wee (63)19 CATCHWORDS aN Bankruptcy ~) summary sequestration orders ~ debtor required to execute deed of assignment pursuant to special resolution of creditors under s. 204 - failure to sign deed of assignment~whether without sufficient cause - whether all creditors notified of meetings - whether persons contingent creditors - court's discretion to make sequestration order. IN_THE FEDERAL COURT OF AUSTRALTA GENERAL DIVISION NSW 74 of 1979 NSW 71 of 1979 BANKRUPTCY DISTRICT OF THE STATE OF NSW 72 of 1979 NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY IN THE MATTER OF THE BANKRUPTCY ACT 1966 AND IN THE MATTER OF AN APPLICATION FOR DIRECTIONS HEINRICH OSWALD HERMAN MANNIGEL ex parte the Debtor (Applacant) AND IN THE MATTER OF APPLICATION FOR SEQUISITRATION ORDIRS rE CAROLYN NANCY MANNTGET, and GUNTHER HENRY FREDLRICK MANNTGOPL ex parte Lindsay Robert Aitken (Applicant) ORDER JUDGE MAKING ORDER: LOCKHART J. DATE OF ORDER: 3 DECEMBER 1979 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application No. 74 of 1979 (Mannigel senior's application) be dismissed. The question of costs be stood over to a date to be fixed. 2. The estate of Carolyn Nancy Mannigel be sequestrated. Casts to be taxed and paid according to the Act. Direct that a draft of this order be delivered to the registrar within seven days jn accordance with rule 124 (2). 3. The estate of Gunther Henry Frederick Mannigel be sequestrated. Costs to be taxed and paid according to the Act. Darect that a draft of this order be delivered to the registrar within seven days 1n accordance with rule 124 (2). ( () wees bam ey arte ee oe wn eee enter ee nent ee ttt ee eer eee ee aes bem -+ IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) NSW 74 of 1979 BANKRUPTCY DISTRICT OF THE STATE OF ) NSW 71 of 1979 NEW SOUTH WALES AND THE ) NSW 72 of 1979 AUSTRALIAN CAPITAL TERRITORY ) consent. IN THE MATTER OF THE BANKRUPTCY ACT 1966 AND IN THE MATTER OF AN APPLICATION FOR DIRECTIONS HEINRICH OSWALD HERMAN MANNIGEL ex parte the Debtor (Applicant) AND IN THE MATTER OF APPLICATION FOR SEQUESTRATION ORDERS RE CAROLYN NANCY MANNIGEL and . GUNTHER HENRY FREDERICK , '. MANNIGEL ex parte Lindsay Robert Aitken (Applicant) REASONS FOR JUDGMENT 3 Decon kit 1529 LOCKHART J. These are three matters being heard together by Matter No. 71 of 1979 (Part X) 1S an application by Lindsay Robert Aitken ("the trustee") as the controlling nae ne ee r 7 es or - + new em enen © te ae ne re ep er aren seen Te () () trustee of the property of Carolyn Nancy Mannigel ("the female debtor") for a summary sequestration order pursuant to S. 221) (1) (b) of the Bankruptcy Act, 1966 ("the Act") on the ground that the female debtor, having been required by a special resolution of a meeting of creditors called pursuant to the authorities signed by her under s. 188 of the Act to execute a deed of assignment, failed, without sufficient cause, to execute the deed within the prescribed time, Matter No. 72 of 1979 (Part X) 1s an application by the trustee as the controlling trustee of the property of Gunther Henry Frederick Mannigel ("the male debtor") under s. 221 (1) (b) for a summary sequestration order on the same ground. When I shall refer to the debtors together I shall call them ""the debtors", Matter No. 74 of 1979 (Part X) is an application by Heinrich Oswald Herman Mannigel ("Mannigel senior"), the father of the male debtor, for an order that a deed of assignment signed by him on 18 May 1979 be declared void. The debtors resist the making of summary sequestration orders on the grounds that three creditors of each of the debtors did not receive notices of certain meetings, including the meetings of 27 April 1979 when the creditors resolved by special resolution in respect of each cereus ee eee - re ey et ee See oe "Rhil : ee ee oe of the debtors that they execute a deed of assignment under Part X of the Act; and that those creditors did not attend or vote thereat; and that, had they done so, the effect of their votes would have been to prevent the passing of the special resolutions requiring the debtors to execute deeds of assignment. The debtors also submit that, as a matter of discretion, in all the circumstances, the court would not make summary sequestration orders. Mannigel senior seeks to avoid the deed of assignment signed by him on 18 May 1979 on the ground that he signed it conditionally on the debtors signing the deeds of assignment which they had been directed to sign at the meetings of 27 April 1979. On 30 March 1979 the male debtor executed an authority'under s. 188 of the Act authorising the trustee to call a meeting of his creditors for the purposes of Part X and to take over control of his property in accordance with that Part. A similar authority was executed by the female debtor the same day. The trustee gave evidence that he duly convened separate meetings of creditors of each of the debtors and of Mannigel senior to be held at his office in Martin Place, Sydney on 27 April. There were three separate meetings held that day. meee eee mae Aen ne ere me ee en () emerge ee we ee The first meeting relating to the female debtor was scheduled to commence at,10.00 a.m., the second relating to the male debtor at 10.30 a.m. and the third relating to Mannigel senior at 11.00 a.m. Neither of the debtors had arrived by 10.00 a.m. The meeting of the female debtor commenced and it waS resolved that the trustee be appointed chairman. It was resolved also that the meeting be adjourned until the meeting of the creditors of the male debtor had been held. The meeting of creditors of the male debtor commenced at 10.30 a.m. The male debtor telephoned the trustee from Sydney airport twice on the morning of 27 April. The second occasion was about 9.25 a.m. when he told the trustee that the aeroplane on which a Mr. A. D. Kirton, a co-director of the male debtor on the board of a company, Mannigel Broadcasting Co. Pty. Limited was travelling, had been delayed. Mr. Kirton was flying from Bourke to Sydney to attend the meeting of creditors of the male debtor. The male debtor told the trustee that as a result of the delay he would be late for the meeting. The trustee told the creditors at the meeting that he had been telephoned twice that morning by the male debtor, who was delayed and wished the meeting to wait until he arrived. It was resolved that the meeting should continue notwithstanding the absence of the male debtor, which it did at 11.00 a.m. i TTT A een creatine oe ene eee ty eT me - see tree rep eee eH mee ons serene oe Discussion took place at the meeting of creditors of the male debtor on various questions including the possibility of there being a deed of arrangement to provide for repayment of unsecured creditors in full within three years. A motion to require the male debtor to execute a deed of arrangement was put to the vote but was lost. It was resolved to pass a special resolution to require the male debtor to execute a deed of