Re Fuller, M.J. Ex Parte Claremont Petroleum Nl

Re: MICHAEL JOHN FULLER
Ex parte: CLAREMONT PETROLEUM NL
Nos. SX8, SP3 and SX23 of 1993
FED No. 326
Number of pages - 19
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Hill J(1)

CATCHWORDS

Bankruptcy - meeting convened under Part X of the Bankruptcy Act - claim alleged against debtor - whether debtor guarantor in respect of moneys advanced to a company associated with him and at his direction.

Bankruptcy - meeting convened under Part X of the Bankruptcy Act - whether competent for debtor to grant authority to a solicitor to convene second meeting of creditors to consider composition slightly different in terms to composition rejected by an earlier meeting of creditors - whether grant of authority an abuse of statutory power.

Bankruptcy - Bankruptcy Petition - whether petition should be adjourned to permit second meeting of creditors to proceed.

Bankruptcy Act 1966: ss.188, 192(1), 194(4).

Re Amadio (1979) 24 ALR 455; distinguished.

Pretorius v. Daltons Carpet Tiles Pty Ltd (1984) 54 ALR 743; distinguished.

Saheed v. The Official Receiver (unreported, 17 March 1993, Gray J); approved.

Lancaster v. NZI Capital Corporation Ltd (unreported, Full Court, 11 October 1991); approved.

Clyne v. Deputy Commissioner of Taxation (1984) 154 CLR 589; applied.

Field v. Commercial Banking Co of Sydney Ltd (1978) 22 ALR 403; applied.

Boral Johns Perry Industries Pty Ltd v. Piccardi (unreported, Full Court, 23 June 1989); discussed.

HEARING

ADELAIDE, 14 May 1993

#DATE 20:5:1993

Counsel and Solicitors for Debtor: G L Muecke instructed by

Floreani Coates and Co

Counsel and Solicitors
for Petitioning Creditor: R Whitington instructed by

Piper Alderman

ORDER

(1) In respect of the debtor's application in matter No SX8 of 1993:

(a) Application dismissed.

(b) Debtor to pay petitioning creditor's costs.

(2) In respect of the application by the petitioning creditor in

matter No. SX23 of 1993:

(a) Application dismissed.

(b) Petitioning creditor to pay debtor's costs.

(3) In respect of matter No. SP3 of 1993:

(a) The debtor's motion to adjourn the petition is dismissed.

(b) The debtor to pay the petitioning creditor's costs.

Note: Settlement and entry of orders is dealt with in Rule 24 of the Bankruptcy Rules.

JUDGE1

HILL J Mr Michael John Fuller ("the debtor") is indebted to Claremont Petroleum NL ("Claremont") in the sum of $493,750 plus interest accruing thereon, pursuant to a judgment of Wilcox J entered on 11 September 1992. An appeal against that judgment to the Full Court of this Court was dismissed on 17 December 1992.

On 7 January 1993, Claremont issued a creditor's petition against the debtor in respect of the judgment debt. That petition came before the Court on 24 February 1993. The hearing of it has subsequently been adjourned from time to time until ultimately it was listed for hearing in the week commencing 10 May 1993. It was the understanding of counsel for both parties that it would in fact be listed on the first day of that week. In fact, it was not listed for hearing until 14 May 1993 before me. On that day the debtor sought a further adjournment.
On 23 February 1993 the debtor signed an authority, under s.188 of the Bankruptcy Act 1966 ("the Act"), authorising Mr Gregory Robert Parr, a solicitor, to convene a meeting of creditors. That meeting was convened by notice dated 23 February 1993. According to the debtor's statement of affairs which accompanied that notice, he owed unsecured creditors $3,376,743, secured creditors were owed an amount of $320,000 in excess of the value of their security and he had assets of $33,100, leaving a total deficiency of $3,663,643. The unsecured creditors shown in that statement, the amount of their debt and the manner in which each debt is described is set out in the following table:

CREDITOR AMOUNT OF DEBT NATURE OF DEBT ($) Project Finance Pty Ltd 1,250,000 Loan and guarantee MJ Fuller Services Pty Ltd 710,671 Loan Claremont Petroleum NL 600,000 Judgment debt and interest National Australia Bank Ltd 6,000 Bankcards Fidex International Trust

Company Ltd 543,000 Loans LA Fuller 22,500 Loans Kingston Services Ltd

(London) 244,572 Loans

The adjournment of the creditor's petition on 24 February 1993 was to enable the Part X meeting of the debtor's creditors to be held on 15 March 1993.
The meeting of creditors was called to consider a composition under which the debtor was to pay to the trustee of the composition $6,600 and assign two motor vehicles and a mare with foal at foot or the net proceeds of sale of the cars and animals. This composition fund was to be applied as to $6,600 to pay to Claremont in full satisfaction of its debt, to pay the trustee's remuneration and thereafter in pro rata distribution to the creditors other than Claremont.
At the meeting a number of matters were discussed including the purported debt to Project Finance Pty Ltd. Also discussed, inter alia, were the debts to Fidex International Trust Company Ltd and Kingston Services Ltd. According to the minutes of the meeting held on 15 March 1993, the debtor indicated that neither company had anything to do with his family. I shall return later to this matter. Ultimately the meeting was adjourned until 29 March 1993 to enable the chairman to obtain further evidence of some of the debts, particularly the debt to Project Services Pty Ltd.
At the adjourned meeting the chairman rejected the proof of debt lodged by Project Finance Pty Ltd after considering information supplied in respect of that debt including a statutory declaration of the debtor. Of the debt to Kingston Services Ltd, the name of which at the meeting was corrected to Kingston Services Inc, the debtor said:

"...neither I, nor any member of my family have a beneficial interest in either Kingston Services Inc or The Vilnius Trust."

