Re Horsman, B.S. & L.B. v Ex parte Robinswood Pty Ltd
[1989] FCA 318
•13 JUNE 1989
Re: BARRY STANLEY HORSMAN and LEE BERNADETTE HORSMAN
Ex Parte: ROBINSWOOD PTY LTD and BARRY STANLEY HORSMAN and LEE
BERNADETTE HORSMAN and the Trustees of their Estate ANTHONY HAYES
DOUGLAS-BROWN
No. 101 of 1984X
FED No. 318
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
French J.(1)
CATCHWORDS
Bankruptcy - deed of Arrangement under Part X of Bankruptcy Act 1966 - Deed terminated - Debtor suing Creditor in District Court - Creditor counterclaims - whether release of debts by Deed is defence to counterclaim - application seeking to "stay" release of debts pending District Court proceedings - s.30 invoked - final not incidental relief - inappropriate to invoke s.30 - no application to set aside deed - former application for leave to proceed dismissed.
Bankruptcy Act 1966 s.30, sub-s.233(2)(b)(ii), s.234, s.235
HEARING
PERTH
#DATE 13:6:1989
Counsel for the Applicant: Mr B. Wheatley
Solicitor for the Applicant: Corser and Corser
Counsel for the Respondents: Mr R. Cullen
Solicitors for the Respondent: Dwyer Durack
ORDER
The application is dismissed.
The applicant is to pay the respondents' costs of the Application.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
On 18 November 1987 I gave judgment dismissing an application by Robinswood Pty Ltd seeking leave to proceed with a counterclaim against Barry and Lee Horsman in District Court proceedings they instituted against Robinswood arising out of a contract made between the parties on 21 November 1983. The leave was sought under sub-s.233(2)(b)(ii) of the Bankruptcy Act 1966 on the basis that a deed of arrangement between the Horsmans and their creditors was then still in force.
Under the terms of the contract, which gave rise to the dispute, the Horsmans were to harvest crops from land owned by Robinswood at $5.50 per acre. It was common ground in the original application that 3195 acres were harvested, but according to the Horsmans they were short paid $8,887. Their claim was for that amount and for damages. Robinswood counter-claimed alleging a failure to commence the work on time and the failure to use the agreed number of harvester machines. It also alleged that the Horsmans negligently caused damage to a field bin while operating one of the machines. The amount of damages claimed by Robinswood came to $17,550. The action in the District Court was commenced on 16 May 1984. On 2 October 1984, the Horsmans executed the deed of arrangement pursuant to a special resolution passed at a meeting of their creditors held on 13 September. The central provision of that deed was cl.5 which required that on or before 31 March 1986 the Horsmans pay their creditors enough to yield a minimum dividend of 25 cents in the dollar. Clause 13 of the deed provided:
"If this Deed of Arrangement is terminated in such a manner that the termination is not deemed to be an act of bankruptcy pursuant to any section of the Act then upon such termination the Debtors shall be released from all provable debts."
Statutory backing is given to that release clause by s.234 of the Bankruptcy Act 1966, which provides in the relevants parts:
"234(1) Except in so far as the deed provides for the release of the debtor from his debts, a deed of arrangement does not operate to release the debtor from any of his debts.
(2) Where a deed of arrangement provides that the debtor is to be released from one or more of his debts, the release is binding on the creditor or creditors to whom that debt or those debts was or were owing."
Clause 12 of the deed provided that it was to terminate upon payment of administration costs, priority debts and the distribution of remaining funds pro rata among unsecured creditors. Statutory backing to the termination comes from s.235, which provides, inter alia, that:
"A deed of arrangement is terminated by- .
.
.
(d) the occurrence of any circumstances or event on the occurrence of which the deed provides that it is to terminate."
The original application by Robinswood was made because of a perception on its part that the deed was still in force and that it would require leave to proceed with its counter-claim. In the event, I found that the deed had terminated and that the question of leave did not arise. That raised another problem for the applicant and that no doubt was the real basis for the attempt to characterise the deed as still in force - namely that the release of debts provided for in cl.13 would, if the deed had terminated, be pleaded by way of defence to the counter-claim in the District Court.
My decision dismissing the application for leave was appealed to the Full Court which, on 29 September 1988, dismissed the appeal. The matter was therefore left on the basis that the claim and counter-claim in the District Court were proceeding and no doubt a plea of release by way of defence to the counter-claim would be raised. That is not to express any view whether relief sought under the counter-claim attracts the application of the provisions of the deed of arrangement.
As to that I have not had any argument addressed, either in the original application or in the present one, and that is a matter I think ultimately for determination by the District Court if raised as an issue in that Court. Similarly, as I think I observed in the earlier judgment, the question whether s.86 of the Bankruptcy Act which applies to deeds of arrangement, can be invoked to set off the claim and counter-claim respectively in the District Court proceedings, notwithstanding the release of debts contained in the deed of arrangement, is a matter to be debated in the context of those proceedings and for decision in the first instance by the District Court.
