t * ' Vf WWE Bankruptcy - Bankruptcy Act 1966 - application by trustee for sequestration order against estate of debtor - requirements under s.221(1) - application by debtor for release of property from control of trustee pursuant to s.208 - consideration of delay by trustee in applying for sequestration order. Bankruptcy Act 1966 5.208; s.221(1); s.212B Cases Dolman; Ex parte Elder Smith Goldsbrough Mort Ltd (1967) 10 FLR 384 Williamson; Ex parte Wearne (1980) 43 FLR 305 Ex parte James; re Condon (1874) LR 9 CH 609 at 614 Docker; Ex parte Official Receiver; Blackmore 10 ABC 97 at 111 et seq. Thompson v, Paimer (1933) 49 CLR 507 at 547 Re: GRAHAM DAVID BUCKLEY - Bankrupt Ex Parte: BERNARD PUTNIN - Applicant and GRAHAM DAVID BUCKLEY - Respondent No. 100 of 1981X MUIRHEAD J. PERTH 24 APRIL 1986 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA No. 100 of 1981X RE: GRAHAM DAVID BUCKLEY Debtor EX PARTE: BERNARD PUTNIN Applicant and GRAHAM DAVID BUCKLEY Respondent MINUTE OF ORDER JUDGE MAKING ORDER: MUIRHEAD J. DATE OF ORDER: 24 April 1986 WHERE MADE: Perth THE COURT ORDERS THAT: 1. The estate of Graham David Buckley be sequestrated. 2. The Trustee's costs of and incidental to his application be taxed and paid according to the Act. 3. The Respondent's application pursuant to Section 208 be dismissed. 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 WESTERN AUSTRALIA 24th April 1986 I have before me MUIRHEAD J. RE: EX PARTE: No. 100 of 1981x GRAHAM DAVID BUCKLEY Debtor BERNARD PUININ Applicant and GRAHAM DAVID BUCKLEY Respondent REASONS FOR JUDGMENT two applications brought pursuant to the provisions of the Bankruptcy Act 1966. The first, filed on 10 January last, is Bernard Putnin (Trustee) as controlling trustee of the estate of Graham David Buckley (Buckley) pursuant to Part X of the Act. Trustee seeks an incidental order as to costs pursuant to s.221(1) of the Act. a sequestration order against Buckley's estate and This section provides as follows: "Where- (a) a debtor cause- has failed, without initiated by sufficient (1) to attend a meeting of creditors called in pursuance of an authority signed by him under 5.188; or (i1) to submit to the creditors at sucha meeting the statement referred to in s.195; (b) a debtor, having been required by a special resolution of a meeting of creditors called in pursuance of such an authority to execute a deed of assignment or a deed or arrangement or to present a debtor's petition, has failed, without sufficient cause, to execute the deed within the time prescribed by this Act or to present the debtor's petition within the time required by the _ special resolution; or (c) a meeting of creditors called in pursuance of such an authority has not, within 4 months from the date for which the meeting was called, passed one of the special resolutions referred to in sub-section 204(1), the Court may, if it thinks fit, on the application of a creditor or the controlling trustee, forthwith make a sequestration order against the estate of the debtor." Buckley opposes the applicant on the following grounds: "1. The Applicant has no authority to bring the Application. 2. The Application constitutes an abuse of process of the Court in that the Applicant has brought the Application for an improper purpose and with an extraneous motive. 3. The Respondent is not indebted to the Creditors of the alleged joint estate or atall, save for limited exceptions to be enumerated upon the hearing of the Applicaton. 4. It is not in the interests of the public nor the alleged Creditors (if any) nor the Debtor that the orders sought herein be granted. 5. The Applicant by his conduct is estopped from bringing the Application or alternatively obtaining the orders sought therein or alternatively his actions provide sufficient reason for the Application to be dismissed." Buckley Ev application filed on 4 February last seeks an order pursuant to 5.208 of the Act that his property he released from the control of the Respondent. For relevant purposes s.208 provides: "The Court may, by order, on the application of an interested person, release a debtor's property from control under this Division if - (a) a meeting of creditors called in pursuance of an authority under section 188 has not, within 4 months from the date for which the meeting was first called, passed one of the special resolutions referred to in sub-section 204(1); or (b) the Court is satisfied that there are special circumstances that justity its so doing." A brief chronological background will suffice. Buckley met Lynda Dolcie Dixon (Dixon) in early 1981. They commenced to live together, and they have since married. At the time they met, Dixon was the proprieter of a business trading under the style of Cut Price Furniture, and she was then registered as proprietor pursuant to the Business Names Act 1962. On the 25 day of March 1981 Dixon siaqned the appropriate form to effect cessation of that business. On