CATCHWORDS Bankruptcy - composition under Part X - application by a creditor to declare the composition void ~ creditor represented at meeting by proxy appointed by her attorney - chairman and the meeting denied proxy the right to vote - whether chairman or meeting entitled to do so - construction of s. 200. Bankruptcy Act 1966 (Cth.) ss. 200, 222 . RE: MICHAEL MOLONEY EX PARTE: JACQUELINE HEATHER FIELD NO. P 691 OF 1980 LOCKHART J. AT SYDNEY FRIDAY 20 MARCH 1981 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: EX PARTE: ORDERS JUDGE MAKING ORDERS: WHERE MADE: DATE OF ORDERS: THE COURT ORDERS: ) ) ) ) No. P 691 of 1980 ) ) ) MICHAEL MOLONEY JACQUELINE HEATHER FIELD LOCKHART J. AT SYDNEY FRIDAY 20 MARCH 1981 1. That it be declared that the composition accepted by a meeting of creditors held on 7 November 1980 is void on the ground that neither the meeting of creditors nor its chairman was entitled to deny the proxy of the applicant the right to vote at the meeting. 2. That the application be adjourned to a date to be fixed to determine the questions of a summary sequestration order and costs. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF No. P691 of 1980 NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: MICHAEL MOLONEY EX PARTE: JACQUELINE HEATHER FIELD REASONS FOR JUDGMENT LOCKHART J. AT SYDNEY 20 MARCH, 1981 Jacqueline Heather Field ("the applicant") seeks an order declaring void a composition accepted by the creditors of Michael Moloney ("the respondent") at a meeting held on 7 November 1980;and a summary sequestration order against his estate. The composition is that the creditors of the respondent accept, in full settlement of all their claims against him, the sum of $20,000.00 distributed among them in accordance with their respective rights as if the respondent were a bankrupt. The respondent owes unsecured creditors about $1,250,000.00. Hence, the dividend payable will be less than two cents in the dollar. Some question arises as to the particular section or sections of the Bankruptcy Act 1966 ("the Act") pursuant to which the application is made. The applicant asserts that the application is based on ss. 222, 239, 242 and 30, each in the ---/2 alternative. The respondent claims that the language of the application filed on 27 November 1980 is appropriate to s. 222 alone. Counsel for the respondent informed me that the respondent's case was prepared on this basis, so that if the application were to proceed otherwise than on s. 222 alone, he would seek an adjournment to consider whether further evidence was necessary and, 1f it was, to adduce it. Counsel for the applicant, whilst maintaining that the language of the application was consonant with all sections to which I have referred, accepted the statement of counsel for the respondent that he had prepared the case on the narrower basis. Hence, it is common ground that the hearing should, at least at this stage, be confined to s. 222. On 30 October 1980 the respondent signed an authority pursuant to s. 188 of the Act authorising John Edward Walker, a registered trustee, to call a meeting of his creditors for the purposes of Part X of the Act and to take over the control of his property. On the same day Mr. Walker consented to exercise the powers conferred on him by the authority. Mr. Walker proceeded to call a meeting of the respondent's creditors. It was held on 7 November 1980 commencing at 3.00 p.m. Leaving the applicant aside for the moment, the meeting was attended by twenty-three creditors, present personally or by proxy who claimed to be owed about $750,439.00 It is common ground that the applicant is a creditor of the respondent in the sum of $361,717.57, and that, if the applicant had been allowed to vote at the meeting, she would have voted 2/3 against the acceptance of the composition;so that in the result, the requisite majority for the passing of the special resolution, which is required to accept a composition under Part X, would not have been obtained. Hence her vote was crucial. By deed dated 29 August 1975, the applicant appointed Peter Twigg and Margaret Inglis, jointly and severally, her attorneys and conferred on them a variety of powers. On 5 November 1980 Mr. Twigg signed a form of proxy, which had been sent to Mrs. Field accompanying the notice of meeting, in the following terms:- "I, PETER TWIGG, Attorney for Jacqueline Heather Field of 221-227 Elizabeth Street Sydney appoint CLIFF HOEBEN, Barrister-at-— Law., of 180 Phillip Street, Sydney to be my proxy at the Meeting of Creditors of the abovementioned debtor to be held on 7th November, 1980 (or any Meeting of Creditors of the abovementioned debtor) to vote (here set out the powers of the proxy). Amount of Claim $ 338,762.94 Signed by the abovementioned Creditor in my presence: (sgd.) Peter Twigg Witness: (Signature) (indecipherable) (Address) 221 Elizabeth Street, Sydney (Occupation) Solicitor" It is not disputed that, except for the matters in issue in these proceedings, the form of proxy entitled Mr. Hoeben to attend the meeting of creditors on 7 November 1980 and to vote for or against the acceptance of the composition. The completed form of proxy was returned to Mr. Walker by 12 