CATCHWORDS et BANKRUPICY - composition - voting creditors related to debtor - proofs said to he defective - resolution purportedly passed in favour of composition - application by Registrar under s.222 for declaration that composition void - effect of Chairman's decision that resolution passed - whether Court bound to hold resolution Passed - whether failure to adjourn meeting can be vitiating - application dismissed. Bankruptcy Act, 1966 ss.30, 194(2), 201, 202(4), 204, 222, 239(2). Re: Donald Gordon Ogle Ex Parte: Robert Arthur Allen The Registrar in Bankruptcy in the Southern District of the State of Queensland Qld Part X 74 of 1986 PINcUS J. BRISBANE 20 AUGUST 1986 IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ~ QLD Part X 74 of 1986 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: DONALD GORDON OGLE EX PARTE: ROBERT ARTHUR ALLEN The Registrar in Bankruptcy in the Southern District of the State of Queensland ~ MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE OF ORDER: 20 AUGUST 1986 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 7 The application be dismissed. 2. The costs of and incidental to the proceedings be paid by the applicant, to be taxed. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD Part X 74 of 1986 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: DONALD GORDON OGLE EX PARTE: ROBERT ARTHUR ALLEN The Registrar in Bankruptcy in the Southern District of the State of Queensland PINCUS J. 20 AUGUST 1986 REASONS FOR JUDGMENT This is an application by the registrar for a declaration under s.222 of the Bankruptcy Act that a composition entered into by the debtor, Mr. Ogle, on 10 April 1986 is void. On 14 March 1986, the debtor authorised one Noel Adsett to call a meeting of creditors for the purposes of Part X of the Bankruptcy Act and take control of his property in accordance with a that part. On 29 March, Mr. Adsett advertised in form 34 that the debtor had signed the authority mentioned and that a meeting of creditors was to be held on 10 April. Mr. Adsett also sent notices to the creditors under s.194(2). The meeting was held in accordance with the notice and the chairman, Mr. Adsett, signed a certificate that a resolution was passed that "the composition proposed by Donald Gordon Ogle is accepted". That composition was, in substance, that $5,000, then in an accountant's trust account, be applied to payment of creditors less, the trustee's fees and outlays. After the meeting, a Mr. Cooper, who had represented , . certain of the creditors, expressed disquiet to the registrar and asked that the matter be investigated. According to the statement of affairs sworn on 8 April, a deficiency of $573,566 was expected so that (ignoring the fees) the composition is about one cent in the dollar. Further, a substantial proportion of the debts voted were allegedly owing to close relatives of Mr. Ogle and companies controlled by them; they voted in favour of the composition. One of the creditors, Eunice Ida Scott, made an affidavit saying, accurately enough, that the composition "will resuit in my recovering little or nothing from the said Donald Gordon Ogle" and expressing herself as being against the composition. However, that creditor has made no application and the matter has been brought before the Court, quite properly, by the registrar. No doubt the costs of applying would have been quite sufficient deterrent to Eunice Ida Scott. The grounds advanced are: i. The chairman's certificate did not disclose that the resolution passed was a special resolution, nor did the minutes say that the resolution was passed as a special one. 2. Certain secured creditors did not disclose the value of their security. 3. 3. The minutes did not disclose whether Mr. Adsett voted on a motion (said to have been passed) fixing Mr. Adsett's remuneration at $1,000. 4. The chairman gave no adequate consideration to the sufficiency of the proofs of debts and proxies; the applicant gave particulars of alleged deficiencies in those documents. 5. Lastly, it was said that there were miscellaneous irregularities, the only one requiring mention being that a Major crediter, Banque Nationale de Paris, was not given notice of the meeting. & The first ground of objection was not pressed by Mr. Logan, wha appeared for the applicant, but he pointed out that since the minutes are, under ».225(4), prima facie evidence, to fail to describe the resolution as special is of some evidentiary significance. In other cases, that might be so, but here there is direct evidence that the motion for approval of the composition had the support of a majority in number and more than three-fourths in value of the creditors present and voting. It does not seem to me, therefore, that the error relied on produces any consequence. The second ground, relating to the secured creditors, was not pressed, nor was the third, relying on another claimed deficiency in the minutes, As to the fourth ground, the alleged lack of consideration given by the chairman to the sufficiency of the proofs and proxies, considerable argument was advanced. It was admitted, however, that the claimed deficiencies in the proxies could not bring success to the applicant and attention was concentrated on the proofs. Mr. Logan argued, on behalf of the applicant, that s.201 implies an obligation on the part of the chairman to make a proper investigation, where necessary, as to the right to vote of persons Claiming to do so. The section reads as follows: "Any question as to the right of a person to vote at a meeting under this Division, or as to the amount of the debt in respect of which a person is entitled to vote at such a meeting, shall be determined by the chairman, who may, if he thinks it necessary to do so, adjourn the meeting for a period, not exceeding 14 days, to enable him to investigate the matter." Mr. Fraser argued for the respondent that, on the evidence, I should not find that the postulated duty went unfulfilled. Further consideration of this fourth point appears below. The last point mentioned above, relating to the position of the Banque Nationale de Paris, fails. It was not shown that the bank was entitled to notice. The relevant provision is s.194(2), which obliged Mr. Adsett to give notice "to each person who is stated by the debtor to be a creditor and whose business or residential address is known to the trustee". There is no evidence that the bank was stated by Mr. Ogle, at the relevant time, to be a creditor. Although its debt appears in the 5. statement of affairs mentioned above, it is not in the list of creditors in Mr. Adsett's