Re Watson Ex parte Cunningham J.K
[1995] FCA 656
•4 AUGUST 1995
CATCHWORDS
BANKRUPTCY - Creditor's Petition - application for adjournment of creditor's petition until determination of proceedings in relation to the conduct of the meeting of creditors called pursuant to authority under s 188 of the Bankruptcy Act 1966 - factors relevant to exercise of discretion to grant adjournment - application refused - sequestration order made.
Bankruptcy Act 1966 - sub-s 52(1), s 188, Part X
Bankruptcy Rules - r 124(2)
Re Palazzolo; Ex parte Discusso & Ors v Palazzolo (Unreported, 19 July 1991, Neaves J, Canberra)
Re Richards; Ex parte Beneficial Finance Limited (Unreported, Jackson J, 17 March 1986)
Re Beames; Ex parte Deputy Commissioner of Taxation (Unreported, Pincus J, 10 October 1986).
Field v Commercial Banking Company of Sydney Limited 22 ALR 403
RE: CRAIG ALEXANDER WATSON; EX PARTE: JOHN KEITH CUNNINGHAM
No. QP 348 of 1995
FOSTER J
4 AUGUST 1995
BRISBANE
IN THE FEDERAL COURT OF AUSTRALIA )
)
QUEENSLAND DISTRICT REGISTRY ) No. QP 348 of 1995
)
BANKRUPTCY DIVISION )
RE:CRAIG ALEXANDER WATSON
Debtor
EX PARTE:JOHN KEITH CUNNINGHAM
Creditor
JUDGE MAKING ORDERS: FOSTER J
DATE: 4 AUGUST 1995
PLACE: BRISBANE
MINUTE OF ORDERS
THE COURT ORDERS THAT:
1.A sequestration order be made against the estate of the debtor.
2.The petitioning creditor's costs, including reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966.
THE COURT DIRECTS THAT:
1.A draft of this order be delivered to the Registrar within 7 days in accordance with subrule 124(2).
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
QUEENSLAND DISTRICT REGISTRY ) No. QP 348 of 1995
)
BANKRUPTCY DIVISION )
RE:CRAIG ALEXANDER WATSON
Debtor
EX PARTE:JOHN KEITH CUNNINGHAM
Creditor
CORAM: FOSTER J
DATE: 4 AUGUST 1995
PLACE: BRISBANE
REASONS FOR JUDGMENT
(Extempore)
HIS HONOUR: I have been much assisted by the helpful and extensive submissions of the legal representatives of the petitioning creditor, the other supporting creditors and the debtor in this matter. Those submissions have ranged over a wide field and I have been referred to a number of reported decisions. In the short reasons that I propose to give in this matter I shall not attempt to refer to all of those submissions. They have, of course, been noted in the usual way and the legal representatives of the parties have the benefit of them.
I have before me a creditor's petition brought by a creditor, John Keith Cunningham, seeking a sequestration order against the estate of Craig Alexander Watson, the debtor. The debtor, through his representative, Mr Bayliss, has not sought to dispute material brought in support of the petition, but seeks rather that the hearing of the petition be adjourned so that other proceedings, to which I shall shortly refer, can be heard.
The background facts can simply be stated as follows. On 11 May 1995 the debtor signed an authority under s 188 of the Bankruptcy Act 1966 ("the Act"), authorising Paul Desmond Sweeney, a registered trustee, to call a meeting of his creditors for the purpose of Part X of the Act, and to take control of his property. Pursuant to that authority, a meeting of creditors was called and was held on 1 June 1995.
At the meeting it was resolved by special resolution by the creditors whom the chairman of the meeting admitted to vote at the meeting, that:
(a)the proposal that the debtor put to the meeting, namely, that the debtor execute a deed of assignment of his divisible property be rejected; and
(b)that the debtor be required to present his own petition for bankruptcy within seven days from the date of the meeting.
