Re Campbell, Keith Malcolm Ex Parte Metway Leasing Ltd

[1996] FCA 627

IN THE FEDERAL COURT OF AUSTRALIA     )
GENERAL DIVISION  )

BANKRUPTCY DISTRICT OF THE           )  No. NP 414 of 1996
STATE OF NEW SOUTH WALES                  )

RE:KEITH MALCOLM CAMPBELL

Debtor

EX PARTE:METWAY LEASING LIMITED

Creditor

CORAM:    HILL J
PLACE:    SYDNEY
DATED:    4 JUNE 1996

REASONS FOR JUDGMENT

Metway Leasing is the petitioning creditor under a bankruptcy petition filed in this Court on 4 April 1996.  It seeks before me a review of a decision of Registrar Quinn to adjourn that petition when it came on for hearing to permit the holding of a meeting on 7 June of creditors for the purposes of Part X of the Bankruptcy Act 1966 (Cth) ("the Act").  It seems that Metway Leasing Limited ("Metway"), and other related corporations, have been in litigation with the debtor, Mr Campbell, for a considerable period of time.

Metway claims to be owed an amount of something in the order of $360,000, in accordance with an affidavit of debt which was tendered in evidence before me. On 9 May 1966 Mr and Mrs Campbell signed an authority, under s188 of the Act, authorising Mr Rogers, the controlling trustee, to call a meeting of their creditors for the purposes of Part X of the
Act.  The authority proposed that a deed of arrangement be entered into encompassing the following terms:

"(a)The amount of $5000 TO [sic] be paid to a Trustee on the execution of the Deed of Arrangement.  The $5000 to be paid to all proven creditors, both joint and separate, on a pro-rata basis.

(b)The assignment of our rights to any proceeds in excess of one million ($1 million) from the Statement of Claim No. 21338 of 1995 and Notice of Appeal No. CA40397 of 1995 filed in the Supreme Court of New South Wales.

(c)The funds received by the Trustee from the assignment of rights to be distributed firstly in the payment of Trustee's fees and expenses and secondly to all proven creditors, both joint and separate, on a pro-rata basis.

(c)[sic] Creditors release us from all debts, liabilities and claims if the obligations under (a) and (b) above are met."

Mr Rogers, in whose favour the authority was made, in due course prepared a report for a meeting of creditors convened for 7 June.  The report refers to a statement of affairs which had been filed by Mr and Mrs Campbell and which had shown total assets of $5,300, total joint assets of $5,300, and liabilities of $3,026,163.  In addition, the statements of affairs showed a deficiency on the part of Mr Campbell of some $69,000 and on the part of Mrs Campbell of $36,500.
         Under the heading "Personal Details of the Debtor", the trustee report noted that in the year ended 30 June 1995 Mr Campbell had been paid an amount of $28,719 net of income tax and that he was currently earning approximately $400 per week.  That was inconsistent with evidence which Mr Campbell gave before me which indicated he was earning $42,000 to $43,000 per annum at the present time.  The report deals with a proposed deed of arrangement and indicates that it would encompass four particular terms, the second of which involves the assignment of rights in two proceedings mentioned in the authority.  There is a difference between the proposal reported on and that referred to in Mr Roger's authority in that the report suggested that the costs of the statement of claim proceedings could be approximately $1 million.

It is difficult to see how there could be any proceeds arising out of the appeal to which reference is made.  That is apparently an appeal against the judgment which has been obtained by Metway against Mr Campbell and success in it could hardly produce cash proceeds.  The proceedings, No. 21338 of 1995, are even more of a mystery.  It seems that they were commenced in December; that at least the original affidavit verifying the statement of claim was not directly one which extended to Mrs Campbell as it was made only by Mr Campbell; that no defence has been filed to the proceedings; and that there has been a proposal to file an amended statement of claim, which has not been filed because it is suggested consent from the defendants is awaited, yet on my understanding of the Supreme Court Rules, no such consent would be required.

