Re Kite, S.n. v Ex parte Nilant, C.p.l

[1991] FCA 506

Re: STEPHEN NORMAN KITE
Ex parte: CHARLES PHILIPPE LOUIS NILANT
No. WB687 of 1989
FED No. 506
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
GENERAL DIVISION
French J.(1)

CATCHWORDS

Bankruptcy - application to approve composition - composition duly approved by bankrupt's creditors - principles regulating court's discretion to approve composition - approval of composition consistent with purposes of Act and for benefit of bankrupt's creditors - composition approved.

Bankruptcy Act 1966 ss.73, 74

Re Fryda (1964) 6 FLR 144

Re Aylmer; Ex parte Bischoffsheim (1887) 19 QBD 33

Re Clyne (1978) 44 Australian Bankruptcy Bulletin 3901

HEARING

PERTH

#DATE 13:8:1991

Counsel for the Applicant : Mr D.M. Okeby

Solicitors for the Applicant : Okeby and Co.

ORDER

The Court orders that the composition accepted by a special resolution of the bankrupt's creditors on 21 May 1991 is approved.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

ON APPLICATION FOR APPROVAL OF COMPOSITION

This is an application to the Court to approve a composition proposed by the bankrupt, Stephen Norman Kite, and accepted by special resolution of a meeting of his creditors held on 21 May 1991. The application is made under ss. 73 and 74 of the Bankruptcy Act 1966. Section 73 provides:

"73(1) Where a bankrupt desires to make a proposal to his creditors for -

(a) a composition in satisfaction of his debts; or

(b) a scheme of arrangement of his affairs; he may lodge with the trustee a proposal in writing signed by him setting out the terms of the proposed composition or scheme of arrangement and particulars of any sureties or securities forming part of the proposal.

(2) The trustee shall call a meeting of creditors and shall send to each creditor before the meeting a copy of the proposal accompanied by a report on it. .

.

.

(4) The creditors may, by special resolution, accept the proposal.

(5) A creditor who has proved his debt may assent to or dissent from the proposal by written notice to that effect delivered to the trustee before the meeting or sent by post to the trustee and received by him before the meeting, and in that case the creditor shall, for the purposes of this Division, be deemed to have been present at the meeting and to have voted according to his assent or dissent."

Section 74 provides:

"74(1) If a bankrupt's proposal for a composition or a scheme of arrangement is accepted by his creditors in accordance with section 73, the bankrupt or the trustee may apply to the Court for approval of the composition or scheme of arrangement.

(2) The trustee shall give notice of the time appointed for hearing the application to each creditor who did not assent to the proposal.

(3) The Court shall, upon the hearing of the application, hear-

(a) a report by the trustee about:

(i) the terms of the composition or scheme of arrangement; and

(ii) such (if any) of the bankrupt's conduct and examinable affairs as the trustee has investigated; and

(b) any objections to the composition or scheme of arrangement made by or on behalf of a creditor.

(4) The Court may approve, or refuse to approve, the composition or scheme of arrangement.

(5) Where the Court approves a composition or scheme of arrangement under this section, it may make an order annulling the bankruptcy."

Subsections (6) and (7) are not relevant for present purposes.

1. Mr Kite became a bankrupt on 13 November 1989 following the lodgment of his debtor's petition. His statement of affairs at the time showed liabilities in excess of $200,000 with few assets available to his creditors. The trustee says that with the assistance of the bankrupt, he has been able to realise all these assets which consist mainly of book debts. Following his bankruptcy, Mr Kite continued to trade as an entertainment promoter under the supervision of the trustee and was still so trading at the date of the trustee's report to this Court on 6 August 1991.

2. A meeting of creditors was held on 13 February 1990 at which the bankrupt's conduct was reported on, including his endeavours to make voluntary contributions from income earned as a promoter. It appears that Mr Kite had been bankrupt on two previous occasions, 3 November 1977 in Queensland and 22 January 1982 in Western Australia. In both cases, according to the trustee, the bankruptcies were small, the latter being the result of a failed business venture with a previous partner. The trustee seems to have accepted that Mr Kite was neither an habitual bankrupt nor financially irresponsible. His current difficulties were said to have resulted from industrial action within the State Energy Commission and the airline pilots' strike in the middle and later months of 1989. Tours of entertainers which he had organised, were cancelled and because firm commitments had been entered into losses were carried by him personally. The trustee comments in his report that the bankrupt should not have carried the risk personally, but would have been better advised to trade through a corporate structure.

3. The meeting of creditors found it unnecessary to submit Mr Kite to a public examination. He had reaffirmed his intention to continue co-operating fully with the administration of his estate and to trade with the hope of making voluntary contributions for the benefit of creditors.

4. In March of this year, Mr Kite proposed a composition to his creditors. By a letter dated 10 April 1991 the trustee circulated that proposal to creditors and reported on it. The proposal was in the following terms:
   

1. That the payment of all costs, charges and expenses of and incidental to the administration of the estate and all the fees payable to my trustee in bankruptcy shall constitute a first charge on moneys referred to in paragraph 3.

2. That the payment of all priority debts directed to be so paid under the Act in distribution of the property of a bankrupt would constitute a second charge over the moneys referred to in paragraph 3.

