Re Cummings, J.P. Ex parte Claremont Petroleum Nl

[1993] FCA 351

351       t4Cr3

QDGMENT No. ........ ......,..I .,.,,,,,,,..

IN THE FEDERAL COURT OF AUSTRALIA	)
)

SOUTH AUSTRALIA DISTRICT REGISTRY ) No SP3 of 1993

)

GENERAL DIVISION )

RE :

- JOSEPH PATRICK CUMMINGS
Debtor

EX PARTE:  CLAREMONT PETROLEUM NL
Petitioning Creditor

HILL J	RECEIVED
ADELAIDE
20 MAY 1993	AUSTRALIA
PAINCIPAL REQISTRY

EX TEMPORE REASONS FOR JUDGMENT

The debtor, Joseph Patrick Cummings ("Mr Cummings"),
applies to the Court for an order reconvening a meeting of his

creditors called pursuant to Part X of the Bankruptcy Act 1966

( "the Act" ) and an in junction restraining the petitioning

creditor, Claremont Petroleum NL ("Claremont"), from voting at the reconvened meeting. Mr Cummings also seeks an adjournment of the bankruptcy petition presented against him by Claremont. Claremont is a judgment creditor of Mr Cummings in an amount of at least $475,804.00, the result of a contested hearing before Wilcox J and an appeal to the Full Court of this Court.

over liabilities of $614,715.00, with unsecured creditors of	notice of meeting Mr Cummings disclosed a deficiency of assets
$568,190.00, secured creditors whose debts exceeded the value
of their security of $93,000, property other than book debts of $10,575.00 and book debts said to have a realisable value of $35,900.
In an affidavit read in the present proceedings, Mr Cummings disclosed his belief that there were further unsecured creditors amounting to more than $1,000,000. So the total creditors in hls estate on this basis would amount to $1,791,675.00. At the meeting of creditors Mr Cummings
proposed a composition to his creditors. I accept that the written composition proposed was not what Mr Cummings intended and in this event its drafting left much to be desired.
On its face the composition proposed that a 1990 Mercedes car, said by Mr Cummings to be worth $110,000, be contributed to the composition by a third party and that the proceeds of sale together with the proceeds of realisation of
Mr Cummings' book debts, valued at $35,900.00, be used to pay the trustees' costs and then be paid to Claremont in full
satisfaction of that company's debt. If the trustees' costs be assumed to be, say, $10,000, then on its face Claremont would receive under the composition $135,900.000.
The composition provided that the balance, if any, be pald pro rata to other creditors. Clearly on the face of
this composition there would be no balance distributable among
other creditors. What Mr Cummings said he meant was that after Claremont had been paid, the other property disclosed by Mr Cummings in his statement of affairs and amounting to
$10,575.00 would be divided among his other creditors. On
this basis the other creditors would participate to the extent of an amount slightly less than one cent in the dollar.
The composition as framed was put to the meeting of creditors which failed to pass it as a special resolution. Claremont's opposition ensured this result, indeed it was apparently the only creditor represented at the meeting which opposed the composition. Claremont is a public company whose shares are listed on the stock exchange. According to the evidence none of the directors of Claremont personally has other than nominal shareholdings In Claremont. Claremont owns
65 per cent of the shares in Beach Petroleum NL ("Beach"),
another publicly listed company in which substantially the same persons are directors as are directors in Claremont.
There are, however, two independent directors of each company not directors of the other. Again, the directors of Beach
have only nominal shareholdings in Beach.
Beach has a financial interest in the judgment debt obtained by Claremont against Mr Cummings. Mr Cummings alleges that both Claremont and Beach have deficiencies of liabilities over assets and that each is in a precarious financial position. I make no finding in respect of these matters, but will assume in favour of Mr Cummings that this is so. No meeting of shareholders of either Beach or Claremont has been called to consider whether to vote in favour of the composition. That decision appears to have been taken by the board of Claremont and perhaps of Beach. There is evidence that two of the largest shareholders and/or creditors in Claremont, AGL Finance Pty Limited and Westpac Banking Corporation, support the Claremont board's position.
It is in these circumstances that it is submitted that the creditors should be given a further opportunity to consider the composition, save that this time Claremont should be prevented from voting upon it. The corner stone of Mr Cummings' case is the proposition that the Court has power to supervise creditors so as to ensure that there is fairness as between creditors and fairness as between the creditors and the debtor. In support of this proposition it is said that modern bankruptcy law evinces a pollcy of ensuring the
administration of the debtors' assets in the interests of the creditors generally: Storev v Lane (1981) 147 CLR 549 at 557.
The emphasis is, Mr Cummings says, upon the word "generally".
Then it is said that the judgment of Negus J in & Boller and Groenwald 119641 ALR 942 is authority for the proposition that the Court has a supervisory jurisdiction over schemes of arrangements or compositions which it should exercise here to protect the creditors other than Claremont
from the unfairness brought about by Claremont voting against the composition.
As Riley J observed in Re Patrick Partners: Ex parte Commercial Banking CO of Svdnev Ltd (1976) 10 ALR 71, Boller was decided under the Bankruptcy Act 1924 pursuant to which a creditor could apply to the Court to consider a scheme of arrangement and if this happened the debtor and any creditor could, without notice, be heard in favour of it. The Court could relect or approve a scheme before it became binding and even after a scheme became binding it could be annulled by the Court on certain grounds. It was held in Boller that the Court could, in an appropriate case, direct the Registrar not to accept for filing documents relating to a scheme. One of the grounds for so doing was said to be (at 944) "the power to ensure that a malority of the creditors does nothing unfalr to the minority or to the debtor". It is this passage upon which Mr Cumrnings relies.
The provisions of Part X of the Act differ significantly from those in the 1924 Act. It is unnecessary to set them out here. Suffice it to say that under the present legislation a composition regularly entered into becomes binding on the creditors subject to the right of the creditors to apply to the Court under s.222 to declare a
composition void, under s.239 to apply to the Court to set
aside the composition, inter alia, on the grounds that the
terms of the composition are unreasonable or are not calculated to beneflt the creditors generally, or under s.242 to termlnate the composition.