Of the debt to Fidex International Trust Company Ltd, the debtor said:

"I am not associated with the Company and am not now, and never have been an officer. I have noted a family name mentioned in documentation relating to the company and I know the name of that family."

When asked of any relationship between the company and his family, the debtor replied merely:

"I cannot speak for my wife".

Ultimately the composition was put to the meeting of creditors. The total votes in favour of the composition in value amounted to $1,567,662.04. The vote against the composition amounted in value to $525,607.02. The value of creditors supporting the composition represented 74.89 per centum of the total creditors present and voting with the result that the composition was lost.
On 1 April 1993, the debtor issued an application seeking a declaration that the decision of the chairman to not admit the debt of Project Finance Pty Ltd be set aside and that that debt be admitted for the purposes of voting on the composition to creditors. That application is also before me and logically is the first matter to be decided. If it be decided favourably to the debtor, then, subject to the Court's agreeing to adjourn the petition, the composition would be resubmitted to a meeting of creditors. Since Project Services Pty Ltd had given a proxy to vote in favour of the composition, the result would mean that the composition would have been approved by the creditors.
On 23 April 1993 the debtor signed another authority addressed to another solicitor, a Mr Coates, to call a further meeting of his creditors to consider a further composition. On 27 April Mr Coates sent a letter to creditors but it is clear on the evidence that at least some of the creditors did not receive, with other papers sent by Mr Coates, an actual notice of the meeting. It was, however, clear from one of the documents that the meeting had been convened for 13 May 1993. The probabilities are indeed that none of them did. That meeting was to be called for Thursday, 13 May 1993, that is to say, at a date later than the day upon which the parties understood the petition would be before the Court for hearing. The composition proposed to be considered at that meeting involved the payment to the trustee of a cash amount of $12,000, together with the assignment of the two motor vehicles and the mare with foal at foot, or the net proceeds thereof, referred to in the previous composition. These amounts were to be applied in paying $7,000 to Claremont in full satisfaction of its debt, with the remainder, after payment of the expenses of the trustee, to be divided pro rata among the other creditors. The statement of affairs enclosed with the letter showed a deficiency of assets of $3,707,865. There were nine unsecured creditors listed in the statement, totalling $3,484,665. These included Project Finance Pty Ltd shown as a debtor to the extent of $1,311,129. National Australia Bank Ltd, initially shown as an unsecured creditor to the extent of $6,000, no longer appeared as an unsecured2 creditor, presumably because that amount was covered by the bank's security for which it was shown as a secured creditor. Additionally, there were three creditors not shown in the initial statement of affairs, being Andersons Barker Gosling, solicitors, for legal fees of $5,700, Jackson McDonald, solicitors, Perth, for legal fees of $1,500, and a Mr B G Stephens shown as a creditor for $22,500. Mr Stephens, however, was the assignee from Mrs Fuller of a debt for that amount, the assignment taking place the day after the initial statement of affairs.
When the deficiency of the notice of meeting was drawn to his attention, Mr Coates renotified creditors forwarding to them a copy of the notice of meeting or obtained their consent to the meeting proceeding. The notice forwarded was itself defective in one respect, in that it showed the date of the authority given to Mr Coates by the debtor as being 23 February, that is to say, the date upon which the debtor authorised Mr Parr to call the first meeting. The actual date of the authority was 23 April 1993.
The debtor made an application to the Court, purportedly under s.194(4) of the Act, for a declaration that the failure to give to creditors a notice of meeting should be disregarded. That application came before me initially on 11 May 1993 out of court hours. Ultimately I indicated that an application by the debtor was incompetent as an application under s.194(4) could only be brought on the application of a creditor, a controlling trustee or the solicitor who called the meeting. Mr Coates, who was representing the debtor, then indicated that he wished to be added as a party to that application.
Evidence was ultimately adduced by Mr Coates that all creditors had been notified of the time and place of the meeting. Mr Coates also undertook to advise all creditors of the actual date of the authority given to him to convene the meeting. As will become apparent, the meeting of creditors did not in any event proceed on 13 May 1993, but was adjourned until 1 June 1993. I indicated to the parties that, subject to whether the petition was adjourned, I would make an order under s.194(4) of the Act declaring that the contravention should be disregarded. I deferred, however, the making of orders until after the hearing of the application to adjourn Claremont's petition, since the making of a sequestration order against the debtor would render the s.194(4) application academic.
Claremont challenged the calling of a second meeting of creditors pursuant to s.188, and sought a declaration that the debtor could not authorise the holding of a second meeting and interlocutory relief in the form of an injunction restraining the holding of that meeting. The application for interlocutory relief came on before me on 11 May 1993, together with the application by the debtor to disregard the contravention of s.194 of the Act. Ultimately, on an undertaking being given by Claremont as to damages, I ordered Mr Coates to use his best endeavours to secure the adjournment of the meeting called for 13 May 1993 until 1 June 1993. Given that the meeting had been invalidly called by the failure to give a proper notice to all creditors, there was ultimately little objection to the grant of this injunction. The application for a declaration was then stood over until 14 May for hearing prior to the petition.
Accordingly, on 14 May 1993 there were four substantial matters before me for decision. First, the application by the debtor relating to the disallowance of the debt of Project Finance Pty Ltd. Secondly, the application by Claremont for a declaration that the authority from the debtor to Mr Coates convening the second meeting of creditors was invalid. Thirdly, there was, for decision, the question whether Claremont's petition should proceed for hearing or be once more adjourned pending the holding of a second meeting of creditors if such a meeting could properly be held. Finally, and dependent upon the outcome of the application for adjournment of Claremont's petition, there was the application under s.194(4) of the Act for a declaration that the failure to give to creditors a notice of meeting should be disregarded. I propose to deal with these matters in the order set out above.