the same occasion she and Buckley signed the form appropriate to effect registration of a business, this time called Cut Price Furniture Co., in which they were named as joint proprietors. This registration remained until October 1981 when Buckley "ceased" as a registered proprietor. He gave evidence to the effect that on the occasion 1n question he signed the form at the request of Dixon who concealed the body of the form from him. Later that day on ascertaining what he signed he was annoyed, but no steps were then taken to correct the situation. Buckley gave evidence that at no stage was he a partner in the business. In this he is supported by Dixon who says she arranged his registration, partly for emotional reasons, aimed at maintaining their relationship and partly for business reasons. She explained that from past experience she had found she could more effectively run a business if notionally or "cosmetically" it appeared that she was supported by a male proprietor. The fact is that they worked together in the business and Buckley played an active role. In evidence he disclaimed understanding of basic business principles. He stated that he drew no monies, received no wages. He was content to work on this basis by reason of the fact that he received basic domestic support from Dixon. In her evidence she basically supports this classification of their business relationship. In the course of the proceedings the Trustee, Buckley and Dixon gave evidence when they were cross-examined on the affidavits filed. This gave me the opportunity of assessing relative credibility. mn But the evidence as tc the existence of the partnership goes much further. Three leases were introduced in evidence whereby the business leased premises. These were signed by Buckley and Dixon on behalf of the firm. Buckley and Dixon both signed lease agreements on behalf of the firm, in one case for cash registers, in another for a business vehicle. Other documentation was introduced into evidence consistent with the fact that Buckley was a proprietor. And then when the business was in financial difficulties Dixon and Buckley both approached the Trustee and executed an authority pursuant to Section 188 of the Bankruptcy Act authorising him to call a meeting of creditors under Part X and to take control of "our property" in accordance with the Act. Buckley was there described as "formerly trading as Cut Price Furniture Co.". In his evidence Buckley was vague and evasive. He claimed his understanding of business matters was minimal. For a man who had previously worked as a car salesman and as a hotel manager I find this surprising. I have made allowance for the fact that from time to time alcohol has proved a very real problem to him, but I do not accept the truth of his evidence on important details. Dixon was a more persuasive witness. I assess her asa person with some business acumen and she was more frank than Buckley. Be that as it may, where her evidence conflicts with that of the Trustee I reject it. I am satisfied that Buckley and Dixon traded together as proprietors of Cut Price Furniture Co... at least between 25 March 1981 and the middle of the ensuing October. In fact in earlier proceedings, following the sequestration of Dixon's estate. this does not appear to have been a matter of dispute. I am also satisfied that when Buckley signed the Trustee's authority on 18 November 1981 he confirmed that he had been a partner in the business. I rejyect Buckley's evidence that on that occasion he had no understanding of the nature of the authority and I accept the Trustee's evidence that on that occasion he provideed Buckley with an explanatory document entitled "Debtor's introductory notes" in the form exhibited to his affidavit of 24 February. A meeting of creditors of the joint estate was duly called pursuant to s.194 of the Act and was held on 9 December 1981. It is common ground that Dixon attended, but Buckley did not do so. He apparently had some problem with the law in Western Australia and he went to Queensland to avoid the consequences. He returned some weeks later. His presence was not prevented "by illness or other sufficient cause" within the meaning of s.195(1). By statute he was bound to attend. At the meeting a Special Resolution was passed that Dixon and Buckley should lodge their petitions in bankruptcy within seven days. An ordinary resolution was passed "that should the debtors fail to file their petitions in bankruptcy within seven days the creditors will seek a sequestration order and the creditors will support any creditor and provide the costs for the purpose out of the funds made available to the Controlling Trustee". By virtue of 3.195(4) Buckley's failure to attend does "not affect the validity of any resolution passed at the meeting". I accept the Trustee's evidence that although on Buckley's instructions he prepared a Statement of Affairs. both 1n the joint estate and in