Re Peters, J.L. Ex Parte NZI Securities Ltd & ors
[1992] FCA 515
•17 JULY 1992
Re: JAMES LATHAM PETERS
Ex parte: NZI SECURITIES LIMITED: WILLIAM BERNARD ABEYRATNE and JAMES LATHAM
PETERS
No. V X324 of 1991
FED No. 515
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
Einfeld J.(1)
CATCHWORDS
Bankruptcy - creditors' meeting - deed of arrangement - whether debt contingent - whether debt secured - whether sufficient particulars of two debts provided - whether chairman of meeting had conflict of interest as debtor's solicitor
Bankruptcy Act 1966 Part X, sections 188(1), 198, 201, 207(3), 222
Jones v Dunkel (1959) 101 CLR 298
Re Venetoulis; Ex parte Calsil Ltd (1977) 13 ALR 625
Beard v Prestige Baking Industries and Anor (1981) 36 ALR 307
Re Morris; Ex parte Adams (1980) 48 FLR 341
Re Levy; Ex parte Scholefield Goodman and Sons Ltd (1980) 50 FLR Brian
Forshaw v Jeffrey Robert Thompson and First National Limited (unreported, 1 May 1992, Full Court of the Federal Court)
Ex parte Ruffle; in Re Dummelow (1873) 8 Ch App 997
HEARING
SYDNEY
#DATE 22:7:1992
Counsel and solicitor for the applicant: Mr M. Heaton instructed
by Cornwall Stodart Solicitors
Counsel and solicitor for the respondents: Mr A. Connor instructed by
J.M. Smith and Emmerton Solicitors
ORDER
1. Declare that the debtor's deed of arrangement approved at the
creditors' meeting on 21 and/or 28 August 1991 is void.
2. No order as to costs.
Note: Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.
JUDGE1
FACTS
On 26 July 1991 Dr James Latham Peters (the debtor) signed an authority under section 188(1) of the Bankruptcy Act 1966 authorising his solicitor, Mr Nicholas Kenneth Stretch, to call a meeting of creditors for the purpose of considering an arrangement under Part X of the Act that would avoid his bankruptcy.
Each of the creditors was duly notified and supplied with a notice of meeting, a statement of affairs, a proposal of the debtor and a statement by the solicitor. The statement of affairs listed 17 unsecured creditors owed a total of $500,828.84 and 5 secured creditors owed a total of $171,298.37. NZI Securities Australia Ltd (NZI) was listed as an unsecured creditor owed $135,000 but this debt was marked as a "disputed" loan. Mr C.G. Peters, the debtor's father, was also listed as an unsecured creditor for $200,000.
The NZI debt arose from a syndicate arrangement entered into by the debtor to breed thoroughbred yearling horses for commercial sale. It was intended as a tax minimisation scheme. The participants in the syndicate were required to contribute an amount which would give them one or more of 100 shares as tenants in common of the particular bloodstock. The yearlings were to be bred and the syndicate managed by Troy Thoroughbreds (Australia) Pty Ltd (Troy). As a member of the syndicate Dr Peters entered a sale agreement and a thoroughbred participation agreement on 26 April 1988 by which he acquired a 2/100th interest in the assets of the syndicate. He also entered a bloodstock lease, the rent under which was $80,592 repayable at $20,148 per year for 4 years.
The debtor's obligations under the lease were financed by a loan agreement with NZI, secured by a mortgage over his interest in the stallions and brood mares, and the foals. The amount of the loan appears to have been $124,814 although by its proxy, NZI actually claimed at the Part X meeting a sum of $142,658.52. The apparent discrepancy between the various statements of the amount owing to NZI is of no present moment. By clauses 4.2 and 4.4 and the schedule of this agreement, the debt was finally due on 30 June 1992, essentially repayable monthly or on demand. The debtor failed to make all the payments required by the agreement.
The creditors first met on 14 August 1991 (the first meeting) and Mr Stretch was appointed Chairman. Ms Tania Cini, NZI's solicitor, attended the meeting with a proxy for her client to vote both generally and on a special resolution under section 204 of the Act.
