Re Bendel, David; Ex Parte Bendel, David and Pattison, Paul Anthony (as Trustee of the Bankrupt Estate of David Bendel)
[1997] FCA 1295
•26 NOVEMBER 1997
FEDERAL COURT OF AUSTRALIA
BANKRUPTCY - request by bankrupt for meeting of creditors to be held by trustee - dispute as to validity of debts - trustee requiring further investigation to prepare report - whether “act, omission or decision” of trustee - whether “proposal” - whether security for costs of convening meeting must be paid - appeals by creditors against rejection of proofs of debt
Bankruptcy Act 1966 (Cth) ss 64, 64ZA, 73, 104, 178
RE: DAVID BENDEL EX PARTE: DAVID BENDEL AND: PAUL ANTHONY PATTISON (AS TRUSTEE OF THE BANKRUPT ESTATE OF DAVID BENDEL) & ORS
NO. VB 1083 OF 1996
JUDGE: HEEREY J:
DATE: 26 NOVEMBER 1997
PLACE: MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE VB 1083 of 1996
STATE OF VICTORIA
RE: DAVID BENDEL
EX PARTE: DAVID BENDEL
APPLICANT
AND: PAUL ANTHONY PATTISON (AS TRUSTEE OF THE
BANKRUPT ESTATE OF DAVID BENDEL)
RESPONDENT
RE: DAVID BENDEL
EX PARTE: SASH INVESTMENTS PTY LTD
ACN: 004 667 565
APPLICANT
AND: PAUL ANTHONY PATTISON (AS TRUSTEE OF THE
BANKRUPT ESTATE OF DAVID BENDEL)
RESPONDENT
RE: DAVID BENDEL
EX PARTE: SKILLMARK INVESTMENTS PTY LTD
ACN: 004 008 457
APPLICANT
AND: PAUL ANTHONY PATTISON (AS TRUSTEE OF THE
BANKRUPT ESTATE OF DAVID BENDEL)
RESPONDENT
RE: DAVID BENDEL
EX PARTE: ORBACH HOLDINGS PTY LTD
ACN: 004 363 213
APPLICANT
AND: PAUL ANTHONY PATTISON (AS TRUSTEE OF THE
BANKRUPT ESTATE OF DAVID BENDEL)
RESPONDENT
JUDGE:
HEEREY J
DATE OF ORDER:
26 NOVEMBER 1997
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
The application by David Bendel is dismissed.
The application by Sash Investments Pty Ltd is dismissed.
The application by Skillmark Investments Pty Ltd is dismissed.
The application by Orbach Holdings Pty Ltd is upheld.
It is directed that the trustee admit the proof of Orbach Holdings Pty Ltd for a debt of $569,910.
Applications for costs are adjourned to a date to be fixed.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE VB 1083 of 1996
STATE OF VICTORIA
RE: DAVID BENDEL
EX PARTE: DAVID BENDEL
APPLICANT
AND: PAUL ANTHONY PATTISON (AS TRUSTEE OF THE
BANKRUPT ESTATE OF DAVID BENDEL)
RESPONDENT
RE: DAVID BENDEL
EX PARTE: SASH INVESTMENTS PTY LTD
ACN: 004 667 565
APPLICANT
AND: PAUL ANTHONY PATTISON (AS TRUSTEE OF THE
BANKRUPT ESTATE OF DAVID BENDEL)
RESPONDENT
RE: DAVID BENDEL
EX PARTE: SKILLMARK INVESTMENTS PTY LTD
ACN: 004 008 457
APPLICANT
AND: PAUL ANTHONY PATTISON (AS TRUSTEE OF THE
BANKRUPT ESTATE OF DAVID BENDEL)
RESPONDENT
RE: DAVID BENDEL
EX PARTE: ORBACH HOLDINGS PTY LTD
ACN: 004 363 213
APPLICANT
AND: PAUL ANTHONY PATTISON (AS TRUSTEE OF THE
BANKRUPT ESTATE OF DAVID BENDEL)
RESPONDENT
JUDGE:
HEEREY J
DATE OF ORDER:
26 NOVEMBER 1997
WHERE MADE:
MELBOURNE
REASONS FOR JUDGMENT
INTRODUCTION
On 17 April 1996 a sequestration order was made against the estate of Mr David Bendel. Mr Paul Pattison was appointed trustee. Mr Bendel then sought to have this trustee call a meeting of creditors under s 73 of the Bankruptcy Act 1976 (Cth), or alternatively under s 64, to consider a composition. His proposal involved a contribution from an external source of $20,000, resulting in a dividend of less than two cents in the dollar. Mr Bendel seeks a review by this Court under s 178 of the Act of the failure of the trustee to call such a meeting.