his separate estate to be verified by statutory declaration this was not and has not been done. I am therefore satisfied that the underlying ingredients for the making of a sequestration order under s.221(1) have been proved, namely that Buckley failed to attend the meeting and submit the statement required by s.195 and that he failed to lodge his petition as required by the special resolution. There 1s no suggestion that Buckley was unaware of the resolution. But this all occurred over 4 years ago. The Trustee has in the meantime acted as trustee in the bankruptcy of Dixon. To date the joint creditors have received a dividend of only about 8.2 cents in the dollar. The Trustee swears that approximately $96,000 remains owing to joint creditors. He expresses the belief that the creditors of Buckley's separate estate have not been satisfied. This may not be well founded but it does not intrude upon the present matter, save perhaps on the question of credibility. Buckley has to date made no contribution to the joint creditors. It is clear in my opinion that the Trustee initially considered that Buckley had virtually no assets. His investigations since that date indicate that this may not be the case. Buckley gave evidence that he 1s nowa director of a company named Sigma Plains Ltd, and that there are substantial amounts due to him from that company. The Trustee has voiced the belief that this company is "a mere front for the business operations or Dixon" and in this sphere also Buckley's evidence 1s vague and unsatisfactory. I am led to the view that not only the lives but the business affairs of Dixon and Buckley are intertwined. I conclude that there is a reasonable expectation that sequestration of Buckley's estate will benefit the creditors. Iam doubtful whether either of the debtors has approached the matter with the co-operation and candour the Act requires. Clearly there have been negotiations and discussions between the Trustee and the debtors as the former has sought resolution of the creditors claims. Buckley's counsel, in support of his argument that the Trustee is or should be estopped from proceeding with this application, relies on a meeting which undoubtedly took place in February 1982 between the Trustee, Dixon, Buckley and their solicitor, one Harrison. Buckley asserts that the Trustee in effect then exhibited confusion "as to why I was liable with Dixon for the debts" and it was agreed "that I ought not file my petition in bankruptcy at that time and just should merely wait to see if any of the alleged creditors would force me to do the same". Dixon again supports him, and in his evidence Buckley exhibited a letter he received from his solicitor after that meeting which stated inter alia "After discussion it was agreed that Mr Buckley would not file his own petititon and that we would await developments". Mr Harrison the apparent author of that letter was not called and the letter has little (if any) evidentiary vaiue. The Trustee was cross-examined as to this meeting, which of course took place not long after the statutory meeting. He told me he was then given to understand that Buckley had no assets but he denies that he agreed, then or thereafter, that Buckley should not file his petititon. I have little doubt that the Trustee's state of mind at tnat time was that there would be little benefit to creditors in pursuing Buckley and he concentrated his investigation upon Dixon's affairs which appear very involved. But I see no reason to reject the Trustee's evidence that he gave no such instruction to Buckley or his adviser. It is urged on Buckley's behalf that the Trustee is acting in bad faith. Clearly there has been much investigation and there have been without prejudice discussions designed to ensure final resolution of the creditors' claims. Indeed in August 1984 a meeting of creditors resolved by special resolution that they would consider an offer of settlement of the creditors' claims in the sum of $80,000 subject to somewhat elaborate terms which are set out in an exhibit to Dixon's affidavit sworn on 3lst January last. In that affidavit Dixon agrees that the terms of the resolution as to the execution of certain documents were not fulfilled, but she says, as I understand her affidavit and evidence, that in any event she has in some manner which I do not comprehend provided the Trustee with $80,000 for distribution to creditors. The Trustee swears that whilst the creditors, as the minutes suggest, resolved to consider an offer subject to terms securing the offer, the terms were not implemented and there has been no composition. Nor of course has there been any application by Dixon or the Trustee for approval of the composition by the Court as required by s.74 of the Act. io, It was further submitted that the Trustee's application 1s not made in good faith, that 1t 1s but a lever to force Dixon into a composition acceptable to creditors and the