Re Tregonning; Ex parte Friends' Provident Life Office

[1983] FCA 270

Re: MICHAEL JOHN TREGONNING
Ex parte: FRIENDS' PROVIDENT LIFE OFFICE (1983) 74 FLR 327
Qld No. X 29 of 1983
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Fitzgerald J.(1)

CATCHWORDS

Bankruptcy - whether deed of assignment void - decision of chairman not to admit applicant's proof of debt and permit it to vote - "special resolution" - whether decision incorrect having regard to what was before the Chairman at the meeting or what is before the Court.

Bankruptcy Act, 1966 ss. 222

Bankruptcy - Creditors' meeting - Decision of trustee as chairman not to admit applicant's proof of debt - Whether deed of assignment void - Whether trustee's refusal to admit proof of debt proper - Considerations relevant to declaring deed void - Whether appropriate for court to make a finding that the applicant is a creditor of the debtor and the amount of the debt - Bankruptcy Act 1966 (Cth), ss 5(1), 188, 198(2), 201, 204, 222, 225.

HEADNOTE

The applicant, Friends' Provident Life Office, applied for an order under s. 222 of the Bankruptcy Act 1966 (Cth) declaring a deed of assignment void. The deed was executed in reliance upon a "special resolution" purportedly passed at a meeting called by the trustee in pursuance of an authority given by the debtor under s. 118 of the Bankruptcy Act 1966 (Cth). The applicant had been given notice of the meeting which had lodged a proof of debt. However, the trustee made no reference to the applicant's debt in the debtor's statement of affairs under s. 195 of the Bankruptcy Act 1966 (Cth) and at the meeting of the trustee refused to admit the applicant's proof of debt or to permit it to vote. The trustee's refusal was based on the debtor's denial that the debt was owed. The applicant was not given notice of the trustee's refusal to admit the proof of debt and the trustee did not adjourn the meeting pursuant to s. 205 of the Bankruptcy Act 1966 (Cth) to investigate the applicant's claim and right to vote. The applicant sought to set aside the special resolution passed at the meeting as it would have voted against the resolution and the value of its debt would have prevented the special resolution from having been passed.

Held: (1) It is appropriate in these proceedings that the court makes a finding as to whether the applicant is a creditor of the debtor and accordingly the court finds that the applicant is a creditor of the debtor.

Re Levy; Ex parte Scholefield Goodman & Sons Ltd (1980) 50 FLR 99; Beard v. Prestige Baking Industries Pty Ltd (1981) 52 FLR 384, referred to.

(2) The declaration sought by the applicant is appropriate if a creditor entitled to vote was improperly excluded from voting when the applicant's vote, if cast against the resolution, would have resulted in the defeat of the resolution.

Re Segal; Lensworth Finance Ltd v. Segal & Ward (1975) 45 FLR 85; Re Moloney; Ex parte Field (1981) 51 FLR 31, referred to.

(3) The exclusion of the applicant meant that there was no valid special resolution and accordingly pursuant to s. 222(1) of the Bankruptcy Act 1966 (Cth) the deed was not "entered into in accordance 'with Part X'".

(4) The deed of assignment be declared void.

HEARING

Brisbane, 1983, October 13, 14. #DATE 14:10:1983

APPLICATION.

Application for an order under s. 222 of the Bankruptcy Act 1966 (Cth) declaring a deed of assignment void.

N. Samios, for the applicant.

D. Cooper, for the trustee.

The debtor appeared in person.

Cur. adv. vult.

Solicitors for the applicant: Graham Goldberg & Co.

Solicitor for the first respondent: T. A. Sherman, Acting Crown Solicitor.

Solicitors for the second to eleventh respondents: Holmes & Bevan.

J.D.W.

ORDER

The Deed of Assignment executed on 17 May 1983 between Michael John Tregonning and Ivor Worrell is void.

JUDGE1

This is an application by Friends' Provident Life Office ("Friends' Provident") for an order under s.222 of the Bankruptcy Act 1966 ("the Act") declaring void a Deed of Assignment executed on 17 May 1983 between Michael John Tregonning ("the debtor") as debtor and Ivor Worrell ("the trustee") as trustee.