The disallowance of the debt of Project Finance Pty Ltd
18. As at May 1987, the debtor was chairman of directors of Independent Resources Ltd ("IRL"), a public company, and a director of a number of other companies associated with IRL. A Mr Greenham was the managing director of IRL and also a director of other companies. Hazap Pty Ltd ("Hazap") was a company of which the debtor owned beneficially 50 per centum of the shares and Mr Greenham 50 per centum of the shares. It had a controlling interest in IRL.

In or about April 1987, the debtor retired as chairman of directors and a director of both Jingellic Minerals NL ("Jingellic") and Enterprise Goldmines NL ("Enterprise"), presumably two of the companies in the IRL group. This precipitated a conversation with Mr Greenham in May 1987. Mr Greenham wished the debtor to remain a director of IRL and companies associated with it and to resume office in Enterprise and Jingellic. The debtor had told Mr Greenham that he proposed to offer to Mr Greenham the debtor's shares in Hazap pursuant to provisions in the articles of association of that company. Mr Greenham did not wish this to happen. It seems that on or about the same time there was a proposal that shareholders in Jingellic and Enterprise would be given rights to take up new shares. The debtor also held, through a family company, MJ Fuller Services Pty Ltd, 230,000 options to acquire shares in Enterprise and 200,000 options to acquire shares in Jingellic. According to the debtor's evidence, in May 1987 a conversation took place between the debtor and Mr Greenham as follows:

Mr Greenham:

"I will procure for you the funds so that you can exercise your options... and participate in the rights issues." The debtor:

"If you were to provide me with those funds I would be prepared to consider rejoining the boards of Enterprise and Jingellic and I would withhold offering my shares in Hazap to you."

A number of other matters were discussed in this conversation including the amounts of money involved, the number of options that the debtor had and details of the rights issue. At the end of the conversation the debtor says that he struck an agreement with Mr Greenham that if the funds were provided the debtor would be happy to remain a director of IRL and related companies.
The moneys to be provided were to be provided by way of loan with an interest rate at a margin of one or two per centum above the rate charged by the National Australia Bank and interest was to accrue. According to the debtor's evidence this agreement was to remain on foot for a period of 12 months. There was nothing said apparently beyond this about the period of the loan.
In cross-examination the debtor agreed with counsel for Claremont that the arrangement made by Mr Greenham was that there would be a loan to the debtor, or if the debtor directed, to M J Fuller Services Pty Ltd. This concession substantially accords with an account given by the debtor in a statutory declaration provided to the chairman of the meeting in support of the right of Project Finance Pty Ltd to vote at that meeting. In that statutory declaration the "essential terms" of the agreement reached between the debtor and Mr Greenham were said to be, relevant to the present problem:

"That Greenham would procure a loan to me or as directed to M J Fuller Services Pty Ltd,... a company of which I was a shareholder and director, in a sum sufficient to enable M J Fuller Services Pty Ltd to exercise 230,000 options to acquire shares in the capital of Enterprise and 200,000 options to acquire shares in the capital of Jingellic and thereafter to take up the entitlement of M J Fuller Services in a rights issue to be offered to shareholders in the then near future."

The loan in question was made by Guild Financial Services Pty Ltd, which company later changed its name to Project Finance Pty Ltd. I accept that $702,000 was paid to or on behalf of M J Fuller Services Pty Ltd for these purposes. The debtor remained in office as a director of IRL and related companies and resumed the positions he had held in Jingellic and Enterprise. He did not put his shares in Hazap to Mr Greenham.
According to the debtor's evidence there was another conversation the next year in or around September or October following the expiration of the initial 12 month period. In this conversation the debtor asked Mr Greenham what was to happen. The debtor said that he would like to resign and get out of the Hazap situation. Mr Greenham asked the debtor to stay for another 12 months. Apparently at this time an inquiry had been initiated by the NCSC into the affairs of the group and Mr Greenham sought the debtor's assistance in dealing with that inquiry. Accordingly the debtor agreed to remain in office for a further period of 12 months and no demand was made for repayment.
Mr Greenham died in a plane crash in December 1988. After Mr Greenham's death, the debtor had two conversations with the administrator of Mr Greenham's estate, one just after the crash and one in early January. According to the debtor, he asked the administrator, a Mr White, to tell him ultimately what Mr White wished the debtor to do with Hazap. At the time of neither of these conversations apparently did Mr White have a full grasp of the affairs of Mr Greenham. According to the debtor there was no further discussion of the topic after early 1989.
On one view of the debtor's evidence, the next thing that happened, apart from the creditor's meeting at which Project Finance Pty Ltd claimed to be a creditor, was the service upon the debtor of a summons directed both at him and MJ Fuller Services Pty Ltd brought by Project Finance Pty Ltd to recover the debt and accrued interest. According to the debtor, to avoid unnecessary expense he consented to that judgment being entered against him and also against his company and as a result is now a judgment debtor.
It is rather inconceivable that, when there was no demand made of either the debtor or MJ Fuller Services Pty Ltd between January 1989 and April 1993, suddenly a summons should be issued by Project Finance Pty Ltd and served upon the debtor without any discussion. Following cross-examination on this question, it is, however, clear to me that this was not the case. It is unnecessary to make findings of fact as to precisely what happened. Suffice it to say that the debtor's brother, who is apparently a prominent bankruptcy specialist, played a large part. I do not accept that he did so without the knowledge and approval of the debtor.

