Re Dennis, Bruce Maxwell Ex parte Roberts Ltd
[1995] FCA 1051
•14 NOVEMBER 1995
CATCHWORDS
BANKRUPTCY - arrangements with creditors without sequestration - grounds for setting aside a composition - effective service of a notice of meeting of creditors - requirements of s 194(1)(b) Bankruptcy Act 1966 - whether service required at registered office or business address - requirement of s 189A(3) of Bankruptcy Act 1966 - trustee's report showing greater dividend if sequestration order made - whether best interests of debtor's creditors satisfied - whether "trivial" dividend
Re Segal (1975) 45 FLR 85
Bankruptcy Act 1966 (Cth) ss 222, 239 and 242.
Re: Bruce Maxwell Dennis; Ex parte: Roberts Limited
(No. TX 17 of 1995)
Judge: Heerey J
Date: 14 November 1995
Place: Hobart
IN THE FEDERAL COURT OF AUSTRALIA )
)
GENERAL DIVISION )
) No. TX17 of 1995
BANKRUPTCY DISTRICT OF TASMANIA )
RE: BRUCE MAXWELL DENNIS
EX PARTE: ROBERTS LIMITED
JUDGE: Heerey J
DATE: 14 November 1995
PLACE: Hobart
MINUTE OF ORDERS
Application dismissed [Order for costs, including reserved costs, as per judgment]
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA )
)
GENERAL DIVISION )
) No. TX17 of 1995
BANKRUPTCY DISTRICT OF TASMANIA )
RE: BRUCE MAXWELL DENNIS
EX PARTE: ROBERTS LIMITED
JUDGE: Heerey J
DATE: 14 November 1995
PLACE: Hobart
REASONS FOR JUDGMENT
On 22 September 1995 Mr Bruce Maxwell Dennis (the debtor) entered into a composition under which his unsecured creditors accepted $15,000 in full and final satisfaction of all their debts. The applicant Roberts Limited, an unsecured creditor, seeks to set aside that composition under ss 222, 239 and 242 of the Bankruptcy Act 1966 (Cth) (the Act). The arguments relied on are, first, that there was doubt on a specific ground whether the composition had been accepted by a special resolution of a meeting of creditors, the ground being that the applicant had not been given adequate notice of the meeting at which the composition was approved; secondly, that the composition is unreasonable and not calculated to benefit the creditors generally.
The applicant's debt was not a trade debt, but arose from an order for costs made in the Supreme Court of Tasmania. The debtor owned a property on Flinders Island and engaged the applicant as agent for its sale. A contract with a potential purchaser was entered into, but the sale fell through. The debtor claimed that the applicant had been negligent and contravened the Trade Practices Act. The trial took place over six days in February 1994 before Cox J, as the learned Chief Justice of Tasmania then was. On 18 February 1994 his Honour gave judgment for $500 only in favour of the debtor and ordered that the debtor pay the applicant's costs. The costs were subsequently taxed in the amount of $45,490.68.
On 6 July 1995 the applicant procured the issue of a bankruptcy notice. It was served on the debtor on 19 July. The notice specified as the address of the applicant its registered office, which is at 2 Collins Street, Hobart. The applicant, a long-established stock and station agent in Tasmania, has also for many years carried on business at 15 St John Street, Launceston in premises which cover almost an entire city block. It was at the Launceston office that the debtor retained the applicant to act on the sale of his property.
On 22 August the debtor signed an authority under s 188(1) of the Act authorising Mr Andrew Richard Crawford, a chartered accountant of Launceston, to call a meeting of his creditors. Mr Crawford convened a meeting to be held at the Great Northern Hotel, 3 Earl Street, Launceston, on Friday 22 September 1995 at 10.30 am. On 5 September an employee of Mr Crawford sent by pre-paid post to each of the creditors of the debtor whose identity had been advised to Mr Crawford a notice of the meeting together with the report of the controlling trustee under s 189A and the debtor's statement of affairs. The applicant was one of the creditors. The documents were sent to it at 15 St John Street, Launceston.
When the documents arrived at the Launceston office of the applicant they came to the attention of Mr Tim Morrison, who is the applicant's rural finance manager at Launceston. Because the debtor's debt was not a trade debt the documents did not fall readily to be dealt with by any routine system. Mr Morrison finally sent the documents to the applicant's general manager rural finance in Hobart, Mr Anthony Roberts. But this did not happen until about 13 September.
Mr Roberts passed the matter on to the applicant's company secretary, Mr Ian Sandercock, who had instructed the applicant's solicitors in connection with the litigation. Mr Sandercock then sent the documents to Page Seager, the applicant's Hobart solicitors. An employee solicitor of Page Seager, Mr Steven Latham, sent the documents by post to Minter Ellison in Melbourne. That firm were acting for the applicant's insurers in the litigation. On 21 September at 3.13 pm Minter Ellison sent a fax to Page Seager advising that they had sought their client's instructions and had
... obtained their instructions that we should proceed with the bankruptcy of the debtor. In particular our client is not prepared to accept the proposed composition suggested by the debtor.
That fax did not come to the attention of Mr Latham until the
afternoon of 22 September, by which time the meeting had already been held.