But those matters are far from at the heart of the peculiarity surrounding those proceedings.  It is not appropriate for me to make any comments about the chances of success of those proceedings, even assuming, as Mr Campbell swore, the factual matters referred to in the proposed amended statement of claim are correct.  How the creditors could evaluate the proposal put before them involving the assignment of the proceeds of those proceedings is unclear to me, when neither the details of the proceedings, nor any assessment of their chances of success have been put before the creditors.  To say the least, at present any possibility of funds emanating from this source would have to be said to be speculative.

In the course of argument I suggested to counsel for Mr Campbell that, at the very least, it would be necessary for the creditors to be advised as to the chances of success and possible quantum arising out of that success for them to adequately evaluate the scheme of arrangement.  Rather at my prompting, an undertaking was proffered that opinion of senior counsel would be provided to the creditors, or at least such of them as did not include those creditors who were defendants to the proceedings, to enable them to consider the matter.  On the whole, I think the undertaking came rather too late in the day to be of utility.

The prime submission on behalf of Mr Campbell is, of course, that the creditors should be entitled to form a commercial judgment on the scheme of arrangement as proposed and therefore should be allowed to consider it.  For that reason, it is submitted, an adjournment should be granted to ensure that that happens.  It was suggested that the Court could bring the matter back afterwards at the instance of Metway if necessary, when an application could be made to set aside the scheme of arrangement if the Court was then so inclined on the evidence then before it.

Counsel for the petitioning creditor drew my attention to the well-known decision of Sweeney J, with whom Franki J agreed, in Field v Commercial Banking Co of Sydney Limited (1978) 22 ALR 403. In that case his Honour, without attempting to lay down in any way a fetter upon the discretion conferred upon the Court to determine whether or not to make a sequestration order, set out a number of circumstances which would need to be considered by reference to the facts of a particular case. I need not repeat the various matters referred to by his Honour. Suffice it to say that they include, among other things, the general financial position of the debtor, the relationship between the debtor and the
petitioning creditor, total liabilities, the attitude of other creditors and the like.

Counsel for Metway relied upon a number of matters in urging me to refuse the adjournment.  Underlying them is the notion that if the adjournment were granted I might in any event be obliged to set aside the scheme of arrangement.  Counsel submitted that, excluding the suggested assignment, the composition is derisory and would produce an amount in the dollar to creditors of something under 0.014 cents in the dollar.  That figure probably does not take into account the question of costs of the trustee, as to which there is some ambiguity.  Mr Campbell's evidence was that he paid an amount in anticipation of Mr Rogers' costs.  On the other hand, the documentation suggests that Mr Rogers' costs are to be paid out of the proceeds of the assignment, although it may well be that all that means is, on the assumption that Mr Rogers receives any moneys there will be additional costs payable out of those proceeds.  In any event, the amount involved is of little significance.

In particular, my attention has been drawn to various decisions, particularly the decision of Foster J in NZI Capital Corporation Limited v Lancaster (1991) 30 FCR 441 at 445, the petition proceedings before Sheppard J in the same matter (unreported, 3 September 1991), and other cases dealt with in the judgment of Branson J in Re Eustice (unreported, 15 July 1994); Re Lancaster v NZI Capital Corporation in the Full Court, a decision of Lockhart, Beaumont and Gummow JJ (unreported, 11 October 1991); and, although in a somewhat different context, my own decision in Re Cummings; Ex parte Claremont Petroleum NL (unreported, 20 May 1993).  The point being made is that a court would be of the view that, having regard to matters to which counsel adverted, the payment of $5,000 was so derisory that the petition should be allowed to proceed.

The second matter to which reference was made by counsel was the fact that, in the event of bankruptcy, an income order could be made if it were correct that Mr Campbell was earning $42,000 a year.  It was submitted on Mr Campbell's behalf that this amount could decline if a bankruptcy order was made.  No attempt was made to ask Mr Campbell either the source of that income at the present time, or as to whether or not it would be likely to reduce if a sequestration order were made.

