CATCHWORDS Bankruptcy - Application under s.104(1) of the Bankruptcy Act to set aside Trustee's rejection of proof of debt - Guarantee - Whether personal to the debtor or made in his capacity as Director - Whether guarantee applied to debts already incurred. Bankruptcy Act 1966 - s.104, RE: NEIL EDWARD FLETCHER, EX PARTE: HANIMEX PTY. LIMITED No. W203 of 1983/X FOX 3. 10 August 1984 Sydney. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. W203 of 1983/X ) BANKRUPTCY DIVISION ) RE: NEIL EDWARD FLETCHER EX PARTE: HANIMEX PTY. LIMITED Applicant ORDER JUDGE: FOX J. DATE OF ORDER: 10 August 1984. WHERE MADE: Sydney. THE COURT ORDERS THAT: 1. The application be allowed. 2. The decision of the trustee rejecting the applicant's proof of debt be set aside. 3. The applicant''s claim be remitted to the trustee for determination in accordance with these reasons. 4. The costs of the trustee and of the applicant in this appeal be paid out of the assets of the debtor coming to the hands of the trustee under the composition. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. W203 of 1983/X ) ) BANKRUPTCY DIVISION RE: NEIL EDWARD FLETCHER EX PARTE: HANIMEX PTY. LIMITED Applicant CORAM: FOX Jd. DATE: 10 August 1984. REASONS FOR JUDGMENT FOX J. This 18 an appeal from a decision of a trustee under a composition which was effected between the debtor and his creditors under Part X of the Bankruptcy Act 1966. The trustee, after careful consideration, rejected the whole of the proof of debt of the applicant which was for $458,203.75. This was claimed as the amount owing under a guarantee given by the debtor, Neil Fletcher, to the applicant. The guarantee is said to be of the debts present and future of certain companies: Quickprint Laboratories Pty. Ltd., Fletchers Fotographics Pty. Ltd. and Fletchers Management Services Pty. Ltd., of which Mr. Fletcher was a director. These companies had done considerable trade with the applicant prior to mid-October 1981 ona_ sixty-day credit basis, with a limit of $350,000. Their payments, however, had often not been on time, and the applicant ceased supplying, or at least slowed down supply until satisfactory assurances and arrangements were made concerning payment. As at 18 October 1981 amounts owing for goods supplied and services rendered were as follows: Quickprint Laboratories Pty. Ltd. s Nil Fletchers Fotographics Pty. Ltd. $ 2,976.71 Fletchers Management Services Pty. Ltd. $179,783.22 $182,759.93. The evidence has been by affidavit, together with an agreed statement of facts, with no oral evidence adduced. On 8 October 1981 a conversation took place between Mr. Chandler, for Hanimex, and Mr. Fletcher, part of which, as deposed to by Mr. Chandler, was as follows: "T said: 'We need to establish a proper system of doing business. We're prepared to continue the normal $350,000.00 60 day limit for your group provided we work together to ensure payments are made on time. We can discuss the limit from time to time, but in view of the growing nature of our business relationship and the development of your retail photographic business through your group of companies, we will need to discuss the normal credit limit again in January 1982. We are also prepared to grant your group a special stock-up-plan credit limit of $400,000.00. This debt will fall due and payable in full on 31 December 1981. However we do require that the personal guarantees by yourself and your wife be renewed and we also require the various companies within your group to give cross guarantees to support purchases made by your group as well as directors and shareholders' guarantees. All the guarantees will cover both existing and future credit provided by us.' He said: 'Yes, I will'. Later during that conversation I said: 'Will you prepare the personal and other guarantees and send them to me?' He said: 'Yes, I will'. Shortly thereafter and during that conversation I said: 'In that case, I'1l instruct our Credit Department to release your orders which are held up and your supply under the special stock-up-plan.'" There was a partial resumption of supply after the date of this letter, as part of the "special stock-up plan". Further conversations and correspondence took place concerning credit limits and guarantees. On 19 October 1981, Mr. Fletcher wrote a letter to Mr. Chandler, which, omitting formal parts, was as follows: "Dear Phillip Please accept this letter as official documentation to certify that Fletchers Management Services is a wholly owned company of the Fletchers Fotographics Group of Companies which encompasses Quickprint Laboratories, Hesma Laboratories, Milverson (City) Pty. Ltd. and Fletchers Duty Free in all states and that Fletchers Fotographics guarantee payment of all legal debts