CATCHWORDS BANKRUPTCY - application to set aside composition - composition resulting in one cent in the dollar to creditors - insufficient explanation of disappearance of assets earlier stated to exist - composition set aside - sequestration order against estate of debtor Bankruptcy Act 1966 ss.239(1), (2) Re: Doukidis Ex parte: Consolidated Constructions Pty Ltd (unreported 26 June 1985, Toohey J.) Re: PETER LEIGH RICHARDS Ex Parte; BENEFICIAL FINANCE CORPORATION LIMITED, No. 225 of 1985X Jackson J. 17th March 1986 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF No. 225 of 1985 x eee eS VICTORIA . RE: PETER LEIGH RICHARDS Judgment Debtor EX PARTE: BENEFICIAL FINANCE CORPORATION LIMITED Judgment Creditor CORAM: JACKSON J. DATE: 17th March 1986 PLACE: MELBOURNE MINUTES OF ORDER THE COURT ORDERS THAT: 1. The composition accepted by creditors on 5 December 1985 in respect of the debtor be set aside pursuant to the provisions of rule - s.239(2) of the Bankruptcy Act 1966. 2. A sequestration order be made against the estate of the debtor. 3. The costs of the applicant of and incidental to these proceedings be taxed and paid in accordance with the Act. Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF No. 225 of 1985x VICTORIA RE: PETER LEIGH RICHARDS Judgment Debtor EX PARTE: BENEFICIAL FINANCE CORPORATION LIMITED Judgment Creditor CORAM: JACKSON J. DATE: 17th March 1986 PLACE: MELBOURNE REASONS FOR JUDGMENT The applicant seeks an order under s.239(1) of the Bankruptcy Act 1966 setting aside a composition accepted by the creditors of Peter Leigh Richards ("the debtor")at a meeting of creditors which occurred on 5th December 1985. §.239(2) provides in relation to such applications that:- -2- "(2) If the Court, on such an application, considers that the terms of the composition are unreasonable or are not calculated to benefit the creditors generally or that for any other reason the composition ought to be set aside, it may make an order setting it aside and, if it thinks fit, may forthwith make the sequestration order sought." It is convenient, in determining whether any of the tests stated in s.239(2) is satisfied, to turn first to the terms of, and circumstances leading to, the resolution of creditors to which I have referred. In the statement of his affairs which was submitted by the debtor pursuant to s.195(1)for the purposes of the meeting the debtor stated that his liabilities consisted of amounts owing to unsecured creditors totalling in all $277,571.73 and that his assets consisted of book debts amounting to $2,500.00. On that basis there was thus a total deficiency of $275,071.73. By s.204(3) a special resolution accepting a composition is required to specify the terms of the composition. The special resolution in the present case stated those terms in the following way:- "1. That the debtor pay to the Trustee under the Composition the sum of $4,000.00 on or before the 6th December 1985. 2. That the moneys received by the Trustee be distributed as follows: (a) Firstly, payment of the Controlling Trustee's remuneration and expenses. (b) Secondly, payment of the costs of administering the Composition including the remuneration of the Trustee. (c) Thirdly, ratably amongst unsecured creditors proved in accordance with the provisions of Part VI of the Bankruptcy Act." It was resolved on the same day that the "remuneration" referred to in paragraphs 2(a) and 2(b) of the resolution be fixed at a total sum of $1,000.00. The Chairman also intimated at the meeting that the overall result of the composition, taking into account costs, would be that there would be approximately $2,700.00 available for distribution to creditors and that creditors in the end would receive about one cent in the dollar in respect of their debts. The amount offered pursuant to the composition in settlement of the debts is so trivial when compared to the total of the debts that in the circumstances of the particular case I would regard that fact alone as a sufficient "other reason" in terms of s.239(2) for setting the composition aside. I take that view because it seems to me that in a case where a debtor having gross assets amounting to only $2500.00 has been prepared to incur debts amounting to a hundred times that amount, the case is better dealt with by way of bankruptcy (thereby giving rise to such matters as public examination of the bankrupt and other persons under