The deed was executed in reliance upon a special resolution purportedly passed on that day under s.204 of the Act at a meeting called by the trustee in pursuance of an authority previously given by the debtor under s.188 of the Act. Notice of the meeting had been given to Friends Provident which had lodged a proof of debt and a proxy in favour of its solicitor prior to the meeting. The proof of debt, to which appropriate documentation was attached, claimed that Friends Provident was a creditor of the debtor in the sum of $12,967.94 pursuant to a guarantee. However, no reference was made to Friends' Provident's debt in the debtor's statement of affairs under s.195 of the Act and the trustee as Chairman of the meeting refused to admit Friends' Provident's proof of debt or to permit it to vote at the meeting. The debtor's statement of affairs valued his assets, principally household furniture and effects, at $7,830.00, his unsecured creditors (not including Friends' Provident) at $43,872.00, his secured creditors (to the extent to which the secured debts exceeded the value of the securities) at $84,000.00, and accordingly revealed a deficiency of $120,042.00. At the meeting, five creditors whose debts totalled $40,400 voted in favour of the resolution and one creditor, whose debt totalled $1,452.00, voted against the resolution.

The grounds upon which the declaration that the deed of assignment is void are sought are the debtor's omission from his statement of affairs of the debt allegedly due to Friends' Provident, the trustee's alleged failure as Chairman properly to investigate Friends' Provident's claim and to admit its proof of debt and permit it to vote, and that Friends' Provident's intended vote against the resolution would have prevented it being passed as a special resolution. Sub-section 5(1) of the Act defines "special resolution" to mean, unless the contrary intention appears, "a resolution passed by a majority in number and at least 3/4 in value of the creditors present personally, by attorney or by proxy at a meeting of creditors and voting on the resolution".

At the time when the debtor gave an authority to the trustee to call the meeting, there was in existence in the District Court at Brisbane an action by Friends' Provident against the debtor, an alleged co-guarantor, and the principal debtor whose debt it was alleged had been guaranteed. The basis of Friends' Provident's claim against the principal debtor was that it had been overpaid amounts aggregating the sum of $12,967.94 in respect of services which it had rendered to Friends' Provident pursuant to an agency agreement, and that by the terms of the agreement such overpayments were recoverable. The basis of the claim against the debtor and the alleged co-surety was that they had guaranteed performance of the principal debtor's obligations under the agency agreement. At the time of the meeting, no defence had been entered to the District Court Plaint.

However, there had been an application by Friends' Provident to the District Court for summary judgment. The application had not been proceeded with but had been adjourned by consent sine die after affidavits had been filed both in support and in opposition to the application, including an affidavit by the debtor. Issues were raised by the debtor and the alleged co-surety in opposition to the application both as to the existence of any liability and, in the alternative, disputing the amount claimed by Friends' Provident. An affidavit filed in these proceedings by the solicitor for Friends' Provident indicates that it consented to the adjournment of the application for summary judgment on Counsel's advice. Of course, contested issues of fact, including perhaps issues of credibility, would not normally have been permitted to be canvassed on such an application.

Prior to the meeting of the debtor's creditors, the trustee questioned the debtor concerning the claim of Friends' Provident and the debtor "vehemently denied" that he was under any such liability and also asserted that, in any event, "he was certain that not all of the amount claimed would be payable." The trustee also spoke to the solicitor acting for the debtor in the District Court proceedings. The solicitor informed the trustee that the debtor's defence was not "frivolous or trivial", and that if any amount was owing it was "certainly less than the amount claimed". The trustee concluded on the basis of what he had been told by the debtor and his solicitor that the debt claimed by Friends' Provident was not a debt in respect of which Friends' Provident was entitled to vote. By sub-s. 198(2) of the Act 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.

Subject to s.198, every creditor of the debtor was, by virtue of sub-s. (1) thereof, entitled to vote at the meeting. Section 201 provides that any question as to the right of a person to vote at a meeting or as to the amount of the debt in respect of which the person is entitled to vote is to 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.

As has already been noted, the trustee as Chairman refused to admit Friends' Provident's proof of debt or to allow it to vote. No prior notification that that would occur was given to Friends' Provident and it was given no opportunity to present additional material in support of its claim. The trustee did not have available to him the material which had been filed in the District Court proceedings or any other material other than the assertions which had been made to him that day by the debtor and his solicitor. The trustee had no basis upon which he could test the soundness of those assertions.

In these proceedings, evidence has been adduced on behalf of Friends' Provident with minimal effort which, if accepted, would justify a conclusion that the debt claimed does exist. The trustee contested the application until, shortly after the commencement of the hearing, he withdrew when it was confirmed that no attack was intended upon his integrity. The debtor has appeared in person, cross-examined deponents of affidavits on behalf of Friends' Provident and himself given evidence. The sole basis of his opposition to the order sought revolved around his attempt to dispute that he is indebted to Friends' Provident; it was no longer contended that if he is indebted the debt owed is of a lesser amount than Friends' Provident claims.

Section 222 of the Act relevantly provides:

"222.(1) Where there is doubt, on a specific ground, whether a deed of assignment . . . was entered into in accordance with this Part . . . a creditor . . . may apply to the Court for an order under sub-section (2).

