Re Feltham, Paul Richard Ex Parte Double Bay Newspapers Pty Ltd
[1996] FCA 234
•4 APRIL 1996
CATCHWORDS
BANKRUPTCY - application for declaration pursuant to s222 of the Bankruptcy Act 1966 (Cth) that a Part X, Deed of Arrangement is void - whether notice necessary in respect of meeting adjourned pursuant to s201 - whether failure to notify "inadvertent omission" - whether failure to notify rendered meeting invalid - meaning of "with respect to" in r85A - extensive interpretation - purpose of application of procedural regime in Part IV to Part X - whether there is anything in s201 to render requirements of s64Y(2) inapplicable to s201 meetings - correspondence and conduct led creditors to believe notice of adjourned meetings would be provided - failure to act in accordance with mutually and reasonably anticipated course of conduct - whether satisfied there is any sufficient discretionary consideration to refuse declaration.
DEED OF ARRANGEMENT - procedure - application to declare void - failure to comply with Part X.
MEETINGS - meeting of creditors to consider Deed of Arrangement -adjournment - notice - conduct creating an expectation that notice will be given - further information sought as to creditors' entitlement to vote - more than one adjournment required to complete such investigation.
Bankruptcy Act 1966 (Cth), ss222, 236, 204(1), 188, 189, 189A, 194, 201, s64, 64Y, 63A-64ZE, 64ZF
Bankruptcy Rules 1968 (Cth), r85A
Bankruptcy Amendment Bill 1991 (Cth)
Musolino v Sidiropoulos (1991) 101 ALR 235, considered
Re Kleiss; ex parte McDonough (1969) 15 FLR 281, distinguished
Re Beames; ex parte Beneficial Finance Corporation Ltd (1985) 7 FCR 216, distinguished
Farrow Mortgage Services Pty Ltd (In Liquidation) v Abeyratne (1993) 47 FCR 208, distinguished
RE: PAUL RICHARD FELTHAM
EX PARTE: DOUBLE BAY NEWSPAPERS PTY LTD & ORS
Nos NP 3690 of 1994 and QX 34 of 1995
Tamberlin J
Sydney
4 April 1996
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION ) No. NP 3690 of 1994
BANKRUPTCY DISTRICT ) and No. QX 34 of 1995
OF THE STATE OF NEW SOUTH WALES )
RE: PAUL RICHARD FELTHAM
(Second Judgment Debtor)
EX PARTE: DOUBLE BAY NEWSPAPERS PTY LTD
GENERAL NEWSPAPERS PTY LTD and
BREHMER FAIRFAX PTY LTD
T/AS CHAMPION COMMUNICATIONS
Petitioning Judgment Creditor
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 4 APRIL 1996
REASONS FOR JUDGMENT
This is an application by three corporate creditors, trading as Champion Communications ("Champion"). The application is for a declaration pursuant to s222 of the Bankruptcy Act 1966 (Cth), ("the Act"), that a Deed of Arrangement made on 21 April 1995,("the Deed"), between Paul Richard Feltham ("Feltham"), the debtor, and Ivor Worrell, ("Worrell"), a registered trustee and chartered accountant, is void.
In the alternative, an order is sought that pursuant to s236 of the Act, the Deed should be terminated. This alternative claim was not pursued before this Court.
Worrell, at all relevant times, was a member of Worrell Whitehill, a firm of chartered accountants practising in Brisbane. Champion carried on its business at premises in Alexandria, a suburb of Sydney.
Background
On 2 December 1993 Champion obtained a judgment from the NSW Supreme Court for $170,455. The debt was due under a printing contract in respect of which the debtor was a guarantor.
On 21 May 1994 a Bankruptcy Notice was issued, claiming $177,749.05, based on the judgment debt. That Bankruptcy Notice was served on 2 July 1994.
A creditors' petition was presented on 9 December 1994 on behalf of Champion and initially set down for hearing on 13 March 1995. This petition was verified by the creditors and an affidavit of truth of statements in paragraphs 1, 2 and 3 of the petition and an affidavit of search verifying paragraph 4 of the petition were filed.
