Re de Kantzow, S. Ex Parte de Kantzow, S.
[1992] FCA 196
•31 MARCH 1992
Re: SERGE DE KANTZOW
Ex Parte: SERGE DE KANTZOW and GEOFFREY RALPH JAMES
Nos. 3255 and X172 of 1991
FED No. 196
Bankruptcy
(1992) 107 ALR 219
(1992) 35 FCR 74
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Lockhart J.(1)
CATCHWORDS
Bankruptcy - Bankruptcy Act Pt. X - validity of a second written authority allowing a solicitor to call a meeting of creditors - whether an authority is spent by adjournment - impediments to the issue of a second authority - difference between an authority to a solicitor and to a registered trustee.
Bankruptcy Act 1966 (Cth): ss. 188, 197.
HEARING
SYDNEY
#DATE 31:3:1992
Counsel for the Applicant : Mr R.J. Weber
Solicitors for the Applicant : Henry Davis York
ORDER
By the authority in writing given on 31 March 1992 by Serge de Kantzow and consented to in writing by Geoffrey Ralph James on the same day, the appointment of Geoffrey Ralph James is not rendered invalid by reason of the signing by Serge de Kantzow on 18 September 1991 of an authority in writing to a solicitor to call a meeting of his creditors.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
This is an ex parte application made by Serge de Kantzow and Geoffrey Ralph James for a declaration that, by an authority in writing given on 31 March 1992 by Mr de Kantzow and consented to in writing by Mr James on the same day, Mr James was validly appointed the controlling trustee of the estate of Mr de Kantzow under Part X of the Bankruptcy Act 1966 ("the Act").
The matter has both commenced and been heard to-day on a final basis as a matter of urgency for reasons that will appear from the facts.
On 18 September 1991 Mr de Kantzow signed an authority allowing Mr Newton, a solicitor, to call a meeting of his creditors for the purpose of having his affairs dealt with under Part X of the Act. The solicitor despatched a notice of meeting dated 8 October 1991 which was held at the offices of the solicitors on 23 October 1991. Mr de Kantzow's statement of affairs, prepared for the purposes of the Part X meeting, discloses a somewhat complicated financial position. It is sufficient for present purposes to say that it reveals an estimated deficiency of something in excess of $4 million.
The meeting of creditors held on 23 October was adjourned to 27 November 1991, then adjourned again to 19 February 1992 and 26 February 1992 when it was reconvened. There are minutes of the meeting of creditors as reconvened held on 26 February 1992; but the minutes are not accurate in every respect. There is some conflict in the evidence as to one particular matter, namely, it appears that a resolution was put to the creditors on 26 February to accept a composition of Mr de Kantzow and that it was lost unanimously. The minutes record that the resolution was put to the creditors to accept the composition but it failed for want of a seconder. I am satisfied that the minutes are inaccurate in this repect, but nothing of substance turns on this for present purposes.
The critical resolution passed at the meeting was that the meeting be further adjourned to Friday, 6 March 1992 at 10 am and that Mr de Kantzow arrange for a trustee in bankruptcy to convene that meeting at the office of the trustee elect. The foreshadowed meeting was not held on 6 March or at all because the work that could be done under Part X and put in train by the signing of the authority by Mr de Kantzow to his solicitor on 18 September 1991 was then spent. The creditors of a debtor may resolve on various matters at a meeting called pursuant to an authority under section 188 of Part X. They may resolve, for example, that the debtor's property be no longer subject to control under Division 2 of Part X or require the debtor to execute a deed of assignment or a deed of arrangement under that part, to accept a composition or require the debtor to present a debtor's petition within 7 days from the day on which the resolution is passed (s. 204). None of those events occurred.
It is plain from the evidence that the creditors at the meeting of 26 February, though rejecting the composition as then put forward by Mr de Kantzow, wished to have his affairs placed in the hands of a controlling trustee under Part X so that the trustee could exercise his powers under that part. Those powers are, not only to call a meeting of Mr de Kantzow's creditors, but (pursuant to section 190(2)) to make inquiries and investigations in connection with his property and examinable affairs as considered necessary so that at the future meeting of creditors they would be properly informed by an independent registered trustee about Mr de Kantzow's property and would then be in a position to make an informed decision.
Accordingly, on 31 March 1991 Mr de Kantzow signed an authority under section 188 of the Act authorising Mr James, a Registered Trustee in bankruptcy, to call a meeting of his creditors for the purposes of Part X and to take over control of his property in accordance with that part. Mr James consented to act as the controlling trustee. Mr James is a partner in the firm of Messrs Ernst and Young, Chartered Accountants, as well as being a registered trustee under the Act.
A petition in bankruptcy has been issued against Mr de Kantzow by a creditor, Yasuda Trust Australia Limited, which is due to come before the Court for hearing on 30 April 1992. I note that this creditor was present at the relevant meetings of creditors of Mr de Kantzow held under Part X on 23 October 1991.
The question before the Court is whether it was permissible for Mr de Kantzow to give the second authority under Part X of the Act to Mr James. Part X is a statutory provision with a long history in previous legislation of Australia and the United Kingdom, designed to enable the property of debtors to be dealt with for the benefit of creditors in an insolvency short of bankruptcy.
It makes provision for deeds of arrangement, deeds of assignment and compositions with respect to the administration of the affairs of an insolvent debtor. But these various administrations are preceded by the holdings of meetings of creditors for the purpose of enabling them to determine the course to be taken with respect to the debtor and his property.
