cS) JUDGMENT No. 22.5 secs eZ CATCHWORDS Bankruptcy - composition under Part X - Chairman's Certificate conclusive {(s.204) - material particulars omitted from debtor's staterent of affairs - in interests of creditors to declare composition void (s.222(5)) - so declared. re KEVIN GRAEME BLAKE (Debtor) KEBROC HOME DEVELOPMENTS PTY. LTD. (IN LIQUIDATION) and CIT1CORP AUSTPALIA LIMITED (Applicants) ex parte and KEVIN GRAEME BLAKE and VICTOR _ RAYMOND DYE (Respondants). Cc. A. Sweeney, J. 22nd May, 1980. ~7 APR 1998 FEDERAL COURT OF AUSTRALIA PRINCIPAL 2 mete em at ne " IN THE FEDERAL COURT OF AUSTPALIA GENERAL DIVISION. No. 219 of 1979 Part X re : KEVIN GRAEMDE BLAKE Debtor Ex parte : KEBROC HOME DEVELOPMENTS PTY. LTD. (in liguiadation) and CITICORP AUSTRALIA LIMITED Applicants and KEVIN GRAEME BLAKE and VICTOR RAYMOND DYE Respondents. REASONS FOR JUDGMENT C. A. SWEENEY J. 22 May 1980 In this application, the following orders are sought :- "1, That the Court declare the composition made by the abovenamed debtor on the 12th day of October, 1979 void on the grounds : (i) that the said composition 1s not a composition within the meaning of the definition contained in s.187 of the Act; (ii) that the resolution accepting the composition was not passed by the requisite majority in value; (iii) that the resolution accepting the composition was not passed by a Majority in number; (iv) that the respondent Dye as Chairman of the meeting was wrong in disallowing the vote of the applicant Kebroc Home Developments Pty. Ltd. (In Liquidation); (v) that the respondent Dye as Chairman of the meeting was wrong in disallowing the votes of the Applicant Citicorp Australia Limited and that of Ford Credit Australia Limited; ../2 (vi) that the meeting at which the composition referred to was not advertised or alternatively any advertisements were not lodged within the time specified by the rules; (vii) that the debtor omitted material particulars from his Statement of Affairs in that it did not include the sum of $27,603.42 owing to Kebroc Home Developments Pty. Ltd. (In Liquidation) as a debt due by the debtor. 2. Alternatively to 1, that the composition of the debtor dated the 12th day of October, 1979 be set aside on the ground that the terms of same are unreasonable or on the ground that thcy are not calculated to benefit the creditors generally." In their notice of intention to oppose the application, the respondents relied upon the following grounds "h. There is no doubt that the composition of the Debtor (in respect of the full terms of which the Respondents shall rely at the hearing of this Application upon the Certificate that resolutions passed dated the 15th day of Qctober, 1979 and filed herein) was accepted by a special resolution of a meeting of the creditors of the Gebtor under Section 204 of the Bankruptcy Act, 1966. Further, in view of the attendance at the meeting of the creditors of the debtor held on the 12th day of October, 1979 (in respect of which meeting the Respondents shall rely upon the Minutes thereof to be produced by the Chairman of the meeting, the abovenamed Victor Raymond Dye), the Respondents are entitled to the relief against strict compliance with sub~section (3) of Section 194 of the said Act atforded by sub-section (4) of that Section. 2. There is no such ommission from the debtor's Statement of Affairs as is referred to in sub-section (4) of Section 222 of the said Act. The possibility of a claim by Kebroc Home Developments Pty. Ltd. was adverted to by the debtor both in his Statement of Affairs and in the summary of that Statement of Affairs circulated at the said meeting. 3. Further and in the alternative, if (which 1s not admitted) there is a doubt such as is referred to in . sub-section (1) of the said Section 222 oraltermatively if (which is also not admitted) the debtor omitted a material particular such as 1s referred to in sub- section (4)of the said Section 222, this Honourable Court ought not to be satisfied that 1t would be in -./3 the interests of the creditors of the debtor to declare the said composition void on the grounds that the debtor has no assets and has procured the full amount paid to the trustee of the composition from members of his family for the purposes of the composition and, should the composition be declared void, the creditors of the debtors would be consideiabiy worse off financially than if the composition were to stand. 