assignment under Part X of the Act. The motion was carried unanimously with two persons abstaining from voting, a Mr. Carroll representing Kodak (A/sia) Limited and Mannigel senior. It was also resolved that the trustee be appointed the trustee of the deed of assignment. Certain other resolutions were passed including resolutions relating to the trustee's remuneration, and the appointment of a committee of inspection. After all relevant @ecisions had been taken by the creditors present at the meeting, the male debtor arrived together with Mr. Kirton. The chairman explained to the male debtor what had occurred before his arrival and asked him if he wished to address the Meeting or ask any questions. The male debtor handed to the meeting copies of correspondence regarding some claim for damages then being pursued by him and thanked the creditors for their presence. The meeting closed, The meeting of creditors of the female debtor was a meee on eee ne a zs os - resumed at 11.30 a.m. The trustee informed the creditors that the female debtor was unable to attend the meeting because she waS managing the camera store at Nowra which was a business run by the debtors and Mannigel Senior in partnership. The creditors accepted this explanation for her non attendance. A number of matters was discussed at the meeting and it was resolved to pass a special resolution to require the female debtor to execute a deed of assignment under Part X of the Act. The motion was carried unanimously. Mannigel senior abstained from voting. Other resolutions were passed including resolutions appointing the trustee as trustee of the deed of assignment and making provision for his remuneration and the appointment of a committee of inspection. »The meeting of the creditors of Mannigel senior commenced immediately after the conclusion of the lastmentioned meeting and it was resolved to pass a special resolution to require Mannigel senior to execute a deed of assignment under Part X of the Act. It was also resolved that the assets of Mannigel senior be not realised until the assets of the male and female debtors had been realised or a period of two years had elapsed whichever was the earlier. Neither the male nor female debtor has signed any deed of assignment. pre Mannigel senior signed the deed of assignment on 18 May 1979. On 'the same day, Mr. B. J. Sharpe, a solicitor attending to the affairs of the debtors and Mannigel senior, telephoned the trustee and said that he was instructed that the debtors would only sign deeds of assignment after certain qualifications were incorporated therein, to which the trustee said that he was not authorised as trustee to accept a qualified deed of assignment but would call a further meeting of creditors. On 22 May 1979, the trustee caused separate meetings of the creditors of the debtors to be convened for 30 May 1979. The notices of meeting stated that the business was to consider resolutions that the trustee apply to the court for an extension of time within which the debtors may execute the deeds of assignment, and certain other matters. On 30 May 1979 the meetings were held in accordance with the notices but were not attended by either of the debtors. The male debtor, arrived but only after both meetings had concluded. He had earlier informed his solicitor, Mr. Sharpe, of the reasons for his delay which he, in turn, communicated to the trustee. Mr. Sharpe attended the meetings. At the meeting of creditors of the male debtor held on 30 May 1979, the trustee read to the meeting a telex that ok kay SEER EGTA ee had been received by Mr. Sharpe from the male debtor explaining the reasons for his delay. Various matters were discussed at the meeting and it was resolved that a special resolution be passed that the trustee apply to the court for a sequestration order against the estate of the male debtor. A similar special resolution was passed in respect of the female debtor at the meeting of her creditors held that day. On 12 July 1979 the trustee received a letter from the solicitors for the debtors dated 5 July 1979 referring to various matters which I need not deal with except to say that it alleged that all creditors of the debtors were not notified of the meetings of 27 April 1979 and 30 May 1979; and that the debtors wished to propound deeds of arrangement which they asserted would be of greater benefit to the creditors than deeds of assignment. The trustee replied by letter of 16 July 1979. On 17 July 1979 the trustee sent to creditors of the debtors of whom he waS aware a notice of a meeting of the creditors of both debtors to be held on 1 August 1979 to consider the matters raised in the letter from the solicitors of 5 July 1979. The meeting of creditors of both debtors was held on 1 August 1979. There was a considerable amount of ee ee te ee ce et ere nen mere T° discussion about the proposed deeds of arrangement. No resolutions were passed. The debtors do not challenge the validity of the meetings of 27 April 1979 or of the special resolutions passed thereat requiring each of them to execute a deed of assignment. There is some dispute, to which I shall refer later, whether the debtors told the trustee before the April meetings that certain persons were their creditors and therefore ought to have received notice of the meetings; but it was not suggested that any failure to give notice to these persons rendered the meetings incompetent. Doubtless this is because of the provisions of s. 194 (4) which provides that where there has been a failure to give notice of meeting to each person who is stated by the debtor to be a creditor the meeting shall not be deemed incompetent to act for the purposes of Part X of the Act by reason only of that failure unless the court otherwise declares. No application has been made to the court for any such declaration. What is submitted on behalf of the debtors is that, although they failed to execute the deeds of assignment, they did not do so without sufficient cause. It is this question on which the proceedings turn. The debtors submit, in the alternative, that even if I were satisfied that they had failed without sufficient cause to execute the deeds,in the - oe owe -- are ne ee eee te Ree ee eee wee - pee -10- exercise of the court's discretion, I ought not to make sequestration orders. Section 221 (1) (b) of the Act provides:- "221 (1) Where -- (b) a debtor, having been required by a special resolution of a meeting of creditors called in pursuance of such an authority to execute a deed of assignment or a deed of arrangement or to present a debtor's petition, has failed, without sufficient cause, to execute the deed within the time prescribed by this Act or to present the debtor's petition within the time required by the special resolution; the Court may, if it thinks fit, on the application of a creditor or. the controlling trustee, forthwith make a sequestration order against the estate of the debtor." The first matter relied