Re Juric, P. v Ex Parte Bank of New Zealand

[1991] FCA 900

I

W8 91

JUDGMENT No .......,........ .. / . - , .

IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	)
BANKRUPTCY DISTRICT OF THE	1 No. QP 2106 of 1991
STATE OF OUEENSLAND	)

RE !	PAUL JURIC
EX PARTE:	BANK OF NEW ZEALAND

MINUTES OF ORDER

JUDGE MAKING ORDER! PINCUS J .

DATE OF ORDER:	27 MAY 1991
WHERE MADE:	BRISBANE
THE COURT DECLARES THAT:

The deed of arrangement which was executed by the trustee on 15 April 1991 is void.

THE COURT ORDERS THAT:

l . The application to extend the time prescribed under 9.216 for execution of that deed be refused.

2.         A sequestration order be made against the estate of

the debtor.

costs of the hearing on 17 May 1991, be taxed and
paid under s.l09(l)(a) of the Bankruutcv Act as if
they have that priority.

Settlement and entry of orders is dealt with in Rule

124 of the Bankruptcy Rules.

3.    The petitioning creditor's costs of and incidental to the petition be taxed and paid in accordance with the Bankruutcv Act 1966.

4.    The costs of the petitioning creditor, Bank of New Zealand, in respect of the proceedings relating to the deed and in particular the hearings before the Registrar, and before this Court, other than the

IN THE FEDE~AL COURT OF AUSTRALIA

G E N E W DIVISION

BANKRUPTCY DISTRICT OF THE	1	No. QP 2106 of 1991
STATE OF OUEENSLAND	1

RE:	PAUL JURIC
EX PARTE:	BANK OF NEW ZEALAND

CORAM: PINCUS J.

PLACE: BRISBANE

m! 27 MAY 1991

EX TEMPORE REASONS FOR JUDGMENT

The matter before me is an application made on 19 April 1991 to declare a deed of arrangement void on various grounds. It has emerged that the deed of arrangement was not

executed by the trustee within the time specified in 9.216 of

the Bankru~tcv Act 1966 and I have ordered that, as a

preliminary point, the effect of that be determined.

On my doing so, counsel for the trustee, Mr.

Redmond, made an application for an extension of time to

execute, so that the two issues before me are both related to

the one point, namely, the late execution of the deed.

The commencement of the story, so far as the present

point is concerned, can be taken back to the issue of a
creditor's petition on 24 December 1990. That petition was
issued at the instance of Bank of New Zealand which had a
judgment against Mr. Jdric, the debtor. The matter came on
for hearing on 21 February 1991, but the day before, on 20

February, an authority under S. 188 had been signed. Section

188 contemplates that a debtor may execute an authority in

favour of a trustee to call a meeting of creditors.

At the first hearing the matter was adjourned,

although there was opposition, to 14 March. A statement of
affairs had been filed which showed creditors totalling
$859i310.00. Subsequently, I should mention, another
statement of affairs showed a much larger sum, of about $1.8

million, due.

After having been adjourned to 14 March, the

trustee, Mr. Worrell filed a report. It is no criticism of

Mr. Worrell to say that the report is fairly vague. The

position is, and remains, that the trustee has not
investigated the debtor's financial position in any depth and
knows not a great deal about it. The matter came before the
Registrar on 14 March when the petition was adjourned to 4

April to allow the meeting of creditors to take place, and

that occurred on 19 March.

On that date, some information was given to the

creditors as to the financial position of the debtor, but it
was necessarily, as I have mentioned, inconclusive and vague.
The proposal was that there should be an assignment of the
debtor's property, and in addition the costs of the
administration would be paid and a sum of $63,000 would,
within 12 months, be paid towards the debts; that would
result in a very small, but some dividend, if it occurred.

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One of the difficulties which arose at the meeting

was that a company which claims to be a creditor, Farrow
Mortgage Services Proprietary Limited, was not notified of the
meeting and did not vote there. The difficulty about Farrow
Mortgage Services Proprietary Limited is that it claims to be

owed about $9.4 million.

There is evidence of its being owed $4.5 million,

but the trustee does not know and has never known whether that
sum or any particular sum is due. Mr. Juric has appeared
before me today prepared to argue, vehemently, that nothing is
due. It is obviousLy impossible for me to determine the truth
of that at this stage. He has admitted that a long and
intensive investigation would be needed, to reach any
satisfactory result.