noon on Thursday, 6 November 1980. oe /4 Mr. Hoeben attended the meeting of creditors, arriving a few minutes before it commenced. He appears to have played a rather active role at the meeting. Mr. Walker drew the attention of creditors to the form of proxy which had been received from Mr. Twigg appointing Mr. Hoeben as proxy for the applicant. The minutes of the meeting state:- "Mr. Walker drew the attention of creditors to the proxy which he had received from Mr. Peter Twigg, Attorney for Jacqueline Heather Field and which appointed Mr. C. Hoeben, Barrister-At-Law. At Mr. Walkers' request, Mr. Bastian, assisting Mr. Walker, stated that without sighting the authority under which Mr. Twigg was apparently acting he did not think it possible to determine whether Mr. Twigg had the power to further delegate to Mr. Hoeben. Mr. Hoeben advised the Meeting that he did not have the power with him for inspection, however, he could obtain it or obtain the presence of the creditor, Mrs. Field. In response to a question by Mr. Bastian, Mr. Hoeben stated that he thought Mrs. Field was present in Sydney, however, he did not know her exact location and would require time to find her by telephone." Later the minutes record:- "The following motion was then passed by Mr. Carruthers (H.B. Eve Investment Co. Pty. Limited) and seconded by Mr. K. J. Wherry: 'The Meeting does not wish to accept the proxy appointing Mr. Hoeben as valid in the absence of Mrs. Field, or Mr. Twigg, or the instrument appointing Mr. Twigg attorney.' Mr. Hoeben then asked that the motion be amended as follows: 'That the Meeting defer voting on the motion for a period of thirty minutes.' Despite the lack of a seconder, the amendment was put to the meeting and lost. 22/5 Mr. Walker put the original motion to the vote which was passed by the majority on a show of hands. Mr. Leahy voted against the motion. Messrs. K. J. Magson (Commonwealth Trading Bank of Aust.), M. A. Harvey (Commercial Banking Co. of Sydney), and R. M. Evans (Lease Industrial Finance Ltd.) abstained. All others present in person or by proxy voted in favour. Mr. Hoeben's vote was not counted. Mr. Walker then exercising his discretion as Chairman and using the voting of the meeting as a guide ruled the instrument appointing Mr. Hoeben proxy was not admissable thereby denying Mr. Hoeben the right to vote." Mr. Hoeben then left the meeting, but returned a little later and informed the meeting:- " ..that he had located Mrs. Field and that she would be there in ten minutes. The time, at this point, was approximately 3.55 pm." The minutes then record the following: "SPECIAL RESOLUTION: The composition outlined above was proposed as a Special Resolution by Mr. Dreggs (W. R. Carpenter Australia Limited) and seconded by Mr. Q. D. George: 'That the creditors accept the following Composition in full settlement of all their claims against Michael John Moloney pursuant to Part X of the Bankruptcy Act, 1966 (As Amended): $10,000. to be paid to the Trustee by 10th February, 1981. $10,000 to be paid to the Trustee by 10th May, 1981, to be paid into a fund to be distributed by the Trustee in accordance with their respective rights as if the Debtor were a Bankrupt.' When the resolution was put to the vote by Mr. Walker Messrs. J. K. Magson (Commonwealth Trading Bank of Australia), M. A. Harvey (Commercial Banking Company of Sydney), and R. M. Evans (Lease Industrial Finance Limited) abstained. Mr. J. G. Leahy voted «+ /6 against the motion and Mr. Hoeben requested that although his proxy had been rejected by the Chairman, that if his proxy had been accepted he would have exercised his vote against the Special Resolution. Mr. Walker declared the resolution passed as a Special Resolution. VOTED IN FAVOUR OF SPECIAL RESOLUTION G. Skelly, Custom Credit Leasing 6,117 J. Dwyer, Allen, Allen & Hemsley 1,887 J. Dwyer, Historical Gladesville 4,962 N. J. Eddy, N. J. Eddy & Co. 2,000 A. Dreggs, W. R. Carpenter Australia Limited 537,203 K. J. Wherry 3,300 K. J. Wherry, Corniche Holdings Pty. Ltd. 1,000 B. W. Atkinson 2,100 A.J.C. Carruthers, H.B. Eve Investments Co.P/L 41,225 Q.D. George 9,000 go. E. Walker, Custom Credit Corporation * 4,401 gd. E. Walker, D. N. Burley * 1,742 J. E. Walker, Check Personnel * 1,082 J. E. Walker, Falconet Investments * 9,800 J. E. Walker, Zukow Pty. Limited * 6,550 J. E. Walker, J. G. Moloney * 11,500 J. E. Walker, M. Moloney * 11,500 J. E. Walker, C. Moloney * 1,800 3. E. Walker, Pikestaff Investments Pty. Ltd. * 8,532 665,701 * Telephoned instructions received to vote in favour of the compostion, VOTED AGAINST SPECIAL RESOLUTION G. J. Leahy 14,180 ABSTAINED FROM VOTING R. M. Evans, Lease Industrial Finance Pty. Ltd. 9,500 J.K.Magson, Commonwealth Trading Bank of Aust. 57,558 M. A. Harvey, Commercial Bank Co. of Sydney 3,500 70,558 Noted as being against Special Resolution but proxy rejected, C.R.R. Hoeben, Mrs. H. J. Field 361,718 " Section 222 of the Act, so far as relevant, provides:~ "222. (1) Where there is a doubt, on a specific ground, whether a deed of assignment or a deed of arrangement was entered into in 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, 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 