Williamson, C. (formerly Controlling Trustee) v Borck, G

[1993] FCA 850

CHRISTOPHER WILLIAMSON (formerly Controlling Trustee) v. GEOFFREY BORCK and
GAYLE ELIZABETH BORCK
No. P1001 of 1993
FED No. 850
Number of pages - 6
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
FRENCH J

CATCHWORDS

Bankruptcy - controlling trustee - s.188 Bankruptcy Act 1966 - remuneration of controlling trustee - former controlling trustee - whether former controlling trustee is creditor - sequestration order made.

Bankruptcy Act 1966 s.188

Re Reynolds; Ex parte Horlock v. Evans (1976) 12 ALR 439

HEARING

PERTH, 17 September 1993

#DATE 17:9:1993

Counsel for the Applicant: Mr S. McComish

Solicitors for the Applicant: Kott Gunning

Counsel for the Respondents: Mr M.J. Bateman

Solicitors for the Respondents: M.J. Bateman

ORDER

The Court orders that<:

1. The estates of Geoffrey Borck and Gayle Elizabeth Borck be sequestrated.

2. The applicant's costs of the application be taxed and paid in accordance with the provisions of the Bankruptcy Act 1966.

Note: Settlement and entry of Orders is dealt with in Rules 124 of the Bankruptcy Rules.

JUDGE1

FRENCH J Following a hearing on 15 September 1993, reasons for judgment were delivered orally on 17 September 1993. What follows reflects those reasons for judgment reduced to writing and subject to some editing as to style.

1. On 25 March 1993, Geoffrey Cecil Borck and Gayle Elizabeth Borck signed an authority under s.188 of the Bankruptcy Act 1966 authorising Christopher Michael Williamson of Hall Chadwick, Chartered Accountants, to call a meeting of creditors for the purposes of Part X of the Act and to take over control of their property in accordance with that Part. Mr Williamson executed a consent to exercise the powers conferred on him by the authority. On the same day, the two debtors swore affidavits verifying statements of their individual affairs and jointly swore an affidavit verifying their joint statement of affairs. A creditors meeting was convened on 28 April and adjourned to 19 May 1993. At the reconvened meeting, Mr Kimberley Strickland of Hall Chadwick represented Mr Williamson and was elected to continue as President of the meeting. The statements of affairs tabled at the meeting showed a deficiency in the estate of Mr Borck of $9,380.30, a deficiency in the estate of Mrs Borck of $4,720 and a deficiency in their joint estate of $36,647.05. The joint statement of affairs referred to a house with an estimated realisable value of $92,000 subject to a first and second mortgage. Land title searches, however, revealed that there was no second mortgage registered on the property. There was discussion of a composition arrangement under which the creditors would be offered $10,000 paid over three years to be accepted in satisfaction of all debts. In the event the meeting passed a special resolution in the following form:
   

"That the debtors property be no longer subject to control under Division 2 of Part X of the Bankruptcy Act 1966 and that the debtors file their petition in bankruptcy within seven days of the date of this meeting."

The meeting also passed resolutions in the following terms:

1. That the Controlling Trustee's summary of receipts and payments as tabled for the period from 25 March 1993 to 19 May 1993 be approved and

2. That the Controlling Trustee's fees be fixed in the sum of $4,264.40 together with out of pocket expenses.

The debtors took no steps to file their petitions as directed by the meeting.

1. On 28 July 1993, the former controlling trustee, Christopher Williamson, made application to this Court for the following orders:
   

1. A sequestration order be made against the estates of Geoffrey Borck and Gayle Elizabeth Borck both residing at 31 Bamboore Crescent, Wanneroo.

2. The petitioning creditor's costs including reserved costs to be taxed and paid out of the estate of the debtors in accordance with the Bankruptcy Act 1966.

On 20 August 1993, the debtors filed a notice of intention to appear at the hearing of the petition, stating their grounds of opposition as follows:

"PAID $2,000 TO NATIONAL ASSIST ON 10/3/93 TO KONSTATIN ZINKOFF $750 TO NATIONAL ASSIST. $1250 TO HALL CHADWICK AS DEPOSIT FOR PREFORMING (sic) A PART 10 IN BANKRUPTCY. A PART 10 NOT ACHIEVED AS PROMISED AND WE (I) THEREFORE REFUSED TO GO BANKRUPT AS WAS NOT NECESSARY. A KIM STRICKLAND WAS CONTROLLING TRUSTEE AT THE TIME WHO SPECIFIED THAT NATIONAL ASSIST WERE CONTROLLING THE COST OF A PART 10."