At the meeting the following occurred:
i) Ms Cini questioned the right of Mr Peters senior to vote at the meeting and asked whether there was any evidence of his loan. The debtor advised that it was a personal loan and no formal documents had been drawn. He stated that he would be able to produce evidence of repayment of the loan. ii) The right of NZI to exercise a vote was questioned by the debtor on the basis that it was a disputed debt. It appears that this project was originally promoted as a tax minimisation scheme by the Marketing Manager of NZI. The debtor's contention was that the syndicate was mismanaged by NZI and he said that a group of syndicate members intended to bring an action against NZI at the termination of the venture in June 1992 to recover moneys lost as a result of the mismanagement.
iii) Ms Cini said that NZI was having difficulty in obtaining the original loan documentation evidencing the cash advances made to the debtor. The Chairman advised that in the circumstances he was unable to determine whether NZI could vote. The meeting was therefore adjourned for seven days until 21 August to enable her to obtain the documentation.
Following the first meeting the Chairman investigated the right of Mr Peters senior to vote on the proposed resolution. The debtor advised him that the debt arose in 1990 when his father lent him $200,000 to assist in the purchase of a property at 36 North Road, Brighton, and that the balance of the purchase price was financed by the Australia and New Zealand Banking Group Limited which secured its funds by a registered first mortgage over the property. Although Mr Peters senior did not take any security over that or any other property in respect of the loan, the debtor advised the Chairman that he had paid interest to his father from the time of the advance. Mr Peters senior produced to the Chairman cheque butts and bank statements, and the debtor produced bank deposit vouchers, evidencing the advances but nothing was produced to establish or corroborate the payment of interest.
On 20 August 1991 Ms Cini sent a facsimile to Mr Stretch requesting the tabling of documents evidencing the debt said to be owed to Mr Peters senior. On the same day Mr Stretch sent a facsimile in reply to Ms Cini stating that:
...the writer, as chairman, has investigated this matter and has determined that Mr Peters is entitled to vote for the amount claimed... The writer is satisfied that the debt is properly due and owing and does not propose to allow the creditors' meeting to degenerate into a private witch hunt by your client.
On 21 August 1991 the creditors' meeting reconvened (the second meeting). The Chairman advised the meeting that he had determined that Mr Peters senior was entitled to vote in respect of the $200,000 loan.
Ms Cini advised that her client was still not able to produce any of the original NZI loan documents which were understood to be with her client's former solicitors in Sydney. She stated that she did have a file of correspondence which evidenced or acknowledged advances by NZI to the debtor, but she did not produce the correspondence and it was therefore never tabled or taken into account. The Chairman advised the meeting that he would reserve the question of NZI's right to vote and would not determine the question unless the special resolution was to be determined by whether or not NZI voted.
The debtor proposed a deed of arrangement by which he would assign to his trustee his interests in various property and shares and pay his trustee monthly instalments of $2,000 for 24 months commencing upon the execution of the deed, and $1,500 per month for 12 months thereafter. Amongst other things the debtor said that he had no wish to become a bankrupt and that he was self-employed with a gross annual income of $150,000 of which he needed $65,000 to meet his professional costs and living expenses.
The creditors voted on the debtor's proposed deed of arrangement, the result being that the special resolution was passed in the absence of a vote from NZI. The evidence reveals that prior to the meeting, several creditors had indicated that they would support the proposal and, when put together with the vote of Mr Peters senior, it appeared that the required majority in number and value would be achieved even if NZI voted against the proposal. However, due to a change in voting by one of the creditors, had NZI been entitled to vote as a creditor for $135,000 and voted against the resolution, as was its intention, the value of the creditors voting in favour of the proposal would have been approximately 74%, just short of the required majority.
Therefore, in order to determine whether or not the special resolution had been passed, it was necessary for the Chairman to determine the entitlement of NZI to vote. For that reason the meeting was adjourned for a further seven days to 28 August 1991 at 3.00 pm. The Chairman advised Ms Cini that if she was unable to produce satisfactory documentary evidence within that adjournment period, NZI would be excluded from voting because the Chairman's powers of adjournment under section 201 of the Act would at that time be exhausted.
At approximately 9.30 am on 28 August 1991 Mr Stretch telephoned Ms Cini to inform her that as there was only a limited time before the meeting, any documents she wished him to peruse should be provided as a matter of urgency. As Ms Cini was unavailable, a message to return Mr Stretch's call was left.
