Re Roger Van Twest and Jenifer Kay Van Twest Ex Parte: Tubemakers Australia Limited [1986] FCA 449; (1985) 69 ALR 573 (19 December 1986)

FEDERAL COURT OF AUSTRALIA

Re: ROGER VAN TWEST AND JENIFER KAY VAN TWEST
Ex parte: TUBEMAKERS AUSTRALIA LIMITED
No. QLD Part X 163 of 1986
Bankruptcy
(1985) 69 ALR 573

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Pincus J.

CATCHWORDS

Bankruptcy - composition - trustee - nomination - validity - only one valid vote - 10c in dollar - large voting creditor blood relative - applicant failed to attend meeting - discretion to set aside.

Bankruptcy Act, 1966 ss. 204(4), 239, r.96(1)

HEARING

BRISBANE
19:12:1986

Solicitors for the Applicant: Stephens & Tozer

Counsel for the Respondent: B.D. O'Donnell

Solicitors for the Respondent: Watt Birch & Co.

ORDER

The application be dismissed.

NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

DECISION

A creditor, owed a sum of $19,787.39 by two judgment debtors, applies under s.239 of the Bankruptcy Act 1966 for an order setting aside a composition, and for an extension of time to make the application, which is a day late.

2. The applicant obtained judgment in the District Court for the sum I have mentioned on 29 May 1986 and served a bankruptcy notice, based on the judgment, on 30 June. However, in the meantime, the debtors had signed an authority under s.188 of the Act authorising the calling of a meeting of creditors. Notice was sent to the applicant creditor but it was not represented at the meeting. A composition was proposed and, at least on the face of it, accepted, that the debtors pay 10 cents in the dollar in instalments over a period of three years.

3. The applicant seeks the setting aside of the composition on the grounds that:

1. A resolution passed at the meeting was not a special
resolution within the meaning of the Act.

2. A resolution by which a trustee was purportedly appointed was
invalid because it was passed with the assistance of a vote
by proxy and (it is said) the proxy did not authorise a vote
for the trustee.

3. The sum of 10 cents in the dollar over three years is said to
be "inadequate and not reasonable".

1. Special Resolution

4. Under s.204(1), the creditors may, at a meeting called in pursuance of an authority under s.188, accept a composition by special resolution. The expression "special resolution" is defined as meaning -

"a resolution passed by a majority in number and at
least three-fourths in value of the creditors
present personally, by attorney or by proxy at a
meeting of creditors and voting on the resolution;"
(s.5(1)).

5. The objection taken by the applicant to the resolution here in question is simply that the minutes of the meeting of creditors recorded the relevant resolution as having been passed, without saying it was passed as a special resolution. There appears to me to be nothing in this point. Under s.204(7)(a) the chairman of the meeting must forthwith sign a certificate as to the passage of resolutions in accordance with the prescribed form. He did so, and the certificate says the relevant resolution was a special resolution.

2. Trustee

6. The next question is whether a trustee was validly appointed, and if not, the effect of that invalidity.

7. At the meeting only two creditors were represented. Each representative voted in favour of acceptance of a composition to which more detailed reference is made below, and then in favour of the appointment of Mr. N. G. Halligan as trustee of the composition.

8. One of the representatives held a proxy from the creditor whom she represented, empowering her to vote "to accept a composition of ten (10) cents in the dollar ($1) over three years by monthly instalments". It said nothing about appointment of a trustee. It would seem to me to follow that the purported vote based on that proxy in favour of the appointment of Mr. Halligan was invalid: cf. Re Alty; Ex parte Muir (1985) 9 FCR 190 at 192 per Sheppard J. It does not appear to me, however, that that makes the composition invalid.

9. Firstly, an invalidity attending the purported appointment of a trustee does not necessitate setting aside the composition. Section 204(4) provides:

"Where a special resolution ... accepting a
composition has been passed, the creditors shall,
by resolution, nominate a registered trustee or
registered trustees to be trustee or trustees of
the ... composition."