On 23 February 1993 Mr Cummings signed an authority under s.188(1) of the Act authorising a solicitor, Mr Parr, to call a meeting of his creditors. That meeting was called for 31 March 1993. In his statement of affairs accompanying the

Under the present statutory scheme Riley J in

Patrick Partners refused to apply Re Boller to the facts before him, refraining from making an express comment about the possibility of the exercise by the Court of a supervisory role on the Court's own motion, when asked to give directions to the trustee or the Registrar. It is unnecessary in the present case also to consider the circumstances, if any, where the Court might intervene, for example, to prevent a composition being presented to a meeting of creditors where there is some element of unfairness or oppression in the scheme. In truth the issue does not arise in the present case.

The composition as formulated clearly discriminated against the creditors other than Claremont. Indeed it is

dubious if it may properly be called a composition in respect

of those creditors to whom no consideration at all passed for the release of their debts. Far from the rejection of the scheme disadvantaging these other creditors, as submitted, rejection of it had the opposite consequence. Had the composition been approved it would, on its face, have given no dividend at all to other creditors. Only Claremont would have benefited. The rejection of the scheme may lead to some

dividend to the other creditors in the bankruptcy depending upon the trustee's fees. If all assets have in fact been disclosed by Mr Cummings, then the only loser by the rejection of the composition, would have been Claremont. The act of Claremont in voting against the composition could, therefore, not be said to operate unfairly agalnst the other creditors. There is no reason for the Court to intervene to prevent Claremont disadvantaging itself.

While it is true that the rejection of the composition could operate to disadvantage Mr Cummings in that, if passed, he would not become bankrupt, whereas if the composition be rejected he most likely will, can hardly of itself be sufficient ground to disenfranchise a creditor from voting at a meeting. That is a consequence which the Act itself recognised.

Faced with the difficulty which the terms of the Cummings sought to convert his application to one for the composition as formulated created for his submissions, Mr

adjournment of the petition on the grounds that he desired to present a new composition to his creditors, this time a composition which provided, as Mr Cummings had originally intended, he said, for the division among the creditors other than Claremont of the sum of $10,575 thereby ensuring that those creditors obtained some dividend under the composition, albeit less than one cent in the dollar.

Presumably, this application entailed as well the consequence that an injunction should be granted restraining Claremont from voting against this new composition. I am prepared to assume that Claremont would most likely vote against the composition since it would produce to it no greater dividend than the composition already rejected by it.

It was submitted that the intended composition was commercial. Claremont, it was said, had not disputed the statement of affairs as varied by an affidavit read at the hearing before me and it had not disputed the evidence adduced by Mr Cummings as to its own state of affairs, which Mr Cummings described as "parlous". These matters should thus be taken, said Mr Cummings, to be accepted. Yet in the knowledge that if it accepted the composition it v~ould recover almost 30 cents in the dollar, but it if it rejected it, it might receive nothing, Claremont continued to reject the composition.

Its attitude, described by Mr Cummings as "intransigent", defied, so Mr Cummings said, commercial logic. Its reason for refusing to accept the composition called, Mr Cummings submitted, for an answer to be given and none was. There must, it was asserted, have been some purpose behind the rejection of the composition by Claremont, although Mr Cummings said he was unable to identify what that purpose was. Emphasis was placed on the fact that Claremont was a public

company and that the shareholders of Claremont (or Beach) had not been given the opportunity to debate the composition, although presumably the management of Claremont and/or Beach would be vested in the directors and not in the shareholders. It was said that given the financial situation of Claremont and Beach, neither could afford to reject the composition. So it was said that the motives of the directors of each company in so doing were suspect. They were not, it was alleged, acting in the best interests of the companies of which they were directors. The case, it was said, called out for an answer.