s.81) than pursuant to the rather more bland provisions of Part X dealing with compositions. There is, however, a further feature which leads me -4- to the same conclusion and it is that in August 1983 the debtor had given to the applicant a statement of his assets and liabilities which showed that he had assets of $617,000.00 and liabilities of $150,000.00, leaving a surplus of $467,000.00. The assets and the values ascribed to them by the debtor were as follows:- "64 Central Park Rd East Malvern $190,000. Furniture 25,000. Ulysses Richards Holdings 95,000. Momentum Greetings 67,000. Investment in Elegance 210,000. Cash on Hand 30,000. " At the meeting of creditors to which I have referred Mr Anthony, the applicant's Collection Manager, sought to obtain information as to these "assets". The debtor said that the property at East Malvern had been sold, and that the proceeds had been used to pay out the mortgagees, leaving the second mortgagee partly unsatisfied. The debtor then stated, as the minutes of the meeting record, that "he had no equity in any company or in any family trust". He was taxed by Mr Anthony with the position in relation to P.L.R. Investments Pty Ltd (a company -5- in which Mr Anthony had discovered that the debtor was the holder of one of the two issued shares) and the minutes of the meeting record that the debtor stated that that company had no assets and that the trust for which it acted as trustee had no assets. Mr Anthony then stated as was the fact, that company searches in January 1985 disclosed that the debtor was a director of Ulysses Richards Nominees Pty Ltd and that P.L.R. Investments Pty Ltd held 21,700 A Class shares in that company, the issued capital of Ulysses Richards Nominees Pty Ltd being 170,120 shares. It seems probable that Ulysses Richards Nominees Pty Ltd is the company referred to as "Ulysses Richards Holdings" in the statement of assets given by the debtor to the applicant in 1983. The minutes also record that:- "Mr Anthony said that in 1983 Mr Richards had an equity of $95,000 in Ullyses (sic) Richards Nominees and $67,000 equity in another company. Mr Richards reiterated that he had virtually no assets and although he had hoped to pay his creditors by marketing products for the Blind Institute through the ANZ/Visa operations, this had not worked out." Matters at the meeting then proceeded, Mr Anthony expressing his view that "more information was needed to enable a decision to be made." I shall not go into detail about the further course of the meeting, save to say that a Mr English moved, and Mr -6- Anthony seconded, a motion that the debtor present his own petition within seven days. That motion was lost and in the event the motion accepting the composition was passed. It appears to me that the debtor's answers at the meeting were unsatisfactory and that the apparent decline in the debtor's assets was something that should have been further investigated before a resolution accepting a compromise of the nature in question was passed. In these circumstances, my view is that the case is one where, considered as a whole, the composition ought to be set aside and that, to adopt the words of Toohey J. in Re Doukidis Ex parte Consolidated Constructions Pty Ltd (Unreported 26 June 1985) :- "A greater opportunity to enquire into (the debtor's) affairs and a more comprehensive explanation by the debtor were called for." I should also add that the creditors are obtaining so little from the composition that I see no harm of any consequence to them being occasioned by the making of an order to an effect different from that resolved upon by them at their meeting. Accordingly I order that the composition be set aside. A sequestration order against the debtor's estate was -7- ! also sought in the application and I have power to make such an order under s.239(2). I am minded to make such an order, and now do so. I make a sequestration order against the estate of the debtor. I order that the costs of the applicant of and incidental to these proceedings be taxed and paid in accordance with the Act. I direct that a draft of this order be delivered to the Registrar within 7 days in accordance with r.124. [INCA ND SONAL ITT OO st ome eumrmair "AG certify thatihis andthe 6 preceding pages are a true copy of the Roessons for Judgment herein of his Honour Mr. Justice Gachsou Wile Associate Z Dated: /7- 3- 6 OE ROR TOR or RE ERR - ASR OCR