Re Alty, I.C. & Anor v Ex parte Muir, T.G

[1985] FCA 682

Re: IAN CLIFFORD ALTY AND ANOR
Ex Parte: BRIAN THOMAS GREGORY MUIR, Registrar in Bankruptcy
No. W72X of 1983
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Sheppard J.

CATCHWORDS

Bankruptcy - deed of assignment - authority to call meeting of creditors signed by debtors in ignorance of its purpose and effect - one person appointed proxy to vote at meeting on behalf of four different creditors - no other creditor present in person or by proxy at meeting - proxies did not expressly authorize proxy holder to vote for appointment of his employer as trustee - employer appointed trustee - whether deed of assignment invalid - whether appropriate to make order releasing debtors' property from control

Bankruptcy Act 1966, ss. 188, 198, 199, 200, 202

HEARING

SYDNEY
#DATE 3:12:1985

ORDER

1. On the application of the Official Trustee in Bankruptcy, a declaration be made that the Deed of Assignment entered into by Cheryl Joy Alty (Deceased), Ian Clifford Alty and John Ramsay Paul Partridge on 14 May 1983 pursuant to a resolution proposed at a meeting of creditors held at 127 York Street, Sydney, on 26 April 1983 is not valid on the ground that the provisions of s. 199 of the Bankruptcy Act 1966 were not complied with.

2. On the application of Ian Clifford Alty, Order 1 be made as asked in his application of 3 December 1985.

3. There be no order as to the costs of either application.

NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

The primary application in this matter is an application made by the Official Trustee in Bankruptcy pursuant to s.222 of the Bankruptcy Act 1966. The Trustee seeks the determination of whether a deed of assignment entered into by Cheryl Joy Alty, Ian Clifford Alty and John Ramsay Paul Partridge on 14 May 1983 pursuant to a resolution passed at a meeting of creditors held at 127 York Street, Sydney on 26 April 1983, is valid. He also seeks the determination of the question of whether, in the event that the deed was originally valid, the deed was validly terminated at a further meeting of creditors of Mr. and Mrs. Alty held at 45 Grafton Street, Coffs Harbour, on 28 November 1983.

1. The circumstances in which the Altys came to sign an authority under s. 188 of the Act, and in which the meetings of creditors were held, are to say the least unusual. They are described in some detail in the evidence and I do not feel the need to repeat what is in the material which is before me in these reasons. I am satisfied, by reason of what is contained in the affidavit of Mr. Alty, sworn 29 February 1984, that neither he nor his wife had any real understanding of what they were about when they were induced to sign what purports to be an authority under s. 188 by Mr. Harper. I need say no more about that matter at this stage.

2. At the meeting of 26 April 1983, Mr. Harper, who was an employee of a then registered trustee, Mr. J.R.P. Partridge, was recorded as being present with Miss Rosemary Young described as secretary and Mr. Alty. Proxies were said to have been received from four creditors: the Coffs Harbour District Hospital, Bradley Bros. Limited, Dun & Bradstreet (Aust.) Pty Limited and Robert A. Benson.

3. Mr. Harper is recorded as having asked that Mrs. Alty be excused due to illness and I should mention that I have been informed that she has since died. The minutes of the meeting then record that Mr. Harper was appointed chairman on a motion proposed by Coffs Harbour District Hospital and seconded by Bradley Bros. Limited. Further resolutions were passed on motions by creditors, all of whom were represented by Mr. Harper who held their proxies: none was personally present at the meeting.

4. The substantive resolution, which is recorded as being passed, was that it was resolved that the debtors execute a deed of assignment under Part X of the Bankruptcy Act. The motion proposing the resolution was said to have been proposed by Coffs Harbour District Hospital and seconded by Dun & Bradstreet (Aust.) Pty Limited. In reality the motion was moved by Mr. Harper on behalf of Coffs Harbour District Hospital and seconded by him on behalf of Dun & Bradstreet (Aust.) Pty Limited. A further resolution, which was passed on a motion proposed and seconded in a similar way, was that Mr. Partridge be appointed trustee under the deed of assignment. He was not present at the meeting.

5. The relevant sections of the Bankruptcy Act to which it is necessary to refer are ss. 188, 198, 199, 200 and 202. Section 188 provides that a debtor who desires that his affairs be dealt with under Part X of the Act without his estate being sequestrated may sign an authority in accordance with the prescribed form authorizing a registered trustee to call a meeting of his creditors and to take over the control of his property. Section 198 provides for the entitlement to vote at a meeting. Section 199 imposes restrictions on voting by proxy. It provides that a person acting as a proxy or attorney at a meeting under Division 2 of Part X is not eligible, unless he is expressly authorized to do so by the instrument by which he was appointed, to vote for the appointment of himself, his partner or his employer as trustee of a deed of assignment, a deed of arrangement or a composition. Section 200 provides in sub-sec. (1) that a creditor may vote either in person or by his attorney or by a proxy appointed in writing by the creditor or his attorney. Section 202 provides that at a meeting under the Division two creditors, being creditors entitled to vote at the meeting, present personally by attorney or by proxy constitute a quorum.

