(1 CATCHWORDS Bankruptcy - The Court being satisfied that the debtor had omitted material particulars from his Statement of Affairs. made an order pursuant to s.222 of the Bankruptcy Act 1966 declaring a Part X Composition tm be void, being satisficd that 1t would be in the interests of the creditors to do so; order of sequestration made ageinst the estate of the debtor. Re : KEITH GEORGE MORRIS A Debtor Ex parte : -HALINA WENDY ADAMS Applicant and EVERETT THOMSON BENT, as trustee of the properly of the debtor and KEITH GEORGE MORRIS Respondents. C. A. SWEENEY, J. RECEIVED 27 November, 1980, - 1DEC 1980 FEDERAL COURT OF _ AUSTRALIA IN THE FEDFRAI, COURT OF AUSTRALIA No. 24 of 1980 X GENERIL DIVISION BANKRUPTCY DISTRICT OF THE STATE - OF VIC'ORIA Re : KE1TH GEOPGE MORRIS A Debtor Ex parte : BHALINA WENDY ADAMS Applicant and EVERETT THOMSON BENT, as trustee of the property of the debtor and \KEITH GEORGE MORRIS "~~~~—~ReSpondents. ORDER JUDGE MAKING ORDER C. A. SWEENFY, J. DATE OF ORDER 27 November 1980. WHERE MADE Melbourne. TEE COURT = (1) declares the composition of the debtor of 9 April 1980 to be youd; (2) makes an order of sequestration against the estate of the debtor, the act of bankruptcy being that on 6 February 1980 he signed an authority under s.188 of the Bankruptcy. "Act 1966; (3) orders that the respondents pay tne costs of the applicant of and incidental to this application: (4) reserves genersl liberty to any pariy to apply. IN THR FEDERAL COURT- OF AUSTRALIA No. 24 of 1980 X GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA KEITH GEORGE MORRIS Re A Debtor Ex parte : HALINA WENDY ADAMS Applicant and EVERETT THOMSON BENT, as trustee of the property of the debtor and KEITH GEORGE MORRIS "Respondents. REASONS FOR JUDGMENT 27 November, 1980 C. A. SWEENFY J. The applicant, Halina Wendy Adams, is a creditor of Keith George Morris, the debtor named in a composition dated 30 April, 1980, of which Everett Thomson Bent is the trustee. The special resolution in favour of the composition was in the following terms :- ./2 "That the creditors accept a composition burstiaat to the provisions of Part X of the Bankruptey Act 1966 as amended in respect of the provabie deots of the debtor in the following ctcrms:- 1. That the trustee of the composition be Everett Thomson Bent of 144 Jolimont Road, East Melbourne. 2. That the debtor pay to the trustee of the composition a sum sufficient to provide for the fcllowing distribLution,- (a) Firstly in payment of the controlling trustee's remuneration, expenses and liabilities. (b) Second]y, in payment of the costs of administering the composition including the remuneration of the trustee. (c) Thirdly, 1n payment in full of the debts which have priority under Section 109 of the Bankruptcy Act. (dad) Fourthiy, in payment of a dividend of fifteen (15) cents in the dollar to creditors proved in accordance with the provisions of Part Vl of the Bankruptcy Act, such payment to be made not later than the 16th 'lay, 1980." The debtor and the irusice were buth respondents to the application, dated 30 April 1980, in which the followings orders were sought :- . "1. A Declaration that the composition of the debtor dated tne Sth day of April, LOS 31s void on the ground that. (a) No Certificate his been filed as reauLrred by sub-section 204(7) of the Barkruptey Act, 1966; (b) The resolution nassed on the Sth day of April, 1S€G et w reetone ot the eredi.o:¢ of tn debtor ovtleo pursaant to the perovisacns of Cart oot the Bankvupte: set, 1966 by weich (it is 3. contended by and on behalf of the Debtor and-the Respondent) a composition of the Debtor was accepted was not passed as a specia] resojutron in that the chairman of the sard meeting farlced to determrmne the questron as to the right of Generai Credits Limited to vote; cr (c) It does not appear that the meeting of the creditors of the debtor first held on the 29th day of February, i980 was properly adjourned, nor that the adjourned meetlug held on the 28th day of March, 1980 was properly adjourned by the passing ot a resolution pursuant to Section 197 ot the Bankruptcy Act, 1966 or in accordance with Sectron 201 of the said Act. Alternatively, an order declaring the said composition to be void on the ground that: (a) The debtor at the said meetings of his ereditors on the 29th day of February, the 28th day of March and the 9ih day of April, 1980 gave false or misleading information in answer to a question or questions put to him with respect to his conduct, trade dealings, property or affairs; or (bh) The debtor omitted a material particular from the statement of his affairs under Section 195 of the said Act, namely the nature and extent of his interest or interests in the companies, Howarth Pty. Ltd., Keith