Re Elliott, A.P.

Re: ALLEN PHILLIP ELLIOTT
Ex Parte: RESOURCE ALLOCATION MANAGEMENT PTY LTD and PHILIP GREGORY JEFFERSON
Nos. Q P2901 and QX184 of 1991
FED No. 230
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
GENERAL DIVISION
Spender J.(1)

CATCHWORDS

Bankruptcy - deed of arrangement under Part X - application by trustee - declaration that resolution appointing trustee of deed of arrangement not void - admitted non-compliance with requirements of s. 215A(1)(c) and (d) - omissions an oversight - no prejudice to creditors by virtue of omissions - requirements not merely nominal - other matters alleged in concurrent creditor's application for declaration that deed of arrangement void considered.

Bankruptcy - deed of arrangement under Part X - application by creditor for declaration that deed of arrangement void - admitted non-compliance with s. 215A(1)(c) and (d) - chairman's admission of proofs of debt - misstatement in statement of affairs not affecting passing of resolution - likely return to creditors a small proportion of amount owed - Court not satisfied that setting aside deed of arrangement was in the interest of creditors.

Bankruptcy Act 1966 ss. 188, 213, 215A, 222, 236.

HEARING

BRISBANE

#DATE 10:3:1992

No. QP2901 of 1991

Counsel for the applicant: Mr J Logan

Instructed by: McLaughlin, Gordon and Lennon

Counsel for the first respondent: Mr A J H Morris

Instructed by: Elliott and Harvey

Counsel for the second respondent: Mr D Andrews

Instructed by: Bayliss Rodgers

No. QX184 of 1991

Counsel for the applicant: Mr D Andrews

Instructed by: Bayliss Rodgers

Counsel for the first respondent: Mr A J H Morris

Instructed by: Elliott and Harvey

Counsel for the second respondent: Mr J Logan

Instructed by: McLaughlin Gordon and Lennon

ORDER

No. Q P2901

The relief sought in the application by Resource Allocation and Management Pty Ltd is refused.

The applicant to pay the costs of Mr Elliott, to be taxed if not agreed.

Otherwise, no order as to costs.

No. Q X184
The resolution of the creditors of Allen Phillip Elliott passed at a meeting of his creditors on 11 December 1991 which purported to appoint Philip Gregory Jefferson to be trustee of the deed of arrangement of Allen Phillip Elliott of that date, not be void merely because: (a) in contravention of s. 215A(1)(c)(ii) of the Bankruptcy Act 1966, before the meeting, Philip Gregory Jefferson had not made a declaration in writing containing the prescribed information about his professional, business, and personal relationships and connections, if any, with Allen Phillip Elliott, and with the creditors who proposed the resolution; (b) before the resolution was voted upon by the creditors the consent prescribed by s. 215A(1)(c)(i) of the Bankruptcy Act 1966 had not been submitted to the meeting; and (c) before the resolution was voted upon, the declaration prescribed by s. 215A(1)(c)(ii) of the Bankruptcy Act 1966 (i) had not been submitted to the meeting and (ii) there was no reasonable opportunity for persons entitled to vote on the resolution to inspect the declaration.

The costs of and incidental to the application, other than the costs of the application and the preparation of affidavits incidental to the application, be costs in the administration of the deed of arrangement.

Otherwise, no order as to costs.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

There are two applications with which I am presently concerned: the first is by Phillip Gregory Jefferson who seeks a declaration pursuant to s. 215A(2) of the Bankruptcy Act 1966 ('the Act') that the resolution of creditors of Allen Phillip Elliott, passed at a meeting of creditors on 11 December 1991, which purported to nominate Mr Jefferson to be trustee of the deed of arrangement of Mr Elliott of that date not be void merely because:

(a) before the meeting, Mr Jefferson had not made a declaration

in writing containing the prescribed information about his professional business and personal relationships and connections (if any) with Mr Elliott and with the creditors who proposed the resolution in contravention of s. 215A(1)(c)(ii) of the Bankruptcy Act 1966;

(b) before the resolution was voted upon by the creditors, the

consent prescribed by s.215A(1)(c)(i) of the Bankruptcy Act had not been submitted to the meeting; and

(c) before the resolution was voted upon, the declaration

prescribed by s. 215A(1)(c)(ii) of the Bankruptcy Act had not been submitted to the meeting.