(2) Upon the hearing of an application made under sub-s. (1) the Court may, subject to this section make an order -

(a) declaring that the deed . . . is void, or that it is not void, on the grounds specified in the application; or

(b) declaring that a provision of the deed is void or is not void on the grounds specified in the application.

(3) . . .

(4) Where the Court on the application of . . . a creditor, is satisfied that the debtor -

(a) . . .

(b) has omitted a material particular from the statement of his affairs under s.195 or included an incorrect and material particular in that statement,

the court may make an order declaring the deed . . . to be void or declaring any provision of the deed . . . to be void.

(5) The Court shall not make an order declaring a deed . . . or provision of a deed . . . to be void on a ground specified in sub-s. (4) unless it is satisfied that it would be in the interests of the creditors to do so.

Notwithstanding the existence of the District Court proceedings, I consider that I may appropriately make a finding as to whether Friends' Provident is a creditor of the debtor and, if so, the amount of the debt. See Re Levy; ex parte Scholefield Goodman and Sons Ltd (1980) 50 F.L.R. 99 110-111 per Bowen C.J.; Beard v. Prestige Baking Industries Pty Ltd (1981) 36 A.L.R. 307.

I find that Friends' Provident is and was at all material times a creditor of the debtor in the sum of $12,967.94, the sum claimed in Friends' Provident's proof of debt. I reject the debtor's claim that the agency agreement, to which the debtor was a signatory in his capacity as a director of the principal debtor, was not, when signed, in the form of Exhibit 1 in these proceedings. I find that there was no material alteration after signature. I find also that there was no oral contract which was inconsistent with Exhibit 1.

One consequence which follows from those findings is that Friends' Provident has locus standi to bring the present application.

Although the power to determine the rights of persons to vote at meetings of creditors under Part X and the amounts of the debts in respect of which they are entitled to vote is given by s.201 of the Act to the Chairman of the meeting and s.225 gives evidentiary effect to a certificate in respect of the chairman's decision, the decision is not entirely beyond question. Notwithstanding that there may perhaps be room for argument based on the definition of "special resolution" in the Act if it is applicable, it has been accepted without question that a declaration such as is sought in this case is appropriate if a creditor entitled to vote was improperly excluded from voting when the vote, if cast against the resolution, would have resulted in its defeat: see Re Segal; Lensworth Finance Ltd v. Segal and Ward (1975) 9 A.L.R. 154, 159, 161 per Riley J.; Re Levy, supra, at p.115; Re Moloney; ex parte Field (1981) 51 F.L.R. 31 per Lockhart J. It seems that the exclusion of such a creditor from the vote means that there has been no valid special resolution and, accordingly, that the deed was not "entered into in accordance" Part X: see sub-s. 222(1).

The result of the findings which I have made render this case indistinguishable from Re Levy, supra. The decision of the trustee as chairman was incorrect on the evidence before me. If the decision ought be considered by reference to what was before the trustee as chairman of the meeting, I respectfully adopt the following passage from Re Levy, supra, at p.113:

"Dealing first with the material before the Chairman, it appears to me his exercise of the power conferred upon him miscarried . . . . Once particulars were supplied to him, because the size of the indebtedness involved made it crucial, he should in my view have made further enquiry beyond what he did in relation to the question whether the debts were contingent, exercising his power of adjourning the meeting if necessary."

In this case, the decision of the trustee as chairman of the meeting was made without ulterior motive but it was made without any valid foundation. There is no possible basis upon which the debt owed to Friends' Provident could be characterized as contingent or unascertained or unliquidated within the meaning of sub-s. 198(2). See Ex parte Ruffle: re Dummelow (1873) 8 Ch App 997, 1001; Re Segal, supra, at p.160; Re Levy, supra, at pp 111-112.

No basis was suggested upon which any discretion which may exist might be exercised in favour of a refusal of the order sought. The deed was executed relatively recently, and it is not suggested that anything of substance has been done under it. While there is little obvious reason why Friends' Provident opposes the deed, it has a right to do so and is entitled to determine for itself what is in its best interests. The creditors of the debtor generally have no particular interest in having the deed maintained that I can see, although, of course, a large number did vote in favour of the resolution. The debtor's assets are minimal and no extra assets or funds will be available under the deed beyond those which would be available were the debtor made bankrupt. There is no indication that it would be cheaper to administer the debtor's estate under the deed than in bankruptcy.

Once again, I propose to follow what was done in Levy's Case. Accordingly, I will make the order asked. There is no need for me to consider the additional ground relied upon by Friends' Provident based upon sub-s. 222(4) of the Act.