Western Australia v Wardley Australia Ltd

Re: ROCCO MUSOLINO and FRANK MUSOLINO
And: THEODORE SIDIROPOLOUS; BLAZENKA MARJANOVIC and JAMES ALBERT HUPPATZ
No. G134 of 1990
FED No. 314
Bankruptcy
101 ALR 235

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Beaumont(1), Burchett(1) and Von Doussa(1) JJ.

CATCHWORDS

Bankruptcy - Part X Deeds of Arrangement - application under ss.222 and 236 to void or terminate deeds of arrangement - resolutions not passed as special resolutions - whether arrangements void by virtue of s.213 - whether jurisdiction under s.222(1) - doubt as to whether arrangements comply with Part X - whether appellants had standing - discretion under s.222(2) - delay - interests of creditors - no evidence of false or misleading information or omission of a material particular under s.222(4) - termination not appropriate under s.236.

Bankruptcy Act 1966 ss.213, 222, 225(2), 236.

HEARING

ADELAIDE

#DATE 13:6:1991

Counsel and Solicitors Mr P. Scragg
for Appellants:

Counsel and Solicitors Mr J. Oks of Messrs Randle and Taylor
for First respondent:

Counsel and Solicitors Mr Huppatz appeared in person
for Second respondent:

ORDER

Appeal dismissed.

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

JUDGE1

The appellants, Rocco Musolino and Frank Musolino, appeal from an order of a judge of the Court dismissing their application for orders under the Bankruptcy Act 1966 ("the Act") setting aside or terminating deeds of arrangement under Part X of the Act entered into by Theodore Sidiropolous and his wife, Blazenka Marjanovic, who are together the first respondents. The second respondent, James Albert Huppatz, is the present trustee under the deeds of arrangement.

The background

In May 1989, acting pursuant to Part X of the Act, the first respondents authorised Anthony Christopher Matthews, a trustee registered under the Act, to call meetings of their joint and separate creditors, and to take over the control of their property. The meetings were convened for 23 June 1989, then adjourned to 7 July 1989 and further adjourned to 4 August 1989. The minutes of the meetings state that, on 4 August, the creditors resolved, by special resolution, that the first respondents be required to execute deeds of arrangement. The first respondents and Mr Matthews then executed the deeds and their provisions were complied with on the part of the first respondents. However, on 22 August 1990, the appellants instituted proceedings in this Court seeking orders that, pursuant to s.222 of the Act, the deeds be declared void; that, pursuant to s.236 of the Act, the deeds be terminated; and that, pursuant to ss.222(7) and 236(3), summary sequestration orders be made in respect of the estates of the first respondents.
By s.222, it is provided that, where there is a doubt, on a specific ground, whether, inter alia, a deed was entered into in accordance, or complies, with Part X, the trustee, a creditor or the debtor, inter alios, may apply to the Court for an order declaring that the deed, or a provision of the deed, is, or is not, void (s.222(2)). The Court shall not make an order declaring a deed to be void on the ground that it does not comply with the requirements of Part X if the deed complies substantially with those requirements (s.222(3)). Where the Court is satisfied that the debtor has, inter alia, omitted a material particular from the statement of the debtor's affairs given under s.188(2) or included an incorrect or material particular in that statement, the Court may make an order declaring the deed, or any of its provisions, to be void (s.222(4)). The Court shall not make under s.222(4) an order declaring a deed, or one of its provisions, to be void unless it is satisfied that it would be in the interests of creditors to do so. (s.222(5)). The Court shall not make an order under s.222 unless the order is made, in relation to a deed of arrangement, before the terms of the deed have been carried out (s.222(6)). If the Court makes an order declaring a deed to be void, it may, if sought in the application and it thinks fit, forthwith make a sequestration order (s.222(7)).
By s.236, it is provided that the Court may, on the application of, amongst others, a creditor, make an order terminating the deed if it is satisfied (a) that the debtor has failed to carry out or comply with a provision of the deed; (b) that the deed cannot be proceeded with without injustice or undue delay to the creditors or the debtor or (c) that, for any other reason, the deed ought to be terminated (s.236(1)).
As has been noted, the primary judge dismissed the application.
The history of the matter
The complicated history of the matter is as follows.
The assets and liabilities of the first respondents as disclosed in their statements of affairs
In his separate statement of affairs dated 21 June 1989, Mr Sidiropolous disclosed no liabilities and no assets. In her separate statement of affairs, Mrs Marjanovic disclosed no assets and liabilities of $13,000 owed to Bare Fact Pty. Ltd. and $4,700 owed to Esanda Finance Corp. Ltd., but neither of these creditors attended any meeting of creditors or lodged a proof of debt. The first respondents' joint statement of affairs, arising, in the main, out of their activities in the conduct of a service station business in partnership, disclosed the following unsecured creditors:

Bob Davison Tyres and Batteries $1,550 T. Magee 25,000 D. Marjanovic 6,000 J. and M. Marjanovic 15,000 S. Marjanovic 2,000 Reliable Ice Services 450 T.P.D. Distributors 3,000 Uncle Bob's Confectionery 150 $55,160

Mr Rocco Musolino was shown as a "contingent" creditor in the sum of $25,OOO. It will be necessary to return to this claim later. The State Bank of South Australia was shown as a secured creditor of the joint estate in the sum of $64,934, with security over the first respondents' matrimonial home, then valued by the first respondents at $70,000, throwing up an equity in the first respondents having an estimated value of $5,O66.
The joint assets of the first respondents, as disclosed in their statement of affairs, apart from their estimated equity in their home, were:

Cash (held by the trustee) $6,800 Motor vehicle 3,500 Household furniture 15,000 25,300

The meetings of creditors

According to the affidavit evidence of Mr Matthews, which was before the primary judge, the sequence of the events at the creditors' meetings was as follows.
Mr Matthews chaired all the meetings of creditors. At the first meeting, held on 23 June 1989, Mr Frank Musolino and Terence Magee (also representing the four Marjanovics who claimed to be creditors) were present. At the meeting, there was a discussion as to the existence of the debts claimed to be owed by several of the creditors, including the Marjanovics, Mr Magee and Mr Frank Musolino. Mr Matthews indicated that Mr Musolino would be admitted as a creditor in the sum of $25,000 in respect of a loan made by Frank Musolino to the appellants jointly.
At the second meeting, held on 7 July 1989, Mr Frank Musolino was present. There was further discussion with respect to the claims of the Marjanovics. Mr Matthews indicated that, having investigated these claims, he proposed to admit them for voting purposes. At the request of Mr Musolino, the meeting was adjourned to 4 August 1989.
At the meeting on 4 August, the first respondents' proposal that, by 31 January 1990, they pay 10 cents in the dollar to separate creditors and five cents in the dollar to joint creditors, was discussed. Mr Frank Musolino moved that the first respondents be required to present their own petitions in bankruptcy within seven days. The motion was not carried. Mr Magee then moved that the first respondents be required to execute a deed of arrangement, pursuant to Part X, in the terms of the draft deeds tabled at the meeting. The deeds provided for the realisation of the property of the appellants that would have been "divisible" among their creditors under the Act if they had been made bankrupt, save that the matrimonial home was to be excluded from the arrangement. The deeds further provided for the contribution of additional funds so that each of the first respondents would pay his or her separate creditors 10 cents in the dollar owed and pay their joint creditors five cents in the dollar. It was also provided that the deeds would be terminated (a) on the passing of a special resolution to that effect by a meeting of creditors; (b) in the event of the Court making an order under s.236; (c) upon compliance by the first respondents with the provisions of the deeds; (d) on 31 January 1990 - whichever should first occur. The minutes of the meetings state that the relevant resolutions were passed as special resolutions. The following statement was also made in the minutes:

"The number of creditors voting in favour of the resolution was two; the number of creditors voting against the resolution was one. The value of the creditors voting in favour of the resolution was $85,262 (sic); the value of creditors voting against the resolution was $25,000."