3. The Composition shall be $22,000 and all the divisible property of the bankrupt to be paid on all proved debts. The sum of $22,000 is to be collected by the trustee in accordance with the following schedule:

(i) prior to acceptance of the composition $5,000;

(ii) by 21 June 1991, $2,000;

(iii) by 21 July 1991, $2,000;

(iv) by 21 August 1991, $2,000;

(v) by 21 September 1991, $2,000;

(vi) by 21 October 1991, $2,000;

(vii) by 21 November 1991, $2,000; and

(viii) by 21 December 1991, $5,000.

4. The source of the composition sum is from advances made by friendly parties or relatives, together with contributions to be made by the bankrupt from trading.

The trustee reported to the creditors that the terms of the proposal were, in his opinion, calculated to benefit them. The statement of affairs at that time disclosed liabilities of $254,049 against cash of $140, superannuation entitlement of $3,217, debtors of $5,200 and furniture and fittings of $2,500, leaving a deficiency of $242,992. The trustee reported that the bankrupt had advised that he might be able to secure irrevocable undertakings from major creditors totalling up to $95,000 that they would not prove in the estate if the composition were accepted. That action, it was noted, would reduce the creditor base and the dividend payable on the remaining provable debts would be substantially higher. At that time Mr Kite's divisible property consisted of some $7,700 held in the trustee's trust account. It was envisaged that together with the additional funds proposed under the composition a "reasonable dividend" would be payable to unsecured creditors generally.

1. A meeting of creditors was called and held on 21 May 1991 and at that meeting the composition proposal was put. At the time, as appears from the minutes, the trustee was able to indicate to the creditors that because of irrevocable undertakings from certain creditors, some $81,000 worth of debts would not be sought by way of proof in the estate. This is confirmed in the trustee's report to this Court which was filed in relation to the present application.

2. A payment of $5,000 was made at the date of the creditor's meeting. The periodic payment of $2,000 due on 21 June has also been paid and as at the date of the trustee's report the terms of the composition were being complied with. He has recommended to the Court that the composition be approved for the following reasons:
   

(a) That it is the wish of the creditors and that he is not aware of any dissenting creditor.

(b) That the bankrupt would, by 21 December 1991, have been bankrupt for more than 2 years of his normal 3 year term.

The trustee adds the comment that Mr Kite's efforts to have the bankruptcy annulled and to make the payment of as reasonable a dividend to creditors as possible are commendable. I note however, that there is no application for annulment presently before me. Reference is also made in the report to Mr Kite's good conduct and complete co-operation so far.

1. There was advice in earlier material by way of a first report to creditors and the report to the Registrar that the trustee had referred the question of the commission of possible offences by Mr Kite to the Western Australian Police. However, it appears that nothing further has come of that, and I proceed on the basis that although at one stage the trustee suspected the commission of offences, no further action has been taken following referral to the Police and this application falls to be determined on the assumption that no such offences have been committed.

2. The criteria for approving a composition have been discussed in a number of cases. It is necessary that the Court be satisfied that the proposal is reasonable and is in accordance with the provisions of the Act and will benefit the creditors generally to a greater extent than under the continuing administration of the bankruptcy - Re Fryda (1964) 6 FLR 144 at 152 and Re Aylmer; Ex parte Bischoffsheim (1887) 19 QBD 33. The approach to the exercise of the discretion is outlined in the judgment of Deane J. in Re Clyne (1978) 44 Australian Bankruptcy Bulletin 3901 at 3902, where his Honour said:
   

"Generally speaking, this court should be slow to refuse to approve a proposed composition or scheme of arrangement which has been duly approved by special resolution (ie by a majority in number and at least three-quarters in value of those present, either personally or by attorney or proxy) at a properly convened meeting of creditors, in the absence of considerations which indicate the presence of one or more of the following factors:

(i) That material was concealed from some or all of the creditors.

(ii) That some or all of the creditors were unaware of material considerations which could conceivably have lead them to take a different view to the view expressed in their voting on the proposed scheme.

(iii) That some or all of the creditors were not given a proper opportunity of considering or voting upon the proposed composition or scheme.

(iv) That the provisions of the proposed composition or scheme are unreasonable or clearly not in the interests of the creditors.

(v) That the provisions of the proposed composition or scheme unfairly favour some class or classes of creditors over another class or classes or some creditor or creditors over another creditor or other creditors.

(vi) That some or all of the creditors voted in support of the proposed composition or scheme of arrangement by reason of dishonest or collateral purposes or objects.

(vii) That the bankrupt has been guilty of such misconduct either leading to or in relation to the bankruptcy that, in all the circumstances including the period since the making of the sequestration order, it is necessary in the public interest to refuse to lend the sanction of the court to the arrangement which he has reached with the creditors, or that the circumstances of the matter are such as to make it necessary for the court to refuse its approval to the scheme for the reason that to give such approval would not be consistent with the general purposes of the Bankruptcy Act."

1. There are two matters of concern in this case. The first is the scale of the total liabilities as against the moneys recoverable under the composition. The second is the existence of the previous bankruptcies. The latter consideration would, I think, be more relevant than the former in the context of an application for an annulment, but as I have said there is no such application before me at this stage. Although the composition proposed does not offer the creditors a great deal of solace, it does involve, having regard to his apparent financial affairs, a significant effort by Mr Kite to meet, at least in part, his obligations. I have regard also to the fact that there is evidence before me that all creditors have been given notice of this application and that there is no opposition to it. In the circumstances, I think it consistent with the purposes of the Act and for the benefit of the creditors that I make the order sought. The composition accepted by special resolution of the bankrupt's creditors at a meeting held on 21 May 1991 will be approved.