CATCHWORODS BANKRUPTCY - deed of assignment - assignor's signature witnessed by assignee - void - whether any divisible property assigned - effect of there being no divisible property - extension of time for execution of deed. Bankruptcy Act, 1966 ss.116, 187(1), 216(2) Re: Geoffrey Gilbert Dart Ex parte: Registrar in Bankruptcy for the Southern District of the State of Queensland Qld Part X93 of 1986 PINCUS J. BRISBANE 26 NOVEMBER 1986 IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD Part X93 of 1986 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: GEOFFREY GILBERT DART EX PARTE: REGISTRAR _IN BANKRUPTCY FOR THE SOUTHERN DISTRICT OF THE STATE OF UEENSLAND GEOFFREY GILBERT DART Respondent MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE OF ORDER: 26 NOVEMBER 1986 WHERE MADE: BRISBANE THE COURT: 1. Declares that the deed of assignment dated 14 April 1986 executed by Geoffrey Gilbert Dart is void as not having been executed in accordance with the requirements of s.216(2) of the Bankruptcy Act and because there was no divisible property on which it could operate. 2. Orders that the cross-application be dismissed. 3. Orders that the respondent pay the applicant's costs of and incidental to the proceedings, 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 X93 of 1986 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: GEOFFREY GILBERT DART EX PARTE: REGISTRAR IN BANKRUPTCY FOR THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND GEOFFREY GILBERT DART Respondent PINCUS J. 26 NOVEMBER 1986 REASONS FOR JUDGMENT By his amended application, the Registrar in Bankruptcy seeks an order that a deed of assignment executed by the respondent, Mr. G.G. Dart, on 14 April 1986, be declared void on grounds mentioned below, and further a declaration to the effect that 1t is not a deed at all. The case concerns points of two kinds. The first and simpler point 1s whether the deed is void because not properly witnessed, and the second is whether it is void because there was nothing, or nothing of any consequence, on which it could operate. There is a cross-application seeking an extension of time for execution of the deed. It is convenient to dispose of the execution point first, because its correct resolution is not in dispute. The deed which is attacked was executed under Part X of the Bankruptcy Act 1966 in the statutory form. It conveyed and assigned to the trustee, Mr. R.A. Duus, all the assignor's divisible property, and was witnessed by the assignee, Mr. Duus. Section 216(2) requires that the execution "of the deed by the debtor and by the trustee shall be attested by a witness". It was held by Beaumont J. in Burns and Geroff v. Lorac Mining Pty. Ltd. (1984) 4 F.C.R. 301 that 1f the assignor's signature is witnessed by the assignee the deed is bad. In further litigation relating to the same matter (Re Lawrence; Ex parte Burns and Geroff, unreported, 19 September 1985), I accepted the correctness of his Honour's decision. Here, counsel for the respondent did not argue to the contrary, but submitted that the time for execution of the deed should be extended; that application is discussed below. The other and more difficult point in the case depends on ananalysis of the evidence to determine whether there was anything on which the deed could operate. Although 1t was not contested that the deed is bad because of its defective execution, it appears to be desirable to decide the more substantial issue in the case, as bearing upon the question whether time should be extended. The definition of "deed of assignment" in s.187(1) of the Act is as follows: "'deed of assignment' means a deed by which a debtor assigns all his divisible property for the benefit of his creditors". It was contended by Mr. Fryberg Q.C., senior counsel for the applicant, that there was no property on which the deed could operate, and it was therefore void. I have had difficulty with this point because the evidence left the facts in a state of some confusion. According to the statement of affairs, the respondent had no property at the date of execution of the deed, and had unsecured creditors of $6,168,945. The case put forward for the respondent was that the statement of affairs was 1n error and that, at the relevant date, a sum of $3,000 contributed by a company called Pettit and Sevitt Sales Pty. Ltd. constituted an asset upon which the deed could operate, and would have done but for the defect in