proxy to vote on a special resolution under section 204 (form 44). Each of the 4 proxy documents is in the name of FMS as creditor and in favour of Foster as proxy. With the exception of the form 44 in respect of Calabro, (which is dated 29 November 1991) the proxies are not dated. Each appears to be signed by the same person, but the signature is not readily decipherable. No indication is given of the capacity in which the signatory has executed the proxies. None of the signatures is witnessed.
At the commencement of the trial, the parties tendered by consent a document dated 11 June 1991 which is headed "Appointment" and is executed by Hodgson in his capacity as liquidator of FMS, Pyramid and 2 other building societies. The portions of the document which are relevant in these proceedings are as follows:
WHEREAS
(a) ANTHONY GEORGE HODGSON ("Hodgson") is Liquidator of Pyramid Building Society (in liquidation), ... and is Liquidator of Farrow Mortgage Services Pty Ltd (in liquidation) ("FMS").
(b) ...
(c) Further, Hodgson is from time to time required to execute Proofs of Debt pursuant to the Bankruptcy Act 1966.
(d) As Liquidator of the Societies and FMS, Hodgson has power to appoint an agent to do any business that he is unable to do or that it is unreasonable to expect him to do in person.
(e) Hodgson has formed the view that it is unreasonable for him to be expected to execute certain of the documents referred to in Recital (b) and (c).
(f) Hodgson has determined to appoint the following people as agents for the purpose of undertaking the activities referred to in Recital (b) and (c):-
1. Andrew Michael Cornell ("Cornell"), Chartered Accountant of the firm Ferrier Hodgson and Co, 459 Collins Street, Melbourne.
2. ...
3. ...
4. ...
HODGSON HEREBY:
1. Appoints Cornell, ... as his agents for the purpose of doing the following in relation to each of the Societies and FMS:-
(a) ...
(b) ...
(c) ...
(d) ...
(e) executing proofs of debt.
DATED: 11th June 1991
Signed ........ ........ ........ . ANTHONY GEORGE HODGSON
The statement at paragraph 11 of Hodgson's affidavit that:
Cornell has been authorised by me under Power of Attorney to provide Foster with the necessary authority to enable him to vote against the resolutions proposed by the Debtor
is patently incorrect. Cornell had not been authorised under Power of Attorney to do anything at all, a nd if (which appears to be the case) reliance is placed on the document dated 11 June 1991 as authority for Cornell to act in Hodgson's name , it is clear that he was not authorised to appoint a proxy on behalf eit her of the applicants or of Hodgson.
Pursuant to paragraphs (d), (e) and (k) section 477(2) of the Corporations Law Hodgson, as liquidator of FMS, had the authority to:
(d) do all acts and execute in the name and on behalf of the company all deeds, receipts and other documents and for that purpose use when necessary the company's common or official seal;
(e) subject to the Bankruptcy Act 1966, prove in the bankruptcy of any contributory or debtor of the company or under any deed executed under that Act;
(k) appoint an agent to do any business that the liquidator is unable to do, or that it is unreasonable to expect the liquidator to do, in person;
Hodgson clearly had authority under paragraph 477(2)(d) to appoint a proxy in the name and on behalf of FMS and he had power to delegate that function to an agent but he did neither.
In argument it was suggested that the appointment of an agent under section 477(2)(k) of the Corporations Law does not have to be in writing. It is unnecessary to comment on this submission as neither Foster nor Hodgson asserted anything other than that Cornell was appointed in writing and there is no evidence of a verbal appointment.
A creditor may vote at a meeting of creditors under Part X either in person or by his attorney or by a proxy appointed in writing by the creditor or his attorney (s.200(1)) but a person claiming to be the attorney of a creditor is not entitled to vote as a creditor (otherwise than in respect of the election of a chairman of the meeting) unless either the instrument by which he is appointed has been produced to the meeting or the chairman is otherwise satisfied that he is the duly authorised attorney of the creditor (s.200(4)). As Foster did not claim to vote as the attorney of a creditor, subsection 200(4) had no application.