4. Similarly, this Honourable Court ought not tc be satisfied that the terms of the said composition are unreasonable or are not calculated to benefit the creditors generally or that the composition ought to be set aside for any other reason." The applicants' first ground was that "the said composition is not a composition within the meaning of the definition contained in s.187 of the Bankruptcy Act 1956." That definition reads as follows :- "'"composition! means an arrangement (not peing an arrangement entered into for the purposes of a proclaimed law) by which the creditors of a debtor - (a) agree to accept payment of the debts due to them by instalments; or (b) agree to accept, in full satisfaction of the debts due to them, less than the full amount of those debts, whether in the form of money or other property and whether by instalments or otherwise." It was submitted on behalf of the applicant that as the sjeczal resolution pussed at the creditors' meeting did not include the words "in full satisfaction of the debts due to them" it did nor amount to a composition within the tieaning of the section. That special resolution began with the words - "that the following composition of the debtor be accepted" and then set out its terms in detail. The Shorter Oxford English Dictionary gives as a meaning of "composition" the following - "a compounding for some claim or liability; specifically, an agreement by which a creditor accepts part of a debt in satisfaction from an insolvent debtor". It is wise to include 1n the terms of a composition under Part X of the Act the words "in full satisfaction of the debts due the creditors". However, I have no doubt that the meaning of the word "composition" in the context in which ic f4 4. was used in a special resolution at a creditors' mecting called under Part X was that 1t was a proposal to thc creditors offered in full satisfaction of the debts owed to them. It was so understood by all at the meeting, as was revealed by the minutes, Had 1t been merely an offer of $5000, and not in full satisfaction, the applicants would plainly heve voted in favour of it. The applicants contended that each of them and Ford Credit Australia Limited were wrongly denied the right to vote at the meeting, and that, if they had been permitted to vote, the special resolution accepting the composition could not have been passed. Section 200 of the Bankruptcy Act 1966 provides as follows :- "(1.) A creditor may vote either in person or by his attorney or by a proxy appointed in writing by the creditor or his attorney. {2,) A proxy may be appointed to vote on all matters arising at the meeting or cn particular matters specified in the instrument of appointment. (3.) A person claiming to be the proxy of a creditor is not entitled to vote as proxy (otherwise than in respect of the election of a chairman of the meeting) unless the instrument by which he 1s appointed has been lodged with the chairman. {4.) A person claiming to be the attorney of a creditor is not entitled to vote as attorney (otherwise than in respect of the election of a chairman of the meeting) unless - (a) the instrument by which he is appointed has been produced to the chairman; or (b) the chairman is otherwise satisfied that he is the duly authorized attorney of the creditor. " The Collection Manager of the applicant Citicorp Australia Limited attended the meeting on its behalf, He did not have a formal proxy to vote at the meeting but he contended ~ o " I was authorised then and amr authorised now by virtue of my position as Collection Manager of the said Citicorp to attend any creditors' meetings and to vote on that company's behalf." The Recovery Co-ordinator of Yord Credit Australia Limited similarly did not produce a proxy but it was contended that he was "the duly authorized attorney of the creditor" within the meaning of s.200(4) (b). Both gentlemen voted against the proposed conposition but the chairman ruled their votes out of order because neither of them produced a proxy. It was conceded on behalf of the respendents that the chairman did not approach the question of deciding their entitlement to vote ina correct manner, in that he merely relied upon their failure to produce proxies and did not seek to satis"y himself that they were the duly authorized attorneys of the creditors. The vote of the liquidator of the first named applicant against the composition was ruled out of order by the chairman on the expressed ground that he could not determine the amount for which he should have heen voting. The question of the amount of this debt will be discussed later. Had the three yotes been recorded against the resolution, it would not have commanded a majority in number of the creditors present personally, by attorney or by proxy at the meeting and so could not have been passed as a special resolution (see s.5). /6 Ground l(vi) of the applicants' grounds was not pressed. The answer of the respondent to the matters raised 1n sub-paragraphs (1), (11), (211), (iv) and (wv) was to tender in evidence a certificate signed by the chairman of the meeting, the respondent Dye, that the special resolution set out in the certificate was passed. S. 225 of the Act provides that such certificate, signed in accordance with s,204 is "in the absence of fraud, conclusive eviderce that the resolution specified in the certificate was duly passed at the meeting." S.204(7) provides as follows "-« "(7,) Where the creditors pass a special resolution or