Re Shergold, P. v Ex parte McInnes, T.G. & P.m

[1986] FCA 387

Re: PAUL SHERGOLD and JUDY SHERGOLD
Ex parte: THOMAS GERALD McINNES and PAULINE MARIA McINNES
No. P321 of 1986
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Sheppard J.

CATCHWORDS

Bankruptcy - deed of arrangement entered into consequent upon resolution passed at meeting of creditors - Controlling Trustee only person present - proxies given to Trustee by more than one creditor - whether meeting valid.

Bankruptcy Act 1966, ss. 200, 202

HEARING

SYDNEY

#DATE 3:9:1986

ORDER

The Deed of Arrangement entered into by the Debtors on the thirtieth day of May 1986 be set aside.

NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

This is an application made on behalf of petitioning creditors, who have presented a petition for the sequestration of the debtors' estates, that a deed of arrangement entered into by the debtors on 30 May 1986 be set aside. The ground of the application is that at the meeting of creditors at which it was resolved that the debtors enter into the deed of arrangement a quorum was not present so that the meeting and the deed entered into in consequence of it were of no effect. The evidence establishes that only the controlling Trustee under the deed, Mr. Gagie, was present at the meeting. However, he held proxies from three creditors and purported to act on the basis that there were three creditors present by proxy at the meeting. In doing so, he relied on the words of s. 202 of the Bankruptcy Act 1966 which provide that, at a meeting of creditors, two creditors "entitled to vote at the meeting present . . . by proxy constitute a quorum". The question which the application raises was referred to, but not decided, in Re Alty; Ex parte Muir (3 December 1985, unreported).

1. When the application was called on, the only appearance was by solicitor on behalf of the applicants. The debtors did not appear. Furthermore, no detailed argument was presented to the Court. The absence of the debtors and the lack of the presentation of a full argument are understandable because of the comparatively small amount of the claims of the various creditors and the smallness of the amount available for distribution to them. Furthermore, the solicitor for the applicants relied upon a statement in the Practice to the effect that it is not sufficient if there be only one creditor present even though he holds proxies for a number of others; see McDonald Henry and Meek, Australian Bankruptcy Law and Practice, 5th Ed., para. (1000), p. 452, where Re Nelson (1963) 19 ABC 172 is referred to.

2. Having had the benefit of some discussion of the authorities by counsel in the Alty matter, I did not regard the point as free from difficulty and I reserved my decision in order to consider it.

3. I should first state in a little more detail the facts of the matter. There was an abortive meeting of the creditors on 16 May 1986. A Mr. Jay represented the Controlling Trustee, Mr. Gagie. The minutes recorded that Mr. Jay noted that, as no-one was in attendance at the meeting, the meeting should be adjourned pursuant to s. 202(2) of the Act which provides that if a quorum is not present within 30 minutes after the time appointed for the meeting any creditor, attorney or proxy of a creditor entitled to vote at the meeting who is present may adjourn the meeting to such date and place as he appoints. Mr. Jay held a proxy on behalf of at least one creditor and adjourned the meeting to 30 May 1986. The petitioning creditors despatched proxies to Mr. Gagie the previous day but these did not reach him in time for the adjourned meeting. Mr. Gagie held proxies from two other creditors. He purported to appoint some other person - not a creditor or proxy for any creditor - as chairman of the meeting. He then used his proxies to move and pass the resolution that the debtors enter into the deed of arrangement.

4. The deed of arrangement is dated 30 May 1986. It is signed by the debtors and by Mr. Gagie and is expressed to be entered into in pursuance of Part X of the Act. It is not necessary to refer to the detail of the deed.

5. The decision in Re Nelson (supra) was based upon the Bankruptcy Act 1924. The relevant provisions of that Act are not materially different from those of the present Act. Part XI of the 1924 Act provided for Compositions and Assignments without sequestration. Section 160 provided for the conduct of meetings. Para. (g) provided that a creditor might vote either in person, or by attorney appointed by deed, or by proxy appointed by instrument in writing signed by the creditor and attested or, in the circumstances referred to, by telegram. Section 161 provided that the creditors might, at the meeting, or any adjournment thereof, resolve to accept a proposal for a composition. If they did so, certain consequential provisions were to have effect. One of these was provided for in para. (a) which said that the composition or scheme was not to be binding on the creditors unless the resolution were confirmed by an extraordinary resolution passed at a subsequent meeting of creditors or some adjournment thereof. The meeting that arose for consideration in Nelson's case was the meeting purported to be held pursuant to para. 161(a). At the first meeting of creditors, three creditors were represented by one proxy and one other creditor by another proxy. However, at the confirmatory meeting, only three creditors were represented, all by one proxy who alone of those present was entitled to vote. It was held by Paine J. that the proceedings of the confirmatory meeting did not comply with the requirements of para. 161(a) of the 1924 Act and were thus invalid.