Section 201 of the Bankruptcy Act provides:
Any question as to the right of a person to vote at a meeting under this Division, or as to the amount of the debt in respect of which a person is entitled to vote at such a meeting, shall be determined by the chairman, who may, if he thinks it necessary to do so, adjourn the meeting for a period, not exceeding 14 days, to enable him to investigate the matter.
Foster claimed the right to vote as the proxy of a creditor. On the face of it, it could not be said without further inquiry, that he had been appointed either by the creditor or the creditor's attorney. Accordingly, Luff's query as to who had signed the proxies and in what capacity, was entirely proper. The answer he received, namely that they had been signed by Cornell who had power to sign on behalf of the liquidator of FMS, although given in good faith, was inaccurate although Luff probably did not know that at the time.
THE DECISION TO NOT ADJOURN THE MEETING
The Bankruptcy Act, unlike earlier legislation does not provide for an appeal against a decision made pursuant to section 201. It may well be that such a decision can be reviewed pursuant to the provisions of the Administrative Decisions (Judicial Review) Act 1977 but no such review has been sought in these proceedings. It is however well established that the fact that a decision of a chairman made pursuant to section 201 is not subject to appeal does not mean that the Court is barred from examining whether such decision was or was not properly made. In re Levy; ex parte Scholefield Goodman and Sons Ltd (1980) 50 FLR 99 Bowen C.J. said at pp 112-13:
Section 201 deals with admission and rejection of claims to vote. It states: "Any question as to the right of a person to vote at a meeting under this Division, or as to the amount of the debt in respect of which a person is entitled to vote at such a meeting, shall be determined by the chairman, who may, if he thinks it necessary to do so, adjourn the, meeting for a period, not exceeding fourteen days, to enable him to investigate the matter."
Section 201 is designed to empower the chairman not to make a final ruling on a debt - that is for the trustee who will decide whether it is provable - but to rule for the purposes of the meeting in a summary way avoiding technicalities and delays (Re Spanney; Ex parte Holtzmann
(1936) 38 WALR 13. His decision is not made appealable by the Act (Re Amadio (1978) 46 FLR 147). This position may be contrasted with the position under the Bankruptcy Act 1924, as amended (see s. 160(f) and s. 169 of that Act).
The policy revealed by s. 201, particularly when read with s. 225(2), appears to be to facilitate the efficient and final despatch of business in relation to a meeting of creditors under Pt X. On the other hand, s. 201 does not expressly make the chairman's decision final and conclusive. No doubt if the court was seized of another matter in the course of which it was material to determine whether or not a person was a creditor entitled to vote at the meeting, the court would be able, indeed would be obliged, to determine the question, in order to exercise its jurisdiction effectively and would not be bound by the chairman's decision (see s. 30(1)). Thus, in the present case, while the application sought an order of sequestration it would have been necessary to determine whether the applicants were creditors and the court would not be bound by the chairman's decision. Since that relief is no longer sought the question is narrower. The orders sought in each case are that the applicants were creditors entitled to vote at the meeting on 20th June, 1980; a declaration that no special resolution was passed pursuant to s. 204, and, an order that the deed of assignment is void. Each application in this respect appears to be based on s. 222. Does it amount to anything more than a challenge to the chairman's decision? Is an application based on s. 222 something "coming within the cognizance of the Court" so that the court has express power under s. 30(1) to decide all questions? In asking for an order that the deed is void, the applications do, in my opinion, involve something more than a review of chairman's decision. Furthermore, it appears to me that ss. 222 and 30 do empower the court to deal with the matter.
The passage was quoted with approval and followed by Beaumont J in Zantiotis v Andrew (1987) 80 ALR 23. In Levy the passage quoted is followed immediately by the following:
The question then arises whether the court's function is to determine whether the chairman's decision was correct having regard to the material before him or whether it was correct having regard to the facts in evidence in the proceedings before the court.
It is unnecessary to express a concluded view on this because on either basis I would conclude the chairman was in error.
In my opinion, the same situation applies in these proceedings in that the same conclusion is reached whichever test is applied.
Luff's reference to section 377(2)(d) of the Corporations Law was obviously wrong. However, section 377(2)(d) of the former Companies (Victoria) Code was in terms identical to section 477(2)(d) of the Corporations Law and I interpret the various statements attributed to Luff in this context as indicating his view that a liquidator cannot delegate his power to appoint a proxy. I do not think that such a view is consistent with section 477(2)(k) of the Corporations Law. However, it is clear from the minutes of the meeting that Luff's decision to reject the proxies without further investigation was not based entirely upon his understanding of the statutory provisions referred to.
