Re Loeskow (Debtor) Ex parte Avokah Irrigation Pty Ltd (Receiver and Manager Appointed)(Creditor)

[1995] FCA 721

CATCHWORDS

BANKRUPTCY - DEEDS OF ARRANGEMENT - CREDITORS - MEETINGS - PROOF OF DEBTS - special resolutions - entitlement to vote - rule against double proof - whether guarantor can prove for amount of a part payment made under a guarantee where principle creditor is not proving for that part - de minimis dividend under the deed - discretion to make sequestration order.

RECEIVERS AND MANAGERS - appointment - validity -  whether adequate service of demand.

Bankruptcy Act (1966) ss 198 and 222
Corporations Law s. 220

Forshaw v Thompson (1992) 35 FCR 329
Re McLean; Ex parte Friends' Provident Life Office (1992)
36 FCR 502
Re Dingle; Westpac Banking Corporation v Worrell (1993) 47 FCR 478
Westpac Banking Corporation v Gollin & Co. Ltd [1988] VR
     397
Day & Dent Constructions Pty Ltd v North Australian Properties     Pty Ltd (1982) 150 CLR 85 Day & Dent
Re Fenton; Ex parte Fenton Textile Association Ltd. [1931] 1 Ch. 85
In re Oriental Commercial Bank [1871] LR 7 Ch App 99
Zantiotis v Andrew (No 2) (1988) 80 ALR 299

RE: Neville LOESKOW (Debtor); EX PARTE: AVOKAH IRRIGATION PTY LTD (Receiver and Manager Appointed)(Creditor) AND EX PARTE: COMMONWEALTH BANK OF AUSTRALIA

SPENDER J
BRISBANE
25 AUGUST 1995

IN THE FEDERAL COURT OF AUSTRALIA     )
GENERAL DIVISION  )
  No. QX 82 of 1994  BANKRUPTCY DISTRICT OF THE             )
STATE OF QUEENSLAND                  )

RE:Neville LOESKOW

Debtor

EX PARTE:AVOKAH IRRIGATION PTY LTD (Receiver and Manager Appointed) (A.C.N. 009 739 655)

Creditor

AND EX PARTE: COMMONWEALTH BANK OF AUSTRALIA (A.C.N. 123 123 124)

MINUTES OF ORDER

JUDGE MAKING ORDER:     Spender J

DATE OF ORDER:         25 August 1995

WHERE MADE:            Brisbane

THE COURT ORDERS THAT:

(i)the estate of Neville Loeskow is sequestrated;

THE COURT DIRECTS THAT:

(i)pursuant to s. 52(3) of the Bankruptcy Act 1966 the proceedings under the order be stayed for twenty-one days from today;

(ii)the parties to deliver written submissions with respect to costs within twenty-one days of today;

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

IN THE FEDERAL COURT OF AUSTRALIA     )
GENERAL DIVISION  )
   No. QX 82 of 1994
BANKRUPTCY DISTRICT OF THE           )
STATE OF QUEENSLAND                   )

RE:Neville LOESKOW

Debtor

EX PARTE:AVOKAH IRRIGATION PTY LTD (Receiver and Manager Appointed) (A.C.N. 009 739 655)

Creditor

AND EX PARTE: COMMONWEALTH BANK OF AUSTRALIA (A.C.N. 123 123 124)

CORAM:    Spender J
DATE:     25 August 1995
PLACE:    Brisbane

REASONS FOR JUDGMENT

There are two applications before the Court: the first in time by Avokah Irrigation Pty Ltd (Receiver and Manager Appointed) ('Avokah Irrigation') filed on 23 November 1994 and an application by the Commonwealth Bank of Australia ('the bank') of 25 January 1995, which seek identical orders, namely:

A declaration that the Deed of Arrangement between Peter Ivan Felix Geroff and Gregory Michael Moloney (the Trustees) and Neville Loeskow (the Debtor) made on 24 August 1994 is void upon the ground that the resolution that the Debtor execute a Deed of Arrangement which was proposed at the meeting of creditors held on 18 August 1994 was not carried as a special resolution; and

A sequestration order against the estate of the Debtor.  

or such further or other order as to the Court may seem fit, as well as costs.

