Re Graham Robert Appleton Ex Parte: ARC Engineering Pty Ltd Part X [1985] FCA 139; (1985) 6 FCR 328 (26 April 1985)

FEDERAL COURT OF AUSTRALIA

Re: GRAHAM ROBERT APPLETON
Ex Parte: A.R.C. ENGINEERING PTY LTD
PART X No. 24 of 1985
Bankruptcy
[1985] FCA 139; (1985) 6 FCR 328

COURT

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

CATCHWORDS

BANKRUPTCY - composition - Bankruptcy Act s.239(2) composition set aside.

Bankruptcy Act ss.222,239

Re: Henry Ratcliffe; ex.p. Till (1875) LR 10 Ch. App. 631

Pretorious v. Dalton's Carpet Tiles Pty Ltd (1984) 54 ALR 743

Bankruptcy - Part X composition - Application to set aside - Meeting of creditors - Whether rejected motion to accept composition may be put again at same meeting - Bankruptcy Act 1966 (Cth), ss 222, 239. Held: Once a motion to accept a composition under Pt X of the Bankruptcy Act 1966 is put to the meeting of creditors and is not passed, the motion cannot be put again at the same meeting.

Re Henry Ratcliffe; Ex parte Till (1875) LR 10 Ch App 631; Pretorius v. Dalton's Carpet Tiles Pty Ltd (1984) 1 FCR 346; 54 ALR 743, referred to.

HEARING

Brisbane, 1985, April 22, 26. 26:4:1985
APPLICATION

Application to declare a composition void under s 222 of the Bankruptcy Act 1966 or to set it aside under s 239.

M A Wilson, for the applicant.

K C Fleming, for the respondent.
Cur adv vult

Solicitors for the applicant: Thynne & Macartney.

Solicitors for the respondent: James Byrne & Company.
SMW

ORDER

1. The composition be set aside pursuant to the provisions of s.239(2).

2. There be a sequestration order against the estate of the debtor Graham Robert Appleton and that the applicant's costs of and incidental to these proceedings be taxed and paid in accordance with the Act.

THE COURT NOTED THAT:

Messrs Burns and Geroff, registered trustees, have

consented to act as trustees of the estate of the debtor.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

Orders accordingly

DECISION

This is an application made to declare a composition void under s.222 of the Bankruptcy Act or to set it aside under s.239. The debtor, Mr Appleton, signed an authority in favour of a Mr J.R. Rees on 15 January 1985, under s.188, and there was a meeting of creditors on 7 February 1985. That meeting was adjourned to 14 February 1985 when a motion for a composition was put and lost. Then there was a motion that the property of the debtor be no longer subject to control under Division 2 of Part X of the Act, and that was passed. On the same day, 14 February 1985, the debtor signed a further authority in favour of Mr Rees, under s.188, and a meeting was held to consider the proposed composition on 6 March 1985. On that occasion the minutes record that:-

"As a majority of creditors in number and
three-fourths in value of creditors present and
voting were not in favour of the motion the
resolution was not passed."

It was argued by Mr Fleming for the debtor that the motion should have been declared passed, because the debt due to the applicant was not in truth $25,718 (in respect of which it voted) but only $8,361.50. I think that may well be correct. The motion was, at the request of some of the creditors, put again and passed.

2. Leaving aside more technical matters, the substantial point raised by the applicant is that there is a prospect of attacking under the Act a transaction entered into by the debtor in favour of his wife. That related to property at 50 Telford Street, Virginia, which according to the affidavit of Mr Sandhoff, a registered valuer, is currently worth $140,000. The property in question was transferred by the debtor and his wife, who were then joint registered proprietors, to Mrs Appleton by a transfer in consideration of a sum stated to be $50,000. For some reason, although dated 7 February 1983, that transfer was not registered (and therefore did not become legally effective) until 2 February 1984. No explanation is given for this substantial delay in registration of the dealing. It was not produced at the Titles Office until 20 January 1984.