Leslie Pty. Ltd., Kenrich Homes Pty. Ltd., Kenrich Homes (Vic. ) Pty. Ltd. and Valith Pty. Lid., or (c) The debtor included an incorrect and material particular in the said Statemeni of Affairs, namely the debtor sigmficwmtly under-stated the amount owcd by him to General Credits Limited. Alternatively, an order that the said compositicn be set aside. Alternatively, an order thai the said compnsiticn be terminated. Further, a sequestration order tugainst the estate of the debtor. Such further or other ordeis directions or relics as to this Honourable Court mav seem fit. ou During the course of the hearing, Mr.Bigmore, who appeared for the applicant, abandoned paragraph 1(a) and (c) and paragraph 4 of the application. It will te conyenient to deal first with the applicant's claim in paragraph 2(b), which was amended tc read that the debtor had omitted the follewitng material particulars from the statement of his affairs under s.195 of the Bankruptcy Act 1966:<. "Ci) A debt due to the estate being the $7,800.00 still due and payable for the sale of the debtor's Accountancy Practice under a contract Between the debtor and one Stephen Robert Thom dated the 12th day of April, 1979; (ii) A debt due to the estate being the $24,000.00 (or thereabouts) still due and payable for ' the sale of the debtor's shares in Debonaire Air Conditioning under a contract between the debtor and one Edward Albert Kendall dated the 2ist day of February, 1978; (iii) An unsecured liability of an additional amount of approximately $100,000 owed to General Credits Ltd. or alternatively an unsecured liability of approx. $120,000.00 cwed to General Credits (Finance) Pty. Ltd; and (iv) A claim by Housing Builders Association Ltd. in the sum of $15,833.62." It became comron ground that the debtor had omitted from his statement of affairs any reference to a debt due to his estate in respect of the sale of his accountancy practice under a contract dated 12 April, -979. Mr. Hallensiein, of counsel, who appeared for the debtor and the trustee, contended that the amount outstanding was not $7,S0C as alleged but rather $5,237. Nothing turns on the difference in amount and it is uunecessary tc resclve it. Mr. Hallenstein agreed that there was a debt due to the estate in respect of the sale of the debtar's shares in Debonaire Air Conditioning but it was his submission that it amounted only to $4,080 plus interesi, which Mr. Bigmore conceded to be correct. In his final address Mr, Hallenstern at first conceded that the debt of approximately $100,000 owed to General Credits Ltd., or alternatively an unsecured liability of approximately $120,000 owed to General Credits (Finance) Pty. Ltd., was omitted from the statement of affairs. At a later stage of his address, he said that he agreed that there was an incorrect particular, under the heading of "Unsecured Creditors in the statement of affairs which so far as is material, read as follows °'- ' Name Amount Nature of Debt General Credits Ltd. $19,894.15 Money owing under a guarantee." He agreed that the correct way to have expressed the position between the debtor and that company would have been to have said that it had a judgment against him in the sum of ,819,84.15, and that 1t also had a claim against him for a further sum of $100,000, 1n respect of which he had obtained leave to defend, and setting out the circumstances in relation to that further claim. In the course cf the hearing of the present application it had become cle:.r that the debtor had conceucd at the meeting of creditors that he in fact owed General Credits Ltd. the further sum of $100,000. Since the date of the composition, Housing Builders' Association Ltd. has lodged a proof of debv with the trustee in tho sum of $15,833.62. In his affidavit, sworn on 9 June 1980, the debtor said that he was "uncertain and making enquiries about that claim". In his oral evidence given on 29 August, 1980, he sazrd the claim related to the completion of certain heuses taken over by the liquidator of two companies with which he had been associated. In his final address Mr. Hallenstein at first conceded that this was an omitted particular but later submitted that there was no evidence that the liability existed or was contingent at the time of making the statement of affairs. It clearly related to building operations, in which the debtor had taken an active part as a director of the two companies, which predated the statement of affairs. [In my opinion it was, at best from the debtor's point of yiew, a contingent liability at the time of the statement. In the result, I am satisfied that the debtor omitted the particulars from his statement of affairs, which have been considered aboye. A question remains for decision whether those particulars, or