The principal issue in both applications is the rights inter se of a principal creditor and a guarantor of that principal debt who has paid part of the principal debt under the guarantee, to vote in respect of a special resolution proposed at a meeting of creditors pursuant to Part X of the Bankruptcy Act (1966) ('the Act').  There are a number of other issues.

The applications are brought pursuant to s. 222(1) of the Act, which relevantly provides:

"(1) Where there is a doubt, on a specific ground, whether a deed of arrangement was entered into in accordance with this Part or complies with the requirements of this Part, or whether a composition has been accepted by a special resolution of a meeting of creditors under section 204, the Inspector-General, a person authorised in writing by the Inspector-General, the Registrar, the trustee, a creditor or the debtor may apply to the Court for an order under subsection (2).

(2) Upon the hearing of an application made under subsection (1), the Court may, subject to this section, make an order:

(a)declaring that the deed or composition is void, or that it is not void, on the ground specified in the application; or

(b)declaring that a provision of the deed is void, or is not void, on the ground specified in the application.

...

(5) The Court shall not make an order declaring a deed or composition, or a provision of a deed or composition, to be void on a ground specified in subsection (4) unless it is satisfied that it would be in the interests of the creditors to do so.

...

(7) A trustee or a creditor may include in an application under subsection (1) or (4) an application for a sequestration order against the estate of the debtor and if the Court, on the first-mentioned application, makes an order under
subsection (2) or (4) declaring the deed or composition to which it relates to be void, it may, if it thinks fit, forthwith make the sequestration order sought.  "

On 19 July 1994, Neville Loeskow signed an authority in accordance with s. 188 of the Act authorising Peter Ivan Felix Geroff and Gregory Michael Maloney, registered trustees, to call a meeting of his creditors and to take over the control of his property.  The meeting of creditors was held on 18 August 1994 and Mr Geroff was elected chairman of that meeting.  As the minutes of that meeting indicate, twenty creditors were represented at the meeting, whose claims amounted to $13,978,752.00.  The statement of affairs of Mr Loeskow dated 18 July 1994 forwarded to the creditors prior to the meeting indicated a deficiency of liabilities over assets of $12.274 million. 

The proposal at the creditors' meeting the subject of the disputed special resolution was that Mr Loeskow enter into a Deed of Arrangement the effect of which was to provide for the payment of $50,000.00 to a trustee for the benefit of the debtor's creditors, the sources of the funds being persons and entities related to the debtor.  The trustees indicated in evidence that their costs were likely to be in the order of $25,000.00, so that the pro rata distribution to creditors proving in the Part X arrangement would be of the order of one-five hundredth of a cent in the dollar. 

The Receiver and Manager of Avokah Irrigation had lodged a proof of debt in the sum of $403,310.00.  This claim was in respect of payments made by Avokah Irrigation to the bank pursuant to a guarantee provided by Avokah Irrigation to the bank in support of borrowings by the debtor. 

Mr Geroff advised the meeting that it was his understanding that the borrowings of the debtor from the bank had not yet been fully satisfied.  He told the meeting that, after taking legal advice, he had decided to reject a proof of debt in its entirety.  The grounds for the rejection by Mr Geroff of Avokah Irrigation's proof was that the guarantee provided by Avokah Irrigation to the bank at Clause 13 specifically precluded the guarantor from proving in competition with the bank whilst the bank's debt remained unpaid and, secondly, the rule against double proof prevented Avokah Irrigation from proving in the estate of the debtor whilst the principal creditor's debt, namely the Commonwealth Bank, remained unpaid.

The bank did not seek to prove for the full amount that had been owed to it by Mr Loeskow; it sought to prove for an amount of $3,155,828.00, being the amount owed by the debtor to it less the amount of $403,301.00 paid to it by the guarantor, Avokah Irrigation, as part payment of the principal debt owing by Mr Loeskow to the bank.  The bank also proved for a further debt of $108,320.00.

