Westpac Banking Corp v McMahon
[1999] FCA 874
•23 JUNE 1999
FEDERAL COURT OF AUSTRALIA
Westpac Banking Corp v McMahon [1999] FCA 874
IN THE MATTER OF PAUL JOSEPH McMAHON; WESTPAC BANKING CORPORATION v PAUL JOSEPH McMAHON
N 7060 OF 1999
KATZ J
SYDNEY
23 JUNE 1999
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 7060 OF 1999
IN THE MATTER OF PAUL JOSEPH McMAHON;
BETWEEN:
WESTPAC BANKING CORPORATION
ApplicantAND:
PAUL JOSEPH McMAHON
RespondentJUDGE:
KATZ J
DATE OF ORDER:
23 JUNE 1999
WHERE MADE:
SYDNEY
MINUTES OF ORDER
THE COURT ORDERS THAT:
1.The deed of arrangement entered into between the respondent and Mr Peter David Rogers on 25 November 1998 be terminated.
2.The estate of the respondent be sequestrated.
3.The applicant’s costs of the proceeding (including reserved costs, if any) be taxed and paid 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
N 7060 OF 1999
IN THE MATTER OF PAUL JOSEPH McMAHON;
BETWEEN:
WESTPAC BANKING CORPORATION
ApplicantAND:
PAUL JOSEPH McMAHON
Respondent
JUDGE:
KATZ J
DATE:
23 JUNE 1999
PLACE:
SYDNEY
EX TEMPORE REASONS FOR JUDGMENT
There is before the Court an application by Westpac Banking Corporation (“the creditor”) against Mr Paul Joseph McMahon (“the debtor”). The application seeks relief under s 236 of the Bankruptcy Act 1966 (Cth) (“the Act”). Paragraph 236(1)(a) of the Act provides that the Court may, upon application by a creditor, if it is satisfied that the debtor has failed to carry out or comply with a provision of a deed of arrangement, make an order terminating that deed. The creditor has made application for such an order. It has also made application for further relief under s 236 of the Act, to which further relief I will refer later in these reasons for judgment.
On 25 November 1998, the debtor entered into a deed of arrangement under Pt X of the Act (“the deed”) with Mr Peter David Rogers (“the trustee”).
Clause 3.2 of the deed provided that the debtor should within seven days of being required to do so deliver by way of payment in the form of cleared funds amounts sufficient to enable the trustee to pay to the creditors whose proofs of debt had been submitted and accepted by the trustee the payment, after satisfying any payments in priority required to be made, or to which the trustee was entitled, in accordance with the terms of the Act.
The creditors referred to in cl 3.2 of the deed were subdivided in cl 1.1 thereof into classes distinguished by reference to their geographic location.
Clause 4 of the deed provided that the trustee should apply any assets or moneys received by him pursuant to the deed after satisfaction of those debts ranking in priority in accordance with the provisions of the Act according to a timetable which referred to the percentage of their debts which creditors of each geographic class would be paid. In the case of each class of creditors, those payments were to be made within a certain period of time after “the effective date”. That term was defined in cl 1.1 as meaning 5 November 1998.
In the case of one class of creditors, the payments referred to in cl 4 were to be made within 90 days of the effective date, a time which has obviously long since passed. Payments to the other classes of creditors were to be made within various other periods of time.
Reliance is placed by the creditor in support of its application under par 236(1)(a) of the Act on, among other things, two letters from the trustee to a solicitor who was acting for the debtor at the time, a Mr Robert Storey.
The first letter was dated 26 March 1999. In it, the trustee said to Mr Storey, among other things,
“[Y]ou know that there has not been compliance with certain aspects of the Deed. You are aware that the funds have not come in in accordance with the time schedule under the Deed for such payments….”
The second letter was dated 6 April 1999. In it, the trustee said to Mr Storey, among other things,
“[I]t is necessary for Mr. McMahon to comply with the terms of the Deed and he indicated on the 31st March that he expected to resolve things by 5 p.m. today, 6th April 1999.
Mr McMahon has been advised that the quantum I will need to proceed with is to the order of $100,000. If I am not placed in funds by 5 p.m. today, I will feel obliged to take steps to terminate the Deed without further reference to Mr McMahon.”
It is plain that the correspondence to which I have referred evidenced a requirement made of the debtor by the trustee under cl 3.2 of the deed.
It is plain also that that requirement was not fulfilled by the debtor. That appears from a letter written by the debtor himself to Mr Storey on 7 April 1999, that is to say, on the day after the date of the letter from the trustee to Mr Storey to which I have just referred. In that letter, Mr McMahon said,
“Re: Part X & Westpac
I refer to recent communications and advise that I am unable to proceed with the Part X at this stage and therefore shall not be proceeding with the Part X.”
The letter continued,
“As a matter of tactics, I would prefer that the dispute with Westpac be set down for hearing and if Peter Rogers must join in and support that application then so be it. However if Mr Rogers is neutral then I think it more appropriate that he wait until joined as a party or subpoenaed to give evidence.”
In the light of the material to which I have just referred, I have the satisfaction which I am required to have under par 236(1)(a) of the Act before making an order terminating a deed of arrangement.
