Re Hamilton, R.I. v Ex parte Figueroa, A

Re: RODRIC IAN HAMILTON
Ex Parte: ANDRES FIGUEROA
No. W187 of 1985 (Part X); No. P571 of 1985
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Sheppard J.

CATCHWORDS

Bankruptcy - application to avoid deed of composition - incorrect and material particular in statement of affairs - exercise of discretion.

Bankruptcy Act 1966. s. 222

HEARING

SYDNEY
#DATE 4:12:1985

JUDGE1

In the list are two matters. The first, W187/85X, is an application in which one Andres Figueroa, makes application to have set aside a deed of composition entered into by the debtor, Rodric Ian Hamilton. The application is made pursuant to sub-sec. 222(4) of the Bankruptcy Act 1966. The second is a petition presented by Mr. Figueroa pursuant to s. 43 of the Act for the sequestration of the debtor's estate.

The principal grounds upon which the application under sub-sec. 222(4) is made are those provided for in para. (4)(b) of the subsection which empowers the Court to declare a composition to be void where a debtor has omitted a material particular from his statement of affairs under s. 195 or included an incorrect and material particular in that statement. The way in which that provision should be construed is referred to in Beard v. Prestige Baking Industries Pty Limited (1981) 36 ALR 307 at pp 342-3 and I do not repeat what is there said. Suffice it to say that the test is an objective one. It matters not whether the debtor was aware when he signed his statement of affairs that he was omitting a material particular therefrom or including therein an incorrect and material particular.
The principal matter which was relied upon by counsel for the applicant was that in item 12 of Part V of his statement of affairs in which he was obliged to give particulars of real property not shown in Part III of the statement, he had said, "Half interest in land at Wilton, subject of possible airport resumption." The estimated value was said to be "Nil." Part III of the statement of affairs deals with secured creditors and is not relevant for present purposes.
Evidence has been given by two competent valuers of the value of the land. According to one, that value is of the order of $150,000. According to the other, the value is of the order of $120,000. It is not suggested that the value of the land is any less than that figure. Subject to what follows, the value of the debtor's interest in the land is, therefore, not less than $60,000.
The debtor has no legal title to the land and there appears to be no instrument in writing evidencing that interest, but one of the directors of the company, which is said to be the owner of the other half interest, was called. It appears that the land has been owned since 1972 and that, although it is in the name of the company - that is to say, the title to it is in the name of the company - the company has not at any stage suggested otherwise than that the debtor does have a half interest in the land.
The debtor himself, in the course of his evidence, acknowledged that he had always understood that he had a half interest and that he had always been under the clear impression that if he sought to assert the half interest, the company would raise no opposition to his doing so. He said he was not aware that there were procedures provided in the law, namely in s. 66G of the Convevancing Act 1919 (N.S.W.), which would enable him, in those circumstances, to compel the sale of the property.
He said, in his evidence - and I do not find it necessary to make a finding one way or the other as to whether that evidence should be accepted - that he had no idea that the land was worth so much. But I should mention that in affidavits sworn by him in the District Court of New South Wales for the purpose of obtaining time to pay the judgment debt which the applicant has, he stated the value of his interest in the land on two occasions to be of the order of $11,500.
An attempt to explain how it was that the debtor came to say that his interest was valueless is to be found in his evidence and also in the evidence of Mr. G.R. James who was his controlling trustee and who became the trustee of the composition. Mr. James said in an affidavit that he informed the meeting of creditors at which the resolution that the debtor enter into the composition was passed as follows:-

"(i) This land is in the vicinity of one of the proposed new International Airports for Sydney although I have no idea if the airport is to go ahead or when;

(ii) The land is owned by a company in which the Debtor is not a director and has no shares;

(iii) The debtor is not registered on the title to the land;

(iv) I have been able to find no evidence of any trust in relation to the Debtor's alleged interest in the land;

(v) My investigations show that it could be claimed that the Debtor is a creditor only of the company and does not have a proprietary interest in the land;

(vi) In a bankruptcy situation it may be difficult for a trustee to prove that the Debtor has an interest in the land;

(vii) If the trustee had to prove the Debtor's interest in the land and then appoint a receiver there would be little or no surplus left over after the cost of a sale;

(viii) The Debtor has advised me that the directors of the company are not interested in selling the company's interest in the land to him or in acquiring his interest.

