Re Alan Roy Palmer Ex Parte: Alan Richard Taylor As Controlling Trustee Under Part X of the Bankruptcy Act 1966 (Commonwealth) As Amended [1988] FCA 45 (4 March 1988)

FEDERAL COURT OF AUSTRALIA

Re: ALAN ROY PALMER
Ex parte: ALAN RICHARD TAYLOR as Controlling Trustee under Part X of the
Bankruptcy Act 1966 (Commonwealth) as amended
No. QLD X63 of 1986
Bankruptcy

COURT

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

CATCHWORDS

Bankruptcy - Part X deed of assignment - motion to accept deed rejected - passed at adjourned meeting - competency of second motion.

Bankruptcy Act 1966 ss.188, 222.

HEARING

BRISBANE
4:3:1988

Counsel for applicant: Mr. W.J. Roberts instructed by: Mr. D.P. Spence of Messrs. Thynne & Macartney

Solicitor for Deputy Registrar in Bankruptcy: Mr. S. Johnson of Australian Government Solicitor's Office

Counsel for Commonwealth Attorney General: Mr. R. I. Hanger Q.C. and Mr. J.A. Logan instructed by: Australian Government Solicitor

ORDER

The deed of assignment executed by the debtor on 10 April 1986 is void.

Mr. Palmer to pay the costs of the Registrar, to be taxed if not agreed.

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

DECISION

This is a motion by the Registrar in Bankruptcy of the Southern District of the State of Queensland for an order that the deed of assignment executed by Alan Roy Palmer on 10 April 1986 be declared void on the grounds that there are doubts whether the said deed complies with the requirements of Part X of the Bankruptcy Act 1966, in that the said deed:-

" (a) is a nullity;

(b) is not for the benefit of the Respondent's
creditors;

(c) was invalidly approved at the creditors
meeting of 10th April, 1986 in that a
special resolution that the Respondent
execute a Deed of Assignment had been
defeated at an earlier meeting of his
creditors on 27th March, 1986."

2. Section 222 confers on the Court power to declare a deed of assignment void on the application, inter alios, of the Registrar, on the grounds specified in the application.

3. The circumstances leading to this application have already been referred to in the reasons for judgment given today in another motion of X63 of 1986, and it is unnecessary to repeat them here.

4. Grounds (a) and (b) are allied.

5. Section 228 provides that a deed of assignment entered into and in compliance with the requirements of Part X, is upon execution binding on all the creditors of the debtor. Such a deed operates, by s.230 and unless declared void under that Part, to release the debtor from all provable debts other than those (if any) which would not have been released by his discharge from bankruptcy if he had become a bankrupt on the day on which he executed the deed.

6. A "deed of assignment", by s.187, means "...a deed by which a debtor assigns all his divisible property for the benefit of his creditors;..." and see also s.214(2)(a). Of the property of the debtor disclosed in his statement of affairs, an amount of $250.00 for bookmakers' boards is not divisible property, being tools of trade and therefore exempt under s.116(2)(c); nor is an amount of $4,680.00, being an endowment assurance policy with National Mutual held since 1966, divisible property of the debtor: see s.116(2)(d) and (e). It is therefore said that the deed at most assigns $2,280.00 constituted by cash on hand of $1,580.00 and the balance of the cheque account of $700.00. The submission on behalf of the Registrar is that, even without considering the trustee's fees, the amount assigned would result in a dividend of only a fraction of a cent in the dollar. The liabilities as shown in the statement of affairs are of the order of $1.4m, although it was acknowledged in argument that the extent of the liabilities of the debtor were somewhat lower than that, in the order of $1m. The gravamen of the submission is that a deed of assignment in respect of those amounts against those liabilities is not properly to be characterised as a deed which assigns all the divisible property of the debtor for the benefit of his creditors.

7. While I can see it likely that the creditors will receive nothing as a result of such a deed, it seems to me that it is unnecessary for a deed of assignment to result in a benefit to the creditors before it constitutes a deed of assignment under Part X. Nor is it necessary that there be such a ratio of divisible property to liabilities so as to result in something other than a derisory dividend before a deed of assignment can be characterised as such under Part X.

8. It seems to me that a deed of assignment fulfils the requirements of Part X if that which is assigned is all the divisible property of the assignor regardless of how much or how little that divisible property is, and if the property assigned is to be held by the assignee for the benefit of the creditors. That phrase is not used to indicate either the fact or the extent of any 'benefit' that the creditors will receive, but is used to identify the class of persons for whom the property is assigned. Whether there is likely to be any substantial dividend, or even any at all, seems to me very much a matter to which the creditors would direct attention, but the choice, it seems to me, remains with them.