The trustee also seeks that the costs incidental to that application be declared proper costs of the trustee of and incidental to the administration of the deed of arrangement entered into by Mr Elliott on 11 December 1991.
The second application is made on behalf of a creditor of Mr Elliott, Resource Allocation and Management Pty Ltd, which seeks a declaration declaring void pursuant to s. 222 of the Act a deed of arrangement between Mr Elliott and Mr Jefferson as trustee and dated 11 December 1991. The grounds on which that declaration is sought are as follows:

" 1. The deed was not entered into in accordance with or alternatively did not comply with the requirements of Part X of the Act, in that:-

(a) the Chairman of the meeting of the Respondent's creditors held on 11 December, 1991 admitted the proof of debt lodged by Honeymoon Hotels of Australia Pty Ltd, and allowed that company to vote in an amount of $142,206.00, when in fact if the debtor owed money to that company the amount owed ought to have been reduced by an amount of $78,000.00 being an amount owed by that company to the debtor.

(b) the resolution appointing Phillip Gregory Jefferson to be the trustee is void by reason of a non-compliance with the requirements of Sec. 215A(1)(c) and (d) of the Act. "

The second ground is that the debtor included incorrect material particulars in his statement of affairs pursuant to s. 188(2) of the Act in that -

" (a) the amounts alleged to be owed to -

(i) H.L.B. Investments Pty Ltd;

(ii) Barclays Investments Pty Ltd;

(iii) Prudential Finance Ltd. (now Metway Leasing Ltd);

(iv) Sheraton Finance Ltd;

(v) Caroline Properties Pty Ltd;

(vi) Strand Finance Pty Ltd;

(vii) Resource Allocation and Management Pty Ltd;

were described therein as contingent liabilities; and

(b) the amount claimed to be owed to K. and J. Carey was described therein as a secured debt.

The third ground is that the debtor omitted material particulars from his statement of affairs pursuant to s. 188(2) of the Act in that he failed to disclose a debt in the sum of $18,530.47 claimed to be owed to D.C. Brown.
Resource Allocation and Management Pty Ltd, also seeks an order pursuant to s. 236 of the Act terminating the deed of arrangement on the ground that:

" The resolution passed at the meeting of the debtor's creditor was passed as a special resolution with the support

of -

(a) the debtor's ex-wife;

(b) the debtor's partner;

(c) Metway Leasing Ltd who, whilst an unsecured creditor in the debtor's estate held real property mortgages which fully secured its debt;

(d) Sheraton Finance Pty Ltd, Strand Finance Pty Ltd and Honeymoon Hotels of Australia Pty Ltd, all companies controlled by or associated with, the debtor. "

The second ground of the order sought pursuant to s. 236 was that the likely return to creditors of the debt or are so small as to be derisory.
The third ground was that in the premises, the deed cannot be proceeded without injustice to the creditors; or, alternatively, the resolution is oppressive to the creditors. In the further alternative, it is submitted that the matters set out above constitute sufficient other reason for terminating the deed.
The application also seeks a declaration that the resolution appointing Mr Jefferson to be trustee of the deed is void pursuant to s. 215A(1) of the Act by reason of the failure to comply with s. 215A(1)(c) and (d).
The creditor seeks that a sequestration order be made against the estate of the debtor on the petition by Resource Allocation and Management Pty Ltd, being Petition No. 2901 of 1991.
That petition, which was presented on 19 November 1991, is based on a judgment in the sum of $116,526.03 obtained in the District Court of Queensland held at Southport on 13 September 1991, and the act of bankruptcy which founds the petition is the failure to comply with the bankruptcy notice served on Mr Elliott on 16 October 1991 or to satisfy the Court that he had a counter claim, set-off or cross-demand equal to or exceeding the judgment sum.
The relevant statutory provisions are to be found in Division 3 of Part X of the Bankruptcy Act. Under s. 213(1):