(ix) For these reasons I conclude that the Debtor's interest in the land has no value in the event of him becoming bankrupt."

The debtor in his affidavit confirmed that Mr. James had told the meeting in substance what Mr. James said in the above paragraphs.

The cross-examination of Mr. James revealed that the only investigations he had made were inquiries made of the debtor. Neither the debtor nor Mr. James made any inquiry of the company which has the legal title to the land. If they had done so, it is plain that they would have been told that the interest did exist and that there was no question but that the company would acknowledge it. Thus, the matters raised in Mr. James' statement to the meeting casting doubt on whether the debtor had any interest in the land at all, and suggesting that at best he might be no more than a creditor for moneys that he had paid in respect of the land, were baseless and irrelevant in the sense that there was in fact no dispute about the fact that the debtor had a half interest in the land, nor has there been at any time. On that basis it is difficult indeed to understand, even if the debtor was not aware that the land had appreciated in value to the extent that it has, why he did not state what he had stated in his affidavits in the District Court, namely, that his interest in the land, had a value of the order of $11,500.
A further matter to be observed is that the only reason given in the statement of affairs for valuing the land at nothing was that it was possible that it would be resumed for the new international airport. That is not how the matter was put to the meeting by Mr. James. He said that the land was in the vicinity of the airport, leaving the impression, not that it would be likely to be resumed, but, rather, that it would have little value because of the presence of the nearby airport and the adverse effect that that would cause. More importantly, it is clear that the matter he emphasized was not the proximity of the land to any proposed airport, but the uncertainty of whether the debtor had any enforceable interest in the land at all. That was not a matter mentioned in the statement of affairs, no doubt for the reason that the debtor was confident, as he said in his evidence, that there would be no difficulty presented by the company in whose name the title of the land was registered to the recognition of his interest.
The statement which Mr. James made to the meeting is not directly relevant to the question of whether or not the applicant has made out a ground under para. 222(4) (b). The ground is made out if there exists an incorrect and material particular in the statement. Plainly there was an incorrect and material particular in the statement, namely, that the interest in the land was valueless.
The circumstances, though, need to be looked at in order to determine how the Court should exercise its discretion, particularly bearing in mind that the immediate parties to this application are not the only parties concerned. The creditors, on the face of the evidence, have decided that there should be a composition. No creditor has taken part in these proceedings except the applicant.
What emerges from the evidence of Mr. James, confirmed as it is by the evidence of the debtor, plainly shows that the statement made in the statement of affairs that the debtor's interest in the land was valueless was perpetuated at the meeting. Furthermore, there is evidence that a document circulated to creditors before the meeting contained the same information. In the range of figures which are at play in this case on the debit and credit sides of the ledger, the omission of an asset which is worth between $60,000 and $75,000 was, in my opinion, a serious matter. In those circumstances, not only has the applicant made out the ground upon which he relies; he has persuaded me that it is a proper case in which I should exercise my discretion to set aside the deed.
The matter of the value of the land was not the only matter which was relied upon. There were questions concerning wages said to be owing to a Mrs. Higson, amounting to a sum of the order of $10,000; the omission of a contingent liability owing to a company, Jahula Pty Limited, and the omission of any mention of some shares owned by the debtor in a company, N & K Technology Limited. In the light of explanations given by Mr. James at the meeting concerning the contingent liability and in the light of the few shares which the debtor owns in N & K Technology Limited. I do not think that I would have taken a serious view if they had been the only matters relied upon, but since they are not, they add weight to the ground which has already been established, and I regret to say, create an atmosphere which would suggest to me that the affairs of the debtor need to be investigated somewhat closely. I am strengthened in that view by a consideration of the wages said to be due to Mrs. Higson, who is said to work on the property as an employee of the debtor. The wages book is in evidence and I think one has to say that, whilst it might be quite correct that wages of the order recorded therein have been earned, a careful investigation of the claim, if it be made, would need to be embarked upon before one could be satisfied that the wages were, in fact, due. The matter is serious because, if the wages are due, they will have priority over other debts. Mrs. Higson would be paid first before other creditors.