a resolution under this section, the chairman of the meeting shall - (a) forthwath sign a certificate to that effect in accordance with the prescribed form; and (b) forthwith cause the certificate to be filed in the office of the Registrar," In re Thompson (1936) 9 ABC 231 Lukin J. had to consider the effect of s.162(2) of the Bankruptcy Act 1924 which was in the following terms :- "BR certificate of the resolution, in the prescribed form, signed by the chairman, shall be filed in the Court nearest to the place where the meeting is held, or in such other Court as 1s prescribed, and shall, in the absence of fraud, be conckusave evidence that the meeting was duly convened and held, and the resolution duly passed," ..f7 wee re nee nerd Havanyg found that there vere certain irregularities in the summoning of the meeting, his Nonour said (at ».233) Counsel for the applicant, however, claims the protection of the chairman's certificate 1ssued under s.162(2) quoted above. No suggestion of fraud has been made. It seems to me that tnat certificate covers all the essentials to a valid and ecgular performance—ef-the prescribed duties in converihg i and holding the meeting and duly passing the resolutions thereat. The Federal Parliament scems to have contemplatea that the chairman of a mecting should determine any questions as to the proper performance and compliance with the terms of the statute up to and including the passing of the resolution and accordingly directca that his certificate of his determination in regard thereto should be conclusive. Perhaps the use of the term 'praama facie' would have been more conducive to a proper and legal performance of the duties and compliance with the statutory conditions prescribed and would have enabled the Court to correct the chairman's decision where obviously wrong. It seems to me that there is no cetting past the word 'conclusive.' 'Conclusive' on the authorities means, I think, what it 1s generally understood to mean - 'Anything which is duly prescribed as 'conclusive evidence' of a fact, is absolute evidence of such fact, as well criminally as civilly, for all-purposes for which at is so made evidence (R v. Levi (1865) 34 WL.c.M.C, 174).' The phrase 1S also used in its large sense in s.51 English Companies Act, 1862, qua the declaration by a chairman of the result of a voting at a meeting (Brynmvr Coal Co. (1877) W.N.45), and such declaration cannot Le challenged by contradictory evidence (per James L.J. in Re Gold Co. (1879) 48 L.J. Ch. at p.286); per Cozens- Hardy J. 1n Re Hadleigh Castle Co. (1900) 2 Ch. 419; Strouds Judicial Dictionary; and see Arnot v. United African Lands Ltd. (1901) 1 Ch. p.518 at 523, In reCold Coy. 48 L.J. Ch.281," Re Thompson (supra) was cited with approval by Riley J. in Re Venetoulis (1976) 13 ALR 625 at 627, who acded a reference to Kerr v. John Mottram Ltd. (1940) Ch. 657 at 660, in which 1t was held that an article of association providina that the minutes of any meeting, if purporting to be signed by the chairman, should be "conclusive evidence without any further proof of the facts therein stated" rendered inadmissible evidence proposed to be called inconsistent with such minutes. »-/8 In Re Venetoulis (supra) Riley J. had to consider a submission that a special revolution had becn passed by a creditors' meeting on 8 September 1976, called under Fart XK requiring the debtor to execute a deed of arrangement... The chairman of that meeting signed a certificate on the day of the meeting, in which he mistakenly certified that the relevant resolution had been passed as a "resolution" and not as a "special resolution" and so he had not complied with s.204(7). tas Honour accordingly held that the certificate was therefore ineffective for the purposes of s.225(2) and went on to say (at p.627):- " At the adjourned hearing of this application, on 21 October, counsel for the petitioning creditor having on 29 September raised questions as to whether: the meeting had been duly held and the special resolution duly passed, cowmsel for the cebtor valiantly produced a later certificate signed by the chairman. It was dated 30 September, and certificd that the relevant resolution had been passed as a special resolution. But it cannot be maintained that that later certificate meets the requirements of s.225(2). It was not signed in accordance with s.204, because it was not signed 'forthwith' as required by s.204(7) - that 1s, as soon as possible in the circumstances, the nature of the act to be done being taken into account: 37 Halskury 3rd ed, 103; Measures v. McFadyen (1910) 11 CLR 723 at 736; Sameen v. Abeyewickrema (1963) AC 597 at 609; (1963) 3 All ER 382; Hillingdon London BC v Cutler (1968) 1 QB 124; (1967) 2 All ER 361. The chairman had demonstrated that 1t would have becn possible to sign a proper certificate on 8 September." In the present case the chairman's certificate in relation to a meeting held on Friday 12 October 1979 