At approximately 12.30 pm on 28 August 1991 a letter from Ms Cini enclosing documentation was delivered to Mr Stretch. The documentation consisted of:
1. Sale agreement dated 26 April 1988 between Troy and the debtor.
2. Thoroughbred Participation Agreement dated 26 April 1988 between
Troy and the debtor.
3. Thoroughbred Bloodstock Lease dated 26 April 1988 between NZI as
lessor, the debtor as lessee and Troy as the manager.
4. Loan agreement dated 26 April 1988 between NZI and the debtor.
5. Mortgage of Ownership Share dated 31 March 1988 between NZI and
the debtor, stamped as a Bill of Sale and registered in the Land Titles Office.
NZI did not provide a statement of account between the parties such as was subsequently exhibited (AS6) to the affidavit of Andrew Sidery sworn 26 November 1991 in these proceedings.
Mr Stretch, after reading the documentation, decided that it contained no conclusive evidence of any indebtedness. He formed the view that he was unable to make any decision as to whether or not NZI should be entitled to vote and, if so, for what amount. At approximately 2.45 pm he commenced typing his reasons for decision.
At 3.00 pm the meeting of creditors again reconvened (the third meeting). The Chairman read to the meeting his reasons for determining not to allow NZI to vote at the meeting. He stated:
...(the) documents, which I table, run to some 75 pages and, in the time available to me, I have been unable to read all of the agreements, let alone digest their contents. I did however start to read the Loan Agreement as it appeared to me to be the most pertinent one for today's meeting and I noted from its contents the following:-
1. Nowhere in any of the material put to me is the fundamental question of mismanagement of the syndicate addressed. This was the objection made by Dr Peters and it appears that I must accept his uncontradicted evidence in this regard.
2. Secondly, in the Loan Agreement, clause 2.1 provides that "on the date set out in Item 8 of the Schedule hereto the Lender shall lend to the Borrower and the Borrower shall borrow from the Lender the Initial Advance". There is no date set out in Item 8 of the Schedule. Further, the initial advance is defined to be $55,110.00 which seems to fall far short of the $142,000 odd which NZI claims it is now owed, even allowing for interest.
3. Clause 2.2 of the Loan Agreement provides that further advances may be made by NZI following written notice by the Borrower. No such notice or notices have been put before me and I have now had the opportunity to talk to Dr Peters and he advises me that he has not at any time given such notice.
4. This is the most important, (sic) clause 3.1 of the Loan Agreement provides that it is a condition precedent to NZI advancing any sum, inter alia, that the Transaction Documents (as therein defined) will be executed by the Borrower. The definition of Transaction Documents includes the other documents with which I have been provided copies and also oddly enough one document with which I have not been provided a copy. That is a document apparently entitled "Mortgage of Ownership Share as between the Lender as Mortgagee and the Borrower as Mortgagor". This seems to indicate to me that there is in existence a security with respect to the indebtedness, if any, of the Debtor to NZI.
The Chairman acknowledged in his evidence in chief that he was in fact provided with this mortgage document.
He concluded:
By reason of the foregoing, I am unable to make any determination as to the right of NZI to vote at this meeting. I am unable to make any determination as to whether any indebtedness exists and, if so, in what amount. Accordingly, as NZI have failed to convince me as to its right to vote, despite the opportunity of two adjournments for the purpose, I will exclude its vote at this meeting.
He then declared that the special resolution accepting the deed of arrangement was carried and that Mr William Bernard Abeyratne (the trustee) was appointed as trustee.
APPLICATIONNZI applies for five orders in these proceedings, any one of the first four of which would bring about essentially the same result:
i) a declaration that NZI was entitled to vote at the meetings on 21 and 28 August 1991;
ii) a declaration that no special resolution was passed at those meetings;
iii) an order under section 222(2) declaring void the deed of arrangement resolved to be entered into at one or other of the meetings;
iv) alternatively, an order that the deed of arrangement be terminated;
v) a sequestration order against the estate of the debtor pursuant to section 222(7) and/or section 236(3).
