Re Price, J.E. v Ex parte Impact Systems Ltd

[1993] FCA 1028

02% ,93

JUDGMENT No. .. ........ . ..... . ........ -

NOT FOR DISTRIBUTION

IN THE FEDERAL COURT	)
OF AUSTRALIA	)
GENERAL DIVISION	)
BANKRUPTCY DISTRICT	)
OF THE STATE OF	1
WESTERN AUSTRALIA	) NO. WX 61 OF 1992 NO. NP 1449 OF 1990

RE: JOHN ERNEST PRICE

Debtor

EX PARTE: INPACT SYSTEMS LIMITED
(RECEIVER APPOINTED)

(IN LIQUIDATION)

Creditor

MINUTE OF ORDER

JUDGE MAKING ORDER:	LEE J.
DATE OF ORDER:	1 JUNE 1993  11 FEB 1994
WHERE MADE:	PERTH
THE COURT ORDERS THAT:

1. The deed of assignment made by the debtor on 22 June 1992 be set aside.

in Rule 124 of the Bankruptcy Rules.

The estate of the debtor be sequestrated

The costs of the applicant be taxed and paid from the bankrupt's estate.

Note:  Settlement and entry of orders is dealt with

IN THE FEDERAL COURT	)	NOT FOR DISTRIBUTION
OF AUSTRALIA	)
GENERAL DIVISION	1
BANKRUPTCY DISTRICT	)
OF THE STATE OF	)
WESTERN AUSTRALIA	NO. WX 61 OF 1992 NO. NP 1449 OF 1990
RE: JOHN ERNEST PRICE

Debtor

EX PARTE: IMPACT SYSTEMS LIMITED
(RECEIVER APPOINTED)

(IN LIQUIDATION)

Creditor

CORM: LEE J.
PLACE: PERTH

DATE : 1 JUNE 1993

EX TEMPORE REASONS FOR JUDGMENT

This is an application under s.222 of the Bankru~tcy

Act 1966 ("the Act") for an order declaring a deed of

assignment entered into by the debtor on 22 June 1992 to be void. The debtor may be described as an entrepreneur who has incurred debts of some magnitude. The major debts are not

unpaid capital on shares issued by the applicant ("the trading debts. The principal debt relates to called but	creditor") to the debtor.
Not long before the meeting of creditors was held and the deed of assignment entered into, and before the debtor appointed a trustee with authority to convene such a meeting, a petltlon in bankruptcy was presented by the creditor and
served on the bankrupt.
The meeting of creditors was provlded wlth a report from the appointed trustee which indicated to the creditors that the debtor had the benefit of what was described as a "cond~tional assignment of property" and that the debtor proposed that he enter a deed of assignment under which the condit~onally assigned property would be applied to the benefit of creditors, excluding a major creditor, Votraint No. 205 Pty. Ltd. The debt due to that creditor was put in issue
in t h ~ s application.
The nature of the proposal put to the meeting of creditors was really that of composition rather than a deed of assignment. As an assignment it could not have included after acquired property and it may be said that subsequent creditors of the debtor, in the event of a subsequent bankruptcy, would contend that property that came to the bankrupt after the deed of assignment had been executed by him
was property which fell into the bankruptcy and not into and under the deed of assignment.
A proposal for a composition would have avoided that consequence. Although that proposal was not put to and was not the resolution of the meeting, there is good reason to suspect, however, that the collective minds of the creditors
was not applied to the resolution in the form in which was passed unanimously and that a significant number of creditors may have believed that they were voting for a motion to effect a composition.
It was submitted that on the face of the material before the creditors at the meeting there was no divisible property the debtor was able to asslgn and that the absence of such property made the purported assignment of all divisible property a nullity and that a declaration to that effect should be made under sub-s.222(1) of the ~ c t .
It was part of the evidence adduced by the creditor, however, that the debtor owned property that was not disclosed in the statement of affairs, principally a beneficial interest in a shareholding in a corporation. The value of that interest was unknown. That evidence, of course, tended to negate the submission that there was no divisible property and that the purported assignment of non-exlstent divisible
property disclosed or undisclosed and if the debtor had property had been a nullity. The assignment lncluded all
divisible property the deed was not a nullity.

It was further submitted that the deed of assignment
was invalid because of the fa~lure o f the debtor to serve
notice of the meeting upon the creditor. In fact, notice of
the meeting of creditors was served at the address for service
nominated by the creditor as the address of the petitioning
creditor for the service of notices in respect of the petltion
for bankruptcy. Notice of the meeting convened by the debtor
under Pt.X of the Act was not conveyed to the creditor by its
agents who assumed that the creditor would be separately
notified by the debtor. Serv~ce of notice of the meeting of
creditors at the address nominated by the creditor for the
purposes of the Act meant that servlce had been duly effected
by the debtor for the purpose of Pt.X of the Act and no ground

has been made out for an order under sub-s.222(1) of the Act.

I consider that the application falls for determination under sub-s.222(4) of the Act, namely whether the deed should be declared void on a ground set out in sub- s.222(4), in particular that there has been the omission of a material particular from the statement of the debtor's affairs provided by the debtor under sub-s.188(2) of the Act.

The evidence adduced in support of the application

showed that the debtor had not disclosed a debt in excess of

$65,000 in the statement of the debtor's affalrs prepared for

the meeting of creditors.

The failure to disclose a debt of $65,000 1s obviously an omisslon of a material particular. Such an omission inflates the distribution anticipated by creditors.

It was also submitted that the debtor had, with others, manufactured sham transactions to portray Votra~nt No. 205 Pty. Ltd. as a creditor of the debtor. The evidence presented by the creditor in that regard was limited but sufficient to show further enquiry to be warranted.

Pursuant to sub-s.222(5) of the Act an order declaring a deed to be void may not be made unless the Court is satisifed that it would be in the interests of creditors to do so.

In determining whether it would be in the interests of the creditors to declare the deed to be void, it is not necessary to show that there is some palpable, tangible and valuable benefit which is capable of valuation and delivery.

general grounds, that the interests of the creditors are golng

It is enough to show that there is reason to believe, on

to be better served by setting aslde the deed and allowing other procedures under the Act to take their course. (See: Auaustvn v. Putnln (1988) 83 A.L.R 514.)

In addition to being satisfied that the requirements of sub-s .222 (5) have been met, it is necessary for the Court to have regard to the public interest. In this matter it would be in the publlc interest to provide an opportunity for due investigation of the affalrs of the debtor to be carried out and to ensure that the affairs of the debtor are displayed for the creditors and the public alike. The affairs of the debtor in this case involve sophistication in arrangement and management. The debtor has surrounded himself with trust structures and corporate entities, some of them of foreign domicile.

The debtor failed to appear to defend the application and has departed from the jurisdiction.

I am of the view that the deed should be set aside

and I am satisfied that it would be in the interest of
creditors to do so.

Pursuant to sub-s.222(7) the creditor seeks an order for the sequestration of the debtor's estate upon the deed being set aside. I am satisfied that an order of sequestration should be made. There will be an order that the deed of assignment made by the debtor on 22 June 1992 be set aside, an order that the estate of the debtor be sequestrated, and an order that the costs of the applicant be taxed and paid

from the bankrupt's estate.

I certify that the preceding

seven (7) pages are a true copy of the

Reasons for Judgment of hls Honour Mr Justice Lee.

Associate:	f .
Date: \ 2-	\4q3,

Counsel for the Cred~tor: C.A. Needham

Solicitors for the Creditor: P.A. Somerset & Co.

No appearance for the Debtor.

Date of Hearing:	1 June 1993
Date of Judgment:	1 June 1993