Maes eB ee emcems aek oe Teoma he CATCHWORDS BANKRUPTCY - creditor''s petition pending - suspension of payment of debts - trustee ordered to take control - application to set aside order - whether respondent a "creditor" - nature of finding on that issue - interlocutory or final - whether act of bankruptcy. DEEDS - execution by director under company seal - extrinsic evidence - personal liability of director. Bankruptcy Act, 1966 s.50(1); s.50(2); s.40(1) (Ch) Re: Fritz Heinrich Mader Ex Parte: Lloyd Edward Henderson Qld P654 of 1986 PINCUS J. BRISBANE 17 JULY 1986 REC. "=D 18 JUL 1986 ae ee IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD P6é54 of 1986 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QURENSLAND ) RE: FRITZ HEINRICH MADER Applicant EX PARTE: LLOYD EDWARD HENDERSON Respondent MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE OF ORDER: 17 JULY 1986 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application to set aside the order of Moynihan J. of 20 June, 1986 be dismissed, ' 2. The summonses issued under s.50(2) proceed at a time to be fixed by the Registrar. 3. The costs of the application be costs of the petitioning creditor in the petition filed on 20 June, 1986. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. wae Se ere IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD P654 of 1986 BANKRUPICY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: FRITZ HEINRICH MADER Applicant EX PARTE: LLOYD EDWARD HENDERSON Respondent PINCUS J. 17 JULY 1986 REASONS FOR JUDGMENT On 20 June 1986, Moynihan J., in the Supreme Court of Queensland, made orders under s.50 of the Bankruptcy Act to the effect that Mr. Peter Geroff, a registered trustee, take possession and control of the property of the applicant, Mr. Mader, and that the applicant and certain other people attend before a registrar in bankruptcy for examination on oath with respect to the affairs of the applicant. A petition for a sequestration order was presented on 20 June but it is not to be heard for some weeks. The present application seeks the setting aside of the order of Moynihan J. which was made ex parte. It is founded on material in addition to that placed before his Honour. mee See en eee oe nee oe It was argued for the applicant that, quite apart from the merits of the case, the order of Moynihan J. should be set aside simply because it was made ex parte without there being any necessity to proceed in that way. It appears that the application to Moynihan J. and accompanying papers could probably have been served without any difficulty. On the other hand, the respondent may, because of the circumstances set out below, well have thought that the matter was urgent and that giving notice of the proceedings might cause steps adverse to his interests to be taken before the matter came before the Court. It does not appear to be a case in which it is proper to set aside the ex parte order on the procedural ground mentioned. Whether it should be set aside depends, as it seems to me, on the merits. The order made by Moynihan J. was under s.50(1) of the Bankruptcy Act which reads as follows: "If, on application by a creditor, it is shown to be necessary in the interests of the creditors, the Court may, at any time after the presentation of a creditor's petition and before sequestration, direct the Official Trustee or a specified registered trustee to take control of the property of the debtor and may make such orders in relation to that property as the Court considers just." Subsection (2) empowers the Court to summon the debtor or certain other designated persons to attend to give evidence; I do not trouble to set that provision out. The applicant, by his counsel Miss Kiefel, argued that the order of Moynihan J. should be set aside because the respondent was not at the relevant time, and is not now, a creditor; s.50(1) empowers the Court to give a direction only on the application of a creditor. It is clear that the respondent loaned $20,000 for use in a business with which the applicant has been connected; the dispute is as to whether the applicant made himself personally liable for its repayment. According to the evidence of the respondent, the applicant came to him in May 1985 and asked for money for a company, Redchamp Research Station Limited, in which the applicant was interested. The respondent said he agreed to lend money on the basis, as I read the evidence, that the applicant was personally liable to repay it. The applicant disputes that version of events. It is common ground that the transaction was recorded ina writing executed on 28 May 1985, which is i1nexpertly drawn and obscure in effect. Although the text of the writing strongly suggests that the applicant was to be personally liable for the $20,000, when one has regard to the form of its execution, its intended effect appears more doubtful. It is executed under the seal of the company Redchamp Research Station Limited, by the applicant as a director of that company. A similar problem was discussed in an unreported decision of Connolly J. in the Supreme Court of Queensland delivered on 19 March 1986, in Sunbird Plaza Pty. Ltd. v. Maloney. His Honour held where there is an antecedent oral agreement by a director to guarantee a company's obligations, execution by the director, with the company's authority, constitutes both execution by the company and a note of the guarantee binding the director. It was argued before me that if that principle is correctly 4. stated, its application is confined to guarantees. That seems to me unlikely; the law's traditional tenderness towards guarantors would seem to be inconsistent with a rule making guarantors liable in a situation in which principal debtors would not be. In my view, on the authority of the Sunbird Plaza case and the decisions there relied on, the execution just described is enough to make the applicant liable for the debt if, of course, that was the true agreement. Mr. Sofronoff, who appeared for the respondent, said in effect that it would be inappropriate to reach any other than a provisional decision on the question whether the applicant is liable for the debt just discussed. He said that to fully litigate that question would require the calling of more evidence and, of course, cross-examination to resolve the issues of credit; there was only limited cross-examination before me. No doubt he was concerned that the result of this application might be to raise an issue estoppel. It is my view that no estoppel can arise from my determination of the issues in these proceedings because the order of Moynihan J., like that to be made on this application, is not final in its nature: see Halsbury 4th ed. vol.16 pars.1518, 1563. Section 50(1) contemplates an application made before hearing of the petition for sequestration. Where, as here, that petition is to be contested on the ground that the petitioner has no standing, not being a creditor, the Court