Re: Derrick Gordon Powell and Edwina Jane Powell Ex Parte: Norman Arthur Dorsett 1990 FCA 457

[1990] FCA 457

Re: DERRICK GORDON POWELL and EDWINA JANE POWELL
Ex Parte: NORMAN ARTHUR DORSETT
No. B16 of 1990
FED No. 457
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
GENERAL DIVISION
French J.(1)

CATCHWORDS

Bankruptcy - creditors petition - late deed of arrangement proposed - no meeting of creditors or resolution - discretion to decline sequestration order - possibility of composition proposal after order - sequestration order made.

Bankruptcy Act 1966 s.188, s.52, s.73

HEARING

PERTH

#DATE 14:8:1990

Mr D.G. Powell appeared on behalf of the Debtors.

Counsel for the respondent: Mr G. Chitty

Solicitors for the respondent: Kay and Lafferty

ORDER

A sequestration order is made against the estate of the debtors.

The costs of the petition, save for the costs of the previous appearance, will be taxed and paid out of the estate.

Note: Settlement and entry of orders is dealt with in Order 36 of the Bankruptcy Rules.

JUDGE1

This is a petition by Norman Arthur Dorsett by which he seeks sequestration orders against Derrick Gordon Powell and Edwina Jane Powell. The petition is founded upon an act of bankruptcy constituted by the Powells' failure to comply with the requirements of a bankruptcy notice issued on 16 January 1990 and served on 7 February. The question of the sufficiency of an affidavit filed on 19 February in answer to the bankruptcy notice has already been dealt with in reasons for judgment delivered on 10 August 1990 when I declined to interfere with the Deputy Registrar's decision that the affidavit did not, on the face of it, disclose a counter-claim, set off or cross demand exceeding the sum specified in the notice which could not have been set up in the action in which judgment was obtained. I will not retrace the factual background which is set out in those reasons. But for substantially those reasons, I do not propose to go behind the judgment debt on which the petition and notice were founded. The petition has been verified and affidavits of search and continuing debt filed which comply with r.20(1). The affidavit of debt was sworn on 13 August but given that the judgment creditor resides in Bunbury I am satisfied that that was done as soon as practicable before the hearing of the petition. The hearing of the petition having been set down for 9 o'clock this morning, I am satisfied that the search having been done late yesterday afternoon was carried out as soon as practicable before the hearing of the petition.

1. When the matter came on for hearing this morning, Mr Powell advised that he and his wife jointly and in their separate capacities had signed authorities under s.188 of the Bankruptcy Act 1966 authorising a registered trustee, Miss D. Newman, of Bird Cameron, Chartered Accountants to take over control of their estates in accordance with Part X of the Act. Forming part of the same document that constituted the authority was a written consent signed in each case by Miss Newman and witnessed by a Commissioner for Declarations. Also produced to me were statements of the debtors' affairs that had been made available to Miss Newman before the authority was signed and statements of proposals put by the debtors as to how their affairs should be dealt with under Part X of the Act. On the face of it it would seem that the authorities were, in the terms of sub-s.188(2) of the Act, effective for the purposes of Part X. The proposal which the Powells put up jointly and also in relation to their separate estates involves a deed of arrangement with the following elements:
   1. They will pay cash for all goods and services and
   

not incur any credit during the term of the deed of arrangement.

2. That they will pay to the trustee appointed such

funds as necessary to pay all creditors who lodge satisfactory proofs of debt 100 cents in the dollar plus sufficient funds to pay all administration costs including the trustee's remuneration and legal expenses out of funds received from any settlement with the Public Works Department and/or the Water Authority of Western Australia.

3. That the payment of funds detailed under point 2

will be effective within 28 days of receipt of funds from the Public Works Department and/or the Water Authority of Western Australia.

4. That if receipt of the funds from the Public Works

Department and/or the Water Authority of Western Australia to pay creditors and administration costs as outlined under point 2 is insufficient to result in 100 cents in the dollar being paid to the creditors, the balance will be paid within 12 months from the Powells' respective earnings or by way of assistance from their family members.

5. That payment of creditors will be in accordance

with s.109 of the Bankruptcy Act.

The settlement with the Public Works Department and the Water Authority of Western Australia referred to in paragraph 2 of the proposal relates to litigation between the Powells and the State Government effectively involving the Public Works Department and its relevant successor, The Water Authority of Western Australia. The litigation arises out of a contract for the sale of the Powells' farm to the Government in 1982. A letter dated 31 May 1982 which was put in evidence by Mr Powell, indicated that it was agreed that the vendors would receive a purchase price of $1 million, payment of $900,000 of which would be made on 15 July 1982 and the balance of $100,000 on 1 February 1983. They were to have rent free occupancy to 31 January 1983 and para (c) of the letter then provided:

"In the event that the subject land or a portion that has some utility, is available for lease from February 1 1983 then the vendor shall receive first consideration at a lease rental to be fixed by the Valuer-General."

Mr Powell has told the court that a written contract of sale was entered into. That was unavailable today, but I am informed it embodied a clause which he regarded as effectively giving him a first right of refusal in the event that the Crown decided to lease that land after 1 February 1983. In the event, according to Mr Powell, contrary to the arrangement and indeed to the provisions of the agreement, the land was leased not to he and his wife but to a neighbouring farmer, a Mr Gibbs. As a result, he says, he had to remove stock from the property, he sustained a loss from the sale of the stock and losses of income by not being able to continue farming for an anticipated period of five years.