What happened at the meeting of 19 March was that a special resolution was passed by a majority of the creditors

to accept the proposal for the deed of arrangement.	It is, I
think, common ground, that if Farrow Mortgage Service

Proprietary Limited had been admitted to vote and had voted, the proposal would have been defeated, so that Farrow's position turned out to be critical.

The trustee, Mr. Worrell, was concerned about

Farrow's position and he gave an undertaking at the meeting that he would not execute the deed until he had legal advice as to the entitlement of Farrow to attend and vote. However, in the meantime, the matter came back on again before the

Registrar for hearing on 4 April, at which evidence was placed before the Registrar as to what had happened, and he reserved his decision

What was asked for on that occasion was an

adjournment of the petition to enable the trustee to obtain legal advice and, if the advice was appropriate, to execute

the deed. This can be deduced from the affidavit of M r . Oriti

filed on 19 April, and also from the terms of the reasons of
the Registrar which he gave on 9 April.

In those reasons he explained why he was not

prepared to grant the adjournment which was sought, and his
reasofis, although they have not been analysed in detail, I
must say raised certain difficulties about the process which
had occurred. On the Registrar's informing the parties that
he would not grant the adjournment for the purpose that I have
mentioned - that is, for the purpose of enabling legal advice

to be obtained and, if the advice was appropriate, to execute

to review the Registrar's decision refusing the adjournment,	the deed - an application was foreshadowed to come to a judge
and then the Registrar granted an adjournment for that limited purpose.
Now what happened, and the curiosity of it, is that the trustee took advantage of that adjournment to do that for which he had originally applied for an adjournment. That is, having been refused an adjournment for the purpose of getting legal advice and, if appropriate, executing the deed, he then

5   l

obtained time to challenge that decision, and during the time
he obtained while the matter was awaiting hearing before a
judge, he did execute the deed, and the advice on which he
executed it has been tendered.

The first question is what is the effect of failure

to execute the deed. There is no authority in a Full Court as
to what the effect is, but it is my view that a deed executed

out of time, unless an extension is given, is bad. he

alternative view is that execution out of time has no effect at all, which is not an attractive conclusion. That is, if, to take an example mentioned in argument, the deed is executed

by the trustee, or perhaps by both the debtor and the trustee,
not 21 days, but 210 days after the special resolution, then
what effect does that have? As I understand the argument it
would not affect the validity of the deed at all. The other
view, which seems to me to be an unacceptable proposition, but
which was put forward as being a possible solution, was to say

that, if the deed is executed late then one considers whether

or not the time provision has been substantially complied
with.	In my opinion, it is unlikely that the legislature

intended any such test to be used. One either executes within
21 days or not within 21 days. I could understand that an
argument might be advanced that if there was some trifling
non-compliance then it could be argued that there was
substantial compliance, but that is not so here. It is not so
for two reasons. One is that the delay was not trifling, and
secondly that the delay had some significance.

..

6   I

As I have mentioned, it was quite a deliberate

delay. The question therefore appears to me to be, in the end,
whether an extension of time should be granted, because as I

see it, if an extension of time is not to be granted then the

deed is simply bad. It is bad because s . 2 1 6 lays down in a

mandatory way the time within which execution is to take

place. In many instances where the word "shall" is used it is

possible to avoid the outcome which I have mentioned, namely, badness or voidness, by holding that some lesser consequence ensues or some lesser penalty is imposed. Here the choice

seems to be between holding that the position is mandatory in
the full sense and holding that it is of no effect at all.

The latter seems to me not a possible solution.

The extension which is sought, and I act on the

assumption that there is power to extend the time, cannot rely

upon the lapse of time as having been an accident, because it

was not. The extension relies upon the circumstance that, as

I understand it, there was difficulty about the alleged debt

owed to Farrow, and it was reasonable for the trustee to

obtain advice about it, and he acted reasonably promptly.

While it appears to me that there is some substance in that, I have decided in the circumstances not to allow any extension of time and the application will be refused. The

principal reason for that is the one which I have mentioned
already. It is that, although not in any dishonest way, the
trustee has taken advantage of the delay (although not a very
long delay) between the matter's being adjourned and the

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hearing in this Court to enable him to test the refusal of the
Registrar to grant an adjournment, to do that which the
Registrar had set his face against his doing.