3. The explanation given by the debtor in relation to the transaction is, in summary, as follows. He says he obtained advice from his accountant and it was after that agreed that he would transfer his interest in the property to his wife in satisfaction of the "amount owing by me to her for the transfer of the business. The business was worth in excess of $200,000.". The debtor goes on to say that one Silec, who acquired an interest in the business about the same time "paid between $30,000 and $40,000 for the purchase of his interest in the business and the balance remains outstanding". For a number of reasons, I do not find this account of the transaction very satisfactory. Nothing is put forward to support the suggestion that the business was worth $200,000 and the contemporaneous transaction with Silec is described with unusual vagueness. There is no evidence from the debtor as to the financial position of the business at the time of the transaction or why it was said to be worth so much. As previously mentioned, nearly a year elapsed from the date the transfer bears until its production for registration. It seems to me that the transaction warrants further investigation, with a view to ascertaining whether or not it was really designed to do anything more than ensure that creditors could not have access to the property in question. I am far from saying that an attack on the transaction would succeed; the facts relating to it are simply not sufficiently known at present.

4. Another point taken by Miss Wilson on behalf of the applicant was that once the motion that a composition be accepted was put to the meeting of 6 March 1985 and not passed, it could not be put again. In my view, that proposition is correct and I refer to Re: Henry Ratcliffe; ex.p. Till (1875) L.R. 10 Ch. App. 631. In that case there was a meeting of creditors to consider a composition, but the motion was not put because it was ascertained informally that a majority was against it. The meeting was adjourned and at the adjourned meeting the motion was passed. The argument was advanced that since the sense of the meeting was against a composition, it should not have been adjourned. It was further urged that there was no power to adjourn. Sir W.M. James L.J. said:-

"It is urged, however, that a power of adjournment
is essential to a meeting. I agree with that
proposition, supposing the resolution to be bona
fide. But it is not bona fide for a majority
which is not sufficient to pass a resolution for
composition to pass a resolution for adjournment,
when it has been ascertained that a resolution for
a composition which has been proposed cannot be
passed. When the sense of the meeting has been
ascertained the meeting is over and the power of
adjournment is gone ...".

Sir G. Mellish L.J. expressed himself similarly, concluding:-

"I am of opinion that in the present case the sense
of the meeting was taken, and that this having
been done the meeting was at an end and could not
be adjourned."

In arriving at the conclusion that, once having been put and not passed, the motion should not have been put again I am fortified by the decision of the Full Court in Pretorius v. Dalton's Carpet Tiles Pty Ltd (1984) 54 ALR 743. That concerned a rather different question, namely whether a second meeting could be held, the first one having rejected the proposal for a composition; however, it seems to me that in principle the question before me is rather similar.

5. Next, it was said by Miss Wilson that it was not competent to execute a further authority under s.188, even when the effect of the first had been terminated, unless a substantial change in circumstances had occurred. I have not found it necessary to reach a conclusion on that contention.

6. Lastly, my attention was drawn to the fact that the resolution for a composition did not conform to the agreement which preceded it, in that the intention of the agreement was that the costs of the administration would be paid by the debtor, so that the creditors received 10 cents in the dollar clear, whereas the composition provides otherwise. Mr Fleming for the debtor very fairly conceded that that was so. It seems to me that the composition should be set aside for that reason and because of the two other matters I have referred to. The question, which was the subject of some discussion at the hearing, is whether in those circumstances I should make a sequestration order or provide a further opportunity for a proposal for a composition to be put before the creditors. I have decided to make a sequestration order. A proposal has already been before the creditors three times at two separate meetings and it seems to me desirable that there be an investigation of the circumstances in which it came about that the property referred to above, valued at $140,000, was early last year vested solely in the debtor's wife. Further, I am influenced by the circumstance that the composition offered is only 10 cents in the dollar.

7. I therefore propose to make a sequestration order.