Re Harold Lindsay Williams and Helen Yvonne Williams Ex Parte: the Official Trustee In Bankruptcy [1990] FCA 309; 26 FCR 191 (21 August 1990)

FEDERAL COURT OF AUSTRALIA

Re: HAROLD LINDSAY WILLIAMS and HELEN YVONNE WILLIAMS
Ex parte: THE OFFICIAL TRUSTEE IN BANKRUPTCY
Nos. NX408-410 of 1986
FED No. 675
[1990] FCA 309; 26 FCR 191

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
GENERAL DIVISION
Hill J.(1)

HEARING

SYDNEY
21:8:1990

Counsel and Solicitors for the applicant: Mr M.R. Aldridge

instructed by
Australian Government Solicitor

ORDER

Accordingly, I would make the following orders.
1. The compositions accepted by special resolutions of
meetings of creditors of Harold Lindsay Williams and Helen
Yvonne Williams held on 24 October 1986 under Part X of the
Bankruptcy Act 1966 are void.
2. The costs of the applicant as taxed be paid out of
the fund presently in the hands of the applicant.

DECISION

The Official Trustee in Bankruptcy moves the Court for a declaration that the composition accepted by special resolution of a meeting or meetings of creditors held on 24 October 1986, purportedly under Part X of the Bankruptcy Act 1966 ("the Act") is void. The application is made under s.222(1) and (3) of the Act.

2. There are two matters relied upon by the applicant. The first is that there was a failure to comply with the Act and, particularly, r.100C of the Bankruptcy Rules; the second is a failure to refer to two creditors in the statement of affairs of the debtors.

3. Since I am of the view that the applicant should succeed on the first ground, it is unnecessary to consider whether the application could also have been supported on the second ground, particularly as the amounts said to have been undisclosed are relatively insubstantial in comparison with the amounts owing to creditors in fact disclosed in the statement of affairs.

4. Pursuant to orders made by O'Loughlin J on 24 July 1990, service of the application and supporting affidavits was effected upon the original trustee of the composition, Mr Harrison, the debtors, the chairman of the meeting held on 24 October 1986, and the creditors known to the applicant. An advertisement was also published in the Sydney Morning Herald in accordance with those orders.

5. A possibility exists that other creditors may have sought to lodge proofs with Mr Harrison, but such records as he may have kept are now missing and it seems unlikely that they will ever be found. Mr Harrison has since been removed as trustee of the composition, his registration having been cancelled, and the Official Trustee now acts as trustee of it.

6. From the evidence adduced, it appears that Mr and Mrs Williams had joint creditors. In addition, at least Mr Williams had separate creditors. On 1 October 1986 both Mr and Mrs Williams signed separate authorities to a solicitor, Mr David Peart, to call a meeting of their several creditors pursuant to section 188 of the of the Act. In addition, they each signed a joint authority to Mr Peart to call a meeting of their joint creditors.

7. On 24 October 1986, each swore one joint and one separate affidavit verifying their joint and separate statements of affairs. The statement of affairs of Mr Williams disclosed his joint and separate debts. The statement of affairs of Mrs Williams disclosed no separate debts but joint debts only. The joint statement disclosed the joint debts of the debtors, which joint debts were identical to those disclosed in the separate statement of affairs of Mrs Williams.

8. On 24 October 1986 a meeting was held or meetings were held purporting to be pursuant to the authorities given under s.188 of the Act to which I have already referred. As a result of that meeting, or those meetings, two minutes were prepared purporting to record the proceedings. For present purposes, each of those minutes are in identical terms, save that the one refers to Mr Williams and the other refers to Mrs Williams.

9. The minutes each record that Mr Peart, who acted as chairman of the meeting, explained that the meeting had been called pursuant to an authority in his favour under Part X of the Act. Each set of minutes records the passing of a resolution, which so far as the minutes relating to Mrs Williams are concerned, reads as follows:

"That the Creditors of Helen Yvonne Williams accept a
composition of Twenty Thousand Dollars under Part X of
the Bankruptcy Act, to be contributed by Mr and Mrs
Williams jointly in full satisfaction of all debts owed
by Helen Yvonne Williams to be paid on or before 1
December, 1986.
That the order of distribution of the sum of Twenty
Thousand Dollars be:-
(a) Payment of trustee's expenses
(b) Distribution of the balance to the creditors of
Harold Lindsay Williams and Helen Yvonne Williams,
whether sole or joint, in proportion to the amount
which each creditor's debt bears in relation to the
total of those debts."