The reference "(sic)" was explained by the primary judge as follows:

"Mr Matthews, who was the chairman of the meeting, and who held a proxy for Bob Davison Tyres and Batteries ($1,501) abstained from voting. It can be deduced that the two creditors who voted in favour of the resolution were Mr Stevens, representing TPD Distributors, and Mr Magee, representing himself and holding proxies for each of the four Marjanovics. It is also clear that Mr (Frank) Musolino was the creditor who voted against the resolution. In his affidavit in these proceedings, sworn 18 September 1990, Mr Matthews has conceded what is now obvious: the figure of $85,262, as set out in the minutes is wrong. The value of the debts of those creditors voting in favour of the resolutions was only $65,862.33. As a consequence the resolutions were passed by the required majority of creditors in number but they did not command the necessary three-fourths in value. Mr Matthews is unable to explain how such an error occurred other than to suggest that it was an error in arithmetic. At a directions hearing, the subject of deponents to affidavits being available for cross-examination was specifically addressed; there was no application that Mr Matthews submit himself for cross-examination; I am therefore left with the uncontroverted statement in his affidavit:-

'I am unable to explain why there was an error in calculations and say that the only explanation I can offer is that it was as a result of an arithmetic (sic) error.'"

Execution of the deeds and performance of the obligations imposed by their provisions

On 4 and 14 August 1989 respectively, Mr Sidiropolous and Mrs Marjanovic executed the deeds. The primary judge found that the first respondents had performed the obligations imposed on them by the deeds "some six months prior to the institution of the present (proceedings)."
The reasoning of the primary judge
The primary judge's reasons for refusing the relief sought may shortly be summarised as follows.
The judge first dealt with the debt claimed to be owed to the appellants. His Honour referred to "a strong degree of animosity" towards the first respondents on the part of the appellants. The background was as follows. It appeared that the appellants "provided or paid" $25,000 to Mr and Mrs Tsanaktis, who were then partners of the first respondents and wished to dissolve the partnership. The appellants claimed that the sum of $25,000 was lent to the first respondents. They disputed this, claiming that the $25,000 was part of a sum of $40,000 used to enable the appellants to purchase the interests of Mr and Mrs Tsanaktis in the partnership and that the first respondents lent the appellants the additional $15,000. The judge said that "(w)hatever might be the truth of the matter, the business either failed or was sold at a loss and this led to the (appellants) suing the (first respondents) for $25,000 (in the District Court)...(In a)...counter-claim that the (first respondents) filed...they claimed from the (appellants) $15,000 plus further moneys representing a half share of alleged partnership liabilities..." The judge said that, given the prior existence of the Part X proceedings, it was "surprising" that on 2 October 1989, the first respondents' solicitor sought leave from the District Court to withdraw with the consequence that the counter-claim was struck out and default judgment was entered for the appellants for $25,000, together with interest. The judge noted that the appellants had made no attempt to explain their delay in bringing the present proceedings.
With respect to Mr Magee's debt, the judge said that Mr Magee claimed that his debt arose from the consignment of three cars. However, because Mr Magee had failed to comply with the trustee's requests for further information, the trustee rejected the proof of debt of $25,000 on 3 May 1990. The judge said:

"Without some explanation, one is entitled to wonder why such a large creditor would be so disinterested. Wonderment is sharpened by noting that Mr Magee held proxies for all four members of the Marjanovic family. The evidence does not reveal the exact relationship but they are all relatives of the debtor, Mrs Marjanovic. Each of them lodged a proof of debt, each was called upon to supply documentary evidence in support of his or her claims and on 22 May 1990 the trustee received a document, ostensibly signed by the four creditors stating that they 'hereby withdraw

(our) claims on the basis that we have no proof of transactions of monies given...'"

The judge noted that the remaining two creditors, Bob Davison Tyres and Batteries and T.P.D. Distributors, had lodged proofs in the sums of $1,550 and $2,862 respectively which, it seemed, were accepted.
Before turning to the application under s.222, the judge reviewed his findings and stated the following conclusions:

"...(T)he meetings did not pass special resolutions as required by the provisions of the Act; the Musolinos were and still remain, dissatisfied about Mr Magee and the Marjanovics being acknowledged as creditors for the purposes of voting at the meetings. Notwithstanding this dissatisfaction, they did not exercise their undoubted rights to invite the Court to interfere for more than twelve months; the deeds called for contributions by the debtors by a certain date and they met and concluded those obligations some six months prior to the institution of the present application; although the arrangement saved the debtors' matrimonial home (as it was clearly intended to) the creditors under the Part X arrangements have benefited by Mr Sidiropoulos' father making $5,000 available to the debtors so that they could meet their obligations; the debtors also contributed the whole of the proceeds of the sale of their motor vehicle which I was told was about $1.700 more than would have been available in their Bankruptcy (vide paras 116(2)(ca) and 116 (2A) (b) of the Act)."