is void, or that it is not void, on the ground specified in the application; or (b) declaring that a provision of the deed is void, or is not void, on the ground specified in the application. (7) The trustee or a creditor may include in an application under sub-section (1) or (4) an application for a sequestration order against the estate of the debtor and if the Court, on the first-mentioned application, makes an order under sub-section (2) or (4) declaring the deed or composition to which it relates to be void, it may, if it thinks fit, forthwith make the sequestration order sought. (9) The making of an application by the trustee or a creditor for 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 43 (1), sections 44 and 47, sub-sections 52 (1) and (2) and Part XIA do not apply in relation to such an application." Rule 103 (1) of the Bankruptcy Rules provides:- "The grounds on which the Court will be asked to make the order specified in an application, and the facts on which the applicant proposes to rely in support ---/8 of the application for that order, shall be stated in the affidavit filed in support of the application." It is common ground that "the ground specified in the application" so far as relevant, is contained in the affidavit of Mr. Twigg sworn on 15 December 1980, namely:- "ii. That neither the meeting of creditors nor Mr. John Edward Walker was entitled to deny the proxy of Mrs. Jacqueline Heather Field the right to vote at the said meeting of creditors; iii. That the chairman of the meeting of creditors did not properly determine the question of the right of the proxy of Mrs. Jacqueline Heather Field to vote at the meeting of creditors; iv. That if Mr. John Edward Walker was properly appointed chairman of the meeting of creditors, which is denied, then he ought to have adjourned the meeting of creditors so as to enable him to investigate the matter of the right to a proxy of Mrs. Jacqueline Heather Field to vote at the said meeting of creditors; v. That Mr. John Edward Walker and/or the meeting of creditors should have deferred deciding upon and/or voting upon the question of whether the composition should be accpeted (sic) until Mrs. Jacqueline Heather Field had the opportunity to be personally present at the said meeting of creditors and/ or until the power of attorney could be produced to the said meeting of creditors;" Grounds iv and v. do not arise for consideration if either of grounds ii. or iii. is answered in favour of the applicant. The other grounds (1 and vi) were abandoned at the outset of the hearing. The question for determination is whether the vote of Mr. Hoeben as proxy was wrongly excluded at the meeting. 22/9 It was not disputed that this application involves something more than a review of the decision of the chairman of the meeting; and that s. 222 empowers the Court to deal with the substantial question in dispute: see Re Levy & Tollitt, a decision of Bowen C.J. as yet unreported, judgment delivered 22 October 1980. Nor was it disputed that the certificate of the chairman as to the passing of the special resolution (see s. 225) was not itself determinative of the matter. It was agreed that the Court must consider the whole of the evidence, including the certificate, which is to be treated as prima facie evidence only. The parties accepted the correctness of the decision of Bowen C.J. on this point in Levy & Tollitt. The question arising for determination turns on the proper construction of s. 200 of the Act, which provides:- "200 (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 on 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 is 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." ---/10 -10- Section 200 defines how a creditor may vote at meetings under Part X namely, in person, by his attorney or by proxy. A proxy may be appointed by the creditor or by his attorney (sub-s. (1) ). Section 200 does not itself empower the attorney of a creditor to vote as attorney or to appoint a proxy to vote for the creditor in the absence of a power, be it general or specific, so to do conferred by the power of attorney itself: The creditor may for example, confer upon an attorney one power only namely, a limited authority to draw, accept and indorse bills of exchange on his behalf. In that case the authority conferred by s. 200 could not conceivably extend to attending meetings and voting on behalf of the creditor. All s. 200 does is to recognise the right of an attorney to vote at Part X meetings if an authority 1s conferred by the creditor upon the attorney, by the instrument appointing him as attorney, to vote at such meetings, whether it expressly confers the power in respect of Part X meetings or meetings generally under the Act or otherwise in such terms as, upon their proper construction, include Part X meetings. It is not disputed that the power of attorney from the applicant to Mr. Twigg confers the requisite authority. A proxy for the creditor 1s not entitled to vote as proxy (otherwise than in respect of the election of a chairman of the meeting) unless the instrument of proxy has been lodged with the chairman of the meeting (sub-s. (3) ). Sub-section (3) applies to a proxy whether appointed by the creditor or by the attorney. -.