Section 204 provides that the creditors at a meeting called in pursuance of an authority under s. 188 may, inter alia, by special resolution require the debtor to execute a Deed of Arrangement under Part X of the Act.  By s. 5 of the Act, 'special resolution' means:

"...a resolution passed by a majority in number and at least three-fourths in value of the creditors present personally, by attorney or by proxy at a meeting of creditors and voting on the resolution; "

Without the Avokah Irrigation vote, the result of the poll was $10,566,688.00 (or 75.59%) in favour and $3,412,064.00 (or 24.41%) against.  If Avokah Irrigation had been permitted to vote, the result would have been $10,566,688.00 (or 73.47%) in favour and $3,815,374.00 (or 26.53%) against.  This demonstrates that the rejection of the proof of Avokah Irrigation by the chairman for the purposes of voting on the special resolution was crucial.  If Avokah Irrigation or the bank had been permitted to vote for the amount claimed, there would have been insufficient votes by value to pass the required special resolution.

I observe that s. 236 of the Act provides that the Court may, upon application by, inter alia, the trustee, a creditor, or the debtor, if it is satisfied of the specified reasons set out in the section, or "for any other reason the Deed of Arrangement ought to be terminated", make an order terminating the Deed.  Curiously, no application as envisaged by that section has been made by any of the persons specified in that section.

Of the $10.5 million voting in favour of the proposal of Mr Loeskow, all but a very small amount was owed to interests related to him or to members of his family, including an amount of $8,194,140.47 which a company, Relmay Pty Ltd, had purchased from Custom Credit for $10,000.00.

For many years Mr Loeskow conducted business in partnership with his brother.  There was a falling out in about 1988 and as a result of the settlement (in which Mr Loeskow incurred significant debt) two groups of companies and trusts emerged; the first being companies associated with and managed by Mr Loeskow and known as the Avokah Group, and the second being companies and trusts not directly associated with Mr Loeskow and for which he is neither a director, trustee, nor beneficiary, and known as the Relmay Group.  Other members of Mr Loeskow's family and his advisers act as directors and trustees for the companies and trusts within the Relmay Group.  Relmay Pty Ltd is itself a trustee company. 

A report by Duesburys of 27 November 1992 advised that:

"The security offered to the Bank by the Avokah Group links each entity within the group.  All significant debt of Mr Loeskow lies within the entities in this group.  However, the assets at current values within the Avokah Group, are insufficient to meet its liabilities.

The Relmay Group has comparatively little debt and any security offered secures only debt that lies within that group.  There is no cross linking of the security between the Avokah Group and the Relmay Group.  The assets, at current values, of the Relmay group significantly exceed the debt of the group. With the security, as it is presently structured, we believe that the bank is not in a position to recover any shortfall on realisation it may incur within the Avokah group from assets of the Relmay Group. "

That report noted that "all significant manufacturing plant and equipment used by Avokah Manufacturing & Irrigation Pty Ltd is subject to lease with Custom Credit".  In relation to the business of Avokah Manufacturing & Irrigation Pty Ltd, the report said:

"It is therefore unlikely that any trade on decision in relation to Avokah Manufacturing & Irrigation Pty Ltd would be advantageous to the bank.  You should note that any market for this business would be very limited and may well be purchased by Relmay Group. "

In addition to the central question which concerns the rejection of Avokah Irrigation's debt for the purposes of voting on the special resolution at the creditors' meeting, Mr James Bell QC, who appeared with Mr McQuade, for the debtor submitted that pursuant to s. 222(1), a creditor:

"may apply to the Court for an order declaring a deed of arrangement void on the 'specific ground' ...'specified in the application'. "

It was submitted by Mr Bell QC that the resolution proposed at the meeting of creditors was carried as a special resolution because in this case the creditors which the chairman admitted to vote did pass a resolution by majority in number and by in excess of three-fourths in value, and hence, in respect of the ground specified in the application, the application must fail.