The application is based on the following grounds:
i) NZI was wrongly excluded from voting and should have been entitled to vote as a creditor of the debtor ii) Mr Peters senior was not a creditor entitled to vote, having not produced any or any sufficient particulars of debt to establish such entitlement
iii) the purported special resolution was not a special resolution and was ineffectual and invalid
iv) the debtor included an incorrect material particular in his statement of affairs in referring to the debt to the applicant as "(disputed)"
v) the debtor gave false or misleading information in answer to a question put to him at the meeting of creditors that NZI was manager of the brood mare syndicate and/or that NZI as manager of the brood mare syndicate had mismanaged the syndicate
NZI argued alternatively that:
i) the terms of the deed were unreasonable; ii) a substantial number of creditors in value desired sequestration of the debtor's estate;
iii) the terms of the deed were not calculated to benefit creditors generally;
iv) the terms of the deed were not calculated to substantially benefit creditors;
v) in all circumstances the deed was not in the interest of creditors or the public.
ISSUES
NZI's debt
Introduction
NZI must first establish that it is a creditor for the purposes of sections 198(1)-(3) and 222(1). Subsections (1), (2) and (3) of section 198 state:
(1) Subject to this section, every creditor is entitled to vote at a meeting under this Division.
(2) A creditor is not entitled to vote in respect of an unliquidated or contingent debt or a debt the value of which is not ascertained.
(3) For the purpose of enabling a creditor to vote, a debt that is certain but is payable in the future shall be deemed to be payable at the time of the meeting.
Section 198(4) provides that a creditor is not entitled to vote at a creditors' meeting unless he has made known to the Chairman particulars of his debt. Section 222(1) states:
Where there is a doubt, on a specific ground, whether a deed of assignment or 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).
Subsection (2) provides that the Court, upon the hearing of an application made under subsection (1), may make an order declaring that the deed, or a provision of it, or a composition, is or is not void on the ground specified in the application.
Whether debt contingentThe debtor submitted that the debt was a contingent debt under s 198(2). He argued that the principal amount did not become due and owing until demand was made by NZI, and that no notice of demand was ever served on him. NZI submitted that its debt was not contingent, on the ground that a contingent debt exists only where there is a doubt if there will be any debt at all: Ex parte Ruffle; in Re Dummelow (1873) 8 Ch App 997 at 1001; Re Levy; Ex parte Scholefield Goodman and Sons Ltd (1980) 50 FLR 99 at 111.6. A Full Court of this Court in Brian Forshaw v Jeffrey Robert Thompson and First National Limited (Black C.J., Sweeney and Lockhart JJ., unreported, 1 May 1992), recently reviewed these authorities and the meaning of contingent debts. Justice Lockhart stated at page 23-4:
A question arose in argument as to whether a "contingent debt" within the meaning of s. 198(2) was an expression intended to encompass a debt in respect of which there was a doubt if there was any debt at all. This view has its genesis in a passage from a brief judgment of Sir George Mellish L.J. in Ex parte Ruffle; In Re Dummelow (1873) 8 Ch App 997 where his Lordship said (at 1001) with respect to s. 16(3) of the Bankruptcy Act 1869 (Eng) (the equivalent of s. 198(2) of the 1966 Australian Act:
"The fair construction of the clause seems to me this: 'a contingent debt' refers to a case where there is a doubt if there will be any debt at all..."
Bowen C.J. noted this reference in Re Levy at 111, but made no comment with respect to it, doubtless because it was not perceived by his Honour to be necessary to do this; though I detect nothing in the observation of Bowen C.J. which indicates approval of this passage; nor is anything to be found in the judgment of Sir W.M. James L.J. (the other member of the Court of Chancery Appeals in Ex parte Ruffle) to support the observation by Sir George Mellish, which was in any event obiter dicta. It is not entirely clear what Sir George Mellish meant by the words in the passage cited above. In one sense a contingent debt is accurately described in Sir George Mellish's words. A guarantee is an example of a contingent debt; it remains contingent until demand is made by the guarantor upon the debtor, and in that sense it cannot be said with certainty that there will be any debt due by the debtor to the guarantor until demand is made. Until then there is a doubt if there will be any debt at all. In other words it all depends on what Sir George Mellish meant in Re Ruffle. But if his Lordship meant that a contingent debt was any debt where there was simply a doubt as to whether a debt would be due in the sense that there may be a dispute about it, then I respectfully disagree with what his Lordship said, at least in the context of bankruptcy law. All debts and liabilities, present or future, certain or contingent to which a bankrupt was subject at the date of bankruptcy are provable in bankruptcy (s. 82(1)). A contingent debt for the purposes of bankruptcy law has a well settled meaning and it certainly does not mean merely any debt which is in dispute.