The trustee rejected proofs of debt of three creditors associated with Mr Bendel. Were the claimed debts of those creditors admitted, the requisite 75 per cent in value of creditors needed to approve a compromise would probably be achieved. Those creditors seek a review under s 104 of the trustee’s decision to reject their proofs.
Mr Bendel has for many years practised as a Chartered Accountant. He was formerly a partner in the firm Lowe Lippmann. He had previously practised in partnership with Mr Mark Kratzman and that practice was merged with Lowe Lippmann some time in the 1980s.
Mr Bendel retired as a partner in Lowe Lippmann in 1990 but remained a consultant to the firm until the end of 1992. Acrimonious disputes have arisen between Mr Bendel and the other Lowe Lippmann partners, including Mr Kratzman. This led amongst other things to a trial in the Supreme Court of Victoria in which Lowe Lippmann obtained judgment against Mr Bendel for $14,304.29 and costs estimated at $384,611.49. Lowe Lippmann petitioned for a sequestration order. Mr Bendel sought an adjournment of the hearing of the petition so that a meeting of creditors could be convened to consider an arrangement under Part X involving an external contribution of $30,000. Merkel J refused the adjournment application and made a sequestration order.
Mr Bendel now carries on, as I find, an accountancy practice in partnership with his son Mr Steven Bendel under the name Bendel Partners.
Some of the other entities and individuals involved in this litigation are as follows. The interests of Mr Bendel and Mr Kratzman in the Lowe Lippmann practice were held through a trust called the Bendel Bick Unit Trust. The trustee of that trust is Skillmark Investments Pty (formerly called Bendel Partners Pty).
The Bendel interests in the Bendel Bick Unit Trust are held by another trust called the Susan Bendel Family Trust No. 1. The trustee of that trust is Sash Investments Pty Ltd .
Mrs Susan Bendel is the former wife of Mr Bendel. They were divorced in 1994. Consent orders were made for the disposition of their various property interests. These included the assignment by Mrs Bendel to Mr Bendel of all her interests in the Susan Bendel Family Trust No. 1 and Sash Investments.
A long-standing client, friend and associate of Mr Bendel is Mr Jack Orbach. Mr Orbach, who now carries on business as a developer, is a director of numerous companies, including Orbach Holdings Pty Ltd.
REQUEST FOR CREDITORS’ MEETING
Correspondence with Trustee
On 9 May 1996 Mr Bendel wrote to the trustee requesting a meeting be called under s 73. The proposal provided for $20,000 to be contributed by TDJ Australia Pty Ltd, referred to as “a friendly party”. That sum was to meet all fees and costs incurred by the trustee. Divisible property that was not returned to Mr Bendel would remain under the trustee’s control. The trustee replied by letter dated 21 May as follows (emphasis in original):
“Mr David Bendel
Penthouse 3, Level 1
431 St Kilda Road
MELBOURNE VIC 3004Dear Sir,
YOUR BANKRUPT ESTATE
NO VB 1083 OF 1996I refer to your composition proposal dated 9 May 1996.
Under Section 73 of the Bankruptcy Act 1966, (“the Act”) you can put forward a proposal for creditors to consider a special arrangement to satisfy your debts. This can be a “composition” or a “scheme of arrangement” of your affairs.
The proposal must be in writing and signed by you. The proposal can include assets that have already vested in me as your trustee however it must be more beneficial to your creditors than the normal administration of your estate.
The composition or scheme of arrangement must provide details of the proposal including details of any guarantees or securities offered and it should include the following provisions.
a)that all fees and costs of the administration will be paid;
b)that divisible property which vested in the trustee in bankruptcy at the date of your bankruptcy and are included in the composition or scheme of arrangement are to vest in the trustee of the composition;
c)that divisible property which vested in the trustee in bankruptcy at the date of your bankruptcy and are not included in the composition or scheme of arrangement are to revest in you;
d)that the monies provided under the composition are paid in the priority laid down in Section 109 and Rule 40 of the Act. (Please note if these priorities are to be departed from the details of the priorities must be specified in the proposal.);
e)that the trustee of the composition or scheme deal with claims of creditors in accordance with sections 82 to 114 of the Act as if the claims were claims in the bankruptcy; and
f)That the trustee of the composition or scheme will be the trustee of the existing bankruptcy.