on by the debtors is the alleged failure on the part of the trustee to give notice of the April meetings to three creditors of each of the debtors namely, Mannigel senior, Mrs. F. A. A. Mannigel (Mannigel senior's wife and the mother of the male debtor) and South Queensland Broadcasting Corporation Pty. Limited ("South Queensland Broadcasting"). Turning first to Mannigel senior. He claims to be a creditor of the debtors in the sum of $35,500.00. He says "that of that sum, $4,500.00 was lent by him in about January or February 1976 repayable on demand; and that the balance Of $31,000.00 was lent by him on or about 8 September 1978 yer -l1- for a period of two years with interest payable at the rate of $320.00 per month. The male debtor has sworn that Mannigel senior lent his wife and himself jointly the sum of $35,500.00 and he corroborates what was said by his father. No evidence has been given in the proceedings by the female debtor. The trustee does not dispute that Mannigel senior is a creditor of the debtors in the sum of $13,000.00 but he asserts that it has not been established to his satisfaction that the debt is for any larger sum. fThere is in evidence a document described as a statement of affairs of Mannigel senior, Part V of which shows a loan by Mannigel senior to the male debtor of $13,000.00. There 1S some question as to whether this document 1s in truth a statement of affairs. It came into' existence after the meeting of Mannigel senior's creditors on 27 April. It was not prepared by Mannigel senior although the front page of the relevant document, which purports to be an affidavit verifying the statement of affairs, waS signed by Mannigel senior, but not sworn by him. Nevertheless, it is clear that Mannigel senior, by allowing the trustee to act on the faith of the document, held out to him that the amount of the loan from himself to his son was $13,000.00. There is no evidence before me to establish that the loan is more than $13,000.00 except the -12- evidence of Mannigel senior and the male debtor to this effect. No cheques, receipts, bank statements, bank deposit books, written agreements or memoranda or any other documentation, if 1t exists at all, has been tendered in evidence. As to the meeting of 27 April of creditors of the male debtcr it is clear that Mannigel senior attended that meeting, voted in favour of the passing of a special r resolution to require the male debtor to execute a deed of arrangement and abstained from voting on the motion to pass a special resolution to require the male debtor to execute a deed of assignment. At the meeting of creditors of the female debtor held on 27 April, Mannigel senior abstained from voting on the resolution to pass a special resolution to require the female debtor to execute a deed of assignment. No motion was put to the meeting to pass a special @ resolution that the female debtor execute a deed of arrangement. Thus, even if Mannigel senior had not been given notice of the meetings of each of the debtors held on 27 April 1979, his attendance, voting and abstention indicate that nothing turns on the question whether he is a creditor in the sum of $13,000.00 or any other sum. As to the later two meetings, Mr. Urquhart woe men ee eee - - oe eee nn ee ene "4' ee ee GeV NR AERO RS ey er re coe tered | yore my ree a ed allele oe RE TE Re orm ne oe Let aap er Bn RPT OR IER ITT mene wee NOOR ne tee -13- submitted that s. 201 of the Act is conclusive of the matter. That section provides:- "201. Any question as to the right of a person to vote at a meeting under this Division, or as to the amount of the debt in respect of which a person is entitled to vote at such a meeting, shall be determined by the chairman, who may, if he thinks it necessary to do so, adjourn the meeting for a period, not exceeding fourteen days, to enable him to investigate the matter." The trustee, as trustee of the deed of Mannigel senior, exercised no right to vote at any relevant meeting of creditors of either of the debtors after the April meeting. He said that, 1f£ he had been required to vote, he would have done so restricted to the sum of $13,000.00. If the trustee had not been validly appointed as trustee of the property of Mannigel senior, then something may have turned on the events of the later meetings. As I have held that the deed of assignment signed by Mannigel senior is not void, for the reasons given by me later in my reasons for judgment, no question arises as to the later two Meetings. Even if some questions had arisen, in my opinion s. 20] would have been conclusive of the matter in favour of the trustee. Mrs. F. A. A. Mannigel asserts that she is a creditor of the male debtor in the sum of $20,000.00 and a creditor of the male and female debtors jointly in the sum of -14- $600.00. . As to the $20,000.00 she has sworn that this was a loan made by her to the male debtor on or about 8 September 1978 for a period of two years with interest at the rate of $233.00 per month. She says that she was told by the male debtor at the time the loan was made that he needed the money to purchase shares in Mannigel Broadcasting Co. Pty. Limited ("Mannigel Broadcasting") which, at that time, was purchasing radio station 4VL in Queensland. On or about 8 September 1978, she authorised her solicitors, Messrs. Hunt ané@ Hunt, to transfer by telegraphic transfer the sum of $20,000.00 to the account of one Frank Moore, who was also a Shareholder in Mannigel Broadcasting. . The male debtor corroborates his mother's evidence and he swears that, prior to the loan of $20,000.00 being made by her, the money was intended to be lent to Mannigel Broadcasting to enable it to purchase radio station 4VL. At the Australian Broadcasting Tribunal hearing as to the proposed purchase, it was indicated to him that 1t would not be acceptable to the Tribunal if Mannigel Broadcasting borrowed all its capital to purchase the station. He said that he purchased a 65% shareholding in Mannigel Broadcasting with the assistance of the $20,000.00 loan. The trustee swore that, before the 27 April Nores ove se pees - - mee et nee ee eee eer ee cee (hd awn me -15- meetings, he had seen a copy of an undated deed executed by all parties being a deed of loan by Mrs. F. A. A. Mannigel as lender to Mannigel Broadcasting as borrower, the repayment being guaranteed by the male debtor and Mr. Kirton which records that Mrs. Mannigel had advanced to Mannigel Broadcasting $20,000.00 with interest at the rate of 14 percentum per annum. Mrs. Mannigel gave evidence that she signed the original of the document, a copy of which was tendered in evidence, in the presence of the other signatories and that she did so after she was told to do so by her solicitor. She said that she gave the instructions to Messrs. Hunt and Hunt to transfer the $20,000.00 by telegraphic transfer into the account of Mr. Moore before she signed the original of the loan agreement between herself and