In an affidavit filed on 20 August 1993 in opposition to the application, Mr Borck said that on 20 February he and his wife met with a Konstatine Zinkoff from an organisation called National Assist. The Borcks discussed with Mr Zinkoff how they could ease their financial problems. At the time, according to Mr Borck, they had unsecured debts of about $40,000. Mr Zinkoff's advice was that they should enter into a Part X arrangement under the Bankruptcy Act 1966 and he evidently suggested that Hall Chadwick be used as the controlling trustee. According to Mr Borck, he was told this would cost $5,500 on the basis that he paid a $2,000 deposit representing $750 for National Assist and $1250 for Hall Chadwick, with the rest payable at the first meeting of creditors. Given his increasing financial problems and his then unemployment, Mr Borck and his wife paid $2,000 to National Assist on 10 March 1993 in order to initiate the making of a Part X arrangement. He maintains in his affidavit that both National Assist and Hall Chadwick were informed that there was no second mortgage on their property. However, on the joint statement of affairs which they both signed, under the heading "Secured Creditors", there was an entry for "Outlook Credit Union" which was owed $14,568.68 secured by a second mortgage over 31 Bamboore Crescent, Wanneroo. A first mortgage securing an indebtedness of $73,849 to the Commonwealth Bank was also registered over that property. The estimated value of the property was put at $92,000 in the joint statement of affairs.

1. After being told by Mr Zinkoff that the meeting of creditors was set down for 20 April, Mr Borck rang Mr Strickland of Hall Chadwick and informed him that he and his wife could not raise the extra $3,500. According to Mr Borck, Mr Strickland replied by saying that it was of no concern as National Assist were handling that side of it. At the Part X meeting, he said, Mr Strickland informed him and his wife that the unsecured creditors would not accept the Part X proposal and wanted them bankrupt. Mr Borck says he and his wife left in distress and "knew no lobbying had been done". He rang Mr Strickland and Mr Zinkoff on 3 May 1993 and proposed a new offer to the creditors. They said they would put it forward. At the creditors meeting, according to Mr Borck, he "refused to accept bankruptcy" for three reasons:
   

(a) his unemployment had ceased and his wife and he were sure they could make some form of payment to their creditors;

(b) no lobbying had been done on their behalf as shown by a lack of knowledge by the creditors;

(c) there was a lack of concern from Hall Chadwick to get the proceedings finished.

According to Mr Borck, no question of costs was raised at the meeting of 20 May, but Mr Strickland mentioned that costs would be deducted from the sale of their estate. On 4 June 1993, Michael Borck (presumably related to Geoffrey Borck) rang Mr Strickland and asked why he had not received minutes of the last creditors meeting. Michael Borck was shown on the joint statement of affairs as a creditor for $10,000 by way of personal loan. According to Geoffrey Borck, Michael Borck was told that Hall Chadwick had wiped their hands of the whole affair and did not expect any payment. Prior to this application being made, Mr Borck said he had not received any correspondence whatsoever from Hall Chadwick concerning the payment of an account.

1. Christopher Williamson, who was appointed as controlling trustee, asserts that he is a creditor of the respondents for the sum of $4,946.70. He exhibited to the affidavit what he described as "an itemisation of our professional charges in relation to the aforementioned sum". The itemisation comprises a statement of the fees approved at the meeting of 19 May, namely $4,264.10, and itemised disbursements of $682.60. Additional evidence on this point was contained in the affidavit of Kimberley Andrew Strickland sworn on 3 September 1993. This affidavit was filed in the Registry on that day, but only handed to counsel for the debtors at the hearing itself. Counsel, however, read the affidavit and said he was "not particularly prejudiced by the late delivery".

2. In the affidavit, Mr Strickland said he is a manager with the firm of Hall Chadwick and has access to its books and records. He asserts that Mr Williamson was not party to and entered into no agreement with the Borcks in relation to fees at the time that the Borcks spoke to National Assist. The Borcks, he said, arrived at the offices of Hall Chadwick with statements of affairs already signed and witnessed. Those statements of affairs were not prepared by Hall Chadwick and no advice was given by the firm as to their preparation. They were accompanied by affidavits verifying them. In relation to Mr Borck' affidavit evidence of the telephone conversation that he had with Mr Strickland, Mr Strickland said he advised Mr Borck that any agreement he had in relation to funds for costs was an agreement with National Assist in relation to their costs and he should therefore contact National Assist in order to discuss that issue. He denied that any agreement was ever made between the Borcks and Hall Chadwick to lobby any of the creditors and pointed out that the offer proposed by the Borcks was put forward to creditors at the reconvened meeting. In relation to the trustee's fees, he stated at the creditors meeting the method by which the fees were calculated and the scale recommended by the Insolvency Practitioners Association. In relation to the alleged conversation with Michael Borck, he said, inter alia, that Borck was at no time advised that Hall Chadwick did not expect to be paid for services rendered to the Part X administration. He said the fees were calculated in accordance with the Insolvency Practitioners Association scale of fees and that no funds had been forwarded by National Assist to Hall Chadwick.