The summons for the amount of $1,488,246.40 for principal and interest said to be due as at 15 April 1993, was issued on 21 April 1993 and served on the debtor, it would seem, the next day. The letter serving the summons refers to instructions from the solicitors of Project Finance Pty Ltd that the debtor had already conceded liability for the debt as at that date. According to the debtor, there had been no discussions that had taken place prior to the issue of the summons. It may well be that the debtor personally had no such discussions. I have no doubt that either he or his brother, however, had discussions prior to that date. I would infer, indeed, in all the circumstances that the whole purpose of the summons being issued was to bolster the case of Project Finance Pty Ltd to vote, not necessarily in respect of the first meeting of creditors but certainly in respect of the proposed second meeting. To the extent that the debtor's evidence contradicts my finding of his or his brother's involvement prior to 21 April 1993, I reject that evidence. Particularly I reject the evidence that the first conversation the debtor had in which he agreed to consent to judgment was with a solicitor for Project Finance Pty Ltd after the issue of the summons.
It remains only to be said that the loan from Project Finance Pty Ltd was recorded in the books of M J Fuller Services Pty Ltd. There was, and no adverse inference could be drawn from this, no record of any loan in papers of the debtor. It must be accepted that there was no reason why the debtor should have made any such record. Accrued interest was claimed as an income tax deduction by M J Fuller Services Pty Ltd as having been incurred by it.
The debtor's case is essentially that while the loan was made by Project Finance Pty Ltd to M J Fuller Services Pty Ltd, it was a loan guaranteed by him. With respect, the evidence, which I have set out, does not support the existence of a guarantee.
I accept that there was an agreement reached between the debtor and Mr Greenham which may indeed have been legally binding. For the purposes of the present case, I will assume it to be so. Under that agreement Mr Greenham agreed to procure finance for the debtor or such company as the debtor nominated. For his part, the debtor undertook obligations with respect to his positions in IRL and related companies, agreeing also not to put his shares to Mr Greenham in Hazap. But it does not follow from this that the debtor agreed to be personally liable to Project Finance Pty Ltd, or for that matter that Mr Greenham agreed himself to provide the funds. Project Finance Pty Ltd lent the funds to MJ Fuller Services Pty Ltd at the debtor's request and pursuant to the debtor's direction. However, at no time, accepting the debtor's evidence at face value, did he ever agree to guarantee advances to M J Fuller Services Pty Ltd or to become personally liable for the loan made at his request.
It follows that the debtor was not personally liable to Project Finance Pty Ltd for the debt and accordingly that the debt was properly rejected by the chairman of the meeting.
The debtor's application must accordingly be dismissed with costs.

The application by Claremont in respect of the second authority given by the debtor
34. Claremont's application was put on two bases. First, it was submitted as a matter of law that there was no power for a debtor to give a second authority for the calling of a second meeting of creditors, albeit that the second authority was to a different person and in respect of a different composition. Secondly, it was submitted that if there were such power, the giving of the authority in the present circumstances amounted to an abuse of process by the debtor and should be set aside. I shall deal with each of these submissions in that order.

The submission that the Act operated to confine a debtor to the giving of one authority only was based upon the decision of Rogerson J of the Court of Insolvency of South Australia in Re Amadio (1979) 24 ALR 455.
In that case a debtor signed three authorities addressed to two different solicitors to convene meetings of his creditors. Only two of those meetings had been held at the time the case was heard. At neither of the two meetings held were resolutions approving the execution of a deed of assignment passed. In determining that there was no power for a debtor to give more than one authority under Part X in respect of substantially the same facts situation, Rogerson J pointed to the provisions of s.192(1) of the Act which specifically empowers the giving of new authorities in cases where a registered trustee has died, ceased to be a registered trustee, become incapable of exercising his powers under Part X or desired to be relieved of his duties. That provision, his Honour thought, excluded the possibility, at least where a registered trustee was concerned, of the giving of a new authority. There is of course no comparable provision in the case of an authority given in favour of a solicitor. His Honour continued (at 462-463):

"Even in the case of authorities given to solicitors, however, it is clear that there could not be two authorities operating simultaneously, for this might well result in the calling of separate meetings of creditors which might possibly, if different creditors attended, pass conflicting resolutions. Creditors might also be confused or prejudiced in other ways. Presumably, however, a solicitor's authority is exhausted when he has called the authorised meeting of creditors and no question of irrevocability of authority could arise once he had done that. A first meeting having been called on behalf of the debtor and closed, I must decide whether the same or another solicitor can validly be given a further authority or authorities to call a further meeting or meetings...

No case has been cited to me deciding the question one way or the other so I rely upon my own construction of the Act. The language of the Act is generally indicative that only one authority may be validly given to a solicitor, and that only one meeting of creditors may be validly called pursuant to that authority. The singular is always used when the Act speaks of 'authority' and of 'meeting' but this is not, of course, conclusive. However, there are indications that the singular does not here include the plural. Section 188(1)(d) says that the debtor may sign 'an authority' giving authority to a registered trustee or (my emphasis) a solicitor. Section 190 refers to the trustee or (my emphasis) the solicitor performing certain duties. For what little it is worth, most of the references in the Act are to 'the' meeting of creditors, though there are a few instances of the use of the indefinite article. However, one of these, s.197, provides that a meeting may by resolution be adjourned from time to time, and s.201 also provides for adjournment of the meeting. These provisions for adjournment give some indication that the Act does not contemplate a series of separate meetings of creditors called under separate authorities, since the possibility of a series of adjournments of the original meeting is provided for. Moreover, the fixing of a maximum time of 28 days for the holding of a creditor's meeting (s.194(1)) seems to indicate the intention of the legislature to have matters speedily resolved, and to be contrary to the possibility of repeated freshly convened meetings... Of course, if... after a... meeting of creditors there was, for example, some material and significant change for the better in the debtor's financial situation, it might be possible validly to give a further authority on the basis of a significantly changed fact-situation. Or, perhaps, any invalidity might be waived by unanimous vote of all of the creditors, or at least all of them who voted at the first meeting, if they thought it to their advantage to do so. No such change has occurred in the present case since the adjourned first meeting was closed, and no such waiver is recorded in the minutes."