any of them, were material, within the meaning of the Bankruptcy Act 1966. The obligations of the debtaqr in relation to a statement of his affairs arise under s.iy5. sub-sections (1) and (2) of which provide as follows °-- "195. (1.) The debtor shall, unless prevented by illness or other sufficient cause, attend the meeting and shall submit to the creditors at the meeting a statement in writing, verified by statutory declaration. of his affairs. (2.) The statement of the debtor's affairs shall specify his assets and liabilities and shall include - (a) in respect of each asset - particulars of the asset, including its estimated value, (b) in respect of each liability ~ particulars of the liability including whether it 1s secured or not; and (c) in respect of any liability that 1s secured - particulars of the security." This partion of the application 1s based upon $.222 of the Bankruptcy Act 1966, sub-sections (4) and (5) of which, as amended by s.117 of the Bankruptcy Amendment Act 1980, read as follows i:-« "(4) Where the Court, on the application of the trustee or a creditor, is satisfied that the debtor - (a) has given false or misleading information 1n 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 # prcevision of a deed or composition, to be void on a ground specificd in the last preceding sub-section unless .i1t 1s satisfied that it would be in the interests of the creditors to do so." ./8 Mr Hallenstein submitted that the omitted particulars should not be held to be material hecause of explanatiors made by the debtor at the ercdilor's meeting. $.195 requires a debtor to verify his statement of affairs by statutory declaration. $.222(4) empowers the Court, if it is satisfied that he has omitted a material particular from the Statement, to make an order declaring the composition, or any provision of 1t to be void. By sub-section (5) 11 1s provided that the Court shall not make such an order unless it is satisfied that 1t would be in the intcrests of the creditors to do so. Thus, the Court's jursidiction to make such an order does not arise unless it is satisfied that a material particular has been omitted, and it 1s not to be exercised unJess 1t 1s satisfied that 1t would be in the interests of the creditors to do so. What 1s the proper construction to be given to the expression "a material particular" in s.222(4)? In re Segal : Lensworth Finance Ltd. v. Segal and Ward (1975) 9 AIR 154 at p. 157 Raley J. said :- "Bearing 1n mind the purpose of the statement of affairs J] am of opinion that a particuiar 1s material within the meaning of section 222(4){b) if it is a particular which would be relevant to and might be likely to affect the making of the decision of the creditors under section 204(1)." Under s.204(1), the creditors may, at a meeting called in pursuance of an authority under s.188 of the Act, by special resolution - ./9 ee ae et et pee mee = meee vs — wtmeeten ieee ee "Ca) Where the debtor's property is subject to control under this Division, resolve that the debtor's property be no longer subject to control under this Division; (b) require the debtor to execute a deed of assignment or a deed cf arrangement under this Part; (c) accept a composition; or (Cd) require the debtor to present a debtor's petition within seven days from the day on which the resolution was passed." I respectfully agree with Riley J. that a particular which would be relevant to, and might be likely to affect the making of a decision by the creditors under s.204(1), is a material particular within the meaning of s.222(4). The obligations of the debtor in respect of his statement of affairs are to be found in sub-sections (1) and (2) of s.195. That statement verified by statutory declaration, is the only sworn account the creditors recelye of the debtor's affairs before they make a decision under s.204(1) and the debtor may not thereafter be examined on oath, as a bankrupt may be. The statutory requirement that the statement of affairs be verified on oath seems to me to emphasise the central importance of that statement and to represent en attempt to ensure that the creditors have a complete and accurate account of the debtor's affairs. In addition to his obligations in respect of the statement of affarrs the debtor "shall, at the meeting, answer to the best of his knowledge and ability, all questions put to him by the controlling trvstee or by a creditor with respect to his conduct, trade dealings, property and affairs" (see s.195(3)}. The way in which the debtor discharges this ./10 le ree le cS A et additional obligation, and any information he spontancously presents to the meeting are amongst the circumstances which are to be considered before the Court decides whether, in the exercise of