The judge, however, held that the provisions of s.222(1) and (2) were not available in the present case. His Honour noted that the opening words of the section refer to the existence of a doubt. In his opinion, it was clear, that is to say, not in doubt, that the resolutions were not passed as special resolutions. It followed, in his view, that the Court lacked jurisdiction under s.222(1) and (2).
The judge next considered the application under s.222(4) in which the appellants relied upon the unexplained conduct of Mr Magee in not pursuing his proof of debt, the actions of the Marjanovics in withdrawing their proofs, together with the apparent ability of the first respondents to raise funds for the purposes of the arrangement. His Honour said that in respect of all of these matters the appellants bore the onus of proof and that he was not satisfied, in the terms of s.222(4), that the first respondents had given false or misleading information or omitted any material particular from their statements of affairs.
The judge then turned to s.236 and said:

"...(A)t an earlier stage, it would have been appropriate to terminate these deeds because of the failure to obtain the passing of special resolutions. Even then however, I would not have ordered sequestration because of the evidence that the debtors were disputing the Musolinos' debt. But so much time has past that it would, in my opinion be unfair to the debtors to terminate the deeds....

I...rely on the factual circumstances of the case by emphasising the inordinate and unexplained delay on the part of the Musolinos in bringing this application. Money has been paid to the trustee by the debtors that did not have to be otherwise paid (the whole of the proceeds of their car): money has also been paid by Mr Sidiropoulos senr. Even though the Court is only constrained to have regard to the interests of creditors when considering whether it ought to terminate the deed, I am fortified in my conclusions that the creditors would not be advantaged by an order of termination. If such an order was made, the trustee would be obliged to refund moneys paid and the litigation between the Musolinos and the debtors would revive without anyone knowing its likely outcome. In coming to this conclusion I have borne in mind the uncertainty surrounding the identity of the creditors who might be parties seeking to prove in the event of the ultimate bankruptcy of the debtors."

The appellants' arguments on the appeal

On behalf of the appellants, the following submissions were made: (1) Since, as the judge held, the resolutions, at the meetings on 4 August 1989 were not passed as special resolutions, the arrangements were, at all times, void by virtue of s.213(1) of the Act. If so, s.236 cannot apply as it assumes that the deed sought to be terminated was valid. (2) Alternatively, the deeds were voidable. (3) As the judge held, s.222(1) and (2) are confined to those cases where there is a doubt whether a deed was entered into in accordance with Part X. (4) The Court does not have a discretion here, the discretion being confined to cases where there is a doubt whether the deed complied with Part X. That is, s.222(3) will only operate to save a deed where there is a doubt whether it substantially complies with Part X. (5) The first respondents did give false and misleading information. (6) It is in the interests of creditors for the deed to be declared void. (7) There is nothing in s.222(4) requiring a court to take delay into account in exercising its discretion (cf. the time limit imposed by s.222(6)). (8) Alternatively, there was no inordinate delay. (9) The judge should not have taken into account "the uncertainty surrounding the identity of the creditors who might be parties seeking to prove in the event of the ultimate bankruptcy of the (first respondents)." (10) As a matter of discretion, the judge should have had regard to (a) the provisions of the Act whereby a debtor may be compelled to contribute to his or her estate; (b) the fact that the first respondents had been able to save a significant amount; (c) the circumstance that the first respondents had retained their matrimonial home.

It will be convenient to deal with the several questions that arise on the appeal separately.
Did the judge have jurisdiction, or power to act, under s.222(1) and (2)?
By s.213(1) of the Act, which is in Part X, it is provided as follows:

"213. (1) Subject to this Part, a deed of assignment or a deed of arrangement executed by a debtor after the commencement of this Act is void unless-

(a) it is entered into in accordance with this Part; and

(b) it complies with the requirements of this Part."