There are, however, other circumstances which I have taken into account. One of them is that, so far as I can see, it is common ground that the information about the debtor's

affairs is extremely incomplete and hazy. One need only remind oneself that the sum said by the debtor to be due advanced very quickly from $800,000-odd to over $1.8 million,

and one should add that there appears to be a trust lurking in

the background about which nothing is known.

More generally, the affairs of Mr. Juric, in

particular in relation to his connection with Farrow Mortgage

Services Proprietary ~imited and the state of the indebtedness

to that firm, are seen to be quite unexamined and not to be
able to be examined without a considerable amount more work.

As the Registrar, in my view, correctly said:

"insufficient information was available to the

creditors at the meeting to enable them to come

to a reasoned and informed decision".

That could hardly be disputed. The Registrar also

criticised the actions of the chairman in allowing the meeting to proceed after being informed of the debt due to Farrow. I do not make any comment upon that criticism, other than to say that overshadowing the whole affair is that one does not know

8   I

and cannot know whether in a substantial sense the requisite
majority of the creditors interested in the matter is in
favour of the deed, because of the uncertainty about the
Farrow debt.

The other matter which I have taken into account is

that, as I have mentioned to counsel, it does not seem to me
to be of any great consequence, so far as any of the creditors
are concerned, whether there is a bankruptcy or a deed. One
thing which may be said in favour of the deed is that there is
a prospect that if the $63,000 is paid they will get a small

dividend. In fact, if the Farrow debt is admitted, it would be, I think, less than a cent in the dollar. If the Farrow

debt is not admitted, it will still be very small.

I drew counsel's attention to the fact that many of

the important provisions which govern bankruptcy also govern
the position of the debtor under a deed of arrangement, but
some do not, and it may be the fact that some of the

provisions which apply to bankruptcy but which do not apply to
the deed would advantage the creditors.	But from the point

of view of Mr. Juric and the creditors, there does not seem to
be very much to choose between the two and I am still puzzled

as to why there is such an enthusiastic argument on the

question of what Mr. Juric's fate should be. He himself

seems to be labouring under the delusion that if he obtains an

adjournment, then in some sense he will fight his way out of

this, but I simply do not understand that. He admits that he

is hopelessly insolvent and obviously his assets have to be

sold.

The orders which I propose to make, then, are:

firstly, there will be a declaration that the deed of

arrangement which was executed by the trustee on the 15 April

1991 is void. Secondly, there will be an order that an

application to extend the time prescribed by 9.216 for

execution of that deed is refused. That seems to leave the

petition for sequestration to be determined. As far as the
application is made for costs, I propose to reserve that until
the creditor's petition is heard.

I find the act of bankruptcy alleged in the petition

and the other matters of which the Bankruptcv Act 1966
requires proof in order to ground a sequestration order, and I
make a sequestration order in respect of the estate of the
debtor, Mr. Juric, and order that the costs of and incidental
to the proceedings incurred by the petitioning creditor be

taxed and paid in accordance with the Act.

In addition to those costs, I propose to order that

the costs of the petitioning creditor, the Bank of New
Zealand, in respect of the proceedings relating to the deed
and in particular the hearings before the Registrar, and
before this Court, be taxed and paid in accordance with the

A c t , other: than the costa of the hearing of 17 May 1991. I do

not consider that those costs should come out of the estate:
otherwise, the costs of the petitioning creditor in respect of
the proceedings concerning the deed will be taxed and paid as
if they had the priority under s.l09(l)(a) of the Act.

I should perhaps explain that there seems to me to

be some force in the suggestion made by Mr. Eliadis that those
costs should be paid by Mr. Worrell. I have some concern
about the way in which the matters were handled. It was, no
doubt, a difficult situation for Mr. Worrell, but it is really
quite undesirable, I think, that any encouragement be given to
the passage of deeds of arrangement which offer some trifling
and perhaps illusory benefit to the creditors on almost no
information. Nevertheless, I am satisfied that Mr. Worrell
acted bona fide and in what he regarded as the best interests
of the creditors and in accordance with his duty. In those
circumstances, although it is not easy, I think that it is

fairer to make the costs payable out of the estate.

I certify that this and the
nine preceding pages are a

true copy of the reasons

Honour Mr. Justice Pincus.

for judgment herein of his

c- -- W, \rS h--~-.-

Associate