Re Feltham, Paul Richard (Judgment Debtor) Ex Parte Double Bay Newspapers Pty Ltd
[1996] FCA 451
•6 Jun 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 Creditors
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 6 JUNE 1996
MINUTE OF ORDERS
THE COURT ORDERS:
The Scheme of Arrangement accepted on 21 April 1995 be annulled.
That the creditors' costs of the annulment application be paid by the debtor.
That the application for amendment of the 1995 application, by addition of an application for sequestration, be refused.
NOTE:Settlement and entry of orders is dealt with in accordance with order 36 of the Federal Court Rules,
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 Creditors
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 6 JUNE 1996
REASONS FOR JUDGMENT
On 4 April 1996 reasons for judgment were delivered in which I foreshadowed granting an application for an order that a Deed of Arrangement, entered into pursuant to a resolution passed at a meeting of creditors on 21 April 1995, was void under s222 of the Bankruptcy Act 1966 (Cth) ("the Act"), on the ground that the meeting had not been properly convened.
The annulment application was filed on 5 May 1995. At that time there was a Creditors' Petition on foot, which had been filed on 9 December 1994. No application was made for an extension of this petition within time and it has now expired.
The application of 5 May 1995 did not include an application for a sequestration order against the estate of the debtor. It sought a declaration that the Deed of Arrangement, between the debtor and Ivor Worrell is void or, alternatively, that pursuant to s236 of the Act, that Deed of Arrangement between the debtor and Ivor Worrell be terminated, such further or other order as the Court deems fit and costs.
On 22 May 1996, a fresh application was sought to be filed, seeking a sequestration order. Although this bore a Court stamp, it was not formally filed, but a copy was served on the debtor on or shortly after 22 May.
When the matter came before me on 4 June 1996, the applicant sought to amend the s 222 application of 5 May 1995, by including in it an application for a sequestration order. The applicant submitted that I should make a summary sequestration order forthwith.
In order to do this, it is of course necessary that leave be granted to amend the 1995 application to add the application for sequestration.
Section 222(7) of the Act provides:
"(7) The trustee or a creditor may include in an application under subsection (1) or (4) an application for a sequestration order against the estate of the debtor and if the Court, on the first-mentioned application, makes an order under subsection (2) or (4) declaring the deed or composition to which it relates to be void, it may, if it thinks fit, forthwith make the sequestration order sought."
Section 222(9) reads:
"(9) The making of an application by the trustee or a creditor for a sequestration order under this section shall, for the purposes of this Act, be deemed to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of subsection 43(1), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply in relation to such an application."
Under s222(8) the Court has a discretion to dispense with service on the debtor of notice of an application of a creditor under s222, with or without conditions.
The reason the applicant seeks to have a summary sequestration order made instanter, is that the debtor has signed an authority to call a fresh meeting of creditors in order to consider entry into a Deed of Arrangement. This meeting is to be held on 12 June 1996.
The creditor seeks to rely on two acts of bankruptcy. These are set out in s40(1) of the Act which provides:
"40(1)A debtor commits an act of bankruptcy in each of the following cases: ...
(i) If he signs an authority under s188;
....
(m) if a deed of assignment or a deed of arrangement executed by him under Part X or a composition accepted by a meeting of his creditors under that Part is declared to be void by the Court. ..."
At the present stage of the proceedings I have foreshadowed, but not yet made, an order declaring the Deed of Arrangement void.
I am satisfied, that there is power in the Court, pursuant to s33 of the Act and r108 of the Bankruptcy Rules to permit the amendment of the application, even at this late stage.
Two issues are raised by the creditors' submission. The first is whether I should exercise the discretion to allow the amendment. The second is whether in the exercise of the discretion conferred by s222(7), which is in wide terms, I should make a summary sequestration order.
The legal principles relevant to the making of a summary sequestration order were considered by Gibbs J in Re A Scheme of Arrangement; Wangaratta Woollen Mills Ltd v Driller (1969) 14 FLR 267. In that case an application was made for annulment of a Scheme of Arrangement, under Pt XI of the Bankruptcy Act 1924-65 (Cth), and an order for summary
sequestration under s161(h) of that Act. After considering the authorities, his Honour said at 277:
"In my opinion the Court which annuls the scheme has to exercise its discretionary power to grant a summary sequestration order in the light of all the circumstances of the case, without inclining prima facie one way or the other."
In that case his Honour declined to make a summary sequestration order and at 278 and 279 respectively said:
"In exercising its discretion under the ... section, in my opinion, the court, although it must obviously consider the benefit that the creditors will gain from a sequestration order, ought not to exclude from consideration the possible detriment to the debtor."
"I have given anxious consideration to the question whether a summary sequestration order ought to be made, but notwithstanding my firm opinion that the court should do whatever is possible to enable the assets of the partnership to be sold without delay, it seems to me that there are good reasons to refrain from making a summary order."
That decision was followed and applied by Kearney J in the Northern Territory Supreme Court in Tsangaris v Gaymark Investments Pty Ltd (1986) 39 NTR 15 at 19.
As mentioned earlier, the ground on which the Deed of Arrangement was found to be void, was that there had been a failure to properly notify the applicant creditor of the relevant meeting. This was procedural in nature. A fresh meeting of creditors has now been convened to consider a modified scheme and this is due to be held on Wednesday 12 June 1996. It is not appropriate for me to express any view on the merits or appropriateness of this scheme. Its acceptability is a matter for the creditors. In these circumstances, there is substantial force in the submission that a summary sequestration order should not be made.
In addition, the foreshadowed application for a summary sequestration order has been made at a very late stage in the proceedings and the issues raised by it were not considered at the earlier hearing before me.
Upon making of the formal order that the Deed of Arrangement is void, it is open for the applicant to take out a petition based on that act of bankruptcy. The failure to obtain a summary sequestration order therefore does not deprive the applicant of an opportunity to assert its right, but simply requires that the usual procedure be followed.
I appreciate that, having regard to the matters raised on the hearing of the application to set aside the Deed of Arrangement, the applicant may entertain some concern as to the results of the proposed meeting. However, this is not a sufficient basis to justify the Court acting in such a way as to deprive the creditors of the opportunity, in a properly
convened meeting, to consider and vote on what they believe to be their best interests.
The petitioning creditors have submitted that there are arguably some irregularities in the convening of the meeting but these are not matters which are appropriate to determine at this stage. They will have the opportunity to ventilate their concerns at the creditors' meeting including the raising of any procedural irregularities and take such action as they may be advised.
On weighing the respective interests of the applicant creditor, the debtor and the creditors generally, my conclusion is, that while the Court has power to make the summary sequestration order, it ought not do so in this case for the above reasons.
As I have reached this conclusion it is not necessary to determine the procedural question as to whether an amendment ought be allowed at this late stage.
Accordingly, the orders I make are as follows:
That the Scheme of Arrangement accepted on 21 April 1995 be annulled.
That the creditors' costs of the annulment application be paid by the debtor.
I make no order as to the costs of the hearing before me on 4 June 1996 and today relating to the aplication for summary sequestration.
I certify that this and
the preceding seven (7)
pages are a true copy of the
Reasons for Judgment herein of
his Honour Justice Tamberlin.
Associate:
Date: 6 June 1996
Counsel for Applicant Creditors: Miss J Oakley
Solicitor for Applicant Creditors: David R Purvis & Co
Solicitor for Respondent Debtor: Kalyk Nash
Date of Hearing: 4 June 1995
Date Judgment Delivered: 6 June 1996
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