Thomas, M.A. v The Hong Kong and Shanghai Banking Corporation

[1992] FCA 571

Re: MARTIN ALLAN THOMAS
And: THE HONG KONG AND SHANGHAI BANKING CORPORATION
No. WA G68 of 1992
FED No. 571
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Spender(1), Foster(2) and Lee(3) JJ.

CATCHWORDS

Bankruptcy - application for leave to appeal from refusal to grant an adjournment of creditor's petition - sequestration order - authority executed - meeting of creditors called - composition proposed - likely return to creditors - creditors' attitudes to composition.

Bankruptcy Act 1966

Rozenbes v. Kronhill (1956) 95 CLR 407

Ahern v. Deputy Commr. of Taxation (Qld) (1987) 76 ALR 137

Field v. Commercial Banking Co. of Sydney Ltd (1978) 22 ALR 403

Lancaster v. NZI Capital Corporation Ltd, unreported judgment of the Full Court of the Federal Court (Lockhart, Beaumont and Gummow JJ.) 11 October 1991.

HEARING

PERTH

#DATE 23:7:1992

Counsel for the appellant: Mr L. Christensen
instructed by: Phillips Fox

Counsel for the respondent: Mr M. W. Odes
instructed by: Parker and Parker

ORDER

The Court orders that:

The application for leave to appeal is refused with costs.

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

JUDGE1

This is an application for leave to appeal from a refusal by a single judge of the Federal Court of Australia (French J.) on 21 May 1992 to grant an adjournment of a creditor's petition. Subsequent to the refusal to adjourn the creditor's petition, his Honour ordered that a sequestration order be made against the estate of Martin Allan Thomas. Upon Mr Thomas undertaking to the court that he would not propose at a meeting of his creditors to be held on 22 May 1992, pursuant to the provisions of Part X of the Bankruptcy Act 1966 ('the Act'), any of the special resolutions referred to in s. 204(1) of the Bankruptcy Act, the operation of the sequestration order was suspended until 4 pm on 28 May 1992.

1. His Honour also ordered that the costs of the petition be reserved.

2. While there is an appeal as of right from the sequestration order, being a final order, any appeal from the refusal of the adjournment can only lie by leave since that order is interlocutory: see Ahern v. Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 150.

3. When the petition came on for hearing on 21 May 1992 counsel for Mr Thomas sought an adjournment on the grounds that the debtor had executed an authority pursuant to s. 188 of the Bankruptcy Act, and a meeting of creditors pursuant to s. 194 of the Bankruptcy Act had been called for Friday 22 May 1992, the following day. The debtor also gave notice of his intention to oppose the making of the sequestration order on grounds specified in that notice but there is no appeal that the sequestration order ought not to have been made because of those matters. The sole question is whether the primary judge should have granted the adjournment sought by the debtor, in a sense, that submission has a connection with the "other sufficient cause" specified in s. 52(2) of the Bankruptcy Act.

4. The petition of the Hong Kong and Shanghai Banking Corporation ('the Bank') is based on an act of bankruptcy committed on 2 November 1991, being the failure to comply with the requirements of a bankruptcy notice served on Mr Thomas on 19 October 1991. The bankruptcy notice is founded on a judgment obtained by the Bank in the sum of $ AUS 102,923.99 in the High Court of Singapore on 22 August 1988 and entered on 3 October 1988 and registered in the Supreme Court of Western Australia on 17 December 1990.

5. The petition was presented on 19 March 1992. A notice of intention to support that petition was filed by TFH (Australia) Pty Ltd who claims to be a creditor in the amount of $6174.17. An affidavit of Dean Hely sworn 5 May 1992 indicates that Messrs Phillips Fox received instructions on 6 April 1992 from Mr Thomas to negotiate with the Bank to reach, if possible, an arrangement for payment. On 4 May 1992 an authority to a trustee to call a meeting of creditors was executed and Maurice Lyford of Hall Chadwick was authorised to call the meeting of creditors. In an original affidavit verifying his statement of affairs Mr Thomas revealed 5 principal creditors totally $583,824.04. In a subsequent amended statement of affairs Mr Thomas deposes that he has 9 creditors totalling $670,374.47.

6. The proposal which he wished to put before the meeting of his creditors on 22 May 1992 is contained in a statement dated 4 May 1992 and was that his affairs be dealt with by a composition in which creditors agreed to accept the sum of $10,000.00 to be paid on or before 30 June 1992, in complete and full satisfaction of all claims against the debtor. The source of these funds was to be from a June 1992 bonus payment made by Deakin Holdings Pty Ltd ('Deakin'), the employer of the debtor. So far as the costs of the trustee's administration under Part X were concerned, Mr Sanford, who is a director of Deakin Holdings Pty Ltd, in an affidavit sworn on 5 May 1992 says:
   

" I can confirm that the payment to be made to the creditors is exclusive of the Trustee's fees. The $10,000 is for the Creditors only. "

1. He is not explicit but it appears that Deakin is not only to be the source of the $10,000.00 for the composition but will also meet the costs of the administration under Part X.