its discretion, 1t shouid make an order under 5.222, but vhey co not, inmy opinion, justify a conetusion that a particular which was material at the time of its omission from the statement of affairs loses its character of materiality. The question whether an omitted particular is material depends, jin my view, on the construction of the statement of affairs as a whole, as at the time when it was verified by the debtor's statutory declaration. A particular which is then to be regarded as material does not, in my opinion, lose that quality by reason of subsequent events. If a contrary view can be spelled out of Riley J's observations in Re Segal (at pp. 158-9), as Mr. Hallenstein contended, I would respectfully disagree with :t. If one takes the lower amount of $5,237 which Mr. Hallenstein conceded to be a debt due to the estate in respect of the sale of the debtor's accountancy practice, and adds to it, the agreed figure of $4,080 (omitting the interest which Mr. Hallenstein agrees to be due, but the amount of which was not calculated by the parties), thcre was a total sum of $9,317 omitted from his statement of affairs. The ianelusion of these amqunts would have incrcased the debtor's assets from $12,185 75 to $21,502.76. Each of these particulars was, 1n my opinio.a. material, especially when one bears in wind that the creditors were being asxed to acecpt a composition of 15 cents in the dollar. I regerd the claim hy Housing buiiders Association Ltd. as a material particular. If it were admtted . fit il. in full, the debtor calculated that he would be required to pay a further sum of $2,375.04. Bearing in mind the precarious financial position of the dehtor, of which more anon, a prudent creditor would have regarded such a possible additional Jiability as material. It may well have been caonsidcred to be the last straw, which would prevent the debtor from beiug able to meet his obligations under the composition. In a case, such as the present, where a meeting of creditors is adjourned to a later day, a particular creditor may determine his attitude towards, say, a proposcd composition on the faith of the statement of affairs alone, and give a proxy vote accordingly. If a particular, then prceperly to be regarded as material, were omitted from that statement, ?tt 1s difficult to see how it could cease to be material by reason of some unsworn statement made on a day to which the meeting was adjourned. I reject Mr. Hallenstcin's submission that an omitted particular, which, on a reading of the statement of affairs as a whole, would be regarded as material, mey cease to be so by reason of some explanation given at the creditor's meeting. Any such explanation, as had been said, 1S propcrly to be considered when the Court is considering whether, in the exercise of its discretion, it should make an order, and in 1ts determination of the test laid down by s.222(5), as amended by s.117 of the Bankruptcy Amendment Act 1980. If, contrary to the opinion I have expressed, an omitted particular, properly to be regarded as material as at the date of the debior's statement of afiairs as yerificd by his statutory declaration, may lose that characier because of events at the crecitor's meeting, it 1s necessary to Jook at the evidence relating to the meeting, which 1s relevant, in any event, to the exercise of the Court's discretion and the questiou arising under s.222(5). {12 12. The meeting opened on 29 February 1986 und the minutes recorded the following !« , "The Statement of Affairs in the prescribed form supported by a Statutory Declaration signed by the debtor was tabled and the informution contained therein made known to the creditors. Mr. Joughin pointed out that General Credits Limited was shown for an amount of $19,894.15 whereas his company would be claiming an amount in the vicinity of $120,000. He said that the matter was rather conplicated, that in the last proceedings Judsment had been entered for the amount sect out in the Statement of Affairs but leave had been granted for other matters to be defended particularly when all of the securities had been realised. He said that so far as General Credits Limited was concerned the debt had now been established at an amount of $120,000 and that unless the debior agreed to the amount claimed by General Credits Limited 11 was proposed to have the matter taken back to Court. Mr. Morris said that he was astounded at the claim made by General Credits and he suggested that vheir claim be set out in writing and addressed to his solicitors, Harle and Associates. The Meeting was informed that 1t was the debtor's intention to submit a proposal in the way of a Composition but in the light of the claim made by General Credits Limited, it was fruitless to go any