" Subject to this Part, a deed of assignment or a deed of arrangement executed by a debtor after commencement of this Act is void unless -

(a) it is entered into in accordance with this Part; and

(b) it complies with the requirements of this Part. Section 215A(1) provides:

" A resolution that is passed at a meeting of creditors and purports to:

(a) nominate a person or persons under subsection 204(4) to be trustee or trustees; or

(b) appoint a person under subsection 220(1) to a vacant office of trustee;

of a deed of assignment, deed of arrangement or composition is void unless:

(c) before the meeting, that person, or each of those persons, as the case may be:

(i) consented in writing, in the prescribed form, to act as a trustee of the deed or composition; and

(ii) made a declaration in writing containing the prescribed information about the person's professional, business and personal relationships and connections (if any) with the debtor, and with the creditor or creditors who proposed the resolution, respectively; and

(d) before the resolution was voted on:

(i) the consent or consents and the declaration or declarations were submitted to the meeting; and

(ii) there was a reasonable opportunity for persons entitled to vote on the resolution (whether on their own behalf or as proxy or attorney for other persons) to inspect the declaration or declarations. "

Section 222(1)-(5) provides:

" (1) Where there is a doubt, on a specific ground, whether a deed of assignment or a deed of arrangement was entered into in accordance with this Part or complies with the requirements of this Part, or whether a composition has been accepted by a special resolution of a meeting of creditors under section 204, the Inspector-General, a person authorised in writing by the Inspector-General, the Registrar, the trustee, a creditor or the debtor may apply to the Court for an order under subsection (2).

(2) Upon the hearing of an application made under subsection

(1), the Court may, subject to this section, make an order-

(a) declaring that the deed or composition is void, or that it is not void, on the ground specified in the application; or

(b) declaring that a provision of the deed is void, or is not void, on the ground specified in the application.

(3) The Court shall not make an order declaring a deed to be void on the ground that it does not comply with the requirements of this Part if the deed complies substantially with those requirements.

(4) Where the Court, on the application of the Inspector-General, a person authorised in writing by the Inspector-General, the trustee or a creditor, is satisfied that the debtor -

(a) has given false or misleading information in answer to a question put to him with respect to any of his conduct or examinable affairs at the meeting of creditors at which the resolution requiring him to execute the deed or accepting the composition was passed; or

(b) has omitted a material particular from the statement of the debtor's affairs given under subsection 188(2) or included an incorrect and material particular in that statement,

the Court may make an order declaring the deed or composition to be void or declaring any provision of the deed or composition to be void.

(5) The Court shall not make an order declaring a deed or composition, or a provision of a deed or composition to be void on a ground specified in subsection (4) unless it is satisfied that it would be in the interests of the creditors to do so. "

Section 236(1), which is found in Division 5 of Part X provides:

" The Court may, upon application by the trustee, a creditor or the debtor, or, if the debtor has died, the person administering the estate of the debtor, if it is satisified

(a) that the debtor, or, if the debtor has died, the debtor or the person administering the estate of the debtor, has failed to carry out or comply with a provision of the deed of arrangement;

(b) that the deed of arrangement cannot be proceeded with without injustice or undue delay to the creditors, the debtor or, if the debtor has died, the estate of the debtor; or

(c) that for any other reason the deed of arrangement ought to be terminated,

make an order terminating the deed. "

Section 236(2) provides:

" The Court shall not make an order terminating a deed on the ground specified in paragraph 1(a) or (c) unless it is satisfied that it would be in the interests of the creditors to do so. "

