Re Zarro, P.

[1992] FCA 509

JUDGMENT No. .,2Q%..l .%!L,

C A T C H W O R D S

ENNKRUPTCY - creditor's petition - Authority - meeting of

creditors adjourned - application for adjournment of creditor's petition refused - debtor's insolvency - possibility of contribution from estate administered under bankruptcy - proposal

not in the interests of creditors.

v. C c (1978) 22 A.L.R.

403 .

9~	No. QP 1539 of 1992
SPENDER J. BRISBANE
30 JUNE 1992
IN THE FEDERAL COURT OF AUSTRALIA	)

W RAL DIVISION 1 No. QP 1539 of 1992

BANKRUPTCY DISTRICT OF THE	1
STATE OF OUEENSLAND	1

RE:	PASOUAL ZARRQ
EX PARTE:	WHITE INDUSTRIES IOLDl PTY LIMITED

MINUTES OF ORDER

JUDGE MAKING ORDER:	SPENDER J.
DATE OF ORDER:	30 JUNE 1992
WHERE MADE:	BRISBANE
THE COURT ORDERS THAT:

1.    A sequestration order be made against the estate of Pasqual Zarro.

2.    The petitioning creditor's costs of and incidental to the petition in this matter to be taxed and paid in

accordance with the Bankru~tcv Act 1966.

3.    The costs of the supporting creditors who appeared today, to be paid as if they were petitioning creditor's costs in a successful petition.

I , 3.

J m:	Settlement and entry of orders is dealt with in Rule
124 of the Bankru~tcv  Rules.

. I	I
IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	1 No. QP 1539 of 1992
BANKRUPTCY DISTRICT OF THE	)
STATE OF OUEENSLAND	1

RE:	PASOUAL ZARRQ
EX PARTE:	WHITE INDUSTRIES (OLD) PTY LIMITED

ixmi?!i: SPENDER J.	PLACE :	BRISBANE
DATE :	30 JUNE 1992

EX TEMPORE REASONS FOR JUDGMENT

This is a contested creditor's petition by White Industries (Qld) Pty Ltd ('White Industries') seeking a sequestration order against Pasqual Zarro. White Industries obtained a judgment against Mr Zarro in the District Court at Brisbane for $100,000.00 for its claim and $5,884.93 for interest on 3 December 1991. A bankruptcy notice based on that judgment was served on Mr Zarro on 4 February 1992 and an act of bankruptcy was committed on 18 February 1992 when the

requirements of that bankruptcy notice were not obeyed.

A creditor's petition was presented by White Industries

on 22 June 1992. So far as that petition is concerned nothing is said on Mr Zarro's behalf which would prevent the making of a sequestration order.

What is relied on is the circumstance that on 29 May Bankru~tcv Act 1966 ('the Act') authorising a solicitor, Mr Michael King, of the firm of McLaughlin Gordon & Lennon, solicitors, of Southport, to call a meeting of his creditors. That meeting was to be held at Southport on Monday, 22 June 1992 at 2.30 p.m.	1992, Zarro executed an authority under S. 188 of the Accompanying the notice of meeting sent to the creditors of Mr Zarro was a statement of affairs signed by him. That statement of affairs shows unsecured creditors totalling
$401,620,771.00. In addition to the petition of White
Industries, there are a total of seven supporting creditors who appeared before me to support the making of a sequestration order against the estate of Mr Zarro. They are Farrow Mortgage Services Pty Limited (In Liquidation), National Australia Limited, Witan Investments Pty Ltd (In Liquidation), Witan Investments (Qld) Pty Ltd (In Liquidation), Sankindi Pty Ltd (In Liquidation), AGC (Advances) Limited, and Advance Bank Australia Ltd.

When the meeting of creditors held on 22 June 1992

reconvened shortly after 4 p.m. that day, the chairman advised that he believed the meeting should be adjourned for between 21 and 28 days in order to allow creditors to lodge further material regarding their claims to be creditors, to give Mr Zarro specific questions in writing within five days so that he could make appropriate inquiries and have answers available for the reconvened meeting.

The resolution that the meeting be adjourned for 28 days was supported by a large number of small creditors and two substantial creditors: Permanent Custodians Ltd, which is shown in the minutes of the meeting as having a debt of $5,005,000.00, and Delta Capital Corporation Pty Ltd, which is shown as having a vote valued at $8,182,482.00.