It will be evident that there is a logical difficulty in the passage quoted. The judgment does not hold absolutely that there can not be two authorities given. It indeed envisages that there may be circumstances, particularly where facts have changed, where validly a second authority could be given. That this is so must, as a matter of policy, be clear unless the express words of the legislation require a contrary conclusion. To take an extreme case, a debtor may give an authority for the convening of a meeting of creditors which is held and which results in no approval of a composition. Ten years later the same debtor gives another authority to the same or indeed a different solicitor for the convening of another meeting in totally different circumstances. Clearly there could be no objection in theory to such a course. Nor for that matter is there anything in the words of the legislation which would invalidate the giving of the second authority. The case must therefore, if it be regarded as authority at all, be taken as authority for the rather narrow proposition that a second or subsequent authority could not be given, whether to the same or different solicitor, to convene a meeting where there is no change at all in the relevant fact situation.
Re Amadio was referred to by the Full Court of this Court in Pretorius v Daltons Carpet Tiles Pty Ltd (1984) 54 ALR 743 at 750. That was not a case where there was more than one authority signed under s.188. A meeting of creditors was called and rejected a proposal for composition. The debtor invited his creditors to reconsider and a further meeting was convened. The further meeting purported to accept the composition. It was held that the further meeting was void. In so holding, the Court (Smithers, Northrop and Beaumont JJ) said (at 750):

"We find nothing offensive to the policy of Pt X in the conclusion we have reached as to its construction. On the contrary, we think that such a result accords with the evident policy of the Act. In other words, we think that it is possible to discern from the general structure of Pt X a legislative intention that if a debtor cannot carry the meeting of creditors summoned for the purpose of considering the composition he profers (sic), then he should not be permitted to call meeting after meeting even ad infinitum in the hope that, by a process of attrition, inconvenience or added expense, he will eventually achieve acceptance of his proposal... It should not, therefore, be presumed that such a debtor should have the luxury of calling any number of meetings until he achieves his purpose."

Counsel for Claremont, however, candidly conceded that two decisions of single judges of this Court pointed to the contrary of Claremont's submission. The first was a judgment of Lockhart J in Re De Kantzow; Ex parte De Kantzow (1992) 107 ALR 219. That case, which admittedly was heard ex parte, concerned the question whether a second authority could validly be given to a solicitor for the convening of a meeting of creditors. Lockhart J was of the view that it could. His Honour said (at 222-3):

"I see nothing in the Act, in general, or Pt X in particular, either in its language or spirit, which would operate to prevent a debtor in these circumstances signing a second authority to a solicitor or a registered trustee pursuant to s.188. Indeed, the section should be construed quite the contrary. It would be odd if, faced with the facts of this case, a debtor was not entitled to invoke again the procedure of s.188 when it is plain his creditors wished him to do so and plain that detriment had not been sustained in the meantime to his creditors. This conclusion is supported by the fact that Pt X is an enabling provision designed in appropriate cases to allow the administration of the affairs of insolvent persons without bankruptcy. This is a different question from the question whether only one meeting and not a plurality of meetings can be called by a debtor pursuant to the one authority given under s.188. Unaided by authority it would be plain that this could not be done, but it is clear from the judgment of a Full Court of this Court in Pretorius... that this is the law in this country. Nothing said by the Full Court in Pretorius touches the question presently before the court."

His Honour, in the judgment, discussed Re Amadio commenting (at 223):

"I need not refer to the process of reasoning which led his Honour to reach that conclusion. The facts of Re Amadio were very different to those of the present case. They involved the giving by the debtor of three different authorities in favour of two different solicitors purporting to authorise them to hold three meetings a little over two months apart in circumstances which were curious to say the least. A reading of his Honour's judgment makes it plain that it is distinguishable from the present case. But if I be wrong, and if his Honour's judgment is authority for the proposition that a debtor cannot give more than one authority pursuant to Pt X of the Act for the holding of a meeting of his creditors, I respectfully disagree with him."

As Lockhart J points out, Re Amadio has subsequently been followed in one case and disapproved in another in this Court, both on matters not relevant to the present decision.
Most recently the matter has been considered by Gray J in Saheed v The Official Receiver (unreported, 17 March 1993). The judgment was given ex tempore but it is not to be discounted because of that. In Saheed, Gray J concluded that it was open to a debtor to give a second authority on the facts of that case and that any meeting conducted in accordance with the second authority would not be invalid by reason of the previous granting of an authority to a registered trustee.
There is nothing in the language of Part X which compels the conclusion that a debtor can not give a second authority, whether to the same solicitor or to another solicitor, authorising the calling of a meeting. In the event that the authority to convene a meeting was for the purpose of putting once again to creditors a composition which had already been put at a prior meeting where the creditors had failed to pass a resolution, the giving of the second authority might well be void, not because the Act forbids such a course but because so to do might, in a particular fact situation, involve an abuse of the process of the Court. It is unnecessary to reach a decided view on that matter.
Where, however, the authority is given not for the purpose of putting precisely the same composition to a new meeting of creditors, but for putting a new and different composition to creditors who may indeed include fresh creditors, there can be no objection. It may be noted in the present case that there are alleged to be new and fresh creditors, albeit that the previous creditors still remain, and that the composition, while remarkably similar, is clearly not identical. But short of a situation where the giving of the authority was for some collateral purpose such that an abuse of power is involved, I am of the view that there can be no objection to the giving of a second or subsequent authority, whether to the same solicitor or to some other solicitor. In so holding, I would, with respect, agree with Gray J when his Honour said (at 4):