further until that creditor's position had been clarified and in all the circumstances it was agrced that the only sensible thing to do was to adjourn the meeting." The following resolution was passed:- "THAT this meeting be adjourned until Friday, 28th March, 1980 at 10.30 a.m." The minutes of the adjourned mévting ou 28 March read as follows :- 13. "Creditors were reminded that the main reason for the meeting being adjourned was to allow Mr. Morris to consider his position in the light that Gencral Credits were c3aining to be a creditor tor an amount in the vicinity of $120,000 whereas he had believed the debt to be approximately $20,000, Jt had now been agreed that General Credits should be admitted as a creditor for $120,000. Mr. Morris said that he could only see his way clear to submit a proposal to his creditors in the form of a Composition providing for a payment of 15 cents in the dollar in full settlement. This offer had already been conveyed to General Credits who had given the Chairman a Proxy for him to vote for the acceptance of a Composition for the payment of that amount. Miss Adams questioned Morris at length as to his asset position and emphasjsed that his only asset was the money held by the Controlling Trustce which were (sic) his share of the proceeds of the property at 7 Karen Court, Doncaster. Mr. Berryman said that he would have to report back to the Board before making a decision on the acceptance of the offer and Miss Adams said that she would like to discuss the matter with her solicitor with whom she had an appointment this afternoon. The following resolution was passed!- 'THAT this meeting be adjourned until Wednesday, 9th April, 1980 at 4.30 p.m.' " The minutes of 9 April record a matter raised on behalf of a creditor and the debtor's answer in the following terms :- "Accountancy practice was sold for $16,009 in March 1979. Morris saird that the valuc of the practice declined considerably when the three companies wilh which he was associated and in respect of which he 16 now Jiabic for guarantees made up to 66% to 70% of his feus, the income was reduced to around $16 900 per year and was not # viable propos: tion. He said that the proceeds were usea to pay a Rank of New South tales overdraft $5,000, Bankeard $4,000, Pay ont on Jeasrs of equipment $750, Commission on y.he save 21,009 and the halance to other suucyy croditers and/or ennreutoced creditors." /14 It can fairly be said that the debtor altercd his origina] account of his liability to General Credits Ltd , but nothing occurred which wouvdd, in my opinion, jusiafy a conclusion that the debtor did anything to romedy the defects in the statement of his affairs arising from the omissions of items relating to the sale of his accountancy practice, the proceeds of the sale of the shares in Dehonaire, and the claim by Housing Builders Association Lta. The last named claim resulted from the activities of the companies, cf which he was a director, and fees from which he described as making up to 60% to 70% of the receipts of his accountancy practice. In my opinion, he must have been aware that the guarantees which he had given in respect of the building actiyities of the companics were capable of giving rise to a liability, which should have been included in paragraph 4 of Part V1JI of his statement of affairs, which read as follows ;:- "4. Particulars of my contingent liabilities and any other liabilities not specificd in a previous Part of this Statement are:- Nil." Thus, even on the construction of s.222(4) for which Mr. Hallenstein contended, nothing transpired after the making of the statement of affairs which would justify a conclusiou thst the particulars omitted in relation to the sale of the debior's accountancy practice, the sale of the Debonaire chares, asl the elaim by Housing Builders Association Ltd. ceased 10 bo materias, as, In my opznion, they were et the date of the making of that statement. //15 15. I am satisfied that tho omitted particular relating to General Credits Ltd. was explained to the creditors by the debtor and that the position was further clarifind hy the statements made on behalf of that company at the meeting In respect of that particular, the discretion which, in my opinion, is conferred upon the Court by the use of the word "may" in $.222(4), in contrast to the word "shall" in sub-section (5), should not be exercised, and an order should not ve made declaring the composition to be yoid upon the ground of the omission of that particular. However, for the reasons I haye earlier giyen, I consider that the effect of the omission of the matcrial particulars relating to the other three subject matters was not in any way remedied by the course of events after the making of the statement of