Westpac Banking Corporation v Dixon
[2011] FMCA 211
•17 June 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WESTPAC BANKING CORPORATION v DIXON & ANOR | [2011] FMCA 211 |
| BANKRUPTCY – Application to set aside Personal Insolvency Agreement – creditor unable to vote at meeting of creditors which approved the PIA due to an error by the trustee – whether the interests of creditors generally would be better served by a bankruptcy considered. |
| Bankruptcy Act 1966, ss.64ZA, 64ZF, 188, 222 Bankruptcy Regulations Electronic Transactions Act 1999 (Cth), s.14 |
| For the Good Times Pty Ltd v Boyle [2009] FMCA 512 Westpac Banking Corporation v Hingston (No 2) [2010] FCA 116 |
| Applicant: | WESTPAC BANKING CORPORATION |
| First Respondent: | JAMES HUGH DIXON |
| Second Respondent: | STEVEN NICOLS |
| File Number: | SYG 204 of 2011 |
| Judgment of: | Driver FM |
| Hearing dates: | 30 March & 18 April 2011 |
| Delivered at: | Sydney |
| Delivered on: | 17 June 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr S Golledge |
| Solicitors for the Applicant: | Gadens Lawyers |
| Counsel for the first Respondent: | Mr J Johnson |
| Solicitors for the first Respondent: | Hunt & Hunt |
| Counsel for the second Respondent: | Mr C Bavin |
| Solicitors for the second Respondent: | Yates Beaggi Lawyers |
ORDERS
The application is dismissed with costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 201 of 2011
| WESTPAC BANKING CORPORATION |
Applicant
And
| JAMES HUGH DIXON |
First Respondent
| STEVEN NICOLS |
Second Respondent
REASONS FOR JUDGMENT
Introduction and background
This is an application brought pursuant to s.222 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) to set aside a composition in the form of a Personal Insolvency Agreement (PIA) made in respect of the first respondent’s (James Hugh Dixon) debts and also seeking a sequestration order against Mr Dixon’s estate with effect from the date of the composition on 6 December 2010. The applicant also seeks costs.
The application is resisted by Mr Dixon. His trustee, Steven Nicols, is the second respondent.The following statement of background facts is derived from the submissions of the parties.
Mr Dixon signed an authority pursuant to s.188 of the Bankruptcy Act on 1 November 2010 appointing Mr Nicols and authorising him to take charge of his affairs and convene a meeting of his creditors for the purpose of considering a proposal for a PIA.
In the statement of affairs which Mr Dixon signed on that day, he disclosed total unsecured creditors of $4,208,175. Included amongst the creditors which he admitted was Westpac for an amount of $1,223,622 and the National Australia Bank for an amount of $2,283,759.
On 18 November 2010 Mr Nicols issued a Notice of Meeting to Creditors. That Notice informed creditors that a meeting of creditors would be held at Mr Nicols’ office on Monday, 6 December 2010. That Notice was accompanied by a detailed report into Mr Dixon’s affairs. The statement of affairs had revealed that Mr Dixon had been connected with a large number of failed companies. Mr Nicols had been unable, as at the time of compiling his report to creditors, to complete his investigation of all of those companies, including, in respect of some of them at least, the nature and value of any interest held by Mr Dixon in those companies. Mr Nicols did not recommend to creditors that the debtor’s proposal be accepted. He recommended that creditors adjourn the meeting to enable further investigations to be carried out among other things, into those matters.
Also, the statement of affairs showed the debtor’s income, at the time that he signed the Part X Authority was $211,000 per annum. Mr Nicols estimated that were Mr Dixon to be made bankrupt he would be liable to make an annual income contribution to his estate of just over $45,000. Assuming he remained in employment during that period and continued to earn that sum each year then total income contributions during the period of the bankruptcy would amount to $136,000 (being approximately $20,000 greater than the amount proposed under the PIA).
The Notice of Meeting was accompanied by a pro-forma statement of claim and proxy document which made provision for creditors to lodge particulars of their claim on the trustee and appoint a proxy for the purpose of voting on any resolution considered by creditors at the meeting. The Notice stipulated that the statement of claim and proxy document should be received prior to the commencement of the meeting (i.e. prior to 6 December 2010).
The Notice to Creditors did not specify how the claim form or proxy document were to be lodged. However, the covering Notice to Creditors disclosed Mr Nicols’ street address, telephone number, website and facsimile number. Further, Bankruptcy Regulation 4.16 authorises the lodgement of proxies by facsimile transmission.
On Friday 3 December 2010 Westpac’s solicitors sent, by facsimile, a statement of claim form as well as a proxy appointing Mr Nicols as proxy for Westpac. The proxy form instructed Mr Nicols to vote against the PIA proposal. Westpac believes that, even if all creditors disclosed in the debtor’s statement of affairs lodged statements of claim in the amounts admitted by the debtor and all such creditors sought to participate in the creditors’ meeting, the negative vote of Westpac would have ensured the proposal would be rejected.
However, the vote by Westpac was not taken into account at the meeting because the statement of claim and proxy form did not come to the attention of Mr Nicols until after the meeting.
