Spicer v Wily - [2000] FCA 1200

FEDERAL COURT OF AUSTRALIA
Spicer v Wily [2000] FCA 1200
BANKRUPTCY – Part X Composition with creditors – whether composition should be set aside or declared void – where the controlling trustee had not adequately investigated the claims of creditors – where the controlling trustee failed to inform all known creditors of the Part X meeting – where the controlling trustee’s report failed to list all the debtor’s shareholdings and directorships
LEGAL PRACTITIONERS – conflict of interest – a debtor entered into a composition with creditors under Part X of the Bankruptcy Act 1966 – solicitor who had recently and regularly acted for the debtor was the controlling trustee of the composition – solicitor also a creditor of the debtor
Bankruptcy Act 1966 (Cth) Part X, ss 239 and 221(1)
Re Mills: Ex parte Lloyd’s (1997) 73 FCR 551 followed
Stedman v Deputy Commissioner of Taxation [2000] FCA 336 followed
IN THE MATTER OF JOHN FRENCH
JOHN SPICER, BIRGITTA SPICER AND ROSSANA WILCOX v
ANDREW WILY AS THE CONTROLLING TRUSTEE OF THE COMPOSITION OF JOHN FRENCH AND JOHN FRENCH
N 7054 OF 2000
IN THE MATTER OF JOHN FRENCH
GRAHAM WILCOX, ROSSANA WILCOX AND JOHN SPICER AND BIRGITTA SPICER v JOHN FRENCH
N 8095 OF 1999
TAMBERLIN J
SYDNEY
30 AUGUST 2000

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 7054 OF 2000

IN THE MATTER OF JOHN FRENCH

BETWEEN:

JOHN SPICER, BIRGITTA SPICER
AND ROSSANA WILCOX
APPLICANTS

AND:

ANDREW WILY AS THE CONTROLLING TRUSTEE OF THE COMPOSITION OF JOHN FRENCH
FIRST RESPONDENT

JOHN FRENCH
SECOND RESPONDENT

IN THE MATTER OF JOHN FRENCH N 8095 OF 1999

BETWEEN:

GRAHAM WILCOX, ROSSANA WILCOX, AND JOHN SPICER AND BIRGITTA SPICER
APPLICANTS

AND:

JOHN FRENCH
RESPONDENT

JUDGE:

TAMBERLIN J

DATE OF ORDER:

30 AUGUST 2000

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
In matter No 7054 of 2000
1.The composition entered into by the second respondent on 4 January 2000 is set aside.

2. The second respondent is to pay the costs of the applicants on the application.
In matter No 8095 of 1999
1. A sequestration order is made against the estate of John Desmond French.
2.The applicant creditors’ costs (including reserved costs, if any) be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

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

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

7054 OF 2000

IN THE MATTER OF JOHN FRENCH

BETWEEN:

JOHN SPICER, BIRGITTA SPICER
AND ROSSANA WILCOX
APPLICANTS

AND:

ANDREW WILY AS THE CONTROLLING TRUSTEE OF THE COMPOSITION OF JOHN FRENCH
FIRST RESPONDENT

JOHN FRENCH
SECOND RESPONDENT

IN THE MATTER OF JOHN FRENCH: N 8095 OF 1999

BETWEEN:

GRAHAM WILCOX, ROSSANA WILCOX,
JOHN SPICER AND BIRGITTA SPICER
APPLICANTS

AND:

JOHN FRENCH
RESPONDENT

JUDGE:

TAMBERLIN J

DATE:

30 AUGUST 2000

PLACE:

SYDNEY

REASONS FOR JUDGMENT

Before me are two matters. In matter No 7054 of 2000 the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Spicer v Wily

Details

AGLC: Spicer v Wily [2000] FCA 1200
Case: [2000] FCA 1200
Decision Date: 30 AUGUST 2000

CaseChat Overview and Summary

In the case of Spicer v Wily, the respondents, Spicer and others, sought to set aside a composition entered into by John Desmond French, the second respondent, on 4 January 2000. The dispute also included a request for a sequestration order against French's estate. The primary legal issues before the court were whether the composition was fair and equitable to the creditors and whether there were any irregularities in the investigation of French's debts and claims, particularly those involving Knappman, Day, and their associated companies. The court also had to determine whether the composition and the evidence provided to creditors warranted setting aside the composition and proceeding with sequestration.