Mannigel Broadcasting. The copy deed of loan contains the usual acknowledgment of receipt by the borrower of the moneys advanced. It was on the basis of this document that the trustee came to the decision, before the 27 April meeting, that Mrs. Mannigel was not entitled to vote as a creditor of the male debtor in respect of the alleged loan of $20,000.00 because she had not lent the money to the male debtor but to Mannigel Broadcasting and, 1n any event, on the face of the @ocument, she was but a contingent creditor and, contingent -16- creditors are not entitled to vote at meetings under Division 2 of Part X of the Act: s. 198 (2). As to the 27 April meeting of the male debtor, Mrs. Mannigel was present at each of the meetings. The minutes do not show any request by her at the meeting to be entitled to vote. Nor do they record whether she did or did not vote or abstain from voting. She gave no evidence as to whether she voted or abstained from voting, indeed she gave no evidence whatever about what occurred at the meeting. Accordingly, even if she was a creditor of the male debtor in the sum of $20,000.00, there is nothing in relation to the 27 April Meeting that would operate in her favour so far as the applications before me are concerned. As to all relevant meetings the trustee relies on s. 201 as the source of his authority for declining to recognise Mrs. Mannigel as a creditor of the male debtor in the sum of $20,000.00. In my opinion, the trustee is correct. As to Mrs. Mannigel's claim that she is a creditor of both the male and female debtors jointly for $600.00, she says this was lent by her to them jointly in April 1979 and that she was told by the male debtor at the time that the money waS needed to pay holiday and severence pay to an employee of the Nowra Camera Centre who was leaving the -_- ten me een ee ee ee ee ee rer meee' JR reer eerie ene carmen ono emer n meereeyrrrre oemcwerarrenemeramrenmers, wears Saree ot om mew i Ca ee eT -17- employ of that. business, The male debtor has corroborated her evidence. Nothing turns on this debt in relation to the meeting of 27 April for the reasons I have already mentioned; but,in addition, there is no evidence that Mrs. Mannigel ever asserted, prior to these proceedings, to the trustee that she waS a creditor in respect of the $600.00. In any event, nothing turns on this point. Nor was there any suggestion to the contrary by Mr. Davies who appears for the debtors and for Mannigel senior. The third person whom it 1s alleged by the debtors did not receive notice of any of the relevant meetings is South Queensland Broadcasting. The male debtor has sworn that South Queensland Broadcasting lent him $15,000.00 on or about 1 September 1978 to assist him in the purchase of shares of Mannigel Broadcasting to which I have referred earlier. The trustee has sworn that, to the best of his recollection, he believes he saw a document which created obligations to repay the sum of $15,000.00 not on the part of the male debtor, but on the part of Mannigel Broadcasting, and that the document was similar to the one to which I have already referred as being the deed of loan between Mrs. Mannigel and Mannigel Broadcasting, with the male debtor as guarantor, The trustee said that he received certain information from a firm of solicitors, then acting for the ee. eT eS woe te ny we ae eee - em ee verre oer weer eee ~18~ male debtor and that, on the basis of that information, he formed the view that South Queensland Broadcasting was not a creditor of the male debtor. Again the trustee relies on s. 201. Again in my opinion he was entitled to rely on that section in treating South Queensland Broadcasting as at best a contingent creditor and therefore not entitled to vote at any relevant meeting. Mr. Davies raised another matter relevant to the 1 August meeting. He submitted that, although no resolutions were passed at that meeting, the position might have been different and the debtors might have been directed to execute deeds of arrangement to give effect to proposals they favoured if the three persons mentioned earlier had been allowed to vote. The proposals envisaged the business of the Nowra Camera Centre being allowed to trade on certain terms for a limited period. There is some evidence that those proposals had the approval of various creditors, the value of whose debts was $30,055.66 (excluding Mannigel senior Mrs. Mannigel and South Queensland Broadcasting) and that the value of creditors who were opposed to the proposals was $37,168.33. If Mrs. Mannigel, South Queensland Broadcasting and Mannigel senior had been allowed to vote in respect of their alleged debts, (Mannigel senior's right to vote being wee wee ow - . ee a ee ne ee ee ee ree ee eee iat td Lddibeiie' aeseneat he ie -19- based on the assumption that the deed relating to his property is declared void in these proceedings) it is said that their votes would have been in favour of the proposals and almost sufficient in value to enable the proposals to be accepted. It was common ground in argument before me that the Maximum value of the debts due to creditors of either of the debtors at the meeting of 1 August, even including these disputed debts, would have been 73.63%. This would not have been sufficient to obtain the passing of the requisite special resolution. Mr. Davies submitted that the relevance of the point was that the course of events might have been different. This submission 1s contingent upon the acceptance of the earlier contentions that Mrs. Mannigel, South Queensland Broadcasting and Mannigel senior were creditors in the sum to which I have referred. As these contentions have failed, so does this contention. Even uf those earlier contentions had not failed, I am not satisifed that any relevant conclusion can be drawn from the fact that there would have been 73.63% in value of creditors at the 1 August meeting prepared to accept the deed of arrangement. For these reasons, I am satisfied, in exercising my discretion, that each of the male debtor and the female debtor was required by a special resolution of a meeting of Ne Mewes "ow a a ee ew ne eee ee ee ee - _peoe ee mee a re cee ee Bla -20- creditors called pursuant to an authority signed by each of them under s. 188 of the Act to execute a deed of assignment and that each of them failed, without sufficient cause to execute the deed within the time prescribed by the Act. I am satisifed that a sequestration order should be made against the estate of each of the debtors. As to matter No. 74 of 1979 (Part X), Mr. Davies submitted that Mannigel senior signed the deed of assignment on 18 May 1979 conditionally on the male and female debtors signing the deeds of assignment which they had been directed to sign at the meetings of 27 April; that it was never his intention to sign his deed alone as he was a partner with the Male and female debtors in the camera store business at Nowra and in those circumstances, it