But whether or not Luff should have exercised his discretion to adjourn the meeting was a matter for him to decide. He was faced with proxy documents which on their face were unsatisfactory. They did not purport to have been executed by or on behalf of the creditor seeking to appoint the proxy and no extrinsic material was provided that would have assisted a determination in favour of the validity of the proxies. The creditor had shown scant regard for the normal formalities associated with such an important matter, particularly in view of the apparent desire of the creditor to defeat the proposals put forward by the debtors. In the circumstances, having regard to the material before the chairman, I do not think that Luff's decision to not adjourn the meeting to investigate the matter before determining that the FMS proxies were void can be said to be wrong, either in the sense that it was not a course of conduct reasonably open to him, or as being unreasonable or oppressive towards the creditor or erroneous in law. Quite apart from all else, the proxies were fatally flawed by reason of the absence of any attestation by a witness. This issue does not appear to have been raised by Luff and it was not a ground relied upon in the proceedings, but there seems to be no doubt that the signature of a creditor to a written appointment of a proxy should be witnessed. Although there is no statutory provision to this effect, the prescribed forms 43 and 44 both make provision for a witness to the creditor's signature. A similar situation prevailed under the Bankruptcy Act 1883 (UK) which was in force when In re Parrott; ex parte Cullen (1891) 2 QBD 151 was decided. That decision is based upon the premise, not then disputed, that an attesting witness was required to an instrument of proxy (see pp 152-3). I am unaware of any more recent authority on the question.
And when regard is had to the evidence in these proceedings, the same conclusion is inevitable.
The applicants do not now say that had the meeting been adjourned, Luff would have ascertained that the proxies were in order. The evidence in the proceedings established beyond question that Cornell had no authority to appoint Foster as a proxy for FMS. However, the applicants say that by not adjourning the meeting, Luff deprived the creditor of the opportunity of executing valid proxies. With respect, this is an extraordinary position for the applicants to take given the standing and experience of Hodgson in the field of insolvency practice. Indeed, in the opening paragraph of his affidavit of 18 December 1991, Hodgson, after cataloguing his qualifications as, amongst other things, "a certified practising accountant with a specialist designation in insolvency and reconstruction" says that he is a co-author of his firm's insolvency manual "Australian Insolvency Management Practice".
Two other matters raised in argument in the context of this aspect of the case call for comment. First, it is suggested that because Luff had personal knowledge (in his former capacity as solicitor for a company associated with the debtors) that FMS and Pyramid had obtained a judgment against the debtors, his decision to not adjourn the meeting was in some way suspect. With respect, such an argument misses the point in issue. As chairman, Luff had to decide whether Foster could vote as proxy for FMS. He was not required to decide whether FMS was a creditor. (Indeed, had he been called upon to make that decision he may well have concluded that the proxies were ineffectual unless executed on behalf of both of the joint creditors.) The instruments of proxy upon which Foster claimed to be entitled to vote were patently not adequate and the contrary is not contended. Luff's knowledge of the affairs of the debtors and FMS had nothing to do with the right of Foster to vote as proxy for FMS.
The second issue relates to the abortive motion for adjournment moved by Foster. It is said that Luff improperly abrogated to the creditors his duty to decide whether to adjourn the meeting. This is not so. The minutes show that the motion to adjourn was moved before Luff had ruled on the validity of the proxies. The ruling which he gave was not based upon what can only be construed as the wish of the creditors not to adjourn. Obviously, had the creditors supported the motion for adjournment, the meeting would have been adjourned before any decision was made by Luff pursuant to s. 201.
I turn now to deal with the various items of relief claimed in the applications.
PARAGRAPH 1Orders are sought pursuant to section 222(4) declaring each Deed of Arrangement void.