Your proposal does not cover all of these points. Please advise me if you wish to amend your proposal. If I consider that the guarantees or securities are insufficient I may ask that the monies are paid into my trust account prior to calling the meeting.
I have called for proofs of debt so that I can establish the quantum of the creditors who may claim in the estate. I will then call a meeting of your creditors and give each creditor a copy of the proposal and a report on it. This process will take between 6 to 10 weeks.
If the creditors accept your proposal by special resolution your bankruptcy is annulled (cancelled) on the date that the resolution is passed. To be successful a special resolution requires 75% in value and 50% in number of the creditors voting on the proposal to vote in favour of it.
Before offering your creditors a composition or scheme of arrangement consideration should be given to Section 75(4) of the Bankruptcy Act, 1966 which provides as follows:
‘If:
(a)default is made in any respect under such a composition or scheme of arrangement; or
(b) it is made to appear to the Court that:
(i)the composition or scheme of arrangement cannot be proceeded with without injustice or undue delay to the creditors or to the bankrupt; or
(ii)the approval of the creditors was obtained by a misrepresentation by the former bankrupt; or
(iii)it is desirable that the affairs of the former bankrupt be investigated and administered under the provisions of this Act relating to bankruptcy; or
(iv)it is likely that the creditors will receive a greater dividend if the former bankrupt is again made a bankrupt;
the Court may, if it thinks fit, on application by the trustee or a creditor, annul the composition or scheme of arrangement.’
As at 17 May 1996 my fees and costs were:
$Trustee’s Remuneration $9,393.40
I estimate that my additional fees and costs to put your composition, that is to produce a report to creditors and hold a creditor’s meeting, will be $5,000. If you wish to proceed with a composition you should pay these monies to me immediately.”
The trustee then set out a list of creditors as disclosed in the debtor’s statement of affairs totalling $1,277,615 and also a list of contingent creditors totalling $19,461,000. The letter concluded:
“The amounts for which the creditors may vote have not been admitted as yet.
As my staff and I have only just begun our investigations into your examinable affairs, I would envisage that the $20,000 you proposed to make available to your creditors would only meet my costs and remuneration.
For convenience and to avoid any unnecessary costs in calling a meeting of creditors which may not lead to an annulment, you should discuss your proposal informally with creditors to ascertain their acceptance or otherwise.
Upon receipt of any amended proposal and the $5,000. towards the cost of calling the meeting and preparing and presenting my report to creditors I will proceed as detailed above.
Should you have any queries please contact Bruna Favero of my staff.”
On 9 July Mr Bendel replied enclosing a formal proposal and requesting the meeting be called between 1 and 16 August. The letter also enclosed what was described as a “signed Request by Creditors” under s 64(1)(b). The document was the minutes of a meeting of some creditors held on 30 May 1996. The minutes recorded that:
“It was unanimously agreed that the Trustee be informed that it is requested that he call a Meeting to consider the Composition proposed by David Bendel and any amendments thereto.”
The minutes were signed by Mr Orbach as Chairperson.
On 23 July the trustee wrote to Mr Bendel advising that he had not admitted proofs of debt and that he did not consider that the creditors who had held a meeting amongst themselves were bona fide creditors until such time as he had admitted their proofs. He added that he believed that the creditors did not represent 25 per cent, having regard to the amount of contingent liabilities. He stated that he did not intend to call a meeting of creditors “at this time”. He advised that he would advertise for proofs of debt.
On 18 September Mr Bendel’s solicitors wrote stating that they would apply to the Court for an appropriate order unless steps were taken within seven days to convene a meeting of creditors. The letter noted that the trustee had called for proofs of debt to be delivered by 30 August. On 20 September the trustee wrote advising:
“Until such time as I am satisfied as to who the true creditors are of the bankrupt estate I will not call a meeting of creditors as requested.”
The trustee advised that he had required further evidence in support of debts claimed by a number of creditors, including Orbach Holdings, Sash Investments and Skillmark Investments. The letter concluded:
“Each of the parties have been requested to provide additional information by 30 September 1996 so that I may consider the Proofs of Debt further.
As you would appreciate, until such time as I am satisfied of the legitimacy of a creditor I am not in a position to deal with that creditor’s request.”