On 8 March 1995, Feltham signed an authority pursuant to s188 of the Act which authorised Worrell to take control of his property and to call a meeting of his creditors to consider the alternatives available under s204(1) of the Act. Those sections so far as material read:
A debtor who desires that his affairs be dealt with under this Part without his estate being sequestrated ...
may sign an authority ...
(e)authorizing a registered trustee to call a meeting of his creditors and to take over the control of his property; ...
An authority signed by a debtor under this section is not effective for the purposes of this Part unless:
(a)the trustee named in it has consented, ... to exercise the powers conferred by the authority ...
(c)within 10 days before signing the authority, the debtor gave to the trustee or solicitor:
(i)a statement of the debtor's affairs; and
(ii)a statement indicating how the debtor proposes that his or her affairs be dealt with under this Part.
...
Where a debtor has given an effective authority to a registered trustee under section 188, the property of the debtor becomes subject to control under this Division ...
189A(1)Within 14 days after consenting to exercise the powers conferred by an authority under section 188, a registered trustee shall prepare, and file in the office of the Registrar, a report in writing that complies with this section.
The report shall:
(a)summarise and comment of the debtor's affairs as disclosed in the statement given under subparagraph 188(2)(c)(i); and
(b)set out such other information relevant to those affairs as is available to the trustee and is necessary to give a true and fair view of those affairs.
The report shall state whether or not, in the trustee's opinion, it would be in the best interests of the debtor's creditors to deal under this Part with the debtor's affairs in the manner indicated in the statement given under subparagraph 188(2)(c)(ii).
The meeting of creditors to be called in pursuance of an authority under section 188 shall be held:
(a)not later than 35 days after the authority is signed by the debtor or, in the case of an authority signed by a debtor in the month of December, not later than 42 days after the authority is so signed; and
(b)not earlier than 14 days after the notices to creditors are delivered or sent by post under subsection (2).
...
If subsection (2), (2A) or (3) is contravened, the meeting is incompetent to act for the purposes of this Part unless the Court, on the application of a creditor or of the controlling trustee or solicitor who called the meeting, declares that the contravention is to be disregarded.
...
Any question as to the right of a person to vote at a meeting under this Division, or as to the amount of the debt in respect of which a person is entitled to vote at such a meeting, shall be determined by the chairman, who may, if he thinks it necessary to do so, adjourn the meeting for a period, not exceeding 14 days, to enable him to investigate the matter.
...
204 (1)The creditors may, at a meeting called in pursuance of an authority under section 188, by special resolution:
....
(b)require the debtor to execute a deed of assignment or a deed of arrangement under this Part; ..."
On 28 March 1995 Worrell agreed to act as controlling trustee.
Prior to execution of the s188 Authority, Feltham provided a verified Statement of Affairs. He also provided a "Statement of Proposal" to which was attached a proposed Deed of Arrangement, setting out the manner in which he proposed to have his affairs dealt with under Part X of the Act.
The Report to Creditors under s189A, issued by Worrell, on 28 March 1995, gave the following background:
3.1.Background
Mr Feltham informs me that during 1991 he, in conjunction with his brother, established a new company in the printing industry, using the latest printing technology which entailed going straight from a computer setting up a layout to print. The new company, ANT Corporation Pty Ltd, was successful in winning the contract to print the LJ Hooker Property Guide. Mr Feltham believed this contract would go along (sic) way in helping the financial structure of the company. To further assist the financial structure of the company an investor, Mr John McBride, was introduced to the company providing $200,000 to the company. Mr McBride's contribution was provided by his mother, who registered a fixed and floating charge over the assets of the company on the 18th November, 1992.
Mr Feltham advises me that problems were encountered in the management of the company which resulted in Mrs Joan McBride (Mr John McBride's mother and contributor of $200,000 to the company) appointing a Receiver and Manager to the company on the 17th February, 1993.
I have been advised by a member of the Receiver and Manager's staff that the company was in receivership from the 17th February, 1993 to the 7th June, 1993 and during that time the debtors of the company were realised and remitted to Mrs McBride. They further advise that on the 7th June, 1993 the receivership was terminated at the Receivers's and Manager's recommendation as all assets available to be realised had been realised. The company's remaining assets were then allegedly handed to Mrs Joan McBride as Mortgage in Possession, to realise the assets under her charge. As far as my investigations can ascertain the company has no net worth as all its assets have been sold.