On 13 November 1991, Mr Elliott executed an authority pursuant to s. 188 of the Bankruptcy Act appointing Mr Jefferson to act as his trustee to call a meeting of creditors and to take control of his property. Mr Jefferson consented to so act on 25 November 1991, some days after the presentation of the creditor's petition. Mr Jefferson received a statement of affairs from Mr Elliott and called a meeting of creditors for 11 December 1991. At that meeting of creditors, a solicitor, John Bickford, was unanimously elected chairman by the 27 creditors who attended that meeting.
Mr Bickford, as chairman, dealt with each proof individually and admitted most of the proofs submitted to him. The chairman ruled that the proof by the petitioning creditor, Resource Allocation Management Pty Ltd, be admitted. In respect of a proof of debt by Honeymoon Hotels of Australia Pty Ltd the chairman admitted that creditor as a creditor for $142,206.00. A question arose as to whether that amount should be reduced by the sum of $78,000.00 which, a short time before Mr Elliott signed the authority under s. 188, his wife had assigned to Mr Elliott as a debt owing to her by Honeymoon Hotels of Australia Pty Ltd.
A discussion concerning those events occurred at the creditors' meeting but the chairman indicated that his original decision, namely, to admit that creditor to proof in the sum of $142,206.00 stood.
He also admitted Metway Leasing Ltd to proof in the sum of $610,536.12.
The proposal - which was the subject of a special resolution passed at the meeting - was that Mr Elliott assign all his property to the trustee, and, in addition, pay the sum of $75,000.00 to the trustee by three annual instalments of $25,000.00 over the ensuing three years. A copy of the statement of affairs of Mr Elliott, his proposal, the report by the trustee pursuant to ss. 189A and 189B of the Act, as well as a proof of debt form, and a power of attorney form were forwarded by Mr Jefferson to each of the creditors and contingent creditors listed by Mr Elliott in his statement of affairs.
So far as Metway Leasing Ltd is concerned, Mr Jefferson says that his investigations reveal that the Metway Leasing Ltd held a registered mortgage over real property owned by Blue Bay Pty Ltd in respect of which the debtor, Mr Elliott, had provided a personal guarantee. The loan was in default, and a notice of demand dated 5 June 1991 was before the chairman of the creditors' meeting. The attorney for Metway Leasing Ltd advised the chairman that Metway intended relying on its security and proving its debt on the basis of the personal guarantee provided by the debtor. That proof of debt was accepted in full by the chairman. Metway Leasing Ltd voted in favour of the deed.
At the meeting the creditors voted in respect of the proposal as follows:-

For Deed $ Against Deed $ ANZ Card Services $12,087.86 Citibank $11,667.11 Esanda Finance $65,597.61 Credit Union $12,618.00 J. Elliott $8,701.00 Equus $116,419.95 D.C. Brown $18,530.47 Resource

