Re Montague, D.R. v Ex Parte Montague, P.m

[1990] FCA 661

M M FOR b l s ~ s l 1 ~ ~ 7 / 0 ( /

JUDGMENT No. &a

IN THE FEDERAL COURT OF AUSTRALIA )

\

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

1

BANKRUPTCY D	ISTRICT OF THE STATE	)
OF VICTORIq	)

RE:

- DELWYN REX MONTAGUE
(Respondent)

EX PARTE: PATRICIA MABEL MONTAGUE

(Applicant)

Judae Makina Order: Ryan J

Date of Ordef:	26 November 1990
Where Made:	Melbourne

MINUTES OF ORDER

The Court Orders:

1.     That the application be dismissed with no order as to costs.

of the Bankruptcy Rules.

Note: Settlement and entry of orders is dealt with in rule 124

THE F E D E W COURT OF AUSTRALIA ) ,

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION	i
m R U P T C Y DISTRICT OF THE STATE	)
QF VIC-	)

m:  DELWYN REX MONTAGUE
(Respondent)

EX PARTE: PATRICIA MABEL MONTAGUE

(Applicant)

W: Ryan J

Date: 26 November 1990

:  Melbourne

REASONS FOR JUDGMENT

By her application to the Court, the applicant has sought

the following orders:

"1. That the composition entered into by the Debtor of the meeting of Creditors on the 19th day of August, 1988 be set aside pursuant to Section 239 of the Bankruptcy Act 1966 as amended on the following grounds:

(a)	The terms of the composrtlon are unreasonable
(b)	The terms of the compositron are not calculated to benefit the Creditors of the Debtor generally
(C)	The composition is against the public Lnterest
(d)	Such further or other reason for which the Court determines the compositron should be set aside.

2. That the composition entered into by the Debtor and filed at the said meeting of Creditors be declared void pursuant to Section 222 of the Bankruptcy Act 1966 as amended on the following grounds:-

(a) The Debtor has given false or misleading information in answer to a question put to him with respect to his property or affairs at the Meeting of Creditors at which the resolution accepting the composition was passed

)

VICTORIA DISTRICT REGISTRY	)
) No 236 of 1988 Pt X
GENERAL DIVISION	1 1

RUPTCY DISTRICT OF THE STATE )

Q u m m u A 1

RE:

- DELWYN REX MONTAGUB
(Respondent)

EX PARTE: PATRICIA MABEL MONTAGUE

(Applicant)

W: Ryan J

Date: 26 November 1990

W: Melbourne

REASONS FOR JUDGMENT

By her application to the Court, the applicant has sought

the following orders:

"1. That the composition entered into by the Debtor of the meeting of Creditors on the 19th day of August, 1988 be set aside purrnuant to Section 239 of the Bankruptcy Act 1966 as amended on the following grounds:

(a) The terms of the composit~on are unreasonable

(b)	The terms of the compositron are not calculated to
benef~t the Creditors of the Debtor generally
(c)	The composrtion is agarnst the public interest
(d)	Such further or other reason for which the Court determines the composition should be set aside.

2. That the composition entered into by the Debtor and filed at the said meeting of Creditors be declared void pursuant to Section 222 of the Bankruptcy Act 1966 as amended on the following grounds:-

(a) The Debtor has given false or misleading information in answer to a question put to him with respect to his property or affairs at the Meeting of Creditors at which the resolution accepting the composition was panned

( b ) The Debtor has omltted a material p a r t i c u l a r from t h e

s ta tement of h i s a f f a i r s under Section 195 of t h e

Bankruptcy A c t 1966 a s amended

(c) That t h e r e so lu t ion passed a t t h e Meetzng of t h e

C r e d i t o r s of t h e Debtor a t which t h e composition was

accepted w a s not a specia l resolu t ion

(d )	On such o t h e r ground upon which	t h e Court deems t h e
composition should be vord

3. That t h e P e t i t i o n i n g Creditor be a t l i b e r t y t o proceed i n

P e t i t i o n No P208 of 1988 f o r a Sequestrat ion Order aga ins t

t h e E s t a t e of t h e Debtor."