It would appear from my investigations, Mr Feltham's financial difficulties have stemmed from the financial difficulties encountered by ANT Corporation Pty Ltd."
The Report summarised the Assets and Liabilities as follows:
"Summary of Assets and Liabilities Disclosed
A copy of the debtor's Statement of Affairs which is attached for your information is summarised as follows:-
EXTRACT FROM THE STATEMENT OF AFFAIRS OF
PAUL RICHARD FELTHAM
Assets Notes $ $
Cash in hand 1 200
Household Furniture & Effects 2 1,000
Contingent Asset 3 200,000
201,200
Less Liabilities
Unsecured Creditors 4 627,500
627,500
ESTIMATED DEFICIENCY $(426,300)
...
Note 4 - Unsecured Creditors
The debtor has provided me (sic) a list of his unsecured creditors (see below):-
Name Nature of Debt Amount
$
Champion Communications Judgement Unknown
Robin Whitaker Accountancy Fees Unknown
Michael Feltham Loans 25,000
Peter Feltham Wages & Severance Pay 182,500
Grahme Thomasson Loans & Interest 150,000
Gail Davies Loans & Consulting Fee 175,000
Terry Feltham Loans & Interest 50,000
Baker Johnson, Lawyers Fees 45,000
Subsequent to signing his Statement of Affairs, Mr Feltham has provided the unknown figure for one (1) of his creditors listed above namely:-
Robin Whitaker-Tax Agent Accountancy Fees $163,581.44"
On, or about 28 March 1995, Worrell sent an "Advice to Creditors", advising them that on 8 March 1995 Feltham had signed a s188 Authority, authorising Worrell to call a meeting of creditors.
Sent with the "Advice to Creditors" were the following:
•Notice of Meeting
•A Report signed by Worrell in relation to the debtor's Statement of Affairs and proposal containing the prescribed information.
• Copy of the debtor's Statement of Affairs.
•A statement by Feltham indicating the manner in which he proposed that his affairs were to be dealt with.
•A statement by Worrell detailing the voting procedures and options available to creditors at the meeting.
• Information regarding the appointment of a Attorney or Proxy Holder.
•A proof of debt form.
•A power of attorney.
•Proxy forms (forms 43 and 44) with an instruction that both should be completed.
The Notice of Meeting stated that Feltham had authorised Worrell to call a meeting to be held on 12 April 1995 at 10.00am.
By fax, dated 10 April 1995, the solicitor for Champion, David Purvis ("Purvis"), whose office was in the office of Champion at Alexandria, wrote to Worrell as follows:
"We act on behalf of Champion Communications Pty Ltd.
We refer to the Report to Creditors of Paul Richard Feltham dated 28 March 1995.
We write to put you on notice that in relation to Note 4 - Unsecured Creditors - we query whether the amounts listed in some instances are actually owed.
We refer specifically to the following:
1Michael Feltham $ 25,000.00
2Peter Feltham $182,500.00
3Grahme Thomasson $150,000.00
4 Gail Davies $175,000.00
5 Terry Feltham $ 50,000.00
All of the above are either seemingly relatives or co-directors of companies, with Mr Feltham. The nature of the debts in our submission are ambiguous. The fact that it seems that none of the debts are supported by a judgment is also curious.
Our client has a judgment in the amount of $170,455.37 in the Supreme Court of New South Wales against Mr Feltham (attached).
Our client demands that before any consideration be given to entering into a Deed that the above parties be requested to prove conclusively that the amounts are actually owed by Mr Feltham to them.
We note that there is a meeting this Wednesday, 12th April. Please confirm by return facsimile that no consideration will be given to a Deed of Arrangement until the parties listed under Unsecured Creditors substantiate that the moneys listed to be owed, are in fact owed.
We have instructions to apply to the Court to set aside any Deed of Arrangement entered into by the majority shareholders without our client first being satisfied of the above."
On 11 April Purvis, on behalf of Champion, sent a fax enclosing Proof of Debt, Appointment of Proxy forms 43 and 44 and referred to a telephone conversation that morning. The Proof of Debt was for $170,455. It was stated that the instructions of Champion remained the same as advised on the day before.