Mr Bendel’s solicitors replied on 2 September extending their deadline for calling a meeting to 7 October. The trustee replied on the latter date confirming that he did not propose to call a meeting of creditors until the position of creditors was established. The letter included the following:
“As you are aware for me to convene a meeting of creditors, it is incumbent upon me to be satisfied of the bona fides of creditors before permitting such creditor to attend and participate at a meeting of creditors.
In my letter of 20 September 1996 I identified ten creditors where I was not satisfied with the proof of debts lodged with me (totalling $1,742,262) and I required further evidence in support of the debts claimed. My concerns with regard to these claims are strengthened on the basis that the parties from whom I seek further evidence are either related, associated or have had some connection to the activities of the bankrupt. Furthermore, in the decision by Merkel J. in the matter re Bendel. Ex p. Lowe Lippmann (a firm) 19 April 1996, I am comforted by the comments made by his Honor as follows:
‘The only outside party listed in the Statement of Affairs with a simple debt with no benefits, favours or associations attached is the petitioning creditor.’ (Page 5).
The bankrupt’s affairs are complex and warrant significant investigation before I, as trustee, am in a position pursuant to Section 73 (2) of the Bankruptcy Act to report on any proposal submitted to me by the bankrupt. It is also noted that the proposal submitted by the bankrupt is less than the proposal that was offered pursuant to Part X of the Bankruptcy Act, 1966 which was a proposal in which Merkel J. expressed concerns. His Honour stated:
‘A sequestration order, rather than the vagaries and uncertainties of the Part X arrangement proposed .... constitutes a more appropriate vehicle in the present circumstances .... The simplicity of the present proposal would have the trustee under Part X complete his role almost immediately if the $30,000 is paid before enquiries or investigations are undertaken. Also, no challenge to invalid preferences is available under Part X’. (Page 5).
In considering the proposal submitted by the bankrupt in his Part X meeting, Merkel J stated “In those circumstances I am not satisfied that the adjournment is likely to be for the benefit of any of the creditors as such. Even if the money eventuated the benefit may be said to be truly ‘derisory’. (See Zarro v. White Industries Spender J. unreported 30 June 1992 at p.9)” (page 7).
There have been two proposals submitted dated 9 May 1996 and 9 January 1996 by your client to which I have replied by letter dated 21 May 1996 and verbally at a meeting with the bankrupt dated 29 July 1996.
It should also be noted that the time frame in which these proposals were submitted and the date in which the bankrupt filed the Statement of Affairs has proven to be an inadequate period of time in which to properly investigate the affairs of the bankrupt. These investigations are continuing. For your information my costs to 28 September 1996 in investigating the affairs of the bankrupt total $45,954.39.
The most current proposal places creditors in a worse position than they would have been if they had accepted your client’s Part X proposal.
In regard to the proofs of debt where further evidence was required and received on 26 September 1996 those proofs continue to be under consideration by me. Furthermore in regard to the claim of Bendel Partners Unit Trust ($3,712) and Skillmark Investments ($133,761) the bankrupt’s son, Steven Bendel, made available records on 3 October 1996 for inspection in substantiation of the claims made by those parties. This evidence is also currently being considered.
In view of the lateness of the additional documentation being submitted to me and the volume of other information received on Thursday 26 September 1996 and the fact that this information is still being analysed I am not in a position to make my determination on the proofs of debt earlier than Monday 7 October 1996.
Furthermore, today I have received my legal advice on the claim lodged by Lowe Lippmann ($398,915.78). In the absence of the costs being taxed by a Taxing Master I am advised to retain an independent cost consultant to review the bill of costs in order to estimate the value of the debt. Until this task is completed, I will not be in a position to form a view as to whether or not Section 64 of the Bankruptcy Act, 1966 has been complied with.
I reiterate until such time as I am satisfied as to who the true creditors are of the bankrupt estate I do not consider myself in a position to call a meeting of creditors as sought by you and your client.
To assist in identifying some of the issues in this administration in particular in justification of the course taken by me in considering creditor claims, I enclose a copy of the judgment of Merkel J. handed down on 18 April 1996.”
The present application was filed in the Court on 1 November 1966. It sought an order that the decision of the trustee not to convene a meeting of creditors pursuant to s 73(2) be reviewed and orders directing the trustee to convene such a meeting pursuant to s 73(2) or alternatively s 64(1)(b).