The applicant is the former wife of the debtor. A deed of settlement was executed in the course of proceedings instituted in the Supreme Court of Victoria for dissolution of her marriage to the debtor. That deed provided, amongst other things, for payment by the debtor to the applicant of $10,000 in settlement of the amount due to her on her loan account and her one third shareholding in a company known as Del Monte Home Furnishers Pty Ltd. That sum was to be paid by quarterly instalments of $500 each and was payable over five years with interest. The deed further provided for the debtor to realize the assets of a business conducted under the name "Tower Investments" which had

been conducted in partnership by the applicant, the debtor and	one L.K. Jewson, the applicant's brother, and for the applicant
to recoup from that realization at least the sum of $12,741.64 representing the total of the amounts standing to the credit of her loan account, current account and capital account in the books of Tower Investments. As well, the deed required the debtor to provide the applicant with a car and to pay all fuel and service charges incurred by her in respect of that car and to pay maintenance of $70 a week for the applicant and three children of the marriage.
It appears that the debtor did not comply fully with the terms of the deed, and, on 15 November 1982, the applicant
obtained judgment in the Supreme Court in the sum of $13,020.41. The debtor has not satisfied any part of that judgment. Several bankruptcy notices were issued and served on the debtor between December 1982 and December 1987, none of which was complied with. Subsequently the applicant issued out of this Court and served on the debtor a creditor's petition numbered VP 208 of 1988. Shortly afterwards however, on 15 July 1988, the debtor signed an authority authorizing John David Brooke, a registered trustee, to call a meeting of his creditors and to take over the control of
his property pursuant to s.188 of the Act.
The meeting of creditors was called for 3.00 p.m. on 5 August 1988. The attendance sheet for that day discloses that proxy holders were in attendance on behalf of creditors claiming debts due from the debtor as follows:

Smith Peacock & Henshaw (Accountants)	$ 3,150
Lester Fielden & Faraone (Solicitors)	$ 1,750
Uitec Partridge Fowler Ltd	$74,341
Tony de Pasquale	$ 900
P.M. Montague (the applicant)	$57,234.35
Madden Butler Elder & Graham (Solicitors)	$ 7,426

Mr Brooke was elected chairman of the meeting at which the
debtor was questioned, particularly by Mr Eustace as proxy for
the applicant, about his statement of affairs. That statement

disclosed the creditors and amounts set out above although it acknowledged only the sum of $21,067 due to the applicant from 1982 as "maintenance". The mtatement also disclosed a debt of $5,027 due from 1987 to Flinteval Pty Ltd and $1,291 due from 1988 to the Deputy Conmissioner of Taxation by way of provisional tax. In the course of answering Mr Eustace's questions, the debtor stated that he was employed by Flinteval Pty Ltd in a business conducted under the firm name "Furniture Brokers" for which he received a salary of about $30,000 a year and the use of a fully-maintained car. When asked whether he had any interest in the furniture broking business, he replied that he did not think SO.

It was then moved that the debtor's proposal for a composition, incorporating the following provisions, be accepted:

"1. THAT this Composition shall be in full settlement of all debts as at the date of rts acceptance by creditors, being the 19th day of August, 1988.

2.    THAT the Trustee of this Composition shall be a Registered

Trustee nominated by the credrtors.

3.    THAT I covenant to pay to my Trustee the sum of $5,000 (Five Thousand Dollars) on or before 26th Augurt, 1988, in full and final satisfaction of my debts.

4.    THAT the Trustee shall apply monies received by him pursuant to this Composition as follows:-

Firstly in payment of all drsbursements and remuneration of the Trustee of this Composition and that Of the Controlling Trustee of the debtor.

Secondly in payment to all creditors; to be apportioned to them calculated on their admrtted ordrnary claims.

5. THAT this Composition is made pursuant to Part X of the Bankruptcy Act 1966."

However, Mr Brooke, after indicating that the trustee's fees
were estimated at $1,200, advised that he proposed to adjourn the

meeting to 19 August 1988 in order to obtain legal advice as to the amount of the debt in respect of which the applicant, Mrs P.M. Montague, should be permitted to vote.

When the meeting reconvened on 19 August, the chairman advised that, after receiving legal advice, he had decided to permit the applicant to vote in respect of the judgment debt of $21,066 plus twelve months' arrears of maintenance. The attendance sheet for 19 November records the presence, in addition to those who had attended on 5 November, of a proxy for Thomas Richard Trevaskis claiming $10,000. The debtor explained in evidence during the present application that Mr Trevaskis was a personal friend who had lent him amounts totalling $10,000 over a period to "help keep the family". He further explained that the debt had not appeared in his statement of affairs because he did not think that Mr Trevaskis would press him for the money.