The court found significant irregularities in the investigation conducted by Knaggs, the liquidator appointed by French. Key issues included the non-disclosure of Coca Cola's claim against French, the lack of verification of Knappman's loan to French, and the failure to investigate the debts claimed by Day and his company, Daylin. The court highlighted that these omissions were critical and that the assertions regarding Knappman's loan and other debts were accepted without adequate investigation. Additionally, the statement that French's interest in KDC was worthless was deemed questionable given the documented arrangement to maintain control over a Head Lease. These findings led the court to conclude that the composition was not fair and equitable, and that the creditors had not been adequately informed of the true financial situation.

The court set aside the composition entered into by French on 4 January 2000 and ordered that the second respondent pay the applicants' costs. In the separate matter concerning sequestration, the court granted a sequestration order against John Desmond French's estate and directed that the applicants' costs be taxed and paid from the estate according to the Bankruptcy Act 1966.

Orders

Orders of the court

In matter No 7054 of 2000

1. The composition entered into by the second respondent on 4 January 2000 is set aside.

2. The second respondent is to pay the costs of the applicants on the application.

In matter No 8095 of 1999

1. A sequestration order is made against the estate of John Desmond French.

2. The applicant creditors’ costs (including reserved costs, if any) be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

TAMBERLIN J (dissent)

In addition to the irregularities regarding Knagg’s claim there are other questions raised on the evidence. In evidence there are Terms of Settlement dated 19 April 2000 in respect of proceeding No 27374/99 before the Local Court. Those proceedings involved a liquidated claim by Coca Cola Amatil (NSW) Pty Ltd (“Coca Cola”) against French and Knappman. In the terms of settlement Knappman consented to a verdict and Judgment for Coca Cola against her without admission of liability, in the sum of $8,000, but with a provision that Coca Cola would accept $5,500 by way of full and final settlement if payment was made before 22 May 2000. It is clear that at 4 January 2000 Coca Cola was claiming that French was indebted to it. French argued that he had a defence to Coca Cola’s original claim. Be that as it may this claim should have been disclosed to the Creditors’ Meeting. Non-disclosure of it was significant. The evidence before the Court does not warrant a conclusion that Knaggs carried out any satisfactory investigation in relation to the large claim by French’s wife referred to in his Report of 26 November 1999. Knappman is recorded there as having a claim for $58,250 which was said to be an unsecured loan. In the Statement of Affairs of 18 December that claim is recorded as $158,250. It may be that the reference to $58,250 was a typographical error. However, there is no evidence that there were any satisfactory steps taken to verify the terms of the Knappman loan to French; the interest rate on the loan; or to obtain supporting documentation. The assertions were accepted at face value. There is a Statutory Declaration given by Knappman dated 16 December 1999 which sets out the amount of three loans and interest accrued but there is little in the way of independent documentary backup. It is also significant that there does not appear to have been any investigation as to the large debts claimed by Mr Day (“Day”) and his company Daylin Pty Ltd (“Daylin”). A company search dated 19 January 2000 indicated that with Day, Knappman was a director of Daylin. Day had for some time been French’s accountant. Failure to investigate debts allegedly owing to parties connected to French is another significant omission. A further matter relied on by the applicants was the statement in the documents placed before the Creditors on 4 January 2000 that French’s interest in KDC was worthless. Seven days before the appointment of Knaggs by French an elaborate, documented arrangement was put in place which appears to have been designed to ensure that a Head Lease previously held by KDC, but mortgaged to St George Bank (“the Bank”), was dealt with in such a way that it remained under the control of Knappman and Day. KDC’s debt to the Bank was paid by Terralong Estates Pty Ltd (“Terralong”), a company controlled by French and parties related to him. Terralong then received a transfer of the mortgage from the Bank before again transferring the mortgage to Daylin. This tends to indicate that the shares in KDC may not have been “worthless” as claimed.

Ratio Decidendi

Legal Principle Established

Established by:

Full text does not contain this section.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 7054 OF 2000

BETWEEN:	JOHN SPICER, BIRGITTA SPICER AND ROSSANA WILCOX APPLICANTS
AND:	ANDREW WILY AS THE CONTROLLING TRUSTEE OF THE COMPOSITION OF JOHN FRENCH FIRST RESPONDENT JOHN FRENCH SECOND RESPONDENT
IN THE MATTER OF JOHN FRENCH N 8095 OF 1999
BETWEEN:	GRAHAM WILCOX, ROSSANA WILCOX, AND JOHN SPICER AND BIRGITTA SPICER APPLICANTS
AND:	JOHN FRENCH RESPONDENT
JUDGE:	TAMBERLIN J
DATE OF ORDER:	30 AUGUST 2000
WHERE MADE:	SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	7054 OF 2000

JUDGE:	TAMBERLIN J
DATE:	30 AUGUST 2000
PLACE:	SYDNEY