Re McMahon, John Keith Ex Parte News Ltd

[1996] FCA 1152

IN THE FEDERAL COURT OF AUSTRALIA  )

GENERAL DIVISION                 )    No NP 2065 of 1995

BANKRUPTCY DISTRICT OF THE        )

STATE OF NEW SOUTH WALES          )

RE:JOHN KEITH McMAHON

Debtor

EX PARTE:NEWS LIMITED

Creditor

CORAM:Lindgren J

PLACE:Sydney

DATE:20 December 1996

REASONS FOR JUDGMENT

(ex tempore)
Moore J published Reasons for Judgment in this matter on 29 November 1996.  I will not attempt to summarise the effect of those Reasons and will assume that they have been read.  Shortly, the petitioning creditor, News Limited ("News"), applied for an order terminating a deed of arrangement under Part X of the Bankruptcy Act 1966 ("the Act") between John Keith McMahon ("Mr McMahon" and "the Debtor") and his creditors, an order setting aside an order dismissing the creditor's petition, and an order of sequestration against the Debtor's estate.

A bankruptcy notice dated 16 May 1995 had been served on Mr McMahon on 12 October 1995. The notice was founded on a judgment debt of $10,272.72 obtained by News in the Local Court of New South Wales on 23 March 1994. The notice required payment of the judgment debt and interest of $1,213.56 (totalling $11,486.28) within 28 days after 18 October 1995 (the date of deemed service pursuant to an order made on 27 September 1995). The demand was not met. On 5 December 1995, News presented a creditor's petition dated 30 November 1995. On 5 December 1995, that is to say the date of the filing of the creditor's petition, Mr McMahon signed an authority under sub-s 188 (1) of the Act authorising a registered trustee, Mr Robert Molesworth Cole, to call a meeting of creditors. The meeting was scheduled for 20 December 1995. The Debtor's statement of affairs disclosed liabilities of $471,265 and assets of an estimated value of $14,000, comprising household furniture and effects ($4,000) and works of art ($10,000).

The Debtor's proposal was for the execution of a deed of arrangement which would include terms that $10,000 be paid on 29 February 1995, that there be an assignment of the Debtor's divisible property, and that two particular creditors, Rod Simon and David Robinson, not participate in the administration. Apparently the sum of $10,000 was to be supplied by friends. The report by Mr Cole under s 189A of the Act expressed the opinion that the proposal would give creditors some 3 cents in the dollar, while bankruptcy would give them nothing and on this ground he recommended acceptance of the proposal.

The creditor's petition was adjourned.  On 8 March 1996, Mr Cole forwarded to the solicitors for News, Sally Nash & Co, a letter enclosing a copy of a deed of arrangement and confirming that Mr Cole had received $10,000 in accordance with the terms of the deed.  On 20 March 1996 Registrar Sexton dismissed the petition of News.  No doubt this was on the assumption on the part of all those concerned that the payment of $10,000 had indeed been made.  But it came to light that the Debtor's cheque had been dishonoured.  News applied to have the deed of arrangement set aside, to have its petition as a creditor reinstated, and to have a sequestration order made. 

On 29 November 1996 Moore J made orders setting aside the order of Registrar Sexton made on 20 March 1996 which had dismissed News's petition, terminating the deed of arrangement executed by Mr McMahon on 10 January 1996, extending the time of the petition to 4 May 1997, and reserving costs. News subsequently had its petition as creditor re-listed and the matter came before me as Duty Judge on 17 December 1996. There was no appearance for the Debtor but there was, on the Court file, a letter sent by Tisher Liner & Co, solicitors for the Debtor, addressed to the Associate to Moore J. This advised that Mr McMahon had signed a further authority under s 188 of the Act, this time in favour of David J Lofthouse as controlling trustee. Mr Lofthouse is apparently a partner of the firm Mann Judd Chartered Accountants. On the hearing Ms Nash explained what had happened and tendered documents which informed the Court of evidence which might be thought to favour the Debtor.

It was unsatisfactory from everyone's viewpoint that the Debtor should not have been represented on the hearing.  No evidence was read or tendered on his behalf.  No submissions were made on his behalf.  The simple course would have been for me to have heard and determined the creditor's petition ex parte and without regard to the letter written to Moore J's Associate which, of course, cannot be countenanced as a subsitute for the tendering of evidence in the course of a hearing in open court.

I directed that the matter be stood over to today on the basis that the Debtor would be advised by the solicitors for News, as he has been, of the need to file evidence in proper form if he wished to oppose the making of a sequestration order.  He has filed no affidavit and is again not represented this morning.  On this occasion, however, his solicitors have written to my Chambers enclosing a report of the controlling trustee.  Again, this is a totally unsatisfactory way of proceeding.  It is not a proper course for a legal practitioner, without proper leave, to write to a Judge's Chambers forwarding documents and asking that the contents of them be taken into account in the interests of the legal practitioner's client and against those of the other party on the hearing.  The documents are not in evidence and serve only to embarrass the conduct of the proceeding.

Although the documents are not in evidence and therefore need not be addressed, I will make some preliminary comments about them.  They are unsatisfactory.  First, in the affidavit verifying the statement of affairs Mr McMahon states that the statement of affairs is a true and complete statement of his affairs as at - the date is omitted - but it is a day in December 1996.  Secondly, columns 5 and 6 in the statement of affairs are not completed.  The proposed arrangement on this occasion is for the Debtor to pay a total of $20,000, being $10,000 within seven days of 10 December 1996 and a further $10,000 within 60 days of the date of the meeting with his creditors.  Apparently the first $10,000 has been received.

Thirdly, the report of the new controlling trustee reveals matters of concern.  According to the report, the proposal will give creditors 2.02 cents in the dollar.  I might note that the amount owing to creditors has increased beyond the total of the amount in question when the matter was before Moore J.  Ms Nash has drawn my attention to the fact that there will be further priority claims, as a result of which, in her contention, the creditors will get nothing out of the proposed arrangement.

Fourthly, the report of the controlling trustee reveals many matters not disclosed in the original report, including the fact that the Debtor has been associated with nine companies as a director - the earlier report had mentioned only two of them.

Of course, it is conceivable that if somebody were here representing the Debtor that person might be able to tender evidence and make submissions on his behalf, directing attention to matters favourable to him of which I am not presently aware.  I do not think that the passage from the judgment of Moore J in which he says that the Debtor should have the opportunity of putting a further private arrangement to his creditors represents a final view that that should be allowed to happen in any event. 

I am satisfied with the proof of the matters referred to in sub-s 52 (1) of the Act. Notwithstanding the fact that the controlling trustee has apparently convened a meeting of creditors in Melbourne for as early as 2 January 1997, in the absence of any evidence tendered on behalf of the Debtor on both occasions when the creditor's petition has been before me, I think the appropriate order is that a sequestration order be made today. However, and with some misgiving and reluctance in view of the way in which the case has been handled on the Debtor's side, I will stay any steps pursuant to the sequestration order until 10 January 1997 and reserve leave for the Debtor to apply by motion supported by affidavit or affidavits for a setting aside of the sequestration order.

I certify that this and the preceding 5 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

Associate:

Dated:2 January 1997

Heard:        17 December 1996

Place:        Sydney

Decision:     20 December 1996

Appearances:   Ms S Nash, solicitor, of Sally Nash & Co, appeared for the petitioning creditor.