CATCHWORDS Bankruptcy - composition under Part X - Chairman's Certificate under s.204 prima facie evidence by reason of s 225(3) as amended by s.122 of the Bankruptcy Amendment Act 1980 - displaced by evidence of wrongful exclusion of applicant creditor from voting - The Court declares pursuant to s.222(2) as amended, that the composition is void. Re : MARA NOVACKIS Debtor Ex parte * BANK OF NEW ZEALAND Applicant BARRY KEITH TAYLOR an A NOVACKIs Respondents C. A. Sweeney, J 30 October 1980. IN THE FEDERAL COURT OF AUSTRALIA No. 166 of 1980 X GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE QF VICTORIA e ee > Re MARA NOVACKIS Debtor Ex parte BANK OF NEW ZEALAND Applicant BARRY KEITH TAYLOR and MARA NOVACKIS Respondents ORDER JUDGE MAKING ORDER; C. A Sweeney, d. DATE OF ORDER} 30 October 1980 WHERE MADE: Melbourne. THE COURT ORDERS THAT} ° 1. The Court makes an order declaring the composition, the subject of the application, .to be void on the ground specified in paragraph 2(a) thereof. 2. It 1s further ordered that the respondents pay the applicant's costs of and incidental to the application, such costs to be taxed if not agreed. 3 Liberty to apply 1s reserved to all parties rrr nenmnnemnmn IN THE FEDERAL COURT OF AUSTRALIA No. 166 of 1980 X GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA Re . MARA NOVACKIS Debtor Ex parte H BANK OF NEW ZEALAND Applicant BARRY KEITH TAYIOR and MARA NOVACKIS Respondents REASONS FOR JUDGMENT 30 October, 1980 C oA, SWFENY J. In this application, as amended, the Bank of New Zealand (the applicant) sought the following orders - "1. An order under section 239 Bankruptcy Act 1966 setting aside a composition under Part X of the Act purportedly accepted on 14th July, 1980 by creditors of the debtor Mara Novackis on the following grounds, — rn (a) that the applicant was wrongly cxcluded from voting on the special resolution proposing the composition, which resolution would not have been passcd had the applicant not been so ecacluded and that those circumstances conslitutc an 'other reason' for the purposes of sub-section 239(2) of the Act why the composition ought to be set aside, further or alternatively (b) that the terms of the composition are unreasonable; further or alternatively that the terms of the composition are not calculated to benefit the creditors generally. 2. Further or alternatively an order under section 222 of the Act declaring the said composition void on the following grounds: (a) that there 1s a doubt on the specific ground particularised below whether the composition has been accepted by a special resolution of a meeting of creditors under section 204 of the Act. PARTICUI ARS The applicant was wrongly excluded from voting on the special resolution proposing the composition, which resolution would not have been passed had the applicant not been so excluded. " (bo) Further or alternatively that the debtor omitted a material particular from the statement of her affairs under section 195 of the Act and included an incorrect and material particular in that statement 3. Further or alternatively an order under section 242 of the Act terminating the said composition on the following grounds (a) that the applicant was wrongly excluded from voting on the special resolution proposing the composition, which resolution would not have been passed had the applicant not been so excluded and that those circumstances constitute an 'other reason' for the purposes of paragraph 242(1)(c) of the Act why the composition should be terminated, (urther or alternatively ™ as ey en te er oe 2 — e (b) that the composition cannot be proceeded with without injustice to the creditors Such further or other order as the Court thinks fit." The respondent Barry Keith Taylor, the trustee of the composition, was represented by Mr Irlicht, who alsv appeared for Mara Novackis (the debtor). The trustee oftered no submission to the Court and indicated that he submitted to whatever order the Court thought fit. The debtor based her opposition to the application on the following grounds,- ny The debtor will rely on the Chairman's Certificate dated the 14th July 1980 as prima facie evidence that a sneccial resolution was duly passed al a mecting of her creditors held on the 14th July 1980 in the following terms)- Py 'That the creditors accept a composition pursuant to the provision of Part X of the Bankruptcy Act 1966-1973 in respect of the provable debts of the debtor in the following terms - 1. That the trustce of the composition be Barry Keith Taylor of 576 St.Kilda Road, Melbourne. 2. That the debtor covenants to pay the trustee the sum of $14,000 00 for a period of two years 3. That the composition 1s made pursuant to Part X of the Bankruptcy Act 1966- 73.! The debtor denies that the terms of the composition are either unreasonable or are fot calculated to benefit the creditors generally or that there 1s any other reason why the composition ought to be set aside The debtor says further that xt would not be in the interests of the creditors to terminate the said composrtion. The debtor denies that she has omitted any material particular from her statement of affairs and says further that 1f she did so omit a material particular from her statement of affairs zr1 would not be rn the interest of the creditors to declare the composition void The debtor denies that the composition cannot be proceeded wrth without rnjustice to the creditors." It will be convenient to deal first with paragraph 2 of the application in which relief is claimed under s.222(1) and (4) of the Bankruptcy Act 1966, as amendcd by s.117 of the Bankruptcy Amendment Act 1980. 