The evidence and submissions
The applicant (Westpac) relies upon the affidavit of Ivan Angonese made on 9 February 2011, the affidavit of Finton John O’Connor made on
8 January 2011, the affidavit of Kylie Maree Britton made on 24 February 2011, the affidavit of Michael Armstrong made on 29 March 2011 and the affidavit of Erica Minichino made on 15 March 2011. The following documents were also tendered in support of the applicant’s case:·A1 Westpac Guarantee and Indemnity
·A2 Notice to Produce
·A3 Statement of Claim and Proxy
·A4 Affidavit of Ivan Angonese
Mr Dixon relies upon the affidavit of Brenton Adrian Yates made on
24 March 2011. In addition, Mr Dixon tendered the PIA in issue.
The trustee relies upon his own affidavits made on 28 February 2011 and 25 March 2011. Only Mr Nicols was required for cross-examination.
Westpac submits that the PIA should be set aside having regard to the small dividend offered and the process followed at the meeting called to deal with the PIA in which Westpac’s claim as a creditor was not received. Westpac also refers to the inability of the trustee to complete a full investigation of Mr Dixon’s circumstances prior to issuing his report to creditors, Mr Dixon’s history of involvement in failed companies and the general public interest that exists in investigating the debtor’s circumstances.
Both Mr Dixon and the trustee submit that the Court should not set aside the PIA. The trustee did not see Westpac’s proof of debt and proxy prior to the meeting of creditors which approved the PIA and there is no evidence that creditors would benefit financially from a bankruptcy to a greater extent than they will benefit under the PIA.
Consideration
Sections 222(1), (5) and (10) of the Bankruptcy Act provide:
Section 222(1)
(1) If a personal insolvency agreement is in force, the Court may, on application by:
(a) the Inspector-General; or
(b) the trustee; or
(c) a creditor;
make an order setting the agreement aside if the Court is satisfied that:
(d) the terms of the agreement are unreasonable or are not calculated to benefit the creditors generally; or
(e) for any other reason, the agreement ought to be set aside.
Section 222(5)
(5) If a personal insolvency agreement is in force, the Court may, on application by:
(a) the Inspector-General; or
(b) the trustee; or
(c) a creditor;
make an order setting the agreement aside if the Court is satisfied that:
(d) 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 agreement was passed; or
(e) the debtor has:
(i) omitted a material particular from the statement of the debtor's affairs given under subsection 188(2C) or (2D); or
(ii) included an incorrect and material particular in that statement; or
(f) the debtor was subject to a requirement under subsection 194A(3) to table a statement, and the debtor has:
(i) omitted a material particular from that statement; or
(ii) included an incorrect and material particular in that statement; or
(g) the controlling trustee has:
(i) omitted a material particular from the declaration given by the controlling trustee under subsection 189A(3); or
(ii) included an incorrect and material particular in that declaration; or
(h) the controlling trustee was subject to a requirement under subsection 194A(5) to table a statement, and the controlling trustee has:
(i) omitted a material particular from that statement; or
(ii) included an incorrect and material particular in that statement; or
(i) a person who became the trustee of the agreement has:
(i) omitted a material particular from the declaration given by the person under subsection 215A(3) or (4); or
(ii) included an incorrect and material particular in that declaration.
Section 222(10)
(10) The trustee or a creditor may include in an application under subsection (1), (2) or (5) an application for a sequestration order against the estate of the debtor. If the Court, on the first-mentioned application, makes an order under this section setting the personal insolvency agreement aside, it may, if it thinks fit, immediately make the sequestration order sought.
Here, the heart of the applicant’s case rests on s.222(1)(e).
The circumstances in which Westpac lost the opportunity to participate in the meeting of creditors by its proxy are unfortunate. First, it was late on the last business day before that meeting that Westpac faxed its proof of debt and proxy form to Mr Nicols. No confirmation was sought. Nevertheless, Mr Nicols conceded at the trial that the facsimile had been received in his office, although he had not seen it before the meeting of creditors. It appears that the documents faxed by Westpac were incorrectly filed and sent to the trustee’s Wollongong office.
I accept that Mr Nicols did not see the Westpac proof of debt and proxy form before the meeting of creditors but it is reasonable to suppose that, had it not been for the maladministration within his office, he would have seen it before that meeting.
There is a question whether the proof of debt would have been acceptable without the guarantee which Westpac relied upon (which was not provided with the proof of debt). Mr Nicols asserted that he would have rejected the proof of debt without the guarantee. Nevertheless, under cross-examination, he conceded that he had accepted a proof of debt from another creditor (Macquarie Leasing) that was furnished without a copy of its guarantee attached. Mr Nicols explained that on the basis that he was already aware of the guarantee relied upon by Macquarie Leasing. I think it reasonably likely that if Mr Nicols had seen the Westpac proof of debt prior to the meeting of creditors, and he was not disposed to accept it without the guarantee, he would have at least queried the absence of the guarantee, given the significance of the debt for voting purposes at the meeting. I conclude that although the Westpac proof and proxy were transmitted to the trustee relatively late, it was the maladministration within the trustee’s office that prevented Westpac from participating in the meeting of creditors.