The debtor has not filed that petition. Instead on 13 June 1995 he filed an application in this Court in proceedings numbered QX 68 of 1995, in which he seeks various orders, declarations and directions in relation to the meeting of creditors of 1 June. The orders he seeks are that:
(a)the resolution that one Damien Bender be appointed president of the meeting, be set aside;
(b)the decisions made by Mr Bender to admit two proofs of debt, one of the Queensland Ambulance Service, and the other of a creditor, Ronald Edward Hughes, be set aside;
(c)the decision made by Mr Bender to admit the Form 43 proxy of the Queensland Ambulance Services for the purposes of voting at the meeting, be set aside;
(d)the decision made by Mr Bender to reject the Form 44 proxies of relatives of the debtor, namely, Mr Patrick Brostowin and his sister, Joy Watson, be set aside;
(e)the decision made by Mr Bender to reject the Form 44 proxy of a creditor, George Lee Teck Guan, be set aside;
(f)the decision made by Mr Bender not to adjourn the meeting of creditors on the basis of a written request from Westpac Banking Corporation to that effect, be set aside; and
(g)the decision made by Mr Bender not to adjourn the meeting at the debtor's request to enable him to seek legal advice as to whether he could withdraw or amend the proposal he had put to the meeting, be set aside.
Other declarations and directions are sought, but for present purposes, they do not need to be mentioned.
Proceedings QX 68 of 1995 have already been before a Registrar of this Court on 23 June 1995. On that occasion directions were given as to the filing of affidavits and the matter was adjourned to a future date for the purpose of further directions. It is the debtor's contention that the petition brought by Mr Cunningham should, in effect, be adjourned until he has the opportunity of litigating to finality the questions that he has raised in proceedings QX 68 of 1995 in relation to the meeting of creditors.
I have had lengthy and comprehensive submissions put to me by the debtor's representative as to the matters that would be sought to be raised in those proceedings, particularly in relation to the failure to admit the proxy forms of the persons to whom I have made reference. Mr Bender rejected those proxy forms on the basis of a decision of Neaves J in the matter of Re Palazzolo; Ex parte Discusso & Ors v Palazzolo (Unreported, 19 July 1991, Federal Court of Australia, Canberra). It is submitted that this decision is distinguishable in a number of ways. It is not necessary for me to set out the full submission that has been made to me in this regard. It has also been submitted that failure to grant an adjournment of the meeting resulted in unfairness to the debtor and robbed him of the opportunity of withdrawing the proposal or putting to the meeting a revised proposal.
I have considered these submissions. They are not matters, of course, upon which I can or should give any concluded opinion. Suffice it to say that enough has been put before me to indicate that the proceedings QX 68 of 1995 raise matters which could well lead to consideration by the court as to whether there were problems needing rectification in relation to the creditor's meeting.
What is put to me, however, on behalf of the petitioning creditor and the supporting creditors, is that those matters really are of very little significance so far as the adjournment application is concerned. The simple fact is that the debtor, in his Statement of Affairs presented to the trustee, disclosed assets consisting only of $20 in cash and $5000 in furniture, as against liabilities, which were admitted and sworn to, in excess of $1,000,000.
The proposal put by the debtor to the meeting of creditors was that, if they accepted the deed of assignment, then in addition to the assets disclosed in his Statement of Affairs, a sum of $20,000 would be made available for distribution amongst the creditors. The origin of the $20,000 was described as a "non-recourse loan" from a close relative which, in the event of the deed of assignment being rejected, would not be available. This proposal, although supported by the trustee, would have amounted to a dividend to creditors of only approximately 1.7 cents in the dollar.
It is quite apparent that such a small dividend was totally unacceptable to a large number of the creditors and would, in any event, have been vulnerable to an application to set aside the assignment on that very basis: see Re Richards; Ex parte Beneficial Finance Limited (Unreported, Jackson J, 17 March 1986) which has been approved in later judgments of this Court including that of Pincus J in the matter of Re Beames; Ex parte Deputy Commissioner of Taxation (Unreported, 10 October 1986).
A significant factor in the consideration of this application is material that has been placed before me amounting to an analysis of what the situation would be if the debtor's application in proceedings QX 68 of 1995 were to succeed in its entirety. It is apparent that even in a "best case scenario" for the debtor, that is, if the debts of Mr Hughes and of the Queensland Ambulance Service were not admitted, and the votes of Mr Patrick Brostowin, Ms Joy Watson, and Mr George Lee Teck Guan were admitted, the debtor would still be unable to assemble the support of the 75 per cent in value of the creditors required to pass a special resolution accepting a deed of assignment. This is clear from the sworn intentions of the debtor's largest creditors.