would have been inappropriate to have signed the deed alone; and that the male and female debtors did not intend to sign deeds of assignment. Mannigel senior complied with the direction. The application 1S made under s. 222 (1) of the Act on the ground that there is a doubt on a specific ground whether the deed of assignment of Mannigel senior was entered into in accordance with Part xX or complies with the requirements of that Part. Mr. Davies relies upon the fact that the creditors of Mannigel senior resolved at the meeting of 27 April 1979 that his assets be not realised until the . were OT ee ee Rete pS mee ene are remem re CRAIC TN TET Dees mmm qromeep mmr or mineg ees mr 8 "ge eR Te seg een Ep ee Dees eat ke A aT TE a TNF ERNE wer ieee oer ee ane eee ee ee wee bee ee ee ee etree ee, er ne ee " - ~- ae aes we et — ee at ae een aed i ae Aa amie ale Same Mon ar ees Cn ee tm ene , Nn a le ee ~21- assets of the male and female debtors had been realised or two years had elapsed whichever occurred first, aS supporting his argument that the deed of assignment of Mannigel senior was to be executed in conjunction with the deeds to be executed by the debtors, The evidence establishes that Mannigel senior was required at a duly convened meeting of his creditors under Part xX of the Act to execute a deed of assignment. This he did. In executing the deed, he may have been motivated by various considerations and intended all manner of things. In my opinion, the evidence does not establish that the resolution of the creditors requiring Mannigel senior to execute a deed of assignment was conditional upon anything, let alone conditional upon the male and female debtors signing deeds of assignment themselves which they had been directed to sign at earlier meetings on the same day. The resolutions of the creditors of the male and female debtors and of Mannigel senior passed at three separate meetings on 27 April, required each of the debtors and Mannigel senior to execute a deed of assignment. It was open to any or all of the debtors and Mannigel senior to execute deeds of assignment or not. The Act provides what 1s to happen in the event of the deeds being executed, or not executed as the case may be, by all or any of them. I see no inconsistency ve NE eye me - Ge wee - en Tr en re teem re ees me cn oree bee emer eee -22- between the affairs of the debtors being administered in bankruptcy following the making of summary sequestration orders and the affairs of Mannigel senior being administered under a deed of assignment under Part X. It may not be a commonplace, but it is not unusual. In my opinion it has not been established that there is a doubt whether the deed of assignment executed by Mannigel senior was entered into in accordance with Part X or complies with the requirements of that Part. The application of Mannigel senior fails. I order that application No. 74 of 1979 (Mannigel senior's application) be dismissed. I stand the application over to a date to be fixed for argument on the question of costs, 'As to application No. 71 of 1979 (the female debtor's. application) I am satisfied as to the matters required by s. 221 (1) (b) of the Act. I make a sequestration order against the estate of Carolyn Nancy Mannigel. I order that costs be taxed and paid according to the Act. I direct that a draft of this order be delivered to the registrar within seven (7) days in accordance with rule 124 (2). As to application No. 72 of 1979 (the male debtor's application), I am satisfied as to the matters required by s. re a a ar ar wees - ne se ee mt rr eee ene ee Cee SER ee « rrsopernetce so Tomrenry me rere — np wre ome tie nen yee RF SONGS IS CCIE Et Pe a ie tl | UREN TUT en yz -23- 221 (1) (b) of the Act. I make a sequestration order against the estate of Gunther Henry Frederick Mannigel, I order that costs be taxed and paid according to the Act. I direct that a draft of this order be delivered to the registrar within seven (7) days in accordance with rule 124 (2). { certify that this and the Yiven § 4 Your (2) Pre eding pages are a true copy g the Reasons for Judjment herein of his Honour Mr Justice Lockhart, nt Lieb MG — Assy giate- Dated: 3 Deven fis Wi we ane pe en we eee ee ee ad IN TOL PPPFRAL CO RI OP AUSTRILES ) GFALRAT DIVISION BANKREELOY DER IROr Op Ti SPyty Now WITH oP 19oge OP NEW ber WTS AND UE } AUSTRALIAN CAPITAL TLURRTLOR ) CA PARLE: WEETAM PL RD NDA Appticant LIBERTY Mofo AGl 1 ST yt £7 ORDER JUDGE MAKES ORDER: WKUERE MADE: DATE _OT ORDER: THE COVRT ORDERS THAR: i. It be Geclared that Tarst Pespou lene De oT. FVANE (ee reader dead Peo, Want) fa malic} Second Po cponden' s LOChEARI 7. SIONLY OCPOBLR 1979 the sum of *16,699.12 (torcihes with interest that has accrued thereon) lejd Wy the Jae dct ft Buildiug Society of 55 Gawler Place, in the goint names of the bankrupt 1s not a divisible Barnett Hyams. 2. with interest accrued thereon 15 held by upon 3. asset an the baukrurt estate eof c H Adetarde, Soulh Aas TFegpon sweets the secoid 337 and fonalid Tt be declared that the said swan of £16,699.12 together the said Lasdeliay, trust for the farst respondeut. The said sum of $16,699.12 topether with inteowet SIC 1 we thereon be paid to the iarst responder 4, The costs ot ald second respovdents being be paid ont of the rund. partios, those as submittine This order 15 of the respondents, made by consent. -l- IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE NO. W174 OF 1976 OF NEW SOUTH WALES AND THE eee ee eee AUSTRALIAN CAPITAL TERRITORY RE RONALD BARNETT HYAMS EX PARTE: WILLIAM EDWARD ANDREW Applicant LIBERTY MORTGAGE UNDERWRITERS (S.A. PTY. LIMITED First Respondent D.J. EVANS (a male) and P.D. MURRAY (a male) Second Respondents REASONS FOR JUDGMENT a ft. 4, fr, A 1979 LOCKHART J. This is an application by the trustee of the estate of Ronald Barnett Hyams ("the bankrupt") for a declaration that the sum of $16,699.12 held by the Hindmarsh Building Society of Adelaide in the joint names of the bankrupt and the second respondents, together with accrued interest (I shall refer to the said sum and the accrued interest as "the fund"), is a divisible asset in the bankrupt's estate and a declaration that the trustee is entitled to the fund and an -2- order that the fund be paid to the trustee. The first respondent opposes the application on the following grounds:- (a) that the fund 1s not a divisible asset in the bankrupt's estate; and (b) that the fund, which represents the net proceeds of sale of certain land at Belair in South Australia on which a house is erected ("the house"), should be paid to the first respondent, now in liquidation, on the ground that the house was held by the bankrupt upon trust for the first respondent. The second respondents are landbrokers of Adelaide who acted on the sale of the house and deposited the net proceeds of sale namely $16,699.12 with the Hindmarsh Building Society of Adelaide. The second respondents submit to the court's order in this