The applicant, however, is not content to let these matters be so debated and has instituted a further application in this Court which, as filed on 7 February, again sought an order that the applicant be granted leave to proceed with its counter-claim in the District Court and sought that order pursuant to s.30 of the Bankruptcy Act.
That was precisely the relief that the applicant had sought in the proceedings before me and which were ultimately disposed of in the Full Court. That application faced the significant hurdle of the doctrine of res judicata and it seemed to me to be quite misconceived. The matter was adjourned and came on again today when an amended application was filed. That amended application, as further amended during the hearing, seeks an order pursuant to s.30 of the Bankruptcy Act, that the release of any debts owing by the respondents to the applicant, pursuant to the deed of arrangement, be stayed pending the outcome of the District Court action.
What is meant by staying a release of debt I am not sure, but putting that to one side the application appears to be based on an affidavit sworn by John Michael Caratti, a director of Robinswood Pty Ltd, generally to the effect that the applicant did not receive any notice of the meeting of creditors that considered the deed of arrangement, nor any notice requesting it to lodge a proof of debt with the trustee appointed pursuant to the deed.
There was, however, evidence on affidavit, sworn by Mr Horsman, to the effect, which was uncontested, that the trustee had inserted an advertisement in The Daily News newspaper on or about 9 October 1984 advising all interested that the Horsmans had executed a deed to him. An identical advertisement was placed in the Commonwealth Government Gazette on 23 October 1984.
On 2 December 1985, notice of a further meeting of creditors was advertised in The Daily News and a meeting was held on 9 December 1985. On 28 January 1986 the trustee advertised in the Commonwealth Government Gazette notice of his intention to declare a first and final dividend. A similar notice was inserted in The Daily News on 20 January 1986. On 27 March 1986 an advertisement calling the final meeting of creditors was inserted in The Daily News.
Mr Horsman's affidavit also referred to a letter dated 7 October 1985 to the applicant's solicitor from the then solicitors for the Trustee, carrying the heading "101/84X" being the file number relating to the deed of arrangement and referring to the trustee's intentions in relation to the litigation. It is not disputed therefore that the trustee has advertised the execution of the deed of arrangement, meetings of creditors and his intention to declare first and final dividends. He has also been in correspondence with the solicitor for the applicants, as long ago as October 1985.
Now it is to be noted that in spite of the applicant's contention that it has not had notice of the deed, no attempt has ever been made under s.222 of the Bankruptcy Act to obtain an order from the Court that the deed is void on the basis of any non-compliance with the requirements of Part X. And, of course, Part X does require under s.218 that:
"218(1) The trustee of a deed of assignment or a deed of arrangement entered into in pursuance of this Part shall-
(a) forthwith after the execution of the deed by the debtor and the trustee-
(i) give notice of that fact, in accordance with the rules, to each creditor of the debtor; and
(ii) cause notice of that fact, and of the nature of the deed, to be published in the Gazette and in such other manner, if any, as is prescribed; .
.
."
If it were to be contended on the part of the applicant that the first limb of that section had not been complied with then the remedy was plainly to apply under s.222 to declare the deed void. That was not done as I have said.
The basis upon which the present application is brought, is that the Court has a general power under s.30 of the Act to make orders to give effect to the purposes of the Act. Section 30 in terms provides, inter alia, that:
"The Court-
(a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part X or Part XI coming within the cognizance of the Court; and
(b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter."
It seems to me that so far as s.30 is applicable to deeds of arrangement, one would expect it to apply in a way that is incidental to the substantive remedies available under s.222 whereby the Court can, inter alia, declare a deed of arrangement void. It does not provide a final remedy where an assertion of the present kind is made, that is to say where it is said that there has been lack of any or any adequate notice to the creditor.
In my opinion, s.30 cannot be relied upon to support the application that is presently made and no proper basis for that application is disclosed beyond the broad assertion that the purpose of the Act, namely an equitable distribution of assets amongst creditors of debtors or bankrupts, has not been fulfilled.
In my opinion, the application is misconceived even if one could make some sense of an order that a release of a debt be stayed. The deed has terminated, that termination is not challenged. The operation of the release clause takes effect according to its tenor. If there is any argument that the release clause does not operate in relation to the counter-claim because of the nature of that claim, or by virtue of the application of s.86 to Deeds of Arrangement through s.237 of the Act, they are matters which are not raised in this application but may be ventilated in the District Court.
I am satisfied that there is no basis for this application and it will be dismissed. The orders are:
1. The application is dismissed.
2. The applicant is to pay the respondents' costs of
the application.
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