6. Three matters have been raised for my consideration. The first is that there was no valid authority under s. 188 because the evidence demonstrated that neither Mr. nor Mrs. Alty properly understood the effect of what they were doing with the result that their minds did not go with the signing of the document which purports to be an authority under s. 188. I shall return to that submission later.

7. The second matter relates to the form of the proxies. The proxies given by the four creditors who were said to be present at the meeting are in evidence. That given by Mr. Benson simply says "to vote". There are no other powers conferred by it although the giver of the proxy is invited by words in brackets to set out the powers of the proxy. The proxy given by Bradley Bros. Limited is in the same form. That given by Coffs Harbour District Hospital empowers the proxy holder "to vote as necessary on our behalf" and the proxy given by Dun & Bradstreet (Aust.) Pty Limited also says "to vote on our behalf".

8. Counsel for Mr. Alty submits that, by reason of the provisions of s. 199 of the Act and the form of the proxies, no power was vested in Mr. Harper by the proxies to vote for the appointment of his employer Mr. Partridge as trustee of the deed of assignment. In my opinion that submission must be upheld. I have given some consideration to the question of whether failure to comply with the section should lead to invalidity. In my opinion the purpose of the section is to ensure that persons voting by proxy for the appointment as trustee of a person who is connected with the proxy holder, understands fully what he is doing. There is no indication, of course, that these proxy holders did understand that Mr. Partridge who was Mr. Harper's employer, might be appointed trustee. In those circumstances it seems to me that, certainly in this case, and probably in others where the section is not complied with, the fact that it is not leads to invalidity. Accordingly, the appointment of Mr. Partridge as trustee of the deed was not valid.

9. The third matter relied upon was the fact that there was no person present at the meeting on behalf of creditors except Mr. Harper. It will be remembered that s. 202 provides that a quorum consists of two creditors, being creditors entitled to vote at the meeting, present personally by attorney or by proxy. I have been referred to the decision of the Court of Insolvency of South Australia in re Nelson (1963) 19 ABC 172 as authority for the proposition that on similar legislation a meeting attended only by one proxy holder, but holding proxies from more than one creditor, was not a valid meeting. I have been asked to apply that decision in the present case. That matter has not been fully argued and, although the case appears to support the proposition contended for by counsel, I would prefer, bearing in mind, the importance that the matter may have in other cases, not to express a view on the submission. In the light of the view that I have on other matters it is unnecessary that I should.

10. I have some reservation as to whether, notwithstanding my view that the authority signed by the Altys pursuant to s. 188 was an authority signed by them in ignorance of what they were doing, they were nevertheless bound by it. Counsel has put to me an argument which really is akin to an argument based on the doctrine of non est factum. I think there may be a question as to whether that doctrine applies in a case such as this, bearing in mind that an authority may be signed and may be acted upon by creditors who are innocent of the debtor being misled and who may act to their detriment as a result of a belief that the authority has been signed with full knowledge of its implications. I am, therefore, unwilling to decide that, because of the lack of understanding on the part of the Altys of the implications of the authority, the procedure which followed was itself void and of no effect.

11. Foreseeing that this might be the view which the Court would take, counsel for Mr. Alty has filed in Court today with my leave, an application pursuant to para. 208(b) of the Act. That paragraph provides that the Court may, on the application of an interested person, release a debtor's property from control under the Division if the Court is satisfied that there are special circumstances that justify it in so doing. I am satisfied that I should accede to the application which has been made and I propose to make an order accordingly.

12. It is perhaps unnecessary to say that, in the light of my conclusions, the question of whether the deed was validly terminated at a meeting of creditors held on 28 November 1983 does not arise.

13. (His Honour discussed with counsel the form of the orders to be made and then proceeded as follows.)

14. HIS HONOUR: On the application of the Official Trustee I declare that the Deed of Assignment entered into by Cheryl Joy Alty, deceased; Ian Clifford Alty and John Ramsay Paul Partridge on 14 May 1983 pursuant to a resolution passed at a meeting of creditors held at 127 York Street, Sydney on 26 April 1983, is not valid on the grounds that the provisions of s. 199 of the Bankruptcy Act 1966 were not complied with. On the application of Ian Clifford Alty I make an order in terms of paragraph 1 of the application filed in Court today. I make no order as to the costs of either application.