10. That sub-section does not say the nomination must be immediate. It is, however, mandatory and, in my opinion, persistent failure to appoint a trustee in defiance of the requirement that one be appointed would be an "other reason" for setting aside a composition within the meaning of s.239(2):

"If the Court ... considers that the terms of the
composition are unreasonable or are not calculated
to benefit the creditors generally or that for any
other reason the composition ought to be set aside,
it may make an order setting it aside ..."

In my view, if the failure were due to a technical mistake, ordinarily the Court would allow the error to be remedied by the calling of a further meeting with a view to nomination of a trustee.

11. Secondly, in my opinion, the resolution validly nominated the trustee. There was only one valid vote and that was in favour of the nomination. It is true that under r.96(1), there must, prima facie, be "2 creditors, being creditors entitled to vote at the meeting, present personally, by attorney or by proxy" to constitute a quorum. The creditor in question had no right to vote on the motion presently under consideration, but it appears to me that the quorum requirement is not necessarily breached if, in respect of a particular motion, only one person present has a right to vote.

12. Here there was a quorum because, at the relevant time, two creditors, being creditors entitled to vote at the meeting, were present by proxy, and the resolution was passed by the vote of one of them.

3. "Inadequate and Not Reasonable"

13. The most relevant parts of s.239(2), under which the Court is given power to set the composition aside, are set out above. The applicant relied, of course, on the fact that the composition was only for 10 cents in the dollar payable over three years, but also pointed to other circumstances as justifying the exercise of the discretion in its favour.

14. The statement of affairs disclosed unsecured creditors amounting to $68,052.12. The two creditors represented at the meeting were Mrs. P. Lynch, who was said to be owed $23,720, and the Mater Hospital, said to be owed $1,260.72. Mrs. Lynch is the mother of one of the debtors.

15. Apart from the bare facts just stated, there is little in the material bearing upon the reasonableness of the composition. The statement of affairs discloses assets of $4,100 consisting in furniture, household effects and the like, and there is no evidence as to the earning capacity or future prospects of the debtors.

16. In a practical sense, the present dispute has been brought about by a mistake on the part of the applicant, which was not represented at the meeting "through an oversight". Had it attended, it could have defeated the proposal for a composition.

17. In Re Segal; Lensworth Finance Limited v. Segal (1975) 45 FLR 85 at p 95, Riley J. said of authorities concerning the reasonableness of proposals put to creditors:

"but I accept them as indicating that when
considering the reasonableness of a composition in
an application under s.239 of the Bankruptcy Act
1966-1973, which does so require, the Court should
be cautious in substituting its own judgment for
that of the creditors'."

See also per Toohey J. in Re Doukidis; Ex parte Consolidated Constructions Pty. Limited (unreported, 26 June 1985). Here, the opinion of Mrs. Lynch as to the desirability of the composition cannot carry great weight. It is comparable to a vote of creditors being subsidiaries of a company sought to be made the subject of a scheme under s. 315 of the Companies Code, considered in cases such as Re Landmark Corporation Ltd. (1968) 1 NSWR 759. Leaving Mrs. Lynch aside, the composition here had the approval of only one creditor, owed about 2% of the total of the debts. The others apparently did not think it worth their while to attend, or to give a proxy.

18. I know of no figures from which one could obtain an accurate idea of the average dividend paid in bankruptcies, but my impression is that it is fairly low. There is no reason to presume that the creditors would do better if a sequestration order were made. In Re Richards; Ex parte Beneficial Finance Corporation Limited (unreported, 17 March 1986), Jackson J. set aside a composition of one cent in the dollar under s.239, partly because, as his Honour held, there was need for investigation of the debtor's affairs. Here, although the amount proposed to be paid under the composition is very small, nothing is placed before me to suggest that there is any need for investigation. The case is on the borderline, but on the whole I am not satisfied that the terms of the composition are such that it ought to be set aside under s.239(2).

19. There remains for consideration the application to extend time. There is power to do so under s.33(1)(c); were I otherwise in favour of the application, I would extend the time for making it.

20. For the reasons I have given, the application will be dismissed. I have, however, decided to award no costs, not because of any misconduct on the part of the debtors, but because it appears to me unreasonable that the applicant creditor, which will under the composition receive only 10% of its debt, should have to bear the costs of testing the manner of exercise of the Court's jurisdiction under s.239(2), a provision on which there is little authority.