Allocation $119,641.00 HLB Investments $7,416.66 Bank of

New Zealand $50,510.76 HLB Investments $181,211.43

Barclays $5,500.00

Barclays $25,476.00

Crowther Beattie $9,800.00

Citibank $36,334.24

Metway $610,536.12

Baillieu Knight

Frank $3,300.00

Sheraton Finance $26,400.00

Caroline Properties $11,000.00

K. and J. Carey $56,456.42

L. McDonald $3,000.00

Honeymoon Hotels $142,206.00

Strand Finance $12,000.00

Westwood

International $50,000.00

Nelson Parkhill BDO $13,565.65

Muneo Kono $121,840.28

D. and B. Boseworth $122,812.83

$1,543,772.57 $310,856.82 TOTAL $1,854,629.39

In the result 22 creditors voted in favour of the deed and five against, and the creditors voting in favour of the deed represented 83 per cent of the vote, and those against 17 per cent. The resolution on those figures satisfied the requirements of the Act.
Subsequent to the meeting, Mr Elliott executed the deed of arrangement in the presence of Mr Jefferson. It is accepted that the deficiencies specified in s. 215A(1) of the Act occurred, and it is necessary, if the deed is to survive, that the Court declare the resolution not to be void merely because of the deficiencies identified in the application by Mr Jefferson.
He swears in an affidavit filed 12 February 1992 that the omission to have the consent tabled at the meeting of creditors was an oversight. The consent had been duly executed, and was in the possession of an employee of Mr Jefferson at the meeting. With respect to the declaration required by s. 215A(1)(c)(ii), that declaration was not made by the time of the meeting, and as a consequence was not tabled at the meeting. The declaration was, however, made on 13 January 1992; again the declaration was not made by oversight, nor was it available for inspection by the creditors, also by oversight.
Mr Jefferson swears that at the time of the meeting of creditors he had not acted as an accountant or other professional adviser to the debtor or to any creditor of the estate of the debtor, nor been associated with the debtor or any creditor of the estate of the debtor in any business capacity or as co-director of any company; he had not been a trustee of or beneficiary under any trust in which the debtor or any creditor of the estate of the debtor was or had an interest; he has not been a partner of Mr Elliott or any creditor of the estate of the debtor; he has not been an employer or an employee of the debtor or any creditor of the estate of the debtor; he is not a close relative of or spouse of the close relative of either the debtor or any creditor of the estate of the debtor. And he says:

" It was by an administrative oversight on my behalf that I did not make the prescribed declaration in writing..."

He says that prior to the meeting he had turned his mind to those matters with which the declaration is concerned, and had reached the conclusion that he could make such a declaration and accept the appointment as trustee. It is clear that there is no prejudice flowing to any creditor of Mr Elliott by virtue of these omissions, although it is right to say that these requirements are not merely nominal but serve an important function to establish the independence of the trustee whose function it is to act impartially on behalf of the creditors generally.
The compliance with the requirements of s. 215A advances the purposes of the Bankruptcy Act, and in particular those of Part X of the Act, by reinforcing the necessity for an impartial administration of a deed of assignment or deed of arrangement or composition passed by a meeting of creditors.
It is perhaps for that reason that the effect of the provisions of s. 215A is that if there is a failure to comply with the requirements of the Act in the specified particulars, the resolution is void but the power exists, pursuant to s. 215A(2), for the Court to declare that the resolution not be void merely because of that deficiency.

In my opinion, in the absence of any further disqualifying feature, the Court would in the circumstances of this case make the declarations contemplated by s. 215A(2). It was submitted, however, on behalf of the petitioning creditor, that there were circumstances which would make it appropriate to declare the deed of arrangement void. The matters are particularised in the application, but some matters were stressed.
The evidence shows that Mr Elliott has no association with Strand Finance, but that he is one of three directors of and and has a small shareholding in Sheraton Finance. By inference the evidence seems to suggest that Honeymoon Hotels of Australia Pty Ltd is a company under his control. These features are not disqualifying, nor do they mean that votes cast by those entities are in any way invalid, but it was submitted that the relationship between the debtor and those companies should be taken into account in a consideration of what ultimately should be the Court's position.
In respect of misstatements in the statement of affairs, it was not submitted by Mr Logan, counsel for the petitioning creditor, that any misstatement had lead to the resolution not being passed by the required majority, either in number or in value, but again were matters properly to be considered in respect of the Court's ultimate decision.
It was accepted that Metway Leasing Ltd was an unsecured creditor of the debtor's estate pursuant to the Act and was entitled to vote on the resolution. However, it was submitted that, according to the trustee's report, Metway Leasing Ltd held security to the extent of $650,000.00 over an asset whose value, again according to the report, was $700,000.00. The consequence was that it held real property mortgages which fully secured its debt. While it was legally permissible for Metway Leasing Ltd to vote on the resolution, in effect, its voting power was crucial to the carrying of the special resolution and was not really the vote of a creditor who had a dispassionate interest in the outcome of the resolution as would an ordinary unsecured creditor.
In respect of the criticisms implicitly contained in the grounds of the application by Resource Allocation and Management Pty Ltd, Mr Jefferson seems to have addressed most of them in his report to creditors which is exhibited to his affidavit of 16 December 1991. In that report, he indicated that the assets in Mr Elliott's estate were of the order of $7,500.00 and the total liabilities were of the order of $874,000.00; contingent assets were listed at $3,649,526.00 and contingent liabilities in the sum of $3,349,526.00.
So far as the home unit occupied by Mr Elliott at Unit 43, Yachting Towers is concerned, the trustee reported to the creditors that of an amount of $196,000.00 owed to the National Australia Bank Ltd, $150,000.00 of that amount relates to the bank overdraft for Elliott Solicitors, a firm of which Mr Elliott was a partner until the end of June 1991. The trustee reported that:

" The two securities held by Mr and Mrs Carey and Mr and Mrs Bosworth were registered in September 1991 and therefore could be voided by a Trustee in bankruptcy under section 122(1) of the Bankruptcy Act 1966. However this power does not extend to a Trustee appointed to an arrangement under Part X.

From estimates of the value of this property it appears that only the first secured creditor will receive payment, and if so the status of the second, third and fourth secured creditors is irrelevant. "

In relation to the company Blue Bay Pty Ltd, a company in which Mr Elliott held one ordinary class share, and which company is the trustee for the Elliott Family Discretionary Trust (No 2), Mr Jefferson reported that the assets of that trust included the Redbank Plains Fitness Centre in the sum of $700,000.00, in respect of which there were two securities, one to Prudential Finance Ltd (now Metway Leasing Ltd) in the sum of $650,000.00, and the second in respect of Sheraton Finance Ltd in the sum of $50,000.00.
With respect to the company Honeymoon Hotels of Australia Pty Ltd, Mr Jefferson referred to the asset Turtle Island as valued by Mr Elliott in the sum $1 million, less secured creditors which included as the second ranking secured creditor Resource Allocation and Management Pty Ltd, in the sum of $116,526.00.
The trustee noted:

" ...that the valuation of Turtle Island is excessive and, according to the marketing agents, has a market value of approximately $650,000. "

As a general comment, Mr Jefferson said:

" As indicated above it appears that the companies in which Mr Elliott has an interest are either insolvent or highly unlikely to provide a return to its shareholders. Therefore the values placed on shares held by Mr Elliott appears appropriate ($6 in total).

Because of the companies financial position there appears to be no chance of repayment of the debts owing to Mr Elliott (as detailed in Part V of the Statement of Affairs). "

Another matter of contention, and much relied on by counsel for the petitioning creditor, concerns the manner of disposal of the interest of Mr Elliott in the firm of Elliott Solicitors. In that respect Mr Jefferson reported to the creditors as follows:

" On July 31, 1991, the debtor and his partner, David Brown signed an agreement which had the following effect: 1) Mr Elliott resigned as a partner of the practice and was granted a consultancy position for remuneration $30 per hour on an hourly basis; 2) Mr Elliott relinquished all rights to the partnership and all shares held by him or his family trust in Datacost Pty Ltd;

3) All guarantees and securities provided by Mr Elliott will be released by July 31, 1992; 4) Mr Brown is to indemnify Mr Elliott from all practice debts and liabilities.

I have been advised by the Law Society that a solicitor is allowed to practice law (but not as a partner) as a bankrupt or a debtor subject to a Part X Arrangement provided there are no improprietories involved. At June 30, 1991 the combined figures excluding goodwill of the partnership of Elliotts and the Datacost No. 2 Trusts were

1991 1990 Assets 413,732.26 401,192.70 Less Liabilities 727,664.54 568,021.76 Net Deficiency $313,932.28 $166,829.06 The difference is due to drawings by the partners. Combined profits were $98,971.93 for the year ended June 30th, 1990 and a loss of $92,498.06 for the year ended June 30th, 1991.

From the above there appears to be little goodwill left in the practice.