"It is true, as the Full Court said in Pretorius, at p 750, that it would be undesirable to permit a debtor to continue ad infinitum giving authorities and calling meetings in the hope that by a process of attrition or inconvenience or added expense the debtor would eventually achieve acceptance of a proposal. Any tendency to act in that manner could easily be stemmed. If there were a creditor's petition for bankruptcy, the Court would not be bound to adjourn such a petition to enable a further meeting to be held or a further authority to be given, but would be entitled to act upon a proper creditor's petition and make a sequestration order if the circumstances so required."

It may also be noted that a fresh meeting of creditors had been called to consider a second composition in Lancaster v NZI Capital Corporation Ltd (unreported, Full Court, 11 October 1991), in circumstances where the first composition had been approved by a meeting of creditors but thereafter set aside. The Full Court, comprising Lockhart, Beaumont and Gummow JJ, made no suggestion that in those circumstances the giving of a second authority was not within power.
I turn then to deal with the question whether there has been an abuse of process. The doctrine of abuse of process in the field of bankruptcy is well known. The leading case is Dowling v The Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 where the institution of bankruptcy proceedings was, however, unsuccessfully challenged as an abuse of process. In the course of his judgment Isaacs J said (at 521-2):

"If the object sought to be effected by the process is within the lawful scope of the process, it is a use of the process within the meaning of the law, though it may be malicious, or even fraudulent, and in the circumstances the fraud may be an answer; if, however, the object sought to be effected by means of the process is outside the lawful scope of the process, and is fraudulent, then - both circumstances concurring - it is a case of abuse of that process, and the Court will neither enforce nor allow it to afford any protection, and will interpose, if necessary, to prevent its process being made the instrument of abuse."

More modern formulations of the test of what constitutes abuse of process may eliminate any reference to fraud: cf Williams v Spautz (1992) 107 ALR 635 at 655 per Brennan J.
Although the doctrine of abuse of process was formulated in the context of an abuse of the process of the Court, the decision of the High Court in Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 made it clear that the doctrine was applicable as well to the exercise of a right given by statute where that right was availed of for a purpose foreign to the bankruptcy law. Thus it was held that it would be an abuse of process for a debtor to present a petition for the purpose of making it impossible for a creditor to obtain a sequestration order on a pending petition and with a further purpose of shortening the period of relation back. However, the Court made it clear that there was a distinction between the pursuit of what the High Court referred to as "an ulterior private purpose" and the pursuit of a purpose "foreign to the nature of the process in question". It is only the latter which would lead to intervention by the Court.
In my opinion, the evidence in the present case points clearly enough to the debtor having had an ulterior purpose, but falls short of demonstrating an abuse of process in the required sense.
It is unnecessary here to canvass all of the evidence. Some of it I will refer to in dealing with the question of the adjournment of the bankruptcy petition. Suffice it to say that while I have little doubt that the debtor, armed with the advice of his brother, hoped that the convening of a second meeting of creditors would lead to the adjournment of the petition presented by Claremont and ultimately to the passing of a resolution in favour of a composition not significantly different from that which had been rejected by the first meeting of creditors, he did so in the context of the fact that the question of the granting of an adjournment lay in the discretion of the Court. In other words, while I have little doubt that the giving of the authority and convening of a second meeting was hoped by the debtor to put him in as favourable position as possible for the exercise of the Court's discretion to adjourn the petition, it did not have the purpose of taking the matter outside the control of the Court. It might, perhaps, have been a different question, I need make no final decision on the matter, if the meeting had been called for a time prior to the petition coming on for hearing in the Court, so that the holding of the second meeting might have effectively pre-empted the jurisdiction of the Court. However, given the concession by both parties that the understanding was that the petition was to be before the Court on 10 May, while the meeting was not to be held until 13 May, the matter always lay within the control of the Court. Such delay as the Court might agree to in its discretion could not be said to involve in a requisite sense a collateral purpose foreign to the power for which s.188 is conferred.

It follows in my view, therefore, that there was power in the debtor to give an authority for the convening of a meeting in the present circumstances and that in exercising that power there was no abuse of process. It follows that Claremont's application must be dismissed with costs.

Whether Claremont's petition should be adjourned to enable the adjourned meeting of creditors to consider the fresh composition proposed by the debtor
52. It was conceded by both parties that the question whether or not an adjournment should be granted was a matter in the discretion of the Court. Counsel for Claremont, however, submitted that the petitioning creditor had a prima facie right to an order for sequestration, it being for the debtor to put before the Court considerations which show sufficient cause against the making of a sequestration order: Rozenbes v Kronhill (1956) 95 CLR 407 at 414 quoting Cain v Whyte (1933) 48 CLR 639.