affairs and, in relation to them it is necessary to consider whcthe1 the Court 1s satisfied, in accordance with s.222(5), that 1t would be in the interests of the creditors to make an order declaring the composition to be void. In his affidayit in support of his opposition to the application, the debtor swore that "as set out in my Statement of Affairs I have no assets", an assertion which is, by his counsel's justified concession, inaccurate. J , In paragraphs 82-86 of that affidayit under the heading "The Composition" the debtor deposed us fellows :- ., /AG 16. "82. The debts owed to creditors who attended the said meetings are as follows - $120,000.00 General Credits Ltd., being I believe $112,046.30 pius interest. $17,611.33 Managed Deposits Lid., being I believe $1/,316.02 plus $295.31 interest. $26,668.68 Halina Wendy Adams, being I believe $21,000.00 plus $2,798.00 unterest plus $2,870.68 costs. $164,280.01. 83. I was also aware of a claim by Boral Bricks (Wic.) Ltd. by reason of its Creditors: petition referred to herein. Since the composrticn, Boral Bricks (Vic.} Lid, has lodged a Proof of Debt with my trustee in the sum of $3,808.36, comprising $3,458.36 plus $350.00 interest. 84. Accordingly, as at the time of the approval of Composition there were known debts totalling $164,280.01 plus $3,808.36 = $168,088.37. The Composition approved by creditors was a payment of 15 cents in the dollar which would total a payment of $25,213.26. Prior to these proceedings I anticipated that the costs for which I would Le liable would be approximately $2,500.00. In these circumstances I anticipated that by reason of the said Composition I would have to find a maximum total sum of approximately $28,000.00, 85. T had intended and still intend to raise the sum of $28,000.00 forthwith as follows « $12,185.75 held by my trustee, Mr. Bent, being my share of net sale proceeds trom 7 Karen Court, East Doncaster. "$3,000.00 recently received from sale of accounting practice. $4,000.00 to be borrowed from the bank. $9,000.00 to be borrowed from my wife and mother. $28,185.75. ./17 17. 86. Since the Composition my trustee has received a Proof of Debt from the Housing Builders' Association Ltd. in the sun ef $15,833.62. At the present time 1 am uncertain and making enquiries about that clazm and £ om intormed by Mr. Pent, my trustee, and beljeye thai be has not yet admitted the Prvuof of Debt. If the claim were admitted then under the Composition I would be liable to pay a further sum of $2,375.04. I would raise this amount forthwith by borrowing it and by using whutever sum in the vicinity of $1,800.00 may yet be paid from the sale of my accountancy practice. It 1s apparent that by reason of these proceedings my costs are increasing substantially." In the course of his oral eyidence, the debtor said that the original idea for the composition was that he should provide the sum of $25,000, but that it later changed to a proposal for the payment of 15 cents in the dollar, and that calculations showed that that would involve the provision of $28,000, on the assumption that the total required for costs would be $2,500, Ne stated that he understood that he would be able to obtain a personal loan of $4,000 from his bank. The sum of $12,185.75 was held by the trustee and an amount of $8,000 received from his accountancy practice was immediately available for the purposcs of the composition. When asked how he would be able to mect the composition if he where asked to proyide an additicnal sum of $2,500 for costs, above his original estimate of $2,500, he replied that the only way would be "to borrow the additional funds which, if 11 meant rcsolying the situation, 1 woulu endeavour to do, povided the amount is not untimited ~ within reason." Asked by his counsel whether at was prebable that he would be able in fact to borrow a sum sufficient to fag 18. pay total costs of $5,000, he replied "Well, I would be hopeful of raising 11." The debtur Juoked at the terms of the composition which provided for the distribution, firstl;, in payment of the controlling trustee's remuncration, expenses and liabilities and secondly, in payment of the costs of administering the composition includang the remuncration of the trustee and said that "prior to these proceedings I anticipated that the costs for which T would be Jiable would be approximately $2,500.00" related to both these headings, and was based upon what the trustee had told him. The trustee gave evidence that his costs as controlling trustee by way of remuncration, expenses and liabilities were $1800. He had caJculated his costs as trustee of the composition up to 31 August 1980 at $1846.80. He estimated that, if the composition were to proceed fairly quickly from the date on which he gave evidence, 1 September 1980, the additional costs would be approximately $1000 and the fees payable to the Registrar in Bankruptcy would be $950. His estimates of costs did not include any amount which might be involved if there were a rejection of the proof of acbt of Housing Builders' Association Ltd. and an appeal which might involve the trial, in effect, of three building cases. In cross-examination the trustee agreed that he had inctuded 17 hours work done before he became controlling trusftec, but the costs charged in respect of thas time were not stated in evidence. 