The Form 43 proxy, of 11 April, executed by the three corporate creditors comprising Champion, appointed Worrell as Proxy, for the meeting of 12 April (or at any meeting of those creditors), to vote on one of the following matters:
"1.That all creditors listed under Unsecured Creditors in the Report to Creditors dated 28th of March 1995 fully substantiate, with documentation, the nature and amount of money owed by the debtor to them.
Adjournment of the meeting so that the creditors can supply the above information and material."
The Champion companies claim to be unsecured creditors in the amount of $170,455.
The Form 44 proxy executed by each of the three Champion creditors, instructed Worrell to vote against: (i) a resolution requiring the debtor to execute a Deed of Assignment; (ii) a resolution requiring the debtor to execute a Deed of Arrangement and (iii) a resolution accepting a composition. Worrell was directed to vote in favour of a
resolution requiring the debtor to present a Debtor's Petition within 7 days.
To enable further investigation of the Proofs of Debt, the meeting was adjourned at the request of Champion and a Notice of Adjourned Meeting of Creditors was sent by Worrell to Purvis, solicitor for Champion, by fax, dated 13 April 1995. That Notice stated:
"... that an adjourned meeting of the creditors of Paul Richard Feltham .... will be held at Worrell Whitehill, 18th floor, 240 Queen Street, Brisbane on the 20th day of April, 1995 at 2 o'clock in the afternoon for the purpose of considering any resolution that may be put pursuant to s204 of the Bankruptcy Act.
The adjournment is pursuant to Section 201 of the Bankruptcy Act, 1966, to allow time for the Chairman to investigate Proofs of Debt lodged by family members and business associates of the debtor.
The adjournment has been requested by a creditor of the estate.
DATED this 12th day of April,1995." (Emphasis added)
On 19 April 1995, Purvis sent a fax to Worrell as follows:
"We refer to your facsimile of 13th April 1995.
We note the meeting was adjourned to the 20th April 1995.
Please advise as a matter of urgency, the results of the "Chairman's" investigations of the Proofs of Debt lodged by family members and business associates of the debtor.
Our client reserves their position until being fully advised as to the above."
On 21 April 1995, Mr Bruce McLeary ("McLeary") of Worrell's office sent a fax from Brisbane to Purvis in Alexandria, which enclosed statutory declarations by Michael Feltham, Graham Thomasson and Peter Feltham, in relation to the debts claimed by them.
The fax bears the imprint "21 April 1995, Fri.10.45". This was 75 minutes before the time fixed for the Brisbane meeting. The cover sheet bears a handwritten note that Gail Davies,("Davies") was not entitled to vote "pursuant to s198(7) of the Bankruptcy Act (1966)". (That subsection prohibits a spouse or de facto spouse of a debtor voting at a meeting under Division 2 of Part 4). The note also stated that no documents had been received from Terry Feltham. Accordingly, he was not entitled to vote.
Purvis responded to the fax from McLeary by a letter dated 21 April 1995, which was faxed to Worrell Whitehill, and stated as follows:
"We refer to your facsimile of 21 April 1995 and our conversation of the same date.
Firstly, in regard to your facsimile, we note that three Statutory Declarations were attached. We further note these were provided as a proof of the creditors bona fide (sic).
In regard to the Statutory Declaration of Michael Feltham, we note that he claims the debtors indebtedness was as a result of a purchase of a "Reynard 1983 model Formula Ford racing car" by the debtor from Michael Feltham, his brother. We note
that there are no documents annexed to the Statutory Declaration substantiating the sale. One could have thought that it would have been easy to annex a sale document a transfer of registration or some other ownership documentation.
In regard to the Statutory Declaration of Grahme Thomasson, we note that his claim primarily relates to the purchase of a "Pantera" yacht and an ownership agreement. Once again there is no documentation substantiating any of the statements made in the Statutory Declaration in regard to the agreement allegedly entered into between the debtor and Thomasson, the value of the boat, proof of sale etc.
In regard to the Statutory Declaration of Peter Feltham, once again there is no documentation to support his declaration and further there is nothing to point to the debtor being liable for the claim in the amount of $265,000.00. On the face of the Statutory Declaration, it is a company debt due to Mr Feltham by Mac Color Pty Limited, not the debtor.