1. I cannot comment on the merit of the claim that has been brought arising out of that matter. There are insufficient facts and it is not my function in any event to enquire into those merits. I do note however that as recently as March of this year there were settlement discussions on foot in relation to the claim. It has, it seems, languished in the Supreme Court since 1983. There have been difficulties with a change of solicitors and with legal aid which, although granted at one stage was subsequently withdrawn. Mr Powell produced in evidence a memorandum, a copy of which had been made available to him, from the managing director of the Water Authority to the Minister for Water Resources in which it was said:
   

"It would appear that D G and E J Powell may be able to establish that a breach of Clause 8 of the Contract of Sale occurred by the Public Works Department not offering to lease back portion of the claimants' property to the claimants from February 1, 1983.

What is strongly denied is the quantum of the claim at $320 000."

The memorandum went on to propose that in an attempt to resolve the matter a meeting should be arranged by the Minister's office between the Powells and a Mr Kikiros, who was the Supervising Engineer, Catchment Clearing Controls of the Authority and who was said to be conversant with the case. Mr Powell told the court that that meeting subsequently took place, that the question of quantum is still unresolved but that he is reasonably hopeful that some settlement may be achieved. In the meantime the action in the Supreme Court is proceeding although not with the assistance of any legal representation. He has filed an amended statement of claim to assert that he and his wife were entitled to and expected a five year lease arrangement under the terms of the contract of sale and the agreements surrounding it. And it is the resolution of that claim that is referred to in the statement of debtor's proposal which has been put up to the trustee under s.188.

1. The contention then is that the Court should not accede to the petition on the basis that the creditors will have a much greater prospect of recovering some portion if not all of their outstanding debts by virtue of the proposed arrangement whereas under a bankruptcy administration they would have very little prospect of getting anything. And it is essentially on that basis that he invites the Court to exercise a discretion not to accede to the petition.

2. Section 52 of the Act provides that the Court may dismiss a petition if it is not satisfied with the proof of the matters stated in the petition. I have indicated that I am already satisfied with the proof of those matters. Alternatively, the Court may dismiss the petition if it is satisfied by the debtor (a) that he is able to pay his debts; or (b) that for other sufficient causes a sequestration order ought not to be made. I am not satisfied in the relevant sense the Powells are able to pay their debts at the present time. The question then is whether there has been shown other sufficient cause why a sequestration order ought not to be made. In my opinion the rather late advent of the Part X proposal does not constitute sufficient cause why a sequestration order ought not to be made and would certainly not constitute grounds for dismissing the petition. There is an act of bankruptcy, the debt remains unpaid and the petitioner has the right to proceed. There is of course a residual discretion that I have to either stay proceedings under a sequestration order or to adjourn the petition. Section 206 of the Act also allows for adjournment of the hearing of a petition in certain circumstances where there are parallel Part X proceedings. In the relevant parts that section provides:
   

"Where -

(a) a meeting of creditors has, in accordance with this Part, passed a special resolution requiring a debtor to execute a deed of assignment or a deed of arrangement under this Part; and

(b) a creditor's petition was presented against the debtor before the passing of the resolution or is presented against him after the passing of the resolution but before the deed has been duly executed, the Court may, upon application by the debtor, a creditor or a person nominated as trustee of the proposed deed, if it appears to the Court that it would be for the advantage of the creditors that the debtor's affairs be administered under the deed, adjourn the hearing of the petition for such period as it considers necessary to allow the deed to be executed, and if the deed is duly executed within that period, shall dismiss the petition."

The difficulty is that the pre-conditions for the exercise of the discretion to adjourn a petition have not been met. A meeting of creditors has not passed any special resolution requiring the Powells to execute a deed of assignment or a deed of arrangement under Part X. It would be inappropriate in this case to fall back on the general discretion under s.52(c) simply on the basis that the creditors might pass a special resolution under s.206 if the Part X arrangements go ahead. In that connection I bear in mind the provisions of s.73 of the Act which allow that even where a sequestration order has been made it is possible for the the bankrupt to make a proposal to creditors for a composition in satisfaction of the debts or a scheme of arrangement of their affairs and I quote the relevant provision:

"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."

Sub-section (5) is not relevant for present purposes. Under s.74 the bankrupt or his trustee may apply to the Court for approval of a composition or scheme of arrangement which has been accepted by the creditors and the Court has a discretion to approve or refuse to approve a composition or a scheme of arrangement. Where it does so it may then make an order annulling the bankruptcy. The making of a sequestration order is not necessarily the end of the road so far as the possibility of a composition or arrangement with the creditors is concerned. In all the circumstances it seems to me that there really is no proper basis upon which I should adjourn this petition any further. I think the sequestration orders should be made and that if the Powells can persuade their creditors that they have a workable arrangement in the terms set out in their debtors' proposal then they should work through the trustee to arrange immediately a meeting of creditors under s.73. If that meeting accepts their proposal they can then approach the Court for the bankruptcy to be annulled. In the circumstances I propose to make the orders sought.