was signed on Monday 15 October. In my opinion, the certificate was signed "forthwith" within the meaning of s.204(7), bearing in mind the circumstances that the meeting was heid in Exhibition Street, Melbourne on a Friday and the tyned certificate was signed on the followzng Monday by the chairnan, who was accurately described in the certificate as "of 36 Whitehorse Road, Mitcham", an outer suburb of Melbourne. a a ors Bee min Nae bie wate wee te ee dle Accordingly, there being no suggestion of fraud, 1t 18 conclusive evidence that the meeting was duly convened = and held and that the special resolution s ae duly passed at the meeting. Thus the attacks upon the mee and the resolution in ground 1, sub-paras. (11) to (vi), fail. pecified an 3t was tang The applicants also submittec that the Court should declare the composition void on ground l(v31), ""tiat the debtor omitted material particulars from his frvatentent Affairs in that it Gid not anclude the su~™ of $27,693.47 to Kebroc Homes Pty. Ltd. (In Liquidation) as a acnt duo the debtor." Under s.195 of the Act the @cktor 1s requircd submit to the creditors at their meetine a statement in ¥ must of ela he ritinc. verified by statutory declaration, of nis affairs. Sup-section (2) provides that - "(2.) The staterent of tne debtor's affairs shall specify his assets and liabilities and shall anclude - (a) in respect of each asset - particulars cf the asset, including its estimated value; . (b) aun respect of each liability - particulars of the liability,includirg whether it 1s secured or not; and (c) an resvect of any liability that is secured - particulars of the sccurity." Kebroc was not included in the last of crefitors> set out by the debtor in his statement of affairs, but in Pa VII of that statement there appeared the following ertry "4, Particulars of my contingent Liabilities and any other liabilitics now specified ina previous Part of this Statement are as follo Claim from the liaui@ator of Kebroc Hore Develcprents Pty. Ltd." Pp Idee ro wi ra 10. In the statement of affairs, dated 1] October, 1979, Kebroc was shown as a debtor to the estate in the amount of $11,993 and the amount likely to be recouped from it was shown as "Nil". By letter dated 12 Septerber, 1979, the solicitor for Kebroc had written to the debtor in the following terms :- " I act on behalf of Kebroc Home Developments Pty. Ltd. (In Liquidation) and have been instructed to claim from you the sum of $37,180.42. Of that sum, the sum of $1,603.42 is the balance of your loan account. The sum of $6,000.00 with respect to a swimming pool which you have charged against the company in liquidation but it is in fact your own private expense, and the sum of $29,577 is the amount of purported payment on retirement which was paid to Mr. O'Connor. That purported payment was it is suggested, unreasonable in all the circumstances. Please note that unless the sum of $37,180.42 is paid to me within twenty-one days, I have been instructed to institute legal proceedings for recovery. " At the hearing of this application it was conceded on behalf of the applicants that the statement of affairs would have complied with the statute if it had included the substance of this letter as a claim made by Kebroc against the debtor. The picture of the financial relationship between Kebroc and the debtor which was given in the statement of affairs was that the company owed him $11,993, that it was not listed as a creditor of the debtor but there was said to be a claim against him from its liquidator for an unstated amount. fll il. I am satisfied that the applicant has established the ground that the debtor omitted material particulars from the statement of affairs. I accept the evidence that the debtor owed Kebroc the amount of $1,603.42 shown in his loan account in its records. I am satisfied that a further sum of $6,000 was paid by Kebroc on behalf of the debtor in respect of the building of a swimming pool] at the debtor's private residence in 1977. It 1s not necessary to determine precisely what portion of that sum was repaid by the dcbtor. I am satisfied that 1t was not repaid in full and I reject the debtor's claim that the payments in respect of the swimming pool were made as part of his remuneration. I accept the evidence given by the liquidator that "according to the cheaue book of the applicant company a cheque in the sum of $29,577.00 was drawn on the Ist Pebruary, 1978, in favour of one R. H. O'Connor, who up to that date was a director and a shareholder of half the issued capital of the applicant company. The sum purports to have been paid by way of retirement benefits, however, the said R. H. O'Connor was only employed by Kebroc for a period of 2% (two and a half) years. The debtor Blake admitted to me that, out of that sun, $20,000.00 represents consideration which was paid by the applicant company for the transfer of the shares by the said R. H. O'Connor to the debtor Blake." I am