application. The issue is whether at all material times the house was held upon trust by the bankrupt for the first -3- respondent or was the bankrupt's own property beneficially. It is agreed by the trustee and the first respondent that the beneficial entitlement to the fund will follow automatically the beneficial entitlement to the house. The following facts are not in dispute. The bankrupt became bankrupt on 12 April 1976. He controlled a number of companies including the first respondent. The first respondent was incorporated in Soutn Australia on 15 June 1972 and was wound up on 14 April 1975. All the issued shares in the capital of the first respondent were owned beneficially by the bankrupt. He was a director of the first respondent. A company, Adelaide Estates Pty. Limited, was a director of the first respondent; but it was owned and controlled by the bankrupt. The other director of the first respondent, Philip John Beacroft, resigned on 31 December 1973. He took little, if any, part in the affairs of the first respondent and no part in relation to the activities of the first respondent relevant to this case. Thus the bankrupt controlled the first respondent. On 27 July 1972, an option in writing to purchase the house was granted to the first respondent or its nominee -4- by Englebert tLedwoch = and Magdalene Ledwoch. The consideration for the grant of the option was the sum of $10.00 and the purchase price of the house was $18,975.00. The option was to be exercised by notice in writing on o1 before 3 August 1972. The option fee of $10.00 was paid by one, Gordon Anable, the South Australian manager of the first respondent, and subsequently repaid to him from the funds of the first respondent. On 3 August 1972 the first respondent entered unto an agreement in writing with Englebert and Magdalene Ledwoch to purchase the house from them for the purchase price of $19,065.00. The difference of $90.00 between the purchase price provided for in the option and the actual purchase price is represented by the inclusion of certain furniture in the sale. The agreement for the sale of the house treated the option fee of $10.00 paid on 27 July 1972 as the depcesit payable under the agreement. Gordon Anable was the South Australian manager of ~5- the first respondent from the date of its incorporaticn until his death in 1975. He resided in the house between 1972 and 1975. In 1972, the first respondent opened bank accounts with the Morphett Street branch of the National Bank of Australasia Limited ("the bank"). Mr. A. R. Barnes, the then manager of that branch, wasS approached shortly before 2 August 1972 by the bankrupt who requested the bank to lend the first respondent $12,500.00 to assist in the purchase of the house. During the conversation the bankrupt told Hr. Barnes that the first respondent wished to purchase a house for the use of its South Australian manager and that 1t was to be used by successive managers of the first respondent. The bankrupt requested that the loan be a long term loan. Mr. Barnes had a discussion with Mr. Anable on 2 August 1972 when Mr. Anable reaffirmed that the first respondent wished to borrow the moneys for the purpose of purchasing a house for the use of the loca] manager of the first respondent and successive local managers. Mr. Barnes told him that 1t was not the policy of the bank to grant housing loans to a company and the such Loan would need to be made to an individual. This had also been made clear by Mr. CASTCURORDS Bankruptcy - whether properis held upon trast by whe bankrupt for a conpany or whetner property held benue?Pacsal ly for bankrupt - resulting trust. re; RONALD BARNIIT WYAMS PA PARTIR: WYLiTAS) PoWARD ANDRIW No. W174 of 197 LOCKHART J, 15 OCTOBFR 1979 ~6- Barnes to the bankrupt at their earlier meeting. Mr. Anable said that he would get in touch with his principal in Sydney and inform Mr. Barnes of the result of the discussion. There was a further meeting on 4 August 1972 between Mr. Barnes and Mr. Anable in which Mr. Anable requested that the loan be made in the name of the bankrupt. He told Mr. Barnes that the repayments would be made by the first respondent with the local manager paying rental to the first respondent. Mr. Barnes told Mr. Anable that this appeared to be a reasonable request, provided the bank's conditions were met. He told Mr. Anable that he had not encountered this type of loan before. Subsequently an application for a loan of $12,500.00 was made by the bankrupt to the bank. It was approved and granted. The bank secured repayment of the loan by a mortgage over the house. The purchase price of the house was paid as to $12,500.00 by the said loan from the bank to the bankrupt and, as to $6,713.10, by a company, Liberty Developments Pty. Limited ("Liberty Developments"). Liberty Developments, also now in liquidation, 1s a company which, at all material times, was controlled by the bankrupt. By memorandum of transfer dated 4 October 1972 the house was transferred by Englebert and Magdalene Ledwoch to the bankrupt. The first respondent authorised the bank to pay each month from one of its banking accounts with the bank, $150.00 in reduction of the principal of $12,500.00. The requisite authority was signed on behalf of the first respondent by the bankrupt. The said sum of $12,500.00 together with interesc tHereon was repaid to the bank as follows:- (a) 23 instalments of $150.00 each, totalling $3,450.00, paid by the first respondent and drawn on its account with the Morphett Street branch of the bank; (b) Payment of the sum of $5,000.00 by the first respondent on 5 May 1974 drawn on the imprest account of the first respondent with the bank. This payment was specifically -g- authorised by the bankrupt; (c) payment of $8,657.66 being part of the proceeds of the subsequent sale of the house. The first respondent used its funds to pay the stamp duty payable on the purchase of the house and the mortgage fees relating to the loan by the bkank. Payments were made from time to time by the first respondent out cf its funds for the purpose of maintaining the house and paying the electricity bills. The bankrupt made two payments of land tax in respect of the house out of his own account with the Commercial Banking Company of Sydney Limited at its Castlereagh and Hunter Streets Sydney branch, one for $11.55 and the other for $11.00. By contract note dated 8 June 1975, the bankrupt agreed to sell the house to Charles Anthony Hamlin and Phyllis Patricia Hamlin, for the sum of $26,500.00. By memorandum of transfer dated 28 Novembcr 1975, the bankrupt transferred the house to Mr. and Mrs. Hamlin. -9- After deducting from the sum of $26,500.00 certain costs and expenses and the sum of $8,657.56 payable to the bank as mortgagee, the net proceeds amounted to $16,659.12 and were deposited with the Hindmarsh Building Society by the second respondents. The moneys have been earning interest Since then and together represent