IN THE FEDERAL COURT OF AUSTRALTA ) BANKRUPTCY DISTRICT OF THE SOUTHERN ) QLD X72 of 1983 DISTRICT OF THE STATE OF QUEENSLAND GENERAL DIVISION RE: ALEC KNAUFF' PRETORIUS EX PARTE: DALTONS CARPET TILES PTY LTD, CARRICKS LTD,, DISCOLL HOLDINGS PTY LTD, OFFICE EQUIPMENT INDUSTRY ASSOCIATION OF AUSTRALIA LTD, WORMALD INTERNATIONAL (AUST) PTY LTD and LABOUR BROADCASTING STATION PTY LTD ALEC KNAUFF PRETORIUS First Respondent JOHN ROBERT REES Second Defendant CORRIGENDUM Amendment to the judgment of his Honour Mr Justice Fitzgerald of 10 February 1984 - P.6 1.11 Por: "233(1)(a)" Read: "223(1)(a)" S. KIFT 20 MARCH 1984 ASSOCIATE TO FITZGERALD J. CATCHWORDS BANKRUPTCY ~ authority under 3.188 of the Bankruptcy Act authorising Trustee to call creditors' meeting for purposes of Part X of the Act - resolutions at meeting that composition be rejected and that debtor be requested to lodge own petition in Bankruptcy - no petition presented - notice given by trustee that further meeting of creditors to be held - no further authority under s.188 of the Act - creditors present at second meeting passing resolution purporting to rescind request that debtor lodge own petition and accepting composition - validity of composition purportedly accepted at second meeting. Bankruptcy Act 1966, SS. 33,188,190(1), 194(1)(a),204,222,223(1)(a),223(3), 223A(1). RE: ALEX KNAUFF PRETORIUS EX PARTE; DALTONS CARPET TILES PTY LTD AND ORS QLD X72 of 1983 FITZGERALD J. BRISBANE 10 FEBRUARY 1984 IN THE FEDERAL COURT OF AUSTRALTA BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND OLD X72 of 1983 were GENERAL DIVISION RE: EX PARTE: JUDGE MAKING ORDER: DATE OF ORDER: WHERE MADE: ALEC KNAUFF PRETORIUS DALTONS CARPET TILES PTY LTD, CARRICKS LTD., DISCOLL HOLDINGS PTY LTD, OFFICE EQUIPMENT INDUSTRY ASSOCIATION OF AUSTRALIA LTD, WORMALD INTERNATIONAL (AUST) PTY LTD and LABOUR BROADCASTING STATION PTY LID ALEC KNAUFF PRETORIUS First Respondent JOHN ROBERT REES Second Defendant ORDER FITZGERALD J. 10 FEBRUARY 1983 BRISBANE THE COURT ORDERS THAT: 1. The composition purportedly accepted by creditors of the debtor at a meeting on 3 November 1983 is void. 2. A sequestration order is made in respect of the estate of the debtor. 3. Costs, including reserved costs, if any, of the companies and the trustee be taxed and paid out of the estate of the debtor. IN THE FEDERAL COURT OF AUSTRALIA ) BANKRUPTCY DISTRICT OF THE SOUTHERN ) QLD &72 of 1983 DISTRICT OF THE STATE OF QUEENSLAND ) GENERAL DIVISION ) RE: ALEC KNAUFF PRETORIUS EX PARTE: DALTONS CARPET TILES PTY LTD, CARRICKS LTD., DISCOLL HOLDINGS PTY LTD, OFFICE EQUIPMENT INDUSTRY ASSOCIATION OF AUSTRALIA LTD, WORMALD INTERNATIONAL (AUST) PTY LTD and LABOUR BROADCASTING STATION Pry LTD ALEC KNAUFF PRETORIUS First Respondent JOHN ROBERT REES Second Defendant FITZGERALD J. 10 FEBRUARY 1984 REASONS FOR JUDGMENT Mr Alec Knauff Pretorius ("the debtor") ius insolvent. On 24 August 1983, he signed an authority under s.188 of the Bankruptcy Act 1966 ("the Act") authorising Mr John Robert Rees ("the trustee") to call a meeting of the debtor's creditors for the purposes of Part X of the Act and to take control of his property in accordance with that Part. The debtor's statement of affairs acknowledged unsecured creditors totallying $50,629.00 and 1t may be that there are other creditors who were omitted. Book debts, amounting to $1396.00 according to the debtor's statement of affairs, have not been collected but all his divisible property has been realised and the amount remaining after deducting costs and expenses 1s $557.04. No payment has been made to creditors. As I understand what I was informed from the Bar table by the trustee's counsel, the entire amount which has been realized will be required to meet the trustee's remuneration and expenses. The debtor contends that his creditors accepted a composition proposed by him under Part X of the Act at a meeting on 3 November 1983. A number of companies ("the companies"), some of which are acknowledged creditors and one at least of which is a disputed creditor, have applied under sub-s. 222(2) of the Act for a declaration that the composition is void, asserting that 1t was not accepted by a special resolution at a meeting of the debtor's creditors under 5.204 (sub-s. 222(1)), because the meeting held on 3 November 1983 was not a meeting at which the requisite resolution could have heen passed. There 1s no substantial dispute concerning the issues of fact with respect to the companies' application, which the parties are aqreed turns on the construction of Part K of the Act. As I have already stated, the debtor signed an authority under 8.188 on 24 August 1983. The trustee notified those creditors shown in the debtor's statement of affairs of a meeting of the debtor's creditors to be held on 20 September 1983. At that meeting, the creditors present voted to reject the debtor's proposal for the following composition in full settlement and satisfaction of his debts: "ZL. The Trustee of this Composition shall be a person nominated by my creditors in pursuance of s.204(IV) of the Bankruptcy Act 1966 (herein after called "My Trustee"). 2. I covenant to pay to my Trustee monthly payments of $250 or 15 per cent of my mett after tax earnings, whichever 1s the greater, for 36 months commencing November 1983. Plus the cash in hand and the proceeds of the sale of trade faxtures and fittings (excluding office Turniture and equipment). 