It appears to me that there may be some value in the sale of the practice and this would be reviewed by a trustee in Bankruptcy. There is no power under the deed of arrangement, however it should be noted that if the National Australia Bank is paid monies from the sale of the debtors(sic) unit then the trustee can claim these monies from Elliotts(sic) solicitors. "

It seems to me relevant to note Mr Jefferson's opinion in respect of the proposal by Mr Elliott. He said in this respect:

" I see a number of possible advantages in the debtor being bankrupted as opposed to submitting to a Part X proposal the major ones being as follows:

1. If the debtor were bankrupted, the trustee would be able to recover funds (if any) which constitute preferences and void settlements under the provisions of the bankruptcy act. I have not investigated these possibilities extensively but am aware of preferences give (sic) to Mr and Mrs Carey and Bosworth by way of security over the debtor's home unit. However, in my opinion, these preferences have no effect as the creditors are not likely to receive any real benefit. Unless the home unit is sold for more than $850,000.

I have also identified another preference given to Michelle Harradence by way of transfer of a loan to her by the debtor to Honeymoon Hotels of Australia Pty Ltd. It is difficult to determine whether any recovery from Michelle Harradence is possible as she has advised that she has no assets.

2. If the debtor were bankrupted, the trustee may (although not obligated to) fully investigate the debtor's affairs and recover preferences or set aside any voidable dispositions.

3. The resignation from the legal partnership of Elliotts could be investigated and if it is found that there was a component of good will which had not been paid upon dissolution then steps could be taken to recover monies equivalent to the debtor's share of that component.

However in my opinion it would be in the best interest of creditors to deal with the debtor's affairs under Part X in the manner indicated as it is apparent there will be a dividend paid under the proposal as opposed to a bankruptcy in which I cannot see a dividend being paid. "