The fact that there seems to be virtually no prospect of a reconvened meeting of creditors, or a new meeting of creditors, at which all creditors would be represented, accepting a deed of assignment is a factor which must, in my view, be taken into consideration along with all the other matters that have been raised.
Other factors which should be considered in an application of this kind are set out in the judgment of his Honour, Justice Sweeney, in the well-known case of Field v Commercial Banking Company of Sydney Limited 22 ALR 403.
Apart from factors to which I have already referred, Sweeney J includes as important considerations:
(a)the relation between the debt of the petitioning creditor and the total liabilities of the debtor, as it may be seen, for example, that the petitioning creditor's opposition would be sufficient to defeat any special resolution proposed at a creditors' meeting;
(b)any evidence bearing upon the question whether it would be to the advantage of the creditors that the debtor's affairs be administered under Part X of the Act; and
(c)the likelihood that the debtor would be able to place before a meeting of creditors a particular proposal, or evidence of his general circumstances, calculated to persuade them to vote for the administration of his affairs under Part X.
I have dealt previously with the matter raised by (a) where I had regard to the effect of the sworn intention of several of the creditors, including the petitioning creditor, in relation to the prospect of a deed of assignment being accepted by any future creditors' meeting. Even given a best case scenario for the debtor in relation to the outcome of
proceedings QX 68 of 1995, I found this prospect to be virtually non-existent.
In relation to (b), I have no evidence that satisfies me that it would be to the advantage of creditors that the debtor's affairs be administered under Part X rather than pursuant to a sequestration order. Rather, certain matters have been raised before me which it is unnecessary for me to refer to, other than to say that, in my view, they indicate a desirability that the full investigative powers involved in administration under a sequestration order be available to the creditors in the present case.
With respect to the final consideration, it has been forcefully submitted, and, in my view, correctly submitted, that the debtor in these proceedings has failed to place before the court any significant indication of any further proposal that he might make, which might induce his creditors to vote for the administration of his affairs under Part X. The only indication of his intentions that the debtor has given is to the effect that, given more time and a more favourable atmosphere, he might be able to induce relatives and friends to assist him in putting forward a proposal which would involve a larger sum than previously proposed being available to creditors. In my view, however, such intentions fall far short of the "particular proposal, or evidence of general circumstances" contemplated by Sweeney J in the passage I have just cited.
For these reasons I am completely satisfied that the adjournment application should be refused. Other than the application for adjournment, there has been no opposition raised in relation to the granting of the petition. In these circumstances I am satisfied that the debtor committed the act of bankruptcy alleged in the petition, and I am satisfied with the proof of the other matters of which sub-s 52(1) of the Act requires proof. Accordingly, I make the following orders and directions:
I make a sequestration order against the estate of the debtor.
I order that the petitioning creditor's costs, including reserved costs, be taxed and paid in accordance with the Act.
I direct that a draft of this order be delivered to the Registrar within seven days in accordance with subrule 124(2).
I thank all legal representatives for their assistance in this matter.
I certify that this and the preceding eight (8) pages are a true copy of the reasons for judgment herein of the Honourable Justice M. L. Foster.
Associate:
Date: 4 AUGUST 1995
A P P E A R A N C E S
REPRESENTATIVE OF THE DEBTOR:
C. BAYLISS
INSTRUCTED BY: GADENS RIDGEWAY SOLICITORS
REPRESENTATIVE OF THE PETITIONING CREDITOR:
B.D. CHAPPELL
INSTRUCTED BY: HALLETTS SOLICITORS
REPRESENTATIVE OF SUPPORTING CREDITOR:
J.B. WALKER
INSTRUCTED BY: FLOWER & HART SOLICITORS
REPRESENTATIVE OF SUPPORTING CREDITOR:
S. RUSSELL
INSTRUCTED BY: RUSSELL & COMPANY SOLICITORS
DATE OF HEARING: 4 AUGUST 1995
DATE OF JUDGMENT: 4 AUGUST 1995
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