6. Paine J. referred to a number of authorities including Re Curley (1874) 5 AJR 5, Re Schlieff (1877) 3 VLR (IP & M) 18 and In Re Andrew (1877) 2 Jurist Rep (NZ) 257 These were all bankruptcy cases which supported the view that a meeting required the presence of more than one person even in circumstances were a creditor was entitled to vote by proxy.

7. On the other hand, Paine J. also referred to two other Victorian cases where a different view was taken. These were Reg. v. Cogdon; Ex parte Hasker (1877) 3 VLR (L) 88 and R. v. Leech; Ex parte Tolstrup (1879) 5 VLR (L) 494 In the former case Stawell C.J. said (p. 91) that the affidavits on behalf of the applicant showed that the person, present and acting at the time and place appointed for the meeting of creditors, represented and held proxies for more than one creditor. The Chief Justice assumed, rather than decided, that in the circumstances of Cogdon's case a valid meeting could be held, notwithstanding that only one person was present. Stawell C.J. again presided in Leech's case. He said (p. 502) that the Act allowed creditors to act by proxy and that the Court had already decided in Cogdon's case that one person, holding proxies for two creditors, could constitute a meeting and even vote in a different way in respect of each proxy as his instructions might direct him. He continued (p. 502), "As the Act allows proxies we must take it that two creditors were present at the meeting at which the appointment in question was made". His Honour acknowledged that the view he had expressed appeared to be in conflict with the decision in Schlieff's case but added that "possibly the apparent conflict might disappear upon a careful comparison of the two Acts". He added that he did not wish to depart from the decision of the Court in Cogdon's case.

8. After referring to this passage, Paine J. said (p. 181) that "(o)ne cannot help thinking, with due respect, that the learned Chief Justice was in error when he referred to R. v. Cogdon 'as the decision of the court'. The report of that case clearly shows that he then stated 'It is therefore not necessary to decide whether one creditor can constitute a meeting, etc.'"

9. What moved Paine J. to prefer the decisions reached in Curley and Schlieff, as well as in Andrew, were a number of English authorities, particularly the decision of the Court of Appeal in England in Sharp v. Dawes (1876) 2 QB 26 and that of Jessel M.R. in In re Sanitary Carbon Co. Limited (1877) WN (Eng.) 223. In Sharp v. Dawes a duly convened meeting of creditors of a company was called for the purpose of authorizing a call upon the unpaid capital of the company's shares. At the meeting, the secretary of the company, who had no vote, and one shareholder attended. The shareholder held no proxy from any other shareholder. It was held that a single shareholder could not constitute a meeting of the company under the relevant legislation, the Stannaries Act 1869. Section 4 of that Act provided that, except as otherwise provided by the Act, or by the rules or regulations of any company, a resolution passed at a meeting of the company, by the votes of the majority in value "of such of the shareholders as are present in person or represented by proxy, at the meeting shall be deemed the resolution of the meeting . . ." Both Lord Coleridge C.J. and Mellish L.J. expressed the clear view that the word "meeting" prima facie means a coming together of more than one person. Mellish L.J. said that, according to the ordinary use of the English language, a meeting could no more be constituted by one person that a meeting could have been constituted if no shareholder at all had attended.

10. It is to be observed that Sharp v. Dawes does not touch the present problem because no question of any proxy was involved. However in the second of the English cases, the Sanitary Carbon Company case, the one shareholder who attended the meeting held proxies for three other shareholders. He acted as chairman of the meeting, passed a resolution for voluntary liquidation and appointed a liquidator. Jessel M.R. held that there was no meeting. He said ((1877) WN at 223) that apart from any authority, he was quite prepared to hold that there had been no meeting of the company, but Sharp v. Dawes was conclusive on the subject. In that case, as in this one, one shareholder held a "meeting" and the only point of difference between the two cases was, so the Master of the Rolls said, was that there the shareholder passed a vote of thanks to himself] His Lordship does not appear to have thought that there was a difference in the two cases by reason of the shareholder holding proxies in one but not in the other.

11. To the same effect as what was said by Jessel M.R. in the Sanitary Carbon Co. case is the dictum of Lord Atkinson in Daimler Company Limited v. Continental Tyre and Rubber Co (Great Britain) Limited (1916) 2 AC 307 in which his Lordship said (p 325), in relation to an article of a company which provided that a member of a company might be present at a meeting, not personally, but by proxy, that it meant that, if there be one member personally present, he and the member or members present by proxy might proceed to transact the business of the meeting. His Lordship was not directing his mind precisely to the problem which is here involved, but what he said tends to support the view which Jessel M.R. adopted.