Against the resolution for a 28-day adjournment of the meeting were a number of substantial creditors. They included Farrow Mortgage Service Pty Ltd, a supporting creditor here, which in the minutes of the meeting of 22 June 1992 is shown as having a debt of $35,688,206.00; National Australia Ltd, another supporting creditor, shown as having a debt of $13,413,536.00; AGC (Advances) Ltd with a debt of $27,872,048.00; White Industries (Qld) Pty Ltd, shown as having a debt of $932,201.00; Advance Bank Australia Limited with a debt of $5,227,556.00; Witan Investments Pty Ltd (In Liquidation) having a debt of $703,235.00 and Witan Investments (Qld) Pty Ltd (In Liquidation) shown as having a debt of $2,642,711.00.

Those voting for the adjournment of the meeting for 28 days totalled $14,076,103, being 38 in number, and those against the adjournment for 28 days totalled $90,833,216, being 10 in number. There were four abstentions. It is important to note that one of those abstentions was Elders Finance Ltd, said to be a very substantial creditor of Mr Zarro. In the statement of affairs, Elders Finance Ltd is shown as being a creditor to the value of $260,085,000.00.

That resolution for a 28-day adjournment of the meeting was therefore lost, and the chairman advised that in pursuance of the power conferred upon him by S. 201 of the Bankru~tcv Act, he was adjourning the meeting for a period of 14 days. The meeting is to reconvene on Monday, 6 July, 1992 at 2 p.m. should a sequestration order not be made against Mr Zarro before then.

It was submitted by Mr Hack, counsel for Mr Zarro, that the court should adjourn the hearing of the creditor's petition so as to permit the creditors to indicate their attitude to a proposal by Mr Zarro. The proposal is simply that Mr Zarro execute a deed of assignment and that his affairs be administered

pursuant to the provisions of Part X of the Bankru~tcv ~ c t .

It has to be said that that proposal at first blush is derisory. According to Mr Zarro, his unsecured creditors exceed $400,000,000.00 in value, and his assets, which he proposes to assign, are set out in the statement of affairs in a total value of $13,500.00. He does, however, suggest that there is other

value debts of $1,522,254, comprising Springcoil Pty Ltd	property which may be brought to account. He refers to book
$6823.00, Witan Investments (Qld) Pty Ltd (In Liquidation) $1,489,667.00, Pointblank Pty Ltd $7096.00, and Trengate Pty Ltd $18,668.00. However, Mr Zarro estimates the value of these book debts as "nil".
Even if those bad debts, described in a somewhat broad brush way, could be brought to account, still the return to creditors would be less than a cent in the dollar. Some disquiet was expressed at the meeting as to the bona fides of the small debts which Mr Zarro lists, and it appears that at that meeting he was unable to recall when and in what circumstances the debts came into existence, but he was able to speak of his relationship with those small creditors.
On 16 June 1992 a letter had been sent by M r A.H. Carrick, the Deputy Official Receiver, under the letterhead of the Insolvency and Trustee Service Australia to Messrs McLaughlin Gordon & Lennon referring to the authorisation to Mr King to call a meeting of creditors for 22 June 1992. That letter advised that Mr Carrick of the Insolvency and Trustee Service Australia would be attending the meeting as an observer and the letter set out a number of important considerations. It said in part:

" It is axiomatic that Creditors be fully informed of all matters relating to the Debtor's affairs which may have an effect on the manner in which they cast their votes.

In the circumstances, there are a number of matters which should be explained at the meeting and the minutes should reflect the explanation of them (with regard to the minutes, I invite your attention to Bankruptcy Rule 98 and to sub-rule 98 (1A) in particular).

The matters which I consider should be
explained at the meeting are as follows:-

1.  In his Statement of Affairs the Debtor sets out that he has 42 unsecured Creditors totalling $401,620.771 and assets worth $13,500. He does not disclose the nature of any of those debts

or the dates they were incurred. At the

meeting of Creditors on 22 June, 1992 he should disclose the nature of each debt and the date it was incurred.

He should also account for the deficiency
of in excess of $400~~.