9. I am conscious of the observations of Pincus J. in Re Beames; Ex parte Beneficial Finance Corp. Ltd. [1985] FCA 191; (1985) 7 FCR 216, where he said at p 227:-

"While a purported assignment of no property is not
only a nullity under the general law but also
cannot arguably be one "for the benefit of
creditors" I do not think any great benefit must
be in contemplation to comply with the Statute.
Admittedly, particularly in the light of the size
of Mrs. Beames' indebtedness, the slightly
nebulous $600 does not appear to proffer any
significant benefit. One might also argue for
application of the maxim de minimis non curat lex.
But the onus of showing that the deed, in
statutory form, is not in truth such a deed as
mentioned in the Statute is on Beneficial and I
hold that it has not been discharged."

10. I respectfully agree with his observations made on the same page, where he said:-

"It is not necessary, in order that the deed may
conform to the definition, that it be shown that
the creditors benefit in the sense that they
become better off than they would have been if the
deed were not executed and the debtor simply went
bankrupt. That sort of comparison does not appear
to me to be involved in the notion of benefit.
Nor, in my view, is it necessary that, in the end,
the creditors obtain anything at all from the
assignment."

11. Pincus J. did, however, comment "...it is not necessary that any benefit in fact be derived from the assignment, as long as some is within the contemplation of the assignor." In my respectful view, even the last requirement may be overstating the requirements of a deed of assignment.

12. It is incumbent on the debtor to give full and correct particulars in his statement of affairs, and not give false or misleading answers to any question put to him at the meeting of creditors concerning his trade dealings, conduct, property or affairs: s.222(4).

13. If his creditors have been given the opportunity to make a fully informed choice, the wisdom of that choice seems to me to be not a matter for the Court. The expression "for the benefit of the creditors" is not by any means synonymous with "in the interests of the creditors". Section 222(5) provides:-

"The Court shall not make an order declaring a deed
or composition, or a provision of a deed or
composition to be void on a ground specified in
sub-section (4) unless it is satisfied that it
would be in the interests of the creditors to do
so."

14. Here there is involved no allegation of omission or false or misleading information, and therefore the limitation on the Court's powers in s.222(5) has no application in the present case.

15. However, it is to be noted that Pincus J. said, in Re Beames; Ex parte Beneficial Finance Corporation Ltd. (supra), at p 230:-

"To comply with s.222(5) it is not necessary that
the facts show that the creditors will or might
get any large benefit from the setting aside of
the deed; at the least, however, it must appear
that in some respect the creditors may be better
off if the deed is voided."

16. Unlike the factual circumstances of Beames, I think the voiding of the deed would in the circumstances of this case be in the interests of the creditors. They would at the very least be relieved of the consequences of s.230, which releases all provable debts. They would then be able to consider the presentation of a creditors' petition for sequestration and the possible advantages of inquiry or investigation that the making of a sequestration order might permit. At the moment it seems to me that the creditors are on a hiding to nothing and that their position would be improved if only in a small way by having the deed declared void.

17. No ground is advanced for declaring void the deed of assignment, based on the circumstance that the proxy of the Deputy Commissioner of Taxation was denied a vote at the resumed meeting on 10 April 1986.

18. In respect of the third ground, in Re Appleton; Ex parte ARC Engineering Pty. Ltd. [1985] FCA 139; (1985) 6 FCR 328, Pincus J. held that once a motion to accept a composition under Part 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. In this case, the motion that the creditors require the debtor to execute a deed of assignment was put to the meeting on 27 March 1986 and defeated. The meeting of 10 April 1986 was merely a continuation of the meeting of creditors on 27 March 1986, and no basis exists for distinguishing a composition from a deed of assignment under Part X. It is right that I follow the decision of Pincus J. with which I respectfully agree.

19. Pincus J. referred, at p 329, to Re Henry Ratcliffe; Ex parte Till (1875) LR 10 Ch App 631, where a motion was not put to a meeting of creditors because it had been informally ascertained that the majority was against it. The meeting was adjourned and at the adjourned meeting the motion was passed. 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 ..."

20. It was suggested that that case could be distinguished on the basis that the adjournment was not bona fide, which is not the case here. Further, in Pretorius v. Daltons Carpet Tiles Pty. Ltd. (1984) 1 FCR 346, 57 ALR 743, a proposal for a composition was rejected and the question arose whether a second meeting could be held. The circumstances of that case were that one of the four options given to creditors by s.204 at a meeting called in pursuance of a s.188 authority had been passed, and it might be suggested that, in the circumstances of the case, the purpose of the meeting had therefore been spent.

21. It seems to me that the facts of this case are not able to be distinguished in any material respect from the facts in Re Appleton, and I should follow the judgment of Pincus J. and conclude that it was not competent for the meeting of creditors to pass the resolution on 10 April 1986 which the meeting of creditors on 27 March 1986 had rejected.

22. I therefore propose to make an order declaring that the deed of assignment executed by the respondent on 10 April 1986 is void on the ground that it was invalidly approved by a creditors' meeting on 10 April 1986, a special resolution that the respondent execute a deed of assignment having been defeated on 27 March 1986 at a meeting of his creditors called in pursuance of the s.188 authority.