Clause 7.1 of the loan agreement provides that upon default:
...the whole of the Secured Moneys shall at the option of the Lender, become due and payable immediately although any time appointed for payment thereof may not have arrived and thereupon the Borrower shall pay same to the Lender forthwith upon demand...
NZI said that the requirement of demand has no effect upon the secured moneys becoming due and payable. It argued that on a proper construction of clause 7.1, the moneys became due and payable immediately upon one of the defaults, provided the lender opts for this result. NZI said that this option was exercised on the appointment of a proxy stating that it was an unsecured creditor owed $142,658.52. NZI submitted that even though by clauses 4.2 and 4.4 of the loan agreement the debt was repayable on 30 June 1992 at the very latest, it still comes within section 198(3) as a debt that is certain but payable in the future.
This must be so. In my opinion there is clearly a debt finally repayable on 30 June 1992. The demand required to constitute it as immediately payable is not analogous to the demand made on a guarantor if the principal contracting party does not pay. The demand here merely changes the due date of repayment. If there was no demand, it would still be repayable on 30 June 1992. This is a certain not a contingent debt. I therefore find that NZI is a creditor under sections 198 and 222.
Whether NZI established sufficient particulars of its debtIn Re Venetoulis; Ex parte Calsil Ltd (1977) 13 ALR 625, Riley J held at 630 that section 198(4) means, on its true construction, that a creditor is entitled to vote if he has made particulars of his debt known to the Chairman at or before the meeting, or in due time to enable the Chairman to determine his right to vote in accordance with section 201, should the need arise for such a determination.
Section 201 provides that:
Any question as to the right of a person to vote at a meeting under this Division, or as to the amount of the debt in respect of which a person is entitled to vote at such a meeting, shall be determined by the chairman, who may, if he thinks it necessary to do so, adjourn the meeting for a period, not exceeding 14 days, to enable him to investigate the matter.
In the debtor's submission, the Chairman was right to decide, after providing NZI with three opportunities to supply particulars of its debt, that no material was forwarded to establish the particulars of any indebtedness. Clause 12.2 of the loan agreement provides that a statement in writing by NZI of the amount of the moneys owing is conclusive evidence of the amount due as at the date of the statement, except in the case of manifest error. NZI did not avail itself of this means of proving the amount of its claim. Hence the debtor said that the Chairman's determination at the third meeting to deny NZI a vote fully accorded with his duties under section 201.
NZI submitted that sufficient particulars of the debt were supplied to the Chairman. Firstly, the debtor nominated the amount of the debt as $135,000. Secondly, the proxy appointment nominated $142,658.52. Thirdly, Mr Stretch admitted in cross-examination that he knew the debtor had been making repayments in respect of advances.
If this was not sufficient, NZI says that the Chairman failed to take any steps to investigate or seek further clarification of the matter. NZI alleged before me but apparently not at any of the meetings that the Chairman asked inappropriate questions of the debtor and indeed failed to ask the crucial question at the third meeting before handing down his decision, viz. whether the amount claimed by NZI had in fact been advanced to the debtor. In these circumstances, it was said that he wrongly excluded NZI from voting on the scheme of arrangement.
It is very difficult to know from the documents what the amount of the debt was. Contrary to the contention of its solicitor and proxy at the meetings, NZI submitted in these proceedings that as at the date of the third meeting, it was owed an amount of $17,097.95, representing unpaid arrears and accrued interest. On the other hand, the amount claimed to be owed as at 26 November 1991 was:
Cash advance pursuant to the
Loan Agreement (principal) 114,554.00 Accrued interest pursuant to the
Loan Agreement 17,097.95 Amount due pursuant to the
Bloodstock Lease 9,622.30 Total $141,274.25
In arriving at this amount NZI was relying on a notice of termination of the bloodstock lease and a notice of demand under the loan agreement both dated 25 November 1991. The debtor submitted that there was no evidence of service of either of these notices upon him. While he agreed that the amount ostensibly due at the time of the meeting was $17,097.95, he disagreed that $141,274.25 was the amount owed as at 26 November 1991.
