Re Terry, B.M. & Anor v Ex parte Pyramid Building Society (In liq)

[1995] FCA 327

IN THE FEDERAL COURT OF AUSTRALIA    )
VICTORIA DISTRICT REGISTRY          )     No. VP103 of 1995
GENERAL DIVISION  )

RE:     BRUCE MITCHELL TERRY and         JUDITH WENDY TERRY

Debtors

EX PARTE:     PYRAMID BUILDING SOCIETY         (IN LIQUIDATION)

Petitioning Creditor

CORAM:     Jenkinson J.

PLACE:     Melbourne

DATE:     24 May, 1995

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The hearing of the petition be adjourned to a date not later than 6 December 1995 to be fixed on the application of any party on reasonable notice to the other parties.

1. Each party's costs of the hearing of the petition to and including this day be reserved.  

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

IN THE FEDERAL COURT OF AUSTRALIA    )
GENERAL DIVISION  )  No. VP103 of 1995
BANKRUPTCY DISTRICT OF THE STATE     )
OF VICTORIA  )

RE:     BRUCE MITCHELL TERRY and         JUDITH WENDY TERRY

Debtors

EX PARTE:     PYRAMID BUILDING SOCIETY (IN LIQUIDATION)

Petitioning Creditor

CORAM:     Jenkinson J.

PLACE:     Melbourne

DATE:      24 May, 1995

REASONS FOR JUDGMENT

Application for adjournment of the hearing of a bankruptcy petition.

In September 1994 the Supreme Court of Victoria (Hayne J.) pronounced judgment against a company and each of the judgment debtors ("Mr. and Mrs. Terry") for the sum of $1,313,790.25.  The liability of Mr. and Mrs. Terry was as guarantors of obligations of the company as mortgagor under a mortgage to the petitioning creditor.  Upon that judgment debt and interest thereon was based the bankruptcy notice, upon the failure of each of Mr. and Mrs. Terry to comply with the requirements of which is based the petition.  An appeal against the judgment by the company and Mr. and Mrs. Terry was instituted.  An application by Mr. and Mrs. Terry for stay of execution of the judgment and for stay of further proceedings thereon was refused by the Full Court of the Supreme Court of Victoria on 7 October 1994.  The bankruptcy notice was served on Mrs. Terry on 22 November 1994 and on Mr. Terry on 8 December 1994.  The petition was presented on 2 February 1995 and came on for hearing by me on 19 April 1995.

Mr. Watkins of counsel for Mr. and Mrs. Terry submitted that his clients' appeal against the judgment could be seen to be based on the "genuine and arguable grounds" which authoritative judgments of this court have shown to be ordinarily sufficient to attract an exercise of a court's discretionary power to adjourn the hearing of a bankruptcy petition founded on a judgment until the determination of the judgment debtor's appeal.  (See Ahern v. Deputy Commissioner (1987) 76 A.L.R. 137 at 147-148; Adamopoulos v. Olympic Airways S.A. 1990 95 A.L.R. 525 at 526, 531-2).

Mr. J. Beach of counsel for the petitioning creditor submitted that the discretionary power to adjourn the hearing of a petition until determination of an appeal against the judgment founding the petition must be exercised upon a consideration of a number of circumstances, of which the genuineness and tenability of the grounds of appeal are but two.  I accept that submission.  Mr. Beach alleged several circumstances which were said to tell against adjournment.  There was evidence, it was submitted, indicating an arrangement by Mr. and Mrs. Terry of their affairs which was designed to deny their creditors access to their assets.  It appeared by evidence adduced on behalf of Mr. and Mrs. Terry in the Supreme Court of Victoria that during the seven years ending in September 1994 a company named Derring Lane Pty. Ltd., of which Mr. and Mrs. Terry and two of their children were directors, had "developed a reputation as a competent and successful investor in and developer of real estate in the Melbourne community", and that in September 1994 Derring Lane Pty. Ltd. was engaged in seven joint ventures in building for sale residential apartments aggregating more than 175 in number, and that Mr. Terry's name and reputation and his services as an employee of Derring Lane Pty. Ltd. during those seven years had contributed substantially to that company's success.  It further appeared from the statement of their affairs which Mr. and Mrs. Terry gave to the trustee in October 1992 in compliance with the requirements of Part X of the Bankruptcy Act 1966 that within the five years preceding 22 October 1992 Mr. and Mrs. Terry had sold to those two children for a nominal consideration their shares in Derring Lane Pty. Ltd. and their shares in two other companies. The suggestion by Mr. Beach was that those dispositions might be avoided under Division 3 of Part VI of the Bankruptcy Act 1966 in the event of bankruptcy of Mr. and Mrs. Terry. But the evidence disclosed neither the time at which, nor the circumstances under which, any of those dispositions had occurred. Other evidence suggested that the only business of Derring Lane Pty. Ltd. was conducted as trustee of a trust of which members of the Terry family were beneficiaries. The evidence does not in my opinion justify a finding that Mr. or Mrs. Terry have so arranged their affairs as to defeat their creditors by means unlawful or immoral.

