Arcuri v Jones, in the matter of Arcuri [2003] FCA 68 (4 February 2003)

Last Updated: 14 February 2003

FEDERAL COURT OF AUSTRALIA

Arcuri v Jones, in the matter of Arcuri [2003] FCA 68

BANKRUPTCY - bankrupt lodges with trustee in bankruptcy purported proposal for a composition or scheme of arrangement - purported effect of proposal, if accepted, would be to deny trustee the benefit of the régime provided by Bankruptcy Act 1966 (Cth) for determination of amount of trustee's remuneration and would confine amount of remuneration to a "small" sum of $2,000 - whether trustee should be ordered to convene meeting of creditors to consider proposal - whether proposal bona fide - whether proposal would "subordinate, override or neutralise" the provisions of the Act in relation to the trustee's remuneration.

Bankruptcy Act 1966 (Cth), ss 73, 162

Bankruptcy Regulations, reg 8.08

Re Cook; Ex parte The Registrar of the Court of Bankruptcy (1931) 3 ABC 225, cited

Re Bellis (1959) 20 ABC 80, followed

Re Alam's Deed of Arrangement (1932) 4 ABC 98, followed

Re Bendel; Ex parte Bendel v Pattison (1997) 80 FCR 123, followed

IN THE MATTER OF SALVATORE ARCURI

SALVATORE ARCURI v MICHAEL JONES (AS TRUSTEE

OF THE BANKRUPT ESTATE OF SALVATORE ARCURI)

N 7363 of 2002

LINDGREN J

4 FEBRUARY 2003

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 7363 OF 2002

IN THE MATTER OF SALVATORE ARCURI

BETWEEN:	SALVATORE ARCURI APPLICANT
AND:	MICHAEL JONES AS TRUSTEE OF THE BANKRUPT ESTATE OF SALVATORE ARCURI RESPONDENT
JUDGE:	LINDGREN J
DATE OF ORDER:	4 FEBRUARY 2003
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The application be dismissed.

2. The applicant's motion brought by notice of motion filed on 17 January 2003 be dismissed.

3. The applicant pay the respondent's costs of the proceeding.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 7363 OF 2002

IN THE MATTER OF SALVATORE ARCURI

BETWEEN:	SALVATORE ARCURI APPLICANT
AND:	MICHAEL JONES AS TRUSTEE OF THE BANKRUPT ESTATE OF SALVATORE ARCURI RESPONDENT

JUDGE:	LINDGREN J
DATE:	4 FEBRUARY 2003
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 The applicant ("Mr Arcuri") seeks an order that the respondent ("Mr Jones"), who is the trustee of the estate of Mr Arcuri, call a meeting of creditors pursuant to s 73 of the Bankruptcy Act 1966 (Cth) ("the Act") to consider, and if thought fit to accept, a proposal made by Mr Arcuri. The form of application filed on 13 December 2002, which commenced the proceeding, sought an order that the meeting be held on or before 24 December 2002, but the application has been treated since then as if that time limitation did not appear.

2 The application is supported by an affidavit of Mr Arcuri sworn 12 December 2002. A form of what purports to be a proposed composition or scheme of arrangement is annexed to that affidavit. Before referring to that document, it is necessary that I say something of the background.

3 Mr Arcuri became bankrupt on 8 May 1996. In the ordinary course he would, by now, have been discharged from bankruptcy by effluxion of time, but the period of his bankruptcy has been extended following objection by the then trustees in bankruptcy. The bankruptcy administration has had a tortuous history. There have been two earlier court proceedings, and perhaps more, in which disputes concerning the bankruptcy have had to be resolved. Mr Arcuri has made at least one previous proposal under s 73 of the Act.

4 One result of the previous litigation is that the costs of the trustee in bankruptcy have mounted. In minutes of a meeting of the creditors of the bankrupt held on 17 September 1997, the then trustees of Mr Arcuri's estate, who were, at that meeting, removed as trustees and replaced by Mr Jones, Jay Arscott Stevenson and Philip Gregory Jefferson, reported that their remuneration as trustees as at the end of August 1997 amounted to $53,239.00 plus "outlays" of $5,239.62. These figures were said to exclude air fare travel costs to Sydney for a meeting of 21 August 1997. In addition it was stated that legal costs as at 3 June 1997 amounted to $19,400, and it was estimated that from that date down to the date of the meeting there was a further amount of legal costs of $20,000 to $25,000.