Section 222(1), (2) and (3) of the Act, also in Part X, relevantly provides as follows:

"222. (1) Where this is a doubt, on a specific ground, whether...a deed of arrangement was entered into in accordance with this Part or complies with the requirements of this Part...a creditor...may apply to the Court for an order under subsection (2).

(2) Upon the hearing of an application made under subsection (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 ground specified in the application; or

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

(3) The Court shall not make an order declaring a deed to be void on the ground that it does not comply with the requirements of this Part if the deed complies substantially with those requirements."

By s.222(4) and (5) it is relevantly provided:

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

(a) has given false or misleading information in answer to a question put to him with respect to any of his conduct or examinable affairs at the meeting of creditors at which the resolution requiring him to execute the deed...was passed; or

(b) has omitted a material particular from the statement of the debtor's affairs given under subsection 188(2) 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 a provision of a deed...to be void on a ground specified in subsection (4) unless it is satisfied that it would be in the interests of the creditors to do so.

By s.222(6) it is relevantly provided:

"(6) The Court shall not make an order under subsection

(2) or (4) unless the application for the order is made - ...

(b) in relation to a deed of arrangement - before the terms of the deed have been carried out; ..."

The appellants contend that s.213 operates independently, as it were, of s.222, so that upon the finding of the judge that the resolutions at the meetings on 4 August 1989 were not passed as special resolutions, the deed of compromise must be taken for all purposes to be void. This novel contention cannot be accepted. Section 213 lays down grounds which render a deed of assignment or a deed of arrangement void, but that section is expressed to be subject to Part X of the Act. Section 213 is therefore subject to the provisions of s.222 as well as to other provisions which have application where a deed or assignment or a deed of arrangement is declared void. A reading of Part X makes it clear that s.213 is part of a comprehensive scheme. The scheme includes the saving provisions of s.222(3), (5) and (6), the validating provisions of s.224, and the rebuttable presumptions in s.225. sub-section 225(2) is of importance. It reads:

"225(2) A certificate of the passing of a special resolution under section 204 signed in accordance with that section is prima facie evidence that the meeting was duly convened and held and that the special resolution specified in the certificate was duly passed at the meeting."

The trustee, Mr Matthews, signed a certificate in accordance with s.204 as he was required to do by s.204(7). To rebut the prima facie presumption arising under s.225(2) the appellants were required to prove that the resolution specified in the certificate was not duly passed as a special resolution at the meeting. To do so required a hearing before a court having jurisdiction under the Act. It is s.222 which confers the relevant jurisdiction on the court.
In our opinion, by virtue of s.222(1), jurisdiction is conferred upon the Court to hear or entertain an application for relief pursuant to s.222(2) where there is a doubt, on a specific ground, whether a deed was entered into in accordance with Part X or complies with the requirements of this Part. Further, in our view, having had jurisdiction vested in it to hear the application for the relief specified in s.222(2), upon hearing the matter, the Court is empowered, by virtue of s.222(2), to resolve the doubt that has been raised by determining the question or questions which arise, and may, if appropriate, make orders of the kind specified in s.222(2). That is to say, there are, relevantly, two aspects or stages involved in the jurisdiction conferred under this sub-section of s.222. In the first instance, where there is a doubt, that is, where a question has been raised, whether Part X has been complied with in material respects, the Court is given the power, by s.222(1), to embark upon an examination of the question raised. Then, by s.222(2), the Court is given the authority to adjudicate on the matter. In the exercise of the judicial power and discretion conferred by s.222(2), the Court may make orders as there described or it may dismiss the application on the ground that the Act has been complied with or may dismiss it on other, including discretionary, grounds.
Put differently, in our opinion, s.222(1) and (2) confers jurisdiction to hear and determine a matter in certain circumstances. The jurisdiction to hear the proceeding arises under s.222(1) where a relevant doubt has been raised. By s.222(2), the power to adjudicate on that question is conferred. It is true that, at the second stage, that is, by the process of adjudication, the doubt may be resolved. But it does not follow that the jurisdiction to entertain the application under s.222(1) is then, retrospectively, lost (cf. Burgundy Royale Investments Pty. Ltd. v Westpac Banking Corporation (1987) 76 ALR 173 at p 181). Thus, in Beard v Prestige Baking Industries Pty. Ltd. (1981) 36 ALR 307, Fox J. said (at p 315):

"...s.222(1) is predicated on 'a doubt' and sub-s. (2) provides for a declaration either way, to remove the doubt."