3. Mr Williamson says, in his affidavit, it will be in all the creditors' interests for a sequestration order to be made against the respondents. He refers to their joint statement of affairs and the fact that there appears therein a second mortgage registered over a property at 31 Bamboore Crescent, Wanneroo. A copy of the title to the land, which was obtained on 19 April 1993, shows only one mortgage, being that in favour of the Commonwealth Bank of Australia registered on 7 June 1990. Mr Williamson says that as controlling trustee he has caused an appraisal of the property to be carried out by which it was valued at approximately $112,000. The so-called appraisal is a letter from a real estate agent which suggests "a marketing price in the vicinity of $112,000" for the property. The suggestion of a marketing price is not necessarily to be taken as an appraisal and, in my opinion, assuming its relevance, the evidence has little weight. Nevertheless, on the basis of that, Mr Williamson says that after the costs incurred in selling the property and in discharging the first mortgage he believes that something in the vicinity of $30,000 would be realised for pro-rata distribution among the creditors. He believes that the respondents have placed the property on the market and are currently attempting to sell it.

4. The process initiated by the debtors when they signed their authority under s.188 is described in that section, which provides in the relevant parts:
   

"188(1) A debtor who desires that his affairs be dealt with under this Part without his estate being sequestrated and-

(a) is personally present or ordinarily resident in Australia; . . . may sign an authority in accordance with the prescribed form-

(e) authorizing a registered trustee to call a meeting of his creditors and to take over the control of his property..."

The consequence of the execution of the authority is set out in s.189:

"189(1) Where a debtor has given an effective authority to a registered trustee under section 188, the property of the debtor becomes subject to control under this Division and continues to be so subject until-

(a) the creditors resolve at a meeting called under this Part that the debtor's property to be no longer subject to control under this Division; . . ."

Section 189(2) limits the debtor's rights to deal with his property while it remains subject to control under Division 2 of Part X. There are statutory reporting duties imposed on the controlling trustee who is also obliged by s.190 to call a meeting of creditors. The trustee's powers are set out in s.190(2), (3), (3A) and (4). The remuneration of the controlling trustee is provided for in s.193:

"193(1) Sections 162 to 167 (inclusive) apply, with the prescribed modifications (if any), in relation to the controlling trustee as if the debtor who gave the authority under section 188 were a bankrupt and the controlling trustee were the trustee in his bankruptcy."

By s.162 the remuneration of the trustee may be fixed from time to time by resolution of the creditors. The remuneration of the controlling trustee enjoys a statutory priority in a subsequent bankruptcy by virtue of s.109(1)(b).

1. The resolutions that may be passed at a meeting of creditors called in pursuance of an authority under s.188 are set out in s.204 which provides:
   

"204(1) The creditors may, at a meeting called in pursuance of an authority under section 188 by special resolution-

(a) where the debtor's property is subject to control under this Division, resolve that the debtor's property be no longer subject to control under this Division;

(b) require the debtor to execute a deed of assignment or a deed of arrangement under this Part;

(c) accept a composition; or

(d) require the debtor to present a debtor's petition within 7 days from the day on which the resolution was passed."

In this case, there was a rolled up resolution in terms of paras. (a) and (d) of sub-s.(1). Upon it being passed, the debtors' property ceased to be under the control of the trustee.

1. The present application is brought under the provisions of s.221 of the Act which provides, inter alia:
   

"221(1) Where-

(a) a debtor has failed, without sufficient cause, to attend a meeting of creditors called under an authority signed by him or her under section 188; . . .

(b) a debtor, having been required by a special resolution of a meeting of creditors called in pursuance of such an authority to execute a deed of assignment or a deed of arrangement or to present a debtor's petition, has failed, without sufficient cause, to execute the deed within the time prescribed by this Act or to present the debtor's petition within the time required by the special resolution; . . . the Court may, if it thinks fit, on the application of the Inspector-General, a person authorised in writing by the Inspector-General, a creditor or the controlling trustee, forthwith make a sequestration order against the estate of the debtor."

1. The applicant describes himself in the heading to the application as "formerly Controlling Trustee". I think that description is apposite. Upon the passing of the special resolution that the debtors' property be no longer subject to control, the property ceased to be under control. The definition of "controlling trustee" in s.187(1) only operates in relation to a debtor whose property is subject to control under Division 2. In light of the definition, it is doubtful that Mr Williamson has standing as a controlling trustee to bring this application. I am satisfied, however, that he is a creditor of the respondents having regard to the undisputed affidavit evidence of Mr Strickland. I note in passing the apparent acceptance by Lavan J in Re Reynolds Ex parte Horlock v. Evans (1976) 12 ALR 439 at 442 of the proposition that a controlling trustee appointed by the debtor and not by reason of a resolution of creditors acts solely as agent for the debtor. Whether that is too narrow a description of the position of the controlling trustee is not necessary to determine.

2. In the present case, there are no other bankruptcy proceedings pending, the amount claimed by the trustee has not been paid and no petition for bankruptcy has been filed. In my opinion it is in the interests of the creditors that a sequestration order be made. The application of the provisions of Part X to joint debtors is effected by s.187A. I propose therefore to make the following orders:
   

1. The estates of Geoffrey Borck and Gayle Elizabeth Borck be sequestrated.

2. The applicant's costs of the application be taxed and paid in accordance with the provisions of the Bankruptcy Act 1966.