The Legislation
The calling of a meeting to consider a composition or arrangement by a bankrupt is governed by s 73 which is in Div 6 of Pt IV. Prior to an amendment which operated on and from 16 December 1966 s 73 provided as follows:
“73. (1) Where a bankrupt desires to make a proposal to his creditors for:
(a) a composition in satisfaction of his debts; or
(b) a scheme of arrangement of his affairs;
he may lodge with the trustee a proposal in writing signed by him setting out the terms of the proposed composition or scheme of arrangement and particulars of any sureties or securities forming part of the proposal.
(2) The trustee shall call a meeting of creditors and shall send to each creditor before the meeting a copy of the proposal accompanied by a report on it.
(3) The bankrupt may, at the meeting, amend the terms of his proposal.
(4) The creditors may, by special resolution, accept the proposal.
(5) A creditor who has proved his debt may assent to or dissent from the proposal by written notice to that effect delivered to the trustee before the meeting or sent by post to the trustee and received by him before the meeting, and in that case the creditor shall, for the purposes of this Division, be deemed to have been present at the meeting and to have voted according to his assent or dissent.”
The amendment was the insertion of sub-section (2A) in the following terms:
“2A. The report must indicate whether the proposal would benefit the bankrupt’s creditors generally.”
Section 64 provides:
“64.(1) The trustee must convene a meeting of the creditors of a bankrupt:
(a) whenever the creditors so direct by resolution; and
(b)whenever so requested in writing by at least one-fourth in value of the creditors; and
(c)whenever so requested in writing by less than one-fourth in value of the creditors, being a creditor who has, or creditors who together have, lodged with the trustee sufficient security for the cost of holding the meeting.
(2) The trustee may convene at any time a meeting of the creditors of a bankrupt.”
Section 75(4), which deals with annulment of compositions, has already been quoted in the trustee’s letter of 21 May 1996.
By s 76A, Div 5 of Pt IV is to apply to meetings of creditors under Div 6 of Pt IV. Division 5 of Pt IV contains detailed provisions as to the calling and conduct of meetings, including s 64ZA which deals with entitlement to voting, including the sub-ss (8) and (9) as follows:
“(8) The trustee may determine any question that arises as to the entitlement of a person to vote.
(9) If the trustee needs a period in which to determine a question referred to in subsection (8), the meeting is to be adjourned to such time, date and place as the meeting resolves, being a date not later than 14 days after the date of the original meeting, for the purpose of enabling the trustee to determine the question.”
Was there a “decision”?
Section 178 provides:
“178. If the bankrupt, a creditor or any other person is affected by any act, omission or decision of the trustee, he may apply to the Court and the Court may make such order in the matter as it thinks just and equitable.”
There was in my opinion an “act, omission or decision of the trustee” sufficient to enliven the Court’s jurisdiction under s 178. The trustee made a decision not to call the meeting within the time frame requested, or rather demanded, by Mr Bendel. But this was not a decision to refuse to call a meeting. Nor was it a decision to achieve the same result by fobbing off Mr Bendel indefinitely. The evidence satisfies me that the trustee was acting in good faith and decided not to call a meeting until further investigation could be carried out so that he could make the report required by s 73(2).
Was there a “proposal”?
Counsel for the trustee submitted that “proposal” in s 73 means a bona fide proposal. I agree, but the fact that a proposal is extremely favourable to the bankrupt does not mean that it is not bona fide. Here Mr Bendel plainly enough wanted the proposal to be put and passed for the purpose of annulling his bankruptcy. The merits of the proposal were a matter for the creditors at the meeting, or the Court if an application for annulment of the composition were made under s 75(4)(b).
Payment of Trustee’s Costs
In my opinion a trustee cannot validly refuse to call a meeting of creditors until the costs of calling the meeting itself and/or the costs of administration to date are paid or secured. As to the former, the Act makes provision for security for the costs of holding a meeting in certain circumstances: see s 64(1)(c) which applies to a request in writing by less than one-fourth in value of creditors. The absence of any such provision in s 73 (or elsewhere in s 64) is an indication that a bankrupt is not to be denied access to a meeting of his or her creditors by an inability to pay or secure the costs of convening the meeting or other expenses incurred in the administration of the estate. Provided only that the request is genuine, in the sense that the bankrupt desires a meeting for the purpose of considering a composition or scheme of arrangement, the trustee must call the meeting. The prospect raised by counsel for the trustee of a bankrupt harassing a trustee with repeated calls for meetings is be met by the answer that such requests would not be bona fide.Does Section 64 apply?