In short there is nothing to substantiate the bona fide of any of the creditors who swore statutory declarations.
We note that you advised the writer that a Deed was entered into on 21 April 1995. We have been further advised that the Deed was entered into at approximately 12pm. We note that the Statutory Declarations were forwarded to us at 10.45am on 21st April 1995. There was no note as to the fact that a meeting of creditors was to be held at 12pm on the facsimile.
We further note that when Mr Khatri phoned the writer at approximately 11am he was advised that the writer was in court and wouldn't be back in the office until 2pm. Mr Khatri attempted to contact the writer on a portable phone to no avail. He phoned the writers (sic) office again, but failed at any time to advise the writer's secretary that a creditors (sic) meeting was to be held at 12pm.
Thus a major creditor of the debtor who had advised yourselves that they disputed the bona fide of other creditors (sic) claims, was not allowed the opportunity to establish whether the claims were bona fide or advised that a meeting of creditors was taking place. A Part 10 Deed was simply entered into without giving our client the opportunity to vote or make submissions in regard to the other creditors bona fide.
In accordance with the above, we have instructions to set aside the Deed and hold your firm liable for any costs incurred in doing so."
Section 222
Section 222, on which the application is based, reads:
"222(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; ...
(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."
The manner in which the section operates was summarised by the Full Federal Court in Musolino v Sidiropoulos (1991) 101 ALR 235 at 243-244 as follows:
"... there are, relevantly, two aspects or stages involved in the jurisdiction conferred under this sub-section of s222. In the first instance, where there is a doubt, that is where a question has been raised, whether Pt X has been complied with in material respects, the court is given the power, by s222(1), to embark upon an examination of the question raised. Then, by s222(2), the court is given the authority to adjudicate on the matter. In the exercise of the judicial power and discretion conferred by s222(2),the court may make orders as there described or it may dismiss the application on the ground that the Act has been complied with or may dismiss it on other, including discretionary, grounds."
Grounds
The applicant relies on a number of grounds as the basis for a declaration that the Deed of Arrangement purportedly authorised on 21 April 1995 should be declared void under s222. These grounds include the following:
•There was no notice given of the adjourned meeting of 21 April 1991 at which the resolution was passed which approved entry into the Deed of Arrangement.
The Minutes
The Minutes of the meeting of 12 April 1995, record the following.
"PROOFS OF
DEBT AND
APPOINTMENT
OF PROXIES: The Chairman advised that solicitors acting for the creditor "Champion Communications" had queried the validity of debts owed to certain family members and business associates of the debtor. In this regard, the Chairman, pursuant to Section 201 of the Bankruptcy Act, 1966, adjourned the meeting to 2.00 pm, on the 20th April, 1995 to allow time to investigate proofs of debt lodged by the creditors.
ADJOURNMENT: There being no further business for the meeting to conduct, the Chairman declared the meeting adjourned at 10.20 am.
SIGNED and DATED this 12th day of April, 1995"
The Minutes of the meeting held on 20 April 1995 record:
"PROOFS OF
DEBT AND
APPOINTMENT OF
PROXIES: The Chairman advised that as a result of creditors slow response in providing supporting documentation for their proofs of debt, his investigations into the validity of debts owed to family members and business associates of the debtor had not been completed. In this regard, the Chairman, pursuant to Section 201 of the Bankruptcy Act, 1966, adjourned the meeting to 12.00 noon, on the 21st April, 1995, to allow time to finalise his investigation of the proofs of debt lodged by the family members and business associate creditors.
ADJOURNMENT: There being no further business for the meeting to conduct, the Chairman declared the meeting adjourned at 2.15 p.m."
It is clear that both meetings were adjourned pursuant to s201 to enable the Chairman to investigate the challenged entitlement to vote by some of the creditors.
Following the adjournment resolved upon at the meeting of 20 April, no notice was given to Champion and there is no indication that any written notice was given to any other creditor who did not attend the meeting on 20 April. Written notice had of course been given for the meetings of 12 and 20 April and this conduct justified, in my view, an expectation on the part of Champion that it would be notified, in writing, of the date, time and place of the meeting adjourned on 20 April. I refer to this later in these reasons.
