Re Smith, G.H. Boral Resources (NSW) P/L trading as Boral Concrete v Smith, G.H.

[1993] FCA 773

BORAL RESOURCES (NSW) PTY LIMITED trading as BORAL CONCRETE v. GEOFFREY HOWARD
SMITH and JOHN HOWARD MANN
No. NX253 of 1992
FED No. 773
Number of pages - 3
Bankruptcy Act 1966, Part X

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
SWEENEY J

CATCHWORDS

Bankruptcy Act 1966, Part X - Deed of Arrangement involving, amongst other things, quarterly payments to be made by debtor - no payments in fact made - application by a creditor that Deed of Arrangement be declared void or terminated and that a sequestration order be made - whether in the interests of creditors to terminate the Deed.

Bankruptcy Act 1966: ss.236(1)(a); (2)

HEARING

MELBOURNE, 7 October 1993

#DATE 28:10:1993

Counsel for the applicant: Mr M. Aldridge

Solicitors for the applicant: Appleby and Nilson

Counsel for the respondents: Mr J. Chippendall

Solicitor for the respondents: Michell Sillar

ORDER

THE COURT:

1. orders that the deed of arrangement entered into by the debtor on 23 December 1992 be terminated

2. makes an order of sequestration against the estate of the debtor

3. orders that the costs of the applicant of an incidental to the application, including reserved costs be paid out of the estate of the debtor, with the same priority as if they had been costs incurred by the applicant in the presentation and hearing of a creditor's petition.

Note: Settlement and entry of orders is dealt with in O.36 of the Federal Court Rules.

JUDGE1

SWEENEY J This is an application by a creditor for orders that the deed of arrangement entered into by the debtor be declared void or be terminated and that an order of sequestration be made against his estate.

1. On 26 November 1992 an authority pursuant to s.188 of the Bankruptcy Act 1966 ("the Act") was given by the debtor, G.H. Smith ("Mr Smith") to Phillip Mark Day to call a meeting of his creditors.

2. On 7 December 1992 the applicant ("Boral") obtained a judgment in the District Court at Parramatta in the sum of $137,549.93 against Mr Smith.

3. A notice was sent to creditors of Mr Smith on 8 December 1992 of a meeting of creditors which took place on 23 December 1992. Pursuant to what was described by the chairman of the meeting as a special resolution, a deed of arrangement was entered into on that day by Mr Smith, by which he assigned to the Trustee named therein, Mr J.H. Mann, fourteen shares in Lend Lease Corporation, his interest in certain real estate at Kooralbyn Valley, Queensland, and agreed to pay to the Trustee $60,000 by twelve quarterly instalments of $5,000, first payment to be made on or before the last day of March 1993.

4. The interest of the debtor in the Kooralbyn Valley property was described in the deed as "subject to mortgage to Commonwealth Bank of Australia". In his Statement of Affairs presented to the meeting the debtor listed that bank as a secured creditor in the amount of $750,000, showing the securities as a Kooralbyn Valley property with an estimated value of $35,000 and "Caringbah (parents' home)" with an estimated value of $265,000.

5. Clauses 14 and 15 of the Deed provided:
   

"14. That in the event of the Debtor having made all the payments set forth in Schedule B hereto and having complied with all the covenants on his part to be performed, the Trustee shall reassign to the Debtor all the property assigned by virtue of the operation of this Deed.

15. The Debtor assigns to the Trustee all after acquired property (as prescribed by section 116(1) of the Act) to be dealt with in accordance with the provisions of this Deed."

1. In his Statement of Affairs the debtor estimated the value of the fourteen Lend Lease Shares at $185.50. His only other assets were listed as household furniture and effects, estimated at $2500 and cash in hand $85.00. He stated that the total amount of his liabilities was $4,402,608.54.

2. The minutes of the meeting of creditors showed the result of the vote on the special resolution, as follows:
   

" For Against Total $ No. $ No. $ No Name and Value

Esarem Holdings

P/Ltd 349,707 349,707 Deruno Pty. Ltd 2,079,105 2,079,105 Billerwell Powers

and Smith 34,782 34,782 Michell Sillar 6,333 6,333 Commonwealth

Bankcard 12,299 12,299 Household Fin-

ancial Services 7,886 7,886 Boral Resources

(NSW) P/L 137,549 137,549 2,469,927 93.99% 157,734 6.01% 2,627,661 100% Number present 4 57.14% 3 42.86% 7< 100% The Chairman informed the meeting the resolution was passed, having the majority in numbers and greater than 75% in value of debts of creditors present."

1. On 13 January 1993 an application was filed on behalf of Boral by which the following orders were sought:
   

"1. That the Deed of Arrangement entered into by the debtor on or about 23 December, 1992 be declared void on the ground that:

At the meeting of the creditors of the debtor on the 23rd December, 1992 that Deruno Pty Ltd and Esarem Holdings Pty Ltd were permitted to vote, neither company being entitled to do so;

2. That the Deed of Arrangement entered into by the debtor on or about 23 December, 1992 be terminated;

3. That a sequestration order be made against the estate of the debtor;

4. That the costs of and incidental to this application be provided for;

5. Such further or other orders as the Court shall deem fit."

1. At the hearing of this application it became common ground that the first three quarterly payments, each of $5000, which the debtor was obliged under the deed to pay to the trustee by the last days of March, June and September 1993 had not been made.

2. The applicant then, by leave, added a further ground on which it sought the termination of the deed pursuant to s.236(1)(a) of the Act, namely that the debtor "had failed to carry out or comply with a provision of the deed".

3. The Court is commanded, by s.236(2), not to make an order under paragraph 1(a) "unless it is satisfied that it would be in the interests of the creditors to do so". The principal advantage to be gained by the creditors under the deed was the receipt of the quarterly payments. The proposed payment by instalments was itself a trivial amount in respect of the total indebtedness of the debtor. Having regard to the debtor's default I am satisfied that it is in the interests of the creditors to terminate the deed. The debtor gave evidence of his belief that by the end of October 1993 he would be in a financial position to make the payments due to the trustee, in the expectation that he received prompt payment for work as a property development consultant on which he was engaged, which was similar to that performed by him before entering into the deed. This work is being done by him as a consultant to a family company which engages his services after it has come to an arrangement with a client. In these circumstances, it seems unlikely that the creditors will reap any benefit from the fact that by the deed the debtor assigned to the trustee his after acquired property. The fact that the arrangement has not enabled the debtor to make the payments due under the deed supports this conclusion.

4. Having regard to the extent of his insolvency and the general history of the debtor I am satisfied that this is a proper case in which to grant the application that an order of sequestration be made forthwith.

5. I have not found it necessary to consider the other grounds upon which the deed was attacked.

6. The court
   

1. orders that the deed of arrangement entered into by the debtor on 23 December 1992 be terminated

2. makes an order of sequestration against the estate of the debtor

3. orders that the costs of the applicant of and incidental to the application, including reserved costs be paid out of the estate of the debtor, with the same priority as if they had been costs incurred by the applicant in the presentation and hearing of a creditor's petition.