5 The person who presided over that meeting was Mr Jones. In connection with the removal of Messrs Stevenson & Jefferson and the appointment of Mr Jones as trustee in their place, Mr Jones explained to creditors the system of time recording and the basis of time cost charges. Mr Stevenson said that he had chosen to be remunerated pursuant to Bankruptcy Regulation 8.08 being "85 percent of IPAA scale fees". (The reference to "IPAA" is, of course, a reference to the Insolvency Practitioners Association of Australia.) Mr Stevenson also stated that he reserved his rights in relation to claiming a further amount in relation to "full IPAA rates" at a later time.

6 According to the minutes, the creditors resolved as follows:

"That the Trustees [sic] remuneration and that of their partners and staff be hereby approved and fixed on a time basis of the scale of fees recommended by the Insolvency Practitioners Association of Australia from time to time."

I need not discuss whether this resolution referred only to the outgoing trustees or to Mr Jones as well as incoming trustee.

7 Section 162 of the Act provides in subs (1) and (4) as follows:

"(1) Subject to section 161B [not presently relevant], the remuneration of the trustee of the estate of a bankrupt may be fixed, from time to time, by resolution of the creditors, or, if the creditors so resolve, by the committee of inspection.

...

(4) Where the remuneration of the trustee is not fixed by creditors or the committee of inspection, the trustee is to be remunerated as prescribed by the regulations."

Bankruptcy Regulation 8.08 provides that, for the purposes of subs 162(4) of the Act, the remuneration of a trustee is to be:

"(a) in accordance with the scale of charges that is:

(i) set out in the IPAA Guide to Hourly Rates published by the Insolvency Practitioners Association of Australia; and

(ii) applicable to the work to be remunerated; and

(b) at the level of 85 per cent of those charges."

There is a régime of provisions for taxation of the costs of the trustee of the estate of a bankrupt: see, for example, s 167 of the Act and Bankruptcy Regulations 8.09-8.12.

8 In an affidavit filed on behalf of Mr Jones, a person employed in his firm, John Joseph Tanna, Chartered Accountant, states that he is familiar with the files held by Mr Jones in relation to Mr Arcuri's estate in bankruptcy, and further states as follows:

"To my knowledge the Respondent has only drawn $29,210.00 regarding remuneration for this matter. Total remuneration due at 31 July 2000 was $155,679.00 although this amount has increased substantially since that date as I have incurred a large amount of costs defending the Federal Court proceedings initiated by the Applicant for file N 7664 of 2000."

9 On the basis of the matters recounted above, it appears clear that substantial remuneration, whatever the precise amount of it may prove to be, will be found to be payable to Mr Jones for his work as trustee since he was appointed on 17 September 1997. Yet the proposal put forward by Mr Arcuri would fix the total amount of his remuneration at $2000.

10 Mr Arcuri's proposal is as follows:

"I, SALVATORE ARCURI, of 6 Katrina Court, Normanhurst, New South Wales, propose to my Creditors, pursuant to Section 73 of the Bankruptcy Act 1966, that they accept in full settlement and discharge of all of my personal debts and the debts of my bankrupt Estate the following:-

1. I will pay the sum of $500.00 forthwith towards the Trustees [sic] costs and of and for the administration of my Bankrupt Estate.

2. A further sum of $1,000.00 will be paid towards the Trustees [sic] costs of my Bankrupt Estate forthwith by the following jointly and severally:

Antonia Castelnuovo

Frank Ferraro

Giuseppe Cotrona

Peter Schuringa

3. That a further sum of $500.00 be paid forthwith to the Trustee by Masterlease Pty Limited towards the costs of my Bankrupt Estate.

4. That upon payment of the sums outlined in Paragraph 1, 2, 3 and 4 above, and the passing of a special resolution by creditors in favour of this proposal, I immediately be released from Bankruptcy, and all property currently vested in my Trustee will revert to me immediately.

5. That the Trustee, Mr Michael Jones, will accept the sums outlined in Paragraph 1, 2 3 And 4 above in full and final satisfaction of all of his claims for costs and fees associated with the administration of my Bankrupt Estate.

6. That the Releases and other documents referred to in the Terms of Settlement attached hereto be completed by all the necessary parties within fourteen (14) days.