execution. The substantive hearing of the matter took place on 7 October and 5 November 1986. On the first hearing day, the respondent's case was that the $3,000 I have just mentioned was paid, as to $2,000, by am initial cheque and the remaining $1,000 by a second cheque. The evidence of conversations and the like advanced on behalf of the respondent was then put forward on that basis. On the second hearing day, 1t was conceded that the cheques were in fact paid in the reverse order - 1.e. §1,000 first and then $2,000. I should add that junior counsel for the respondent, Mr. Q'Donnell, asked for an adjournment to enable those who had given evidence on the basis that $2,000 had first been paid to reconsider their evidence, but I declined to allow that. On 25 March 1986, the respondent executed an authority in favour of a registered trustee, Mr. J.W. Armstrong, under s.188 of the Act, and on the same day the company I have mentioned, Pettit and Sevitt Sales Pty. Ltd., drew a cheque in favour of Mr. Armstrong's firm, Touche Ross andCo., inthe sum of $1,000. According to the evidence of the respondent, the events leading up to payment of moneys by Pettit and Sevitt Sales Pty. Ltd. to Messrs. Touche Ross and Co. were as follows. The respondent told his accountant, Mr. Steer, during the course of discussion relating to the then prospective creditors' meeting that he had "no assets to speak of". Mr. Steer said that it would be to the advantage of the respondent if he had "say $20,000 worth of assets to assign". The respondent said that he could "raise up to perhaps $3,000". Mr. Steer told the respondent that he thought the costs of his firm (Touche Ross and Co.) and those of the trustee of the deed would be of the order of $2,000; then, said the respondent, he borrowed $2,000 from Petit and Sevitt Sales Pty. Ltd. The respondent said that he was subsequently told that the costs would be more than originally estimated and borrowed a further $1,000. According to the respondent's evidence, the total of $3,000 formed part of a sum of $35,584 shown in his statement of affairs as due to Pettit and Sevitt Sales Pty. Ltd. As I have mentioned, it emerged, and was in the end not disputed, that the cheques were paid in the reverse order. The $1,000 came first and was sent by Mr. Steer from Touche Ross' Gold Coast office to the firm's Brisbane office as "estimated fees". The second cheque for $2,000 was drawn on 9 April 1986. The error as to the order of the cheques reflects on the respondent's credit, in my opinion. His evidence does not make such sense, if one reads it keeping in mind that the $1,000 was paid first. The creditors' meeting took place on 11 April 1986, and a resolution in favour of the deed of assignment was passed; twenty-five creditors were in favour, and two against. The dissentients represented only $48,338.57 in debts. The cheques were debited to the bank account of Pettit and Sevitt Sales Pty. Ltd. on 14 April 1986, and on 23 April 1986 Touche Ross and Co. paid Ernst and Whinney for the trustee of the deed of assignment (Mr. Duus) the sum of $1,000. On 24 April 1986, Touche Ross and Co. repaid Pettit and Sevitt Sales Pty. Ltd. the sum of $119. That sum was calculated as follows: Opening balance $3,000 Less Controlling Trustees Fees $1,881 Trustees Fees $1,000 Sub-total $2,881 Balance $s 119 If one were to have regard only to the objective facts and not to evidence of the conversations relating to these cheques, the proper inference would clearly be that the sum of $3,000 was never held for the respondents at all, but for Pettit and Sevitt Sales Pty. Ltd., to be applied in payment of accounting and trustees' fees relating to the deed of assignment. That view of the matter is, of course, strongly supported by the repayment of the $119, which turned out to be surplus to requirements. Mr. N.H. Dawe, the managing director of Pettit and Sevitt Sales Pty. Ltd., said that he was approached by the respondent who asked that that company lend the respondent $2,000, which Mr. Dawe agreed to. Subsequently, according to Mr. Dawe, the respondent asked him for a further loan of $1,000, which was also made. I do not accept that account of the matter. I prefer to place more reliance upon the evidence of Mr. Steer. He said that he had done work for Pettit and Sevitt Sales Pty. Ltd. as an accountant and discussed Mr. Dart's position with Mr. Dawe "prior to any decision was made back in March". Subsequently, said