19. The debtor was then recalled by Mr Hallenstecain and asked what his position would be 1f he were called upon to find a round figure of approximatcly $8000 in respect ot costs. The transcript then read <- " ...It cerlainly is a lot higher than what I anticipated in previous considerations. As I previously intimated to your Honour, up until now I had been able to meet my commitments and T believe I will be able to raise the necessary money by borrowing either from my wife and my mother or the bank and if that is not sufficient, 1 still think I would haye sufficient good name to be able to raise it from iinance conpanies or whatever I may have to do but I certainly would like to do it to have the matter resolved. MR. HALLENSTEIN; Are you prepared to meet an amount of costs eyen as high as some $8000 for the purposes of avoiding a sequestration order? --- I am. And are you prepared to do that, realising that you may well not have to raise such a sum of money if in fact a sequestration order were made? -.- That is correct. I have no further questions. HIS IONOUR: Yes. Mr. Bigmore? MR. BIGMORE, These loans that you contemplate, Mr. Morris, do not involve the giving by you of any security? -« That is correct: J have no security to give. Do 'you know whether Valith Pty. Ltd. would be willing to offer security for borrowings by you - a mortgage say - over the matrimonial home? --- T do not know, the subject has never been raised. Under the trust decd you would agree thxut the trustec3 of that Morris Family Trust have very wide and extensive powers indced for the giving of security and the raising of finance, is that so? --~ That would be correct." 2/20 20. On 9 April, 3980, when the ereditors acceptern the debtor's proposal for «& composition, it provaded thal the payment of 15 cents in the dollar should be made not later than 16 May 1980. It is clear that the trustec has al no tame had funds in hand which would have enabled him to pay this amount toa the creditors, after paying the amounts of costs which under the composition had priority over the payments to the creditors. A guestion may arise whether the creditors are now bound by the terms of the composition, as 16 May 1980 has passed without payment, or any further nceting or agreement to accept later payment, but as this aspect of the case has not been the subject of submisston by any party, I put it to one side. I take the yiew that the dehtor has not shown, on the balance of probabilities, that he has the financial capacity, as distinct from the wish, to provide the trustee with the necessary funds to make the payments of 15 cents in the dotlar. Yas ability to do s¢ turns upon his obtaining loans from his wife and his mother and from his bank or finance companies. His position 1s such that it sould nor be in the interests of the creditors to leaye their receipt of the promised 15 cents 3n the dollar dependent npon the outcome of his attempts to raise further funds It is noteworthy that, although the hearing extended throughoul 29 August and 1 September, and the debtor's financial ability to -. fal 21. provide the necessary funds was obviously in issue, no attempt was mace to lead any independent cyidence of the uvailabilair of Joans. I am satisfied that it would be in the interests of the creditors to make an order declaring the composition to be void. It is not necessary to consider the olher grounds upon which the composition was attacked. There remains for consideration the claim by the applicant that a sequestration order be made against the estate of the debtor, pursuant to the power conferred by S.222(7) which reads as follows !- "(7.) The trustee or a creditor may include in an application under sub<section (1.) or (4.) of this section an application for a sequestration order against the estate of the debtor and if the Court, on the ftirst-mentioned application, makes an order under sub-section (2.) or (4.) of this section dcclaring the deed or composition to which it relates to be void, it may, tf 1t thinks fil, forthwith make the sequestration order sought." In his affidavit, the debtor said - "87. If my estate were scquestrated there would be avajlable the following sums - $12,185.75 proceeds from 7 Karen Court, Eust Doncaster. $3,000.00 received from sale of accountancy practice. $1 , 800.00 possible further payment from accountancy practice. $16,935 75. 