Section 222(4) provides:
Where the Court, on the application of the Inspector-General, a person authorised in writing by the Inspector-General, the trustee or a creditor, is satisfied that the debtor -
(a) has given false or misleading information in answer to a question put to him with respect to any of his conduct or examinable affairs at the meeting of creditors at which the resolution requiring him to execute the deed or accepting the composition was passed; or
(b) has omitted a material particular from the statement of the debtor's affairs given under subsection 188(2) or included an incorrect and material particular in that statement, the Court may make an order declaring the deed or composition to be void or declaring any provision of the deed or composition to be void.
So far as Agushi is concerned, the allegation originally made that he had omitted a material particular or included incorrect facts in his statement of affairs was demonstrably insupportable and was not pressed. No other basis for the exercise of jurisdiction under section 222(4) was asserted and accordingly, in his case, this aspect of the application must fail.
In the case of Calabro it was said that in his statement of affairs he had failed to disclose a liability due to the Commonwealth Development Bank (CDB). There is no doubt on the evidence before the Court that at the time the statement of affairs was prepared, Calabro was not under a liability to the CDB. He was however contingently liable to the CDB on a personal guarantee for a debt due by a company he controlled but demand under the guarantee had not then been made and was not made until 20 November 1991, some 12 days after the statement of affairs was prepared. At the time the demand was made the sum claimed by CDB was $317,925. The only complaint that can be substantiated is that the contingent liability to the CDB was not disclosed.
Calabro's statement of affairs discloses liabilities totalling $12,852,940 (all unsecured) and assets of $2,070. The major creditor is named as "Farrow/Pyramid" for the sum of $7,937,790, representing approximately 62% of the total. The second largest creditor is named as Compass Building Society for $4,000,000. In the context of figures of this magnitude it is fanciful to suggest that the failure to disclose a contingent liability for $317,925 was an omission of a material particular. CDB makes no such complaint and it is not said by the applicants that the omission in any way affected their attitude to the debtor's proposal. The evidence establishes that the CDB was well aware of the situation and neither it, nor its associated entity the Commonwealth Bank of Australia, chose to attend the meeting of creditors. It ill behoves the present applicants, positioned as they were to defeat any proposed special resolution whether or not the CDB debt was provable to now assert that the existence of a contingent liability for such a relatively small amount was a material particular. The claim to have Calabro's Deed of Arrangement declared void pursuant to section 222(4) fails.
PARAGRAPH 2Orders are sought pursuant to section 236(1) setting aside the Deeds of Arrangement. The relevant provisions of the Bankruptcy Act are:
236(1) The Court may, upon application by the trustee, a creditor
or the debtor, or, if the debtor has died, the person administering the estate of the debtor, if it is satisfied -
(a) that the debtor, or, if the debtor has died, the debtor or the person administering the estate of the debtor, has failed to carry out or comply with a provision of the deed of arrangement;
(b) that the deed of arrangement cannot be proceeded with without injustice or undue delay to the creditors, the debtor or, if the debtor has died, the estate of the debtor; or
(c) that for any other reason the deed of arrangement ought to be terminated,
make an order terminating the deed.
236(2) The Court shall not make an order terminating a deed on the
ground specified in paragraph (1)(a) or (c) unless it is satisfied that it would be in the interests of the creditors to do so.
(Although the applications seek to have the Deeds of Arrangement set aside, the section empowers the Court merely to make an order to terminate a deed. Nothing turns upon the inappropriate claims made in the applications which have been treated throughout as being claims for termination.)
The first ground relied upon in support of paragraph 2, the omission of a material particular or the inclusion of incorrect facts in the debtors' statements of affairs, has already been dealt with and must fail.
Grounds (e) and (f) which assert that the applicants were not permitted to vote at the meeting of creditors and that the chairman failed to exercise his discretion properly must also fail in view of the conclusions I have already expressed.
This leaves grounds (b), (c) and (d) in which it is collectively asserted that the terms of the Deeds of Arrangement are unreasonable, unjust and not calculated to benefit the creditors generally.
The case put by the applicants in support of these grounds is that the amount of the dividend likely to be returned to the creditors after payment of the costs of the trustee will be of the order of 0.019 of a cent in the dollar which is said to be so small as to be "derisory", which cannot be gainsaid. And it is cold comfort to the applicants that they may receive a dividend of this amount from the estate of each debtor. The alternative advocated on behalf of the applicants is that the debtors' estates should be administered in bankruptcy. The advantages of bankruptcy are said to lie in the capacity of a trustee in bankruptcy to investigate the affairs of a bankrupt and to obtain contributions from the debtor out of his income.