3. The Trustee shall apply any monies received by them pursuant to this Composition in making payments to my creditors in the order prescribed by 3.109 of the Bankruptcy Act 1966 in the same manner 45 if = had been made Bankrupt on the date or the acceptance of this proposal. 4. This Composition 1s made pursuant to Part X of the Bankruptcy Act 1966. A further resolution was passed that "the debtor be requested to lodge his own petition in bankruptcy within seven (7) days of the passing of this resolution". Finally, after a resolution fixing his remuneration, the trustee, as chairman, closed the meeting. The debtor did net present a petition as he had been requested by the meeting of 3 September 1983. Two days after the meeting he forwarded a letter to the creditors acknowledged in his statement of affairs saying that he would not do so and that, if none of his creditors bankrupted him within the next month, he would ask his trustee to call another meeting of creditors to reconsider his offer. Wo creditor has yet presented a petition against the debtor. D On 18 October 1983, notice was given by the trustee to the same creditors as previously that a further meeting tas to be held on 3 November 1983. No further authority under s.188 was signed by the debtor. At that meeting, attended by some only of the creditors who had been present on 20 September 1983 and some creditors who had not been present at that previous meeting, and from which some at least of the companies which have made the present application were absent, resolutions were passed by the creditors present purporting to rescind the request to the debtor to lodge his own petition and to accept the debtor's proposal for a composition. I note, because reference vas made to it by the debtor's counsel, that in material sent to those creditors given notice of the meeting of 3 November 1983 1t was stated that the debtor did not intend lodging his own petition and that he would "shortly be leaving Brisbane". After the companies brought their application, the debtor filed an application aimed at establishing that there were irregularities in respect of the calling and/or conduct of that initial meeting and that, accordingly, the composition was not then validly rejected and the other resolutions recorded in the minutes of that meeting were not then validly passed. It is not easy to perceive the object of that application. There is no suggestion that it might be possible to erect an invalid rejection of the composition at the first meeting into a valid acceptance of it at that time. Nothing will assist the debtor unless it is what occurred at the second meeting. That aside, he has indisputably committed an act of bankruptcy which is available to support a sequestration order. In any event, the debtor by his counsel did not seek to support the debtor's application but accepted the validity of the first meeting and the decisions recorded in the minutes of that meeting for the purposes of the companies' application although,as it seems to me, nothing turns on that concession for present purposes. The companies argue in support of their application that, under Part X of the Act, the trustee had no power to call the second meeting of the debtor's creditors for the purpose of reconsidering the composition originally proposed by the debtor. That aside, the companies raise no suggestion of any other deficiency in the calling or conduct of the second meeting or the procedural steps which preceded it. Tt is not in dispute that the meeting of 3 November 1983 was a fresh meeting. It 1s not suggested that it was merely a continuation of the original meeting adjourned from 20 September, but it 1s accepted that the earlier meeting had been closed. Further, no reliance is directly placed by the debtor upon the authority which he had signed in favour of the trustee under sub-s. 188(1) of the Act or the trustee's consequential duty to call a meeting of the debtor's creditors under sub-s. 190(1). It may be desirable for the efficient operation of Part KX of the Act that the Court has power under s$.33 to extend the time within which a trustee must perform his duty under sub-s. 190(1) in accordance with para. 194(1)(a). However, 1t was not argued that the time had been extended or might now be extended. The meeting of 3 November 1983 was admittedly out of time as a performance by the trustee of his duty under sub-s. 190(1). The debtor's position 1s that the meeting of 3 November was not called under Part X¥ Division 2 but under Division 3 and more particularly para. 223(1)(a). Paragraph 194(1)(a) applies only to the compulsory meeting pursuant to the authority under s.188 which the trustee is requuired to call by sub-s. 190(1). The debtor contends that the general language of paragraph 233(1)(a) extends to the calling by a controlling trustee of a meeting of creditors to reconsider a debtor's proposal of compromise irrespective of whether 1t had already been rejected. It was submitted that there is nothing in the Act which prohibits such a course. A meeting of creditors to consider whether to accept a debtor's proposed composition may weil be a meeting for a purpose of Part X and thus within the literal terms of para. 223(1)(a) which empowers a controlling trustee to "call such general meetings of the creditors as he considers necessary or desirable for the purposes of this