Turning now to the proposal put to the creditors, it appeared from the controlling trustee's report that the debtor's income for the 1994 tax year consisted of a taxable distribution from a business operated together with his wife amounting to $4490, and other employment earnings not specified of approximately $12,000. The assets of the debtor totalled $39,000, the main component of which was net equity in real estate, $32,000. That real estate is a property called Jessen Lodge at Longford, which the debtor and his wife operate as a reception house. After the deduction of various costs and fees, unsecured creditors, who total $126,196, would receive an estimated distribution of 24 cents in the dollar in a bankruptcy. On the basis of the proposed composition unsecured creditors would receive 9 cents in the dollar. Mr Crawford concluded his report in these terms:
It should be noted that a distribution by way of composition should provide a quicker return to creditors. The dividend under bankruptcy depends largely on realisation of the debtor's interest in the property, Jessen Lodge, and the time-frame in which this could be achieved. Having considered the matters set out above and assuming there is no relevant information regarding the debtor's affairs of which I am currently not aware, it is my opinion that bankruptcy may provide a greater return to creditors.
There may be doubt as to whether the controlling trustee's report satisfied s 189A(3) which required him to state whether or not in his opinion it would be in the best interests of the debtor's creditors to deal under Part X with the debtor's affairs. However, insofar as he did express an opinion, it seems to have
been against acceptance of the composition.
At the meeting creditors for $61,000 (97 per cent) voted in favour of the composition and the creditors for $1900 (3 per cent) against. Accordingly the special resolution was carried. Apart from one loan creditor, the only unsecured creditors listed in the statement of affairs were creditors whose debts arose out of the litigation against the applicant, namely the debtor's counsel, solicitors, accountants and valuers and the applicant itself.
The applicant contended that the meeting of creditors was not, as is required by s 194(1)(b), held
...not earlier than 14 days after the notices to creditors are delivered or sent by post under subsection (2).
Subsection (2) provides:
The controlling trustee or solicitor calling the meeting shall give to each person who is stated by the debtor to be a creditor and whose business or residential address is known to the trustee or solicitor notice of the meeting by delivering or sending by post to that person a notice in accordance with the prescribed form.
Counsel for the applicant accepted that if sending the notice of meeting by post to the applicant's office in Launceston was permissible, then service had occurred sufficiently early to meet the requirements of the Act. However, he argued that in the circumstances the trustee was required to send the notice to the registered office of the applicant. I do not accept that submission. The clear words of s 194(2) contemplate that the
notice is to be sent to a business address known to the trustee, which need not necessarily be the registered office of a company which is a creditor.
I think I can infer that the trustee, an accountant practising in Launceston, would know that a business address of the applicant was 15 St John Street, Launceston. Rule 123 of the Bankruptcy Rules does not affect the matter, since that provision is enabling only, and in any event the specific provisions of s 194(2) would prevail over any general provision. I do not see how the specification by the applicant of its registered office in Hobart in the bankruptcy notice can have any effect on the proper construction of s 194(2).
The comment can be made that in many instances service on a business address would be more likely to bring a notice to the attention of a creditor than would service on a registered office, which is often at the office of a solicitor or accountant. And in the present case the litigation which gave rise to the applicant's debt was connected with the business carried on by the applicant at its Launceston office and had nothing to do with the Hobart office.
Counsel then argued for the purposes of ss 239 and 242, that because the unsecured creditors would obtain less than on a bankruptcy, the composition was unreasonable and not calculated to benefit the creditors generally.
It is well established that the Court should not substitute its judgment for the commercial judgment of the creditors: Re Segal (1975) 45 FLR 85 at 95. It seems to me that the decision made by the creditors at the meeting made was one which was well open to them. While it is true the proposed dividend was less than that which on the surface might have been expected on a bankruptcy, the creditors were entitled to have regard to the advantage of the bird in hand as opposed to the two in the bush. The supposed return in a bankruptcy would depend on the sale of a property already encumbered with substantial secured debts. There was no valuation of the property submitted to the meeting, but there was no statutory requirement for that to be done. The creditors could well have had regard to the inherent unpredictability of a forced sale of real estate, particularly real estate on which a business is carried on, and no doubt applied their own knowledge of local business conditions at the time.
I do not think that the proposed dividend was "trivial" in the sense that term is sometimes used in relation to Part X arrangements where dividends of a minute fraction of a cent have been proposed in recent times. I do not see that it is in the interests of the creditors who attended this meeting and voted for the composition, or the public, to set aside this composition. It can be inferred, I think, that the business of the reception house is paying its debts as they fall due. There do not seem to be any trade creditors from that business who were involved, and there is something to be said for not interfering with the viability of that business.
While it is true, as a matter of arithmetic, that had the applicant attended at the meeting it would have had sufficient voting strength to defeat the special resolution for the acceptance of the composition, its failure to do so was entirely due to mishandling of this matter by itself and its solicitors. None of those errors can be laid at the feet of the debtor. It would be quite unfair and unreasonable in my opinion to take those matters into account as a ground for exercising the discretion to set aside the composition. The application will be dismissed.
I order that the applicant Roberts Limited pay the costs of the debtor, Bruce Maxwell Dennis, Mrs E.L. Dennis, and the trustee, Mr Andrew Richard Crawford.
I certify that this and the preceding seven (7) pages are a true copy of the reasons for judgment of his Honour Mr Justice Heerey.
Dated:
Associate
Appearances
Counsel for the applicant: Mr A Spence
Solicitor for the applicant: Zeeman Cable & Page
Counsel for the respondent: Mr S B McIlwaine
Solicitor for the respondent: Page Seager
Date of hearing: 14 November 1995
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