In the course of the meeting of 19 August, the chairman, Mr Brooke, indicated that he had discussed with Mr Montague the	adequacy of the amount proposed in the composition having regard
to the costs incurred in adjourning the meeting and obtaining legal advice, and that he (Brooke) felt that it was important that creditors should receive a distribution. Mr Montague replied that he would lift his offer to creditors to $6,000 payable within seven days.
A motion for acceptance of the proposed composition was then formulated in identical terms to that moved on 5 August except
that paragraph 3 recited a covenant by the debtor to pay $6,000 on or before 26 August 1988 in full and final satisfaction of his debts. Further assertions were then made, and questions asked of the debtor, by Mr Eustace on behalf of the applicant. Responses were made by the chairman, Mr Brooke, the debtor himself and the debtor's personal accountant, Mr McLardy. The effect of those responses was that Mr Montague had not failed to disclose any assets and that the trust administered by Flinteval Pty Ltd, in which Mr Montague and his wife were the only shareholders, generated an income of about $48,000 a year entirely as a result of Mr Montague's exertions as a furniture broker. It was further indicated that the debtor signed cheques on behalf of Flinteval Pty Ltd.
Mr Brooke advised the meeting that Mr Montague's accountant had told him that the debtor had an interest in an unsound racehorse which was unable to race. Mr Montague replied that he had no such interest and that his accountant had been mistaken.

In support of the present application, the applicant has

deposed:

"In 1988 I attended a wedding a t which the Respondent was present.

A t the reception I noted that the Respondent was wearing a gold

watch which I be l i eve may be worth approximately $10,000.00. I

be l ieve that he may be the owner of that gold watch."

To that allegation the respondent replied that he does own
an old gold watch valued at $500 which was given to him by a
friend more than twenty years ago and which he contends is exempt

property within the meaning of the Bankru~tcv Act. The allegation about the watch was not pursued in cross-examination of the debtor.

In a further affidavit in support of her application, the applicant deposed to her belief that "the Respondent left Australia on or about the 18th day of September 1988 and returned on or about the 2nd day of October 1988 after travelling to the

United States of America for a holiday ... accompanied by his

present wife and two children of his present marriage". To that evidence, the respondent replied "My wife and family did in fact travel to the United States for a holiday, all of which was totally paid and provided for by my wife".

The debtor's present wife, Yvonne Montague, is the lessor from Gladys Field and Elizabeth Ann Perrier of premises at 136- 138 Chapel Street, Windsor, part of which she has sublet to Pacific Seven Pty Ltd for occupation as a "7-Eleven" convenience

Cleak, the proprietor of a business known as "Wilson & CO". In an store. The other part of the premises is sublet to one Donald affidavit sworn 8 March 1990, Mr Cleak has deposed:

"2. THAT although t h e name of t h e l e s s o r on my l e a s e is Yvonne

Montague t h e r e n t a l f o r t h e aforesa id property is paid by a cheque made payable t o Delwyn Montague of 76 Wilson S t r e e t , Brighton i n t h e S t a t e of Vic tor ia personally. The amount

paid t o t h e s a i d D e l y n Montague personally each month i s

$2,340.14 f o r t h e premises known a s 136 Chapel S t r e e t , Prahran and 5950.00 per month f o r t h e premises known a s

f i r e t f l o o r , 138 Chapel Street, Prahran.

3.        THAT on t h e 5 t h day of August, 1988 when I underatand Delwyn Montague executed a Statement of A f f a i r s t h e s a i d r e n t a l w a s

being made payable t o h m a s aforesaid. Rental has continued

t o be paid t o him personally i n t h e above manner s ince t h a t

date. The r e n t a l is not made payable t o Yvonne Montague although she rs named on my lease as t h e lessor ."

Mr Montague has sworn that he pays the rent received from the "7-Eleven" store and Mr Cleak into a bank account in the name of "Furniture Brokers", on which cheques in payment of rent to the head lessors are drawn. That evidence has been corroborated by Mrs Perrier, one of the head lessors. The $6,000 paid by the debtor pursuant to the composition also came from the "Furniture Brokers" account because, as the debtor explained, his wife did not want him to go bankrupt.