'Sub-sections (1) to (5) of the Section read as follows .- "222. (1) Where there 1s a doubt, on a specific ground, whether a deed of assignment or a deed of arrangement was entered into 4n accordance with this Part or complies with the requirements of this Part, or whether a composition has been accepted by a special resolution of a meeting of creditors under section 204 of this Act, the Registrar, the trustee, a creditor or the debtor may apply to the Court for an order under the next succeeding sub-section. (2) Upon the hearing of an application made under sub-section (1), the Court may, subject to this section, make an order - (a) declaring that the deed or composition 1s void, or that It its not void, on the ground specified 1n the application, or (b) declaring tnat a provision of the deed is void, or 1s not void, on the ground specified in the application, ~~ ut (3)° The Court shall not make an order declaring a deed to be void on the ground that it does not comply with the require- ments of this Part 1f the deed complies substantially with those requirements (4) Where the Court, on the application of the trustee or a creditor, 1S satisfied that the debtor - (a) has given false or misleading information in answer to a question put to him with respect to his conduct, trade dealings, property or affairs at the meeting of creditors at which the resolution requiring him to execute the deed or accepting the composition was passed, or (b) has omitted a material particular from the statement of his affairs under section 195 of this Act or included an incorrect and material particular in that statement, the Court may make an order declaring the deed or composition to be void or declaring any provision of the deed or composition to be void. (5) 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 the last preceding sub-section unless 1t 1s satisfied that 1t would be in the interests of the creditors to do so. " The evidence in support of the allegation that the applicant was wrongly excluded from voting was contained in the affidavit of Roger Broomhall], Assistant Manager, who attended the meeting of creditors as proxy for the applicant. <A statement of affairs by tne debtor produced to the mecting showed the anplicant as a creditor in the amount of $68,338.77 In his affidavit, Yr Brew ihali deposed that the chairman, who later becare the trustee al the composition, ruled that the applicent 'was ne entitled ito vote on the resolution uni¢ss 1t wii sili. 76 /6 forfeit the said debenture. He asserted 1n support of that ruling that the debtor's liability to the applicant was merely contingent while the said debenture remained. 1 questioned the ruling but the said chairman would not alter it. The said special resolution proposed which provided for payment by the debtor of the sum of $14,000 00 by quarterly instalments over 2 years in full satisfaction of the debt was passed. After the said special resolution was passed I again queried the satd ruling by the said chairman, legal advice having been taken in the meantime from the applicant's solicitors by telephone, Again, the said chairman refused to disturb the said ruling." It 1s quite clear that the chairman mistakenly treated the applicant as a secured creditor under s.198(5) of the Act, when in fact the applicant held no security over the property of the debtor. Mr Broomhall was not cross-examined upon his affidavit and no evidence was otfered in opposition to 1t I am satisfied that the applicant was wrongly excluded from voting, and as 1t 1S common ground that its debt amounted to 50.002% of the total liabilities disclosed by the debtor, 1ts exclusion resulted in the passing of a special resolution which would have been defeated had the applicant been given its due right to vote. The prima facie evidence in the form of the Chairman's certificate that the composition has been accepted by a special resolution of a meeting of ereditors, has been displaced by the evidence of the wrongful exclusion fT of the applicant from voting on that resolution In my opinion, this 1S a proper case for the exereise of the Court's discretion in favour of making an order, declaring that the composition is vo1d, on the ground specified 1n paragraph 2(a) of the Application, that the applicant was wrongly excluded from voting on the special resolution proposing the composition, which resolution would not have been passed had the applicant not been so excluded. It 1s not necessary to consider the other grounds relied upon by the applicant The Court makes an order declaring the composition to be void, on the ground so specified Ii 1s further ordered that the respondents pay the applicant's costs of and incidental to the application, such costs 10 he taxed if not agreed. It 1s true that the trustce made no submission and indicated that he submitted to whatever order the Court thought fit, but his conduct of the meeting as chairman was the prime cause of all the difficultics #hich followed, and he did not concede that he had been in error Liberty to apply 1s reserved to all parties.