Court, that it has not been issued, to use the words of Dixon in her affidavit of 3lst January last "for the benefit of any creditors of Buckley". Dixon refers in that affidavit to a letter written to her on 17th July 1985 by the Trustee, endorsed 'without prejudice' in which he makes alternative proposals for composition and sets out the course to be followed by him in default of a composition being reached. I do not read the letter as indicative of bad faith. In his responding affidavit the Trustee objects to use of the letter, so endorsed. but bearing in mind the general nature of the Trustee's duties and the controlling powers of this Court under §.212B I could not agree that in an application, at least of this nature where there are joint debtors, that such correspondence to one should be regarded as privileged. It is basic that the Court should have full access to the Trustee's correspondence when essentially the grant or refusal of a sequestration order is discretionary. But I am not from persuaded that the Trustee is acting in bad faith. He has sworn that despite his original belief that Buckley had no assets, which explains no doubt why this application was not brought earlier, his investigation leads him to believe that assets are available to be used for the benefit of creditors. Having heard Buckley's evidence I have no reason to doubt that belief to be genuine. It is to the joint creditors, not to Buckley's personal creditors that the Trustee is directing his attention in bringing this application. ll. Mr Christensen has made several submiszions un opposition. He suggests that by virtue of the fifth ordinary resolution of creditors at the first meeting which I have set out earlier in these reasons whereby it was determined that should the debtors fail to file their respective petitions, the creditors would do so, as no such action was taken by the creditors the Trustee has lost standing. I do not accede to this argument. This Court in an application such as this must be satisfied that the granting of the application would be in the interests of creditors. The Trustee has sworn that there has been no agreement by the creditors for finalisation of the administration of the estates, he has sworn that the application is brought "with the agreement of Buckley's major creditors in value". The fact that creditors are not parties does not deprive the Trustee of status. In exercising my powers I must also consider the interests of the debtors and the public (see re Dolman; Ex parte Elder Smith Goldsbrough Mort Ltd (1967) 10 FLR 384 and re Williamson; Ex parte Wearne (1980)43 FLR 305). I do not agree that in these circumstances the application represents an abuse of process. I accept Mr Christensen''s submission that the responsibilities of the Trustee are akin to that of an officer of the court and that he is required to act in accordance with what is morally right and honest (Ex parte James; re Condon (1874) LR 9 CH 609 at 614. See also re Docker Ex parte Official Receiver; Blackmore 10 ABC 97 at 111 et seq.). I am not satisfied that the Trustee's application is other than bona fide. i a eer Fe N The delay an the application has been my primary concern, Generally speaking sucn a delay would be a fatal flaw. Principles of estoppel arise in that in the ordinary case it could be argued that 1t would constitute 'an unjust departure by one person from an assumption adopted by another as the basis of some act or omission. which, unless the assumption be adhered to would operate to that other's detriment". (Dixon J. in Thompson v. Palmer (1933) 49 CLR 507 at 547). It is submitted that Buckley has re-established himself, that 1t would be unjust at this late stage to impose a sequestration order with all its consequences. But I am satisfied on the probabilities that Buckley has not been frank with the Trustee; he has certainly not been frank with the court. I am satisfied that he knows more about his true financial situation and business interests than has been revealed. He has made no contribution to the business creditors and the Trustee is of the view that a sequestration order will operate in their interests. Balancing those interests which fall for consideration I am persuaded that the order sought by the Trustee should he made. Iam not satisfied that there are special circumstances which justify an order that the debtor's property be released from the Trustee's control. That application is dismissed. Pursuant to s.221(1) I now order that the estate of Graham David Buckley be sequestrated and I direct that Bernard Putnin act as Trustee of that estate. I order that the Trustee s costs or and incidentai to the application be taxed and paid according to the Act. There will be no separate order for costs relating to Buckley's unsuccessful application. I certify that this and the twelve preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Muirhead Associate Dated : 24th April 1986