Just what is unreasonable or unjust in any particular case will depend upon the factual context in which such a judgment comes to be made. Previous cases may help to provide some sort of guide but can never be decisive of the outcome in a case in which the facts and overall circumstances are not the same. For this reason I do not propose to canvass the various decisions to which reference was made in argument. The fact that a negligible dividend will result from the Deeds of Arrangement is a circumstance which may in some cases weigh heavily in favour of a claim that the terms of a deed are unreasonable and unjust. But unreasonableness, like justice, must be measured against available alternatives. They are not matters which can be judged in a vacuum.
The alternatives here are that if the debtors are made bankrupt, although the two contributions of $5,000 would not be made, investigation by the trustee may reveal information that could result ultimately in a larger return to the creditors and further that the debtors could in appropriate circumstances be required to contribute out of their future earnings. The evidence does not suggest that either alternative is likely to be fruitful. In the case of Agushi, nothing has been shown to suggest that he has any particular earning capacity and no effort was made to cross-examine him on this or any other question. In the case of Calabro, although it is known that he is a qualified legal practitioner presently holding a certificate to practise as an employee solicitor and that he is employed as such, he was not cross-examined on his earning capacity nor upon his assertion that there is some uncertainty as to whether or not he would be able to continue to be so employed as a bankrupt. This is not something upon which any judgment can be made on the material before the Court. And there is no material before the Court from which it could be concluded that further investigation of the affairs of the debtors is either called for or may disclose information which could lead ultimately to a more substantial dividend to the creditors. The amount of the debtors' liabilities is very large by any measure, but the size of the debt does not necessarily point to dishonesty or improper conduct on their part nor to the need for administration of their estates in bankruptcy. At a time when major public and private institutions have suffered staggering unrecoverable losses, the debtors have been caught up in the general economic climate of the times. There is no reason to believe that a fuller investigation of their affairs would prove fruitful. Apart from the applicants, all other creditors are prepared to accept the result represented by the Deeds of Arrangement. This is not a case where a large creditor has used its voting power to oppress small creditors. And it is not without significance that one of the debtors supporting the debtors' proposals was a building society owed $4,000,000. Once it is concluded that the proceedings at the meeting of creditors were valid, I do not think that the final outcome can be said to be either unreasonable or unjust. In any event, nothing has been put before the Court that would justify a conclusion that it would be in the interests of the creditors generally to terminate the deeds. What the applicants are in effect saying is that it is unreasonable, unjust and not in the interests of the creditors generally to insist that they (the applicants) should be required to get their proxies right. This proposition only has to be stated to demonstrate that it is unsustainable.
PARAGRAPH 2AIt is unnecessary to deal with this paragraph as a separate basis for relief. The applicants do not argue that subsection 31(1) confers a separate jurisdiction enabling a party to appeal against the decision of the chairman of a meeting of creditors made pursuant to section 201. This is not to say that in the course of a proceeding otherwise properly before the Court, such a decision cannot be scrutinised. Reference has already been made to decisions which relate to this question. In the circumstances of this case, in view of the conclusions reached in relation to the chairman's decision, it is unnecessary to examine the extent of the Court's powers any further.
PARAGRAPH 3The Court's authority to make a sequestration order against the estate of a debtor pursuant to section 222(7) on an application under subsections (2) or (4) arises only when an order has been made declaring the deed or composition to which the application relates to be void. As no such order is to be made on either application, the occasion to make a sequestration order under subsection (7) does not arise.
In the course of his final address, counsel for the applicants sought leave to further amend the applications to include a paragraph seeking sequestration orders pursuant to subsection 236(3) of the Bankruptcy Act. The amendment application was vigorously opposed by counsel for the respondents. At the time I indicated that I would reserve my decision on the application and decide the issue in the context of the whole case. As it happens, there is no need to consider the matter further as the power to make a sequestration order under subsection 236(3) arises only if an order for termination is made under subsection (1). The amendment application is refused.
For the reasons I have expressed above I would dismiss both applications with costs.
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