I do not accept the submission. The contention on behalf of both applicants was that Part X of the Act had not been complied with in that the resolution was not carried by a three-quarter majority in value of creditors entitled to vote on that resolution. Section 198(1) provides that:

"Subject to this section, every creditor is entitled to vote at a meeting under this Division. "

The contention on behalf of the applicants is that Avokah Irrigation was a creditor entitled to vote and was precluded from voting.  As a consequence, what purported to be a special resolution did not have a sufficient value support to be in truth a special resolution. 

It is well established that the Court has power to determine questions concerning the right of a person to vote at a creditors' meeting.  The general power conferred at s. 30(1)(a) is sufficiently wide to confer such a power: and see also Forshaw v Thompson (1992) 35 FCR 329; Re McLean; Ex parte Friends' Provident Life Office (1992) 36 FCR 502.

It was submitted by Mr Bell that what ought to have been alleged as the ground was:

"Did the chairman err in refusing to allow Dennis (as Attorney for Avokah Irrigation) to vote in relation to the sum of $403,310.95 at the meeting of creditors on 18 August 1994? "

This, of course, has the effect of raising the validity of Mr Dennis's appointment, a matter not in contention at the meeting, but which now is sought to be relied on by the debtor.

I think that the question sought to be agitated by the bank and Avokah Irrigation is covered by the application, particularly when regard is had to a particular supplied by Messrs Freehills in a letter dated 15 December 1994 which included the statement:

"A central line of reasoning to support the application will be that the Chairman erred in refusing to allow Avokah Irrigation to vote in relation to the sum of $403,310.95. "

It is necessary for the applicants to prove that Avokah Irrigation was in truth a creditor and that that person's vote would have affected the fate of the meeting: Re Dingle; Westpac Banking Corporation v Worrell (1993) 47 FCR 478. There is no doubt on the material that the exclusion of the entitlement in Avokah Irrigation to vote was crucial. It is of course for the applicants seeking to challenge the chairman's decision to establish error on the chairman's part: Re McLean (supra).

In my opinion, the bank had an entitlement to vote for more than the sum for which it sought to prove.  Had the bank so wished, it was entitled to vote for the sum of $3,559,138.00, being $3,155,828.00 plus the sum it had received from Avokah Irrigation ($403,310.00).

In Westpac Banking Corporation v Gollin & Co. Ltd [1988] VR 397, Tadgell J concluded that a creditor who proves in a bankruptcy of his debtor need not deduct from the amount of his proof any sum paid to him by a guarantor on foot of a whole moneys guarantee so long as any part of the guarantee debt remains unpaid by the bankrupt estate. In respect of this conclusion, his Honour said at 401:

"That conclusion was precisely expressed by Vaughan Williams J. in Re Sass [1896] 2 Q.B. 12.  The same principle was distinctly enunciated by Lawrence L.J. in Re Fenton; Ex parte Fenton Textile Association Ltd. [1931] 1 Ch. 85, at p. 115..."

He said at 402:

"...the soundness of the decision in Re Sass has, so far as I am aware, never been questioned.  It was the result of a line of decisions which sought to reconcile two potentially conflicting principles: that on the one hand a creditor should be entitled to obtain the full benefit of his guarantee; and that on the other a surety should be entitled to receive the full benefit of a right of indemnity for his liability upon the guarantee.  A guaranteed creditor has, as between himself and the guarantor, a paramount right to be paid.  Subject to that, the guarantor is entitled to the benefit as between himself and the creditor of all that the creditor can recover from the principal debtor or his bankrupt estate without resorting to the guarantor: Thornton v M'Kewan (1862) 1 H. & M. 525, at p. 529, per Sir William Page Wood V-C. "

At p. 403, in a passage important for present purposes, Tadgell J said:

"The right of subrogation, however, does not arise if the guarantor has not discharged his obligation to the creditor.  The mere fact of payment by the guarantor on account of the guaranteed debt, or the fact of his right to prove in respect of payment of part of it, cannot prevent the guaranteed creditor also from proving for the debt regardless of what he has been paid on account by the guarantor. "

This passage implicitly accepts that payment by a guarantor on account of a guaranteed debt confers a right on that guarantor to prove in respect of payment of part of the debt.