Section 222 of the Bankru~tcv Act confers on the Court a discretion to make an order declaring a composition to be void where it is satisfied that the debtor:

"(a) has given false or mrsleadrng information in answer to a question put to him with respect to any of his conduct or examrnable affarrs at the meeting of creditors at which the resolution requiring him to execute the deed or accepting the compositron was passed; or

(b) has omrtted a material partrcular from the statement of the debtor's affairs grven under sectron 188(2) or rncluded an incorrect and material particular in that statement."

I am not satisfied that the debtor gave any false or misleading information at either of the meetings of his creditors	on 5 and 19 August 1988. It is true that the debtor's statement
of affairs did not disclose the existence of the debt of $10,000 due to Mr Trevaskis. However, the debtor's evidence to this Court about the existence of that debt was not challenged, and Mr Trevaskis was not called to contradict it. I believe that the disclosure of Mr Trevaskis's debt was brought about only by a concern to ensure that three-fourths in value of the creditors voting passed the resolution in favour of acceptance of the composition so that it was a special resolution as defined in s.5(1) of the Bankru~tcv Act. However, because the debt due to Mr Trevaskis was fully disclosed to the meeting of 19 August, I do not consider, in all the circumstances detailed below, that its non-disclosure in the statement of affairs makes it a proper exercise of the Court's discretion to declare the composition void.
It was also suggested on behalf of the applicant that a doubt existed whether the composition had been accepted by a special resolution of the meeting of creditors on 19 August. That doubt was said to arise from the amount of the debt, $74,341.00, for which the largest creditor, Uitec Partridge Fowler Ltd, was permitted to vote. The debtor's liability to that company arose from a guarantee which he gave to it for payment of the debts of "The Furniture Factory", the business formerly conducted by Del Monte Home Furnishers Pty Ltd. The circumstances which gave rise to that liability were described by the debtor in paragraphs 4
and 5 of his affidavit of 20 June 1989 as follows:

"... the business known as 'The Furniture Factory' was conducted

by Del-Monte Home Furnishers Pty. Ltd. of which I was a Director. The business flourished at flrst and indeed it was my anticipation that it would continue to do so whrch led me to execute the Deed of Settlement dated the 11th July, 1974. However, the business ultimately failed and entered in a Scheme of Arrangement with its creditors in 1981 paying about 43 cents in the dollar to its creditors. The business was sold for the benefit of its creditors pursuant to the terms of that Scheme of Arrangement.

From time to time I was asked to personally guarantee the debts of 'The Furniture Factory'. The princrpal creditors whom I guaranteed were Uitec Partridge Fowler Ltd (hereinafter referred to as 'Uitec') who was the major financier to the business, and the Bank. Now produced and shown to me and marked 'DRH 1' is a copy of the Guarantee with Uitec. Uitec commenced proceedings against me in the Supreme Court of Victorla which I defended for mome time but then the proceedings were ultimately adjourned by agreement in August 1984 by virtue of my inability to pay any monies to UiteC

under the Guarantee. The amount owing to Uitec under the Guarantee has been calculated by reference to the amount which Uitec rs entitled to enter against me under those proceedings. At the time the proceedings were adjourned I had consented to the entry of judgment."

Evidence before the Court on the present application reveals that Uitec proved in the scheme of arrangement in respect of Del Monte Home Furnishers Pty Ltd for an amount of $80,332.00. On the assumption that it received the dividend under the scheme of arrangement of about 43 cents in the dollar indicated by Mr Montague, it has been suggested that the amount remaining unpaid for which he remained liable under the guarantee should have been of the order of $46,000 and certainly not the $74,341 for which Uitec was permitted to vote on 19 August 1988. However, it later emerged, in the course of cross-examination of the debtor, that a first and final dividend in the scheme of arrangement in respect of Del Monte Home Furnishers Pty Ltd which was paid in August 1983 was only 39 cents in the dollar. The obvious inference is that the amount of $74,341 claimed from the debtor by Uitec includes a component for interest accrued since 1983 and,

perhaps, an amount in respect of the costs of the Supreme Court

proceedings referred to in the extract from Montague's

affidavit which I have just quoted. No attempt was made by evidence from Uitec or otherwise to exclude that inference. Accordingly, I am unable to find, on the evidence, that an excessive value was ascribed to Uitec's vote in favour of the special resolution on 19 August.