In Field v Commercial Banking Co of Sydney Ltd (1978) 22 ALR 403, the Full Court of this Court rejected an argument that there was a general practice of the Court to adjourn the hearing of a petition where authority had been given for the convening of a meeting of creditors to enable the creditors to have the opportunity of meeting. The correct position is as stated by Sweeney J in that case (at 411), with whose judgment Franki J agreed, namely that there is no such practice, although the Court has regard to the execution of an authority for the convening of a meeting as a relevant circumstance to take into account in determining whether to grant an adjournment. The Court must look at all the circumstances including, as his Honour indicated, the following which may be relevant in a particular case:

"1. The course of dealings between the parties, from the time when the obligation to the petitioning creditor is said to have arisen to the date of the hearing.

2. The attitude to the application of the petitioning creditor, as prima facie, on proof of the matters mentioned in s.52(1) of the Bankruptcy Act 1966, the court will proceed to make an order for sequestration (see Rozenbes v Kronhill...).

3. The general financial position of the debtor.

4. The relation between the debt of the petitioning creditor and the total liabilities of the debtor, as it may be seen, for example, that the petitioning creditor's opposition would be sufficient to defeat any special resolution proposed at a creditor's meeting.

5. Any attitude to the application disclosed by other creditors.

6. Any evidence bearing upon the question whether it would be for the advantage of the creditors that the debtor's affairs be administered under Part X of the Act.

7. The likelihood that the debtor would be able to place before a meeting of creditors a particular proposal, or evidence of his general circumstances, calculated to persuade them to vote for the administration of his affairs under Pt X."

The catalogue of circumstances referred to in Field, which, of course, is not exhaustive, was endorsed in Thomas v The Hong Kong and Shanghai Banking Corporation (unreported, Full Court, 23 July 1992).
Counsel for Claremont first referred me to the circumstances of the proceedings between Claremont and the debtor. The appeal from the judgment of Wilcox J to the Full Court is reported, sub nom Cummings v Claremont Petroleum NL (1993) 11 ACLC 125; 9 ACSR 583. It suffices to say here that it was held, inter alia, that certain payments made by Claremont to M J Fuller Services Pty Ltd, or the agreements out of which those payments arose, involved a breach of the debtor's duties under s.229 of the Companies (Qld) Code so that the debtor was liable to pay to Claremont the sums paid to MJ Fuller Services Pty Ltd. Neither the judgment of Wilcox J nor of the Full Court could be said to have been a ringing endorsement of the debtor's probity. It suffices only to quote from the judgment of Wilcox J, reported as Claremont Petroleum NL v Cummings (1992) 110 ALR 239 where his Honour said (at 259):

"A finding that the meeting was held would depend solely upon the evidence of Mr Fuller and Mr Cummings. The question of their general reliability immediately arises. Regrettably I have no confidence in either of them. No doubt most of the evidence they gave was true. Most of it was undisputed. But, as he gave his evidence, neither man induced in me a feeling of confidence in his integrity. In each case I felt the evidence was carefully constructed so as to put critical matters in their best light."

On the next page his Honour described the conduct, inter alia, of the debtor as indicating "a degree of unethical self interest". At 298 his Honour said of the conduct of the debtor and Mr Cummings:

"It was the course of men prepared to treat a public company as their private fiefdom, to be used for their personal advantage."