2.  The Debtor should explain whether he is associated in any way with trusts, companies, persons or other entities which hold property of any description to which he has access or has in any way contributed to its acquisition and/or accretion.

3.   The Debtor should provide the meeting with details of any property he has transferred to trusts, companies, persons or other entities in the five years preceding 29 May, 1992.

4. The Debtor should provide details of the
proposed settlement of the sale for $3.11~
of the waterfront property at Paradise
Waters. In particular, whether he will
receive funds from the sale, and if so,
how he intends to apply them.

5.  The Debtor should also advise whether he was at one stage a registered proprietor of the house property at 5 Raphael Terrace, Sorrento, and if so, why he transferred his interest and the consideration he received for the transfer.

6. The Debtor should provide details of his current income and dependents if any.

7.  If Creditors accept a Deed of Assignment they will not have access to contributions from the Debtor's income or to property he acquires after execution of the Deed of

Assi gnmen t .

If the Debtor becomes bankrupt, Creditors

will have access to contributions from his income assuming it is above the threshold referred to in Division 48 of the Bankruptcy Amendment Act 9 of 92 which becomes effective from 1 July, 1992.

In addition any divisible property which devolves on him prior to his discharge from bankruptcy would vest in his trustee in Bankruptcy.

Given the above, the Debtor should explain why it is in the Creditors best interests to resolve that he enter into a Deed of Assignment when they could resolve that he present his own petition for bankruptcy. "

Each o f the m a t t e r s r e f e r r e d t o i n t h a t let ter seem t o

me t o be impor tan t . I t i s the f a c t t h a t a number o f them were

n o t a b l e t o be addressed b y Zarro w i t h any degree o f

p a r t i c u l a r i t y a t the mee t i ng convened some s i x days a f t e r the

d a t e o f the l e t t e r .

I n F i e ld v. Commercial Bankina Co. o f Svdnev Ltd ( 1 9 7 8 )

2 2 A.L.R. 403, Sweeney J., w i t h whom Franki J. agreed , s a i d a t

' ... the c o u r t has n o t adopted a p r a c t i c e t h a t

it	would	g e n e r a l l y ad journ	the	h e a r i n g	o f	a
p e t i t i o n	upon	the	mere	e v i d e n c e	t h a t	the

d e b t o r h a s execu t ed an a u t h o r i t y under S . 188.

I t would be unwise t o a t t e m p t t o draw u p an

e x h a u s t i v e ca ta logue o f the c i r cums tances t o

which the c o u r t should pay regard i n

c o n s i d e r i n g an a p p l i c a t i o n f o r an adjournment

o f a c r e d i t o r ' s p e t i t i o n . However, t o

i l l u s t r a t e the p o i n t t h a t the one c i r cums tance

o f the e x e c u t i o n o f an a u t h o r i t y shou ld be

looked	a t	i n the	general	c o n t e x t	o f each
i n d i v i d u a l	c a s e ,	one	may	u s e f u l l y refer	t o
some	other	r e l e v a n t	c i r cums tances	i n such	a

c a s e , a s for example:-

( 1 )	The	cour se	o f	d e a l i n g s	between	the
p a r t i e s ,	from	the	t i m e when	the o b l i g a t i o n	to
the	p e t i t i o n i n g	c r e d i t o r	i s	s a i d	t o	have

a r i s e n t o the d a t e o f the h e a r i n g .

( 2 ) The a t t i t u d e t o the a p p l i c a t i o n o f the

p e t i t i o n i n g c r e d i t o r ,	a s prime	f a c i e ,	on p roo f
o f the m a t t e r s mentioned	i n S .	5 2 ( 1 ) o f	the

Bankrup t cy A c t 1966, the c o u r t w i l l proceed t o

make an o r d e r f o r s e q u e s t r a t i o n (see Rozenbes

v. K r o n h i l l (1956) 95 CLR 407 ) .

( 3 ) The general f i n a n c i a l p o s i t i o n o f the

d e b t o r .

( 4 ) The r e l a t i o n between the d e b t o f the

p e t i t i o n i n g c r e d i t o r and the t o t a l l i a b i l i t i e s

o f the d e b t o r , a s i t may be seen, f o r example,

t h a t the p e t i t i o n i n g c r e d i t o r ' s oppos i t i o n

would be sufficient to defeat any special

resolution proposed at a creditor's meeting.