satisfied that the debtor made that admission and that it represented the truth of the matter. The debt qwed to the debtor by Kebroc for $11,993 was said by the debtor to be in respect of unpaid salary. There was no minute in the company's records of any resolution that he be paid a salary which would justify any such claim and no evidence was proffered to show any express agreement by the company to do so. The circumstances proved in evidence do not warrant the implication of any agreement by Kebroc to make further payments to the debtor in respect of salary. If I were dealing with a claim by the debtor against Kebroc for unpaid salary I would be bound to say that 1t had not been substantiated. fie 12. The statement of affairs should have shown chat the debtor had made a claim against Kebroc in respect of unpaid salary and that Kebroc had made the claims against hil which were set out in its solicitor's letter. The picture which would have been thus revealed would have been markedly different from that disclosed in the statement as presented to the meeting. The accuracy of the debtor's statement of affairs, verified by statutory declaration, 1s fundamental to the consideration by the creditors at the meeting of the questions which fall for their decision. I am satisfied that the applicant has made our ground 1. (vii) of its application. Section 222(5) provides that the Court shall noc make an order declaring a composition void on such a ground uniess it is satisfied that it would be in the interests of the creditors to do so. At the meeting, votes in favour of the resolution to accept the composition were cast on behalf of four creditors. whose debts were accepted by the chairman as totalling $44,224. Citicorp Limited sought to vote in respect of a debt of $7,757 and Ford Credit Limited in respect of a debt of $4,172. A vote was cast against the resolution on behalf of Brick & Pipe Limited by its proxy, the chairman of the meeting, in respect of a debt of $4,405, because the company had expressed its proxy to vote in favour of the proposed composition to hesubject to the debtor's enterrng into an arrangement to make further weekly contributions to his creditors. No such arrangement was proposed by the debtor. In my opinion, the chairman construed the proxy correctly and voted in accordance with it. -./13 13. In an affidavit, sworn on 5 December 1979, that company's credit manager deposed that it had always keen his intention and that of the company that a composition whereby the debtor provided a total of $5,000 would be acceptable and had he been able to attend the meeting in person he would have voted in favour of the composition. His affidavit continued - "My employer remains of the view that the composition of the debtor (whereby the tctal sum of $5,000.U0 is distributed to the debtor's unsecured creditors) is an arrangement favourable to the debtor's creditors generally and certainly to my employer." The question remaining is whether the Court should be satisfied that it would be in the interests of the creditors to make an order declaring the composition void.It is true that the composition will provide the creditors with a dividend of a few cents in the dollar, estimated by the solicitor for the respondents as being 4 or 5 cents, and it has been urged that even this is better than nothing. However, it is not clear that the creditors will receive nothing if the composition be declared void. The contention that they would receive nothing depends upon the acceptance of the debtor's cvidence, a step which I would not feel justified in taking. It may be that, if the composition be declared void, there will be a meeting of creditors, conducted in accordance with the requirements of the Act, at which they will be able to base any decision which they make upon the consideration of an accurate statement of the debtor's affairs. At such a meeting, if the four creditors Who voted in favour of the special resolution for a composition did so again, and were joined by Brick and Pipe Limited, and Citicorp and Ford Credit Limited again voted against 1t and Kebroc were admitted to vote in an amount of $4,175 or more, it was common ground that any special resolution would be lost. It has not been necessary in the present case to decide the precise amount owed by the debtor to Kebroc but on the balance of probabilities I consider that it was in excess of $4,175. I am satisfied that it would ne in the interests of the creditors to declare the composition verd. ~-/14 14, Accordingly, it is not necessary to consider the application that the composition be set aside on the ground that its terms are unreasonable or on the ground that they are not calculated to benefit the creditors generally. The order of the Court is - 1. that the composition of the debtor dated 12 October 1979 be declared to be void. 2. that the costs of the applicants of and incidental to the application be taxed and paid by the respondents.