Mr. Steer, he discussed the question of accountancy costs with a Mr. Cole, the secretary of Pettit and Sevitt Sales Pty. Ltd. An arrangement was made with Mr. Cole that Pettit and Sevitt Sales Pty. Ltd. would supply the money and whatever was left would go back to that company. It 1s true that Mr. Steer also says that moneys were to be deposited "for the benefit of Geoff's estate", But as, according to his understanding, everything which was not expended on accountancy fees was to go back to Pettit and Sevitt Sales Pty. Ltd., i1t seems clear that on his view of the arrangement all the money was held for the specific purpose of paying the trustees' and accountancy fees. The documents appear to be consistent with that view. The $3,000 did not in fact form part of the Pettit and Sevitt Sales Pty. Ltd. debt of $35,854.51 for which a proof was lodged, although as mentioned above the respondent said it did. The statement of affairs showed no assets. The first cheque which wags sent to the Brisbane office of Touche Ross and Co. on 25 March was not then banked. A trust account receipt for each of the cheques was issued on1l April 1986, the day of the meeting, and as I infer, the cheques were then banked. Mr. Fryberg Q.C. argued that this sequence of events 1s easily explained, in that a major creditor who was owed sufficient to defeat the proposed deed was persuaded to support it only shortly before the meeting; the cheques were not banked, he said, until it had become clear that the resolution would be passed. I am not prepared to find that that was the reason for the cheques' being held, but am nevertheless of the view that the circumstances just mentioned are more consistent with the $3,000 not truly forming part of the estate of the respondent than with the contrary position. If there was a loan, it was of the type analysed in Barclays Bank Ltd. v. Quistclose Investments Ltd. [£1970] A.C. 567; that is, the lender must have, in my view, advanced the money on the basis that it would be applied only towards payment of the trustees and accountancy fees. I do not accept that there was any intention of making a (necessarily trifling) surplus available to creditors. If the money was advanced, in any sense, by Pettit and Sevitt Sales Pty. Ltd. to the respondent, it was advanced "with the mutual intention that 1t should not become part of the assets of" the respondent - Australasian Conference Association Ltd. v. Mainline Constructions Pty. Ltd. (1978) 141 C.L.R. 335 at p.353 per Gibbs A.C.J. (as he then was). But in my opinion the better view 1s that the money was not a loan to the respondent at all, but simply a payment to the accountants of sufficient to meet their and Ernst and Whinney's fees. I have no doubt there was some discussion of the necessity of having a sum on which the deed could operate, but I do not accept that the $3,000, or any part of it, ever became part of the respondent's assets. Mr. O'Donnell relied upon Gee v. Schmutter (1971) 123 C.L.R. 503 in support of the view that a deed of assignment need not have any significant property on which to operate. That was a case in which the Federal Court of Bankruptcy had held that a purported deed of arrangement was not one, but was, rather, a deed of assignment and void because not in the proper form. In the High Court it was held that the document was not a deed of assignment because (amongst other reasons) 1t was not "for the benefit of creditors" within the meaning of the definition set out above. The deed 1n question provided for payment of moneys for road tax and fines, being liabilities not provable in bankruptcy. Barwick C.J., with whom the other members of the High Court agreed, said: "In my opinion, the sense of the expression 'for the benefit of his creditors' in the definition of a deed of assignment, is that the substantial if not indeed the only operation of the deed is that, of its own force it commits the divisible property to the creditors and for their benefit alone subject only to the attainment of a surplus." In my opinion, the Chief Justice was concerned only to rebut the argument that the deed in question was one "for the benefit of his creditors" although it also benefited a non-creditor, and was not dealing with the question whether a deed which applies to little or nothing can fall within the definition. The expression "divisible property" is aliso defined in s.187(1), and reference to that definition, set