In support of my Proposal I attach copies of the following documents:-

1. Statement of Claim in Federal Court proceedings N7664 of 2000.

2. Terms of Settlement in those proceedings.

Dated: 29 October 2002"

11 Notwithstanding the last three lines of the above proposal there were not attached to the copy of it in evidence a copy of any "Statement of Claim in Federal Court proceedings N 7664 of 2000" or "Terms of Settlement in those proceedings". There was in fact no statement of claim in proceeding N 7664 of 2000. That proceeding was commenced by application supported by affidavit. When the proceeding was commenced Mr Arcuri was the applicant and Mr Jones was the only respondent. The application sought that certain proofs of debt "be expunged" and that Mr Jones's decisions reducing or rejecting other proofs of debt be reviewed pursuant to s 178 of the Act. Other relief was also sought.

12 Orders were made in that proceeding adding the following persons as further respondents:

Second respondent: Antonio Castelnuovo

Third respondent: Francesco Ferraro

Fourth respondent: Guiseppe Cotrona

Fifth respondent: Peter Schuringa

Sixth respondent: Master Lease and Rental Finance Pty Ltd

("Master Lease")

Terms of settlement were entered into. They were signed on behalf of Mr Arcuri and all six respondents. I need not set them out. It suffices to say that Mr Arcuri undertook to contribute $500, Master Lease $500, and Messrs Castelnuovo, Ferraro, Cotrona and Schuringa $1000 jointly, making a total of $2000, towards the costs of Mr Jones as trustee. In each case the word "towards" is used. Clearly, Mr Jones did not agree to accept the sum of $2000 in full satisfaction of his sizeable claim for remuneration.

13 The terms of settlement also provided for the execution of deeds of release and for the respondents to vote in favour of an annulment of Mr Arcuri's bankruptcy upon admission of their debts in certain amounts which were stipulated in the terms of settlement.

14 Paragraph 14 of the terms of settlement was as follows:

"That the applicant as soon as practicable lodge his section 73 proposal with the first respondent [and] the first respondent shall thereafter as soon as practicable call a meeting of creditors for the purpose of giving effect to these terms."

15 Section 73 of the Act provides in subs (1), (2) and (2A) as follows:

"(1) Where a bankrupt desires to make a proposal to his or her creditors for:

(a) a composition in satisfaction of his or her debts; or

(b) a scheme of arrangement of his or her affairs:

he or she may lodge with the trustee a proposal in writing signed by him or her setting out the terms of the proposed composition or scheme of arrangement and particulars of any sureties or securities forming part of the proposal.

(2) The trustee shall call a meeting of creditors and shall send to each creditor before the meeting a copy of the proposal accompanied by a report on it.

(2A) The report must indicate whether the proposal would benefit the bankrupt's creditors generally."

The expressions "composition" and "scheme of arrangement" are not defined in the Act for the purposes of sub s 73(1). The notion of a "composition" is well known: by a composition a creditor agrees to accept in full satisfaction of the debt something less than immediate payment in full. The "something less" might be, for example, payment by instalments or payment of a lump sum less than the full amount of the debt. The definition of "composition" in subs 187(1) for the purpose of Part X of the Act is in line with this general understanding of the term "composition".

16 The notion of a "scheme of arrangement" is not defined in subs 187(1), although the expression "deed of arrangement" is. In Re Cook; Ex parte The Registrar of the Court of Bankruptcy (1931) 3 ABC 225 at 228 Paine J said that the expression "scheme of arrangement" in the predecessor of s 73 had:

"the very widest signification ... and in fact ... may even include a composition ... [but] generally `scheme of arrangement' means a setting in order of the affairs of the person in question and does not necessarily entail a settlement or satisfaction."

His Honour said in a later case, Re Bellis (1959) 20 ABC 80 at 84, that he:

"would now add the qualification that the scheme should contain no provision which is in conflict with the provisions of the Act applicable thereto."

His Honour continued by saying that a scheme of arrangement must not "subordinate, override or neutralise" any provision of the Act. In saying this, Paine J was adopting the words of Lukin J in Re Alam's Deed of Arrangement (1932) 4 ABC 98 at 113. In that case Lukin J also stated (also at 113):

"It is, in my opinion legally impossible, by any agreement between the parties, to contract out of the Act, or to waive the rights imperatively conferred, or the performance of the conditions imperatively imposed, in such Act."