the fund. I now turn to the facts which are in dispute. The bankrupt claims that subsequent to his conversations with Mr. Barnes in or about August 1972, he decided that the following transactions should take place:- (a) that the house would be purchased in his name; (b) that the house would be made available to Mr. Anable for his occupation so long as he remained the South Australian manager cf the first respondent and subsequently wou'd, at the discretion of the bankrupt, be available for occuption from time to time for future managers for South AuStralia of the first respondent; - (d) The -10- that the instalments payable to the bank under the mortgage would be paid by the first respondent; and that those payments would not be charged to the bankrupt. bankrupt says that, in forming those intentions, his purposes were as follows:- (a) that Mr. Anable was an undischarged bankrupt and, therefore, it was undesirable in nis interests that his salary should be increased. It was more in his best interests that he should receive accommodation rather than an increase in salary. The reason for this is obvious namely that, the greater the income of Mr. Anable as an undischarged bankrupt, then the greater the likelihood that an application would be made under s. 131 of the Bankruptcy Act 1966 ("the Act") for an order for payment of part of the income of the bankrupt to the trustee of his -ll- estate for the benefit of his creditors; (b) the bank was not prepared to lend money to the first respondent for the purpose of purchasing the house, but was prepared to lend money to the bankrupt for that purpose; (c) the quid pro quo which the bankrupt required for making himself personally liable to the bank on the mortgage was that the mortaage would ultimately be discharged by the first respondent. The bankrupt gave evidence which 1s vague and unclear, but 1s to the effect that in some way, when the mortgage to the bank was discharged, $1,200 or $1,500.00 of the moneys applied to discharge the mortgage were moneys previously deposited by him with the bank. The question is whether the bankrupt held the house on trust for the first respondent. The bankrupt was the registered properietor of an estate in fee simple in the house. The transfer from the -12- former owners of the house was to the bankrupt, not the first respondent. He mortgaged the house to the bank and became liable to it to repay the principal and interest. He paid some land tax due in respect of the house, albeit small sums. In these circumstances, it would not be lightly concluded that the bankrupt was a trustee of the house. The negotiations that led up to the purchase of the house were conducted by the bankrupt and Mr. Anable. The house was to be purchased by the first respondent until the bank's requirement, that a housing loan must be made to an individual, was made known to the bankrupt. It was then that the decision was made by the bankrupt that he be the purchaser of the house and that he grant the mortgage to the bank to secure the greater part of the purchase price, namely $12,500.00. The bankrupt accepts this; but he claims that, after the discussions with Mr. Barnes, he decided that the house would be purchased in his name, and that he would be the owner of the house. He said in evidence that he took this decision partly because the bank would not lend the money to the com,any and partly because "I felt it was a good buy and worthwhile for me to take the matter up personally". -13- I do not regard the bankrupt as untcutchful; but he 1s not a reliable witness. I formed the firm impression that he had rationalised the facts, stemming from his becoming the purchaser of the house, granting the mortgage to the bank and assuming personal liability to the bank for repaymeut of principal and interest, to the point where he regarded himself as being the equitable owner of the house. It is, perhaps, easy for a person to think this when he 1s at the helm of a group Of companies in which he is intensely interested and which he controls, and to regard the funds and property of each member of the group as being, in a global sensc, h's own property. In my opinion, this is what the bankrupt has done in the present case in relation to the house. I did not find his evidence convincing. I do not accept his explanation that, at or about the time of the purchase of the house, he Gecided that the quid pro quo which he required for making himself personally liable to the bank on the mortgage was that 1t would be discharged ultimately by the first respondent. My view of the bankrupt is based, not only on his demeanour in the witness box, but on an evaluation of the objective facts. It emerged in evidence that the bankrupt had been convicted of a number of offences including the misuse of property of the first respondent and of another of the bankrupt's group of -14- companies and that he had been sentenced to a term of imprisonment. In all the circumstances of the case, I do not regard those matters as having any adverse bearing on the bankrupt's credibility. The probabiiities do not support the bankrupt's case. If the mortgage payments had been made to the bank out of the funds of the bankrupt and not those of the first respondent, the bankrupt's case would be much stronger; but the fact is that, notwithstanding that the mortgage wac granted to the bank by the bankrupt personally (the inevitable result because of the bank's policy as to housing loans) all repayments were made by the first respondent to the bank out of its funds and not the funds of the bankrupt. The bankrupt gave some evidence to the contrary. He satd under cross examination:- "Did you make any payments under the mortgage granted to you by the National Bank?-~Yes. On the finalisation of the mortgage there was a complex series of transactions between me personally and the National Bank. This followed the sale of .the house?---No. That was a question of some -15- of the settlement of the proceeds, Whatever waS owing at the date of settlement by you to the National Bank was payment out of the settlement monies and paid to the National Bank?~--No. I think I had certain monies on deposit with the National Bank and the series of transactions, which I cannot quite recall, where some of those monies were Supplied against the mortgage. Can you tell me what was applied against the mortgage?---I think $1200.00 or $1500.00, as I recall. Do you have any documentary evidence in your possession to substantiate that statement ?---No. You are simply relying on your memory to Support the statement?---I remember 1t quite clearly because it was complex and I did not quite unGerstand the transaction. Other than that payment, did you make any other payments under the mortgage?--~Yes, amounts paid charged to my loan account. The payment was $150.00 a month?--~Yes. Who made those payments?---Liberty Mortgage Underwriters (S.A.) Pty. Limited. Do you say those payments were debited against your loan account?