The third matter to which reference was made is a matter of considerable concern.  If a sequestration order is made and if there be any substance in the proceedings against it, No. 21338 of 1985 in the Supreme Court, Metway would be entitled to set off in bankruptcy against the amount owing to it by Mr Campbell, any amount which it owed Mr Campbell.  There are some difficulties in knowing whether a verdict against Metway would necessarily be in favour of Mr Campbell personally, rather than jointly with his wife, but I put that to one side.

The way the argument is put is that, if the scheme of arrangement is permitted to proceed, no set off would be available.  The claim against Metway would have been subsumed as a claim against the fund of $5,000, whereas the claim by Mr Campbell against it would be fully available to him and other creditors.  Thus the passing of the scheme of arrangement by creditors would confer a particular advantage on all the creditors other than Metway, and a corresponding disadvantage on the one director, namely Metway, brought about particularly by the fact that part of a fund to be made available was a claim against one of the creditors.  This is a significant matter to be weighed in the balance.

The next matter to which reference is made is that there could have been some preferential payments made since the presentation of the petition.  That, of course, is always a possibility and there may have been some minor amounts paid to solicitors for costs.  There is certainly no evidence of any substantial amounts that would be available to creditors from this source.

Then it was said that it was always possible for Mr Campbell to seek a scheme of arrangement after bankruptcy in accordance with s73 of the Act. This of course is obviously so. The advantage, so it is put to me, of this course is that it would enable Mr Campbell's affairs to be examined in a public examination. There is some significance always in such a submission, as the Act is more than merely a means of enforcing payment of debts and the division of assets ratably among creditors. There is a public interest element in bankruptcy and certainly the Court will be astute to ensure that that public interest element is kept in mind.

In this regard reference was made to the fact that there were quite a number of creditors referred to in the statement of affairs which were somewhat old.  Indeed, one or two of them, which were not the subjects of judgments, prima facie appeared to be statute barred.  That, however, is not a matter that I need be concerned with at the moment.  The point argued by counsel for Metway was that Mr Campbell seemed to have adopted a policy of continuing to trade over a long period of time, but not paying off his smaller creditors.

On the other hand, it seems to have been the case that these creditors have not done anything about seeking to recover their debts.  Nevertheless, prima facie a considerable level of insolvency has been reached by Mr Campbell over the years, and he has left behind him a trail of unpaid debts.  There is something to be said certainly for the proposition
that an examination of his affairs and conduct could be in the public interest.
         I do not find the matter one without difficulty.  At the end of the day I am influenced to some extent both by the fact that there is material in the trustee's report which is, in its present form, misleading (for example the salary position of Mr Campbell) and because of the total inability of creditors as the matter stands at the moment, to form any view as to the proceedings in the Supreme Court.  Were the matter to be put to creditors on 7 June, there would be, at the very least, a strong possibility that a composition in the form proposed, particularly as being inconsistent with the authority, would necessarily have to be set aside.

No doubt the matters to which I have adverted can be remedied by adjournment and further material being put before the creditors.  That will produce yet further delay where there is a very substantial creditor of at least 10 per cent of the overall debt which prima facie is entitled to have a petition heard by this Court.

Having regard as well to the prejudice which that creditor would suffer in the event that the scheme of arrangement were successful, a prejudice which would operate to the corresponding advantage of other creditors, it seems to me that it is inappropriate to grant the adjournment sought which I accordingly refuse.
         The decision of the Registrar is therefore set aside.

I certify that this and the
preceding ten (10) pages
are a true copy of the Reasons
for Judgment herein of his Honour
Justice Hill.

Associate:

Date: 

Counsel and Solicitors      J Dupree instructed by

for Debtor:Kenneally & Co

Counsel and Solicitors      J Johnson instructed by

for Petitioning Creditor:    Pigott Stinson Stuart & Thom

Date of Hearing:            4 June 1996

Date Judgment Delivered:         4 June 1996