(5) Any attieude to the application disclosed
by other creditors.

(6) Any evidence bearing upon the question whether it would be for the advantage of the creditors that the debtor's affairs be administered under Pt X of the Act.

(7) 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 Pt X .

It will at once be obvious that many of these circumstances will be within the knowledge of the debtor, rather than of the petitioning creditor, and it will be for the former to give evidence of them. Such evidence should, where practicable, be in affidavit form. "

When regard is had to the prima facie entitlement of a creditor to have a sequestration order made and the circumstances on which Mr Zarro relies to persuade the court to adjourn the petition so as to permit the adjourned meeting to occur without a sequestration order having been made beforehand are considered, in my opinion, the matters referred to by Sweeney	J. all point against the grant of an adjournment. As the	statement of affairs indicates, the financial position of M r
Zarro is one of hopeless insolvency.
There are a large number of significant creditors who seek the administration of his estate under a sequestration

There is the consideration that on the Bankru~tcy

Act Amendment Act 1991 coming into force on 1 July 1992, the possibility of contribution to Mr Zarro's estate exists if that estate is administered under bankruptcy, a possibilitywhich does not apply under a Part X arrangement. It is clear in the affidavit material before me that a large number of substantial creditors are firmly opposed to the proposal by the debtor, a proposal which on any view of the matter shows no real prospect of any benefit to the creditors of a kind that is other than derisory.

It clearly would be for the advantage of the creditors generally that Mr Zarro's affairs be administered as a bankrupt estate but the primary reason why I decline in the exercise of the discretion to adjourn the hearing of the creditor's petition of White Industries is that the proposal which is to be put before the meeting is of such a kind that it could not possibly be said to be in the interests of creditors that a resolution to accept the proposal should be passed. In all of the circumstances, I decline to adjourn the petition.

Mr Hack has conceded that there are no grounds on

which I ought to decline to make a sequestration order other than the submission made that it should be adjourned so as to permit the adjourned meeting of creditors to occur.

I am satisfied of the act of bankruptcy alleged in
paragraph 4 of the petition, and I am satisfied of the other
matters of which the Act requires proof. I make a sequestration

order a g a i n s t t h e e s t a t e o f Pasqual Zarro and I order t h a t the

c o s t s o f and i n c i d e n t a l t o the p e t i t i o n , o f the p e t i t i o n i n g

c r e d i t o r , be paid i n accordance w i t h the A c t .

I a l s o o r d e r t h a t the c o s t s o f t h e suppor t i ng

c r e d i t o r s who	appeared b e f o r e me t o d a y should	be	paid	a s i f	t h e y
were	p e t i t i o n i n g	c r e d i t o r ' s	c o s t s	i n a	s u c c e s s f u l p e t i t i o n .

I	cer t i fy t h a t	th i s	and	the
preced ing	n i n e	( 9 ) pages	a r e	a

t r u e copy o f the reasons f o r	i u d m e n t h e r e i n o f t h e Honourable
~r J u s t i c e Spender.
Date: 30 June $d.? /

Counsel f o r the deb to r : W P . E. Hack

i n s t r u c t e d by: McLaughlin Gordon & Lennon

Counsel f o r the p e t i t i o n i n g c r e d i t o r : M r R. Bain

i n s t r u c t e d by : Morris Fletcher & Cross

For Advance Bank A u s t r a l i a L t d

a s a suppor t i ng c r e d i t o r Feez Ruthning

For AGC (Advances) L t d

a s a	s u p p o r t i n g c r e d i t o r	C lay ton	U t z ,	Henderson
Trou t

Counsel	f o r Nat iona l	A u s t r a l i a	L t d . ,
Witan	Inve s tmen t s	P t y L t d	( I n L i q u i d a t i o n ) ,

Sank ind i P t y L t d ( In L i q u i d a t i o n ) ,

Witan Inve s tmen t s ( Q l d ) P t y L td ( I n L i q u i d a t i o n )

and Farrow Mortgage S e r v i c e s P t y L td

a s suppor t i ng c r e d i t o r s M r . R. Bain

i n s t r u c t e d by	Morris Fletcher &	Cross
Date o f Hearing	30 June 1992