Another suggestion made on behalf of the applicant was that the evidence justified a finding that the debtor was beneficially interested in the property at 136-138 Chapel Street, Windsor, and the income derived by way of rent from that property. The basis for that suggestion is the practice of the two lessees to make payments of rent by cheques drawn in favour of Delwyn Montague or R.D. Montague. However, I am satisfied that the debtor has invariably paid those cheques into an account in the name of "Furniture Brokers" and has not regarded the proceeds from those cheques as his own money. Likewise, the cheques drawn in payment of rent under the head lease, although signed by the debtor, have invariably been drawn on an account in the name of "Furniture Brokers", the business conducted by Flinteval Pty Ltd as trustee of a trust in which the debtor has no vested interest, although he derives income from his exertions as an employee of the business.

Moreover, the head lease clearly shows Mrs Yvonne Montague wife's presence as lessee was insisted upon by the senior lessor,	as sole lessee and I accept Mr Montague's evidence that his
Mrs Field. The fact that Mr Montague has negotiated with the lessors' solicitors the rent payable upon renewal of the lease is no less consistent with his acting as the agent for his wife than with his having a beneficial interest as lessee.
In the light of the whole of the evidence, I am unable to find that the debtor has any beneficial interest under the head
l ease , or e i t h e r o f the sub-leases, o f 136-138 Chapel Street ,
Windsor.
The applicant a l s o invoked i n support o f her appl icat ion the d iscret ion conferred on the Court by s .239 o f t h e Bankru~tcv A c t
which, s o f a r as i s re levant , provides:

"(1) A creditor may, within 21 days from the date on which the special resolution acceptrng a composition under this Part was passed, apply to the Court for an order setting aside the composition and may also apply for the making of a mequestration order against the estate of the debtor.

(2) If the Court, on such an application, considers that the terms of the compoaitlon are unreasonable or are not calculated to benefrt the credrtors generally or that for any other reason the composrtron ought to be set aside, it may make an order settrng it aside and, if it thinks fit, may forthwith make the sequestratron order sought.

(4) The making of an applrcation for a sequestration order against the estate of a debtor under this section shall, for the purposes of this Act, be deemed to be equivalent to the presentation of a creditor's petitron against the debtor, but the provisions of sub-section 43(1), sections 44 and 47, sub-sections 52(1) and (2) and Part XIA do not apply in relation to such an applrcatron."

Reference was made t o Re Richards. e x Darte Benefic iaI

Finance C o r ~ o r a t i o n Ltd (unreported 17 March 1986) where Jackson

J . observed at p .6:

"It appears to me that the debtor's answers at the meeting were
unsatisfactory and that the apparent decline in the debtor's
assets was something that should have been further investigated
before a resolution acceptrng a compromrse of the nature in
question was passed.

In these circumstances, my view is that the case is one where, considered as a whole, the composition ought to be set aside and that, to adopt the words of Toohey J. iq Re Doukidis ex Darte rpnsolidated Conatructions Ptv Ltd (unreported 26 June 1985):-

'A greater opportunity to enquire into (the debtor's)

affairs and a more comprehensrve explanation by the debtor
were called for.'

I should also add that the credrtors are obtaining so little f r m the composition that I see no harm of any consequence to them being occasioned by the makrng of an order to an effect different from that resolved upon by them at their meeting."

However, in that case the composition described by his Honour as "trivial" offered only $4,000 in satisfaction of net liabilities in excess of $275,071.73 and there was a largely unexplained evaporation of net assets which the debtor had claimed only two years before the meeting of creditors to be worth $467,000.