Authorities
The submissions did not refer to any authority directly in point in relation to whether notice is necessary in respect of a meeting adjourned pursuant to s201 of the Act.
However, in Re Kleiss; Ex parte McDonough (1969) 15 FLR 281, Gibbs J held that a Deed of Assignment may be declared void if it appears that any number of creditors whose debts are of substance were not given an opportunity to attend the initial meeting of creditors, called under s194 of the Act. At 283 his Honour said:
"Section 194(2) requires notice of a meeting to be given to each person who is stated by the debtor to be a creditor. It does not follow from the provisions of this section that if a debtor fails to notify a solicitor of some of his creditors the Court will necessarily uphold a deed executed pursuant to the resolution of a meeting attended only by the other creditors. On the other hand, the inadvertent omission of some creditors will not necessarily result in the invalidation of the deed."
His Honour, at 283, went on to say:
"It appears that the deed was executed pursuant to the resolution of a meeting of which no notice was given to one substantial body of creditors and, further, that the execution of the deed did not effectuate the intention of the creditors who resolved upon its execution. From every point of view the deed ought to be set aside to enable the creditors to consider whether or not they wish to resolve upon the execution of the deed of arrangement in the appropriate form."
His Honour declared the deed void. The case provides some guidance as to the importance of a failure to give notice.
The facts of that case are, however, different from the present in that the notice in question, there, related to the initial meeting and not to an adjourned meeting. Further, all creditors of one of the businesses, were not notified. There was therefore an entire class of creditors who received no notice.
In the present case there are different procedural requirements which result from amendments to the Act. Nevertheless, as in Kleiss, the present is not just a case of "inadvertent omission". This is apparent when consideration is given to the sequence of events between 10 April and 21 April 1995.
Reliance was placed on behalf of Worrell on the decision of Pincus J in Re Beames; Ex Parte Beneficial Finance Corporation Ltd (1985) 7 FCR 216. In that case, Pincus J distinguished the Kleiss decision on the basis that in that case, there was failure to notify an entire class of creditors, whereas in the case before his Honour, there was failure to notify only one creditor. His Honour regarded Kleiss as authority for the proposition that where a whole class of creditors is not notified, s222(1) may apply. Again, that case is distinguishable because it turned on failure to disclose a debt of the applicant, which exceeded half a million dollars. Accordingly, that decision turned on the applications of ss222(4) and (5) of the Act, which concerns the effect of the omission of material particular from the statement of the debtor's affairs.
The applicant referred to the decision of the Full Federal Court in Farrow Mortgage Services Pty Ltd (In liquidation) v Abeyratne (1993) 47 FCR 208. In that case their Honours said at 215:
"Under s201, the chairman has power to adjourn the meeting for a limited time to enable him to investigate any question as to the right of a person to vote at the meeting. There is merit in the view that the chairman can make one adjournment only with respect to any one creditor."
The above statement is not relevant in the present matter because the adjournment on 20 April related to more than one creditor. Moreover, I can perceive nothing in the Act to indicate that a meeting adjourned under s201 cannot be further adjourned if the investigations are not finalised within the 14 day period referred to in that section. In my view, it would be odd, if, at the date of the first adjourned meeting, investigations were expected to be complete within hours or possibly a few days, there could not be a further adjournment of the meeting. The section is silent in relation to whether there can be more than one adjournment, and in my view, there is no basis for implying such a limitation.
The Issue
The question is whether the meeting of 21 April 1995, was invalid due to the failure to give notice to Champion.
Reasoning
Rule 85A of the Bankruptcy Rules provides:
"85AThe provisions of Division 5 of Part IV of the Act with respect to the holding and conduct of a meeting held under section 64 of the Act apply, so far as they are capable of being applied, to the holding or conduct of a meeting held under Division 2 or Division 3 of Part X of the Act." (Emphasis added)
This rule operates to apply Part IV, Division 5 to a meeting of creditors under s188. Part IV, Division 5 includes provisions requiring written notice of an adjourned meeting of creditors.
Rule 85A uses the expression "with respect to the holding and conduct of a meeting held under s64".
The expression "with respect to " indicates that an extensive approach should be taken to the interpretation of the provision. The rule makes applicable the provisions of s64Y which requires notice of an adjourned meeting.