In my opinion s 64 has no application to a meeting called for the specific purpose dealt with by s 73. In any case, there was here no request signed by creditors to the requisite value as required by of s 64(1)(b). The only written request was by the bankrupt himself. The minutes of the meeting of certain creditors is not a request to the trustee and was not signed by those creditors.
Ascertainment of Creditors
I do not think that a desire by a trustee to ascertain the existence and amount of alleged debts owed to creditors who might vote at a meeting is in itself a reason for delaying the calling of a meeting. The appropriate mechanism for resolving doubts as to the entitlement of creditors to vote is provided by s 64ZA(8) and (9).
Provision of a Report
If an order were made under s 178 for the holding of a creditors’ meeting, the convening and conduct of that meeting would have to comply with the Act as it now stands, including the provision of a report which, as now required by s 73(2A), includes the trustee’s view as to whether the proposal would benefit the bankrupt’s creditors generally. In any case, sub-s (2A) probably only makes explicit what was contemplated by sub-s (2) prior to the amendment. A report by the trustee “on” the proposal should or, at the very least could, include the trustee’s views as to the merits of the proposal, including its benefits for creditors generally in comparison with a continuation of the bankruptcy administration.
I think the trustee in the present case was justified in taking the view that he needed more investigation before he could adequately report on the affairs of the bankrupt and the merits (if any) of the proposed composition. The trustee as a matter of common sense could hardly ignore the fact that Merkel J had declined to adjourn the petition pending a Part X proposal (more favourable to creditors than the s 73 proposal) essentially because of suspicion of collusion between Mr Bendel and certain creditors.
But in any case, all this has been rather overtaken by events. The evidence before me indicates clearly that there is a need for a very thorough investigation indeed of the affairs of Mr Bendel. To take but one instance, it is apparent that in truth he is conducting his accountancy practice in partnership with his son. His interest in the partnership was not disclosed in his statement of affairs but was in an application for registration as a tax agent. Mr Steven Bendel has a limited interest in the partnership but there is no one else who could be enjoying the benefits of the substantial income derived (a gross of some $283,908.95) other than Mr Bendel himself.
Even more importantly, Mr Bendel has attempted to deceive this Court by the use of fraudulent documents in relation to the alleged debt of Sash Investments. I shall discuss that evidence when dealing with the appeal by that creditor.
I conclude therefore that the application for the review of the trustee’s decision concerning the holding of a meeting of creditors should be dismissed.
SASH INVESTMENTS DEBT
The debt claimed by Sash Investments is $585,693. Its case is that on 30 June 1988 Mr Bendel was indebted to it in the sum of $400,221 and that interest thereon has accrued at the rate of 10 per cent per annum. The trustee denies the existence of any debt or any agreement to pay interest on the debt and alleges that it is statute-barred.
In its outline of argument Sash Investments asserted:
“The said debt was acknowledged during each subsequent financial year and was acknowledged by the Bankrupt and the Applicant under seal. The documents are annexed to the affidavit of David Bendel sworn on 25 November 1996.”
In that affidavit Mr Bendel deposed that he was a director of Sash Investments until 19 April 1996 and that his former wife was a director until 1 July 1994 when she resigned as a result of the matrimonial settlement. He deposed as follows (emphasis added):
“4.That as at 30 June 1988 I was indebted to the abovenamed applicant [Sash Investments] in the sum of $400,221 being the balance of my loan account with the Applicant.
5.That subsequently during each financial year I signed an acknowledgment of debt together with accrued interest. Each of the said acknowledgments were dated 1 July being the beginning of the financial year in question but were signed subsequently to 1 July but definitely during that financial year. Each of the said acknowledgments were [sic] also executed by the company under seal at the same time and were filed among the company’s records. That there were in all 8 acknowledgments. Annexed hereto and marked with the letter “A” are the said acknowledgments.”