In our opinion, there was here a doubt, on a specific ground raised by Mr Matthews in his affidavit, that is, whether the creditors had passed the special resolution required by Part X. Other possible doubts were raised by the appellants in their affidavit evidence in respect of other matters. These, and Mr Matthews' question, were all relevant "doubts" for the purposes of s.222(1). In our view, they gave the judge jurisdiction to hear and determine the matter under s.222(1) and (2).
In the argument before us, there was raised the question whether, given that the appellants' claim of $25,000 was disputed by the first respondents, the appellants had standing to apply to the Court under s.222(1). It will be recalled that s.222(1) provides that, amongst others, a "creditor" may apply to the Court. The question of standing was left open by Lockhart J. in Beard's Case above, at pp 329-330.
In our opinion, the Court, in an application under s.222(1), may, in its discretion, decide, as a preliminary and separate question, whether the applicant for relief has the requisite standing as a "creditor" for the purposes of s.222(1) (see Re Levy; Ex parte Scholefield Goodman and Sons Ltd. (1980) 50 FLR 99 at p 112; Zantiotis v Andrew (1987) 80 ALR 23 at p 27; Re Gibbons; Ex parte Bank of New Zealand, Gummow J., 20 February 1991, at p 7). Where the issue appears to be suitable for summary disposition (see General Steel Industries Inc. v Commissioner for Railways (N.S.W.) (1965) 112 CLR 125 at pp 128-9), or suitable to be dealt with as a preliminary point (see Yango Pastoral Company Pty. Ltd. v First Chicago Australia Ltd. (1978) 139 CLR 410 at p 419; Burgundy Royale, above, at p 182), the Court may think it appropriate to hear evidence and submissions on the issue of standing, before going to the substantive merits of the application. But if the existence of the applicant's claim is disputed and that issue appears to be complex, it will ordinarily not be appropriate to resolve that doubt as a preliminary point. It will usually be preferable for the Court to hear the whole proceeding and, if appropriate, to decide the question of standing when dealing with the entire matter (see Robinson v Western Australian Museum (1977) 138 CLR 283 at p 302-3; Onus v Alcoa of Australia Limited (1982) 149 CLR 27 at p 38).
In the present case, the primary judge did not determine the question of the appellants' standing to apply as a preliminary point. However, that question was an issue in the matter itself and, if appropriate, the judge could have dismissed the application on the ground that the appellants were not creditors and thus lacked standing. Although his Honour noted that the first respondents disputed the appellants' claim of the debt of $25,000, the judge did not decide that question. It is one thing to hold, as seems to be the case here, that there is a bona fide dispute about the debt. It is a different thing to hold, on a final basis, that the debt did, or did not, exist. Given the absence of detailed evidence on the point, it is understandable that the judge did not attempt to resolve this question finally. Rather, his Honour was prepared to assume, for the purposes of the proceedings, that the appellants (or at least Mr Frank Musolino) were creditors, but to dismiss their application on other grounds. Because we have come to the conclusion, for reasons to be given later, that the application under s.222(1) and (2) ought to be dismissed on discretionary grounds, it is not necessary (and, in the light of the little formal evidence on the point, undesirable) that we express any view on the question, of mixed fact and law, whether the appellants were creditors of the first respondents.
Should the judge have declared the deeds void pursuant to s.222(2)?
As has been seen, the judge held that he had no jurisdiction under s.222(1). For this reason, he did not have to address the present question. But, in dismissing the application under s.236 on discretionary grounds, the judge gave reasons which, in our opinion, are equally apposite in the case of the application under s.222(1). His Honour referred to four main considerations. First, although the application was not statute-barred by virtue of s.222(6), the judge relied on the "inordinate and unexplained" delay in bringing the application. In this connection, it may be noted that, on three occasions, that is, in January, February and March 1990, Mr Frank Musolino wrote to Mr Matthews, threatening to apply to the Court to set aside the deeds on several grounds. Yet, as has been noted, the present proceedings were not commenced until 22 August 1990, more than a year after the deeds were entered into. Secondly, the judge made the point that, if the deeds were set aside, the trustee would be obliged to make restitution of the monies paid to him under the deeds. Thirdly, his Honour thought that the litigation between the appellants and the first respondents would be revived with an uncertain outcome. Finally, the judge said that it was not possible to predict with any accuracy who would be the creditors to participate in the bankrupt estates of the first respondents.
In our view, these circumstances do indicate that, looked at late in 1990 when his Honour dealt with the matter, and even more strongly as at the present time, it would not appear to be in the interests of creditors as a whole, or in the public interest (see Re Doukidis; Ex parte Consolidated Constructions Pty. Ltd., Toohey J., 26 June 1985, unreported) for the Court to intervene at this stage and set the deeds aside. There is a balancing process involved here, but we agree with the judge that it is better not now to disturb the status quo.
It is submitted, on behalf of the appellants, that in this respect (i.e. under s.222(2)) the Court has no discretion to refuse to declare void a deed where the Court is satisfied that there has been a failure to comply with Part X. It is true that s.222(3) restricts the scope of the Court's jurisdiction to declare a deed void. But, in our view, the use of the word "may" in the context "may...order" in s.222(2) was intended to be facultative and not mandatory (see, e.g. Re Williamson; Ex parte Wearne (1980) 31 ALR 598 at p 607).
In our opinion, the Court has a judicial discretion in acting under s.222(2) to make, or not make, a declaration. For the reasons given, we would exercise that discretion by refusing the declaration.
Should a declaration have been made under s.222(4) that the deeds were void?
As has been noted, the judge was not satisfied that the requisite ingredients of para.(a) or (b) of s.222(4) had been established by the appellants. They bore the onus of proof (see Re Segal; Lensworth Finance Ltd. v Segal (1975) 9 ALR 154 at p 158). His Honour pointed out the lack of detailed evidence of the relevant underlying transactions. In the circumstances, it was not open to the judge, as he acknowledged, to make the findings called for by s.222(4). In our view, no error in his Honour's approach has been shown. We agree that it was not appropriate to make a declaration pursuant to s.222(4).
Should an order terminating the deeds have been made pursuant to s.236?
In our opinion, once it is accepted, as it must be, that the deeds did not comply with Part X, it must follow that it is not appropriate to "terminate" them under s.236.
In Re Tripodi; Ex parte Col Johnson Pty. Ltd., 22 January 1987, unreported, Burchett J. said:

"The applicant relied, as an alternative to s.222, on s.236, but I do not think in the circumstances there would be sufficient reason to exercise under that section a discretion which I am not prepared to exercise under s.222 or, insofar as that section also requires a finding in respect of the interests of creditors, that I should make such a finding for the purposes of s.236: cf. Beard's case (supra, at 402). However, those questions do not arise because the applicant's reliance upon s.236 was, in my opinion, misconceived. The section is the equivalent, as a special provision applicable to deeds of arrangement, of s.242, a special provision applicable to compositions. What Toohey J. said in Re Doukidis (supra) of s.242 must be true, mutatis mutandis, of s.236. Toohey J. said: 'On its face s.242 is concerned with a situation in which no objection is taken to the composition itself but it is said that for various reasons, including failure by the debtor to comply with a term of the composition, the composition should be terminated. The use of the expression 'terminated' is not consistent with setting aside a composition; rather it suggests bringing to an end a composition because it cannot be carried into final effect. In my view s.242 is quite inapplicable to the circumstances relied upon by Consolidated Constructions. I do not overlook that para.(c) speaks of 'any other reason' but this has to be read conformably with the apparent purpose of the section. It is not simply s.222 or s.239 in another guise.'"

We agree. It follows that, in our view, no order should be made here under s.236.
Result of the appeal
In the result, the appeal must be dismissed.
Costs of the appeal
Although we are of the view that the appeal should be dismissed, the appellants have had some success on certain of the points of law that arose. In these circumstances, we propose that there be no order for the costs of the appeal.
Joinder of additional parties
For the sake of completeness, it should be noted that although a party at first instance, Mr Frank Musolino was not orginally an appellant. We ordered that he be joined as a party to the appeal. We also ordered that the second respondent, as the present trustee, be joined.

[1991] FCA 314

13 JUNE 1991