Secondly, reference was made to the circumstances involving the assignments by Mrs Fuller of amounts borrowed by the debtor from her to Fidex International Trust Company Ltd and Mr B G Stephens. As counsel for Claremont pointed out, Mrs Fuller was precluded from voting at meetings of creditors called under Part X by force of s.198(7). According to the debtor, this was a matter which did not please Mrs Fuller. As his evidence would have it, she decided upon assigning some of the debts for nominal amounts to Fidex International Trust Company Ltd, a Jersey company, said to be trustee of the Wilkinson Family Trust. Mr Wilkinson is an associate of the debtor and it is clear that the assignment was arranged, if not by the debtor then by the debtor's brother who, as the evidence clearly enough already demonstrates, appears as an eminence grise throughout the various proceedings before me. There were in fact two assignments to Fidex International Trust Company Ltd, the first made on 25 February 1993 in the amount of $412,091.04, and the second made on 11 March 1993 for $100,000.
The third assignment was made to a Mr B G Stephens of $22,500. Little is known of Mr Stephens. So far as appears, none of the assignments bears evidence of stamp duty having been paid. It is not difficult to infer that these assignments came about as a result of advice given by the debtor's brother that Mrs Fuller could not vote at the meeting of creditors but that if she assigned her debts to other persons or companies these persons or companies could vote. Each of the assignees was clearly favourably inclined to the debtor, and given the small amount which each could expect from the composition, could not be expected to benefit greatly by virtue of the assignment.
It was not suggested that the assignments involved any illegality on the part of Mrs Fuller. Nevertheless, it was said to be relevant to my decision whether to adjourn the petition that Mrs Fuller, with the undoubted consent and approval of her husband, had entered into these assignments for the benefit of ensuring, so far as was possible, the passing of these special resolutions to be put at the meeting. I place little, if any, importance on these assignments.
More significant are the matters concerning Kingston Services Ltd, a creditor which initially claimed to be indebted in the amount of $244,572 and the so-called Vilnius Trust of which Kingston Services Ltd is either trustee or acts on behalf of the trustee. Ultimately the debt claimed by Kingston Services Ltd was admitted to vote at the first meeting of creditors in the sum of $322,400.
On the evidence before me, and it is scant, Kingston Services Ltd (sometimes referred to in the minutes of meetings of creditors as Kingston Service Inc) is a "service company" controlled by solicitors in London. It will be recalled that the debtor was at pains to dissociate himself from it and from the Vilnius Trust. He described the trust as a "charitable trust". The trust deed was not in evidence, but it appears that the only beneficiaries described in the trust deed are charities, although there is power in some unnamed person to add beneficiaries. In a strict legal sense the trust is not charitable. Although the debtor denied any participation in the creation of the trust, there is a document in which he gives to the trustee his wishes as to its administration. Among those wishes are that the trustees pay moneys when requested, from time to time, to the debtor's solicitor. The inference is irresistible that the debtor has been less than frank about this trust. One might infer that it has something to do with income tax. It may, in a strict sense, be quite correct that the debtor has no beneficial interest in the trust. What is highly likely is that, if the debtor wished, he had access to its assets and its income.
The real significance of the Vilnius Trust is the fact that it provides an example of circumstances which, in the event that a sequestration order was made, would be the subject of investigation in a public examination. If the composition were to proceed, no such examination would be competent. It may well be that such an investigation could ultimately produce assets available for the benefit of creditors. It may also be that it is in the public interest that the debtor be examined about his trade dealings and affairs with respect to that trust.
I might say that it would appear that Fidex International Trust Company Ltd is similarly the trustee of a "blind trust" over which Mr Wilkinson (an associate of Mr Fuller) has some form of influence. Whether that trust has anything to do with the affairs of the debtor, other than as assignee, is a matter which could in due course also be the subject of investigation at a public examination.
Counsel for Claremont also drew my attention to the various steps taken by the debtor which appeared to have the effect, and probably the motivation, of deferring the hearing of the petition. Reference was made to the convening of the second meeting of creditors and the circumstances in which Project Finance Pty Ltd became a judgment creditor.
I have no trouble in inferring that the debtor, with the aid of his brother, has attempted to do all things possible within the law to bring about a situation where the creditors, other than Claremont, might by a requisite special resolution pass a composition which would bind Claremont. But that of itself is not a matter which should lead to the conclusion that the Court should necessarily proceed with the petition.
I have taken into account, on the one hand in the debtor's favour, the fact that the Act empowers creditors, subject at least to the intervention of the Court, to make a commercial decision whether to accept a compromise propounded by a debtor. I take into account also the fact that, having regard to the small margin of votes against the resolution at the first meeting, that there is a real possibility that the creditors (some clearly favourably inclined to the debtor), faced with the composition at the second meeting, might approve it. Further, I have taken into account the fact that the debtor is a professional man for whom bankruptcy may have serious implications.
In favour of the refusal of an adjournment, I take into account the fact that Claremont is a substantial creditor. On its face it is entitled to have its petition heard. It has been unable to get amounts properly due to it paid to it as those amounts fall due. I take into account also the history of the litigation between the parties and the fact that a composition of not greatly dissimilar terms has already been submitted to a meeting of creditors and that that meeting has failed to pass it. I take into account, as indeed an important matter in the exercise of the present discretion, that the question whether or not the Court should proceed to consider the making of a sequestration order involves not merely the interests of the creditors, important although that may be, but the interests of the public as well. Reference may be made to the unreported decision of the Full Court of this Court in Boral Johns Perry Industries Pty Ltd v Piccardi (Wilcox, Burchett and Hill JJ, 23 June 1989) at 15-18. In that case the Court, inter alia, quoted with approval what was said in In re Hester (1889) 22 QBD 632 by Lord Esher MR and Fry LJ. At 639 Lord Esher said:

"The Court has gone still further, and I think rightly so, and has said that under the present Bankruptcy Act it will consider not only whether what is proposed is for the benefit of the creditors, but also whether it is conducive or detrimental to commercial morality and to the interests of the public at large...".

At 641 Fry LJ said:

"It is an idle notion that the Court is bound by the consents of the creditors. The Court has far larger and more important duties to perform than merely to consider whether the creditors have consented to the rescinding of the order. We are bound in the exercise of our discretion in such a matter, and I think I might almost say in all matters under this Act, to take a wider view. We are not only bound to regard the interests of the creditors themselves, who are sometimes careless of their best interests, but we have a duty with regard to the commercial morality of the country."

Clearly such investigatory processes as may be available to creditors to question the debtor are unlikely to reveal more about his affairs than was revealed in the questioning undertaken at the first creditors' meeting. The powers conferred by s.81 of the Act are more likely to found an appropriate investigation.
I take into account also that the debtor is hopelessly insolvent and that after the costs of the trustee of the composition are paid, creditors other than Claremont are unlikely to receive anything but a minimal amount. I note also that the dividend to Claremont would also be relatively insignificant. In this respect the case differs only in a matter of degree from the facts of Lancaster v NZI Capital Corporation Ltd (supra), where at first instance Sheppard J, in a passage cited by the Full Court (at 9) said:

"... in the absence of complete agreement by creditors, and the petitioning creditor which is owed a substantial sum does not agree, there is something which, if not shocking, is at least something which takes one aback about a suggestion that somebody who owes almost 5.5 million dollars can offer $15,000 and walk away without there being any appropriate investigation of his affairs. An examination of the relevant provisions of Part X show that if a deed of composition is entered into neither the provisions of s.69 of the Act which provides for the public examination of bankrupts, nor the provisions of s.81 thereof, which gives trustees in bankruptcy wide powers to examine other persons and to compel the production of documents, will apply."

In all the circumstances I have formed the view that it would not be appropriate to adjourn the petition to allow yet another meeting of creditors to be called. In these circumstances I propose, once this judgment is delivered, to proceed to consider Claremont's petition.
The costs of the application for adjournment will, if the petition be successful, be part of the petitioning creditor's costs of the petition. If a sequestration order be made the application under s.194(4) will become academic. Accordingly I make no order with respect to that application.

[1993] FCA 326

20 MAY 1993