Re Fey, F. & Anor v Ex parte Inspector-General in Bankruptcy

[1994] FCA 36

3 6

JUDGMENT No. ........ , .... ,... J m ,..,, 4k

CATCHWORDS

BANKRUPTCY - order declaring deeds of assignment void - person wrongly permitted to vote as proxy - lack of quorum - resolutions concerning joint and separate estates of debtors intermingled - failure to pass resolution nominating trustee.

Bankruptcv Act 1966, ss 200(3A), 202(1), 204(4), 222(1) and (2)

Bankruptcv Rules, r 100C

Musolino v Sidiroooulos (1991) l01 ALR 235
Re Williams: Ex varte Official Trustee in Bankruptcy (1990) 26 FCR 191

Re: Frank Fev and Jeanette Elizabeth Fey Ex parte: Insvector-General in Bankruutcy

-

v

Paul Conway

No. NX 72 of 1991

Coram:	Whitlam J
Place:	Sydney

Date:  21 January 1994

IN THE FEDERAL COURT OF AUSTRALIA )

GENERAL DIVISION	1	NX 72 of 1991
BANKRUPTCY DISTRICT OF THE STATE	)
OF NEW SOUTH WALES

Re: FRANK FEY and

JEANETTE ELIZABETH FEY

Ex Parte: INSPECTOR-GENERAL IN BANKRUPTCY

Applicant

PAUL CONWAY

Respondent

Corm:  Whitlam J

Place: Sydney

Date:  21 January 1994

REASONS FOR JUDGMENT

This is an application by the Inspector-General in
Bankruptcy under s 222 ( 1) of the Bankru~tcv Act 1966 ( "the Act")

relating to separate deeds of assignment executed by M r and Mrs

who consented under s 188(2) of the Act, to call the meeting of	Fey, who are husband and wife. The respondent is the solicitor,
each debtor's creditors.

The grounds specified in the application are :
"(i) resolutions concerning the joint and separate

estates of the debtors were intermingled and were accordingly not authorised under Part X of the Act; and

(ii)no resolution was passed nominating a trustee of each of the deeds as required by Section 204(4) of the Bankruptcy Act;

(iii) in respect of the meeting of Jeanette Fey, there was no quorum as required by Section 202 of the Bankruptcy Act;

(iv)in respect of the meeting of Frank Fey, there was no valid special resolution passed by the

meeting. "

The applicant also sought an order that the costs of the application be paid by the respondent.

At the hearing of the application the debtors did not
appear, although the respondent had earlier filed a notice of

appearance on their behalf. Counsel for the respondent did,

however, read the affidavits filed on behalf of the debtors in

opposition to orders that the deeds be declared void. Gavin

Thomas, who had consented to act as trustee of the deeds, was also represented by counsel at the hearing.

The meetings in question were held on 19 June 1991. Mr and Mrs Fey had signed separate authorities to call meetings of their several creditors. Although they had joint liabilities too, they had not signed a joint authority to call a meeting of their joint creditors. The meetings of their several creditors were held concurrently.

The respondent was elected chairman of the meetings. He prepared and signed minutes of the meetings, which he lodged in the Registry for filing on 21 June 1991. The Deputy Registrar raised certain requisitions in respect of the minutes, and on 2 July 1991 the respondent filed "amended" minutes for Mr Fey, apologizing for a "typographical error", and "corrected" minutes for Mrs Fey, apologizing for "inadvertent errors."

On 19 July 1991 the Official Trustee wrote to the respondent drawing attention to apparent deficiencies in the meetings, including the failure to pass resolutions nominating a trustee of the deeds of assignment. The respondent replied on 25 July 1991, informing the Official Trustee (inter alia) that the "meeting" resolved to appoint Mr Thomas as trustee for each debtor.

The respondent had written to Mr Thomas on 20 June 1991, informing him that he had been "elected" as trustee and enclosing the deeds of assignment for execution by him. The deeds were executed by Mr Thomas and filed on 5 July 1991. However, an officer of the Official Receiver subsequently met Mr Thomas and evidently drew to his attention the omission from the minutes of a resolution under S 204(4) of the Act. Mr Thomas then apparently took the view that he had not been nominated as trustee of the deeds. On 23 September 1991 the respondent wrote to Mr Thomas, acknowledging the omission in the minutes, but insisting that a resolution appointing him as trustee had been passed. These proceedings were commenced on 24 March 1992.