Part". The qualifications in both sub-s., 223(3) and especially sub-s. 223A(1), by which meetings referred to in s.194 are expressly excluded to the limited extent provided in those provisions from meetings of creditors called for the purposes of Part X, might be suggested to reinforce that view. Further, there may be no essential conflict between a controlling trustee's duty to call a first meeting of creditors to consider whether a debtor's proposed composition within the time limited by para 194(1)(a) and the existence of a power ina controlling trustee to call a further such meeting subsequently at any time, aithough it is noteworthy that Part X makes no specific reference to subsequent acceptance of a composition initially rejected but does provide for reconsideration to terminate a composition initially accepted. The companies relied on Re Amadio (1979) 24 A.L.R. 455 which contains dicta which lie uneasily with the debtor's proposition. However, that case, which was concerned with the radically different situation of successive authorities in favour of two different solicitors and not a single authority in favour of a single trustee, does not resolve the present dispute. The argument tended to concentrate upon the power of a controlling trustee to convene meetings of creditors to consider whether to accept a composition and that question is by no means entirely extraneous to what I must decide. However, in my opinion, it is when it 1s recognized that the substantive issue is whether the meeting relied on by the debtor could accept a composition binding on all the creditors that a clear solution emerges. The real thrust of the companies' point is that, at least in the absence of the unanimous approval of all the debtor's creditors, the creditors present at the second meeting could not approve the proposed composition so as to bind all creditors, more particularly in the light of 1ts rejection by the previous meeting and the closure of that meeting. There is no doubt but that the companies did not themselves support the composition and some at least of them are creditors. The reason why the time limit contained in paragraph 194(1)(a) of the Act is considered not to apply to the meeting of 3 Wovember 1983 1s that paragraph 194(1)(a) 18 expressly made applicable only to meetings of creditors "called in pucsuance of an authority under 5.188". Sub-section 190(1) imposes upon a trustee in whose favour a debtor has executed an authority under s.188 an obligation to call a meeting of creditors but' the authority is the direct source of the trustee's power to do so. Paragraph 223(1)(a) is another source of a trustee's power to call meetings of creditors. If that provision extends to a meeting of creditors to consider a proposed composition, it, and not an authority previously executed by a debtor under s.188, is the source of the trustee's power so that such a meeting of creditors is not a meeting "called in pursuance of an authority under s.188". Although Part X of the Act does contain some references simply to a composition or a composition under that Part, there is a consistent pattern of provisions in Part X which are directly related either to s.188 (see e.g. para. 188(1)(e), sub-s. 188(4), $.192, sub-s. 194(1), sub-s. 204(1), sub-s. 222(1), and sub-s. 238(1)), or to sub-s. 204 which, as has just been noted, is itself expressly related to sub-s. 188 (see e.g. sub-s. 208(1), sub-s. 213(3), sub-s. 218(1), sub-s. 222(1), and sub-ss. 225(2) and (3)). It 1s sufficient for present purposes to observe that it is only a composition that has been accepted by a special resolution of a meeting of a debtor's creditors "called in pursuance of an authority under s.188" which is made binding on all creditors of the debtor, and that the ground upon which a composition may be declared void under s.222 is that 1t has not been "accepted by a special resolution of a meeting of creditors under s.204", sub-s. (1) of which refers to a special resolution at a meeting "called in pursuance of an authority under 8.188". See also sub-s. 213(3). Other considerations aside, therefore, the debtor faces the dilema that unless the meeting of 3 November 1983 was called in pursuance of an authority under s.188 it could not approve the composition so as to make it binding on all his creditors and, if it was so called, 1t tas not called within the time prescribed by paragraph 194(1)(a). In my opinion the composition purportedly approved by the meeting on 3 November 1983 was not accepted by a special resolution of a meeting of creditors under s.204 in that it was not accepted by a special resolution of a meeting of creditors called in pursuance of an authority under s.188 within the time limited by paragraph 194(1)(a). be Accordingly I order as follows on the companies' application: 1. The Court declares that the composition purportedly accepted by creditors of the debtor at a meeting on 3 November 1983 1s void. 2. The Court makes a sequestration order in respect of the estate of the debtor. 3. The Court orders that the costs, including reserved costs, if any, of the companies and the trustee be taxed and paid out of the estate of the debtor. The debtor's application 1s adjourned sine die, without order as to costs. 1 ce~ ify that this and the G precedes matic are a true coo ci tre rescons for pent dic.ain of Fis Henour Mr Justice Fitzgerald tl, (Mia Dated 10 fed Mg " — r a