17 The creditors could not, by accepting a scheme of arrangement, deprive Mr Jones as trustee of Mr Arcuri's estate, of the remuneration to which he would be otherwise entitled. It would "subordinate, override or neutralise" s 162 of the Act and would be "in conflict with" that section if they could do so.

18 In Re Bendel; Ex parte Bendel v Pattison (1997) 80 FCR 123, Heerey J said that the notion of a "proposal" in s 73 refers only to a "bona fide" proposal. I agree.

19 In my opinion, it is clear that Mr Jones should not be compelled to call a meeting of creditors to consider Mr Arcuri's proposal for two reasons. First, the proposal is not one for a bona fide composition in satisfaction of Mr Arcuri's debts or one for a bona fide scheme of arrangement of his affairs on which the mandatory terms of subs 73(1) operate. Secondly, even if, as a matter of construction, subs 73(1) does apply to Mr Arcuri's proposal, in the exercise of its discretion the Court will not order the Mr Jones to call a meeting of creditors which would be a futility, and any acceptance by the creditors of Mr Arcuri's proposal would be ineffective and therefore futile, for the reasons given above.

20 Mr Arcuri referred to proposed amendments to s 73 which, he said, will have the effect that in a case such as the present one, the creditors will be disentitled to compel a trustee to accept such a small sum for his fees. Mr Arcuri's argument was that the fact of the proposed amendment suggests that s 73 in its present form does allow for such an "unfair" device (to use Mr Arcuri's own word).

21 I have now obtained a copy of the Bankruptcy Legislation Amendment Bill 2001 (Cth) and the Explanatory Memorandum associated with it. It is true that amendments to s 73 are proposed. If enacted, a new subsection (2B) would allow a trustee to refuse to call a meeting under s 73 if the proposal to be put to the meeting does not make adequate provision for the payment to the trustee of accrued fees that:

"(a) are owing to the trustee (at the time the proposal is lodged) in respect of the administration of the bankrupt's estate, but are not able to be taken out of the bankrupt's estate; and

(b) have been approved by the creditors before the proposal is considered."

Subsection (3) would also be amended. At present subs (3) provides: "The bankrupt may, at the meeting, amend the terms of his or her proposal", and the amendment would add the words "but not in a way that reduces any provision for payment to the trustee of fees referred to in subsection (2B)".

22 The proposed amendments have no relevance to the present case. The amendments accept as their starting point whatever entitlement to remuneration the trustee may have for past work, and relieve the trustee of the further work and expense of calling a meeting unless the proposal makes adequate provision for payment of that remuneration for past work. Similarly, the proposed amendment to subs (3) would prevent the bankrupt amending his or her proposal at the meeting in a way which would detract from the provision of the proposal safeguarding the trustee's entitlement to remuneration to which subs (2B) refers. But what is involved in the present case is a proposal which would compel a trustee to accept $2000, and to forego his claim to be entitled an amount of the order of $160,000, for past work.

23 I am pleased to arrive at the conclusion that Act does not compel such an unjust result, whatever amount may finally be determined to represent the true amount of remuneration to which Mr Jones is entitled.

24 For the above reasons the application will be dismissed.

25 It remains to mention three matters. First, Mr Jones also relied on an alleged failure by Mr Arcuri to disclose to him an alleged asset, namely Mr Arcuri's interest in the Australian Scholarship Group Friendly Society Fund. I need not address this matter.

26 Secondly, Mr Arcuri's proposal may not come within the terms of subs 73(1) for other reasons, which it has not been necessary for me to address.

27 Thirdly, Mr Arcuri also filed a notice of motion seeking various orders associated with, or consequential upon, the calling of the meeting. The orders sought were in the nature of final relief rather than interlocutory orders. The best course is to dismiss the motion and allow any further disputation between Mr Arcuri and Mr Jones to be raised in a proper manner.

28 For the above reasons the Court will order that:

1. The application be dismissed.

2. The applicant's motion brought by notice of motion filed on 17 January 2003 be dismissed.

3. The applicant pay the respondent's costs of the proceeding.

I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate:

Dated: 13 February 2003

The Applicant appeared in person
Counsel for the Respondent:	Mr P A Fury
Solicitor for the Respondent:	McCabe Terrill
Date of Hearing:	3 February 2003
Date of Judgment:	4 February 2003