The thrust of the judgment in Gollin is that, if the principal creditor seeks to prove for the whole of the principal debt, any rights which the guarantor's part payment may confer on him is deferred or postponed to the right of the principal creditor.

See also Western Australian v Bond Corporation (1992) 37 FCR 150; Day & Dent Constructions Pty Ltd v North Australian Properties Pty Ltd (1982) 150 CLR 85 where Mason J, as he then was, referred, at p. 101, to the judgment of Lord Hanworth M.R. in Re Fenton; Ex parte Fenton Textile Association Ltd [1931] 1 Ch. 85, where the Master of the Rolls at 106-7 said:

"Thus, so far as the cases go, it had been decided that a surety is entitled to a right to prove if (a) his liability arose under a guarantee given before the date of the receiving order or winding-up order, and (b) he has in fact paid to the creditors the sum that he seeks to set off. "

Later, at the foot of p. 101, Mason J said:

"Romer L.J. (at 120) took a similar view, saying that the only reason why the surety 'is prevented from proving his claim is that his claim is in respect of the same debt as is that of the banks' (the principal creditors) 'and as between him and the banks the latter have the prior right of proof', there being no evidence that the latter had renounced their right to prove. "

The basis for the rule against double proof is that until paid in full, a creditor is entitled to prove for the whole debt even if part of it has been paid by the surety.  That is established by Re Fenton and by In re Oriental Commercial Bank [1871] LR 7 Ch App 99 per Mellish LJ at 103-4. The rule, as the Oriental Commercial Bank Case shows, is designed to prevent two dividends being paid for the same debt.  As the passage to which reference has earlier been made indicates, the rule does not apply where the creditor has renounced his right to prove: see also in this regard Phillips & O'Donovan, The Modern Contract of Guarantee 2nd ed. p. 522.

In this particular case, Avokah Irrigation has paid $403,310.95 and as a consequence is an actual and not a contingent creditor for that amount.  The bank did not seek to prove for the same $403,310.95 and there was therefore no infringement of the rule against double proof.  The position legally was that the bank was entitled to prove for that part of the debt that remained unsatisfied from any source and the guarantor who had paid part of the debt was entitled to prove for the amount which it had paid.  In Zantiotis v Andrew (No 2) (1988) 80 ALR 299, Beaumont J at 302 held that s. 198 of

the Act confers the right to vote at the meeting, subject to the provisions of that section, on "every creditor" whether dis-qualified for proving for dividend purposes under some other rule or provision, or not.

In my opinion the rejection of the proof of Avokah Irrigation for the reasons given by the chairman was wrong. 
         It is true that the bank could, had it so wished, have voted for its whole entitlement; but it was under no obligation to do so, and the fact that it voted for less than its full entitlement and Avokah Irrigation sought to vote for the amount which it had paid to the bank in part payment of the amount owing by the debtor to the bank, should have resulted in each of them being permitted to vote for those amounts.  That would not amount to a breach of the rule against double proof.  In my opinion, the mere fact that the bank was entitled to prove for the whole amount of the debt, did not preclude an entitlement in Avokah Irrigation to prove in respect of that part of the debt which it in fact had paid, if the bank chose not to prove for the whole amount of the debt.

I accept that this conclusion means that, in a sense, the bank could effect a change in the number of persons voting at the meeting.  That consideration does not persuade me that the bank is obliged to prove for the full amount of its debt.

Other grounds  were relied on by counsel on behalf of Mr Loeskow to support a conclusion of the chairman "to reject the claim of Mr Dennis to an entitlement to vote for Avokah Irrigation".  This somewhat misstates what the chairman did in fact conclude.  The question of whether Mr Dennis held a proper proxy for Avokah Irrigation was never in issue at the meeting. 