Section 188 is the section which triggers Part X; and it enables a debtor, who desires that his affairs be dealt with under Part X, without his estate being sequestrated, to sign an authority in accordance with the prescribed form, either authorising a registered trustee to call a meeting of his creditors and to take over the control of his property or authorising a solicitor to call a meeting of his creditors. Part X then makes provision for the holding of the meeting and the presentation to creditors of documents which reveal the financial affairs of the debtor.
There is a marked difference between an authority given by a debtor to a registered trustee and one to a solicitor. The authority to the solicitor is simply to call a meeting of his creditors. The solicitor is not given authority to control the property of the debtor. No one is in control of the debtor's property except himself during the currency of a section 188 authority to a solicitor to call a meeting.
When a registered trustee is appointed by a debtor to call a meeting of his creditors, the property of the debtor automatically becomes subject to control under Division 2 of Part X and continues to be so subject until one of the six events specified in s. 189(1) of the Act occurs. Unless and until one of those events occurs, the registered trustee continues to remain the registered trustee and to be in control of the debtor's property.
What happened in this case was that a solicitor was authorised to call a meeting of the creditors of Mr de Kantzow; but, although the meeting was adjourned from time to time (s. 197), the creditors did not pass any of the special resolutions for which section 204 makes provision and to which I have already referred.
At the conclusion of that meeting the result was that no one was in control of Mr de Kantzow's affairs except himself, nor had anyone else been in control before that Mr de Kantzow was therefore free if he wished to invoke again the procedure for which section 188 makes provision, that is, to call another meeting of his creditors by appointing either a solicitor or a registered trustee. He in fact chose the latter because it was plain from the resolution of the creditors that this was the course they preferred him to follow.
I see nothing in the Act, in general, or Part X in particular, either in its language or spirit, which would operate to prevent a debtor in these circumstances signing a second authority to a solicitor or a registered trustee pursuant to s. 188. Indeed, the section should be construed quite the contrary. It would be odd if, faced with the facts of this case, a debtor was not entitled to invoke again the procedure of section 188 when it is plain his creditors wished him to do so and plain that detriment had not been sustained in the meantime to his creditors. This conclusion is supported by the fact that Part X is an enabling provision designed in appropriate cases to allow the administration of the affairs of insolvent persons without bankruptcy.
This is a different question from the question whether only one meeting and not a plurality of meetings can be called by a debtor pursuant to the one authority given under s. 188. Unaided by authority it would be plain that this could not be done, but it is clear from the judgment of a Full Court of this Court in Pretorius v Daltons Carpet Tiles Pty Limited (1984) 1 FCR 346, especially at 351 and 352, that this is the law in this country. Nothing said by the Full Court in Pretorius touches the question presently before the Court.
In their reasons for judgment the members of the Full Court referred to the decision of Re Amadio, (1978) 46 FLR 147, a judgment of Judge Rogerson of the Court of Insolvency of South Australia. Their Honours said at 352:
"In any event, in the present case only one
authority under section 188 was signed and it is clear from its terms that it authorised only one meeting to be called (cf. Re Amadio (1978) 46
FLR 147 and 151-154)."
In Re Amadio, Judge Rogerson said, as obiter dictum, that a debtor could not in the absence of special circumstances validly give more than one authority to a solicitor pursuant to Part X of the act for the holding of a meeting of creditors.
I need not refer to the process of reasoning which led his Honour to reach that conclusion. The facts of Re Amadio were very different to those of the present case. They involved the giving by the debtor of three different authorities in favour of two different solicitors purporting to authorize them to hold three meetings a little over two months apart in circumstances which were curious to say the least.
A reading of his Honour's judgment makes it plain that it is distinguishable from the present case. But if I be wrong, and if his Honour's judgment is authority for the proposition that a debtor cannot give more than one authority pursuant to Part X of the Act for the holding of a meeting of his creditors, I respectfully disagree with him.
I should add that Re Amadio has been subsequently followed, though on a different point, by Spender J. of this Court in Forshaw v Sent, unreported 19 February 1992, but disapproved of by another Judge of this Court (Beaumont J.) in Zantiotis v Andrew (1987) 80 ALR 23 at 26, again on a point different from the one involved in the present case. Spender J. was not referred to Beaumont J.'s judgment in Zantiotis.
Before parting with the matter, I will return to something I said a little earlier, namely, there is a substantial difference under Division 2 of Part X between the case where a debtor signs an authority authorising a registered trustee to call a meeting of his creditors and an authority authorising a solicitor to call a meeting of his creditors. I have already referred to the essential differences and I have also referred to the fact that under s. 189 the property of a debtor remains subject to the control of the registered trustee until one of the six events occurs specified in that section. If none of them does occur then the property remains subject to the control of the registered trustee. So that if, in the present case, for example, it had been a registered trustee who was in control of Mr de Kantzow's affairs and a resolution of the kind that was in fact passed, had been passed on 26 February, then the trustee would still remain in control of Mr de Kantzow's property, and there would be no need for a further authority. In such a case, there could not be more than the one meeting of creditors held pursuant to the one authority for the reasons given in Re Pretorius.
Mr James seeks the declaration mentioned in the application (or an appropriate modification of it) to remove of any doubt, following Re Amadio, that may surround the validity of the authority of 31 March. In my view it is proper that this doubt be removed.
Accordingly, the Court declares that by the authority in writing given on 31 March 1992 by Serge de Kantzow and consented to in writing by Geoffrey Ralph James on the same day, the appointment of Geoffrey Ralph James is not rendered invalid by reason of the signing by Serge de Kantzow on 18 September 1991 of an authority in writing to a solicitor to call a meeting of his creditors.
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