2. Mr Thomas in an affidavit sworn on 18 May 1992, after correcting the number of his creditors and amount of their debts and giving some details of each of those debts, swears that he does not have any assets available for distribution. He says:
   

" The debt due and owing to the major creditor, Deakin, was for the purchase of shares in a company by the name of Boston Equity Limited in June 1991 and also other personal loans accrued over a number of years. The shares in Boston Equity Limited are listed as an asset in my statement of affairs but I am of the opinion that those shares are (sic) negligible value. "

1. Mr Sanford says that he first became aware of the proceedings being taken by the Bank in late April 1992. He says that he was not aware of those proceedings when Palos Pty Ltd, a trustee company which he controls, was allotted 98 shares in Deakin in February 1992, nor when he became a director of Deakin on 18 April 1992. It appears that the consideration for the allotment did not expressly appear in the material before the learned primary judge. Mr Sanford says that in addition to the agreement that 98 shares be allotted to a company Palos Pty Ltd as trustee for the Mayo Trust, a company, Kingsway Securities Pty Ltd, of which he was a director, would lend $200,000.00 to Deakin.

2. The notification of change of directors of Deakin lodged with the Australian Securities Commission on 24 April 1992 exhibited to the affidavit of Mr Sanford sworn on 19 May 1992, indicates that he is a director of, inter alia, Boston Equities Limited, the company in respect of which some $200,000.00 had been advanced by Deakin in June 1991. Mr Thomas says the shares in Boston Equities Limited have negligible value.

3. So far as the structure of Deakin is concerned, Mr Thomas, in an affidavit sworn on 20 May 1992, says:
   

" Deakin Holdings is the trustee of Access

(WA) Unit Trust, that the units in Access

(WA) Unit Trust are held by Policy Nominees Pty Limited as trustee for the Access Computer Unit Trust. The units of Access Computer Unit Trust are held by Martin Thomas Nominees Pty Limited as trustee for the Martin Thomas Unit Trust and that the beneficiaries of the Martin Thomas Unit Trust are Sylvia June Thomas (Mr Thomas's wife) and Simone Michelle Thomas and Melissa Sue Thomas. "

1. He exhibits to that affidavit a letter of 11 April 1992 to the petitioning creditor wherein, inter alia, he says:
   

" You should be aware that even if the Bank were successful in forcing me into bankruptcy at some future date then at that time there is NO POSSIBILITY of any further payment whatsoever. "

And later:

" On 30th June 1994, an undisputed debt comes due of A$600,000 owed to Policy Nominees, a company fully controlled by myself. This is owed personally by a Mr Stuart McDougall who has strong family backing and I have every expectation of being paid at that time. Funds from this quarter would also be available to settle any outstanding amount.

The Bank has two excellent avenues for debt recovery being my strong personal income-earning ability and the repayment of the McDougall debt. Neither of these avenues will be available if the Bank were successful in making me bankrupt at some future date. "

1. Mr Thomas proposed in that letter the payment of $10,000.00 to be made from his June 1992 bonus and the balance to be paid on or before 31 July 1994. However, in other material Mr Thomas asserts that the debt owed by Mr McDougall is of nil value.

2. In rejecting the application for an adjournment, the primary judge gave short ex tempore reasons.

3. French J. commenced his reasons by saying that he had come to the view that he should not grant the adjournment and indicated that he had regard, in reaching that conclusion, to a number of matters. It is clear from the tenor of his reasons that the matters which he indicated were not, by any means, meant to be an exhaustive list of the considerations which led him to the conclusion he reached. He said inter alia:
   

" An important factor is the proposal which is sought to be put before the creditors tomorrow would involve the payment of amount which, on any view of Mr Thomas' total indebtedness, whether his company, Deakin's, debt is taken into account or not, could hardly be said to constitute a commercial benefit to the creditors. "

I interpolate to say that the proposal of $10,000.00 would, if Deakin's debt were to be taken into account, give a return of the order of 1.5 cents in the dollar and if Deakin's debt were not to be taken into account would give a return in the order of 4 cents in the dollar.

1. The primary judge further indicated:
   

" ...there is nothing to suggest that such investigative processes as may be available to creditors in the way of questioning Mr Thomas tomorrow is going to yield a full picture upon which they could make a properly informed decision. "

1. It is clear from the matters to which I have earlier referred that there is a number of matters of some complexity and it is not to be doubted that his Honour's observation is correct. His Honour continued:
   

" I do not propose to explore the details of the various matters raised by the petitioner in opposition to the adjournment beyond saying that I think there are a number of aspects of the arrangements that Mr Thomas has made that whilst they may be perfectly proper in every respect may nevertheless bear further investigation. "

He then referred to some of the trust arrangements, the fact that certain somewhat inexplicable allotments of shares had been made and the fact that there is currently a significant debt which arises from his commercial activities payable to his trustee company, Martin Thomas Nominees, in 1994 in respect of a trust of which he is not a beneficiary.