file, and it seems probable that the bank received no notice because Mr. Ogle initially failed to tell Mr. Adsett that it was a creditor. However that may be, it is not positively established that there was a breach of * s.194(2). Further, this is not a point on which the registrar may rely; s.194(4) reads as follows: "Where there has been a failure to comply with sub-section (2) or (3), the meeting shall not be deemed incompetent tc act for the purposes of this Part by reason only of that failure unless the Court, on the application of a creditor, or of the controlling trustee or solicitor by whom the meeting was called, otherwise declares." It should be added that Mr. Logan sought to amend the grounds set out, by adding one based on the assumption that s.109, setting out the priority order, is relevant to the case. I refused leave to add that ground. I return to the fourth ground and to the question whether it is correct, as the applicant says, that the alleged failure 6n the part of the chairman properly to exercise his function would, if established, be destructive of the validity of the composition. Mr. Fraser, for the respondent, emphasised the lack of breadth of the provision under which the application is brought, namely s.222(1): "Where there is a doubt, on a specific ground, whether a deed of assignment or a deed of arrangement was entered into in accordance with this Part or complies with the requirements of this Part, or whether a composition has been accepted by a special resolution of a meeting of creditors 6. under. section 204, the Registrar, the trustee, a creditor or the debtor may apply to the Court for an order under sub-section (2)." . Counsel for the applicant did not assert that it had been established, objectively, that there was no special resolution at the meeting. His contention was that the chairman should not have thought himself to have been ina position to determine the rights to vote of all the persons claiming to be entitled to doso, and should have adjourned the meeting to investigate the matter under s.201. If the argument for the applicant is correct, I should not make a positive finding as to whether or not a special resolution was passed, but should declare the composition void under s.202(2), because of the chairman's lack of investigation of that point. Mr. Fraser argued that the Court should not be concerned with the question whether the chairman should have investigated the existence of the debts alleged, but merely with the point mentioned in s.222(1), namely whether the composition had been "accepted by a special resolution of a meeting of creditors under s.204", As there is no reali dispute that in fact the requisite majority voted for the motion, why should it matter that the chairman might properly have had doubts on that question, doubts which, had they existed, would have been unfounded? The question under discussion was touched on by Bowen C.J. in Re Levy and Ors; Ex Parte Scholefield Goodman and Sons Ltd. (1980) 50 F.L.R. 99 at pp.112 and 113. His Honour quoted the provisions of s.201 and went on to say that that section does not make the chairman's decision final and conclusive. His Honour's 7. view was that the Court could determine, despite such a decision, whether or not a person was a creditor entitled to vote at the meeting. At p.113, his Honour said: "The question then arises whether the court's function is to determine whether the chairman's decision was correct having regard to the material before him or whether it was correct having regard to the facts in evidence in the proceedings before the court. It is umnecessary to express a concluded view on this because on either basis I would conclude the chairman was in error." The matter left undetermined in that case arises here, in a sense, but it should be noted that Re Levy involved an application for a declaration under s.30 of the Act. Section 222(2), so far as relevant to this case, gives jurisdiction to declare that the composition is void, or that it is not void, on the ground specified in the application. The only relevant ground on which the former declaration could be based is, in accordance with s.222(1), that the composition has not been accepted 'by a special resolution of a meeting of creditors under s.204. It is not in dispute that there was a meeting of creditors; under s.5, "special resolution" means a resolution passed by a majority in number and at least three-fourths in value of the creditors present personally by attorney or by proxy at a meeting of creditors then voting on the resolution. The definition does not pose an subjective test. The proper construction of it appears to be that there is sucha resolution as mentioned in the definition, if in fact the one requisite majority votes in favour; the matter is not made dependent upon the chairman's view. It is true that s.201 gives the chairman a right to determine the point, but, as Re Levy shows, that determination has only a provisional effect.. ¥ Section 222(1) and (2), read with the definition of "special resolution", suggest that the question to be determined is whether there was a vote by the requisite majority, not whether the chairman properly thought there was. I find, on the evidence before me, that the necessary majority voted for the motion. It is therefore not necessary to express any opinion on the question whether the chairman should have adjourned the meeting, as contended on behalf of the applicant. It should be added that reference was made in the course of argument to s.30 and to the possibility of dealing by that method with an attack on a matter arising under Part X, as was done in Burns and Geroff v. Lorac Mining Pty. Ltd. (unreported, 6 March 1985). No argument was advanced that, if the applicant was not entitled to relief under s.222(1) because of the narrowness of the question posed by that provision, then the Court could and should undertake a broader enquiry, under s.30. The applicant has not relied on considerations of the sort mentioned in s.239(2) - that the terms of the composition are unreasonable and the like - and cannot, under s.222(1), do so. It may seem to some a little absurd that for a relatively small sun, supplied (in effect) by his family, Mr. Ogle has escaped the . 9. burdens of bankruptcy, but for the reasons set out above the composition must be held to survive this challenge. The application will be dismissed with costs.,- » + certify that this and the 8 preceding pages are a true copy of the reasons for judgment herein of His Honour Mr. Justice Pincus ptt gone . Associate Dated 30 Oongpnet 1986.