Although the documentation submitted together with the statement of affairs could only have given rise to a conclusion that a debt of some amount was likely, I agree that its size was vague and uncertain at the third meeting. In view of the very short time the Chairman had to calculate or verify it, he could not have been expected to know what it was. If NZI could not establish its debt with particularity, there was no obligation on anyone else to do so. However, it is now undisputed that had NZI provided a statement of account to the meeting on 28 August 1991, the claim would have been for $17,097.95. Using this amount as its debt, it seems that the special resolution would have been carried even if NZI had been allowed to vote at the meeting.
Whether NZI's debt was securedSubsection 5 of section 198 provides that a creditor is not entitled to vote in respect of a secured debt unless he surrenders his security. However, by subsection (6), if it has furnished to the Chairman particulars in writing of the security and its estimated value, the secured creditor may vote in respect of any balance of the secured debt after deducting the estimated value of the security. Further, by section 207(3), if a secured creditor has voted without having surrendered his security, he shall be deemed to have estimated his security as having no value and shall, upon request in writing by the trustee of a deed executed in pursuance of the special resolution, surrender the security.
By its proxy appointment NZI had nominated itself as an unsecured creditor. It urged that the Chairman, having ascertained that there was a security document in existence, was obliged to clarify the situation pursuant to section 201. Yet he failed even to ask NZI what its intentions were in respect of its security. According to the minutes of the meeting on 28 August 1991, the Chairman found that "there is in existence a security with respect to the indebtedness, if any, of the debtor to NZI", but he did not investigate the security any further, simply saying that he was unable to make any determination. It was submitted by NZI that this represented a major miscarriage of the Chairman's duties.
The debtor submitted that NZI was a secured creditor. The loan agreement under which its debt arose was secured by the mortgage of his ownership share, by clause 3 of which the debtor transferred to NZI by way of security for the loan the ownership share and all of his benefits and rights under the thoroughbred participation agreement. The debtor argued that NZI was not entitled to vote on the special resolution because it did not surrender the security or estimate its value at less than its debt.
Section 207(3) has no application because NZI did not vote at the meeting, nor did the debtor's proposal contemplate the assignment for the benefit of ordinary unsecured creditors of the property mortgaged to NZI. In my view NZI's debt was secured. Whatever its size, as sections 198(5) and (6) were not availed of, NZI had no right to vote.
The loan by Mr Peters seniorIt was by virtue of the fact that the firm of solicitors for whom the Chairman worked had handled the conveyance of the purchase of the North Road property that Mr Stretch was aware of this 1990 loan. The debtor argued that the Chairman was thus correct in upholding Mr Peters' right to vote. In Venetoulis Riley J stated at 630:
...in my opinion it would add unnecessary formality to proceedings under Pt X to hold in effect that, where the creditors have elected as chairman the person who as controlling trustee has been intimately concerned with the debtor's affairs...he may not bring to the meeting the knowledge already communicated to him by creditors (or otherwise acquired by him) in his capacity of controlling trustee, and that creditors who have previously given him full particulars of their debts must at the meeting formally give them to him again.
However, there is no evidence that Mr Peters senior gave the Chairman full particulars of the debt at any stage. Only a minimal amount of corroboration was supplied to the Chairman during the period of the meetings, and neither Mr Peters senior nor the debtor provided any evidence in the proceedings in relation to the alleged debt. NZI argued that a Jones v Dunkel ((1959) 101 CLR 298) inference can therefore be drawn that neither of them could have assisted in establishing the alleged loan. Moreover, the Chairman said in cross-examination that he was unaware as to when and how the loan was to be repaid except that interest was payable monthly and it was an interest only loan. Yet he had no documentary evidence to confirm that interest was ever paid by the debtor to Mr Peters senior.
The situation then is that Mr Peters, who was at the time of the hearing 78 years old, alleged having "lent" his son $200,000 in respect of the purchase of a home. The $200,000 was said to have been paid in three amounts, as evidenced by the bank statements of Dr Peters tendered as exhibits during the hearing:
$ 50,000 on 21 March 1990
$100,000 on 5 April 1990
$ 50,000 on 5 June 1990
However, no particulars have been provided as to the term of the loan or when or how it has been or is to be repaid. This is important in the light of the concession by Mr Stretch in cross-examination that the documentation on its own is entirely consistent with a gift.