1. It may be that the reference to the name of the company there referred to, Martin Thomas Nominees, is an error and the company ought to be Policy Nominees. He continued:
   

" All these matters raise questions. I do not purport to answer them but I do think they are of a kind that could not adequately be addressed by the facility of the creditors' meeting. "

He later said:

" It is plain that the authorities to which reference has been made by counsel on both sides, do not confer any right on a debtor to an adjournment of a creditor's petition by reason of the calling of a creditors' meeting. There is no presumption in favour of such an approach. "

He said:

" The onus as I have said, lies upon the debtor to justify it. In this case, I am not satisfied that he has justified the application to adjourn the matter.."

1. Mr Christensen, counsel on behalf of Mr Thomas, submitted that the primary judge had erred in the exercise of his discretion in refusing the adjournment and, in particular, he did not properly consider the interests of the debtor nor the wishes or interests of the majority of the creditors of Mr Thomas. It was submitted that he had failed to consider all the relevant circumstances as presented by Mr Thomas to him.

2. It is plain that counsel assisted his Honour by the citation of authority including Field v. Commercial Banking Co of Sydney Ltd (1978) 22 ALR 403. It is not to be presumed by the absence of any specific reference in the ex tempore reasons that his Honour did not take into account the matters to which he had been referred by counsel; in particular, it is not to be accepted that his Honour was not conscious of the matters which Sweeney J. in Field's case referred to in the well-known passage at 411.

3. Those matters include the course of dealings between the parties from the time when the obligation to the petitioning creditor is said to have arisen to the time of the hearing and also the attitude to the application of the petitioning creditor because prima facie, on proof of the matters mentioned in s. 52(1) of the Bankruptcy Act, the court will proceed to make an order for a sequestration: see Rozenbes v. Kronhill (1956) 95 CLR 407.

4. The other matters referred to in that list make it plain, in my opinion, that it cannot seriously be urged that French J. did not have regard to the effect of the refusal of an adjournment on Mr Thomas personally, and in particular in relation to his employment. Nor did he fail to have regard to the interests or wishes of those creditors who had indicated their attitude to the composition proposed.

5. If the composition were to be accepted by a meeting of creditors, the creditors would not have access to contributions from the debtor's income or to any property he acquires after execution of that composition. In addition, any divisible property which devolves on him prior to his discharge from bankruptcy, should he be made bankrupt, would vest in his trustee in bankruptcy, a position different from that following the acceptance of a composition.

6. The law in respect of an appeal from the exercise of discretion is well-known. It is unnecessary to quote extensively from authorities but the position is referred to in Ahern v. Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 146, where the following appears:
   

" The decision whether or not to adjourn the hearing of the petition was within the discretion of the primary judge. It is well established that an appellate court will rarely interfere with a trial judge's exercise of discretion upon an application for adjournment. However, the refusal to grant an adjournment may in some cases prevent the party seeking it from presenting his case or defence and in some circumstances this may result in injustice of such kind or magnitude as to warrant interference or an appeal. "

1. See also the judgment of Lockhart, Beaumont and Gummow JJ. in Lancaster v. NZI Capital Corporation Limited, an unreported judgment of 11 October 1991. It is not irrelevant to note in that case the observations of Sheppard J., the primary judge, recorded at page 9 of the unreported Full Court judgment, where he said:
   

" ...in the absence of complete agreement by creditors, and the petitioning creditor which is owed a substantial sum does not agree, there is something which, if not shocking, is at least something which takes one aback about a suggestion that somebody who owes almost $5.5 million dollars can offer $15,000 and walk away without there being any appropriate investigation of his affairs. An examination of the relevant provisions of Part X shows that if a deed of composition is entered into neither the provisions of s. 69 of the Act which provides for the public examination of bankrupts, nor the provisions of s. 81 thereof, which gives trustees in bankruptcy wide powers to examine other persons and to compel the production of documents, will apply. "

1. Here the numerical figures are different but it has to be accepted that the proposal is for an amount quite disproportionate to the total indebtedness of Mr Thomas. The granting of an adjournment to consider whether the creditors would accept a composition could very well involve the consequence which caused such anxiety to Sheppard J.

2. In the circumstances of this application for leave, leave should not be granted unless the court is satisfied that the decision by the primary judge was clearly wrong or that he acted upon an incorrect principle of law or, where he has not afforded the debtor a full opportunity to present his case for an adjournment, that such refusal would result in an injustice.

3. In all the circumstances of this case I am satisfied that none of those bases for interference has been made out and I would refuse the application for leave to appeal from the refusal to grant the adjournment.

4. The application for leave to appeal is refused with costs.

JUDGE2

I agree with the order proposed by the learned primary judge. I also agree with the reasons which he has expressed for it. There is nothing that I can usefully add.

JUDGE3

And I likewise agree.