12. Further support for that view is to be found in James Prain & Sons Limited, Petitioners, (1947) SC 325 in which the articles of association of a company provided that two or more members present in person or by proxy should be a quorum. At the meeting in question only one member was personally present, but in addition to his individual representation, he represented two trusts of which he was first-named trustee and also held a proxy for another shareholder. The Court held that there was no meeting. It was said that, unless some special meaning was to be ascribed to the word "meeting", one member, although he attended in different capacities, could not constitute a meeting. The Lord President said that, notwithstanding the multiple capacities in which the shareholder was present, the fact remained that the "meeting" consisted of him and of him alone. His Lordship referred to Sharp v. Dawes, the Sanitary Carbon Co. case and the Daimler case. Lord Moncrieff went so far as to say that a meeting at which only one member was present to play multiple parts might be thought to be nothing other than a pantomime.

13. I have been unable to find any other authorities. In Buckley on the Companies Acts, 14th Ed., (1981) p. 959, the English and Scottish cases to which I have referred and some others are collected. Amongst other things the current editors say that the fact that the one person present is both himself a member and also a proxy for another member will not enable him to constitute a meeting even when "the quorum is two members present in person or by proxy". Further authorities may be referred to, but these do not deal with proxies. Like Sharp v. Dawes they are authorities dealing with meetings purported to have been constituted by single shareholders without the complication of their attending in more than one capacity; see for example In Re London Flats Limited (1969) 1 WLR 711

14. I should next refer more precisely to the language of the Act which is here in question. Section 200 provides that a creditor may vote either in person or by his attorney or by a proxy appointed in writing by the creditor or his attorney. The critical words are in s. 202 which provides for a quorum. Sub-sections (1) and (2) are as follows:-
    
    

"(1) At a meeting under this Division, 2 creditors,

being creditors entitled to vote at the meeting,

present personally, by attorney or by proxy,

constitute a quorum.

(2) If a quorum is not present within 30 minutes after the time appointed for the meeting, any creditor or attorney or proxy of a creditor entitled to vote at the meeting who is present may adjourn the meeting to such date and place as he appoints".

1. In times in which outlooks have undergone some change since the last century, some may think that, if the words in question arose for consideration unaffected by the history of the way in which courts have construed similar words in earlier bankruptcy Acts and in the articles of companies, there would be something to be said for construing the words to mean that, although a shareholder, creditor or other person attending on their behalf attended alone, his attending as a proxy for more than one person made that which he attended a meeting, notwithstanding that he alone was present. Such a construction could have practical benefit in some cases. In this case the amount of the estate to be distributed is small; yet the debtors reside in Dubbo, the Controlling Trustee in Wagga, where the meeting was called, the petitioning creditors in another country town and some of the creditors in Sydney. The use of proxies by the creditors was the only sensible course. In order to make the meeting lawful, all that needed to be done was to ensure that at least one proxy was given to a person other than Mr. Gagie. Mr. Gagie's clerk or secretary may have done; if not, some other resident of Wagga could have been appointed proxy by one of the creditors. A meeting constituted in this way would be no less a pantomime than a meeting attended by only one person, although in different capacities. I refer to the words of Lord Moncrieff in the Prain case.

2. What I have said demonstrates what an artificial operation the section can have in some circumstances.

3. A construction of the section which enabled a meeting to be held with only one person present, provided he held proxies for more than one creditor, would not do violence to the words of the section because its provisions contemplate attendance, not only personally, but also by attorney or by proxy. In ordinary language this would suggest that one person might attend on behalf of himself and one or more others and thus constitute a meeting. But, except in two of the Victorian cases earlier referred to, this attempted construction has failed because of the attention which the courts have concentrated on the word "meeting". They have been unable to accord similar words any construction other than that which required at least two persons to be present because of their inability to perceive that a proceeding constituted by only one person could be a "meeting", no matter what the others words of the provision might imply.

4. I have examined the Report of the Committee appointed by the Attorney General of the Commonwealth to review the Bankruptcy Law of the Commonwealth (1962) of which the Honourable Sir Thomas Clyne was chairman. There is no mention of this matter in the comments on the draft bill appended to the Report. Since in substance the words of s. 202 are not distinguishable from those of the comparable provisions of the 1924 Act, I should, accordingly, infer that there was no intention on the part of the Committee, and thus the legislature, that the construction which had been adopted by Paine J. in Re Nelson was intended to be affected. It follows, in my opinion, that the decision in Re Nelson, ought to be applied and followed in the present case. Accordingly, I hold that there was no "meeting" of creditors on 30 May 1986 so that the deed of arrangement entered into by the debtors as a consequence of the resolution which was purported to be passed at that meeting is void and of no effect.

5. The deed is accordingly set aside.