---No. In fact, you did not make any payments whatsoever under the mortiyage?--~Yes. There were payments made - as I recall, there was one lump sum payment made. And do you say you made that payment?---Made on my behalf. On your behalf by the South Australian -16- company?---No, by the New South Wales companies of the monies standing to my eredit in my loan account. That lump sum payment was to assist in the diminution of the amounts owing under the mortgage?---Yes. Was that $5000?---Of that order. Would you look at JHIJ 14 to that affidavit: it is a photostat copy of a cheque dated 5 April 1974 for $5000.00?---Yes. Is that the sum you were referring to?-~-As I recall it, that was the money transferred from the New South Wales companies to the South Australian company. Is that the sum to which you refer?--—Yes. You say that $5000.00 was funded by the New South Wales companies?---As I recall, yes. Would you please turn to JHJ 16, the fourth paragraph which refers to a payment of $5,000 out of a shopping centre settlement undertaken by Liberty Mortgage Underwriters (S.A.) Pty. Ltd?---Yes. It appears from that letter which you wrote the $5000 was paid out of funds of Liberty Mortgage Underwriters (S.A.) Pty. utd?---I do not say that 158 definitely correct. I cannot say that is the position. As I understand it, the funds were to have been coming from New South Wales. The settlement referred to in that letter was a settlement of property owned by Liberty Mortgage Underwriters (S.A.) Pty. Ltd?---Yes, -17- The date of your letter is 2 April 1974 and 1f you turn back to JHJ 14 the date on the cheque is 5 April 1974?---yYes. Do you still contend the $5000.00 payment of that cheque came from some other company than from Liberty Mortgage Underwriters (S.A.) Pty. Ltd?---It would appear from this that may be incorrect, but that was my understanding of the position." The bankrupt's evidence as to the payment of $1,200.00 or $1500.00 1s too vague to be accepted and it has no documentary support. Further, his attempt to assert thet about $5,000.00 was paid to the bank on his behalf under the mortgage wasS unconvincing, and I do not accept it as a correct statement of fact. Also some $6,713.10 part of the purchase price was paid neither by the first respondent nor the bankrupt but by Liberty Developments. I do not regard that fact as supporting the case of the bankrupt, or for that matter, lending any strong support to the case of the first respondent. It is a somewhat neutral matter. Presumably, Liberty Developments had the funds available to enable it to contribute to the purchase of the house, although the evidence is by no means clear as to why it was used as the vehicle for payment of the balance of the purchase price. -18- Certainly no submission has been made, nor would the evidence Support it, that Liberty Developments has a benoficial interest in the house. The bankrupt's case might have been supported 1f the books and records of the first respondert had been tendered in evidence to establish that, notwithstanding tnat the mortgage payments were made to the bank by the first respondent, nevertheless they were treated in the books of the first respondent as being made on behalf of the bankrupt. None of those books were produced, the reason being, according to the bankrupt, that although it was Mr. Anable's duty to engage an accountant to write up the books of the first respondent, this was not done. Not only 1s there no evidence that the payments made by the first respondent to the bank under the mortgage were made on behalf bankrupt, nor did he make any repayments to the first respondent in respect thereof. On the bankrupt's case, he would not be required to pay moneys to the first respondent because of what he called the quid pro quo; but these matters tend against accepting the bankrupt's ease as relible and accurate. -19- Why the bankrupt paid the cnall amounts totalling $22.50 in relation to land tax 1s not clear from the evidence. No explanation was offered either way on the Matter. I do not regard 1t as having any decisive effect on the outcome of this case. Correspondence is in evidence between various persons, aincluding correspondence between the first respondent and the bankrupt relating to events that occurred at or about the time of purchase of the house by the first respondent. I do not regard this correspondence as being of any real assistance in resolving the issues in this case. Some of it supports the case of the first respondent and some the case of the bankrupt. Most of it 1s equivocal so far aS concerns the issues in this case. The bankrupt emphasised that his case is supported by the steps which he took after he formed the intention to purchase the house for himself. Those steps were enteriny into the contract ain his own name, completing it, granting the mortgage to the bank himself, the making of payments by the first respondent to the bank pursuant to the mortgage, and the fact that Mr. Anable lived in the house with his family until his death in 1975. Bach of those steps 135 explicable on what I regard as the more credible and probable evidence, namely that all the events that occurred after the discussions with Mr. Barnes were because of the bank's requirement that a housii loan be made to an individual, not to a company, and that there was no change in the intention of any relevant person, including the bankrupt, that the house be the property in both law and equity of the first respondent. It was submitted, in the alternative, on behalf of the first respondent that the circumstances Surrounding the purchase of the house were such as to create a resulting trust in favour of the first respondent, giving rise to a prima facie presumption in its favour, which was not rebutted on the evidence. A resulting trust is presumed where the person who provides the purchase price directs that the property be transferred into the name of another. The purchate price may be provided in more than one form. In my opinion this 1s not a case of a resulting trust. It 1s true that the house was purchased in the name of the bankrupt; but the purchase price came from two sources: the bank as to $12,500.00 and l. -22- &A declaration that the sum of $16,693.12 (together wath interest that has accrued thereon) held by the Hindmarsh Building Society of 55 Gawler Place, Adelaide, South Australia in the joint names of the bankrupt and the second respondents is not a divisible asset in the bankrupt estate of Ronald Barnett Hyams; A declaration /that the said sum of $16,699.12 together with interest accrued thereon 1s held by the said building society upon trust for the first respondent; That the said sum of $16,699.12 together with interest thereon, be paid to the first respondent; and That the costs of all parties, those of the second respondents being as submitting respondents, be paid out of the fund. 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