Sections 64ZA and 64ZF of the Bankruptcy Act provide:
Section 64ZA:
(1) This section applies to voting:
(a) at an election under section 64P of a person to preside at a meeting; and
(b) on any motion proposed at a meeting or an amendment proposed to such a motion.
(2) In this section:
"creditor" means a creditor who, or whose proxy or attorney, participates in the meeting in person or by telephone.
(3) A person other than a creditor is not entitled to vote.
(4) Subject to subsections (5) and (6), each creditor is entitled to vote and has one vote.
(5) If a creditor is a secured creditor, the creditor is not entitled to vote unless the debt, or the total amount of the debts, owed to the creditor exceeds the amount estimated by the creditor in the statement given to the trustee under section 64D to be the value of the security.
(6) A creditor who has failed to give to the trustee a statement in accordance with section 64D is not entitled to vote.
(7) A creditor is not disqualified from voting merely because the creditor is the President or the minutes secretary.
(8) The trustee may determine any question that arises as to the entitlement of a person to vote.
(9) If the trustee needs a period in which to determine a question referred to in subsection (8), the meeting is to be adjourned to such time, date and place as the meeting resolves, being a date not later than 14 days after the date of the original meeting, for the purpose of enabling the trustee to determine the question.
Section 64ZF:
A meeting, or anything done at a meeting, is not invalid because a requirement of this Subdivision has not been strictly complied with if the requirement has been substantially complied with.
There is a question whether Westpac had “given” its s.64D statement to the trustee by the time of the meeting of creditors in accordance with s.64ZA(6). The trustee did not have personal notice or possession of it but his office had received it. Having regard to ss.14(3) and (4) of the Electronic Transactions Act 1999 (Cth) the answer would seem to depend on whether the trustee had designated an information system for the purpose of receiving electronic communications. If the trustee had a designated system, then for the purposes of s.64ZA(6) a proxy would be given when it enters that system. If not then it would be given when it comes to the attention of the trustee.
It follows that if Mr Nicols did not have a designated system for the receipt of electronic communications then, because the proxy from Westpac did not come to his attention before the meeting of creditors, it was not given to him and Westpac was not entitled to vote at the meeting. If there was a designated system then the proxy was given when it entered that system. Mr Nicols had provided a facsimile number in correspondence giving notice of the meeting of creditors and calling for proxies and particulars of debt. I proceed on the basis that that was sufficient to “designate a system” for the receipt of electronic communications.
Westpac submits, and I accept, that had its statement of claim and proxy been accepted, the Westpac debt would have been sufficient to see the PIA rejected at the meeting of creditors. It does not follow, however, that the maladministration which prevented Westpac from voting should result in the PIA being set aside and a sequestration order being made. First, a majority of creditors present at the meeting voted in favour of the PIA. Those included unrelated creditors. Secondly, the contribution of $115,000 required under the PIA has been received and is held by the trustee ready for payment to the creditors. Thirdly, the largest creditor (the National Australia Bank) has not taken any position either for or against the PIA. While Westpac is aggrieved that it was unable to participate in the meeting of creditors, counsel for Westpac conceded that Westpac will participate in the PIA and take whatever is available to it under the PIA should the present application fail.
While there is evidence of maladministration, there is no evidence of any impropriety by the trustee. In particular, there is no evidence of anything improper in the receipt of other proofs of debt or the conduct of the meeting. There is no evidence that an investigation of the debtor’s affairs under a bankruptcy would be productive or that creditors would derive any greater financial benefit from a bankruptcy than they will derive under the PIA.
I am satisfied that the meeting of creditors conducted by the trustee was conducted substantially in compliance with the Bankruptcy Act.
I am not satisfied that the events leading up to the meeting of creditors or the conduct of the meeting of creditors provides a reason for the Court to set aside the PIA. Neither am I satisfied that there is any other reason why the PIA should be set aside. In my view, the PIA is in the interests of creditors generally and I am not persuaded that setting aside the PIA will provide any greater benefit to creditors generally. Westpac has pointed to a hypothetical and marginal benefit in the form of income contributions from the debtor, but that is offset by the advantage gained in bringing forward those income contributions three years, and reducing the cost of administration. The authorities relied upon by Westpac, where a PIA has been set aside by the Court, can be readily distinguished because they related to circumstances where the PIA was manifestly not in the interests of creditors[1], for example because the trustee found it to be so[2], or because the amount contributed was clearly inadequate as compared to a bankruptcy[3], or because specific inquiries in a bankruptcy needed to be undertaken[4]. None of those circumstances apply here and the maladministration which deprived Westpac of its determinative vote is not of itself sufficient to set aside the PIA, which has effectively been completed.
[1] For the Good Times Pty Ltd v Boyle [2009] FMCA 512
[2] Westpac Banking Corporation v Hingston (No 2) [2010] FCA 116
[3] ibid
[4] ibid
I will order that the application be dismissed with costs.
I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 17 June 2011
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