A further matter which has concerned me, but which has nothing to do with the contents of the statement of affairs, is the fact that there is prima facie, but by no means conclusive evidence, that a preference has been given to the debtor's father in the sum of $23,000. If a composition were entered into, creditors would not be able to pursue a claim against Mr. Hamilton senior for the repayment of the sum of $23,000 because s. 122 of the Bankruptcy Act would not apply; it would only apply if there were a bankruptcy.
Seeing the force of these various matters, the solicitor for the debtor did not ultimately offer substantial opposition to the making of the order which the applicant seeks. What he did do was to resist the making now of any sequestration order. I indicated to the parties during the course of the argument that I thought that the debtor, on certain terms and conditions, should be given the opportunity of seeing if it were not possible, notwithstanding the past, to induce his creditors once again to agree to a composition. After discussion and the indication by me that I would only adjourn the petition if certain undertakings were given to the Court, it was agreed by the parties that the matter would be adjourned until February on those undertakings. I shall refer to the detail of them when I come to make orders in matter P 571 of 1985.
Before I conclude I should say this. It is of the utmost importance that, if there be any further meeting of creditors, the debtor make a full, true and frank disclosure of his affairs both in his statement of affairs and in what he says to any meeting. It is important also that if anyone, particularly his trustee, makes any statement which he considers to be incorrect that he correct that statement; otherwise a similar position to the one that has already arisen may arise again.
The other matter I wish to mention is that the applicant in this matter is the father of the debtor's former wife and that, although the debtor and his wife have been divorced, proceedings are still current in the Family Court concerning their financial affairs. The reason which has moved me to agree to the adjournment of the petition is principally because of the relationship or former relationship of the two parties, that is to say, father-in-law and son-in-law. If the applicant had been what I might describe as a more arm's length creditor I think my inclination would have been to order that the petition proceed today.
It remains to deal with the question of costs. It seems to me that the applicant has made out an unanswerable case for an order for the costs of the proceedings incurred up to today. This morning the debtor's solicitor announced that his client was prepared to put aside the existing composition but wanted an opportunity of seeing whether he could not induce his creditors to agree to another one. The day proceeded with the completion of the cross-examination of Mrs. Higson, who had been partly cross-examined when the matter was adjourned on the last occasion, with evidence from the debtor as to his current financial situation, and why it would be beneficial for the applicant and other creditors to accept a further composition rather than to make him bankrupt, as well as with submissions by counsel.
The debtor's solicitor has pressed upon me that I should not in those circumstances include in the order for costs which I propose to make any order as to the costs of today. But the course proposed on behalf of the debtor this morning was not previously notified to the applicant or his legal advisers and it seems to me to have been reasonable for the applicant to proceed as he did in order to test what it was that the debtor was proposing, particularly bearing in mind the way in which he has conducted himself in the past.
In those circumstances I propose to make an order that the debtor pay the entirety of the applicant's costs of the application.
The orders I make then in matter number W 187/85X are:-

1. I make an order declaring the deed of composition referred to in the application to be void.

2. I order the respondent to the application to pay the applicant's costs thereof.

In matter P 571 of 1985, upon the debtor giving the following undertakings to the Court:-

(a) that he will not, without the leave of the Court, during the period of the adjournment of the petition, sell, transfer or otherwise deal with any property or any interest in property otherwise than in the ordinary course of the business of Mount Pleasant Piggeries conducted by the debtor at Thirlmere, N.S.W.;

(b) that in the event that he wishes to have his affairs administered pursuant to the provisions of Part X of the Bankruptcy Act 1966:-

(i) he sign an authority pursuant to s. 188 on or before 16 December 1985;

(ii) in the event of such authority being signed he provide to his controlling trustee copies of the affidavits, transcript, reasons for judgment and order in matter number W 187/85X;

(iii) he send to each of his creditors on or before 20 December 1985 a copy of the reasons for judgment and a copy of the order in matter number W 187/85X;

the petition is stood over to 7 February 1986 at 9.30 a.m. There will be liberty to restore it to the list on three days' notice. Costs are reserved.

[1985] FCA 618

04 DECEMBER 1985