With respect, I think that the matters submitted are barely arguable. Mr Cummings conceded that the evidence in the case fell far short of showing that the presentation of a petition by Claremont or, for that matter, Claremont's opposition to the composition, involved an abuse of process. Rather, it was said that there was some ill-defined middle

however, no authority for such a middle ground. I should ground warranting the intervention of the Court. There is,

point out that even where the doctrine of abuse of process is invoked, the motives of those said to be acting in abuse of process are not, as such, relevant.

If the process provided by law is merely used (no matter how maliciously) there would be no abuse of the process. Compare Dowlinq v The Colonial Mutual Life Assurance

Societv Limited (1915) 20 CLR 509 at 521-2. As the High Court pointed out in Clyne v Deputv Commissioner of Taxation (1984) 154 CLR 589, the distinction is between the mere pursuit of "an ulterior private purpose" which does not warrant intervention and the pursuit of a purpose "foreign to the nature of the process in question" which does.

It is possible to infer that the refusal by Claremont to accept the composition could in part be the legacy of what on paper would seem to be a bitter lltlgation between Claremont, on the one hand, and Mr Fuller and Mr Cummings on the other. But even if that inference should be drawn, that of itself would not avail Mr Cummings. It would be strange if the Court could investigate the motives of creditors voting against compositions and then disenfranchise them where bitterness were found. See, too, Re Morissev: Ex parte Perkins (1899) 24 VLR 776. The onus of showing an abuse of process would, of course, be upon Mr Cummings: Goldsmith v

S~errinas Limited (1977) 2 All ER 566; Williams v S~autz

(1992) 174 CLR 509 at 529. It is a heavy one and not
satisfied here.

I turn then to consider whether in the exercise of discretion I should adjourn the petition to allow a further meeting of creditors to be called. I have, in the case of Re Fuller (unreported, 20 May 1993), set out the principles relevant to a consideration of the adjournment of a petition. While noting that the matters discussed in Field v Commercial Bankinu Company (1978) 22 ALR 403 are not exhaustive, I do not repeat that discussion here. I have come to the conclusion that the petition should not be adjourned. I shall shortly summarise my reasons.

1.	There has been a long history of litigation between the parties for the recovery by Claremont of moneys owing by Mr Cummings. There is no suggestion that Mr Cummings is not indebted to Claremont in the sum claimed or that Mr Cummings has not committed an act of bankruptcy by virtue of the failure by him to comply with a Bankruptcy Notice.
2.	Prima facie, Claremont is entitled to an order for sequestration: Rozenbes v Kronhill (1956) 95 CLR 407 at

414.

3.    On his own admission, Mr Cummings is clearly insolvent.

4.   The debt of Claremont, on the revised figures of Mr Cummlngs', accounts for approximately one-third of Mr Cummings' creditors. Its wishes in the matter are not unimportant.

5.   A composition of sorts has already been submitted to creditors and has failed to achieve the necessary majority. A further composition would be bound to fail

if opposed by Claremont. It clearly would be grossly unfair and unjust to Claremont to prevent it from voting in respect of a new composition.

1. The making of a sequestration order would enable a proper

   investigation of Mr Cummings' affairs to be conducted. A

   composition, if ever passed, would not. It is not to the point that Claremont has not before me attacked Mr Cummings' statement of affairs. The present proceedings would, as Mr Cummings himself conceded, be an inappropriate vehlcle for so doing. Questioning of Mr Cummings at a meeting of creditors would likewise be an inefficient mode of so doing.

2. I acknov~ledge that the present case in this respect is

   somewhat weaker than was the case of Mr Fuller where so- called "b l lnd trusts" overseas called out for Investigation. I take into account also the fact that

the proposed composition, so far as the creditors other than Mr Claremont are concerned, will yleld something

less than one cent in the dollar. In this regard, I refer to the comments of Sheppard J as trial judge, repeated by the Full Court in Lancaster v N Z 1 Capital Corporation (unreported, 11 October 1991) which are as apt in the present case as they were in the case involving Mr Fuller.

I note also that there may be a possibility of assets being brought into the estate by the operation of Part VI, Division 4B of the Act, although there must be some real uncertainty about Mr Cummings' ability to earn money in the event of his bankruptcy. This indeed is a matter I take into account in favour of Mr Cummings. He cannot act as a company director if bankrupt and may practise his chosen profession as a solicitor only with the leave of the Supreme Court of South Australia. The effect upon him of a sequestration order could be considerable.

In these circumstances, however, I would refuse an adjournment of the petition and will now proceed to hear it. Mr Cummings' application is accordingly dismissed and he must pay Claremont's costs of it. These costs will be deemed, in the event that the creditors petition succeeds, to be part of Claremont's costs of that petition.

I certify that this and the

preceding twelve (12) pages
are a true copy of the Reasons
for Judgment herein of his Honour

Mr Justice Hill.

Associate: 7 9 (o\t&ZUlh

Date:

Mr Joseph Patrick Cummings acted for himself

Counsel and Solicitors	RJ Whitington instructed by
for Respondent:	Piper Alderman
Date of Hearing:	20 May 1993