Re Alec Knauff Pretorius Ex Parte: Daltons Carpet Tiles Pty Ltd; Carricks Ltd; Discoll Holdings Pty Ltd; Office Equipment Industry Association of Australia Ltd; Wormald International (Aust) Pty Ltd and Labour Broadcasting Station Pty Ltd v Alec Knauff [1984] FCA 10 (10 February 1984)

FEDERAL COURT OF AUSTRALIA

Re: ALEC KNAUFF PRETORIUS
Ex parte: DALTONS CARPET TILES PTY LTD; CARRICKS LTD.; DISCOLL HOLDINGS PTY
LTD; OFFICE EQUIPMENT INDUSTRY ASSOCIATION OF AUSTRALIA LTD; WORMALD
INTERNATIONAL (AUST) PTY LTD and LABOUR BROADCASTING STATION PTY LTD
And: ALEC KNAUFF PRETORIUS and JOHN ROBERT REES (1984) 1 FCR 273
No. QLD X72 of 1983
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE SOUTHERN
DISTRICT OF THE STATE OF QUEENSLAND
GENERAL DIVISION
Fitzgerald J.(1)

CATCHWORDS

Bankruptcy - authority under s.188 of the Bankruptcy Act authorising Trustee to call creditors' meeting for purposes of Part X of the Act - resolutions at meeting that composition be rejected and that debtor be requested to lodge own petition in Bankruptcy - no petition presented - notice given by trustee that further meeting of creditors to be held - no further authority under s.188 of the Act - creditors present at second meeting passing resolution purporting to rescind request that debtor lodge own petition and accepting composition - validity of composition purportedly accepted at second meeting.

Bankruptcy Act 1966, ss. 33, 188, 190(1), 194 (1) (a), 204, 222, 223 (1) (a), 223(3), 223A (1)

Bankruptcy - Trustee authorised under s. 188 of Bankruptcy Act 1966 to call a meeting of creditors for purposes of Pt X - Creditors' first meeting rejected debtor's proposal for composition - Trustee called second meeting of creditors - No further authority under s. 188 of Act signed by debtor - Creditors purportedly rescinded request to debtor to lodge own petition and accepted debtor's proposal for composition - Application under s. 222(2) of Act for declaration that composition was void - Whether composition was accepted by special resolution at meeting of creditors under s. 204 of Act - Whether trustee had power to call second meeting of creditors to reconsider proposed composition - Whether language of s. 223(1)(a) of Act extended to trustee calling second meeting of creditors - Validity of composition purportedly accepted by creditors at second meeting - Bankruptcy Act 1966 (Cth), ss 33, 188, 190(1), 192, 194(1)(a), 204, 208(1), 213(3), 218(1), 222(1), 222(2), 223(1)(a), 223A(1), 225(2), 225(3), 238(1). The debtor signed an authority under s. 188 of the Bankruptcy Act 1966 authorising the trustee to call a meeting of creditors and to take control of his property under Pt X of the Act. At the meeting the creditors voted to reject the debtor's proposal for a composition in full settlement and satisfaction of the debtor's debts and further resolved to request the debtor to lodge his own petition in bankruptcy within seven days. The debtor did not present his own petition and thereafter the trustee gave notice to the creditors of a second meeting. The second meeting was not called under Pt X, Div 2, but under Div 3, in particular s. 223(1)(a) of the Act. No further authority was signed by the debtor and at the second meeting the creditors present passed resolutions purporting to rescind the September request to the debtor to lodge his own petition, and to accept the debtor's proposal for a composition. A number of creditors applied under s. 222(2) of the Act for a declaration that the composition was void.

The creditors contended that under Pt I of the Act the trustee had no power to call the November meeting of the debtor's creditors for the purpose of reconsidering the composition originally proposed by the debtor. The debtor contended that the general language of s. 223(1)(a) of the Act extended to the calling of a meeting of creditors by a controlling trustee to reconsider a debtor's proposal of compromise irrespective of whether or not it had already been rejected.