out below, shows that ome ascertains the extent of the divisible property from s.116, which defines it for the purposes of a bankruptcy. A more difficult question would have arisen if the $3,000 had been loaned to the respondent on the basis that the fees would be paid out of it and any surplus would form part of the estate. Here the surplus was $119 - avery small sum compared with the $6m. in debts. I discussed a similar situation in Re Beames; Ex parte Beneficial Finance Corporation Ltd. (1985) 7 F.C.R. 216, but 1t appears to me unnecessary to consider here what the position would have been if nothing of consequence, rather than absolutely nothing, had been assigned. It would seem clear enough that in the latter case the deed 1s void; a transfer of no property has no legal effect. Mr. Fryberg Q.C. argued that even if the money was lent to the respondent, there was no property on which the deed could operate for quite another reason, namely that the bank account of Pettit and Sevitt Sales Pty. Ltd. was not debited until the day of execution of the deed. He referred to the definition of "divisible property" in s.187(1) which is as follows: "'divisible property', in relation to a deed of assignment executed by a debtor, means the property, other than property that was acquired by, or devolved on, the debtor on or after the day on which he executed the deed, that would be divisible amongst his creditors under Part VI if he had become a bankrupt on that day;". 10. In Re Hone £19513 1 Ch. 85 a cheque was paid intoa banking account of a creditor on a day on which the drawer filed her own petition in bankruptcy and was adjudicated bankrupt. The cheque was honoured later, and Harman J. held that the money paid was anasset of the bankrupt paid away without the trustee's authority. Harman J. took the view that the creditor did not receive payment until the cheque was honoured. However, assuming there was a loan to the respondent, the cheques were held by Touche Ross and Co. for the respondent on 13. April 1986, the day before the deed. It 1s questionable whether, on that assumption, Pettit and Sevitt Sales Pty. Ltd. could have been successfully sued on the cheques. I find it unnecessary to reach a conclusion on that aspect of the matter. It may seem odd that the validity of the deed turns upon such technical considerations. Looking at the matter more broadly, what in substance happened was that Pettit and Sevitt Sales Pty. Ltd. arranged to pay the costs associated with the deed of assignment, and the issue 1s whether they did so in sucha fashion that on the day before the deed the respondent had any "divisible property" on which the deed could operate. In my view, that result was not achieved. It is necessary now to turn to the cross-application. I held in Re Lawrence (above) that in such a situation as this, time can be extended, and that view was not challenged. It seems clear, however, that time should not be extended as a matter of discretion, because the deed is void. Mr. O'Donnell argued, 11. persuasively as I thought, that on the facts of this case no practical advantage will accrue to anyone if the respondent becomes bankrupt. He pointed to evidence that the respondent will lose his job if he fails in these proceedings; I do not quite understand why that should be so. However, if there were no objection to the deed other than the technical matter of incorrect witnessing, I would extend the time. I will not do so because, if correctly executed, the deed would, in my opinion, have assigned nothing. The deed 1s not only void as a matter of law but has not a practical effect of the kind the statute presumably contemplates. There will be a declaration that the deed of assignment 1S void as not having been executed in accordance with the requirements of s.216(2) of the Bankruptcy Act, and because there was no divisible property on which it could operate. The cross-application will be dismissed. The respondent must pay the costs. t cert fy that ths andthe 70) preceeding pancs are a trua cosy of th2 racsons for Jucoment herein of His Honour Atr Justice Pincus go bat hogsews Y Associate Dated 20 Weserrhin 1976 Counsel for the Applicant: H.G. Fryberg Q.C. with J.A. Logan Solicitors for the Applicant: Australian Government Solicitor Counsel for the Respondent: I.D.F. Callinan Q.C. with B.D. O'Donnell Solicitors for the Respondent: McCullough & Robertson Dates of Hearing: 7 October and 5 November 1986