Re MacDonald, R.M. v Ex parte Faulkner, M.F.

[1987] FCA 475

NOT FOR DISTRIBUTION

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IN FEDERAL COURT OF AUSTRALIA )

)

EXERCISING FEDERAL JURISDICTION	)	No. 186 of 1987 (Part X)
)
IN BANKRUPTCY	)

MRUPTC'I DIZTRICT OF THE STATE OF VICTORIA

Re : RONXD MACFAE MACDONX9 A Debtor

Ex parte: MICHilEL FRANCIS FAULXNER Appllcant

and

RONALD MACRAE MACDONALD,

IAN HUGH SHANNON and

ALM NEVILLE BIRD Respondents

m: NORTtLROP J .

= D : 15 JULY 1387

W: MELBOL-NE

MINUTES OF ORDER

THE COURT ORDERS THAT:-

1.	The composltlon of the debtor approved by speclal
resolutlm of the credltors of the debtor passed on 2
June 1987 be set aside.
-.	L .	A sequestration order be made agalnst the estate of the
debtor.

3 . The applicant's costs of and Incldental to the

appllcatlon be taxed and pald accordlng to the Act as If

the appllcant was the petltionlng credltor.

(Thls order is to be settled and filed in accordance wlth

rule 124 of the Bankruptcy Rules.)

IN THE F'ET3ERAL COURT OF AUSTRALIA 1

)

EXERCISING FEDERAL JURISDICTION	)	No. 186 of 1987 (Fart X )
)

IN BANKRUPTCY )

BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA

2e : RQNALD MACRAE MACDONALS A Debtor

Ex parte: MICHAEL FRANCIS FXULKNER Applicant

and

RONALD MACRAE MACDONALD,

IAN HUGH SHANNON and

A L M NEVILLE BIRD Respondents

NORTHRCP J.

15 JULY 1387

MELBOURNE

EX TEMPORE REASONS FOR JUDGMENT

There 1s before the Court an appllcatlon brought by

Mlchael Francls Faulkner for an order pursuant to sub-section

239(2) of the Bankruptcv Act 1966 that the composltlon of the

debtor, approved by speclal resolution of the credltors of

the debtor, passed on 2 June 1987, be set aslde. There 1 5

also an alternatlve claim based upon sub-section 222(2) of

the Bankruutcv Act. I propose to l ook flrst at the question

of the c l a m or appllcation under sub-sectlon 239(2).

- 2 -

The facts of this case are rather unusual.

Inltlalljr an authority to a solicltor to call a meetlng under

s.188 of the Bankruptcv Act was slgned by the debtor on 7

Aprll 1987. A meeting pursuant to that authority was held at

whlch a composltlon was proposed In which a sum of $10,000

was to be pald to the trustee by way of composltlon, In

payment of the trustee's fees and charges and In full

satlsfactlon of the provlng credltors. At that tlme, a statement of affalrs provlded by the debtor showed unsecured

debts amountlng to something over $300,000. For reasons

whlch I need not explain, that compositlon dld not proceed.

The resalutlon was not adopted.

Subsequentiy, a second authorlty under s.lE8 xas

slgned by the debtor an 14 May l387 appolnzlng Yr. Ian Hugh

ShannGn, a ~01~cltor. for the purposes of zali1r.5 a mectlng

of credltors. That meet:ng was held on 2 Zune 1987, at whlch

a composltlon was approved under whlch the debtor was to pay

a sum of $2,000 for payment of the costs of the trustee, and

In satlsfactlon of the debts owed by the debtor. ?,e

statement of affalrs flled on that occaslon dlscloscd

unsecured creditors amountlng In total to $447,318 and In addltlon a contmgent liabillty to Potter Partners In relatlon to the purchase and sale of shares In a company, Tasmanlan Atlantlc Salmon Ltd., In the sum of $62,000.

- 3 -

In both cases, the assets of the debtor are said to

be nll. The marked dlfference between the statements of

affalrs pressnted at the first meeting and at the second

meetlng 1s sald to have arlsen because of the fact that a

number of the debts acknowledged at the flrst meeting are now

sald to be debts owed by a company with whlch the debtor was

assoclated, and are not personal to him. Nevertheless, there

1s thls problem of an amount of $2,000 belng provlded wlth

debts acknowledged to be at least $447,900 and a falr

inference to be drawn 1s that after the costs of the trustee

have been taken out there wlll be nothlng left for the

credltors generally.

The present appllcant 1s owed an amount of $103,524

lncludlng c o s t s under a ~udgment si the Suprsme Csl ; r t sf

.. . vrctsrla. Sectlon 239 provldes a method shertk:; the Ccurt

may set aslde a compositlon, and the relevant basls upsn

shlch that may be done 1 s sub-sectlon i39(2) whlzh provides:-

"239(2) If the Court, on such an appllcatlon,

conslders that the terms of the composltlon are

unreasonable o r are not calculated to beneflt the

credltors generally o r that for any other reason

the composltion ought to be set aslde, it may make

an order setting It aside and, if It thlnks fit,

may forthwlth make the sequestratlon order sought."

In the present case, I have come to the vlew that

the applicant has made out a case that the terms of the

compositlon are unreasonable. In coming to thls conclusion,

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I rely to a large extent upon the vlews expressed by Jackson

J. in the case of Re Richards; Ex parte Beneficla1 Finance Corooratlon Ltd., belng No. 225 of 1985 Part X, In the Bankruptcy District of the State of Victoria, ~udgment in which was given on 17 March 1986 (unreported). In that case, hls Honour, In his reasons, said:-

"In these clrcumstances, my v l e v 1s that the

case is one where, consldered as a xhole, the compositlon ought to be set aslde and that, to adopt the words of Toohey J. ln Re Coukldis Ex parte Consolidated Constructlons et7 Ltd (Unreported 26 June 1985):-

' A greater opportunlty to enqulre Into

(the debtor's) affalrs and a more

comprehenslve explanation by the debtor

werz called for.'

I should also add that the credltors are

obtalnlng so llttle from the zomposltlon that I see

no harm of any consequence to them be1r.g cccaslcned

by the maklng of an order to an effect dlfferent from that resolved upon by then at thelr meetlnq."

I am conscious of the v1sw expressed by Plncus .T.

In Re Van Tuest; Ex Darte Tubemakers Australia Ltd. (1386) 63

A.L.R. 573 that the Court should be cautlous In substltutlng

lts own ludgment for that of the credltors. In the present

case, the statement of affalrs by the debtor discloses a very large sum of money owlng to persons who, apparently, are bookmakers, all belng debts Incurred In 1987. One of those

debts 1s the debt owlng to Mr. Faulkner, the present

appllcant, and the existence of those debts, apparently lncurred at a time when the debtor was insolvent, call for further explanation, as does other actlons taken in relation

- 5 -

to a settlement of the property of the debtor	whlch was made
In 1386.

By the tune the $2,000 has been expended, It seems

clear to me that there would be nothlng left for the

credltors generally. I am also conscious of the fact that

very few of the creditors attended the meetlng, and although

I make no findmg as to whether the meeting was properly

called, or whether the resolutlon was properly passed, the

fact of there belng a small number of creditors, together

wlth rxe fact of the very small amount, If any, that wlll be

pald ts the credltors, leads me to the vlew that the terms 3f the sxposltlon are unreasonable, that the composltlon should

be 5 2 : aslde and that a scquestratlon order be made.

Order; accordlngly.