Held: (1) The composition purportedly approved by the November meeting was not accepted by a special resolution of a meeting of creditors under s. 204 of the Bankruptcy Act 1966 in that it was not accepted by a special resolution of a meeting of creditors called in pursuance of an authority under s. 188 within the time limited by s. 194(1)(a) of that Act.

(2) Accordingly, the court would declare that the composition purportedly accepted by the debtor's creditors at the November meeting was void.

Per Fitzgerald J. It may be desirable for the efficient operations of Pt X of the Bankruptcy Act 1966 that the court has power under s. 33 of the Act to extend the time within which a trustee must perform his duty under s. 190(1) in accordance with s. 194(1)(a) of that Act.

HEARING

Brisbane, 1984, April 18; February 10. 10:2:1984
APPLICATION

Application under s. 222(2) of the Bankruptcy Act 1966 for a declaration that a composition purportedly approved by a special resolution of a meeting of creditors of the debtor was not accepted under s. 204 of the Act and hence was void.

Applicant appeared in person.

A. J. Williams, for the respondents.

Solicitor for the respondents: Ellison, Moschella & Co.
J. D. WHITEHEAD

ORDER

The composition purportedly accepted by

creditors of the debtor at a meeting on 3
November 1983 is void.

A sequestration order is made in respect

of the estate of the debtor.

Costs, including reserved costs, if any,

of the companies and the trustee be taxed
and paid out of the estate of the debtor.

Sequestration order.
Applicants' costs to be paid out of the estate.

DECISION

Mr Alec Knauff Pretorius ("the debtor") is insolvent. On 24 August 1983, he signed an authority under s.188 of the Bankruptcy Act 1966 ("the Act") authorising Mr John Robert Rees ("the trustee") to call a meeting of the debtor's creditors for the purposes of Part X of the Act and to take control of his property in accordance with that Part. The debtor's statement of affairs acknowledged unsecured creditors totallying $50,629.00 and it may be that there are other creditors who were omitted. Book debts, amounting to $1396.00 according to the debtor's statement of affairs, have not been collected but all his divisible property has been realised and the amount remaining after deducting costs and expenses is $557.04. No payment has been made to creditors. As I understand what I was informed from the Bar table by the trustee's counsel, the entire amount which has been realized will be required to meet the trustee's remuneration and expenses. The debtor contends that his creditors accepted a composition proposed by him under Part X of the Act at a meeting on 3 November 1983. A number of companies ("the companies"), some of which are acknowledged creditors and one at least of which is a disputed creditor, have applied under sub-s. 222(2) of the Act for a declaration that the composition is void, asserting that it was not accepted by a special resolution at a meeting of the debtor's creditors under s.204 (sub-s. 222(1)), because the meeting held on 3 November 1983 was not a meeting at which the requisite resolution could have been passed. There is no substantial dispute concerning the issues of fact with respect to the companies' application, which the parties are agreed turns on the construction of Part X of the Act.

2. As I have already stated, the debtor signed an authority under s.188 on 24 August 1983. The trustee notified those creditors shown in the debtor's statement of affairs of a meeting of the debtor's creditors to be held on 20 September 1983. At that meeting, the creditors present voted to reject the debtor's proposal for the following composition in full settlement and satisfaction of his debts:

"1. The Trustee of this Composition shall be
a person nominated by my creditors in
pursuance of s.204(IV) of the Bankruptcy
Act 1966 (herein after called "My
Trustee").

2. I covenant to pay to my Trustee monthly
payments of $250 or 15 per cent of my
mett after tax earnings, whichever is the
greater, for 36 months commencing
November 1983. Plus the cash in hand and
the proceeds of the sale of trade
fixtures and fittings (excluding office
furniture and equipment).

3. The Trustee shall apply any monies
received by them pursuant to this
Composition in making payments to my
creditors in the order prescribed by
s.109 of the Bankruptcy Act 1966 in the
same manner as if I had been made
Bankrupt on the date of the acceptance of
this proposal.

4. This Composition is made pursuant to Part
X of the Bankruptcy Act 1966.

A further resolution was passed that "the debtor be requested to lodge his own petition in bankruptcy within seven (7) days of the passing of this resolution". Finally, after a resolution fixing his remuneration, the trustee, as chairman, closed the meeting.