The nature of the power conferred by S 222 of the Act has

been explained by the Full Court in Musolino v. Sidiro~oulos
(1991) 101 ALR 235 at 243-245. Counsel for the respondent did not
submit that a relevant doubt had not been raised about the
matters specified in grounds (i)-(iv) of the application. It is
clear that the Court is empowered by S 222(2) to adjudicate on
those questions. Indeed, the respondent concedes the
contraventions alleged in grounds (i) and (iii) but submits that,
as a matter of discretion, the Court ought not to declare the
deeds void on those grounds. Grounds (ii) and (iv) are contested
by the respondent. It is convenient to deal with those grounds
now.

The minutes filed on 2 July 1991 are, by virtue of S 225(4) of the Act, prima facie evidence of the proceedings at the meeting on 19 June 1991. They do not record the passing of a resolution under S 204(4). Three persons, who were at the meeting, have given evidence: Mr Paul Fuller, Mrs Fey and the respondent.

Mr Fuller is a director of a company which claimed to be a creditor of Mr and Mrs Fey. He was adamant that no resolution was proposed at the meeting nominating Mr Thomas as trustee. Mrs Fey obviously had no recollection, one way or the other, whether there had been a vote on such a resolution. The respondent said that there had been two such resolutions, one in respect of Mr Fey and one for Mrs Fey.

However, I am quite satisfied that no resolution was proposed or passed at the meeting on 19 June 1991, nominating Mr Thomas as trustee. Mr Fuller was a witness who answered questions carefully and thoughtfully, if occasionally a little testily. He readily agreed that the trustee's consents may have been available at the meeting, but he left me in no doubt that he would understand if a resolution on any subject had been proposed or passed. I accept his evidence. On the other hand, the respondent's evidence was quite illogical. He insisted that the resolutions nominating Mr Thomas as trustee were passed prior to the special resolutions requiring Mr and Mrs Fey to execute deeds of assignment. This would, of course, make no sense and is quite

kinds of special resolution under s 204(l) (b)-(e) of the Act	contrary to the scheme of s 204 of the Act. After all, any of the
could have been passed. In addition, there is the fact, acknowledged by the respondent in cross-examination, that he did not sign a certificate under s 215B of the Act (though he wrongly so entitled the certificate filed under s 204(7) (a) of the Act). This suggests that the respondent failed to pay attention to the need for a resolution nominating the trustee. He had annexed to his affidavit sworn 29 June 1992 what he described as an agenda note used as an aide-memoire at the meeting, which included as the final item "Appointment of Trustee ordinary resolution." That reminder may have been there at the meeting and the respondent may believe that he proposed such a resolution, but my confidence in finding that no such resolution was proposed is strengthened by the respondent's manifest inattention to detail in so many matters affecting the debtors1 affairs and proposals.
This brings me to the validity of the special resolution supposedly passed in respect of Mr Fey. The minutes filed on 2 July 1991 do record such a resolution in terms of S 204(l)(b) of the Act, although the certificate filed for the purpose of s 204(7)(a) is wrongly entitled and fails to identify the resolution as a special resolution. Nonetheless, the minutes are prima facie evidence under s 225(4) of the Act. I do not think that this question matters much in view of the concession made by the respondent in respect of ground (i) of the application. However, the doubt having been raised, I shall determine this
question too.
In order to resist a finding that a special resolution was not passed in respect of M r Fey, the respondent is obliged, in effect, to submit that he was entitled to vote as proxy for a Mrs Phyllis Fey. However, S 200(3A) of the Act provides that a person is not entitled to vote as proxy of a creditor on a proposed resolution under s 204 unless the relevant instrument authorises the person to vote in a specified manner on (inter alia) a resolution requiring the debtor to execute a deed of assignment. Since the respondent admits that he inserted the word "for" opposite that resolution in the proxy lodged by Mrs Phyllis Fey, this submission must fail. Ground (iv) is also made out.