The debtor challenges the appointment of the Receiver to Avokah Irrigation.  The payment made by Avokah Irrigation was made prior to the Receiver's appointment, and in my opinion the question of the validity of the Receiver's appointment does not affect the question of whether Avokah Irrigation was a creditor, nor the right of Avokah Irrigation to lodge a proof for voting purposes.  I accept that the applicants bear the onus of establishing that Avokah Irrigation was in fact a creditor.  So much appears from Re Dingle; Westpac v Worrell (1993) 47 FCR 478. There the court at 486 referred approvingly to the observations of Heerey J in Re McLean; Ex parte Friends Provident Life Office (supra) where at 511 his Honour said:

"The Act confers a right to vote on creditors, not persons who have an arguable case that they are creditors. "

For the debtor it was contended that Mr Dennis was invalidly appointed as a Receiver of Avokah Irrigation.  I think this point is good, but for reasons which I subsequently express it is not determinative of the application.
         Mr Dennis, a chartered accountant and partner in the firm of Ernst & Young, was appointed as Receiver and Manager of Avokah Irrigation Proprietary Limited and Avokah Manufacturing & Irrigation Pty Ltd on 19 July 1994.  It seems that a doubt arose as to the validity of those appointments.  On 18 August 1994 a release by Mr Dennis was agreed and by Deed also dated 18 August 1994 he was appointed by the bank to be Receiver and Manager of Avokah Irrigation.  This was the relevant appointment, and was pursuant to an equitable mortgage dated 1 December 1986 given by Avokah Irrigation to the bank and the appointment in the Deed is said to be pursuant to cl. F.3 of the mortgage.  That equitable mortgage was between Avokah Irrigation as Mortgagor and debtor and the Bank.  Clause A of that mortgage relevantly provides:

"...the mortgagor hereby charges all and singular its undertaking property and all its assets...with the payment to the bank in the manner hereinafter mentioned of -

1. all moneys...now or hereafter to become owing or payable to the Bank by the Debtor and the Mortgagor or either of them..."

Clause F.2(i) provided:

"It is hereby agreed and declared that -

...

2.(i)The moneys hereby secured shall at the option of the Bank and notwithstanding any delay or previous waiver of the right to exercise such option immediately become payable and this mortgage shall become immediately enforceable without any demand or notice in each of the following events:-

(a)If the Mortgagor and the Debtor or either of them makes default in the
payment of the moneys hereby secured or any part thereof. "

Clause F.3 commences:

"At any time after the moneys hereby secured become payable or after this mortgage shall have become enforceable the Bank...may appoint in writing any person to be receiver of the mortgaged premises..."

By clause F.2, if there was default by Avokah Irrigation, then the moneys secured under the equitable mortgage became payable without demand.  There is no suggestion that there was any such default except in respect of the circumstances of an obligation by Avokah Irrigation as guarantor of Avokah Irrigation & Manufacturing.  I think this is the case, notwithstanding that recital D of the Deed of Arrangement proposed by Mr Loeskow stated:

"The Bank holds a first registered mortgage debenture over all of the assets and undertaking of AVOKAH IRRIGATION PTY LTD and AVOKAH MANUFACTURING & IRRIGATION PTY LTD.  Those companies are currently in default to the Bank and the Bank has enforced security by way of appointment of a receiver to those companies.  The Debtor is intimately familiar with the affairs of both companies and has and as part of this Deed agrees to assist the Bank in the orderly realisation of its security. "

I do not think the statement "those companies are currently in default to the bank" can be relied on as  sufficient admission of default, unless Avokah Irrigation was in fact in default to the bank in respect of its obligations as guarantor to Avokah Manufacturing & Irrigation. 

On the material available to me, it seems that any liability of Avokah Irrigation to the bank arose by way of an instrument of guarantee dated 20 February 1986.  That guarantee required the bank to first make demand before any liability arose in Avokah Irrigation to the bank.  I find that no demand was made on Avokah Irrigation pursuant to that guarantee or at all prior to the meeting of 18 August 1994.

Section 220(1) of the Corporations Law provides that a document may be served on a company by leaving it at, or by sending it by post to, the registered office of that company. The registered office of Avokah Irrigation is 36 Quay Street, Bundaberg. Notwithstanding attempts by a Mr Sullivan, a bank officer, to effect service, service was not effected on Avokah Irrigation at its registered office, nor was the alternative method of service provided by s. 220(4) of the Corporations Law which provides that a document may be served on a company by delivering a copy personally to each of two directors.  I am satisfied that no demand under the guarantee was received until after the creditors' meeting and the consequence was that on 18 August 1994 Mr Dennis had not been validly appointed Receiver of Avokah Irrigation.