This affidavit was sworn after the trustee in a letter to Sash Investments of 9 September 1996 had raised concerns as to the genuineness of the debt. The loan agreements were relied on by Sash Investments not only as acknowledgments of the debt for the purpose of the Statute of Limitations, but also as evidencing agreements to pay interest. Mr Steven Bendel swore an affidavit on 25 November 1996 deposing that the affidavit of his father was true and correct. The loan agreement for 1995 was in the following terms:
“THIS AGREEMENT made this 1st day of July 1995
BETWEEN
SASH INVESTMENTS PTY LTD
(as trustee for the Bendel Family Trust (Lender)
of 34 Davey Avenue, East Brighton
-and-
DAVID BENDEL (Borrower)
of 34 Davey Avenue, East BrightonThe borrower covenants to repay the loan to the lender in the manner hereinafter set out:
Loan: $709,015
Date of Advance: 1st July 1995
Term of Loan: One year
Repayment Dates: 30 June, 1996
Interest Rate: 10%
Payable: 30 June, 1996
THE COMMON SEAL of SASH } L.S.
INVESTMENTS PTY LTD was } The Common Seal of
hereunto affixed in accordance with } Sash Investments Pty
its Articles of Association in the } Ltd
presence of: } A.C.N. 004 667 555........ .....Andrew Bendel (Sgd) ........ ... Director
Director
........ .....Steven Bendel (Sgd) ........ ... Secretary
Signed, sealed and delivered by:
........ ....David Bendel (Sgd)........ .
DAVID BENDELin the presence of :
........ . Sue Orchard....(Sgd)........ ...
WITNESS”
The words and figures “THIS AGREEMENT made the day of 199 ” are typed. The remainder (i.e. “1st” “July” and “5”) is in Mr Bendel’s handwriting. The same is true for the 1994, 1993, 1992 and 1990 agreements. The 1991 agreement has the typed figures “199” crossed out and “1991” written above. For 1989 the figures are written over typing and for 1988 there is a duty stamp with the figures “1988” written above it.
The type face and layout of all the agreements is exactly the same.
The loan amount for the 1988 agreement is shown as $400,221 and that amount increases with each year. In each agreement the date of advance is 1st July and the repayment date is the 30th June in the following year. The common seal of Sash Investments Pty Ltd A.C.N 004 667 565 appears in each loan agreement except for the 1988 and 1989 agreements where there is no common seal.
When first cross-examined on the morning of 5 November 1997 Mr Bendel confirmed that all the agreements were prepared on separate occasions in the years 1988 to 1994. For example, when he was asked about the 1989 agreement the following exchange took place:
“Q. You see the handwritten 1989?
A. Yes.
Q.What I suggest to you is that you have written on the original which we have not got over a typed date 1990 something. But certainly the figures 199 you have written over, have you not?
A. 199.
Q. You have changed them to 198?
A.I’m at a loss to find to find out what I’m supposed to have done. What have I done here? I
Q. What I am suggesting to you, Mr Bendel, so it is clear, that you backdated the document, have you not?
A. No, I don’t accept that.”
After lunch on that day the originals of the loan agreements were obtained and put to him. A close inspection of the original of the 1989 agreement confirmed that the date line included the typed figures 199 and that they had been overwritten so that the date read 1989. In the 1988 agreement a duty stamp appeared over the same typed figures “199” and the figures “1988” had been written above the duty stamp. Mr Bendel disputed that that was the case. He was asked in respect of the 1989 agreement:
“Q.You did not make that entry at any time or date anywhere near 1989, did you?”
“A.Well I certainly can’t tell from this document.
Q.But what I suggest to you is that each of these documents were created in about 1996. That is right is it not?
A.I don’t recollect that.”
He could not give any explanation as to why there was no common seal on the 1988 and 1989 agreements. The proposition was put to him that the agreements were all executed in 1996 and the old company seal without the A.C.N. number (which only became a requirement under the Corporations Law in 1991) had been lost. He did not accept that.
In re-examination on the following day Mr Bendel admitted that the documents were all back-dated. He said that the accounts were all prepared by his son Steven after April 1996. Mr Steven Bendel gave evidence that that was the case.
Mr Bendel displayed no contrition after being caught out in a brazen attempt to deceive this Court by the use of false documents. Sash Investments however did abandon its claim to interest. But, it must also follow that the debt itself is statute-barred since the loan agreements which were relied on as acknowledgments of debt were not made until 1996.
In any event there is a quite independent ground for rejecting the claim. This arises from the fact that the books of account show an indebtedness to Susan Bendel appearing in the balance sheets of the company as at 30 June 1995 in the amount of $699,938. Since Mr Bendel acquired all the interests of Mrs Bendel in the trust there would be a credit balance and not a debit balance in his favour. The application by Sash Investments is dismissed.