Also in point is the judgment of Burchett J. in

codrinaton ex Darte Don McKav Tourist and Charter Ptv Lt4
(unreported 1 September 1989) where his Honour indicated at p.13:

"Section 239 confers a wide discretion on the court, exercrsable where the terms of a composrtion are unreasonable, or not calculated to benefit the creditors generally, or where for any other reamon the cornpositron ought to be set aside. Consrderatione which will normally arise are referred to in Raschilla v. Gulluni

14 FCR 57 and m pe Brennan ex uarte Stokes (Australasial Limited

v. Brennap (unreported Morling J. 31 May 1988). I do not think any
narrow view should be taken of what is meant by the expression 'not calculated to benefrt the creditors generally'. In the context of s.222(5), the phrase 'in the interests of the credrtors' has proved restrrctive. But even in that context, in Auaustvn v. Putnrn (1988) 83 ALR 514 at 515 Jenkrnson J. suggested the interests of credrtors should not necessarily be limrted to economic advantage, and that they could at any rate be satisfied by 'a prospct or possibrlity of economic advantage to creditors sufficient to justify the conclusion that it is in their interests to make the declaration.' In the same case, at 522 French J. sard:

benefit.' In Re Trrwdr: ex Darte Col Johnson Ptv Lrmrted 'It is sufficient that there be a real possibility of a financial (unreported Burchett J. 22 January 1987), I said:

'I think a broad view should be taken, and in a proper case rt may be held that it is in the interests of creditors that there should be the full opportunity for inqurry which bankruptcy may entail, even though there is no assurance that inqurry will in fact uncover any further asmets. '

In Re Brennan Morling J. consrdered the amount of the divrdend which the composrtion was likely to yield."

The passages from the judgment of Morling J. in Re Brennaq cited by Burchett J. in Re Codrinatoq were:

"It seeme to me that for a compositron to be reasonable or to be calculated to benefit the credrtora generally, the terms must be such as to offer the creditors some real advantage above that which they might obtain if the debtor's estate is administered in bankruptcy. In the present case, the amount which will be available for distribution between the creditors is quite insubstantial when compared with the total amount owing to the creditors. It was correctly described ... as being 'more or less a token'.

Moreover, while there is no reason to suppose that the debtor has not disclosed all his assets in his statement of Affairs, the creditors would be justifred rn thrnkrng that it was to their advantage that the extent of the debtor's assets should be more fully investigated. In a case where a debtor has incurred debts of such huge proportions relatrve to hrs assets, there is much to be said for the proposition that rt rs in the public interest that there be a public examination of the bankrupt (and possibly other

persons) under 6.81 of the Bankru~tcv Act."

Another collection of factors tending to the setting aside of a composition was assembled by Woodward J. in Re Love ex Dartg National Australia Bank Ltd (unreported 21 July 1988) where it was concluded, at 17 :

"I believe that, in the light of this serious misconduct by the debtor, a possibrlity of collusron between him and the relatives

supplving the funds for the comwsrtion payments, the non- - - -

disclosute of material facts in hrs ;tatements'o~ affairs, and the unsubstantiated nature of some of the payments allegedlv made by him immediately before acceptrng hrs' inevitable -ins61vency l particularly the payment of $35,000 to 'Wally' - this composition should be set aside.

In saying this I have not overlooked the interests of creditors,

who could frnish up receiving nothing, instead of the few cents in the dollar which the composition would have given them. But I	think it is more important that the debtor's affairs be fully
investigated by the Public Trustee following the sequestration of their estates. The affarra of Mrs Love are completely entangled with those of her husband and there is no way the composition, so far as she is concerned, could be separately preserved even if I were persuaded that there are grounds for doing so, which I am not. "

To similar effect, I observed in Re Huitfeldt ex Darte Adams (unreported) 24 April 1989) at pp. 3 and 4:

"Without exhaustively indicating the matters which have led me to come to that conclusion [that the composition should be set aside], I point to the fact that there is no evidence of any explanation to the meeting or othewrse of the debtor'a inability to contribute more than $4,000 payable by monthly instalments of $222.22 over a period of 18 months for the benefit of his creditors.

I also have regard to the fact that rn a previous Part X application in 1986, in whrch a composition was offered ensuring creditors a yield of 5 cents in the dollar, the debtor made two payments within two months totalling $3,464.05. From the present compos~tion it appears that if all of the creditors, leaving aside the so-called 'contingent creditor' First Commercial Investments Pty Ltd. were to prove, a dividend of something under 3 cents in the dollar would be yielded."

See also per French J. in Raschilla v Gulluni (1987) 14

F.C.R. 57 where his Honour identified as follows the factors

which combined to lead him to set aside the composition in that

case :

"There are a number of other factors to be taken into account in
determining whether the composition should be set aside. They are:

1.     The small sum of money offered against the overall amount of the debtors' defrcit.

2.     The remoteness of the trustee from both debtors and creditors.

3.     The apparent existence of a statutory priority under 8 22lP of the Jncome Tax Assessment Act 1936 in favour of the Deputy Comrssioner rn relation to unpaid group tax, the exclusion of which was not referred to either in the statement of affarrs or the minutes of the meeting.