incurred by Fletchers Management Services. Furthermore, the directors of all these companies hereby give director's guarantees for all debts incurred by the above listed companies. (Signed) Neil Fletcher Director of: Fletchers Fotographics Pty. Ltd. Quickprint Laboratories Hesma Laboratories Milverson (City) Pty. Ltd. Fletchers Duty Free (Signed) Eddie Vandenberg Director of: Fletchers Fotographics Pty. Ltd. Hesma Laboratories Milverson (City) Pty. Ltd. Fletchers Duty Free (Signed) Ken Dobson Director of: Milverson (City) Pty. Ltd. (Signed) John Hill Director of: Milverson (City) Pty. Ltd. IT sincerely hope that this is enough unformation, but, should you require any more please do not hesitate to give me a call." Supply by the applicant was fully resumed from about 18 or 19 October 1981 and continued until February/March 1982. The three companies: Quickprint Laboratories Pty. Ltd., Fletchers Fotographics Pty. Ltd. and Fletchers Management Services Pty. Ltd., went into liquidation during the period June-September 1982. Another company of the group, Milverson (City) Pty. Ltd., apparently went into liquidation at about the same time. The date of the resolution for the composition was 22 August 1983. As at May 1982 the total amount owing by the companies to the applicant was $732,163.56. Up to 4 November 1983, dividends had been paid to the applicant from the liquidators as follows: Fletchers Fotographics Pty. Ltd. $153,586.09 Milverson (City) Pty. Ltd. $120,286.34 $273,872.43 The proofs of debt were for the following amounts: Quickprint Laboratories Pty. Ltd. $30,064.11 Fletchers Fotographics Pty. Ltd. $150,710.00 Fletchers Management Services Pty. Ltd. $557,302.07 The amount of $273,872.42 paid by way of dividend was applied to payment of the debts in question and so deducted from the total of the above amounts. The trustee was of the view that because of the use of the adjective "director's" in the phrase "director's guarantees" in the letter of 19 October 1981, the debtor had not given a "personal" guarantee, and that, in any event, the guarantee could only extend to debts incurred after 19 October 1981. It is the correctness of those decisions from which appeal is taken. So far as concerns the debtor, the guarantee was in my view, one that bound him personally. It is true that in earlier communications reference had been made to "director's" guarantees, and also to renewal of guarantees said previously to have been given by the debtor and his wife. No earlier guarantees had, however, been found. What was sought from him was not a guarantee limited in some way by reason of his being a director. Indeed, as was agreed in argument, no technical meaning can be associated with the use of ""director's" in this context, and it was but a convenient way of referring to the offices held by those concerned. No limitation on the ordinary obligations of a guarantor arise therefrom. If it be correct to conclude that the debtor was not giving exactly what he offered, and what was sought, namely a renewal of an earlier guarantee, the fact is that what he did give in the letter in question was plainly accepted by the applicant by its conduct in continuing to supply the companies with goods and services. The term "quarantee" has a legal meaning, and does not fail or uncertainty for want of elaboration. I am therefore of the opinion that the debtor did give a binding guarantee. It is a matter of construction whether the phrase "debts incurred" included past debts. Quite often a gquarantee will relate only to future debts, but the surrounding circumstances in my view make 1t reasonably clear that what was intended was that the guarantee relate to the total indebtedness of the companies. Iam therefore of the opinion that the decision of the trustee should be set aside, and I direct that he proceed on the basis of the opinion I have expressed. I do not at this stage direct that the proof be admitted, because the trustee might wish to consider whether, and to what extent, the guarantee was still in force at the time of the composition. I do not express any opinion on this matter, but it 1s necessary that attention be given to any implied terms, and to whether any further agreement existed affecting the matters I have mentioned. The fact that the debtor did not continue as a director after 1982 has not been put forward as a reason why the guarantee should have terminated. I therefore remit the matter to the trustee. His costs and those of the applicant 1n this appeai should be paid out of the assets of the debtor coming to the hands of the trustee under the composition. I certify that this and the six (6) preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Fox. le _« LK Din ee - Associate Dated: 10 August 1984.