Another circumstance alleged by Mr. Beach in opposition to the grant of the adjournment was the insolvency of each of Mr. and Mrs. Terry.  That was said to be their situation even if the judgment debt be ignored.  There was evidence that the assets of Mr. and Mrs. Terry did not exceed $20,000.  The legal costs of prosecuting the appeal may exhaust any fund derived from assets of that value.  Otherwise there was no evidence as to what debts either of Mr. and Mrs. Terry owe, apart from the judgment debt.  In those circumstances the precariousness of their financial positions ought not in my opinion to be allowed decisive weight in the exercise of the discretionary power to grant or refuse adjournment if the prosecution of the appeal is seen to be on genuine and arguable grounds.

It was submitted that the application for an adjournment was but an attempted repetition of the case unsuccessfully presented to the Full Court for a stay of the judgment of Hayne J.  But now that acts of bankruptcy have been committed by Mr. and Mrs. Terry the passage of time until determination of the appeal will not threaten the interests of creditors as seriously as would have been the case if those acts had not been committed.  The considerations to which the Full Court would have had regard are not the same as those to which I am required to have regard. 

The money lent by the petitioning creditor, repayment of which Mr. and Mrs. Terry guaranteed, was repayable by the borrower in October 1993. In November 1992 the creditors of Mr. and Mrs. Terry accepted a composition under Division 2 of Part X of the Bankruptcy Act 1966. Section 238 of that Act declares such a composition to be binding on all the creditors of the debtors and provides, subject to certain exceptions not presently relevant, that it is not competent for a creditor, so long as such a composition remains valid, to commence, or to take any fresh step in, any legal proceeding in respect of a provable debt. Section 240 provides, subject to certain exceptions not here relevant, that such a composition operates to release the debtors from all provable debts. Hayne J. concluded that the liability of Mr. and Mrs. Terry under the guarantee, which was a contingent liability when the composition was accepted, did not fall within the meaning of the expression "provable debt" in s.238 or in s.240 or in s.82 as modified in its application to a composition. Those provisions did not therefore constitute, in the opinion of Hayne J., any obstacle to the petitioning creditors' action to recover the debt, being a debt no longer contingent at the time of commencement of the action. Mr. and Mrs. Terry will contend on appeal to the Full Court of the Supreme Court of Victoria that that conclusion of Hayne J. is wrong in law. If their contention is upheld on appeal, the judgment will be set aside and judgment will be entered for them. This ground of appeal is said by Mr. Watkins to be genuine and arguable. In Wills v. Abram (unreported; VX450 of 1991; judgment 12 May 1993) Heerey J. had reached the contrary conclusion : that a contingent liability is within the meaning of the expression "provable debts" in ss. 238, 240 and, in its modified application to a composition, s.82.  Mr. Beach submitted that I should hold that the conclusion Hayne J. had reached was correct and that the contrary conclusion which would be advanced on behalf of Mr. and Mrs. Terry in support of their appeal to the Full Court of the Supreme Court was not sustainable.

Having considered the conflicting reasons for their Honours' respective conclusions, I am unable to say that a ground of appeal based on the reasoning of Heerey J. is not arguable.

Upon a consideration of all the circumstances I consider that an adjournment of the hearing of the petition should be ordered. The circumstances may change before the appeal has been determined. Accordingly the order will be that the hearing of the petition be adjourned to a date not later than 6 December 1995 to be fixed on the application of any party on reasonable notice to the other parties. The petition was presented on 2 February 1995. Having regard to the provisions of sub-section 52(4) of the Bankruptcy Act 1966, further consideration of the petition should not be deferred beyond December 1995. Each party's costs of the hearing of the petition to and including this day will be reserved.

I certify that this and the 6   proceeding pages are a true copy of the Reasons for Judgment of the Honourable Justice Jenkinson.

Associate

Dated:  24 May, 1995

Counsel for the Petitioning  :    Mr. J. Beach
Creditor

Solicitors for the          :    Holding Redlich
Petitioning Creditor

Counsel for the Debtor      :    Mr. G. Watkins

Solicitors for the Debtor    :    Joseph Di Mauro &
  Associates

Date of Hearing             :    19 April, 1995