I am asked by the respondent to exercise my discretion under

s 222(2) of the Act to dismiss the application. I should, therefore, also refer to grounds (i) and (iii). The Bankruptcy Rules, as in force at the time (r 100C), contemplated concurrent meetings in the case of joint arrangements under Part X of the Act. However, as Hill J held in Re Williams: Ex D. Official Trustee in Bankru~tcv (1990) 26 FCR 191, a proposal must be put to the separate creditors in respect of the debts owing to them and a proposal must be put to the joint creditors in respect of the debts owing to them. In this case there is no proposal for a joint arrangement, and it may be doubted whether concurrent meetings are permissible. In any event, the concession by the respondent in respect of ground (i) was properly made. The

minutes make it quite clear that no distinction was drawn between	joint creditors and separate creditors in voting at the meeting.
The lack of a quorum for Mrs Fey, specified in ground (iii), is particularly troubling. Even in the witness box, the respondent persisted in the obtuse view that s 202(1) permitted creditors to be counted for the purposes of a quorum, notwithstanding that they were not entitled to vote. This view does not accord with the description of the quorum in the minutes prepared by the respondent.
The respondent relied on the "balancing process" described by the Full Court in Musolino (at 245) in order to resist an order that the deeds be declared void. The respondent submitted that there was no evidence of any detriment to the creditors of either of the debtors.
However, the correspondence between the respondent and the creditors is not at all comforting. I shall mention one matter. Bank of Melbourne Limited was shown in each debtor's statement of affairs as a secured creditor for a debt of $87,000. On 10 July 1992 the respondent wrote to the bank, informing it (inter alia) of these proceedings. The bank replied on 17 July 1992 that it was unable to locate any account information in the names of the debtors and asked for further details. This letter was apparently not answered by the respondent. However, on 17 August 1992 Sun Alliance Mortgage Insurance limited wrote to the respondent, enclosing a copy of its letter to the respondent dated 3 June 1991. This letter (which, it may be assumed, the
pointed out that Sun Alliance was the mortgage insurer of the respondent received well before the meetings on 19 June 1991)
bank's mortgage from the debtors, that all rights under the mortgage had been assigned to it, and that that company now claimed as an unsecured creditor for the sum of $87,071.41. Yet, over a year later, the respondent fails to write to that creditor, but writes instead to the bank. This strikes me as another example of conduct on behalf of the respondent that can only be described as incompetent.

i
l

Mr Thomas has not entered into the administration of the estates of either of the debtors, and their property was never	I
l
,
subject to his control. There is no time bar under s 222(6) of the Act. I think that it is very much in the interests of the creditors as a whole, and in the public interest, that the Court inte-vene at this stage and that the deeds be set aside.
This leaves the question of costs. Counsel referred me to the cases concerned with costs orders against a "non-party": Bent
v. Gouah (1992) 36 FCR 204; Kniqht v. F.P. S~ecial Assets Ltd
(1992) 174 CLR 178. However, in this case, the respondent is,:in	-
every sense, a party to the proceedings. It does not matter whether he was joined in his capacity as consenting solicitor under s 188(2) of the Act, or as chairman elected under s 196-of the Act to preside at the meetings. The fact is that the
applicant was obliged to commence these proceedings in order to examine the doubts that were raised as a result of the actions of the respondent. It is entirely appropriate too that Mr Thomas
should appear in order to have his situation clarified. The	respondent has unsuccessfully resisted the declaration that I
propose to make. There is, of course, not the slightest
suggestion of dishonesty on his part. I am conscious too that
there is an element of "public duty" in a solicitor giving
consent under s 188 of the Act, and there is a hint in the
respondent's evidence that he even felt an obligation to chair
the meetings in the interests of the creditors. However, as I	1
hope I have made clear, I do not think that the public interest	i I '
or the interests of the creditors have been well served by the respondent's stewardship of the meetings. He hopelessly misinterpreted s 202 of the Act and the then Part IXA of the Bankruptcy Rules, and failed generally to observe the requirements of ss 198-204 of the Act. In my view, the respondent
should pay the costs of the applicant and of Mr	Thomas.
Accordingly, I make the following orders:

1. The deeds of assignment executed by Frank Fey and Jeanette Elizabeth Fey on 20 June 1991 are void on the grounds specified in the amended application filed on 27 June 1992.

2.    The respondent pay the costs of the applicant and Gavin

Thomas.

I certify that this and the preceeding ten pages are a true copy

of the Reasons for Judgment herein of the Honourable M r Justice

A.P. Whitlam.

Date: 21 January 1994

Counsel for the applicant M.R. Aldridge

instructed by Australian Government Solicitor

Counsel for the respondent R.E. Montgomery

instructed by Minter Ellison

Counsel for Gavin Thomas A. C. Hogg

instructed by Simon Beverly and Associates

There was no appearance for the debtors.

Date of hearing:	23 April 1993
Date of judgment:	21 January 1994