Section 64 of the Act requires a trustee to convene a meeting of the creditors of the bankrupt. Sections 63A to 64ZE provide a detailed set of provisions which regulate creditors' meetings and the procedures to be followed with respect to those meetings.
The purpose of the procedural regime set out in Part IV and applied to Part X was to augment the limited provisions which existed prior to 1992, dealing with the manner in which business at meetings of creditors should be conducted. The Bankruptcy Amendment Bill 1991 was designed to insert procedural provisions which would clearly elaborate the procedures to be followed at meetings of creditors, so that trustees were made aware of their responsibilities and also that creditors were aware of their rights. See Second Reading Speech, Senator McMullin, Hansard, Senate, No 20, 14 November 1991 at 3131.
Section 64Y of the Act which is part of Division 5 of Part IV provides:
"64Y(1) If, at any time during a meeting, the meeting is adjourned, ... :
(a) the adjourned meeting is taken to be a continuation of the original meeting; and .....
(2) The trustee must give notice of the time, date and place of the adjourned meeting to each creditor in accordance with subsection 64A(2)"
Section 64A(2) requires that Notice of a meeting must be in writing and delivered by post, lodged with a document exchange or sent by fax.
There is nothing in s201 of the Act which renders the requirements of s64Y(2) incapable of application to the convening or conduct of an adjourned meeting under that provision.
Accordingly, as a result of the above provisions, compliance with Part X, requires that notice of a meeting adjourned under s201 of the Act, must be given in writing to each creditor. The section is mandatory in terms and effect. Section 64ZF provides that a meeting is not invalid because a requirement has not been strictly complied with, if the requirement has been substantially complied with.
In the present case, no Notice at all was conveyed to Purvis of the meeting, until after the meeting had been held. This is not a case of substantial compliance. There was simply no compliance.
The fax of 21 April 1995, sent at 10.45am to the office of Purvis, made no reference to any meeting on that date. It simply enclosed 3 statutory declarations and made brief statements about 2 other creditors. I accept that Purvis did not become aware of the meeting until 3.15pm, which was more than 2 hours after it had been held and the Deed approved. On becoming aware of the meeting he immediately, faxed the letter of 21 April 1995.
Moreover, the sending of the statutory declarations indicated that McLeary was well aware of the expectation of Champion to be informed of the details of the Proofs of Debt so it could make representations as to whether creditors should be accepted as entitled to vote. This was also the understanding of Purvis as indicated by his fax of 21 April 1995, after becoming aware that the meeting had already taken place.
Further, it is clear that Purvis was not appraised of the meeting and that he was given an assurance that McLeary would talk to Worrell, in relation to the bona fides of the creditors, and would "get back" to Purvis before the meeting. In fact, not only was no notice given of the meeting, but the assurance, given on 20 April, was not complied with. In the cross-examination of Purvis, the following exchange took place in relation to the conversation with McLeary:
"A.... I think it would be McLeary ....
Q.And he is an officer in the ...?
A..... Worrell Whitehall (sic) ...
Q.Now, is it true that as of the 20th you were aware of the meeting that was to be held on the 21st?
A.No, I was aware that - the conversation I said that I - I said that the matter will have to go over to appraise the creditors as (sic) whether they are bona fide and he said he would talk to the trustee about the matter and get back to me before the meeting.
QDid you not ascertain from him in the course of that conversation when the next meeting had been - the day that the next meeting had been decided?
A.No." (Emphasis added)
In fact no-one "got back" to Purvis before the adjourned meeting.
As a result of the non compliance, Champion which was owed more than $177,000 was deprived of an opportunity to further consider the companies' positions at the adjourned meeting and to advance any arguments as to the voting rights of the other creditors. It may well have been that, if given proper notice, Purvis may have wished to arrange for the proxies to be revoked and for a representative to personally attend the meeting and present the case on behalf of the Champion creditors.