However, subs 236(2) of the Act places a limitation on the Court’s ability to make an order under (relevantly) par 236(1)(a) of the Act. Subsection 236(2) of the Act provides in part,
“The court shall not make an order terminating a deed on the ground specified in paragraph 1(a) … unless it is satisfied that it would be in the interests of the creditors to do so.”
A question arises as to the construction of that part of subs 236(2) of the Act which identifies a matter of which the Court must be satisfied. In that connection, Mr Aldridge, who appeared for the creditor, referred me to the decision of a Full Court of this Court in Augustyn v Putnin (1988) 83 ALR 514. That was not a case about subs 236(2) of the Act. Rather, it was a case about subs 222(5) of the Act, which provides relevantly,
“The Court shall not make an order declaring 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.”
(Subsection 222(4) of the Act provides for the Court’s making of such an order if satisfied that the debtor: has given false or misleading information in answer to a question put to the debtor with respect to any of the debtor’s conduct or examinable affairs at the meeting of creditors at which the resolution requiring the debtor to execute the deed was passed; or has omitted a material particular from the statement of the debtor’s affairs given under subs 188(2) of the Act or included an incorrect and material particular therein.)
It will be seen that the qualification imposed by subs 222(5) of the Act on the power conferred by subs 222(4) of the Act is, in substance and in a related area, the same as the qualification imposed by subs 236(2) of the Act on the power conferred by par 236(1)(a) of the Act. I can see no reason why, in connection with the matter as to which the Court is required be satisfied under subs 236(2) of the Act, namely, “that it would be in the interests of the creditors to do so”, an authoritative construction of subs 222(5) of the Act should not be applied in the construction of subs 236(2) of the Act.
Mr Aldridge took me to a number of passages in Augustyn’s Case. In particular, he referred to a passage in the reasons for judgment of Jenkinson J, at 515, and to a passage from the reasons for judgment of French J, at 521, with which latter set of reasons for judgment Spender J said, at 515, that he agreed. The purport of those passages, as applied to 236(2) of the Act, is that it would be in the interests of the creditors to make an order under par 236(1)(a) of the Act if there is a real chance that the creditors would obtain some economic advantage from the making of an order terminating the deed, even though it is less probable than not that the creditors would obtain some economic advantage from the making of such an order.
There is evidence before me that the debtor is the registered proprietor of what is, I gather, a substantial property in northern New South Wales. A dispute exists between the debtor, on the one hand, and, at least, the creditor, on the other, as to whether or not the debtor is the beneficial owner of that property or merely a trustee of that property. Terminating the deed would permit investigation of that matter to occur, which means that there is a real chance that the debtor’s creditors would obtain some economic advantage from a order made under par 236(1)(a) of the Act. For that reason, I am satisfied, in the terms of subs 236(2) of the Act, that it would be in the interests of the creditors to make an order terminating the deed.
I referred at the outset of these reasons for judgment to the fact that, as well as seeking relief under par 236(1)(a) of the Act, the creditor was seeking further relief under s 236 of the Act. Subsection 236(3) of the Act permits a creditor to include in an application under subs 236(1) of the Act an application for a sequestration order against the estate of the debtor. It further provides that, if the Court makes an order on the first-mentioned application terminating the deed, then the Court may, if it thinks fit, forthwith make the sequestration order sought. The creditor has made application for such a sequestration order and, in the circumstances, I am prepared to make such order.
Subsection 236(4) of the Act authorises the Court to dispense with service on the debtor of notice of an application made under s 236 of the Act. I should, however, mention that no question arises in this case of dispensing with service on the debtor of notice of the creditor’s application. I am satisfied that the debtor was served with notice of an application by the creditor which contained within it, not only a prayer for relief of the sort mentioned in par 236(1)(a) of the Act, but also a prayer for relief of the sort mentioned in subs 236(3) of the Act.
The debtor was, at an earlier stage of this proceeding, represented by Mr Storey and, indeed, on more than one earlier occasion, there were directions hearings before me at which the debtor was represented by counsel. In recent times, the Court has been made aware that Mr Storey has ceased to act for the debtor in the proceeding. (Mr Storey has filed a notice to that effect.) However, that does not affect the fact that the debtor has been aware now for a lengthy period of time that the creditor was seeking, not only the termination of the deed, but also the making of a sequestration order against his estate.
I should perhaps add that the creditor’s application to terminate the deed was supported by the trustee and, as well, by at least two other creditors, from whom there are affidavits in support of that application. I should also mention that Mr McMahon did not appear today, either in person or by a legal representative, although he had, on earlier occasions, indicated an intention to oppose the grant of relief to the creditor. It may be that his non-attendance is related to the terms of his letter of 7 April 1999, from which I have earlier set out an extract.
In the circumstances, the orders which I will make are as follows: first, I will terminate the deed of 25 November 1998 between the debtor and the trustee; secondly, I will order that the estate of Paul Joseph McMahon be sequestrated; and, thirdly, I will make an order that the creditor’s costs of the proceeding, including reserved costs (if any), be taxed and paid in accordance with the Act.
Further, I note that a consent to act as trustee has been signed by Maxwell William Prentice. I understand that that consent is to be lodged forthwith with the Official Receiver.
I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katz. Associate:
Dated: 29 June 1999
Counsel for the Applicant: Mr M Aldridge Solicitor for the Applicant: Henry Davis York Respondent: No appearance Date of Hearing: 23 June 1999 Date of Judgment: 23 June 1999
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