88. If one allows some $4,000 costs and csapenses there would then be available for Cistribution among creditors ihe anount of some $12,985 75. It would appear that the following payments in the dollar woutd then result - , 22. Total Debts of $164,280.01 7.9¢ in the dollar. Total Debts of $168,088.37 7.7¢ in the dollar. Total Debts of $182,921.99 7¢ in the dollar. I am informed by Mr. Bent, my trustee, and believe that his calculations result in a paywent in the dollar of some 5 cents if a sequestration order were made against my estate. 52, Further, if I were declared banhrupt my membership with the Australian Society of Accountants and the Chartered Institute of Secretaries would be forfeited, I would probably lose my present responsible job and YT would lose any alternative of being able to work in any way as a self-employed accountant." There was no independent evidence that his present job was in jeopardy. - In his oral evidence, the debtur said that he was a tax agent, a registered auditor and a commiss3o0nei for taking affidavits. Section 222(9) proyides that - "(9.) The making of an application by the trustee or a creditor tor a sequestration order under this section shall, for the purposes of this Act, be deemed to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of sub-section (1.) of section 43, sections 44 and 47, sub-secirons(1.) ana (2.) of section 52 and Part KIA. of this Act do not apply in relation to such an application. " The applicant is owed the sum of $23,798 by the debtor under a judgment entered on 17 August 1979 in respect of a building transaction which commenced in or about early 1974. A sustained attack was made upon the ultiiude which she adopted towards the debtor in the course of that transaction and the subscquent litigation. I am satisfied that she has a strong seme of gricvance ayaiusl tue debtor, 23. which appours to me te be Justified, when one looks at the history of the matter. In my opinion, she was plainly entitled to claim that an order of sequestration should be made againsi the estate of the debtor. The High Court considered the proyisions of s.56(2) cf ihe Bankruptcy Act 1924, the predecesser cf s.52(2) of the 1966 Act, in Rozenbes v. Kronhill (1956) 95 C.1..R. 407 in which (at p.414) Dixon C.J. Webb and luliaghar JJ. said "In Cain v Whyte (1), this Court expressed agreement with a judgment of the Supreme Court of Queensland (Henchman J.) in which his Honour said: '... prima facie, on proof of the matters mentioned in s.56(2), the Court will proceed to make an order for sequestration, and ... it is for the debtor to show some cause overriding the interes of the public tn the stopping of unremuneratiye trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown agajnst the making of a sequestration order'. (1) (1933) 48 C,L.R. 639." It is true that s.222(9) proyides that the provisions of sub-sections (1) and (2) of s.52 do not apply in relation to an application made under sub-section (2). However, the debtor commiited an act of bankruptcy when be signed the authority under 5.188 and the applicant seeks au order of sequestiation. ]t seeme to me that; by parity of reasoning, 1f 18 appropriale that, prima facie, the Court should proceed to make an order of sequestration, vnlowe some cause 1S shown to outyveigh the considerations noted in the judgment of the High Couet. In my ovinion, no such cause ob e ' exists in the present case. The debtor's, convention that his creditors would reccive a lover dividend in a bankruptcy than they would under a composition has not been made out on the evidence. Such a conclusion would depend upon an accveplance of his evidence as to his assets and liabilities, which is a step I would not feel justified in taking in the Jight of the history of this case. I do not believe that he has given a frank account of his affairs and consider that 1t would be unsafe for the Court or his creditors to act upon the faith of his evidence. J belicve that 1% would be in the juterests of his ereditors to have his estate administered in bankruptcy, despite the elfcuts which such an order will Rave upon the debtor. The Court - (1) declares the composition of the debtor of 9 April 1980 10 be void; (2) makes an order of seyuestraticn against the estate of the debtor, the act of bankrupicy being that on 6 February 1980 ne signed an authority under s.188 of the Banhrupicy Act 1965; (3) ordcrs that the respondents pay the vosi« of the applicant of and incidental] fo this epplication, (3) reseryver gponera] Vibert; to apy purty to eppdy