-/11 -li- Where the attorney of a creditor is himself present at the meeting, he is not entitled to vote as attorney unless the instrument by which he is appointed has been produced to the chairman, or the chairman is otherwise satisfied that he is the duly authorised attorney of the creditor (sub-s. (4) ). It was submitted by counsel for the respondent that, where the attorney of a creditor appoints a proxy for the creditor and the proxy attends the meeting, not only must the proxy be lodged with the chairman (sub-s. (3) ); but the power of attorney must be lodged with him also. He submitted that it would be strange if an attorney had to prove his authority to vote by producing the power of attorney, or otherwise satisfying the chairman that he is the duly authorised attorney of the creditor; yet, a proxy appointed by him did not have to prove the attorney's right to appoint him as proxy. Therefore, so the argument proceeded, the phrase "unless the instrument by which he is appointed" in sub-s. (3) is apposite to include, not only the instrument of proxy, but the power of attorney also. I do not accept this argument. Sub-section (3) is designed to require that a proxy, whether appointed hy the creditor or by his attorney, cannot vote unless evidence of his authority is lodged with the chairman. The instrument of proxy is the traditional and generally accepted mode of appointment. The very expression "instrument by which he is appointed" is the classic language of an instrument of proxy: see for example Regulation 61 of Table A in the Fourth Schedule to the Uniform Companes legislation which speaks of "the instrument appointing the proxy" and "the instrument of proxy". ---/12 -12- The plain language of sub-s. (3) when construed ordinarily and naturally, does not lend itself to the construction that there is the additional requirement, in the case of a proxy who 1s appointed by an attorney, that the power of attorney must itself be produced. Although on first impression it may seem anomalous that a proxy may vote if appointed by an attorney merely by production of the instrument of proxy; yet an attorney, when himself present at the meeting, must produce the power of attorney appointing him or otherwise satisfy the chairman that he is the duly authorised attorney of the creditor, I do not think it is in truth anomalous. The instrument of proxy, if signed by the creditor himself, is generally sufficient prima facie evidence of the authority of the proxy to vote. If it is signed by an attorney, that fact must, or at least ordinarily would, appear on the face of the instrument of proxy itself, otherwise there would be no link on the face of the document between the name of the creditor and the name or. signature of the attorney. If there is anything untoward about the document or otherwise to cast doubt about the authority of the proxy to vote, including some irregularity in the appointment of the attorney, the chairman may exercise his powers under s. 201 to determine the question of entitlement to vote. When a person attends a meeting of creditors and claims to be the attorney for a creditor it is to be expected that some evidence of his authority should be produced. Hence sub-s. (4) provides for the production of the power or other means of satisfying the chairman as to the due authority of the attorney. -../13 ~13- There is another problem with the respondent's argument namely, that, if correct, it follows that the attorney may himself attend and vote; but need not produce the power of attorney. It is sufficient that the chairman is "otherwise satisfied" that he is the duly authorised attorney of the creditor. Yet, if a proxy for the creditor appointed by the attorney attends, he must produce the power of attorney itself; no other means of satisfying the chairman of the authority of the attorney to bind the creditor would suffice. That, to my mind, would produce a truly anomalous situation. The chairman excluded Mr. Hoeben from voting as proxy for the applicant on the ground that it was necessary that the power of attorney be produced to him as chairman to enable Mr. Hoeben to vote and, as it was not produced, he could not vote. Indeed, the creditors voted to the same effect. Neither the chairman nor the creditors had any right to do so. I should add that there was no suggestion that there was any other reason preventing Mr. Hoeben from voting. It follows that the special resolution and the composition are a nullity. In view of this finding, it is not necessary to consider the other grounds of attack advanced by the applicant as to-the validity of the composition. I make an order declaring that the composition is void on the ground that neither the meeting of creditors held on 7 November 1980 nor its chairman was entitled to deny the proxy of the applicant the right to vote at the meeting. As requested by the parties I will stand the application over to deal with the questions of a summary sequestration order and costs. I certify that this and the preceding twelve (12) pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Lockhart. d , DATE: 20 MARCH Hel Me il tonne ~ asenctare