It was contended for the bank that the appointment of a receiver is a matter between the company and the creditor, and the debtor has no standing to challenge the validity of the appointment.  Mr Loeskow is not simply a debtor but he is one of the two directors of the company.  In
O'Donovan Company Receivers & Managers (2nd Ed.) p. 2273 at para. 7.540, the learned author says:

"A challenge to the validity of an appointment may come from a number of quarters.  The company itself could raise this issue, (citing R Jaffe Ltd (In Liqn). v Jaffe (No. 2) [1932] NZLR 195. Hawkesbury Development Co. Ltd v Landmark Finance Pty Ltd (1969) 92 WN (NSW) 199 clearly recognised that the directors of the company had the capacity to institute proceedings in the company's name to test the appointment. "

It was claimed by the bank that in the absence of a challenge by the company, the trustee could and should have relied on the affixing of the seal as prima facie proof of authority under the indoor management rule: Northside Developments Pty Ltd v Registrar General (1990) 170 CLR 146.

The question, however, is not to be determined simply on what was done at the creditors' meeting.  In the view I take of the matter, independently of the question of whether Mr Dennis was validly appointed as Receiver, Avokah Irrigation was a creditor of Mr Loeskow and was entitled to vote at the meeting and its vote was crucial.  Contrary to the chairman's ruling, the entitlement of Avokah Irrigation to vote was not affected by any consequences of the rule against double proof.

Finally, it was submitted that even if I were to find against Mr Loeskow on the question of the entitlement of Avokah Irrigation to vote, the court should exercise the general discretion which it has as to whether to declare a Deed of Arrangement void in favour of the debtor. 

It was said that, in this particular case, there was delay in bringing the application under s. 222. The application was made by Avokah Irrigation on 23 November 1994 and by the bank on 25 January 1995 in respect of a meeting which occurred on 18 August 1994. It was said that the delay in bringing the application has prejudiced the funding by third parties, and that if the application had been brought on a timely basis, the moneys may have been refunded to those third parties and dealt with by them for their benefit. They have therefore, it was submitted, suffered detriment as a consequence of the delay, and further that if there had been a timely application, some costs of the trustee may not have been incurred.

There is force in these submissions, and I accept further that there is no evidence that the debtor has been involved in any dishonest behaviour.  While there is no room to be sanguine that a sequestration order will result in any better result for the creditors and, indeed, the statement of Mr Geroff was that it was in the interests of creditors to proceed with the Deed of Arrangement, in my opinion, that consideration has very little weight.  Where the prospective dividend is .002 cents in the dollar, it is not difficult to come to the view that the creditors can hardly be worse off under a sequestration order.
         It seems to me that the only genuine prejudice is that the family members have put in the $50,000.00 under the Deed of Arrangement.  This had already been done by the time of the meeting.  The application could not have been brought before payment and any subsequent delay has not affected that situation.  I accept further that Mr Loeskow has co-operated with the Receiver as he is required to do pursuant to the terms of the Deed.  However, he would be so required under his other obligations.  In addition to the derisory dividend, which truly can be characterised as de minimis, there is the further important consideration in my conclusion, namely, that the vote in respect of the Deed of Arrangement was carried at the meeting only by the circumstance that a debt of over $8,000,000.00 had been acquired by a company controlled by members of Mr Loeskow's family for $10,000.00.

In all the circumstances, I think that a sequestration order should be made.  I make a sequestration order against the estate of Neville Loeskow.  I will hear the parties on costs.

I certify that this and the  preceding nineteen (19) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.

Associate
  Date: 25 August 1995

Counsel for the applicants:      Mr P. R. Dutney QC     

instructed by:                   Freehill Hollingdale & Page

Counsel for the debtor:          Mr J. C. Bell QC and

Mr P. C. McQuade
instructed by:                   James Conomos

Solicitors for the trustee:      Corrs Chambers Westgarth

Date of Hearing:                 25 & 27 July 1995