10. The resolution recorded in the minutes relating to Mr Williams was in similar terms, save for his name appearing.

11. So far as the meeting passing a resolution in respect of Mrs Williams is concerned, the creditors who voted were the joint creditors, there being apparently no separate creditors.

12. So far as the meeting passing a resolution in respect of Mr Williams is concerned, it would seem that the resolution was put to a vote of both the joint creditors and his separate creditors, but only his separate creditors voted. The joint creditors (and perhaps some separate creditors also) abstained. The meaning of the resolution, if seen as a resolution of the separate creditors of Mr Williams, is, to say the least, obscure.

13. The basis upon which it is said that the resolutions passed were void is, in effect, that the Act requires, either that there be separate meetings of the several creditors of Mr and Mrs Williams and a meeting of the joint creditors of both of them, or if the meetings were held concurrently so as to amount to one meeting, it was necessary for the resolution to be put separately to the several creditors of Mr Williams, to the several creditors of Mrs Williams, (there being none on the facts of the present case), and the joint creditors of both.

14. Neither of these courses having been adopted, it was submitted that the Act had not been complied with, the consequence being that the composition or compositions resolved upon should be declared to be void.

15. Part X of the Act is concerned, as its heading makes clear, with arrangements made by debtors with their creditors without sequestration. The Part provides inter alia a procedure whereby a composition can be proposed to the creditors of a debtor which, if passed by the requisite majority, binds the creditors.

16. The expression "composition" is defined in section 187(1) as meaning:

"... an arrangement (not being an arrangement entered
into for the purposes of a proclaimed law) by which the
creditors of a debtor -
(a) agree to accept payment of the debt due to them by
instalments; or
(b) agree to accept, in full satisfaction of the debts
due to them, less than the full amount of those debts,
whether in the form of money or other property and
whether by instalments or otherwise;"

17. Without more it would seem that where there are two or more debtors each of whom have several creditors, it would be necessary for a separate meeting of creditors to be held to deal with the debts of each debtor and separate resolutions to be passed in respect of each composition proposed in respect of each debtor.

18. Where two or more debtors also had joint liabilities, a question could clearly have arisen as to whether Part X contemplated at all compositions being entered into in respect of the payment of joint debts. However, that matter is no longer an issue having regard to the provisions of s.187A of the Act inserted initially by Act No.12 of 1980, s.101, but substituted in its present form by Act No.119 of 1987 s.61.

19. Section 187A(1) now provides that:

"This part applies, with the prescribed modifications
(if any), in relation to joint debtors, whether
partners or not."

20. For present purposes the prescribed modifications are to be found particularly in rule 100E of the Bankruptcy Rules and perhaps also in rr.100B, 100C, 100D and 100F.

21. Rule 100E provides for joint authorities to be given for the calling of meetings in cases involving joint debtors. Rule 100F relates to the holding and conduct of meetings where there are joint creditors and makes applicable r.100C. The last mentioned rule provides as follows:

"At a meeting of joint and separate creditors -
(a) separate creditors shall not vote on a resolution
proposed for consideration by joint creditors;
(b) joint creditors shall not vote on a resolution
proposed for consideration by separate creditors; and
(c) joint and several creditors may vote on resolutions
proposed for joint creditors and on resolutions
proposed for separate creditors."

22. I was referred to three cases, none of which was precisely in point, but which do provide some guidance to the resolution of the present problem.

23. In Re Brown; Ex parte Humes Ltd (1987) 16 FCR 378, a single meeting of the creditors of two respondent debtors had passed a single resolution under Part X of the Act relating to the joint liabilities of each. There were, it would seem, no separate liabilities. It was held that the composition was not void. Pincus J in that decision referred to the statutory provisions, to which I have made mention, and said of r.100C at page 380:

"This rule contemplates that there will be a single
meeting of joint and separate creditors and that there
is need for only one resolution of joint creditors;
the expression 'joint creditors' is defined by r.100A
to mean 'the creditors of joint debtors made bankrupt
in a joint bankruptcy'. Rule 100C implies that there
need be only one meeting and only one resolution if
there are 'joint creditors' only." (emphasis added)

24. Pincus J had no need to consider the issue which is before me viz. as to whether it was necessary for there to be separate meetings of joint and separate creditors or whether it was possible to have a single meeting in a case where a debtor had both several and joint liabilities and if so, how many resolutions need be proposed and to whom.