The circumstances of the present case disclose that there was more than simply a mere failure to give notice of an adjourned meeting. The correspondence, conduct and telephone communications between Purvis, McLeary and Worrell make it clear that the adjournments were based on the request by Purvis, acting for Champion. Champion wanted more information as to the debts of the alleged creditors. This information was sought by Champion, to enable it to make submissions to the meeting, as to the sufficiency of the Proofs of Debt and as to the rights of some alleged creditors to vote. This position was expressly reserved by Champion in the fax of 19 April 1995. Moreover, Worrell and his employees had led Purvis to believe that there would be some notice of an adjourned meeting on 21 April, by giving formal written notice of the time, place and date of the meeting of 20 April 1995. In addition, the conduct of Mr Khatri, who chaired the meeting of 21 April, in sending the 3 statutory declarations was on the basis of his understanding that Champion creditors would want to make representations with respect to declarations.
Yet, notwithstanding these matters, the meeting went ahead with no notification to Champion. This lack of notice was known to Mr Khatri when he chaired the meeting.
In view of the assurance given the previous day by McLeary and the inability to "get back" to Purvis on 21 April, the meeting should have been either further adjourned or stood down until later in the afternoon, after there had been an opportunity to discuss and clarify the situation with Purvis.
The statutory declarations were sent to a solicitor in Sydney, only 75 minutes before the Brisbane meeting was scheduled to open.
Even if, (which I do not accept), the fax of 21 April could be said to amount to notice, it was clearly so short and unreasonable, as to have no practical or legal effect.
In my opinion, the essential difficulty with the respondents' case, is that Champion was unaware of the meeting and was deprived of an opportunity to advance submissions, in circumstances, where the prior conduct on behalf of Worrell, was such as to induce an expectation that: (a) it would be notified of the time and place and date of the adjourned meeting and (b) would be given an opportunity to express its views on the further material resulting from investigation, between 12 and 21 April 1995.
In these circumstances, there was considerably more than a failure to give notice of an adjourned meeting. There was a breach of a clear understanding and a failure to act in accordance with a mutually and reasonably anticipated course of conduct, namely giving adequate notice, based on previous correspondence and discussions between the parties.
Deed of Arrangement - discretion - interest of creditors
The Deed provides for the assignment of the trustee of the respondent's interest in an action against Reuben Perelman in the Supreme Court of Queensland for $200,000, on the basis that (i) Feltham will assist in the pursuit of the action; (ii) that Davies, a creditor will indemnify the Trustee for the cost of pursuing the action; (iii) the costs and expenses of the action will be first refunded to Davies and the debtor and creditor will share the balance equally; (iv) Feltham covenants to obtain a release from Davies from any claim for money lent to or on behalf of Feltham; (v) Feltham conveys and assigns to the Trustee, all his divisible property for the benefit of creditors of the debtor and (vi) any surplus will be held on trust for the debtor. Finally no settlement of the action will take place without the consent of the trustee.
Davies is listed in the Report of 28 March 1995 as being owed $175,000. The fax of 21 April 1995, from McLeary states that she is not entitled to vote at the meeting, as she was disqualified under s198(7). That subsection refers to the wife or de facto spouse of a debtor.
The Trustee's opinion expressed in the Report of 28 March, was in favour of entry into the Deed.
However, if a sequestration order is made, the trustee in bankruptcy will not sacrifice 50% of the recovery. Feltham's solicitors, Baker Johnson, advise that Feltham has a "good to high" chance of winning the action, so long as Feltham continues his support of the claim. I am not satisfied that it would not be practicable for a trustee in bankruptcy to pursue such a claim. Nor am I satisfied that there is any assurance that Davies can or will meet the costs of the claim if the Deed is approved.
Accordingly, I do not believe, bearing in mind the interests of creditors, that there is any discretionary consideration
sufficient to justify the refusal of the declaration to which the applicant creditors are entitled.
In view of the conclusion I have reached, it is not necessary to consider the other grounds raised at the hearing of the application.
My conclusion is that the Deed should be declared void under s222(2)(a).
I direct the parties to bring in Short Minutes to give effect to these reasons.
I certify that this and
the preceding twenty-eight
(28) pages are a true copy of the
Reasons for Judgment herein of
his Honour Justice Tamberlin.
Associate:
Date: 4 April 1996
Counsel for Applicant: Miss J Oakley
Solicitor for Applicant: David R Purvis & Co
Counsel for Respondent: Mr J S Drummond
Solicitor for Respondent: Kalyk Nash
Date of Hearing: 9 November 1995
Date Judgment Delivered: 4 April 1996
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