3. The debtor did not present a petition as he had been requested by the meeting of 3 September 1983. Two days after the meeting he forwarded a letter to the creditors acknowledged in his statement of affairs saying that he would not do so and that, if none of his creditors bankrupted him within the next month, he would ask his trustee to call another meeting of creditors to reconsider his offer. No creditor has yet presented a petition against the debtor.

4. On 18 October 1983, notice was given by the trustee to the same creditors as previously that a further meeting was to be held on 3 November 1983. No further authority under s.188 was signed by the debtor.

5. At that meeting, attended by some only of the creditors who had been present on 20 September 1983 and some creditors who had not been present at that previous meeting, and from which some at least of the companies which have made the present application were absent, resolutions were passed by the creditors present purporting to rescind the request to the debtor to lodge his own petition and to accept the debtor's proposal for a composition. I note, because reference was made to it by the debtor's counsel, that in material sent to those creditors given notice of the meeting of 3 November 1983 it was stated that the debtor did not intend lodging his own petition and that he would "shortly be leaving Brisbane".

6. After the companies brought their application, the debtor filed an application aimed at establishing that there were irregularities in respect of the calling and/or conduct of that initial meeting and that, accordingly, the composition was not then validly rejected and the other resolutions recorded in the minutes of that meeting were not then validly passed. It is not easy to perceive the object of that application. There is no suggestion that it might be possible to erect an invalid rejection of the composition at the first meeting into a valid acceptance of it at that time. Nothing will assist the debtor unless it is what occurred at the second meeting. That aside, he has indisputably committed an act of bankruptcy which is available to support a sequestration order. In any event, the debtor by his counsel did not seek to support the debtor's application but accepted the validity of the first meeting and the decisions recorded in the minutes of that meeting for the purposes of the companies' application although as it seems to me, nothing turns on that concession for present purposes.

7. The companies argue in support of their application that, under Part X of the Act, the trustee had no power to call the second meeting of the debtor's creditors for the purpose of reconsidering the composition originally proposed by the debtor. That aside, the companies raise no suggestion of any other deficiency in the calling or conduct of the second meeting or the procedural steps which preceded it.

8. It is not in dispute that the meeting of 3 November 1983 was a fresh meeting. It is not suggested that it was merely a continuation of the original meeting adjourned from 20 September, but it is accepted that the earlier meeting had been closed.

9. Further, no reliance is directly placed by the debtor upon the authority which he had signed in favour of the trustee under sub-s. 188(1) of the Act or the trustee's consequential duty to call a meeting of the debtor's creditors under sub-s. 190(1). It may be desirable for the efficient operation of Part X of the Act that the Court has power under s.33 to extend the time within which a trustee must perform his duty under sub-s. 190(1) in accordance with para. 194(1)(a). However, it was not argued that the time had been extended or might now be extended. The meeting of 3 November 1983 was admittedly out of time as a performance by the trustee of his duty under sub-s. 190(1).

10. The debtor's position is that the meeting of 3 November was not called under Part X Division 2 but under Division 3 and more particularly para. 223(1)(a). Paragraph 194(1)(a) applies only to the compulsory meeting pursuant to the authority under s.188 which the trustee is requuired to call by sub-s. 190(1). The debtor contends that the general language of paragraph 223(1)(a) extends to the calling by a controlling trustee of a meeting of creditors to reconsider a debtor's proposal of compromise irrespective of whether it had already been rejected. It was submitted that there is nothing in the Act which prohibits such a course.

11. A meeting of creditors to consider whether to accept a debtor's proposed composition may well be a meeting for a purpose of Part X and thus within the literal terms of para. 223(1)(a) which empowers a controlling trustee to "call such general meetings of the creditors as he considers necessary or desirable for the purposes of this Part". The qualifications in both sub-s. 223(3) and especially sub-s. 223A(1), by which meetings referred to in s.194 are expressly excluded to the limited extent provided in those provisions from meetings of creditors called for the purposes of Part X, might be suggested to reinforce that view. Further, there may be no essential conflict between a controlling trustee's duty to call a first meeting of creditors to consider whether a debtor's proposed composition within the time limited by para 194(1)(a) and the existence of a power in a controlling trustee to call a further such meeting subsequently at any time, although it is noteworthy that Part X makes no specific reference to subsequent acceptance of a composition initially rejected but does provide for reconsideration to terminate a composition initially accepted.

