Re Franco, G.F. v Ex Parte Deputy Commissioner of Taxation

[1994] FCA 492

RE: GIUSEPPE FRANCESCO FRANCO
EX PARTE: DEPUTY COMMISSIONER OF TAXATION
No. NP2881 of 1993
FED No. 492/94
Number of pages - 3
Bankruptcy
(1994) 51 FCR 595

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
WHITLAM J

CATCHWORDS

Bankruptcy - joint debts and separate debts - creditor's petition in respect of separate debt - whether creditor bound by deed of arrangement executed by joint debtors.

Bankruptcy Act 1966, ss 187(3), 187A, 188, 204, 213, 233(1) and (2)(a)

HEARING

SYDNEY, 5 May 1994
#DATE 29:7:1994

Counsel for the debtor: Brian J. Skinner
instructed by Kelso and Associates

Counsel for the creditor: Murray Aldridge
instructed by Australian Government Solicitor

JUDGE1

WHITLAM J Creditor's petition and application under Part X of the Bankruptcy Act 1966 ("the Act").

1. The Deputy Commissioner of Taxation presented a petition against the debtor on 6 September 1993. The act of bankruptcy alleged is the fact that the debtor signed an authority under s 188 of the Act. The debtor opposes the petition on the ground that, since a deed of arrangement had become binding on his creditors on 5 July 1993, it was not competent for the Deputy Commissioner to present the petition by virtue of s 233(2)(a) of the Act.

2. Accordingly, on 11 February 1994 the Deputy Commissioner filed an application seeking various forms of relief, including orders under Part X of the Act declaring void or terminating any such deed of arrangement and a sequestration order against the estate of the debtor. By consent both proceedings were heard together.

3. The facts are not in dispute. On 13 May 1993 the debtor gave his solicitor, Mr Peter Kelso, a statement of affairs and a statement indicating how he proposed that his affairs be dealt with under Part X of the Act. The statement of affairs showed the Deputy Commissioner of Taxation as an unsecured creditor. The other statement proposed that:
   

"my affairs be dealt with under Part X in the following manner:

1. That a Deed of Arrangement be entered into in pursuance of Part X. A pro forma Deed is annexed.

2. That my separate creditors share equally in the same fund as the joint creditors of myself and Suzanne Mary Franco."

The parties to the annexed deed referred to in the statement were the debtor and his wife Suzanne Mary Franco (who were collectively defined as "the debtor") of the one part and Mr P D Rodgers, as trustee, of the other part. It should be observed that the deed did not make express provision to the effect of item 2 of the proposal.

1. The debtor and his wife, whom I shall for convenience hereafter call the joint debtors, also gave the same solicitor, Mr Kelso, on 13 May 1993 a statement of their joint affairs and a statement of how they proposed that their affairs be dealt with under Part X of the Act. Their statement of affairs did not disclose the Deputy Commissioner as a creditor. Their other statement proposed that:
   

"our affairs be dealt with under Part X in the following manner"

1. That a Deed of Arrangement be entered into in pursuance of Part X. A pro forma Deed is annexed.

2. That our joint creditors share equally in the same fund as the separate creditors of Giuseppe Francesco Franco."

The deed annexed to that statement was identical with that annexed to the debtor's statement.

1. On the same day, 13 May 1993, the debtor signed an authority for the purposes of s 188(1) of the Act authorizing Mr Kelso to call a meeting of his creditors. So too did the joint debtors in respect of their joint creditors. Mr Kelso consented that very day to call the meetings. All the signatures were attested. The two authorities thus became effective for the purposes of Part X of the Act: see s 188(2).

2. The creditors' meetings were held concurrently at Mr Kelso's office between 2.30 pm and 3.46 pm on 15 June 1993. Mr Kelso chaired the meetings and signed the minutes of the proceedings, which have been filed in the office of the Registrar.

3. At the meeting of the separate creditors of the debtor a proxy of the Deputy Commissioner of Taxation was admitted to vote. A special resolution requiring the debtor to execute a deed of arrangement was not passed.

4. At the meeting of the joint creditors of the joint debtors, the Deputy Commissioner's proxy did not claim to be entitled to vote, and a special resolution was passed requiring the joint debtors to execute a deed of arrangement. The meeting of joint creditors then passed a resolution nominating Mr P D Rodgers to be trustee of the deed of arrangement to be executed by the joint debtors. On 17 June 1993 Mr Kelso signed the prescribed certificates as to the passing of these resolutions at the meeting of the joint creditors of the joint debtors. The certificates were filed, together with the trustee's consent and declaration, on 21 June 1993. On 5 July 1993 the joint debtors and Mr Rodgers executed a deed of arrangement in the form annexed to their proposal dated 15 May 1993.

5. Section 233 of the Act provides (so far as relevant):
   

"233(1) A deed of arrangement that is entered into in accordance with this Part and complies with the requirements of this Part is, upon being duly executed by the debtor and the trustee, binding on all the creditors of the debtor.

(2) ... where a deed of arrangement has become binding on the debtor's creditors, it is not competent for a creditor, so long as the deed remains in force:

(a) to present a creditor's petition against the debtor, or to proceed with such a petition presented before the deed became so binding, in respect of a provable debt;"

1. Counsel for the debtor submits that the deed executed on 5 July 1993 is binding on the separate creditors of the debtors. He relies particularly on the expression "all the creditors of the debtor" in s 233(1). Counsel for the Deputy Commissioner submits that, upon the true construction of the deed executed on 5 July 1993, his client does not fall within that deed's definition of "creditor". I accept that submission so far as it goes, but it does not seem to me to be a complete answer to the submission on behalf of the debtor, if the expression "all the creditors of the debtor" may have a meaning beyond the terms of the deed itself.

2. Section 187A provides that Part X of the Act applies in relation to joint debtors. Where, as here, two s 188 authorities have been given, one by the debtor alone and the other by the joint debtors, it is necessary to distinguish between the proceedings at the two separate meetings. As I have already noted, only the joint debtors were required by their joint creditors to execute a deed of arrangement. The deed executed by the joint debtors on 5 July 1993 would be void, by virtue of s 213, unless "it is entered into in accordance with" Part X of the Act. Only a deed required by a special resolution under s 204 of the Act fulfils this prescription.

3. On the other hand, the separate creditors of the debtor did not pass such a special resolution. Since they did not require the debtor to execute a deed of arrangement, it cannot be said, so far as they are concerned, that the deed dated 5 July 1993 had been "entered into in accordance with this Part" for the purposes of s 233(1). Plainly where such a deed has been executed by joint debtors in that capacity following a meeting of their joint creditors, the expression "all creditors of the debtor" must be read to refer only to all joint creditors of the joint debtors.

4. That this is the correct interpretation becomes clearer, as counsel for the Deputy Commissioner submits, when one looks at the limitation on a creditor's rights contained in s 233(2). A creditor's petition may, of course, be presented against joint debtors. Section 187(3) provides an interpretation of "provable debt" as "a debt ... that would have ben a provable debt in the debtor's bankruptcy if the debtor became a bankrupt on the day on which he executed the deed."

5. The present case is a good example. The Deputy Commissioner could not prove his debt in a joint bankruptcy. He is a separate creditor of the debtor. This illustrates the point that the limitation under s 233(2) must mirror the provisions of the deed of arrangement. When there are joint debtors, the position must be carefully considered.

6. Accordingly, in my opinion, the creditor's petition may proceed. I think that this makes it unnecessary to deal with the Deputy Commissioner's application filed 11 February 1994, since what was ultimately sought in that proceeding was a sequestration order against the estate of the debtor, which I now propose to make.