may, nevertheless, make an order in favour of the "creditor" under s.50(1) on the basis of a provisional or prima facie view on that question; it is not woes eae 5. necessary, in my opinion, finally to determine that he is a "creditor", to justify such an order. I have reached the conclusion that the respondent should be treated as a creditor, on present material. In doing so, I rely principally upon the evidence of Mr. K.J. Gattenhof, an affidavit by whom was filed on behalf of the applicant. Mr. Gattenhof says, in effect, that he agrees with an account given by the respondent of a conversation between the parties which occurred recently and in which Mr. Gattenhof took part as accountant for the applicant's group of companies. It appears from that version of events that Mr. Gattenhof, in the course of a discussion between the parties, said that the applicant owed the respondent $20,000 and a Mr. Gibbs, who was present, asked if that was so. The applicant admitted that it was so and said, "I will pay him back as soonas [I can." Mr. Gibbs then asked for authority to pay the respondent $20,000 "from moneys payable to you on the first drawdown of the property" and the applicant agreed to that. By way of explanation of that evidence, Mr. Gattenhof said that he "identified the judgment debtor and his group of companies as one entity" meaning that he identified the applicant {who is not in fact a judgment debtor) and his group of companies in that way. Nevertheless, the conversation mentioned seems to me strong evidence in favour of the respondent's version of events and is certainly enough to justify a finding of an interlocutory kind against the applicant. nn ee Swe rere a a toe 6. Next, it was said that it is not "shown to be necessary in the interests of the creditors" within the meaning of s.50(1) that the order of Moynihan J. should stand. Again, there is a considerable volume of material before me which was not before his Honour, and I consider the matter on the whole of the material. It was argued by Miss Kiefel that, as to some of the property on which reliance was placed before Moynihan J., the facts now disclosed show that the respondent really had no case and could not reasonably have thought himself to have a case. I do not accede to Miss Kiefel's submission that this is sufficient ground upon which to set aside his Honour's order. As far as protection of property is concerned, the case before Moynihan J. was based principally upon evidence of the "drawdown" referred to above. On the evidence before Moynihan J. it was not clear what the transaction was which was said to give rise to the "drawdown", nor has that matter been clarified before me, although there is more evidence about it now. Miss Kiefel contends that it is not shown that there is any property to which the order of Moynihan J. might reasonably relate, that is, that there is nothing which the trustee might usefully seize. She points to the fact that there is evidence that the applicant has no interest in any transaction connected with the drawndown. The basis of that submission was that on 2 December 1985 a Mr. Ian Walker, with whom the applicant has been associated in some ventures, executed a deed of trust in respect of a transaction there referred to, declaring, inter alia, that he held pa a wy a penne 7. "a beneficial one-half share interest in the said property as lessee/purchaser on trust for the said Dokety Pty. Ltd."". The company just mentioned is, on the evidence, a trustee for the applicant's family. Assuming that the drawdowns mentioned in the evidence were to relate to the same property as is the subject of the deed of trust, still the respondent has in his favour that on the evidence referred to above the applicant was to pay the respondent the $20,000 "from moneys payable to you on the first drawdown on the property". That suggests that the money was abie to be disposed of by the applicant. The principal attack made by Mr. Sofronoff on behalf of the respondent, on this branch of the case, was on the date of execution of the trust. On the evidence, it must be held that it was executed on or about the date it bears and not more recently. Nevertheless, it cannot be pretended that the picture of the applicant's affairs presented to me is such as to dispel the impression, created by some of the evidence, that he has at least control of funds which might be available for payment of creditors. On the evidence, the applicant has within the last year engaged in substantial and profitable real estate dealing. It may be that investigation will show that his affairs have been so arranged that no benefit from these can accrue to his creditors, but one could certainly not draw any such inference now. There is clear evidence of an act of bankruptcy. According to Mr. kK. Guihot, who stands uncontradicted, the applicant told him last month that he had no money and was going mepen prses ce mene -+ a 8. to make himself bankrupt. He said: "T haven't any money and I can't pay any debts. I am just not paying anyone any more because I can't." Mr. Sofronoff argued, and I hold, that on the authority of such cases as Re Hewson; Ex Parte Sydney Stock Exchange Ltd. (1967) 10 F.L.R. 479 (a decision of Gibbs J., as his Honour then was), the conversation just mentioned is sufficient to show circumstances falling within s.40(1)(h) of the Bankruptcy Act; that creates an act of bankruptcy where the debtor "gives notice to any of his creditors that he has suspended, or is about to suspend, payment of his debts". Again, I make no final finding with respect to that question, but deal with it only on an interlocutory basis. A number of other aspects of the affairs of the applicant were dealt with in the material and debated before me, but I do not think it necessary to deal with them. I decline to set aside the order of Moynihan J. because there is a_ sufficient prima facie case that: 1, The applicant is indebted to the respondent in the sum of $20,000. 2. The petition which has been issued is well-founded otherwise in that an act of bankruptcy is properly sworn to. 9. 3. The applicant has money or property or interests therein which are capable of satisfying, at least in part, claims of creditors. Iam satisfied that it is necessary that, in the interests of creditors, the trustee retain his present status and that there proceed without delay the examinations under s.50(2) contemplated by the order of Moynihan J. The summonses issued under s.50(2) have apparently been adjourned pending my decision. I direct that they proceed at a time to be fixed by the Registrar and otherwise dismiss the application of Mr. Mader. It will be ordered that the costs of the application be costs of the petitioning creditor in the petition filed on 20 June 1986. * certify that this and the 9 preceding pages are a true copy of the reasons for judgment herein of His Honour Mr Justice Pincus aoe Le a, JED + Associate Dated /7 duty 1486 Y Ss aiid