12. The companies relied on Re Amadio (1979) 24 ALR 455 which contains dicta which lie uneasily with the debtor's proposition. However, that case, which was concerned with the radically different situation of successive authorities in favour of two different solicitors and not a single authority in favour of a single trustee, does not resolve the present dispute.

13. The argument tended to concentrate upon the power of a controlling trustee to convene meetings of creditors to consider whether to accept a composition and that question is by no means entirely extraneous to what I must decide. However, in my opinion, it is when it is recognized that the substantive issue is whether the meeting relied on by the debtor could accept a composition binding on all the creditors that a clear solution emerges. The real thrust of the companies' point is that, at least in the absence of the unanimous approval of all the debtor's creditors, the creditors present at the second meeting could not approve the proposed composition so as to bind all creditors, more particularly in the light of its rejection by the previous meeting and the closure of that meeting. There is no doubt but that the companies did not themselves support the composition and some at least of them are creditors.

14. The reason why the time limit contained in paragraph 194(1)(a) of the Act is considered not to apply to the meeting of 3 November 1983 is that paragraph 194(1)(a) is expressly made applicable only to meetings of creditors "called in pursuance of an authority under s.188". Sub-section 190(1) imposes upon a trustee in whose favour a debtor has executed an authority under s.188 an obligation to call a meeting of creditors but the authority is the direct source of the trustee's power to do so. Paragraph 223(1)(a) is another source of a trustee's power to call meetings of creditors. If that provision extends to a meeting of creditors to consider a proposed composition, it, and not an authority previously executed by a debtor under s.188, is the source of the trustee's power so that such a meeting of creditors is not a meeting "called in pursuance of an authority under s.188".

15. Although Part X of the Act does contain some references simply to a composition or a composition under that Part, there is a consistent pattern of provisions in Part X which are directly related either to s.188 (see e.g. para. 188(1)(e), sub-s. 188(4), s.192, sub-s. 194(1), sub-s. 204(1), sub-s. 222(1), and sub-s. 238(1)), or to sub-s. 204 which, as has just been noted, is itself expressly related to sub-s. 188 (see e.g. sub-s. 208(1), sub-s. 213(3), sub-s. 218(1), sub-s. 222(1), and sub-ss. 225(2) and (3)). It is sufficient for present purposes to observe that it is only a composition that has been accepted by a special resolution of a meeting of a debtor's creditors "called in pursuance of an authority under s.188" which is made binding on all creditors of the debtor, and that the ground upon which a composition may be declared void under s.222 is that it has not been "accepted by a special resolution of a meeting of creditors under s.204", sub-s. (1) of which refers to a special resolution at a meeting "called in pursuance of an authority under s.188". See also sub-s. 213(3).

16. Other considerations aside, therefore, the debtor faces the dilema that unless the meeting of 3 November 1983 was called in pursuance of an authority under s.188 it could not approve the composition so as to make it binding on all his creditors and, if it was so called, it was not called within the time prescribed by paragraph 194(1)(a).

17. In my opinion the composition purportedly approved by the meeting on 3 November 1983 was not accepted by a special resolution of a meeting of creditors under s.204 in that it was not accepted by a special resolution of a meeting of creditors called in pursuance of an authority under s.188 within the time limited by paragraph 194(1)(a).

18. Accordingly I order as follows on the companies' application:

1. The Court declares that the composition
purportedly accepted by creditors of the
debtor at a meeting on 3 November 1983 is
void.

2. The Court makes a sequestration order in
respect of the estate of the debtor.

3. The Court orders that the costs,
including reserved costs, if any, of the
companies and the trustee be taxed and
paid out of the estate of the debtor.

19. The debtor's application is adjourned sine die, without order as to costs.