25. In Re John Brian Cullen; Ex parte the Official Trustee in Bankruptcy, 3 December 1985, (unreported), Sheppard J made declarations that certain deeds of assignment were invalid. At pp 3-4 of the judgment his Honour said:

"My attention was drawn to rule 100C of the Bankruptcy
Rules, which is in Part IXA thereof. The Part is
divided into two Divisions, one entitled 'Division 1 -
Joint Bankruptcies' and the other 'Division 2 - Joint
Arrangements under Part X' (of the Act). Rule 100C is
in Division 1. It provides that at a meeting of joint
and separate creditors, separate creditors shall not
vote on a resolution proposed for consideration by
joint creditors and joint creditors shall not vote on a
resolution proposed for consideration by separate
creditors. Rule 100F is in Division 2. It provides
that the provisions of Division 1 with respect to the
holding and conduct of a meeting held pursuant to s.64
of the Act apply, so far as they are applicable, to the
holding and conduct of a meeting held pursuant to s.188
of the Act. Rule 100C therefore applied to the
circumstances of the present case.
There having been at the meeting no distinction drawn
between which creditors were voting in respect of which
of the three estates which the meeting had to deal
with, it seems to me that the meeting acting in that
way was not empowered to resolve that Mr Cullen, qua
his separate estate, enter into a deed of assignment.
For that reason the deed of assignment which he entered
into was invalid."

26. It would seem that in that passage his Honour was emphasising that in a case where at least there is only one meeting the separate resolutions which r.100C requires to be put to that meeting have to be put separately to each of the classes of creditors, rather than in such a way as to make it unclear which creditors voted in respect of which resolution.

27. Finally, in Re Edwards (1987) 14 FCR 113 French J, refusing to approve a composition involving both joint and several creditors without the composition being recast, said at page 118:

"The proposal, if it is to proceed, will have to be
recast in the form of separate proposals for each of
the bankrupts.
Each will require a separate meeting of creditors,
although the meetings can be held concurrently provided
that the procedure necessary to maintain the
distinction between the two proposals is followed."

28. In my view, the proper interpretation of the Act is that where a composition is proposed to be made between two or more debtors (having joint and several debts) and their creditors joint and several, there is a requirement, subject to r.100C, that there be held separate meetings of the several creditors of each debtor as well as a separate meeting of the joint creditors of each.

29. These separate meetings could, of course, be held consecutively. They may also, and this is reinforced by r.100C, be held concurrently. Where they are held concurrently in circumstances where it can be said there is in truth but one meeting as contemplated by r.100C, it is nevertheless important that the distinction be retained between the composition that is offered between a debtor and his or her several creditors and the composition that is being offered between the debtors and their joint creditors.

30. Accordingly, there must be proposed to the separate creditors of each debtor the respective resolutions to be passed with respect to the separate liabilities, and to the joint creditors the resolution proposed with respect to the joint liabilities. Voting in respect of each resolution should be open only to the appropriate class of creditor.

31. Where, for example, joint creditors are given the opportunity to vote in respect of a resolution relating only to the separate debts of a debtor, the resolution passed, in my view, will not comply with Part X even if it turns out, as in the present case in respect of the separate debts of Mr Williams, that only the separate creditors voted.

32. The abstention from voting may well in a case such as the present stem from a belief that the creditors abstaining will be out voted since the resolution is put to a meeting of both separate and joint creditors and both are given the opportunity to vote.

33. In such a case, the meeting cannot properly be said to have been one held in respect to the separate creditors of the debtor. It follows, therefore, subject to the question of whether final payment has been made under the composition, that I am of the view that the applicant has made good its case that the composition was void.

34. It appears that the monies required to be paid to the trustee under the composition were, in fact, paid but they are still held by the applicant, having been passed to him at some stage by Mr Harrison when Mr Harrison's appointment was terminated.

35. In Re Watkinson; Ex parte the Registrar in Bankruptcy, Gray J (unreported), 3 March 1986, it was held that the expression "final payment has been made under the composition" as appearing in s.222(6)(c) of the Act, was to be interpreted as meaning payment to the creditors rather than payment to the trustee of the composition. This was so notwithstanding the difficulties which that view occasions in a case where the composition is one that, in fact, contemplates no payment being made by the trustee to the creditors at all; see Re Doukidis (unreported) 26 June 1985. In my view, Gray J, with respect, was correct in that decision and I propose to follow it.

36. The remaining matter for decision is the question of costs. The Official Trustee in its application to the Court has sought an order for costs in the proceedings. Although the Official Trustee is a government statutory body, it seems to me that in the present case when it is acting as the trustee of a composition, albeit appointed in unfortunate circumstances, to replace a private trustee, it should be in no different position in making an application such as the present as a private trustee would be. There seems no doubt that the Court has power to order costs in circumstances such as the present; see, for example, s.30 of the Act, and it seems to me a proper occasion so to do.