4.     The failure of the statement of affairs to disclose the applicant's claim even as a contrngent debt.

5.     The fact that no payments have as yet been made to any creditors under the composrtrons.

6.     The fact that no payments have apparently been made by the

debtor. under the terms of the compositions.

There are also, as was earlrer noted, some disturbing features in the way that the record of proceedings of the meeting of creditors has been drafted."

Those authorities make it clear that the discretion conferred by s.239 has to be exercised in the light of a complex of considerations which is rarely substantially identical in any two cases. In the present case, I have been influenced primarily

by the absence of a demonstrated need for further investigation

of the debtor's affairs and by the judgment of the creditors, other than the applicant, who were represented at the meeting of

19 August (all of them at arm's length from the debtor) that the composition was reasonable. In this context it is apposite to reproduce the remarks of Pincus J. in Re Van Twest ex Darte Tubemakers Australia Ltd (1986) 69 A.L.R. 573 at 575:

"In pe Seaal: Lensworth Finance Ltd v Seqal (1975) 9 ALR 154 at 163; 45 FLR 85 at 95, Riley J sard of authoritres concerning the reasonableness of proposals put to creditors: 'but I accept them as indicating that when consrderrng the reasonableness of a composrtion in an appl~catron under s 239 of the Bankruptcy Act 1966-1973, whrch does so require, the court should be cautious in substituting its own judgment for that of the creditors': also see per Toohey J in Re Doukidrs; Ex Darte Consolrdated Constructiong ptv Ltd (1985) 53 ALR 104.

Here, the opinion of Mrs Lynch as to the desirability of the composrtion cannot carry great weight. It is comparable to a vote of creditors beina subsrdrarres of a companv souaht to be made the subject of a scheme under s 315 of the Companres Code, considered in cases such as Re Landmark Cor~oration Ltd [l9681 1 NSWR 759. Leaving Mrs Lynch aside, the composrtion here had the approval of only one creditor, owed about two per cent of the total of the debts. The others apparently drd not-thrnk rt worth their while to attend, or to give a proxy.

I know of no figures from whrch one could obtain an accurate idea of the average divrdend paid rn bankruptcies, but my impression is that it is farrly low. There 1s no reason to presume that the creditors would do better if a seoyestratron order were made. In Re Rrchards: Ex Darte ~enefrcial Finance Corwration Ltd (unreported, 17 March 1986), Jackson J set aslde a composrtron of one cent in the dollar under S 239, partly because as-his Honour held, there was need for rnvestrgatron of the debtor's affalrs. Here, although the amount proposed to be paid under the composrtion is very small, nothrng rs placed before me to suggest that there is any need for mvestrgatron. The cane is on the borderline, but on the whole I am not satisfied that the terms of the compoertion are such that it ought to be set aside under s 239(2)."

It is understandable that the applicant should feel some resentment at receiving a relatively paltry dividend in satisfaction of a long-standing liability arising from a settlement of her matrimonial proceedings and arrears of maintenance, while the debtor is apparently able to live in modest comfort with his second family. However, s.239(2) should not, I consider, be used to punish financial incompetence or improvidence. Accordingly, on balancing all of the factors indicated by the authorities to be relevant, I have decided not

to set aside the composition.

Because there were several aspects of the debtor's affairs bearing on whether the composition was appropriate which were not revealed or explained fully at either of the meetings of creditors on 5 and 19 August 1988, it was reasonable for the present application to have been made. I have therefore decided that, although the application must be dismissed, there should be no order as to costs.

I certify that this and the preceding

sixteen (16) pages are a true copy of the Reasons for Judgment of His Honour

Mr Justice Ryan.

p / '

Associate: 5' L*~M?#'	Cr
Date:	26 b t & u d w ?

Counsel for Applicant:	Mr S.P. Gardiner
Solicitors for Applicant:	G.D. Burnett & CO
Counsel for Respondent:	Mr R.L. Berglund
Solicitors for Respondent:	Dunhill Madden Butler
Date of Hearing:	15 March 1990
Date of Judgment:	26 November 1990