It was submitted by Mr Logan that in favour of the sequestration order being made is the circumstance that the sale of the business of the firm of Elliott's solicitors needs investigation. It was said it could be in the interests of creditors to have that transaction explored. It was said that it was also in the debtor's interest, in that a bankruptcy would crystallize his debts, and operate as a discharge of them, whereas his proposal required compliance with the terms of the deed before he could be released from his debts.
Against the submission that bankruptcy in the circumstances is the appropriate path to follow is the circumstance that the creditors in general meeting resolved to accept a proposal the effect of which is that they will, all going well, receive 4 cents in the dollar. This amount is, of course, only a small proportion of what is owed, but realistically the prospects in a bankruptcy of the creditors receiving anything is remote. The only assets of the estate seem to be of the order of $7500.00, and the costs of administration and inquiry are such that it is most unlikely that the creditors would receive anything. In those circumstances it is not to be doubted that the creditors reached the view that something was better than nothing.
It was also submitted by Mr Logan that there is a degree of risk in the proposal by Mr Elliott. While it was not before the creditors, it is now proposed that he take up a position in London, and from his remuneration in that position meet the obligations to contribute $25,000.00 each year for the next three years as required by the deed of arrangement.
It was submitted that there was an element of risk in that Mr Elliott might be beyond the reach of his creditors in the event of non-compliance with the terms of the deed and would not be readily amenable to the provisions of the Bankruptcy Act by way of an application for sequestration of the estate for non-compliance with his obligations under the deed. The material is not explicit about this but it appears that Mr Elliott has children by his first marriage who, I am prepared to infer, are likely to remain in Australia.
If it was in fact the intention of Mr Elliott to defeat the legitimate demands of his creditors by absconding to places outside Australia, that was an opportunity open to him prior to the signing of the deed of authority and the events that have been put in train by the Act.
On the whole of the material to which I have referred, it is accepted that circumstances exist for the exercise of the Court's discretion under s. 215(A)(2), s. 222(2) and (4) and s. 236(1). The relevant consideration in each case is the consideration expressed in ss. 222(5) and 236(2), namely, whether an order setting aside the Part X deed of arrangement is in the interest of creditors.
The material before me was not the subject of cross-examination and, in particular, circumstances which have been pointed to as indicating a perhaps colourable view of the facts have not been the subject of challenge to Mr Elliott. As to the circumstance that Metway Leasing Ltd voted for the whole amount of its debt or at least substantially the whole amount of its debt, notwithstanding that it held security which, on the trustee's report, seems to be adequate for the amount lent by Metway Leasing Ltd, the position under the Act is that Metway Leasing Ltd is an unsecured creditor, having regard to the definition of "secured creditor" in s. 5 of the Bankruptcy Act, and was no less entitled to vote at the meeting than was Resource Allocation and Management Pty Ltd who also held some security.
The evidence suggests that Metway Leasing Ltd's position is more secure than that of the petitioning creditor in that it seems that the ranking of the security and the extent of it is more advantageous in Metway Leasing Ltd's case than it is in relation to Resource Allocation and Management Pty Ltd and the possible realisation of Turtle Island. However, it has not been suggested that there has been any collaboration between Metway Leasing Ltd and the debtor and it seems to me that it would be wrong to proceed on the basis of denying to Metway Leasing Ltd in a practical sense an entitlement to vote which the Act confers on it, in the absence of any suggestion of conspiracy or collaboration between that particular creditor and the debtor.
So far as the circumstances involving Honeymoon Hotels of Australia Pty Ltd is concerned, it seems to me that there is something to be said for the complaint that that company ought to have been permitted to vote only in the amount of $142,206.00 less the $78,000.00 the subject of the assignment a short time before the signing of the s. 188 authority. However there is nothing to suggest the decision by the chairman of the meeting, who was elected by all the creditors present, was other than bona fide, although its correctness might be doubted. Moreover, the detail of the voting earlier set out makes it plain that if there be error in the decision by the chairman of the meeting to admit Honeymoon Hotels of Australia Pty Ltd as a creditor to the amount of $142,000.00, it did not in any way affect the substance of the voting either in terms of numbers or value.
The present situation is that one creditor out of 27 who voted at the meeting has sought to challenge the deed. There are of course practical considerations, such as the cost of any such step, why others have not adopted the course taken by Resource Allocation and Management Pty Ltd. That company represents only about 1-15th of the total debt and a substantial majority of creditors, both by number and value, have approved the scheme.
It seems to me that if I were to set aside the deed I would be depriving those creditors, without their consent, of the benefit of receiving some payment, even though it is the lowly amount of four cents in the dollar, and to place them in a position where it is likely, to put it no higher, that they will receive nothing. In the circumstances, I am not satisfied that declaring the deed void would be in the interests of creditors, and in those circumstances I decline to so order. The relief sought in the application by Resource Allocation and Management Pty Ltd is refused.
In respect of the application filed by Mr Jefferson, I declare that the resolution of the creditors of Allen Phillip Elliott passed at a meeting of his creditors on 11 December 1991 which purported to appoint Philip Gregory Jefferson to be trustee of the deed of arrangement of Allen Phillip Elliott of that date, not be void merely because: (a) in contravention of s. 215A(1)(c)(ii) of the Bankruptcy Act, before the meeting, Philip Gregory Jefferson had not made a declaration in writing containing the prescribed information about his professional, business, and personal relationships and connections, if any, with Allen Phillip Elliott, and with the creditors who proposed the resolution; (b) before the resolution was voted upon by the creditors the consent prescribed by s. 215A(1)(c)(i) of the Bankruptcy Act had not been submitted to the meeting; and (c) before the resolution was voted upon, the declaration prescribed by s. 215A(1)(c)(ii) of the Bankruptcy Act (i) had not been submitted to the meeting and (ii) there was no reasonable opportunity for persons entitled to vote on the resolution to inspect the declaration.
As to costs in respect of both applications I will hear counsel.
(There was argument as to costs).
In respect of the application brought by Resource Allocation and Management Pty Ltd I order that that company pay the costs of Mr Elliott to be taxed, if not agreed. Otherwise there will be no order as to costs.
In respect of the application by Mr Jefferson for declarations pursuant to s. 215A I propose to order that the costs of and incidental to that application of Mr Jefferson, other than the costs of the application and the preparation of affidavits incidental to that application, be costs of and incidental to the administration of the deed of arrangement.
As to the costs of filing the application and the affidavits, those are costs which came about as a consequence of failing to comply with the requirements of the Act which are imposed on trustees. Those costs should not be borne by the creditors.

[1992] FCA 230

10 MARCH 1992