SKILLMARK INVESTMENTS DEBT
The proof of debt lodged is for $133,761. That amount appears as a current receivable in the accounts of Bendel Bick Unit Trust at 30 June 1991 and 30 June 1992. However at the time Mr Bendel provided those accounts to the controlling trustee appointed for the purpose of the proposed Part X arrangement he stated that the statements were incorrect. The critical book entry is a journal entry which describes the amount as “Being entry to correct Beneficiary loan account balance as at 30 June 1991”. The entry was written by an employee Stella Polychronopoulos who was not called as a witness. There was no explanation of her non-attendance Mr Bendel could not explain the entry even though, as I find, Mr Bendel was actively involved in the preparation of the accounts of Skillmark.
There was no explanation of what seems to be an inherently unlikely transaction. Mr Bendel was never a beneficiary of the Bendel Bick Unit Trust of which Skillmark was trustee. It was Sash Investments which was the beneficiary. Mr Kratzman gave evidence that there was no agreement between him and Mr Bendel or between Skillmark and Mr Bendel that Mr Bendel would be lent money by Skillmark. Mr Kratzman was not cross-examined as to this. There was no reason for Skillmark to make a loan to Mr Bendel as at 30 June 1991. Skillmark has failed to establish that it is a creditor of Mr Bendel. The application is dismissed.
ORBACH HOLDINGS DEBT
The debt claimed is $569,910.
It is said that the debt arises by virtue of a right of contribution or alternatively by a specific agreement. Mr Orbach and Mr Bendel were directors of a company called Herbon Soaps and Powders Pty Ltd. By medium of various trusts, the two men were proprietors of that company. In 1990 Herbon borrowed $1,050,000 from the ANZ Bank secured by a commercial bill for that amount. Guarantees of the loan were given by various entities associated with Mr Bendel and Mr Orbach, including Orbach Holdings, and by the two men personally. By April 1992 Herbon was incurring substantial losses. On 25 May 1992 the bank sent a letter of demand on Orbach Holdings. The bank was only prepared to refinance the debt by making a fresh advance to Orbach Holdings. A new loan was granted on 14 December 1993. The documentation was not executed until 20 October 1994. In the meantime on 6 January 1994 Mr Bendel agreed with Mr Orbach to pay half of the amount. A minute of meeting of directors of Orbach Holdings on 6 June 1994 at which Mr Orbach and Mr Bendel were present and signed by both men as follows:
“ANZ Bank facility: $1,050,000
Purpose: Originally to assist with the provision of capital funding to Herbon Soaps and Powders Pty Ltd. Facility now represents ongoing funding to the Customer.
David Bendel has agreed to enter into a Loan Agreement to repay ½ of the debt and entry into a Cross Deed of Covenant to support the security.
The company will now negotiate to finalize all agreements.”
Notwithstanding Mr Orbach’s close association with Mr Bendel there is no basis in the evidence for finding that he engaged in any discreditable conduct. I accept him as a truthful witness. I find that Orbach Holdings did have a right of contribution pursuant to s 52 of the Supreme Court Act 1986 (Vic) by reason of its paying out the Herbon debt for which Mr Bendel was a co-guarantor. Further I accept that the express agreement was made as alleged by Mr Orbach. In marked contrast to the cases of Sash Investments and Skillmark Investments, there is present a rational commercial foundation for the case of Orbach Holdings, viz that it was a co-surety with Mr Bendel of a debt to the ANZ Bank and paid out that date.
Mr Orbach said frankly that he would not sue Mr Bendel. However this does not mean that Orbach Holdings does not have the standing of a creditor. The situation is not the same as that where parties have no intention to create legal relations. Rather there are legal relations arising out of the relationship of joint co-sureties and under an express agreement. Whether a creditor chooses to enforce or rely upon that legal right in some circumstances and not in others does not affect the validity of the debt.
The application will be allowed. There will be an order that the trustee admit the proof of debt of Orbach Holdings.
COSTS
The parties wish to make submissions as to costs. Further hearing on the question of costs will be adjourned to a date to be fixed.
I certify that this and the preceding eighteen (18) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey
Associate:
Dated: 26 November 1997
Counsel for the Applicant: T Irlicht Solicitor for the Applicant: Irlicht & Broberg Counsel for the Respondent: J Delany Solicitor for the Respondent: Cornwall & Stodart Date of Hearing: 3, 5 - 7 November 1997 Date of Judgment: 26 November 1997
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