In view of the alleged requirement for the monthly payment of interest, and the debtor's claim that he could produce evidence that interest had been paid, the failure of any such evidence to materialise is significantly adverse to the existence of a true loan. In my opinion, there was inadequate evidence that Mr Peters senior was entitled to vote in respect of an alleged loan of $200,000.
Conflict of interestNZI argued that the Chairman had a conflict of interest because he was the debtor's solicitor and his client wanted the resolution for the deed of arrangement to be passed. It said that Mr Stretch should have handed his chairmanship to another and that by not doing so, he failed to fulfil his obligations.
In Beard v Prestige Baking Industries and Anor (1981) 36 ALR 307, a solicitor who held a proxy for the largest creditor and was elected Chairman of the meeting, vacated the chair because of his conflict of interest. Justice Lockhart stated at 337:
...a solicitor who held the proxy for the respondent at the meeting, was elected chairman of the meeting. However, he stepped down from the chair after the controlling trustee who was present at the meeting stated that the approval or otherwise of the deed would depend on whether the respondent's proof of debt in the sum of $8,250.13 was accepted by the meeting. Mr Armstrong said: "At this point of time I stated that I did not consider that it would be proper for me to make a ruling on my client's proof of debt. Accordingly, I stepped down from the chair and, after a short discussion, the meeting elected the said Ryan to be the chairman of the meeting".
However, it is not uncommon for a solicitor for the debtor to be the chairman of a Part X meeting of creditors. In my opinion, that is not a ground per se for holding that this Chairman acted improperly in not standing down from his position. Nothing else is suggested as a reason for him to do so. I am not satisfied that there was a conflict of interest causing the Chairman to take a position adverse to NZI's debt and in favour of the loan from Mr Peters senior.
CONCLUSIONSThe evidence provides no substance for NZI's suggestions that the debtor gave materially false or misleading information to the meetings either orally or in writing. Nor has any ground been made out for the Court to pronounce on the content of the deed itself, in the interests of creditors or the public or otherwise.
My findings are as follows:
1. NZI is a creditor under the Act for the purpose of making the
application.
2. NZI was a secured creditor and was therefore not entitled to vote
at the meeting unless it surrendered or valued its security which it did not do.
3. There was insufficient evidence to justify admitting Mr Peters
senior to vote.
I declare the deed of arrangement void. As I understood the evidence, if both of these creditors had been excluded from voting, it would have meant the failure of the resolution. However, the parties are agreed that that is not the case and it is not relevant to the decision in any event. Under section 222(7) there is a discretion to make a sequestration order forthwith. The Court will proceed to make a sequestration order unless some sufficient cause is shown in the interest of the public and the individual creditors who are unable to have their debts paid to them: Re Morris; Ex parte Adams (1980) 48 FLR 341. On the other hand, if a sequestration was made here, the creditors would probably be denied access to the not insubstantial funds which the debtor has agreed to pay to his trustee over a three year period.
Although there was no formal application by either party for the ordering of a fresh meeting of creditors, by the end of their submissions, the parties appeared to be virtually in agreement that I should order a fresh creditors' meeting if I was not minded to make a sequestration order. No authority was quoted to support a power to order a fresh meeting but I said that if permitted to do so, that is what I was minded to do. I therefore decided to permit the parties to consider and make submissions on this matter further before an order to this effect was made. I commented that the Court would be especially assisted by any authority on the power to order, and criteria for ordering, a fresh meeting. I suggested that it may be that some form of agreement could be reached on the matter or for some other step to be taken which would amicably resolve the next step in these proceedings.
Accordingly, after delivering the substance of this decision on 17 July, I fixed the case for a telephone directions hearing at 9.15 am on 22 July 1992 to determine what should be done to give effect to my conclusions and to decide the question of costs. At this hearing, I made a slight alteration to the text in the light of certain mathematics pointed out by the parties and concluded, after hearing the parties' intentions, that nothing more is required than that the deed be declared void and that there be no order as to costs.
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